As filed with the Securities and Exchange Commission on May 31, 2020
Registration No. 333-
 


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________

Titan Medical Inc.
(Exact Name of Registrant as Specified in Its Charter)

__________________________
Not Applicable
(Translation of Registrant’s name into English)
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
 
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

  C T Corporation System
1015 15th Street N.W., Suite 1000
Washington, DC 20005
(202) 572-3100
 
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

__________________________
Copy to:
Dorsey & Whitney LLP
James Guttman
Richard Raymer
TD Canada Trust Tower
Brookfield Place
161 Bay Street
Suite 4310
Toronto, Ontario, Canada
M5J 2S1
(416) 367-7376  
i


Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment fled pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same of offering.
If this Form is a post-effective amendment fi led pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. __________
ii


CALCULATION OF REGISTRATION FEE
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).

__________________________
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the United States Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. 
iii

EXPLANATORY NOTE
This Registration Statement contains two prospectuses, as set forth below.

  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”).

The Primary Offering Prospectus is substantively identical to the Resale Prospectus, except for the following principal points:
  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.

The Registrant has included in this Registration Statement, after the financial statements, a set of alternate pages to reflect the foregoing differences of the Resale Prospectus as compared to the Primary Offering Prospectus.
iv

The information in this prospectus is not complete and may be changed.  The Selling Securityholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities, and the selling shareholder is not soliciting offers to buy these securities, in any jurisdiction where the offer or sale of these securities is not permitted.
SUBJECT TO COMPLETION, DATED MAY 31, 2020
Titan Medical Inc.

3,143,267 Common Shares
This prospectus relates to the proposed resale or other disposition from time to time of up to 3,143,267 common shares (the “Warrant Shares”) of Titan Medical Inc. (the “Company,”  “Titan,” “we,” “us” or “our) by the Selling Securityholders identified in this prospectus. The Warrant Shares are common shares of the Company (the “Common Shares” or “Shares”) that are issuable upon exercise of warrants held by the Selling Securityholders. We are not selling any Common Shares under this prospectus and will not receive any proceeds from the sale of the Warrant Shares.
The Selling Securityholders may sell or otherwise dispose of the Warrant Shares described in this prospectus at various times and in various types of transactions, including sales in the open market, sales in negotiated transactions and sales by a combination of these methods. The Selling Securityholders may sell the Warrant Shares to or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions. The Selling Securityholders will bear all commissions and discounts, if any, attributable to the sales of the Warrant Shares. We will bear all other costs, expenses and fees in connection with the registration of the Warrant Shares. Please read “Plan of Distribution.”
The Common Shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol “TMD” and the NASDAQ Capital Market (“Nasdaq”) under the symbol “TMDI.”  On May 29, 2020, the last reported sale price per share of our Common Shares was CDN$0.36 per share on the TSX and $0.2668 per share on the Nasdaq.
You should read this prospectus and any prospectus supplement, together with additional information described under the heading “Additional Information,” carefully before you invest in any of our securities.
We are an “emerging growth company” as defined under the federal securities laws and, as such, are subject to reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an “Emerging Growth Company” and a Foreign Private Issuer.”
Investing in the Common Shares involves a high degree of risk. See “Risk Factors” beginning on page 17.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is       ,2020
v

TABLE OF CONTENTS

  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

vi

 
ABOUT THIS PROSPECTUS
All references in this prospectus to “the Company”, “Titan”, “we”, “us”, or “our” refer to Titan Medical Inc., unless otherwise indicated.
We have not authorized anyone to provide information different from that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus prepared by us or on our behalf. We do not take any responsibility for, and can provide no assurance as to the reliability of, any information other than the information in this prospectus, any amendment or supplement to this prospectus, and any free writing prospectus prepared by us or on our behalf. Neither the delivery of this prospectus nor the sale of our securities means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which such offer or solicitation is unlawful.
For investors outside the United States, we have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
This prospectus includes statistical data, market data and other industry data and forecasts, which we obtained from market research, publicly available information and independent industry publications and reports that we believe to be reliable sources.
In this prospectus, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in United States dollars. All references to “dollar”, “$” or “US$” are to United States dollars. All references to “CDN$” are to Canadian dollars. Potential purchasers should be aware that foreign exchange fluctuations are likely to occur from time to time and that we do not make any representation with respect to currency values from time to time. Investors should consult their own advisors with respect to the potential risk of currency fluctuations.
Our financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS, which differs in certain material respects from U.S. generally accepted accounting principles.
This prospectus contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.”
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the exhibits attached hereto contain “forward looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward looking information” within the meaning of applicable Canadian securities legislation (collectively, “Forward Looking Statements”). All statements, other than statements of historical fact, that address activities, events or developments that we believe, expect or anticipate will, may, could or might occur in the future are Forward Looking Statements. The words “expect”, “anticipate”, “estimate”, “may”, “could”, “might”, “will”, “would”, “should”, “intend”, “believe”, “target”, “budget”, “plan”, “strategy”, “goals”, “objectives”, “projection” or the negative of any of these words and similar expressions are intended to identify Forward Looking Statements, although these words may not be present in all Forward Looking Statements. Forward Looking Statements included in this prospectus and the exhibits attached hereto include, without limitation, statements concerning;


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;

8



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;

9



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).

Such forward-looking statements reflect our current beliefs and views with respect to future events and are subject to certain known and unknown risks, uncertainties and assumptions.  Many factors could cause actual results, performance, or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others:


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.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein.  This list is not exhaustive of the factors that may affect any of our forward-looking statements.  Forward-looking statements are statements about the future and are inherently uncertain, and our actual achievements or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including without limitation, those referred to in this document under the heading “Risk Factors” and in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019 filed with the SEC on April 2, 2020, and elsewhere.  The forward-looking statements in this prospectus are based on the reasonable beliefs, expectations and opinions of management on the date the forward-looking statements are made, and, except as required by law, we do not assume any obligation to update forward-looking statements if circumstances or our management’s beliefs, expectations or opinions should change.
10

 
For the reasons set forth above, investors should not attribute undue certainty to or place undue reliance on forward-looking statements.
 
Additional risks and uncertainties relating to us and our business can be found in the “Risk Factors” section of this prospectus.

11

SUMMARY

This summary highlights certain information about us, this offering and selected information contained in the prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in the Common Shares. For a more complete understanding of our company and this offering, we encourage you to read and consider the more detailed information in the prospectus, including “Risk Factors” and the financial statements and related notes.
Overview
Our business plan consists of the development of computer-assisted robotic surgical technologies for application in MIS comprising our single-port robotic surgical system. The system under development includes a surgeon-controlled patient cart that includes a 3D high definition vision system and multi-articulating instruments for performing MIS procedures, and a surgeon workstation that provides the surgeon with an advanced ergonomic interface to the patient cart and a 3D endoscopic view inside the patient’s body during MIS procedures. We intend to initially pursue gynecologic surgical indications for use of our single-port robotic surgical system.

We have continuously evaluated our technologies under development for intellectual property protection through a combination of trade secrets and patent application filings and we have continued the filing and prosecution of patents. Our patent portfolio has increased from 12 issued patents at December 31, 2016 to 46 issued patents as of December 31, 2019. As of May 13, 2020, we have 52 patents and 84 patent applications.
As part of our development efforts, we have established certain milestones related to technology and design advancements as well as preclinical and clinical studies and completion of regulatory submissions. To assess progress, we regularly test and evaluate our technology. If such evaluations indicate technical defects or failure to meet cost or performance goals, our development schedule could be further delayed. See “Risk Factors”.

Risk Factors

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the section of this prospectus entitled “Risk Factors.” These risks include, but are not limited to, the following:

 
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.

Recent Developments
On November 27, 2019, we received notifications by Nasdaq that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) since the closing bid price for our Common Shares listed on Nasdaq was below $1.00 for 30 consecutive business days (the “Minimum Bid Price”), and Nasdaq Rule 5550(b)(2) since the Market Value of Listed Securities for our Common Shares listed on Nasdaq was below $35 million for 30 consecutive business days (the “Minimum MVLS”).  Nasdaq Rules further provided us with a period of 180 calendar days from the date of notification to regain compliance with the above noted Rules.  While the period to regain compliance with the Minimum Bid Price has been tolled due to coronavirus, giving us until August 10, 2020 to cure the Minimum Bid Price deficiency, the period to regain compliance with the Minimum MVLS has not been tolled.
12

On May 26, 2020, we received a Staff Delisting Determination letter (the “Determination”) from Nasdaq setting forth a determination to delist our Common Shares from Nasdaq as a result of our failure to comply with the Minimum MVLS (the “Deficiency”).  We intend to appeal the Determination by requesting a hearing before a Hearings Panel (the “Panel”).  The hearing request will stay the delisting of our Common Shares until a determination is made by the Panel.  The Common Shares will continue to trade on Nasdaq pending the outcome of the hearing before the Panel.  We will address the ongoing non-compliance matters before the Panel and will request additional time to cure the Deficiency.  There can be no assurance that, following the hearing, the Panel will grant our request for additional time to regain compliance with the Minimum MVLS, Minimum Bid Price or other continued listing requirements under Nasdaq Rules (the “Continued Listing Requirements”).  If the Panel does not grant our request for additional time to comply, our Common Shares will be subject to delisting from Nasdaq.  If our Common Shares were to be delisted by Nasdaq, the market liquidity of our Common Shares could be adversely affected and the market price of our Common Shares could decline, even though such Common Shares may continue to be traded “over-the-counter” and will continue to trade on the TSX.  See “Risk Factors” for more information.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” under the U.S. Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and will continue to qualify as an “emerging growth company” until the earliest to occur of:

 
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.

An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable to public companies in the United States. Generally, a company that registers any class of its securities under Section 12 of the Exchange Act, as we will do in connection with this offering, is required to include in the second and all subsequent annual reports filed by it under the Exchange Act, a management report on internal control over financial reporting and, subject to an exemption available to companies that meet the definition of a “smaller reporting company” in Rule 12b-2 under the Exchange Act, an auditor attestation report on management’s assessment of the company’s internal control over financial reporting. However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report in our annual reports filed under the Exchange Act, even if we do not qualify as a “smaller reporting company”. In addition, Section 103(a)(3) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, has been amended by the JOBS Act to provide that, among other things, auditors of an emerging growth company are exempt from any rules of the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the company.

13

Pursuant to Section 107(b) of the JOBS Act, an emerging growth company may elect to utilize an extended transition period for complying with new or revised accounting standards for public companies until such standards apply to private companies. We have elected not to utilize this extended transition period. This election is revocable.

Implications of Being a Foreign Private Issuer
We are also considered a “foreign private issuer” pursuant to Rule 405 promulgated under the Securities Act. In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer if at the end of our second fiscal quarter as more than 50% of our outstanding voting securities are held by United States residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are United States citizens or residents; (2) more than 50% of our assets are located in the United States; or (3) our business is administered principally in the United States.
We have taken advantage of certain reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.
Corporate Structure and History
We are the successor corporation formed pursuant to two separate amalgamations under the Business Corporations Act (Ontario) on July 28, 2008. We have one subsidiary, Titan Medical USA Inc., which was incorporated in Delaware on May 29, 2020.

The address of our corporate office and our principal place of business is 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7. Our main telephone number is (416) 548-7522.
On June 19, 2018, we consolidated our issued and outstanding Common Shares on the basis of one post-consolidation Common Share for 30 pre-consolidation Common Shares (the “Share Consolidation”). The Share Consolidation was undertaken in connection with our application for a supplemental listing of our securities on the Nasdaq.
The Common Shares are listed for trading in Canada on the TSX under the symbol “TMD”. The Common Shares are also traded on the Nasdaq in the United States under the symbol “TMDI”.
We also maintain a web site at https://titanmedicalinc.com/. The information contained in, or that can be accessed through, our web site is not part of this prospectus.
14

THE OFFERING
This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our common shares. You should carefully read this entire prospectus before investing in our common shares including the section entitled “Risk Factors,” our consolidated financial statements and the Exhibits filed with or incorporated herein.

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.
On May 3, 2020, we entered into a securities purchase agreement (the “Purchase Agreement”) with two institutional investors, pursuant to which, among other things, we agreed to issue and sell, in a private placement (the “Private Placement”), warrants (the “Private Placement Warrants”) exercisable for up to 2,757,252 Common Shares, with an exercise price of $0.3002 per Share (the “Private Placement Warrant Shares”), and warrants to the placement agent (the “Placement Agent Warrants”, and together with the Private Placement Warrant, the “Warrants”) exercisable for an aggregate of up to 386,015 Common Shares (the “Placement Agent Warrant Shares”, and together with the Placement Agent Warrant Shares, the “Warrant Shares”), with an exercise price of $0.45335 per Placement Agent Warrant Share, in each case subject to customary adjustment as set forth in the Warrants. The Warrants were exercisable immediately following the date of issuance.  The Private Placement Warrants will expire five and one-half years following the date of issuance and the Placement Agent Warrants will expire five years following the date of issuance.
In connection with the Purchase Agreement, we have agreed to file this registration statement covering the resale of the Warrant Shares issued and issuable upon exercise of the Warrants within 30 calendar days of the date of the Purchase Agreement. We also agreed to use commercially reasonable efforts to cause such registration to become effective within 90 days of the Purchase Agreement, and to keep such registration statement effective at all times until no purchaser owns any Warrants or Warrant Shares issuable upon exercise thereof.
The foregoing description of the Purchase Agreement and the Warrants are not complete and are qualified in their entirety by references to the full text of the Form of Securities Purchase Agreement, the Form of Warrant and the Form of Placement Agent Warrant, which are included herein as Exhibit 4.1, Exhibit 4.2 and Exhibit 10.2 hereto. Registration of the Warrant Shares covered by this prospectus does not necessarily mean that the Selling Securityholders will exercise the Warrants, or that all or any portion of such Warrant Shares will be offered for sale by the Selling Securityholders.
15

Summary Consolidated Financial Information
The following tables summarize financial data as at and for the fiscal years ended December 31, 2019, 2018, 2017 and 2016, in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. The financial information in the tables below as at and for the fiscal year ended December 31, 2019, 2018 and 2017 has been derived from our audited financial statements and related notes included in this prospectus. The financial information in the tables below as at and for the fiscal year ended December 31, 2016 has been derived from our audited financial statements for the year then ended.
The selected financial data below should be read in conjunction with the financial statements included in this prospectus beginning on page F-1 of this prospectus and with the information appearing in the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Our historical results do not necessarily indicate results expected for any future period.

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
 
Notes:
(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.
16

RISK FACTORS
An investment in the Common Shares involves a high degree of risk and should be considered speculative. An investment in the Common Shares should only be undertaken by those persons who can afford the total loss of their investment. You should carefully consider the risks and uncertainties described below, as well as other information contained in this prospectus. The risks and uncertainties below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we believe to be immaterial may also adversely affect our business. If any of the following risks occur, our business, financial condition and results of operations could be seriously harmed and you could lose all or part of your investment. Further, if we fail to meet the expectations of the public market in any given period, the market price of the Common Shares could decline. We operate in a highly competitive environment that involves significant risks and uncertainties, some of which are outside of our control.
Risks Related to our Business
We will require additional financing which may not be available to us on acceptable terms, or at all.
We will require additional financing in order to continue our research and development program through to completion and take advantage of future opportunities. Our ability to arrange such financing in the future will depend in part upon prevailing capital market conditions, as well as upon our business success. There can be no assurance that we will be successful in our efforts to arrange additional financing on terms satisfactory to us. If additional financing is raised by the issuance of shares or convertible securities from treasury, our control may change and shareholders may suffer additional dilution. If additional funds are raised through strategic partnerships, we may be required to relinquish rights to our products, or to grant licenses on terms that are not favorable to us. If adequate funds are not available, or are not available on acceptable terms, we may not be able to take advantage of opportunities, or otherwise respond to competitive pressures, which may delay or reduce our operations and ability to remain in business and continue as a going concern.
We have a history of losses and there is no guarantee that we will be able to achieve profitability.
We have a history of losses, and there is no assurance that any of our contemplated products will generate sustainable revenues or earnings, be profitable or provide a return on investment in the future. We have not paid dividends in the past. Our directors will determine our future dividend policy if we generate earnings in the future, based on operational and financial circumstances at that time.
We had negative cash flow from operating activities for our fiscal year ended December 31, 2019 and this negative cash flow is expected to continue. We will continue to incur research and development and general and administrative expenses related to our operations. We expect to incur sales and marketing expenses in anticipation of the commercialization of the single-port robotic surgical system if and when FDA clearance and CE marking provides authorization for commercial activities in the corresponding jurisdictions. If the single-port robotic surgical system fails in development or does not gain regulatory clearance or approval, or if it does not achieve market acceptance, we may never generate revenue or free cash flow or become profitable. Even if we generate revenue or free cash flow or achieve profitability in the future, we may not be able to sustain revenues, free cash flow or profitability in subsequent periods.
The medical device industry requires significant financial resources, and there is no assurance that future revenues will be sufficient to generate the funds required to continue our business development and marketing activities. If we do not have sufficient capital to fund our operations, we may be required to reduce our research and development efforts or in the future reduce our marketing efforts or forego certain business opportunities.

The Note may limit or preclude us from arranging further debt financing.  Under the terms of the Note and related Security Agreement (as defined herein), the Corporate Lender (as defined herein) has certain rights and powers that, if exercised, would have a material adverse effect on our business.

Due to the senior ranking of the Corporate Lender’s security interest in all of our assets under the Security Agreement, we may be limited in, or entirely precluded from, granting a security interest in our assets in support of any further debt financing we may seek from any other lender.  In the event that we seek further debt financing and it is not available due to our assets being pledged under the Security Agreement to the Corporate Lender, we will need to seek financing by way of equity financing and there is no assurance that any further equity financing will be available or available on terms acceptable to us.

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If certain events of default as defined in the Note issued by us to the Corporate Lender were to occur, the Corporate Lender has the power to demand payment in full of the principal, interest and any other amounts owing under the Note and under the Security Agreement and to take certain actions such as taking control of our assets including our intellectual property and if this were to happen, this may result in a disruption of our business and operations and we may lose our rights to our intellectual property and other assets.  If we were to lose our intellectual property rights, we would effectively be forced to cease our current business operations.

We have a working capital deficiency of approximately $7.7 million as at March 31, 2020 (excluding warrant liability) and we will need to raise funds to pay our liabilities and additional funds to carry on our business.

