Exhibit 99.3
TITAN MEDICAL INC.
Management’s
Discussion
and Analysis
for the three months ended
March
31, 2022
May 11, 2022
Table of Contents
| INTRODUCTION |
3 |
| |
|
| CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
3 |
| |
|
| OVERVIEW |
4 |
| |
|
| SIGNIFICANT TRANSACTIONS |
5 |
| |
|
| ENOS SINGLE ACCESS ROBOTIC ASSISTED SURGICAL SYSTEM |
7 |
| |
|
| INTELLECTUAL PROPERTY AND LICENSING |
12 |
| |
|
| RESULTS OF OPERATIONS |
13 |
| |
|
| FINANCIAL POSITION |
15 |
| |
|
| LIQUIDITY AND CAPITAL RESOURCES |
16 |
| |
|
| SELECTED QUARTERLY INFORMATION |
16 |
| |
|
| CAPITAL MANAGEMENT |
17 |
| |
|
| CONTRACTUAL OBLIGATIONS |
18 |
| |
|
| OFF-BALANCE SHEET ARRANGEMENTS |
19 |
| |
|
| OUTSTANDING COMMON SHARE DATA |
19 |
| |
|
| CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
19 |
| |
|
| RELATED PARTY TRANSACTIONS |
20 |
| |
|
| FINANCIAL INSTRUMENTS |
20 |
| |
|
| INTERNAL CONTROL OVER FINANCIAL REPORTING |
20 |
| |
|
| RISK FACTORS |
21 |
 | MANAGEMENT DISCUSSION AND ANALYSIS | 2 |
INTRODUCTION
The following Management’s Discussion and
Analysis (“MD&A”) is prepared as of May 11, 2022 and should be read in conjunction with the unaudited condensed
interim consolidated statements of financial position and the related notes thereto for the three months ended March 31, 2022 (the “Interim
Financial Statements”) of Titan Medical Inc. (referred to hereinafter as “Titan”, the “Company”,
“we”, “us” and “our”) and the annual audited financial statements for the year
ended December 31, 2021. The Interim Financial Statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards
Board.
Unless otherwise indicated, all financial information
in this MD&A is reported in thousands of US dollars except for share and earnings (loss) per share data which is reported in number
of shares and US dollars respectively. The tables and charts included in this document form an integral part of this MD&A.
The common shares of the Company (the “Common
Shares”) are listed under the symbol “TMDI” on The Nasdaq Capital Market (the “Nasdaq”)
and “TMD” on the Toronto Stock Exchange (the “TSX”).
This MD&A has been prepared with reference
to National Instrument 51-102 – Continuous Disclosure Obligations. Additional information related to Titan, including our Annual
Report (“Annual Report”) on Form 20-F for the year ended December 31, 2021, is available via our website at www.titanmedicalinc.com,
on SEDAR at www.sedar.com, and on the EDGAR section of the SEC’s website at www.sec.gov.
This MD&A
includes references to the Company’s trade-marks and trade names, such as Titan, Titan Medical, and Enos, some of which may be protected
under applicable intellectual property laws of one or more countries and which the Company believes is its property. Solely for convenience,
the Company’s trade-marks referred to in this MD&A may appear without the TM or Ò
symbols, but such references are not intended to indicate, in any way, that the
Company will not assert, to the fullest extent under applicable law, its rights to these trade-marks and trade names.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This discussion includes certain statements that
may be deemed “forward-looking statements”. All statements in this discussion other than statements of historical facts that
address future events, developments, or transactions that the Company expects, are forward-looking statements. These forward-looking statements
are made as of the date of this MD&A. Forward-looking statements are frequently, but not always, identified by words such as “expect”,
“anticipate”, “estimate”, “may”, “could”, “might”, “will”, “would”,
“should”, “intend”, “believe”, “target”, “budget”, “plan”, “strategy”,
“goals”, “objectives”, “predicts”; “potential”, “projects”, “possible”,
“milestones”, “projection” or the negative of any of these words and similar expressions, although these words
may not be present in all forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions
and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, but are not limited
to, the factors discussed in the section entitled “Risk Factors” in the Annual Report. Although the Company has attempted
to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking
statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended.
Forward-looking statements contained herein are made as of the date of this MD&A and, other than as required by law, the Company disclaims
any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise.
There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ
materially from those anticipated in such statements. Forward-looking statements are based on a number of assumptions, which may prove
to be incorrect, including but not limited to the assumptions discussed in the section entitled “Cautionary Note Regarding Forward
Looking Statements” in the Company’s Annual Report. Accordingly, readers should not place undue reliance on forward-looking
statements.
| MANAGEMENT DISCUSSION AND ANALYSIS | 3 |
This MD&A also includes market data and forecasts.
Although the Company is responsible for all of the disclosure contained in this MD&A, in some cases the Company relies on and refers
to market data and certain industry forecasts that were obtained from third party surveys, market research, consultant surveys, publicly
available information and industry publications and surveys that it believes to be reliable. Unless otherwise indicated, all market and
industry data and other statistical information and forecasts contained in this MD&A are based on independent industry publications,
reports by market research firms or other published independent sources and other externally obtained data that the Company believes to
be reliable. Any such market data, information or forecast may prove to be inaccurate because of the method by which it was obtained or
because it cannot always be verified with complete certainty given the limits on the availability and reliability of raw data, the voluntary
nature of the data gathering process and other limitations and uncertainties, including those discussed in the Annual Report under the
heading “Risk Factors”. As a result, although the Company believes that these sources are reliable, it has not independently
verified the information.
The sections of the Annual Report titled “Cautionary
Note Regarding Forward-Looking Statements” and “Risk Factors” are expressly incorporated by reference into
this MD&A. The Annual Report is available on the EDGAR section of the SEC’s website at www.sec.gov and on SEDAR at www.sedar.com.
OVERVIEW
Titan is a medical technology company headquartered
in Toronto, Ontario with operations in Chapel Hill, North Carolina. Titan is focused on enhancing robotic assisted surgery (“RAS”)
using innovative technology through a single access point. The Enos™ system, a single access robotic-assisted surgical platform
(the “Enos System”) is being developed with an ergonomic focus to provide a surgical experience that imitates real-life
movements that surgeons demand. The platform consists of a surgeon workstation that interfaces with a patient cart that includes multi-articulating
instruments designed to allow surgeons an increased range of motion in a confined space, with dexterity and the ability to exert the forces
necessary to complete common surgical tasks. With the Enos System, Titan intends to initially pursue gynecologic surgical indications.
By focusing on a single access point, the Company believes that patient trauma, post-operative pain and scarring can be reduced, and patients
may be able to recover from surgery faster.
