SECURITIES AND EXCHANGE COMMISSION
UNDER
THE SECURITIES ACT OF 1933
Ontario, Canada | 3841 | 98-0663504 |
(State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Titan Medical Inc. 155 University Avenue, Suite 750 Toronto, Ontario M5H 3B7 Canada Tel: (416) 548-7522 |
C T Corporation System 1015 15th Street N.W., Suite 1000 Washington, DC 20005 (202) 572-3100 |
Title Of Each Class Of Securities To Be Registered | Amount To Be Registered(1) | Proposed Maximum Offering Price Per Share(2) | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | ||||||||||||
Common shares (“Common Shares”), issuable on exercise of Warrants | 2,757,252 | $ | 0.3002 | $ | 827,727.05 | $ | 107.44 | |||||||||
Common Shares issuable on exercise of Placement Agent Warrants | 386,015 | $ | 0.45335 | $ | 174,999.90 | $ | 22.71 | |||||||||
Common shares issuable on exercise of Warrants | 8,455,882 | $ | 3.95 | $ | 33,400,733.90 | $ | 4,335.42 | |||||||||
Common shares issuable on exercise of Warrants | 6,661,068 | $ | 2.92 | $ | 19,450,318.56 | $ | 2,524.65 | |||||||||
Total | 18,260,217 | - | $ | 53,853,779.41 | $ | 6,990.22 | (3) |
(1) | Pursuant to Rule 416(a) under the Securities Act of 1933, this registration statement also covers an indeterminate number of additional common shares that may become issuable to prevent dilution from stock splits, stock dividends and similar transactions. |
(2) | Pursuant to Rule 457(g) under the Securities Act of 1933, calculated on the basis of the exercise price of the warrants. |
(3) | Pursuant to Rule 457(p) under the Securities Act of 1933, the Registrant previously paid the $6,990.22 registration fee required in connection with this filing by offsetting the registration fee against the aggregate of $8,554.00 of registration fees previously paid by the Registrant in connection with unsold securities registered under the Registration Statement on Form F-10 of Titan Medical Inc. (File No. 333-233902) filed with the Securities and Exchange Commission on September 23, 2019 (fee of $2,666.40 paid), as amended on October 15, 2019 (fee of $389.40 paid), and as amended on November 1, 2019 (fee of $5,498.20 paid). |
● | Resale Prospectus. A prospectus to be used for the resale by selling securityholders of up to 3,143,267 Common Shares of the Registrant issuable upon exercise of outstanding Common Share purchase warrants held by the selling securityholders (the “Resale Prospectus”). |
● | Primary Offering Prospectus. A prospectus to be used for the offering by the Registrant of up to 15,116,950 Common Shares of the Registrant issuable upon the exercise of outstanding Common Share purchase warrants (the “Primary Offering Prospectus”). |
● | they contain different outside and inside front covers; |
● | they contain different Offering sections in the Prospectus Summary section beginning on page 15; |
● | a Selling Securityholders section is included in the Resale Prospectus beginning on page 77; |
● | they contain different Use of Proceeds sections on page 76; |
● | they contain different Plan of Distribution sections on page 79; |
● | they contain different Description of the Securities sections on page 80; |
● | they contain different Dilution sections on page 81; and |
● | the references to “Common Shares” in the Certain Canadian Federal Income Tax Considerations section of the Primary Offering Prospectus includes the Warrant Shares. |
Page | |
ABOUT THIS PROSPECTUS | 8 |
SUMMARY | 12 |
RISK FACTORS | 17 |
THE BUSINESS | 32 |
RECENT DEVELOPMENTS | 42 |
DIRECTORS, MANAGEMENT, ADVISERS AND AUDITORS | 44 |
LEGAL PROCEEDINGS | 45 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 46 |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 60 |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 74 |
SELECTED CONSOLIDATED FINANCIAL INFORMATION | 75 |
CAPITALIZATION AND INDEBTEDNESS | 76 |
USE OF PROCEEDS | 76 |
SELLING SECURITYHOLDERS | 78 |
PLAN OF DISTRIBUTION | 79 |
THIS OFFERING | 80 |
DESCRIPTION OF SECURITIES | 81 |
DILUTION | 82 |
MEMORANDUM AND ARTICLES OF ASSOCIATION | 82 |
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS | 85 |
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS | 93 |
MATERIAL CONTRACTS | 95 |
DIVIDEND POLICY | 95 |
EXPERTS | 95 |
LEGAL MATTERS | 95 |
ADDITIONAL INFORMATION | 95 |
ENFORCEABILITY OF CIVIL LIABILITIES | 96 |
INDEX TO THE FINANCIAL STATEMENTS | F-1 |
● | our commitment to developing the robotic surgical system with the objective of substantially improving upon minimally invasive surgery (“MIS”); |
● | our intent to initially pursue gynecologic surgical indications for use of the single-port robotic surgical system; |
● | the development of the single-port robotic surgical system patient cart to deliver multi-articulating instruments and 3D high definition vision system into the patient’s abdominal body cavity through a single access port; |
● | our technology and research and development objectives, including achieving development milestones, and any estimated costs, schedules for completion and probability of success; |
● | our intention with respect to updating any forward-looking statement after the date on which such statement is made or to reflect the occurrence of unanticipated events; |
● | our expectation that the U.S. Food and Drug Administration (“FDA”) will grant Investigational Device Exemption (“IDE”) approval and that we will then proceed to collect suitable confirmatory human data to support our 510(k) application to the FDA, and Technical File for the CE mark; |
● | our expectation that we can in a timely manner produce the appropriate preclinical and clinical data required for our 510(k) application to the FDA, and Technical File for the CE mark; |
● | our expectation with respect to launching a commercially viable product in certain jurisdictions; |
● | our intentions to develop a robust training curriculum and post-training assessment tools for surgeons and surgical teams; |
● | our plans to develop and commercialize our single-port robotic surgical system and the estimated incremental costs (including the status, cost and timing of achieving the development milestones disclosed herein); |
● | our plans to design, create and refine software for production system functionality of our single-port robotic surgical system and the estimated incremental costs (including the status, cost and timing of achieving the development milestones disclosed herein); |
● | our intentions with respect to initiating marketing activities following receipt of the applicable regulatory approvals; |
● | our expectations for the anticipated benefits of, our single-port robotic surgical system; |
● | our intention to continue to assess specialized skill and knowledge requirements and the recruitment of qualified personnel and partners; |
● | our belief that the specialized components, parts and know-how necessary for the manufacture of our single-port robotic surgical system, suitable for clinical use, will be available in the marketplace; |
● | our belief that existing and planned systems will be suitable to support activities related to filing applications for regulatory clearance; |
● | our continuing efforts to secure our intellectual property and expand our patent portfolio by filing patent applications as we progress in the development of our robotic surgical technologies and potentially by licensing suitable technologies; |
● | our intent of seeking licensing opportunities to expand our intellectual property portfolio; |
● | our intended use of proceeds of any offering of our securities; |
● | our intention with respect to not paying any cash dividends on Shares in the foreseeable future; |
● | our intention to retain future earnings, if any, to finance expansion and growth; |
● | projected competitive conditions with respect to our products; |
● | our plan to focus on the development of our single-port robotic surgical system at estimated incremental costs and according to our projected timeline; |
● | the potential market for the securities issuable under the offering; |
● | subject to securing sufficient funding, our plan to pay our Primary Supplier (as defined herein) in full satisfaction of the outstanding payables by the end of the current calendar year; and |
● | our intended use of the proceeds from the Note (as defined herein). |
● | risks related to our ability to carry on our business as it is now conducted and as we propose to conduct it with the financial resources currently available to us; |
● | risks relating to our ability to obtain additional financing; |
● | risks relating to our history of losses; |
● | risks and uncertainties relating to the generating of sustainable earnings from our contemplated products; |
● | risks related to loss of key members of management and/or ability to attract and retain qualified employees; |
● | risks related to dependence on third party contract development and manufacturing service providers; |
● | risks related to dependence on third parties retained to conduct preclinical studies; |
● | risks related to increased competition in the robotic surgical market; |
● | risks related to licensing and/or infringement of intellectual property rights of third parties; |
● | risks related to our ability to resolve the outstanding Civil Claim (as defined below); |
● | risks related to the price and volume volatility of the Shares; |
● | risks related to governmental regulations and approval processes of FDA, including possible changes thereto; |
● | risks related to acceptance of our technology; |
● | risks related to the ability to maintain the listing of the Shares on the TSX and Nasdaq; |
● | risks related to unforeseen global instability from an outbreak or pandemic of contagious disease, such as the novel coronavirus (the “coronavirus” or “COVID-19”); |
● | risks related to our working capital deficiency and liquidity and financial condition; and |
● | risks related to the Note. |
● | We currently have a working capital deficiency. |
● | We are engaged in litigation relating to the Civil Claim. |
● | We expect to incur future losses and we may never become profitable. |
● | We currently have no product revenue and will not be able to resume and maintain our operations and research and development without additional funding. |
● | We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. |
● | As a result, we may not complete the development and commercialization of our single-port robotic surgical system. |
● | We rely on third parties for a number of important aspects of our business and there are a range of issues that are outside of our direct control. |
● | Our Common Shares may be delisted from Nasdaq. |
● | the last day of the fiscal year during which we have total annual gross revenues of US$1,070,000,000 (as such amount is indexed for inflation every five years by the United States Securities and Exchange Commission, or SEC) or more; |
● | the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common shares pursuant to an effective registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act; |
● | the date on which we have, during the previous three-year period, issued more than US$1,000,000,000 in non-convertible debt; or |
● | the date on which we are deemed to be a “large accelerated filer”, as defined in Rule 12b–2 of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common shares that are held by non-affiliates exceeds US$700,000,000 as of the last day of our most recently-completed second fiscal quarter. |
Common Shares offered by the Selling Securityholders: | Up to 3,143,267 Common Shares. |
Common Shares outstanding: | 59,931,381 (as of May 13, 2020) |
Use of proceeds: | The Selling Securityholders will receive all of the proceeds from the sale of the Shares offered for sale by them under this prospectus. We will not receive proceeds from the sale of the Shares by the Selling Securityholders. |
TSX symbol: | TMD |
Nasdaq symbol: | TMDI |
Dividend policy | We have not declared any dividends since our inception and do not anticipate that we will do so in the foreseeable future. We currently intend to retain future earnings, if any, to finance the development of our business. Any future payment of dividends or distributions will be determined by our Board of Directors on the basis of our earnings, financial requirements and other relevant factors. |
Consolidated statement of | Year ended December 31, | |||||||||||||||
loss and comprehensive loss data | 2019 | 2018 | 2017 | 2016 | ||||||||||||
Net sales | $ | - | $ | - | $ | - | $ | - | ||||||||
Net and comprehensive loss for the year | 41,907,079 | 22,639,272 | 33,586,984 | 23,323,496 | ||||||||||||
Basic and diluted loss per common share | 1.37 | 1.36 | 4.25 | 4.80 |
Consolidated statement of | ||||||||||||||||
financial position data | 2019 | 2018 | 2017 | 2016 | ||||||||||||
Total assets | $ | 3,381,581 | $ | 21,915,164 | $ | 29,674,610 | $ | 7,192,496 | ||||||||
Net assets | (11,681,831 | ) | 4,217,109 | 9,606,798 | 594,604 | |||||||||||
Capital stock – common | 194,859,415 | 170,502,394 | 154,016,519 | 112,742,810 | ||||||||||||
Number of common shares issued | 39,907,681 | 21,675,849 | 12,686,723 | 5,550,382 |
(1) | After giving effect to a 30:1 share consolidation that took effect June 10, 2018 in connection with listing the Common Shares on the Nasdaq. |
● | the successful development of our first-generation product in a form that is competitive in features, performance and price; |
● | the successful identification and development of new products for our core market; |
● | our ability to anticipate customer and market requirements and changes in technology and industry standards in a timely manner; |
● | our ability to gain access to and use technologies in a cost-effective manner; |
● | our ability to introduce cost-effective new products in a timely manner; |
● | our ability to differentiate our products from our competitors’ offerings; |
● | our ability to gain customer acceptance of our products; |
● | the performance of our products relative to our competitors’ products; |
● | our ability to market and sell our products through effective sales channels; |
● | our ability to establish and maintain effective internal financial and accounting controls and procedures; |
● | our ability to obtain required regulatory clearances and approvals in a timely manner; |
● | the protection of our intellectual property, including our processes, trade secrets and know-how; and |
● | our ability to attract and retain qualified technical, executive and sales personnel. |
● | a medical device candidate may not be deemed safe or effective, in the case of a PMA application; |
● | a medical device candidate may not be deemed to be substantially equivalent to a device lawfully marketed either as a grandfathered device or one that was cleared through the 510(k) premarket notification process; |
● | a medical device candidate may not be deemed to be in conformance with applicable standards and regulations; |
● | regulatory officials may not find the data from preclinical and clinical studies sufficient; |
● | regulatory authorities might not approve our processes or facilities or those of any of our third-party manufacturers; or |
● | regulatory authorities may change clearance or approval policies or adopt new regulations. |
● | the outcomes of technology development program and the achievement (or lack thereof) of our published milestones; |
● | the results of preclinical studies and confirmatory human data assessments; |
● | our quarterly operating results; |
● | sales of our common shares by a significant shareholder; |
● | future announcements concerning our business or of our competitors; |
● | the failure of securities analysts to cover us and/or changes in financial forecasts and recommendations by securities analysts; |
● | actions of our competitors; |
● | actions of our suppliers; |
● | actions of any medical technology development firms engaged by us; |
● | actions of directors and officers regarding purchases and sales of shares; |
● | general market, economic and political conditions; |
● | natural disasters, terrorist attacks and acts of war; and |
● | the other risks described in this section. |
● | the successful development and commercialization of the single-port robotic surgical system in a timely manner and in accordance with budgeted expenditures; |
● | actions relating to regulatory matters; |
● | timing and ability to develop manufacturing and sales and marketing capabilities; |
● | demand for robotic surgical systems in general; |
● | the extent to which our products gain market acceptance; |
● | the progress of surgical training in the use of products; |
● | ability to develop, introduce and market new or enhanced versions of our products on a timely basis; |
● | product quality problems or alleged product quality problems; |
● | ability to protect proprietary rights and defend against third party challenges; and |
● | ability to license additional intellectual property rights as required. |
Milestone Number | Development Milestones | Estimated Cost (in US million $) | Schedule for Milestone Completion | Comments |
Milestone 1 | a) Obtain final independent report from validation testing of system safety and usability for the intended users and use environments under simulated robotic manipulation exercises intended to replicate essential surgical tasks | Q4 2019 | Completed | |
b) Complete User Manual for robotic system setup by operating room staff and surgeon operation of surgeon workstation, patient cart, instruments and accessories | Completed | |||
c) Obtain ISO 13485 Certification(1) | Completed | |||
Milestone 2 | a) Perform additional software development and test system performance | |||
b) Implement and test improvements to instruments, camera systems and accessories | ||||