Our current liabilities exceed our current assets and we do not have sufficient funds to carry on our business or pay our liabilities.  We may seek to raise up to all of the additional funds required to pay our liabilities through further equity offerings and if that were to happen, it may result in further dilution to existing stockholders. There is no assurance that any further financing will be available on terms acceptable to us or at all.  If further financing is not available to us on terms acceptable to us or at all, our existing creditors may take a number of actions against us including commencing proceedings to recover the amounts we owe them and failing our ability to pay our creditors, they may takes steps to enforce their security which may include placing the Company into receivership or bankruptcy and in such event, there is no assurance that our stockholders would receive any amounts in respect of their securities.  Furthermore, there is no assurance that we will accept any financing offered to us if we deem the terms of the financing (including the sufficiency and timing of the financing) to be such that the financing would not be in our best interests.
We rely on strategic alliances and there can be no assurance that these alliances will achieve their goals.
We rely upon, and expect to rely upon, strategic alliances with original equipment manufacturers (if and when our technology is commercialized) and medical technology development firms for development contracts, assistance in product design and development, volume purchase orders and manufacturing and marketing expertise. There can be no assurance that the strategic alliances will achieve their goals.
We depend on key personnel and the loss of the service of such personnel could have a negative impact on our business.
Our future success and performance depend in part upon the experience of key members of management. If, for any reason, any one or more of such key personnel do not continue to be active in our management, our operations and business prospects could be adversely affected. In particular, the losses of the services of any of our senior management or other key employees integral to the development of our technology and the generation of a functional, commercially viable product, or the inability to attract and retain necessary technical personnel in the future, could have a material adverse effect upon our business, financial condition, prospects, operating results and cash flows. We do not currently maintain “key man” insurance for any senior management or other key personnel.
We expect to increase the size of our management team in the future and our failure to attract and retain new members of our management team could adversely affect our business.
We expect that our potential expansion into areas and activities requiring additional expertise, such as manufacturing, sales, marketing and distribution will place additional requirements on our management, operational and financial resources. We expect these demands will require an increase in management and engineering, medical sales, marketing, and technical personnel and the development of additional expertise by existing management personnel. There is currently aggressive competition for employees who have experience in technology engineering, and in particular, surgical robotics. The failure to attract and retain such personnel or to develop such expertise could materially adversely affect our business, financial condition and results of operations.
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Our trade secrets or other confidential information may be compromised.
We rely on trade secrets and confidential information, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, collaborators, suppliers, and other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade secrets and confidential information will not otherwise become known to or independently developed by competitors. We might be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could result in substantial cost and divert management’s attention from operations.
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.
We are and will continue to be dependent on third parties to conduct our preclinical and clinical studies and to provide services for certain important aspects of our business. If these third parties do not perform as contractually required or expected, we may not be able to obtain regulatory clearance for our products, or we may be delayed in doing so.
We rely on third parties, such as technology design and development firms, contract research organizations, medical institutions, academic institutions, independent clinical investigators and contract laboratories, to conduct technology development, preclinical testing and feasibility studies, and clinical studies, and we expect to continue to do so in the future. We rely heavily on these parties, but do not control many aspects of their activities. As a result, many important aspects of product development are outside our direct control. If the third parties conducting preclinical or clinical studies do not perform their contractual duties or obligations, do not meet expected patient recruitment or other deadlines, fail to comply with good laboratory practice regulations, do not adhere to protocols or otherwise fail to generate reliable data, development, approval and commercialization of our products may be extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory clearance.
Our industry is highly competitive and a number of our competitors have significantly greater financial and human resources than we do.
The robotic surgical market is highly competitive with respect to, among other factors: pricing, product and service quality, and the time required to introduce new products and services. Our market is dominated by larger and better capitalized companies with substantially greater resources than we have. New products may be slow to be accepted into the market or may not be accepted at all. We are constantly exposed to the risk that our competitors may implement new technology before we do, or may offer lower prices, additional products or services or other incentives that we cannot and will not offer. We can give no assurances that we will be able to compete successfully against existing or future competitors. Competition in our target market is intense, and we expect competition to increase. The market for robotic surgery technologies is susceptible to price reductions among competitors seeking relationships with the same hospitals and outpatient surgery centers to which we hope to sell our products.
Our ability to compete successfully depends on a number of factors, including:

 
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.
 
19

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Our commercial success depends, in part, upon not infringing intellectual property rights of others. A number of medical device and robotic surgery companies and other third parties have been issued patents and other proprietary rights, may have filed applications for patents and other proprietary rights, and may obtain additional patents and other proprietary rights, for technologies similar or identical to those being developed or utilized by us. Accordingly, there may currently exist third party patents, patent applications or other proprietary rights that may require us to alter our technology or proposed products, obtain licenses, or cease certain activities. We may become subject to claims by third parties that our technology or products infringe the third parties’ intellectual property rights for any reason, including due to the growth of products in target markets, the overlap in functionality of those products and the prevalence of products. We may become subject to these claims either directly by the third parties, or through indemnities against these claims that we may provide to end users, manufacturer’s representatives, distributors, value added resellers, system integrators and original equipment manufacturers.
Litigation before the courts of jurisdictions, or proceedings before patent offices, may be necessary to determine the scope, enforceability and validity of third-party proprietary rights and our proprietary rights. Some of our competitors have, or are affiliated with companies having, substantially greater resources than us and these competitors may be able to sustain the costs of complex intellectual property litigation and proceedings to a greater degree and for a longer period of time than us. Regardless of their merit, any claims relating to intellectual property scope, enforceability, validity, or infringement could be time consuming to evaluate and defend, result in costly litigation, cause product shipment delays or stoppages, divert management’s attention and focus away from the business, subject us to significant liabilities and equitable remedies, including injunctions, require us to enter into costly royalty or licensing agreements and/or require us to modify or stop developing or commercializing certain technologies and products unless we obtain licenses from a third parties. There can be no assurance that we would be able to obtain any such licenses on commercially favorable terms or at all. If we do not obtain such licenses, we could be required to cease the development and sale of certain of our products.
If we are unable to obtain and enforce patent protection for our products, our business could be materially harmed.
There is no guarantee that the patent applications owned by us will be granted, or, even if allowed to grant, that the patent applications will be granted in their current form or granted with a scope of protection sufficient to protect our commercially valuable technology. The scope of protection, if any, that may be afforded by our patent applications is uncertain. Further, even if patents issue from our pending or future applications, those issued patents and any of our previously assigned patents may be invalid or have a narrower scope of protection, and may be subject to invalidation proceedings commenced by third parties. The validity of an issued patent may be attacked on a number of different grounds, and such invalidation proceedings are inherently unpredictable. If such an invalidation proceeding commenced by a third party in respect of an issued patent owned by us is successful, the subject patent will be ordered invalid and therefore unenforceable.
Our success will depend, in part, on our ability to obtain and maintain protection over our technology and products and not infringe the proprietary rights of third parties. Despite precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization. There can be no assurance that any steps taken by us will prevent misappropriation of our technology. Litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results and/or financial condition.

20

We may be unable to obtain or maintain our trademarks and may incur substantial costs attempting to defend and enforce our rights in this regard.
Although we have registrations and pending applications for certain trademarks, we may not own or license trademark registrations for the marks and names that we are currently using in connection with products under development, or for our name, in any jurisdiction including the proposed principal markets where we plan to market and sell the single-port robotic surgical system following regulatory clearance and commercialization of our surgical system. We may be unable to obtain or maintain trademark registrations for the marks and names we use in one or more countries. It is possible that our use of certain trademarks and trade names, including “SPORT”, “SPORT Surgical System”, “Titan”, “Titan Medical” or variations thereof, as well as other trademarks, trade names and variations thereof for which registration may be pending, may infringe or contravene the rights, including trademark rights, of other parties in one or more countries. In the event of actual or alleged infringement or contravention of rights, we may be forced to cease using these marks and names. There may be a substantial risk of litigation or other legal proceedings in one or more countries relating to the alleged infringement or contravention of another party’s trademark rights. These proceedings may occur even if we cease using these marks and names. We may incur substantial costs to defend and/or enforce our rights, if any, in these marks and names in such legal proceedings. We may not be successful in such legal proceedings, and may be required or agree to cease using these marks and names and pay other parties significant amounts of money. We may incur substantial costs to change the names and marks used by us, including the names and marks used in association with our products. In any such events, our business and operations could be materially adversely affected.
Certain of our directors and officers also serve as directors and officers of other companies, creating the possibility that a conflict of interest could arise.
Certain of our directors, officers and advisors are also directors, officers, advisors or shareholders of other companies. Such associations may give rise to conflicts of interest from time to time. Our directors will be required by law to act honestly and in good faith with a view to our best interests and to disclose any interest which they may have in any of our projects or opportunities. If a conflict arises at a meeting of our board of directors, any director with a conflict is obligated to disclose their interest and abstain from voting on such matter. In determining whether or not we will participate in any project or opportunity, the director in potential conflict would be required to recuse themselves from voting on the matter, and then the other non-conflicted members of the board will consider the merit of the opportunity and the degree of risk to which we may be exposed, along with our financial position at that time.
We are targeting a new and rapidly changing market. It is not clear that surgeons or hospitals will choose our surgical system over those offered by our competitors.
The market for our proposed technology is relatively new and is likely to undergo substantial development and changes. The market for our technology may develop more slowly than we anticipate, in which case we may be unable to recover the losses we have incurred in the development of our technology and may never achieve profitability. We cannot guarantee that this market will develop as anticipated or that we will secure market share necessary to achieve profitability and growth.
There is no assurance that surgeons or hospitals will choose our surgical system (if and when it is commercialized) over the systems offered by our competitors. There is also no assurance that robotic surgical systems will continue to be used (or their use increased) by potential customers and that robotic surgical technology will be competitive (based on costs and performance factors) with, and preferred over, conventional and well established medical treatment and surgical methods including conventional minimally invasive surgery and open surgery.
The introduction of more technologically advanced products could impact our operating and financial results.
Existing competitors could advance their products and new competitors could enter the market with superior technology. New and competitive products introduced into the marketplace that are based on or incorporate more advanced technologies, or provide performance similar to our products at a lower cost, may impact our operating and financial results.  
We may become subject to potential product liability claims, and we may be required to pay damages that exceed our insurance coverage.
Our business is subject to a number of risks and hazards including adverse conditions or changes in the regulatory environment. Such occurrences could result in damage to equipment, personal injury or death, monetary losses and possible legal liability. Despite any insurance coverage which we currently have or may secure in the future, the nature of these risks is such that liabilities might exceed policy limits, the liabilities and hazards might not be insurable, or we may elect not to insure against such liabilities due to high premium costs or other reasons, in which event we could incur significant costs that could have a materially adverse effect upon our financial position.
21

Our business exposes us to potential product liability claims that are inherent in the design, testing, manufacture, sale and distribution of our surgical system which we are seeking to introduce to the market. Surgical medical devices involve significant risks of serious complications, including bleeding, nerve injury, paralysis, infection, and even death. Any product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance rates or in our inability to secure coverage in the future on commercially reasonable terms, if at all. In addition, if our product liability insurance proves to be inadequate to pay a damage award, we may have to pay the excess of this award out of our cash reserves, which could significantly harm our financial condition. If longer-term patient results and experience indicate that our products or any component of a product causes tissue damage, motor impairment or other adverse effects, we could be subject to significant liability. A product liability claim, even one without merit, could harm our reputation in the industry, lead to significant legal fees, and result in the diversion of management’s attention from managing our business.
Our technology may depend on third party licenses for certain functions or procedures. There can be no guarantee that we will be able to secure and maintain those licenses.
Our technology may require the use of other existing technologies and processes which are currently, or in the future will be, subject to patents, copyrights, trademarks, trade secrets and/or other intellectual property rights held by other parties. We may need to obtain one or more licenses to use those other existing technologies. If we are unable to obtain licenses on reasonable commercial terms from the holders of such intellectual property rights, we could be required to halt development and manufacturing or redesign our technology, failing which we could bear a substantial risk of litigation for infringement or misappropriation of such intellectual property rights. In any such event, our business and operations could be materially adversely affected.
Government regulation controls all aspects of our product and business. Changes in policies and additional regulations may be enacted that could prevent or delay regulatory clearance or approval of our products.
The preclinical and clinical testing, manufacturing, sale and distribution of our contemplated products are governed by a number of regulatory bodies in countries where we intend to conduct business, including required clearance to market from the FDA, European CE mark approval, and approval from the Canadian Health Protection Branch. Applications for these approvals and clearances have not been made and there can be no assurances that applications for such approvals and clearances will be filed in a timely manner as planned, or will be received, or will be granted approval or clearance, or if such approvals and clearances are granted, that we will be able to comply with the conditions and requirements of such approvals and clearances. Failure to obtain such approvals and clearances or to comply with such conditions and requirements may have a material adverse effect on our business, financial condition and results of operations.
Regulatory authorities can delay, limit or deny clearance or approval of a medical device candidate for many reasons, including:

 
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.
 
Regulatory requirements and standards for approval or clearance of medical devices are subject to change and the adaptation of our technology development program to meet the changing requirements and standards may cause us to incur substantial expenditures and may result in substantial delays in the achievement of and changes to the technology development milestones as well as escalations in the corresponding budgets. Such changes may require the performance and collection of extensive human clinical studies and data which could add significant expense and substantially lengthen timelines to commercialization. These changes may have an adverse effect on our ability to commercialize our products and our results of operations and financial condition.

22

Our results may be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of the Canadian, United States and foreign governments, agencies and similar organizations. Our results may be affected by social and economic conditions which impact our operations.
Once our products are cleared or approved, modifications to our products may require new regulatory clearances or approvals and may require us to cease marketing or recall the modified products until clearances or approvals are obtained.
If we are granted FDA clearance, we may subsequently decide to make certain modifications to our products for a number of reasons including those based on customer feedback.
Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design, or manufacture, requires a new 510(k) clearance. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review such determinations. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. If the FDA disagrees with our determinations for any future changes, or prior changes to previously marketed products, as the case may be, we may be required to cease marketing or to recall the modified products until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.
Furthermore, the FDA’s ongoing review of the 510(k) program may make it more difficult for us to make modifications to our products, either by imposing more strict requirements on when a new 510(k) for a modification to a previously cleared product must be submitted, or applying more onerous review criteria to such submissions. In October 2017, the FDA issued guidance documents addressing when to submit a new 510(k) due to modifications to 510(k) cleared products and the criteria for evaluating substantial equivalence. The interpretation of the guidance document by the FDA staff could lead to instances where the FDA disagrees with our decision regarding a change and could result in warning letters and other enforcement actions.
Even after clearance or approval for our products is obtained, we are subject to extensive post-market regulation by the FDA and other regulatory authorities. Our failure to meet strict regulatory requirements could require us to pay fines, incur other costs or even close our facilities.
Even after we have obtained the proper regulatory clearance or approval to market a product, the FDA has the power to require us to conduct post-market studies. These studies can be expensive and time-consuming to conduct. Failure to complete such studies in a timely manner could result in the revocation of clearance or approval and the recall or withdrawal of the product, which could prevent us from generating sales from that product in the United States. The FDA has broad enforcement powers, and any regulatory enforcement actions or inquiries, or other increased scrutiny on us, could dissuade surgeons from using our products and adversely affect our reputation and the perceived safety and efficacy of our products.
We are also required to comply with the FDA’s QSR (Quality System Regulation/Medical Device Good Manufacturing Practice), which covers the methods used in, and the facilities and controls used for, the design, manufacture, quality assurance, labeling, packaging, sterilization, storage, shipping, installation and servicing of our marketed products. The FDA enforces the QSR through periodic announced and unannounced inspections of manufacturing facilities. In addition, in the future, regulatory authorities and/or customers may require specific packaging of sterile products, which could increase our costs and the price of our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as the QSR, may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.

23

If one of our products, or a malfunction of one of our products, causes or contributes to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under the FDA’s medical device reporting, or MDR (Medical Device Reporting), regulations, we are required to report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Product malfunctions may result in a voluntary or involuntary product recall, which could divert managerial and financial resources, impair our ability to manufacture our products in a cost-effective and timely manner, and have an adverse effect on our reputation, results of operations and financial condition. We are also required to follow detailed recordkeeping requirements for all firm-initiated medical device corrections and removals, and to report such corrective and removal actions to the FDA if they are carried out in response to a risk to health and have not otherwise been reported under the MDR regulations.
All manufacturers bringing medical devices to market in the European Economic Area are legally bound to report any incident that led or might have led to the death or serious deterioration in the state of health of a patient, user or other person, and which the manufacturer’s device is suspected to have caused, to the competent authority in whose jurisdiction the incident occurred. In such case, the manufacturer must file an initial report with the relevant competent authority, which would be followed by further evaluation or investigation of the incident and a final report indicating whether further action is required. Any adverse event involving our products could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results.
A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.
The FDA and similar foreign governmental authorities such as the competent authorities of the European Economic Area countries have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture or in the event that a product poses an unacceptable risk to health. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues.
Any future recalls of any of our products would divert managerial and financial resources and could have an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits.
Compliance with accounting regulations and tax rules across multiple jurisdictions is time consuming and expensive and could expose us to penalties and fines.
We are subject to numerous tax and accounting requirements, and changes in existing accounting or taxation rules or practices, or varying interpretations of current rules or practices, could have a significant adverse effect on our financial results or the manner in which we conduct our business. We have issued our financial statements for the year ended December 31, 2019 in accordance with IFRS as issued by the IASB.
In the future, the geographic scope of our business may expand, and such expansion will require us to comply with the tax laws and regulations of multiple jurisdictions. Requirements as to taxation vary substantially among jurisdictions. Complying with the tax laws of these jurisdictions can be time consuming and expensive and could potentially subject us to penalties and fees in the future if we were to inadvertently fail to comply. In the event we were to inadvertently fail to comply with applicable tax laws, this could have a material adverse effect on our business, results of operations, and financial condition. 

