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(In U.S. Dollars)

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(In U.S. Dollars)

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(In U.S. Dollars)

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(In U.S. Dollars)

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For the Years Ended December 31, 2020 and 2019

(In U.S. Dollars)

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The preparation of the consolidated 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 consolidated financial statements and the reported amount of expenses during the year. Financial statement items subject to significant judgement include:

 

 

 

assessment of the Company’s ability to meet its obligations as they come due as described in Note 13, the company is subject to liquidity risk. The Company expects to be able to continue its operations for the foreseeable future.

 

While management believes that the estimates and assumptions are reasonable, actual results may differ.

 

The Black-Scholes model used by the Company to determine fair values of stock options and warrants was developed for use in estimating the fair value of the stock options and warrants.

 

 

Since December 31, 2019, the outbreak of a novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, along with the uncertainty around the disease itself, have caused material disruption to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods. Due to the uncertainty caused by the COVID-19 outbreak, the Company is experiencing a longer recruitment cycle for recruiting technical personnel, and travel restrictions have slowed its ability to select and qualify suppliers for certain of its products. Furthermore, contractors and suppliers engaged by the Company may also be impacted by COVID-19 and there is a risk they could fail to meet their obligations to the Company. The effects of these impediments on the Company’s ability to achieve its milestones, including the timeline for completion, is unknown at this time.

 

 

 

Cash and cash equivalents include cash balances and amounts on deposit in interest saving accounts with interest rates of less than 1%.

 

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The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value into the following hierarchy:

 

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 – Inputs other than quoted prices included within Level 1 that are directly or indirectly observable.

 

Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

 

The fair value of the warrant liability relating to listed and unlisted warrants is initially based on Level 2 significant observable inputs and at subsequent dates is adjusted using Level 1 inputs for listed warrants and Level 2 inputs for unlisted warrants.

 

 

IFRS 2 requires options granted to employees and others providing similar services to be measured at the fair value of goods or services received unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure the value and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, which the Company does using the Black-Scholes option pricing model. The fair value of the options granted is determined as at the grant date.

 

Stock options granted to non-employees are valued at the fair value of the goods or service received, measured at the date on which the goods are received, or the services rendered. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure the value and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, which the Company does using the Black-Scholes option pricing model. The fair value of the options granted is determined as at the grant date.

 

Stock options are issued to vest immediately or when used as a long-term incentive, are commonly issued over a vesting period of up to seven years. The expense related to options with a vesting period are recorded over the vesting period in accordance with the terms of the options.

 

 

Research and development activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. The costs of developing new products are capitalized as deferred development costs if they meet the development capitalization criteria under IFRS. These criteria include the ability to measure development costs reliably, the product is technically, and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. To date, all the research and development costs have been expensed as the criteria for capitalization have not yet been met.

 

 

As a result of incurring scientific research and development expenditures, management has estimated that there will be non-refundable federal and refundable and non-refundable provincial investment tax credits receivable following the completion of an audit process by tax authorities. Investment tax credits are recorded when received or when there is reasonable assurance that the credits will be realized. Upon recognition, amounts will be recorded as a reduction of research and development expenditures.

(m)	Financial Instruments

(n)	Revenue Recognition

(o)	Short-term Employee Benefits

(p)	Provisions

(q)	Earnings (Loss) per Share

For the year ended December 31, 2019		Cost				Accumulated amortization				Net Book Value
Head Office
Balance at December 31, 2018		$	-			$	-			$	-
Additions			34,172				-				34,172
Amortization in the year			-				(3,778	)			(3,778	)
			-
Balance at December 31, 2019		$	34,172			$	(3,778	)		$	30,394

 

 

 

On April 30, 2020, the Company reached an agreement with a supplier engaged by the Company for the payment of outstanding payables to be settled in full by the end of 2020. On October 13, 2020, the Company entered into a second agreement with the supplier, pursuant to which the supplier has extended the time for payment of the outstanding amounts owed by the Company to the end of the first quarter of 2021.   Pursuant to the second agreement, the Company paid a monthly amount of $250,000 from October through December 2020, a lump sum payment of $2,299,682 in December 2020, $750,000 in January 2021 and will pay a monthly amount of $750,000 in each of February and March 2021. These payments will be applied toward settling the outstanding amounts owed. Assuming successful completion of conditions under the second agreement, the Company is not expected to incur interest on the outstanding amounts after December 2020, and $673,000 of accrued interest is to be forgiven. A gain on settlement related to the accrued interest has been recognized in the quarter ended December 31, 2020.

