Exhibit
99.3
| TITAN MEDICAL INC. |
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Management’s
Discussion and Analysis |
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for the three and six months
ended June 30, 2021 |
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| August 10, 2021 |
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Table of Contents
 | SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 2 |
INTRODUCTION
The following Management’s Discussion
and Analysis (“MD&A”) is prepared as of August 10, 2021 and should be read in conjunction with unaudited interim condensed
consolidated financial statements and the related notes thereto for the three and six months ended June 30, 2021 (the “Interim
Financial Statements”) of Titan Medical Inc. (referred to hereinafter as “Titan”, the “Company”,
“we”, “us” and “our”) and the annual audited financial statements for the year
ended December 31, 2020. The Interim Financial Statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards
Board. Unless otherwise indicated, all financial information in this MD&A is reported in thousands of US dollars except for share
and earnings (loss) per share data which is reported in number of shares and US dollars respectively. The tables and charts included
in this document form an integral part of this MD&A.
The common shares of the Company (the “Common Shares”)
are listed under the symbol “TMDI” on The Nasdaq Capital Market (the “Nasdaq”) and “TMD”
on the Toronto Stock Exchange (the “TSX”).
This MD&A has been prepared with reference to National Instrument
51-102 – Continuous Disclosure Obligations. Additional information related to Titan, including our Annual Information Form (“AIF”)
and Annual Report (“Annual Report”) on Form 40-F for the year ended December 31, 2020, is available via our website
at www.titanmedicalinc.com, on SEDAR at www.sedar.com, and on the EDGAR section of the SEC’s website at www.sec.gov.
This MD&A includes references to the
Company’s trade-marks and trade names, such as Titan, Titan Medical, and Enos, some of which may be protected under applicable
intellectual property laws of one or more countries and which the Company believes is its property. Solely for convenience, the
Company’s trade-marks referred to in this MD&A may appear without the TM or Ò
symbol (registered trademark) symbols, but such references are not intended to indicate, in any way, that the Company will not
assert, to the fullest extent under applicable law, its rights to these trade-marks and trade names.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This discussion includes certain statements that may be deemed
“forward-looking statements”. All statements in this discussion other than statements of historical facts that address future
events, developments, or transactions that the Company expects, are forward-looking statements. These forward-looking statements are made
as of the date of this MD&A. Forward-looking statements are frequently, but not always, identified by words such as “expect”,
“anticipate”, “estimate”, “may”, “could”, “might”, “will”, “would”,
“should”, “intend”, “believe”, “target”, “budget”, “plan”, “strategy”,
“goals”, “objectives”, “predicts”; “potential”, “projects”, “possible”,
“milestones”, “projection” or the negative of any of these words and similar expressions, although these words
may not be present in all forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions
and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, but are not limited
to, the factors discussed in the section entitled “Risk Factors” in this MD&A and in the section entitled “Risk
Factors” in the Company’s AIF or Annual Report for the year ended December 31, 2020 dated March 31, 2021. Although the Company
has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described
in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated
or intended. Forward-looking statements contained herein are made as of the date of this MD&A and, other than as required by law,
the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or
results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future
events could differ materially from those anticipated in such statements. Forward-looking statements are based on a number of assumptions,
which may prove to be incorrect, including but not limited to the assumptions discussed in the section
entitled “Caution Regarding Forward Looking Statements” in the Company’s AIF. Accordingly, readers should not place
undue reliance on forward-looking statements.
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 3 |
This MD&A also includes market data and forecasts. Although the
Company is responsible for all of the disclosure contained in this MD&A, in some cases the Company relies on and refers to market
data and certain industry forecasts that were obtained from third party surveys, market research, consultant surveys, publicly available
information and industry publications and surveys that it believes to be reliable. Unless otherwise indicated, all market and industry
data and other statistical information and forecasts contained in this MD&A are based on independent industry publications, reports
by market research firms or other published independent sources and other externally obtained data that the Company believes to be reliable.
Any such market data, information or forecast may prove to be inaccurate because of the method by which it was obtained or because it
cannot always be verified with complete certainty given the limits on the availability and reliability of raw data, the voluntary nature
of the data gathering process and other limitations and uncertainties, including those discussed in the AIF and Annual Report under the
heading “Risk Factors”. As a result, although the Company believes that these sources are reliable, it has not independently
verified the information.
Please also refer to the risk factors set forth in the Company’s
Annual Report for the 2020 fiscal year available on the EDGAR section of the SEC’s website at www.sec.gov and the Company’s
AIF for the 2020 fiscal year available on SEDAR at www.sedar.com, which are expressly incorporated by reference into this MD&A.
NON-IFRS FINANCIAL MEASURES
The Company discloses non-IFRS measures (such as adjusted General &
Administration (“G&A”) expenses) that do not have standardized meanings prescribed by IFRS. The Company believes
that shareholders, investment analysts and other readers find such measures helpful in understanding the Company’s financial performance.
Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and may not have been calculated in the same way as
similarly named financial measures presented by other reporting issuers and therefore unlikely to be comparable to similar measures presented
by other companies. Furthermore, these non-IFRS measures should not be considered in isolation or as a substitute for measures of performance
or cash flows as prepared in accordance with IFRS. These measures should be considered as supplemental in nature and not as a substitute
for related financial information prepared in accordance with IFRS.
Adjusted G&A
G&A refers to expenses determined in accordance
with IFRS. The Company defines adjusted G&A as G&A excluding stock-based compensation (“SBC”) expense and
severance costs. Management believes adjusted G&A is a useful supplemental measure to determine the Company’s cash burn rate
related to G&A so investors can understand the cash that is available for research and development (“R&D”).
OVERVIEW
Titan is a Canadian company committed to enhancing robotic assisted
surgery through technology that requires only a single patient access point. The Company’s goals are improved patient outcomes,
lower operating room costs, and applied technology that is both effective and easy to use, allowing medical professionals to perform their
best. The Company’s robotic assisted surgery system in development, the Enos™ robotic single access surgical system (the “Enos
system”), derives its name from the Greek language, meaning ‘Of One’. By focusing on a single patient access point,
we expect that patient trauma and scarring can be reduced, and patients may be able to recover from surgery faster.
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 4 |
The Enos system has not been cleared or approved by the U.S. Food
and Drug Administration (“FDA”) or any other regulatory authority in any other jurisdiction and is not yet commercially
available.
The Company is the successor corporation formed pursuant to two
separate amalgamations under the Business Corporations Act (Ontario) on July 28, 2008. The address of the Company’s corporate
office and its principal place of business is 155 University Avenue, Suite 750, Toronto, Ontario, Canada M5H 3B7. On May 29, 2020, the
Company established Titan Medical USA Inc. (“Titan USA” or the “Subsidiary”), a Delaware corporation
and a wholly owned subsidiary of the Company. Titan USA’s principal activity consists of R&D from its leased
premises located in Chapel Hill, North Carolina, United States.
In addition to leveraging in-house R&D
capabilities for activities related to the Enos system and the development work pursuant to the agreement with Medtronic plc (see “Significant
Transactions - Development Agreement & License Agreement with Medtronic”), the Company engages subcontractors and consultants
to perform certain design and development, prototyping, and assembly and manufacturing activities.
SIGNIFICANT TRANSACTIONS
February 2021 Equity Offering
On February 24, 2021, the Company closed an offering of 9,585,250
units of the Company (“February 2021 Units”) sold on a “bought deal” basis, at a price of $2.40 per February
2021 Unit for aggregate gross proceeds of $23 million. Each February 2021 Unit consists of one Common Share and one half (1/2) of one
Common Share purchase warrant (each whole warrant, a “February 2021 Warrant”). Each February 2021 Warrant is exercisable
to acquire one Common Share at an exercise price of $3.00 per Common Share until February 24, 2023. In connection with the February 2021
offering, the Company issued 670,967 broker warrants, each exercisable at $3.00 until February 24, 2023 for one Common Share.
Anticipated use of proceeds from the offering is for general corporate
purposes and funding working capital and capital expenditures. As previously disclosed, general corporate purposes includes the development
of the Enos system (see the table noted under “Enos Robotic Single Access Surgical System - Development Plan”) and
there have been no variations in the proposed use of proceeds to date.