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Contingent liabilities could have a negative impact on our financial position.
Contingent liabilities for contractual and other claims with customers, development firms, suppliers and former employees to which we may become party in the future may have a material adverse effect on our financial position.
The sales cycle for our single-port robotic surgical system is expected to be long and unpredictable, which will make it difficult for us to forecast revenue and it may increase the magnitude of quarterly fluctuations in our operating results.
The purchase of a surgical robotic system such as our single-port robotic surgical system represents a capital purchase by hospitals and other potential customers. The capital purchase nature of the transaction, the complexity of our product, the relative newness of surgical robotic systems and the competitive landscape requires us to spend substantial time and effort to assist potential customers and any group purchasing organizations in evaluating our robotic system. We must communicate with multiple surgeons, administrative staff and executives within each potential customer account in order to receive all approvals on behalf of such organizations. We may face difficulty identifying and establishing contact with such decision makers. Even after initial acceptance, the negotiation and documentation processes can be lengthy. Additionally, our customers may have strict limitations on spending depending on the current economic climate or trends in healthcare.
Any delay in achieving sales in a particular quarter could cause our operating results to fall below expectations. We also expect such a lengthy sales cycle makes it more difficult for us to accurately forecast revenues in future periods and may cause revenues and operating results to vary significantly in future periods.
We currently have very limited marketing, sales and distribution capabilities. There can be no assurance that we will be successful in building our sales capabilities. To the extent that we enter into distribution, co-promotion or other arrangements, our product revenue is likely to be lower than if we directly market or sell our products. In addition, any revenue we receive will depend in whole or in part on the efforts of such third parties, which may not be successful and are generally not within our control. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our products.
There can be no certainty that we will meet our established product development and commercialization milestones. Failure to do so may affect our operational and financial results.
We have established product development and commercialization milestones that we use to assess our progress toward developing a commercially viable product. These milestones relate to technology and design improvements as well as to dates for achieving development goals and projected expenditures. To assess progress, we test and evaluate our technology under simulated conditions. If such evaluations indicate technical defects or failure to meet cost or performance goals, our commercialization schedule could be delayed, and potential purchasers of our initial commercial systems may decline to purchase them or they may choose to purchase alternative technologies. Whether or not we meet our milestones, there is no assurance that our technology will be successful in the market. We expect that additional specific milestones could be identified as the development of our single-port robotic surgical system progresses, or existing milestones, budgets and the schedule for completion of each milestone may change depending on a number of factors including the results of our development program, the availability of financing and the ability of development firms engaged by us to complete work assigned to them.
We are still in the process of developing our single-port robotic surgical system and there can be no certainty that a commercially viable product will emerge from this process.
Our future success is substantially dependent on a continued research and development effort that has thus far been directed by certain of our key managers. In addition to being capital intensive, research and development activities relating to sophisticated technologies such as ours are inherently uncertain as to future success and the achievement of a desired result. If delays or problems occur during our ongoing research and development process, important financial and human resources may need to be diverted toward resolving such delays or problems. Further, there is a material risk that our research and development activities may not result in a functional, commercially viable product or one that is approved by regulatory authorities. 
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Commercial manufacturing of our single-port robotic surgical system is expected to be an extremely detailed and complex process with the potential for delays, interruptions or cost overruns.
The manufacture of prototypes and commercial products will involve complex processes and the manufacturers engaged by us may encounter difficulties initiating and maintaining production. In the future, there could be a significant disruption in the supply of services, materials or products from current sources or, in the event of a disruption, we might not be able to locate alternative suppliers of services, materials, components or products of comparable quality at an acceptable price, or at all. In addition, we cannot be certain that our manufacturers will be able to complete the manufacture of prototypes or fill our orders for commercial products, once commercialized, in a timely manner. If we experience significant increased demand, or need to replace an existing manufacturer, there can be no assurance that additional supplies of product or additional manufacturing capacity will be available when required on terms that are acceptable to us, or at all. In addition, even if we are able to expand existing manufacturing or find new manufacturing, we may encounter delays in production. Any delays, interruption or increased costs in the supply of materials or manufacture of our products could have an adverse effect on our ability to meet customer demand for our products and result in lower revenues and net income.
Our reliance on external suppliers and development firms for execution of our single-port robotic surgical system development program means that we do not control all aspects of the development.
We are dependent on external suppliers and development firms to conduct our technology research and development and manufacturing of evaluation units of our single-port robotic surgical system. If these external firms seek to impose conditions on their obligations to conduct their work in addition to or different from the terms set forth in their engagement agreements and we are unable to satisfy those conditions or they do not otherwise perform as contractually required or expected, we may not be able to complete the development of our single-port robotic surgical system, or we may be delayed in doing so, and the costs for developing our products may significantly increase beyond those forecasted. In the event that external development firms do not resume, or they do not otherwise carry on, the development work on our single-port robotic surgical system, on conditions and in a manner that is agreeable to us, we may engage other firms to take on the development work and in that case, the estimated costs of the development milestones may increase and the schedule for completion of each milestone may be delayed.
We rely heavily on external parties for successful execution of our single-port robotic surgical system development program, but do not control many aspects of their activities. As a result, many important aspects (including costs and timing) of product development are outside our direct control.
We are responsible for ensuring that our single-port robotic surgical system is being developed to meet the guidelines and requirements of the FDA and other regulatory authorities, applicable laws and regulations and industry standards. Our reliance on third parties does not relieve us of these responsibilities.
Additionally, if the external firms conducting preclinical or clinical studies do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with good laboratory practice regulations, do not adhere to our study protocols or otherwise fail to generate reliable preclinical or clinical data, development, approval and commercialization of our products may be extended, delayed or terminated or may need to be repeated, costs may significantly increase and we may not be able to obtain regulatory approval within the time frames forecasted, if at all.
We currently have payables due to our primary product development supplier (the “Primary Supplier”) of approximately $5.5 million relating primarily to work performed prior to November 2019.
Our Primary Supplier has stopped all work with regard to the development of the Company’s robotic surgical system and there is no assurance that we will have sufficient capital to maintain deposits or prepayments with the Primary Supplier or make payments to the Primary Supplier on satisfactory terms in order to have the Primary Supplier resume work or to maintain our engagement of the Primary Supplier. We have entered into a letter agreement (“Letter Agreement”) with our Primary Supplier for the payment of outstanding payables to the Primary Supplier.  Under the terms of the Letter Agreement, and subject to our securing sufficient funding by raising further capital, for which we cannot give any assurances, we plan to pay the Primary Supplier in full satisfaction of the outstanding payables by the end of 2020. Also, under the terms of the Letter Agreement, the Primary Supplier has agreed to resume services with regard to the development of our robotic surgical system subject to our meeting the new payment terms.
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A product malfunction could result in delays, liability and negative perceptions of the single-port robotic surgical system and ourselves.
A malfunction or the inadequate design of our contemplated surgical system could result in product liability or other tort claims. Accidents involving our surgical system could lead to personal injury, death or physical damage. Any liability for damages or injury resulting from malfunctions could be substantial and could adversely affect our business and results of operations. In addition, a well publicized actual or perceived problem could adversely affect the market’s perception of our surgical system. This could result in a decline in demand for our products, which would adversely affect our financial condition and results of operations.
 
If our contemplated products are found to be defective, we may be required to redesign or recall the surgical system. This redesign or recall may cause us to incur significant expenses, disrupt sales and adversely affect our reputation and our surgical system, which could adversely impact our revenue, operating results and profitability.
Certain reusable instruments, camera components and other accessories require repeated cleaning and sterilization
Certain reusable instruments, camera components and other accessories require repeated cleaning and sterilization between surgical procedures. There is no assurance that our product development and manufacturing partners will be successful in producing designs that achieve a predictable number of cleaning and sterilization cycles, or that the specified processes will result in sterile products. If product development efforts are unsuccessful in this regard, our economic model for pricing of reusable devices could become impractical to implement, our potential profit margins (if any) may be adversely affected, or our product offering could be deemed to not be viable for commercial use.
Once our products are available for commercial use, there is no assurance that customers will follow the cleaning and sterilization procedures that we recommend for our products. Failure by a customer to perform the appropriate cleaning and sterilization procedures could lead to patient injury or death, in which case we could be subject to litigation and possible regulatory enforcement. Further, even the allegation of the use of nonsterile product by a customer could have a materially adverse effect on our business.
As we are a Canadian company, it may be difficult for United States shareholders to effect service on us or to realize on judgments obtained in the United States.
We are incorporated under the laws of the Province of Ontario, Canada, a number of our directors and officers are residents of Canada, and most or all of our assets and the assets of such persons are located outside the United States. Consequently, it may be difficult for United States investors to effect service of process within the United States upon us or upon such persons who are not residents of the United States, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under United States securities laws. A judgment of a United States court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or us predicated solely upon such civil liabilities.
We are subject to risks related to additional regulatory burden and controls over financial reporting.
We are subject to the continuous and timely disclosure requirements of Canadian securities laws and the rules, regulations and policies of the Toronto Stock Exchange, the Ontario Securities Commission and other Canadian securities regulators, the Nasdaq and the SEC. These rules, regulations and policies relate to, among other things, corporate governance, corporate controls, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting. However, there is no assurance that these and other measures that we may take will be sufficient to allow us to satisfy our obligations as a public company on a timely basis. In addition, compliance with reporting and other requirements applicable to public companies create additional costs for us and require the time and attention of our management. We cannot predict the amount of the additional costs that we may incur, the timing of such costs or the impact that management’s attention to these matters will have on our business. In addition, our inability to maintain effective internal controls over financial reporting could increase the risk of an error in our financial statements. Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives due to our inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is therefore subject to error, improper override or improper application of the internal controls. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis, and although it is possible to incorporate safeguards into the financial reporting process to reduce this risk, they cannot be guaranteed to entirely eliminate it. If we fail to maintain effective internal control over financial reporting, then there is an increased risk of an error in our financial statements that could result in us being required to restate previously issued financial statements at a later date.
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We are also subject to corporate governance standards that apply to us as a foreign issuer listed on the Nasdaq and registered with the SEC in the United States. Although we substantially comply with the Nasdaq’s corporate governance guidelines, we are exempt from certain Nasdaq requirements because we are subject to Canadian corporate governance requirements. We may from time to time seek other relief from corporate governance and exchange requirements and securities laws from the Nasdaq and other regulators.

Our operations have been affected by the outbreak of the coronavirus.

We are being affected by a pandemic outbreak of an infectious strain of the disease known as COVID-19 or coronavirus. Our operations have been adversely affected to the extent that the coronavirus has harmed the world economy in general and the capital markets in North America in particular. Our operations have experienced disruptions, including the temporary closure of our offices, which may materially and adversely affect our business, financial condition and operational results. The duration of the business disruption and related financial impact cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs as such disruptions continue. Such events could impair our ability to raise necessary capital, cause us to incur additional expenses or disrupt the services of our external engineering and medical technology development and manufacturing firms, as well as service providers. The extent to which the coronavirus or other health epidemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

The global pandemic creates substantial uncertainty as to the willingness and ability of hospitals, HMOs, ambulatory care facilities and other prospective customers to purchase and implement robotic surgical systems.

The American College of Surgeons has called for hospitals to minimize, postpone or cancel elective procedures until the coronavirus outbreak slows down.  An elective surgical procedure slowdown in the robotic surgical space may result in a substantial negative impact on the market prospects for robotic surgical systems and instruments and related services.

There can be no assurance that we will be able to secure and restore relationships with our suppliers and development partners.

Our future success is substantially dependent on funding our research and development program and maintaining the support of our research and development and manufacturing service providers and, in some cases, securing new suppliers and service providers. There can be no assurance that we will be successful in accomplishing any of these goals.

We may face cyber-security risks and threats.
           Threats to information technology systems associated with cyber-security risks and cyber incidents or attacks continue to grow. It is possible that our business, financial and other systems or those of the companies, service providers or consultants with which we do business could be compromised, which might not be noticed for some period of time. Risks associated with these threats include, among other things, loss of intellectual property, disruption of business operations and safety procedures, loss or damage to worksite data delivery systems, and increased costs to prevent, respond to or mitigate cyber-security events.

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Risks Related to Our Common Shares
The price of our common shares and listed warrants may fluctuate in response to a number of events.
Our common shares and certain warrants trade in Canada on the TSX and the common shares also trade in the United States on the Nasdaq.  We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market in our common shares and warrants and it is possible that an active and liquid trading market will not develop or be sustained.  Some companies that have volatile market prices for their securities have had securities class action lawsuits filed against them.  If a lawsuit were to be commenced against us, regardless of its outcome, it could result in substantial costs and a diversion of management’s attention and resources.  The price of common shares and warrants may fluctuate in response to a number of events, including but not limited to:
 
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.

Sales by stockholders of substantial amounts of our shares of common stock, the issuance of new shares of common stock by us or the perception that these sales may occur in the future could materially and adversely affect the market price of our common stock.
Additional equity financings or other share issuances by us could adversely affect the market price of our shares.  Sales by existing shareholders of a large number of our shares in the public market and the sale of shares issued in connection with acquisitions or strategic alliances, or the perception that such additional sales could occur, could cause the market price of our shares to drop.
We have a limited history of operations upon which to evaluate our business and our prospects. This may limit an investor’s ability to make a comparative evaluation of our business.

We are a robotic surgery technology development company with a limited operating history.  Future operating results may be difficult to predict. We are in the development stage and have been engaged in research and product development since our inception. There are many regulatory steps that must be completed as part of the development program before our technology can be commercialized and a product is available for the market.  These regulatory steps are costly and uncertain.  The future success of our business will depend on our ability to complete product development and obtain regulatory approvals and clearances for new products, manufacture and assemble current and future products in sufficient quantities in accordance with applicable regulatory requirements and at lower costs, which we may be unable to do.  There is a limited history of operations upon which to evaluate our business and our prospects.  Operating expenses have increased since inception due to the magnitude and complexity of the development program. The lack of a significant operating history may limit an investor’s ability to make a comparative evaluation of us, our products and our prospects. We have not generated revenue since our inception.
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Our financial results and results of operations have fluctuated in the past and may continue to be volatile going forward.
Our financial results may vary significantly from period to period depending on the level of development activities and the size, frequency and timing of our securities offerings. The financial results may fluctuate as a result of a number of factors that may be outside of our control, which may cause the market price of our common shares to fall. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and an investor should not rely on past results as an indication of future performance. Financial results may be negatively affected by any of the risk factors listed in this “Risk Factors” section.
Our results of operations will depend upon numerous factors, including:
 
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.
Fluctuations in foreign currency exchange rates may adversely affect our financial results.
We conduct operations principally in the U.S. and Canada, and portions of our expenses, assets and liabilities are denominated in U.S. dollars and Canadian dollars. Since our consolidated financial statements are presented in U.S. dollars, we must translate our expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. We have not historically hedged our exposure to foreign currency fluctuations. Accordingly, increases or decreases in the value of the Canadian dollar against the U.S. dollar could affect our operating losses and the value of balance sheet items denominated in foreign currencies.
We may be delisted from Nasdaq if we do not satisfy continued listing requirements.
On November 27, 2019, we received notifications by Nasdaq that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) since the closing bid price for our Common Shares listed on Nasdaq was below the $1.00 Minimum Bid Price for 30 consecutive business days, and Nasdaq Rule 5550(b)(2) since the Market Value of Listed Securities for our Common Shares listed on Nasdaq was below the $35 million Minimum MVLS for 30 consecutive business days.  Nasdaq Rules further provided us with a period of 180 calendar days from the date of notification to regain compliance with the above noted Rules.  While the period to regain compliance with the Minimum Bid Price has been tolled due to coronavirus, giving us until August 10, 2020 to cure the Minimum Bid Price deficiency, the period to regain compliance with the Minimum MVLS has not been tolled.
On May 26, 2020, we received a Staff Delisting Determination letter from Nasdaq setting forth a determination to delist our Common Shares from Nasdaq as a result of our failure to comply with the Minimum MVLS.  We intend to appeal the Determination by requesting a hearing before a Hearings Panel.  The hearing request will stay the delisting of our Common Shares until a determination is made by the Panel.  The Common Shares will continue to trade on Nasdaq pending the outcome of the hearing before the Panel.  We will address the ongoing non-compliance matters before the Panel and will request additional time to cure the Deficiency.  There can be no assurance that, following the hearing, the Panel will grant our request for additional time to regain compliance with the Minimum MVLS, Minimum Bid Price or other Continued Listing Requirements.  If the Panel does not grant our request for additional time to comply, our Common Shares will be subject to delisting from Nasdaq.

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If our Common Shares are no longer listed on Nasdaq, we will continue to trade on the TSX. In addition, we may be eligible for trading on an over-the-counter market in the United States.  In the event that we are not able to obtain a listing on another United States stock exchange or quotation service for our Common Shares, it may be extremely difficult or impossible for shareholders to sell their Common Shares in the United States, but shareholders will be able to sell their Common Shares on the TSX.  Moreover, if we are delisted from Nasdaq, but obtain a listing on an over-the-counter market, such market will likely have less liquidity than Nasdaq.  In such case, shareholders may not be able to sell their Common Shares on any such over-the-counter market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market such as Nasdaq.  As a result of these factors, if our Common Shares are delisted from Nasdaq, the price of our Common Shares is likely to decline and could also impair our ability to raise additional capital.
We may not be able to maintain our status as a “Foreign Private Issuer”.
In order to maintain our status as a foreign private issuer, a majority of our Common Shares must be either directly or indirectly owned by non-residents of the U.S. unless we also satisfy one of the additional requirements necessary to preserve this status. We may in the future lose our foreign private issuer status if a majority of our Common Shares are held in the United States and if we fail to meet the additional requirements necessary to avoid loss of our foreign private issuer status. The regulatory and compliance costs under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs incurred as a Canadian foreign private issuer eligible to use the MJDS. If we are not a foreign private issuer, we would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, we may lose the ability to rely upon exemptions from Nasdaq corporate governance requirements that are available to foreign private issuers.
We are an “emerging growth company” and cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make it less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act. We will continue to qualify as an “emerging growth company” until the earliest to occur of: (a) the last day of the fiscal year during which we had total annual gross revenues of US$1,070,000,000 or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, such as this registration statement; (c) the date on which we, during the previous 3-year period, issued more than US$1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a ‘large accelerated filer.’
 
For so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report relating to internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act in our annual reports filed under the U.S. Exchange Act, as amended, even if we do not qualify as a “smaller reporting company,” as well as certain other exemptions from various reporting requirements that are applicable to other public companies.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us were to downgrade our common shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause our share price and trading volume to decline.

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We are likely a ‘‘passive foreign investment company’’, which may have adverse U.S. federal income tax consequences for U.S. investors.
We believe we were classified as a ‘‘passive foreign investment company’’ or ‘‘PFIC’’ during the tax year ended December 31, 2019, and based on current business plans and financial expectations, we expect that we may be a PFIC for the current tax year and future tax years. If we are a PFIC for any year during a U.S. taxpayer’s holding period of Common Shares, then such U.S. taxpayer generally will be required to treat any gain realized upon a disposition of the Common Shares or any so-called ‘‘excess distribution’’ received on its Common Shares as ordinary income, and to pay an interest charge on a portion of such gain or distribution. In certain circumstances, the sum of the tax and the interest charge may exceed the total amount of proceeds realized on the disposition, or the amount of excess distribution received, by the U.S. taxpayer. Subject to certain limitations, these tax consequences may be mitigated if a U.S. taxpayer makes a timely and effective QEF Election (as defined below) or a Mark-to-Market Election (as defined below). Subject to certain limitations, such elections may be made with respect to the Common Shares. A U.S. taxpayer who makes a timely and effective QEF Election generally must report on a current basis its share of our net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to our shareholders. However, U.S. taxpayers should be aware that there can be no assurance that we will satisfy the record keeping requirements that apply to a qualified electing fund, or that we will supply U.S. taxpayers with information that such U.S. taxpayers require to report under the QEF Election rules, in the event that we are a PFIC and a U.S. taxpayer wishes to make a QEF Election. Thus, U.S. taxpayers may not be able to make a QEF Election with respect to their Common Shares. A U.S. taxpayer who makes the Mark-to-Market Election generally must include as ordinary income each year the excess of the fair market value of the Common Shares over the taxpayer’s basis therein. This paragraph is qualified in its entirety by the discussion below under the heading ‘‘Certain United States Federal Income Tax Considerations — Passive Foreign Investment Company Rules.’’ Each potential investor who is a U.S. taxpayer should consult its own tax advisor regarding the tax consequences of the PFIC rules and the acquisition, ownership, and disposition of the Common Shares.

