Document:

Exhibit 4.5

 

 

 

PROFOUND MEDICAL CORP.

 

INTERIM CONDENSED CONSOLIDATED 

FINANCIAL
STATEMENTS

 

June 30, 2019

 

PRESENTED IN CANADIAN DOLLARS

 

    1

     

    

 

Profound Medical Corp.

Interim Condensed Consolidated Balance Sheet

(Unaudited)

 

 

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

 

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

 

    2

     

    

 

Profound Medical Corp.

Interim Condensed Consolidated Statement of Loss and Comprehensive
Loss

(Unaudited)

 

 

	 	 	Three 
months 
ended 
June 30, 
2019 
$	 	 	Three 
months 
ended 
June 30, 
2018 
$	 	 	Six

                                                                                months 
ended 
June 30, 
2019 
$
	 	 	Six

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

 

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

 

    3

     

    

 

Profound Medical Corp.

Interim Condensed Consolidated Statement of Changes in Shareholders’
Equity

(Unaudited)

 

 

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

 

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

 

    4

     

    

 

Profound Medical Corp.

Interim Condensed Consolidated Statement of Cash Flows

(Unaudited)

 

 

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

 

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

 

    5

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

		1	Description of business

 

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

 

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

 

		2	Summary of significant accounting policies and basis of preparation

 

Basis of preparation

 

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

 

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

 

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

 

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

 

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

 

		·	IFRS 16, Leases (IFRS 16)

 

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

 

    6

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

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

 

Adjustments recognized on adoption
of IFRS 16

 

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

 

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

 

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

 

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

 

Practical expedients applied

 

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

 

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

 

    7

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

  

Accounting policy

 

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

 

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

 

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

 

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

 

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

 

    8

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

		3	Trade and other receivables

 

The trade and other receivables balance comprises the
following:

 

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

 

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

 

		4	Inventory

 

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

 

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

 

    9

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

		5	Property and equipment

 

Property and equipment consist of the following:

 

	 	 	Furniture
 and
 fittings
 $
	 	 	Research
 and
 manufact-

uring
 equipment
 $
	 	 	Leasehold
 improve-

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

 

		6	Intangible assets

 

Intangible assets consist of the following:

 

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

 

    10

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

		7	Right-of-use assets

 

	 	 	Leased 

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

 

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

 

		8	Provisions

 

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

 

Asset retirement obligation

 

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

 

    11

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

Revenue share obligation

 

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

 

Warranty provision

 

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

 

		9	Long-term debt

 

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

 

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

 

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

 

    12

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

    13

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

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

 

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

 

		10	Other liabilities

 

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

 

Knight royalty payable

 

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

 

Contingent consideration

 

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

 

    14

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

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

 

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

 

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

 

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

 

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

 

Deferred rent

 

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

 

		11	Lease liabilities

 

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

 

		12	Share capital

 

Common shares

 

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

 

Issued and outstanding (with no par value)

 

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

 

    15

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

Warrants

 

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

 

A summary of warrants outstanding
is shown below:

 

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

 

		13	Share-based payments

 

Share options

 

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

 

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

 

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

 

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

 

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

 

    16

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

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

 

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

 

		14	Nature of expenses

 

	 	 	Three

                                                                                months 
ended 
June 30, 
2019 
$
	 	 	Three

                                                                                months 
ended 
June 30, 
2018 
$
	 	 	Six

                                                                                months 
ended 
June 30, 
2019 
$
	 	 	Six

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

 

    17

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

 

		15	Finance costs

 

	 	 	Three
 months
 ended
 June 30,
 2019
 $	 	 	Three
 months
 ended
 June 30,
 2018
 $	 	 	Six

                                                                                months
 ended
 June 30,
 2019
 $
	 	 	Six

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

 

		16	Loss per share

 

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

 

	 	 	Three

                                                                                months 
ended 
June 30, 
2019 
$
	 	 	Three

                                                                                months 
ended 
June 30, 
2018 
$
	 	 	Six

                                                                                months 
ended 
June 30, 
2019 
$
	 	 	Six

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

 

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

 

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

 

    18

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

		17	Related party transactions

 

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

 

	 	 	Three

                                                                                months 
ended 
June 30, 
2019 
$
	 	 	Three

                                                                                months 
ended 
June 30, 
2018 
$
	 	 	Six

                                                                                months 
ended 
June 30, 
2019 
$
	 	 	Six

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

 

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

 

		18	Segment reporting

 

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

 

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

 

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

 

    19

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

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

 

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

 

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

 

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

 

    20

     

    

 

Profound Medical Corp.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2019

 

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

 

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

 

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

 

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

 

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

 

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

 

    21Exhibit 4.7

 

ITEM
3. KEY INFORMATION

 

A. Selected Financial
Data

 

The following table sets forth selected
consolidated financial information for the periods indicated, prepared in accordance with IFRS. The selected consolidated statements
of operations data and balance sheet data as of and for the years ended December 31, 2018, 2017 and 2016 are derived from our audited
consolidated financial statements set forth elsewhere in this Registration Statement. The selected consolidated statements of operations
data for the three and six months ended June 30, 2019 and 2018 and selected consolidated balance sheet data as of June 30, 2019
are derived from our unaudited consolidated financial statements included elsewhere in this Registration Statement.

 

The selected consolidated financial information
should be read in conjunction with the financial statements and accompanying notes thereto contained elsewhere in this Registration
Statement and discussions in Item 5, “Operating and Financial Review and Prospects”. The selected consolidated
financial information set out below may not be indicative of our future performance.

 

	 	 	Three
    Months
 Ended June 30,	 	 	Six
    Months
 Ended June 30,	 	 	Year
    Ended
 December 31,	 
	 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	 	2018	 	 	2017	 	 	2016	 
	 	 	 	(Unaudited)	 	 	 	(Unaudited)	 	 	 	 	 	 	 	 	 	 	 	 	 
	Figures in C$ unless otherwise
    stated Consolidated Statements of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	 	574,109	 	 	 	213,343	 	 	 	2,049,897	 	 	 	589,678	 	 	 	2,602,278	 	 	 	4,904,550	 	 	 	-	 
	Cost of sales	 	 	244,066	 	 	 	126,259	 	 	 	777,422	 	 	 	357,334	 	 	 	1,778,501	 	 	 	3,032,208	 	 	 	-	 
	Gross profit	 	 	330,043	 	 	 	87,084	 	 	 	1,272,475	 	 	 	232,344	 	 	 	823,777	 	 	 	1,872,342	 	 	 	-	 
	Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Research and development expenses	 	 	3,186,355	 	 	 	2,347,909	 	 	 	5,864,101	 	 	 	4,864,690	 	 	 	10,265,388	 	 	 	9,638,190	 	 	 	9,988,693	 
	General and administrative expenses	 	 	1,586,323	 	 	 	2,236,529	 	 	 	3,100,436	 	 	 	3,539,733	 	 	 	6,656,723	 	 	 	5,935,215	 	 	 	4,369,288	 
	Selling and distribution expenses	 	 	1,154,869	 	 	 	1,113,225	 	 	 	625,524	 	 	 	2,060,127	 	 	 	4,091,347	 	 	 	3,925,804	 	 	 	1,282,433	 
	Total expenses	 	 	5,927,547	 	 	 	5,697,663	 	 	 	9,590,061	 	 	 	10,464,550	 	 	 	21,013,458	 	 	 	19,499,209	 	 	 	15,640,414	 
	Finance costs	 	 	337,220	 	 	 	313,606	 	 	 	651,905	 	 	 	633,569	 	 	 	826,312	 	 	 	1,249,084	 	 	 	829,899	 
	Financial income	 	 	(110,790	)	 	 	(117,357	)	 	 	(252,671	)	 	 	(157,161	)	 	 	(483,788	)	 	 	(127,732	)	 	 	(157,598	)
	Net finance costs	 	 	226,430	 	 	 	196,249	 	 	 	399,234	 	 	 	476,408	 	 	 	342,524	 	 	 	1,121,352	 	 	 	672,301	 
	Loss before income taxes	 	 	5,823,934	 	 	 	5,806,828	 	 	 	8,716,820	 	 	 	10,708,614	 	 	 	20,532,205	 	 	 	18,748,219	 	 	 	16,312,715	 
	Income tax expense	 	 	20,200	 	 	 	24,200	 	 	 	54,000	 	 	 	60,600	 	 	 	230,784	 	 	 	74,123	 	 	 	14,054	 
	Net loss attributable to shareholders for the
    period	 	 	5,844,134	 	 	 	5,831,028	 	 	 	8,770,820	 	 	 	10,769,214	 	 	 	20,762,989	 	 	 	18,822,342	 	 	 	16,326,769	 
	Other comprehensive income	 	 	(11,843	)	 	 	57,943	 	 	 	(58,232	)	 	 	14,695	 	 	 	29,226	 	 	 	(69,245	)	 	 	11,316	 
	Net loss and comprehensive
    loss for the period	 	 	5,832,291	 	 	 	5,888,971	 	 	 	8,712,588	 	 	 	10,783,909	 	 	 	20,792,215	 	 	 	18,753,097	 	 	 	16,338,085	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loss per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Basic and diluted weighted average shares
    outstanding	 	 	108,061,539	 	 	 	107,727,319	 	 	 	108,058,221	 	 	 	92,614,640	 	 	 	100,395,649	 	 	 	61,404,141	 	 	 	41,510,145	 
	Basic and diluted	 	 	0.05	 	 	 	0.05	 	 	 	0.08	 	 	 	0.12	 	 	 	0.21	 	 	 	0.31	 	 	 	0.39	 

 

    1

     

    

 

	 	 	As of
 June 30,	 	 	As of
 December 31,	 
	 	 	2019	 	 	2018	 	 	2017	 
	 	 	(Unaudited)	 	 	 	 	 	 	 
	Consolidated Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 
	Cash(1)	 	C$	20,493,470	 	 	C$	30,687,183	 	 	C$	11,103,223	 
	Total assets	 	 	37,862,711	 	 	 	46,549,872	 	 	 	27,879,379	 
	Total liabilities	 	 	19,443,184	 	 	 	19,923,538	 	 	 	13,738,240	 
	Deficit	 	 	(119,644,062	)	 	 	(111,033,661	)	 	 	(90,270,672	)
	Total shareholders’ equity	 	 	18,419,527	 	 	 	26,626,334	 	 	 	14,141,139	 

 

		(1)	Following FDA clearance of our TULSA-PRO system in August 2019, we paid a C$250,000 milestone payment to Sunnybrook under the
Sunnybrook License. See Item 4.B, “Business Overview—Intellectual Property—Licenses”.

 

B. Capitalization
and Indebtedness

 

The following table sets forth our capitalization
as of June 30, 2019. You should read this information together with our historical financial information and other information
provided in this Registration Statement, including Item 5, “Operating and Financial Review and Prospects” and our unaudited
consolidated financial statements as of and for the three months ended June 30, 2019 and 2018, including the notes thereto, set
forth elsewhere in this Registration Statement.

 

	 	 	As of June 30,
 2019	 
	 	 	(Unaudited)	 
	Figures in C$ unless otherwise stated	 	 	 	 
	Long-Term Debt	 	 	 	 
	Long-term bank loan (secured) (non-current portion)(1)	 	$	8,562,737	 
	Total long-term debt	 	 	8,562,737	 
	 	 	 	 	 
	Equity	 	 	 	 
	Share capital	 	 	120,942,408	 
	Contributed surplus	 	 	17,208,040	 
	Accumulated other comprehensive loss	 	 	(86,935	)
	Deficit	 	 	(119,644,062	)
	Total equity	 	 	18,419,527	 
	 	 	 	 	 
	Total Capitalization (long-term debt and equity)	 	$	26,982,264	 

 

		(1)	Excludes current portion of C$3,475,358.

 

C. Reasons for the
Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

An investment in the Common Shares involves
a high degree of risk and should be considered highly speculative due to the nature and present early stage of our business. The
following risks are the material risks that we face; however, the risks below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we believe to be immaterial may also adversely affect our business. If any of the
following risks occur, our business, financial condition and results of operations could be seriously harmed and you could lose
all or part of your investment. Before deciding to invest in any Common Shares, investors should carefully consider the risk factors
described below.

 

    2

     

    

 

Risk Factors Relating to Our Operating
History and Financial Condition

 

We have a limited operating history and history
of operating losses.

 

We commenced operations in June 2008 and
have only begun generating revenues in 2017. As of June 30, 2019, we had an accumulated deficit of C$119,644,062 and had cash
and cash equivalents of approximately C$20.5 million. Since inception, we have incurred significant losses each year. For the six
months ended June 30, 2019, we recorded a net loss of C$8,770,820, and for the year ended December 31, 2018, we recorded a net
loss of C$20,762,989. We expect to incur significant operating losses even as we begin to commercialize the TULSA-PRO system in
the United States following our recent FDA clearance, which will require significant expenditures to increase our sales and marketing
capabilities and expand our manufacturing and distribution capacity, as well as other expenses related to increasing reimbursement
coverage and gaining market acceptance among patients, physicians/clinicians and others in the medical community. In addition,
we plan to continue product research and development and clinical trials and may pursue additional regulatory approvals. There
is no assurance that we will ever successfully commercialize our systems, generate significant revenues from our approved products
or achieve profitability. Even if profitability is achieved, we may not be able to sustain or increase profitability. Our failure
to achieve or maintain profitability could negatively impact the value of the Common Shares.

 

Our business is capital intensive and requires significant
investment to increase our commercial capacity for our approved products, and the resources to do so may not be available in amounts
or on terms acceptable to us, if at all.

 

Our business requires substantial capital
investment in order to commercialize our approved products, in particular to expand our sales and marketing capabilities and increase
our manufacturing capacity, as well as to conduct research and development and to obtain regulatory approvals for existing products
and future product candidates. We will likely need additional capital to fund our current and planned business activities and to
fund any significant expansion of operations. In order to secure financing, if available, it is likely that we would need
to sell additional Common Shares and/or securities that are exchangeable for or convertible into Common Shares, incur additional
indebtedness and/or enter into development, manufacturing, distribution and/or licensing relationships. Any future equity financing
may be dilutive to existing shareholders. Any future debt financing arrangements we enter into (like our CIBC Loan Agreement as
described below) would likely contain restrictive covenants that would impose significant operating and, if any, financial restrictions
on us. The availability of equity or debt financing will be affected by, among other things, our commercial progress and market
acceptance in respect of the TULSA-PRO system and other approved products, as well as the results of our research and development,
our ability to obtain regulatory approvals, the state of the capital markets generally, strategic alliance agreements, and other
relevant considerations.

 

Any additional financing may not be obtained
on favorable terms, if at all. If we cannot obtain adequate funding on reasonable terms, we may not be able advance our business
strategy and/or the commercialization of our approved products, and we may need to terminate or delay clinical trials, curtail
significant regulatory initiatives, and/or sell, license or assign rights to our technologies, products or product candidates.

 

Our cash outflows are expected to consist
primarily of expenditures to increase our commercial capacity, particularly in sales and marketing, as well as in manufacturing
and distribution. In addition, we intend to continue internal and external research and development efforts to develop and expand
our product pipeline, as well as incur general and administrative expenditures to support our corporate infrastructure. If we do
not obtain sufficient additional capital, there may be substantial doubt about our ability to continue as a going concern and realize
assets and pay liabilities as they become due. Depending upon the results of our research and development programs and the availability
of financial resources, we could decide to accelerate, terminate or reduce certain projects, or commence new ones. Any failure
on our part to raise additional funds on terms favorable to us, or at all, may require us 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 us not taking advantage of business opportunities, in the termination or delay of clinical trials for one or
more of our product candidates, in curtailment of our product development programs designed to identify new product candidates,
and/or in the sale or assignment of rights to our technologies, products or product candidates. Any of the foregoing could have
a material adverse effect on our business, financial condition and results of operations.

 

    3

     

    

 

Our CIBC Loan Agreement contains financial and non-financial
covenants that may impact how we operate our business. In addition, failure to comply with any of these covenants could have a
material adverse effect on our business.

 

Our CIBC Loan Agreement contains financial
and non-financial covenants, including a requirement that our unrestricted cash is at all times greater than our operating cash
expenditures during any trailing three month period. Complying with such covenants may at times necessitate that we must forego
other favorable business opportunities. Moreover, our failure to comply with any of these covenants would likely constitute a default
under any other similar facilities and agreements that we may enter into in the future, and could give rise to an acceleration
of some, if not all, of our other then outstanding indebtedness, if any, which would have a material adverse effect on our business.
Our indebtedness may grow as our business grows and/or we make acquisitions. If our income from operations underperforms, we may
have to utilize cash flow or capital resources to fund our debt service payments. If our cash flow and capital resources are insufficient
to service amounts owed under our current or any future indebtedness, we may be forced to reduce or delay capital expenditures,
dispose of assets, license or assign the rights to our technology, issue equity or incur additional debt to obtain necessary funds,
or restructure our debt, any or all of which could have a material adverse effect on our business, financial condition and results
of operations. In addition, we cannot guarantee that we would be able to take any of these actions on terms acceptable to us, or
at all; that these actions would enable us to continue to satisfy our capital requirements; or that these actions would be permitted
under the terms of our debt agreements. In particular, the CIBC Loan Agreement contains covenants with respect to capital expenditures
and other indebtedness, maintaining minimum cash balances at all times and certain financial covenants. We have granted a security
interest over all of our assets (including the shares of our subsidiaries owned by us). Events of default under the CIBC Loan Agreement
include among other things, any covenant breach (subject, in certain instances, to a cure period), insolvency of Profound or its
subsidiaries, the occurrence of certain events which would have a material adverse effect, cross defaults to other agreements,
a failure to comply with certain financial tests, and a change of control of Profound or its subsidiaries. The enforcement by CIBC
of its rights and remedies pursuant to the terms of the CIBC Loan Agreement and associated documentation could result in CIBC,
its agent or any third party purchaser thereof owning all of our assets, including the shares of our subsidiaries.

 

We are exposed to foreign currency risk, which exposure
will increase as we commercialize our approved products in the United States; to date, we have not hedged against risk associated
with foreign exchange rate exposure.

 

As we commercialize our approved products,
in particular our TULSA-PRO system in the United States, we expect that a significant portion of our revenues, expenses, current
assets and current liabilities will be denominated in United States dollars, Euros and other foreign currencies. Currently, our
financial statements are expressed in Canadian dollars. A decrease in the value of such foreign currencies relative to the Canadian
dollar could result in decreases in revenues from currency exchange rate fluctuations. To date, we have not hedged against risk
associated with foreign exchange rate exposure. Consequently, our results of operations may be negatively affected by foreign currency
exchange rate fluctuations, which could have a negative impact on the market price of our Common Shares.

 

    4

     

    

 

Risks Related to Our Business and
Growth Strategy

 

We may not achieve our commercialization and future
product development goals in the time frames expected, or at all.

 

We may set goals for and makes public statements
regarding the timing of the accomplishment of objectives material to our success, such as the timing and extent of product launches
in the jurisdictions where they are approved for marketing and sale, in particular our expected commercialization of the TULSA-PRO
system following our recently obtained FDA clearance in the United States; third-party reimbursement for our approved products;
the timing and terms of any collaborations, partnerships, licenses, acquisitions or other agreements; the commencement and completion
of clinical trials, including follow-up data on our TACT Pivotal Clinical Trial; and anticipated regulatory submission and approval
dates for our products in additional jurisdictions, and for future product candidates. The actual timing of these events can vary
dramatically due to factors such as the uncertainties inherent in the arrangements sufficient to commercialize our products, including
in respect of manufacturing, distribution and marketing, as well as market competition and adverse results from our clinical trials,
and other factors and described herein, many of which are beyond our control. There can be no assurance that we will achieve our
commercialization goals in respect of the TULSA-PRO system in the United States, or that future efficacy and safety results from
our TACT Pivotal Clinical Trial will be favorable. If we fail to commercialize the TULSA-PRO system in the United States or any
other approved products in the time frame and to the extent that we anticipate, our business, results of operations and financial
condition may be materially adversely affected, and the price of the Common Shares could decline.

 

Our products, including the TULSA-PRO system, may
not achieve or maintain expected levels of market acceptance.

 

The commercial success of our approved
products, including the TULSA-PRO system which was recently FDA-cleared in the United States, is dependent upon achieving and maintaining
market acceptance. New medical devices that appear promising in development may fail to reach the market or may have only limited
or no commercial success. Levels of market acceptance for our products could be impacted by several factors, many of which are
not within our control, including but not limited to:

 

		·	safety, efficacy, convenience and cost-effectiveness of our systems as a method of ablation of
prostate tissue, uterine fibroids, bone metastases compared to products of our competitors or other forms of treatment;

 

		·	scope of approved uses and marketing approval or clearance;

 

		·	timing of market entry of our products versus those of our competitors;

 

		·	difficulties in, or excessive costs required in the process of, manufacturing our products;

 

		·	expanding compatibility of our systems to work with MRI scanners other than those made by Philips
and Siemens, and maintaining our existing relationships with Philips and Siemens;

 

		·	infringement or alleged infringement of the patents or intellectual property rights of others;

 

		·	acceptance of the price of our products relative to those of our competitors;

 

    5

     

    

 

		·	acceptance and adoption of our products by patients, physicians/clinicians and the medical community;

 

		·	the availability of training necessary for proficient use of our products, as well as willingness
of physicians and technicians to participate in such training;

 

		·	the perceived risks generally associated with the use of new products and procedures;

 

		·	the placement of our products in treatment guidelines published by leading medical organizations;

 

		·	the size and growth rate of the market for our products in the major geographies in which we operate
or intend to operate, in particular in the United States; and

 

		·	acceptance of our products by government and third-party payers for adequate reimbursement coverage.

 

In addition, the success of any new product
will depend on our ability to either successfully build our in-house sales and marketing capabilities or to maintain or secure
new, or to realize the benefits of existing or future arrangements with, third-party marketing or distribution partners. See “—We
intend to rely primarily on our in-house sales and marketing capabilities for our commercialization strategy, which will require
substantial build-up and commitment of resources” and “—We currently rely on our collaborative partners, and
we may rely on additional collaborative partnerships, to assist in the sales and marketing and/or distribution of our approved
products” below. If we are unable to commercialize new products successfully, whether through a failure to achieve market
acceptance, a failure to build our own in-house sales and marketing capabilities, a failure to maintain or secure new or existing
marketing partners or to realize the benefits of our arrangements with our marketing and distribution partners, there may be a
material adverse effect on our business, financial condition and results of operations and it could cause the market value of our
Common Shares to decline.

 

Market acceptance of our approved
products also depends on our ability to identify and address the relevant market. For example, our TULSA-PRO system is
FDA-cleared in the United States for transurethral ultrasound ablation (“TULSA”) of prostate tissue, and
is not specific to any particular condition or disease. For more information, see “We may be subject to fines, penalties
or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses
or engaged in false or misleading promotion.” below. Furthermore, our estimates of the number of patients who
have received or might have been candidates to use a specific product may not accurately reflect the true market or market
prices for such products or the extent to which such products will actually be used by patients. Our failure to
successfully introduce and market our approved products could have a material adverse effect on our business, financial
condition, and results of operations.

 

Successful commercialization of our approved products,
including the TULSA-PRO system, and future product development depends upon our maintaining strong working relationships with physicians/clinicians.

 

If we fail to maintain positive working
relationships with physicians/clinicians, our approved products, including our TULSA-PRO system, may not achieve the level of market
acceptance sufficient for successful commercialization of the products. It is important for us to market our approved systems successfully
to physicians/clinicians who we expect will use our approved products, and we depend on our sales and marketing personnel (and
those of our collaborative partners, e.g., Philips and Siemens) to do so in an effective manner. We can provide no assurance that
physicians/clinicians will prescribe or otherwise utilize our TULSA-PRO systems based on our existing clinical data (such as our
TACT data) or the results of any future clinical trials, or at all. See “—Data from our clinical trials may not support
regulatory approvals or clearances and/or reimbursement coverage for our products” below. We also rely on our relationships
with physicians/clinicians to further develop our existing products and develop future product candidates in line with the clinical
needs and expectations of the professionals who we expect will use and support the devices. These development efforts are similarly
dependent upon us and our collaborative partners maintaining working relationships with physicians/clinicians.

 

    6

     

    

 

In addition, we rely on physicians/clinicians
to provide considerable knowledge and experience that assists us in the marketing and sale of our approved products and development
of our products and product candidates. Physicians/clinicians assist us as researchers, marketing and product consultants, inventors
and public speakers. If we are unable to maintain strong relationships with these professionals and continue to receive their advice
and input, the development and marketing of our products could suffer, which could have a material adverse effect on our business,
financial condition and operating results.

 

Physicians/clinicians misuse could result in negative
publications, negative sentiment or adverse events, thereby limiting market acceptance and future sales of our products.

 

There is a risk that physicians/clinicians
may misuse our products, such as not following the instructions for use, not using our products on the intended patient population,
using our products with unapproved or modified hardware or software, or misuse by inadequately trained staff. Physicians/clinicians
may also initiate their own clinical studies which may be poorly designed or controlled, and may result in adverse safety or efficacy
results. Any of the foregoing could result in negative publications, negative sentiment or adverse events or regulatory actions
in respect of our products, thereby limiting market acceptance and sales of our products, which could have a material adverse effect
on our business, financial condition and results of operations.

 

We rely on the compatibility of our products with
MRI scanners in the successful commercialization of our products.

 

We have designed our TULSA-PRO system to
be capable of integration with some of the MRI scanners from two of the major MRI manufacturers (Philips and Siemens), and the
Sonalleve system with one MRI manufacturer (Philips). Although we believe that our approved products can be used by the vast majority
of hospitals and treatment facilities, not all such facilities utilize MRI scanners that are compatible with the TULSA-PRO and
Sonalleve systems, and such facilities would be required to acquire (or outsource to other facilities that already have) compatible
MRI equipment, which may increase their costs and which could restrict or delay utilization of our systems by such facilities.
Accordingly, we intend to expand compatibility of the systems with other MRI scanners in the future, which would require design
changes to our systems, collaboration with the manufacturer of the MRI scanner and may require additional regulatory approvals.
We may be unsuccessful in making the necessary design changes and, if required, receiving the necessary regulatory approvals for
such changes, and the terms of any such arrangements that we may enter into in the future with the MRI scanner manufacturers may
not be on as favorable terms. Accordingly, we can provide no assurance that we will be successful in any such expansion of the
compatibility of our products to other MRI scanners.

 

    7

     

    

 

Successful commercialization of our approved products
will also depend on the cost of the system and the availability of coverage and adequate reimbursement coverage from third-party
payers.

 

Successful commercialization of our approved
products, including our TULSA-PRO system, depends largely upon the cost of the system and the availability of coverage and adequate
reimbursement for the system, and the medical procedure associated with its use, from third-party payers, such as government healthcare
programs, private health insurers and other organizations, such as health maintenance organizations and managed care organizations.
We expect that our systems will be purchased by health-care providers, including clinics and hospitals that use MRI scanners that
are compatible with our systems, and that these providers will subsequently bill various third-party payers or will be responsible
for covering the costs of the system through the provider’s operating budget. Although we expect there to be an out-of-pocket
market for our approved products, an out-of-pocket market alone is unlikely to be sufficient to support successful commercialization
of our products. To date we have not secured significant coverage or reimbursement for any of our products from government or third-party
payors in the jurisdictions where we have regulatory approvals, including our TULSA-PRO system in the United States. We can provide
no assurance that third-party payers will provide coverage and adequate reimbursement for our TULSA-PRO system to treat our targeted
indications based on our existing clinical data (such as our TACT data) or the results of any future clinical trials, or at all.
See “—Data from our clinical trials may not support regulatory approvals or clearances and/or coverage and reimbursement
for our products” below. Accordingly, we likely will need to conduct additional research and successfully complete additional
clinical trials in order to obtain such coverage (e.g., follow-up data from our TACT Pivotal Clinical Trial). Such additional research
and clinical trials may require significant time and resources, and may not be successful, which could result in the postponement
of or inability to obtain coverage and reimbursement for our approved products, which could significantly delay or otherwise negatively
affect our commercialization strategy. Any of the foregoing could, in turn, have a material adverse effect on our business, results
of operations and financial condition.

 

Third-party payers carefully review and
increasingly challenge the prices charged for medical devices, procedures and services. Government healthcare programs in the United
States and the European Union may reimburse certain providers at a pre-determined all-inclusive amount for all the costs associated
with a particular procedure performed or course of treatment, based on such factors as the patient’s principal diagnosis,
age and severity or complexity. Similarly, the surgeon or physician may be reimbursed at a pre-determined amount based on the procedure
performed, and without taking into consideration the actual costs incurred, including the actual cost of the specific devices used.

 

New products are being increasingly scrutinized
with respect to whether or not they will be covered at all by the various health plans and at what level of reimbursement. In some
instances, economic research studies are and will be required to demonstrate whether our products and approach are superior from
a long-term cost containment standpoint. Third-party payers may determine that our products are not medically necessary, not cost-effective,
experimental, or primarily intended for non-approved indications. Such determinations could have a material adverse effect on our
business, results of operations and financial condition.

 

Further, healthcare reform measures may
be adopted in the future that may impose more rigorous coverage and reimbursement standards. We are unable to predict what, if
any, additional legislation or regulation impacting the healthcare industry or third-party coverage and reimbursement may be enacted
in the future, or what effect such legislation or regulation would have on our business.

 

    8

     

    

 

We intend to rely primarily on our in-house sales
and marketing capabilities for our commercialization strategy, which will require substantial build-up and commitment of resources.

 

We intend to rely primarily on our in-house
sales and marketing capabilities in order to advance our commercialization strategy, particularly in the United States in respect
of our recently FDA-cleared TULSA-PRO system. This will require a substantial commitment of time and resources in the near-term,
and we may be unsuccessful in executing on this strategy, which could negatively impact our anticipated commercialization. We are
in the early stages of expanding our U.S. sales and marketing capabilities and can provide no assurance that we will be successful
in establishing a marketing presence and sales force sufficient to commercialize the TULSA-PRO system successfully in the United
States.

 

In addition, by relying on an in-house
sales and marketing function, we may have less visibility in the U.S. market (particularly among hospitals) than we would have
if we had significant third-party distribution relationships. Any shortcomings in our in-house sales force may have a material
adverse effect on our business, results of operations and financial condition.

 

We currently rely on our collaborative partners,
and we may rely on additional collaborative partnerships, to assist in the sales and marketing and/or distribution of our approved
products.