January 2021 Equity Offering
On January 26, 2021, the Company closed an offering of 7,419,354
units of the Company (“January 2021 Units”) sold on a “bought deal” basis, at a price of $1.55 per January
2021 Unit for aggregate gross proceeds of $11.5 million. Each January 2021 Unit consists of one Common Share and one half (1/2) of one
Common Share purchase warrant (each whole warrant, a “January 2021 Warrant”). Each January 2021 Warrant is exercisable
to acquire one Common Share at an exercise price of $2.00 per share until January 26, 2026. In connection with the January 2021 offering,
the Company issued 518,234 broker warrants, each exercisable at $1.9375 until January 26, 2023 for one Common Share.
Anticipated use of proceeds from the offering is for general corporate
purposes and funding working capital and capital expenditures. As previously disclosed, general corporate purposes includes the development
of the Enos system (see the table noted under “Enos Robotic Single Access Surgical System - Development Plan”) and
there have been no variations in the proposed use of proceeds to date.
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Development Agreement & License Agreement with Medtronic
On June 3, 2020, the Company entered into a development and license
agreement (the “Development Agreement”) with a U.S. affiliate of Medtronic plc (“Medtronic”) in
connection with the development of robotic assisted surgical technologies and a separate license agreement (the “License Agreement”)
with Medtronic in respect of certain already developed Company technologies.
Under the terms of the License Agreement, Titan granted Medtronic
an exclusive license with regard to certain robotic assisted surgical technologies, including patents and know-how, for a one-time upfront
royalty payment of $10 million with no further royalty payments due thereunder. Under the terms of the Development Agreement, Titan has
granted or will grant Medtronic an exclusive license with regard to the technologies developed thereunder in exchange for license fees
totaling up to $31 million with no further royalty payments due thereunder, $20 million of which has already been received by Titan as
described below. Titan has retained certain rights to the licensed technologies under each of the agreements to continue to develop and
commercialize those technologies for the Company’s own business in single access robotic assisted surgery, including the Enos system.
On June 10, 2020, the Company received a $10 million license payment
pursuant to the License Agreement. Under the Development Agreement, on October 28, 2020, the Company received a $10 million license payment
for completion of Medtronic Milestone 1, and on May 28, 2021, the Company received a further $10 million license payment for completion
of Medtronic Milestone 3. The Company’s entitlement to receive up to an additional $11 million pursuant to the Development Agreement
is conditional upon the completion of Medtronic Milestone 4 set forth in the Development Agreement. The technology development under Medtronic
Milestone 4 involves complex electromechanical design and development and there is no assurance that the milestone will be satisfied on
a timely basis or at all. The technology design and development require a combination of personnel with experience and expertise in robotic-assisted
surgical technology and financial resources. Furthermore, there is no assurance that the Company will receive further license payments
from Medtronic, including the payments related to Medtronic Milestone 4.
The Company is also dependent on the engagement of certain contractors
and suppliers and there is no assurance that those parties will all be agreeable to engage throughout the project on terms satisfactory
to the Company or at all.
The payments are to be provided as
technology milestones are completed and evaluated by Medtronic and are further identified in the table below. The Development Start
Date, as defined in the Development Agreement, was June 12, 2020.
| Medtronic Milestone(1) |
Deadline(2) |
Payment (3)
(US $ 000’s) |
| Medtronic Milestone 1(4) (5) |
Four (4) months from Development Start Date |
10,000 |
| Medtronic Milestone 2(6) |
Four (4) months from Development Start Date |
- |
| Medtronic Milestone 3(5) |
Six (6) months from the later of (a) receipt by us of Payment for Medtronic Milestone 1, (b) receipt by us from Medtronic of Medtronic deliverables required for Medtronic Milestone 3, and (c) receipt by us from Medtronic of confirmation of certain due diligence in respect of our deliverables for Medtronic Milestone 1 |
10,000 |
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| Medtronic Milestone(1) |
Deadline(2) |
Payment (3)
(US $ 000’s) |
| Medtronic Milestone 4 |
Four (4) months from the later of (a) receipt by us of Payment for Medtronic Milestone 3, (b) receipt by us of Medtronic deliverables for Medtronic Milestone 4, and (c) receipt by us from Medtronic of confirmation of certain due diligence in respect of our deliverables for Medtronic Milestone 3 |
11,000 (7) (8) |
Notes:
| 1. | Medtronic Milestone 1, Medtronic Milestone 3 and Medtronic Milestone 4 are each defined in the Development
Agreement and consist of the completion of the development of certain robotic assisted surgical technologies as described in the Development
Agreement. |
| 2. | All as further described and qualified in the Development Agreement. |
| 3. | Each payment is conditional upon the corresponding milestone being completed on a timely basis. As of
the date of this document, Medtronic Milestone 1, 2 and 3 have been achieved. |
| 4. | “Development Start Date” has the meaning ascribed to it in the Development Agreement and was
June 12, 2020. |
| 5. | As of the date of this document, Medtronic Milestones 1, 2 and 3 have been achieved on schedule and the
related payments were received. |
| 6. | Medtronic Milestone 2 is a non-technology milestone defined as Titan raising at least $18.0 million of
capital between the effective date of the Development Agreement and the date that is four months from the Development Start Date. Medtronic
Milestone 2 was achieved ahead of the deadline in June 2020. |
| 7. | The amount of the payment will be the sum of $10.0 million and the amount of the Legal Expenses (as defined below) to be paid to the Company up to a maximum of $1.0 million pursuant to the Development Agreement
and License Agreement. |
| 8. | The balance outstanding under the Medtronic
Loan will be offset against the payment for Medtronic Milestone 4. See below under “Senior
Secured Loan from Medtronic”. |
The Development Agreement provides for a steering committee
comprising of an equal number of representatives from Titan and Medtronic established to provide oversight regarding the work toward achievement
of the milestones. Either party may terminate the Development Agreement if the other party materially breaches the agreement and (if the
breach is curable) fails to cure the breach within forty (40) business days after receipt of written notice.
Senior Secured Loan from Medtronic
On April 28, 2020, Titan received gross
proceeds of $1.5 million from a senior secured loan (the “Medtronic Loan”) provided by an affiliate of Medtronic (“Medtronic
Lender”). The Medtronic Loan is evidenced by an amended and restated senior secured promissory note (“Note”)
dated June 3, 2020, in the principal amount of $1.5 million plus an amount equal to certain legal, transaction and intellectual property
related expenses (“Legal Expenses”) incurred by Medtronic in connection with the License Agreement and Development Agreement and
will bear interest at the rate of 8% per annum. The unpaid principal balance owing under the Note, together with any accrued and unpaid
interest and all other unpaid obligations under the Note, shall be due and payable in full on the earliest to occur of: (i) June 4, 2023,
(ii) the completion of the last milestone under the Development Agreement, or (iii) a Change of Control (as defined in the Note), subject
to an accelerated due date under certain adverse conditions. Until repayment of the loan, Medtronic may have one non-voting observer
attend meetings of Titan’s Board of Directors.
While the Company may prepay the
Note at any time, in whole or in part, without fee or penalty, the Company has maintained the Note to preserve capital as may be required for corporate purchases including for the development of the Enos system.
Titan has entered into a security agreement dated April 28,
2020 in favor of Medtronic Lender (the “Security Agreement”) pursuant to which Titan has granted to Medtronic Lender
a security interest in all of the Company’s present and future property including all personal property, inventory, equipment and
intellectual property. In addition, Medtronic Lender’s rights and powers under the Security Agreement include without limitation
(a) exercising and enforcing all rights and remedies of a holder
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of collateral as if Medtronic Lender were the absolute owner
of the collateral, (b) collection of any proceeds arising in respect of all of our property pledged as security for the loan, (c) license
or sublicense, whether on an exclusive or nonexclusive basis, of any of our intellectual property for such term and on such conditions
and in such manner as Medtronic Lender in its sole judgement determines (taking into account such provisions as may be necessary to protect
and preserve such intellectual property), and (d) the right to enforce its security in the event of a default which may include the appointment
of a receiver by instrument or order of the court.
