Profound Medical Corp.

1****Description of business

Profound Medical Corp. (Profound) (the Company) was incorporated under the Ontario Business Corporations Act on July 16, 2014. The Company is a commercial-stage medical device company focused on the development and marketing of customizable, incision-free therapeutic systems for the ablation of diseased tissue utilizing platform technologies.

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

Basis of preparation

The Company prepares its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (US GAAP). The condensed consolidated financial statements include the accounts of wholly owned subsidiaries, after elimination of intercompany accounts and transactions. The consolidated financial information presented herein reflects all financial information that, in the opinion of management, is necessary for a fair statement of financial position, results of operations and cash flows for the periods presented.

Unaudited condensed consolidated financial statements

The condensed consolidated balance sheet as of September 30, 2026, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2026 and 2025, the condensed consolidated statements of shareholders’ equity for the three and nine months ended September 30, 2026 and 2025, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2026 and 2025, are unaudited. The financial data and other information disclosed in these notes to the consolidated financial statements related to September 30, 2026, and the three and nine months ended September 30, 2026 and 2025, are also unaudited. The accompanying condensed consolidated balance sheet as of December 31, 2025, has been derived from the audited consolidated financial statements included in the Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission on March 5, 2026.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to a fair statement of the Company’s financial position as of September 30, 2026, and the results of its operations and cash flows for the three and nine months ended September 30, 2026 and 2025. The results for the three and nine months ended September 30, 2026, are not necessarily indicative of results to be expected for the year ending December 31, 2026, or for any other period or for any future year and should be read in conjunction with the annual consolidated financial statements included in the Annual Report.

Use of estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the allocation of transaction prices and timing of revenue recognition, assumptions related to the determination of expected credit losses, and the valuation of stock options. The Company based its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In January 2026, the Company adopted ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The Company elected the practical expedient to assume that current conditions as of the balance-sheet date remain unchanged for the remaining life of its current accounts receivable and contract assets. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

Trade receivables and other receivables, net, as of September 30, 2026 and December 31, 2025 consists of the following:

The activity in the allowance for expected credit losses for trade receivables and contract assets was as follows:

Inventory as of September 30, 2026 and December 31, 2025 consists of the following:

During the three and nine months ended September 30, 2026, $2,039 and $3,900, respectively (three and nine months ended September 30, 2025 - $1,275 and $2,431, respectively) of inventory was recognized in cost of sales.

The major components of property and equipment, net, as of September 30, 2026 and December 31, 2025 consist of the following:

Depreciation expense for the three and nine months ended September 30, 2026 was $126 and $345, respectively (three and nine months ended September 30, 2025 - $93 and $311, respectively). During the three and nine months ended September 30, 2026, the Company sold $72 and $226, respectively (three and nine months ended September 30, 2025 - $387 and $600, respectively) of equipment under operating lease to a customer.

The major components of intangible assets as of September 30, 2026 and December 31, 2025 consist of:

The Company has a license agreement (the license) with Sunnybrook Health Sciences Centre (Sunnybrook), pursuant to which Sunnybrook licenses to the Company certain intellectual property and exclusively licensed-in rights that enable the Company to use Sunnybrook’s technology for MRI-guided trans-urethral ultrasound therapy. The Company has the option to acquire rights to improvements to the relevant technology and intellectual property. If the Company fails to comply with any of its obligations or otherwise breaches this agreement, Sunnybrook may have the right to terminate the license.

Accrued expenses and other current liabilities, as of September 30, 2026 and December 31, 2025 consist of the following:

On March 3, 2025, the Company entered into an amended and restated credit agreement (the “CIBC Credit Agreement”), with Canadian Imperial Bank of Commerce (“CIBC”) which amended the terms of the CIBC Loan and the existing long-term debt provided under the Original CIBC Credit Agreement was repaid with proceeds from a new revolving line of credit provided by CIBC to Profound. This was accounted for as a modification of debt whereby a new effective interest rate was established based on the carrying value of the debt and the revised cash flows. The line of credit bears interest at the Wall Street Journal Prime Rate subject to a floor of 6.25%. Following an amendment to the CIBC Credit Agreement on September 30, 2025, the amended financial covenants are that unrestricted cash is at all times the greater of: (i) to the extent that EBITDA is a negative number or loss for the most recentsix-month period, the amount of such loss, or (ii) $10,000, reported on a monthly basis and that revenue for the 12 month period must be 15% greater than revenue for the same period in the prior fiscal year, reported on a quarterly basis. The Company is in compliance with these financial covenants as of September 30, 2026. Future compliance with the financial covenants included in the CIBC Credit Agreement is dependent upon achieving certain revenue, EBITDA, and anticipated unrestricted cash levels.

The obligations are secured by, inter alia, a general security agreement over the assets and the assets of the Company’s subsidiaries. The revolving line of credit matures on March 3, 2027 and provides that Profound may request a one-time increase in the principal amount of the revolving line of credit up to a maximum amount of $10,000, which is subject to the approval of CIBC in its sole discretion.