THE BUSINESS
Name, Address and Incorporation
We are an Ontario corporation and is the successor corporation formed pursuant to two separate amalgamations (the “Amalgamations”) under the Business Corporations Act (Ontario) on July 28, 2008.  Our head office and registered office is located at 155 University Avenue, Suite 750, Toronto, Ontario M5H 3B7.  Our main telephone number is (416) 548‑7522.
The following is a brief description of the Amalgamations:
Synergist Medical Inc. (“Synergist”), 2174656 Ontario Limited (“Newco”) and KAM Capital Corp. (“KAM”) entered into an amalgamation agreement on June 23, 2008, pursuant to which on July 28, 2008 Synergist amalgamated with Newco, a wholly-owned subsidiary of KAM, to form a new corporation called Titan Medical Inc. (“Amalco”).  Thereafter, Amalco amalgamated with KAM pursuant to a vertical amalgamation to form a new corporation called Titan Medical Inc.
Synergist was incorporated on July 5, 2002 and commenced operations on May 31, 2006 for the purpose of developing robotic surgical technology.  KAM was incorporated on November 28, 2007 and filed and obtained a receipt for a final prospectus from certain Canadian securities regulatory authorities in compliance with the TSX Venture Exchange’s (“TSX‑V”) Policy on Capital Pool Companies (“CPC Policy”).  Newco was formed as a special purpose wholly‑owned subsidiary of KAM incorporated for the purpose of effecting the Amalgamations.  The Amalgamations constituted the Qualifying Transaction of KAM under the CPC Policy.
Intercorporate Relationships
We have one subsidiary, Titan Medical USA Inc., which was incorporated in Delaware on May 29, 2020.
Product Development
Our business plan consists of the development of computer-assisted robotic surgical technologies for application in MIS comprising our single-port robotic surgical system. The system under development includes a surgeon-controlled patient cart that includes a 3D high definition vision system and multi-articulating instruments for performing MIS procedures, and a surgeon workstation that provides the surgeon with an advanced ergonomic interface to the patient cart and a 3D endoscopic view inside the patient’s body during MIS procedures. We intend to initially pursue gynecologic surgical indications for use of our single-port robotic surgical system.

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Development of our single-port robotic surgical system proceeded with input from surgeons and operating room staff experienced in MIS, consultation with medical technology development firms and input from our Surgeon Advisory Board (the “Surgeon Advisory Board”) comprised of surgeons who specialize in MIS. This approach allowed us to design a robotic surgical system intended to include the traditional advantages of robotic surgery, including 3D stereoscopic imaging and restoration of instinctive control, as well as new and enhanced features, including an advanced surgeon workstation incorporating a 3D high definition display providing a more ergonomically friendly user interface and a patient cart with enhanced instrument dexterity.
Our single-port robotic surgical 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 a camera 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 for optimal positioning of the camera insertion tube by a bedside assistant under the guidance of the surgeon. Once the camera insertion tube is inserted and positioned in the body, it is docked to the central unit of the patient cart and the 3D high-definition endoscopic camera is deployed in a manner that the endoscopic camera and multi-articulating instruments can be controlled by the surgeon via the workstation. The reusable multi-articulating, snake-like instruments are designed to couple with an assortment of permanent and detachable single patient use end effectors that in the case of the latter, provide first use quality in every case and eliminate the reprocessing of the complete instrument. The use of reusable (for a specific number of uses) robotic instruments that can be cleaned and sterilized between surgeries, and single patient use end effectors is intended to minimize the cost per procedure without compromising surgical performance. The patient cart is also designed to include a mast, a boom and wheels for configurability for a number of surgical indications and the ability to be maneuvered within the operating room, or redeployed within hospitals and ambulatory surgical centers, where applicable.
As part of the development of our single-port robotic surgical system, we are planning continued development of a robust training curriculum and post-training assessment tools for surgeons and surgical teams. The proposed 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 14 core surgical skills simulation modules customized for use with our surgeon workstation in the first phase of the comprehensive surgeon training curriculum that we are planning for our single-port robotic surgical system.
 
We have continuously evaluated our technologies under development for intellectual property protection through a combination of trade secrets and patent application filings and we have continued the filing and prosecution of patents. Our patent portfolio has increased from 12 issued patents at December 31, 2016 to 46 issued patents as of December 31, 2019. As of May 13, 2020, we had 52 patents and 84 patent applications.
As part of our development efforts, we have established certain milestones related to technology and design advancements as well as preclinical and clinical studies and completion of regulatory submissions. To assess progress, we regularly test and evaluate our technology. If such evaluations indicate technical defects or failure to meet cost or performance goals, our development schedule could be further delayed. See “Risk Factors”.
Development Objectives
We have used a combination of internal resources and external development firms to execute the research, development and regulatory plans for the Company’s single-port robotic surgical system. Development objectives were previously established to support our planned FDA 510(k) filing for marketing clearance in the U.S., and submittal of a Technical File to a European Notified Body for achievement of the CE mark, which indicates that a product for sale within the European Economic Area has been assessed to conform with health safety and environmental protection requirements.

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We have previously confirmed with the FDA that confirmatory human data will be required for our planned 510(k) regulatory submission. The performance of human surgeries with the single-port robotic surgical system will require an IDE from the FDA, which must be submitted and approved in advance. Further, the recruitment of surgeons from multiple hospital sites will be necessary to perform the surgeries. Each of these sites will require approval of their independent Institutional Review Board (“IRB”) to approve the studies.
Previous results achieved by surgeons in operating prototypes in animal and cadaver studies have validated the potential for single incision surgeries to be performed with our single-port robotic surgical system. Insights gained from these preclinical studies have directed us to make further product improvements. Such improvements were implemented in a capital equipment engineering confidence build of an improved prototype, which was announced in January 2019. On April 30, 2019, we announced that we had achieved hardware design freeze for our single-port robotic surgery system. In June 2019, we commenced preclinical live animal and cadaver studies according to Good Laboratory Practices (“GLP”) for FDA submittal. On July 18, 2019, we announced that we had completed GLP surgical procedures necessary for our planned IDE application to the FDA.
During the quarter ended September 30, 2019, we completed and documented the GLP procedures, and proceeded to complete the HFE studies, which included verification of production system operation with clinical experts under rigorous formal (summative) human factors evaluation under simulated robotic manipulation exercises. During the quarter, the Company’s European Notified Body also completed audits of the Company’s quality system procedures and related documentation for ISO Certification.
During the quarter ended December 31, 2019, we received receipt of a final independent report from validation testing of system safety and usability, and completed a user manual for robotic system setup by operating room staff and surgeon operation. ISO 13485: 2003 Certification was received January 24, 2020.
Our future success is substantially dependent on our ability to raise equity financing to fund our research and development program and on maintaining the support of our research and development and manufacturing service providers.  See “Liquidity and Capital Resources”.
Given the uncertainty of, among other things, our ability to secure required capital to fund development and operating costs in a timely manner, product development timelines, regulatory processes and requirements (such as confirmatory human studies), actual costs and development times will exceed those previously set forth by us, including but not limited to those set forth in our management discussion and analysis for the three, six and nine months ended March 31, 2019, June 30, 2019 and September 30, 2019, and in our 2018 annual information form dated March 31, 2019. An accurate estimate of the future costs of the development milestones and regulatory phases is not possible at this time.

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Current Development Plan
The Company’s development milestones are set forth in the table below (the “Current Development Plan”).

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.

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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
 
         
         
Due to the ongoing limited availability of capital resources we have been unable to fund our planned pace of product development which has indefinitely moved out the projected date and will add to the estimated costs for our submission of the 510(k) application. We have withdrawn the projections for achievement of all development milestones, including their timing and cost.
The details above with respect to Milestones 2, 3, 4, 5 and 6 reflect our current plans with respect to the development steps for our robotic surgical system. At this time, we are unable to provide any forecast of timing or cost estimate in respect of the milestones.
While we are assessing the availability of sufficient financing, we have taken temporary measures to reduce our cash burn over our historical rates, including the suspension of product development, staff reduction, sourcing more cost-effective resources and reducing our general and administrative overhead where possible.
During the third quarter of 2019, we completed the animal studies and the human factors evaluation studies originally planned for completion during the second quarter of 2019. However, data from the animal studies and human factors studies were delayed, followed by delays in receiving documentation required from third parties.  In addition, the animal studies and human factors studies have identified additional product enhancements that we intend to implement before proceeding to human use, related to software, instrumentation and camera development.  The implementation of product enhancements and the production of documentation for our IDE application are paced by the availability of capital resources, which are currently insufficient to complete the work.  As a result of these factors, the timing for submission of the IDE application to the FDA (Milestone 3), as well as subsequent milestones, cannot be predicted at this time.
______________________
(3)
The Company has withdrawn the projections for achievement of all development milestones beyond Milestone 1, including their timing and cost.

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Due to the nature of technology research and development and our lack of sufficient capital, there is no assurance that these future objectives will be achieved, and there can be no assurance with respect to the time or resources that may be required. We expect that additional milestones may be identified as the development of our single-port robotic surgical system progresses, or existing milestones, budgets and the schedule for completion of each milestone may change depending on a number of factors including the results of our development program, clarification of or changes to regulatory requirements, the availability of financing and the ability of development firms engaged to complete work assigned to them. The total costs and time to complete the development of our single-port robotic surgical system cannot be forecast. Please see “Forward-Looking Statements”.

Please also refer to the risk factors set forth starting on page 10 of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019 filed with the SEC on April 2, 2020, and filed and available on SEDAR at www.sedar.com. 
Market Opportunity
We are unable to estimate the size of the market for robotic surgical systems and related products and services and we are unable to project our future revenues due to the recent onset of the global pandemic contagious disease known as the novel coronavirus. The global pandemic creates substantial uncertainty as to the willingness and ability of hospitals, HMOs, ambulatory surgical centers and other prospective customers to purchase and implement robotic surgical systems.
Additionally, the American College of Surgeons has called for hospitals to minimize, postpone or cancel elective procedures until the coronavirus outbreak slows down. An elective surgical procedure slowdown may result in a substantial negative impact on the market prospects for robotic surgical systems and instruments and related services.
Our business and prospects are subject to risks associated with and arising from the outbreak of COVID-19, and the uncertainty of the impacts, duration and severity of the outbreak. We believe that our previous market growth projections are rendered unreliable given the severe impact of COVID-19 on the healthcare sector as well as, more broadly, on the economy and the capital markets. We therefore withdrew and disclaimed all prior disclosures and references in our annual information form, management’s discussion and analysis, material change reports, news releases, investor presentations, prospectuses and other regulatory filings made prior to our Annual Report on Form 20-F for the fiscal year ended December 31, 2019 filed with the SEC on April 2, 2020, including without limitation, with respect to the following:

 
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.
Robotic Surgery
Surgery has traditionally been performed through large, open incisions. Over the past 25 years, minimally invasive techniques and devices have been employed to minimize the size of incisions, reduce trauma to patients, and in turn, reduce associated pain, accelerate healing, shorten recovery times and produce smaller scars. Some of these benefits, such as shorter recovery times and reduced pain leading to shorter hospital stays, are directly associated with lower costs of care. However, MIS requires special tools to operate through small ports in the body, and advanced training for surgeons to manipulate those tools while viewing a two-dimensional image of the patient’s internal anatomy on a monitor. As a result, consistent outcomes and improvements are demonstrated by the most skilled and experienced surgeons, and less reliably by those less experienced. For these reasons, the acceptance of MIS has not broadly increased in more complex surgeries.
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The shortcomings of both open surgery and MIS have led to the introduction of robotics within the surgical environment. Robotic or computer-assisted surgical technologies represent the next generation in the evolution of advanced surgical care. The objectives of robotic systems are to provide surgeons with tools to allow complex procedures to be performed repeatedly with greater precision and dexterity, while offering improved vision and control. The use of robotics is intended to empower surgeons to employ improved techniques for MIS and assist in reducing the risks associated with complex MIS surgeries.
 
Market Acceptance
To date, robotic surgical technologies have been employed in urology, gynecology, colon and rectal surgery, cardiothoracic surgery, general surgery, head and neck surgery, orthopedic surgery, neurosurgery, catheter-based interventional cardiology and radiology, and endoscopic, diagnostic and therapeutic bronchoscopic procedures.
The success of robotic technologies in these applications has led to the growing adoption and commercialization of these technologies in the medical industry. Although robotic surgical procedures have been gaining substantial acceptance, the industry is still in its infancy. The available technology is evolving along with advancements in imaging and computer-machine controls to overcome technical challenges. Current objectives include overcoming the limitations of multi-port access, limited dexterity and visualization.
Competitive Conditions
The entrenched industry leader within the robotic surgical market is Intuitive Surgical, Inc., manufacturer of several models of the da Vinci® Surgical System. Having entered the market in 1999, Intuitive Surgical’s product line now includes multiple generations of da Vinci multi-port robotic systems, as well as a new single-port da Vinci SP® model cleared by the FDA for urologic and trans-oral applications, with customer shipments that began in the third quarter of 2018. Specifically related to abdominal surgery, a relatively new competitor in multi-port robotic surgery has emerged, with TransEnterix Inc. receiving FDA clearance for its Senhance Surgical Robotic System in October of 2017. In addition, Medrobotics Corporation received FDA clearance for abdominal indications for its Flex® Robotic System with manual endoscopic instruments, which had previously been cleared for natural orifice (ENT) surgery. In 2019, Ethicon, Inc. (a division of Johnson & Johnson) acquired Auris Health, Inc., the maker of the Monarch surgical platform, for approximately US$5.75 billion (including contingent payments). Further, there are a number of companies reported to be developing robotically-assisted surgical systems, including Medtronic, Inc., Ethicon, Inc. (Johnson & Johnson), CMR Surgical Ltd. from the United Kingdom (Versius® surgical robotic system), Memic Innovative Surgery Ltd. from Israel (Hominis), and South Korea’s Meere Company Inc. (Eterne robotic system).
Any company with substantial experience in robotics or complex medical devices could potentially expand into the field of surgical robotics and become a future competitor.
Regulation
United States Regulatory Process
In the United States, our surgical system will be subject to regulation by the FDA. Management expects that under the FDA guidelines, the surgical system will be classified as a Class II medical device. Class II devices are those which are subject to the general controls and require premarket demonstration of adherence to certain performance standards or other special controls, as specified by the FDA, and clearance by the FDA. Premarket review and clearance by the FDA for these devices is accomplished through the 510(k) premarket notification process. For most Class II devices, the manufacturer must submit to the FDA a premarket notification submission, demonstrating that the device is “substantially equivalent” in intended use and technology to a “predicate device” that is either:
 
(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.

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The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence. If the FDA determines that the device, or its intended use, is not “substantially equivalent” (as such term is defined by the FDA), the FDA may place the device, or the particular use of the device, into Class III, and the device sponsor must then fulfill much more rigorous pre-marketing requirements.
In preparation for our planned FDA 510(k) application, we have already filed several Q-Submissions with the FDA to clarify in detail the preclinical studies and confirmatory human data required to support our submission.
 
Even after a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, would require a new 510(k) clearance or could require a pre-market approval application. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance, the agency may retroactively require the manufacturer to seek 510(k) clearance or pre-market approval. The FDA may also require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or pre-market approval is obtained.
European Union and Canada Regulatory Process
Medical devices in the European Union (“EU”) are regulated under the EU Medical Device Regulation or MDR, and must bear the CE mark prior to being placed on the market. In order to affix the CE mark on products, a recognized European Notified Body must first certify a manufacturer’s quality management system for compliance with international and European requirements under the ISO 13485: 2003 standard. Any modifications of existing products or development of new products in the future will require permission to affix the CE mark to such products. We previously initiated communication with a European Notified Body to arrange for the audit of our quality system in 2019, and ISO 13485: 2003 certification was received on January 24, 2020.
In order to commercialize products in Canada, regulatory approval from Health Canada (Therapeutic Products Directorate, Medical Devices Bureau) is required. Medical device license applications must contain a valid ISO 13485: 2003 certificate issued by a Health Canada recognized registrar under the Canadian Medical Devices Conformity Assessment System (CMDCAS). Evaluation of product safety and effectiveness is completed by Health Canada.
Specialized Skill and Knowledge
The research and development of our surgical system requires specialized skill and knowledge. Given the limited capital available, there is no assurance that we will be able to procure the required skill and knowledge to carry out our research and development and the resources that are available to us, through our current officers, employees and external medical technology development firms, may be insufficient. We will continue to assess our requirements and recruit and engage required qualified personnel and development firms as needed, subject to budget limitations.
Intellectual Property Protection
We continuously evaluate our technologies under development for intellectual property protection. In accordance with industry practice, our proprietary rights are currently protected through a combination of copyright, trademark, patents, trade secret laws and contractual provisions.
Patent applications are filed in various jurisdictions internationally, which are selectively chosen having regard to the likely value and enforceability of intellectual property rights in those jurisdictions, and to strategically reflect our anticipated principal markets. Patents provide us with a potential right to exclude others from incorporating our technical innovations into their own products and processes. Where appropriate, we may license third party technologies to provide us with the flexibility to adopt preferred technologies. Intellectual property protection, including patent filing and prosecution, are costly and there is no assurance that we will have sufficient funding required in order to file and prosecute patent applications for any or all of our inventions.
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As of May 13, 2020, we owned of 52 patents and 84 patent applications. We anticipate expanding our intellectual property portfolio by filing additional patent applications as we progress in the development of robotic surgical technologies, and if appropriate, acquiring and/or by licensing suitable technologies.
The scope of protection obtained, if any, from our current or future patent applications may not be known for several years. Moreover, there is no assurance that any patents will be issued with respect to any such patent applications, and if patents are issued, they may not provide us with the expected competitive advantages, or they may not be issued in a manner that gives us the protection that we seek, or they may be successfully challenged by third parties.
We also seek to avoid disclosure of our intellectual property and proprietary information by requiring employees and consultants to execute non-disclosure agreements and also seek to retain ownership of intellectual property through the execution of assignment of intellectual property agreements, requiring our employees and consultants to assign to us intellectual property developed in the course of their employment or engagement. We also utilize non-disclosure agreements to govern interactions with business partners and prospective business partners and other relationships where disclosure of proprietary information may be necessary, and we take measures to carefully protect our intellectual property rights in agreements with external development firms.
 