The Medtronic Loan and Note may limit or preclude the Company from
arranging further debt financing. Under the terms of the Note and related Security Agreement, the Medtronic Lender has certain rights
and powers that, if exercised, could have a material adverse effect on the Company’s business. Due to the senior ranking of the
Medtronic Lender’s security interest in all of the Company’s assets under the Security Agreement, the Company may be limited
in, or entirely precluded from, granting a security interest in its assets in support of any further debt financing the Company may seek
from any other lender, unless the security interest under the further debt financing is subordinate to the Medtronic Lender’s security
interest or the Medtronic Loan and the Note is paid in full satisfaction as permitted therein.
In the event that the Company were to seek further debt financing
and if it were not possible to subordinate the further debt financing or otherwise pay the Medtronic Loan and the Note in full satisfaction,
the Company would need to seek financing by way of equity financing and there is no assurance that further equity financing will be available
or available on acceptable terms.
June 2020 Financing
On June 10, 2020, the Company completed a registered offering of
6,500,000 Common Shares, 11,500,000 Common Share equivalents (each, a “June 2020 Common Share Equivalent”) and 9,000,000
Common Share purchase warrants (each, a “June 2020 Warrant”) for total gross proceeds of approximately $18,000,000.
Under the offering, the Common Shares, June 2020 Common Share Equivalent and June 2020 Warrants were sold in fixed combinations at an
offering price of $1.00, consisting of one Common Share and one-half June 2020 Warrant or one June 2020 Common Share Equivalent and one-half
June 2020 Warrant. Each June 2020 Warrant is exercisable to acquire one Common Share at an exercise price of $1.00 per Common Share until
June 10, 2024. Each June 2020 Common Share Equivalent is convertible to one Common Share at a conversion price of $0.0001 and will expire
when exercised in full. All 11,500,000 June 2020 Common Share Equivalents have been converted to Common Shares at various dates from June 10, 2020 to September 30, 2020 (three months ended June 30, 2020 – 8,000,000).
In connection with the June 2020 offering, broker warrants were
issued to the placement agent entitling the holder to purchase 1,260,000 Common Shares at an exercise price of $1.25 per share prior to
expiry on June 10, 2024.
May 2020 Financing
On May 6, 2020, the Company completed a registered direct offering
of 5,514,500 Common Shares at an offering price of $0.36268 per share and 2,757,252 unregistered Common Share purchase warrants (each,
a “May 2020 Warrant”) for gross proceeds of $2,000,000. Each May 2020 Warrant is exercisable to purchase one Common
Share at an exercise price of $0.3002 per Common Shares until November 6, 2025.
In connection with the May 2020 offering, broker warrants were
issued to the placement agent entitling the holder to purchase 386,015 Common Shares at an exercise price of $0.45335 per share prior
to expiry on November 6, 2025.
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March 2020 Financing
On March 25,
2020, the Company completed a registered offering of 7,000,000 Common Shares and 3,500,000 Common Share purchase warrants
(each, a “March 2020 Warrant”) for total gross proceeds of approximately $1.2 million. Each March 2020 Warrant is exercisable to purchase one Common Share at an exercise price
of $0.19 per share until March 25, 2025.
In connection with the March
2020 offering, broker warrants were issued to the placement agent entitling the holder to purchase 490,000 Common Shares at an exercise
price of $0.2125 per share prior to expiry on March 25, 2025. Aspire Common Share Purchase Agreement On December 23, 2019,
the Company entered into an agreement with Aspire Capital Fund, LLC (“Aspire”). Under the terms of
this agreement, Aspire committed to purchase up to $35 million of Common Shares to purchase up to $35 million of Common Shares.
The agreement also restricts the number of Common Shares that may be issued at 9,729,777.
To date, the Company has issued 6,981,048 Common Shares of Titan for total proceeds of $5.2 million (three months ended June 30, 2020
- $2.5 million). The balance remaining on Aspire’s commitment is 2,748,729 Common Shares (with a maximum value of $29.8 million),
accessible at the Company’s request from time to time, until June 23, 2022, subject to the terms and conditions of the agreement.
ENOS ROBOTIC SINGLE ACCESS SURGICAL
SYSTEM
Development
The Company’s business consists of the design and development of robotic-assisted surgical technologies for application in minimally invasive surgery (“MIS”) and is presently focused on the development of the Enos system. The system under development includes a surgeon-controlled patient cart that includes a 3D high-definition vision system and multi-articulating instruments for performing MIS procedures, and a surgeon workstation that provides the surgeon with an ergonomic interface to the patient cart and a 3D high-definition view of the MIS procedure. The Company intends to initially pursue gynecologic surgical indications for use of its Enos system.
Development of the Enos
system has proceeded with input from various stakeholders including surgeons and operating room staff experienced in MIS, medical technology
development firms and from the Company’s Surgeon Advisory Board. This approach has positioned the Company to design a
robotic surgical system intended to include the traditional advantages of robotic-assisted surgery, including 3D stereoscopic imaging
and restoration of instinctive control, as well as new and enhanced features, including an advanced surgeon workstation incorporating
a 3D high-definition display providing a more ergonomic user interface and a patient cart facilitating the use of instruments with enhanced
dexterity. The Enos system patient cart has been developed with the goal of delivering multi-articulating instruments and a dual-view
camera system into a patient’s abdominal body cavity through a single access port. The dual-view camera system consists of
a flexible 3D high-definition endoscopic camera along with a light source and an insertion tube with a diameter of approximately 25 millimeters
that includes an integrated 2D high-definition camera along with an independent light source that, once inserted, provides visualization
of the MIS surgical site for optimal surgical positioning. Once the insertion tube is positioned in the body, it is docked to a central
drive unit of the patient cart and the 3D high-definition endoscopic camera is subsequently deployed in a manner that the endoscopic
camera and multi-articulating instruments can be
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controlled by the surgeon via the workstation. The reusable multi-articulating
instruments provide for “snake-like” movement in use and are designed to facilitate an assortment of permanent and detachable
single patient use end effectors. The use of reusable robotic instruments for a specific number of uses that can be cleaned and sterilized
between surgeries is intended to minimize the cost per procedure without compromising surgical performance. The design of the patient
cart also incorporates multiple mechanical elements for surgical positioning including a mast, a boom and wheels, allowing for configurability
for a number of surgical indications and the ability to be maneuvered within the operating room, or redeployed within hospitals and ambulatory
surgical centers, where applicable.
As part of the development of the Enos system, the Company plans
on the continued development of a robust training curriculum and post-training assessment tools for surgeons and surgical teams. The training
curriculum is planned to include cognitive pre-training, psychomotor skills training, surgery simulations, live animal and human cadaver
lab training, surgical team training, troubleshooting and an overview of safety. Post-training assessment will include validation of the
effectiveness of those assessment tools. A software training system developer has produced an initial set of core surgical skills simulation
modules customized for use with the surgeon workstation in the first phase of the comprehensive surgeon training curriculum that the Company
plans for its Enos system.
The Company has worked to deepen its intellectual capital through
the recruitment of an in-house technical team and continuously evaluates its technologies under development for intellectual property
protection through a combination of trade secrets and patent application filings. The Company has focused on the filing and prosecution
of patents that management believes validate the novelty of its unique technology, and in turn, support the value of the entire franchise.
Regulatory Overview
The Company has used a combination of internal and external resources
to execute the research, development and regulatory plans for the Enos system. Development objectives have been established to support
a planned regulatory submission to the FDA for marketing authorization in the US, and submittal of a Technical File to a European Notified
Body to obtain CE marking, which indicates that a product for sale within the European Economic Area has been assessed to conform to health
safety and environmental protection requirements.
In the US, the regulatory clearance process includes a Q-Submission
Program that provides companies an opportunity to interact with and obtain feedback from the FDA on specific aspects of the regulatory
process, requirements and planned submissions including Investigational Device Exemption (“IDE”) applications, 510(k)
applications and De Novo classification requests. Certain Q-Submissions, termed Pre-Submissions, typically include a request for written
feedback, and if a company chooses, a meeting in which additional feedback and findings are documented in meeting minutes. The recommendations
made by the FDA in response to a Pre-Submission are non-binding on the FDA, and circumstances related to a company’s product or
potential risks identified through post-market surveillance of similar products in clinical use may further change the position of the
FDA. Furthermore, while the FDA encourages Q-Submissions, there is no assurance that feedback provided from these communications will
result in regulatory approval or clearance, nor does it preclude any identified future changes in regulatory pathways.