The Company’s innovations in RAS, including
those directed at the Enos System, are protected by a growing patent portfolio that includes more than 200 patents and patent applications.
Certain of Titan’s RAS technologies and related intellectual property have been licensed to Medtronic plc (“Medtronic”),
while retaining world-wide rights to commercialize the technologies for use with the Enos System.
The Enos System is under development and has not
been authorized for marketing by the U.S. Food and Drug Administration (“FDA”) or approved by any other regulatory
authority in any other jurisdiction and until such authorizations or approvals are obtained, is not yet commercially available.
The Company is the successor corporation formed
pursuant to two separate amalgamations under the Business Corporations Act (Ontario) on July 28, 2008. The address of the Company’s
corporate office and its principal place of business is 76 Berkeley Street, Toronto, Ontario, Canada M5A 2W7. On May 29, 2020, the Company
established Titan Medical USA Inc. (“Titan USA” or the “Subsidiary”), a Delaware corporation and
a wholly owned subsidiary of the Company. Titan USA’s principal activity consists of R&D as well as the manufacturing of instruments
and camera systems for the Enos System from its leased premises located in Chapel Hill, North Carolina.
In addition to leveraging in-house R&D capabilities,
including for activities related to the Enos System and the development work performed pursuant to the agreement with Medtronic (see “Significant
Transactions - Development Agreement & License Agreement with Medtronic”), the Company engages subcontractors and consultants
to perform certain design and development, prototyping, and assembly and manufacturing activities.
| MANAGEMENT DISCUSSION AND ANALYSIS | 4 |
SIGNIFICANT TRANSACTIONS
Medtronic Order
Subsequent to the quarter, the Company received a purchase order (“Order”)
from Medtronic for $2.6 million to cover the purchase of instruments and cameras that will be used in pre-clinical activities by Medtronic.
Medtronic will be evaluating the Company as a potential manufacturing and supply partner. The Company anticipates that it will deliver
on the Order during 2022.
February 2021 Equity Offering
On February 24, 2021, the Company closed an offering
of 9,585,250 units of the Company (“February 2021 Units”) sold on a “bought deal” basis, at a price of
$2.40 per February 2021 Unit for aggregate gross proceeds of $23 million. Each February 2021 Unit consists of one Common Share and one
half (1/2) of one Common Share purchase warrant (each whole warrant, a “February 2021 Warrant”). Each February 2021
Warrant is exercisable to acquire one Common Share at an exercise price of $3.00 per Common Share until February 24, 2023. In connection
with the February 2021 offering, the Company issued 670,967 broker warrants, each exercisable at $3.00 until February 24, 2023 for one
Common Share.
Anticipated use of proceeds from the offering is
for general corporate purposes and funding working capital and capital expenditures. As previously disclosed, general corporate purposes
includes the development of the Enos System (see “Enos Single Access Robotic Assisted Surgical System - Development Plan”)
and there have been no variations in the proposed use of proceeds to date.
January 2021 Equity Offering
On January 26, 2021, the Company closed an offering
of 7,419,354 units of the Company (“January 2021 Units”) sold on a “bought deal” basis, at a price of $1.55
per January 2021 Unit for aggregate gross proceeds of $11.5 million. Each January 2021 Unit consists of one Common Share and one half
(1/2) of one Common Share purchase warrant (each whole warrant, a “January 2021 Warrant”). Each January 2021 Warrant
is exercisable to acquire one Common Share at an exercise price of $2.00 per share until January 26, 2026. In connection with the January
2021 offering, the Company issued 518,234 broker warrants, each exercisable at $1.9375 until January 26, 2023 for one Common Share.
Anticipated use of proceeds from the offering is
for general corporate purposes and funding working capital and capital expenditures. As previously disclosed, general corporate purposes
includes the development of the Enos System (see “Enos Single Access Robotic Assisted Surgical System - Development Plan”)
and there have been no variations in the proposed use of proceeds to date.
Development Agreement & License Agreement
with Medtronic
On June 3, 2020, the Company entered into a development
and license agreement (the “Development Agreement”) with a U.S. affiliate of Medtronic in connection with the development
of RAS technologies and a separate license agreement (the “License Agreement”, and together with the Development Agreement,
the “Medtronic Agreements”) with Medtronic with respect to certain previously developed Company technologies.
Under the terms of the License Agreement,
Titan granted Medtronic an exclusive license with regard to certain RAS technologies, including patents and know-how, for a one-time upfront
royalty payment of $10 million received on June 10, 2020 with no further royalty payments due thereunder. Under the terms of the Development
Agreement, Titan granted Medtronic an exclusive license with regard to the technologies developed under the Development Agreement in exchange
for license fees totaling up to $31 million (the exact amount dependent on certain legal, transaction and intellectual property costs
under the Medtronic Agreements). The total payments received under the Development Agreement were $30.6 million as described below, with
no further royalty payments due thereunder. While the intellectual property licensed
| MANAGEMENT DISCUSSION AND ANALYSIS | 5 |
to Medtronic under the Medtronic Agreements may not
be licensed to a third party, Titan has retained rights to continue to develop, commercialize and use the licensed intellectual property
and the licensed technologies for the Company’s own business in single access RAS, including the Enos System. Furthermore, in connection
with the sale of all or substantially all of the assets of the Company or a “change of control” (as such term is defined in
the Medtronic Agreements), the Company may assign and transfer all of its rights under the Medtronic Agreements, allowing an acquirer
to use the licensed intellectual property and technologies, as otherwise permitted under the Medtronic Agreements, for their own purposes.