 

We currently rely on our collaborative
partnerships for the sales and marketing and/or distribution of our approved products, in particular Philips and Siemens, who promote
our systems that are compatible with the MRI scanners produced and sold by them to end users, including hospitals and clinics.
In the future, we intend to enter into similar arrangements with other producers of MRI scanners to increase the compatibility of
our products and to promote and increase market acceptance among hospitals, clinics and other end-users. However, we can provide
no assurance that we will be successful in establishing such additional arrangements, which could negatively impact our commercialization
strategy and may have a material adverse effect on our business, results of operations and financial condition. See “—We
rely on the compatibility of our products with MRI scanners in the successful commercialization of our products” above.

 

We may also seek out, evaluate and negotiate
other third-party marketing and/or distribution arrangements for our products in the jurisdictions where they are approved, which
may involve the commitment of substantial time and effort and may not ultimately result in an arrangement that is favorable to
our commercialization goals (e.g. if such third-party marketing or distribution partners are not as successful in promoting our
products as anticipated). If any of these third party collaborators are unable or unwilling to promote and/or deliver our products
to our customers in an effective manner, then our business, financial condition and operating results could be materially impacted.

 

Additionally, if any of our relationships
with third-party collaborators is terminated, whether by us or the third party for any reason, there can be no assurance that we
will be able to obtain alternative sales and marketing and/or distribution channels rapidly or effectively enough to prevent disruptions
in sales generated in those markets or otherwise to ensure the success of our products in those markets. Any such termination may
have material adverse impact on our business, results of operations and financial condition.

 

We may experience manufacturing scaling issues in
connection with our commercialization strategy, as we have limited experience assembling and testing our approved products, including
the TULSA-PRO system, at a significant scale.

 

As we implement our commercialization strategy,
in particular in respect of the TULSA-PRO system in the United States, we may not be able to produce sufficient quantities of systems
or maintain consistent quality control in the production of our systems. We have limited experience in assembling and testing our
approved products, including our TULSA-PRO system, on a commercial scale. To commercialize our approved products successfully and
become profitable, we must be able to assemble and test such in commercial quantities in compliance with applicable regulatory
requirements, and at an acceptable cost. Increasing our capacity to assemble and test our products on a commercial scale will require
us to improve internal efficiencies, including hiring additional experienced personnel, which may result in significant capital
expenditures. We may encounter a number of difficulties in increasing our assembly and testing capacity, including:

 

    9

     

    

 

		·	managing production yields;

 

		·	maintaining quality control and assurance;

 

		·	providing component and service availability;

 

		·	maintaining adequate control policies and procedures;

 

		·	hiring and retaining qualified personnel; and

 

		·	complying with U.S. and Canadian regulations (including at the state, provincial and/or federal
levels) and applicable foreign regulations.

 

In particular, our ability to increase
our assembly and testing capacity successfully will greatly depend on our ability to hire, train and retain an adequate number
of employees, in particular employees with the appropriate level of knowledge, background and skills to assemble and test our products.
We compete with several other medical device companies to hire and retain these skilled employees, and we may be unable to hire
and retain such employees in numbers sufficient to increase our in-house capabilities.

 

We currently intend to partner with one
or more additional QSR-compliant and FDA-registered contract manufacturers for our TULSA-PRO systems in the United States. However,
we may not be successful in establishing or maintaining such partnerships on acceptable terms or in the timeframe necessary to
commercialize our products successfully, or at all.

 

In addition, we may encounter difficulties
in scaling our manufacturing operations, whether in-house or through third-party contract manufacturers, as a result of, among
other things, quality control and quality assurance issues and availability of components and raw material supplies. Any such quality
control issues may negatively affect production and sales of our products, and may require increased repair or re-engineering costs
due to product returns, defects and increased expenses due to switching to alternate suppliers, and reputational damage, any of
which could negatively affect our business and reputation.

 

If we are unable to satisfy commercial
demand for our products, in particular our TULSA-PRO system in the United States, due to our inability (or the inability of any
of our contract manufacturers) to assemble and test such products in sufficient quantities with consistent quality control, and
in compliance with applicable regulatory requirements (and in a cost-efficient manner), our ability to commercialize such products
successfully, and market acceptance of our products could be adversely affected as our target customers may instead purchase or
use our competitors’ products. This, in turn, could have a material adverse effect on our business, results of operations
and financial condition.

 

We rely on third parties to manufacture and supply
components of our systems.

 

The TULSA-PRO and Sonalleve systems consists
of common electronic components, proprietary capital equipment and proprietary disposables. We purchase standard electronic components
for our systems from a number of third-party vendors. The capital equipment consists of custom system electronics, a treatment
delivery console, fluid circuits and an MRI compatible robotic positioning system. Printed circuit boards and assemblies and custom
mechanical parts are outsourced from approved suppliers.

 

    10

     

    

 

We cannot be certain that manufacturing
sources for all components will continue to be available or that we can continue to outsource the manufacturing of our components
on reasonable or acceptable terms. If we encounter delays or difficulties with contract manufacturers, delivery of our products
could be delayed. In addition, we could be forced to secure new or alternative contract manufacturers or suppliers. Securing a
replacement contract manufacturer or supplier could be difficult, and we may not be able to do so in a timely manner or without
significant expense. Any loss of a manufacturer or any difficulties that could arise in the manufacturing process could significantly
affect our ability to supply sufficient amounts of our products to our customers on a timely basis, which may negatively affect
our market share and, correspondingly, could have a material adverse effect on our business, results of operations and financial
condition.

 

In addition, not all of our suppliers provide
us with guaranteed minimum production levels, and we rely on single-source suppliers for some of our components. See “—We
depend on single-source suppliers for some of the components in our systems” below. Furthermore, we do not currently have
long-term supply contracts, and accordingly, our suppliers could terminate their services at any time without penalty within agreed
notice periods. As a result, there can be no assurance that we will be able to obtain sufficient quantities of components in the
future necessary to commercialize our approved products.

 

Our reliance on third-party manufacturers
and suppliers involves a number of additional risks, including, among other things:

 

		·	contract manufacturers or suppliers may fail to comply with regulatory requirements or make errors
in manufacturing that could negatively affect the efficacy or safety of our products or cause delays in shipments of products;

 

		·	we or our contract manufacturers and suppliers may not be able to respond to unanticipated changes
in customer orders, and if orders do not match forecasts, our suppliers may have excess or inadequate inventory of materials and
components;

 

		·	we or our contract manufacturers and suppliers may be subject to price fluctuations of raw materials
and key components due to a lack of long-term supply arrangements for key components;

 

		·	we or our contract manufacturers and suppliers may lose access to critical services and components,
resulting in an interruption in the manufacture, assembly and shipment of our products;

 

		·	we may experience delays in delivery by our contract manufacturers and suppliers due to changes
in demand from us or our other customers;

 

		·	fluctuations in demand for products that our contract manufacturers and suppliers manufacture for
others may affect their ability or willingness to deliver components in a timely manner;

 

		·	suppliers or contract manufacturers may wish to discontinue supplying components or services for
risk management reasons;

 

		·	we may not be able to find new or alternative components or reconfigure our system and manufacturing
processes in a timely manner if the necessary components become unavailable; and

 

		·	contract manufacturers and suppliers may encounter financial hardships unrelated to our demand,
which could inhibit their ability to fulfill orders and meet our requirements.

 

    11

     

    

  

If any of these risks materialize, it could
significantly increase costs and impact our ability to meet demand for our products, in particular in respect of our planned commercialization
of TULSA-PRO in the United States. If we are unable to satisfy commercial demand for the TULSA-PRO system or other approved products
in a timely manner, our ability to generate revenue could be impaired, market acceptance of our products could be adversely affected,
and customers may instead purchase or use competitors’ products. As a result, our business, results of operations and financial
condition may be materially adversely affected.

 

We depend on single-source suppliers for some of
the components in our systems.

 

We currently rely on a single source for
the manufacture of some of the components of our TULSA-PRO and Sonalleve systems. Although we intend to procure alternative supply
sources for our components as our commercialization efforts increase, we can provide no assurance that we will be successful. Establishing
additional or replacement suppliers for these components will take a substantial amount of time and could result in increased costs
and impair our ability to produce our products. In addition, our products are highly technical and are required to meet exacting
specifications, and any quality control problems that we experience from such alternative supply sources could negatively affect
our reputation and market acceptance of our products.

 

We may also have difficulty obtaining similar
components from other suppliers that are acceptable to the FDA or foreign regulatory authorities. The failure of our suppliers
to comply with strictly enforced regulatory requirements could expose us to regulatory action, including warning letters, product
recalls, termination of distribution, product seizures, or civil penalties. See “—Risks Relating to the Regulation
of the Company and Our Products” below for more information.

 

If we fail to procure alternative supply
sources on acceptable terms or at all, our planned commercialization of TULSA-PRO in the United States could be negatively affected,
which could have a material adverse effect on our business, operating results and financial condition.

 

We face significant competition in the markets for
our products, and in particular, there are numerous devices and procedures that compete with our TULSA-PRO system.

 

Our products face significant competition
from currently available and future medical devices or surgical methodologies that are used in the same patient populations as
our products. See Item 4.B, “Information on the Company—Business Overview—Competition”. Some of these available
options are well-established, and our competitors have greater financial resources, development, selling and marketing capabilities
than we do. We may face further competition from medical equipment/supply companies that focus their efforts on developing and
marketing products that are similar in nature to our products, but that in some instances offer improvements over our products.
Our competitors may succeed in developing technologies and products that are more effective or less expensive to use than our products.
These developments could render our products uncompetitive, which would have a material adverse effect on our business, financial
condition and operating results. In addition, academic institutions, government agencies and other public and private organizations
conducting research may seek patent protection with respect to potentially competitive products. They may also establish exclusive
collaborative or licensing relationships with our competitors.

 

Further, our industry is also subject to
changing industry standards, market trends and customer preferences and to competitive pressures which can, among other things,
necessitate revisions in pricing strategies, price reductions and reduced profit margins. Our success will depend, in part, on
our ability to achieve technological superiority in our products and operations and maintain such superiority in the face of new
technologies. No assurance can be given that further modification of our product offerings will not be required in order to meet
demands or to make changes necessitated by developments made by competitors that might render our products less competitive. Our
future success will be influenced by our ability to continue to develop, test and market our products and future product candidates,
including increasing and/or maintaining their compatibility with MRI scanners. Although we have committed resources to these efforts,
there can be no assurance that we will be successful.

 

    12

     

    

 

Data from our clinical trials may not support regulatory
approvals or clearances and/or reimbursement coverage for our products.

 

Regulatory clearances and approvals for
the commercial sale of any of our product candidates require that we demonstrate through clinical trials that the product candidate
is safe and effective for its intended use or, to receive 510(k) clearance in the United States, that the product candidate is
substantially equivalent to an existing predicate device for its intended use. While we have
obtained 510(k) clearance for TULSA-PRO, additional follow-up data from our TACT Pivotal Clinical Trial may not be consistent with
our 12-month data in terms of efficacy and/or side effect profile, which in certain circumstances may result in the FDA taking
regulatory actions that are adverse to us. In addition, our TACT Pivotal Clinical Trial involves a relatively small patient
population. Because of the small sample size, the results may not be indicative of future results.

 

We believe that third-party payers, in
determining reimbursement coverage for our products, including the TULSA-PRO system, generally would rely upon our clinical trial
results, such as TACT, that were obtained in support of our regulatory approvals; however, we may be required to provide additional
data from our existing trials and/or conduct additional clinical trials prior to obtaining reimbursement coverage for the TULSA-PRO
system and other approved products, which would likely involve significant time and expense, and may have a material adverse effect
on our business, results of operations and financial condition.

 

In the
future, we may also seek regulatory approvals, which may include 510(k) clearance, for other product candidates, which likewise
could be adversely affected by insufficient clinical trial results. Obtaining product clearance or approval and conducting
the requisite clinical trials is a long, expensive and uncertain process and is subject to delays and failures at any stage. There
can be no assurance that clinical trials will be completed successfully within any specified period of time, if at all. In addition,
a regulatory authority may disagree with our interpretation of the data from our clinical trials, or may find the clinical trial
data inadequate to support clearance or approval, and may require us to extend existing clinical trials and/or pursue additional
clinical trials, which would increase costs and could further delay regulatory approval or clearance of our products, or cause
such regulatory approvals or clearances to be denied altogether.

 

The data from a clinical trial may be inadequate
to support clearance or approval of an application to the regulatory authorities for numerous reasons including, but not limited
to:

 

		·	prevalence and severity of adverse events and other unforeseen safety issues;

 

		·	changes in regulatory requirements, policies or guidelines;

 

		·	the interim or final results are insufficient (including in respect of the time period for which
results were obtained), inconclusive or unfavorable as to the safety or efficacy of the device;

 

		·	the FDA or other regulatory authorities concluding that a clinical trial design is inadequate to demonstrate
safety and efficacy for a particular use, or to demonstrate substantial equivalence to a predicate device; and

 

		·	the FDA or other regulatory authorities concluding that the trial was not conducted in compliance
with regulatory requirements or lacked controls necessary to ensure the integrity of the trial data.

 

    13

     

    

 

We, the FDA or other regulatory authorities
may suspend or terminate clinical trials at any time if it is determined that patients may be or are being exposed to unacceptable
health risks, including the risk of death, that our devices are not manufactured under acceptable conditions or with acceptable
quality, or that the trial is not being conducted according the protocol and in compliance with Good Clinical Practice and regulatory
requirements. Further, success in preclinical studies and early clinical trials does not mean that future clinical trials will
be successful because medical devices and/or treatment options in later stage clinical trials may fail to demonstrate sufficient
safety and efficacy to the satisfaction of the FDA and other regulatory authorities despite having progressed through initial clinical
trials. We cannot be sure that the later trials will replicate the results of prior trials.

 

Even if our clinical trials are completed
as planned, there can be no certainty that trial results will support our product candidate claims or that the FDA or foreign authorities
will agree with our conclusions regarding them or agree that they are adequate to support approval or clearance. The clinical trial
process may fail to demonstrate that our product candidates are safe and effective for the proposed indicated uses, which could
cause us to abandon a product candidate and may delay development of others. Any delay or termination of our clinical trials will
delay the filing of our regulatory submissions and, ultimately, negatively affect our ability to commercialize our systems and
generate revenues.

 

If our products do not prove to be, or
continue to prove to be, safe and effective, or substantially equivalent to a predicate device, in clinical trials to the satisfaction
of the relevant regulatory authorities or third party payers, if the clinical studies do not support our product candidate claims
or if they result in the discovery of adverse side effects, then our regulatory approvals and reimbursement coverage (as applicable)
may be delayed or denied altogether, and our business, financial condition and results of operation could be materially adversely
affected.

 

We may rely on third parties to perform clinical
trial planning and to facilitate obtaining regulatory approvals or clearances for our product candidates.

 

We may rely on third parties to provide
clinical trial planning and regulatory services for our product candidates. We may be unable to find suitable partners, external
consultants or service providers to provide such services or such arrangements may not be available on commercially reasonable
terms. Further, we may engage third parties that may cease to be able to provide these services or may not provide these services
in a timely or professional manner. Accordingly, we may not be able to successfully manage such services, execute clinical trials
or obtain regulatory approvals or clearances for our product candidates, which may negatively affect our business. If we fail to
establish such arrangements when, and as necessary, we could be required to undertake these activities at our own expense, which
would significantly increase capital requirements and may delay the development, approval and future commercialization of our product
candidates, which could have a material adverse effect on our business, financial condition and operating results.

 

We depend on key managerial personnel for our continued
success.

 

We are highly dependent upon our small
team of managerial personnel, particularly that of our Chief Executive Officer, Arun Menawat. We do not maintain any “key
man” insurance policies on Mr. Menawat or any other members of senior management. Our anticipated growth will require additional
expertise and the addition of new qualified personnel. There is intense competition for qualified personnel in the medical device
field. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business.
We must continue to retain, motivate and recruit executives and other key employees. The failure to motivate, or the loss of the
services of, existing personnel, as well as the failure to recruit additional key managerial personnel in a timely manner, would
harm our business development programs, and our ability to manage day-to-day operations, attract collaboration partners, attract
and retain other employees, generate revenues, and could have a material adverse impact on our business, financial condition and
results of operations.

 

    14

     

    

 

Research and development carries substantial risk
and we may not be able to expand our product portfolio.

 

Future growth may also depend on, among
other factors, our ability to successfully develop new product candidates and make product improvements to meet evolving market
needs. We may not be able to successfully expand our product portfolio to generate new revenue opportunities in the future. Although
we believe we have the scientific and technical resources available to improve our products and develop new products, future products
will nevertheless be subject to the risks of failure inherent in the development of products based on innovative technologies.
In addition, any such research and development activities may involve significant capital expenditures. There can be no assurance
that we will be able to successfully develop future products and tests, which would prevent us from introducing new products in
the marketplace and negatively impact our ability to grow revenues and become profitable.

 

In addition, the identification of new
product candidates for development may require that we enter into licensing or other collaborative agreements with others, including
medical device and pharmaceutical companies and research institutions. These collaborative agreements may require that we pay license
fees, make milestone payments or pay royalties or grant rights, including marketing rights, to one or more parties, and such amounts
may be material to our results of operations and financial condition. Moreover, these arrangements may contain covenants restricting
our product development or business efforts in the future. Any such arrangements would also increase our reliance on third parties.

 

We may be subject to product liability claims, which
can be expensive, difficult to defend and may result in large judgments or settlements, and/or warranty claims on our products.

 

The use of medical devices for treatment
of humans, whether in clinical trials or after marketing clearance or approval is obtained, can result in product liability claims.
Product liability claims can be expensive, difficult to defend and may result in large judgments or settlements against us. In
addition, third party collaborators and licensees may not protect us from product liability claims.

 

We currently maintain product liability
insurance in connection with the use of our products in clinical trials and in commercial use; however, we may not have adequate
protection against all potential liabilities under these insurance policies. If we are unable to obtain sufficient levels of insurance
at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to product liability claims.
A successful product liability claim in excess of our insurance coverage could harm our financial condition, results of operations
and prevent or interfere with our commercialization efforts and future product development. In addition, any successful claim may
prevent us from obtaining adequate product liability insurance in the future on commercially desirable terms. Even if a claim is
not successful, defending such a claim may be time-consuming and expensive.

 

We also bear the risk of warranty claims
on our products, generally for one year after sale. We may not be successful in claiming recovery of the relevant components from
our suppliers in the event of a successful warranty claim against us by a customer, or that any recovery from such suppliers would
be adequate. In addition, warranty claims brought by our customers related to third-party components may arise after the expiration
of our corresponding warranty with our third-party suppliers, which would require us to bear the burden of any such warranty claims.

 

    15

     

    

 

Rising insurance costs could negatively impact our
profitability.

 

The cost of insurance, including director
and officer, worker’s compensation, property, product liability and general liability insurance, has risen significantly
in recent years and is expected to continue to increase. In particular, our product liability insurance is subject to price increases
if we experience product liability claims. In response, we may increase deductibles and/or decrease certain coverages to mitigate
these costs. These increases, and our increased risk due to increased deductibles and reduced coverages, could have a negative
impact on our business, financial condition and results of operations.

 

We are increasingly dependent on sophisticated information
technology systems to operate our business and if we fail to properly maintain the integrity of our data or we experience a cyber-attack
or other breach of these systems, our business could be adversely affected.

 

We are increasingly dependent on sophisticated
information technology for our development activities, products and infrastructure. We rely on information technology systems to
process, transmit and store electronic information in our day-to-day operations. The complexity of our information technology systems
makes them vulnerable to increasingly sophisticated cyber-attacks, malicious intrusion, breakdown, destruction, loss of data privacy,
or other significant disruption. Any such event could be prolonged and/or could go undetected for a significant period of time.
Our products and their information systems require an ongoing commitment of resources to maintain, protect, and enhance existing
systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and
regulatory standards, the increasing need to protect patient and customer information, and changing customer patterns.

 

In addition, third parties may attempt
to hack into our products or systems and may obtain data relating to patients, our products or our proprietary information. If
we fail to maintain or protect our information systems and data integrity effectively, we could lose existing customers, have difficulty
attracting new customers, have problems in determining product cost estimates and establishing appropriate pricing, have difficulty
preventing, detecting, and controlling fraud, have disputes with customers, physicians, and other health care professionals, become
subject to litigation, have regulatory sanctions or penalties imposed, experience increases in operating expenses, incur expenses
or lose revenues as a result of a data privacy breach, or suffer other adverse consequences. Any of the foregoing could have a
material adverse effect on our business, financial condition and results of operations.

 

A portion of our employees are unionized, and our
good labor relations may not continue.

 

As of June 30, 2019, 14 of our employees
in Vantaa, Finland are unionized. Currently, labor relations are good; however, the maintenance of a productive and efficient labor
environment cannot be assured. If any of our employees at our other manufacturing facilities unionize in the future, or if protracted
and extensive work stoppages occur, labor disruptions such as strikes or lockouts could have a material adverse effect on our business,
financial condition and results of operations.

 

If our facilities are damaged or destroyed, we may
experience delays that could negatively impact our revenues.

 

Our facilities may be affected by natural
or man-made disasters. If our facilities were affected by a disaster, we would be forced to rely on third party manufacturers or
to set up production at another manufacturing facility. In such an event, we might not be able to find a suitable alternate manufacturer
or might face significant delays in manufacturing which would prevent us from being able to sell our products. In addition, our
insurance may not be sufficient to cover all of the potential losses and may not continue to be available to us on acceptable terms,
or at all.

 

    16

     

    

 

We face risks associated with acquisition of businesses
and technologies.

 

As part of our growth strategy, we intend
to evaluate and may pursue additional acquisitions of, or significant investments in, complementary companies or technologies to
increase our technological capabilities and expand our product offerings. For example, in July 2017, we acquired from Philips the
technologies and asset underlying our Sonalleve system. Acquisitions and the successful integration of new technologies, products,
assets or businesses may require significant attention from our management and could result in a diversion of resources from our
existing business, which in turn could have an adverse effect on our business operations. Other risks typically encountered with
acquisitions include disruption of our ongoing business; difficulties in integration of the acquired operations and personnel;
inability of our management to maximize our financial and strategic position by the successful implementation or integration of
the acquired technology into our product offerings; being subject to known or unknown contingent liabilities, including taxes,
expenses and litigation costs; and inability to realize expected synergies or other anticipated benefits which may, among other
things, also lead to goodwill impairments or other write-offs. For example, our ability to achieve the anticipated benefits of
the Sonalleve Transaction depends in part on our ability to realize the anticipated growth opportunities and synergies from the
acquired assets and technologies, including our further development of the Sonalleve system.

 

We cannot assure you that we will be successful
in overcoming these risks or any other problems we may encounter in connection with the Sonalleve Transaction or potential future
acquisitions. Our inability to successfully integrate the operations of an acquired business, including a successful implementation
of the technologies and assets we acquire, and realize anticipated benefits associated with an acquisition, could have a material
adverse effect on our business, financial condition, results of operations and cash flows. Acquisitions or other strategic transactions
may also result in dilution to our existing shareholders if we issue additional equity securities as consideration or partial consideration
as well as in the incurrence of indebtedness if we borrow funds to finance such transactions.

 

Risks Relating to Regulation of the
Company and Our Products

 

Our business is subject to limitations imposed by
government regulations.

 

The preclinical testing and clinical trials
of any products developed by us and the manufacturing, labeling, sale, distribution, export or import, marketing, advertising and
promotion of any of those products are subject to rigorous regulation by U.S., Canadian, EU and other foreign regulatory authorities
at the federal, provincial, state and local governmental levels, as applicable. Our medical devices are principally regulated in
the United States by the FDA, in the European Union Notified Bodies (carrying out conformity assessment procedures) and the competent
authorities of the EU member states (supervising Notified Bodies and manufacturers of medical devices), in Canada by Health Canada
(particularly, the TPD), and by other similar regulatory authorities in other jurisdictions. Government regulation substantially
increases the cost and risk of researching, developing, manufacturing and selling products.

 

We may be unable to obtain, or experience significant
delays in obtaining, FDA clearances or other regulatory approvals for our product candidates and/or enhancements to our approved
or cleared products.

 

Our products are subject to rigorous regulation
by the FDA and numerous other federal, state and foreign governmental authorities and notified bodies. The process of obtaining
FDA clearances or approvals, or equivalent third country approvals to market a medical device can be costly and time consuming,
and we may not be able to obtain these clearances or approvals on a timely basis, if at all. We expect to generate a significant
portion of our revenues from sales of our marketed systems, in particular our recently FDA-cleared TULSA-PRO system, but may be
unable to do so if the systems do not continue to prove to be safe and effective for our intended use in clinical trials to the
satisfaction of the relevant regulatory authorities in the United States, the EU, China or other countries. In addition, no assurance
can be given that our other product candidates will prove to be safe and effective in clinical trials or that we will receive regulatory
approvals in the jurisdictions where we seek to market the systems. For example, we are in discussion with the FDA regarding Sonalleve
and have submitted an application requesting designation of a regulatory pathway; however, we can provide no assurance that an
acceptable regulatory pathway will be available or that we will ever apply for or obtain FDA approval for Sonalleve in the future.
In addition, no assurance can be given that current regulations relating to regulatory approval will not change or become more
stringent.

 

    17

     

    

 

Any delay in, or failure to receive or
maintain, regulatory clearance, approval or other products under development would adversely affect our ability to commercialize
our approved products, thereby adversely affecting operations and could prevent us from generating revenue from these products
or achieving profitability. Any failure to obtain regulatory approval would materially adversely affect our business, financial
condition and results of operations.

 

If clinical trials are conducted in a manner that
fails to meet all FDA requirements, the FDA may delay our clearances or approvals, or the deficiencies may be so great that the
FDA could refuse to accept all or part of our data or trigger enforcement action.

 

Clinical trials are generally required
to support PMA approval and de novo classification and are sometimes required to support 510(k) clearance. Such trials,
if conducted in the United States and involve a significant risk device require an IDE application to be approved in advance by
the FDA for a specified number of patients and study sites. Clinical trials involving a non-significant risk device do not require
FDA approval of an IDE application and are subject to abbreviated requirements under the IDE regulation. Further, some clinical
trials are exempted from the IDE regulation. Although we do not expect to need to obtain an additional IDE application for any
further clinical trials involving TULSA-PRO system, we may need to obtain one for any expansion to the label.

 

In addition, IDE applications may be required
in support of clinical trials involving other product candidates. Clinical trials are subject to extensive monitoring, recordkeeping
and reporting requirements. Clinical trials must be conducted under the oversight of an IRB for the relevant clinical trial sites
and must comply with FDA regulations, including but not limited to those relating to good clinical practices. To conduct a clinical
trial, we must also obtain the patients’ informed consent that complies with FDA requirements, state and federal privacy
regulations and human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various
reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. Additionally, we may decide at
any time, for business or other reasons, to terminate a clinical trial. Even if a clinical trial is completed, the results of clinical
testing may not adequately demonstrate the safety and efficacy of the device for its intended use or may otherwise not be sufficient
to obtain FDA clearance or approval to market the product in the United States. Following completion of a clinical trial, we would
need to collect, analyze and present the data in an appropriate submission to the FDA. Even if a study is completed and submitted
to the FDA, the results of clinical testing may not demonstrate the safety and efficacy of the device for its intended use, or
may be equivocal or otherwise not be sufficient to obtain clearance or approval of our product. In addition, the FDA may perform
a bioresearch monitoring inspection of a study and if it finds deficiencies, we will need to expend resources to correct those
deficiencies, which may delay clearance or approval or the deficiencies may be so great that the FDA could refuse to accept all
or part of the data or could trigger enforcement action.

 

    18

     

    

 

Even if our products are approved by regulatory
authorities, if we or our suppliers fail to comply with ongoing FDA or other foreign regulatory authority requirements or if we
experience unanticipated problems with our products, we could be subject to restrictions or withdrawal from the market.

 

Any product for which we obtain regulatory
clearance or approval, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities
for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other regulatory
bodies. In particular, we and our suppliers are required to comply with the QSR and international standards for the manufacture
of products and other regulations which cover the methods and documentation of the design, testing, production, control, quality
assurance, labeling, packaging, storage and shipping of any product for which we obtain regulatory clearance or approval. Regulatory
bodies, such as the FDA, enforce the QSR and other regulations through periodic inspections. We and our contract manufacturers
have been, and anticipate in the future being, subject to such inspections.

 

The failure by us or one of our suppliers
to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely
and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things,
any of the following enforcement actions:

 

		·	untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

 

		·	customer notifications for repair, replacement or refunds;

 

		·	recall, withdrawal, detention or seizure of our products;

 

		·	operating restrictions or partial suspension or total shutdown of production;

 

		·	refusing or delaying our requests for 510(k) clearance or premarket approval of new products or
modified products;

 

		·	operating restrictions;

 

		·	withdrawing PMA approvals that have already been granted;

 

		·	suspension, variation, or withdrawal of our CE Certificates of Conformity;

 

		·	refusals to allow imports and/or to issue documentation necessary to facilitate exports;

 

		·	refusal to grant export approval for our products; or

 

		·	imposition of civil, administrative or criminal penalties.

 

If any of these actions were to occur,
we may be required to expend significant time and resources to address or defend such actions, and our reputation may be harmed
and our product sales and/or profitability may be negatively affected. Furthermore, key component suppliers may not currently be,
or may not continue to be, in compliance with all applicable regulatory requirements, which could result in our failure to produce
our products on a timely basis and in the required quantities, if at all.

 

In addition, we may be required to conduct
costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and we must comply with medical
device reporting requirements, including the reporting of certain adverse events and malfunctions related to our products. Later
discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated
severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR, may result in changes
to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or
mandatory recalls, a requirement to repair, replace or refund the cost of any product we manufacture or distribute, fines, suspension
of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would have a material
adverse effect on our business, financial condition, and results of operations.

 

    19

     

    

 

Our products that have received regulatory clearance
or approval are subject to extensive post-market regulation that could affect sales, marketing and profitability

 

With respect to the products for which
we have obtained regulatory clearance or approval, we are subject to post-marketing regulatory obligations, including requirements
by the FDA, EU competent authorities, Health Canada and similar agencies in other jurisdictions to maintain records regarding product
safety and to report to regulatory authorities serious or unexpected adverse events. The occurrence of unanticipated serious adverse
events or other safety problems could cause the governing agencies to impose significant restrictions on the indicated uses for
which the product may be marketed, impose other restrictions on the distribution or sale of the product or require potentially
costly post-approval studies. In addition, post-market discovery of previously unknown safety problems or increased severity or
significance of a pre-existing safety signal could result in withdrawal of the product from the market and product recalls. Compliance
with extensive post-marketing record keeping and reporting requirements requires a significant commitment of time and funds, which
may limit our ability to successfully commercialize approved products.