The Company has established its plans for development and commercialization
based on its expectation that the Enos system will be classified as a Class II device and therefore obtain marketing authorization through
(i) a premarket notification submitted in accordance with section 510(k) of the U.S. Federal Food, Drug and Cosmetic Act (the “FD&C
Act”), commonly known as a 510(k) submission, or (ii) a classification request for novel devices in accordance with section
513(f)(2) of the FD&C Act, commonly known as a De Novo classification submission. While the Company had previously confirmed with
the FDA that the Enos system would be suitable for marketing authorization through a 510(k) submission, in December, 2020, it received
a written response (the “Written Response”) from the FDA to its Request
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for Information in accordance with section 513(g) of the FD&C
Act that indicated that the FDA believes, based on information provided to it, that the Enos system is appropriate for classification
through the De Novo submission pathway.
Requests for Information made pursuant to Section 513(g) of the
FD&C Act require the FDA to provide information about the classification and the regulatory requirements that may be applicable to
a particular device. FDA responses to such requests represent the FDA’s best judgement about how a device would be regulated, based
upon review of information provided by a requester, including the description of the device and its intended use. The FDA’s response
to a 513(g) request is not a classification decision for a device and does not constitute FDA clearance or approval for commercial distribution.
Classification decisions and clearance or approval for marketing require submissions under different sections of the FD&C Act, such
as a classification obtained in response to a 510(k) submission or a De Novo submission.
The Company filed the Request for Information in response to communications
the Company had with the FDA in which the FDA raised the question of whether robotically-assisted surgical devices (“RASD”),
would generally continue to be eligible for classification as Class II devices and the 510(k) submission pathway, or whether a De Novo
submission would be more appropriate for such devices. In view of the FDA’s Written Response and other information currently available
to the Company, the Company will likely proceed with a De Novo classification request for the Enos system, while continuing to evaluate
its options for use of the 510(k) submission pathway. If the Company ultimately determines that the 510(k) submission pathway is not available
to the Company or would otherwise present other difficulties, the Company intends to continue with the De Novo classification process.
The De Novo classification request provides a pathway for the FDA
to classify novel medical devices for which general controls, or general and special controls, provide a reasonable assurance of safety
and effectiveness, but for which there is no legally marketed predicate device. The De Novo process allows the FDA to review a company’s
submission and reasons as to why the device should be a Class II device, including the review of the general and special controls that
would provide reasonable assurance of the safety and effectiveness of the device. Included in such a classification request, clinical,
non-clinical, test and design data may be provided to support a company’s recommendation for the classification of the device as
a Class II device. After the FDA receives and reviews a request, a determination (generally within 150 days) is made to either grant or
decline the request. If the request is granted (i.e. the device is determined to be a Class II device), the device is authorized to be
marketed and a new classification regulation will be established, ultimately allowing the novel device to serve as a predicate for 510(k)
submissions of future devices of the same type. Should the De Novo classification request be declined, and the device is therefore classified
as a Class III device, a premarket approval application under section 515 of the FD&C Act, also known as a PMA, would be required
to market the device, involving a more expensive and time-consuming approval process.
Since the Enos system is presently under development and the Company
has not submitted any regulatory applications, it is not possible to predict with certainty the outcome of any review by the FDA and the
time required to complete activities necessary for regulatory approval or clearance is not quantifiable at this time. Accordingly, the
Company plans on further communications and submissions with the FDA to clarify the requirements for the IDE clinical study protocol and
to understand any special controls which the FDA may apply. The FDA’s most recent review and response to the Company’s proposed
IDE clinical study general design and planning occurred in December 2018. Additional Pre-Submissions would allow the FDA to review the
state of the current design of the surgical system, and the inclusion of test data and more detailed proposals for one or more clinical
protocols would allow the FDA to provide additional feedback and/or suggest modifications.
The performance of human surgeries as part of the proposed clinical
study with the Enos system will require an IDE from the FDA, which must be submitted and approved in advance. Further, the recruitment
of surgeons from multiple hospital sites will be necessary to perform the surgeries. Each of these sites will require approval of their
independent Institutional Review Board (“IRB”) to approve the studies.
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 11 |
Application to the IRB of each hospital can be made once the FDA
has approved the Company’s IDE application. Only upon successful completion of the IDE clinical study will the Company be in a position
to submit to the FDA an application for marketing authorization.
Previous results achieved by surgeons in operating prototypes in
animal and cadaver studies have preliminarily validated the potential for single incision surgeries to be performed with the Enos system.
Insights gained from these preclinical studies have directed the Company to make product improvements. In June 2019, the Company commenced
preclinical live animal and cadaver studies according to Good Laboratory Practices (“GLP”) and subsequently, on July
18, 2019, announced the successful completion of those studies. Following the completion of the GLP procedures, the Company proceeded
to complete human factors evaluation (“HFE”) studies, which included verification of production system operation with
clinical experts under simulated robotic manipulation exercises. However, during the GLP and HFE studies, the Company identified opportunities
to improve the performance of instruments, camera systems and sterile interfaces before proceeding further, which may require repeating
those studies with enhanced designs. During the third quarter of 2019, the Company’s European Notified Body also completed audits
of the Company’s quality system procedures and related documentation for ISO 13485 Certification, which was ultimately received
in January 2020. In September 2020, a surveillance audit of the Company’s quality system was successfully completed by the Company’s
Notified Body.
Development Plan
Following successful capital raises in June 2020 and the first
quarter of 2021, the Company believes it has sufficient resources to advance its development plan through 2022.
Given the uncertainty of, among other things, the Company’s
ability to secure required capital to fund operations beyond 2022, product development timelines, regulatory processes and requirements,
actual costs and development times may exceed those forecasted. An estimate of the future costs of the development milestones and regulatory
phases for the Enos system beyond the year 2022 is not possible at this time.