c) Perform biocompatibility testing of instruments, camera systems and accessories at independent lab | TBD | TBD | ||
d) Perform electrical safety testing for surgeon workstations and patient cart, including electromagnetic compatibility (EMC) and electromagnetic interference (EMI) tests at independent lab | ||||
e) Update application for IDE as additional testing lab data is received and continue preparations for human confirmatory studies | ||||
Milestone 3 | a) Launch rebranded product line, including logos with trademark pending, literature and presentation templates, product and packaging labeling, and new website | |||
TBD | TBD | |||
b) Complete system software validation | ||||
c) Submit IDE application to FDA(2) | ||||
(1) | It was previously disclosed that ISO 13485 Certification was expected to occur in the third quarter of 2019; receipt of the certification was actually received January 24, 2020. |
(2) | Due to the ongoing limited availability of capital resources as well as the necessary product changes identified, the Company has not yet submitted its IDE application to the FDA. In addition, the Company has been unable to fund planned software development, verification and validation or complete the necessary product development, testing and documentation needed to meet regulatory requirements for an IDE application to the FDA. The Company has withdrawn the projections for achievement of all development milestones beyond Milestone 1, including their timing and cost until such time as the capital resources become available to resume these activities. |
Milestone Number | Development Milestones | Estimated Cost (in US million $) | Schedule for Milestone Completion | Comments |
Milestone 4 | a) Receive IDE approval from FDA(3) | |||
b) Receive approvals from IRB Committees of IDE hospitals | TBD | TBD | ||
c) Commence human confirmatory studies under IDE protocols for FDA submittal | ||||
Milestone 5 | a) Complete human confirmatory studies and patient follow-up and compile reports from human confirmatory studies | |||
b) Submit 510(k) application to FDA | ||||
c) Submit Technical File to European Notified Body for review for CE mark | TBD | TBD | ||
d) Ongoing software development and implementation | ||||
e) Planning and preparation for manufacturing and commercialization | ||||
Milestone 6 | a) Planning and preparation for commercialization | TBD | TBD | |
(3) | The Company has withdrawn the projections for achievement of all development milestones beyond Milestone 1, including their timing and cost. |
● | market research reports published by external market research firms, |
● | market growth projections and any and all product and service pricing estimates and revenue projections by us, and |
● | market and revenue growth set forth in news releases or filings of other issuers in the robotic surgical technology sector. |
(1) | a device that has grandfather marketing status because it was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or |
(2) | a Class I or II device that has been cleared through the 510(k) process. |
Furniture and Fixtures | Patent Rights | |||||||
2019 | — | $ | 458,037 | |||||
2018 | — | $ | 420,587 | |||||
2017 | $ | 3,427 | $ | 201,409 |
Name | Office Held with the Company | Business Address |
David J. McNally | Director, President and Chief Executive Officer | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
Stephen Randall | Director, Chief Financial Officer and Secretary | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
Perry Genova | Senior Vice President, Research and Development | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
Curtis Jensen | Vice President, Quality and Regulatory Affairs | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
Sachin Sankholkar | Vice President, Marketing | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
Chris Seibert | Vice President, Business Development | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
Charles Federico | Director, Chairman | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
John E. Barker | Director | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
John E. Schellhorn | Director | 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7 |
Research and Development Expenditures | Year Ended December 31, 2019 | Year Ended December 31, 2018 | ||||||
Intellectual property development | $ | 7,321 | $ | 14,540 | ||||
Product development | 51,410,735 | 32,843,799 | ||||||
Total | $ | 51,418,056 | $ | 32,858,339 |
Issue Date | Expiry Date | Number Issued | Number Outstanding | Exercise Price (US$) | Exercise Price (CDN$) | ||
Note 1 | |||||||
TMD.W.T.F | 1 | 16-Nov-15 | 16-Nov-20 | 233,740 | 233,740 | 48.00 | |
TMD.W.T.G | 1 | 12-Feb-16 | 12-Feb-21 | 389,027 | 386,694 | 30.00 | |
TMD.W.T.G | 1 | 23-Feb-16 | 23-Feb-21 | 58,226 | 58,226 | 30.00 | |
TMD.W.T.H | 1 | 31-Mar-16 | 31-Mar-21 | 501,831 | 501,831 | 36.00 | |
TMD.W.T.H | 1 | 14-Apr-16 | 31-Mar-21 | 75,275 | 75,275 | 36.00 | |
TMD.W.T.I | 1 | 20-Sep-16 | 20-Sep-21 | 569,444 | 569,444 | 22.50 | |
TMD.W.T.I | 1 | 27-Oct-16 | 20-Sep-21 | 67,667 | 67,667 | 22.50 | |
Not Listed | 1 | 16-Mar-17 | 16-Mar-21 | 357,787 | 355,253 | 15.00 | |
Not Listed | 1 | 29-Jun-17 | 29-Jun-22 | 1,612,955 | 75,810 | 6.00 | |
Not Listed | 1 | 21-Jul-17 | 29-Jun-22 | 370,567 | 370,567 | 6.00 | |
Not Listed | 1 | 24-Aug-17 | 24-Aug-22 | 563,067 | 563,067 | 6.00 | |
Not Listed | 1 | 5-Dec-17 | 5-Dec-22 | 1,533,333 | 1,533,333 | 18.00 | |
Not Listed | 1 | 10-Apr-18 | 10-Apr-23 | 1,126,665 | 1,126,665 | 10.50 | |
Not Listed | 1 | 10-May-18 | 10-Apr-23 | 168,889 | 168,889 | 10.50 | |
Not Listed | 2 | 10-Aug-18 | 10-Aug-23 | 7,679,574 | 6,661,068 | 2.92 | |
Not Listed | 3 | 21-Mar-19 | 21-Mar-24 | 8,455,882 | 8,455,882 | 3.95 | |
23,763,929 | 21,203,411 | ||||||
Note 1 - After giving effect to the 30:1 Share Consolidation in June 2018 | |||||||
Note 2 - Includes a ratchet clause triggered August 29, 2019 lowering the exercise price from U.S. $3.20 to U.S. $2.92. | |||||||
Note 3 - Includes a ratchet clause triggered August 29, 2019 lowering the exercise price from U.S. $4.00 to U.S. $3.95. |
The table below sets forth our warrants (by series) that were previously issued and which remain outstanding as of March 31, 2020. |
Issue Date | Expiry Date | Number Issued | Number Outstanding | Exercise Price (US$) | Exercise Price (CDN$) | ||
Note 1 | |||||||
TMD.W.T.F | 1 | 16-Nov-15 | 16-Nov-20 | 233,740 | 233,740 | 48.00 | |
TMD.W.T.G | 1 | 12-Feb-16 | 12-Feb-21 | 389,027 | 386,694 | 30.00 | |
TMD.W.T.G | 1 | 23-Feb-16 | 23-Feb-21 | 58,226 | 58,226 | 30.00 | |
TMD.W.T.H | 1 | 31-Mar-16 | 31-Mar-21 | 501,831 | 501,831 | 36.00 | |
TMD.W.T.H | 1 | 14-Apr-16 | 31-Mar-21 | 75,275 | 75,275 | 36.00 | |
TMD.W.T.I | 1 | 20-Sep-16 | 20-Sep-21 | 569,444 | 569,444 | 22.50 | |
TMD.W.T.I | 1 | 27-Oct-16 | 20-Sep-21 | 67,667 | 67,667 | 22.50 | |
Not Listed | 1 | 16-Mar-17 | 16-Mar-21 | 357,787 | 355,253 | 15.00 | |
Not Listed | 1 | 29-Jun-17 | 29-Jun-22 | 1,612,955 | 75,810 | 6.00 | |
Not Listed | 1 | 21-Jul-17 | 29-Jun-22 | 370,567 | 370,567 | 6.00 | |
Not Listed | 1 | 24-Aug-17 | 24-Aug-22 | 563,067 | 563,067 | 6.00 | |
Not Listed | 1 | 5-Dec-17 | 5-Dec-22 | 1,533,333 | 1,533,333 | 18.00 | |
Not Listed | 1 | 10-Apr-18 | 10-Apr-23 | 1,126,665 | 1,126,665 | 10.50 | |
Not Listed | 1 | 10-May-18 | 10-Apr-23 | 168,889 | 168,889 | 10.50 | |
Not Listed | 2 | 10-Aug-18 | 10-Aug-23 | 7,679,574 | 6,661,068 | 2.92 | |
Not Listed | 3 | 21-Mar-19 | 21-Mar-24 | 8,455,882 | 8,455,882 | 3.95 | |
Not Listed | 27-Mar-20 | 27-Mar-25 | 3,500,000 | 900,000 | 0.19 | ||
27,263,929 | 22,103,411 | ||||||
Note 1 - After giving effect to the 30:1 Share Consolidation in June 2018 | |||||||
Note 2 - Includes a ratchet clause triggered August 29, 2019 lowering the exercise price from U.S. $3.20 to U.S. $2.92. | |||||||
Note 3 - Includes a ratchet clause triggered August 29, 2019 lowering the exercise price from U.S. $4.00 to U.S. $3.95. |
Type of Securities | Number of Common Shares issued or issuable upon conversion |
Common Shares(1) | 59,931,381 |
Stock options(2) | 1,272,931 |
Warrants | 24,860,663 |
Broker warrants(3) | 2,005,496 |
(1) | The number of Common Shares presented in this prospectus excludes: |
● | 1,272,931 Common Shares issuable upon the exercise of 886,144 Canadian dollar denominated options with a weighted average exercise price of CDN $5.74 and 386,787 US dollar denominated options with a weighted average exercise price of $6.05 as at May 13, 2020; and |
● | 24,860,663 Common Shares issuable upon the exercise of warrants having a weighted-average exercise price of $5.36 per warrant as at May 13, 2020. |
(2) | The Company has outstanding options enabling certain employees, directors, officers and consultants to purchase common shares. Includes 25,765 stock options issued January 2020 with an exercise price of CDN $0.657 to a director in exchange for services rendered. The options vest immediately and have a contractual life of 7 years. |
(3) | A total of 2,310,174 broker warrants were issued in connection with the April 2018, August 2018, March 2019, March 2020 and May 2020 offerings. As of the date hereof, 2,005,496 broker warrants remain outstanding. Details include the following: |
● | Pursuant to the agency agreement in respect of the August 2018 offering, in addition to the cash commission paid to the agents, 537,570 broker warrants were issued to the agents. Each broker warrant entitles the holder thereof to acquire one common share at the price of US $2.50 for a period of 24 months following the closing date. |
● | Pursuant to the March 2019 Agency Agreement, in addition to the cash commission paid to the agents, 591,911 broker warrants were issued to the agents. Each broker warrant entitles the holder thereof to acquire one common share at the price of US $3.40 for a period of 24 months following the closing date. |
● | Pursuant to the agency agreement in respect of the March 2020 offering, in addition to the cash commission paid to the agents, 490,000 broker warrants were issued to the agents. Each broker warrant entitles the holder thereof to acquire one common share at the price of US $0.21 for a period of 5 years following the closing date. |
● | Pursuant to the agency agreement in respect of the May 2020 offering, in addition to the cash commission paid to the agents, 386,015 broker warrants were issued to the agents. Each broker warrant entitles the holder thereof to acquire one common share at the price of US $0.45335 for a period of five and one half (5.5) years following the closing date. |
Payments due by period ($) | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Long-Term Debt Obligations | nil | |||||||||||||||||||
Capital (Finance) Lease Obligations | 29,072 | 21,071 | 8,001 | |||||||||||||||||
Operating Lease Obligations | nil | |||||||||||||||||||
Purchase Obligations | 1,327,294 | 1,327,294 | ||||||||||||||||||
Other Long-Term Liabilities Reflected on the Company’s Balance Sheet | nil |
5% Strengthening | December 31, 2019 | December 31, 2018 | December 31, 2017 | |||||||||
CDN Current Assets | $ | (19,687 | ) | $ | (10,155 | ) | $ | (20,301 | ) | |||
CDN Accounts Payable and accrued liabilities | 52,228 | 202,214 | 909,214 | |||||||||
Profit or Loss | $ | 32,541 | $ | 192,059 | $ | 888,913 |
Name and Municipality and Country of Residence | Offices Held | Director Since | Principal Occupation(s) | |||
David J. McNally Salt Lake City, Utah, U.S.A. | President, Chief Executive Officer and Director | 2017 | Chief Executive Officer and President of Titan since January 3, 2017 and January 9, 2017 respectively. Prior thereto, from October 2009 to August 2016, Mr. McNally served as the founder, President, Chief Executive Officer and Chairman of the Board of Directors of Domain Surgical, Inc., a privately held developer, manufacturer and marketer of a new advanced energy surgery platform for precise cutting and coagulation of soft tissue, and reliable vessel sealing in open and laparoscopic procedures. Domain Surgical, Inc. was merged with OmniGuide Holdings, Inc. in August 2016. | |||
Stephen Randall Toronto, Ontario, Canada | Chief Financial Officer, Secretary and Director | 2017 | Chief Financial Officer of Titan since March 2010. Prior thereto, Mr. Randall served in senior financial roles with private, publicly-traded and start-up companies in the technology sector. Mr. Randall holds the Canadian Chartered Professional Accountant and Certified General Accountant designations. | |||
John E. Barker(1)(2)(3) Burlington, Ontario, Canada | Director | 2009 | Corporate director. Previously served as Senior Vice President of Finance, CFO and in other senior executive positions at Zenon Environmental Inc. from 2000 to 2006. | |||
John E. Schellhorn(1)(2)(3) Portsmouth, New Hampshire, U.S.A. | Director | 2017 | Mr. Schellhorn is a 32-year veteran of the medical technology industry, where he has held various senior management positions in the US, Canada and Asia/Pacific. Since 2017, Mr. Schellhorn has been President and CEO of Global Kinetics Corporation, a Melbourne, Australia headquartered company commercializing the world’s first objective measurement technology for patients with Parkinson’s Disease. From 2012 to 2016, he was President and CEO of Monteris Medical Inc., a Canadian neurosurgery company which employed the world’s first MRI compatible robot. | |||
Charles Federico(1)(2)(3) Cornelius, North Carolina, U.S.A | Director | 2019 | Mr. Federico has 46 years of experience in the medical device industry. As a Director of MAKO Surgical Corp., he served as Chairman, Lead Director, Compensation Committee Chairman, Governance Committee Chairman and an Audit Committee Member from 2007 to 2013. MAKO, a developer of minimally invasive robotic-enabled techniques for knee surgery, was acquired by Stryker in 2013 for $1.65 billion. Prior to that, Mr. Federico was President at Orthofix International N.V. from 1996 to 2006 and was also CEO beginning in 2001. From 1988 to 1996 he was President and General Manager at Smith & Nephew Endoscopy (formerly Dyonics, Inc.), and from 1981 to 1985 he served as Vice President of Dyonics and as Director of Marketing. |
(1) | Member of Audit Committee of the Company. |
(2) | Member of Compensation Committee of the Company. |
(3) | Member of Governance and Nominating Committee. |
● | Completed a comprehensive review of executive and director pay levels; |
● | Advised the Compensation Committee in developing a short-term and long-term incentive framework; and |
● | Provided additional input and advice to the Compensation Committee, as requested. |
Hugessen Consulting Inc. | 2019 Fees | |||
Executive Compensation Related Fees | $ | 25,394 | ||
All Other Fees | — | |||
Total | $ | 25,394 |
● | Review our executive and non-employee director compensation programs, including both levels of compensation and plan structure. |
Pearl Meyer & Partners LLC. | 2019 Fees | |||
Executive Compensation Related Fees | $ | 24,900 | ||
All Other Fees | — | |||
Total | $ | 24,900 |
Compensation Peer Group | ||
Corindus Vascular Robotics, Inc. | Profound Medical Corp. | |
Misonix, Inc. | Ekso Bionics Holdings, Inc. | |
IRadimed Corporation | MRI Interventions, Inc. | |
Microbot Medical Inc. | ReWalk Robotics Ltd. | |
TransEnterix, Inc. | Medigus Ltd. | |
Apyx Medical Corporation | Restoration Robotics Inc. | |
Nuvectra Corporation | Sensus Healthcare Inc. | |
Ra Medical Systems Inc. | Stereotaxis Inc. |
Name and principal position | Salary ($) | Share- based Awards ($) | Option- based Awards(1) ($) | Non-equity Incentive Plan Compensation ($) | Pension Value ($) | All Other Compensation ($) | Total Compensation ($) | |||||||||||||||||||||||||
Annual Incentive Plans | Long- term Incentive Plans | |||||||||||||||||||||||||||||||
David McNally President & CEO | 330,000 | 0 | 0 | 0 | 0 | 0 | 165,000 | 495,000 | ||||||||||||||||||||||||
Stephen Randall Chief Financial Officer | 209,729 | 0 | 0 | 0 | 0 | 0 | 103,475 | 313,204 | ||||||||||||||||||||||||
Chad Zaring(2) Chief Commercial Officer | 250,000 | 0 | 647,722 | 0 | 0 | 0 | 0 | 897,722 | ||||||||||||||||||||||||
Perry Genova Senior Vice President Research and Development | 250,000 | 0 | 0 | 0 | 0 | 0 | 125,000 | 375,000 | ||||||||||||||||||||||||
Curtis Jensen Vice President Quality and Regulatory Affairs | 210,000 | 0 | 0 | 0 | 0 | 0 | 52,500 | 262,500 | ||||||||||||||||||||||||
Sachin Sankholkar Vice President, Marketing | 180,000 | 0 | 0 | 0 | 0 | 0 | 50,000 | 230,000 | ||||||||||||||||||||||||
Chris Seibert Vice President Business Development | 180,000 | 0 | 0 | 0 | 0 | 0 | 50,000 | 230,000 | ||||||||||||||||||||||||
(1) | The fair value of options granted was estimated at the date of grant using the Black-Scholes option pricing model using assumptions based on expected life, risk free rate, expected dividend yield and expected volatility. |
(2) | Mr. Zaring resigned from the Company on February 7, 2020. |
Name | Option-based Awards | Share-based Awards | ||||||||||||||||||||||||||||||
Number of securities underlying unexercised options (#) | Option Exercise Price (CDN$) | Option Exercise Price (US$) | Option Expiration Date (DD-M-YY) | Value of unexercised in-the-money options (US$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested (US$) | Market or payout value of vested share- based awards not paid out or distributed (US$) | |||||||||||||||||||||||||
David McNally | 277,519 55,018 | 4.54 4.54 | 17-Jan-24 19-Jan-25 | 0 0 | 138,760 55,018 | 0 0 | 0 0 | |||||||||||||||||||||||||
Stephen Randall | | 3,313 1,319 17,589 36,336 | | 4.54 4.54 4.54 4.54 | | 09-Jun-20 23-Dec-20 24-Aug-21 19-Jan-25 | | 0 0 0 0 | | 0 0 0 36,336 | | 0 0 0 0 | | 0 0 0 0 | ||||||||||||||||||
Chad Zaring(1) | 467,255 | 2.20 | 19-Jul-26 | 0 | 467,255 | 0 | 0 | |||||||||||||||||||||||||