 

We may be subject to fines, penalties or injunctions
if we are determined to be promoting the use of our products for unapproved or “off-label” uses or engaged in false
or misleading promotion.

 

Regulatory clearances and approvals may
be subject to limitations on the intended uses for which our products may be marketed and reduce our potential to successfully
commercialize our products. While physicians/clinicians, in most jurisdictions, can use our products in ways or circumstances other
than those strictly within the scope of the regulatory clearance or approval, we are required, in many jurisdictions, to limit
our training and promotion of our products to the cleared or approved intended uses. For example, if the FDA determines that our
promotional materials, labeling, training or other marketing constitutes promotion of an uncleared or unapproved, or “off-label”
use, it could request that we modify or cease use of those training or promotional materials until we obtain FDA clearance or approval
for those uses or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter,
injunction, seizure, civil fine and/or criminal penalties. Discussions that may be viewed as off-label promotion by FDA include
discussions regarding treatment of a specific disease or condition when FDA has cleared or approved a device with a general tool-type
indication that does not mention any particular disease or condition. It is also possible that other federal, state or foreign
enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an
uncleared or unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws
prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of our products would be
impaired.

 

In addition to promoting our products in
a manner consistent with our clearances and approvals, we must have adequate substantiation for the claims we make for our products.
If any of our claims are determined to be false, misleading or deceptive, we could be subject to enforcement action. In addition,
unsubstantiated claims also present a risk of consumer class action or consumer protection litigation and competitor challenges.

 

    20

     

    

 

Modifications to our approved products may require
new regulatory clearances or approvals or may require us to recall or cease marketing our products until such additional clearances
or approvals are obtained.

 

Certain modifications to our products may
require the submission of new 510(k) notifications, PMA supplements, or other regulatory agency approval applications or documents.
If a modification is implemented to address a safety concern, we may also need to initiate a recall or cease distribution of the
affected device. The FDA can review a manufacturer’s decision not to submit a new 510(k) notification or PMA for a modification
and may disagree. The FDA may also on its own initiative determine that clearance of a new 510(k) or approval of a new PMA submission
is required. We may make additional modifications to our products in the future that we believe do not or will not require clearance
of a new 510(k) or approval of a new PMA. If we begin manufacture and distribution of the modified devices and the FDA later disagrees
with our determination and requires the submission of a new 510(k) or PMA for the modifications, we may also be required to recall
the distributed modified devices and to stop distribution of the modified devices until we have received approval or clearance
for the modified device, which could have an adverse effect on our business. If the FDA does not clear or approve the modified
devices, we may need to redesign the devices, which could also harm our business. When a device is marketed without a required
clearance or approval, the FDA has the authority to bring an enforcement action, including injunction, seizure and criminal prosecution.
The FDA considers such additional actions generally when there is a serious risk to public health or safety and the company’s
corrective and preventive actions are inadequate to address the FDA’s concerns

 

Where we determine that modifications to
our products require clearance of a new 510(k) or approval of a new PMA or PMA supplement, we may not be able to obtain those additional
clearances or approvals for the modifications or additional indications in a timely manner, or at all. For those products sold
in the European Economic Area, we must notify an EU Notified Body, if significant changes are made to the products or if there
are substantial changes to our quality assurance systems affecting those products. Delays in obtaining required future clearances
or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm
its future growth.

 

Our contract manufacturers are subject to regulatory
compliance by the FDA, Health Canada and regulatory authorities in the EU and other jurisdictions.

 

Our contract manufacturers must comply
with applicable FDA, EU, Health Canada and other applicable foreign regulations, which include quality control and quality assurance
requirements, as well as the corresponding maintenance of records and documentation and manufacture of devices according to the
specifications contained in the applicable regulatory file. If our contract manufacturers do not or cannot comply with these requirements,
our ability to commercialize our approved products may be adversely affected.

 

The introduction of new or alternative
manufacturers or suppliers also may require manufacturing or design changes to our products that are subject to FDA and other regulatory
clearances or approvals. Similarly, in the European Union, the introduction of new or alternative manufacturers or suppliers could
be considered to constitute a substantial change to our quality system or result in design changes to our products which could
affect compliance with the Essential Requirements. These changes must be disclosed to our notified body in the EU before implementation.
The Notified Body will then assess the changes and verify whether they affect the products’ conformity with the Essential
Requirements. If the assessment is favorable the Notified Body will issue a new CE Certificate of Conformity or an addendum to
the existing certificates attesting compliance with the Essential Requirements. We may also be required to assess the new manufacturer’s
compliance with all applicable regulations and guidelines, which could further impede our ability to manufacture our products in
a timely manner. As a result, we could incur increased production costs, experience delays in deliveries of our products, suffer
damage to our reputation, and experience a material adverse effect on our business, financial condition, and results of operations.

 

    21

     

    

 

Our products may in the future be subject to product
recalls that could harm our reputation, business and financial results.

 

The FDA and similar foreign governmental
authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects
in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there
is a reasonable probability that the device would cause serious adverse health consequences or death. In addition, we may initiate
voluntary recalls of our products in the future to the extent we experience safety or other concerns with such products. For voluntary
corrections or removals, the FDA requires that manufacturers report to the FDA within 10 working days after the correction or removal
is initiated if the action was initiated to reduce a risk to health posed by the device or to remedy a violation of the FFDCA caused
by the device which may present a risk to health. Companies are required to maintain certain records of corrections and removals,
even if they are not reportable to the FDA. We may determine that any particular voluntary recall that we initiate does not require
notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions. A future
recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement
action for failing to report the recalls when they were conducted.

 

In the European Union, incidents must be
reported to the relevant authorities of the European Union Member States, and manufacturers are required to take FSCAs, to reduce
a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed
on the market. For purposes of these regulations, an “incident” is defined as any malfunction or deterioration in the
characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly
or indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration
in their state of health. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. In
addition, governmental or other competent bodies or authorities have the authority to require the recall of products in the event
of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if
any material deficiency in a device is found. A government-mandated or voluntary recall by us or one of our distributors could
occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls
of the TULSA-PRO system, Sonalleve system or any future products would divert managerial and financial resources and could have
an adverse effect on our financial condition and results of operations.

 

If our products cause or contribute to a death or
a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, and such events can
result in voluntary corrective actions or agency enforcement actions.

 

Under FDA medical device reporting regulations,
manufacturers are required to report to the FDA information that reasonably suggests that one of their marketed devices may have
caused or contributed to a death or serious injury or has malfunctioned and that the device or a similar device marketed by the
manufacturer would likely cause or contribute to death or serious injury if the malfunction were to recur. If we fail to report
these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Similar enforcement
action could be taken by the competent authorities in the European Union if we do not comply with our medical devices vigilance
obligations. In addition, our EU notified body could decide to suspend or withdraw our CE Certificates of Conformity. Any such
adverse event involving the TULSA-PRO or Sonalleve systems also could result in future voluntary corrective actions, such as recalls
or customer notifications, or agency action, such as inspection, audit or enforcement action. Any corrective action, whether voluntary
or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of personnel time and capital, distract
management from operating the business and may harm our reputation and could have a material adverse effect on our business, financial
condition and operating results.

 

    22

     

    

 

Legislative or regulatory reform of the healthcare
systems in which we intend to operate may affect our ability to sell our products profitably and could adversely affect our business.

 

The government and regulatory authorities
in the United States, the European Union, Canada and other markets in which we expect to sell our devices may propose and adopt
new legislation and regulatory requirements relating to medical product approval criteria, manufacturing and marketing requirements.
In addition, regulations and guidance promulgated by the FDA, the EU and other regulatory bodies are often revised or reinterpreted
by the agency in ways that may significantly affect our business and products. It is impossible to predict whether legislative
changes will be enacted or regulations, guidance or interpretations changed and what the impact of such changes, if any, may be.
Such legislation or changes in regulatory requirements, or the failure to comply with such, could adversely impact our operations
and could have a material adverse effect on our business, financial condition and results of operations.

 

For example, in the United States, as part
of the Food and Drug Administration Safety and Innovation Act of 2012, Congress enacted several reforms entitled the Medical Device
Regulatory Improvements and additional miscellaneous provisions which impacted FDA medical device regulation both pre- and post-approval.
In 2016, Congress enacted the 21st Century Cures Act, which included a number of modifications to the medical device provisions
of the FFDCA, including a new priority review program for “breakthrough devices”. Further, the FDA Reauthorization
Act of 2017, amended certain pre- and post-market requirements for medical devices. For example, the legislation imposed a new
user fee for de novo classification requests. The FDA has implemented, and continues to implement, these reforms, which
could impose additional regulatory requirements upon us and delay our ability to obtain new 510(k) clearances or PMA approvals
or increase the costs of compliance. Any change in the laws or regulations that govern the clearance and approval processes relating
to our products could make it more difficult and costly to obtain clearance or approval for new products, or to produce, market
and distribute products. Significant delays in receiving clearance or approval, or the failure to receive clearance or approval
for our products would have a material adverse effect on our business, financial condition and operating results.

 

On April 5, 2017, the EU adopted a new
Regulation on medical devices (Regulation (EU) 2017/745 of the European Parliament and of the Council on Medical Devices (“MDR”))
and a new Regulation on in vitro diagnostic medical devices (Regulation (EU) 2017/746 of the European Parliament and of
the Council on in vitro diagnostic medical devices (“IVDR”)), which will become fully applicable on May
26, 2020 and May 26, 2022, respectively. The Regulations do not set out a substantially different regulatory system, but contemplate,
among other things, stricter controls of medical devices, including strengthening of the conformity assessment procedures, increased
expectations as regards clinical data for devices and pre-market regulatory review of high-risk devices and an extension of transparency
requirements through the establishment of a comprehensive EU database on medical devices and of a device traceability system allowing
to trace the device from its manufacturer through the supply chain to the final user. The MDR and the IVDR also introduce new classification
rules according to which manufacturers must test their products and adapt their documentation. For example, stricter clinical requirements
now apply to Class III medical devices and implants. After the expiry of the transitional periods as provided by the MDR and the
IVDR, respectively, only devices that have been CE marked under the MDR/IVDR may be placed on the market in the EU. Any notification
of Notified Bodies which are responsible for conformity assessments regarding medical devices (except for low risk medical devices
classified as Class I with no measuring function and which are not sterile) will cease to be valid from May 26, 2020. Only a few
Notified Bodies currently have a notification under the MDR. The new legislation may therefore delay the CE marking of our product
candidates under development or impact our ability to renew the CE marking our currently CE marked products on a timely basis.

 

    23

     

    

 

The growth of overall healthcare costs
as a percentage of gross domestic product in many countries means that governments and payers are under intense pressure to control
healthcare spending even more tightly. As a result, our businesses and the healthcare industry in general are operating in an ever
more challenging environment with very significant pricing pressures. In recent years, national, federal, provincial, state and
local officials and legislators have proposed, or are reportedly considering proposing, a variety of price-based reforms to the
healthcare systems in the United States, the European Union and other countries. Some proposals include measures that would limit
or eliminate payments for certain medical procedures and treatments or subject pricing to government control. Furthermore, in certain
foreign markets, the pricing or profitability of healthcare products is subject to government controls and other measures that
have been prepared by legislators and government officials. While we cannot predict whether any such legislative or regulatory
proposals or reforms will be adopted, the adoption of any such proposals or reforms could adversely affect the commercial viability
of our existing and potential products.

 

The ACA was intended to expand healthcare
coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and
expansion of the Medicaid program. The legislation imposes a number of changes to the U.S. healthcare market that are designed
to reduce the number of uninsured individuals through, among other things, expansion of certain federal and state healthcare programs
such as Medicaid, and establishment of health insurance exchanges. In addition, the legislation imposes changes directly affecting
the device industry, specifically taxes on medical device makers in the form of a 2.3% excise tax on all medical device sales in
the United States. The tax has been delayed multiple times, most recently on January 22, 2018, when President Trump signed legislation
delaying implementation through the end of 2019. The tax will go into effect on January 1, 2020, if the delay is not further extended
or the medical tax is not permanently repealed. It is uncertain whether future legislation will suspend, modify or repeal this
tax. The tax could materially and adversely affect our business, cash flows and results of operations.

 

The ACA also focuses on a number of Medicare
provisions aimed at improving quality and decreasing costs. The Medicare provisions include value-based payment programs, increased
funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions,
and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and
hospital payments). Additionally, the law includes a productivity adjustment, or reduction in the annual rate of inflation for
Medicare payments to a number of providers, including hospitals, that began in 2011. The United States President and certain members
of the U.S. Congress have indicated their desire to repeal and replace all or portions of the ACA and to decrease fiscal burdens.
Recently enacted legislation addresses certain ACA measures and effectively repeals the individual mandate insurance requirement.
In addition, in December 2018, a federal district court judge in Texas found the ACA to be unconstitutional, although the ruling
was stayed while the case is appealed. It is unclear whether, when and how a repeal of, or a court order enjoining, the ACA would
be effectuated and what the effect on the healthcare sector would be.

 

Other measures by the current administration
that address ACA provisions include regulatory changes to healthcare insurance exchange parameters. According to the Trump administration’s
statements describing the changes, they are intended to increase flexibility, improve affordability, promote stability, and reduce
unnecessary burdens. We cannot predict the full effect of these new measures, what other health care laws, and regulations and
programs will be ultimately implemented at the federal or state level, or the effect of any future legislation, regulation or court
order. However, any changes that deny or restrict coverage or lower reimbursement for our products or reduce medical procedure
volumes could adversely affect our business and results of operations. Changes in the law or regulatory framework that reduce our
revenues or increase our costs would have a material adverse effect on our business, financial condition and results of operations
and cash flows.

 

    24

     

    

 

Other legislation or regulatory proposals may adversely
affect our revenues and profitability.

 

Existing and proposed changes in the laws
and regulations affecting public companies may cause us to incur increased costs as we evaluate the implications of new rules and
responds to new requirements. Failure to comply with the new rules and regulations could result in enforcement actions or the assessment
of other penalties. The new laws and regulations could make it more difficult to obtain certain types of insurance, including directors’
and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract
and retain qualified persons to serve on our board of directors, or as executive officers. We may be required to hire additional
personnel and utilize additional outside legal, accounting and advisory services, all of which could cause our general and administrative
costs to increase beyond what we currently have planned. Although we intend to evaluate and monitor developments with respect to
these rules, we cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.

 

We are subject to “fraud and abuse”
laws, anti-bribery laws, environmental laws and privacy and security regulations. Any violation by our employees or other agents
could expose us to severe penalties and other consequences that may have a material adverse effect on our business, financial condition
and results of operations.

 

Our business is subject to the FCPA in
the United States, which generally prohibits companies and company employees from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining business. The FCPA also requires companies to maintain accurate
books and records and internal controls. In addition, we are subject to other anti-bribery laws of the nations in which we conduct
business that apply similar prohibitions as the FCPA (e.g., The Bribery Act 2010 in the United Kingdom, Articles 299a and 299b
of the German Criminal Code specifically addressing bribery in the healthcare sector, the Corruption of Foreign Public Officials
Act in Canada and the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of the
Organisation for Economic Co-operation and Development). Our employees or other agents may, without our knowledge and despite our
efforts, engage in prohibited conduct under our policies and procedures and the FCPA or other anti-bribery laws to which we may
be subject. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and
other consequences that may have a material adverse effect on our business, financial condition and results of operations.

 

Our operations may be directly or indirectly
affected by various broad United States or foreign healthcare fraud and abuse laws. In particular, the United States federal healthcare
program Anti-Kickback Statute prohibits any person from knowingly and willfully offering, paying, soliciting or receiving remuneration,
directly or indirectly, in return for or to induce the referring, ordering, leasing, purchasing or arranging for or recommending
the ordering, purchasing or leasing of an item or service, for which payment may be made under United States federal healthcare
programs, such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between device
manufacturers on one hand and prescribers and purchasers on the other. For example, the United States government has sought to
apply the Anti-Kickback Statute to device manufacturers’ financial relationships with physician consultants. Among other
theories, the United States government has alleged that such relationships are payments to induce the consultants to arrange for
or recommend the ordering, purchasing or leasing of the manufacturers’ products by the hospitals, medical institutions and
other entities with whom they are affiliated. Although there are a number of statutory exemptions and regulatory safe harbors protecting
certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and
arrangements that involve remuneration that could induce prescribing, purchases, or recommendations may be subject to government
scrutiny if they do not qualify for an exemption or a safe harbor.

 

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Also, the False Claims Act prohibits persons
from knowingly submitting, or causing to be submitted, a false claim to, or the knowing use of false statements to obtain payment
from the federal government. Suits filed under the False Claims Act can be brought by the United States government or they can
be brought by an individual on behalf of the United States government, as “qui tam” actions, and such individuals,
commonly known as “whistleblowers,” may share in any damages paid by the entity to the United States government in
fines or settlement. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three
times the actual damages sustained by the United States government, plus civil penalties of up to $22,363 for each separate false
claim. Various states have also enacted laws modeled after the False Claims Act.

 

Profound is also subject to various privacy
and security regulations, including but not limited to HIPAA in the United States. HIPAA mandates, among other things, the adoption
of uniform standards for the electronic exchange of information in common health care transactions (e.g., health care claims information
and plan eligibility, referral certification and authorization, claims status, plan enrolment, coordination of benefits and related
information), as well as standards relating to the privacy and security of individually identifiable health information, which
govern the use and disclosure of such information and require the adoption of administrative, physical and technical safeguards
to protect such information. In addition, many U.S. states, Canadian provinces and other countries have enacted comparable laws
addressing the privacy and security of health information, some of which are more stringent than HIPAA. Failure to comply with
these laws could result in the imposition of significant civil and criminal penalties. The costs of compliance with these laws
and the potential liability associated with the failure to comply with these laws could have a material adverse effect on our business,
financial condition and operating results.

 

Compliance with environmental laws and regulations
could be expensive, and failure to comply with these laws and regulations could subject us to significant liability.

 

We may use hazardous materials in our research
and development and manufacturing processes. We are subject to various regulations governing use, storage, handling and disposal
of these materials and associated waste products. We will need one or more licenses to handle such materials, but there can be
no assurance that it will be able to retain these licenses in the future or obtain licenses under new regulations if and when they
are required by governing authorities. We cannot completely eliminate the risk of contamination or injury resulting from hazardous
materials, and we may incur liability as a result of any such contamination or injury. In the event of an accident, we could be
held liable for damages or penalized with fines, and the liability could exceed our resources and any applicable insurance. We
would also likely incur expenses related to any such incidents. Such future expenses or liability could have a significant negative
impact on its business, financial condition and results of operations. Further, we cannot assure that the cost of compliance with
these laws and regulations will not materially increase in the future. We may also be subject to liability in respect of the operations
of prior owners or operators of any properties we may own, at manufacturing sites where operations have previously resulted in
spills, discharges or other releases of hazardous substances into the environment. We could be held strictly liable under environmental
laws for contamination of property that we occupy without regard to fault or whether our actions were in compliance with law at
the time. Our liability could also increase if other responsible parties, including prior owners or operators of our facilities,
fail to complete their clean-up obligations or satisfy indemnification obligations to us. Similarly, if we fail to ensure compliance
with applicable environmental laws in foreign jurisdictions in which we operate, we may not be able to offer our products and may
be subject to civil or criminal liabilities.

 

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Risk Factors Relating to Intellectual
Property

 

If we breach any of the agreements under which we
license rights to our technology from third parties, we could lose license rights that are important to our business. Certain of
our license agreements may not provide an adequate remedy for their breach by the licensor.

 

We license certain development and commercialization
rights for certain technologies used in our systems, and expect to enter into similar licenses in the future. For instance, we
license exclusive intellectual property rights from Sunnybrook that enable us to use, manufacture, distribute and sell the TULSA-PRO
system. Under this royalty-free license, we are subject to various obligations, including the milestone payment of C$250,000 we
paid upon obtaining FDA clearance of our TULSA-PRO system, and legal costs associated with patent application preparation, filing
and maintenance. If we breach or otherwise terminate any of the agreements under which we license rights to our technology from
third parties, we could lose intellectual property rights that are important to our business, and incur other liabilities. Certain
of our license agreements may not provide an adequate remedy for their breach by the licensor. The loss or breach of any of these
license agreements could have a material adverse effect on our business, results of operations and financial condition.

 

Our proprietary rights may not adequately protect
our technologies.

 

Our commercial success will depend on our
ability to obtain patents (or exclusive rights thereto) and to maintain adequate protection for our technologies in the United
States, Europe, Canada and other countries. We own or have exclusive rights to multiple issued United States patents and several
pending United States patent applications in respect of our products. For the TULSA-PRO system, our patent rights include rights
licensed to us from Sunnybrook and other intellectual property that we have developed. We acquired the patent rights for the Sonalleve
system from Philips. We or our licensors will be able to protect such proprietary rights from unauthorized use by third parties
only to the extent that our proprietary technologies and future products are covered by valid and enforceable patents or are effectively
maintained as trade secrets.

 

We apply for patents covering our technologies
as we deem appropriate. However, we may fail to apply for patents on important technologies in a timely fashion, or at all. Our
existing patent applications and any future patents we may obtain may not be sufficiently broad to prevent others from utilizing
our technologies or from developing competing products and technologies. In addition, we cannot guarantee that:

 

		·	we or our licensors were the first to make the inventions covered by each of our licensed or issued
patents and pending patent applications;

 

		·	we or our licensors were the first to file patent applications for these inventions;

 

		·	others will not independently develop similar or alternative technologies or duplicate any of our
or our licensors’ technologies;

 

		·	any of our or our licensors’ pending patent applications will result in issued patents;

 

		·	any of our or our licensors’ patents will be valid or enforceable;

 

		·	any patents issued to us or our licensors and collaboration partners will provide us with any competitive
advantages, or will not be challenged by third parties;

 

		·	we will develop or in-license additional proprietary technologies that are patentable; or

 

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		·	the patents of others will not have an adverse effect on our business.

 

The actual protection afforded by a patent
varies on an offering-by-offering basis, from country to country and depends upon many factors, including the type of patent, the
scope of our or our licensors’ coverage, the availability of regulatory related extensions, the availability of legal remedies
in a particular country and the validity and enforceability of the patents. Our or our licensors’ ability to maintain and
solidify our or our licensors’ proprietary position for our products will depend on our or our licensors’ success in
obtaining effective patent claims and enforcing those claims once granted. Our or our licensors’ issued patents and those
that may be issued in the future may be challenged, invalidated or circumvented, and the rights granted under any such issued patents
may not provide us with proprietary protection or competitive advantages against competitors with similar products or offerings.
Due to the extensive amount of time required for the development, testing and regulatory review of a medical device, it is possible
that, before our devices can be commercialized, any relevant patent may expire or remain in force for only a short period following
commercialization, thereby reducing any advantage of the patent.

 

Protection afforded by patents may be adversely
affected by recent or future changes to patent related statutes and administrative procedures, for example, such as in the laws
of the United States or to USPTO rules. Patent reform legislation could increase the uncertainties and costs surrounding the prosecution
of our patent applications and the enforcement or defense of our issued patents. For example, on September 16, 2011, the Leahy-Smith
Act was signed into law in the United States. The Leahy-Smith Act includes a number of significant changes to United States patent
law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. However,
it is not fully clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. As such, the Leahy-Smith
Act and its implementation, as well as any future changes to patent law in the United States or elsewhere, could increase the uncertainties
and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our
or our licensors’ issued patents, all of which could have a material adverse effect on our business, financial condition
and operating results.

 

Moreover, we or our licensors may be subject
to a third party preissuance submission of prior art to the USPTO and other patent offices, or become involved in opposition, derivation,
re-examination, inter partes review or interference proceedings, or other preissuance or post-grant proceedings in the United
States or other jurisdictions, challenging our or our licensors’ patent rights or the patent rights of others. An adverse
determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our or our licensors’
patent rights, allow third parties to commercialize our technology or product and compete directly with us, without payment to
us, or result in our inability to manufacture or commercialize products without infringing third party patent rights. In addition,
if the breadth or strength of protection provided by our or our licensors’ patents and patent applications is threatened,
it could dissuade companies from collaborating with us to license, develop or commercialize current or future products. Changes
to the current patent statutes may adversely affect the protection afforded by our patents and/or open our patents up to third
party attack in non-litigation settings. The costs of patent enforcement or invalidity proceedings could be substantial, result
in adverse determinations, and divert management attention from our business.

 

We also rely on trade secrets to protect
some of our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets
are difficult to maintain. While we use reasonable efforts to protect our trade secrets, our or our collaboration partners’
employees, consultants, contractors or scientific and other advisors may unintentionally or wilfully disclose our proprietary information
to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming
and uncertain, and may divert our efforts and attention from other aspects of our business. In addition, non-U.S. courts are sometimes
less willing than courts in the United States to protect trade secrets. If our competitors independently develop equivalent knowledge,
methods and know-how, we would not be able to assert our trade secrets against them and our business could be harmed.

 

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We may not be able to protect our intellectual property
rights throughout the world.

 

Filing, prosecuting and defending patents
on all of our product candidates, and products and services, when and if we have any, in every jurisdiction would be prohibitively
expensive. Competitors may use our technologies in jurisdictions where we or our licensors have not obtained patent protection
to develop competing products. These products may compete with our products, when and if we have any, and may not be covered by
any of our or our licensors’ patent claims or other intellectual property rights.

 

The laws of some countries do not protect
intellectual property rights to the same extent as the laws of the United States and many companies have encountered significant
problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly
certain developing countries, may not favor the enforcement of patents and other intellectual property protection, particularly
those relating to biotechnology and/or pharmaceuticals, which could make it difficult for us to stop the infringement of our patents.
Proceedings to enforce our or our licensors’ patent rights in foreign jurisdictions could result in substantial cost and
divert our efforts and attention from other aspects of our business.

 

The patent protection for our technologies may expire
before we are able to maximize our commercial value which may subject us to increased competition and reduce or eliminate our opportunity
to generate product revenue.

 

The patents for our technologies have varying
expiration dates; although the patents for the technologies we used are not expected to expire in the near term, when these patents
expire, we may be subject to increased competition and may not be able to recover our development costs or license fees. In some
of the larger economic territories, such as the United States and the European Union, patent term extension/restoration may be
available to compensate for time taken during aspects of a product candidate’s regulatory review. However, we cannot be certain
that any extension will be granted or, if granted, what the applicable time period or the scope of patent protection afforded during
any extended period will be. If we or our licensors are unable to obtain patent term extension/restoration or some other exclusivity,
we could be subject to increased competition and our opportunity to establish or maintain product revenue could be substantially
reduced or eliminated. Furthermore, we may not have sufficient time to recover our development costs prior to the expiration of
our or our licensors’ patents in the United States or elsewhere.

 

We may incur substantial costs as a result of litigation
or other proceedings relating to enforcement of our or our licensors’ patent and other intellectual property rights and we
may be unable to protect our rights to, or use of, our technology.

 

If we choose to go to court to try to stop
or prevent a third party from using the inventions claimed in our or our licensors’ patents, that third party has the right
to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. Even if we were
successful in stopping the infringement of these patents, these lawsuits are expensive and would consume time and other resources,
and divert attention from other aspects of our business. In addition, there is a risk that the court will decide that these patents
are invalid or unenforceable and that we do not have the right to prevent the other party from using the inventions. There is also
the risk that, even if the validity of these patents is upheld, the court will refuse to prevent the other party’s activities
on the ground that such other party’s activities do not infringe our rights.

 

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We may be subject to lawsuits from, liable for damages
to, or be required to enter into license agreements with, a third party that claims we infringed its patents or otherwise misused
its proprietary information.

 

If we wish to use the technology in issued
and unexpired patents owned by others, we will need to obtain a license from the owner, enter into litigation to challenge the
validity or enforceability of these patents or incur the risk of litigation in the event that the owner asserts that we infringed
these patents. The failure to obtain a license for technology or the failure to challenge an issued patent owned by others that
we may require to develop or commercialize our product candidates may have a material adverse impact on us.

 

In addition, if a third party asserts that
we infringed its patents or other proprietary rights, we could face a number of risks that could seriously harm our results of
operations, financial condition and competitive position, including:

 

		·	patent infringement and other intellectual property claims, which would be costly and time consuming
to defend, whether or not the claims have merit, and which could delay the regulatory approval process and divert management’s
attention from our business;

 

		·	substantial damages for past infringement, including possible treble damages in some jurisdictions,
which we may have to pay if a court determines that our product candidates, offerings or technologies infringe a competitor’s
patent or other proprietary rights;

 

		·	a court prohibiting us from selling or licensing our technologies unless the third party licenses
patents or other proprietary rights to us on commercially reasonable terms, which it is not required to do; and

 

		·	if a license is available from a third party, we may have to pay substantial royalties or lump
sum payments or grant cross licenses to our patents or other proprietary rights to obtain that license.

 

The coverage of patents is subject to interpretation
by the courts and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate
that our products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims
are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of
clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.

 

Patent laws in the United States as well
as the laws of certain other jurisdictions provide for provisional rights in published patent applications beginning on the date
of publication, including the right to obtain reasonable royalties, if a patent is subsequently issued and certain other conditions
are met. While we believe that there may be multiple grounds on which to challenge the validity of United States patents and the
counterparts filed in other jurisdictions possibly relevant to our business, we cannot predict the outcome of any invalidity challenge.
Alternatively, it is possible that we may determine it is prudent to seek a license from a patent holder to avoid potential litigation
and other potential disputes. We cannot be sure that a license would be available to us on acceptable terms, or at all.

 

Because some patent applications in certain
jurisdictions may be maintained in secrecy until the patents are issued, because patent applications in the United States and many
other jurisdictions are typically not published until 18 months after filing and because publications in the scientific literature
often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered
by our or our licensors’ issued patents or our pending applications or our licensors’ pending applications, or that
we or our licensors were the first to invent the technology.

 

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Patent applications filed by third parties
that cover technology similar to ours may have priority over our or our licensors’ patent applications and could further
require us to obtain rights to issued patents covering such technologies. If another party files a United States patent application
on an invention similar to ours, we may elect to participate in or be drawn into an interference or other proceeding declared by
the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial and it is
possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such
inventions.