The Company’s estimates of the costs and timelines for the
development milestones of its Enos system through the fourth quarter of 2022 are as set out in the table below:
| Milestone Number |
Enos System
Development Milestones |
Estimated
Cost 1
(US$ Millions) |
Schedule for
Milestone
Completion |
Comments |
| Milestone 1 |
Design, prototype and test improvements to instruments, cameras and CDU |
3.2 |
Q4 2020 |
Completed |
| Milestone 2 |
Launch rebranded product line including logos with trademark pending, literature and presentation templates and new website |
0.3 |
Q4 2020 |
Completed |
| Milestone 3 |
Iterate electromechanical design, update sterile adaptors and drape |
5.2 |
Q1 2021 |
Completed |
| Milestone 42,3 |
Perform additional software development and test system performance |
5.4 |
Q1-Q3 2021 |
In progress |
| Milestone 52 |
Perform animal lab assessment |
0.1 |
Q2 2021 |
Completed |
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 12 |
| Milestone Number |
Enos System
Development Milestones |
Estimated
Cost 1
(US$ Millions) |
Schedule for
Milestone
Completion |
Comments |
| Milestone 62,4 |
Perform biocompatibility testing of instruments, camera systems and accessories at independent lab |
3.8 |
Q2-Q3 2021 |
In progress |
| Milestone 72 |
Perform electrical safety testing for surgeon workstations and patient cart, including electromagnetic compatibility (EMC) and electromagnetic interference (EMI) tests at independent lab |
2.7 |
Q3 2021 |
- |
| Milestone 82 |
Perform animal feasibility or GLP study |
2.8 |
Q3 2021 |
- |
| Milestone 92 |
Complete initial build of Enos system IDE units |
10.2 |
Q4 2021 |
- |
| Milestone 102 |
Complete system verification testing |
3.3 |
Q4 2021 |
- |
| Milestone 112 |
Complete HFE summative testing |
1.9 |
Q4 2021 |
- |
| Milestone 122 |
Update application for IDE as additional testing lab data is received and continue preparation for human confirmatory studies |
6.0 |
Q1 2022 |
- |
| Milestone 132 |
Submit IDE application to FDA |
| Milestone 142 |
Complete secondary build of Enos system IDE units |
| Milestone 152 |
Initiate IDE clinical study |
19.0 |
Q2-Q4 2022 |
- |
| Milestone 162 |
Complete IDE clinical study, data analysis and final report |
| Milestone 175,6 |
Submit application for FDA marketing authorization |
TBD |
TBD |
- |
| Milestone 18 |
Tentative FDA marketing authorization letter |
TBD |
TBD |
- |
Notes:
| 1. | The estimated costs above include an allocation of $1.8-4.1 million per quarter of general and administrative
costs. |
| 2. | If the Company achieves Medtronic Milestone 4, it will be entitled to receive a milestone payment from
Medtronic of $11 million and upon receipt of the payment the Company estimates that it will have sufficient funds for the execution and
completion of Milestones 4 through 16. If the Company does not achieve Medtronic Milestone 4, the Company will need to raise additional
capital to complete Milestone 15 and beyond. |
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 13 |
| 3. | Milestone 4 was previously projected to be completed in Q1-Q2 2021 in the Company’s continuous
disclosure documents including the Company’s MD&A for Q1 2021 and its Annual Information Form for 2020. The projected
completion of Milestone 4 has been revised to Q1-Q3 2021 due to ongoing software development and testing of system performance. |
| 4. | Milestone 6 was previously projected to be completed in Q2 2021 in the Company’s continuous disclosure
documents including the Company’s MD&A for Q1 2021 and its Annual Information Form for 2020. The projected completion of Milestone
6 has been revised to Q2-Q3 2021 due to biocompatibility testing that commenced in Q2 2021, continues to be ongoing. |
| 5. | The Company anticipates proceeding with FDA marketing authorization as described in the section titled
“Enos Robotic Single Access Surgical System – Regulatory Overview”. |
| 6. | The timing of submission of application for FDA marketing authorization will be determined at a future
date upon completion of IDE clinical studies and following further correspondence with the FDA as described in the section entitled “Enos
Robotic Single Access Surgical System – Regulatory Overview”. |
The Company anticipates that its cash
balance of $55.0 million at June 30, 2021 and the $11 million license fee the Company would expect to receive upon completion of
Medtronic Milestone 4 under the Development Agreement will be sufficient to fund the development of its Enos system and operational
expenses through 2022, including any costs pursuant to the activities under the Development Agreement.
However, unexpected increases in costs and expenses due to operational decisions made by the Company and/or factors beyond the
Company’s control, such as COVID-19 or any variants, could cause a material impact on working capital resources of the Company.
Due to the nature of technology
R&D, there is no assurance that the milestones set forth in the table above will be achieved, and there
can be no assurance with respect to the time or resources that may be required to achieve them. The Company expects that additional
specific milestones could be identified in the course of the development of the Enos system, and existing milestones, budgets and
the schedule for completion of each milestone may change depending on a number of factors including the results of the
Company’s development program, clarification of or changes to regulatory requirements, the availability of financing and the
ability of development firms engaged by the Company to complete work assigned to them.
INTELLECTUAL PROPERTY AND LICENSING
The Company’s patent portfolio has expanded from 12 issued
patents at December 31, 2016, to 82 issued patents and 95 patent applications as of June 30, 2021. The Company anticipates further expanding
its patent portfolio by filing additional patent applications as it progresses in the development of robotic surgical technologies and,
potentially, by licensing suitable technologies.
Pursuant to the License Agreement (see
“Significant Transactions - Development Agreement & License Agreement with Medtronic”), the Company
exclusively licensed to Medtronic a portion of its portfolio related to certain aspects of instruments and cameras, while retaining the world-wide rights to commercialize the licensed technologies for the Company’s own business in
single access robotic assisted surgery. Furthermore, pursuant to the Development Agreement with Medtronic, the Company is developing
certain robotic assisted surgery technologies, that if completed, will be exclusively licensed by
Medtronic for license payments of up to $31 million, of which $20 million has already been received by the Company in respect of the
completion of Medtronic Milestone 1 and 3, and a further $11 million will be eligible for receipt upon completion of Medtronic
Milestone 4. The Company will retain the world-wide rights to commercialize any developed technology in its own business (see
“Significant Transactions - Development Agreement & License Agreement with Medtronic”).
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 14 |
IP Exclusivity and Independence
Under each of the Development and License
Agreements, while Titan has granted an exclusive license to Medtronic, Titan retains world-wide ownership rights to independently
commercialize the licensed technologies in single access robotic assisted surgery, including with the Enos system and enhancements
thereof. Under each of the Development and License Agreements Titan may assign its intellectual property rights thereunder in
connection with the sale of all or substantially all of the assets of Titan or in connection with a “change of control” (as such
term is defined therein).
RESULTS OF OPERATIONS
| | |
| |
Three Months Ended | |
Six Months Ended |
| | |
| |
June 30, 2021 | |
June 30, 2020 | |
June 30, 2021 | |
June 30, 2020 |
| | |
| | | |
| $ | | |
|
$ | | |
| $ | | |
| $ | |
| Revenue | |
| | | |
| 10,043 | | |
| 10,000 | | |
| 10,093 | | |
| 10,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
| Research and development | |
| | | |
| 7,088 | | |
| 121 | | |
| 14,728 | | |
| 168 | |
| General and administrative | |
| | | |
| 4,837 | | |
| 2,389 | | |
| 8,903 | | |
| 4,059 | |
| Depreciation and amortization | |
| | | |
| 138 | | |
| 35 | | |
| 235 | | |
| 49 | |
| | |
| | | |
| 12,063 | | |
| 2,545 | | |
| 23,866 | | |
| 4,276 | |
| Net (loss) income from operations | |
| | | |
| (2,020 | ) | |
| 7,455 | | |
| (13,773 | ) | |
| 5,724 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Finance income | |
| | | |
| (20 | ) | |
| (5 | ) | |
| (33 | ) | |
| (6 | ) |
| Gain on settlement | |
| | | |
| - | | |
| (1,840 | ) | |
| - | | |
| (1,840 | ) |
| (Gain) loss on fair value of warrant derivative | |
| | | |
| (1,060 | ) | |
| 8,784 | | |
| 1,994 | | |
| 7,665 | |
| Warrant derivative liability issue cost | |
| | | |
| - | | |
| 1,659 | | |
| - | | |
| 1,816 | |
| | |
| | | |
| (1,080 | ) | |
| 8,598 | | |
| 1,961 | | |
| 7,635 | |
| Net and comprehensive loss | |
| | | |
| (940 | ) | |
| (1,143 | ) | |
| (15,734 | ) | |
| (1,911 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted loss per share | |
| | | |
| (0.01 | ) | |
| (0.02 | ) | |
| (0.16 | ) | |
| (0.04 | ) |
Revenue
Revenue was $10.0 million and $10.1 million for both the three
and six months ended June 30, 2021, respectively compared to $10.0 million for both the three and six months ended June 30, 2020. Revenue
is entirely related to license payments earned from Medtronic. The Company earns license revenue from achieving defined milestones in
the Development Agreement. To date the Company has earned $30 million of the maximum amount of $41 million that could be payable by Medtronic
under the Development Agreement and the License Agreement if all of the Medtronic Milestones are completed. The Company’s entitlement
to receive the balance of up to $11 million pursuant to the Development Agreement is conditional upon the completion of Medtronic Milestone
4 set forth in the Development Agreement. There is no assurance that the Company will receive further payments from Medtronic pursuant
to the Development Agreement. See “Significant Transactions - Development Agreement & License Agreement with Medtronic”.
Research and Development
R&D expenses were $7.1 million for the three months ended June 30, 2021 compared to $0.1 million for the three months ended June 30, 2020.
R&D expenses were $14.7 million for the six months ended June 30, 2021 compared to $0.2 million for the six months ended June 30,
2020.