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6.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (continued)

 

Naglreiter Consulting Litigation

 

In late 2019, the Company became involved in litigation with Naglreiter Consulting, LLC. On June 8, 2020, the Company entered into a settlement agreement pursuant to which (i) a sum of $1,050,000 was paid to Naglreiter, (ii) Naglreiter returned certain personal property and related electronic data in its possession, (iii) and the pending litigation was dismissed. The Company recognized a gain on settlement of $1,839,626 in the year.

 

 

During the year, the Company entered into an agreement with Medtronic for a note payable (the “Note”).  In connection with the Note, the Company executed and delivered a security agreement in favour of Medtronic (the “Security Agreement”). Under the Note agreement, the Company received $1.5 million in cash and owes an additional $296,046 related to certain legal, transaction and intellectual property related expenses incurred by Medtronic pursuant to the Medtronic agreements and will bear interest at the rate of 8% per annum. The unpaid principal balance owing under the Note, together with any accrued and unpaid interest and all other unpaid obligations under the Note, shall be due and payable in full on the earliest to occur of: (i) June 3, 2023, (ii) a Change of Control (as defined in the Note), or (iii) the completion of the last milestone under the Development Agreement (see Note 2). For the year ended December 31, 2020, the Note has accrued interest of $89,451.

 

The Security Agreement grants a security interest in all of the Company’s present and future property including all personal property, inventory, equipment, and intellectual property to the Corporate Lender. In addition, Medtronic’s rights and powers include without limitation (a) exercising and enforcing all rights and remedies of a holder of collateral as if Medtronic were the absolute owner of the collateral, (b) collection of any proceeds arising in respect of all of the Company’s property pledged as security for the loan, (c) license or sublicense, whether on an exclusive or non-exclusive basis, of any of the Company’s intellectual property for such term and on such conditions and in such manner as Medtronic in its sole judgement determines (taking into account such provisions as may be necessary to protect and preserve such intellectual property), and (d) the right to enforce its security in the event of a default which may include the appointment of a receiver by instrument or order of the court.

 

 

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For the year ended December 31, 2020, the warrants outstanding by series are:

 

Note 1 – includes a ratchet clause triggered August 29, 2019, lowering the exercise price from $3.20 to $2.92.

Note 2 – includes a ratchet clause triggered August 29, 2019, lowering the exercise price from $4.00 to $3.95.

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Exercise prices of units, certain warrants and options are presented in U.S. currency when they are exercisable in U.S. dollars unless otherwise noted.

 

June 2020 Offering

 

On June 10, 2020, the Company completed an offering of securities made pursuant to an agency agreement dated March 17, 2020 between the Company and H.C. Wainwright & Co., LLC (“Wainwright”) for the purchase and sale of 6,500,000 common shares (the “Common Shares”), 11,500,000 common share equivalents (each, a “June 2020 Common Share Equivalent”) and 9,000,000 common share purchase warrants (each a “June 2020 Common Warrant”) for total gross proceeds of approximately $18,000,000 ($16,500,000 net of closing cash costs including cash commissions described below). The Common Shares, June 2020 Common Share Equivalent and June 2020 Common Warrants were sold in fixed combinations at an offering price of $1.00, consisting of one Common Share and one-half June 2020 Common Warrant or one June 2020 Common Share Equivalent and one-half June 2020 Common Warrant. Each June 2020 Common Warrant is convertible into one Common Share at a conversion price of $1.00 per Common Share for a period of four (4) years following the date of the closing of the offering. Each June 2020 Common Share Equivalent is convertible into one Common Share at a conversion price of $0.0001 and will expire when converted in full.