Perry Genova | | 16,667 33,333 41,680 | | 4.54 4.54 4.54 | | 7-Feb-24 17-Apr-24 19-Jan-25 | | 0 0 0 | | 8,334 16,667 41,680 | | 0 0 0 | | 0 0 0 | ||||||||||||||||||
Curtis Jensen | 16,667 18,950 35,011 | 4.54 4.54 4.54 | 17-Apr-24 8-Nov-24 19-Jan-25 | 0 0 0 | 8,334 9,475 35,011 | 0 0 0 | 0 0 0 | |||||||||||||||||||||||||
Sachin Sankholkar | | 9,000 11,726 30,010 | | 4.54 4.54 4.54 | | 27-Jan-21 24-Aug-21 19-Jan-25 | | 0 0 0 | | 0 0 30,010 | | 0 0 0 | | 0 0 0 | ||||||||||||||||||
Chris Seibert | 9,000 11,726 30,010 | 4.54 4.54 4.54 | 27-Jan-21 24-Aug-21 19-Jan-25 | 0 0 0 | 0 0 30,010 | 0 0 0 | 0 0 0 | |||||||||||||||||||||||||
(1) | Mr. Zaring resigned from the Company on February 7, 2020. |
Name | Option-based awards – Value vested during the year USD($) | Share-based awards – Value vested during the year USD($) | Non-equity incentive plan compensation – Value earned during the year USD($) | |||||||||
David McNally | 16,980 | 0 | 165,000 | |||||||||
Stephen Randall | 55,675 | 0 | 103,475 | |||||||||
Chad Zaring(1) | 0 | 0 | 0 | |||||||||
Perry Genova | 78,180 | 0 | 125,000 | |||||||||
Curtis Jensen | 71,006 | 0 | 52,500 | |||||||||
Sachin Sankholkar | 37,119 | 0 | 50,000 | |||||||||
Chris Seibert | 37,119 | 0 | 50,000 | |||||||||
(1) | Mr. Zaring resigned from the Company on February 7, 2020. None of Mr. Zaring options were vested at the time of his resignation. |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted–average exercise price of outstanding options, warrants and rights | Number of securities remaining for future issuance under equity compensation plan | |||||||||
US dollar denominated options | 845,042 | US$ | 2.65 | |||||||||
CDN dollar denominated options | 860,379 | CDN$ | 5.89 | |||||||||
Equity compensation plan approved by securityholders | 1,714,421 | 4,271,731 |
Name | Fees Earned ($) | Share-based Awards ($) | Option-based Awards ($) | Non-equity Incentive Plan Compensation ($) | Pension Value ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
John E. Barker | 19,739 | 30,340 | 50,079 | |||||||||||||||||||||||||
Dr. Bruce G. Wolff(1) | 6,000 | 6,000 | ||||||||||||||||||||||||||
John Schellhorn | 49,700 | 49,700 | ||||||||||||||||||||||||||
Domenic Serafino(2) | 49,097 | 49,097 | ||||||||||||||||||||||||||
Charles Federico | 78,834 | 324,560 | 403,394 | |||||||||||||||||||||||||
(1) | Dr. Bruce G. Wolff resigned as a director effective May 1, 2019. |
(2) | Domenic Serafino resigned as a director effective February 11, 2020. |
Name | Option-based Awards | Share-based Awards | ||||||||||||||||||||||||||
Number of securities underlying unexercised options (#) | Option Exercise Price per share (CDN$) | Option Expiration Date (DD-M-YY) | Value of unexercised in-the-money options (US$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested (US$) | Market or payout value of vested share-based awards not paid out or distributed (US$) | ||||||||||||||||||||||
Martin C. Bernholtz(1) | 1,044 415 5,570 | 51.60 30.60 30.00 | 09-Jun-20 23-Dec-20 24-Aug-21 | 0 0 0 | 0 0 0 | 0 0 0 | 0 0 0 | |||||||||||||||||||||
John E. Barker | | 1,044 415 5,687 7,674 21,053 25,719 | | 51.60 30.60 30.00 9.00 3.28 4.54 | | 09-Jun-20 23-Dec-20 24-Aug-21 06-Jul-25 29-Aug-25 18-Jul-26 | | 0 0 0 0 0 0 | | 0 0 0 0 0 0 | | 0 0 0 0 0 0 | | 0 0 0 0 0 0 | ||||||||||||||
Bruce G. Wolff | 828 330 5,277 3,807 10,445 | 51.60 30.60 30.00 9.00 3.28 | 09-Jun-20 23-Dec-20 24-Aug-21 06-Jul-25 29-Aug-25 | 0 0 0 0 0 | 0 0 0 0 0 | 0 0 0 0 0 | 0 0 0 0 0 | |||||||||||||||||||||
John Schellhorn | 12,269 | 4.41 | 7-Sept-24 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Domenic Serafino(2) | 5,590 | 7.49 | 06-Jul-25 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Charles Federico | | 253,000 41,273 | | USD 3.40 USD 3.40 | | 01-May-26 19-Jul-26 | | 0 0 | | 0 0 | | 0 0 | | 0 0 | ||||||||||||||
(1) | Martin Bernholtz resigned from his positions with the Company on March 15, 2018. |
(2) | Domenic Serafino resigned as a director effective February 11, 2020. |
Name | Option-based awards – Value vested during the year (US$) | Share-based awards – Value vested during the year (US$) | Non-equity incentive plan compensation –Value earned during the year (US$) | |||||||||
John Barker | 30,340 | 0 | 0 | |||||||||
John Schellhorn | 0 | 0 | 0 | |||||||||
Domenic Serafino | 0 | 0 | 0 | |||||||||
Dr. Bruce G. Wolff | 0 | 0 | 0 | |||||||||
Charles Federico | 0 | 0 | 0 |
Board Practices |
Director | Independent | Financially Literate | ||
John E. Barker | Yes | Yes | ||
Charles Federico | Yes | Yes | ||
Dominic Serafino | Yes | Yes | ||
John Schellhorn | Yes | Yes |
Employees |
LOCATION | December 31, 2019 | December 31, 2018 | December 31, 2017 | |||
Canada | 4 | 4 | 4 | |||
United States | 6 | 5 | 5 | |||
France | 0 | 1 | 1 | |||
Annual Total | 10 | 10 | 10 |
Name and Title | Number of Common Shares Beneficially Held | Percentage of Common Shares Beneficially Held * | Number of Options Held | Exercise Price (CN$) | Expiration Date | ||||||||||||||
John E. Barker Director | 32,714 | | 1,044 415 5,687 7,674 21,053 25,719 25,765 | | 51.60 30.60 30.00 9.00 3.28 4.54 0.66 | | 09-Jun-20 23-Dec-20 24-Aug-21 06-Jul-25 29-Aug-25 18-Jul-26 28-Jan-27 | ||||||||||||
David J. McNally President, Chief Executive Officer and Director | 4,167 | | 277,519 55,018 | | 4.54 4.54 | | 17-Jan-24 19-Jan-25 | ||||||||||||
Stephen Randall Chief Financial Officer, Secretary and Director | 22,993 | | 3,313 1,319 17,589 36,336 | | 4.54 4.54 4.54 4.54 | | 09-Jun-20 23-Dec-20 24-Aug-21 19-Jan-25 | ||||||||||||
John E. Schellhorn Director | 294 | 12,269 | 4.41 | 7-Sept-24 | |||||||||||||||
Charles Federico Director and Chairman | | 253,000 41,273 | US$ US$ | 3.40 3.40 | | 01-May-26 19-Jul-26 | |||||||||||||
Perry Genova Senior Vice President, Research and Development | 514 | | 16,667 33,333 41,680 | | 4.54 4.54 4.54 | | 7-Feb-24 17-Apr-24 19-Jan-25 | ||||||||||||
Curtis Jensen Vice President, Quality and Regulatory Affairs | 0 | | 16,667 18,950 35,011 | | 4.54 4.54 4.54 | | 17-Apr-24 8-Nov-24 19-Jan-25 |
Name and Title | Number of Common Shares Beneficially Held | Percentage of Common Shares Beneficially Held * | Number of Options Held | Exercise Price (CN$) | Expiration Date |
Sachin Sankholkar Vice President, Marketing | 667 | | 9,000 11,726 30,010 | | 4.54 4.54 4.54 | | 27-Jan-21 24-Aug-21 19-Jan-25 | ||||||||||||
Christopher Seibert Vice President, Business Development | 85 | | 9,000 11,726 30,010 | | 4.54 4.54 4.54 | | 27-Jan-21 24-Aug-21 19-Jan-25 | ||||||||||||
Martin C. Bernholtz Former Director | | 1,044 415 5,570 | | 51.60 30.60 30.00 | | 09-Jun-20 23-Dec-20 24-Aug-21 | |||||||||||||
Domenic Serafino Former Director | 5,590 | 7.49 | 06-Jul-25 | ||||||||||||||||
Bruce G. Wolff Former Director | 828 330 5,277 3,807 10,445 | 51.60 30.60 30.00 9.00 3.28 | 09-Jun-20 23-Dec-20 24-Aug-21 06-Jul-25 29-Aug-25 | ||||||||||||||||
Related Party Transactions |
(1) | enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, us; |
(2) | associates, meaning unconsolidated enterprises in which we have a significant influence or which have significant influence over us; |
(3) | individuals owning, directly or indirectly, an interest in the voting power of us that gives them significant influence over us, and close members of any such individual’s family; |
(4) | key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling the activities of ours, including directors and senior management of us and close members of such individuals’ families; and |
(5) | enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence, including enterprises owned by directors or major shareholders of us and enterprises that have a member of key management in common with us. |
Consolidated statement of loss and comprehensive loss data | Year ended December 31, | |||
2019 | 2018 | 2017 | 2016 | |
Net sales | $ - | $ - | $ - | $ - |
Net and comprehensive loss for the year | 41,907,079 | 22,639,272 | 33,586,984 | 23,323,496 |
Basic and diluted loss per common share | 1.37 | 1.36 | 4.25 | 4.80 |
Consolidated statement of financial position data | ||||
2019 | 2018 | 2017 | 2016 | |
Total assets | $ 3,381,581 | $ 21,915,164 | $ 29,674,610 | $ 7,192,496 |
Net assets | (11,681,831) | 4,217,109 | 9,606,798 | 594,604 |
Capital stock – common | 194,859,415 | 170,502,394 | 154,016,519 | 112,742,810 |
Number of common shares issued | 39,907,681 | 21,675,849 | 12,686,723 | 5,550,382 |
As at March 31, 2020 | |
Liabilities | |
Accounts payable and accrued liabilities | 10,184,977 |
Current portion of lease liability | 25,126 |
Warrant liability (1) | 2,373,057 |
Total current liabilities | 12,583,160 |
Loan payable | - |
Long-term liability | - |
Total non-current liabilities | - |
Equity | |
Common shares | 198,693,476 |
Warrants | |
Contributed surplus | 8,532,103 |
Deficit | (215,612,816) |
Total deficiency | (8,387,237) |
Total liabilities and deficiency | 4,195,923 |
Shares Beneficially Owned Prior to this Offering | Number of Shares that May be Offered Hereby(2) | Shares Beneficially Owned After this Offering(1) | ||||||||
Selling Securityholder and Address | Number(1) | Percentage | Number | Percentage | ||||||
Armistice Capital Master Fund, Ltd.(3) | 2,067,939 | 3.45% | 2,067,939 | 0 | * | |||||
Intracoastal Capital, LLC(4)(5) | 1,796,371(7) | 3.00% | 689,313 | 1,107,058 | 1.85% | |||||
Michael Vasinkevich(6) | 561,745(8) | * | 247,532 | 314,213 | * | |||||
Michael Mirsky(6) | 166,443(9) | * | 73,343 | 93,100 | * | |||||
Noam Rubinstein(6) | 109,502(10) | * | 48,252 | 61,250 | * | |||||
Craig Schwabe(6) | 29,565(11) | * | 13,028 | 16,537 | * | |||||
Charles Worthman(6) | 8,760(12) | * | 3,860 | 4,900 | * |
(1) | Includes 3,143,267 Shares if the Selling Securityholders exercise the Warrants in full. |
(2) | Assumes sale of all shares available for sale under this prospectus and no further acquisitions of shares by the Selling Securityholders. |
(3) | The address of Armistice Capital Master Fund Ltd. is c/o Armistice Capital, LLC, 510 Madison Ave, 7th Floor, New York, NY 10022. |
(4) | The address of Intracoastal Capital, LLC is 2211A Lakeside Drive, Bannockburn, IL 60015. |
(5) | Mitchell P. Kopin (“Mr. Kopin”) and Daniel B. Asher (“Mr. Asher”), each of whom are managers of Intracoastal Capital LLC (“Intracoastal”), have shared voting control and investment discretion over the securities reported herein that are held by Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act) of the securities reported herein that are held by Intracoastal. |
(6) | The Selling Securityholder is an affiliate of H.C. Wainwright & Co., LLC, a broker-dealer and placement agent, and at the time of the acquisition of Warrants by the Selling Securityholder, such Selling Securityholder did not have any arrangements or understandings with any person to distribute such securities. The address of this Selling Securityholder is 430 Park Ave., 3rd Floor, New York, NY 10022. |
(7) | Includes (i) 689,313 Shares issuable upon exercise of the Private Placement Warrants and (ii) 1,107,058 Shares issuable upon exercise of other warrants. |
(8) | Includes (i) 247,532 Shares issuable upon exercise of the Placement Agent Warrants and (ii) 314,213 Shares issuable upon exercise of a placement agent warrant issued in March 2020. |
(9) | Includes (i) 73,343 Shares issuable upon exercise of the Placement Agent Warrants and (ii) 93,100 Shares issuable upon exercise of a placement agent warrant issued in March 2020. |
(10) | Includes (i) 48,252 Shares issuable upon exercise of the Placement Agent Warrants and (ii) 61,250 Shares issuable upon exercise of a placement agent warrant issued in March 2020. |
(11) | Includes (i) 13,028 Shares issuable upon exercise of the Placement Agent Warrants and (ii) 16,537 Shares issuable upon exercise of a placement agent warrant issued in March 2020. |
(12) | Includes (i) 3,860 Shares issuable upon exercise of the Placement Agent Warrants and (ii) 4,900 Shares issuable upon exercise of a placement agent warrant issued in March 2020. |
● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
● | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to |
● | facilitate the transaction; |
● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
● | an exchange distribution in accordance with the rules of the applicable exchange; |
● | privately negotiated transactions; |
● | short sales effected after the date the registration statement of which this prospectus is a part is declared effective by the SEC; |
● | loans to broker-dealers or other financial institutions that in turn may sell the shares; |
● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
● | broker-dealers may agree with the Selling Securityholder to sell a specified number of such shares at a stipulated price per share; |
● | by pledge to secure debts and other obligations or on foreclosure of a pledge; |
● | a combination of any such methods of sale; and |
● | any other method permitted by applicable law. |
SEC registration fee | US$ | 130 | ||||
Printing expenses | 0 | |||||
Accounting fees and expenses | 5,000 | |||||
Legal fees and expenses | 100,000 | |||||
Financial Industry Regulatory Authority, Inc. filing fee | 0 | |||||
Total | US$ | 105,130 |
● | borrow money upon our credit; |
● | issue, reissue, sell, pledge or hypothecate bonds, debentures, notes or other evidences of indebtedness of the Company, whether secured or unsecured; |
● | give a guarantee on behalf of the Company to secure performance of any present or future indebtedness, liability or obligation of any person; and |
● | mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal, movable or immovable, property of the Company including book debts, rights, powers, franchises and undertakings, to secure any such bonds, debentures, notes or other evidences of indebtedness or guarantee or any other present or future indebtedness, liability or obligation of the Company. |
● | a citizen or individual resident of the United States; |
● | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; |
● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
● | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Annual Financial Statements for the Years Ended December 31, 2019 and 2018 | |
Independent Auditor’s Report | F-3 |
Balance Sheets | F-5 |
Statements of Net and Comprehensive Loss | F-6 |
Statements of Shareholders’ Equity and Deficit | F-7 |
Statement of Cash Flows | F-8 |
Notes to the Financial Statements | F-9 |
Annual Financial Statements for the Years Ended December 31, 2018 and 2017 | |
Independent Auditor’s Report | F-31 |
Balance Sheets | F-33 |
Statements of Shareholders’ Equity and Deficit | F-34 |
Statements of Net and Comprehensive Loss | F-35 |
Statements of Cash Flows | F-36 |
Notes to the Financial Statements | F-37 |
Unaudited Condensed Interim Financial Statements for the Three Months Ended March 31, 2020 and 2019 | |
Balance Sheets | F-50 |
Statements of Shareholders’ Equity and Deficit | F-60 |
Statements of Net and Comprehensive Loss | F-61 |
Statements of Cash Flows | F-62 |
Notes to the Financial Statements | F-63 |
Tel: 416 865 0200 Fax: 416 865 0887 www.bdo.ca | BDO Canada LLP 222 Bay Street Suite 2200, PO Box 131 Toronto ON M5K 1H1 Canada |
Report of Independent Registered Public Accounting Firm |
Note | December 31, 2019 | December 31, 2018 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 814,492 | $ | 11,471,243 | |||
Amounts receivable | 84,097 | 143,225 | |||||
Deposits | 9 | 481,400 | 8,541,630 | ||||
Prepaid expense | 369,453 | 586,581 | |||||
Total Current Assets | $ | 1,749,442 | $ | 20,742,679 | |||
Right of use assets - Leases | 3 | 30,394 | - | ||||
Patent Rights | 4 | 1,601,745 | 1,172,485 | ||||
Total Assets | $ | 3,381,581 | $ | 21,915,164 | |||
Liabilities | |||||||
Current Liabilities: | |||||||
Accounts payable and accrued liabilities | 5 | $ | 11,412,896 | $ | 6,447,888 | ||
Current portion of lease liability | 3 | 21,071 | - | ||||
Warrant liability | 6 | 3,621,444 | 11,250,167 | ||||
Total Current Liabilities | $ | 15,055,411 | $ | 17,698,055 | |||
Long-term lease liability | 3 | $ | 8,001 | $ | - | ||
Total Liabilities | $ | 15,063,412 | $ | 17,698,055 | |||
Shareholders' Equity / (Deficiency) | |||||||
Share Capital | 7 | $ | 194,859,415 | $ | 170,502,394 | ||
Contributed Surplus | 8,303,527 | 6,652,409 | |||||
Deficit | (214,844,773 | ) | (172,937,694) | ||||
Total Equity / (Deficiency) | $ | (11,681,831 | ) | $ | 4,217,109 | ||
Total Liabilities and Equity / (Deficiency) | $ | 3,381,581 | $ | 21,915,164 |
Going Concern (Note 1(d)) | ||||||||
Commitments (Note 9) | ||||||||
Subsequent events (Note 14) | ||||||||
See notes to financial statements |
Approved on behalf of the Board: | |||||||||
"signed" | "signed" | ||||||||
Charles Federico | David McNally | ||||||||
Chairman | President and CEO |
Year Ended | Year Ended | ||||||||
Note | December 31, 2019 | December 31, 2018 | |||||||
Revenue: | $ | - | $ | - | |||||
Expenses: | |||||||||
Amortization | $ | 32,555 | $ | 29,041 | |||||
Consulting fees | 1,136,146 | 785,128 | |||||||
Stock based compensation | 7b | 1,651,119 | 1,505,625 | ||||||
Insurance | 480,362 | 252,514 | |||||||
Management salaries and fees | 2,547,484 | 2,683,187 | |||||||
Marketing and investor relations | 289,350 | 231,032 | |||||||
Office and general | 436,051 | 412,039 | |||||||
Professional fees | 943,535 | 485,639 | |||||||
Rent | 58,064 | 97,782 | |||||||
Research and Development | 51,418,056 | 32,858,339 | |||||||
Travel | 272,594 | 350,016 | |||||||
Interest charges | 422,989 | - | |||||||
Foreign exchange (gain)/loss | 37,972 | (979,894 | ) | ||||||
$ | 59,726,277 | $ | 38,710,448 | ||||||
Finance Income (cost): | |||||||||
Interest | $ | 115,584 | $ | 288,300 | |||||
Gain on change in fair value of warrants | 2(h), 6 | 19,800,645 | 17,095,220 | ||||||
Warrant liability issue cost | 2(h) | (2,097,031 | ) | (1,312,344 | ) | ||||