All of the milestones under the Development Agreement
have been completed and the associated payments were received from Medtronic. The milestones and associated payments were as follows:
|
Medtronic Milestone(1) |
Deadline(2) |
Payment
(US $ 000’s) |
Milestone Achieved |
| Medtronic Milestone 1 |
Four (4) months from Development Start Date(3) |
10,000 |
Q4 2020(5) |
| Medtronic Milestone 2(4) |
Four (4) months from Development Start Date |
- |
- |
| Medtronic Milestone 3 |
Six (6) months from the later of:
(a) receipt of Payment for Medtronic Milestone 1,
(b) receipt from Medtronic of Medtronic deliverables required for Medtronic
Milestone 3, and
(c) receipt from Medtronic of confirmation of certain due diligence
in respect of deliverables for Medtronic Milestone 1 |
10,000 |
Q2 2021(6) |
| Medtronic Milestone 4 |
Four (4) months from the later of:
(a) receipt of Payment for Medtronic Milestone 3,
(b) receipt of Medtronic deliverables for Medtronic Milestone 4, and
(c) receipt from Medtronic of confirmation of certain due diligence
in respect of deliverables for Medtronic Milestone 3 |
10,600 |
Q4 2021(7) |
Notes:
| 1. | Medtronic Milestone 1, Medtronic Milestone 3 and Medtronic Milestone 4 are each technology milestones
as defined in the Development Agreement and consist of the completion of the development of certain RAS technologies as described in the
Development Agreement. |
| 2. | All as further described and qualified in the Development Agreement. |
| 3. | “Development Start Date” has the meaning ascribed to it in the Development Agreement and was
June 12, 2020. |
| MANAGEMENT DISCUSSION AND ANALYSIS | 6 |
| 4. | Medtronic Milestone 2 was a non-technology milestone defined in the Development Agreement having Titan
raise at least $18.0 million of capital between the effective date of the Development Agreement and the date that is four months from
the Development Start Date. Medtronic Milestone 2 was achieved in June 2020. |
| 5. | On October 28, 2020, the Company received a $10 million license payment for completion of Medtronic Milestone
1. |
| 6. | On May 28, 2021, the Company received a $10 million license payment for completion of Medtronic Milestone
3. |
| 7. | On January 26, 2022, the Company received a $10 million license payment
for completion of Medtronic Milestone 4 and a $0.6 million payment related to certain legal, transaction and intellectual property costs
for a total of $10.6 million. The Company received a net payment of $8.3 million, as $2.3 million was offset by Medtronic to pay for the
loan that was retired in December 2021. |
Aspire Common Share Purchase Agreement
On December 23, 2019, the Company entered into
an agreement (the “Aspire Agreement”) with Aspire Capital Fund, LLC (“Aspire”). Under the terms
of the Aspire Agreement, Aspire committed to purchase up to $35 million of Common Shares for a maximum of 9,729,777 Common Shares. To
date, the Company has issued 6,981,048 Common Shares of Titan for total proceeds of $5.2 million ($2.7 million for the year ended December
31, 2021 and $2.1 million for the year ended December 31, 2020). The balance remaining on Aspire’s commitment is 2,748,729 Common
Shares (with a maximum value of $29.8 million), accessible at the Company’s request from time to time, until June 23, 2022, subject
to the terms and conditions of the Aspire Agreement.
ENOS SINGLE ACCESS ROBOTIC ASSISTED SURGICAL SYSTEM
Development
The Company’s business is focused on the
development and commercialization of innovative surgical technologies for single access RAS requiring only a single port. The Company
is presently focused on the development of the Enos System, which comprises a surgeon-controlled patient cart with a 3D high-definition
vision system and multi-articulating instruments for performing surgical procedures, and a surgeon workstation that provides the surgeon
with an ergonomic interface to the patient cart and a 3D high-definition view of the surgical procedure. The Company intends to initially
pursue gynecologic surgical indications for use of its Enos System.
Development of the Enos System has proceeded with
input from various stakeholders including surgeons and operating room staff experienced in RAS, specialized medical technology development
firms and from the Company’s surgeon advisory board. This approach has positioned the Company to design a robotic surgical system
intended to include the traditional advantages of RAS, including 3D stereoscopic imaging and restoration of instinctive control, as well
as new and enhanced features, including an advanced surgeon workstation incorporating a 3D high-definition display providing a more ergonomic
user interface and a patient cart facilitating the use of instruments with enhanced dexterity.
The Enos System patient cart has been developed
with the goal of delivering multi-articulating instruments and a dual-view camera system into a patient’s abdominal body cavity
through a single access port. The dual-view camera system consists of a flexible 3D high-definition endoscopic camera along with a light
source and an insertion tube with a diameter of approximately 25 millimeters that includes an integrated 2D high-definition camera along
with an independent light source that, once inserted, provides visualization of the surgical site for optimal surgical positioning of
the patient cart. Once the insertion tube is positioned in the body, it is docked to a central drive unit of the patient cart and the
3D high-definition endoscopic camera is subsequently deployed in a manner that the endoscopic camera and multi-articulating instruments
can be controlled by the surgeon via the surgeon workstation. The reusable multi-articulating instruments provide for highly dexterous
movement in use and are designed to facilitate an assortment of permanent and detachable single patient use end effectors. The use of
reusable robotic instruments for a specific number of uses that can be cleaned and sterilized between surgeries is intended to minimize
the cost per procedure without compromising surgical performance. The design of the patient cart also incorporates multiple mechanical
elements for surgical positioning allowing for configurability for a number of surgical indications and the ability to be maneuvered within
the operating room, or redeployed within hospitals and ambulatory surgical centers, where applicable.
| MANAGEMENT DISCUSSION AND ANALYSIS | 7 |
As part of the development of the Enos System,
the Company plans on the development of a robust training curriculum and post-training assessment tools for surgeons and surgical teams.
The training curriculum is planned to include cognitive pre-training, psychomotor skills training, surgery simulations, live animal and
human cadaver lab training, surgical team training, troubleshooting and an overview of safety. Post-training assessment will include validation
of the effectiveness of those assessment tools. A software training system developer has produced an initial set of core surgical skills
simulation modules customized for use with the surgeon workstation in the first phase of the comprehensive surgeon training curriculum
that the Company plans for its Enos System.
The Company has worked to deepen its intellectual
capital through the recruitment of an in-house technical team and continuously evaluates its technologies under development for intellectual
property protection through a combination of trade secrets and patent application filings. The Company continues to focus on the filing
and prosecution of patents that management believes validate the novelty of its unique technology.
Regulatory Overview
RAS systems are highly regulated, complex medical
devices. The Company has used a combination of internal and external resources to execute the research, development and regulatory plans
for the Enos System. Development objectives have been established to support a planned regulatory submission to the FDA for marketing
authorization in the US, followed by submittal of a Technical File to a European Notified Body to obtain CE marking, which indicates that
a product for sale within the European Economic Area has been assessed to conform to health safety and environmental protection requirements.
In the US, the regulatory clearance process includes
a Q-Submission Program that provides companies an opportunity to interact with and obtain feedback from the FDA on specific aspects of
the regulatory process, requirements and planned submissions including Investigational Device Exemption (“IDE”) applications,
510(k) applications and De Novo classification requests. Certain Q-Submissions, termed Pre-Submissions, typically include a request for
written feedback, and if desired, a meeting in which additional feedback and findings are documented in meeting minutes. The recommendations
made by the FDA in response to a Pre-Submission are non-binding on the FDA, and circumstances related to a company’s product or
potential risks identified through post-market surveillance of similar products in clinical use may further change the position of the
FDA. Furthermore, while the FDA encourages Q-Submissions, there is no assurance that feedback provided from these communications will
result in regulatory marketing authorization, nor does it preclude any identified future changes in regulatory pathways.