 

Pursuant to the placement agent agreement, in addition to the cash commission paid to Wainwright of $1,260,000, broker warrants were issued to Wainwright which entitle the holder to purchase 1,260,000 Common Shares at an exercise price of U.S. $1.25 per share prior to expiry on June 10, 2024.

 

The 11,500,000 June 2020 Common Stock Equivalents were converted during the year for total proceeds of $1,150.

 

May 2020 Financing

 

On May 6, 2020, the Company completed a registered direct offering of securities made pursuant to an agency agreement dated March 17, 2020 between the Company and Wainwright that provide for the purchase and sale of 5,514,504 Common Shares of the Company at a per share purchase price of U.S. $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 ($1,575,000 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 U.S. $0.3002 per Common Share for a period of five and one-half (5.5) years following the date of closing of the offering. All of the May 2020 Warrants were exercised during the year.

 

Pursuant to the placement agency agreement, 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 U.S. $0.45335 per share prior to expiry on November 6, 2025. During the year, 260,560 broker warrants were exercised.

9.	SHARE CAPITAL (continued)

Grant Date		Common shares issued				Value
January 3, 2020			500,000			$	219,600
January 6, 2020			500,000				229,300
January 8, 2020			400,000				195,160
January 10, 2020			500,000				247,550
January 17, 2020			600,000				303,000
January 23, 2020			600,000				295,320
February 6, 2020			600,000				282,000
February 13, 2020			708,048				300,000
			4,408,048			$	2,071,930

 

Under the Second Aspire Agreement, the balance remaining on Aspire’s commitment is 4,348,729 Common Shares (with maximum value of $32.9 million), at Titan’s request from time to time, until June 23, 2022.

 

 

 January 2020 Equity Transaction

 

On January 3, 2020, the Company announced that Cambridge Design Partnership Ltd. (“Cambridge”) had subscribed for Common Shares. The Company issued 501,148 Common Shares at a unit price of $0.50 for satisfaction of the trade payable with Cambridge of $250,574.

 

First Aspire Agreement

 

On August 29, 2019, the Company entered into a common share purchase agreement (the “First Aspire Agreement”) with Aspire whereby Aspire committed to purchase up to $35 million of Common Shares at Titan’s request from time to time, until February 28, 2022. On commencement of the First Aspire Agreement, Titan immediately sold to Aspire 1,777,325 Common Shares, representing 5.3% of the Common Shares then issued and outstanding, at a price of U.S. $1.6879 per Common Share for gross proceeds of $3.0 million and issued to Aspire 639,837 Common Shares, representing 1.9% of the Common Shares then issued and outstanding, as consideration for entering into the First Aspire Agreement. Northland Securities, Inc. acted as the Company’s agent and financial advisor in connection with the offering and pursuant to an agency agreement, was paid a cash fee of $160,000. Gross proceeds of $3.0 million, net of costs and fees of $417,113, was included in capital.

 

Subsequent to August 29, 2019 and subject to the First Aspire Agreement, the Company issued Common Shares to Aspire as outlined in the following table:

 

March 2019 Equity Offering

 

On March 21, 2019, Titan completed an offering of securities made pursuant to an agency agreement dated March 18, 2019 between the Company and Bloom Burton Securities Inc. (“Bloom Burton”). The Company sold 8,455,882 units under the offering at a price of U.S. $3.40 per unit for gross proceeds of approximately $28,750,000 ($25,426,744 net of closing cost including cash commission of $2,012,500). Each unit consisted of one Common Share of the Company and one Common Share purchase warrant, each warrant entitles the holder thereof to acquire one Common Share of the Company at an exercise price of U.S. $4.00 and expiring March 21, 2024. The warrants were valued at $15,897,059 based on the value determined by the Black-Scholes model and the balance of $12,852,941 was allocated to common shares.

 

 

Pursuant to the agency agreement, in addition to the cash commission paid to Bloom Burton, broker warrants were issued to Bloom Burton which entitle the holder to purchase 591,911 Common Shares at a price of U.S. $3.40 per share prior to expiry on March 21, 2021. The broker warrants were valued using the Black-Scholes model and the value of $864,190 was accounted for as an increase in the closing costs and allocated between the shares and the warrants.