$ | 17,819,198 | $ | 16,071,176 | ||||||
Net and Comprehensive Loss For The Year | $ | 41,907,079 | $ | 22,639,272 | |||||
Basic and Diluted Loss Per Share | $ | (1.37 | ) | $ | (1.36 | ) | |||
Weighted Average Number of Common Shares | |||||||||
Basic and Diluted | 30,689,545 | 16,635,092 | |||||||
See notes to financial statements |
Note | Share Capital Number | Share Capital Amount | Contributed Surplus | Warrants | Deficit | Total Equity / (Deficiency) | ||||||||
Balance - December 31, 2017 | 12,686,723 | $ 154,016,519 | $ 5,146,784 | $ 741,917 | $ (150,298,422 | ) | $ 9,606,798 | |||||||
Issued pursuant to agency agreement | 8,975,126 | 16,915,394 | - | - | - | 16,915,394 | ||||||||
Share issue expense | (1,297,668 | ) | - | - | - | (1,297,668 | ) | |||||||
Issued Other | 7,500 | 66,234 | - | - | - | 66,234 | ||||||||
Warrants exercised during the year | 6,500 | 59,998 | - | - | - | 59,998 | ||||||||
Warrants expired during the year | - | 741,917 | - | (741,917 | ) | - | - | |||||||
Stock based compensation | - | - | 1,505,625 | - | - | 1,505,625 | ||||||||
Net and Comprehensive loss | - | - | - | - | (22,639,272 | ) | (22,639,272 | ) | ||||||
Balance - December 31, 2018 | 21,675,849 | $ 170,502,394 | $ 6,652,409 | $ - | $ (172,937,694 | ) | $ 4,217,109 | |||||||
Balance - December 31, 2018 | 21,675,849 | $ 170,502,394 | $ 6,652,409 | $ - | $ (172,937,694 | ) | $ 4,217,109 | |||||||
Issued pursuant to agency agreement | 7a | 8,455,882 | 13,717,131 | - | - | - | 13,717,131 | |||||||
Issued pursuant to private placements | 7a | 8,757,444 | 5,727,971 | - | - | - | 5,727,971 | |||||||
Share expense issue | (2,090,124 | ) | - | - | - | (2,090,124 | ) | |||||||
Warrants exercised during the year | 7a | 1,018,506 | 7,002,043 | - | - | 7,002,043 | ||||||||
Stock based compensation | 7b | - | - | 1,651,118 | - | - | 1,651,118 | |||||||
Net and Comprehensive loss | - | - | - | - | (41,907,079 | ) | (41,907,079 | ) | ||||||
Balance - December 31, 2019 | 39,907,681 | $ 194,859,415 | $ 8,303,527 | $ - | $ (214,844,773 | ) | $ (11,681,831 | ) | ||||||
See notes to financial statements |
Year Ended | Year Ended | ||||||||||
Note | December 31, 2019 | December 31, 2018 | |||||||||
- | - | ||||||||||
Cash provided by (used in): | |||||||||||
Operating activities: | |||||||||||
Net loss for the year | $ | (41,907,079 | ) | $ | (22,639,272 | ) | |||||
- | - | ||||||||||
Items not involving cash: | |||||||||||
Amortization | 32,555 | 29,041 | |||||||||
Stock based compensation | 7(b) | 1,651,119 | 1,505,625 | ||||||||
Other share compensation | - | 66,234 | |||||||||
Warrant liability-fair value adjustment | 6 | (19,800,645 | ) | (17,095,220 | ) | ||||||
Warrant liability-foreign exchange adjustment | 17,687 | (984,462 | ) | ||||||||
Non-cash issuance costs | 744,501 | - | |||||||||
Changes in non-cash working capital items: | |||||||||||
Amounts receivable, prepaid expenses and deposits | 8,336,486 | (6,508,259 | ) | ||||||||
Accounts payable and accrued liabilities | 4,965,008 | 4,229,536 | |||||||||
Cash used in operating activities | $ | (45,960,368 | ) | $ | (41,396,777 | ) | |||||
Financing activities: | |||||||||||
Net proceeds from issuance of common shares and warrants | 35,766,754 | 27,158,114 | |||||||||
Repayment of lease liabilities | 3 | (5,100 | ) | - | |||||||
- | - | ||||||||||
Cash provided by financing activities | $ | 35,761,654 | $ | 27,158,114 | |||||||
- | - | ||||||||||
Investing Activities: | |||||||||||
Cost of Patents | (458,037 | ) | (420,587 | ) | |||||||
Cash used in investing activities | $ | (458,037 | ) | $ | (420,587 | ) | |||||
Decrease in cash and cash equivalents | (10,656,751 | ) | (14,659,250 | ) | |||||||
Cash and cash equivalents, beginning of the year | 11,471,243 | 26,130,493 | |||||||||
Cash and cash equivalents, end of the year | $ | 814,492 | $ | 11,471,243 | |||||||
Cash and cash equivalents comprise: | |||||||||||
Cash | $ | 141,768 | $ | 100,130 | |||||||
Cash equivalents | 672,724 | 11,371,113 | |||||||||
$ | 814,492 | $ | 11,471,243 | ||||||||
See notes to financial statements |
a) Computer Equipment | 3 years |
b) Furniture and Fixtures | 3 – 5 years |
c) Leasehold Improvements | Term of the lease |
a) | recognizes right-of-use assets and lease liabilities in the statement of financial position, initially measured at the present value of future lease payments; |
b) | recognizes amortization of right-of-use assets and interest on lease liabilities in the statement of profit or loss; and |
c) | separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. |
For the year ended December 31, 2019 | Cost | Accumulated Amortization | Net Book Value | |||||||||
Balance at December 31, 2018 | $ | - | $ | - | $ | - | ||||||
Additions during the period | 34,172 | - | 34,172 | |||||||||
Amortization in the period | - | (3,778 | ) | (3,778 | ) | |||||||
Balance at December 31, 2019 | $ | 34,172 | $ | (3,778 | ) | $ | 30,394 |
For the year ended December 31, 2019 | Cost | Accumulated Amortization & Impairment Losses | Net Book Value | |||||||||
Balance at January 1, 2018 | $ | 978,126 | $ | (203,901 | ) | $ | 774,225 | |||||
Additions during the year | 420,587 | - | 420,587 | |||||||||
Amortization in the year | - | (22,327 | ) | (22,327 | ) | |||||||
Balance at December 31, 2018 | $ | 1,398,713 | $ | (226,228 | ) | $ | 1,172,485 | |||||
Additions during the period | 445,158 | - | 445,158 | |||||||||
Amortization in the period | - | (28,779 | ) | (28,779 | ) | |||||||
Balance at December 31, 2019 | $ | 1,843,871 | $ | (255,007 | ) | $ | 1,588,864 |
Year Ended | Year Ended | |||||||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||||
Number of Warrants | Amount | Number of Warrants | Amount | |||||||||||||
Opening Balance | 13,901,859 | $ | 11,250,167 | 4,933,231 | $ | 17,849,460 | ||||||||||
Issue of warrants expiring, April 10, 2023 | - | - | 1,295,554 | 5,212,087 | ||||||||||||
Issue of warrants expiring, August 10, 2023 | - | - | 7,679,574 | 6,297,251 | ||||||||||||
Issue of warrants expiring, March 21, 2024 | 8,455,882 | 15,897,059 | - | - | ||||||||||||
Warrants exercised during the year | (1,018,506 | ) | (3,742,824 | ) | (6,500 | ) | (28,949 | ) | ||||||||
Warrants expired during the year | (135,824 | ) | - | - | - | |||||||||||
Foreign exhange adjustment during the year | - | 17,687 | - | (984,462 | ) | |||||||||||
Fair value adjustment during the year | - | (19,442,939 | ) | - | (17,095,220 | ) | ||||||||||
Ending Balance | 21,203,411 | $ | 3,979,150 | 13,901,859 | $ | 11,250,167 |
a) | Authorized: unlimited number of common shares, no par |
Issued: 39,907,681 (December 31, 2018: 21,675,849) |
Grant Date | Common shares issued | Value | ||||||
August 30, 2019 | 2,417,162 | $ | 3,000,000 | |||||
November 8, 2019 | 100,000 | 42,560 | ||||||
November 8, 2019 | 100,000 | 42,560 | ||||||
November 12, 2019 | 100,000 | 42,970 | ||||||
November 12, 2019 | 100,000 | 42,000 | ||||||
November 13, 2019 | 100,000 | 42,970 | ||||||
November 14, 2019 | 300,000 | 128,910 | ||||||
November 15, 2019 | 2,500,000 | 1,074,250 | ||||||
November 19, 2019 | 2,067,282 | 888,311 | ||||||
7,784,444 | $ | 5,304,531 |
May 29, 2019 before the amendments | May 29, 2019 after the amendments | ||||
Fair Value calculated | CDN $0.01-$1.40 | CDN $1.06-$2.10 | |||
Share price at grant | CDN $3.47 | CDN $3.47 | |||
Exercise price | CDN $12.90-$51.60 | CDN $4.54 | |||
Expected Volatility | 98.6%-99.4% | 98.6%-99.4% | |||
Expected Option Life | 1.0-3.5 years | 1.0-3.5 years | |||
Expected dividends | Nil | Nil | |||
Risk free interest rate (based on government bonds) | 1.48%-1.57% | 1.48%-1.57% |
Year ended | December 31, 2019 | December 31, 2018 | ||||||||||||||
Number of Stock Options | Weighted average Exercise Price (CDN) | Number of Stock Options (1) | Weighted average Exercise Price (CDN) | |||||||||||||
Balance Beginning | 875,433 | $ | 18.20 | 591,609 | $ | 21.30 | ||||||||||
Granted | 35,719 | 4.54 | 322,517 | 13.51 | ||||||||||||
Expired/Forfeited | (50,773 | ) | 31.79 | (38,693 | ) | 24.90 | ||||||||||
Balance Ending | 860,379 | $ | 5.89 | 875,433 | $ | 18.20 |
Year ended | December 31, 2019 | December 31, 2018 | ||||||||||||||
Number of Stock Options | Weighted average Exercise Price (USD) | Number of Stock Options (1) | Weighted average Exercise Price (USD) | |||||||||||||
Balance Beginning | 50,349 | $ | 1.55 | - | $ | - | ||||||||||
Granted | 843,693 | 2.72 | 50,349 | 1.55 | ||||||||||||
Expired/Forfeited | (40,000 | ) | 3.72 | - | - | |||||||||||
Balance Ending | 854,042 | $ | 2.65 | 50,349 | $ | 1.55 |
Canadian Dollar Denominated Options | ||||||
Exercise Price (CDN) | Number Outstanding | Weighted-average remaining contractual life (years) | Options Exercisable | |||
$3.28 | 31,498 | 5.67 | 31,498 | |||
$4.50 | 18,936 | 3.28 | 18,936 | |||
$4.54 | 743,122 | 6.76 | 296,807 | |||
$4.80 | 3,040 | 0.71 | 3,040 | |||
$7.49 | 5,590 | 5.52 | 5,590 | |||
$9.00 | 11,481 | 5.52 | 11,481 | |||
$9.60 | 1,105 | 0.77 | 1,105 | |||
$11.70 | 6,667 | 0.94 | 6,667 | |||
$12.00 | 1,948 | 0.93 | 1,948 | |||
$30.00 | 28,260 | 1.65 | 28,260 | |||
$30.60 | 2,096 | 0.98 | 2,096 | |||
$32.40 | 810 | 1.08 | 810 | |||
$45.30 | 560 | 0.61 | 560 | |||
$51.60 | 5,266 | 0.44 | 5,268 | |||
860,379 | 4.37 | 414,066 |
US Dollar Denominated Options | ||||||
Exercise Price (USD) | Number Outstanding | Weighted-average remaining contractual life (years) | Options Exercisable | |||
$1.55 | 50,349 | 1.97 | 50,349 | |||
$2.20 | 469,420 | 6.53 | 2,165 | |||
$3.40 | 294,273 | 6.37 | 197,273 | |||
$3.72 | 40,000 | 2.69 | - | |||
854,042 | 6.28 | 249,787 | ||||
Total | 1,714,421 | 5.32 | 663,853 |
Grant date/ Recipient | Number of Options | Vesting Conditions | Contractual Life of Options | ||
February 14, 2019, options granted to a Consultant | 40,000 | Options may vest over a 15-month vesting schedule | Cancelled | ||
May 29, 2019, options granted to a Director | 253,000 | Options vest over a specified vesting period not exceeding 4 years | 7 years | ||
June 28, 2019, options granted to an Employee | 10,000 | Options vest as to 1/3 of the total number of Options granted, every year from Grant Date | 7 years | ||
July 18, 2019, options granted to a Director | 25,719 | Options vest immediately | 7 years | ||
July 19, 2019, options granted to an Employee | 467,255 | Options vest as to 1/4 of the total number of Options granted, every year from Grant Date | 7 years | ||
July 19, 2019, options granted to a Consultant | 2,165 | Options vest as to 1/3 of the total number of Options granted, every year from Grant Date | 7 years | ||
July 19, 2019, options granted to a Director | 41,273 | Options vest immediately | 7 years | ||
September 9, 2019, options granted to a Consultant | 40,000 | Options vest over a 15-month vesting schedule subject to achieving certain milestones. | 2.5 years |
2019 | 2019 | 2018 | ||||
Fair Value calculated | US $1.48 | CDN $1.61 | CDN $5.99 | |||
Share price at grant | US $2.36 | CDN $2.90 | CDN $10.79 | |||
Exercise price | US $2.72 | CDN $4.54 | CDN $11.97 | |||
Expected Option Life | 3.5 years | 3.4 years | 3 years | |||
Risk free interest rate (based on government bonds) | 1.50% | 1.43% | 1.90% | |||
Expected Volatility | 97.90% | 98.10% | 90.12% | |||
Expected dividends | Nil | Nil | Nil |
December 31, 2019 | December 31, 2018 | |||||||
Net Loss before income taxes | $ | (41,907,079 | ) | $ | (22,639,272 | ) | ||
Income taxes at statutory rates | $ | (11,105,376 | ) | $ | (5,999,407 | ) | ||
Tax effect of expenses not deductible for income tax purposes: | ||||||||
Tax/FX rate changes and other adjustments | - | - | ||||||
Permanent differences | (4,800,780 | ) | (4,374,564 | ) | ||||
Unrecognized share issue costs | (625,220 | ) | (354,072 | ) | ||||
Tax/foreign currency rate changes and other adjustments | 93,724 | - | ||||||
Total tax recovery | (16,437,652 | ) | (10,728,043 | ) | ||||
Tax recovery not recognized | 16,437,652 | 10,728,043 | ||||||
$ | - | $ | - |
December 31, 2019 | December 31, 2018 | |||||||
Non-Capital Losses | $ | 63,740,497 | $ | 47,679,897 | ||||
Qualifying Research and | ||||||||
Development expenditures | $ | 1,493,309 | $ | 1,493,309 | ||||
Share issue costs and other | 1,999,584 | 1,622,533 | ||||||
Total tax assets | 67,233,390 | 50,795,739 | ||||||
Tax assets not recognized | (67,233,390 | ) | (50,795,739 | ) | ||||
Net deferred tax assets | $ | - | $ | - | ||||
2027 | $ 786,557 |
2028 | 169,954 |
2029 | 186,708 |
2030 | 2,003,594 |
2031 | 12,735,836 |
2032 | 7,260,729 |
2033 | 8,856,497 |
2034 | 15,819,741 |
2035 | 43,934,918 |
2036 | 28,310,254 |
2037 | 19,604,159 |
2038 | 40,255,192 |
2039 | 60,670,576 |
$ 240,594,715 |
December 31, 2019 | December 31, 2018 | |||
Number of Shares | % | Number of Shares | % | |
John Barker | 32,714 | 0.08 | 31,714 | 0.15 |
Stephen Randall | 22,993 | 0.06 | 21,643 | 0.10 |
David McNally | 4,167 | 0.01 | 4,167 | 0.02 |
John Schellhorn | 294 | 0.00 | 294 | 0.00 |
Bruce Wolff 1 | - | - | 7,610 | 0.03 |
Total | 60,168 | 0.15 | 65,428 | 0.30 |
Common Shares Outstanding | 39,907,681 | 100% | 21,675,849 | 100% |
1: Bruce Wolff retired as a Director effective May 29, 2019 |
December 31, 2019 | Profit of (Loss) | ||||
5% strengthening | |||||
CDN Current assets | $ | (19,687 | ) | ||
CDN Accounts payable and accrued liabilities | $ | 52,228 | |||
$ | 32,541 | ||||
December 31, 2018 | |||||
5% strengthening | |||||
CDN Current assets | $ | (10,155 | ) | ||
CDN Accounts payable and accrued liabilities | $ | 202,214 | |||
$ | 192,059 |
Grant Date | Common shares issued | Value | |||||
January 3, 2020 | 500,000 | $ | 219,600 | ||||
January 6, 2020 | 500,000 | 229,300 | |||||
January 8, 2020 | 400,000 | 195,160 | |||||
January 10, 2020 | 500,000 | 247,550 | |||||
January 17, 2020 | 600,000 | 303,000 | |||||
January 23, 2020 | 600,000 | 295,320 | |||||
February 6, 2020 | 600,000 | 282,000 | |||||
February 13, 2020 | 708,048 | 300,000 | |||||
4,408,048 | $ | 2,071,930 |
Tel: 416 865 0200 Fax: 416 865 0887 www.bdo.ca | BDO Canada LLP 222 Bay Street Suite 2200, PO Box 131 Toronto ON M5K 1H1 Canada |
Report of Independent Registered Public Accounting Firm |
TITAN MEDICAL INC.
Balance Sheets
As at December 31, 2018 and December 31, 2017
(In U.S. Dollars)
Note | December 31, 2018 | December 31, 2017 | ||||||||
Assets | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 11,471,243 | $ | 26,130,493 | ||||||
Amounts receivable | 143,225 | 75,151 | ||||||||
Deposits | 8 | 8,541,630 | 2,538,434 | |||||||
Prepaid expense | 586,581 | 149,593 | ||||||||
|
|
|
| |||||||
Total Current Assets | $ | 20,742,679 | $ | 28,893,671 | ||||||
Furniture and Equipment | 3 | — | 6,714 | |||||||
Patent Rights | 4 | 1,172,485 | 774,225 | |||||||
|
|
|
| |||||||
Total Assets | $ | 21,915,164 | $ | 29,674,610 | ||||||
|
|
|
| |||||||
Liabilities | ||||||||||
Current Liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 6,447,888 | $ | 2,218,352 | ||||||
Warrant liability | 2h, 5(a), 6 | 11,250,167 | 17,849,460 | |||||||
|
|
|
| |||||||
Total Liabilities | 17,698,055 | 20,067,812 | ||||||||
|
|
|
| |||||||
Shareholders’ Equity | ||||||||||
Share Capital | 5a | 170,502,394 | 154,016,519 | |||||||
Contributed Surplus | 6,652,409 | 5,146,784 | ||||||||
Warrants | 5b | — | 741,917 | |||||||
Deficit | (172,937,694 | ) | (150,298,422 | ) | ||||||
|
|
|
| |||||||
Total Equity | 4,217,109 | 9,606,798 | ||||||||
|
|
|
| |||||||
Total liabilities and equity | $ | 21,915,164 | $ | 29,674,610 | ||||||
|
|
|
|
Commitments (Note 8)
See notes to financial statements
Approved on behalf of the Board:
“signed” | “signed” | |||
John E. Barker | David McNally | |||
Chairman | President and CEO |
TITAN MEDICAL INC.
Statement of Shareholders’ Equity and Deficit
For the Years Ended December 31, 2018 and 2017
(In U.S. Dollars)
Note | Share Capital Number | Share Capital Amount | Contributed Surplus | Warrants | Deficit | Total Equity | ||||||||||||||||||||
Balance - December 31, 2016 | 5(a) | 5,550,382 | $ | 112,742,810 | $ | 3,707,432 | $ | 855,800 | $ | (116,711,438 | ) | $ | 594,604 | |||||||||||||
Issued pursuant to agency agreement | 4,232,428 | 20,799,951 | 20,799,951 | |||||||||||||||||||||||
Issued private placement | 1,009,263 | 4,564,737 | 4,564,737 | |||||||||||||||||||||||
Issued other | 7,500 | 67,954 | 67,954 | |||||||||||||||||||||||
Share issue expense | (2,132,238 | ) | (2,132,238 | ) | ||||||||||||||||||||||
Warrants exercised during the year | 1,755,141 | 17,392,158 | 17,392,158 | |||||||||||||||||||||||
Warrants expired during the year | 113,883 | (113,883 | ) | — | ||||||||||||||||||||||
Broker warrants exercised during the year | 132,009 | 467,264 | 467,264 | |||||||||||||||||||||||
Stock based compensation | 1,439,352 | 1,439,352 | ||||||||||||||||||||||||
Net and Comprehensive loss for the year | (33,586,984 | ) | (33,586,984 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance - December 31, 2017 | 12,686,723 | $ | 154,016,519 | $ | 5,146,784 | $ | 741,917 | $ | (150,298,422 | ) | $ | 9,606,798 | ||||||||||||||
Issued pursuant to agency agreement | 8,975,126 | 16,915,394 | 16,915,394 | |||||||||||||||||||||||
Issued Other | 7,500 | 66,234 | 66,234 | |||||||||||||||||||||||
Share issue expense | (1,297,668 | ) | (1,297,668 | ) | ||||||||||||||||||||||
Warrants exercised during the year | 6,500 | 59,998 | 59,998 | |||||||||||||||||||||||
Warrants expired during the year | 741,917 | (741,917 | ) | — | ||||||||||||||||||||||
Stock based compensation | 1,505,625 | 1,505,625 | ||||||||||||||||||||||||
Net and Comprehensive loss for the year | (22,639,272 | ) | (22,639,272 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance - December 31, 2018 | 21,675,849 | $ | 170,502,394 | $ | 6,652,409 | $ | — | $ | (172,937,694 | ) | $ | 4,217,109 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements
TITAN MEDICAL INC.