The Company has filed a number of Q-Submissions
and based on ongoing communications with the FDA, expects that the Enos System will be classified as a Class II device and accordingly
plans to obtain marketing authorization through a classification request for novel devices in accordance with section 513(f)(2) of the
U.S. Federal Food, Drug and Cosmetic Act (the “FD&C Act”), commonly known as a De Novo classification submission.
In 2020, the Company filed a Request for Information in response to communications the Company had with the FDA, in which the FDA raised
the question of whether RAS devices would generally continue to be eligible for classification as Class II devices and the 510(k) submission
pathway, or whether a De Novo submission would be more appropriate for such devices. While the Company had previously confirmed with the
FDA that the Enos System would be suitable for marketing authorization through a 510(k) submission, in December 2020, it received a written
response (the “Written Response”) from the FDA to its Request for Information in accordance with section 513(g) of
the FD&C Act that indicated that the FDA believes, based on information provided to it, that the Enos System is appropriate for classification
through the De Novo submission pathway. The FDA stated that the technological differences between the Enos System and RAS devices previously
cleared for marketing by the FDA raise new questions of safety and effectiveness, and that a 510(k) application submitted by the Company
claiming substantial equivalence to any previously marketed RAS device would most likely be determined to be not substantially equivalent.
In view of the Written Response and additional guidance provided by the FDA to the Company, the Company plans to proceed with a De Novo
classification request for the Enos System following successful completion of the IDE clinical study as described below.
| MANAGEMENT DISCUSSION AND ANALYSIS | 8 |
Requests for Information made pursuant to Section
513(g) of the FD&C Act require the FDA to provide information about the classification and the regulatory requirements that may be
applicable to a particular device. FDA responses to such requests represent the FDA’s best judgement about how a device would be
regulated, based upon review of information provided by a requester, including the description of the device and its intended use. The
FDA’s response to a 513(g) request is not a classification decision for a device and does not constitute FDA clearance or approval
for commercial distribution. Classification decisions and clearance or approval for marketing require submissions under different sections
of the FD&C Act, such as a classification obtained in response to a 510(k) submission or a De Novo submission.
The De Novo classification request provides a pathway
for the FDA to classify novel medical devices for which general controls, or general and special controls, provide a reasonable assurance
of safety and effectiveness, but for which there is no legally marketed predicate device. The De Novo process allows the FDA to review
a company’s submission and reasons as to why the device should be a Class II device, including the review of the general and special
controls that would provide reasonable assurance of the safety and effectiveness of the device. Included in such a classification request,
clinical, non-clinical, test and design data may be provided to support a company’s recommendation for the classification of the
device as a Class II device. After the FDA receives and reviews a request, a determination (generally within 150 review days) is made
to either grant or decline the request. Review days are calculated as the number of calendar days between the date the De Novo request
was received by the FDA and the date of the FDA's decision, excluding the days a request was on hold for an additional information request.
If the request is granted (i.e. the device is determined to be a Class II device), the device is authorized to be marketed and a new classification
regulation will be established, ultimately allowing the novel device to serve as a predicate for 510(k) submissions of future devices
of the same type. Should the De Novo classification request be declined, and the device is therefore classified as a Class III device,
a premarket approval application under section 515 of the FD&C Act, also known as a PMA, would be required to market the device, involving
a more expensive and time-consuming approval process.
Since the Enos System is presently under development
and the Company has not submitted any applications for marketing authorization, it is not possible to predict with certainty the outcome
of any review by the FDA and the time required to complete activities necessary for regulatory marketing authorization is not quantifiable
at this time. The FDA’s recent review and response to the Company’s proposed IDE clinical study general design and planning
occurred during a video conference call held in September 2021. While the general design of the Company’s planned IDE clinical study
was confirmed, more detailed communication will be required to reach agreement on the content of a complete IDE application, including
the final clinical design, risk analyses, safety testing, human factors testing, and preclinical data. Accordingly, the Company plans
on further communications and submissions with the FDA to clarify the requirements for the IDE application and to understand any special
controls which the FDA may apply to the IDE clinical study. Additional Pre-Submissions will allow the FDA to review the state of the current
design of the surgical system, and the inclusion of test data and more detailed proposals for clinical protocols would allow the FDA to
provide additional feedback and/or suggest modifications.
The performance of human surgeries as part of the
proposed clinical study with the Enos System will require an IDE from the FDA, which must be submitted and approved in advance. An IDE
allows the investigational device to be used in a clinical study in order to collect safety and effectiveness data. Further, the
recruitment of surgeons from multiple hospital sites will be necessary to perform the surgeries as well as the recruitment of patients
willing to participate in the IDE study. Each of these sites will require approval of their independent Institutional Review Board (“IRB”)
to approve the studies. Application to the IRB of each hospital can be made once the FDA has approved the Company’s IDE application.
Only upon successful completion of the IDE clinical study will the Company be in a position to submit to the FDA an application for De
Novo classification for marketing authorization.
Previous results achieved by surgeons in operating
prototypes in numerous animal and cadaver studies have preliminarily validated the potential for single incision surgeries to be performed
with the Enos System. Insights gained from these preclinical studies have directed the Company to make product improvements. In June 2019,
the Company commenced preclinical live animal and cadaver studies according to Good Laboratory Practices (“GLP”) and
subsequently, on July 18, 2019, announced the successful completion
| MANAGEMENT DISCUSSION AND ANALYSIS | 9 |
of those studies. Following the completion of the GLP procedures,
the Company proceeded to perform human factors evaluation (“HFE”) studies, which included verification of production
system operation with clinical experts under simulated robotic manipulation exercises. However, during the GLP and HFE studies, the Company
identified opportunities to improve the performance of instruments, camera systems and sterile interfaces before proceeding further, which
may require repeating those studies with enhanced designs.
During the third quarter of 2021, the Company completed
additional pre-clinical GLP studies. The pre-clinical studies involved utilizing the Enos System to perform hysterectomies in porcine
subjects. The subjects successfully completed the survival period in the study. With the completion of these studies, surgeons have now
performed over 70 pre-clinical procedures representing multiple subspecialties with Titan’s Enos System.
During the third quarter of 2019, the Company’s
European Notified Body also completed audits of the Company’s quality system procedures and related documentation for ISO 13485
Certification, which was ultimately received in January 2020. In September 2021, a surveillance audit of the Company’s quality system
was successfully completed by the Company’s Notified Body.
During the first quarter of 2022, the Company completed
an animal lab procedure. Additional surgeon validation was gained during this animal lab where Titan received feedback on improvements
to the vision system and to electricalsurgical instruments. New insights on the ease of robotic surgery adoption for laparoscopic surgeons
was also noted, which the Company expects toinstitute as part of its training programs.
Development Plan
For the purposes of this section, the description
and milestone chart with respect to the Company’s development plan should be read in conjunction with the “Risk Factors”
section of the Annual Report.