While we believe that our technology being developed or utilized does not infringe upon the proprietary rights of third parties, our commercial success depends, in part, upon us not infringing intellectual property rights of others. A number of medical device and robotic surgery companies and other third parties have been issued patents or may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those being developed or utilized by us. Accordingly, there may exist third party patents, patent applications or other proprietary rights that require us to alter our technology, obtain licenses or cease certain activities. We may become subject to claims by third parties that our technology infringes their intellectual property rights due to the growth of products in our target markets, the overlap in functionality of those products and the prevalence of products. We may become subject to these claims either directly or through indemnities against these claims that we may provide to end users, manufacturer’s representatives, distributors, value added resellers, system integrators and original equipment manufacturers.
Although we have registrations and pending applications for certain trademarks, we may be unable to obtain or maintain trademark registrations for the marks and names we use in one or more countries. It is also possible that our use of certain trademarks and trade names, including “SPORT”, “SPORT Surgical System”, “Titan”, “Titan Medical” or variations thereof, as well as other trademarks, trade names and variations thereof for which registration may be pending, may infringe or contravene the rights, including trademark rights, of other parties in one or more countries. In the event of actual or alleged infringement or contravention of rights, we may be forced to cease using these marks and names.
Operations
Until the third quarter of 2019, we were developing our core technologies through external engineering and medical technology development and manufacturing firms with oversight from our management. We do not have long-term contracts with any third parties.
However, due to our limited capital, the Primary Supplier suspended all work with regard to the development of our robotic surgical system during the fourth quarter of 2019 and through the first quarter of 2020, pending receipt of sufficient funds.  On April 30, 2020, we reached the Letter Agreement with the Primary Supplier for the payment of outstanding payables to the Primary Supplier and for the resumption of development services. We will need to raise additional capital in order to fund the payment of outstanding payables to the Primary Supplier and for the resumption of development services.

On April 1, 2020, we took possession of a facility in Chapel Hill, North Carolina which will be established as our operational center in the U.S.
We maintain our head office at subleased premises in Toronto, Ontario.
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Property, Plants and Equipment
Aside from the purchase of furniture and fixtures as described in the Capital Expenditures below, we do not have any material fixed assets. Until the third quarter of 2019, we outsourced the development and manufacturing of our single-port robotic surgical system, instruments, camera systems and accessories to contract development and manufacturing companies. To date, all of the research and development costs have been expensed as all of the criteria for capitalization have not yet been met. As of December 31, 2019, we lease space for our corporate office in Toronto, Ontario. We have also secured a leased facility in Chapel Hill, North Carolina. Effective April 1, 2020 and in accordance with IFRS 16 we have recognized a right-of-use asset and a lease liability, as at the lease commencement, April 1, 2020, date for the Chapel Hill facility. We are not aware of any environmental issues related to these leased premises.
Capital Expenditures
We are a development stage pre-revenue company. Capital expenditures in each of the last three years have related to the acquisition of furniture and equipment plus additions to our patent portfolio, as follows:
 
  
Furniture
and Fixtures
 
  
Patent Rights
 
2019
  
 
—  
 
  
$
458,037
 
2018
  
 
—  
 
  
$
420,587
 
2017
  
$
3,427
 
  
$
201,409
 
 
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, that the product is technically and commercially feasible, that future economic benefits are probable and that we intend to and have sufficient resources to complete development and to use or sell the assets. To date, all the research and development costs have been expensed as the criteria for capitalization under IFRS have not yet been met.
RECENT DEVELOPMENTS
Cambridge Design Partnership Ltd.
On January 3, 2020, we issued 501,148 common shares to Cambridge Design Partnership Ltd. (“Cambridge”), in satisfaction of the trade payable with Cambridge of $250,574.

Aspire Capital
From January 3, 2020 to the date hereof, we raised $2,071,930 through the sale of 4,408,048 Common Shares to Aspire Capital Fund, LLC (“Aspire Capital”) in accordance with the terms of a common share purchase agreement (the “Second Aspire Agreement”) with Aspire Capital dated December 23, 2019, under which Aspire Capital committed to purchase up to $35.0 million of our Common Shares at our request from time to time, until June 23, 2022, subject to the terms and conditions of the Second Aspire Agreement.

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Nasdaq Listing
We may be delisted from Nasdaq if we do not satisfy continued listing requirements.
On November 27, 2019, we received notifications by Nasdaq that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) since the closing bid price for our Common Shares listed on Nasdaq was below the $1.00 Minimum Bid Price for 30 consecutive business days, and Nasdaq Rule 5550(b)(2) since the Market Value of Listed Securities for our Common Shares listed on Nasdaq was below the $35 million Minimum MVLS for 30 consecutive business days.  Nasdaq Rules further provided us with a period of 180 calendar days from the date of notification to regain compliance with the above noted Rules.  While the period to regain compliance with the Minimum Bid Price has been tolled due to coronavirus, giving us until August 10, 2020 to cure the Minimum Bid Price deficiency, the period to regain compliance with the Minimum MVLS has not been tolled.
On May 26, 2020, we received a Staff Delisting Determination letter from Nasdaq setting forth a determination to delist our Common Shares from Nasdaq as a result of our failure to comply with the Minimum MVLS.  We intend to appeal the Determination by requesting a hearing before a Hearings Panel.  The hearing request will stay the delisting of our Common Shares until a determination is made by the Panel.  The Common Shares will continue to trade on Nasdaq pending the outcome of the hearing before the Panel.  We will address the ongoing non-compliance matters before the Panel and will request additional time to cure the Deficiency.  There can be no assurance that, following the hearing, the Panel will grant our request for additional time to regain compliance with the Minimum MVLS, Minimum Bid Price or other Continued Listing Requirements.  If the Panel does not grant our request for additional time to comply, our Common Shares will be subject to delisting from Nasdaq.
If our Common Shares are no longer listed on Nasdaq, we will continue to trade on the TSX. In addition, we may be eligible for trading on an over-the-counter market in the United States.  In the event that we are not able to obtain a listing on another United States stock exchange or quotation service for our Common Shares, it may be extremely difficult or impossible for shareholders to sell their Common Shares in the United States, but shareholders will be able to sell their Common Shares on the TSX.  Moreover, if we are delisted from Nasdaq, but obtain a listing on an over-the-counter market, such market will likely have less liquidity than Nasdaq.  In such case, shareholders may not be able to sell their Common Shares on any such over-the-counter market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market such as Nasdaq.  As a result of these factors, if our Common Shares are delisted from Nasdaq, the price of our Common Shares is likely to decline and could also impair our ability to raise additional capital.
Warrants Exercised
During the quarter ended March 31, 2020, 2,400,000 warrants were exercised for gross proceeds of $456,000 and in April 2020 an additional 200,000 warrants were exercised for gross proceeds of $38,000.

Registered Direct Offerings
On March 27, 2020, we completed an offering of 7,000,000 Common Shares and 3,500,000 Common Share purchase warrants (each, a “March 2020 Warrant”), resulting in total gross proceeds of $1,190,000 ($862,294 net of closing cash costs including cash commission described below). Each March 2020 Warrant was exercisable to purchase one common share (a “March 2020 Warrant Share”) at an exercise price of $0.19 per Common Share for a period of five years following the date of closing of the offering.
In addition to the cash commission paid to H.C. Wainwright & Co., LLC (“Wainwright”) of $83,300, broker warrants were issued to Wainwright which entitle the holder to purchase 490,000 Common Shares at a price of $0.2125 per share prior to expiry on March 27, 2025.
On May 6, 2020, we completed an offering of 5,514,504 Common Shares of the Company at a price of $0.36268 per Common Share and 2,757,252 unregistered Common Share purchase warrants (each, a “May 2020 Warrant”), resulting in total gross proceeds of $2,000,000 ($1,613,800 net of estimated closing cash costs including cash commission described below). Each May 2020 Warrant is exercisable to purchase one Common Share at an exercise price of $0.3002 per Common Share for a period of five and one-half (5.5) years following the date of closing of the offering.
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In addition to the cash commission paid to Wainwright of $140,000, broker warrants were issued to Wainwright which entitle the holder to purchase 386,015 Common Shares at a price of $0.4534  per share prior to expiry on November 6, 2025.

Senior Secured Loan from Global Medical Technology Company

On April 28, 2020, we received gross proceeds of $1.5 million from a senior secured loan provided by a leading global medical technology company (the “Corporate Lender”) evidenced by an 8% $1.5 million senior secured promissory note (“Note”) and a security agreement (the “Security Agreement”) executed and delivered by the Company in favor of the Corporate Lender. The Note matures on April 28, 2023 and 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) April 28, 2023, (ii) a Change of Control (as defined in the Note), or (iii) a Qualified Financing (as defined in the Note), subject to an accelerated due date under certain adverse conditions.
The Security Agreement grants a security interest in all of our present and future property including all personal property, inventory, equipment and intellectual property to the Corporate Lender. In addition, the Corporate Lender’s rights and powers include without limitation (a) exercising and enforcing all rights and remedies of a holder of collateral as if the Corporate Lender were the absolute owner of the collateral, (b) collection of any proceeds arising in respect of all of our property pledged as security for the loan, (c) license or sublicense, whether on an exclusive or nonexclusive basis, of any of the Company’s intellectual property for such term and on such conditions and in such manner as the Corporate Lender in its sole judgment determines (taking into account such provisions as may be necessary to protect and preserve such intellectual property), and (d) the right to enforce its security in the event of a default which may include the appointment of a receiver by instrument or order of the court.

Coronavirus

Since December 31, 2019, the outbreak of the novel strain of coronavirus 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.  Our operations have experienced disruptions, including the temporary closure of our offices, which may materially and adversely affect our business, financial condition and operational results. 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.

Primary Supplier

Our Primary Supplier suspended all work with regard to the development of the Company’s robotic surgical system during the fourth quarter of 2019 and through the first quarter of 2020, pending receipt of amounts owed by the Company. However, as of April 30, 2020, we had reached the Letter Agreement with the Primary Supplier for the payment of outstanding payables to the Primary Supplier by the end of 2020, and for the resumption of development services. The Company will need to raise additional capital in order to fund the payment of outstanding payables to the Primary Supplier under the Letter Agreement and for the resumption of development services.

Working Capital Deficiency

The Company’s working capital at March 31, 2020 was a deficit of $7,688,354  excluding warrant liability, compared to working capital deficit of $9,684,525 at December 31, 2019.

43

Other
Since late 2019, we have been involved in litigation with Naglreiter Consulting, LLC (“Naglreiter”). Please see “Legal Proceedings” for more information.
As the Company raises additional capital, it continues to make payments to suppliers other than Naglreiter, on valid past due invoices. Should the Company be successful in raising sufficient capital, the Company plans to complete paying valid past due invoices from suppliers other than Naglreiter and develop a work plan with input from suppliers that is consistent with the Company’s priorities toward milestone achievement having regard to the Company’s available capital resources. In any case in which the Company may be unable to normalize or otherwise proceed with supplier relationships, it has identified alternative suppliers of those services.  The engagement of any alternative service providers will be subject to the availability of sufficient capital, successful negotiation of commercial terms, statements of work, payment terms and possibly, require deposits and/or pre-payments. There is no assurance that the Company will be able to reach any agreement with any alternative supplier on satisfactory terms.
In 2019, the Company’s Board of Directors established a special committee of independent directors to oversee the global search for strategic alternative transactions. The mandate of the special committee includes a wide range of potential transactions, including financing through equity or debt, licensing, merger or acquisition. There can be no assurance that the Company will be successful in securing additional capital or identifying a suitable strategic alternative transaction. In the event that the Company is unable to secure additional capital or conclude a suitable strategic alternative transaction, it may be unable to pay down past due invoices or resume and continue its product development. It is also possible that in such circumstances its relationships with key service providers may further deteriorate.

DIRECTORS, MANAGEMENT, ADVISERS AND AUDITORS
Directors and Senior Management
The following are the names, business addresses and functions of our directors and senior management:
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

44

Advisors
Our Canadian legal counsel is Borden Ladner Gervais LLP with a business address at Bay Adelaide Centre, East Tower, 22 Adelaide St W, Toronto, Ontario, Canada M5H 4E3. Our U.S. securities law counsel is Dorsey & Whitney LLP with a business address at 161 Bay Street, Suite 4310, Toronto, Ontario, Canada M5J 2S1.
Auditors
Our auditors are, and have been for the preceding three years, BDO Canada LLP, Charted Accountants, Licensed Public Accountants, with a business address at TD Bank Tower, 66 Wellington Street West, Suite 3600, PO Box 131, Toronto, Ontario, Canada M5K 1H1. BDO Canada LLP is independent in accordance with the Rules of Professional Conduct as outlined by the Institute of Chartered Professional Accountants of Ontario. BDO Canada LLP were first appointed auditors of the Company on December 13, 2010.
LEGAL PROCEEDINGS
Since late 2019, the Company has been involved in litigation with Naglreiter. Naglreiter had been engaged by the Company to develop devices associated with the Company’s robotic surgical system, in particular, focusing on aspects of the instrumentation and the camera system. Prior to commencement of litigation, discussions were under way between the parties to negotiate appropriate arrangements with regard to the scope of work, timing, fees for services and other terms and conditions.  However, on October 4, 2019, the Company received a demand letter for payment of all amounts Naglreiter believed it was owed by the Company (the “Service Provider Demand Letter”). On October 11, 2019, the Company issued a response declining the terms of the demands set out in the Service Provider Demand Letter (the “Company Response Letter”). Pursuant to the Company Response Letter, the Company requested that the service provider cease all work on behalf of the Company.
On October 16, 2019, Naglreiter filed a Complaint for breach of contract against the Company in the U.S. District Court for the Southern District of Florida. The Complaint, which was served on the Company on October 24, 2019, alleges that the Company has not paid the amounts owed under several invoices and, further, that the invoices total approximately $5 million.
On December 5, 2019, the Company filed an Answer, Affirmative Defenses and Counterclaim denying the allegations, asserting defenses to the Complaint, and asserting counterclaims against Naglreiter for (i) breach of contract including that the services that were rendered by Naglreiter were not rendered in a satisfactory manner and that Naglreiter failed to return property paid for by the Company, (ii) fraudulent inducement, (iii) negligent misrepresentation, (iv) indemnification and (v) conversion for refusing to return Titan’s property.
On February 13, 2020, Naglreiter filed an Amended Complaint against the Company to add a complaint of unjust enrichment alleging that Naglreiter had conferred benefits on the Company without the Company paying fair market value for them and asked the courts for a constructive trust over certain property of the Company in Naglreiter’s possession.
On March 9, 2020, the Company filed an Answer and Affirmative Defenses to the Amended Complaint and an Amended Counterclaim, denying the allegations, asserting defenses to the Amended Complaint, and bringing additional counterclaims of (i) replevin to recover possession of personal property held by Naglreiter, (ii) civil theft for depriving the Company of its right to certain property in Naglreiter’s possession and (iii) injunctive relief to have Naglreiter cease and desist the violation of confidentiality provisions in the parties’ agreements.
The Company is seeking a return of property having a value of over $4 million as well as the return of amounts paid for work not done or inadequately done by Naglreiter. Although the Company intends to defend itself vigorously in this matter and pursue all relief to which it is entitled, there is no assurance that the Company will be successful in defending against the complaints or in its counterclaims against Naglreiter.
45

Other than the Naglreiter litigation, there are currently no legal proceedings to which we are or were a party to, or that any of our property is or was the subject of, and we are not aware of any such proceedings that are contemplated. No penalties or sanctions were imposed against us by a court relating to securities legislation or by a securities regulatory authority during the year ended December 31, 2019, nor the three months ended March 31, 2020 nor have we entered into a settlement agreement with a securities regulatory authority, or been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly those in the section of this prospectus entitled “Risk Factors.”
The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2019, 2018 and 2017, should be read in conjunction with our consolidated financial statements and related notes included in this prospectus. Our consolidated financial statements were prepared in accordance with IFRS as issued by the IASB. See the financial statements included as part of this prospectus and the notes thereto for a discussion of the significant accounting policies and significant estimates and judgments required to be made by management.

Overall Performance
During the three months ended March 31, 2020, we were successful in securing sufficient capital to maintain limited operations but will require additional capital in order to resume product development and regulatory activities at a pace that would allow accomplishment of our previously stated milestones. The Company has a working capital deficiency of $7,688,354 at March 31, 2020, excluding warrant liability. We do not have sufficient capital to continue the development of our robotic surgical system and there can be no assurance that we will be successful in securing additional financing.
During the three months ended March 31, 2020, we raised aggregate gross proceeds of approximately $3,717,930 from financings ($3,346,667 net of closing costs including cash commission of $83,300), including $456,000 from the exercise of warrants. During the three months ended March 31, 2020, we generated a net and comprehensive loss of $768,043 compared to a loss of $28,282,880 during the three months ended March 31, 2019.  Included in net and comprehensive losses were research and development expenditures of $46,119 during the three months ended March 31, 2020, compared to$14,408,612 for the three months ended March 31, 2019, and a gain on change in fair value of warrants of $1,117,476 during the three months ended March 31, 2020, compared with a loss on change in fair value of warrants of $10,476,625 during the three months ended March 31, 2019.
During the year ended December 31, 2019, we were unsuccessful in securing sufficient capital to maintain product development and regulatory activities at a pace that would allow accomplishment of our previously stated milestones. As a result, on October 15, 2019, we announced that we had withdrawn all forward-looking statements included in our continuous disclosure documents with respect to the cost and timing of the development of our robotic surgical system beyond the fourth quarter of 2019. On November 7, 2019, we announced that we had determined not to proceed with the public offering of units of the Company for which it filed a final short form prospectus on October 31, 2019 (the “October Offering”). We do not have sufficient capital to continue the development of our robotic surgical system and there can be no assurance that we will be successful in securing additional financing. All statements in this registration statement as to our plans and objectives with regard to resuming and continuing our development are conditional upon, among other things, our raising sufficient financing on a timely basis, securing and restoring relationships with our suppliers and development partners and retaining qualified personnel.