R&D expenses are related to the development
of the Enos system and the development work required to achieve the milestones under the Development Agreement with Medtronic. In the
comparative period, R&D was temporarily suspended. Following execution of the Medtronic agreements in June 2020, the Company made
the strategic decision to move a significant portion of its R&D in-house at its new R&D center in Chapel Hill, North Carolina
to advance both the development of the Enos system and complete the development work required to achieve the Medtronic Milestones. See
“Significant Transactions - Development Agreement & License Agreement with Medtronic”.
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 15 |
General and Administrative
| | |
Three Months Ended | |
Six Months Ended |
| | |
June 30, 2021 | |
June 30, 2020 | |
June 30, 2021 | |
June 30, 2020 |
| | |
| $ | | |
| $ | | |
| $ | | |
| $ | |
| General and administrative expense | |
| 4,837 | | |
| 2,389 | | |
| 8,903 | | |
| 4,059 | |
| Stock-based compensation expense | |
| (1,429 | ) | |
| (206 | ) | |
| (2,198 | ) | |
| (435 | ) |
| Severance provision | |
| (171 | ) | |
| - | | |
| (171 | ) | |
| - | |
| Adjusted general and administrative expense | |
| 3,237 | | |
| 2,183 | | |
| 6,534 | | |
| 3,624 | |
G&A expenses were $4.8 million for the three months ended June
30, 2021 compared to $2.4 million for the three months ended June 30, 2020. The increase in G&A expenses is related to an increase
in compensation costs related to expanding the leadership team to support the development of the Enos system, an increase in stock-based
compensation of $1.2 million and $0.2 million in severance costs. Adjusted G&A expenses were $3.2 million for the three months ended
June 30, 2021 compared to $2.2 million for the three months ended June 30, 2020.
G&A expenses were $8.9 million for the six months ended June
30, 2021 compared to $4.1 million for the six months ended June 30, 2020. The increase in G&A expenses is related to an increase in
compensation costs, professional fees related to market research, stock-based compensation of $1.8 million and $0.2 million in severance
costs. Adjusted G&A expenses were $6.5 million for the six months ended June 30, 2021 compared to $3.6 million for the six months
ended June 30, 2020.
Depreciation and Amortization
Depreciation and amortization expenses consists of depreciation
of right of use (“ROU”) assets, property plant and equipment and amortization of patent rights.
Depreciation and amortization expenses
were $138,000 and $235,000 for the three and six months ended June 30, 2021 compared to $35,000 and $49,000 for the three and six
month ended June 30, 2020. The increase in expense was due to expansion of leased premises at its R&D facility in Chapel
Hill, equipment purchased to support R&D and amortization of the Company’s patents.
Net (Loss) Income from Operations
Net loss from operations was $2.0
million and $13.8 million for the three and six months ended June 30, 2021 compared to net income from operations of $7.5 million
and $5.7 million for the three and six months ended June 30, 2020. The net loss from operations is related to R&D costs to
advance the development of the Enos system and the costs incurred related to the Medtronic Development Agreement, partially offset
by milestone revenue from the Medtronic Development Agreement. In the comparative period, net income from operations was related to
$10 million in license revenue from the License Agreement with Medtronic. The Company had limited R&D and G&A expenses in
the comparative period as the Company temporarily suspended R&D activities.
Finance Income
Finance income was $20,000 and $33,000 for the three and six months
ended June 30, 2021 compared to $5,000 and $6,000 for the three and six months ended June 30, 2020. The increase is related to interest
income earned on the Company’s cash balances that were significantly higher in the current period versus the comparative period.
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 16 |
Gain on Settlement
Gain on settlement was $nil for the three and six months ended
June 30, 2021 compared to $1.8 million for the three and six months ended June 30, 2020. In the comparative period, the Company settled
a legal claim with a supplier for a payment to the supplier of $1.1 million and in exchange the supplier returned certain personal property
and related electronic data to the Company.
(Gain) Loss on Fair Value of Warrant Derivative
For the three months ended June 30, 2021, the gain on fair value
of warrant derivative was $1.1 million compared to a loss of $8.8 million for the three months ended June 30, 2020. For the six months
ended June 30, 2021, the loss on fair value of warrant derivative was $2.0 million compared to a loss of $7.7 million for the six months
ended June 30, 2020.
The warrant derivative is marked to market at each reporting period
and the gain or loss represents the change in valuation of the warrant derivative liability and can fluctuate significantly based on the
market price of the Company’s Common Shares.
Warrant Derivative Liability Issue Cost
Warrant derivative liability issue cost was $nil for both the three
and six months ended June 30, 2021 compared to $1.7 million and $1.8 million for the three and six months ended June 30, 2020. The warrant
derivative liability issue cost is related to the proportional amount of issuance costs associated with the purchase warrants pursuant
to the June 2020 equity offering.
Net and Comprehensive Loss
Net and comprehensive loss was $940,000
and $15.7 million for the three and six months ended June 30, 2021 compared to a net loss of $1.1 million and $1.9 million for the
three and six months ended June 30, 2020. The reduction in net loss in the second quarter of 2021 versus the comparative period was
due to a $9.8 million difference in the fair value of the warrant derivative, partially offset by an increase in net loss from
operations. In the current six month period, the increase in net and comprehensive loss was related to an increase in loss from
operations related to the development of the Enos system.
LIQUIDITY AND CAPITAL RESOURCES
| | |
Three Months ended
June 30 | |
Six Months ended
June 30 |
| | |
2021 | |
2020 | |
2021 | |
2020 |
| | |
| $ | | |
| $ | | |
| $ | | |
| $ | |
| Cash provided by (used in) operating activities | |
| (738 | ) | |
| 6,211 | | |
| (14,048 | ) | |
| 3,740 | |
| Cash provided by (used in) financing activities | |
| 2,518 | | |
| 20,766 | | |
| 43,919 | | |
| 24,239 | |
| Cash provided by (used in) investing activities | |
| (145 | ) | |
| (47 | ) | |
| (335 | ) | |
| (103 | ) |
| Net change in cash during the period | |
| 1,635 | | |
| 26,930 | | |
| 29,536 | | |
| 27,876 | |
| Cash, beginning of period | |
| 53,370 | | |
| 1,760 | | |
| 25,469 | | |
| 814 | |
| Cash, end of period | |
| 55,005 | | |
| 28,690 | | |
| 55,005 | | |
| 28,690 | |
The Company’s cash totalled $55.0 million at June 30, 2021 as
compared to $25.5 million at December 31, 2020, representing an increase of $29.5 million.
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 17 |
Operating Activities
Cash used in operating activities was $0.7 million and $14.0 million
for the three and six months ended June 30, 2021 compared to cash provided by operating activities of $6.2 million and $3.7 million for
the three and six months ended June 30, 2020.
Cash used in operating activities during the current three and
six month periods was primarily related to the costs associated with the development of the Enos system and the development work under
the Development Agreement with Medtronic. In the comparative period, cash provided by operating activities related to a $10 million license
payment from Medtronic offset partially by operating expenses. The Company had nominal R&D activities in the comparative period.
Financing Activities
Cash provided by financing activities was $2.5 million and $43.9
million for the three and six months ended June 30, 2021 compared to cash provided by financing activities of $20.8 million and $24.2
million for the three and six months ended June 30, 2020.
During the three months ended June 30, 2021, the Company raised
$2.5 million from the issuance of Common Shares under the common share purchase agreement with Aspire (see “Significant Transactions
– Aspire Common Share Purchase Agreement”). In the comparative period, the Company raised $19.3 million from two separate
financings (see “Significant Transactions – June 2020 Financing and May 2020 Financing”).
During the six months ended June 30, 2021, the Company raised $31.3
million from the issuance of Common Shares related to two separate financings (see “Significant Transactions – February
2021 Equity Offering and January 2021 Equity Offering”). In addition, the Company received proceeds of $10.0 million related
to the exercise of warrants and $2.5 million from the from the issuance of Common Shares to Aspire. In the comparative period, the Company
raised $22.7 million from three separate financings (see “Significant Transactions – June 2020 Financing, May 2020 Financing
and March 2020 Financing”).
Investing Activities
Cash used in investing activities was $145,000 and $335,000 for
the three and six months ended June 30, 2021 compared to $47,000 and $103,000 for the three and six months ended June 30, 2020. Cash used
in investing activities relates to the purchase of equipment for the development of Enos and patent costs.