Statement of Net and Comprehensive Loss
For the Years Ended December 31, 2018 and 2017
(In U.S. Dollars)
Note | Year Ended December 31, 2018 | Year Ended December 31, 2017 | ||||||||
Revenue: | $ | — | $ | — | ||||||
|
|
|
| |||||||
Expenses: | ||||||||||
Amortization | 29,041 | 17,360 | ||||||||
Consulting fees | 785,128 | 598,804 | ||||||||
Stock based compensation | 5(b) | 1,505,625 | 1,439,352 | |||||||
Insurance | 252,514 | 25,897 | ||||||||
Management salaries and fees | 2,683,187 | 2,449,323 | ||||||||
Marketing and investor relations | 231,032 | 277,737 | ||||||||
Office and general | 412,039 | 284,532 | ||||||||
Professional fees | 485,639 | 452,751 | ||||||||
Rent | 97,782 | 97,817 | ||||||||
Research and Development | 32,858,339 | 12,900,855 | ||||||||
Travel | 350,016 | 339,628 | ||||||||
Foreign exchange (gain)/loss | (979,894 | ) | 542,664 | |||||||
|
|
|
| |||||||
38,710,448 | 19,426,720 | |||||||||
Finance Income (cost): | ||||||||||
Interest | 288,300 | 17,442 | ||||||||
Gain (Loss) on change in fair value of warrants | 2(h), 5(a), 6 | 17,095,220 | (13,133,671 | ) | ||||||
Warrant liability issue cost | (1,312,344 | ) | (1,044,035 | ) | ||||||
|
|
|
| |||||||
16,071,176 | (14,160,264 | ) | ||||||||
Net and Comprehensive Loss For The Year | $ | 22,639,272 | $ | 33,586,984 | ||||||
|
|
|
| |||||||
Basic and Diluted Loss Per Share | $ | (1.36 | ) | $ | (4.25 | ) | ||||
|
|
|
| |||||||
Weighted Average Number of Common Shares, | ||||||||||
Basic and Diluted | 16,635,092 | 7,899,443 | ||||||||
|
|
|
|
See notes to financial statements
TITAN MEDICAL INC.
Statements of Cash Flows
For the Years Ended December 31, 2018 and 2017
(In U.S. Dollars)
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
Cash provided by (used in): | ||||||||
Operating activities: | ||||||||
Net loss for the year | $ | (22,639,272 | ) | $ | (33,586,984 | ) | ||
Items not involving cash: | ||||||||
Amortization | 29,041 | 17,360 | ||||||
Stock based compensation | 1,505,625 | 1,439,352 | ||||||
Other share compensation | 66,234 | 120,171 | ||||||
Warrant liability-fair value adjustment | (17,095,220 | ) | 12,423,889 | |||||
Warrant liability-foreign exchange adjustment | (984,462 | ) | 305,475 | |||||
Loss on extinquishment of other liabilities | — | 709,782 | ||||||
Changes in non-cash working capital items: | ||||||||
Amounts receivable, prepaid expenses and deposits | (6,508,259 | ) | (504,056 | ) | ||||
Accounts payable and accrued liabilities | 4,229,536 | (13,849 | ) | |||||
|
|
|
| |||||
Cash used in operating activities | (41,396,777 | ) | (19,088,860 | ) | ||||
Financing activities: | ||||||||
Net proceeds from issuance of common shares and warrants | 27,158,114 | 41,084,278 | ||||||
|
|
|
| |||||
Cash provided by financing activities | 27,158,114 | 41,084,278 | ||||||
Investing Activities: | ||||||||
Increase in furniture and equipment | — | (3,427 | ) | |||||
Cost of Patents | (420,587 | ) | (201,409 | ) | ||||
|
|
|
| |||||
Cash used in investing activities | (420,587 | ) | (204,836 | ) | ||||
|
|
|
| |||||
Increase (decrease) in cash and cash equivalents | (14,659,250 | ) | 21,790,582 | |||||
Cash and cash equivalents, beginning of year | 26,130,493 | 4,339,911 | ||||||
|
|
|
| |||||
Cash and cash equivalents, end of year | $ | 11,471,243 | $ | 26,130,493 | ||||
|
|
|
| |||||
Cash and cash equivalents comprise: | ||||||||
Cash | $ | 100,130 | $ | 354,295 | ||||
Cash Equivalents | 11,371,113 | 25,776,198 | ||||||
|
|
|
| |||||
$ | 11,471,243 | $ | 26,130,493 | |||||
|
|
|
|
See notes to financial statements
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
1. | DESCRIPTION OF BUSINESS |
Nature of Operations:
Titan Medical Inc’s (the “Company”) business continues to be in the research and development stage and is focused on the continued research and development of the next generation surgical robotic platform. In the near term, the Company will continue efforts to complete product development and proceed to pre-clinical and confirmatory human studies and satisfaction of appropriate regulatory requirements. Upon receipt of regulatory approvals, the Company will transition from the research and development stage to the commercialization stage. The completion of these latter stages will be subject to the Company receiving additional funding in the future.
The Company is incorporated in Ontario, Canada in accordance with the Business Corporations Act. The address of the Company’s corporate office and its principal place of business is Toronto, Canada.
Basis of Preparation:
(a) | Statement of Compliance |
These financial statements for the year ended December 31, 2018 and December 31, 2017 have been prepared in accordance with International Accounting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The financial statements were authorized for issue by the Board of Directors on February 13, 2019.
(b) | Basis of Measurement |
These financial statements have been prepared on the historical cost basis except for the revaluation of the warrant liability, which is measured at fair value.
(c) | Functional and Presentation Currency |
These financial statements are presented in United States dollars (“U.S.”), which is the Company’s functional and presentation currency.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Use of Estimates and Judgements |
The preparation of financial statements in conformity with IFRS 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 year. Financial statement items subject to significant judgement include, the measurement of stock-based compensation and the fair value estimate of the initial measurement of new warrant liabilities and the remeasurement of unlisted warrant liabilities. While management believes that the estimates and assumptions are reasonable, actual results may differ.
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’ deficiency of $172,937,694 and current losses of $22,639,272. The Company currently does not generate any revenue (other than interest income on its cash balances) and accordingly it is primarily dependent upon equity financing for any additional funding required for development and operating expenses. The Company expects that approximately US $45 million in incremental funding is needed, for the next 12 months to maintain its currently anticipated pace of development. If additional funding is not available, the pace of the Company’s product development plan may be reduced. 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. However, based on internal forecasts, Management believes that the Company has sufficient funds to meet its obligations under a reduced development plan, if necessary, for the ensuing twelve months.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Fair Value
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.
(b) | Cash and Cash Equivalents |
Cash and cash equivalents include cash balances and amounts on deposit in interest saving account and short-term promissory notes expiring January 30, 2019 with interest rates ranging from 2.18% to 2.32%.
(c) | Furniture and Equipment |
Furniture and equipment are recorded at cost less accumulated amortization and accumulated impairment losses, if any. The Company records amortization using the straight-line method over the estimated useful lives of the capital assets as follow:
a) Computer Equipment | 3 years | |
b) Furniture and Fixtures | 3 – 5 years | |
c) Leasehold Improvements | Term of the lease |
(d) | Impairment of Long-Lived Assets |
The Company reviews computer equipment, furniture and equipment, leasehold improvements and patent rights for objective evidence of impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Recoverability is measured by comparison of the asset’s carrying amount to the asset’s recoverable amount, which is the greater of fair value less cost to sell and value in use. Value in use is measured as the expected future discounted cash flows expected to be derived from the asset. If the carrying value exceeds the recoverable amount, the asset is written down to the recoverable amount.
(e) | Patent Rights |
Patent rights are recorded at cost less accumulated amortization and accumulated impairment loss. Straight line amortization is provided over the estimated useful lives of the assets, as prescribed by the granting body, which range up to twenty years.
(f) | Deferred Income Taxes |
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, unused tax losses and income tax reductions, and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Management has determined not to recognize its net deferred tax assets, as it is not considered probable that future tax benefits will be realized.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(g) | Foreign Currency |
Transactions in currencies other than U.S. dollars are translated at exchange rates in effect at the date of the transactions. Foreign exchange differences arising on settlement are recognized separately in net and comprehensive loss. Monetary year end balances are converted to U.S. dollars at the rate in effect at that time. Non-monetary items in a currency other than U.S. dollars that are measured in terms of historical cost are translated using the exchange rate at the date of transaction or date of adoption of U.S functional currency, whichever is later. Foreign exchange gains and losses are included in net and comprehensive loss.
(h) | Warrant Liability |
In accordance with IAS 32, because the exercise prices of warrants issued are not a fixed amount as they are denominated in a currency (Canadian dollars) other than the Company’s functional currency (U.S. dollar), as well as the warrants issued August 10, 2018 with the cashless exercise options, the warrants are accounted for as a derivative financial liability. Each Warrant Liability is initially measured at fair value and subsequent changes in fair value are recorded through Net and Comprehensive Loss for the year. The fair value of these warrants was determined initially using a comparable warrant quoted in an active market, adjusted for differences in the terms of the warrant. At December 31, 2018, the Warrant Liability of listed warrants was adjusted to fair value measured at the market price of the listed warrants and the unlisted warrants were adjusted to fair value using the Black-Scholes formula.
(i) | Fair Value Measurement |
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 listed and unlisted Warrant liability is initially based on level 2 significant observable inputs and at December 31, 2018 and December 31, 2017 is based on level 1, quoted prices (unadjusted) for listed warrants and level 2 for unlisted warrants.
(j) | Stock Based Compensation |
IFRS 2 requires options granted to employees and others providing similar services to be measured at the fair value of goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure the value and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, which the Company does using the Black-Scholes option- pricing model. The fair value of the options granted is determined as at the grant date.
Stock options granted to non-employees are valued at the fair value of the goods or service received, measured at the date on which the goods are received, or the services rendered. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure the value and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, which the Company does using the Black-Scholes option- pricing model. The fair value of the options granted is determined as at the grant date.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(k) | Research and Development Costs |
Research and development activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. The costs of developing new products are capitalized as deferred development costs, if they meet the development capitalization criteria under IFRS. These criteria include the ability to measure development costs reliably, the product is technically, and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. To date, all the research and development costs have been expensed as the criteria for capitalization have not yet been met.
(l) | Earnings (loss) per Share |
Basic earnings (loss) per share are calculated using the weighted-average number of common shares outstanding during the year. Diluted earnings (loss) per share considers the dilutive impact of the exercise of 925,782 outstanding stock options (December 31, 2017 – 591,609) and 13,901,859 warrants, (December 31, 2017– 5,108,588) as if the events had occurred at the beginning of the period or at a time of issuance, if later. Diluted loss per share has not been presented in the accompanying financial statements, as the effect would be anti-dilutive.
(m) | Investment tax credits |
As a result of incurring scientific research and development expenditures, management has estimated that there will be non-refundable federal and refundable and non-refundable provincial investment tax credits receivable following the completion of an audit process by tax authorities. Investment tax credits are recorded when received or when there is reasonable assurance that the credits will be realized. Upon recognition, amounts will be recorded as a reduction of research and development expenditures.
(n) | Financial Instruments |
Financial assets include cash and cash equivalents, and amounts receivable which are measured at amortized cost. Amounts receivable include HST recoverable and other receivables. Financial liabilities include accounts payable and accrued liabilities which are measured at amortized cost.
(o) | Short term Employee Benefits |
Short-term employee benefit obligations including Company paid medical, dental and life insurance plans, are measured on an undiscounted basis and are expensed as the related service is provided.
(p) | Provisions |
A provision is recognized, if as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Presently the Company is not aware of the need for any material provisions nor has it recorded any except as otherwise disclosed in the financial statements.
(q) | Lease payments |
Payments made under operating leases are recognized as an expense on a straight-line basis over the term of the lease. Lease incentives received, if any, are recognized as an integral part of the total lease expense over the term of the lease.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(r) | Standards, Amendments and Interpretations Not yet Effective |
Following is a listing of amendments, revisions and new IFRS standards, which have been issued but not effective until annual periods beginning after December 31, 2018.
IFRS 16 Leases, to supersede the requirements in IAS 17, IFRIC-15 and SIC-17. The new standard is effective for annual periods beginning on or after January 1, 2019.
Management believes the new standard, effective January 1, 2019 will not have a material impact on future results and Financial Position of the Company.
Adoption Of New Accounting Standard
IFRS 9 Financial Instruments
Effective January 1, 2018, the Company adopted IFRS 9 Financial Instruments (IFRS 9) which replaced IAS 39, Financial Instruments: Recognition and Measurement (IAS 39). IFRS 9 includes revised guidance on the classification and measurement of financial assets and liabilities; new guidance for measuring impairment on financial assets; and new hedge accounting guidance.
On adoption of IFRS 9, the Company has classified the financial assets and financial liabilities held at January 1, 2018, based on the new classification requirements and the characteristics of each financial instrument as at the transition date. The new classification did not require a restatement of prior periods.
The following table shows the original classification under IAS 39 and the new classification under IFRS 9 for each of the Company’s financial assets and financial liabilities at January 1, 2018, (there is no change to the carrying amounts of the financial instruments from this change).
Financial Instrument | IAS 39 Classification | IFRS 9 | ||
Financial Asset | ||||
Cash and cash equivalents | Loans and receivables | Amortized cost | ||
Amounts receivable | Loans and receivables | Amortized cost | ||
Financial Liabilities | ||||
Accounts payable and accrued liabilities | Other financial liabilities | Amortized Cost |
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
3. | FURNITURE AND EQUIPMENT |
Computer Equipment | Furniture and Fixtures | Leasehold Improvements | Total | |||||||||||||
Cost | ||||||||||||||||
Balance at December 31, 2017 | $ | 83,880 | $ | 261,483 | $ | 172,601 | $ | 517,964 | ||||||||
Additions | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2018 | $ | 83,880 | $ | 261,483 | $ | 172,601 | $ | 517,964 | ||||||||
Amortization & Impairment Losses | ||||||||||||||||
Balance at December 31, 2017 | $ | 77,166 | $ | 261,483 | $ | 172,601 | $ | 511,250 | ||||||||
Amortization for the year | 6,714 | — | — | 6,714 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2018 | $ | 83,880 | $ | 261,483 | $ | 172,601 | $ | 517,964 | ||||||||
Net Book Value | ||||||||||||||||
At December 31, 2017 | $ | 6,714 | $ | — | $ | — | $ | 6,714 | ||||||||
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|
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|
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| |||||||||
At December 31, 2018 | $ | — | $ | — | $ | — | $ | — | ||||||||
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|
|
|
|
4. | PATENT RIGHTS |
Cost | ||||
Balance at December 31, 2017 | $ | 978,126 | ||
Additions | 420,587 | |||
|
| |||
Balance at December 31, 2018 | $ | 1,398,713 | ||
Amortization & Impairment Losses | ||||
Balance at December 31, 2017 | $ | 203,901 | ||
Amortization for the period | 22,327 | |||
|
| |||
Balance at December 31, 2018 | $ | 226,228 | ||
Net Book Value | ||||
At December 31, 2017 | $ | 774,225 | ||
|
| |||
At December 31, 2018 | $ | 1,172,485 | ||
|
|
5. | SHARE CAPITAL |
a) | Authorized: | unlimited number of common shares, no par | ||
Issued: | 21,675,849 (December 31, 2017: 12,686,723) |
Exercise prices of units, warrants and options are presented in Canadian currency as they are exercisable in Canadian dollars unless otherwise noted.
On June 19, 2018 a share consolidation of 1:30 was completed and the Company’s outstanding common shares were adjusted from 419,888,250 to 13,996,275. All references to the common shares, warrants and stock options, prior to June 20, 2018, have been updated in the notes to reflect the 1:30 reverse stock split.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
5. | SHARE CAPITAL (continued) |
On August 10, 2018 Titan Completed an offering of securities made pursuant to an agency agreement dated August 7, 2018 between the Company and Bloom Burton Securities Inc. (the “Agent”). The Company sold 7,679,574 Units under the Offering at a price of US $2.50 per Unit for gross proceeds of approximately $19,198,935 ($17,464,711 net of closing cost including cash commission of $1,343,925). Each Unit consisted of one Common Share of the Company and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share of the Company at an exercise price of US $3.20 and expiring August 10, 2023. The warrants were valued at $6,297,251 based on the value determined by the Black-Scholes model and the balance of $12,901,684 was allocated to common shares.
Pursuant to the agency agreement, in addition to the cash commission paid to the Agent, broker warrants were issued to the Agent which entitle the holder to purchase 537,570 Common Shares at a price of USD $2.50 per share prior to expiry on August 10, 2020.
On April 10, 2018 Titan completed an offering of securities made pursuant to an agency agreement dated April 3, 2018 between the Company and Bloom Burton Securities Inc. The Company sold 1,126,664 Units under the Offering at a price of CDN $9.00 per Unit for gross proceeds of approximately $8,035,941 ($7,211,320 net of closing costs including cash commission of $562,516). Each Unit consisted of one Common Share of the Company and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share of the Company at an exercise price of CDN $10.50 and expiring April 10, 2023. The warrants were valued at $4,553,700 based on the value determined by the Black-Scholes model and the balance of $3,482,241 was allocated to common shares.
Pursuant to the agency agreement, in addition to the cash commission paid to the Agent, broker warrants were issued to the Agent which entitle the holder to purchase 78,867 Common Shares at a price of CDN $9.00 per share prior to expiry on April 10, 2020.
On May 10, 2018 Titan announced the completion of the over-allotment option granted to Bloom Burton Securities Inc. as agent for its offering at a price of CDN $9.00 per Unit completed on April 10, 2018 was exercised and the Company sold an additional 168,888 Units at the offering price for additional gross proceeds of $1,189,856 ($1,100,238 net of closing costs including cash commission of $76,988). Each Unit consisted of one Common Share of the Company and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share of the Company at an exercise price of CDN $10.50 and expiring April 10, 2023. The warrants were valued at $658,387 based on the value determined by the Black-Scholes model and the balance of $531,469 was allocated to common shares.
Pursuant to the agency agreement, in addition to the cash commission paid to the Agent, broker warrants were issued to the Agent which entitle the holder to purchase 10,928 Common Shares at a price of CDN $9.00 per share prior to expiry on April 10, 2020.