46

During the year ended December 31, 2019, we raised gross proceeds of approximately $34,054,530 ($31,181,983 net of closing costs including cash commission of $2,172,500). See the section below on Financings for more details. For the year ended December 31, 2019, we generated a net and comprehensive losses of $41,907,079 (December 31, 2018 - $22,639,272) which included research and development expenditures of $51,418,056 (December 31, 2018 - $32,858,339) and a gain on change in fair value of warrants of $19,800,645 (December 31, 2018 - $17,095,220).
During the year ended December 31, 2018 we raised gross proceeds of $28,424,732 ($25,776,269 net of closing cost including cash commission of $1,983,429). We generated a net loss of $22,639,272, which included research and development expenditures of $32,858,339 and a gain on the change in fair value of warrants of $17,095,220.
Our business plan consists of the development of computer-assisted robotic surgical technologies for application in MIS comprising our single-port robotic surgical system. The system under development includes a surgeon-controlled patient cart that includes a 3D high definition vision system and multi-articulating instruments for performing MIS procedures, and a surgeon workstation that provides the surgeon with an advanced ergonomic interface to the patient cart and a 3D endoscopic view inside the patient’s body during MIS procedures. We intend to initially pursue gynecologic surgical indications for use of our single-port robotic surgical system.
Development of the single-port robotic surgical system had proceeded with input from surgeons and operating room staff experienced in MIS, consultation with medical technology development firms and input from the Surgeon Advisory Board comprised of surgeons who specialize in MIS. This approach allowed us to design a robotic surgical system intended to include the traditional advantages of robotic surgery, including 3D stereoscopic imaging and restoration of instinctive control, as well as new and enhanced features, including an advanced surgeon workstation incorporating a 3D high definition display providing a more ergonomically friendly user interface and a patient cart with enhanced instrument dexterity.
The single-port robotic surgical system patient cart was being developed to deliver 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 a camera insertion tube of approximately 25 millimeter diameter that includes an integrated 2D high-definition camera along with an independent light source that once inserted, provides visualization for optimal positioning of the camera insertion tube by a bedside assistant under the guidance of the surgeon. Once the camera insertion tube is inserted and positioned in the body, it is docked to the central unit of the patient cart and the 3D high-definition endoscopic camera is deployed in a manner that the endoscopic camera and multi-articulating instruments can be controlled by the surgeon via the workstation. The reusable multi-articulating, snake-like instruments are designed to couple with an assortment of permanent and detachable single patient use end effectors that in the case of the latter, provide first use quality in every case and eliminate the reprocessing of the complete instrument. The use of reusable (for a specific number of uses) robotic instruments that can be cleaned and sterilized between surgeries, and single patient use end effectors is intended to minimize the cost per procedure without compromising surgical performance. The patient cart is also designed to include a mast, a boom and wheels for optimal configurability for a variety of surgical indications and the ability to be maneuvered within the operating room, or redeployed within hospitals and ambulatory surgical centers, where applicable.
As part of the development of our single-port robotic surgical system, we are planning continued development of a robust training curriculum and post-training assessment tools for surgeons and surgical teams. The proposed 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. We have developed 14 core surgical skills simulation modules for use with the surgeon workstation in the first phase of the comprehensive surgeon training curriculum that we are planning for our single-port robotic surgical system.
We have continuously evaluated our technologies under development for intellectual property protection through a combination of trade secrets and patent application filings. We have has continued the filing and prosecution of patents that management believes will validate the novelty of our unique technology. Early evidence of success with this initiative has been the rapid growth of our patent portfolio from 12 issued patents at December 31, 2016 to 46 issued patents as of December 31, 2019. As of March 30, 2020, we had 85 patent applications and 50 patents.
47

As part of our development efforts, we have established certain milestones related to technology and design advancements as well as preclinical and clinical studies and completion of regulatory submissions. To assess progress, we regularly test and evaluate our technology. If such evaluations indicate technical defects or failure to meet cost or performance goals, our development schedule could be further delayed.
In addition to being capital intensive, research and development activities relating to the sophisticated technologies that we are developing are inherently uncertain as to future success and the achievement of desired results. If delays or problems occur during our ongoing research and development activities, important financial and human resources may need to be diverted toward resolving such delays or problems. Further, there is material risk that our research and development activities may not result in a functional product and that the capital required to continue development may not be available to us.
During the year ended December 31, 2018, we achieved all of our milestones as published in our Annual Information Form for the 2018 fiscal year. We then proceeded to initiate preclinical acute and chronic (survival) live animal and human cadaver procedures according to GLP during the second quarter of 2019. However, human factors evaluation (“HFE”) studies that were previously planned for the second quarter of 2019 were moved to the third quarter in order to accommodate initiation of the GLP procedures, which from a timing perspective were a priority. The GLP procedures, as well as the HFE studies, were completed during the third quarter of 2019.
During the fourth quarter ended December 31, 2019, we completed two of our three fourth quarter milestones including: (i) receipt of a 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; and (ii) complete User Manual for robotic system setup by operating room staff and surgeon operation of the surgeon workstation, patient cart, instruments and accessories. The third milestone, receipt of ISO 13485 Certification, was expected to be received by year-end 2019, but was delayed in processing and received January 24, 2020.
Our future success is substantially dependent on funding our research and development program and maintaining the support of our research and development and manufacturing service providers and, in some cases, securing new suppliers and service providers.
As of December 31, 2019 and into the first quarter of 2020, our Primary Supplier had stopped all work with regard to the development of our robotic surgical system. Additionally, our relationship with another service provider, Naglreiter, had deteriorated, resulting in litigation between us and Naglreiter. For an update on this information, please see “Recent Developments” and “Legal Proceedings” above.
In 2019, our Board of Directors established a special committee of independent directors to oversee the global search for strategic alternative transactions. The mandate of the special committee includes a wide range of potential transactions, including financing through equity or debt, licensing, merger or acquisition. There can be no assurance that we will be successful in securing additional capital or completing a suitable strategic alternative transaction. In the event that we are unable to secure additional capital or conclude a suitable strategic alternative transaction, we may be unable to pay down past due invoices or restart product development. It is also possible that in such circumstances our relationships with key service providers may further deteriorate.
Discussion of Operations
Three months ended March 31, 2020 compared to three months ended March 31, 2019
During the first quarter of 2020, we had net and comprehensive loss of $768,043 compared to a loss of $28,282,880 for the same period in 2019. The significance of this change is primarily due to a reduction in research and development expenses from $14,408,612 in the three months ended March 31, 2019 to $46,119 in the same period in 2020. In addition, a gain on change in fair value of warrants of $1,117,476 was reported in the three months ended March 31, 2020 compared to a loss on change in fair value of warrants of $10,476,625 during the same period of 2019.
 
The significant decrease in research and development expenditures is attributed to the reduced funding available in the first quarter of 2020 compared to the same period of the prior year. The change in the fair value of warrants in each period was as a result of the increase or decline in the stock price at quarter end versus its previously reported value, thus increasing or reducing the warrant liability.
48


Significant changes in key financial data from the three months ended December 31, 2019 through the three months ended March 31, 2020 reflect the suspension of development of the single-port robotic surgical system while we seek additional capital. Also impacting these changes is the requirement to revalue warrant liability at fair value, with subsequent changes recorded through net and comprehensive loss for the period.
Year ended December 31, 2019 compared to year ended December 31, 2018
We incurred a net and comprehensive loss of $41,907,079 during the year ended December 31, 2019, compared to a net and comprehensive loss in 2018 of $22,639,272. The increase in the loss in 2019 of $19,267,807 is primarily due to an increase of $18,559,717 in research and development expenditures in 2019. Research and development expenditures for the year ended December 31, 2019 were $51,418,056, compared with $32,858,339 for the year ended December 31, 2018.
Total expenses incurred during the year ended December 31, 2019 were $59,726,277. At December 31, 2018, we had forecasted total expenses for 2019 to be approximately $64,100,000. The difference between the original forecast and actual expenses incurred is primarily related to reduced research and development costs as a result of a decline in available funding. The reduction in costs was approximately $4,500,000, or 7.0% of total expenses forecasted as of December 31, 2018.
During the first half of 2019, we continued to support product development and manufacturing relationships with subcontractors, carried on efforts to globally secure our intellectual property through the patent and licensing process, and continued the development of the Company’s single-port robotic surgical system. However, as we experienced severe financing challenges during the second half of the year, product development was suspended.
Research and development expenditures (all of which were expensed in the period), for the years ended December 31, 2019 and December 31, 2018, respectively were as follows:

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
 
Research and development expenditures increased considerably in the year ended December 31, 2019 compared to the same period in 2018. This increase was primarily due to an increase in available funding in the first quarter of 2019 that allowed us to accelerate product development in the first half of 2019, compared to 2018.
Other expenses, excluding the research and development expenses discussed above and excluding Interest income, Gain on change in fair value of warrants and Warrant liability issue costs as disclosed in our financial statements for the year ended December 31, 2019 were $8,308,221, compared to $5,852,109 in 2018. The increase of $2,456,112 is primarily attributable to higher professional fees expensed in 2019 relating to the withdrawn October Offering that would otherwise have been accounted for as equity and offset with proceeds of the financing, consulting fees, stock-based compensation, and accrued interest to a supplier, partially offset by lower management salaries and fees.
 
We realized $115,584 of interest income on our cash and cash-equivalent balances during the year ended December 31, 2019, and $288,300 for the same periods in 2018. This decrease in interest income is primarily attributed to lower cash balances in our money market account in 2019 compared to 2018.
The impact of the change in fair value of warrants for the year ended December 31, 2019 was a gain of $19,800,645, compared to a gain of $17,095,220 in 2018. The difference of $2,705,425 for the year ended December 31, 2019 reflects both an increase in the number and decrease in the fair value of warrants in 2019 compared to 2018.
Warrant liability issue costs increased to $2,097,031 for the year ended December 31, 2019 from $1,312,344 for the same period in 2018. This increase includes an increase in the funds raised and corresponding costs in March 2019 compared to the funds raised and corresponding costs for the year ended December 31, 2018. In addition, included in the 2019 warrant liability costs is an adjustment of $269,196 relating to the years ended December 31, 2016 and 2017.
49

Due to a shortfall in capital, on October 3, 2019, we entered into a Letter Agreement with the Primary Supplier providing that until we have secured sufficient financing, the requirement that we maintain a deposit under an existing agreement with the Primary Supplier would be waived. Instead, we would pre-pay for development work in advance of each month during which product development services are to be provided. Consequently, $2.0 million which had been paid to the supplier and held as a deposit under the original contract was applied toward the Company’s payables for past services rendered by the supplier. Once we have sufficient cash on hand to fund a deposit equal to three months of projected invoices from the supplier, we will then be required to maintain a deposit in that amount. Thereafter, once we have made full on time payment of all invoices for a six-month period, the deposit terms will revert to the terms of the existing original agreement.
We are in regular communication with the Primary Supplier regarding our capital resources. In the circumstances of the reduction of capital available to us to pay the supplier and in particular, not completing the October Offering, the Primary Supplier had stopped all development work that the Primary Supplier performs for us and it had reassigned all of its employees that were previously dedicated to the our project to unrelated work. This will significantly impact the timing and costs associated with the completion of our future milestones as additional time and cost will be incurred to rehire and/or reassign employees and resume product development.
Since late 2019, we have been involved in litigation with Naglreiter Consulting, LLC. Please see “Legal Proceedings” for more information.
As we raise additional capital, we continue to make payments on valid past due invoices with current suppliers. Should we be successful in raising sufficient capital, which we may not be, we plan to complete paying valid past due invoices and then develop a work plan with input from suppliers that is consistent with our priorities toward milestone achievement having regard to our available capital resources. As the Primary Supplier has agreed to waive certain deposit requirements, we plan to comply with the specified interim requirements of the supplier until we have raised sufficient capital to fund the deposit as described above. In any case in which we may be unable to normalize supplier relationships, we have identified alternative suppliers of those services.
We will need to replace any product development service provider in the event it should be necessary or desirable to us. However, the engagement of other service providers will be subject to the availability of sufficient capital, successful negotiation of commercial terms, statements of work, payment terms and possibly, require deposits and/or pre-payments. There is no assurance that we will be able to reach any agreement with any alternative supplier on satisfactory terms.

Year ended December 31, 2018 compared to year ended December 31, 2017
During the year ended December 31, 2018 we raised gross proceeds of $28,424,732 ($25,776,269 net of closing cost including cash commission of $1,983,429). We generated a net loss of $22,639,272, which included research and development expenditures of $32,858,339 and a gain on the change in fair value of warrants of $17,095,220.
We incurred a net and comprehensive loss of $22,639,272 during the year ended December 31, 2018, compared with a net and comprehensive loss of $33,586,984 for the year ended December 31, 2017. This decrease in net and comprehensive loss for the year is primarily attributed to a large gain from the change in fair value of warrants in 2018 compared to a loss in 2017, which was partially offset by substantially higher research and development expenditures in 2018 compared to 2017. In addition, foreign exchange gain in the year ended December 31, 2018, was $979,894, compared to a loss of $542,664 for the year ended December 31, 2017. This change in foreign exchange of $1,522,558 is primarily attributable to the foreign exchange on warrants, a gain of $984,462 in 2018 compared to a loss of $305,475 in 2017.
Excluding foreign exchange, general and administrative expenses for the year ended December 31, 2018, were $6,832,003 compared to $5,983,201. The increases in general and administrative expenses during the comparative periods are attributed to increases in insurance, consulting fees, incremental salaries of personnel added after the beginning of 2017, management and administrative salaries, professional fees and office and general expenses.
50

The gain attributed to the change in fair value of warrants for the year ended December 31, 2018 was $17,095,220 compared to loss of $13,133,671 for the same period in 2017. The change of $30,228,891 reflects a significant decrease in the fair value of warrants in 2018 compared to 2017.
We realized $288,300 of interest income on our cash and cash-equivalent balances during the year ended December 31, 2018, and $17,442 for the same period in 2017. This increase in interest income is primarily attributed to substantially higher cash balances in our money market account in 2018 compared to 2017.
Liquidity and Capital Resources as at December 31, 2019
We do not currently generate any revenue (other than interest income on our cash balances) and accordingly it is primarily dependent upon equity financing for any additional funding required for development and operating expenses.
During the third and fourth quarter of 2019, we were unsuccessful in securing sufficient capital to continue product development and preparation for submissions to regulatory authorities. As a result, on October 15, 2019, we announced that we had withdrawn all forward-looking statements included in our continuous disclosure documents with respect to the cost and timing of the development of our robotic surgical system beyond the fourth quarter of 2019. On November 7, 2019, we announced that we had determined not to proceed with the October Offering.
 Our ability to arrange financing in the future will depend in part upon prevailing capital market conditions and our business success. There can be no assurance that we will be successful in our efforts to arrange additional financing on terms satisfactory to us, or at all. If adequate funds are not available, or are not available on acceptable terms, we may not be able to resume our technology development program. 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, or loss of their investment.
We had cash and cash equivalents on hand of $814,492 and accounts payable and accrued liabilities, including the current portion of the lease liability, of $11,433,967 excluding warrant liability at December 31, 2019, compared to $11,471,243 and $6,447,888 respectively, at December 31, 2018. Our working capital at December 31, 2019 was a deficit of $9,684,525 excluding warrant liability, compared to working capital of $14,294,791 at December 31, 2018.
The table below sets forth our warrants (by series) that were previously issued and which remain outstanding as at December 31, 2019:
51

   

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.

Liquidity and Capital Resources as at March 31, 2020
We currently do not generate any revenue (other than interest income on its cash balances) and accordingly we are primarily dependent upon equity financing for any additional funding required for development and operating expenses and to satisfy outstanding obligations.

During the second half of 2019, we were unable to secure sufficient capital to continue product development and preparation for submissions to regulatory authorities as previously planned. As a result, we have withdrawn all forward-looking statements included in our continuous disclosure documents with respect to the cost and timing of the development of the robotic surgical system since the fourth quarter of 2019.

During the first quarter of 2020, we raised gross proceeds of $3,717,930 ($3,346,667 net of costs) and subsequent to the first quarter, we raised $1,500,000 by way of an 8% senior secured promissory note, and $2,000,000 ($1,613,800 net of estimated closing costs) through a registered direct offering. We will need to secure additional financing before resuming our development plan at a satisfactory rate.

Our ability to arrange 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 we will be successful in our efforts to arrange additional financing on terms satisfactory to us, or at all. If adequate funds are not available, or are not available on acceptable terms, we may not be able to resume our technology development program or to satisfy our obligations as and when they become due. 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, or loss of their investment.
We had cash and cash equivalents on hand of $1,760,219 and accounts payable and accrued liabilities, including the current portion of lease liability, of $10,210,103 excluding warrant liability at March 31, 2020, compared to $814,492 and $11,433,967 respectively, at December 31, 2019. The Company’s working capital at March 31, 2020 was a deficit of $7,688,354 excluding warrant liability, compared to working capital deficit of $9,684,525 at December 31, 2019.
 
 
52


 
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.
Financings  
Warrants Exercised in 2020
During the quarter ended March 31, 2020, 2,400,000 warrants were exercised for gross proceeds of $456,000 and in April 2020 an additional 200,000 warrants were exercised for gross proceeds of $38,000.
For information regarding offerings conducted in 2020 to the date of this prospectus, please see “Recent Developments”.

Offerings in 2019
On December 23, 2019, we announced that we had entered into a second Common Share Purchase Agreement (“Second Aspire Agreement”) with Aspire Capital under which Aspire Capital committed to purchase up to US$35.0 million Common Shares at our request from time to time, until June 23, 2022, subject to the terms and conditions of the agreement. In accordance with the terms of the Second Aspire Agreement, we immediately issued 973,000 Common Shares to Aspire Capital as a commitment fee (the “December Commitment Shares”) upon entering into the agreement, and subsequent to the year-end, we raised an additional $2,071,930 through the sale of 4,408,048 Common Shares to Aspire Capital.
We filed a prospectus supplement to our Form F-3 shelf registration statement (File No. 333-232898), qualifying the additional offer and sale of Common Shares to Aspire Capital (including the December Commitment Shares).
53

On November 1, 2019, we announced that we had filed and been receipted for a final short form prospectus filed in Ontario, British Columbia and Alberta in connection with the October Offering. On November 7, 2019, we announced that we determined not to proceed with the October Offering.
On August 29, 2019, we announced that we had entered into the Aspire Agreement with Aspire Capital under which Aspire Capital committed to purchase up to US$35.0 million Common Shares at our request from time to time, until February 28, 2022, subject to the terms and conditions of the agreement. On commencing the Aspire Agreement, we immediately sold to Aspire Capital 1,777,325 Common Shares at a price of US$1.6879 per share for gross proceeds of US$3.0 million, and also issued 639,837 Common Shares to Aspire as a commitment fee (the “August Commitment Shares”). Until the Aspire Agreement was terminated on December 23, 2019 (pursuant to and upon entering into the Second Aspire Agreement described above), we raised a further $2,304,531 and issued an additional 5,367,282 Common Shares at an average price of $0.4294 per share.
We filed a prospectus supplement to our Form F-3 shelf registration statement (File No. 333-232898), which was declared effective on August 2, 2019 by the U.S. Securities and Exchange Commission, qualifying the offer and sale of Common Shares to Aspire Capital (including the August Commitment Shares) pursuant to the Aspire Agreement. Northland Securities, Inc. acted as our agent and financial advisor in connection with the offering and was paid a cash fee of $160,000.
On March 21, 2019, we completed an offering of securities made pursuant to an agency agreement (“Agency Agreement”) dated March 18, 2019 between us and Bloom Burton Securities Inc. as agent (“Bloom Burton”). We sold 8,455,882 units under the offering at a price of $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 and one warrant, each warrant entitling the holder thereof to acquire one Common Share at an exercise price of $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 the common shares.
Pursuant to the Agency Agreement, in addition to the cash commission paid to Bloom Burton, broker warrants were issued to Bloom Burton which entitle the holder to purchase 591,911 common shares at a price of $3.40 per share prior to expiry on March 21, 2021. The broker warrants were valued using the Black-Sholes 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 three months 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 shares.