The Company is focused on the development and commercialization
of the Enos System. The following chart and narrative are provided to outline the significant development and regulatory milestones required
to achieve the overall goal of commercializing the Enos System in the United States.
While the milestone chart is based on information
currently available to the Company, there is no assurance that the development, regulatory and commercialization milestones set forth
above will be completed within the timeframes forecasted, if at all, and are based upon the following key assumptions:
| 1. | The Company will complete each milestone within the projected timeframe and at the estimated cost. |
| MANAGEMENT DISCUSSION AND ANALYSIS | 10 |
| 2. | The Company will receive on a timely basis all applicable regulatory authorizations, approvals or clearances
including without limitation the planned IDE application and the planned De Novo application to the FDA. |
| 3. | There will be no significant changes to the regulatory authorization process in the United States. |
| 4. | The Company will be able to secure a sufficient number of hospital sites, surgeons and patients as part
of the IDE clinical study. |
| 5. | The costs of materials and components required by the Company, availability of sufficiently qualified
personnel and the wages and salaries of such personnel and the costs and timing of engaging third parties in respect of the Company’s
clinical study and the manufacturing of its Enos System will remain stable. |
| 6. | Despite global supply chain challenges, the Company and the manufacturing firms it engages will be able
to secure components and subsystems for the Enos System on a timely basis, and no unforeseen shortages or shipping delays will arise. |
| 7. | The Company will be able to raise required financing on a timely basis to support its development program,
manufacturing, human clinical study and operations. |
| 8. | The design of the Enos System and related platforms and equipment will not be required to materially change
for any reasons (including without limitation due to results of safety and verification testing, market demands, intellectual property
or regulatory issues). |
| 9. | The Company will be able to engage, retain and recruit, as necessary, technical personnel, contractors
and third parties (such as development firms and manufacturers) with the type of specialized skill and knowledge required to develop,
manufacture and test the Enos System. |
The foregoing list of assumptions is not exhaustive.
Although the Company has attempted to identify on a reasonable basis the key assumptions related to forward-looking statements in the
development milestone table above, there can be no assurance that the forward-looking statements will prove to be accurate, as events
or circumstances or other factors could cause actual results to differ materially from those estimated or projected and expressed in,
or implied by, these forward-looking statements.
The Company plans to file the IDE application for
the Enos System with the FDA in the first quarter of 2023 and anticipates receiving a response on the IDE application from the FDA in
the first half of 2023. Associated milestones as set forth in the chart above are described in additional detail below.
| ● | Completion of Product Development and Transfer to Manufacturing – The Company is presently
working to complete product development to accommodate the transfer of the Enos System to manufacturing, including the areas of supply
chain management, product assembly and testing, and implementation of software updates related to safety controls. Completion of product
development is anticipated by mid-2022. The Company relies on its employees as well as engagements with consultants, development firms
and manufacturers to complete product development. Any interruptions in the engagement of the forgoing or from other interruptions related
thereto, such as supply chain interruptions, will impact the Company’s ability to complete product development. |
| ● | Manufactured Units Safety and Verification Testing – Upon completion of product development
and the delivery of manufactured units of the Enos patient cart and surgeon workstation, the Company anticipates completing system verification
and validation and safety testing in support of the planned IDE submission to the FDA. |
| ● | IDE Application, FDA Review, IDE Study – Upon successful completion of safety and verification
testing of the Enos patient cart and surgeon workstation as well as the biocompatibility testing of instruments, cameras and accessories,
the Company expects it will have the requisite information necessary to submit a complete IDE application to the FDA in the first quarter
of 2023. Upon receiving approval of the IDE application by the FDA, the Company plans to commence human clinical studies to validate the
safety and effectiveness of the Enos System. |
| MANAGEMENT DISCUSSION AND ANALYSIS | 11 |
With the feedback
from the FDA during the second half of 2021, it is anticipated that the IDE clinical study will include total laparoscopic hysterectomies
performed on 30 to 40 patients at 3 to 4 clinical sites. The Company has already begun IRB site preparation for the selected clinical
sites. Based on the expected timing of filing the IDE application and the FDA review and approval process, the Company anticipates that
the surgical procedures associated with the IDE, and the associated follow-up, can be completed in early 2024.
| ● | De Novo Application and FDA Review – Assuming the successful completion of the IDE study,
including follow-up data, the Company expects to submit its De Novo application to the FDA and receive the FDA’s response in 2024. |
| ● | Commercialization – The Company anticipates a commercial launch of the Enos System in early
2025 upon receipt of marketing authorization from the FDA. Commercial manufacturing of the Enos System is expected to be an extremely
detailed and complex process with the potential for delays, interruptions (including supply chain interruptions) or cost overruns. |
The total costs to complete the
development of the Enos System cannot yet be determined with a high degree of certainty, and the costs may be substantially higher than
any estimated by the Company. Please see “Special Note Regarding Forward-Looking Statements” and “Risk Factors”
in the Annual Report.
The Company anticipates that its cash balance of
$30.1 million at March 31, 2022 and the ability to raise additional capital that is available under the Aspire Agreement will be sufficient
to fund the development of the Enos System and operational expenses into the first quarter of 2023. However, unexpected increases in costs
and expenses due to operational decisions made by the Company and/or factors beyond the Company’s control, such as pandemics including
COVID-19 or any variants and international conflicts including the Russian invasion of Ukraine, or any delays related to sourcing of parts
and materials or higher than expected inflation rates impacting pricing of parts and materials could cause a material impact on working
capital resources of the Company.
Due to the nature of technology development and
the related medical device regulatory pathway in the United States, there is no assurance that the development, regulatory and commercialization
milestones set forth above will be completed within the timeframes forecasted, if at all, and there can be no assurance with respect to
the resources that may be required to achieve these milestones, including both internal resources with respect to the availability to
the Company of qualified technical personnel and third party development and manufacturing firms. Furthermore, additional required development
or regulatory tasks could be identified in the course of the development, manufacturing and testing of the Enos System which may elongate
the forecast timeline. The review times for IDE applications as well as De Novo applications with the FDA can vary greatly, and there
can be no assurance as to the time it will take for the Company to receive FDA marketing authorization for the Enos System, or whether
such authorization will be obtained at all.
INTELLECTUAL PROPERTY AND LICENSING
As of March 31, 2022, the Company’s patent
portfolio includes over 200 patents and patent applications. The Company anticipates further expanding its patent portfolio by filing
additional patent applications as it progresses in the development of robotic surgical technologies and, potentially, by licensing suitable
technologies.