 

 

Titan has reserved and set aside up to 15% of the issued and outstanding Common Shares for granting of options to employees, officers, consultants, and advisors. At December 31, 2020, 9,553,956 Common Shares (December 31, 2019: 5,986,152) were available for issue in accordance with the Company’s stock option plan. The terms of these options are determined by the Board of Directors.

 

For the year ended December 31, 2020, $1,097,358 of stock-compensation expense was recorded (December 31, 2019 – $1,651,119).

 

Options are granted to directors, officers, employees, and consultants at various times. Options are to be settled by physical delivery of shares. Options and the terms of each issue over the year ended December 31, 2020, are outlined below:

 

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A summary of the status of the Company’s outstanding stock options as of December 31, 2020 and December 31, 2019 and changes during the years ended on those dates is presented in the following table:

 

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The weighted-average remaining contractual life and weighted-average exercise price of options outstanding and of options exercisable as at December 31, 2020, are as follows:

 

 

9.	SHARE CAPITAL (continued)

		CANADIAN DOLLARS							UNITED STATES DOLLARS
		2020				2019			2020			2019
Fair value at grant		$	0.82			1.61			0.89			1.48
Share price at grant			1.01			2.90			1.04			2.36
Exercise price			1.04			4.54			1.07			2.72
Expected option life		4 years				3.4 years			4.0 years			3.5 years
Risk free interest rate			0.67%			1.43%			0.29%			1.50%
Expected volatility			145.61%			98.10%			149.77			97.90%
Expected dividends		Nil				Nil			Nil			Nil

 

 

In addition to the warrants accounted for as a liability at December 31, 2020 (see Note 8), the Company has 2,131,716 broker warrants that are issued, outstanding and exercisable in U.S. dollars (December 31, 2019: 1,219,276). These broker warrants expire between March 21, 2021 and November 6, 2025 (December 31, 2019: broker warrants had expiry dates between April 10, 2020 and March 21,2021).

 

Note 1 All broker warrants issued and outstanding are fully exercisable.  All broker warrants issued, outstanding and exercisable are in U.S. dollars.

 

 

 

Below is a reconciliation of combined federal and provincial corporate income taxes at the company’s effective rate of 26.5% (2019: 26.5%).

 

Deferred income tax assets and liabilities result primarily from differences in recognition of certain timing differences that give rise to the Company’s future tax assets (liabilities) and are as follows:

In assessing the realizability of deferred tax assets, management considers whether it is probable that some or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Management, based on IFRS criteria, has determined, at this time, not to recognize its deferred tax assets.

 

 

 

The Company has non-capital losses of approximately $236,882,697 available to reduce future income taxes. The non-capital losses expire approximately as follows:

 

The Company has accumulated Qualifying Research and Development expenses of $5,635,128 from prior years research and development. These expenditures may be carried forward indefinitely and used to reduce taxable income in future years.

 

As a result of a Canada Revenue Agency (CRA) audit completed in 2017 and 2016, regarding Titan’s 2012 and 2011 SR&ED claim, the 2012 loss of $6,517,436 has been adjusted to $7,260,729 and the 2011 loss of $9,423,694 has been adjusted to $12,735,836. The qualifying SR&ED expenditures has also been adjusted from $9,439,430 to $5,635,128. CRA concluded that the claimed work did not satisfy the SR&ED criteria. Titan is appealing this decision by CRA.

 

 

At December 31, 2020, the Company has $1,167,560 (2019 - $1,167,560) of unclaimed investment tax credits available to reduce federal income taxes payable in future years. If not utilized, these investment tax credits will start expiring in 2028. The amounts have been adjusted to reflect changes due to the CRA audit.

 

At December 31, 2020, the Company has $237,997 (2019 - $237,997) of unclaimed Ontario Research and Development Tax Credit available to reduce Ontario income taxes payable in future years. If not utilized, this credit will start expiring in 2029. The amounts have been adjusted to reflect changes due to the CRA audit.

 

 

As part of its program of research and development of the Enos system, the Company has outsourced certain  aspects of the design and development to third party technology and development companies. At December 31, 2020, $10,693,752 in purchase orders remain outstanding (December 31, 2019 - $1,327,294).