Offerings in 2018

On August 10, 2018 we completed an offering of securities made pursuant to an agency agreement dated August 7, 2018 between us and Bloom Burton.  We sold 7,679,574 Units under the Offering price of US$2.50 per Unit for gross proceeds of approximately $19,198,935.  Each Unit consisted of one Common Share and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share at an exercise price of US$3.20 and expiring August 10, 2023.
On April 10, 2018 we completed an offering of securities pursuant to an agency agreement dated April 3, 2018 between us and Bloom Burton.  We sold 1,126,665 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 and 0.03333 warrant, each whole warrant entitling the holder thereof to acquire one Common Share at an exercise price of CDN$10.50 and expiring April 10, 2023.
On May 10, 2018 we announced the exercise of the over-allotment option granted to Bloom Burton as agent for our offering, at a price of CDN$9.00 per unit, completed on April 10, 2018 and we sold an additional 168,889 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 and 0.03333 warrant, each whole warrant entitling the holder thereof to acquire one Common Share at an exercise price of CDN$10.50 and expiring April 10, 2023.
54

Offerings in 2017
On December 5, 2017 we completed an offering of units made pursuant to an agency agreement dated November 30, 2017 between us and Bloom Burton. We sold 1,533,333 units 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 and 0.03333 warrant, each whole warrant entitling the holder thereof to acquire one additional Common Share at an exercise price of CDN$18.00 and expiring December 5, 2022.
On October 20, 2017 and October 30, 2017, we completed a non-brokered private placement offering of 446,197 Common Shares, for aggregate gross proceeds of  $2,677,326 (CDN$3,343,416), to subscribers in Canada, the United States and Europe.
On June 29, 2017, we completed an offering of securities (the “June Offering”) pursuant to an agency agreement (the “June Agency Agreement”) dated June 26, 2017 between us and Bloom Burton. At the first closing of the June Offering on June 29, 2017, we sold 1,612,955 units 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 June Agency Agreement). Each unit consisted of one Common Share and 0.03333 warrant, each whole warrant entitles the holder thereof to acquire one common share at an exercise price of CDN$6.00 and expires June 29, 2022. In addition to the cash commission paid to Bloom Burton and selling group members, broker warrants were issued to Bloom Burton and selling group members, 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 we completed the second closing of the June Offering pursuant to which we sold an additional 370,567 units 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 June Agency Agreement). Each unit consisted of one Common Share and 0.03333 warrant, each whole warrant entitles the holder thereof to acquire one Common Share at an exercise price of CDN$6.00 and expiring June 29, 2022.
Pursuant to the agency agreement, in addition to the cash commission paid to Bloom Burton and the selling group members, broker warrants were issued to Bloom Burton and the selling group members, which entitle the holder to purchase 25,940 Common Shares at a price of CDN$4.50 per share prior to expiry on June 29, 2019.
On March 16, 2017, we completed an offering of securities made pursuant to an agency agreement dated March 10, 2017 (the “March Agency Agreement”) between us and Bloom Burton. We 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 cost including cash commission of $394,316 paid in accordance with the terms of the March Agency Agreement). Each unit consisted of one Common Share and (i) 0.01666 of one warrant, each whole warrant entitling the holder thereof to acquire one Common Share at an exercise price of CDN$12.00 and expiring March 16, 2019, and (ii) 0.01666 of one warrant, each whole warrant entitling the holder thereof to acquire one common share at an exercise price of CDN$15.00 and expiring March 16, 2021.
Pursuant to the March Agency Agreement, in addition to the cash commission paid to Bloom Burton, broker warrants were issued to Bloom Burton 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.
On August 24, 2017, we completed a subscription agreement with Longtai Medical Inc. (“Longtai”) for the equity conversion of Longtai’s $2.0 million distribution deposit. Under the terms of the subscription agreement dated July 31, 2017, we 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 0.03333 warrant, with each whole warrant exercisable for one Common Share at an exercise price of CDN$6.00 per warrant prior to expiry on August 24, 2022. The warrants were valued at $822,372 based on the value of comparable warrants at the time. The common shares were valued at $1,887,411 based on the market value on August 24, 2017 of CDN$4.20. In addition, because 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 unaudited condensed.
55

Off-Balance Sheet Arrangements
Other than for leased premises we occupy and the possibility of future technology licensing agreements, we do not utilize off balance sheet arrangements.
Outstanding Share Data
The following table summarizes the outstanding share capital as of May 13, 2020:
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

Notes:

(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.

Accounting Policies
The accounting policies set out in the notes to the audited financial statements have been applied in preparing the audited financial statements for the year ended December 31, 2019 including the comparative information presented in the audited financial statements for the year ended December 31, 2018.  The accounting policies set out in the notes to the unaudited condensed interim financial statements for the three months ended March 31, 2020 and the audited financial statements for the years ended December 31, 2019 have been applied in preparing the unaudited condensed interim financial statements for the three months ended March 31, 2020, and the comparative information presented in the unaudited condensed interim financial statements for the three months ended March 31, 2019.

56

The financial statements have been prepared in accordance with accounting principles applicable to going concern, which contemplates that we will be able to realize our assets and settle our liabilities in the normal course as they come due during the normal course of operations for the foreseeable future. As of December 31, 2019, we have shareholders’ deficiency of $214,844,773 and current year losses of $41,907,079. As of March 31, 2020, we have shareholders’ deficiency of $215,612,816 and current losses of $768,043.  We do not currently generate any revenue (other than interest income on our cash balances) and accordingly it is primarily dependent upon equity financing for any additional funding required for development and operating expenses. These conditions indicate the existence of a material uncertainty that may cast significant doubt on our ability to continue as a going concern if additional funding is not secured.
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 period. Financial statement items subject to significant judgement include, (a) the measurement of stock-based compensation and (b) the fair value estimate of the initial and subsequent measurement of warrant liabilities. While management believes that the estimates and assumptions are reasonable, actual results may differ.
(a) Stock Options
We use the Black-Scholes model to determine fair values of stock options and warrants was developed for use in estimating the fair value of the stock options and warrants. This model requires the input of highly subjective assumptions including future stock price volatility and expected time until exercise. Changes in the subjective input assumptions can materially affect the fair value estimate.
(b) Warrant Liability
In accordance with IAS 32, since the exercise price of certain of our warrants are not a fixed amount, as they are a) denominated in a currency (Canadian dollar) other than our functional currency (U.S. dollar), or, b) as with the warrants issued August 10, 2018 and March 21, 2019, have a cashless exercise option, the warrants are accounted for as a derivative financial liability. The warrant liability is initially measured at fair value and subsequent changes in fair value are recorded through net and comprehensive loss for the period. The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value into the following hierarchy:
Level 1 –Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices included within Level 1 that are directly or indirectly observable;

Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
The fair value of our warrant liability is initially based on level 2 (significant observable inputs) and at December 31, 2019 is based on level 1, quoted prices (unadjusted) in an active market, for our listed warrants and level 2 for our unlisted warrants.
Related Party Transactions
During the year ended December 31, 2019, transactions between us and 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.
Financial Instruments
Our financial instruments consist of cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities and warrant liability. The fair value of these financial instruments approximates their carrying values, unless otherwise noted, due to the short-term maturities of these instruments or the discount rate applied.

57

Outlook
During the quarter ended March 31, 2020, we secured capital but the amount was not sufficient to resume our product development or to accomplish any of our previously stated milestones. During the year ended December 31, 2019, we were unsuccessful in securing sufficient capital to maintain product development and regulatory activities at a pace that would allow accomplishment of our previously stated milestones. As a result, on October 15, 2019, we announced that we had withdrawn all forward-looking statements included in our continuous disclosure documents with respect to the cost and timing of the development of our robotic surgical system beyond the fourth quarter of 2019. On November 7, 2019, we announced that we had determined not to proceed with the October Offering.
We do not have sufficient capital to continue the development of our robotic surgical system and there can be no assurance that we will be successful in securing additional financing. Any further development of our robotic surgical system is entirely contingent on the availability of such financing and, accordingly, any future development of our robotic surgical system cannot be predicted at this time. The Primary Supplier has ceased all work on the development of our surgical system and our Service Provider has initiated a Civil Claim against us. We have taken certain measures to reduce our cash burn over our historical rates, including a significant reduction in our rate of development, sourcing more cost-effective resources and reducing our general and administrative overhead where possible.
Following the above noted adverse events during second half of 2019, the Board of Directors established a special committee of independent directors to oversee the global search for strategic alternative transactions to maximize shareholder value. The mandate of the special committee includes a wide range of potential transactions, including financing through equity or debt, licensing, merger or acquisition. There can be no assurance that we will be successful in securing additional capital or identifying a suitable strategic alternative transaction. In the event that we are unable to secure additional capital or conclude a suitable strategic alternative transaction, we may be unable to pay down past due invoices or resume and continue our product development. It is also possible that in such circumstances our relationships with key service providers may further deteriorate. As a result of these factors, the schedule for completion of our stated milestones cannot be predicted at this time.

Trend Information
Historical patterns of expenditures cannot be taken as an indication of future expenditures. The amount and timing of expenditures and therefore liquidity and capital resources vary substantially from period to period depending on the number of research and development programs being undertaken at any one time, the stage of the development programs, the timing of significant expenditures for manufacturing, and the results of studies and clinical trials.
Tabular Disclosure of Contractual Obligations
The below details of contractual obligations are as of December 31, 2019.
 
 
  
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
 
  
     
  
     
  
     
  
     

58

Quantitative & Qualitative Disclosures about Market Risk
Risks
We are exposed to credit risk, liquidity risk, interest rate and currency risk. Our board of directors has overall responsibility for the establishment and oversight of our risk management framework.
Credit risk
Our credit risk is primarily attributable to cash and cash equivalents and amounts receivable. We have 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.
Liquidity risk
Our current liabilities exceed our current assets and we do not have sufficient funds to carry on our business or pay our liabilities. Our approach to managing liquidity risk is to ensure that, where possible, we will have sufficient liquidity to meet liabilities when due and when appropriate will scale back our operations. We are a development stage company.
We do not currently generate any revenue or income (other than interest income on our 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.
Our ability to arrange such financing in the future will depend in part upon prevailing capital market conditions and our business success. There can be no assurance that we will be successful in our efforts to arrange additional financing on terms satisfactory to us. 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, we may not be able to take advantage of opportunities, or otherwise to resume and continue our technology development program.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We hold our cash in bank accounts or high interest savings accounts which have a variable rate of interest. We manage our interest rate risk by holding highly liquid short-term instruments and by holding our investments to maturity, where possible. For the years ended December 31, 2019, 2018 and 2017, we earned interest income of $115,584, $288,300 and $17,442, respectively. Therefore, a 1% change in the average interest rate for the years ended December 31, 2019, 2018 and 2017, would have a net impact on finance income of $62,071, $113,711 and $39,392, respectively.
Currency risk
Our 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 we maintain a minimum balance of Canadian dollars.
59

A 5% strengthening of the U.S Dollar for the three years ended December 31, 2019, 2018 and 2017, as indicated below, against Canadian current assets and accounts payable and accrued liabilities including warrant liability would result in increased equity and increased profit of $32,541, $192,059 and $888,913. This analysis is based on foreign currency exchange rate variances that we consider to be reasonably possible at the end of the reporting periods.
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
 

Significant Changes
We are not aware of any significant change that has occurred since December 31, 2019 included in this prospectus and that has not been disclosed elsewhere in this prospectus.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
The following sets out details respecting our directors and executive officers, as of the date hereof. The names, the municipalities of residence, the positions held by each in the Company and the principal occupation for the past five years of our directors and executive officers are as follows:

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.
 
60


Notes:
(1)
Member of Audit Committee of the Company.
(2)
Member of Compensation Committee of the Company.
(3)
Member of Governance and Nominating Committee.
Leadership Team
Our leadership team is as follows:
David J. McNally,
President, Chief Executive Officer & Director
Mr. McNally is an experienced entrepreneur and public company CEO with over 32 years of experience in the medical device industry. Throughout his career, Mr. McNally has founded and co-founded start-up companies that commercialized best-in-class surgical, life and organ support, diagnostic and home-care capital equipment and disposables. Among other accomplishments, he has experience leading companies trading on boards ranging from over-the-counter marketplaces to the Nasdaq and TSX. Mr. McNally also has experience in FDA clearance and CE mark for Class II devices as well as managing relationships with strategic partners including OEM suppliers and global distributors. Mr. McNally is formerly, the founder, President, CEO & Chairman of Domain Surgical Inc., a developer, manufacturer and marketer of advanced energy surgical platforms, that merged with OmniGuide Holdings, Inc. in 2016. Mr. McNally is also a former co-founder, President & CEO of ZEVEX International Inc. (Nasdaq: ZVXI), a developer, manufacturer and marketer of award-winning medical devices, that was acquired by MOOG Inc. in 2007. He is a co-inventor on more than 40 U.S. and international patents.
Education: Bachelor of Science in mechanical engineering from Lafayette College and MBA from the University of Utah.
Stephen Randall, CPA, CGA
Chief Financial Officer & Director
Mr. Randall has over 30 years of executive experience in established and start-up companies including accounting, finance, capital markets, tax planning, compliance, IT management, mergers & acquisitions and operations.
Education: Bachelor of Arts in political science from the University of Western Ontario, Commerce Degree from the University of Windsor.
61

 
Perry Genova, PhD
Senior Vice President of R&D
Dr. Genova is an expert in medical device product development including surgical robotics, an author of 32 peer-reviewed papers and an inventor named on more than 30 U.S. Patents and 24 patents pending.
Education: PhD in biomedical engineering from the University of North Carolina at Chapel Hill and Bachelor of Science in electrical engineering from the University of North Carolina at Charlotte.
Curtis Jensen
Vice President of Quality& Regulatory Affairs
Mr. Jensen has over 20 years of experience leading quality and regulatory affairs teams at established and start-up U.S. companies to achieve quality systems compliance, 510(k) clearances and CE Mark approvals.
Education: Master of Science in applied mathematics from Johns Hopkins University and Bachelor of Science in electrical engineering from Utah State University.
Sachin Sankholkar
Vice President of Marketing
Mr. Sankholkar has over 20 years of advanced medical device marketing experience, including 15 years at Intuitive Surgical Inc. developing robotic surgeon network and procedural expertise in multiple subspecialties.
Education: Master of Science in biomedical engineering from Drexel University and MBA from the University of Southern California.
Chris Seibert
Vice President of Business Development
Mr. Seibert has over 12 years of advanced medical device sales and management experience, including 10 years at Intuitive Surgical Inc. and Stereotaxis Inc. with IDN/GPO sales channel expertise and C-level access and network.
Education: Bachelor of Arts from the University of Alabama, Master of Arts in human relations from the University of Oklahoma and MBA from the University of South Alabama.
Surgeon Advisory Board
We have assembled a surgeon advisory board consisting of the following surgeons who are widely regarded as leaders in the field of medical robotics or fields of surgery where robotics is expected to have a significant impact:
Arnold Advincula, M.D.
Dr. Advincula is Vice-Chair of Women’s Health & Chief of Gynecology at the Sloane Hospital for Women, Columbia University Medical Center/New York Presbyterian Hospital. Formerly, he was Professor of Obstetrics and Gynecology, Director of the Minimally Invasive Surgery Division and Fellowship, and Director of the Endometriosis Center at the University of Michigan. More recently, he was Director of the Center for Specialized Gynecology and Director of the Education Institute at the Nicholson Center, an advanced medical and surgical simulation training facility at Florida Health. He is currently Vice President of the American Association of Gynecologic Laparoscopy and a Member-at-Large for the Society of Gynecologic Surgeons. He is a leader in minimally invasive surgical techniques and one of the world’s most experienced gynecologic robotic surgeons, who has published and taught extensively in the area of minimally invasive surgery, as well as developed surgical instruments that are in use worldwide.
62

 
Eduardo Parra- Davilla, M.D.
Dr. Parra-Davila is the Director for Minimally Invasive and Colorectal Surgery and Director of Hernia and Abdominal Wall Reconstruction at Florida Hospital Celebration Health. He is a well-respected national and international surgeon. He has trained over a thousand surgeons worldwide and has performed surgical procedures in numerous countries utilizing the latest techniques in hernia, minimally invasive and robotic surgery. Dr. Parra- Davila is Board Certified in General Surgery and Colorectal Surgery. He completed his Fellowship in Advanced Laparoscopy and Minimally Invasive Surgery at Texas Endosurgery Institute in San Antonio, Texas and Colon and Rectal Surgery at The University of Texas in Houston, Texas. His Residency was completed at Jackson Memorial Hospital, University of Miami, in Miami, Florida. He obtained his Medical Degree from The Universidad De Los Andes in Venezuela.
Lee L. Swanstrom, M.D.
Dr. Swanstrom heads the Division of GI and Minimally Invasive Surgery at the Oregon Clinic and is Director of Providence Health System’s Complex GI and Foregut Surgery Postgraduate Fellowship Program. In addition, he is Clinical Professor in the Department of Surgery at Oregon Health & Science University (OHSU), a Director of the American Board of Surgery, and Past President of both the Society of American Gastrointestinal Endoscopic Surgeons (SAGES) and the Fellowship Council (FC). Most recently, he became the Chief Innovations Officer and Director of the Innovations Fellowship at the Institutes des Hôpitalo Universitaires of the University of Strasbourg, France. He is the editor of Surgical Innovation and the author of over 300 scientific papers and 50 book chapters. This has resulted in 13 patents and a successful medical device start-up company. He is and has been an investigator on numerous outcomes research studies for new procedures such as Natural Orifice Translumenal Endoscopic Surgery (NOTES) to determine their safety and efficacy for establishing new standards of care. He remains focused on developing innovative approaches to the minimally invasive treatment of foregut and other gastrointestinal disorders.
John Valvo, M.D.
Dr. Valvo, a practicing surgeon, is the Executive Director of Robotic and Minimally Invasive Surgery at Rochester General Hospital in Rochester, New York, where he formerly was the Chief of Urology. Following a 20-year career performing open surgery, Dr. Valvo founded the robotic surgery program at Rochester General Hospital in early 2004, which currently ranks in the top two percent of robotic surgery volume in the United States. The program has trained over 30 robotic surgeons and enabled the completion of more than 7,000 robotic urology, gynecology, general and colorectal surgeries. Dr. Valvo has authored more than 100 scientific articles and helped start many robotic programs in the northeast. His focus on robotic surgery credentialing led to a notable published paper on policy guidelines for robotic surgery. He is a fellow of the American College of Surgeons and American Urological Association, and a member of the Society for Laparoscopic Surgeons.
Family Relationships
There are no family relationships between any of our directors or executive officers.
Arrangements
There are no known arrangements or understandings with any major shareholders, customers, suppliers or others, pursuant to which any of our officers or directors was selected as an officer or director of the Company.
Compensation
Compensation Discussion and Analysis
The Board of Directors is responsible for evaluating compensation for the President and Chief Executive Officer and the Chief Financial Officer and reviewing their salaries and any bonuses on an annual basis. The President and Chief Executive Officer and Chief Financial Officer are responsible for evaluating and reviewing the salaries and bonuses of all other employees and consultants of the Company. While the Board of Directors has not adopted a written policy concerning the compensation of Executive Officers, it has developed a consistent approach and philosophy relating to compensation. The overriding principles in the determination of executive compensation are the need to provide total compensation packages that will attract and retain qualified and experienced executives, reward the executives for their contribution to our overall success and integrate the longer term interests of the executives with the investment objectives of the Company’s shareholders.
63