 

We may also be subject to damages resulting
from claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets of third parties. Many
of our employees were previously employed, and certain of our consultants are currently employed, at universities or medical device
companies, including our competitors or potential competitors. Although we have not received any claim to date, we may be subject
to claims that we, or these employees or consultants, have inadvertently or otherwise used or disclosed trade secrets or other
proprietary information of these current or former employers. Litigation may be necessary to defend against these claims. If we
fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
We may be subject to claims that employees of our partners or licensors of technology licensed by us have inadvertently or otherwise
used or disclosed trade secrets or other proprietary information of their former employers. We may become involved in litigation
to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights or personnel; and even if we are successful in defending such claims, they can be expensive and would
consume time and other resources, and divert attention from other aspects of our business.

 

Some of our competitors may be able to
sustain the costs of complex patent and other intellectual property litigation more effectively than we can because they have substantially
greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a
material adverse effect on our ability to raise the funds necessary to continue our operations. We cannot predict whether third
parties will assert these claims against us or against our licensors, or whether those claims will harm our business. If we or
our licensors are forced to defend against these claims, whether they are with or without any merit, whether they are resolved
in favor of or against us or our licensors, we may face costly litigation and diversion of management’s attention and resources.
As a result of these disputes, we may have to develop costly non-infringing technology, or enter into licensing agreements. These
agreements, if necessary, may be unavailable on terms acceptable to us, if at all, which could have a material adverse effect on
our business, financial conditions and results of operations.

 

Risk Factors Relating to Our Common
Shares

 

Future sales or the issuances of our securities
may cause the market price of our Common Shares to decline.

 

The market price of our Common Shares could
decline as a result of issuances of securities (including our Common Shares) by us, exercises of outstanding options or warrants
for additional Common Shares or sales by our existing shareholders of Common Shares in the market, or the perception that these
issuances or sales could occur. Sales of Common Shares by shareholders may make it more difficult for us to sell equity securities
at a time and price that we deem appropriate. As at August 26, 2019, there were a total of 10,373,929 outstanding share options
issued under our Share Option Plan and 22,571,714 outstanding warrants issued pursuant to the Bought Deals and the CIBC Loan Agreement.
In addition, as at August 26, 2019, 3,675,553 options remain available for future grant under the Share Option Plan. Sales or issuances
of substantial numbers of Common Shares, or the perception that such sales or issuances could occur, may adversely affect prevailing
market prices of the Common Shares. With any such sale or issuance of Common Shares, investors may suffer dilution and we may experience
dilution in our earnings per share.

 

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We expect that the price of our Common Shares may
fluctuate significantly.

 

The market price of securities of many
companies, particularly development and early commercial stage medical device companies, experience wide fluctuations in price
that are not necessarily related to the operating performance, underlying asset values or prospects of such companies.

 

The market price of our Common Shares could
be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

 

		·	delays in respect of our commercialization of the TULSA-PRO system in the United States;

 

		·	adverse results or delays in our future planned data collection for the TACT Pivotal Clinical Trial
and any future clinical trials that we may conduct;

 

		·	regulatory actions with respect to our products and/or product candidates;

 

		·	changes in laws or regulations applicable to our products or any future product candidates, including
but not limited to clinical trial requirements for approvals;

 

		·	actual or anticipated fluctuations in our financial condition and operating results;

 

		·	actual or anticipated changes in our growth rate relative to our competitors;

 

		·	competition from existing products or new products that may emerge;

 

		·	announcements by us, our collaborators or our competitors of significant acquisitions, strategic
partnerships, joint ventures, collaborations or capital commitments;

 

		·	failure to meet or exceed financial estimates and projections of the investment community or that
we provide to the public;

 

		·	issuance of new or updated research or reports by securities analysts;

 

		·	fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

		·	share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

		·	additions or departures of key management or scientific personnel;

 

		·	disputes or other developments related to proprietary rights, including patents, litigation matters
and our ability to obtain patent protection for its products;

 

		·	announcement or expectation of additional debt or equity financing efforts;

 

		·	sales or issuances of our Common Shares by us, our insiders or our other shareholders, including
by exercise of outstanding options or warrants; and

 

		·	general economic and market conditions.

 

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These and other market and industry factors
may cause the market price and demand for our Common Shares to fluctuate substantially, regardless of our actual operating performance,
which may limit or prevent investors from readily selling their Common Shares and may otherwise negatively affect the liquidity
of our Common Shares. In addition, stock markets in general, and the TSX, the Nasdaq and the share prices of biotechnology companies
in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of these companies. In addition, following our planned listing on Nasdaq, there may be price variations between the
TSX and Nasdaq because of our dual listing.

 

If equity research analysts do not publish research
or reports about our business or if they issue unfavorable commentary or downgrade our Common Shares, the price of our Common Shares
could decline.

 

The trading market for our Common Shares
will rely in part on the research and reports that equity research analysts publish about us and our business, over which we have
no control. The price of our Common Shares could decline if one or more equity analysts downgrade our Common Shares or if analysts
issue other unfavorable commentary or cease publishing reports about us or our business.

 

We may be subject to securities litigation, which
is expensive and could divert management attention.

 

The market price of our Common Shares may
be volatile, and in the past companies that have experienced volatility in the market price of their shares have been subject to
securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could
result in substantial costs and diversion of management’s attention and resources, which could adversely impact our business.
Any adverse determination in litigation could also subject us to significant liabilities.

 

We have never paid dividends on our Common Shares
and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an investment in our Common
Shares will likely depend on whether the price of our Common Shares increases.

 

We have not paid dividends on our Common
Shares to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business.
As a result, capital appreciation, if any, of our Common Shares will be your sole source of gain for the foreseeable future. Consequently,
in the foreseeable future, you will likely only experience a gain from your investment in our Common Shares if the price of our
Common Shares increases.

 

If we are unable to satisfy the requirements of
Sarbanes-Oxley, or our internal controls over financial reporting are not effective, the reliability of our financial statements
may be questioned.

 

We will become subject to the requirements
of Sarbanes-Oxley if our Common Shares are listed on Nasdaq. Section 404 of Sarbanes-Oxley (“Section 404”)
requires companies subject to the reporting requirements of the U.S. securities laws to complete a comprehensive evaluation of
our internal controls over financial reporting. To comply with this statute, we will be required to document and test our internal
control procedures and our management will be required to assess and issue a report concerning our internal controls over financial
reporting. Pursuant to the JOBS Act, we will be classified as an “emerging growth company.” Under the JOBS Act, emerging
growth companies are exempt from certain reporting requirements, including the independent auditor attestation requirements of
Section 404(b) of Sarbanes-Oxley. Under this exemption, our independent auditor will not be required to attest to and report on
management’s assessment of our internal controls over financial reporting during a five year transition period. We will need
to prepare for compliance with Section 404 by strengthening, assessing and testing our system of internal controls to provide the
basis for our report. However, the continuous process of strengthening our internal controls and complying with Section 404 is
complicated and time-consuming. Furthermore, we believe that our business will grow both domestically and internationally, in which
case our internal controls will become more complex and will require significantly more resources and attention to ensure our internal
controls remain effective overall. During the course of our testing, our management may identify material weaknesses or significant
deficiencies, which may not be remedied in a timely manner to meet the deadline imposed by Sarbanes-Oxley. If our management cannot
favorably assess the effectiveness of our internal controls over financial reporting, or our independent registered public accounting
firm identifies material weaknesses in our internal controls, investor confidence in our financial results may weaken, and the
market price of our securities may suffer.

 

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As a foreign private issuer whose shares are listed
on Nasdaq, we intend to follow certain home country corporate governance practices instead of certain Nasdaq requirements.

 

As a foreign private issuer whose shares
will be listed on Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain requirements
of the Nasdaq rules. We intend to adopt and approve material changes to equity incentive plans in accordance with TSX listing rules,
which do not impose a requirement of shareholder approval for such actions. In addition, we intend to follow the TSX listing rules
in respect of private placements instead of Nasdaq requirements to obtain shareholder approval for certain dilutive events (such
as issuances that will result in a change of control, certain transactions other than a public offering involving issuances of
a 20% or greater interest in us and certain acquisitions of the stock or assets of another company) and the minimum quorum requirement
for a shareholders meeting. Under Nasdaq listing rules, the required minimum quorum for a shareholders meeting is 33 1/3% of the
outstanding common shares, and our minimum quorum requirement is only 10% of the total number of voting rights attaching to all
outstanding Common Shares. See Item 10.B, “Additional Information—Memorandum and Articles of Association—Meetings”.
Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq corporate governance rules for domestic
issuers.

 

We will incur significantly increased costs and
devote substantial management time as a result of operating as a U.S. public company.

 

As a U.S. public company, we will incur
significant legal, accounting and other expenses that we did not incur as a private company or as a Canadian public company. For
example, we will be subject to the reporting requirements of the U.S. Exchange Act, and will be required to comply with the applicable
requirements of Sarbanes-Oxley and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations
subsequently implemented by the SEC and the including the establishment and maintenance of effective disclosure and financial controls
and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial
compliance costs and will make some activities more time consuming and costly. In addition, we expect that management and other
personnel will need to divert attention from operational and other business matters to devote substantial time to these public
company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring
compliance with the requirements of Section 404, which involve annual assessments of a company’s internal controls over financial
reporting. We may need to hire additional accounting and financial staff with appropriate public company experience and technical
accounting knowledge and may need to establish an internal audit function. We cannot predict or estimate the amount of additional
costs we may incur as a result of becoming a U.S. public company or the timing of such costs.

 

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We may lose foreign private issuer status in the
future, which could result in significant additional costs and expenses.

 

We may in the future lose foreign private
issuer status if a majority of our common shares are held in the United States and we fail to meet the additional requirements
necessary to avoid loss of foreign private issuer status, such as if: (i) a majority of our directors or executive officers are
U.S. citizens or residents; (ii) a majority of our assets are located in the United States; or (iii) our business is administered
principally in the United States. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer
will be significantly more than the costs incurred as an SEC foreign private issuer. If we are not a foreign private issuer, we
would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC,
which are generally more detailed and extensive than the forms available to a foreign private issuer. In addition, we may lose
the ability to rely upon exemptions from corporate governance requirements that are available to foreign private issuers.

 

It may be difficult for United States investors
to effect services of process or enforcement of actions against us or certain of our directors and officers under U.S. federal
securities laws.

 

Profound is incorporated under the laws
of the Province of Ontario, Canada. A majority of our directors and officers reside in Canada. Because all or a substantial portion
of our assets and these persons are located outside the United States, it will be difficult for United States investors to effect
service of process in the United States upon us or our directors or officers, or to realize in the United States upon judgments
of United States courts predicated upon civil liabilities under the U.S. Exchange Act or other United States laws. It may also
be difficult to have a judgment rendered in a U.S. court recognized or enforced against us in Canada.

 

We may be a passive foreign investment company (“PFIC”)
for U.S. federal income tax purposes, which generally would result in certain adverse U.S. federal income tax consequences to our
U.S. shareholders.

 

In general, a non-U.S. corporation is a
PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income (the “income test”)
or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production
of, passive income (the “asset test”). Generally, “passive income” includes interest, dividends, rents,
royalties and certain gains, and cash is a passive asset for PFIC purposes. We have made no determination as to whether we are
classified as a PFIC for U.S. federal income tax purposes. The determination of whether we are a PFIC depends on the particular
facts and circumstances (such as the valuation of our assets, including goodwill and other intangible assets) and is also affected
by the application of the PFIC rules, which are subject to differing interpretations. The fair market value of our assets is expected
to depend, in part, upon (i) the market price of the Common Shares, which is likely to fluctuate, and (ii) the composition of our
income and assets, which will be affected by how, and how quickly, we spend any cash that is raised in any financing transaction.
If we were a PFIC for any taxable year during which a U.S. shareholder owned the Common Shares, such U.S. shareholder generally
will be subject to certain adverse U.S. federal income tax consequences, including increased tax liability on gains from dispositions
of the Common Shares and certain distributions and a requirement to file annual reports with the Internal Revenue Service. In light
of the foregoing, no assurance can be provided that we are not currently a PFIC or that we will not become a PFIC in any future
taxable year. Prospective investors should consult their own tax advisers regarding our PFIC status. See Item 10.E, “Additional
Information—Taxation—Certain U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”

 

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ITEM
4. INFORMATION ON THE COMPANY

 

A. History and Development
of the Company

 

		1.	Name, Address and Incorporation; Trading Market

 

Profound is the company resulting from
a “three-cornered” amalgamation involving Mira, Mira Subco (a subsidiary formed to complete the amalgamation) and Profound
Medical Inc. (“Old PMI”). Old PMI was formed by articles of incorporation under the OBCA on June 13, 2008. Mira
was formed by articles of incorporation under the OBCA on July 16, 2014, and following its initial public offering in Canada, was
a “capital pool company” listed on the TSX-V. As a capital pool company, Mira had no assets other than cash and did
not carry on any operations. On June 3, 2015, in anticipation of the amalgamation, Mira changed its name to “Profound Medical
Corp.” (becoming “Profound”) and completed a consolidation of its share capital on the basis of one post-consolidation
common share for every 13.6363 pre-consolidation common shares. On June 4, 2015, Mira (now “Profound”), Mira Subco
and Old PMI completed the amalgamation, with Profound as our surviving holding company, and Mira Subco and Old PMI amalgamating
to form a new OBCA subsidiary, Profound Medical Inc. (“PMI”), to serve as the holding subsidiary of our operating
subsidiaries. Upon completion of the amalgamation, we commenced trading on the TSX-V. On July 13, 2018, we graduated from the TSX-V
and commenced trading on the TSX under the symbol “PRN”.

 

We intend to apply to list our Common Shares
on the Nasdaq in connection with this Registration Statement. Such a listing is dependent upon satisfaction of all necessary listing
requirements as well as this Registration Statement becoming effective with the SEC. On June 13, 2019, we received shareholder
approval for a special resolution authorizing the Board to amend our articles of incorporation to effect a consolidation of all
of the issued and outstanding Common Shares (the “Share Consolidation”), such that the trading price of the
Common Shares following the Share Consolidation would permit us to qualify for a potential listing on the Nasdaq. Although shareholder
approval for the Share Consolidation has been obtained, the exact ratio of the Share Consolidation has not yet been determined,
and will not become effective until a date in the future to be determined by the Board in order to satisfy the applicable listing
eligibility requirements of the Nasdaq.

 

Our head and registered office is located
at 2400 Skymark Avenue, Unit 6, Mississauga, Ontario, Canada L4W 5K5, and its telephone number is (647) 476-1350. Our agent for
service of process in the United States is Corporation Service Company, located at 251 Little Falls Drive, Wilmington, DE 19808.

 

		2.	Summary Corporate History and Intercorporate Relationships

 

Intercorporate Relationships

 

Profound operates its business through
its direct subsidiary, PMI, and its indirect subsidiaries, Profound Medical Oy, Profound Medical GmbH and Profound Medical (U.S.)
Inc.

 

The following diagram illustrates the organizational
structure of Profound and its subsidiaries, their respective jurisdictions of incorporation and the percentage of voting and non-voting
securities owned by Profound as of the date of this Registration Statement.

 

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Corporate History

 

2019 Highlights (Year-to-Date)

 

On August 15, 2019, we received 510(k)
clearance from the FDA to market TULSA-PRO for transurethral ultrasound ablation of prostate tissue.

 

On July 9, 2019, we announced that we sold
our first TULSA-PRO system in Japan. The system was purchased by Hokuyu Hospital in Sapporo via Japan’s PMD Act expanded
access program. The PMD Act, regulated by Japan’s PMDA and Ministry of Health, Labor and Welfare (“MHLW”),
allows physicians to import, with permission from the MHLW, an unapproved medical device directly from the distributor in cases
where there is a clinical urgency and there are no alternatives in Japan.

 

On June 13, 2019, our shareholders approved
a special resolution authorizing the Board to amend our articles of incorporation to effect a consolidation of all of the issued
and outstanding Common Shares at a consolidation ratio that would permit us to qualify for a potential listing on the Nasdaq.

 

In May 2019, based on the TACT 12-month
follow-up data, we submitted an application to the FDA for clearance to market TULSA-PRO in the United States.

 

On May 5, 2019, Dr. Scott Eggener presented
12-month results of the TACT Pivotal Clinical Trial for TULSA-PRO, including the primary efficacy and safety endpoints, as well
as key secondary endpoints.

 

On April 16, 2019, we announced that the
first prostate cancer treatment using a first-of-its-kind TULSA-PRO installation had been performed in Trier, Germany.

 

On April 4, 2019, we announced positive
topline results from the TACT Pivotal Clinical Trial of TULSA-PRO in patients with prostate cancer.

 

Effective as of January 21, 2019, we entered
into and replaced our original co-marketing and co-selling agreement with Siemens.

 

2018 Highlights

 

On September 18, 2018, we press released
3-year clinical outcomes in prostate patients and a BPH subgroup analysis of our Phase I Clinical Trial for TULSA-PRO which was
included in a presentation at the Deutschen Gesellschaft für Urologie (DGU) 2018 conference.

 

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On July 30, 2018, we entered into the CIBC
Loan Agreement, which provided up to C$18.75 million of borrowing capacity. The first tranche of C$12.5 million was funded upon
execution of the agreement, with the option of a second tranche of up to an additional C$6.25 million available through December
31, 2019, subject to the satisfaction of certain financing and product development milestones.

 

On July 11, 2018, we received final approval
for listing of the Common Shares on the TSX to trade under the symbol “PRN”.

 

On May 9, 2018, we obtained Chinese Food
and Drug Administration approval for Sonalleve for the non-invasive treatment of uterine fibroids.

 

On March 20, 2018, we completed the 2018
Bought Deal in which we issued 34,500,000 Common Shares at a price of C$1.00 per Common Share, for total gross proceeds of C$34.5
million.

 

In February 2018, we completed patient
enrollment in the TACT Pivotal Clinical Trial.

 

2017 Highlights

 

On November 6, 2017, we announced the expanded
clinical use in Germany of TULSA-PRO in prostate care to include BPH.

 

On September 20, 2017, we closed the 2017
Bought Deal in which we issued 10,000,000 Common Shares at a price of C$1.00 per Common Share, for total gross proceeds of C$10
million.

 

On July 31, 2017, we completed the acquisition
of the Sonalleve technology from Philips, and expanded our non-exclusive strategic sales relationship to include distribution of
Sonalleve.

 

On March 27, 2017, we announced that the
first TULSA-PRO patient paid procedure was conducted at the ALTA Klinik in Bielefeld, Germany under the supervision of Dr. Agron
Lumiani.

 

2016 Highlights

 

On November 14, 2016, we completed the
2016 Bought Deal in which we issued 15,820,000 Common Shares at a price of C$1.10 per Common Share for aggregate gross proceeds
of C$17,402,000.

 

On May 19, 2016, the FDA granted approval
of an IDE application for our TACT Pivotal Clinical Trial.

 

On May 11, 2016, we announced the signing
of a sales and marketing agreement with Philips to collaborate in the commercialization of our TULSA-PRO system in Europe, Canada,
the United States and other markets, subject to regulatory clearance in those jurisdictions.

 

On April 28, 2016, we announced our first
commercial sale of our TULSA-PRO system in Europe.

 

On April 11, 2016, we affixed the CE Mark
to the TULSA-PRO system following receipt of a CE Certificate of Conformity from our notified body in the European Union. The CE
Mark affixed to the medical device enables us to market the TULSA-PRO system in the European Union and in other jurisdictions accepting
CE marked medical devices such as Norway, Iceland, Liechtenstein and Switzerland.

 

On February 26, 2016, we entered into a
strategic collaboration agreement with Siemens, aimed at advancing the commercial launch of our TULSA-PRO system.

 

Principal Capital Expenditures and
Divestitures

 

See Item 5.B, “Liquidity and Capital
Resources”.

 

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Internet Availability of Company Information

 

The SEC maintains an Internet site (http://www.sec.gov)
that makes available reports and other information that the Company files or furnishes electronically with it. The Company’s
Internet site can be found at http://www.profoundmedical.com. The information on our website is not incorporated by reference into
this Registration Statement and should not be considered a part of this Registration Statement, and the reference to our website
in this Registration Statement is an inactive textual reference only.

 

B. Business Overview

 

Overview

 

We are an early commercial-stage medical
device company focused on the development and marketing of customizable, incision-free therapeutic systems for the ablation of
diseased tissue using our platform technology. Our leading approved product is our TULSA-PRO system, which in August 2019 received
FDA clearance as a Class II device in the United States for thermal ablation of prescribed prostate tissue, benign and malignant,
using transurethral ultrasound ablation (“TULSA”) based on our TULSA-PRO whole gland ablation clinical trial
(the “TACT Pivotal Clinical Trial” or “TACT”), and is also CE marked in the European Union
for ablation of targeted prostate tissue (benign or malignant). In addition, our Sonalleve system is CE marked in the EU for the
treatment of uterine fibroids and palliative pain relief associated with metastases in bone, and is also approved in China for
the treatment of non-invasive treatment of uterine fibroids. Our systems are designed to be used with MRI scanners and are currently
compatible with MRI scanners manufactured by Philips and Siemens. To date, we have primarily generated revenues from our limited
commercialization of our systems in the EU (principally in Germany) and Asia. We intend to commence commercialization of the TULSA-PRO
system in the United States in the near term following our recent FDA clearance. We also continue to pursue additional regulatory
approvals, research and development, clinical studies and acquisitions in order to expand the applications of our platform technology
and expand our commercial footprint.

 

Our Technology Platform

 

 We anticipate that, based on our TACT clinical data and additional
studies conducted in the European Union, 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, with an annual incidence of newly diagnosed cases reaching
450,000 in Europe, according to the International Agency for Research on Cancer, and 175,000 in the United States according to
the American Cancer Society. The American Cancer Society further estimates that there are currently 5.8 million men living with
prostate cancer in these two geographies. 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 with worldwide autopsy proven histological prevalence increases starting at ages 40 to 45 years,
reaching 60% at age 60 and 80% at age 80.

 

We believe that we are the only company
to provide customizable, incision-free therapies which combine real-time MRI, thermal ultrasound and closed-loop temperature feedback
control for the radiation-free and incision-free ablation of diseased tissue. We believe that our platform technology has the potential
to offer clinicians and qualified patients a better alternative to current standards of care for removing or otherwise ablating
benign or malignant prostate tissue, such as traditional surgery or radiation therapy, with respect to clinical outcomes, side
effects and recovery time.

 

TULSA-PRO and Sonalleve share the common
technological concept of using MRI to enable visualization of the surgeon desired tissue in real time. Both products also use thermal
ultrasound technology to heat and ablate tissue. The TULSA-PRO ablation is a catheter-based design, which is to be inserted transurethrally
into the prostate to provide a robotically driven sweeping ultrasound for continuous ablation of the surgeon defined prostate volume.
The Sonalleve ultrasound is provided through a disc located outside the patient and designed to focus the ultrasound to a specific
location inside the patient. The focal point provides the energy for ablation. We believe that Sonalleve has the potential to provide
us with a platform to expand into additional applications that may offer similar advantageous incision-free ablation related benefits
for various disease conditions.

 

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TULSA-PRO

 

Our TULSA-PRO System

 

Our TULSA-PRO system combines real-time
MRI, robotically-driven transurethral sweeping action/thermal ultrasound and closed-loop temperature feedback control. The combination
enables the TULSA-PRO system to provide customizable and predictable radiation-free and incision-free ablation of a surgeon-defined
prostate volume while actively protecting the urethra and rectum through water cooling to minimize the impact of ablation on the
patient’s natural functional abilities.

 

Our TULSA-PRO system is comprised of two
categories of components: disposables and the capital equipment used in conjunction with a customer’s MRI scanner. We have
designed the TULSA-PRO system to be capable of integration with many major MRI scanners currently deployed in hospitals and treatment
facilities. That integration allows the TULSA-PRO system to display high resolution images of the prostate and surrounding anatomy.
The integrated MRI is used for treatment planning but, more importantly, to provide real-time measurement of temperature in the
prostate as the treatment is occurring to enable the physician/clinician to control and monitor tissue ablation. We have designed
our TULSA-PRO technology to work optimally with particular MRI scanners sold by Siemens and Philips and we intend to increase compatibility
of the TULSA-PRO system with models from other MRI vendors over time.

 

The ultrasound applicator (the “UA”)
is a sterile, single use, disposable component of the TULSA-PRO system. The UA produces directional ultrasound beams, through a
linear array of 10 independent ultrasound transducers, each of which is independently computer controlled using real-time MRI feedback
to deliver heat out to the prescribed treatment boundary. The UA is introduced into the patient via the urethra and is precisely
located within the prostate using the system’s robotic positioning, which is controlled by the system’s software together
with MRI feedback for guidance. The real time measurement of the temperature from the MR and the precision of transurethral ultrasound
is intended to enable the TULSA-PRO system to sculpt the ablated tissue volume to the shape of the patient’s prostate, which
may assist in avoiding damage to sensitive structures, including the bladder neck and urethral sphincter.

 

We believe there are a number of expected
clinical advantages of TULSA-PRO procedure over the existing standard of care. As described below, TULSA-PRO technology has demonstrated
accurate and precise ablation of targeted prostate tissue, while providing a well-tolerated favorable safety profile with relatively
minor impact on urinary, erectile and bowel function at 12 months.

 

TACT – Our Pivotal Clinical Trial

 

We received FDA clearance for our TULSA-PRO
system in August 2019 based on our TACT Pivotal Clinical Trial. The TACT Pivotal Clinical Trial is a prospective, open-label, single-arm
pivotal clinical study, of 115 prostate cancer patients across 13 research sites in the United States, Canada and Europe. We commenced
our TACT Pivotal Clinical Trial in August 2016, and completed patient enrollment in February 2018.

 

On May 5, 2019, Dr. Scott Eggener, Chief
Investigator of the TACT Pivotal Clinical Trial, presented 12-month follow-up outcomes during the American Urological Association’s
2019 Annual Meeting Plenary Program in Chicago, IL, including the primary efficacy and safety endpoints, as well as key secondary
endpoints. The TACT Pivotal Clinical Trial met its primary Prostate-Specific Antigen (“PSA”) reduction endpoint
in 110 of 115 (approximately 96%) patients, with median interquartile range PSA reduction of approximately 95% (91-98%) and nadir
of 0.34 (0.12-0.56) ng/ml, and with low rates of severe toxicity and residual clinically significant prostate cancer.

 

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The median age of enrolled patients was
65 years and the median PSA level was 6.3 ng/ml. The study focused on a clinically significant prostate cancer population, where
67.0% (77 out of 115) had NCCN (National Comprehensive Cancer Network) intermediate-risk disease, and 62.6% (72 out of 115) had
Grade Group 2 (GG2) or Gleason Score 7 (GS7) disease. Of the 43 patients with GG1 or GS6 disease, 60.5% (26 out of 43) had high-volume
disease (≥ 3 cores positive, or ≥ 50% cancer core length). Treatment intent was whole-gland ablation with sparing of the
urethra and urinary sphincter. Median targeted prostate volume was 40 cc with treatment delivery time of 51 minutes. A median of
97.6% of the prescribed target volume was heated to ablative temperatures with spatial ablation precision of ±1.4 mm measured
on MRI thermometry during treatment.

 

The primary efficacy endpoint of TACT is
the proportion of patients achieving a post-treatment PSA reduction ≥ 75% of their pre-treatment baseline value. The FDA-approved
protocol’s pre-established performance goal for the success proportion was 50% of patients.

 

Secondary efficacy endpoints include prostate
volume reduction on 12-month MRI and histological response on 12-month 10-core prostate biopsy. The median perfused prostate volume
of patients in TACT decreased from 41 cc to 4 cc, based on assessment from the local research sites, pending review by a central
radiology core lab. Of the 115 patients enrolled in the study, only 4 (3.5%) did not undergo follow-up biopsy, in all cases due
to patient refusal. Among 68 men with pre-treatment intermediate-risk GG2 disease, 54 (79.4%) were free of GG2 disease on one-year
biopsy. Among 94 men with pre-treatment GG2 or high-volume GG1 disease, 72 (76.6%) were free of GG2 or high-volume GG1 disease
on follow-up biopsy. Of the 111 men with one-year biopsy data, 72 (64.9%) had a complete histological response with no evidence
of any cancer, and 16 (14.4%) had low-volume GG1 disease which has virtually no potential for metastases or cancer-related mortality.
The 20.6% rate of residual clinically significant prostate cancer in an intermediate-risk patient population is similar or better
than that reported in prospective studies of modern external beam radiation therapy and other ablation technologies. In addition,
the TACT patients remain amenable to re-treatment with TULSA-PRO or standard of care therapies.

 

The primary safety endpoint of TACT is
the frequency and severity of adverse events graded according to the Common Terminology Criteria for Adverse Events, or CTCAE.
The rate and nature of attributable adverse events were similar to the favorable safety profile reported in the Phase I Safety
 & Feasibility Study of TULSA-PRO (as described below). In the TACT study, attributable serious adverse events occurred in 7.0%
of patients, including 4.3% genitourinary infection, 0.9% urinary retention, 0.9% urinoma, 0.9% ileus (related to urinary catheter),
0.9% deep vein thrombosis, and 0.9% urethral stricture, and in all cases the adverse events were resolved. Similarly, 7.8% of patients
experienced an attributable severe (Grade 3) adverse event, all resolved. There were no rectal injuries or fistulas, and no attributable
Grade ≥ 4 adverse events.

 

Additional secondary endpoints of TACT
focus on functional side effects commonly associated with current prostate cancer therapies, such as erectile dysfunction and urinary
incontinence. At 12 months, 23.5% of patients had moderate erectile dysfunction (surgeon assessed Grade 2 adverse event, intervention
such as medication indicated) and no patient experienced severe erectile dysfunction (Grade 3, intervention such as medication
not helpful). Erectile function was also evaluated using the IIEF Patient-Reported Questionnaire. The median change in IIEF-5 was
a decrease in 3 points, less than the minimal clinically important difference in erectile function. At 12 months, 75.0% (69 out
of 92) of previously potent patients were able to maintain erections sufficient for penetration (IIEF question 2 ≥ 2). With
respect to urinary function, 2.6% of patients had moderate urinary incontinence (surgeon assessed Grade 2 adverse event, pads indicated)
at 12 months. Urinary function was also evaluated using the EPIC Patient-Reported Questionnaire. At 12 months, there was 99.1%
(111 out of 112) preservation of urinary continence (≤1 pad/day), and a 96.2% rate of leak-free continence (leak <1 time/day).

