SOPHIRIS BIO INC.

The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred net losses from operations since inception, including $5.5 million in the nine months ended September 30, 2019 and has an accumulated deficit of $161.8 million as of September 30, 2019. On August 29, 2019, the Company completed a registered direct financing with a private institutional investor whereby it received $3.6 million, net of underwriters’ discounts and offering costs. At September 30, 2019, the Company had cash, cash equivalents and securities available-for-sale of $6.3 million. As of September 30, 2019, the future principal and final fee payments under the Loan and Security Agreement with Silicon Valley Bank, or SVB, total $6.0 million. The maturity date of the loan is September 1, 2021. The Company is currently paying monthly installments of principal and interest under the Loan and Security Agreement. However, if the Company fails to make principal and interest payments when due or another event of default occurs under the loan, SVB may accelerate the loan and foreclose on the Company’s pledged assets if the Company is unable to repay the loan in full. Events of default include the occurrence of a material adverse change as defined in the Loan and Security Agreement. As of the date of filing of this Form 10-Q, the Company is not in default under any of the provisions of the Loan and Security Agreement. The Company expects that its cash, cash equivalents and securities available-for-sale will be sufficient to fund its operations and debt service through March 2020 (assuming no acceleration of the loan) and, as a result, there is substantial doubt about its ability to continue as a going concern for one year from the date of the issuance of its condensed consolidated financial statements for the nine months ended September 30, 2019.

On September 6, 2019, the Company received a letter from the Nasdaq notifying the Company that it had not regained compliance with Market Value Rule by September 3, 2019 and as a result the Company’s securities will be delisted from the Nasdaq unless the Company requests an appeal of this determination. The Company formally requested an appeal of this determination on September 12, 2019. On October 17, 2019, the Company met with the Nasdaq Hearings Panel regarding the Company’s potential delisting from The Nasdaq Stock Market as a result of its failure to maintain a market value of the Company’s listed securities of at least $35 million or in the alternative to have more than $2.5 million in stockholders’ equity. On October 21, 2019, the Company received the Nasdaq Hearings Panel decision which granted the Company until January 24, 2020 to regain compliance with the listing standards of the Nasdaq Capital Market, by either having the market value of the Company’s listed securities be at least $35 million during the preceding ten consecutive trading days before January 24, 2020 or having more than $2.5 million in stockholders’ equity by January 24, 2020. The Company will also be required to have a closing bid price of at least $1.00 per share during the preceding ten consecutive trading days before January 24, 2020. If the Company is unable to regain compliance with the listing standards of the Nasdaq Capital Market by January 24, 2020, the Company’s securities may be delisted from The Nasdaq Stock Market. As of the date of this filing the Company has not regained compliance with any of these listing rules.

On September 6, 2019, we received a letter from the Nasdaq notifying us that we had not regained compliance with Market Value Rule by September 3, 2019 and as a result our securities will be delisted from the Nasdaq unless we requested an appeal of this determination. We formally requested an appeal of this determination on September 12, 2019. On October 17, 2019, we met with the Nasdaq Hearings Panel regarding our potential delisting from The Nasdaq Stock Market as a result of our failure to maintain a market value of our listed securities of at least $35 million or in the alternative to have more than $2.5 million in stockholders’ equity. On October 21, 2019, we received the Nasdaq Hearings Panel decision which granted us until January 24, 2020 to regain compliance with the listing standards of the Nasdaq Capital Market either by having the market value of our listed securities be at least $35 million during the preceding ten consecutive trading days before January 24, 2020, or having more than $2.5 million in stockholders’ equity by January 24, 2020. We will also be required to have a closing bid price of at least $1.00 per share during the preceding ten consecutive trading days before January 24, 2020. If we are unable to regain compliance with the listing standards of the Nasdaq Capital Market by January 24, 2020, our securities may be delisted from The Nasdaq Stock Market. As of the date of this filing we have not regained compliance with any of these listing rules.

The condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. We have incurred net losses from operations since inception, including $5.5 million in the nine months ended September 30, 2019, and have an accumulated deficit of $161.8 million as of September 30, 2019. On August 29, 2019, we completed a registered direct financing with a private institutional investor whereby we received $3.6 million, net of underwriters’ discounts and offering costs. At September 30, 2019, we had cash, cash equivalents and securities available-for-sale of $6.3 million. As of September 30, 2019, the future principal and final fee payments under the Loan and Security Agreement with Silicon Valley Bank, or SVB, totaled $6.0 million. The maturity date of the loan is September 1, 2021. We are currently paying monthly installments of principal and interest under the Loan and Security Agreement.  However, if we fail to make principal and interest payments when due or another event of default occurs under the loan, SVB may accelerate the loan and foreclose on our pledged assets if we are unable to repay the loan in full.  Events of default include the occurrence of a material adverse change as defined in the Loan and Security Agreement. As of the date of filing of this Form 10-Q, we are not in default under any of the provisions of the Loan and Security Agreement. We expect that our cash, cash equivalents and securities available-for-sale will be sufficient to fund our operations and debt service through March 2020 (assuming no acceleration of the loan) and, as a result, there is substantial doubt about our ability to continue as a going concern for one year from the date of the issuance of our condensed consolidated financial statements for the nine months ended September 30, 2019.

Our operations have consumed substantial amounts of cash since inception. Since inception, we have raised approximately $149 million from the sale of equity securities in private placements and public offerings, $28 million from the issuance of debt securities and $11 million from the exercise of common share purchase warrants. We will need to continue to spend substantial amounts to continue clinical development of topsalysin. We announced that we had received formal scientific advice from the European Medicines Agency, or EMA, and reached an agreement with the U.S. Food and Drug Administration, or FDA, regarding a design for a single Phase 3 clinical trial to evaluate the potential of topsalysin as a targeted focal therapy to treat patients with intermediate risk localized prostate cancer. Based upon feedback from the EMA and the FDA, we believe that data from a single Phase 3 trial, if successful, should be sufficient to support market approval in both the U.S. and Europe. The scope of any additional trial in localized prostate cancer, including whether it will be a Phase 3 trial or an additional Phase 2 trial, will be dependent upon securing funding to finance such clinical trial. At this point in time, we do not plan on pursuing new clinical trials, including an additional trial in localized prostate cancer or a second Phase 3 trial in benign prostatic hyperplasia, or BPH, unless we secure a development partner to fund such new clinical trials or we obtain the necessary financing. We are currently evaluating options to further advance the clinical development of topsalysin. We will require significant additional funding to advance topsalysin in clinical development. We could use dilutive funding options such as an equity financing and/or non-dilutive funding options such as a partnering arrangement or other strategic arrangements to fund future clinical development of topsalysin. Any significant future public financing will most likely require the use of a Form S-1 registration statement.  The process of getting a Form S-1 registration statement filed and declared effective can take an extended period of time which could delay the timing of any future significant financing. There can be no assurance that such funding will be secured in a timely manner or on favorable terms, if at all or that a development partner will be available on acceptable terms or if at all.