Pursuant to the License Agreement (see “Significant
Transactions - Development Agreement & License Agreement with Medtronic”), the Company exclusively licensed to Medtronic
a portion of its portfolio related to certain aspects of instruments and cameras, while retaining the world-wide rights to commercialize
the licensed technologies for the Company’s own business in single access RAS. Furthermore, pursuant to the Development Agreement
with Medtronic, the Company developed certain RAS technologies, that were completed and exclusively licensed by Medtronic for license
payments of $30.6 million. The Company
| MANAGEMENT DISCUSSION AND ANALYSIS | 12 |
retains the world-wide rights to commercialize any developed technology in its own business (see
“Significant Transactions - Development Agreement & License Agreement with Medtronic”).
IP Exclusivity and Independence
Under each of the Medtronic Agreements, while Titan
granted an exclusive license to Medtronic, Titan retained world-wide ownership rights to independently commercialize the licensed technologies
in single access RAS, including with the Enos System and enhancements thereof. Under each of the Medtronic Agreements Titan may assign
its intellectual property rights thereunder in connection with the sale of all or substantially all of the assets of Titan or in connection
with a “change of control” (as such term is defined therein).
RESULTS OF OPERATIONS
| |
|
Three Months Ended March 31, |
| |
|
2022 |
2021 |
| |
|
$ |
$ |
| Revenue |
|
- |
50 |
| |
|
|
|
| Expenses |
|
|
|
| Research and development |
|
9,428 |
7,640 |
| General and administrative |
|
2,534 |
4,066 |
| Depreciation and amortization |
|
156 |
97 |
| |
|
12,118 |
11,803 |
| Net (loss) income from operations |
|
(12,118) |
(11,753) |
| |
|
|
|
| Finance income |
|
(40) |
(13) |
| Finance expenses |
|
18 |
- |
| Foreign exchange loss |
|
34 |
44 |
| (Gain) loss on fair value of warrant derivative |
|
(2,909) |
3,010 |
| Total other expenses (income) |
|
(2,897) |
3,041 |
| |
|
|
|
| Net and comprehensive loss |
|
(9,221) |
(14,794) |
| Basic and diluted loss per share |
|
(0.8) |
(0.15) |
| |
|
|
|
| Financial Position |
|
March 31,
2022 |
December 31,
2021 |
| Cash |
|
30,112 |
32,306 |
| Total assets |
|
35,528 |
47,222 |
| Total non-current liabilities |
|
946 |
1,037 |
| Total equity |
|
26,665 |
35,293 |
Revenue
Revenue was $nil for the three months ended March
31, 2022 compared to $50 for the three months ended March 31, 2021. Revenue in the first quarter of 2021 was entirely related to services
provided to Medtronic.
The Company has completed all of the milestones
under the Development Agreement and the License Agreement with Medtronic and has earned $40.6 million of the maximum amount of $41 million.
See “Significant Transactions - Development Agreement & License Agreement with Medtronic”.
| MANAGEMENT DISCUSSION AND ANALYSIS | 13 |
Research and Development
Research and development (“R&D”)
expenses were $9.4 million for the three months ended March 31, 2022 compared to $7.6 million for the three months ended March 31, 2021.
R&D expenses in the current quarter were related
to the development of the Enos System. In the quarter, the Company’s R&D expenses were focused on finishing product development
and transferring key components of the Enos System to manufacturing. In the comparative period, R&D expenses related to the development
of the Enos System and the development work required to achieve the milestones under the Development Agreement with Medtronic.
The Company continues to resource its team in Chapel
Hill that has grown to 48 employees at March 31, 2022 from 36 employees at December 31, 2021. The team is comprised of engineers, quality
and regulatory staff focused on the development of the Enos System.
General and Administrative
General and administrative (“G&A”)
expenses were $2.5 million for the three months ended March 31, 2022 compared to $4.1 million for the three months ended March 31, 2021.
The decrease in G&A expenses in the quarter
is related to a decrease in professional and consulting fees of $0.9 million and a decrease in stock-based compensation of $0.2 million.
Depreciation and Amortization
Depreciation and amortization expenses consists
of depreciation of right of use assets, property plant and equipment and amortization of patent rights.
Depreciation and amortization expenses were $0.2
million for the three months ended March 31, 2022 compared to $0.1 million for the three months ended March 31, 2021.
The increase in depreciation and amortization expenses
in the quarter is related to the expansion of the lease at the Company’s facility in Chapel Hill in February 2021 and July 2021,
equipment purchased to support R&D and manufacturing, and amortization of the Company’s patents.
Net (Loss) Income from Operations
Net loss from operations was $12.1 million for
the three months ended March 31, 2022 compared to $11.8 million for the three months ended March 31, 2021.
Other (income) expenses
During the three months ended March 31, 2022, the
Company recognized other income of $2.9 million compared to other expenses of $3.0 million for the three months ended March 31, 2021.
| |
|
Three Months Ended March 31, |
| |
|
2022 |
2021 |
| |
|
$ |
$ |
| Finance income |
|
(40) |
(13) |
| Finance expenses |
|
18 |
- |
| Foreign exchange loss |
|
34 |
44 |
| (Gain) loss on fair value of warrant derivative |
|
(2,909) |
3,010 |
| Total other (income) expenses |
|
(2,897) |
3,041 |
| MANAGEMENT DISCUSSION AND ANALYSIS | 14 |
Finance income
Finance income was $40 for the three months ended
March 31, 2022 compared to $13 for the three months ended March 31, 2021.
The increase in finance income in the quarter is
related to interest income earned on the Company’s cash balances.
Finance expenses
Finance expenses were $18 for the three months
ended March 31, 2022 compared to $nil for the three months ended March 31, 2021. Finance expenses relate to the non-cash interest inherent
in lease obligations for the Company’s Chapel Hill facility.
Foreign exchange loss
Foreign exchange loss was $34 for the three months
ended March 31, 2022 compared to $44 for the three months ended March 31, 2021. Foreign exchange loss in the quarter and the comparative
period related to the revaluation of the Canadian dollar non-monetary assets.
(Gain)
Loss on Fair Value of Warrant Derivative
For the three months ended March 31, 2022, the
gain on the fair value of the warrant derivative was $2.9 million compared to a loss of $3.0 million for the three months ended March
31, 2021.
The warrant derivative is marked to market at each
reporting period and the gain or loss represents the change in valuation of the warrant derivative liability and can fluctuate significantly
based on the market price of the Company’s Common Shares.
Net and Comprehensive Loss
Net and comprehensive loss was $9.2 million for
the three months ended March 31, 2022 compared to $14.8 million for the three months ended March 31, 2021.
The decrease in net loss in the quarter compared
to 2020 was due to a $5.9 million difference in the fair value of the warrant derivative.