 

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Multivariate predictors of GG2 disease
at one-year biopsy included presence of intraprostatic calcifications at screening, MRI thermal coverage of target volume, and
PIRADS ≥ 3 lesion at one-year post-treatment MRI (p < 0.05).

 

Based on the 12-month outcomes of the TACT
Pivotal Clinical Trial, we submitted our application to the FDA in May 2019 for clearance to market the TULSA-PRO system in the
United States, and on August 15, 2019, we received 510(k) clearance for commercial sales of TULSA-PRO
as a Class II device in the United States for thermal ablation of prescribed prostate tissue, benign and malignant, using
transurethral ultrasound ablation.

 

Phase I Safety and Feasibility Study

 

In March 2014, we completed enrollment
and treatment of 30 patients in the Phase I TULSA multi-jurisdictional safety and feasibility study. The procedure was delivered
using our TULSA-PRO system, with the objective of determining its clinical safety and feasibility for prostate ablation in the
primary treatment setting of patients with localized prostate cancer.

 

In October 2015, the results of our safety
and feasibility study were accepted for publication in European Urology, the official journal of the European Association
of Urology. We presented the successful 12-month Phase I clinical trial outcomes at the European Symposium on Focused Ultrasound
Therapy. Upon completion of the study, the clinical data was also submitted to European regulatory authorities for regulatory clearance
in Europe. Based on our Phase I clinical trial results, in April 2016, we received a CE Certificate of Conformity for the TULSA-PRO
system from our notified body in the EU, and in the fourth quarter of 2016, we initiated a pilot commercial launch of TULSA-PRO
in key European markets where the CE Mark is accepted.

 

Sonalleve

 

Our Sonalleve system combines real-time
MRI and thermometry with focused ultrasound delivered from the outside of the patient to enable precise and incision-free ablation
of diseased tissue. We acquired the Sonalleve technology from Philips in 2017. The Sonalleve system is CE marked in the EU for
the treatment of uterine fibroids and palliative pain treatment of bone metastases. In 2018, the Sonalleve system was also approved
in China by the National Medical Products Administration (“NMPA”) for the non-invasive treatment of uterine
fibroids. We are in the early stages of exploring additional potential indications for which the Sonalleve technology has been
shown in pre-clinical studies to have the potential for clinical application, such as non-invasive ablation of abdominal cancers
and hyperthermia for cancer therapy.

 

Overview of Uterine Fibroids

 

Uterine fibroids are the most common non-cancerous
tumors in women of childbearing age. Based on data from the Agency for Healthcare Research and Quality, we estimate that uterine
fibroids occur in 70-80% of the female population, but only approximately one third of these cases will require treatment. In addition,
based on data from the Agency for Healthcare Research and Quality, we estimate that in the United States, 26 million women between
the ages of 15 and 50 have uterine fibroids, and more than 15 million of them will experience associated symptoms or health concerns
during their lifetimes. Uterine fibroids cause a variety of symptoms that can significantly reduce the quality of life for a woman,
which can include bleeding, pain, pressure and reproductive challenges including infertility, multiple miscarriages, and premature
labor. Treatment options differ in fundamental aspects such as cost, invasiveness, recovery time, risks, likelihood of long-term
resolution of symptoms, need for future care for fibroids, and influence on future childbearing potential.

 

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Our Sonalleve System

 

The procedure using the Sonalleve system
consists of imaging the uterus in an MRI scanner and heating the fibroid or adenomyosis with high-intensity focused ultrasound
energy until the tissue reaches the temperature that causes necrosis. The MRI scanner monitors the progress of the treatment. For
the patient, the technique can be much more convenient and comfortable than traditional surgical procedures, such as hysterectomy
or myomectomy. These require hospital admission on an in-patient basis and sometimes weeks of recovery. In contrast, with Sonalleve
fibroid therapy, patients can be treated on an outpatient basis without the need for anesthesia, discharged the same day and almost
fully recovered within a few days.

 

The Sonalleve bone pain relief application
is indicated for palliative treatments to relieve pain associated with bone metastasis. In the later stages of their disease, many
cancer patients develop bone metastases. Bone changes and malformations irritate nerve endings, which can cause severe and debilitating
pain and become unbearable for many patients. Conventional treatment with strong medication or radiation therapy can result in
unpleasant side effects. Sonalleve provides an alternative option to alleviate this pain. Pain relief can be expected in as quickly
as 2-3 days as compared to radiation therapy which could take up to three weeks.

 

The ultrasound energy utilized in the Sonalleve
system is MR High Intensity Focused Ultrasound (“HIFU”) or MR-HIFU. MR-HIFU therapy uses a focused transducer
to bundle ultrasound energy into a small volume at the target locations inside the body under MRI and visualization. During treatment,
the ultrasound energy beam passes through the intact skin and soft tissue, causing localized high temperatures in the focus area.
The skin and intermediate tissue are left unharmed. Within a few seconds this produces a well-defined region of coagulative necrosis.

 

The Sonalleve system is designed to be
integrated with Philips MRI scanners and we intend to expand this compatibility to additional MRI scanner brands in the future.
MRI can measure temperature changes within the human body non-invasively. 3D MR images provide the anatomical reference data for
treatment planning, while real-time temperature sensitive images are acquired during ablation to provide real-time information
about treatment progress and monitor critical anatomical structures.

 

There are over 200 publications from leading
institutions globally on Sonalleve technology. There are also over approximately 60 medical and scientific institutions globally
that make up the installed base of Sonalleve system.

 

Sales and Marketing

 

To date, we have primarily generated revenues
from our limited commercialization of our systems, including disposables and related services, in the EU (principally in Germany)
and Asia. For the year ended December 31, 2018, approximately 52% and 48% of our revenues were generated in the EU and Asia, respectively,
compared to 77%, 12% and 11% in the EU, South America and Asia, respectively, for the year ended December 31, 2017. For the year
ended December 31, 2016, we had no revenue as we only started our pilot commercial launch in 2017. We intend to commence commercialization
of the TULSA-PRO system in the United States in the near term following our recent FDA clearance.

 

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 surgeon’s motivation behind this evolution has been
to perform procedures that reduce invasiveness, improve clinical outcomes, and reduce recovery times. We are now taking 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.

 

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For the TULSA-PRO system, we generate revenue
from the sale of the capital equipment, procedure-related sales of disposable single use components of the system (which are sold
on a per patient basis), and service revenue for ongoing maintenance of the systems. The key customer segments for TULSA-PRO we
are targeting include academic/university/clinical leadership hospitals as well as private clinics with access to MRI scanners.
We are establishing our own direct sales and marketing teams for sales of TULSA-PRO systems and the disposable components related
thereto, as well as for Sonalleve systems in the jurisdictions where it is approved. The primary focus of our 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 disposable components. We expect to generate recurring revenues from the sale of disposables and
service maintenance.

 

We also collaborate with our strategic
partners Philips and Siemens for lead generation and distribution of the capital equipment, which are currently available through
the Philips and Siemens sales catalogs. The catalogs provide access and enable the sales teams of each collaborator to provide
quotations for potential sales, in those jurisdictions where the product is approved for sale by the relevant regulatory bodies.

 

Sales of Sonalleve currently are primarily
a one-time capital sale with limited recurring service revenue. Given that it is currently only compatible with Philips MRI scanners,
we rely primarily on our strategic partnership with Philips for lead generation and sale of the capital units, which are available
through the Philips sales catalog. With regulatory approval for the sale of Sonalleve only in the EU and China, our current commercial
focus is limited to those jurisdictions.

 

Competition

 

TULSA-PRO

 

Our TULSA-PRO system is intended to ablate
benign and malignant prostate tissue. There are currently no marketed devices indicated for the treatment of prostate diseases
or prostate cancer and our FDA indication and CE mark in the European Union 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 prostectomy; (3) radical prostatectomy (includes open, laparoscopic and robotic
procedures); (4) radiation therapies including, external beam radiation therapy (“EBRT”), brachytherapy and
high dose radiation (“HDR”); (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 (“ADT”) and proton beam therapy. We anticipate that physicians may likewise elect
to use our TULSA-PRO system to ablate benign or malignant prostate tissue in patients with prostate disease such that our system
faces competition from these other options.

 

These competing options each have their
own limitations and benefits and may be appropriate for only 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 surgery or radiation therapy impose 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
and provides a more favorable side-effect profile.

 

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Watchful Waiting; Active Surveillance

 

Watchful waiting means no treatment until
there is an indication that the cancer has spread. Active surveillance is monitoring of the prostate cancer closely with
PSA tests and digital rectal exams. Prostate biopsies may also be done to see if the cancer is becoming more aggressive. Test results
will indicate whether a more aggressive treatment option should be considered.

 

Simple Prostatectomy

 

Simple prostatectomy is recommended for
men with severe urinary symptoms caused by an obstructive prostate gland and whose symptoms are not responsive to other medical
or minimally-invasive therapies. Simple prostatectomy involves removing only the obstructive portion of the prostate gland rather
than the entire gland and surrounding tissue. A simple prostatectomy can be open or robotic. Open simple prostatectomy can be conducted
through retropubic, suprapubic, or perineal routes. Simple prostatectomy has higher morbidity and longer hospitalization in comparison
to less invasive therapies such as transurethral resection of the prostate. Simple prostatectomy is contraindicated in the presence
of cancer.

 

Radical Prostatectomy

 

Radical prostatectomy, an open surgical
removal of the entire prostate gland and some surrounding tissues, represents a current standard of care, practiced by urologists
in North America and Europe, which procedure involves the removal of the localized cancerous tissue. However, the conventional
open surgical technique has high post-surgery incidences of impotence and incontinence and long recovery time. Relatively recently,
robotic surgery systems have become more common in the market. Cited benefits of the robotic technique include improved precision
and range of motion. Risks specific to the robotic technique include longer operation time, the possible need to convert the procedure
to a non-robotic approach, and the need for additional or larger incision sites. Converting the procedure could mean a longer operation
time, resulting in a longer time under anesthesia.

 

External Beam Radiation Therapy

 

EBRT requires multiple weekly clinic visits
over a period of six to eight weeks. The procedure directs a beam of radiation from outside the body to cancerous tissue inside
the body. Although such procedures are relatively costly with studies showing significant risk of collateral damage and lengthy
recovery times, it is non-invasive. It can also be used to irradiate cancer that has spread to other areas.

 

Brachytherapy and High Dose Radiation

 

With brachytherapy, radioactive seeds are
implanted in the prostate to irradiate the cancerous tissue. The seeds irradiate the prostate over time and decay in place to background
levels; they remain implanted and inert afterwards. Side effects of brachytherapy are similar to those of EBRT in terms of urinary,
bowel and erectile function. An alternative is high dose radiation, or HDR, in which highly radioactive seeds are temporarily inserted,
then removed during the same procedure, leaving nothing implanted afterward. HDR has the ability to target tissue, but requires
hospital stays and usually is accompanied by adjunct EBRT over several weeks.

 

Cryoablation

 

Cryoablation freezes cells to death by
introducing cooled liquids and gases to an area of cancerous tissue. Studies show cryoablation offers poor precision and has delivered
impotence rates that are almost as high as those for conventional radical prostatectomy. The procedure also carries a risk of potential
damage to the tissue between the urethra and rectum, potentially resulting in a urinary rectal fistulas.

 

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Trans-rectal High Intensity Focused
Ultrasound (“HIFU”)

 

Trans-rectal HIFU is used increasingly
in the European Union, United States and Canada. This technique utilizes focused ultrasound that is delivered through the rectal
wall to treat the prostate. Image guidance is generally provided by ultrasound. At an FDA urology panel meeting in 2014, the panel
indicated that HIFU can lead to complications such as rectal fistulae and rectal incontinence. Due to the focused treatment zone,
this treatment requires approximately three hours to complete. One limitation of HIFU is prostate size; the procedure is limited
to patients with prostate volume smaller than 40 cubic centimeters. Patients with larger prostates need a separate surgical procedure,
such as transurethral resection of the prostate (“TURP”) or ADT, both described below, to de-bulk or reduce
the size of the prostate prior to HIFU. This additional procedure increases costs and the risk of complications. Recent studies
have indicated positive survival outcomes and thermal ultrasound appears to be gaining traction in certain settings.

 

Adjunct and Emerging Therapies

 

Androgen deprivation therapy, or ADT, uses
hormones to suppress testosterone production and alleviate symptoms, but with the primary side-effect of reduced sexual interest
and activity. Although historically used as a last line of defense for the disease (and typically in a palliative setting), it
is increasingly used as a first line treatment or in combination with other treatments.

 

TURP is a surgical procedure that removes
portions of the prostate gland through the penis. This procedure is used to relieve moderate to severe urinary symptoms caused
by an enlarged prostate, a condition known as BPH. This procedure is also used in adjunct to a HIFU procedure when a prostate gland
is larger than 40 cubic centimeters.

 

Proton beam therapy is a way to deliver
radiation to tumors using tiny, sub-atomic particles (protons) instead of the photons used in conventional radiation treatment.
Proton beam therapy uses new technology to accelerate atoms to approximately 93,000 miles per second, separating the protons from
the atom. While moving at this high speed, the particles are “fired” at the patient’s tumor. These charged particles
deliver a very high dose of radiation to the cancer but release very little radiation to the normal tissue in their path. In theory,
this approach minimizes damage to healthy organs and structures surrounding the cancer. The radiation beams must pass through the
skin, the bladder and the rectum on the way to the prostate gland, and once they reach the gland, they encounter normal prostate
cells and the nerves that control penile erections. Damage to these tissues can lead to complications, including bladder problems,
rectal leakage or bleeding, and erectile dysfunction.

 

We believe that use of the TULSA-PRO system
as a tool to ablate prostate tissue can provide a clinician and his or her patients with the following clinical advantages:

 

		·	Clinically shown to have millimeter accuracy designed to ablate prostate tissue while sparing nearby
critical structures, and that real time MR thermometry also ensures precision in ablation temperature, minimizing side effects
that can occur from overheating;

 

		·	Enables clinician to define the boundaries of the tissue to be ablated, whether the whole prostate
or any of its subsections, to ensure customization of the needs of each patient;

 

		·	Transurethral approach allows for ablation of even the largest prostates that may be 120 cubic
centimeters or larger in size;

 

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		·	Potential to be a single outpatient procedure with a rapid recovery time; and

 

		·	Designed to be compatible with leading MRI platforms and could become part of a continuum of care
from MR imaging diagnosis, MR guided biopsy to MR guided treatment.

 

We believe that the flexibility of the
TULSA-PRO system may allow us to demonstrate its use as a tool for ablating benign and malignant diseased prostate tissue with
greater speed and precisions than current options while minimizing potential side effects. We believe that the TULSA-PRO system
may overcome certain limitations of other devices and methodologies for removing or addressing disease prostate tissue including
HIFU, such as complications associated with trans-rectal delivery and limitations relating to prostate size. We believe that a
transurethral (inside out) ablation approach with millimeter accuracy has advantages over HIFU in ablating the whole gland safely.

 

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. Most common treatment options for uterine fibroids include: (1) hormonal medications including gonadotrophin
releasing hormone agonists (“Gn-RH”); (2) progesterone releasing intra-uterine devices; (3) surgical procedures
such as hysterectomy and myomectomy; and (4) uterine artery embolization.

 

We believe that the Sonalleve system may
provide a treatment option that is more convenient and comfortable with less side effects than surgical procedures, such as hysterectomy
or myomectomy.

 

Hormonal Medications

 

Fibroids can be treated with hormonal drugs,
such as Gn-RH agonists. Gn-RH agonists can treat fibroids by blocking the production of estrogen and progesterone, putting women
into a temporary postmenopausal state. As a result, menstruation stops, fibroids shrink and anemia is often alleviated. Other hormonal
medications can also be utilized in patients with uterine fibroids. In many cases, however, medication may provide only temporary
relief from the symptoms caused by fibroids. The symptoms often return when the patient stops taking the medication. Moreover,
the side effects of some drugs may cause them to be unsuitable for some patients. Gn-RH agonists typically are used for no more
than three to six months because long-term use can cause loss of bone.

 

Progesterone Releasing Intra-Uterine
Devices

 

Progesterone releasing intra-uterine
devices can relieve heavy bleeding caused by fibroids. However, these devices can only provide symptom relief and do not impact
the fibroid itself.

 

Uterine Artery Embolization

 

Uterine artery embolization involves injection
of embolic agents into the arteries that supply the uterus, thereby cutting off the blood supply to the fibroids. Many women require
at least one day of hospitalization and heavy pain medication. The prolonged pain may slow down the recovery period. Complications
may occur if the blood supply to the ovaries or other organs is compromised.

 

Surgery

 

Surgical options for the treatment of uterine
fibroids include hysterectomy and myomectomy. Hysterectomy is a surgical procedure which involves the complete removal of uterus
with or without removal of the cervix, ovaries and fallopian tubes. Hysterectomy can be performed abdominally in an open, laparoscopic,
robotic-assisted or vaginal method. Surgical options are associated with blood loss, hospital stays, long recovery times, pain
and scarring. Post-operative complications can include infections, urinary incontinence, vaginal prolapse, fistula formation and
chronic pain. After a hysterectomy, a woman will enter menopause and is infertile. Myomectomy is a surgical procedure to remove
uterine fibroids from the wall of the uterus. The procedure can be performed with an abdominal incision, laparoscopic, or hysteroscopic.

 

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We believe that use of the Sonalleve system
as a tool to ablate uterine fibroids can provide a clinician and his or her patients with the following clinical advantages:

 

		·	Millimeter accuracy designed to ablate uterine fibroid while sparing nearby critical structures;

 

		·	Outpatient procedure with rapid recovery time, not requiring general anesthesia; and

 

		·	Non-invasive approach using thermal ablation designed to heat the uterine fibroid; and guided by
real-time MRI with temperature (thermometry) feedback.

 

Alliances and Partnerships

 

Philips

 

On July 31, 2017, we entered into the Philips
Share Purchase Agreement with Philips in order to expand the existing collaboration and acquire the Sonalleve technology, which
we use in our Sonalleve system (the “Sonalleve Transaction”).

 

Under the terms of the Philips Share Purchase
Agreement, we acquired from Philips its Sonalleve assets for upfront consideration of 7,400,000 Common Shares. The Philips Share
Purchase Agreement includes earn-out provisions that require us to pay additional consideration of: (i) 5% of Net Sales (as defined
below) occurring after July 31, 2017 for the calendar year 2017; (ii) 6% of Net Sales occurring in the calendar year 2018; and
(iii) 7% of Net Sales occurring in the calendar years 2019 and 2020. To the extent that the cumulative Net Sales for the full calendar
years 2017 through 2020 exceeds €45,300,000, we will be required to pay an additional earn-out equal to 7% of Net Sales for
the period beginning after July 31, 2017 through December 31, 2019. To date, we have paid €99,059 (C$147,469) as part of the
earn-out provision, including €80,771 (C$121,157) for the year ended December 31, 2018.

 

“Net Sales” include the revenues
(less any royalties) received by us or third parties on our behalf in respect of the sale or transfer of the Sonalleve technology,
any subsequent, successor or next-generation treatment technology of which is primarily based on Sonalleve and which utilizes intellectual
property rights acquired under the Philips Share Purchase Agreement or any future product that combines the technologies of Sonalleve
and TULSA-PRO and any amounts received by us with respect to service agreements, but does not include any revenues with respect
to consumables.

 

As part of the Sonalleve Transaction, we
expanded our non-exclusive strategic sales relationship with Philips for our TULSA-PRO system to include distribution of Sonalleve.

 

We have also entered into several other
agreements with Philips, including (1) the Philips Supply Agreement pursuant to which Philips is required to manufacture our Sonalleve
systems for a certain period, (2) the Philips Confidentiality Agreement in which Philips agreed to certain non-competition terms,
and (3) a Philips Resale Purchasing Agreement, in which Philips is permitted to purchase and resell certain of our products to
its customers. For more details on these agreements, see Item 10.C, “Additional Information—Material Contracts”.

 

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Siemens

 

On February 26, 2016, we entered into a
strategic collaboration agreement with Siemens (the “Original Siemens Agreement”), aimed at advancing the commercial
launch of our TULSA-PRO system in approved jurisdictions. As of April 1, 2018, our TULSA-PRO systems are marketed by Siemens through
its electronic catalog.

 

On February 11, 2019, we entered into the
New Siemens Agreement, effective as of January 21, 2019, which replaced the Original Siemens Agreement. Under the New Siemens Agreement,
all prior financial commitments and obligations owed to Siemens were released and replaced with a one-time fixed license fee and
per annum payments calculated based on annual volume of our systems interfaced to a Siemens MRI scanner. The initial term of the
New Siemens Agreement is five years, but will be automatically extended for successive terms of one year thereafter unless terminated
earlier. We also obtained a non-exclusive license to Siemens Access I interface software and reasonable support for the term of
the New Siemens Agreement.

 

Knight

 

Knight acts as our exclusive distributor
for TULSA-PRO in Canada pursuant to a 10-year distribution, license and supply agreement initially entered into in April 2015 (which
may be extended for successive 10-year periods at the option of either party). Currently, we are not planning any significant commercialization
efforts in Canada.

 

Manufacturing and Supply

 

We rely principally on third parties for
the manufacturing of the components of our system; however, we are responsible for assembly and testing.

 

We have designed the TULSA-PRO system to
be capable of integration with some of the MRI scanners from two of the major MRI manufacturers (Philips and Siemens) and the Sonalleve
system with one MRI manufacturer (Philips). As not all hospital and treatment facilities utilize MRI scanners that are compatible
with the TULSA-PRO and Sonalleve systems, such facilities would be required to acquire compatible MRI technology, which may involve
additional capital expenditure and which could restrict or delay utilization of the systems by such facilities. Accordingly, we
intend to expand compatibility of the systems with other MRI scanners in the future.

 

Our systems are assembled from off-the-shelf
and custom-made components. We have entered into and expect to enter into additional manufacturing, licensing and distribution
arrangements with one or more QSR compliant and FDA registered contract manufacturers for the materials and components used in
our products. The TULSA-PRO and Sonalleve systems consist of common electronic components, proprietary capital equipment and proprietary
disposables. We purchase standard electronic components from a number of third party vendors. The capital equipment consists of
custom system electronics, treatment delivery console, fluid circuits and an MRI compatible robotic positioning system. Printed
circuit boards and assemblies and custom mechanical parts are outsourced to approved suppliers. TULSA-PRO disposables consist of
the UA, an endo-rectal cooling device and associated accessories. Due to sterility requirements used in connection with the TULSA-PRO
system, the UA must be manufactured under clean conditions. We have developed proprietary automated manufacturing test equipment
to improve quality and provide scalability as demand grows and this equipment is assembled and tested in-house. We assemble and
test the UA and endo-rectal cooling device in-house.

 

We have no long-term contracts with our
suppliers, and we are not bound by any minimum purchase volume undertakings with such suppliers.

 

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We currently rely on single source suppliers
for certain components used in our systems. In connection with our anticipated commercialization of our approved products, we intend
to procure alternative supply arrangements for these components. See Item 3.D, “Risk Factors—Risk Factors Relating
to Our Business and Growth Strategy—We depend on single-source suppliers for some of the components in our systems.”

 

Regulation

 

On August 15,
2019, we obtained 510(k) clearance for commercial sale of the TULSA-PRO as a Class II device in the United States, and have
previously received a CE Certificate of Conformity for our products in European Union, and have recently obtained regulatory approval
for Sonalleve in China. Additionally, the TULSA-PRO system has received regulatory clearances or approvals for commercial sale
in Saudi Arabia, Singapore and China, while the Sonalleve system has received regulatory clearance or approval for commercial sale
in Canada, Saudi Arabia, South Korea and Malaysia. Our long-term goal is to expand our regulatory indications in Asia and other
parts of the world where potential profitable business development opportunities warrant such investments.

 

United States

 

The FDA strictly regulates medical devices
under the authority of the FFDCA and the regulations promulgated under the FFDCA. The FFDCA and the implementing regulations govern,
among other things, the following related to our products: preclinical and clinical testing, design, manufacture, safety, efficacy,
labeling, storage, record keeping, sales and distribution, importation, post-market adverse event reporting, recalls, and advertising
and promotion.

 

The TULSA-PRO system, and any future medical
devices that we may develop, will be classified by the FDA under the statutory framework described in the FFDCA. Medical devices
are classified into three classes from lowest risk (Class I) to highest risk (Class III). Unless an exemption applies, medical
devices require FDA clearance or approval prior to commercial sale in the United States depending on the assigned risk class. Most
Class I devices and some Class II devices are exempt from premarket review requirements. Class I devices are subject to the “general
controls” of the FFDCA, which include facility registration and device listing, quality system requirements, labeling requirements,
medical device reporting, and reporting of corrections and removals. Most Class II devices and some Class I devices require FDA
clearance of a 510(k) premarket notification prior to marketing. A 510(k) premarket notification must demonstrate that the device
is substantially equivalent to a previously marketed predicate device. In addition to the general controls, Class II devices are
subject to “special controls,” such as performance standards and guidance documents, as identified in the classification
regulation for the device type. Class III devices require FDA approval of a premarket approval application, or PMA, demonstrating
the safety and effectiveness of the device, prior to commercial distribution. Class III devices are those deemed by the FDA to
pose the greatest risk, such as life-sustaining, life-supporting or implantable devices. Class III devices are subject to the general
controls and any conditions of approval in the PMA approval order, which can include postmarket study requirements. Novel devices
that have not been classified and devices deemed not substantially equivalent to a predicate device are automatically classified
into Class III. For such low- to moderate-risk devices, the manufacturer can submit a de novo classification request to classify
the device into Class I or Class II. 510(k) premarket notifications, de novo classification requests, and PMA applications are
subject to the payment of user fees paid at the time of submission for FDA review.

 

Clinical trials are generally required
to support a PMA application and are sometimes required for 510(k) clearance or de novo classification requests. Such trials, if
conducted in the United States, generally require an IDE application, approved in advance by the FDA for a specified number of
patients and study sites, unless the product is deemed a non-significant risk device eligible for more abbreviated IDE requirements
or an exemption applies. Clinical trials are subject to extensive monitoring, recordkeeping and reporting requirements as well
as a requirement to submit information regarding certain clinical trials to a public database maintained by the National Institutes
of Health. Clinical trials must be conducted under the oversight of an IRB, for the relevant clinical trial sites and must comply
with FDA regulations, including but not limited to those relating to good clinical practices and informed consent.

 

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After a device is placed on the market,
numerous regulatory requirements apply. Device manufacturers and importers must register their establishments annually, list the
devices they manufacturer and pay an annual registration fee. Device manufacturers are also subject to the QSR, which includes
both design control requirements and good manufacturing practice requirements (such as requirements for purchasing controls, document
controls, production and process controls, labeling and packaging controls, control of nonconforming product, complaint handling,
corrective and preventative actions, storage, handling, distribution, and servicing). Devices must be labeled in accordance with
the FDA’s device labeling regulations, including Unique Device Identification requirements. The FDA also regulates the promotion
of medical devices, including a requirement that all device promotion be truthful and non-misleading and a prohibition against
the promotion of devices for uncleared, unapproved or off-label use or indications. Under the medical device reporting regulations,
manufacturers and initial importers must submit a report to the FDA if they become aware of information that reasonably suggests
that one of their marketed devices may have caused or contributed to a death or serious injury or malfunctioned and the malfunction
would be likely to cause or contribute to a death or serious injury if it were to recur. Manufacturers must also report any corrections
or removals that include repairs, adjustments, relabeling, or destruction of distributed devices, if the correction or removal
was initiated to reduce a risk to health or to remedy a violation of the FFDCA caused by the device which may present a risk to
health.

 

The FDA has broad enforcement authority
to take action against a failure to comply with the clinical trial, premarket review, or postmarket regulatory requirements discussed
above and the agency conducts routine inspections of device manufacturers to determine compliance with these requirements. FDA
enforcement typically takes the form of inspectional observations at the close of inspection, an Untitled Letter (a private letter
raising compliance questions), or a Warning Letter (a public letter alleging noncompliance). However, the FDA has authority to
take additional enforcement actions including: civil monetary penalties, criminal fines and prosecution, injunctions, mandatory
recall, and import detentions.

 

European Union

 

In the European Union, legal manufacturers
of medical devices, such as the TULSA-PRO and Sonalleve systems, are required to comply with the Essential Requirements laid down
in Annex I to the Council Directive 93/42/EEC concerning medical devices, known as the Medical Devices Directive (“MDD”).
Active implantable medical devices and in-vitro diagnostic medical devices are regulated in separate EC directives. Compliance
with these requirements entitles us to affix the CE Mark to our medical devices, without which they cannot be commercialized in
the European Union. To demonstrate compliance with the Essential Requirements and obtain the right to affix the CE Mark to our
medical devices, we must undergo a conformity assessment procedure, which varies according to the type of medical device and its
classification. The MDD provides for four different classifications of medical devices based on their risk: Class I, Class IIa,
Class IIb and Class III. Except for low risk medical devices (Class I with no measuring function and which are not sterile), in
relation to which the manufacturer may prepare an EC Declaration of Conformity based on a self-assessment of the conformity of
its products with the Essential Requirements, a conformity assessment procedure requires the intervention of a Notified Body. A
Notified Body is a private body or company designated by the competent authorities of a European Union Member State to conduct
conformity assessments and to execute the provisions of the MDD (as implemented in the respective national legal system) in the
interest of public health. Depending on the device’s risk category/class, the conformity assessment of the Notified Body
extends to the quality assurance system established by the manufacturer and/or the product design, as well as to the Technical
Documentation to be compiled by the manufacturer for each device.

 

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As part of the conformity assessment process,
medical device manufacturers must carry out a clinical evaluation of their medical devices to verify that they comply with the
relevant Essential Requirements covering safety and performance. A clinical evaluation is defined as a “methodologically
sound ongoing procedure to collect, appraise and analyze clinical data pertaining to a medical device and to evaluate whether there
is sufficient clinical evidence to confirm compliance with relevant essential requirements for safety and performance when using
the device according to the manufacturer’s Instructions for Use”. A clinical evaluation must address the intended purpose
of the device, clinical performance, benefits that outweigh associated risks and the usability of the device.

 

This assessment must be based on clinical
data (Annex X of the MDD), which can be obtained from (i) clinical studies conducted on the devices being assessed; (ii) scientific
literature from similar devices whose equivalence with the assessed device can be demonstrated; or (iii) both clinical studies
and scientific literature. As part of the conformity assessment procedure, depending on the type of devices, the Notified Body
will review the manufacturer’s clinical evaluation for the medical device.