During the year ended December 31, 2017, 1,755,141 warrants had been exercised for total proceeds of $9,438,577. The fair value of the exercised warrants had a value of $7,953,581 which was reclassed from warrant liability to common stock.
On December 5, 2017 Titan completed an offering of securities made pursuant to an agency agreement dated November 30, 2017 between the Company and Bloom Burton Securities Inc. The Company sold 1,533,333 Units under the Offering at a price of CDN $15.00 per Unit for gross proceeds of approximately $18,137,800 ($16,555,875 net of closing costs including cash commission of $1,246,185 paid in accordance with the terms of the agency agreement). Each Unit consisted of one Common Share of the Company and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share of the Company at an exercise price of CDN $18.00 and expiring December 5, 2022. The warrants were valued at $5,223,686 based on the value determined by the Black-Scholes model and the balance of $12,914,114 was allocated to common shares.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
5. | SHARE CAPITAL (continued) |
Pursuant to the agency agreement in addition to the cash commission paid to the Agent, broker warrants were issued to the Agent which entitle the holder to purchase 105,350 Common Shares at a price of CDN $15.00 per share prior to expiry on December 5, 2019.
On October 31, 2017 Titan completed the final closing of a private placement led by a group of U.S. robotic surgeons. 446,197 common shares of Titan were issued at a subscription price of CDN $7.50 per Common Share for gross proceeds of $2,677,326.
On June 29, 2017 Titan completed an offering of securities made pursuant to an agency agreement dated June 26, 2017 between the Company and Bloom Burton Securities Inc. The Company sold 1,612,955 Units under the Offering at a price of CDN $4.50 per Unit for gross proceeds of approximately $5,576,357 ($4,838,002 net of closing costs including cash commission of $382,689 paid in accordance with the terms of the agency agreement). Each Unit consisted of one Common Share of the Company and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share of the Company at an exercise price of CDN $6.00 and expiring June 29, 2022. The warrants were valued at $2,788,274 based on the value determined by the Black-Scholes model and the balance of $2,788,083 was allocated to common shares.
Pursuant to the agency agreement, in addition to the cash commission paid to the Agent, broker warrants were issued to the Agent which entitle the holder to purchase 109,533 Common Shares at a price of CDN $4.50 per share prior to expiry on June 29, 2019.
On July 21, 2017 Titan completed a second closing of an offering of securities made pursuant to an agency agreement dated June 26, 2017 between the Company and Bloom Burton Securities Inc. The Company sold an additional 370,567 Units under the Offering at a price of CDN $4.50 per Unit for gross proceeds of approximately $1,328,871 ($1,200,788 net of closing costs including cash commission of $93,021 paid in accordance with the terms of the agency agreement). Each Unit consisted of one Common Share of the Company and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share of the Company at an exercise price of CDN $6.00 and expiring June 29, 2022. The warrants were valued at $575,844 based on the value determined by the Black-Scholes model and the balance of $753,027 was allocated to common shares.
Pursuant to the agency agreement in addition to the cash commission paid to the Agent, broker warrants were issued to the Agent which entitle the holder to purchase 25,940 Common Share at a price of CDN $4.50 per share prior to expiry on June 29, 2019.
On March 16, 2017 Titan completed an offering of securities made pursuant to an agency agreement dated March 10, 2017 between the Company and Bloom Burton Securities Inc. The Company sold 715,573 Units under the Offering at a price of CDN $10.50 per Unit for gross proceeds of approximately $5,642,537 ($5,039,817 net of closing costs including cash commission of $394,316 paid in accordance with the terms of the agency agreement). Each Unit consisted of one Common Share of the Company and (i)one-half of one Common Share purchase warrant, each whole warrant entitling the holder thereof to acquire one Common Share of the Company at an exercise price of CDN $12.00 and expiring March 16, 2019, and (ii)one-half of one Common Share purchase warrant, each whole warrant entitling the holder thereof to acquire on Common Share of the Company at an exercise price of CDN $15.00 and expiring March 16, 2021. The warrants were valued at $1,297,810 based on the value determined by the Black-Scholes model and the balance of $4,344,727 was allocated to common shares.
Pursuant to the agency agreement, in addition to the cash commission paid to the Agent, broker warrants were issued to the Agent which entitle the holder to purchase 50,005 Common Shares at a price of CDN $10.50 per share prior to expiry on March 16, 2019.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
5. | SHARE CAPITAL (continued) |
On November 23, 2015 Titan closed a private placement of 143,009 Common Shares to Longtai Medical Inc. at a subscription price of CDN $36.90 per common share for gross proceeds of $4,000,000. Under the Agreement, Titan granted to Longtai exclusive rights to negotiate an exclusive marketing, sales and distribution agreement for Titan’s SPORT Surgical System in the Asia Pacific region. Longtai paid to Titan $2,000,000 as a deposit toward the Distributorship Agreement.
As the parties were not able to reach consensus as to the Distribution Agreement by the agreed upon date, the deposit became due for repayment to Longtai. On August 24, 2017 Titan completed a subscription agreement with Longtai for the equity conversion of Longtai’s $2.0 million deposit. Under the terms of the subscription agreement dated July 31, 2017, Titan issued to Longtai 563,067 Units at an assigned issue price of CDN $4.50 per Unit. Each Unit consists of one Common Share and one Common Share purchase warrant, with each warrant exercisable for one Common Share at an exercise price of CDN $6.00 per warrant and will expire August 24, 2022. The warrants were valued at $822,372 based on the value determined by the Black-Scholes model.
The common shares were valued at $1,887,411 based on the market value on August 24, 2017 of CDN $4.20. The warrant and the common share were valued at fair value in accordance with International Financial Reporting Interpretations Committee Interpretation #19-Extinguishing Financial Liabilities (“IFRIC 19”). A loss of $709,782 was incurred on extinguishment which is included in the Gain (Loss) on change in value of warrant liability in the statement of net and comprehensive loss.
b) | Warrants, Stock Options and Compensation Options |
Titan has reserved and set aside up to 10% of the issued and outstanding shares of Titan for granting of options to employees, officers, consultants and advisors. At December 31, 2018, 1,241,803 common shares (December 31, 2017: 677,063) were available for issue in accordance with the Company’s stock option plan. The terms of these options are determined by the Board of Directors. A summary of the status of the Company’s outstanding stock options as of December 31, 2018 and December 31, 2017 and changes during the periods ended on those dates is presented in the following table:
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||
Number of Stock Options | Weighted-average Exercise Price (CDN) | Number of Stock Options | Weighted-average Exercise Price (CDN) | |||||||||||||
Balance Beginning | 591,609 | $ | 21.30 | 240,075 | $ | 33.00 | ||||||||||
Granted | 372,866 | $ | 11.97 | 394,830 | $ | 15.60 | ||||||||||
Expired/Forfeited | (38,693 | ) | $ | 24.90 | (43,296 | ) | $ | 34.80 | ||||||||
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|
|
|
|
|
| |||||||||
Balance Ending | 925,782 | $ | 17.32 | 591,609 | $ | 21.30 | ||||||||||
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|
|
|
|
|
|
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
5. | SHARE CAPITAL (continued) |
The weighted-average remaining contractual life and weighted-average exercise price of options outstanding and of options exercisable as at December 31, 2018 are as follows:
Options Outstanding | ||||||||||||||
Exercise Price (CDN) | Number Outstanding | Weighted-average remaining contractual life (years) | Options Exercisable | |||||||||||
$ | 2.09 | 50,349 | 3.00 | 50,349 | ||||||||||
$ | 3.28 | 31,498 | 6.67 | 31,498 | ||||||||||
$ | 4.50 | 18,935 | 4.54 | 18,935 | ||||||||||
$ | 4.80 | 3,040 | 1.71 | 3,040 | ||||||||||
$ | 7.49 | 5,590 | 6.52 | 5,590 | ||||||||||
$ | 9.00 | 11,481 | 6.52 | 11,481 | ||||||||||
$ | 9.60 | 1,105 | 1.77 | 1,105 | ||||||||||
$ | 11.70 | 6,667 | 1.93 | 6,667 | ||||||||||
$ | 12.00 | 1,948 | 1.93 | 1,948 | ||||||||||
$ | 12.90 | 50,000 | 5.30 | 12,500 | ||||||||||
$ | 14.40 | 18,950 | 5.86 | 4,737 | ||||||||||
$ | 15.00 | 16,667 | 5.11 | 4,167 | ||||||||||
$ | 15.00 | 273,948 | 6.06 | — | ||||||||||
$ | 17.10 | 277,519 | 5.05 | 69,380 | ||||||||||
$ | 30.00 | 105,719 | 2.65 | 81,462 | ||||||||||
$ | 30.60 | 6,120 | 1.98 | 6,120 | ||||||||||
$ | 32.40 | 18,810 | 2.08 | 18,810 | ||||||||||
$ | 41.70 | 658 | 0.96 | 658 | ||||||||||
$ | 45.30 | 560 | 1.61 | 560 | ||||||||||
$ | 51.60 | 15,371 | 1.44 | 15,371 | ||||||||||
$ | 58.20 | 10,847 | 0.39 | 10,847 | ||||||||||
|
|
|
|
|
| |||||||||
925,782 | 4.82 | 355,225 | ||||||||||||
|
|
|
|
|
|
The weighted average exercise price of options outstanding is CDN $17.32 and CDN $18.84 for options that are exercisable. Since the December 18, 2018 options issued to consultants have an exercise price of USD $1.55, they have been converted at the December 18, 2018 close rate of 1.3461 or CDN $2.09.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
5. | SHARE CAPITAL (continued) |
Options are granted to Directors, Officers, Employees and Consultants at various times. Options are to be settled by physical delivery of shares.
Grant date/Person entitled | Number of Options | Vesting Conditions | Contractual life | |||||
January 17, 2017, option grants to Employees | 277,519 | Vest as to 1⁄4 of the total number of Options granted, every year from Option Date | 7 years | |||||
February 7, 2017 option grants to Employees | 16,667 | Vest as to 1/4 of the total number of Options granted, every year from Option Date | 7 years | |||||
April 17, 2017, option grants to Employees | 50,000 | Vest as to 1/4 of the total number of Options granted, every year from Option Date | 7 years | |||||
September 7, 2017, options granted to Consultants | 6,667 | Half vest in 3 months and the remaining half in 6 months | 3 years | |||||
September 7, 2017, options granted to Directors | 12,269 | immediately | 7 years | |||||
September 15,2017, options granted to Consultants | 3,040 | immediately | 3 years | |||||
October 6, 2017, options granted to Consultants | 1,105 | immediately | 3 years | |||||
November 8, 2017 option grants to Employees | 18,950 | Vest as to 1/4 of the total number of Options granted, every year from Option Date | 7 years | |||||
December 4, 2017, options granted to Consultants | 1,948 | immediately | 3 years | |||||
December 4, 2017, options granted to Consultants | 6,667 | Half vest immediately and the remaining half in 12 months | 3 years | |||||
January 19, 2018 option grants to Employees | 273,948 | Options will vest the earlier of commercialization or 3 years from grant date | 7 years | |||||
July 6, 2018, options granted to Directors | 17,071 | immediately | 7 years | |||||
August 29, 2018, options granted to Directors | 31,498 | immediately | 7 years | |||||
December 18, 2018, options granted to Consultants | 50,349 | immediately | 3 years |
Inputs for Measurement of Grant Date Fair Values
The grant date fair value of all share-based payment plans was measured based on the Black-Scholes formula. Expected volatility was estimated by considering historic average share price volatility. The inputs used in the measurement of fair values at grant date of the share-based option plan are as follows:
2018 | 2017 | |||||||
Fair Value at grant date (CDN) | $ | 5.99 | $ | 8.70 | ||||
Share price at grant date (CDN) | $ | 10.79 | $ | 14.75 | ||||
Exercise price (CDN) | $ | 11.97 | $ | 15.52 | ||||
Expected Volatility | 90.12% | 83.20% | ||||||
Option Life | 3 years | 3-4 years | ||||||
Expected dividends | nil | nil | ||||||
Risk-free interest rate | 1.90% | 1.06% | ||||||
(based on government bonds) |
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
5. | SHARE CAPITAL (continued) |
The following is a summary of outstanding warrants included in Shareholder’s Equity as at December 31, 2018 and December 31, 2017 and changes during the periods then ended.
December 31, 2018 | December 31, 2017 | |||||||||||||||
Number of Warrants | Amount | Number of Warrants | Amount | |||||||||||||
Opening Balance | 175,357 | $ | 741,917 | 188,381 | $ | 855,800 | ||||||||||
Expired during the year | ||||||||||||||||
Exercise Price CDN $1.25 | ||||||||||||||||
Expiry March 18, 2018 | (175,357 | ) | (741,917 | ) | — | — | ||||||||||
Expired during the year | ||||||||||||||||
Exercise Price CDN $1.77 | ||||||||||||||||
Expiry March 14, 2017 | — | — | (13,024 | ) | (113,883 | ) | ||||||||||
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|
|
|
|
| |||||||||
Ending Balance | — | $ | — | 175,357 | $ | 741,917 | ||||||||||
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|
|
6. | WARRANT LIABILTY |
December 31, 2018 | December 31, 2017 | |||||||||||||||
Number of Warrants | Amount | Number of Warrants | Amount | |||||||||||||
Opening Balance | 4,933,231 | $ | 17,849,460 | 2,581,703 | $ | 2,365,691 | ||||||||||
Issue of warrants expiring, March 16, 2019 | — | — | 357,787 | 572,326 | ||||||||||||
Issue of warrants expiring, March 16, 2021 | — | — | 357,787 | 725,484 | ||||||||||||
Issue of warrants expiring, June 29, 2022 | — | — | 1,983,521 | 3,364,118 | ||||||||||||
Issue of warrants expiring, August 24, 2022 | — | — | 563,067 | 822,372 | ||||||||||||
Issue of warrants expiring, December 5, 2022 | — | — | 1,533,333 | 5,223,686 | ||||||||||||
Issue of warrants expiring, April 10, 2023 | 1,295,554 | 5,212,087 | — | — | ||||||||||||
Issue of warrants expiring, August 10, 2023 | 7,679,574 | 6,297,251 | ||||||||||||||
Warrants exercised during the year | (6,500 | ) | (28,949 | ) | (1,755,141 | ) | (7,953,581 | ) | ||||||||
Warrants expired during the year | — | (688,826 | ) | — | ||||||||||||
Foreign exhange adjustment during the year | (984,462 | ) | — | 305,475 | ||||||||||||
Fair value adjustment during the year | (17,095,220 | ) | 12,423,889 | |||||||||||||
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|
|
|
| |||||||||
Ending Balance | 13,901,859 | $ | 11,250,167 | 4,933,231 | $ | 17,849,460 | ||||||||||
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|
|
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|
|
In addition to the warrants listed above, at December 31, 2018, the Company has issued, outstanding and exercisable, 786,183 broker unit warrants expiring between March 16, 2019 and August 10, 2020 (2017 – 272,650 broker unit warrants expiring between February 23, 2018 and December 5, 2019).
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
7. | INCOME TAXES |
a) | Current Income Taxes |
A reconciliation of combined federal and provincial corporate income taxes at the Company’s effective tax rate of 26.5% (2017 – 26.5%).
December 31, 2018 | December 31, 2017 | |||||||
Net Loss before income taxes | $ | (22,639,272 | ) | $ | (33,586,984 | ) | ||
Income taxes at statutory rates | $ | (5,999,407 | ) | $ | (8,900,551 | ) | ||
Tax effect of expenses not deductible for income tax purposes: | ||||||||
Tax/FX rate changes and other adjustments | — | (27,053 | ) | |||||
Permanent differences | (4,374,564 | ) | 3,975,072 | |||||
Unrecognized share issue costs | (354,072 | ) | (554,252 | ) | ||||
|
|
|
| |||||
Total tax recovery | (10,728,043 | ) | (5,506,784 | ) | ||||
Tax recovery not recognized | 10,728,043 | 5,506,784 | ||||||
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|
| |||||
$ | — | $ | — | |||||
|
|
|
|
b) | Deferred Income Taxes |
Deferred income tax assets and liabilities result primarily form differences in recognition of certain timing differences that give rise to the Company’s future tax assets (liabilities) and are as follows:
December 31, 2018 | December 31, 2017 | |||||||
Non-Capital Losses | $ | 47,679,897 | $ | 37,012,271 | ||||
Qualifying Research and Development expenditures | 1,493,309 | 1,493,309 | ||||||
Share issue costs and other | 1,622,533 | 1,562,116 | ||||||
|
|
|
| |||||
Total tax assets | 50,795,739 | 40,067,696 | ||||||
Tax assets not recognized | (50,795,739 | ) | (40,067,696 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | $ | — | $ | — | ||||
|
|
|
|
In assessing the realizability of deferred tax assets, management considers whether it is probable that some or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Management, based on IFRS criteria, has determined, at this time, not to recognize its deferred tax assets.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
7. | INCOME TAXES (continued) |
c) | Losses carried forward |
The Company has non-capital losses of approximately $179,924,139 available to reduce future income taxes. The non-capital losses expire approximately as follows:
2027 | $ | 786,557 | ||
2028 | 169,954 | |||
2029 | 186,708 | |||
2030 | 2,003,594 | |||
2031 | 12,735,836 | |||
2032 | 7,260,729 | |||
2033 | 8,856,497 | |||
2034 | 15,819,741 | |||
2035 | 43,934,918 | |||
2036 | 28,310,254 | |||
2037 | 19,604,159 | |||
2038 | 40,255,192 | |||
|
| |||
$ | 179,924,139 | |||
|
|
The Company has accumulated Qualifying Research and Development expenses of $5,635,128 from prior years research and development. These expenditures may be carried forward indefinitely and used to reduce taxable income in future years.
As a result of a Canada Revenue Agency (CRA) audit completed in 2017 and 2016, regarding Titan’s 2012 and 2011 SR&ED claim the 2012 loss of $6,517,436 has been adjusted to $7,260,729 and the 2011 loss of $9,423,694 has been adjusted to $12,735,836. The qualifying SR&ED expenditures has also been adjusted from $9,439,430 to $5,635,128. CRA concluded that the claimed work did not satisfy the SR&ED criteria. Titan is appealing this decision by CRA.
d) | Investment Tax Credits |
At December 31, 2018 the Company has $1,167,560 (2017 – $1,167,560) of unclaimed investment tax credits available to reduce federal income taxes payable in future years. If not utilized, these investment tax credits will start expiring in 2028. The amounts have been adjusted to reflect changes due to the CRA audit.
At December 31, 2018 the Company has $237,997 (2017 – $237,997) of unclaimed Ontario Research and Development Tax Credit available to reduce Ontario income taxes payable in future years. If not utilized, this credit will start expiring in 2029. The amounts have been adjusted to reflect changes due to the CRA audit.
8. | COMMITMENTS |
Effective November 30, 2018 the Company’s Ancaster, Canada lease and sublease which was to expire January 31, 2019 were terminated. This space was leased at CDN $4,673 per month and sublet for CDN $4,099 per month.