FINANCIAL POSITION
Working Capital
The Company defines working capital as current
assets less current liabilities. Working capital was $24.0 million at March 31, 2022 compared to $32.8 million at December 31, 2021. Working
capital includes the non-cash warrant derivative liability of $2.0 million. The Company anticipates that its working capital will be sufficient
to continue to fund the development of its Enos System and operational expenses through the first quarter of 2023.
However, unexpected increases in costs and expenses
due to operational decisions made by the Company and/or factors beyond the Company’s control, such as pandemics including COVID-19
or any variants and international conflicts including the Russian invasion of Ukraine, could cause a material impact on working capital
resources of the Company.
| MANAGEMENT DISCUSSION AND ANALYSIS | 15 |
LIQUIDITY AND CAPITAL RESOURCES
| |
|
Three Months Ended March 31, |
| |
|
2022 |
2021 |
| |
|
$ |
$ |
| Cash used in operating activities |
|
(1,925) |
(13,310) |
| Cash provided by (used in) financing activities |
|
(101) |
41,401 |
| Cash used in investing activities |
|
(168) |
(190) |
| Net change in cash during the period |
|
(2,194) |
27,901 |
| Cash and cash equivalents, beginning of period |
|
32,306 |
25,469 |
| Cash and cash equivalents, end of period |
|
30,112 |
53,370 |
The Company had cash and cash equivalents of $30.1
million at March 31, 2022 compared to $32.3 million at December 31, 2021.
Operating Activities
Cash used in operating activities was $1.9 million
for the three months ended March 31, 2022 compared to $13.3 million for the three months ended March 31, 2021.
Cash used in operating activities in the quarter
was primarily related to the costs associated with the development of the Enos System, offset by the recovery of working capital related
to the final milestone payment of $8.3 million from Medtronic that was received in January. In the comparative quarter, the cash used
in operating activities related to the costs associated with the development of the Enos System and the development work under the Development
Agreement with Medtronic. See “Results of Operations – Research and Development” and “Significant Transactions
- Development Agreement & License Agreement with Medtronic”.
Financing Activities
Cash used in financing activities was $0.1 million
for the three months ended March 31, 2022 compared to cash provided by financing activities of $41.4 million for the three months ended
March 31, 2021.
Cash used in financing activities in the quarter
is related to the repayment of lease obligations for the Company’s facility in Chapel Hill. In the comparative period, the Company
raised $31.3 million from the issuance of Common Shares and warrants in two separate financings (see “Significant Transactions
– February 2021 Equity Offering and January 2021 Equity Offering”). In addition, the Company received proceeds of $10.0
million related to the exercise of warrants.
Investing Activities
Cash used in investing activities was $0.2 million
for the three months ended March 31, 2022 compared to $0.2 million for the three months ended March 31,2021. In the current and comparative
quarter, the cash used in investing activities related to the purchase of equipment for the development of the Enos System and patent
costs.
SELECTED QUARTERLY INFORMATION
The following is selected financial data for each
of the eight most recently completed quarters, derived from the Company’s financial statements, and calculated in accordance with
IFRS. Net and comprehensive (loss) / income figures include the non-cash effects of adjustments in the valuation of outstanding warrant
liability.
| MANAGEMENT DISCUSSION AND ANALYSIS | 16 |
| |
Revenue |
Net and comprehensive (loss) income |
Basic and diluted (loss) earnings per share |
| |
$ |
$ |
$ |
| March 31, 2022 |
- |
(9,221) |
(0.08) |
| December 31, 2021 |
10,000 |
9,431 |
0.08 |
| September 30, 2021 |
- |
(8,555) |
(0.08) |
| June 30, 2021 |
10,043 |
(940) |
(0.01) |
| March 31, 2021 |
50 |
(14,794) |
(0.15) |
| December 31, 2020 |
10,000 |
(20,633) |
(0.25) |
| September 30, 2020 |
- |
(1,641) |
(0.02) |
| June 30, 2020 |
10,000 |
(1,143) |
(0.02) |
Significant changes in key financial data from
April 1, 2020 through March 31, 2022 reflect the following:
| ● | the revenue recognition of the payments received pursuant to the Medtronic Agreements; |
| ● | the resumption of product development following receipt of license fees earned pursuant to the Medtronic
License Agreement and Development Agreement; |
| ● | the equity capital raises in the capital markets, all since the second quarter of 2020; |
| ● | the Company established in-house R&D capabilities in Q3 2020 that increased staffing costs; and |
| ● | the ongoing non-cash impact associated with the requirement to revalue the Company’s warrant derivative
liability at fair value, with subsequent changes recorded through net and comprehensive loss for the period. |
Historically, operating results have fluctuated
on a quarterly basis and the Company expects that quarterly results will continue to fluctuate in the future. Operating results for interim
periods should not be relied upon as an indication of the results to be expected or achieved in any future period or any fiscal year as
a whole. Risk factors affecting revenue and results are discussed in the section entitled “Risk Factors” in the Annual
Report.
CAPITAL MANAGEMENT
The Company’s objective when managing capital
is to maintain a strong statement of financial position. We achieve our objective by obtaining adequate cash resources to support planned
activities which include manufacturing the Enos System, filing an IDE with the FDA, clinical studies, filing the De Novo application,
administrative costs, and intellectual property expansion and protection. The Company defines its capital as cash and shareholders' equity,
which as at March 31, 2022 totaled $56.8 million [December 31, 2021 - $67.7 million].
The Company does not have any debt other than accounts
payable and accrued liabilities and lease liabilities. The Company does have commitments related to the Enos System.
In managing its capital, the Company estimates
future cash requirements by preparing an annual budget for review and approval by its Board. The budget establishes the approved activities
for the upcoming year and estimates the costs associated with these activities.
Historically, the Company has funded its operations
through the issuance of additional Common Shares and common share purchase warrants that upon exercise are converted to Common Shares
and through license revenue received under licensing agreements. While management regularly monitors the capital markets, general market
conditions, and the availability of capital, there are no assurances that funds will be made available to the Company in the required
amounts or when required. The Company has the ability to sell approximately 2.7 million shares under the terms of the Aspire Agreement,
which will expire in June 2022.
| MANAGEMENT DISCUSSION AND ANALYSIS | 17 |
Base Shelf
On July 30, 2019, the Company filed a Form F-3
registration statement (the "Base Shelf") that qualifies for distribution of up to $125,000,000 of Common Shares, warrants,
or units (the "Securities") in either Canada, the U.S. or both.
Under the Base Shelf, the Company may sell Securities
to or through underwriters, dealers, and also may sell Securities directly to purchasers or through agents, subject to obtaining any applicable
exemption from registration requirements. The distribution of Securities may be effected from time to time in one or more transactions
at a fixed price or prices, which may be subject to change, at market prices prevailing at the time of sale, or at prices related to such
prevailing market prices to be negotiated with purchasers and as set forth in an accompanying Prospectus Supplement.