 

If the Notified Body finds, as a result
of its conformity assessment, that the quality assurance system and/or the product design is compliant with the applicable legal
provisions, it issues a CE Certificate of Conformity, which is valid for a maximum of five (5) years. On the basis of these Notified
Body CE Certificates of Conformity, the manufacturer is able to draw up an EC Declaration of Conformity and affix the CE Mark to
the relevant device, followed by the ID number of the Notified Body. The CE mark allows the device to be placed on the market throughout
the EU and the European Economic Area (“EEA”), as well as in Switzerland and Turkey based on bi-lateral treaties.

 

The Notified Body is obliged to perform
regular audits and, before the expiry date of a certificate of conformity, renewal audits at the manufacturer’s site upon
prior notification. In addition to these notified audits, on the basis of a Commission Recommendation of 2012, the EU member states
were advised by the European Commission to conduct unannounced audits (including testing of product samples) on a regular basis.

 

If the requirements for application of
the CE mark are not (or no longer) fulfilled, or in other cases of non-compliance with applicable medical devices law:

 

		·	the Notified Body has the power to withdraw, suspend or limit the scope of the applicable certificate of conformity, in accordance
with the principle of proportionality;

 

		·	the competent supervisory authority of the EU member state may enforce the provisions of the MDD, e.g. by preventing the product
from being put on the market, ordering a recall or shutting down a manufacturing site;

 

		·	criminal or administrative sanctions (e.g. fines) may apply.

 

In the European Union, we must establish
a medical device vigilance system, including post-marketing surveillance and adverse event reporting procedures. Under this system,
incidents occurring in the EU that might lead to or might have led to the death of a patient or user or of other persons or to
a serious deterioration in their state of health must be reported to the relevant authorities of the European Union Member States.
Manufacturers are required to take FSCAs, including product recalls and withdrawals, to reduce a risk of death or serious deterioration
in the state of health associated with the use of a medical device that is already placed on the market. Manufacturers have to
appoint a safety officer having the necessary professional qualifications to fulfil the reporting requirements and to coordinate
the necessary actions. For class I devices and certain other devices, the manufacturer of the device or its authorized representative
in the EU, must also register with the competent authority before placing the product on the market in the EU.

 

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The advertising and promotion of our products
in the European Union is subject to the provisions of the Medical Devices Directive, Directive 2006/114/EC concerning misleading
and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national legislation in
the individual European Union Member States governing the advertising and promotion of medical devices. These laws may limit or
restrict the advertising and promotion of our products to the public and may impose limitations on our promotional activities with
healthcare professionals. In Germany, a company which advises healthcare professionals on the handling and use of medical devices
 – as may be the case for the TULSA-PRO and Sonalleve devices – has to appoint a “medical devices advisor”
(Medizinprodukteberater) with appropriate qualification and professional experience as set out in the German Medical Devices Act
(Medizinproduktegesetz).

 

On April 5, 2017, the EU adopted a new
Medical Devices Regulation (EU) 2017/745 (the “New EU MDR”), which will repeal and replace the Medical Device
Directive effective May 26, 2020. The New EU MDR does not set out a substantially different regulatory system, but clearly envisages,
among other things, stricter controls of medical devices, including strengthening of the conformity assessment procedures, increased
expectations as regards clinical data for devices and pre-market regulatory review of high-risk devices. The New EU MDR also envisages
greater control over Notified Bodies and their standards, increased transparency through the establishment of a comprehensive EU
database on medical devices, more robust device vigilance requirements and clarification of the rules for clinical investigations.
Further, new classification rules apply. Under transitional provisions, medical devices with notified body certificates issued
under the Medical Devices Directive prior to May 25, 2017 may continue to be placed on the market for the remaining validity of
the certificate. Certificates of conformity issued by Notified Bodies in accordance with the MDD after May 25, 2017 and prior to
May 26, 2020 will remain valid until the end of the period indicated on the certificate, but will expire on May 26, 2024 at the
latest, except for certificates issued in accordance with Annex IV to Directive 90/385/EEC or Annex IV to the MDD which shall become
void at the latest on May 27, 2022. After the expiry of any applicable transitional period, only devices that have been CE marked
under the New EU MDR may be placed on the market in the EU.

 

Canada

 

Health Canada’s Therapeutic Products
Directorate (“TPD”) is the Canadian authority that regulates medical devices. In general, prior to being given
market authorization to sell a Class II, III or IV medical device in Canada, a manufacturer must present and/or attest to substantive
scientific evidence of a product’s safety, efficacy and quality as required by the Food and Drugs Act and the Medical Devices
Regulations (“Canada MDR”).

 

The Medical Devices Bureau (“MDB”)
of the TPD applies the Canada MDR through a combination of pre-market review, post-approval surveillance and quality systems in
the manufacturing process. Medical devices are classified into one of four classes, where Class I represents the lowest risk and
Class IV represents the highest risk. In order to perform investigational testing in Canada for a Class II, III or IV medical device,
authorization for the testing must be granted by the MDB. A Medical Device License is a pre-market requirement for a Class II,
III and IV medical device, including for Class II, III or IV medical devices previously authorized for sale for investigational
testing now to be offered for general/commercial sale. A Medical Device License is issued to the device manufacturer, provided
the requirements of the Canada MDR are met.

 

The Canada MDR requires that medical devices
be manufactured under a certified QMS that meets the criteria of the international standard, ISO 13485 Medical devices –
Quality management systems – Requirements for regulatory purposes. The MDB currently recognizes the Medical Device Single
Audit Program, a program designed to include compliance with the QMS requirements of the Canada MDR. We are manufacturing the
TULSA-PRO system under a certified ISO 13485 Quality Management System.

 

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Our Current Regulatory Status

 

TULSA-PRO

 

On August 15, 2019, we received 510(k)
clearance for commercial sales of the TULSA-PRO as a Class II device in the United States for transurethral ultrasound ablation
(“TULSA”) of prostate tissue, and in April 2016 the TULSA-PRO system was CE marked in the European Union for
ablation of targeted prostate tissue (benign or malignant). Outside of these jurisdictions, the TULSA-PRO system will require country-specific
pre-market clearance or approval prior to launch.

 

Upon completion of our Phase I safety and
feasibility study for TULSA-PRO in April 2016, we were granted CE Mark approval for the commercial sale of the TULSA-PRO system
in Europe and in other CE Mark jurisdictions.

 

In August 2016, we initiated TACT Pivotal
Clinical Trial, which the FDA approved under an IDE application. The TACT Pivotal Clinical Trial was designed to support a 510(k)
premarket notification submission in the United States. This submission was made in May 2019 in support of clearance of the TULSA-PRO
system by the FDA for use in the ablation of prostate tissue in the United States.

 

In Canada, we are currently manufacturing
the TULSA-PRO system under a certified ISO 13485 Quality Management System. However, on October 26, 2017, Health Canada refused
Medical Device License approval of TULSA-PRO requiring further clinical evidence beyond the Phase I data. We are in the process
of evaluating the additional requirements with Health Canada, however, the Canadian market is not considered a lower priority from
a commercialization strategy perspective in light of its relatively small size.

 

Sonalleve

 

The Sonalleve applications to treat uterine
fibroids and bone metastasis are CE marked and available in the European Union and its member states. The uterine fibroids application
is also available for sale in Canada. Philips Oy had registered Sonalleve in several Middle East, North African, and South Asian
countries. We are in the process of transferring existing regulatory registrations of Sonalleve from Philips Oy to us. We are also
in the process of assessing current clinical research network activities and the investigator lead studies in the United States
to form regulatory strategies for several potential indications.

 

In 2018, Sonalleve was also approved in
China by the NMPA for the non-invasive treatment of uterine fibroids.

 

Reimbursement

 

Our ability to successfully commercialize
our products depends in large part on the extent to which coverage and 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 payers. Pricing and reimbursement procedures and decisions vary from country to country. Many government
health authorities and private payers condition payment on the cost-effectiveness of the product. Even if a device is CE marked
or has received regulatory clearance or approval, there is no guarantee that third party payers 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 adequate coverage and reimbursement to hospitals and clinicians using our products therefore is
critical to our ability to generate revenue.

 

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Although we expect there to be an out-of-pocket
market for our approved products, an out-of-pocket market alone is unlikely to be sufficient to support successful commercialization
of our products. To date, our products do not have significant coverage or reimbursement from government or third-party payers
in the jurisdictions where they are approved. For more information, see Item 3.D, “Risk Factors—Risks Related to Our
Business and Growth Strategy—Successful commercialization of our approved products will also depend on the cost of the system
and the availability of coverage and adequate reimbursement from third-party payers.”

 

We plan to pursue reimbursement for our
products in these and other key markets where we have regulatory approvals.

 

Intellectual Property

 

Our intellectual property is comprised
of a broad and world-wide portfolio of patents, patent applications, trademarks, copyrights, trade secrets and other proprietary
assets. Our intellectual property portfolio is both growing and dynamic and includes approximately 38 patent families representing
approximately 120 granted or allowed patents and 58 patent applications in various stages of review and prosecution around the
world.

 

Many of our patents and patent applications
claim electronic and mechanical aspects of hardware, software and methods related to ultrasonic ablation of tissue. The intellectual
property assets are largely directed to (i) using real time MRI imaging as a tool to plan, monitor or control said ultrasonic ablation;
(ii) MRI thermometry methods, especially in respect of our ultrasound therapy processes and devices; (iii) the phasing, beam-forming,
and control of acoustic arrays and similar energy sources; (iv) computational method to improve filtering, imaging and analyzing
the results of MRI-guided thermal therapy processes; and (v) secondary and support systems such as active cooling of near-target
tissues. The portfolio covers both the “TULSA” and the “Sonalleve” families of products, as well as generic
technologies and applications and extensions of our products.

 

We believe that the protection of our intellectual
property is an essential element of our business and we intend to continue our investment in the development of our intellectual
property portfolio. We have worked over the past year to pursue, maintain and expand on the intellectual property portfolio acquired
from Philips in 2017. This intellectual property has been strengthened and extended to many jurisdictions around the globe in support
of our sales, development and marketing efforts.

 

We pursue a global intellectual property
strategy, registering for patent protection in all jurisdictions where we intend to carry on business, including the United States,
Canada, Japan, major European markets (e.g., Germany, France, U.K., Italy, Spain and Turkey) and the emerging markets (e.g., Brazil,
Russia, India, and China).

 

We also rely upon trade secrets, know-how
and other proprietary, confidential information for the protection of our technology. We require all employees, consultants, scientific
advisors and other contractors to enter into confidentiality agreements to protect against the disclosure of such proprietary information.
Each inventor is required to execute a formal assignment specific to each invention that he or she has listed, and which is officially
recorded in the proper patent office.

 

Licenses

 

In addition to developing our own intellectual
property portfolio, we have licensed and acquired intellectual property rights from third parties through exclusive licenses, collaborative
research and asset purchase agreements. Material license agreements include an exclusive license with Sunnybrook entered into on
May 16, 2011 (the “Sunnybrook License”). Under the Sunnybrook License, Sunnybrook granted us an exclusive worldwide
and royalty-free right to use certain defined Sunnybrook technology in connection with, among other things, manufacturing, marketing
and selling products such as the TULSA-PRO system, in the field of MRI-guided transurethral ultrasound therapy. Under the license,
we are subject to various obligations, including a milestone payment of C$250,000 that was paid in connection with our recent FDA
clearance of TULSA-PRO. In addition, we are required to pay legal costs associated with patent application preparation, filing
and maintenance. If either party to the Sunnybrook License breaches or fails to perform a material obligation and fails to cure
such breach or perform such obligations within a 30 day cure period, the non-breaching party may terminate the agreement. Material
obligations include our agreement not to use the technology or intellectual property outside of the license scope, not to use the
technology or intellectual property outside the field of MRI-guided transurethral ultrasound therapy (or permitting our customers
to do so) and not to breach confidentiality obligations.

 

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C. Organizational
Structure

 

For the organizational structure of our
company, see Item 4.A, “History and Development of the Company—Summary Corporate History and Intercorporate Relationships—Intercorporate
Relationships”.

 

D. Property, Plants
and Equipment

 

We operate from leased premises in three
different locations. We do not own any real estate property.

 

	Location	 	Area	 	Premise Use	 	Expiry Date
	2400 Skymark Ave, Unit 6, Mississauga, ON, Canada	 	38,148 ft2	 	Corporate offices and administration, Manufacturing, Research and Development	 	September 30, 2026
	Äyritie 4B, 01510 Vantaa, Finland	 	6,372 ft2	 	Manufacturing, Research and Development	 	December 31, 2021
	Kehrwieder 9, 20457 Hamburg, Germany	 	162 ft2	 	Sales and Marketing	 	month to month

 

We assemble and test TULSA-PRO and Sonalleve
systems at dedicated manufacturing facilities located in Canada and Finland which are ISO 13485 certified. Our manufacturing model
consists primarily of outsourcing manufacturing of the components of our systems where it is most cost effective to do so, while
assembling and quality testing the final products in-house. Additionally, single use products are assembled entirely in the Mississauga
facility within a class 300 clean room which became operational in August 2017. Our manufacturing facilities have sufficient capacity
to meet our manufacturing needs through the foreseeable future.

  

ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and
Senior Management

 

Directors

 

Set out below is information with respect
to our directors. Our directors are elected by our shareholders at each annual general meeting.

 

	Name, Age
    and

    Residence	 	Positions
    with

    the Company	 	Date
    First Appointed to the Board	 	Principal
    Occupation
	Arun Menawat

Age: 64

Oakville, Ontario, Canada	 	Chief Executive Officer and Director	 	June 4, 2015	 	Chief Executive Officer and Director of the Company (since August 2016); Chairman, President and Chief Executive Officer of Novadaq Technologies Inc. (from 2003 to 2016).
	 	 	 	 	 	 	 
	Brian Ellacott(1)

Age: 62

Sanibel Island, Florida, USA	 	Director	 	June 14, 2018	 	Chief Executive Officer Belmont Instrument Corporation, a medical device company (since 2017); President and Chief Executive Officer Laborie Medical Technologies, a medical device company (from 2013 to 2017).
	 	 	 	 	 	 	 
	
        Steve Forte(1)

        Age: 40

        Montréal, Québec,
        Canada
	 	Director	 	August 6, 2019	 	Chief Financial Officer Clementia Pharmaceutical (from August 2018 to July 2019); Chief Financial Officer Thinking First (from September 2015 to August 2018); Executive Director of Finance (from September 2014 to September 2015); Vice-President, Financial Reporting Aptalis Pharma Inc. (from April 2011 to May 2014)

 

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	Name,
Age and 

Residence	 	Positions with

    the Company	 	Date First Appointed
    to the Board	 	Principal Occupation
	Kenneth Galbraith(1)(2)(3)

Age: 56

Vancouver, British Columbia, Canada	 	Director	 	January 17, 2017	 	Chief Executive Officer Prometic Life Sciences (since April 2019); Founder of Five Corners Capital, a venture capital management company (since 2013).
	 	 	 	 	 	 	 
	Linda Maxwell (2)

Age: 45

Toronto, Ontario, Canada 	 	Director	 	October 9, 2018	 	Surgeon (since 2005); Executive Director, Biomedical Zone at Ryerson University (since June 2015); Technology Transfer Manager University of Oxford (from June 2013 to July 2014)
	 	 	 	 	 	 	 
	Jean-François Pariseau(2)

Age: 50

Montréal, Québec, Canada	 	Director	 	June 4, 2015	 	Co-Founder and Partner at Amplitude Ventures (since July 2018); Partner, BDC Capital Healthcare Fund, a venture capital company (since July 2001 to June 2018).
	 	 	 	 	 	 	 
	Arthur Rosenthal(4) 

Age: 72 

Oro Valley, Arizona, USA	 	Director	 	June 14, 2018	 	Professor of Practice in the Biomedical Engineering Department at Boston University (since 2010); Chief Executive Officer of gEyeCue, Ltd., a medical technology company (since 2011).

 

		(1)	Member of the Audit Committee.

 

		(2)	Member of the Human Resources and Corporate Governance Committee.

 

		(3)	Chair of the Audit Committee.

 

		(4)	Chair of the Human Resources and Corporate Governance Committee.

 

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Director Biographies

 

Arun Menawat – Chief Executive
Officer and Director – Dr. Menawat has an accomplished history of executive leadership success in the healthcare industry.
Since April 2003 until to joining Profound, he served as the Chairman, President and CEO of Novadaq Technologies Inc., a TSX and
Nasdaq listed company that marketed medical imaging and therapeutic devices for use in the operating room. Previously, he was President
and Chief Operating Officer and Director of another publicly listed medical imaging software company, Cedara Software. His educational
background includes a Bachelor of Science in Biology, University of District of Columbia, Washington, D.C., and a Ph.D. in Chemical
Engineering, from the University of Maryland, College Park, MD, including graduate research in Biomedical Engineering from the
National Institute of Health, Bethesda, MD. He also earned an Executive M.B.A. from the J.L. Kellogg School of Management, Northwestern
University, Evanston, IL.

 

Brian Ellacott – Director
 – Mr. Ellacott is an experienced global medical device executive. Mr. Ellacott joined Belmont Instrument as Chief Executive
Officer in December 2017. Belmont Instrument is a Boston based private equity owned medical device company with a leading global
position in fluid warming and infusion systems. Prior to Belmont Instrument, Mr. Ellacott was the President and CEO of Laborie.
Laborie is a Urology and Gastroenterology medical device company based in Toronto with manufacturing facilities in Toronto, Montreal,
Enschede NL, Attikon Switzerland and Portsmouth New Hampshire. Mr. Ellacott joined private equity owned Laborie as President and
CEO in July 2013 and in four years completed 14 global acquisitions tripling Laborie’s revenue and increasing EBITDA eight
fold. The company was ranked as one of the fastest growing and most profitable medical device companies in the world. Prior to
joining Laborie Medical Technologies (“Laborie”), Mr. Ellacott served as Executive Vice President and General
Manager of Invacare’s (NYSE: IVC) $1 billion North and South American homecare and rehabilitation business. Mr. Ellacott
has also held executive positions with Baxter International and American Hospital Supply, with assignments in Canada, Australia
and the United States. Mr. Ellacott serves on the board of Belmont Instrument and is the past Chairman of the board of the Canadian
Assistive Devices Association. Mr. Ellacott holds a Bachelor of Business Administration Degree from Wilfrid Laurier University,
Waterloo, Ontario, Canada and is a dual United States and Canadian citizen.

 

Steve
Forte – Director – Mr. Forte is a senior finance leader with broad experience managing complex, large-scale finance
environments. Mr. Forte was most recently CFO of Clementia Pharmaceuticals (NASDAQ: CMTA), which was sold earlier this year to
Ipsen S.A. in a transaction valued at US$1.3 billion. His experience includes nearly a decade at Aptalis Pharma Inc., where he
was responsible for the overall corporate controllership function of a multinational pharmaceutical company with approximately
$700 million in annual revenue. At Aptalis, Mr. Forte was responsible for SEC reporting and led the preparation of an SEC S-1 registration
statement for a U.S. IPO on Nasdaq prior to the successful sale of the company to Forest Labs. Mr. Forte’s prior experience
also includes Chief Financial Officer of Thinking Capital Financial Corporation, a leading Canadian financial technology firm.
Mr. Forte received his Bachelor of Commerce in Accountacy from Concordia University and is a Certified Professional Accountant
in the Province of Quebec and a Certified Information Systems Auditor with ISACA.

 

Kenneth Galbraith – Director
 – Mr. Galbraith is an accomplished life sciences industry veteran with over 30 years of experience acting as an executive,
director, investor and advisor to companies in the biotechnology, medical device, pharmaceutical and healthcare sectors. Mr. Galbraith
currently serves as the Chief Executive Officer of Prometic Life Sciences Inc. (TSX: PLI), a biotechnology company. Mr. Galbraith
joined Ventures West as a General Partner in 2007 and led the firm’s biotechnology practice prior to founding Five Corners
Capital in 2013 to continue management of the Ventures West investment portfolio. Previously, he served as the Chairman and Interim
CEO of AnorMED until its sale to Genzyme Corp. in a cash transaction worth almost US$600 million. Starting his career in the life
sciences sector in 1987, Mr. Galbraith spent 13 years in senior management with QLT Inc., retiring in 2000 from his position as
Executive VP and CFO when QLT Inc.’s market capitalization exceeded US$5 billion. He has served on the board of directors
of several public and private companies, including Angiotech Pharmaceuticals, Arbutus Biopharma and Cardiome Pharma. Mr. Galbraith
currently serves on the board of directors of Macrogenics and Prometic Life Sciences Inc. Mr. Galbraith earned a Bachelor of Commerce
(Honors) degree from the University of British Columbia in 1985 and was appointed a Fellow of the Chartered Accountants of British
Columbia in 2013.

 

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Linda Maxwell – Director –
Dr. Maxwell, a seasoned surgeon and entrepreneur, is the Founding and Executive Director of the Biomedical Zone, a business incubator
for emerging health technology companies. It is an innovative strategic partnership between St. Michael’s Hospital and Ryerson
University. Under Dr. Maxwell’s stewardship, the Biomedical Zone has gone from concept to creation to going concern, supporting
Toronto’s leading health technology businesses and driving disruption and innovation adoption in the clinical setting. Dr.
Maxwell’s breadth of experience and scope of expertise is founded on over a decade and a half as an accomplished head and
neck/facial plastic surgeon. Her academic medical career is distinguished by university appointments as a clinical instructor,
medical school faculty member, and published scientific author. A frequent public speaker and panelist, Dr. Maxwell has addressed
national and international communities on scientific research, innovation, and entrepreneurship. Additionally, Dr. Maxwell has
worked internationally as a senior tech transfer manager and partnership leader for innovation and commercialization for the National
Health Service and University of Oxford. She also worked for Medtronic on business strategy for South America (Brazil) and continues
to consult to Medtronic on international clinical trials as an external medical monitor. In addition to her professional endeavors,
Dr. Maxwell is a member of the Institute of Corporate Directors. She serves as a director for Profound, Gardiner Museum, and the
Economic Club of Canada. She serves as an innovation and health technology subject matter expert for the Federal government’s
Canadian Space Agency, Canadian Medical Association, and the Ontario Chief Innovation Strategist. Dr. Maxwell earned a Bachelor’s
degree with honors from Harvard University (Biology, cum laude), M.D. from Yale University, and M.B.A. from University of
Oxford. She completed six years of residency and fellowship training in surgery at the University of Toronto. Additionally, Dr.
Maxwell successfully completed the Royal College of Canada, American College of Surgery, and American Board of Facial Plastic Reconstructive
Surgery certifications.

 

Jean-François Pariseau –
Director – Mr. Pariseau is co-founder and Partner at Amplitude Ventures. Amplitude Ventures is a capital catalyst for highly
innovative companies at the point of value acceleration. Amplitude Ventures works with Canada’s most promising healthcare
companies, with a shared vision of bringing groundbreaking technologies to patients. Amplitude Ventures is focused on building
world-class Canadian companies in precision medicine and next-generation medical devices. Before co-founding Amplitude Ventures,
Mr. Pariseau was Partner at the Healthcare Fund of BDC Capital and an investment manager with CDP Capital Technology Ventures,
a $2 billion global fund investing in healthcare, information technology and advanced technologies, where he was responsible for
healthcare investments in Canada and the United States. Prior to joining the investment world, Jean-Francois was CEO of a consulting
company specializing in regulatory affairs, and VP, R&D for a pharmaceutical-product distribution company, both of which he
founded. Mr. Pariseau holds a Bachelor of Science in Biotechnology from Université de Sherbrooke, a Master of Science in
Biomedical Sciences from Université de Montréal, and an M.B.A. from HEC Montréal.

 

Arthur L. Rosenthal –
Director – Dr. Rosenthal is director and Chair of Compensation Committee for LivaNova PLC, a UK global medical technology
company. Prior, Dr. Rosenthal served on the Cyberonics board of directors as a non-executive director and Chair of the Compensation
Committee from January 2007 to October 2015. Since June 2010, Dr. Rosenthal has served as Professor of Practice in the Biomedical
Engineering Department at Boston University. Since December 2011, Dr. Rosenthal has also served as CEO of gEyeCue, Ltd., which
he co-founded, a development stage medical device company working on a guided biopsy for lower and upper gastrointestinal cancer
screening. From June 2011 until July 2012, Dr. Rosenthal served as executive vice chairman of Cappella Medical Devices Ltd. (now
ArraVasc Ltd.), a development-stage company focused on novel device solutions for coronary artery disease. From June 2009 until
June 2011, Dr. Rosenthal served as President and CEO of Cappella, Inc. Dr. Rosenthal served as chairman, from January 2002, and
CEO, commencing in January 2005, of Labcoat, Ltd. until its acquisition by Boston Scientific Corporation in December 2008. From
January 1994 to May 2000, Dr. Rosenthal was a Senior Vice President, Corporate Officer, and Chief Development Officer of Boston
Scientific, and from May 2000 until his retirement in January 2005, he was a Senior Vice President, Chief Scientific Officer, and
Executive Committee Member of Boston Scientific. From 2000 until 2010, Dr. Rosenthal served as a non-executive director, and from
2006 through 2009, as chairman of the Remuneration Committee, of Renovo, Ltd., a U.K. based pharmaceutical company that became
publicly traded in 2006. In July 2009, Dr. Rosenthal joined the board of Interface Biologics, Inc., a Toronto-based development
stage company focused on drug delivery devices, as a non-executive director. In April 2011, Dr. Rosenthal was elected Chairman
at Interface Biologics, Inc. From April 2013 to May 2015, Dr. Rosenthal served as non-executive director and Member of the Compensation
Committee of Arch Technologies, Inc. and is currently a member of Arch’s Clinical Advisory Board. In 2015, Dr. Rosenthal
was appointed to the Industrial Advisory Committee, CURAM (National University in Galway, Ireland). Since 2003, Dr. Rosenthal has
been a Fellow of the American Institute of Medical and Biological Engineering.

 

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Senior Management

 

Set out below is information with respect
to our senior management. Our officers serve for an indefinite term, subject to the terms of their employment agreements.

 

	Name	 	Position	 	Date Appointed
	Arun Menawat	 	Chief Executive Officer and Director	 	August 15, 2016
	Mathieu Burtnyk	 	Vice-President of Clinical Affairs	 	July 7, 2011
	Aaron Davidson	 	Chief Financial Officer and Senior Vice-President of Corporate Development	 	May 1, 2018
	Rashed Dewan	 	Vice President of Finance, Manufacturing and Service	 	July 5, 2016
	Guruprit (Goldy) Singh	 	Vice President of Regulatory Affairs and Product Management	 	December 1, 2011

 

Senior Management Biographies

 

Arun Menawat – Chief Executive
Officer and Director – see “Director Biographies” above.

 

Mathieu Burtnyk – Vice President
of Clinical Affairs – Dr. Mathieu Burtnyk has over 15 years of experience creating and developing imaging technologies and
therapeutic ultrasound solutions, from benchtop to bedside, with a focus on prostate disease. He started his career in academia,
obtaining his PhD in Medical Biophysics at the University of Toronto and Sunnybrook Health Sciences Center. He is the inventor
of the patented closed-loop temperature feedback control algorithm used by the TULSA-PRO today in clinic. Mathieu joined Profound
in 2011 as Scientist progressing to Clinical Scientist, Director of Clinical Affairs and now VP Clinical Affairs, where he has
led the scientific design and execution of pre-clinical, Phase I and TACT Pivotal clinical studies.

 

Aaron Davidson – Chief Financial
Officer and Senior Vice-President of Corporate Development – Mr. Aaron Davidson has been the CFO and Senior Vice President
of Corporate Development of Profound since May 2018, a medical technology company that is developing real-time MRI-guided thermal
ultrasound systems for incision-free ablation of abnormal or cancerous tissue. Before joining Profound, Mr. Davidson served as
Co-Head and Managing Director of H.I.G. BioHealth Partners from January 2004 through May 2018, where he focused on investment opportunities
with emerging life sciences companies. Mr. Davidson began his career with Eli Lilly and Company, where he spent a decade in various
operating management roles in the United States and Canada, including financial management, business development, strategic planning,
market research and general management. Mr. Davidson continues to serve as a Venture Partner at H.I.G. Previously, Mr. Davidson
led investments in, worked with the management teams of, and represented H.I.G. as a board member of several successful companies,
including Alder Biopharmaceuticals (public), Forsight Vision5 (acquired), Gemin X Pharmaceuticals (acquired), HyperBranch Medical
Technology (acquired), Intact Vascular, OnTarget Laboratories, Novadaq Technologies (public/acquired), and Salmedix (acquired).
Mr. Davidson earned his M.B.A. from Harvard Business School and a Bachelor’s Degree in Finance from McGill University.

 

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Rashed Dewan – Vice President
of Finance, Manufacturing and Service – Mr. Dewan joined Profound in 2015 as Director of Finance and Corporate Controller.
He has also served as Vice President, Finance and Interim Chief Financial Officer, and most recently, since 2018, as our Vice President
of Finance, Manufacturing and Service. Prior to joining us, Mr. Dewan previously held senior finance and management roles with
Xylem Canada from September 2013 to June 2015, Natus Medical from March 2010 to August 2013 and Psion Teklogix from 2001 to 2009.
Mr. Dewan has over 20 years of finance and accounting experience in public and private companies, with expertise in the medical
device sector. Mr. Dewan has extensive experience with systems design and implementation and a strong track record of success in
accounting, finance, sales and operations management. Mr. Dewan is a Certified Public Accountant, and has a Bachelor of Science
Degree with a concentration in Accounting from the University of Southern California.

 

Guruprit (Goldy) Singh – Vice
President of Regulatory Affairs and Product Management – Ms. Singh is Vice President Regulatory Affairs & Product Management
of Profound. She joined the Company in December 2011 as a VP Quality Assurance and Regulatory Affairs. In this role, she provided
strategic direction on regulatory affairs, quality assurance, risk management, and clinical trials ensuring the product is introduced
to markets efficiently and effectively. In 2019, she was given responsibility for the overall product management process of a particular
product line. She works closely with internal and external stakeholders such as researchers, engineers, clinicians, hospital administrations,
regulatory bodies etc. to ensure that the strategies are executable and achieve desired results. Before joining Profound, Ms. Singh
spent 22 years in medical device companies in the Greater Toronto Area. Prior to Profound, she worked for Natus, as Director Quality
Assurance and Regulatory Affairs, managed compliance and day-to-day operations through a substantial growth period including six
acquisitions and commercialization of high-tech medical devices. She also worked for Philips and C.R. Bard. Ms. Singh has a Bachelor’s
Degree with a major in Biology and Physics from Ranchi University, India.