The corporate office is located at 170 University Avenue, Toronto, Canada. Effective October 30, 2017 the Company extended its lease term for a period of 22 months, commencing February 1, 2018 at a monthly rent of CDN $9,969. On November 12, 2018 the lease was amended to reduce the square footage leased from 2,750 to 1,495, reducing the monthly rent to CDN $5,419.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
8. | COMMITMENTS (continued) |
As part of its program of research and development around the SPORT Surgical System, the Company has outsourced certain aspects of the design and development to a U.S. based technology and development company. At December 31, 2018 $12,756,962 in purchase orders remain outstanding ( 2017 – $4,742,928). The Company also has on deposit with this same U.S. supplier $8,541,630 to be applied against future invoices (2017 – $2,172,943).
9. | RELATED PARTY TRANSACATIONS |
During the year ended December 31, 2018, transactions between the Company directors, officers and other related parties were related to compensation matters in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Compensation to the Executive Officers amounted to $1,552,367 for the year ended December 31, 2018 compared to $1,587,667 for the year ended December 31, 2017.
Officers and Directors of the Company control approximately 0.30% of the Company
December 31, 2018 | December 31, 2017 | |||||||||||||||
Number of Shares | % | Number of Shares | % | |||||||||||||
John Barker | 31,714 | 0.15 | 23,715 | 0.19 | ||||||||||||
Martin Bernholtz | — | — | 102,383 | 0.81 | ||||||||||||
David McNally | 4,167 | 0.02 | 1,667 | 0.01 | ||||||||||||
Stephen Randall | 21,643 | 0.10 | 11,910 | 0.09 | ||||||||||||
John Schellhorn | 294 | — | 294 | — | ||||||||||||
Bruce Wolff | 7,610 | 0.03 | 2,010 | 0.02 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total | 65,428 | 0.30 | 141,979 | 1.12 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Shares Outstanding | 21,675,849 | 100 | % | 12,686,723 | 100 | % |
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
10. | FINANCIAL INSTRUMENTS |
The Company’s financial instruments consist of cash and cash equivalents, amounts receivable and accounts payable and accrued liabilities. The fair value of these financial instruments approximates their carrying values, unless otherwise noted, due to the short maturities of these instruments or the discount rate applied. Warrant liabilities are valued at fair value as described in note 2 (h).
The Company’s risk exposures and their impact on the Company’s financial instruments are summarized below:
a) | Credit risk |
The Company’s credit risk is primarily attributable to cash and cash equivalents and amounts receivable. The Company has no significant concentration of credit risk arising from operations. Cash and cash equivalents are held with reputable financial institutions, from which management believes the risk of loss to be remote. Financial instruments included in amounts receivable consists of HST tax due from the Federal Government of Canada and interest receivable from interest saving account and short-term promissory notes. Management believes that the credit risk concentration with respect to financial instruments included in amounts receivable is remote.
b) | Liquidity risk |
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due and when appropriate will scale back its operations. As at December 31, 2018, the Company had cash and cash equivalents of $11,471,243 (December 31, 2017 -$26,130,493) to settle current liabilities of $6,447,888 (December 31, 2017 – $2,218,352) excluding warrant liabilities of $11,250,167 (December 31, 2017 – $17,489,460).
The Company currently does not generate any revenue or income (other than interest income on its cash balances) and accordingly, it is (and it will be for the foreseeable future) dependent primarily upon equity financing for any additional funding required for development and operating expenses.
The ability of the Company to arrange such financing in the future will depend in part upon prevailing capital market conditions and the business success of the Company. There can be no assurance that the Company will be successful in its efforts to arrange additional financing on terms satisfactory to the Company. If additional financing is raised by the issuance of shares or convertible securities from treasury, control of the Company may change, and shareholders may suffer additional dilution. If adequate funds are not available, or are not available on acceptable terms, the Company may not be able to take advantage of opportunities, or otherwise to continue its technology development program at its current pace.
The Company expects that approximately US $45 million, in incremental funding will be required for fiscal 2019 to maintain its currently anticipated pace of product development. If additional funding is not available, the pace of the Company’s development plan may be reduced.
c) | Market risk |
Market risk is the risk of loss that may arise from changes in market factors such as interest rates and foreign exchange rates.
(i) | Interest rate risk |
The Company has cash balances and no interest-bearing debt. The Company’s current policy is to invest excess cash in interest savings accounts and short-term promissory notes. The Company periodically monitors the investments it makes and is satisfied with the credit risk of its bank.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
10. | FINANCIAL INSTRUMENTS (continued) |
(ii) | Foreign currency risk |
The company’s functional currency is the U.S. dollar. Expenditures transacted in foreign currency are converted to U.S. dollars at the rate in effect when the transaction is initially booked. The gain or loss on exchange, when the transaction is settled, is booked to the Statement of Net and Comprehensive Loss. Management acknowledges that there is a foreign exchange risk derived from currency conversion and believes this risk to be low as the Company now maintains a minimum balance of Canadian dollars.
d) | Sensitivity analysis |
Cash equivalents include cash balances and amounts on deposit in interest savings account and short-term promissory notes. Sensitivity to a plus or minus 1% change in interest rates could affect annual net loss by $113,711 (December 31,2017—$257,762) based on the current level of cash invested in cash equivalents.
A strengthening of the U.S. dollar at December 31, 2018, as indicated below, against Canadian current assets and accounts payable and accrued liabilities including warrant liability of CDN $277,228 and $5,520,457 respectively (December 31, 2017—$509,371 and $22,813,047) would result in increased equity and an increased profit for the period of $192,059 (December 31, 2017, increased equity and an increase profit of $888,913) as shown on the chart below. This analysis is based on foreign currency exchange rate variances that the Company considers to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular, interest rates, remain constant. The analysis is performed on the same basis for December 31, 2017.
December 31, 2018 | Profit of (Loss) | |||
5% strengthening | ||||
CDN Current assets | $ | (10,155 | ) | |
CDN Accounts payable and accrued liabilities | $ | 202,214 | ||
|
| |||
$ | 192,059 | |||
|
| |||
December 31, 2017 | ||||
5% strengthening | ||||
CDN Current assets | $ | (20,301 | ) | |
CDN Accounts payable and accrued liabilities | $ | 909,214 | ||
|
| |||
$ | 888,913 | |||
|
|
A weakening of the U.S. dollar against the Canadian dollar at December 31, 2018 and December 31, 2017 would have had the equal but opposite effect on the above currencies to the amount shown above, on the basis that all other variables remain constant.
11. | SEGMENTED REPORTING |
The Company operates in a single reportable operating segment – the research and development of SPORT, the next generation of surgical robotic platform.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
12. | CAPITAL MANAGEMENT |
The Company’s capital is composed of shareholders’ equity. The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, to support the development of its SPORT Surgical Platform (SPORT). The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the SPORT. The Company has further progress to make in the development of the SPORT and anticipates that the cost of completion will exceed its current resources. Accordingly, the Company will be dependent on external financing to fund a portion of its future activities. To carry out the completion of the SPORT and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company’s approach to capital management during the year ended December 31, 2018. The Company is not subject to externally imposed capital requirements.
13. | EVENTS AFTER THE REPORTING DATE |
This note has been updated to report on events from January 1, 2019 to March 30, 2020.
COVID-19
Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods.
March 2020 Offering
On March 25, 2020, the Company entered into definitive agreements with institutional investors that provide for the purchase and sale of 7,000,000 common shares of the Company (the “Common Shares”) at a per share purchase price of US $0.17 per Common Share and 3,500,000 Common Share purchase warrants (each, a “Warrant”), resulting in total gross proceeds of approximately $1.2 million (approximately $0.885 million net of closing costs including cash commission described below). Each whole Warrant is exercisable to purchase one Common Share (a “Warrant Share”) at an exercise price of US $0.19 per Common Share for a period of five years following the date of closing of the offering. The warrants were valued at $618,100 based on the value determined by the Black-Scholes model and the balance of $571,900 was allocated to common shares.
H.C. Wainwright & Co.(“Wainwright”) acted as the exclusive placement agent for the offering. Pursuant to the placement agency agreement, in addition to the cash commission paid to Wainwright of $83,300, broker warrants were issued to Wainwright which entitle the holder to purchase 490,000 Common Shares at a price of US $0.2125 per share prior to expiry on March 25, 2025.
Titan intends to use the net proceeds from the offering for general corporate purposes including: resuming the development of its single-port robotic surgical system, instruments and accessories; funding working capital (including the reduction of outstanding payables); and capital expenditures.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
Stock Options
On January 28, 2020, the Company issued 25,765 stock options with an exercise price of CDN $0.657 to a director in exchange for services rendered. The options vest immediately and have a contractual life of 7 years.
Equity Transaction
On January 3, 2020, the Company announced that Cambridge Design Partnership Ltd. (“Cambridge”), has subscribed for common shares of the Company. The Company issued 501,148 Common Shares at a unit price of $0.50 for satisfaction of the trade payable with Cambridge of $250,574 which has been included in capital.
Aspire Transaction
On December 23, 2019, the Company entered into a common share purchase agreement (the “Aspire Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) whereby Aspire Capital committed to purchase up to $35 million of common shares of Titan (“Common Shares”) at Titan’s request from time to time, until June 23, 2022 (the “Aspire Transaction”). On commencement of the Aspire Agreement, Titan issued to Aspire Capital 973,000 Common Shares, then issued and outstanding as consideration for entering into the Aspire Agreement. The value of the Common Shares issued of $423,440, was been included in capital, offset by a fee valued at the same amount plus $35,122 other costs incurred pursuant to the Aspire Transaction. In the first quarter of 2020, Titan sold Common Shares to Aspire pursuant to the Aspire Agreement as outlined in the following table:
Grant Date | Common shares issued | Value | ||||||
January 3, 2020 | 500,000 | $ | 219,600 | |||||
January 6, 2020 | 500,000 | 229,300 | ||||||
January 8, 2020 | 400,000 | 195,160 | ||||||
January 10, 2020 | 500,000 | 247,550 | ||||||
January 17, 2020 | 600,000 | 303,000 | ||||||
January 23, 2020 | 600,000 | 295,320 | ||||||
February 6, 2020 | 600,000 | 282,000 | ||||||
February 13, 2020 | 708,048 | 300,000 | ||||||
|
|
|
| |||||
4,408,048 | $ | 2,071,930 | ||||||
|
|
|
|
First Aspire Transaction
On August 29, 2019, the Company entered into a common share purchase agreement (the “First Aspire Agreement”) with Aspire Capital whereby Aspire Capital committed to purchase up to $35 million of common shares of Titan at Titan’s request from time to time, until February 28, 2022. On commencement of the Aspire Agreement, Titan immediately sold to Aspire 1,777,325 Common Shares, representing 5.3% of the Common Shares then issued and outstanding, at a price of US $1.6879 per Common Share for gross proceeds of $3.0 million and issued to Aspire Capital 639,837 Common Shares, representing 1.9% of the Common Shares then issued and outstanding as consideration for entering into the First Aspire Agreement. Northland Securities, Inc. acted as the Company’s agent and financial advisor in connection with the offering and pursuant to an agency agreement, was paid a cash fee of $160,000. The gross proceeds of $3.0 million, net of costs and fees of $417,113 has been included in capital. Subsequent to August 29, 2019 and subject to the First Aspire Agreement, the Company issued Common Shares to Aspire as outlined in the following table:
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
Grant Date | Common shares issued | Value | ||||||
August 30, 2019 | 2,417,162 | $ | 3,000,000 | |||||
November 8, 2019 | 100,000 | 42,560 | ||||||
November 8, 2019 | 100,000 | 42,560 | ||||||
November 12, 2019 | 100,000 | 42,970 | ||||||
November 12, 2019 | 100,000 | 42,000 | ||||||
November 13, 2019 | 100,000 | 42,970 | ||||||
November 14, 2019 | 300,000 | 128,910 | ||||||
November 15, 2019 | 2,500,000 | 1,074,250 | ||||||
November 19, 2019 | 2,067,282 | 888,311 | ||||||
|
|
|
| |||||
7,784,444 | $ | 5,304,531 | ||||||
|
|
|
|
March 2019 Offering
On March 21, 2019, Titan completed an offering of securities made pursuant to an agency agreement dated March 18, 2019 between the Company and Bloom Burton Securities Inc. (the “Agent”). The Company sold 8,455,882 Units under the Offering at a price of US $3.40 per Unit for gross proceeds of approximately $28,750,000 ($25,426,744 net of closing cost including cash commission of $2,012,500). Each Unit consisted of one Common Share of the Company and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share of the Company at an exercise price of US $4.00 and expiring March 21, 2024. The warrants were valued at $15,897,059 based on the value determined by the Black-Scholes model and the balance of $12,852,941 was allocated to common shares.
Pursuant to the agency agreement, in addition to the cash commission paid to the Agent, broker warrants were issued to the Agent which entitle the holder to purchase 591,911 Common Shares at a price of US $3.40 per share prior to expiry on March 21, 2021. The broker warrants were valued using the Black-Scholes model and the value of $864,190 was accounted for as an increase in the closing costs and allocated between the shares and the warrants.
During the quarter ended March 31, 2019, 1,018,506 warrants were exercised for total proceeds of $3,259,219. The fair value of the exercised warrants was $3,742,824 which was reclassed from warrant liability to common stock. No additional warrants were exercised during 2019.
Stock Options and Compensation Options
On May 29, 2019, the shareholders of Titan approved an increase of its reserve for options from 10% and set aside up to 15% of the issued and outstanding shares of Titan for granting of options to employees, officers, consultants and advisors. At December 31, 2019, 5,986,152 common shares (December 31, 2018: 1,241,803) were available for issue in accordance with the Company’s stock option plan. The terms of these options are determined by the Board of Directors.
On May 29, 2019, the shareholders approved amendments to the exercise prices of options previously granted to Executive Officers and Other Employees of the Company under the Option Plan. The Exercise price was amended to be US $3.40 (CDN $4.54) per option, being the higher of the March 21, 2019 offering price of US $3.40 per share and the five-day volume weighted average price as determined as of the close of business on May 28, 2019.
TITAN MEDICAL INC.
Notes to the Financial Statements
December 31, 2018 and 2017
(In U.S. Dollars)
Options are granted to Directors, Officers, Employees and Consultants at various times. Options are to be settled by physical delivery of shares. Options and the terms of each issue for the period from January 1, 2019 to date are outlined below.