The Base Shelf provides the Company with additional
flexibility when managing its cash resources as, under certain circumstances, it can shorten the time period required to close a financing
and is expected to increase the number of potential investors that may be prepared to invest in the Company. Funds received as a result
of using the Base Shelf would be used in line with the Board approved budget. The Base Shelf is effective until July 30, 2022.
Nasdaq Compliance
On December 30, 2021, the Company received a notification
from the Nasdaq Stock Market LLC Listing Qualifications Department that it was not in compliance with the minimum bid price requirement
set forth in Nasdaq Rule 5550(a)(2) since the closing bid price for the Company's common shares listed on Nasdaq was below US$1.00 for
30 consecutive business days. Nasdaq Rule 5550(a)(2) requires the shares to maintain a minimum bid price of US$1.00 per share, and Nasdaq
Rule 5810(c)(3)(A) provides that failure to meet such a requirement exists when the bid price of the shares is below US$1.00 for a period
of 30 consecutive business days.
These notifications do not impact the Company’s
listing on Nasdaq at this time. In accordance with Listing Rule 5810(c)(3)(A), the Company has a period of 180 calendar days from the
date of notification, being until June 28, 2022, to regain compliance with the minimum bid price requirement, during which time the shares
will continue to trade on Nasdaq. If at any time before June 28, 2022, the bid price of the shares closes at or above US$1.00 per share
for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with
the minimum bid price requirement and will consider such deficiency matters closed.
The Company is also listed on the TSX and the notification
does not affect the company's compliance status with such listing. The Company intends to evaluate all available options to resolve the
deficiency and regain compliance with Nasdaq Rule 5550(a)(2).
CONTRACTUAL OBLIGATIONS
Contractual obligations relating to accounts payable
and accrued liabilities, long-term debt, and lease liabilities and purchase order commitments as at March 31, 2022, are as follows:
| MANAGEMENT DISCUSSION AND ANALYSIS | 18 |
| |
Total |
Less
than 1
year |
2 – 3
years |
4 – 5
years |
Greater
than 5
years |
| |
$ |
$ |
$ |
$ |
$ |
| Accounts payable and accrued liabilities |
5,543 |
5,543 |
- |
- |
- |
| Lease liabilities |
1,244 |
354 |
890 |
- |
- |
| Purchase order commitments1 |
8,100 |
|
8,100 |
- |
- |
| TOTAL |
14,887 |
5,897 |
8,990 |
- |
- |
Note:
| 1. | Purchase order commitments are obligations that are not reflected on the balance sheet. These are contracts
with suppliers not yet fulfilled. These commitments are with engineering consulting firms to support the development of the Enos System
and suppliers for parts to manufacture the Enos System and with our contract manufacturer to manufacture the Enos System. |
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this report, the Company had no off-balance sheet
arrangements.
OUTSTANDING COMMON SHARE DATA
The following table summarizes the outstanding share capital as of May
11, 2022:
| Type of Securities |
Number of Common Shares issued
or issuable upon conversion |
| Common Shares 17 |
111,202,690 |
| Stock options |
5,476,728 |
| Restricted share units |
2,008,374 |
| Derivative warrant units |
18,955,281 |
| Equity warrants |
9,912,633 |
Notes:
| 1. | The Company has entered into an agreement with a consultant under which the Company has certain contractual
obligations to grant up to 100,000 restricted Common Shares based on the consultant’s achievement of multiple pre-determined performance
criteria. To date, the performance criteria have not been achieved and no restricted Common Shares have been granted to the consultant.
The agreement expires on May 13, 2022. |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A description of the Company’s significant
accounting policies are included in Note 2 of the Company’s audited consolidated financial statements for the year ended December
31, 2021.
The preparation of the Consolidated Financial Statements
in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting periods. Management
has identified accounting estimates that it believes are most critical to understanding the Consolidated Financial Statements and those
that require the application of management’s most subjective judgments, often requiring the need to make estimates about the effect
of
| MANAGEMENT DISCUSSION AND ANALYSIS | 19 |
matters that are inherently uncertain and may change in subsequent periods. The Company’s actual results could differ from these
estimates and such differences could be material.
Financial statement items subject to significant
judgement include, (a) incremental borrowing rate used to measure lease liabilities, (b) the fair value estimate of the measurement of
lease, warrant derivative liabilities and the note payable, and (c) the assessment of the Company’s ability to meet its obligations
as they come due. While management believes that the estimates and assumptions are reasonable, actual results may differ.
RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2022, and
March 31, 2021, transactions between the Company and directors, officers and other related parties were related to compensation matters
in the normal course of operations and are measured at the fair value, which is the amount of consideration established and agreed to
by the related parties.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist
of cash, accounts payable and accrued liabilities and the warrant derivative liability. The fair value of these financial instruments
approximates their carrying values, unless otherwise noted, due to the short-term maturities of these instruments, the discount rate applied
or in the case of the warrant liability, due to the application of mark-to-market policy.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for the design of internal
controls over financial reporting (“ICFR”) within the Company, in order to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
National Instrument 52-109 – Certification
of Disclsoure in Issuers’ Annual and Interim Filings requires the Chief Executive Officer and Chief Financial Officer to certify
that they are responsible for establishing and maintaining ICFR for the Company and that those internal controls have been designed and
are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. The Chief Executive Officer and Chief Financial Officer are also responsible for disclosing
any changes to the internal controls for the Company that have materially affected, or are reasonably likely to materially affect, the
Company’s ICFR.
Management, including the Chief Executive Officer
and Chief Financial Officer, does not expect that the internal controls over financial reporting of the Company will prevent or detect
all errors and all fraud or will be effective under all potential future conditions. A control system is subject to inherent limitations
and, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives
will be met.
Further, the design of a control system must reflect
that there are resource constraints, and the benefits of controls must be considered relative to their costs. Inherent limitations include
the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls
can also be circumvented by individual acts of some persons, by collusion of two or more people or by management override of the controls.
Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
The design of any control system is also based in part upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all potential conditions. Projections of any evaluations
of effectiveness to future periods are subject to the risk that controls may
| MANAGEMENT DISCUSSION AND ANALYSIS | 20 |
become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
There have been no changes in the ICFR of the Company
during the period of this MD&A that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.
RISK FACTORS
For a detailed description of risk factors associated
with the Company, refer to the “Risk Factors” section of the Form 20-F, which is available on SEDAR at www.sedar.com and EDGAR
at www.sec.gov.
An investment in the Company’s securities
is speculative and involves a high degree of risk due to the nature of the Company’s business. It is recommended that investors
consult with their own professional advisors before investing in the Company’s securities.
| MANAGEMENT DISCUSSION AND ANALYSIS | 21 |