 

B. Compensation

 

Executive Compensation

 

Compensation Discussion and Analysis

 

Objectives

 

We have relied on the experience of the
Board and the Human Resources and Corporate Governance Committee in setting executive compensation. In considering compensation
awards, the Human Resources and Corporate Governance Committee has considered the skill level of its executives as well as comparable
levels of compensation for individuals with similar capabilities and experience. In regard to our current executive compensation
arrangements, the Human Resources and Corporate Governance Committee has considered such factors as our current financial situation,
our estimated financial situation in the mid-term and the need to attract and retain the key executives necessary for our long
term success. The Human Resources and Corporate Governance Committee has determined that at this stage of the Company’s development
it is appropriate that compensation be in the form of base salary, options, a potential bonus award and certain benefits plans.

 

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Compensation Philosophy and Objectives

 

The executive compensation program adopted
by us and applied to our executive officers is designed to:

 

		(a)	attract and retain qualified and experienced executives who have international business and operations
experience and will contribute to our success;

 

		(b)	ensure that the compensation of the executive officers provides a competitive base compensation
package, with additional compensation to reward success and create a strong link between corporate performance and compensation;
and

 

		(c)	motivate executive officers to enhance long term shareholder value, with current compensation being
weighted toward at-risk long-term incentives in the form of options and other security based incentives so as to foster alignment
with the interests of our shareholders.

 

The goals of the compensation program are
to attract and retain the most qualified people with relevant experience, to motivate and reward such individuals on a short term
and long term basis, and to create alignment between corporate performance and compensation. The Human Resources and Corporate
Governance Committee and the Board intend that the total cash components of compensation (base salary plus discretionary cash bonus)
target the median of a benchmark group in comparable industries with similar market capitalization (the “Compensation
Peer Group”).

 

We do not believe that our compensation
programs encourage excessive or inappropriate risk taking as: (i) our employees receive both fixed and variable compensation, and
the fixed (salary) portion provides a steady income regardless of Common Share value which allows employees to focus on our business;
and (ii) the Share Option Plan encourages a long term perspective due to the vesting provisions of the options (see “—Share
Option Plan” below). We believe that our compensation program is appropriately structured and balanced to motivate our executives
and reward the achievement of annual performance goals, as well as the achievement of long term growth in shareholder value.

 

Elements of Compensation

 

Base Salary

 

Base salary is intended to reflect an executive
officer’s position within the corporate structure, his or her years of experience and level of responsibility, and salary
norms in the sector and the general marketplace. As such, decisions with respect to base salary levels for executive officers are
not based on objective identifiable performance measures but for the most part are determined by reference to competitive market
information for similar roles and levels of responsibility, as well as more subjective performance factors such as leadership,
commitment, accountability, industry experience and contribution. Our view is that a competitive base salary is a necessary element
for retaining qualified executive officers, as it creates a meaningful incentive for individuals to remain with us and not be unreasonably
susceptible to recruiting efforts by our competitors.

 

In determining the base salary compensation
of the Named Executive Officers (as defined herein), the Board considered: (i) recruiting and retaining executives critical to
the success of the Company and the enhancement of shareholder value; (ii) providing fair and competitive compensation; (iii) balancing
the interests of management and our shareholders; and (iv) rewarding performance, both on an individual basis and with respect
to operations in general.

 

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Long-Term Incentives

 

Long-term incentives, in the form of options,
are intended to align the interests of our directors and our executive officers with those of our shareholders, to provide a long-term
incentive that rewards these individuals for their contribution to the creation of shareholder value and to reduce the cash compensation
we would otherwise have to pay. The Share Option Plan is administered by the Board. In establishing the number of options to be
granted to any particular executive officer, reference was made to the number of options granted to officers of other companies
involved in similar businesses. The Board also considers previous grants of options and the overall number of options that are
outstanding relative to the number of outstanding Common Shares in determining whether to make any new grants of options and the
size and terms of any such grants, as well as the level of effort, time, responsibility, ability, experience and level of commitment
of the executive officer in determining the level of incentive stock option compensation.

 

Bonus Awards

 

The Board will consider whether it is appropriate
and in our best interests to award a discretionary cash bonus to executive officers for the most recently completed financial year
and if so, in what amount. A cash bonus may be awarded to reward extraordinary performance that has led to increased value for
our shareholders through property acquisitions or divestitures, the formation of new strategic or joint venture relationships and/or
capital raising efforts.

 

Quantitative performance objectives include
the achievement of our revenue targets, departmental and individual goals, which may be quantitative or qualitative in nature.
These have been established for each individual executive officer by the Board with alignment of such corporate/individual goals
with the CEO and include objectives such as research and product development, company productivity, revenue growth and our long-term
strategic guidance. These corporate, departmental and individual goals form the basis for the review of the executive officers
and the determination of cash bonuses at the end of each year with the Board. These awards are reviewed yearly to ensure that corporate
performance metrics and individual goals are consistent from year to year.

 

Bonus award payments are based on the following
assessment of:

 

		(a)	whether or not the executive officers have successfully met or exceeded the established corporate,
departmental and individual performance metrics and goals;

 

		(b)	the executive officers’ decisions and actions and whether or not they are aligned with our
long-term growth strategy and have created value for our shareholders;

 

		(c)	whether any near-term goals and objectives were not met because the executive officers made decisions
in our best long-term interests or due to factors outside of the executive officers’ control; and/or

 

		(d)	additional initiatives undertaken by the executive officers, which were not contemplated in the
initial objectives.

 

The following targets, as a percentage
of base salary, were approved for each NEO for the fiscal year ending December 31, 2018:

 

	Position	 	Target	 
	CEO	 	 	65%	 
	Other NEOs	 	 	20-45%	 

 

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Benefits Plans

 

The Named Executive Officers, as defined
below, are entitled to life insurance, health and dental benefits.

 

Performance Graph

 

The following graph illustrates the cumulative
return to shareholders of a C$100 investment in Common Shares from June 8, 2015 to December 31, 2018, as compared to the cumulative
total return on the Standard & Poor’s/TSX Index and Standard & Poor’s/TSX Venture Index for the same period,
assuming the reinvestment of cash distributions and/or dividends.

 

	 	 	June 8,

                                                                                2015
	 	 	December 31,

                                                                                2015
	 	 	December 31,

                                                                                2016
	 	 	December 31,

                                                                                2017
	 	 	December 31,

                                                                                2018
	 
	Profound Medical	 	C$	100.00	 	 	C$	53.33	 	 	C$	74.67	 	 	C$	56.00	 	 	C$	36.67	 
	S&P/TSX Composite Index	 	C$	100.00	 	 	C$	88.25	 	 	C$	103.69	 	 	C$	109.94	 	 	C$	97.14	 
	S&P/TSX Venture Composite Index	 	C$	100.00	 	 	C$	76.68	 	 	C$	111.08	 	 	C$	124.05	 	 	C$	81.20	 

 

 

The trend shown in the above graph does
not necessarily correspond to our trend of compensation for the NEOs (as defined herein) for the period disclosed above. We consider
a number of factors in connection with our determination of appropriate levels of compensation including, but not limited to, the
demand for and supply of skilled professionals with experience in the medical device industry, individual performance, our performance
(which is not necessarily tied exclusively to the trading price of the Common Shares on the TSX or any other stock exchanges on
which our Common Shares are listed and other factors discussed under “Compensation Discussion and Analysis” above).

 

Named Executive Officers

 

The following individuals are considered
the “Named Executive Officers” or “NEOs” for the purposes of the disclosure:

 

		(a)	each individual who, during any part of the most recently completed financial year, served as our
Chief Executive Officer (“CEO”), including an individual performing functions similar to a CEO;

 

    64

     

    

 

		(b)	each individual who, during any part of the most recently completed financial year, served as our
Chief Financial Officer (“CFO”), including an individual performing functions similar to a CFO;

 

		(c)	each of our three most highly compensated executive officers, or the three highly compensated officers
acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total
compensation was more than C$150,000 for the fiscal year ended December 31, 2018; and

 

		(d)	each individual who would be a Named Executive Officer under paragraph (c) but for the fact the
individual was not one of our executive officers and was not acting in a similar capacity as of December 31, 2018.

 

Summary Compensation Table

 

The following table sets forth information
concerning the total compensation for the three most recently completed financial years paid to the Named Executive Officers for
the year ended December 31, 2018. Dr. Menawat is our only officer who also serves as one of our directors.

 

	 	 	 	 	 	 	 	 	 	 	 	Non-Equity
    Incentive

Plan Compensation	 	 	 	 	 	 	 	 	 
	Name and Principal Position	 	Year	 	 	Salary	 	 	Option-

Based

Awards	 	 	Annual

Incentive

Plan	 	 	Long

Term

Incentive

Plan	 	Pension

Value	 	 	All
    Other

Compensation	 	Total

Compensation	 
	 	 	 	 	 	(C$)	 	 	(C$)	 	 	(C$)	 	 	(C$)	 	 	(C$)	 	(C$)	 
	Arun Menawat(1)	 	 	2018	 	 	 	647,665	 	 	 	Nil	 	 	 	208,000	 	 	Nil	 	 	Nil	 	 	Nil	 	 	855,665	 
	Chief Executive Officer and Director	 	 	2017	 	 	 	331,500	 	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 	 	331,500	 
	 	 	 	2016	 	 	 	125,370	 	 	 	2,197,221	(5)	 	 	24,363	 	 	Nil	 	 	Nil	 	 	Nil	 	 	2,346,954	 
	Aaron Davidson(2)	 	 	2018	 	 	 	209,446	 	 	 	913,015	(6)	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 	 	1,122,461	 
	Chief Financial Officer and Senior Vice-	 	 	2017	 	 	 	Nil	 	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 
	President of Corporate Development	 	 	2016	 	 	 	Nil	 	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 
	Ian Heynen(3)	 	 	2018	 	 	 	200,976	 	 	 	730,412	(6)	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 	 	931,388	 
	Senior Vice-President of Sales and	 	 	2017	 	 	 	Nil	 	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 
	Marketing	 	 	2016	 	 	 	Nil	 	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 	 	Nil	 
	Rashed Dewan	 	 	2018	 	 	 	190,102	 	 	 	-	 	 	 	26,010	 	 	Nil	 	 	Nil	 	 	Nil	 	 	216,112	 
	Vice-President of Finance	 	 	2017	 	 	 	184,301	 	 	 	23,598	(7)	 	 	-	 	 	Nil	 	 	Nil	 	 	Nil	 	 	207,899	 
	 	 	 	2016	 	 	 	178,500	 	 	 	124,513	(8)	 	 	12,888	 	 	Nil	 	 	Nil	 	 	Nil	 	 	315,901	 
	Guruprit (Goldy) Singh	 	 	2018	 	 	 	209,131	 	 	 	Nil	 	 	 	15,604	 	 	Nil	 	 	Nil	 	 	Nil	 	 	224,735	 
	Vice-President of Regulatory Affairs and	 	 	2017	 	 	 	205,020	 	 	 	Nil	 	 	 	-	 	 	Nil	 	 	Nil	 	 	Nil	 	 	205,020	 
	Product Management	 	 	2016	 	 	 	204,000	 	 	 	Nil	 	 	 	14,800	 	 	Nil	 	 	Nil	 	 	Nil	 	 	218,800	 

 

		(1)	Dr. Menawat was appointed CEO on August 15, 2016, as such he no longer receives any Director or Committee fees.

 

		(2)	Mr. Davidson was hired as CFO and Senior Vice-President of Corporate Development on May 1, 2018.

 

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		(3)	Mr. Heynen was hired as Senior Vice-President Sales & Marketing on April 23, 2018 and resigned on January 7, 2019.

 

		(4)	Nil indicates that perquisites and other personal benefits did not exceed C$50,000 or 10% of the total salary of the NEO for
the financial year.

 

		(5)	Option based awards granted utilize the Black-Scholes model to determine the fair value. The input factors to determine the
fair value were volatility 99%, exercise price C$1.23, interest rate 1.35% and expected life of 6 years.

 

		(6)	Option based awards granted utilize the Black-Scholes model to determine the fair value. The input factors to determine the
fair value were volatility 82%, exercise price C$1.06, interest rate 2.30% and expected life of 6 years.

 

		(7)	Option based awards granted utilize the Black-Scholes model to determine the fair value. The input factors to determine the
fair value were volatility 135%, exercise price C$0.85, interest rate 1.90% and expected life of 6 years.

 

		(8)	Option based awards granted utilize the Black-Scholes model to determine the fair value. The input factors to determine the
fair value were volatility 99%, exercise price C$1.20, interest rate 0.94% and expected life of 6 years.

 

Option-Based Awards

 

The following table sets forth information
with respect to the unexercised options granted under the Share Option Plan to the NEOs that were outstanding as of December 31,
2018.

 

	 	 	 	 	 	Option-Based Awards	 
	Name and Principal Position	 	Number of

Common Shares

Underlying

Unexercised

Options	 	 	Option Exercise

Price	 	 	Option

Expiration Date	 	Value of

Unexercised In-

the-Money

Options(6)	 
	 	 	 	 	 	(C$)	 	 	 	 	(C$)	 
	Arun Menawat(1)	 	 	33,000	 	 	 	1.50	 	 	Nov 12, 2024	 	 	Nil	 
	Chief Executive Officer and Director	 	 	934,055	 	 	 	1.46	 	 	Aug 22, 2026	 	 	Nil	 
	 	 	 	16,500	 	 	 	1.35	 	 	Sep 15, 2026	 	 	Nil	 
	 	 	 	364,141	 	 	 	1.10	 	 	Nov 24, 2026	 	 	Nil	 
	 	 	 	1,417,583	 	 	 	1.10	 	 	Dec 21, 2026	 	 	Nil	 
	 	 	 	2,000,000	 	 	 	0.92	 	 	May 16, 2029	 	 	Nil	 
	Aaron Davidson(2)	 	 	500,000	 	 	 	1.19	 	 	May 22, 2028	 	 	Nil	 
	Chief Financial Officer and Senior Vice-	 	 	500,000	 	 	 	0.93	 	 	Aug 23, 2028	 	 	Nil	 
	President of Corporate Development	 	 	1,000,000	 	 	 	0.92	 	 	May 16, 2029	 	 	Nil	 
	Ian Heynen(3)	 	 	400,000	 	 	 	1.19	 	 	May 22, 2028	 	 	Nil	 
	Senior Vice-President of Sales and Marketing	 	 	400,000	 	 	 	0.93	 	 	Aug 23, 2028	 	 	Nil	 
	Rashed Dewan(4)	 	 	30,000	 	 	 	1.50	 	 	Sept 8, 2025	 	 	Nil	 
	Vice-President of Finance	 	 	50,000	 	 	 	1.35	 	 	July 19, 2026	 	 	Nil	 
	 	 	 	75,000	 	 	 	1.10	 	 	Nov 24, 2026	 	 	Nil	 
	 	 	 	45,000	 	 	 	0.85	 	 	Nov 16, 2027	 	 	Nil	 
	 	 	 	25,000	 	 	 	0.92	 	 	May 16, 2029	 	 	Nil	 

 

    66

     

    

 

	Guruprit (Goldy) Singh(5)	 	 	50,000	 	 	 	0.24	 	 	Dec 1, 2021	 	 	15,500	 
	Vice-President of Regulatory Affairs and	 	 	25,000	 	 	 	0.24	 	 	Sept 12, 2022	 	 	7,750	 
	Product Management	 	 	300,000	 	 	 	1.50	 	 	Sept 8, 2025	 	 	Nil	 
	 	 	 	200,000	 	 	 	0.92	 	 	May 16, 2029	 	 	Nil	 

 

		(1)	As of December 31, 2018, Dr. Menawat held 2,765,279 options, with 1,549,389 of these options exercisable and the remaining
balance vesting over a three-year period. In addition, Dr. Menawat was granted 2,000,000 additional options on May 16, 2019.

 

		(2)	As of December 31, 2018, Mr. Davidson held 1,000,000 options, all options remain unvested and will vest over a three-year period.
In addition, Mr. Davidson was granted 1,000,000 additional options on May 16, 2019.

 

		(3)	Mr. Heynen was hired as Senior Vice-President Sales & Marketing on April 23, 2018 and resigned on January 7, 2019. All
of these options expired upon his resignation.

 

		(4)	As of December 31, 2018, Mr. Dewan held 200,000 options, with 110,003 of these options exercisable and the remaining balance
vesting over a three-year period. In addition, Mr. Dewan was granted 25,000 additional options on May 16, 2019.

 

		(5)	As of December 31, 2018, Ms. Singh held 375,000 options, with 325,000 of these options exercisable and the remaining balance
vesting over a three-year period. In addition, Ms. Singh was granted 200,000 additional options on May 16, 2019.

 

		(6)	The value shown is the product of the number of Common Shares underlying the option multiplied by the difference between the
Common Share TSX closing price on December 31, 2018 of C$0.55 and the exercise price.

 

Executive Employment Agreements – Termination
and Change of Control Benefits

 

Each of Dr. Menawat, Mr. Davidson, Mr.
Dewan, Ms. Singh and Dr. Burtnyk are party to executive employment agreements (the “Executive Employment Agreements”)
with us. The Executive Employment Agreements have an indefinite term and contain standard confidentiality and non-solicitation
provisions. We have agreed pursuant to the Executive Employment Agreements that each of Dr. Menawat, Mr. Davidson, Mr. Dewan, Ms.
Singh and Dr. Burtnyk will receive base salaries determined by the Board and may receive discretionary bonuses, grants of options,
reimbursement of expenses, benefits and certain perquisites as set forth in the Executive Employment Agreements. The amounts paid
in 2018 with respect to the applicable Executive Employment Agreements are set forth in the Summary Compensation Table above.

 

The following table sets forth information
with respect to the estimated aggregate dollar amount to which each current NEO would have been entitled under his or her Executive
Employment Agreement if an event resulting in termination of employment occurred on December 31, 2018.

 

    67

     

    

 

	Name	 	Triggering Event	 	Cash Payment	 	Value of Bonus and other Benefits	 	 	Value of Option Awards	 	 	Total Payout
	Arun Menawat	 	Termination with cause/resignation	 	Nil(1)	 	Nil	 	 	Nil(4)	 	 	Nil
	 	 	Termination without cause	 	C$682,100(2)	 	C$446,472(2)	 	 	Nil(4)	 	 	C$1,128,572(2)
	 	 	Change of control	 	C$1,364,200(2)	 	C$443,365(2)	 	 	Nil	 	 	C$1,807,565(2)
	Aaron Davidson	 	Termination with cause/resignation	 	Nil(1)	 	Nil	 	 	Nil(4)	 	 	Nil
	 	 	Termination without cause	 	C$158,500	 	C$95,100(3)	 	 	Nil(4)	 	 	C$253,600
	 	 	Change of control	 	C$317,000	 	C$142,650	 	 	Nil	 	 	C$459,650
	Rashed Dewan	 	Termination with cause/resignation	 	Nil(1)	 	Nil	 	 	Nil(4)	 	 	Nil
	 	 	Termination without cause	 	C$95,051(6)	 	C$12,966(3)	 	 	Nil(4)	 	 	C$108,017
	 	 	Change of control	 	Nil	 	Nil	 	 	Nil	 	 	Nil
	Guruprit (Goldy) Singh	 	Termination with cause/resignation	 	Nil(1)	 	Nil	 	 	C$23,250(4)	 	 	C$23,250
	 	 	Termination without cause	 	C$106,110(7)	 	C$10,135(3)	 	 	C$23,250 (4)	 	 	C$147,658
	 	 	Change of control	 	Nil	 	Nil	 	 	C$23,250 (5)	 	 	C$23,250

 

		(1)	In the event of a termination for just cause or resignation, we will have no further obligation to Dr. Menawat, Mr. Davidson,
Mr. Dewan or Ms. Singh, as applicable, other than the payment of unpaid base salary, any bonus declared but not yet paid, plus
all outstanding vacation pay and expense reimbursement.

 

		(2)	Amounts paid in United States dollars and converted to Canadian dollars for reporting purposes. On December 31, 2018, the exchange
rate for United States dollars expressed in Canadian dollars (as reported by the Bank of Canada) was US$1.00 = C$1.3642.

 

		(3)	The value shown is a multiple of the annual cost of benefits and the average cash bonus paid in respect of the years ended
December 31, 2018, 2017 and 2016.

 

		(4)	The value shown is the product of the number of Common Shares underlying the vested options multiplied by the difference between
the Common Share TSX closing price on December 31, 2018 of C$0.55 and the exercise price.

 

		(5)	The value shown is the product of the number of Common Shares underlying the options multiplied by the difference between the
Common Share TSX closing price on December 31, 2018 of C$0.55 and the exercise price.

 

		(6)	If Mr. Dewan’s employment is terminated without cause, he is entitled to the greater of: (i) six months’ notice;
or (ii) the minimum notice (or pay in lieu) and minimum severance, if any, to which he would be entitled under employments standards
legislation.

 

		(7)	If Ms. Singh’s employment is terminated without cause, she is entitled to six months’ notice and minimum severance,
if any, to which she would be entitled under employments standards legislation.

 

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Director Compensation

 

Our directors were paid an annual fee of
C$20,000 for their services in the year ended December 31, 2018, other than Dr. Menawat, who was compensated as CEO and Mr. Damian
Lamb and Mr. Jean-François Pariseau, who were compensated by their employers (affiliates of the Company). Members of the
Audit Committee received an additional C$5,000 for the year. Members of the Human Resources and Corporate Governance Committee
received an additional C$2,500 for the year, and the Chair of the Audit Committee received an additional C$10,000 and the Chair
of the Human Resources and Corporate Governance Committee received an additional C$5,000 for the year. Director and committee fees
were prorated for partial year terms of service. Our directors are also eligible to receive an initial grant of options when joining
the Board and additional grants on an annual basis. During 2018, each of Ms. Samira Sakhia, Mr. Kenneth Galbraith and Mr. William
Curran were granted 16,500 options. Mr. Brian Ellacott, Dr. Arthur Rosenthal and Dr. Linda Maxwell were granted 33,000 options
for joining the Board in 2018. Except as set out above, Directors are not eligible to receive any other compensation.

 

Summary Compensation Table

 

The following table sets forth information
concerning compensation paid to the non-executive directors for the year ended December 31, 2018.

 

	Name	 	Fees Earned	 	 	Option-based

awards	 	 	All Other

Compensation	 	Total	 
	 	 	(C$)	 	 	(C$)	 	 	(C$)	 	(C$)	 
	Damian Lamb(3)	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 
	Jean-François Pariseau	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 
	William Curran(3)	 	 	32,500	 	 	 	11,960	(1)	 	Nil	 	 	44,460	 
	Kenneth Galbraith	 	 	35,625	 	 	 	11,960	(1)	 	Nil	 	 	47,585	 
	Samira Sakhia(3)	 	 	29,875	 	 	 	11,960	(1)	 	Nil	 	 	41,835	 
	Brian Ellacott(4)	 	 	12,250	 	 	 	23,920	(1)	 	Nil	 	 	36,170	 
	Arthur Rosenthal(4)	 	 	11,250	 	 	 	23,920	(1)	 	Nil	 	 	35,170	 
	Linda Maxwell(5)	 	 	5,000	 	 	 	13,793	(2)	 	Nil	 	 	18,793	 

 

		(1)	Option based awards granted utilize the Black-Scholes model to determine the fair value. The input factors to determine the
fair value were volatility 83%, exercise price C$1.02, interest rate 2.19% and expected life of 6 years.

 

		(2)	Option based awards granted utilize the Black-Scholes model to determine the fair value. The input factors to determine the
fair value were volatility 80%, exercise price C$0.60, interest rate 2.47% and expected life of 6 years.

 

		(3)	Mr. Lamb, Mr. Curran, and Ms. Sakhia stepped down from the Board on June 13, 2019. Ms. Sakhia’s
options will expire 90 days after the date of such resignation, and Mr. Curran’s options will expire as indicated in the
table under “Option-Based Awards” below.

 

		(4)	Mr. Ellacott and Mr. Rosenthal joined the Board on June 14, 2018.

 

		(5)	Ms. Maxwell joined the Board on October 9, 2018. 

 

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Option-Based Awards

 

The following table sets forth information
with respect to the unexercised options granted under the Share Option Plan to the non-executive directors that were outstanding
as of December 31, 2018.

 

	 	 	 	 	 	Option-Based Awards	 
	Name	 	Number of

Common Shares

Underlying

Unexercised

Options	 	 	Option Exercise

Price	 	 	Option

Expiration Date	 	Value of

Unexercised In-

the-Money

Options(7)	 
	 	 	 	 	 	(C$)	 	 	 	 	(C$)	 
	Samira Sakhia(1)(8)	 	 	16,500	 	 	 	0.97	 	 	Apr 25, 2027	 	 	Nil	 
	 	 	 	16,500	 	 	 	1.02	 	 	June 15, 2028	 	 	Nil	 
	Kenneth Galbraith(2)	 	 	33,000	 	 	 	0.97	 	 	Apr 25, 2027	 	 	Nil	 
	 	 	 	16,500	 	 	 	1.02	 	 	June 15, 2028	 	 	Nil	 
	William Curran(3)(8)	 	 	33,000	 	 	 	0.24	 	 	Mar 16, 2022	 	 	10,230	 
	 	 	 	16,500	 	 	 	1.35	 	 	Sep 15, 2026	 	 	Nil	 
	 	 	 	16,500	 	 	 	0.97	 	 	Apr 24, 2027	 	 	Nil	 
	 	 	 	16,500	 	 	 	1.02	 	 	June 15, 2028	 	 	Nil	 
	Brian Ellacott(4)	 	 	33,000	 	 	 	1.02	 	 	June 15, 2028	 	 	Nil	 
	Arthur Rosenthal(5)	 	 	33,000	 	 	 	1.02	 	 	June 15, 2028	 	 	Nil	 
	Linda Maxwell(6)	 	 	33,000	 	 	 	0.60	 	 	Nov 19, 2028	 	 	Nil	 
	Damian Lamb(8)	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 
	Jean-François Pariseau	 	 	Nil	 	 	 	Nil	 	 	Nil	 	 	Nil	 

 

		(1)	As of December 31, 2018, Ms. Sakhia held 33,000 options, with 16,500 of these options exercisable and the remaining balance
vesting over a three-year period.

 

		(2)	As of December 31, 2018, Mr. Galbraith held 49,500 options, with 11,000 of these options exercisable and the remaining balance
vesting over a three-year period.

 

		(3)	As of December 31, 2018, Mr. Curran held 82,500 options, with 66,000 of these options exercisable and the remaining balance
vesting over a three-year period.

 

		(4)	As of December 31, 2018, Mr. Ellacott held 33,000 options, all options remain unvested and will vest over a three-year period.

 

		(5)	As of December 31, 2018, Dr. Rosenthal held 33,000 options, all options remain unvested and will vest over a three-year period.

 

		(6)	As of December 31, 2018, Dr. Maxwell held 33,000 options, all options remain unvested and will vest over a three-year period.

 

		(7)	The value shown is the product of the number of Common Shares underlying the Option multiplied by the difference between the
Common Share TSX closing price on December 31, 2018 of C$0.55 and the exercise price.

 

		(8)	Mr. Lamb, Mr. Curran, and Ms. Sakhia stepped down from the board on June 13, 2019. Ms. Sakhia’s
options will expire 90 days after the date of such resignation, and Mr. Curran’s options will expire as indicated in the
table above.

 

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Share Option Plan 

 

The Share Option Plan is administered by
the Board which may, from time to time, delegate to a committee of the Board, all or any of the powers conferred to the Board under
the Share Option Plan. The Share Option Plan was originally adopted by the Board on June 4, 2015, and then amended and restated
on December 8, 2016 effective January 26, 2017 and again on July 13, 2018.

 

The Share Option Plan provides that the
Board may from time to time, in its discretion, grant to directors, officers, employees, consultants and any other person or entity
engaged to provide ongoing services to the Company non-transferable options to purchase Common Shares, provided that the maximum
number of Common Shares reserved for issuance under the Share Option Plan is equal to 13% of the issued and outstanding shares
in the capital of the Company at the time of any option grant. If any option is exercised, cancelled, expired, surrendered or otherwise
terminated for any reason, the number of Common Shares in respect of which the option is exercised, cancelled, expired, surrendered
or otherwise terminated, as the case may be, will again be available for purchase pursuant to options granted under the plan. As
at August 26, 2019, 10,373,929 options have been granted under the Share Option Plan, and 3,675,553 options are available
for future grant under the Share Option Plan.

 

The aggregate number of Common Shares that
may be (i) issued to insiders of the Company within any one-year period, or (ii) issuable to insiders of the Company at any time,
in each case, under the Share Option Plan alone or when combined with all other security-based compensation arrangements of the
Company, cannot exceed 10% of the outstanding Common Shares (the “Insider Participation Limits”).

 

The Board shall determine the exercise
price of the options, provided that, it cannot be less than the Market Price of the Common Shares on the date of grant. For the
purposes of the Share Option Plan, “Market Price” means the volume-weighted average price of the Common Shares on the
stock exchange where the majority of trading volume and value of the Common Shares occurs (currently, the TSX), for the five trading
days immediately preceding the relevant date on which the Market Price is to be determined.

 

The expiry date for an option under the
Share Option Plan shall not be later than the 10th anniversary of the date such option is granted, subject to the expiry date falling
with a corporate blackout period or within 5 business days following the expiry of such a blackout period, in which case the expiry
date will be extended to the 10th business day following the expiry of the blackout period.

 

Unless otherwise specified by the Board,
each option under the Share Option Plan generally vests and becomes exercisable as to 1/4 on the first anniversary of the date
of grant and as to 1/36 on the first day of each calendar month thereafter. The Board has the discretion to permit accelerated
vesting of options.

 

We do not provide any financial assistance
to optionees to facilitate the purchase of Common Shares issued pursuant to the exercise of options under the Share Option Plan.
Options granted under the Share Option Plan are not transferable or assignable (except to an optionee’s estate) and no options
may be exercised by anyone other than the optionee or his or her legal representative during the lifetime of the optionee.

 

We intend to adopt and approve material
changes to the Share Option Plan, and any other equity incentive plans that we may have in the future, in accordance with TSX listing
rules, which do not impose a requirement of shareholder approval for such actions.

 

In addition, following our proposed listing
on Nasdaq, we plan to file a registration statement on Form S-8 to register the Common Shares issuable upon exercise of options
granted under the Share Option Plan.