Grant date/ Recipient | Number of Options | Vesting Conditions | Contractual Life | |||||
February 14, 2019, options granted to a Consultant | 40,000 | Options may vest over a 15-month vesting schedule | Cancelled | |||||
May 29, 2019, options granted to a Director | 253,000 | Options vest over a specified vesting period not exceeding 4 years | 7 years | |||||
June 28, 2019, options granted to an Employee | 10,000 | Options vest as to 1/3 of the total number of Options granted, every year from Grant Date | 7 years | |||||
July 18, 2019, options granted to a Director | 25,719 | Options vest immediately | 7 years | |||||
July 19, 2019, options granted to an Employee | 467,255 | Options vest as to 1/4 of the total number of Options granted, every year from Grant Date | 7 years | |||||
July 19, 2019, options granted to a Consultant | 2,165 | Options vest as to 1/3 of the total number of Options granted, every year from Grant Date | 7 years | |||||
July 19, 2019, options granted to a Director | 41,273 | Options vest immediately | 7 years | |||||
September 9, 2019, options granted to a Consultant | 40,000 | Options vest over a 15-month vesting schedule subject to achieving certain milestones. | 2.5 years |
Note | March 31, 2020 | December 31, 2019 | |||||||
Assets | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 1,760,219 | $ | 814,492 | |||||
Amounts receivable | 99,400 | 84,097 | |||||||
Deposits | 8 | 481,400 | 481,400 | ||||||
Prepaid expense | 180,730 | 369,453 | |||||||
Total Current Assets | $ | 2,521,749 | $ | 1,749,442 | |||||
- | |||||||||
Right of use assets - Leases | 3 | 24,709 | 30,394 | ||||||
- | |||||||||
Patent Rights | 4 | 1,649,465 | 1,601,745 | ||||||
- | |||||||||
Total Assets | $ | 4,195,923 | $ | 3,381,581 | |||||
Liabilities | |||||||||
Current Liabilities: | |||||||||
Accounts payable and accrued liabilities | 5 | $ | 10,184,977 | $ | 11,412,896 | ||||
Current portion of lease liability | 3 | 25,126 | 21,071 | ||||||
Warrant liability | 6 | 2,373,057 | 3,621,444 | ||||||
Total Current Liabilities | $ | 12,583,160 | $ | 15,055,411 | |||||
Long-term lease liability | 3 | $ | - | $ | 8,001 | ||||
Total Liabilities | $ | 12,583,160 | $ | 15,063,412 | |||||
Shareholders' Equity / (Deficiency) | |||||||||
Share Capital | 7 | $ | 198,693,476 | $ | 194,859,415 | ||||
Contributed Surplus | 8,532,103 | 8,303,527 | |||||||
Deficit | (215,612,816 | ) | (214,844,773 | ) | |||||
Total Deficiency | $ | (8,387,237 | ) | $ | (11,681,831 | ) | |||
Total Liabilities and Deficiency | $ | 4,195,923 | $ | 3,381,581 | |||||
Going Concern (Note 1(d)) | |||||||||
Commitments (Note 8) | |||||||||
Subsequent events (Note 10) |
"signed" | "signed" | ||
Charles Federico | David McNally | ||
Chairman | President and CEO |
Three Months Ended | Three Months Ended | ||||||||
Note | March 31, 2020 | March 31, 2019 | |||||||
Revenue: | $ | - | $ | - | |||||
Expenses: | |||||||||
Amortization | $ | 14,095 | $ | 6,175 | |||||
Consulting fees | 112,125 | 269,429 | |||||||
Stock based compensation | 7b | 228,576 | 251,357 | ||||||
Insurance | 123,162 | 118,489 | |||||||
Management salaries and fees | 541,595 | 648,586 | |||||||
Marketing and investor relations | 8,644 | 106,189 | |||||||
Office and general | 139,887 | 117,271 | |||||||
Professional fees | 358,486 | 103,385 | |||||||
Rent | 7,241 | 12,236 | |||||||
Research and Development | 46,119 | 14,408,612 | |||||||
Travel | 11,138 | 67,364 | |||||||
Interest charges | 212,697 | - | |||||||
Foreign exchange (gain) | (73,503 | ) | (107,642 | ) | |||||
$ | 1,730,262 | $ | 16,001,451 | ||||||
Finance Income (cost): | |||||||||
Interest | $ | 1,743 | $ | 23,031 | |||||
Gain (loss) on change in fair value of warrants | 6 | 1,117,476 | (10,476,625 | ) | |||||
Warrant liability issue cost | (157,000 | ) | (1,827,835 | ) | |||||
$ | 962,219 | $ | (12,281,429 | ) | |||||
Net and Comprehensive Loss For the Period | $ | 768,043 | $ | 28,282,880 | |||||
Basic and Diluted Loss Per Share | $ | (0.02 | ) | $ | (1.22 | ) | |||
Weighted Average Number of Common Shares | |||||||||
Basic and Diluted | 44,272,288 | 23,185,888 |
Note | Share Capital Number | Share Capital Amount | Contributed Surplus | Deficit | Total Equity / (Deficiency) | |||||||||||||||||
Balance - December 31, 2018 | 21,675,849 | $ | 170,502,394 | $ | 6,652,409 | $ | (172,937,694 | ) | $ | 4,217,109 | ||||||||||||
Issued pursuant to agency agreement | 7a | 8,455,882 | 13,717,131 | - | - | 13,717,131 | ||||||||||||||||
Share issue expense | - | (1,495,501 | ) | - | - | (1,495,501 | ) | |||||||||||||||
Warrants exercised during the period | 7a | 1,018,506 | 7,002,043 | - | - | 7,002,043 | ||||||||||||||||
Stock based compensation | 7b | - | - | 251,357 | - | 251,357 | ||||||||||||||||
Net and Comprehensive loss | - | - | - | (28,282,880 | ) | (28,282,880 | ) | |||||||||||||||
Balance - March 31, 2019 | 31,150,237 | $ | 189,726,067 | $ | 6,903,766 | $ | (201,220,574 | ) | $ | (4,590,741 | ) | |||||||||||
Balance - December 31, 2019 | 39,907,681 | $ | 194,859,415 | $ | 8,303,527 | $ | (214,844,773 | ) | $ | (11,681,831 | ) | |||||||||||
Issued pursuant to agency agreement | 7a | 11,909,196 | 3,037,204 | - | - | 3,037,204 | ||||||||||||||||
Share issue expense | - | $ | (214,263 | ) | - | - | (214,263 | ) | ||||||||||||||
Warrants exercised during the period | 7a | 2,400,000 | $ | 1,011,120 | - | - | 1,011,120 | |||||||||||||||
Stock based compensation | 7b | - | - | $ | 228,576 | - | 228,576 | |||||||||||||||
Net and Comprehensive loss | - | - | - | $ | (768,043 | ) | (768,043 | ) | ||||||||||||||
Balance - March 31, 2020 | 54,216,877 | $ | 198,693,476 | $ | 8,532,103 | $ | (215,612,816 | ) | $ | (8,387,237 | ) |
Three Months Ended | Three Months Ended | ||||||||
Note | March 31, 2020 | March 31, 2019 | |||||||
- | |||||||||
Cash provided by (used in): | |||||||||
Operating activities: | |||||||||
Net loss for the period | $ | (768,043 | ) | $ | (28,282,880 | ) | |||
Items not involving cash: | |||||||||
- | |||||||||
Amortization | 14,095 | 6,175 | |||||||
Stock based compensation | 7(b) | 228,576 | 251,357 | ||||||
Other share compensation | - | - | |||||||
Warrant liability-fair value adjustment | 6 | (1,117,476 | ) | 10,476,625 | |||||
Warrant liability-foreign exchange adjustment | 6 | (51,091 | ) | (106,057 | ) | ||||
Non-cash issuance costs | 26,240 | - | |||||||
Non-cash settlement included in payables | 250,574 | - | |||||||
Changes in non-cash working capital items: | |||||||||
Amounts receivable, prepaid expenses and deposits | 173,420 | (1,577,929 | ) | ||||||
Accounts payable and accrued liabilities | 5 | (1,227,919 | ) | 47,756 | |||||
Cash used in operating activities | $ | (2,471,624 | ) | $ | (19,184,953 | ) | |||
Financing activities: | |||||||||
Net cash proceeds from issuance of common shares and warrants | 3,477,427 | 31,377,908 | |||||||
Repayment of lease liabilities | 3 | (3,946 | ) | - | |||||
Cash provided by financing activities | $ | 3,473,481 | $ | 31,377,908 | |||||
Investing Activities: | |||||||||
Cost of Patents | (56,130 | ) | (53,758 | ) | |||||
Cash used in investing activities | $ | (56,130 | ) | $ | (53,758 | ) | |||
Increase in cash and cash equivalents | 945,727 | 12,139,197 | |||||||
Cash and cash equivalents, beginning of the period | 814,492 | 11,471,243 | |||||||
Cash and cash equivalents, end of the period | $ | 1,760,219 | $ | 23,610,440 | |||||
Cash and cash equivalents comprise: | |||||||||
Cash | $ | 1,495,982 | $ | 582,622 | |||||
Cash equivalents | 264,237 | 23,027,818 | |||||||
$ | 1,760,219 | $ | 23,610,440 |
1. | DESCRIPTION OF BUSINESS |
(a) | Statement of Compliance |
(b) | Basis of Measurement |
(c) | Functional and Presentation Currency |
(d) | Going Concern |
(e) | Use of Estimates and Judgements |
1. | DESCRIPTION OF BUSINESS (continued) |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Warrant Liability |
(b) | Fair Value Measurement |
3. | LEASE ASSETS |
For the three months ended March 31, 2020 | Cost | Accumulated Amortization | Net Book Value | |||||||||
Balance at December 31, 2019 | $ | 34,172 | $ | (3,778 | ) | $ | 30,394 | |||||
Additions during the period | - | - | - | |||||||||
Amortization in the period | - | (5,685 | ) | (5,685 | ) | |||||||
Balance at March 31, 2020 | $ | 34,172 | $ | (9,463 | ) | $ | 24,709 |
4. | PATENT RIGHTS |
For the three months ended March 31, 2020 | Cost | Accumulated Amortization & Impairment Losses | Net Book Value | |||||||||
Balance at December 31, 2019 | $ | 1,856,750 | $ | (255,005 | ) | $ | 1,601,745 | |||||
Additions during the quarter | 56,130 | - | 56,130 | |||||||||
Amortization in the quarter | - | (8,410 | ) | (8,410 | ) | |||||||
Balance at March 31, 2020 | $ | 1,912,880 | $ | (263,415 | ) | $ | 1,649,465 | |||||
Balance at December 31, 2018 | $ | 1,398,713 | $ | (226,228 | ) | $ | 1,172,485 | |||||
Additions during the quarter | 53,758 | - | 53,758 | |||||||||
Amortization in the quarter | - | (6,175 | ) | (6,175 | ) | |||||||
Balance at March 31, 2019 | $ | 1,452,471 | $ | (232,403 | ) | $ | 1,220,068 |
5. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
6. | WARRANT LIABILITY |
Three Months Ended | Year Ended | |||||||||||||||
March 31, 2020 | December 31, 2019 | |||||||||||||||
Number of Warrants | Amount | Number of Warrants | Amount | |||||||||||||
Opening Balance | 21,203,411 | $ | 3,621,444 | 13,901,859 | $ | 11,250,167 | ||||||||||
Issue of warrants expiring, March 21, 2024 | - | - | 8,455,882 | 15,897,059 | ||||||||||||
Issue of warrants expiring, March 27, 2025 | 3,500,000 | 475,300 | - | - | ||||||||||||
Warrants exercised during the period | (2,400,000 | ) | (555,120 | ) | (1,018,506 | ) | (3,742,824 | ) | ||||||||
Warrants expired during the period | - | - | (135,824 | ) | - | |||||||||||
Foreign exchange adjustment during the period | - | (51,091 | ) | - | 17,687 | |||||||||||
Fair value adjustment during the period | - | (1,117,476 | ) | - | (19,800,645 | ) | ||||||||||
Ending Balance | 22,303,411 | $ | 2,373,057 | 21,203,411 | $ | 3,621,444 |
7. | SHARE CAPITAL |
a) | Authorized: | unlimited number of common shares, no par |
Issued: | 54,216,877 (December 31, 2019: 39,907,681) |
7. | SHARE CAPITAL (continued) |
Grant Date | Common shares issued | Value | |||||||
January 3, 2020 | 500,000 | $ | 219,600 | ||||||
January 6, 2020 | 500,000 | 229,300 | |||||||
January 8, 2020 | 400,000 | 195,160 | |||||||
January 10, 2020 | 500,000 | 247,550 | |||||||
January 17, 2020 | 600,000 | 303,000 | |||||||
January 23, 2020 | 600,000 | 295,320 | |||||||
February 6, 2020 | 600,000 | 282,000 | |||||||
February 13, 2020 | 708,048 | 300,000 | |||||||
�� | |||||||||
4,408,048 | $ | 2,071,930 |
7. | SHARE CAPITAL (continued) |
Grant Date | Common shares issued | Value | ||||||
August 30, 2019 | 2,417,162 | $ | 3,000,000 | |||||
November 8, 2019 | 100,000 | 42,560 | ||||||
November 8, 2019 | 100,000 | 42,560 | ||||||
November 12, 2019 | 100,000 | 42,970 | ||||||
November 12, 2019 | 100,000 | 42,000 | ||||||
November 13, 2019 | 100,000 | 42,970 | ||||||
November 14, 2019 | 300,000 | 128,910 | ||||||
November 15, 2019 | 2,500,000 | 1,074,250 | ||||||
November 19, 2019 | 2,067,282 | 888,311 | ||||||
7,784,444 | $ | 5,304,531 |
b) | Stock Options and Compensation Options |
7. | SHARE CAPITAL (continued) |
Three months ended March 31, 2020 | Year Ended December 31, 2019 | |||||||||||||||
Number of Stock Options(1) | Weighted average Exercise Price (CDN) | Number of Stock Options(1) | Weighted average Exercise Price (CDN) | |||||||||||||
Balance Beginning | 860,379 | $ | 5.89 | 875,433 | $ | 18.20 | ||||||||||
Granted | 25,765 | 0.66 | 35,719 | 4.54 | ||||||||||||
Expired/Forfeited | - | - | (50,773 | ) | 31.79 | |||||||||||
Balance Ending | 886,144 | $ | 5.74 | 860,379 | $ | 5.89 |
Three months ended March 31, 2020 | Year Ended December 31, 2019 | |||||||||||||||
Number of Stock Options | Weighted average Exercise Price (USD) | Number of Stock Options | Weighted average Exercise Price (USD) | |||||||||||||
Balance Beginning | 854,042 | $ | 2.65 | 50,349 | $ | 1.55 | ||||||||||
Granted | - | - | 843,693 | 2.72 | ||||||||||||
Expired/Forfeited | (467,255 | ) | 2.20 | (40,000 | ) | 3.72 | ||||||||||
Balance Ending | 386,787 | $ | 3.19 | 854,042 | $ | 2.65 |
1. | After giving consideration for 30:1 share consolidation effected June 20, 2018. |
7. | SHARE CAPITAL (continued) |
Canadian Dollar Denominated Options | ||||||||||||
Exercise Price (CDN) | Number Outstanding | Weighted-average remaining contractual life (years) | Options Exercisable | |||||||||
$0.66 | 25,765 | 6.83 | 25,765 | |||||||||
$3.28 | 31,498 | 5.42 | 31,498 | |||||||||
$4.50 | 18,936 | 3.03 | 18,936 | |||||||||
$4.54 | 743,122 | 3.99 | 370,354 | |||||||||
$4.80 | 3,040 | 0.46 | 3,040 | |||||||||
$7.49 | 5,590 | 5.27 | 5,590 | |||||||||
$9.00 | 11,481 | 5.27 | 11,481 | |||||||||
$9.60 | 1,105 | 0.52 | 1,105 | |||||||||
$11.70 | 6,667 | 0.69 | 6,667 | |||||||||
$12.00 | 1,948 | 0.68 | 1,948 | |||||||||
$30.00 | 28,260 | 1.40 | 28,260 | |||||||||
$30.60 | 2,096 | 0.73 | 2,096 | |||||||||
$32.40 | 810 | 0.83 | 810 | |||||||||
$45.30 | 560 | 0.36 | 560 | |||||||||
$51.60 | 5,266 | 0.19 | 5,268 | |||||||||
886,144 | 3.96 | 513,378 | ||||||||||
US Dollar Denominated Options | ||||||||||||
Exercise Price (USD) | Number Outstanding | Weighted-average remaining contractual life (years) | Options Exercisable | |||||||||
$1.55 | 50,349 | 1.72 | 50,349 | |||||||||
$2.20 | 2,165 | 2.30 | 2,165 | |||||||||
$3.40 | 294,273 | 6.12 | 197,273 | |||||||||
$3.72 | 40,000 | 2.44 | - | |||||||||
386,787 | 5.14 | 249,787 | ||||||||||
Total | 1,272,931 | 4.32 | 763,165 | |||||||||
7. | SHARE CAPITAL (continued) |
2020 - CDN | 2019 – US | ||
Fair Value calculated | CDN $0.43 | - | |
Share price at grant | CDN $.62 | - | |
Exercise price | CDN $0.66 | - | |
Expected Option Life | 3.5 years | - | |
Risk free interest rate (based on government bonds) | 1.41% | - | |
Expected Volatility | 109.00% | - | |
Expected dividends | Nil | - |
c) | Warrants |
8. | COMMITMENTS |
9. | RELATED PARTY TRANSACTIONS |
9. | RELATED PARTY TRANSACTIONS (continued) |
March 31, 2020 | December 31, 2019 | |||||||||||||||
Number of Shares | % | Number of Shares | % | |||||||||||||
John Barker | 32,714 | 0.06 | 32,714 | 0.08 | ||||||||||||
Stephen Randall | 22,993 | 0.04 | 22,993 | 0.06 | ||||||||||||
David McNally | 4,167 | 0.01 | 4,167 | 0.01 | ||||||||||||
John Schellhorn | 294 | 0.00 | 294 | 0.00 | ||||||||||||
Total | 60,168 | 0.11 | 60,168 | 0.15 | ||||||||||||
Common Shares Outstanding | 54,216,877 | 100 | % | 39,907,681 | 100 | % |
10. | SUBSEQUENT EVENTS |
10. | SUBSEQUENT EVENTS (contined) |
Prospectus |
Page | |
ABOUT THIS PROSPECTUS | 8 |
SUMMARY | 12 |
RISK FACTORS | 17 |
THE BUSINESS | 32 |
RECENT DEVELOPMENTS | 42 |
DIRECTORS, MANAGEMENT, ADVISERS AND AUDITORS | 44 |
LEGAL PROCEEDINGS | 45 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 46 |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 60 |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 74 |
SELECTED CONSOLIDATED FINANCIAL INFORMATION | 75 |
CAPITALIZATION AND INDEBTEDNESS | 76 |
USE OF PROCEEDS | 76 |
PLAN OF DISTRIBUTION | 79 |
EXPENSES RELATING TO THIS OFFERING | 80 |
DESCRIPTION OF SECURITIES | 81 |
DILUTION | 82 |
MEMORANDUM AND ARTICLES OF ASSOCIATION | 82 |
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS | 85 |
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS | 93 |
MATERIAL CONTRACTS | 95 |
DIVIDEND POLICY | 95 |
EXPERTS | 95 |
LEGAL MATTERS | 95 |
ADDITIONAL INFORMATION | 95 |
ENFORCEABILITY OF CIVIL LIABILITIES | 96 |
INDEX TO THE FINANCIAL STATEMENTS | F-1 |
Securities Offered: | We are offering up to 15,116,950 Common Shares issuable upon exercise of the Warrants. The 2018 Warrants are exercisable until August 10, 2023 at a current exercise price of $2.92 per Share and the outstanding 2019 Warrants are exercisable until March 21, 2024 at a current exercise price of $3.95 per Share. See “Description of Securities We Are Offering.” |
Common Shares outstanding assuming full exercise of the Warrants: | 75,048,331 Shares.(1) |
Use of proceeds: | We intend to use the net proceeds from any exercises of the Warrants for general corporate purposes including: resuming the development of our single-port robotic surgical system, instruments and accessories; funding working capital (including the reduction of outstanding payables); and capital expenditures. |
TSX symbol: | TMD |
Nasdaq symbol: | TMDI |
Dividend policy | We have not declared any dividends since our inception and do not anticipate that we will do so in the foreseeable future. We currently intend to retain future earnings, if any, to finance the development of our business. Any future payment of dividends or distributions will be determined by our Board of Directors on the basis of our earnings, financial requirements and other relevant factors. |
(1) | The number of Common Shares to be outstanding immediately after completion of the Offering as shown above is based on 59,931,381 Common Shares outstanding as of May 13, 2020. Unless otherwise indicated, the number of Common Shares presented in this prospectus excludes: |
• | 1,272,931 Common Shares issuable upon the exercise of 886,144 Canadian dollar denominated options with a weighted average exercise price of CDN $5.74 and 386,787 US dollar denominated options with a weighted average exercise price of $6.05 as at May 13, 2020; and | |
• | 24,860,663 Common Shares issuable upon the exercise of warrants having a weighted-average exercise price of $5.36 per warrant as at May 13, 2020. |
a) | the issuance of Common Shares or securities exchangeable for or convertible into Common Shares to holders of all or substantially all of the Company’s Common Shares by way of stock dividend or other distribution (other than a “dividend paid in the ordinary course”, as defined in the Warrant Indenture, or a distribution of Common Shares upon the exercise of the Warrants or pursuant to the exercise of director, officer or employee stock options granted under the Company’s stock option plan); |
b) | the subdivision, redivision or change of the Common Shares into a greater number of shares; |
c) | the reduction, combination or consolidation of the Common Shares into a lesser number of shares; |
d) | the fixing of a record date for the issue of rights, options or warrants to all or substantially all of the holders of the Common Shares under which such holders are entitled, during a period expiring not more than 45 days after the record date for such issuance, to subscribe for or purchase Common Shares, or securities exchangeable for or convertible into Common Shares, at a price per share to the holder (or having an exchange or conversion price per share) of less than 95% of the “current market price”, as defined in the Warrant Indenture, for the Common Shares on such record date; and |
e) | the issuance or distribution to all or substantially all of the holders of the securities of the Company including shares, rights, options or warrants to acquire shares of any class or securities exchangeable or convertible into any such shares or cash, property or assets and including evidences of indebtedness, or any cash, property or other assets. |
Prospectus |
a. | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
b. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; |
c. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
TITAN MEDICAL INC. | |||
By: | /s/ Stephen Randall | ||
Name: | Stephen Randall | ||
Title: | Chief Financial Officer | ||
Signature | Capacity | Date | ||
President, Chief Executive Officer (Principal Executive Officer) and Director | May 31, 2020 | |||
David McNally | ||||
/s/ Stephen Randall | Chief Financial Officer (Principal Financial and Accounting Officer) and Director | May 31, 2020 | ||
Stephen Randall | ||||
/s/ John E. Barker | Director | May 31, 2020 | ||
John E. Barker | ||||
/s/ John E. Schellhorn | Director | May 31, 2020 | ||
John E. Schellhorn | ||||
/s/ Charles Federico | Director | May 31, 2020 | ||
Charles Federico |
Exhibit Number | Description | |
21.1 | List of Subsidiaries | |
23.2 | Consent of Borden Ladner Gervais LLP (included in Exhibit 5.1 and Exhibit 5.2) |