Working Capital
The Company defines working capital as
current assets less current liabilities. Working capital was $29.8 million at June 30, 2021. Excluding the non-cash warrant
derivative liability, working capital would have been $52.4 million. The Company anticipates that its working capital and the $11
million milestone from the Medtronic Development Agreement will be sufficient to fund the development of its Enos system and
operational expenses through 2022, including any costs pursuant to the development program pursuant to the Medtronic Development
Agreement.
However, unexpected increases in costs and expenses due to operational
decisions made by the Company and/or factors beyond the Company’s control, such as COVID-19 or any variants, could cause a
material impact on working capital resources of the Company.
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 18 |
SELECTED QUARTERLY INFORMATION
The following is selected financial data for each of the eight
most recently completed quarters, derived from the Company’s financial statements, and calculated in accordance with IFRS. Net and
comprehensive (loss) / income figures include the non-cash effects of adjustments in the valuation of outstanding warrant
liability.
| | |
Revenue | |
Net and comprehensive
(loss) income | |
Basic and diluted
(loss) earnings per
share |
| | |
$ | |
$ | |
$ |
| June 30, 2021 | |
| 10,043 | | |
| (940 | ) | |
| (0.01 | ) |
| March 31, 2021 | |
| 50 | | |
| (14,794 | ) | |
| (0.15 | ) |
| December 31, 2020 | |
| 10,000 | | |
| (20,633 | ) | |
| (0.25 | ) |
| September 30, 2020 | |
| - | | |
| (1,641 | ) | |
| (0.02 | ) |
| June 30, 2020 | |
| 10,000 | | |
| (1,143 | ) | |
| (0.02 | ) |
| March 31, 2020 | |
| - | | |
| (768 | ) | |
| (0.02 | ) |
| December 31, 2019 | |
| - | | |
| 2,413 | | |
| 0.07 | |
| September 30, 2019 | |
| - | | |
| (1,564 | ) | |
| (0.05 | ) |
Significant changes in key financial data from the three and six months
ended June 30, 2020, through the three and six months ended June 30, 2021 reflect (i) the revenue recognition of the payment under the
Medtronic License Agreement, the resumption of product development following receipt of license fees earned pursuant to the Medtronic
License Agreement and Development Agreement, as well as equity capital raises in the capital markets, all since the first quarter of 2020,
(ii) the Company established in-house R&D capabilities that increased staffing costs, and (iii) the ongoing non-cash impact associated
with the requirement to revalue the Company’s warrant derivative liability at fair value, with subsequent changes recorded through
net and comprehensive loss for the period.
Historically, operating results have fluctuated on a quarterly basis
and the Company expects that quarterly results will continue to fluctuate in the future. Operating results for interim periods should
not be relied upon as an indication of the results to be expected or achieved in any future period or any fiscal year as a whole. Risk
factors affecting revenue and results are identified in this MD&A.
CONTRACTUAL OBLIGATIONS
Contractual obligations relating to accounts payable and accrued
liabilities, long-term debt, and lease liabilities and purchase order commitments as at June 30, 2021, are as follows:
| |
Total |
Less
than 1
year |
2 – 3
years |
4 – 5
years |
Greater than 5 years |
| |
$ |
$ |
$ |
$ |
$ |
| Accounts payable and accrued liabilities |
2,104 |
2,104 |
- |
- |
- |
| Lease liabilities |
1,308 |
283 |
674 |
351 |
- |
| Notes payable1 |
2,135 |
2,135 |
- |
- |
- |
| Purchase order commitments |
5,369 |
5,369 |
- |
- |
- |
| TOTAL |
10,913 |
9,891 |
674 |
351 |
- |
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 19 |
Purchase order commitments are obligations that are not reflected on
the balance sheet. These are contracts with suppliers not yet fulfilled.
Note:
| 1. | On April 28, 2020, the Company issued the Note to an affiliate of Medtronic for the Medtronic Loan
and executed and delivered the Security Agreement. The Note is in the principal amount of $1,500 plus Legal Expenses and accrued
interest, presently equaling $635. See “Significant Transactions – Development Agreement & License Agreement with
Medtronic”. |
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this report, the Company had no off-balance sheet arrangements.
OUTSTANDING COMMON SHARE DATA
The following table summarizes the outstanding share capital as of August 10, 2021:
| Type of Securities |
Number of Common Shares issued
or issuable upon conversion |
| Common Shares1 |
110,927,690 |
| Stock options2 |
5,396,145 |
| Restricted share units3 |
1,914,981 |
| Derivative warrant units |
19,592,392 |
| Equity warrants4, 5 |
9,912,633 |
Notes:
| 1. | The Company has entered into an agreement with a consultant under which the Company has certain contractual
obligations to grant up to 100,000 restricted Common Shares based on the consultant’s achievement of multiple pre-determined performance
criteria. To date, the performance criteria have not been achieved and no restricted Common Shares have been granted to the consultant.
The agreement expires on May 13, 2022. |
| 2. | The Company has outstanding stock options enabling certain employees, directors, officers and consultants
to purchase Common Shares. On March 3, 2021, the Company issued 1,801,262 stock options with an exercise price of $2.21. On June 10, 2021,
the Company issued 821,124 stock options with an exercise price of $1.87. |
| 3. | Pursuant to the Company’s Share Unit Plan, the Company granted 1,527,860 RSUs to certain directors
and officers during the quarter ended March 31, 2021. During the three months ended June 30, 2021, the Company granted 387,121 RSUs to
certain directors and officers. |
| 4. | Pursuant to the January 2021 offering, 3,709,677 equity warrants were issued with an exercise price of
$2.00 and exercisable until January 26, 2026 and 518,234 broker warrants with an exercise price of $1.9375 and exercisable until January
26, 2023. See “Significant Transactions – January 2021 Equity Offering”. |
| 5. | Pursuant to the February 2021 offering, 4,792,625 equity warrants were issued with an exercise price of
$3.00 and exercisable until January 26, 2026 and 670,967 broker warrants with an exercise price of $3.00 and exercisable until February
24, 2023. See “Significant Transactions – February 2021 Equity Offering”. |
CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
These financial statements have been prepared in accordance with
accounting principles applicable to going concern, which contemplates that the Company will be able to realize its assets and settle its
liabilities in the normal course as they come due during the normal course of operations for the foreseeable future. The Company has shareholders’
equity of $32.3 million.
The Company currently does not generate revenue from the sale of
products. In 2020, pursuant to its agreements with Medtronic, the Company received $20 million in revenue (see “Significant Transactions
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 20 |
– Development Agreement & License Agreement with Medtronic”).
The Company achieved Medtronic Milestone 3 in the second quarter of 2021 and received $10 million. If the Company achieves Medtronic Milestone
4 in 2021, it will be entitled to receive approximately $11 million in additional license fees. Other than the license fees noted and
interest income on its cash balances, the Company has no regular earnings and accordingly it is primarily dependent upon equity financing
for any additional funding required for development and operating expenses. These conditions indicate the existence of a material uncertainty
that may cast significant doubt on the ability of the Company to continue as a going concern if additional funding is not secured.
The preparation of financial statements in conformity with IAS
34 requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of provisions
at the date of the financial statements and the reported amount of expenses during the period. Financial statement items subject to significant
judgement include, (a) incremental borrowing rate used to measure lease liabilities, (b) the fair value estimate of the measurement of
lease, warrant liabilities and note payable, and (c) the assessment of the Company’s ability to meet its obligations as they come
due. While management believes that the estimates and assumptions are reasonable, actual results may differ.
