1.DESCRIPTION OF BUSINESS

Nature of Operations:

Titan Medical Inc.’s (“Titan” or the “Company”) business is in the research and development stage and is focused on the continued research and development of robotic assisted technologies for application in single access surgery, including the development of the Enos^TM robotic single access surgical system (the “Enos system”). In the near term, the Company plans to 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 the later stage 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.

On May 29, 2020, the Company established a wholly owned subsidiary, Titan Medical USA Inc. (“Titan USA” or “Subsidiary”), a corporation that is duly organized and existing under the laws of Delaware.

Basis of Presentation:

(a)Statement of Compliance

These unaudited condensed interim consolidated financial statements (the “Interim Financial Statements”) for the three months ended June 30, 2021, and June 30, 2020, have been prepared in accordance with International Accounting Standards 34 – Interim Financial Reporting (“IAS 34” or “IAS 34 – Interim Financial Reporting”). The unaudited condensed consolidated interim financial statements should be read in conjunction with the annual audited consolidated financial statements for the years ended December 31, 2020.

The Interim Financial Statements were authorized for issue by the Board of Directors on August 10, 2021.

(b)Basis of Presentation

The Company changed the presentation of the condensed interim consolidated statements of shareholders’ equity (deficit) to present separately the warrant reserve previously included in share capital. The Company further changed the presentation of condensed interim consolidated statements of net and comprehensive loss to present expenses by function. Certain comparative figures have been reclassified to conform with the current period presentation.

(c)Presentation Currency

These Interim Financial Statements are presented in United States dollars (“US”), which is the Company’s functional and presentation currency, and are rounded to the nearest thousands of dollars.

(d)Restricted Share Units

Pursuant to the Company’s share unit plan (“SU Plan”), the Company issued restricted share units (“RSU”) to certain employees and directors in Q2, 2021. Under the SU Plan, each RSU, once vested, is exchangeable for one common share in the capital of the Company (each a “Common Share”).

1.DESCRIPTION OF BUSINESS (continued)

(e)COVID-19

Since December 31, 2019, the outbreak of a 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, quarantine periods and social distancing protocol, along with the uncertainty around the disease itself, have caused material disruption to businesses globally, resulting in an economic slowdown. Global equity markets have experienced significant volatility. 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. Due to the uncertainty caused by the COVID-19 outbreak, the Company is experiencing a longer recruitment cycle for recruiting technical personnel, and travel restrictions have slowed its ability to select and qualify suppliers for certain of its products. Furthermore, contractors and suppliers engaged by the Company may also be impacted by COVID-19 and there is a risk they could fail to meet their obligations to the Company. The effects of these impediments on the Company’s ability to achieve its milestones, including the timeline for completion, is unknown at this time.

2.NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE COMPANY

The significant accounting policies used in preparing these Interim Financial Statements are consistent with the accounting policies and computation methods applied in the audited consolidated financial statements for the year ended December 31, 2020.

Other new and amended standards and interpretations issued by the IASB applicable for periods within the current annual reporting year are not expected to impact Titan as they are either not relevant to Titan’s activities or apply to accounting standards which are consistent with Titan’s current accounting policies.

3.RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

4.PATENT RIGHTS

5.NOTE PAYABLE

In 2020, the Company entered into an agreement with Medtronic for a note payable (the “Note”). In connection with the Note, the Company executed and delivered a security agreement in favour of Medtronic. Under the Note agreement, the Company received $1.5 million in cash and owes an additional $559 related to certain legal, transaction and intellectual property related expenses incurred by Medtronic pursuant to the Medtronic agreements and will bear interest at the rate of 8% per annum. The unpaid principal balance owing under the Note, together with any accrued and unpaid interest and all other unpaid obligations under the Note, shall be due and payable in full on the earliest to occur of: (i) June 3, 2023, (ii) a Change of Control (as defined in the Note), or (iii) the completion of the last milestone under the Development Agreement.

6.WARRANT DERIVATIVE LIABILITY

The warrant derivative liability arises from Company's common share purchase warrants in connection with historical equity offerings. These warrants are priced in non-functional currency which resulted in having exercise prices that are not fixed and include features that have a cashless exercise option or a ratchet down provision. The warrants are fair valued as a non-cash financial liability using the Black-Scholes model and subsequent changes in the fair value are recorded through Net and Comprehensive Loss.

7.REVENUES

On June 3, 2020, the Company entered into a License Agreement with a U.S. affiliate of Medtronic, whereby the Company is providing exclusive access to certain intellectual property rights relating to robotic assisted surgical technologies. Revenue from the Development Agreement and the allocation of ownership and license rights developed under each milestone is recognized when the rights are granted, and customer acceptance is established. Revenue from the License Agreement for intellectual property rights and know-how is recognized when rights are granted, and customer acceptance is established. Compensation received for the performance of technology transfer services relating to the License Agreement is accounted for separately from the License Payment and will be recognized at the time the service is performed.

The Company earns license revenue from achieving defined milestones in the Development Agreement. During Q2, 2021, the Company recognized and received $10 million upon successful completion of the third milestone (Q2, 2020 - $10 million pursuant to license agreement for intellectual property rights and know-how).

To date the Company has earned $30 million of the maximum amount of $41 million that could be payable by Medtronic under the Development Agreement and the License Agreement if all of the Medtronic Milestones are completed.

8.DEPRECIATION AND AMORTIZATION

9.SHARE CAPITAL

(a) Authorized: unlimited number of common shares, no par value

Issued: 110,927,690 (December 31, 2020: 83,184,843)

Exercise prices of units, warrants, options and RSUs, are presented in US dollars unless otherwise noted.

Aspire Agreement

During Q2, 2021, the Company issued 1,400,000 Common Shares to Aspire Capital Fund, LLC for proceeds of $2,524 pursuant to the December 23, 2019 common share purchase agreement.

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 $11,500 ($10,231 net of z13637share issuance costs). Each January 2021 Unit consists of one Common Share in the capital of the Company (each a “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 treated as share issuance costs. January 2021 Warrants and broker warrants associated with this raise qualified as equity classification – see Note 9(c).

February 2021 Equity Offering

On February 24, 2021, the Company closed an offering of 9,585,250 units of the Company (“February 2021 Units”) at a price of $2.40 per February 2021 Unit for aggregate gross proceeds of $23,005 ($21,093 net of share issuance costs). 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 share until February 24, 2023. In connection with the February 2021 Offering, the Company issued 670,967 broker warrants exercisable at $3.00 until February 24, 2023 treated as share issuance costs. February 2021 Warrants and broker warrants associated with this raise qualified as equity classification – see Note 9(c).

(b)Stock-Based Compensation

(i)Options

(ii)Restricted Share Units