Based on the size of the Company and our relatively small number of employees, our executives are required to be multi-disciplined, self-reliant and highly experienced. In determining specific compensation amounts for the executive officers, the Board of Directors considers factors such as experience, individual performance, length of service, role in achieving corporate objectives, positive research and development results, and compensation compared to other employment opportunities for executives.
We are an early-stage company engaged in the development of robotic surgical technologies. As we are in the product development stage, we cannot rely on revenues from operations to finance our activities and advance our goals. Consequently, we look to raising the requisite capital to finance such activities through equity financings, which are influenced by the financial market’s assessment of our overall enterprise value and our prospects. These in turn are influenced, to a great extent, by the results of our research and development activities and progress in commercializing robotic surgical technologies. The contribution that each of our President and Chief Executive Officer and our Chief Financial Officer makes to this endeavor, on a subjective analysis by the Compensation Committee and the Board of Directors at the end of each fiscal year, is the primary factor in determining aggregate compensation. In considering such contribution, the Board of Directors considers various factors, including, among other things, (i) the ongoing and progressive development of our robotic surgical technology; (ii) the identification and attainment of appropriate milestones that adequately reflect the ongoing development of our robotic surgical technology, (iii) the formation and development of key partnerships with leading academic and research organizations through which our products can be tested, and (iv) the recruitment, management and retention of qualified technical and other personnel, among other things.
Compensation for Executive Officers consists of base salary, cash bonuses and incentive stock options. In establishing compensation, we attempt to pay competitively in the aggregate as well as deliver an appropriate balance between annual compensation (base salary and cash bonuses) and option-based compensation (incentive stock options).
The role of the Compensation Committee in recommending to the Board the compensation for Executive Officers is described under “Compensation Committee”.
The decisions in respect of each individual compensation element are taken into account in determining each of the other compensation elements to ensure an Executive Officer’s overall compensation is consistent with the objectives of the compensation program while considering that not all objectives are applicable to each Executive Officer.
In 2017, the Compensation Committee retained Hugessen Consulting Inc. (“Hugessen”) to serve as the Committee’s independent compensation consultant. Hugessen has provided independent advice to the Compensation Committee with respect to executive and director compensation and relative governance matters. In 2019, Hugessen provided the following services to the Compensation 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.
The table below outlines fees paid to Hugessen in 2019:

Hugessen Consulting Inc.
  
2019 Fees
 
Executive Compensation Related Fees
  
$
25,394
 
All Other Fees
  
 
—  
 
 
  
 
 
 
Total
  
$
25,394
 
In addition, in 2019, the Compensation Committee retained Pearl Meyer & Partners LLC. (“Pearl Meyer”) to serve as the Committee’s U.S. independent compensation consultant. Pearl Meyer provides independent advice to the Compensation Committee with respect to executive and director compensation. In 2019, Pearl Meyer provided the following services to the Compensation Committee:
 
Review our executive and non-employee director compensation programs, including both levels of compensation and plan structure.

64

The table below outlines fees paid to Pearl Meyer in 2019:
 
         
Pearl Meyer & Partners LLC.
  
2019 Fees
 
Executive Compensation Related Fees
  
$
24,900
 
All Other Fees
  
 
—  
 
 
  
 
 
 
Total
  
$
24,900
 
 
The Compensation Committee did not follow a formal practice to consider the implications of the risks associated with our compensation policies and practices in 2019.
We have established a stock option plan for our officers, directors, employees and service providers, prepared in compliance with the requirements of the TSX, which is administered by the Board of Directors. The purpose of our stock option plan is to advance our interests by closely aligning the participants’ personal interests with those of our shareholders generally. Subject to the provisions of the stock option plan, our Board of Directors determines and designates from time to time the optionees to whom options are to be granted, the number of Common Shares to be optioned and the other terms and conditions of the stock option grant. Our Board of Directors considers factors such as individual performance, the significance of individual contribution to our success, experience, and length of service in determining the amounts of options awarded. No options were awarded in 2019.
Compensation Committee
The awarding of annual bonus and option-based awards is subject to the discretion of the Compensation Committee and Board of Directors, exercised annually, as more fully described herein, and is at risk and not subject to any minimum amount. Furthermore, if the Compensation Committee determines that the compensation, by us, for certain executives and other personnel, including option-based awards, is low compared to comparable companies, the Compensation Committee may determine to grant option-based awards to assist us in retaining and attracting key executive talent and to further align the compensation of the executive officers and other key employees with the long-term interests of shareholders. The Compensation Committee and the Board of Directors also have the discretion to adjust the weightings assigned to objectives for executives, including the President and Chief Executive Officer, and award a higher or lower annual incentive value to one or more executive officers than achievement of applicable corporate objectives might otherwise suggest, based on their assessment of the challenges and factors that might have impacted the ability to achieve the objective or attain the highest assessment ranking, or other factors such as rewarding individual performance or recognizing our ability (or inability) to achieve our goals and strategic objectives and create shareholder value. In exercising its discretion, the Compensation Committee and Board of Directors may also consider, among other factors, risk management and regulatory compliance, the performance of executive officers in managing risk and whether payment of the incentive compensation might present or give rise to material risks to us or otherwise affect the risks faced by us and the management of those risks.
In assessing the general competitiveness of the compensation of our Executive Officers, the Compensation Committee considers base salary, total cash compensation and total direct compensation (including the value of long-term incentives) relative to a comparator group of publicly listed companies and reviews benchmark data composed of the group’s executive compensation data for matching positions. The peer group consists of the following comparable technology companies:
     
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.

65

In addition to advice obtained from compensation consultants, the Compensation Committee undertakes its own assessment of the competitiveness of our compensation and incentive programs, based on information obtained from such consultants and other information that may be available to the Compensation Committee. Decisions as to compensation are made by the Compensation Committee and the Board of Directors and may reflect factors and considerations other than the information and, if applicable, recommendations provided by compensation consultants.
Executive Officers
Summary Compensation Table
The following table and the notes thereto sets forth information concerning annual total compensation for each Executive Officer in 2019. All amounts in the table below and the notes thereunder are stated in our functional and presentation currency, which is U.S. dollars. The exercise prices of options are presented in either US or Canadian dollars corresponding in the original currency of each grant. Canadian employees are compensated in Canadian dollars. For reporting purposes, the Canadian dollar amount is translated to U.S. dollars using the year end exchange rate, as quoted by the Bank of Canada, on December 31, 2019.
 
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
 
                                                                 
 
Notes:
(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.
 
66

Outstanding share-based awards and option-based awards
The following table shows all awards granted to Executive Officers and outstanding on December 31, 2019.
 
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
 
 
 
 
 
 
                                                                 
 
Notes:
(1)
Mr. Zaring resigned from the Company on February 7, 2020.
The following table shows the value from incentive plans vested or earned by Executive Officers under our incentive plans and the annual incentive bonus payout during the financial year ended December 31, 2019: 
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
 
                         
 
Notes:
(1)
Mr. Zaring resigned from the Company on February 7, 2020. None of Mr. Zaring options were vested at the time of his resignation.

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Securities Authorized for Issuance Under Equity Compensation Plan
The following table sets forth certain information as of December 31, 2019 with respect to compensation plans under which our equity securities are authorized for issuance:

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
 
Termination and Change of Control Benefits
No Executive Officer is entitled to any form of compensation as a result of termination or change of control of the Company.
Indebtedness of Directors and Executive Officers
No director or executive officer of the Company, nor any proposed nominee for election as a director of the Company, nor any associate or affiliate of any of them is or was indebted to us at any time since the beginning of our last completed financial year.
Compensation of Directors
The annual retainer for all directors for the year ended December 31, 2019 was CDN$30,000 other than for the Chair of the Board who received US$50,000, annual amounts for the chair of a committee or the board was CDN$3,200 or US$2,500 and meeting fees for all directors was CDN$1,300 or US$1,000.
The Board of Directors determines the form of payment of the compensation paid to directors. All compensation to directors is paid through the issuance of stock options, or cash, at the discretion of the directors, on a quarterly basis for meeting fees and on an annual basis, each July, for other fees. Currently directors’ compensation is paid through a combination of cash and stock options. The table below reflects in detail the compensation earned by non-employee directors in the 12-month period ended December 31, 2019.
 
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.
Directors’ and Officers’ Insurance
We maintain insurance for our benefit and the benefit of our directors and officers as a group, in respect of the performance by them of duties of their office. The premium paid for such insurance in 2019 was $466,600.

68

Outstanding share-based awards and option-based awards
The following table shows all option-based and share-based awards granted to non-employee directors and outstanding on December 31, 2019.
 
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
 
 
 
                                                         
 
Notes:
(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.
Incentive Plan Awards – Value Vested or Earned During Fiscal Year and December 31, 2019
The following table shows the value from incentive plans vested or earned by non-employee directors under our incentive plans and the annual incentive bonus payout during the financial year ended December 31, 2019.
 
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
The Canadian Securities Administrators have adopted National Instrument 58-101 – Disclosure of Corporate Governance Practices (the “Disclosure Rule”). The Disclosure Rule establishes disclosure requirements regarding corporate governance practices of a reporting issuer as well as the requirement to file any written code of business conduct and ethics that a reporting issuer has adopted. Set out below is a description of our approach to corporate governance as required by the Disclosure Rule.
69

Board of Directors
As of December 31, 2019, four of the six members of the Board of Directors are independent directors. An independent director is defined as a director who has no direct or indirect material relationship with the Company, being a relationship that could be reasonably expected to interfere with the exercise of a director’s independent judgement. As at December 31, 2019, Messrs. McNally and Randall are considered to be non-independent by virtue of their management position with the Company and their employment relationships with the Company. The Board believes that their extensive knowledge of our business and affairs is beneficial to the other directors and their participation as directors contributes to the effectiveness of the Board. Messrs. John E. Barker, Charles Federico, Dominic Serafino and John Schellhorn are considered to be independent directors. These determinations were made by the Board based upon an examination of the factual circumstances of each director and consideration of any interests, business or relationships, which any director may have with the Company.
As part of each regularly scheduled quarterly board meeting, the independent directors have an in-camera session, exclusive of non-independent directors and management. At the present time, the Board believes that the knowledge, experience and qualifications of its independent directors are sufficient to ensure that the Board can function independently of management and discharge its responsibilities.
The Chairman of the Board of Directors, Charles Federico, is an independent director. We do not have a designated lead director. The Board utilizes its own in-house expertise, and that of its legal counsel, to provide advice and consultation on current and anticipated matters of corporate governance.
Board Mandate
The Board of Directors is responsible for the overall stewardship of the Company and operates pursuant to a written mandate, which was updated and approved by the Board on February 10, 2015.
Position Descriptions
The Board has developed written position descriptions for the Chair of the Board of Directors and the chair of each committee. With respect to management’s responsibilities, generally, any matters of material substance to the Company are submitted to the Board for, and are subject to, its approval. Such matters include those matters which must by law be approved by the Board (such as share issuances) and other matters of material significance to the Company, including any debt or equity financings, investments, acquisitions and divestitures, and the incurring of material expenditures or legal commitments. The Board and/or its audit committee also reviews and approves our major communications with shareholders and the public including the annual report, if any, (and financial statements contained therein), quarterly reports to shareholders, the annual management information circular and the annual information form. The specific corporate objectives which the chief executive officer is responsible for meeting (aside from the overall objective of enhancing shareholder value) are typically related to the advancement, growth, management and financing of the Company and our research and development project and matters ancillary thereto.
Orientation and Continuing Education
We do not provide a formal orientation or education program for Board members, as it believes that such programs are not appropriate for a development stage company with an experienced Board, the members of which have been selected for their specific expertise.
Our directors are highly experienced and knowledgeable, both individually and as a group. The directors have either a medical or business background and have long careers in or related to the medical, health or financial industry and are intimately familiar with our project, through sufficient interactions with management and technology developers.
To ensure that the Board has and maintains the skill and knowledge necessary for them to meet their obligations as directors, each of the directors has observed the performance of the single-port robotic surgical system. Summary technology presentations by management relating to various aspects of our project is made at meetings of the Board. The Board believes that discussion among the directors and management at these meetings provides a valuable learning resource for the directors with non-technical expertise in the subject matter presented, and that those directors provide management with valuable insights into broader issues facing us.
70

Ethical Business Conduct
We are committed to maintaining high standards of corporate governance and this philosophy is communicated by the Board to management, and by management to employees, on a regular basis.
 
In order to ensure that the directors exercise independent judgment in considering transactions and agreements, the Board requires that all directors declare any conflicts of interest with issues or situations as they arise. This would include transactions/agreements in which a director/officer has material interest.
Nomination of Directors
The Corporate Governance and Nominating Committee standing committee appointed by the Board and it is responsible for overseeing and assessing the functioning of the Board and the committees of the Board and for the development, recommendation to the Board, implementation and assessment of effective corporate governance principles. The Committee’s responsibilities also include identifying candidates for directorship and recommending that the Board select qualified director candidates for election at the next annual meeting of shareholders.
The Corporate Governance and Nominating Committee is composed entirely of independent directors, being John E. Barker, Charles Federico, Dominic Serafino and John Schellhorn.
Audit Committee
The Board of Directors has established an Audit Committee. The Audit Committee met four times during the financial year ended December 31, 2019.
Composition of the Audit Committee
The table below sets out the members of the Audit Committee as of December 31, 2019 and states whether they are financially literate and/or independent.
 
Director
  
Independent
  
Financially Literate
John E. Barker
  
Yes
  
Yes
Charles Federico
  
Yes
  
Yes
Dominic Serafino
  
Yes
  
Yes
John Schellhorn
  
Yes
  
Yes
Note that Mr. Serafino resigned from the Company effective February 11, 2020, and the Audit Committee now consists of the remaining three members listed above.
Relevant Education and Experience
Messrs. Barker, Federico and Schellhorn are the current directors on the Audit Committee and have been senior officers and/or directors of publicly traded companies and business executives for a number of years. In these positions, each individual has been responsible for receiving financial information relating to the entities of which they were directors or senior officers. They had or have developed an understanding of financial statements generally and understand how those statements are used to assess the financial position of a company and its operating results. Each member of the Audit Committee also has a significant understanding of our business and has an appreciation for the relevant accounting principles for our business.
Compensation and Compensation Committee
Compensation matters are dealt with by the Compensation Committee. The function of the Compensation Committee is to review the compensation terms of each officer of the Company annually as well as at any other times as necessary. After considering inputs from senior management, the Compensation Committee makes a recommendation to the Board for approved compensation terms for each officer of the Company. Among other things, the Compensation Committee also recommends the structure of the compensation in terms of the amount of cash and/or number of options to be granted. The members of the Compensation Committee have several years of relevant experience, having served as senior business executives with other companies and as members of compensation committees of other companies.

71

As of December 31, 2019, all four members of the Compensation Committee, namely, Messrs. Barker, Federico, Serafino and Schellhorn are considered to be independent directors. The Compensation Committee met four times during the financial year ended December 31, 2019.
 
Note that Mr. Serafino resigned from the Company effective February 11, 2020, and the Compensation Committee now consists of the remaining three members listed above.
Other Board Committees
The Board has no standing committee other than the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee.
Assessments
The Board, its committees and individual directors are not regularly assessed with respect to their effectiveness and contribution, as the Board believes that such assessments are generally more appropriate for corporations of significantly larger size and complexity than the Company and which may have significantly larger boards of directors. A more formal assessment process will be instituted as, if, and when the Board deems necessary.
Director Tenure
Each of the directors will serve until the close of our next annual meeting or until his or her successor is elected or appointed. The Board has not adopted a term limit for directors. The Board believes, at this time, that the imposition of director term limits on a board may discount the value of experience and continuity amongst board members and runs the risk of excluding experienced and potentially valuable board members. This decision is subject to review on an annual basis. The Board does not follow a formal director assessment procedure in evaluating Board members. However, the Board believes that it can best strike the right balance between continuity and fresh perspectives without mandated term limits.
Representation of Women on the Board and in Executive Officer Positions
The Corporate Governance and Nominating Committee’s Charter encourages diversity in the composition of the Board of Directors and requires periodic review of the composition of the Board of Directors as a whole to recommend, if necessary, measures to be taken so that the Board of Directors reflects the appropriate balance of diversity, knowledge, experience, skills and expertise required for the Board of Directors as a whole. Accordingly, while the Board of Directors has not adopted a written policy nor targets relating to the identification and nomination of women directors, the Board of Directors does take into consideration a nominee’s potential to contribute to diversity within the Board of Directors. Given that diversity is part of determining the overall balance, which includes gender, the Board of Directors has not adopted a gender specific policy target.
The Corporate Governance and Nominating Committee recognizes the value of diversity. Currently, the Board of Directors is comprised of male directors. The Board of Directors does not follow a formal process for proposing female nominees for Board of Director vacancies. Rather the Board of Directors focuses on the qualification and professional or business experience of each individual nominee.
Consistent with our approach to diversity at the Board of Director level, our hiring practices include consideration of diversity across a number of areas, including gender. None of our current executive officer positions are held by women. We do not have a target number of women executive officers. Given the small size of our executive team, we believe that implementing targets would not be appropriate. However, in our hiring practices, we consider the level of representation of women in executive officer positions.
72

 
Employees
The below details the number of employees by geographic location as of the end of the past three financial years.

 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
Share Ownership
The following table and the notes thereto set out the names of all our directors and officers, the number of Common Shares beneficially owned, directly or indirectly, or over which control or direction is exercised by each of them, and information regarding options granted to them as at May 13, 2020. The percentage of common shares beneficially owned is computed on the basis of 59,931,381 Common Shares outstanding as of May 13, 2020.


 
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
 
 
 
 

73


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