(a) Revenue recognition
The Company currently recognizes revenue when it has persuasive
evidence of a contract, performance obligations have been identified and satisfied, payment terms have been identified, and it is probable
that the Company will collect the consideration it is entitled to. On June 3, 2020, the Company entered into a License Agreement with
a U.S. affiliate of Medtronic, whereby the Company is providing exclusive access to certain intellectual property rights relating to robotic
assisted surgical technologies. The Company is accounting for the license fee at the point in time when the rights were transferred.
| · | Revenue from the License Agreement for intellectual property rights and know-how (the “License
Payment”) is recognized when rights are granted, and customer acceptance is established. Compensation received for the performance
of technology transfer services relating to the License Agreement is accounted for separately from the License Payment and will be recognized
at the time the service is performed. |
| · | Revenue from the Development Agreement and the allocation of ownership and license rights developed under
each milestone is recognized when the rights are granted, and customer acceptance is established. |
| · | Under the terms of the Development Agreement, payment is dependent on when the customer confirms completion
of each milestone as defined. Due to the uncertainty of milestone achievements and entitlement of payments, the Company recognizes revenue
only upon acceptance by the customer of work performed and the milestone achieved. |
(b) Stock Options
The Black-Scholes model used by the Company to
determine fair values of stock options and warrants was developed for use in estimating the fair value of the stock options and warrants.
This model requires the input of highly subjective assumptions including future stock price volatility and expected time until exercise.
Changes in the subjective input assumptions can materially affect the fair value estimate.
(c) Warrant Liability
In accordance with IAS 32, if the exercise price of certain of the
Company’s warrants is not a fixed amount, the warrants are accounted for as a derivative financial liability. The existence of features
which determine whether the warrants should be treated as a derivative financial liability, are where there is existence of at least one
of the following features of the warrant (a) denominated in a currency
| SECOND QUARTER 2021 MANAGEMENT DISCUSSION AND ANALYSIS | 21 |
(Canadian dollar) other than the Company’s functional currency
(US dollar); (b) they have a cashless exercise option as is the case for the warrants issued in March 2019, March 2020, and June 2020.
The warrant liability is initially measured at fair value and subsequent
changes in fair value are recorded through net and comprehensive loss for the period. The accounting guidance for fair value measurements
prioritizes the inputs used in measuring fair value into the following hierarchy:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets
or liabilities.
Level 2 – Inputs other than quoted prices included
within Level 1 that are directly or indirectly observable.
Level 3 – Unobservable inputs in which little or no
market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would
use in pricing.
The fair value of the Company’s warrant liability
is initially based on level 2 (significant observable inputs). At June 30, 2021, warrant liability is based on level 1, quoted prices
(unadjusted) in an active market, for the Company’s listed warrants and level 2 for the Company’s unlisted warrants.
RELATED PARTY TRANSACTIONS
During the three and six months ended June 30, 2021 and June 30, 2020,
transactions between the Company and directors, officers and other related parties were related to compensation matters in the normal
course of operations and are measured at the fair value, which is the amount of consideration established and agreed to by the related
parties.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash, accounts payable and accrued liabilities and the warrant derivative liability. The fair value of these financial instruments
approximates their carrying values, unless otherwise noted, due to the short-term maturities of these instruments, the discount rate applied
or in the case of the warrant liability, due to the application of mark-to-market policy.
During the first six months ended June 30, 2021, the Company secured
capital in an amount to enable it to continue product development of its Enos system, and perform services under the Development Agreement.
The Company estimates that it has sufficient cash on hand to meet
all its current obligations as they become due, including its obligations under the Development Agreement, the License Agreement and the
Medtronic Loan.
With its current financial resources and assuming the Company achieves
Medtronic Milestone 4 and receives the payment from Medtronic in respect of the milestone, the Company expects to be able to continue
operations through 2022 and complete Enos system Milestones 4 through 16.
During the remainder of 2021, the Company expects to continue the
development of the Enos system while clarifying with the FDA the requirements for the IDE clinical study protocol and to understand any
special controls which the FDA may apply, and preparing to submit an IDE application to the FDA for human confirmatory studies to be conducted
in 2022.
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INTERNAL
CONTROL OVER FINANCIAL REPORTING
The Chief Executive Officer
and the Chief Financial Officer of the Company (collectively the “Certifying Officers”) are responsible for establishing
and maintaining internal control over financial reporting (“ICFR”), as those terms are defined in National Instrument
52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings, and in applicable SEC rules and regulations, for the
Company.
During the preparation of its financial statements in respect of the
fiscal year ended December 31, 2020, the Company identified material weaknesses in its ICFR. Certain adjustments, discussed below, were
made to these financial statements prior to their approval by the Company’s audit committee and board of directors and prior to
their filing or other public disclosure. If the Company fails to maintain effective ICFR, this may adversely affect the accuracy and reliability
of its financial statements and it could impact its reputation, business and the price of the Company’s Common Shares or other securities,
as well as lead to a loss of investor confidence.
The Company concluded that, as of
December 31, 2020, the Company’s ICFR was not effective due to a three identified material weaknesses. The Company
experienced significant and rapid change during the 2020 fiscal year as a result of the establishment of a new R&D facility, the
augmentation of its development team, new arrangements with external development firms and the transition arising from the
retirement of the Company’s former Chief Financial Officer (“CFO”) and the appointment of a new CFO in the
fall of 2020, as well as changes in the Company’s financial accounting and reporting personnel. The Company recently appointed
a new CFO in July 2021. The Company’s continuous risk assessment process was not effective in responding to the rapid rate of
change in personnel and new business developments and the Company did not have sufficient human resources available to adequately
assess risk and reinforce or strengthen controls in the requisite timeframe. Prior to presentation of its financial statements for
their approval by the Company’s audit committee and board of directors, the Company determined that it would adjust its
consolidated annual financial statements as at and for the year ended December 31, 2020 with respect to expense recognition to
correct errors in the calculation of asset and liability balances and the appropriate IFRS application and disclosure required for
an amendment of a contract with an external development firm.
The Company’s three identified material weaknesses at December
31, 2020 and the steps the Company has taken to remediate these weaknesses are:
| |
Material Weakness |
Remediation Actions |
| 1 |
The Company did not have sufficient accounting resources with relevant technical accounting skills to address issues relating to the assessment of IFRS treatment for complex accounting issues, specifically relating to a material amendment to a contract with an external development firm. |
The Company has enhanced its finance team to add more in-depth experience to support the growth and complexity of the business.
The Company has engaged the services of third party financial experts to assist in the preparation and review of more complex financial transactions.
|
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| 2 |
The Company did not have sufficient accounting resources with relevant technical accounting skills to address and review issues relating to the valuation of warrant liabilities. |
The Company has enhanced its finance team to add more in-depth experience to support the growth and complexity of the business.
The Company has engaged the services of third party financial experts
to assist in the preparation and review of more complex financial transactions.
The Company has purchased technology that will value the warrant
liabilities as well as all equity compensation.
|
| 3 |
The Company did not sufficiently design internal controls to provide an appropriate level of oversight regarding the financial recordkeeping and review of the Company’s cut-off procedures as they relate to the accounts payable and valuation of supplier liabilities. |
The Company has enhanced its finance team to add more in-depth experience to support the growth and complexity of the business.
The Company has engaged the services of third party financial experts
to assist in the preparation and review of more complex financial transactions.
The Company has designed improved internal controls related to
supplier liabilities, procurement and cut-off. |
The identified internal control weaknesses were part of the annual control cycle and therefore management will only be able to evaluate
these controls as part of the annual reporting process at December 31, 2021. Management believes it has taken the necessary steps to remediate these
control weaknesses to ensure there are sufficient controls in place to ensure the reliability of the interim financial statements. However, given management’s inability to evaluate the effect of remediation efforts until the next annual reporting
process, management is unable to conclude that ICFR were effective as of June 30, 2021.
ICFR is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of the annual financial statements for external reporting purposes in line
with IFRS. Management is responsible for establishing and maintaining adequate internal controls over financial reporting appropriate
to the nature and size of the Company. However, any system of internal control over financial reporting has inherent limitations and can
only provide reasonable assurance with respect to annual financial statement preparation and presentation.
RISK FACTORS
For a detailed description of risk factors associated with the Company,
refer to the “Risk Factors” section of the AIF, which is available on SEDAR at www.sedar.com and filed as an exhibit to the
Form 40-F, available on EDGAR at www.sec.gov.
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An investment in the Common Shares is speculative and involves a high degree
of risk due to the nature of the Company’s business. It is recommended that investors consult with their own professional advisors
before investing in the Company’s Common Shares.
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