 

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C. Board Practices

 

Our directors are elected by shareholders
at each annual general meeting.

 

Audit Committee

 

Our audit committee (the “Audit
Committee”) consists of all independent directors within the meaning of Nasdaq listing standards and Rule 10A-3 under
the U.S. Exchange Act. Currently, the members of the Audit Committee are Kenneth Galbraith (Chair), Brian Ellacott and Steve
Forte. The Audit Committee oversees the accounting and financial reporting practices and procedures of our financial statements.
The principal responsibilities of the Audit Committee include: (i) overseeing the quality and integrity of our internal controls
and accounting procedures, including reviewing our procedures for internal control with our external auditor and CFO; (ii) reviewing
and assessing the quality and integrity of our annual and quarterly financial statements and related management discussion and
analysis, as well as all other material continuous disclosure documents; (iii) monitoring compliance with legal and regulatory
requirements related to financial reporting; (iv) reviewing and approving the engagement of our external auditor and independent
audit fees; (v) reviewing the qualifications, performance and independence of our external auditor, considering the external auditor’s
recommendations and managing the relationship with the external auditor, including meeting with the external auditor as required
in connection with the audit services provided to us; (vi) assessing our financial and accounting personnel; (vii) reviewing our
risk management procedures; (viii) reviewing any significant transactions outside of our ordinary course of business and any pending
litigation involving us; and (ix) examining improprieties or suspected improprieties with respect to accounting and other matters
that affect financial reporting.

 

Audit Committee Charter

 

The Audit Committee reviews and reassesses
the adequacy of its charter periodically as it deems appropriate and recommend changes to the Board. The performance of the Audit
Committee is evaluated with reference to its charter annually or otherwise periodically as deemed appropriate by the Board. A copy
of our Audit Committee’s charter is available on our website at https://profoundmedical.com/investors/#governance. The information
on our website is not incorporated by reference into this Registration Statement and should not be considered a part of this Registration
Statement, and the reference to our website in this Registration Statement is an inactive textual reference only.

 

Audit Committee Oversight

 

At no time since the commencement of our
most recently completed financial period was a recommendation of the Audit Committee to nominate or compensate an external auditor
not adopted by the Board.

 

External Auditor Service Fees by Category

 

The aggregate fees billed (excluding out-of-pocket
expenses) by our external auditor in the last two fiscal years are as follows:

 

	Financial Year Ending	 	 	Audit

Fees(1)
	 	 	Audit

Related

Fees(2)
	 	 	Tax Fees(3)
	 	 	All Other

Fees(4)
	 
	December 31, 2018	 	 	C$	365,776	 	 	 	-	 	 	C$	61,215	 	 	 	-	 
	December 31, 2017	 	 	C$	313,400	 	 	C$	29,700	 	 	C$	186,000	 	 	 	-	 

 

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		(1)	Audit fees include annual audit, quarterly reviews and work performed in relation to the 2018 Bought Deal.

 

		(2)	Audit related fees includes work performed on acquisitions.

 

		(3)	Tax fees includes fees related to annual tax returns and scientific research credit return along with tax and transfer pricing
advice.

 

Human Resources and Corporate Governance
Committee

 

Our Human Resources and Corporate Governance
Committee is comprised of four independent directors; currently, Arthur Rosenthal (Chair), Kenneth Galbraith, Jean-Francois Pariseau
and Linda Maxwell. The Human Resources and Corporate Governance Committee oversees our remuneration policies and practices. The
principal responsibilities of the Human Resources and Corporate Governance Committee include:

 

		(a)	with respect to human resources: (i) assist the Board in ensuring that the necessary policies and
processes are in place by which all of our employees, with special attention to the executive group, will be fairly and competitively
compensated; and (ii) produce a report on executive compensation for inclusion in our proxy statement as required by applicable
rules and regulations; and

 

		(b)	with respect to corporate governance: (i) identify individuals qualified to become Board members,
and recommend that the Board select the director nominees for the next annual meeting of shareholders; and (ii) develop and recommend
to the Board the corporate governance guidelines and processes applicable to us, review these guidelines and processes at least
annually and recommend changes to the Board. 

 

A copy of our Human Resources and Corporate
Governance Committee’s charter is available on our website at https://profoundmedical.com/investors/#governance. The information
on our website is not incorporated by reference into this Registration Statement and should not be considered a part of this Registration
Statement, and the reference to our website in this Registration Statement is an inactive textual reference only.

 

Statement of Corporate Governance
Practices

 

The Board is committed to a high standard
of corporate governance practices. The Board believes that this commitment is not only in the best interests of our shareholders
but that it also promotes effective decision making at the Board level. The Board is of the view that its approach to corporate
governance is appropriate and continues to work to align with the recommendations currently in effect and contained in National
Policy 58-201 - Corporate Governance Guidelines which are addressed below. In connection with our Nasdaq listing, we will become
subject to certain U.S. corporate governance requirements. However, we intend to comply with home country jurisdiction rules, including
the rules of the TSX, instead of certain applicable Nasdaq rules, including with respect to shareholder approvals of equity compensation
plans and additional issuances of our Common Shares and the minimum quorum requirement for a shareholders meeting. Under Nasdaq
listing rules, the required minimum quorum for a shareholders meeting is 33 1/3% of the outstanding common shares, and our minimum
quorum requirement is only 10% of the total number of voting rights attaching to all outstanding Common Shares. See Item 10.B,
 “Additional Information—Memorandum and Articles of Association—Meetings”.

 

Mandate of the Board

 

The Board has responsibility for stewardship
of the Company. The Board has adopted a written mandate for the Board (the “Mandate”) to confirm and enhance
the Board’s ongoing duty and responsibility for stewardship of the Company, a copy of which is available on our website at
www.profoundmedical.com. The information on our website is not incorporated by reference into this Registration Statement and should
not be considered a part of this Registration Statement, and the reference to our website in this Registration Statement is an
inactive textual reference only. The Board is ultimately responsible for supervising the management of our business and affairs
and, in doing so, is required to act in our best interests. The Board generally discharges its responsibilities either directly
or through the Audit Committee and the Human Resources and Corporate Governance Committee. Specific responsibilities of the Board
set out in the Mandate include:

 

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		(a)	Appointing Management – including approval of the CEO, the compensation of the executive
officers and the oversight of succession planning programs;

 

		(b)	Board Organization – including responding to recommendations received from the Human Resources
and Corporate Governance Committee, but the Board retains the responsibility for managing its own affairs;

 

		(c)	Strategic Planning – including the review and approval of our business, financial and strategic
plans on at least an annual basis;

 

		(d)	Monitoring of Financial Performance and Other Financial Reporting Matters – including the
review of our ongoing financial performance and results of operations and review and approval of our audited and interim consolidated
financial statements and management’s discussion and analysis of financial conditions and results of operations;

 

		(e)	Risk Management – including the identification of our principal business risks and the implementation
of appropriate systems to effectively monitor and manage such risks;

 

		(f)	Policies and Procedures – including the approval and monitoring of all policies and procedures
including those related to corporate governance, ethics and confidentiality;

 

		(g)	Communication and Reporting – including the oversight of the timely and accurate disclosure
of financial reports and other material corporate developments; and

 

		(h)	Other Responsibilities – including those related to position descriptions, orientation and
continuing education, nomination of directors and Board evaluations and matters in respect of any disposition, material commitment
or venture, or significant expenditure in either monetary or business terms.

 

Composition of the Board

 

Director Independence

 

Jean-François Pariseau, Brian Ellacott,
Arthur Rosenthal, Linda Maxwell, Kenneth Galbraith and Steve Forte are all “independent” as such term is defined by
National Instrument 58-101 – Disclosure of Corporate Governance Practices and applicable Nasdaq listing rules. Arun
Menawat is non-independent as he is our CEO. Each of the independent directors has no direct or indirect material relationship
with us, including any business or other relationship, which could reasonably be expected to interfere with the director’s
ability to act with a view to our best interests or which could reasonably be expected to interfere with the exercise of the director’s
independent judgment.

 

If the Chairman is not independent, the
independent directors may select one of their members to be appointed Lead Director of the Board for such term as the independent
directors may determine. The Lead Director is responsible for chairing regular meetings of the independent directors and seeking
to ensure that the Board is able to carry out its role.

 

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Dr. Arun Menawat acts as Chairman of the
Board. Since Dr. Menawat is not independent, Brian Ellacott has been appointed Lead Director of the Board.

 

The table below shows the current Board
and committee membership.

 

	 	
        Committees

	 	
        Year
        Appointed
	 	
        Audit
	 	
        Human
        Resources and

Corporate Governance

Committee

	Not Independent – Management	 	 	 	 	 
	Arun Menawat (Chairman)	2019 (2015 as director)	 	 	 	 
	Independent Board Members	 	 	 	 	 
	Jean-François Pariseau	2015	 	 	 	Member
	Kenneth Galbraith	2017	 	Chair	 	Member
	Arthur Rosenthal	2018	 	 	 	Chair
	Brian Ellacott	2018	 	Member	 	 
	Linda Maxwell	2018	 	 	 	Member
	Steve Forte 	2019	 	Member	 	 

 

Meetings of Independent Directors

 

All independent directors on the Board
and each of the committees meet regularly without management present. The Chairman of the Board conducts these sessions at Board
meetings and the Chair of each committee conducts them at committee meetings. During the year ended December 31, 2018, there were
7 such meetings of the independent directors.

 

Chairman of the Board

 

Our Chairman, Dr. Arun Menawat, is our
Chief Executive Officer and as a result does not meet the Board’s independence standards. The primary functions of the Chairman
are to facilitate the operations and deliberations of the Board and the satisfaction of the Board’s responsibilities under
its mandate. The Chairman’s key responsibilities include duties relating to providing overall leadership to the Board, chairing
Board and shareholder meetings, acting as a liaison between management, the members of the Board and the Chairs of the various
committees of the Board, and communicating with shareholders and regulators. The responsibilities of the Chairman are reviewed
by the Human Resources and Corporate Governance Committee and considered by the Board for approval each year.

 

Director Term Limits and Other Mechanics
of Board Renewal

 

The Board has not established any term
limits for directors, as the Board takes the view that term limits are an arbitrary mechanism for removing directors which can
result in valuable, experienced directors being forced to leave the Board solely because of length of service. The Board’s
priorities continue to be ensuring the appropriate skill sets are present amongst the Board to optimize the benefit to us. The
Board conducts annual evaluations of the individual directors, the committees of the Board and the Chairman of the Board, which
are overseen by the Human Resources and Corporate Governance Committee, to ensure these objectives are met.

 

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Other Reporting Issuer Experience

 

The following table sets out our current
directors who are presently directors of other issuers that are public companies in the United States, Canada or a foreign jurisdiction,
the name of such public companies and the name of the exchange or market applicable to such public companies:

 

	Name	 	Name of Public Company	 	Name of Exchange or Market

(if applicable)
	Kenneth Galbraith	 	Macrogenics, Inc., Prometic Life Sciences Inc.	 	Nasdaq, Toronto Stock Exchange
	Arthur Rosenthal	 	LivaNova PLC	 	Nasdaq

 

Board Meetings

 

The Board holds a minimum of one regular
meeting per quarter and a corporate strategy session each year, as well as additional meetings as required. An in camera
session of the directors is held at each regularly scheduled Board and committee meeting so that the independent members of the
Board have an opportunity to meet without the presence of management members of the Board.

 

Meeting Attendance

 

	 	 	Board Meetings Attended

in 2018	 	Committee Meetings

Attended in 2018	 
	Name	 	No.	 	%	 	 	No.	 	 	%	 
	Damian Lamb(5)	 	7 of 7	 	 	100	%	 	 	-	 	 	 	-	 
	Jean-François Pariseau	 	7 of 7	 	 	100	%	 	 	4 of 4(3)	 	 	 	100	%
	Arun Menawat	 	7 of 7	 	 	100	%	 	 	-	 	 	 	-	 
	William Curran(5)	 	7 of 7	 	 	100	%	 	 	8 of 8(3) (4)	 	 	 	100	%
	Kenneth Galbraith	 	5 of 7	 	 	71	%	 	 	6 of 8(3) (4)	 	 	 	75	%
	Samira Sakhia(5)	 	4 of 7	 	 	57	%	 	 	1 of 2(4)	 	 	 	50	%
	Arthur Rosenthal	 	5 of 5(1)	 	 	100	%	 	 	2 of 2(3)	 	 	 	100	%
	Brian Ellacott	 	5 of 5(1)	 	 	100	%	 	 	2 of 2(4)	 	 	 	100	%
	Linda Maxwell	 	1 of 2(2)	 	 	50	%	 	 	-	 	 	 	-	 

 

		(1)	Dr. Rosenthal and Mr. Ellacott joined the Board on June 14, 2018.

 

		(2)	Dr. Maxwell joined the Board on October 9, 2018.

 

		(3)	Human Resources and Compensation Committee.

 

		(4)	Audit Committee.

 

		(5)	Mr. Lamb, Mr. Curran, and Ms. Sakhia stepped down from the board on June 13, 2019.

 

Orientation and Education

 

We will provide new directors with copies
of relevant financial, technical and other information regarding our programs. Board members are also encouraged to communicate
with management and the external auditor and, to keep themselves current with industry trends and developments. Board members have
full access to our records.

 

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D. Employees

 

As of June 30, 2019, we had 67 full-time
employees, 14 of whom in Vantaa, Finland that were unionized. We believe that our relations with our employees are positive. We
intend to add staff and consulting resources in order to support product development, market access, field support and additional
clinical trials.

 

E. Share Ownership

 

As of August 26, 2019, our NEOs and directors
in 2018, as a group, beneficially owned a total of 18,547,317 Common Shares, representing beneficial ownership of 17.2% of the
Common Shares.

 

The following table states the number of
Common Shares beneficially owned by each of our NEOs and directors in 2018 as of August 26, 2019. The persons listed below are
deemed to be the beneficial owners of Common Shares underlying options and/or warrants that are exercisable within 60 days from
the above date. The percentages shown below are based on an aggregate total of 108,027,939 outstanding Common Shares as of August
26, 2019, plus the number of Common Shares underlying options and warrants that are exercisable within 60 days for the indicated
beneficial owner.

 

	Name of Beneficial Owner	 	Number of

Common Shares

Beneficially Owned	 	 	Percent of

Outstanding

Common Shares	 
	Named Executive Officers (2018)	 	 	 	 	 	 	 	 
	Arun Menawat(1)	 	 	3,006,862	 	 	 	2.7	%
	Aaron Davidson	 	 	*	 	 	 	*	 
	Rashed Dewan	 	 	*	 	 	 	*	 
	Ian Heynen(2)	 	 	-	 	 	 	-	 
	Guruprit (Goldy) Singh	 	 	*	 	 	 	*	 
	 	 	 	 	 	 	 	 	 
	Non-Executive Directors (2018)	 	 	 	 	 	 	 	 
	William Curran(3)	 	 	*	 	 	 	*	 
	Brian Ellacott	 	 	*	 	 	 	*	 
	Kenneth Galbraith	 	 	-	 	 	 	-	 
	Damian Lamb(3)(4)	 	 	14,828,144	 	 	 	13.6	%
	Linda Maxwell	 	 	*	 	 	 	*	 
	Jean-Francois Pariseau	 	 	-	 	 	 	-	 
	Arthur Rosenthal	 	 	-	 	 	 	-	 
	Samira Sakhia(3)	 	 	*	 	 	 	*	 

 

*     Represents
less than 1% beneficial ownership of the Common Shares.

 

(1) Includes 1,888,862 Common Shares underlying
options issued under our Share Option Plan (see Item 6.B, “Compensation—Director Compensation” and Item 6.B,
 “Compensation—Share Option Plan”) and pursuant to a shareholder-approved option grant in January 2017 (see Item
7.B, “Related Party Transactions”) and 150,000 Common Shares underlying warrants purchased in connection with the 2017
Bought Deal and the 2018 Bought Deal (see Item 5.B, “Liquidity and Capital Resources—Recent Sources and Uses of Financing—Bought
Deals” and Item 7.B, “Related Party Transactions”).

 

(2) Mr. Heynen resigned on January 7, 2019.

 

(3) Mr. Curran, Mr. Lamb and Ms. Sakhia
stepped down from the Board on June 13, 2019.

 

(4) Represents beneficial ownership of
13,328,144 Common Shares and 750,000 Common Shares underlying warrants directly held by Genesys, of which entity Mr. Lamb is an
officer. See Item 7.A, “Major Shareholders”.

 

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ITEM
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

 

As of August 26, 2019, we had 108,027,939
issued and outstanding Common Shares.

 

The following table states the number of
Common Shares beneficially owned by each person known to us who beneficially owns more than 5% of our issued and outstanding Common
Shares as of August 26, 2019. The persons listed below are deemed to be the beneficial owners of Common Shares underlying options
and/or warrants that are exercisable within 60 days from the above date. The percentages shown below are based on an aggregate
total of 108,027,939 outstanding Common Shares as of August 26, 2019, plus the number of Common Shares underlying options or warrants
that are exercisable within 60 days for the indicated beneficial owner.

 

	Name	 	Number of

Common Shares

Beneficially Owned	 	 	Percent of

Outstanding

Common Shares	 
	BDC Capital Inc. (“BDC Capital”)	 	 	13,441,792	 	 	 	12.4	%
	Genesys Ventures II LP (“Genesys”) (1)	 	 	14,828,144	 	 	 	13.6	%
	Gagnon Securities LLC	 	 	11,305,534	 	 	 	10.5	%

 

(1)       Includes
750,000 Common Shares underlying warrants purchased in connection with the 2018 Bought Deal. See also Item 5.B, “Liquidity
and Capital Resources—Recent Sources and Uses of Financing—Bought Deals” and Item 7.B, “Related Party Transactions”.

 

Significant Changes in the Ownership
of Major Shareholders

 

During
the past three years, to our knowledge, the significant changes in the percentage ownership of our major shareholders were as follows:

 

		·	On January 8, 2019, Gagnon Securities LLC reported that it became the beneficial owner of
more than 10% of our Common Shares.

 

		·	On March 20, 2018, Genesys acquired 1,500,000 Common Shares and 750,000 warrants to purchase
Common Shares in the 2018 Bought Deal.

 

		·	On November 14, 2016, Genesys acquired 2,727,272 Common Shares in the 2016 Bought Deal.

 

		·	On November 14, 2016, BDC Capital acquired 3,636,363 Common Shares in the 2016 Bought Deal.

 

Major Shareholders Voting Rights

 

Our major
shareholders do not have different voting rights from other holders of our Common Shares.

 

Record Holders

 

Based
on our records and a review of the information provided to us by the TSX, as of August 2, 2019, there were 2,420 holders of record
of our ordinary shares, of which 896 record holders, holding approximately 36% of our outstanding ordinary shares, had registered
addresses in the United States. These numbers are not representative of the number of beneficial holders of our ordinary shares
nor is it representative of where such beneficial holders reside primarily because many of these ordinary shares may be held of
record by brokers or other nominees.

 

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B. Related Party
Transactions

 

Except as disclosed below, none of our
directors or officers, nor any of our proposed nominees for election as a director, nor any of our other insiders, nor any associate
or affiliate of any one of them, has or has had, at any time since the beginning of our financial year ended December 31, 2016,
any material interest, direct or indirect, in any transaction or proposed transaction that has materially affected or would materially
affect us.

 

In March 2018, Genesys, of which entity
Mr. Lamb (our former director) is an officer, purchased 1,500,000 of units in the 2018 Bought Deal at a price of C$1.00 per unit,
for total consideration of C$1,500,000.

 

Three members of our senior management,
Dr. Menawat, Mr. Davidson and Mr. Dewan, also purchased our units in the 2018 Bought Deal, in the amounts of 150,000 units (150,000
Common Shares and 75,000 warrants), 125,000 units (125,000 Common Shares and 62,500 warrants) and 50,000 units (50,000 Common Shares
and 25,000 warrants), respectively, at a price of C$1.00 per unit, for total consideration of C$150,000, C$125,000 and C$50,000
respectively. The units were issued on the same terms as the units issued in the 2018 Bought Deal. For more information, see Item
5.B, “Liquidity and Capital Resources—Recent Sources and Uses of Financing—Bought Deals”.

 

In September 2017, three members of our
senior management, Dr. Menawat, Mr. Dewan and Ms. Singh, purchased our units in the 2017 Bought Deal, in the amounts of 150,000
units (150,000 Common Shares and 75,000 warrants), 100,000 units (100,000 Common Shares and 50,000 warrants) and 100,000 units
(100,000 Common Shares and 50,000 warrants), respectively, at a price of C$1.00 per unit, for total consideration of C$150,000,
C$100,000 and C$100,000, respectively. The units were issued on the same terms as the units issued in the 2017 Bought Deal. For
more information, see Item 5.B, “Liquidity and Capital Resources—Recent Sources and Uses of Financing—Bought
Deals”.

 

At the Special Meeting of Shareholders
of the Company held in January 2017, the disinterested shareholders approved the grant of an option to purchase 1,417,583 Common
Shares for an exercise price of C$1.10 to Arun Menawat.

 

In November 2016, Genesys, of which entity
Mr. Lamb is an officer, purchased 2,727,272 Common Shares in the 2016 Bought Deal at a price of C$1.10 per Common Share, representing
aggregate consideration of C$2,999,999.20. Genesys acquired the Common Shares for investment purposes.

 

In November 2016, BDC Capital purchased
3,636,363 Common Shares in the 2016 Bought Deal at a price of C$1.10 per Common Share, representing aggregate consideration of
C$3,999,999.30. BDC Capital acquired the Common Shares for investment purposes.

 

Agreements with Directors and Officers

 

We have employment agreements in place
with our Chief Executive Officer, Arun Menawat; our Chief Financial Officer, Aaron Davidson; our Vice President, Finance, Rashed
Dewan and our Vice-President of Regulatory Affairs and Product Management, Guruprit (Goldy) Singh and Mathieu Burtnyk, our Vice
President Clinical Affairs. See Item 6.B, “Compensation—Named Executive Officers—Executive Employment Agreements
 – Termination and Change of Control Benefits”.

 

C. Interests of
Experts and Counsel

 

Not Applicable.

 

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ITEM
10. ADDITIONAL INFORMATION

 

A. Share Capital

 

Our authorized capital consists of an unlimited
number of Common Shares without par value.

 

As at August 26, 2019, there were a total
of 108,027,939 Common Shares issued and outstanding. The holders of the Common Shares are entitled to receive notice of and to
attend all annual and special meetings of our shareholders and to one vote in respect
of each common share held at such meetings. Since January 1, 2016, we have issued a total of 68,599,612 Common Shares, principally
in connection with the Bought Deals and issuances upon exercise of options and warrants

 

As at August 26, 2019, there were a total
of 10,373,929 outstanding share options issued under our Share Option Plan and 22,571,714 outstanding warrants issued pursuant
to the Bought Deals and the CIBC Loan Agreement. See Item 5.B, “Liquidity and Capital Resources—Recent Sources and
Uses of Financing”. In addition, as at August 26, 2019, 3,675,553 options remain available for future grant under the Share
Option Plan. See Item 6.B, “Compensation—Share Option Plan”.

 

B. Memorandum and
Articles of Association

 

Set out below is a description of our
articles of incorporation (our “Articles”) and of the Business Corporations Act (Ontario) (as currently in effect)
related to our articles of incorporation. 

 

Incorporation

 

Profound is organized under the Business
Corporations Act (Ontario) (“OBCA”). Profound’s Ontario corporation number is 2426652.

 

Objects and Purposes of our Company

 

Our Articles
do not contain and are not required to contain a description of our objects and purposes. There is no restriction contained in
our Articles of the business that we may carry on.

 

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Voting on Certain Proposal, Arrangement, Contract
or Compensation by Directors

 

Neither our Articles nor our by-laws restrict
our directors’ power to: (a) vote on a proposal, arrangement or contract in which the directors are materially interested;
(b) to vote with regard to compensation payable to themselves or any other members of their body in the absence of an independent
quorum; or (c) borrow money. Additionally, a director is not required to hold a share in our capital as qualification for his or
her office but must be qualified as required by the OBCA to become, act or continue to act as a director.

 

Share Rights

 

The holders of the Common Shares are entitled
to receive notice of and to attend all annual and special meetings of the shareholders of the Company and to one vote in respect
of each common share held at such meetings.

 

Procedures to Change the Rights of Shareholders

 

The rights, privileges, restrictions and
conditions attaching to the Common Shares are contained in our Articles and such rights, privileges, restrictions and conditions
may be changed by amending our Articles. In order to amend such Articles, the OBCA requires a resolution to be passed by a majority
of not less than two-thirds of the votes cast by the shareholders entitled to vote thereon. In addition, if we resolve to make
certain amendments to its Articles, a holder of Common Shares may dissent with regard to such resolution and, if such shareholder
so elects, we would have to pay such shareholder the fair value of the Common Shares so held. The types of amendment that would
be subject to dissent rights include without limitation: (a) to add, remove or change restrictions on the issue, transfer or ownership
of shares of a class or series of our shares; and (b) to add, remove or change any restriction upon the business that we may carry
on or upon the powers we may exercise.

 

Meetings

 

Each director holds office until our next
annual general meeting or until his or her office is earlier vacated in accordance with the provisions of the OBCA. A director
appointed or elected to fill a vacancy on our board of directors also holds office until our next annual general meeting.

 

Annual meetings of our shareholders must
be held at such time in each year not more than fifteen (15) months after the last annual meeting, as the board of directors may
determine. Pursuant to our by-laws, notice of the time and place of a meeting of shareholders must be sent not less than twenty-one
(21) days and not more than fifty (50) days, before such meeting.

 

The only persons entitled to attend a meeting
of our shareholders are voting persons, the directors, the auditor and, if any, the chairperson, the managing director and the
President, as well as others permitted by the chairperson of the meeting.

 

The OBCA provides that our shareholders
may requisition a special meeting in accordance with the OBCA. The OBCA provides that the holders of not less than five (5) percent
of our issued shares that carry the right to vote at a meeting may requisition our directors to call a special meeting of shareholders
for the purposes stated in the requisition.

 

Under our by-laws, the quorum for the transaction
of business at a meeting of our shareholders is two or more voting persons present in person and authorized to cast in the aggregate
not less than ten (10) percent of the total number of votes attaching to all Common Shares. Under Nasdaq listing rules, the required
minimum quorum for a shareholders meeting is 33 1/3% of the outstanding common shares; however, we are relying on an exception
for “foreign private issuers” to this quorum requirement insofar as the provisions of our Articles are permitted under
the OBCA.

 

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Limitations on Ownership of Securities

 

Except as provided in the Investment
Canada Act (Canada), there are no limitations specific to the rights of non-Canadians to hold or vote the Common Shares under
the laws of Canada or Ontario, or in our Articles or by-laws.

 

Change in Control

 

There are no provisions in our Articles
or by-laws that would have the effect of delaying, deferring or preventing a change in control of us, and that would operate only
with respect to a merger, acquisition or corporate restructuring involving us or any of our subsidiaries.

 

Ownership Threshold

 

Neither our by-laws nor our Articles contain
any provisions governing the ownership threshold above which shareholder ownership must be disclosed. In addition, securities legislation
in Canada requires that we disclose in our proxy information circular for our annual meeting and certain other disclosure documents
filed by us under such legislation, holders who beneficially own more than ten (10) percent of our issued and outstanding Common
Shares.

 

C. Material Contracts

 

Except for contracts entered into in the
ordinary course of business, the following are our only material agreements (the “Material Contracts”):

 

		·	Amended and Restated Technology License Agreement dated May 16, 2011 between PMI and Sunnybrook
(the “Sunnybrook License”);

 

		·	Loan Agreement with Canadian Imperial Bank of Commerce dated July 30, 2018 (the “CIBC
Loan Agreement”);

 

		·	Asset and Share Purchase Agreement dated July 31, 2017 between Philips and PMI (the “Philips
Share Purchase Agreement”);

 

		·	Supply Agreement dated July 31, 2017 between PMI and Philips Medical Systems Nederland B.V. (the
 “Philips Supply Agreement”);

 

		·	Noncompetition, Nonsolicitation and Confidentiality Agreement dated July 31, 2017 between Philips
and PMI (the “Philips Confidentiality Agreement”);

 

		·	Resale Purchasing Agreement dated July 31, 2017 between Philips Medical and PMI (the “Philips
Resale Purchasing Agreement”); and

 

		·	Agreement between PMI and Siemens, dated February 11, 2019 (the “New Siemens Agreement”)
and effective as of January 21, 2019.

 

Sunnybrook License

 

See Item 4.B, “Business Overview—Intellectual
Property—Licenses”.

 

    82

     

    

 

CIBC Loan Agreement

 

See Item 5.B, “Liquidity and Capital
Resources—Recent Sources and Uses of Financing—CIBC Loan”.

 

Philips Share Purchase Agreement

 

See Item 4.A, “Business Overview—Alliances
and Partnerships—Philips”.

 

Philips Supply Agreement

 

On July 31, 2017, we entered into the Philips
Supply Agreement with Philips Medical Systems Nederland B.V. (“Philips Medical”) in connection with the Sonalleve
Transaction. Under the terms of the Philips Supply Agreement and until such time as the manufacturing of our Sonalleve systems
is assumed by us, Philips Medical agrees to serve as a contract manufacturer to us for our Sonalleve systems. We work together
with Philips Medical to ensure that production capacity and delivery times are appropriate to meet our sales forecasts.

 

Philips Confidentiality Agreement

 

On July 31, 2017, we entered into the Philips
Confidentiality Agreement with Philips in connection with the Sonalleve Transaction. Under the terms of the Philips Confidentiality
Agreement, Philips has agreed to (i) not compete in related lines of business, anywhere in the world, for period of three years
after closing; (ii) not solicit any of our employees for so long as agreements related to the Sonalleve Transaction are in force,
plus an additional two years; and (iii) maintain in confidence any confidential information that if disseminated would be detrimental
to our business, for a period of ten years after closing.

 

Philips Resale Purchasing Agreement

 

On July 31, 2017, we entered into the Philips
Resale Purchasing Agreement with Philips Medical in connection with the Sonalleve Transaction. Under the terms of the agreement,
Philips Medical is permitted to purchase certain of our products for the purpose of reselling such products to its customers. In
addition, we are permitted to sell additional products directly to customers of Philips Medical upon an initial sale of the Philips
products to such customers.

 

New Siemens Agreement

 

See Item 4.A, “Business Overview—Alliances
and Partnerships—Siemens”.

 

    83

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