Leases where the Company is the Lessee

The Company leases certain office premises. In January 2026, the Company entered into a lease modification agreement for one of its office premises that extended the lease term and modified the payment schedule. This modification did not provide the Company with the right to use any additional underlying assets and therefore was accounted for as a modification of an existing operating lease, resulting in a remeasurement of the related operating lease liability using an updated incremental borrowing rate and a corresponding adjustment to the right‑of‑use asset. The extension commenced October 1, 2026, with fixed payment structures expiring in 2033. Lease liabilities and corresponding right-of-use assets were recognized based on the present value of future lease payments.

Lease expense for the three and nine months ended September 30, 2026 and 2025:

Other information related to operating leases is as follows:

Maturities of the operating lease liabilities and minimum payments for operating leases having initial or remaining noncancellable terms in excess of one year as of September 30, 2026 were as follows:

Common shares

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

Voting Power

Except as otherwise required by law, the holders of common shares possess all voting power for the election of the Company’s directors and all other matters requiring shareholder action. Holders of common shares are entitled toone vote per share on matters to be voted on by shareholders.

Dividends

Holders of common shares will be entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically.

Liquidation, Dissolution and Winding Up

In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to shareholders, after the rights of the creditors have been satisfied.

Share options

Effective May 20, 2020, the Company adopted amendments to the share option plan (the Share Option Plan). The aggregate maximum number of common shares that may be issued under the Share Option Plan, together with all other security-based compensation arrangements of the Company, is limited to 13% of the issued and outstanding common shares. The current maximum number of common shares reserved for issuance under the share option plan together with the long-term incentive plan is 4,761,489 common shares (or such other number as may be approved by the holders of the voting shares of the Company).

As of September 30, 2026,2,748,199 (December 31, 2025 –2,142,522) options were outstanding. Each share option granted allows the holder to purchaseone common share, at an exercise price not less than the lesser of the closing trading price of the common shares on the TSX (or other exchange where the common shares are listed), on the date a share option is granted and the volume-weighted average price of the common shares for thefive trading days immediately preceding the date the share option is granted. Share options granted under the Share Option Plan generally have a maximum term often years and vest over a period of up tofour years.

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

The Company estimated the fair value of the share options granted during the period using the Black-Scholes option pricing model with the weighted average assumptions below. The Company estimated the expected future stock price volatility for its common stock by using its historical volatility based on daily price observations for the most recent historical period equal to the length of the instrument’s expected life of options.

The weighted average grant date fair values of share options granted for the three and nine months ended September 30, 2026 were C$4.85 and C$4.92, respectively (three and nine months ended September 30, 2025 - C$4.17 and C$4.55).

Long-term incentive plan

Effective May 17, 2023, the Company adopted the amended long term incentive plan (the LTIP). The LTIP is an incentive-based equity compensation plan that provides for the grant of restricted share units (the RSUs) and deferred share units (the DSUs, together with the RSUs, the Units). The aggregate maximum number of common shares that may be reserved for issuance under the LTIP in respect of grants of RSUs and DSUs is limited to 4.9% of the issued and outstanding common shares on a non-diluted basis, provided that, the maximum number of common shares which may be reserved for issuance pursuant to all of the Company’s security-based compensation arrangements shall not in the aggregate exceed 13% of the issued and outstanding common shares on a non-diluted basis. The Company may grant RSUs to officers, directors, employees, or consultants of the Company or any of its affiliates and any such person’s personal holding company, as designated by the Board in a resolution upon the terms and conditions set forth in a grant agreement. DSUs may be granted to any director of the Company who has been designated by the Company for participation in the LTIP and who has agreed to participate in the LTIP. Each Unit represents the right to receiveone common share in accordance with the terms of the LTIP. The number of Units granted at any particular time will be calculated by dividing the dollar amount of such grant by the market value of a common share on the applicable grant date, which is equal to the volume weighted average trading price of all common shares traded on the TSX (or other exchange where the common shares are listed) for thefive trading days immediately preceding such date. RSUs and DSUs granted under the LTIP vest over a period of up tothree years, subject to DSU deferral features.

The following table summarizes RSUs activities:

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

Share-based compensation expense

The following table presents the components and classification of share-based compensation recognized for share options, RSUs, and DSUs for the three and nine months ended September 30, 2026 and 2025:

The following table provides information about disaggregated revenue by products and services:

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

The computation of diluted loss per share is equal to the basic loss per share due to the anti-dilutive effect of the share options, RSUs and DSUs. Of the 2,748,199 (September 30, 2025 –2,149,479) share options,1,094,601 (September 30, 2025 –963,005) RSUs, and 136,920 (September 30, 2025 –143,820) DSUs that are not included in the calculation of diluted loss per share for the period ended September 30, 2026,1,375,249 (September 30, 2025 –1,170,100) were exercisable.

The Company’s operations are categorized intoone industry segment, which is medical technology focused on magnetic resonance guided ablation procedures for the treatments to ablate the prostate gland, uterine fibroids, osteoid osteoma and nerves for palliative pain relief for patients with metastatic bone disease. The CODM, which is the Company’s Chief Executive Officer, regularly reviews the operating results of the Company on a consolidated basis as part of making decisions for allocating resources and evaluating performance. Further, the CODM is regularly provided with the consolidated expenses as noted on the consolidated statements of operations and comprehensive loss.

The following tables represent total revenue by geographic area, based on the location of the reporting entity for the three months ended September 30, 2026 and 2025, respectively:

The following tables represent other geographic information for the nine months ended September 30, 2026 and the year ended December 31, 2025: