Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [X] |
Emerging growth company [ ] |
If an emerging growth company that prepares its financial statements in accordingaccordance 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 13(a) of the Exchange Act. [ ]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP [ ] | International Financial Reporting Standards as issued | |
| by the International Accounting Standards Board [X] | Other [ ] |
If “Other”"Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
[ ] Item 17 [ ] Item 18
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If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] YES [X] NO
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
[ ] YES [ ] NO
GENERAL INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”"may", “should”"should", “intend”"intend", “expect”"expect", “plan”"plan", “anticipate”"anticipate", “believe”"believe", “estimate”"estimate", “predict”"predict", “potential”"potential", or “continue”"continue", or the negative of these terms or other comparable terminology. Forward-looking information presented in such statements or disclosures may, among other things, include:
our• belief that chronic tendon injuries resulting from sports-related or occupational overuse is a significant unmet medical need;
our• belief that RCT-01 has advantages over current treatments such as the use of non-steroidal
anti-inflammatoryanti- inflammatory medication or corticosteroids which are limited in efficacy;our interpretation of• belief that the
outcomesdata from a recent phase 1/2 clinical trial to test the safety and efficacy of injections of RCT-01 on patients suffering from chronic achilles tendinosis in Canada are sufficient to support regulatory approvals to proceed to a phase 2 trial and thedetailsdesign ofthissuch a dose-finding trial;our interpretation of• belief that the data from a recent phase 1 clinical trial to test the safety and certain biological outcomes of injections of RCS-01 in patients with aging and sun-damaged
skin;our interpretation of the date fromskin supports regulatory approvals to proceed to a phase1 clinical2 trial and the design of such a dose-finding trial;• research pertaining to
test the safetyandefficacyplan to continue to prepare for a phase 2 dose-finding trail for RCH-01 and details ofinjections of RCH-01 on patients suffering from androgenetic alopecia;oursuch a trial;• belief that the RCI-02 dermal injector device will have applications in certain dermatological procedures and preparation for its commercialization
is expected to be launched as soon as funds permitincluding building of commercial/clinical-grade prototypes, validation testing of such prototypes,andfiling of the regulatory submissions seeking a CE mark to market the devicein Europe;our research pertainingwill lead to commercial launch, revenue generation, andplancommercial partners; expectations regarding regulatory clearances tocontinue to prepare for a phase 2 does-finding trial for RCH-01conduct trials anddetails of such a trial;ourmarket products;• belief as to the potential of
ourthe Company's products;our assumption that our agreements• expectations regarding the performance of its commercial partners, YOFOTO and
working relationship with keyShiseido;• expectations regarding the payment of milestone payments by YOFOTO;
• expectations regarding the ability of the Company to procure new partnerships in Japan to fund clinical development/testing of RCS-01 and RCT-01 products in Japan;
• expectations regarding the performance of critical suppliers and service
providers (e.g., contract manufacturer, suppliers, contract research organizations, etc.) and licensees/partners (e.g., Shiseido) will continue in good standing;ourproviders;• forecasts of expenditures;
our• expectations regarding our ability to raise capital;
our• business outlook;
our• plans and objectives of management for future operations; and
our• anticipated financial performance.
Various assumptions or factors are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking information. Those assumptions and factors are based on information currently available to our company, including information obtained from third-party industry analysts and other third party sources. In some instances, material assumptions and factors are presented or discussed elsewhere in this annual report in connection with the statements or disclosure containing the forward-looking information. You are cautioned that the following list of material factors and assumptions is not exhaustive. The factors and assumptions include, but are not limited to, our assumption that there be:
• no unforeseen changes in the legislative and operating framework for the business of our company;
• a stable competitive environment; and
• no significant event occurring outside the ordinary course of business such as a natural disaster or other calamity.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set out in the section entitled “Risk Factors”"Risk Factors" commencing on page 8, which may cause our or our industry’sindustry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to the following risks:
negative results from our clinical trials;the effects of government regulation on our business;the viability and marketability of our technologies;the development of superior technology by our competitors;
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the failure of consumers and the medical community to accept our technology as safe and effective;risks associated with our ability to obtain and protect rights to our intellectual property;risks and uncertainties associated with our ability to raise additional capital; andother factors beyond our control.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by applicable law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
As used in this annual report, the terms “we”"the Company", “us”"we", “our”"us", "our", and “RepliCel”"RepliCel" mean RepliCel Life Sciences Inc., a British Columbia, Canada, corporation, and our wholly-owned subsidiary, TrichoScience Innovations Inc., as applicable. All references to common shares are to the common shares of our company, unless otherwise stated. Information on our website, www.replicel.com, is not incorporated by reference into this annual report.
APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
Effective from January 1, 2011, we adopted International Financial Reporting Standards (“("IFRS”"), as issued by the International Accounting Standards Board. Unless otherwise stated, all information presented herein has been prepared in accordance with IFRS and all prior period amounts have been reclassified to conform with IFRS.
CURRENCY
Unless otherwise stated, “$”"$", when used in this annual report on Form 20-F, refers to Canadian dollars and US$ refers to United States dollars.
TABLE OF CONTENTS
PART 1
ITEM 1 Identity of Directors, Senior Management and Advisers
Not applicable.
ITEM 2 Offer Statistics and Expected Timetable
Not applicable.
ITEM 3 Key Information
A. Selected Financial Data
The following financial data summarizes selected financial data for our company prepared in accordance with IFRS for the five fiscal years ended December 31, 2019, 2018, 2017, 2016 2015, 2014 and 2013.2015. The information presented below for the five year period ended December 31, 2019, 2018, 2017, 2016 2015, 2014 and 20132015 is derived from our financial statements which were examined by our independent auditor. The information set forth below should be read in conjunction with our audited annual financial statements and related notes thereto included in this annual report, and with the information appearing under the heading “Item"Item 5 –- Operating and Financial Review and Prospects”Prospects".
Selected Financial Data
(Stated in Canadian Dollars –- Calculated in accordance with IFRS)
| Year ended | ||||||||||
| Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | ||||||
| (audited) | (audited) | |||||||||
Year ended | Year ended | Year ended | Year ended | Year ended | ||||||
| Net sales or operating revenues | - | $4,120,400 | $252,609 | $121,114 | $- | $- | $- | |||
| Total expenses | $5,991,915 | $4,287,628 | $5,046,928 | $5,210,616 | $3,737,412 | $3,017,855 | $2,860,414 | $5,991,915 | $4,287,628 | $5,046,928 |
| Net income (loss) before tax | $(6,014,333) | $(4,271,294) | $(5,044,014) | $(5,198,411) | $383,468 | |||||
| Income tax | - | $412,040 | ||||||||
Net income (loss) before other items | $(2,953,746) | $(2,769,080) | $(6,014,330) | $(4,271,294) | $(5,044,014) | |||||
Interest income | $- | $37 | $6,775 | $- | $14,733 | |||||
| Total comprehensive loss | $(6,014,333) | $(4,271,294) | $(5,044,014) | $(5,198,411) | $(28,572) | $(2,953,746) | $(2,769,080) | $(6,014,330) | $(4,271,294) | $(5,044,014) |
| Basic and diluted loss per share | $(0.32) | $(0.54) | $(0.09) | $(0.10) | $(0.00) | $(0.11) | $(0.12) | $(0.32) | $(0.54) | $(0.09) |
| Total assets | 846,026 | $1,828,187 | $415,920 | $2,141,288 | $2,052,401 | $419,109 | $3,227,431 | $846,026 | $1,828,187 | $415,920 |
| Net assets | $(319,997) | $1,206,450 | $(601,781) | $1,806,220 | $1,474,659 | $(2,930,124) | $(455,183) | $(319,997) | $1,206,450 | $(601,781) |
| Share capital | 26,182,073 | $21,910,238 | $16,498,743 | $14,047,244 | $9,430,914 | 28,960,095 | $28,507,565 | $26,182,073 | $21,910,238 | $16,498,743 |
| Weighted average number of common shares outstanding (adjusted to reflect changes in capital) | 18,680,021 | 7,952,312 | 5,687,544 | 4,090,485 | 4,524,693 | 27,679,504 | 22,661,001 | 18,680,021 | 7,952,312 | 5,687,544 |
| Long-term debt | - | |||||||||
Long-term liabilities | 1,899,754 | 2,152,363 | - | - | - | |||||
Disclosure of Exchange Rate History
Since June 1, 1970, the government of Canada has permitted a floating exchange rate to determine the value of the Canadian dollar as compared to the United States dollar. On April 30, 2018, the exchange rates in effect for Canadian dollars exchanged for United States dollars, expressed in terms of Canadian dollars (based on the noon buying rate of the Bank of Canada), was Cdn $1.2836 for each one US dollar. For the past five fiscal years ended December 31, 2017 and for the monthly periods subsequent to that date, the following exchange rates were in effect for Canadian dollars exchanged for United States dollars, expressed in terms of Canadian dollars (based on the noon buying rates in New York City, for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York):
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B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Much of the information included in this annual report includes or is based upon estimates, projections or other “forward-looking statements”"forward-looking statements". Such forward-looking statements include any projections or estimates made by our company and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Such estimates, projections or other forward-looking statements involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward-looking statements.
The common shares of our company are considered speculative. You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our company and our business before purchasing any common shares of our company. Our business, operating and financial condition could be harmed due to any of the following risks.These risks and uncertainties include, but are not limited to the following risks:
• negative results from our clinical trials;
• the effects of government regulation on our business;
• the viability and marketability of our technologies;
• the development of superior technology by our competitors;
• the failure of consumers and the medical community to accept our technology as safe and effective;
• risks associated with our ability to obtain and protect rights to our intellectual property;
• risks and uncertainties associated with our ability to raise additional capital;
• risks and uncertainties associated with shutdowns or delays caused by the COVID-19 pandemic and other factors beyond our control.
Risks Relating to our Business
Our company currently does not generate recurring revenue from its operations, and as a result, it faces a high risk of business failure.
We have generated $4,120,400$4,494,123 in licensing revenues from our operations to date. This revenue was the payment of an upfront fee of $4,120,400 pursuant to a Collaboration and Technology Transfer Agreement with Shiseido Company, Limited (“("Shiseido”") and $373,323 pursuant to a License and Collaboration Agreement with YOFOTO (China) Health Industry Co. Ltd. ("YOFOTO") for certain development and commercialization rights to certain products (the "Licensed Technology") for Greater China (Hong Kong, People's Republic of China, Macau, and Taiwan) (the "Licensed Territory"). This revenue was not recurring revenue from our operations and we may not obtain similar revenue in the future.
YOFOTO - License and Collaboration Agreement
The Company is exposed to certain risks should YOFOTO not obtain local regulatory approvals and therefore be able to commercialize its licensed products.
The Agreement with YOFOTO was structured to include an upfront payment of $4,367,819 which was a combination of equity investment and upfront licensing fee (the "Upfront Payment"). It also includes milestone payments (of up to CDN $4,750,000), sales royalties, and a commitment by YOFOTO to spend a minimum of CDN $7,000,000 on the RepliCel programs and associated cell processing manufacturing facility over the next five years in Greater China pursuant to a License and Collaboration Agreement. The License and Collaboration Agreement contains a provision permitting YOFOTO to put up to 1/3 of the shares issued in YOFOTO's initial investment back to the Company under certain conditions for a period of 8.5 years from July 10, 2018.
Replicel is at risk of a possibility of YOFOTO not being able to discharge its obligations in the Agreement and thereby causing Replicel not to receive its scheduled milestone payments. Should it be deemed not to be YOFOTO's fault in not meeting its milestone targets, the Company may have the risk of having YOFOTO exercising its put options and have Replicel buy back 1/3 of the shares issued in exchange for YOFOTO's Upfront Payment.
There is potentially a risk of YOFOTO not protecting Replicel's intellectual property in the Licensed Territory in the event an actual or alleged infringement, by a third party.
As of December 31, 2017,2019, we had accumulated $30,790,017$36,512,843 in net losses since inception. Our business is focused on developing autologous cell therapies that treat functional cellular deficits including chronic tendon injuries, androgenetic alopecia and skin aging. In order to generate revenues, we will incur substantial expenses in the development of our business. We therefore expect to incur significant losses in the foreseeable future. Our company recognizes that if we are unable to generate significant revenues from our activities, our entire business may fail. There is no history upon which to base any assumption as to the likelihood that we will be successful in our plan of operation, and we can provide no assurance to investors that we will generate operating revenues or achieve profitable operations in the future.
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We had cash and cash equivalents in the amount of $497,093$23,929 and a working capital deficit of $331,162$1,226,345 as of December 31, 2017 and we anticipate2019. The Company anticipates that weit will require a minimum of approximately $2,100,000$1,700,000 to proceed with a minimalits plan of operations focused on completing the RCI-02 device, meeting its obligations to support YOFOTO's activities in Greater China, and approximately $4,600,000 to fund our full plan or operationspreparing for next-phase clinical development and commercialization in Japan over the twelve-month period ended April 30, 2019. December 31, 2020.
In order to fund our plan of operations for the next twelve months, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
Our auditors’auditor's opinion on our December 31, 20172019 financial statements includes an explanatory paragraph in respect of there being substantial doubt about our ability to continue as a going concern.
We have incurred an accumulated deficit of $30,790,017$36,512,843 for the cumulative period from September 7, 2006 (inception) to December 31, 2017.2019. We anticipate generating losses for at least the next 12 months. As at December 31, 20172019 we had a working capital deficit of $331,162 (2016:$1,226,345 (2018: working capital surplusdeficit of $1,191,130)$1,473,776) and an equitya deficit of $(319,997) (2016: equity$2,930,124 (2018: deficit of $1,206,450)$455,183), and we will require additional funding to continue our research and development activities, which casts substantial doubt about our company’scompany's ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event that we cannot continue in existence. Our business operations may fail if our actual cash requirements exceed our estimates and we are not able to obtain further financing. If we cannot continue as a viable entity, our shareholders may lose some or all of their investment in our company.
Our business is at an early stage of development and difficulties obtaining regulatory approval, technical deficiencies and other challenges may hinder the development and marketing of our autologous cell therapies.
Our autologous cell therapy technology is at an early stage of development and we may not develop a cell replication technology that can be commercialized. We are still in the early stages of identifying and conducting research on our technology. Our technology will require significant research and development and preclinical and clinical testing prior to regulatory approval, if required, being obtained in the United States, Canada or other countries. We may not be able to obtain regulatory approvals, if required, to complete necessary clinical trials for our cell replication technology, or to commercialize it. Our technology may prove to have undesirable and unintended side effects, or other characteristics adversely affecting its safety, efficacy or cost-effectiveness could prevent or limit its use. Our technology may fail to provide its intended benefit, or achieve benefits equal to or better than our competitor’scompetitor's products at the time of testing or production and, if so, our business may fail.
Our clinical trials may fail to produce successful results or could be suspended due to unacceptable safety risks, which could cause our business to fail.
Clinical trials are subject to extensive regulatory requirements, and are very expensive, time-consuming and difficult to design and implement, in part because they may be subject to rigorous regulatory requirements. Our products may fail to achieve necessary safety and efficacy endpoints during clinical trials. We believe that our clinical trials will take a substantial period of time to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including: unforeseen safety issues; lack of effectiveness during clinical trials; slower than expected rates of patient recruitment; and inability to monitor patients adequately during or after treatment. In addition, we or regulatory officials may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks. If our clinical trials fail to produce successful results, or are suspended due to unacceptable safety risks, our business may fail.
Our success depends on the acceptance of our cell replication technology by the medical community and consumers as a safe and effective solution.
The success of our cell replication technology will depend on its acceptance by potential consumers and the medical community. Because our technology is new in the treatment of functional cellular deficits including chronic tendon injuries, androgenetic alopecia and skin aging, the long term effects of using our new cell replication technology are unknown. The results of short-term clinical trials do not necessarily predict long-term clinical benefit or reveal adverse effects. If results obtained from future commercial experience indicate that our cell replication technology is not as safe or effective as other treatments, adoption of this technology by consumers and the medical community may suffer and our business will be harmed.
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We face significant competition and if we are unable to successfully compete, our business may suffer a material negative impact.
The life sciences industry is highly competitive. We anticipate that we will continue to face increased competition as existing companies develop new or improved products and as new companies enter the market with new technologies. Many of our competitors are significantly larger than us and have greater financial, technical, research, marketing, sales, distribution and other resources than us. There can be no assurance that our competitors will not succeed in developing or marketing technologies and products that are more effective or commercially attractive than the products we are developing or that such competitors will not succeed in obtaining regulatory approval, or introducing or commercializing any such products, prior to us. Such developments could have a material adverse effect on our business, financial condition and results of operations. Also, even if we are able to compete successfully, there can be no assurance that we could do so in a profitable manner.
If we are not able to effectively protect our existing intellectual property, our business may suffer a material negative impact and may fail.
The success of our company will be dependent on our ability to protect and develop our technology. We currently have registered patents for our cell replication technology in Australia, the United States, Japan and the European Union. If we are unable to protect our intellectual property, our business may be materially adversely affected. Further, we cannot be sure that our activities do not and will not infringe on the intellectual property rights of others. If we are compelled to prosecute infringing parties, defend our intellectual property or defend ourselves from intellectual property claims made by others, we may face significant expense and liability, as well as the diversion of management’smanagement's attention from our business, any of which could negatively impact our business or financial condition.
The actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends on many factors, including the type of patent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patents. Our ability to maintain and solidify our proprietary position for our products will depend on our success in obtaining effective claims and enforcing those claims once granted. Our registered patents and those that may be issued in the future, or those licensed to us, may be challenged, invalidated, unenforceable or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar products. We also rely on trade secrets to protect some of our technology, especially where it is believed that patent protection is not appropriate or obtainable. However, trade secrets are difficult to maintain. While we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, non-U.S. courts are sometimes less willing than U.S. courts to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able to assert our trade secrets against them and our business could be harmed.
The successful acquisition and maintenance of patent rights is critical to our business and any failure in this regard could hinder the development and marketing of our technology.
We currently have patent applications pending in several other countries around the world. Our pending patent applications may not result in the issuance of any patents. The applications may not be sufficient to meet the statutory requirements for patentability in all cases or may be the subject of interference proceedings by patent offices. These proceedings determine the priority of inventions and, thus, the right to a patent for technology. In the past, our patent applications have experienced delays and our patent applications may be delayed in the future. If others file patent applications or obtain patents similar to those we have licensed, such patents may restrict the use of our discoveries. We cannot predict the ultimate scope and validity of existing patents and patents that may be granted to third parties, nor can we predict the extent to which we may wish or be required to obtain licenses to use such patents, or the availability and cost of acquiring such licenses. To the extent that licenses are required, the owners of the patents could bring legal actions against us to claim damages or to stop our manufacturing and marketing of the affected technology. If we become involved in patent litigation, it could consume a substantial portion of our resources.
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Our company may be subject to changes and uncertainties in laws and government regulations.
Our company is subject to regulation by domestic and foreign governmental agencies with respect to many aspects of developing autologous cell replication technology. In addition, relevant new legislation or regulation could occur. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our company’scompany's business, or the application of existing laws and regulations to cell replication technology, could have a material adverse effect on our company’scompany's business, prospects, financial condition and results of operations.
Our company may be impacted by the COVID-19 Coronavirus Outbreak
On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus, COVID-19 ("COVID-19"), which has had a significant impact on businesses through the restrictions put in place by the Canadian and U.S. governments regarding travel, business operations and isolation/quarantine orders. At this time, the extent of the impact that the COVID-19 outbreak may have on the Company is unknown as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the virus, and the duration of the outbreak, including the duration of travel restrictions, business closures, and quarantine/isolation measures that are currently, or may be put, in place by Canada, U.S. and other countries to fight the virus. The Company continues to monitor its impact of its operations and financing activities and assess the impact COVID-19 will have on its business activities. The extent of the effect of COVID-19 pandemic on the Company is uncertain and management does not expect the effect to be significant.
Risks Relating to our Management
We are dependent on the services of certain key consultants and the loss of any of these key consultants may have a materially adverse effect on our company.
While engaged in the business of developing a new cell replication technology, our company’scompany's ability to continue to develop a competitive edge in the marketplace will depend, in large part, on our ability to attract and maintain qualified key management personnel. Competition for such personnel is intense, and we may not be able to attract and retain such personnel. Our company’scompany's growth has depended, and in the future will continue to depend, on the efforts of our key management consultants. Loss of any of these people would have a material adverse effect on our company. Currently, our company does not have key-man life insurance.
Conflicts of interest may arise as a result of our company’scompany's directors and officers being directors or officers of other life sciences companies.
Certain of our company’scompany's directors and officers are, or may become, directors or officers of other life sciences companies. While we are engaged in the business of developing a new autologous cell replication technology, such associations may give rise to conflicts of interest from time to time. Our company’scompany's directors are required by law to act honestly and in good faith with a view to our company’scompany's best interests and to disclose any interest that they may have in any project or opportunity. If a conflict of interest arises at a meeting of our company’scompany's board of directors, any director in a conflict must disclose his interest and abstain from voting on such matter. In determining whether or not our company will participate in any project or opportunity, our company’scompany's directors will primarily consider the degree of risk to which our company may be exposed and our financial position at the time.
Our articles contain provisions indemnifying our officers and directors against all costs, charges and expenses incurred by them.
Our articles contain provisions limiting the liability of our officers and directors for all acts, receipts, neglects or defaults of themselves and all of our other officers or directors or for any loss, damage or expense incurred by our company which may happen in the execution of the duties of such officers or directors. Such limitations on liability may reduce the likelihood of derivative litigation against our company’scompany's officers and directors and may discourage or deter our shareholders from suing our company’scompany's officers and directors based upon breaches of their duties to our company, though such an action, if successful, might otherwise benefit our company and our shareholders.
As a majority of our directors and officers are residents of countries other than the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our company, directors and officers.
A majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’persons' assets are located outside the United States. Consequently, it may be difficult for United States investors to effect service of process in the United States upon those directors or officers 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 legislation. There is substantial doubt whether an original action based solely upon such civil liabilities could be brought successfully in Canada against any of such persons or our company.
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Risks Relating to our Common Stock
If our business is unsuccessful, our shareholders may lose their entire investment.
Although shareholders will not be bound by or be personally liable for our expenses, liabilities or obligations beyond their total original capital contributions, should we suffer a deficiency in funds with which to meet our obligations, the shareholders as a whole may lose their entire investment in our company.
Trading of our company’scompany's common shares on the OTCQB (operated by the OTC Markets Group) and the TSX Venture Exchange is limited and sporadic, making it difficult for our company’scompany's shareholders to sell their common shares or liquidate their investments.
The trading price and volume of our company’scompany's common shares has been and may continue to be subject to wide fluctuations. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies. There can be no assurance that trading prices previously experienced by our company’scompany's common shares will be matched or maintained. Trading in our common shares has been limited and sporadic and accordingly there is no guarantee that an investor will be able to liquidate any or all of its investment. These broad market and industry factors may adversely affect the market price of the common shares, regardless of our company’scompany's operating performance. In the past, following periods of volatility in the market price of a company’scompany's securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for our company and a diversion of management’smanagement's attention and resources.
Investors’Investors' interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue additional options to any of our officers, directors, employees or consultants.
Because our company’scompany's success is highly dependent upon our directors, officers and consultants, we have granted, and may again in the future grant, options to some or all of our key officers, directors, employees and consultants to purchase our common shares as non-cash incentives. Options may be granted at exercise prices below that of our common shares prevailing in the public trading market at the time or may be granted at exercise prices equal to market prices at times when the public market is depressed. To the extent that significant numbers of such options may be granted and exercised, the interests of our company’scompany's other shareholders may be diluted.
Investors’Investors' interests in our company will be diluted and investors may suffer dilution in their net book value per share if our company issues additional common shares or raises funds through the sale of equity securities.
In the event that our company is required to issue additional common shares in order to raise financing, investors’investors' interests in our company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. The dilution may result in a decline in the market price of our common shares.
Penny stock rules limit the ability of our shareholders to sell their stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock”"penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’scustomer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’scustomer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’spurchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.
The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholder’sshareholder's ability to buy and sell our stock.
In addition to the “penny stock”"penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’scustomer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our common shares.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’sstock's price. This may never happen and investors may lose all of their investment in our company.
ITEM 4 Information on RepliCel Life Sciences Inc.
A. History and Development of RepliCel Life Sciences Inc.our Company.
Name
Our legal name is “RepliCel"RepliCel Life Sciences Inc.”". We changed our name from “Newcastle"Newcastle Resources Ltd.”" on June 22, 2011.
Principal Office
Our principal office is located at Suite 900 - 570 Granville Street, Vancouver, British Columbia, Canada V6C 3P1. Our telephone number is (604) 248-8730 and our facsimile number is (604) 248-8690.
Corporate Information and Important Events
Our company was incorporated under the laws of the Province of Ontario (specifically under theBusiness Corporations Act (Ontario)) on April 24, 1967 under the name “Jolly"Jolly Jumper Products of America Limited”Limited". On September 25, 1987, our name was changed to “Sun"Sun Valley Hot Springs Ranch Inc.”". We changed our name to “Tri-Valley"Tri-Valley Free Trade Inc.”" on March 26, 1991 and to “Tri-Valley"Tri-Valley Investments Corporation”Corporation" on June 19, 1995. On October 2, 1998, we changed our name to “TriLateral"TriLateral Venture Corporation”Corporation". On May 6, 2004, we changed our name to “Pan"Pan American Gold Corporation”Corporation" and on November 10, 2008, we changed our name to “Newcastle"Newcastle Resources Ltd.”". On June 22, 2011, we continued our company from Ontario into British Columbia and changed our name to “RepliCel"RepliCel Life Sciences Inc.”". We are a reporting issuer under the securities laws of the Provinces of British Columbia, Alberta and Ontario. Under theBusiness Corporations Act(British Columbia), our company has an indefinite life span.
On November 10, 2008, our issued and outstanding common shares were consolidated on the basis of one (1) common share for every (30) common shares held and our name was changed to Newcastle Resources Ltd. The reverse split and name change were effected with the OTC Bulletin Board on November 28, 2008, at which time our trading symbol was changed to “NCSLF”"NCSLF".
On December 22, 2010, we closed a Share Exchange Agreement with TrichoScience Innovations Inc. (“("TrichoScience”") whereby we acquired all of the issued and outstanding shares of TrichoScience. During the year ended December 31, 2011, 100% of the former TrichoScience shareholders tendered their shares in exchange for our common shares and TrichoScience became a 100% owned subsidiary of our company. The TrichoScience shareholders who received our common shares in connection with the closing deposited the common shares with a trustee pursuant to the terms of a pooling agreement between us and the trustee. The common shares were subject to a timed release schedule under which 15% of the common shares were released on the first day of each of the fiscal quarters occurring after the first anniversary of the closing.
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Concurrent with the acquisition, we also acquired all of the issued and outstanding common shares of 583885 B.C. Ltd. (“("583885”") in exchange for 440,000 of our common shares. 583885 did not have any assets or liabilities at the date of acquisition and was a private company controlled by David Hall, our former Chief Executive Officer (“("CEO”"). 340,000 of our common shares controlled by David Hall were deposited with an escrow agent pursuant to the terms of an escrow agreement between us and the escrow agent. These common shares were to be released upon satisfaction of certain performance conditions as set out in the escrow agreement. The other 100,000 common shares issued were not subject to escrow provisions. Mr. Hall resigned from the CEO position effective January 1, 2016 and in connection therewith, Mr. Hall returned 60,000 common shares held in escrow and the balance of the shares were released to Mr. Hall.
On June 22, 2011, we filed a continuance application with the corporate registrar of the Province of British Columbia and pursuant to which we continued our jurisdiction of incorporation from the Province of Ontario to the Province of British Columbia. In connection with the continuance, we adopted new articles and changed our name to “RepliCel"RepliCel Life Sciences Inc.”". We continued to the Province of British Columbia with our authorized capital consisting of an unlimited number of common shares without par value, an unlimited number of Class A preference sharesPreferred Shares without par value and an unlimited number of Class C preference shares without par value.
On November 29, 2011, 1,300,000 of the Class C preference shares, being all the issued and outstanding Class C Preference shares, were converted on a 5:1 ratio, into 260,000 common shares by the holders thereof. All of the common shares issued on conversion of the Class C Preference shares were deposited with a trustee pursuant to the terms of pooling agreements. The common shares were subject to a timed release schedule under which 15% of the common shares were released on the first day of each of the fiscal quarters beginning January 1, 2013.
On December 5, 2011, we filed articles of amendment with the corporate registrar of the Province of British Columbia, cancelling the Class C preference shares.
On February 29, 2012, we completed a private placement of 6,630 units at a price of US$15.00 per unit for gross proceeds of US$99,456. Each unit issued consisted of one common share and one common share purchase warrant. Each warrant entitled the holder to purchase an additional common share at US$2.50 per common share for a period of 24 months from the closing of the financing.
On March 29, 2012, we completed a private placement of 87,604 units at a price of US$15.00 per unit for gross proceeds of US$1,314,063. Each unit issued consisted of one common share and one common share purchase warrant. Each warrant entitled the holder to purchase an additional common share at US$25.00 per common share for a period of 24 months from the closing of the financing.
On April 18, 2012, we completed a private placement of 50,267 units at a price of US$15.00 per unit for gross proceeds of US$754,000. Each unit issued consisted of one common share and one common share purchase warrant. Each warrant entitled the holder to purchase an additional common share at US$25.00 per common share for a period of 24 months from the closing of the financing. A finder’sfinder's fee of $36,000 was issued in connection with the financing.
On April 20, 2012, we completed a private placement of 43,003 units at a price of US$15.00 per unit for gross proceeds of US$645,050. Each unit issued consisted of one common share and one common share purchase warrant. Each warrant entitled the holder to purchase an additional common share at US$25.00 per common share for a period of 24 months from the closing of the financing.
On February 7, 2013, we amended the exercise price of the warrants expiring March 1, 2014, March 29, 2014, April 18, 2014 and April 20, 2014 from US$25.00 to US$5.00 per common share. The warrants entitled holders to purchase an aggregate of 187,505 common shares.
On April 10, 2013, we completed a private placement of 164,356 units at price of $3.10 per unit for gross proceeds of $509,502. A finder’sfinder's fee of $9,920 was paid in cash in connection with the private placement. Each unit issued consisted of one common share and one common share purchase warrant. Each warrant entitled the holder to purchase an additional common share at $5.00 per common share for a period of 24 months from the closing of the financing.
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On May 21, 2013, we completed a private placement of 40,000 units at price of $3.20 per unit for gross proceeds of $124,000. Each unit issued consisted of one common share and one common share purchase warrant. Each warrant entitled the holder to purchase an additional common share at $5.00 per common share for a period of 24 months from the closing of the financing.
On July 19, 2013, we completed a private placement of 105,000 common shares at price of $5.00 per common share for gross proceeds of $525,000. A finder’sfinder's fee of $36,750 was paid in cash in connection with the private placement.
On May 9, 2014, we completed the first tranche of its financing, consisting of total units of 371,716 at a price of $7.50 per unit for total gross proceeds of $2,787,875.25. The financing consisted of a brokered private placement of 278,367 units at a price of $7.50 per unit for gross proceeds of $2,087,750.25 and a non-brokered private placement of 93,350 units at a price of $7.50 per unit for gross proceeds of $700,125.00. On May 21, we completed the second tranche of its financing, consisting of total units of 73,700 units at a price of $7.50 per unit for gross proceeds of $552,750. On June 16, 2014, we completed the third tranche of its financing, consisting of 86,600 units at a price of $7.50 per unit for gross proceeds of $649,500. Each unit issued consisted of one common share and one common share purchase warrant. Each warrant entitled the holder to purchase an additional common share at a price of $10.00 per share during the first year and $12.50 per common share during the second year.
On April 7, 2015, we amended the expiry date of 164,356 warrants from April 10, 2015 to April 10, 2016 and of 40,000 warrants from May 21, 2015 to May 21, 2016.
On June 25, 2015, we completed a private placement consisting of a total of 657,509 units at a price of $3.10 per unit for total gross proceeds of $2,038,279. Each unit consisted of one common share and one common share purchase warrant, which entitles the holder to purchase one additional common share for a period of three years from the closing of the private placement at a price of $5.10 per common share. Finder’sFinder's fees of $94,881 were paid in cash and 30,607 agent’sagent's options where each agent’sagent's option entitles the agent the option to purchase one unit (“("Agent’sAgent's Unit”") at a price of $3.10 per Agent’sAgent's Unit expiring two years from the closing of the private placement. Each Agent’sAgent's Unit consists of one common share and one common share purchase warrant, which entitles the agent to purchase one additional common share expiring June 25, 2017 at a price of $5.10 per common share.
On November 20, 2015 we completed the first tranche of a private placement, consisting of a total of 173,900 units at a price of $3.10 per unit for total gross proceeds of $539,090. Each unit consisted of one common share one common share purchase warrant, which entitles the holder to purchase one additional common share for a period of two years from the closing of the private placement at a price of $4.00 per common share. Finder’sFinder's fees of $43,127 were paid in cash and 13,912 agent’sagent's options where each agent’sagent's option entitles the agent the option to purchase one Agent’sAgent's Unit at a price of $3.10 per Agent’sAgent's Unit expiring two years from the closing of the private placement. Each Agent’sAgent's Unit consists of one common share and one purchase warrant, which entitles the agent to purchase one additional common share expiring two years. On December 23, 2015, we completed the second tranche of a private placement, consisting of a total of 21,900 units at a price of $3.10 per unit for total gross proceeds of $67,890. Each unit consisted of one common share and one common share purchase warrant, which entitles the holder to purchase one additional common share for a period of two years from the closing of the private placement at a price of $4.00 per common share. Finder’sFinder's fees of $2,952 were paid in cash and 952 agent’sagent's options where each agent’sagent's option entitles the agent the option to purchase one Agent’sAgent's Unit at a price of $3.10 per Agent’sAgent's Unit expiring two years from the closing of the private placement. Each Agent’sAgent's Unit consists of one common share and one purchase warrant, which entitles the agent to purchase one additional common share expiring two years.
On February 24, 2016, we completed a warrant incentive program (the “"Program”") announced on February 9, 2016 where 111,362 warrants were exercised in connection with the Program at an exercise price of $2.20 for gross proceeds totaling $244,997. 111,362 additional common share purchase warrants (each an “"Incentive Warrant”") were granted in connection with the Program, with each Incentive Warrant entitling the holder to purchase one additional common share expiring on February 25, 2018 at a price of $4.00 per common share.
On April 5, 2016, we completed a private placement of 188,663 common shares at a price of $2.00 per common share for gross proceeds of $377,525.
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On April 29, 2016, we amended the expiry date of 309,983 warrants from May 9, 2016 to May 9, 2018 and the expiry date of 66,600 warrants from June 16, 2016 to June 16, 2018. We also amended the exercise price of the warrants from US$10.00 to US$5.00 per common share for the first year and from $12.50 to $5.00 for the second year. The exercise price of these repriced warrants was also amended by reducing the exercise period to 30 days if, for any ten consecutive trading days during the expired term of these repriced warrants, the closing price of our common shares exceeds $6.25.
One June 1, 2016, we completed a private placement of 138,000 common shares at a price of $1.50 per share for gross proceeds of $207,000.
Effective at the opening of the market on August 10, 2016, our issued and outstanding common shares were consolidated on the basis of one (1) common share for every ten (10) common shares held.
On October 28, 2016, we completed a private placement consisting of a total of 8,199,999 units at a price of $0.52 per unit for total gross proceeds of $4,263,999. Each unit consisted of one common share and one common share purchase warrant, which entitles the holder to purchase one additional common share for a period of two years from the closing of the private placement at a price of $0.85 per common share, subject to an acceleration provision such that, in the event that the common shares have a closing price on the TSX Venture Exchange of greater than $1.50 per common share for a period of 10 consecutive trading days at any time after four months and one day from the closing of the offering, we may accelerate the expiry date of the warrants by giving notice to the holders thereof and, in such case, the warrants will expire on the 30th day after the date on which such notice is given to the holder. Finder’sFinder's fees of $176,483 were paid in cash, 339,391 finder’sfinder's warrants and 12,000 finder’sfinder's units (the “"Finder’sFinder's Units”"). Each Finder’sFinder's Unit consisted of one common share and one common share purchase warrant, which entitles the finder to purchase one additional common share expiring October 28, 2018 at a price of $0.85 per common share.
On December 28, 2016, we settled $374,071 in debt by the issuance of 719,368 units at a deemed price of $0.52 per unit. Each unit consisted of one share and one share purchase warrant, with each warrant entitling the holder to purchase one additional common share until December 28, 2018 at a price of $1.10 per common share, subject to an acceleration provision such that, in the event that the common shares have a closing price on the TSX Venture Exchange of greater than $2.00 per common share for a period of 10 consecutive trading days at any time after four months and one day from the closing of the debt settlement, we may accelerate the expiry date of the warrants by giving notice to the holders thereof and, in such case, the warrants will expire on the 30th day after the date on which such notice is given to the holder.
On February 24, 2017, we completed a brokered private placement consisting of a total of 2,181,300 units at a price of $1.25 per unit for total gross proceeds of $2,726,625 and a non-brokered private placement of 350,800 units at a price of $1.25 per unit for gross proceeds of $438,500. Each unit consisted of one common share and one common share purchase warrant, which entitles the holder to purchase one additional common share for a period of three years from the closing of the private placement at a price of $2.00 per common share. Finder’sFinder's fees of $218,130 were paid in cash and 174,504 finder’sfinder's warrants were issued to the finder’sfinder's in connection with the brokered portion of the offering. A corporate finance fee and 15,000 finder’sfinder's warrants in connection with the non-brokered portion of the offering. The finder’sfinder's warrants have the same terms as the warrants.
On March 17, 2017, we amended the expiry date of 164,356 warrants from April 10, 2016 to April 10, 2017 and the exercise price of the warrants from $5.00 to $1.14, subject to a forced exercise provision if the closing price of our common shares is $1.37 or greater for a period of 10 consecutive trading days, then the warrant holders will have 30 days to exercise their warrants; otherwise the warrants will expire on the 31st day. We also amended the expiry date of 173,900 warrants from November 20, 2016 to November 20, 2017 and the exercise price from $4.00 to $1.14, subject to a forced exercise provision if the closing price of our common shares is $1.37 or greater for a period of 10 consecutive trading days, then the warrant holders will have 30 days to exercise their warrants; otherwise the warrants will expire on the 31st day.
On October 19, 2017, we completed a non-brokered private placement consisting of a total of 2,815,881 common shares at a price of $0.41 per share for total gross proceeds of $1,154,511. Cash finder’sfinder's fees of $28,366 was paid in connection with the offering.
16On July 10, 2018, we entered into a private placement agreement with YOFOTO, whereby YOFOTO agreed to invest $5,090,000 in our company in consideration for the issuance of 5,357,000 common shares of our company at a price of $0.95 per common share and 1,071,580 share purchase warrants with each warrant exercisable at $0.95 per common share for a period of two years from closing. We also entered into a license and collaboration agreement on July 10, 2018 with YOFOTO, whereby we granted an exclusive license to YOFOTO of our company's tendon regeneration cell therapy technology (RCT-01), skin rejuvenation cell therapy technology (RCS-01), and our injection technology for dermal applications (RCI-02) (excluding hair-related treatments) in the Licensed Territory in consideration of milestone payments, sales royalties, and a commitment by YOFOTO to finance, over the next five years, the included company programs and an associated cell processing manufacturing facility in Greater China.
On October 9, 2018, we completed the strategic investment with YOFOTO and issued 5,357,000 common shares and 1,071,580 share purchase warrants to YOFOTO.
On October 18, 2018, we signed a collaborative research project agreement with the University of Victoria ("UVic") in Victoria, BC. RepliCel is providing some funding and UVic has procured co-funding through a grant from the National Science and Engineering Research Council of Canada under the NSERC Collaborative Research and Development program. These grant funds were obtained and managed by UVic in agreement with NSERC.
On January 17, 2019, we settled $366,024 in debt by the issuance of 770,577 common shares a deemed price of $0.475 per common share.
On August 2, 2019, our board approved the creation of a new class of preferred shares to be designated as Class A Preference Shares (each, a "Class A Preference Share") of which 12,000,000 are authorized to be issued.
On September 12, 2019, we completed a non-brokered private placement consisting of a total of 1,089,125 Class A Preference Shares at a price of $0.40 per Class A Preference Share for aggregate proceeds of $435,650.
On October 29, 2019, we settled $210,369 in debt by the issuance of 751,318 common shares a deemed price of $0.28 per common share.
Capital Expenditures
During the last three fiscal years ended December 31, 2017,2019, we did not undertake any capital expenditures. On March 11, 2011, we acquired an additional 2,050,000 shares of TrichoScience at a price of $1.00 per share. This acquisition was internally financed from the proceeds of our March 2011 private placement for gross proceeds of US$2,550,000.
Takeover offers
We are not aware of any indication of any public takeover offers by third parties in respect of our common shares during our last and current financial years.
The U.S. Securities and Exchange Commission (SEC) maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. Our website is https://www.replicel.com.
B. Business Overview and Plan of Operations
Overview
We are a regenerative medicine company focused on developing autologous cell therapies that treat functional cellular deficits. The diseases currently being addressed are chronic tendinosis, skin aging, and androgenetic alopecia (pattern baldness). Each disease state is consistent with a deficit of a specific cell type which we believe is critical to normal function. All treatments under development are based on our innovative technology which utilizes cells isolated from a patient’spatient's own healthy hair follicles. These products are built on our proprietary manufacturing platforms and are covered by issued and filed patents as well as trade secrets. We are also developing a programmable cell injector device and related consumables designed for dermal injections of cells as currently approved dermal filler products, and a variety of other products injected through the skin.such as dermal fillers, toxins, enzymes, drugs, and biologics such as fat transfer, platelet rich plasma, antibodies, etc.
The Potential of Autologous Cell Therapy
Our treatments use autologous cell therapy (“("ACT”"), which is one of the most rapidly developing areas of regenerative medicine in the development of novel treatments for numerous human disorders. ACT involves isolating an individual’sindividual's own cells from harvested tissues and growing more of those cells, or ‘expanding’'expanding' those cells, in controlled conditions in a laboratory. These purified, expanded cells are then reintroduced to the donor to treat a specific condition. The benefits of autologous (derived from the same person) therapy (as compared to heterologous or derived from a different person) includes minimized risks of systemic immunological (anaphylactic) reactions, bio-incompatibility, and disease transmission. Furthermore, the effects of ACT may be more curative, regenerative, and/or longer lasting than other topical, biologic, pharmacological or surgical interventions.
We have an extensive intellectual property portfolio that covers RCT-01 (our platform for tendon repair); RCS-01 (our platform for skin rejuvenation); RCH-01 (our platform for pattern baldness); and RCI-02 (our dermal injection devices). Our intellectual property portfolio includes both patents and patent applications which we have developed and own (discussed in more detail below), as well as intellectual property that we have licensed (see., e.g., EP Patent No. 2362776 and US Patent No. 8932582).
RCT-01: Treatment for Chronic Tendinosis
Background
Tendinosis refers to a chronic disease of the tendon. It is a function of an imbalance of tendon breakdown and tendon repair initiated first by an injury which does not heal properly. This leads to cycles of compromised repair and subsequent re-injury until such time as there is no healing and a degenerative process has set in. Typically, this chronic condition is linked to aging, overuse, and to general health. We believeThe Company believes that the current standard of care is failing to provide a satisfactory solution to this chronic condition.
Treatment
We believeThe Company believes that chronic tendon injuries resulting from sports-related or occupational overuse is a significant unmet medical need. Tendons consist of specialized connective tissues that attach muscles to bones, transmitting force and supporting the musculoskeletal system. When mechanical loads exceed the strength of a tendon or tensile range is lost due to aging, micro-tears of the collagen fibers within tendon occur. Once a tendon is injured, healing can occur intrinsically via tenocyte activation within the injured site or extrinsically via recruitment of collagen-producing cells from the surrounding area. Naturally healed tendon does not return to the same physiological state as ‘intact’'intact' tendon, but does allow for normal function. Inadequate rest and improper healing often result in re-injury and rupture.
Current treatments manage pain and facilitate healing processes; however, they do not mediate complete recovery and leave patients demobilized for several months during treatment. We believeThe Company believes that improved therapeutic strategies are therefore in considerable demand. OurThe Company's fibroblast technology for tendinosis, which we referthe Company refers to as RCT-01, has been developed over five years of research, experimentation and trials. RCT-01 is a tissue-engineered product made from a procedure using collagen-producing fibroblasts isolated from non-bulbar dermal sheath (NBDS) cells within the hair follicle that are replicated in culture. These fibroblasts are efficient producers of type I collagen and because they are of anagen hair follicle mesenchymal origin, they have the potential to replicate efficiently in culture. The use of these fibroblasts are, therefore, ideal for treating chronic tendon disorders that arise due to either a degeneration of collagen producing cells or a deficit of active collagen producing cells. Because RCT-01 directly provides a source of collagen expressing cells to the site of injury, addressing the underlying cause of tendinosis, we believethe Company believes it has advantages over current treatments such as the use of non-steroidal anti-inflammatory medication or corticosteroids which are limited in efficacy. Another advantage of RCT-01 is the autologous nature of the cellular product, thereby reducing the likelihood of adverse immune reactions upon administration.
Phase 1Pilot Clinical Trial
Phase 1 human pilot clinical trials were conducted by ourthe Company's collaborative partner, Dr. David Connell, which focused on tendinosis of the Achilles, patellar and lateral elbow (commonly referred to as tennis elbow) using skin tissue derived fibroblasts. In these trials, where 90 patients were injected with cultured, autologous fibroblasts, no adverse events were reported. We haveThe Company has expanded on Dr. Connell’sConnell's approach by isolating NBDS fibroblasts from the hair follicle that express upwards of five times the amount of type I collagen than fibroblasts derived from skin tissue as pursued by Dr. Connell.
Phase 1/21 Clinical Trial
On December 1, 2014, wethe Company announced receipt of a “No"No Objection Letter”Letter" from Health Canada in response to its Clinical Trial Application to Health Canada for its phase 1/2 clinical trial to test the safety and efficacy of injections of RCT-01 on patients suffering from chronic Achilles tendinosis. Health Canada’sCanada's clearance to initiate the trial permitted the participation of up to 28 subjects who have failed traditional tendon treatments and who are otherwise in good health. Trial design was randomized, double-blinded, placebo-controlled with a treatment-to-placebo ratioration of 3:1. The mechanics of ourthe Company's treatment involve the extraction of as few as 20 hair follicles from the back of a patient’spatient's scalp via a single punch biopsy. NBDS cells are isolated from the hair follicle sheath, replicated in a current Good Manufacturing Practices (cGMP) facility and are then reintroduced under ultrasound guidance directly into the area of damaged tendon. The collagen rich fibroblast cells are expected to initiate and complete the healing of the chronically injured tendon. After injections are performed, subjects will return to the clinic for assessments of safety, function and pain, as well as changes in tendon thickness, echotexture, interstitial tears and neovascularity.
This trial commenced in 2015 and final data was announced Q1 2017. The primary end point isof safety was met while a secondary end point ofpoints related to efficacy is beingwere also measured at six months. We willnine-months post-injection of RCT-01. The Company may pursue further indications of other tendon populations including patellar tendinosis (jumper’s(jumper's knee) and lateral and medial epicondylitis (tennis and golfer’sgolfer's elbow).
In March 2017, we received safety and clinical data from our phase 1/2 tendon repair study investing the use of our type 1 collagen-expressing, hair follicle-derived fibroblasts (RCT-01) as a treatment for Achilles tendinosis. The clinical trial met its goal of establishing a complete safety profile at 6 months and showed no serious adverse events related to the study treatment or injection procedure. Additionally, each of the treated participants, all of whom suffered chronic tendon pain and loss of function over an extended period of time with no recovery from standard treatments, showed numerous clinically important improvements by various measures including tendon composition, blood supply, physical function and pain sensation.Further Clinical Trials
The most clinically material improvements observed from the study are summarized as follows:
VISA-A Scale of Achilles Tendon Injury Severity
Participants treated with RCT-01 in the per protocol population who completed the VISA-A evaluation 6 months after receipt of injections showed clinically relevant signals of healing including an overall 15.3% improvement in total score compared to baseline. Two patients showed select measures of near-complete recovery in function (by VISA-A scoring).
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VAS Scale of Pain Severity
Four out of five participants treated with RCT-01 who completed questionnaires 6 months after injection showed clinically relevant signals of improvement in pain on loading (running/jumping) based on VAS score. Average improvement in VAS score for the four participants was 62.9% over baseline VAS score.
Three out of five participants treated with RCT-01 who completed questionnaires 6 months after injection showed improvement in pain on palpation based on VAS score. Average improvement in VAS score for the three participants was 55.2% over baseline VAS score.
Two patients showed select measures of near-complete elimination of pain (by VAS scoring).
About Tendon Treatment Clinical Efficacy Measurements
VISA-A
The VISA-A scale aims to evaluate the clinical severity for patients with chronic Achilles tendinopathy. It is a questionnaire which evaluates symptoms and their effect on physical activity. It can be used to compare different populations with chronic Achilles tendinopathy and facilitate comparisons between studies. It can be used to determine the patient’s clinical severity. The VISA-A represents a clinically validated, reliable and disease-specific questionnaire to measure the condition of the Achilles tendon, but it is not a diagnostic tool. The final version of the questionnaire was named the Victorian Institute of Sport Assessment-Achilles Questionnaire.
VAS
A Visual Analogue Scale (VAS) is often used in epidemiologic and clinical research to measure the intensity or frequency of various symptoms. It is an instrument that measures a characteristic or attitude that is believed to range across a continuum of values and cannot easily be directly measured.
For example, the amount of pain that a patient feels ranges across a continuum from none to an extreme amount of pain. From the patient’s perspective, this spectrum appears on a continuum, in that their pain does not take discrete jumps, as a categorization of none, mild, moderate and severe would suggest. It was to capture this idea of an underlying continuum that the VAS was devised.
Phase 2 Clinical Trial
Our companyCompany is now designing a phase 2further clinical trialtesting intended to measure efficacy of RCT-01 in a larger population of patients with chronic Achilles tendinosistendinosis. The Company is currently engaged with the Japanese regulators in the reviews necessary to obtain regulatory clearance to conduct its next clinical trial of RCT-01 in Japan with the intention of seeking 'conditional approval' from the regulatory agency there (the Pharmaceutical and Medical Devices Agency, PMDA) to market the product in Japan after successful completion of such a trial. RepliCel has recently successfully completed the second of three consultations required to obtain clearance from the PMDA to proceed with clinical trials. Other preparations required for the conduct of such a trial have also been initiated in Japan.
In addition to RepliCel's intended conduct of a clinical trial in Japan, RepliCel's partner, YOFOTO (see below), is expected to conduct a clinical trial of RCT-01 in China. This trial is anticipated to be a phase 2 trial designed to answer critical questions related to dosing and treatment frequency.
Collaboration Agreement
The Company has a Collaboration and Technology Transfer Agreement with YOFOTO. Both companies have agreed to establish a clinical research program in China, with the goal of increasing the available human clinical data on RCT-01. The Company anticipates that collaborative technology transfer will continue between the companies as any new improvements to the RCT-01 technology are developed by either party. This agreement gives YOFOTO an exclusive 15-year geographic license to develop and market the Company's RCT-01 tendon regeneration technology in Greater China (China, Hong Kong, Macau, and Taiwan).
Intellectual Property
We have developed andThe Company has filed patent applications worldwide relating to compositions, methods and uses of NBDS cells for the treatment and repair of tendons. We have also licensed a familyRepresentative examples of this portfolio include patent applications relating tofiled in a variety of select jurisdictions such as Australia, Brazil, Canada, China, Israel, India, Japan, South Korea, Mexico, New Zealand, Russia, Singapore, South Africa, the compositionsUAE and uses of dermally derived cells in the treatment of tendons and ligaments.United States (see e.g., US Pub No. 20150374757).
Competitors
Typically the pain associated with tendinosis is controlled by many treatment modalities including the use of analgesic and anti-inflammatory medications, rest, physical therapy, ice, orthotics, ergonomic adjustments, laser therapy, platelet-rich plasma injections, dextrose injections and surgery. However, there is currently no therapy to treat the underlying, causative nature of the disease.
Orthocell, an Australian company, is pursuing an autologous cell-based technology where they harvest and expand tenocyte cells isolated from a biopsy taken from a patient’s own tendons. A pilot study of 17 patients with severe refractory lateral epicondylitis showed improved clinical function and structural repair at the origin of the common extensor tendon after the treatment. A larger clinical trial needs to be conducted in order to generate significant data. Furthermore, the necessity to remove tendon in order to cultivate the tenocyte cells is an invasive procedure. In contrast, our procedure only requires the removal of up to 20 hair follicles from the back of the scalp.
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RCS-01: Treatment for Aging and Sun Damaged Skin
Background
Skin is considered one of the most prominent indicators of one’sone's age and health. Maintenance of healthy skin is dictated by intrinsic and extrinsic factors. While intrinsic factors (i.e. chronologic age, sex and genetic makeup) cannot be modified, the adverse effects caused by extrinsic factors such as UV radiation and smoking can be prevented or minimized by lifestyle modification. Although these extrinsic effects can be modulated, the extent to which they can be modified varies significantly among individuals, which largely depends on one’sone's ability to detoxify and repair such damage.
The dermis and epidermis components of the skin lose thickness with age. Solar radiation, particularly UVA, is known to penetrate deep into the dermal layer, damaging fibroblasts, collagen and other fibroblasts expressed proteins, which are the major cellular components of the dermis. Similarly, there are some studies reporting that air pollutants/nanoparticles may also penetrate transepidermally, negatively impacting the dermal layer. The damages caused by external stimuli include DNA strand breaks and mutations, which, if not repaired properly, can lead to cell death. Similarly, oxidative stress caused by smoking leads to not only damages to DNA but also to other cellular components such as proteins and lipids.
Accumulation of damage to cellular proteins and DNA from years of exposure to extrinsic insults can lead to physiological changes of the skin that are irreversible. Such changes are often associated with a reduction in fibroblast cells, disorganization of collagen fibrils and decreased production of collagen, elastin and other glycoproteins that provide structural support and stability to the extra cellular matrix (“("ECM”") network. Such changes to the dermal components are detrimental to maintaining mechanical tensile ability and structural integrity of the skin.
Treatment
OurThe Company's NBDS-derived fibroblast therapy, which we referit refers to as RCS-01, provides a promising platform to treat intrinsically and extrinsically aged/damaged skin by providing UV-naïve collagen-producing fibroblast cells directly to the affected area. OurThe Company's unique manufacturing technology allows for isolation of fibroblasts derived from anagen-hair follicle mesenchymal tissues, which elicit more efficient replication potential in culture. Additionally, ourthe Company's proprietary culture procedures potentiate these cells to maintain plasticity, allowing the cells to adapt to the microenvironment and respond to the mechanical or surrounding stimuli after injection, leading to robust production of type I collagen and elastin and their proper alignment within the tissue.
Phase 1 Clinical Trial
On September 1, 2015, wethe Company announced that weit had received clearance from the German Competent Authority, the Paul-Ehrlich-Institute, to initiate a Phase 1 clinical trial to investigate the potential safety and efficacy of injecting RCS-01 into subjects with aged or UV-damaged skin. This trial iswas a randomized, double-blind, placebo controlled study of intradermal injections of RCS-01 designed to assess local safety as well as systemic safety. In addition, quantitative analysis of skin gaining-related bio-markersThis trial is being conducted alongnow complete with histopathological assessment of treatment sites to determine structural changes.
Indata announced early April 2017 we received statisticallyin which the primary endpoint, safety, was successfully established and clinically significant positivesecondary endpoints related to measurements of the impact on biomarkers related to skin-aging were significantly positive. A summary of the phase 1 clinical study data fromwas published in the interim analysis of our phase I study evaluating RCS-01 for the treatment of aging and sun damaged skin.peer-reviewed journal, Skin Pharmacol Physiol.
Further Clinical Trials
The primary objective of this trial was to establish a complete safety profile for intradermal injections of RCS-01 (RepliCel’s type 1 collagen-expressing, hair follicle-derived fibroblasts [“NBDS cells”]) at six months post-injection. Participants in the Germany-based study did not report any serious adverse events at the interim point of the trial. Researchers also gathered compelling positive proof-of-concept data indicating the product’s potential for skin rejuvenation.
The study was neither powered for, nor was expected to show statistically significant results of efficacy. However, the nearly two-fold increase in gene expression of collagen-related biomarkers in the skin, after a single injection of RCS-01, was so profound with a single RCS-01 injection, that the results are considered statistically significant. The study observed the impact of the injection on ten different biomarkers that, in peer-reviewed medical literature, are highly correlated with skin aging and chronically sun-damaged skin. Notably, gene expression markers, such as tissue inhibitor of metalloproteinases (TIMP), showed significant changes expected to correlate with increased collagen fibers. Increased collagen production, and reduced collagen degradation, is associated with fewer wrinkles and the repair of sun-damaged skin.
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About the RCS-01 Study
The clinical trial was a randomized, double-blind, placebo-controlled, single-centre, phase I safety study of intradermal injections of RCS-01 in healthy subjects. The primary endpoint was to assess the local safety profile by recording and evaluating adverse events reported at the treatment evaluation sites. Secondary safety measures related to any reporting of systemic adverse events and assessment of histopathological abnormalities of the treatment sites. Secondary endpoints also included evaluating any changes in expression of numerous genetic markers (using real-time PCR) related to intrinsic skin aging, skin wrinkling and solar degeneration of skin.
After trial inclusion, all participants provided a biopsy from the scalp from which RCS-01 was prepared at a central GMP manufacturing site. Study participants were randomized to one of two treatment subgroups that received intradermal injections of either RCS-01 or placebo. Each participant had four treatment evaluations sites identified on their buttocks, two on each side to allow for a within-subject comparison of single and triple injections of RCS-01 with placebo respectively. Participants in the RCS-01 Subgroup received injections of RCS-01 or placebo or a ‘sham’ injection (a needle penetration without injection of liquid). Participants in the Placebo Subgroup were randomized to receive only injections of placebo or sham injections to compare the systemic safety profile to the RCS Subgroup.
Baseline evaluations of subjects’ overall health and skin condition at treatment sites on their buttocks were performed before receipt of injections at Day 0. In addition to injections delivered at Day 0, the pre-selected treatment evaluation sites received intradermal injections of RCS-01 or placebo (cryomedium) or a sham injection four and eight weeks after Day 0 according to a randomization schedule for a total of three injections per treatment site.
All participants returned/will return to the clinic for at least nine visits to monitor safety. Assessment of the local safety profile was performed by the investigator before each injection visit, two to four days after injection, and 12 and 26 weeks after injection. The investigator was asked to examine each treatment site for the presence or absence of local adverse events and grade them with respect to relatedness to treatment, severity and seriousness. Other study assessments included recording of vital signs at each visit and routine laboratory assessments at screening, injection visits and at the Week 26 time point. At the 12-week time point, nine randomly selected participants provided biopsies from all injection sites for gene expression analysis of skin markers related to aging. At Week-26 (cut-off date of the interim analysis), the remaining participants provided biopsies of all injection sites for histopathological analysis.
All reported pre-defined local adverse events related to injection or sham were transient and mainly mild in intensity only. No other related local or systemic adverse events were reported. No clinically relevant abnormal laboratory results or abnormal vital signs were reported up to the cut-off date of this interim analysis. Histopathological assessments of treatment evaluation site biopsies were all judged to be normal by a blinded investigator.
Phase 2 Clinical Trial
Our companyCompany is now designing with its partner, YOFOTO (see below), further clinical testing of RCS-01 including a multi-centre phase 2 clinical trial intended to measure efficacy of RCS-01 in a larger population of patients with aging and UV-damaged skin and answer critical questions related to dosing and treatment frequency. frequency in China as well a clinical study in Japan.
The Company is currently engaged with the Japanese regulators in the reviews necessary to obtain regulatory clearance conduct its next clinical study of RCS-01 in Japan with the intention of launching the product on the market in Japan after successful completion of such a trial. Other preparations required for the conduct of such a clinical study have also been initiated in Japan.
It is intended that this trialall future clinical trials of RCS-01 will be conducted using prototypes of the RepliCel’sRepliCel's RCI-02 dermal injector.
Collaboration Agreement
The Company has a Collaboration and Technology Transfer Agreement with YOFOTO. Both companies have agreed to establish a clinical research program in China, with the goal of increasing the available human clinical data on RCS-01. The Company anticipates that collaborative technology transfer will continue between the companies as any new improvements to the RCS-01 technology are developed by either party. This agreement gives YOFOTO an exclusive 15-year geographic license to develop and market the Company's RCS-01 skin rejuvenation technology in the Licensed Territory.
Intellectual Property
The Company has filed patent applications relating to compositions, methods and uses of NBDS cells for the treatment and repair of aging and UV-damaged skin. Representative examples of this portfolio include patent applications filed in a variety of select jurisdictions such as Australia, Brazil, Canada, China, Europe, Israel, India, Japan, South Korea, Mexico, New Zealand, Singapore, and the United States (see e.g., US Pub No. 20160136206).
Competition
The facial injectables market comprises four product types: botulinum toxin, hyaluronic acid, fillers (particle and polymer fillers, collagen) and stem cells. These injectables can be used in the facial area to correct facial lines and folds and to rejuvenate and add volume to the face. As effective as they may be at treating wrinkles, fillers have a risk of allergic reaction and the formation of tiny bumps under the skin. A bluish skin discoloration known as the Tyndall effect is also possible. The color change can last for several months, but there are treatments available. In very rare cases, skin cells may die if the wrinkle fillers are not used properly. Typically, the wrinkle fillers with longer-lasting effects are the ones more likely to cause side effects.
Fibrocell Sciences has an approved fibroblast therapy for skin aging. Their FDA-approved autologous fibroblast cellular product for improving the appearance of moderate to severe nasolabial fold wrinkles (smile lines) in adults is called LAVIV® (azficel-T). We believe our source cells and manufacturing technology is disruptive both in duration of time to replicate the cells and in the amount of collagen and extracellular matrix expressed.
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RCH-01: Treatment for Hair Loss
Background
Androgenetic alopecia (pattern hair loss) can affect up to 70% of men and 40% of women during the course of their lives. Although it is not a disease that causes physical pain, it does cause mental pain. Currently, over $3 billion is spent each year on hair loss treatments that provide limited results. Androgenetic alopecia is largely an inherited disease. It can be inherited by males and females from either the mother’smother's or father’sfather's side of the family. Women with this trait develop thinning hair, but do not commonly become completely bald.
Androgenetic alopecia is a process by which hair follicles shrink and produce smaller hairs thus reducing hair density. These miniaturized hair fibers have a shorter growth cycle and are structurally smaller. They produce thinner and shorter hair, which results in less scalp coverage. Eventually these follicles can regress to a state where they produce no hair at all.
Treatment
We believe ourThe Company believes its dermal sheath cup (DSC) cell therapy offers several advantages over current hair loss solutions. The current gold standard in hair loss treatment is hair transplant surgery which requires the surgical removal of a prominent band of hair-bearing scalp or multiple micro-biopsies from the back of the head. This band of resected tissue or biopsies are then dissected into hair follicles consisting of one to three hairs which are then implanted into balding areas on the scalp. Often a number of similar procedures are required to achieve the desired result and the patient is limited by the number of hairs that can be redistributed. In contrast, RCH-01 involves the extraction of as few as 20 hair follicles from the back of the patient’spatient's scalp where healthy cycling hair follicles reside. We believeThe Company believes these cells are responsible for the continued health of the hair follicle and the normal cycling of the hair fiber. DSC cells are isolated from the hair follicles and are then replicated in culture at a cGMPcompliantcGMPcompliant facility utilizing ourthe Company's proprietary cellular replication process, and are then reintroduced back into balding areas on a patient’spatient's scalp. The implanted cells are expected to rejuvenate damaged quiescent hair follicles leading to the growth of new healthy hair fibers. The anticipated long-term result of RCH-01 injections is the restoration and maintenance of a patient’spatient's hair.
Phase I Clinical Trial (Europe)
The primary protocol objective of the study was to assess the local (at treatment sites) safety profile of injections of autologous DSC cells at six monthsnine-months post-injection compared to placebo. Secondary protocol objectives were to assess systemic (overall) safety and efficacy (hair growth at treatment sites) at six monthsnine-month post-injection and local safety at 24 months24-months post-injection. The six-monthnine-month interim analysis was designed to provide us with safety information to support the regulatory filing for a phase II clinical trial. The six-monthnine-month interim analysis results support the continued development of DSC cells for the treatment of androgenetic alopecia. Participants of the phase I clinical trial are beingwere followed for five years. The primary objective of the study was to provide long-term safety profile of injections of cultured DSC cells five years after injection compared to control.
This objective was met with an announcement of the final data from this trial in Q1 2017. In March 2017, we successfully completed our first-in-human clinical study of our autologous cell therapy for the treatment of androgenetic alopecia (pattern baldness).
Safety
The five-year trial data set has confirmed the complete safety profile of a high-dose of dermal sheath cup cells (DSCC) for patients with pattern baldness dueaddition to androgenetic alopecia.
These DSCC form the basis for our company’s RCH-01 product. The long-termestablishing safety of DSCC injections was demonstratedthe product through multiple physician, patient and independent measuresfive years of local and systemic tolerance including evaluation of adverse events with respect to causality, incidence, severity and seriousness. No serious adverse events were reported overfollow-up, the entire 60.5 -month follow-up period of the trial. Local injection tolerance was confirmed with only a few minor scalp irritations reported around injection sites that resolved quickly soon after injection. Furthermore, histopathological evaluation of injection site biopsies taken six, 12, and 24 months after injection did not reveal any pathology that was suggestive of tumour, granuloma or foreign body formation. An analysis of injection site biopsies taken 60.5 months after injection is currently ongoing. Long-term systemic safety of RCH-01 wasdata announcement also confirmed as none of the systemic adverse events reported during the extended safety evaluation wereincluded several successful data measurements related to treatment.
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The seven top-tier responders in the trial saw >10% increase inincreased hair density at six months post-injection. At 24 months, the average hair density increase for these same seven participants was 8.3% over baseline, and three of these seven trial participants maintained a >10% increase in density over baseline. The largest increase in hair density over baseline observed in this group was a 21% increase at 24 months.
The top 10 participants reported at least a 5% or greater increase in hair density at six months post injection with an average increase of 11.8% (as reported in the May 17, 2012 announcement). This group demonstrated a sustained response at 24 months which averaged a 4.2% increase over baseline hair density. While there was a high degree of variability in hair density between individual participants at 24 months post-injection compared to baseline, an overall stabilization of hair loss through the initial 24 months in which these measurements were taken.
Dose-Finding Clinical Study (Japan)
In 2016, a clinical study was observed among alllaunched in Japan as two clinical sites with funding and product manufacturing provided by Shiseido. The study investigated three different one-time injections. This study was completed in 2019 and data from the randomized, double-blinded, placebo-controlled dose-finding clinical study involving 65 patients treated per protocol.as published in the Journal for the American Academy of Dermatology (July 2020). The study was successful in meeting its endpoints and establishing important data regarding which dose was optimal in achieving desired clinical outcomes.
Proposed Next Phase Trials
IndicationsShiseido has communicated that it intends to fund a next-phase trial of Potential EfficacyRCH-01 in Japan investigating a series of injections with further details yet to be announced.
The trial was designed to gather data related to the product's potential efficacy through 24 months post-injection, but was not designed for statistical significance related to any efficacy endpoints. The efficacy data collected from all 19 patients, while not statistically significant, provides useful and potentially exciting insights into the product's potential for the treatment of those with androgenetic alopecia.
Proposed Phase 2 Clinical Trial
We haveCompany has designed a phase 2 clinical trial intended to measure efficacy of RCH-01 in a larger population of patients with mild to moderate androgenetic alopecia and answer critical questions related to dosing and treatment frequency. Our companyThe Company is currently engaged in molecular marker research which is expected to lead to improvements in the product identification, manufacturing, and its clinical effectiveness. WeThe Company will await the results ofdata from this research and until clinical-grade prototypes of the RCI-02 dermal injector are available for use in clinical studies prior to submitting the clinical trial application for a phase 2 study of RCH-01 for regulatory approval.
Collaboration Agreement
We have entered intoThe Company has a Collaboration and Technology Transfer Agreement with Shiseido Company, Limited ("Shiseido"), one of the world’sworld's largest cosmetic companies. Both companies willhave agreed to work towards establishing a clinical research program in Asia, with the goal of increasing the available human clinical data on RCH-01. We anticipateThe Company anticipates that collaborative technology transfer will continue between the companies as any new improvements to the RCH-01 technology are developed by either party. This agreement gives Shiseido an exclusive geographic license to use ourthe Company's RCH-01 hair regeneration technology in Japan, China, South Korea, Taiwan and the ASEAN countries representing a population of approximately 2.1 billion people. In mid-2016, Shiseido alleged that our companyRepliCel had breached its obligations in the agreement which resulted in a termination ofShiseido alleged were potentially terminal to future obligations pursuant to the agreement. We haveRepliCel has vigorously denied the existence of anysuch breach and insists on the ongoing validity of the agreement and believe thatrespective obligations on both parties pursuant to the agreement is still in good standing.agreement. No litigation arbitration or the triggering of other dispute mechanisms has been triggeredentered into by either party and ourRepliCel management is actively seeking to continue discussions and/or negotiations with Shiseido to resolve the matter. In mid-2016, Shiseido announced the commencement offunded a hospital-sponsored clinical study of RCH-01 in Japan funded by Shiseido.which is now complete. The clinical data produced in such a trial would,is, by agreement, to be made available to our company.the Company. The Company expects Shiseido to share the data from this study with the Company in compliance with the Agreement. The Company has recently delivered a demand for the delivery of the data which Shisedo has failed to satisfy to-date. Shiseido has communicated that it intends to fund a next-phase trial of RCH-01 in Japan investigating a series of injections with further details yet to be announced.
Intellectual Property
We have alsoThe Company has filed patentspatent applications on the use of hair follicle derived stem cells entitled “Method for isolating hair follicle mesenchymal stem cells”.cells. This family of patents describes methods for isolating stem cells from hair follicles, and the growth and use of these stem cells for the treatment of a variety of medical conditions (including hair loss). Within this portfolio, there are granted patents in Australia (AU 2003246521), Europe (EP1 509 597 B1)(EP 1509597), the United States (8,431,400)(8431400) and Canada (2,488,057)(2488057). AdditionalAn additional related patent applications areapplication is also pending in other jurisdictions.the United States (USSN 16/032728).
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We have also filed patent applications on: 1) other types of cell compositions (seee.g., granted patents EP 2,362,776 B1, and US 8,932,582); 2) injection devices (seee.g.,granted patent EP 2,623,146 and published PCT application WO 2013/113121): 3) compositions and methods for treating and repairing tendons (see,e.g., published PCT application WO 2014/127047); and 4) compositions and methods for treating skin (seee.g.,published PCT application WO 2014/205142). Additional related patent applications are also pending in a variety of jurisdictions.
Competition
There are many current hair loss treatments available.
Medical hair restoration consists of a variety of surgical hair restoration treatments designed to reduce baldness. Follicular unit hair transplant surgery is by far the dominant hair restoration treatment and involves the surgical removal of large portions of hair-bearing scalp from the back of the head. These sections of scalp skin are then dissected by hand into smaller hair follicle clusters or even single follicles (follicular units) and transplanted to the balding areas of a patient’spatient's scalp.
Follicular unit extraction is another type of hair transplant technique in which a small round punch is used to extract follicular units from a patient’spatient's baldness-resistant donor areas. These 1-, 2-, 3- and 4-hair follicular unit grafts are then transplanted into a patient’spatient's balding areas. This is a time consuming and tedious procedure and a physician is often limited to transplanting 500 to 600 follicular unit grafts in one day. While the FUE procedure has grown in popularity, largely due to the minimally invasive way in which follicular unit grafts are removed, the standard strip excision method is still the leading hair transplant procedure accounting for 77.5% of surgical hair restoration procedures according to the International Society of Hair Restoration Surgery’sSurgery's 2011 practice census results.
There are only two drug hair restoration treatments approved by the United States Food and Drug Administration are available today: minoxidil and finasteride. Minoxidil is marketed as Rogaine® and finasteride is marketed as Propecia®. These two products can be effective in hair loss prevention and may grow new hair. However, once a patient begins using Rogaine® or Propecia®, he or she must continue to use the products indefinitely. As with any drug, adverse reactions can sometimes occur.
Histogen is developing a hair stimulating complex that is based on the products of newborn cells grown under embryonic conditions. Histogen completed a 26 male-subject clinical trial on its hair stimulating complex. This double-blind, placebo-controlled study evaluated the safety in the clinical application of the product as an injectable for hair growth. No adverse events were seen at any time point, including the one year follow-up. In October 2012, Histogen announced initial results from its Phase 1/2 clinical trial stating that a significant improvement was seen across all targeted hair growth parameters with an 86% responder rate. The double-blind trial was undertaken to further examine the safety and efficacy of intradermal injections of their hair stimulating complex in 56 men with androgenetic alopecia.
Follica Inc. is developing a treatment that stimulates the re-growth of hair follicles by harnessing their natural wound-healing response.
RCI-02: Dermal Injector Device
Background
To support ourthe Company's RCH-01 and RCS-01 products, we have developedthe Company is developing a second generation dermal injector device. The RCI-02 Injector, the production design of which is now complete, will be able to deliver programmable volumes of substances into programedprogrammed depths to specific layers of the skin in a constant form with minimal pressure or shear stress, ensuring the injected substance is viable and healthy after application. By improving the conditions of substance delivery, we improvethe Company improves the chances of success in the treatment of the patient. A significant feature of the new device is the incorporation of a cooling element at the injection site, thus removing the need for an anesthetic. This is a significant improvement over current syringe-type devices where an anesthetic is required prior to injection.
The RCI-02 is a motorized injection device with programmable depth and volume, a built-in Peltier element for pre-injection anaesthetising, and interchangeable needle head configurations. It is designed to deliver a variety of injectable substances including cells, dermal fillers, drugs or biologics intradermally (dermis), subcutaneously (fat) or intramuscularly (muscle) via an array of needle configurations ranging from a single needle to a 16 needle configuration (4x4) on one head. These interchangeable heads can be used to perform a variety of procedures, increase surface area coverage and speed-up procedure times. By relying on electrical power (instead of thumb pressure) and digital controls, RCI-02 automates and simplifies the injection process. Equipped with a touch screen on its accompanying docking station, the device’s programmability allows for the delivery of precise quantities of material, at specific depths, through fine-gauge needles, on a single plain or trailing through multi-plains as the needle retracts through the skin.
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Overall benefits of our dermal injector technology include improved handling, reduction or elimination of the need for local anesthetic, quicker procedure times, an expectation of more consistent clinical results because of the injector's controls, and a significant expansion of the areas that can be addressed with dermal fillers due to the ability to conduct broad, shallow, and evenly-dispersed injections. We believeCompany believes that this device will have applications in certain other dermatological procedures requiring injections of specific volumes of material at specific depths and as such, will look atis actively exploring licensing opportunities in these areas. In addition to the programmable variables of volume and depth, the device will also have interchangeable heads for different injection procedures (single and multi-needle). In FebruaryThe Company received its first functioning prototypes for testing in Q3 2017 we enteredand, as a result of extensive testing, made several improvements to the components and design to optimize desired functionality through the following 18 months. Final prototypes were signed off on in late 2019 and first run of commercial-grade units were ordered into agreementsproduction in early 2020. This production run has been delayed due to COVID-19-related shutdowns across the supply chain. The Company now expects to have its first samples of the commercial-grade units from this production run in early Q4 2020. These units will then be tested over the coming months and an application submitted to European regulators for CE-mark approval in Europe. A CE mark will allow the Company to commercially launch RCI-02 in Europe and other countries which allow medical devices to be sold based on CE mark approval including Hong Kong where YOFOTO is already licensed to distribute. The registration of the CE mark in Hong Kong will trigger a $500,000 milestone payment from YOFOTO.
A proprietary needle head has also been developed and will be CE-marked. Only this needle-head will work with two European firms, AMIthe device and Art ofwill be sold/distributed exclusively by RepliCel and its agents.
A CE-mark will also be obtained by RepliCel on the assembled syringe cartridge which is the only cartridge which will work with the device and will be sold/distributed exclusively by RepliCel and its agents.
Collaboration Agreement
The Company has a Collaboration and Technology both of whom have committedTransfer Agreement with YOFOTO. YOFOTO has agreed to work with our companytowards commercializing the RCI-02 device in China. This agreement gives YOFOTO an exclusive 15-year geographic license to get our commerce-gradecommercialize the Company's RCI-02 dermal injector prototypes manufactured and tested.
AMI is an Austrian manufacturer of medicalin technology based near the shores of Lake Constance, within easy reach of Germany and Switzerland. AMI develops, manufactures and distributes their medical products throughout the world. All of them are made according to the highest quality standards and enable doctors to take even better care of their patients.
Art of Technology, based in Zurich Switzerland is an independent contract developer specializing in the design, development and miniaturization of complex customer specific electronic devices and embedded systems for use in industrial, medical and space applications. Certified in accordance with ISO9001 and ISO13485, the firm emphasizes consistent quality documentation throughout the duration of a project including risk analysis, management and technical documentation to support CE approval.Licensed Territory.
Intellectual Property
In January 2016, we wereThe Company has also filed numbers patents and patent applications on its dermal injection devices for the delivery of therapeutically useful cells, as well the delivery of various other injectables. Representative granted a patent (EP2623146) by the European Patent Office for our injection device technologies. In January 2017, we were granted two patents include in Europe related to our multi-needle dermal injection technologies. The first patent, European Patent No.(EP 2623146 has been validated in a total of fourteen national countries, including Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Spain, Switzerland, Swedenand EP 2809381), and the United Kingdom. The secondStates (US 9616182). Additional related patent European Patent No. 2809381, willapplications are also be validatedpending in a numbervariety of European countries in the near future. In April 2017, the U.S. Patentother jurisdictions such as Australia, Canada, China, Europe, Hong Kong, Israel, Japan, South Korea, New Zealand, Singapore, Taiwan, and Trademark Office granted a patent in the United States (U.S. Patent(US Pub No. 9,616,182)20180021523).
Competition
Launched in 2009, theRestylane® Injector offers even volume distribution, improved ergonomics over syringes, better depth control and preloaded devices. The injector is preloaded with 200 controlled doses of 10 μl per injection. The injector is used for Restylane Skinboosters Vital and Restylane Skinboosters Vital Light.
The Anteis Injection System was launched in 2010 by Anteis, a Swiss company focused on developing aesthetic dermatology products and ophthalmology devices. They have developed an automated injection device for local injections of Anteis aesthetic products (fillers and rejuvenation products). It features depth control, injection speed and volume control helping to reduce pain, bruising and swelling. A 32 gage needle is used for injections which helps to further reduce pain and the need for an anesthetic before treatment. The device received the Frost & Sullivan 2011 European New Product Innovation Award and the Reddot Design Award in 2010.
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C. Organizational Structure
We currently have one wholly-owned subsidiary, TrichoScience. TrichoScience is federally incorporated under the
Business Corporations Act (Canada).
D. Property, Plant and Equipment
Our head office is located at Suite 900 –- 570 Granville Street, Vancouver, BC V6C 3P1. We rent this space on a month to month basis at $1,500 per month. We formerly rented space at Suite 2020 - 401 West Georgia Street, Vancouver, BC V6B 5A1 pursuant to a lease agreement for the office premises, the term for which expired on October 31, 2017. We executed a sub-lease and assigned the lease to a sub-tenant in July 2016 for almost 100% cost recovery. Research and development is being conducted under contract with the University of British Columbia by Kevin McElwee, PhD at the UBC Dermatology facilities in Vancouver, British Columbia, Canada and by Dr. Rolf Hoffmann in Germany. We have no current plans to construct or lease dedicated laboratory facilities.
ITEM 4A Unresolved Staff Comments
Not applicable.
ITEM 5 Operating and Financial Review and Prospects
The information in this section is presented in accordance with IFRS for 2017, 20162019, 2018 and 2015.2017. IFRS differs in certain significant respects from U.S. GAAP. Historical results of operations, percentage relationships and any trends that may be inferred therefrom are not necessarily indicative of the operating results of any future period.
A. Operating Results
Year Ended December 31, 20172019 Compared to Year Ended December 31, 20162018
| Year ended December 31, | Change 2017 to 2016 | Year ended December 31, | Change 2019 to 2018 | |||||
2017 ($) | 2016 ($) | Increase/ (Decrease) ($) | Percent Change |
2019 ($) | 2018 ($) | Increase/ (Decrease) ($) | Percent Change | |
| Revenue | - | 252,609 | 121,114 | 131,495 | 108% | |||
| Licensing fees | - | |||||||
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| ||||
| Expenses |
|
|
|
| ||||
| Research and development | 2,541,722 | 1,115,063 | 1,426,659 | 128% | 2,196,364 | 709,260 | 1,487,104 | 210% |
| General and administrative | 3,450,193 | 3,172,565 | 277,628 | 9% | 1,074,100 | 2,151,154 | (1,077,054) | 50% |
| Other items | 22,415 | (16,334) | 38,749 | 237% | (64,109) | 29,780 | (93,889) | 315% |
| Total loss | (6,014,330) | (4,271,294) | 1,743,036 | 40% | (2,953,746) | (2,769,080) | (184,666) | 7% |
There was no$252,609 (2018 - $121,114) revenue – License fees from operations for the years ended December 31, 20172019 and 20162018, respectively. The increase in the license fees was as a result of the licensing revenues being for a full year in 2019 compared to licensing revenue earned in 2018 was from September 10, 2018 to December 31, 2018.
Research and developmentDevelopment expenses totaled $2,541,722$2,196,364 for the year ended December 31, 20172019 compared to $1,115,063$709,260 for the year ended December 31, 2016.2018. Research and developmentDevelopment expenses are higher thanduring the yearprior ended December 31, 2019 than 2018 as the Company’s researcha result of its improved working capital and focus on final development budget for 2017 to-date has comprised of finalizing 3 clinical trials, launching a research project at UBC, and finalizing our device engineering and prototype manufacturing. The medical device program is its most expensive phase to-date given that it has transitioned from design and engineering to prototype manufacturing.RCI-02 product.
General and administrative expenses totaled $3,450,193$1,074,100 for the year ended December 31, 20172019 compared to $3,172,565$2,151,154 for the same period prior.year ended December 31, 2018. The slight increase isdecrease was primarily attributable to similar spendingdecreased administrative costs such as investor relations.
Other items for the year ended December 31, 2019 includes a gain on debt settlement of $107,395 which resulted from share for debt transactions which occurred on January and October of 2019. It also includes accretion on preference shares in the categoryamount of marketing and investor.$33,289 as well as a foreign exchange loss of $9,997.
Total comprehensive loss for the year ended December 31, 20172019 was $6,014,330$2,953,746 or $0.32$0.11 per share on a basic and diluted basis,$4,271,294$2,769,080 or $0.54$0.12 per share on a basic and diluted basis for the year ended December 31, 2016. The increase in operating loss was due primarily to increased expenditure on research and development attributable to finalizing 3 clinical trials, launching a research project at UBC, and finalizing our device engineering and prototype manufacturing.2018.
Year Ended December 31, 20162018 Compared to Year Ended December 31, 20152017
| Year ended December 31, | Change 2016 to 2015 | Year ended December 31, | Change 2018 to 2017 | |||||
2016 ($) | 2015 ($) | Increase/ (Decrease) ($) | Percent Change |
2018 ($) | 2017 ($) | Increase/ (Decrease) ($) | Percent Change | |
| Revenue | 121,114 | - | 121,114 | 100% | ||||
| Licensing fees | - | |||||||
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| Research and development | 1,115,063 | 2,319,830 | (1,204,767) | (51%) | 709,260 | 2,541,722 | (1,832,462) | (72%) |
| General and administrative | 3,172,565 | 2,727,098 | 445,467 | 16% | 2,151,154 | 3,450,193 | (1,299,039) | (38%) |
| Other items | (16,334) | (2,914) | (13,420) | 460% | 29,780 | 22,415 | 7,365 | 33% |
| Total loss | (4,271,294) | (5,044,014) | (772,720) | (15%) | (2,769,080) | (6,014,330) | (3,245,250) | (54%) |
Research and development expenses totaled $1,115,063There was $121,114 (2017 - $Nil) revenue - License fees from operations for the year ended December 31, 2016 compared to $2,319,8302018 and 2017. The increase in the license fees was because the agreement with YOFOTO wasn’t entered into until September 10, 2018.
Research and Development expenses totaled $709,260 for the year ended December 31, 2015. Research expense2018 compared to $2,541,722 for the year ended December 31, 2016 was $366,426 compared to $1,535,094 in the prior year period.2017. The decrease was the result of the lack ofa decline in spending on research and development, including development of the RCI-02 injector device prototype and the cell replication process for RCH-01, due to constraints on financial resources during the lack of financial resources. During the yearfirst three quarters ended December 31, 2016, we incurred costs of $784,637 relating to our clinical trials compared to $784,7362018.
General and administrative expenses totaled $2,151,154 for the year ended December 31, 2015. Our company had expended about the same amount for entering into the clinical stage for our RCT-01 and RCS-01 products.
General and administrative expenses totaled $3,172,5652018 compared to $3,450,193 for the year ended December 31, 2016 compared2017. The decrease was primarily attributable to $2,727,098 forconstraints of financial resources and the yearCompany focusing on streamlining its expenditures on general and administrative expenses until the three months ended December 31, 2015. The increase of $445,467 is primarily attributable to an increase in stock based compensation from $131,714 for2018 when the year ended December 31, 2015 to $826,307 for the year ended December 31, 2016. The overall increase in stock-based compensation expense in 2016 compared to 2015Licensing and Collaboration Agreement was primarily due to the vesting of options in 2016. In addition, we increased spending on marketing and investor relations from $379,705 for the year ended December 31, 2015 to $1,150,807 for the same time period in 2016. This is offset by a decrease in spending in other overhead categories such as salaries where it has decreased from $887,343 for 2015 to $393,138 for the year ended December 31, 2016.signed.
Total comprehensive loss for the year ended December 31, 20162018 was $4,271,294,$2,769,080 or $0.54$0.12 per share on a basic and diluted basis compared to a net loss of $5,044,014,$6,014,330 or $0.89$0.32 per share on a basic and diluted basis for the year ended December 31, 2015. The decrease in operating loss was due primarily to financial constraints and cut-backs on overhead on research and development expenses.2017.
B. Liquidity and Capital Resources
Our annual audited consolidated financial statements have been prepared on a going concern basis which assumes that we will continue to realize our assets and discharge our obligations and commitments in the normal course of operations. Since our inception,At December 31, 2019, we had accumulated $4,120,400$4,494,123 in revenue from our business, had an accumulated deficit of $30,790,017$36,512,843 since incorporation and we expectexpected to incur further losses in the development of our business, which casts substantial doubt about our ability to continue as a going concern. At December 31, 2017,2019, we had a working capital deficit of $331,162.$1,226,345. Additional working capital will be required for research and development along with general and administrative expenses and to further our business plans. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event that we cannot continue as a going concern.
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Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. We have financed our operations to date through the issuance of equity. The continued volatility in the financial equity markets may make it difficult to continue to raise funds by equity private placements. There is no assurance that we will be successful with our financing ventures.
Year Ended December 31, 20172019 Compared to Year Ended December 31, 20162018
Operating Activities
During the year ended December 31, 2017, $5,385,7422019, $2,781,840 was used in net cash used infrom operating activities compared to $3,544,186$386,099 of cash used in operating activities for the same period in the prior year.ended December 31, 2018. The increase in cash used by operating activities was a result of primarily increaseincreases in both research and development activities.as well as general and administration activities for the year ended December 31, 2019.
Investing Activities
During the year ended December 31, 2017,2019, the net cash providedused by investing activities was $1,450,000 compared to ($1,450,000) for the year ended December 31, 2016. Investing activities relate to the redemption of a Guaranteed Investment Certificate in 2017.$28,750 (2018: $Nil).
Financing Activities
During the year ended December 31, 2017,2019, the Company announced that it had completed twothe first tranche of a private placements and issuanceplacement pursuant to which it issued 1,089,125 Class A Preference Shares at a price of shares on exercise of warrants$0.40 per share for totalaggregate gross proceeds of $4,692,048 (2016: $5,093,521), a decrease of $401,473 over prior$435,650. During the year due to company not raising as much funds andended December 31, 2018, the Company having had threeengaged in a private placementsplacement for the sum of $2,307,527. The Company recorded $415,998 net of issuance costs. The Company recorded $415,998 net of issuance costs for its preference shares issued in the prior year over this year. Finder’s fees of $319,965 (2016: $214,374) were paid in connection with these private placements.2019.
28Additional working capital will be required for general and administrative expenses and to further our business plans.
Year Ended December 31, 20162018 Compared to Year Ended December 31, 20152017
Operating Activities
During the year ended December 31, 2016, $3,544,1862018, $386,099 was used in net cash from operating activities compared to $4,361,430$5,385,742 of cash used in operating activities for the year ended December 31, 2015.2017. The decrease in cash used by operating activities was a result of a decreaseprimarily decreases in net loss withboth research and development as well as general and administration activities for the stock-based compensation infirst nine months of the amount of $826,307 compared to $131,714 in 2015.year.
Investing Activities
During the year ended December 31, 2016,2018, the net cash used inby investing activities was $1,450,000$nil compared to net cash provided by investing activitiesin the sum of $1,497,808$1,450,000 for the year ended December 31, 2015.2017. Investing activities in 2018 relate primarily to acquisition of contract asset in association with unamortized portion of finders fees (YOFOTO) and in 2017, the redemption of a guaranteed investment certificate in 2015.Guaranteed Investment Certificate.
Financing Activities
During the year ended December 31, 2016, we completed2018, the Company engaged in a private placementsplacement for the sum of $2,307,527 compared to $4,372,083 in 2017.
On July 10, 2018, the Company signed the definitive Licensing and Collaborative Agreement with YOFOTO to commercialize three of RepliCel's programs in Greater China subject to the issuancecertain Canadian and Chinese approvals of the transaction (the "Transaction").
The transaction between these parties represents an investment in RepliCel by YOFOTO along with milestone payments, minimum program funding commitments, and sales royalties in exchange for an exclusive 15-year license to three of RepliCel products for the Licensed Territory.
As part of the deal, YOFOTO agreed to invest CDN $5,090,005 in a private placement of RepliCel common shares at CDN $0.95 per share to include 20% warrant coverage with each warrant exercisable at CDN $0.95 per share for debt anda period of two years. The warrants are restricted from being exercised without shareholder approval if the exercise of the warrants would increase YOFOTO's ownership of RepliCel's issued and outstanding shares over 19.9%.
The deal structure also includes milestone payments (of up to CDN $4,750,000), sales royalties, and a commitment by YOFOTO to spend a minimum of CDN $7,000,000 on the RepliCel programs and associated cell processing manufacturing facility over the next five years in Greater China pursuant to a License and Collaboration Agreement. The License and Collaboration Agreement contains a provision permitting YOFOTO to put up to 1/3 of the shares issued in YOFOTO's initial investment back to the Company under certain conditions for total grossa period of 8.5 years from July 10, 2018.
As part of the Transaction, the Company agreed to grant YOFOTO certain financing participation rights along with a board seat nomination. Upon YOFOTO meeting certain defined conditions, relevant Chinese patents, once issued in China, will be assigned to a YOFOTO-owned Canadian subsidiary, with detailed assignment reversion rights upon failure to meet defined targets.
On October 09, 2018, the Transaction was approved by the TSX Venture Exchange and applicable regulatory authorities including but not limited to the reviews and approvals by the State Administration of Foreign Exchange of China and other Chinese foreign investment regulatory authorities. The private placement in the sum of $5,090,005 was closed completing the Transaction with YOFOTO's purchase of 5,357,900 RepliCel common shares which represents 19.9% of RepliCel's issued shares. In association with the YOFOTO deal, the Company has paid a success fee of ten percent (10%) of any upfront fees received by the Company. A fee of $509,001 has been paid in this respect. In addition, the Company will be paying a success fee of five percent (5%) of any milestone fees and royalty fees received by the Company as a result of this License Agreement.
The proceeds of $5,093,521. Finder’s$5,090,005 from the placement was allocated to common shares and warrants issued based on their fair value at the date of issuance which is at $2,563,919. In association with the private placement, the Company has paid a finder's fees of $214,374 were paid in connection with these$252,609. Therefore, the net cash provided through this private placements. Duringplacement was $2,307,527. The remaining $2,526,086 was will be allocated License Fees revenue to be recognized over a period of 10 years from the year ended December 31, 2015, we completed private placements for total gross proceedscommencement date of $2,645,256. Finder’s fees of $140,960 were paid in connection with these private placements.the Agreement.
Going Concern
Due to the uncertainty of ourthe Company's ability to meet ourits current operating and capital expenses, in the auditor’sauditor's report on ourthe Company's annual audited consolidated financial statements for the year ended December 31, 2017, our2019, the Company's auditors included an explanatory paragraph on their report in respect of there being substantial doubt about ourthe Company's ability to continue as a going concern.
The audited consolidated financial statements prepared as at December 31, 2019 have been prepared on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. At December 31, 2019, the Company is in the research stage, has accumulated losses of $36,512,843 since its inception and expects to incur further losses in the development of its business. The Company incurred a consolidated net loss of $2,953,746 during the year ended December 31, 2019. As at date of this report, the Company will require additional funding to continue its research and development activities which may not be available, or available on acceptable terms. This will result in material uncertainties which casts substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has a plan in place to address this concern and intends to obtain additional funds by equity financing to the extent there is a shortfall from operations. While the Company is continuing its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds for operations.
If the going concern assumptions were not appropriate for these condensed consolidated interim financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported net loss and the financial position classifications used.
We anticipate that we will require a minimum of approximately $2,100,000$1,700,000 to proceed with a minimal plan of operations and approximately $4,600,000 to fund our full plan or operations for the twelve-month period ended April 30, 2019. We have no current material commitmentsDecember 31, 2020 focused on (1) progressing the RCI-02 device and consumables toward market launch in Europe and Hong Kong, (2) progressing to clinical trial approvals and preparations complete in Japan for capital expenditures.RCS-01 and RCT-01, and (3) providing technology transfer, training and other support to be ready for clinical trial launch of RCS-01 and RCT-01 in China with our partner, YOFOTO.
We doThe Company does not currently have sufficient capital resources to fund ourits full plan ofor operations for the next twelve months. Accordingly, we planthe Company plans to raise additional capital through the sale of debt or equity securities or through other forms of financing in order to raise the funds necessary to pursue ourthe Company's plan of operations. WeThe Company currently dodoes not have any arrangements in place for the completion of any financings and there is no assurance that weit will be successful in completing any financings. The Company is currently pursuing both dilutive and non-dilutive financing it expects will satisfy its working capital requirements going forward. Non-dilutive funding includes grant funding and strategic partnerships involving product licenses to defined geographic markets and for specified applications. There can be no assurance that additional financing will be available when needed or, if available, on commercially reasonable terms. If we arethe Company is not able to obtain additional financing on a timely basis, weit may not be able to pursue ourits plan of operations or meet ourits obligations as they come due, and may be forced to scale down, or perhaps even cease, business operations. The Company is currently actively engaged in several due diligence reviews and partnership discussions. All such discussions involve the injection of new capital into the Company.
Cash on hand and guaranteed investment certificatescash equivalents are currently ourthe Company's only source of liquidity. We doThe Company does not have any lending arrangements in place with banking or financial institutions and we dothe Company does not know whether weit will be able to secure such funding arrangements in the near future.
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Critical Accounting Policies and Estimates
We makeRepliCel makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both.
Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the amounts reported in our annual auditedthese financial statements for the year ended December 31, 2017 are as follows:discussed below:
Share Based Payments and Derivatives Liabilities related to Equities
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating the fair value for share-based payment transactions are disclosed in Note 8(d)10(d) of our annual audited financial statementsthe Financial Statements.
Revenue Recognition
The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration that it is entitled to in exchange for the year ended December 31, 2017.
Similar methodologygoods and services transferred to the share-based paymentscustomer. For collaborative arrangements that fall within the scope of IFRS 15, the Company applies the revenue recognition model to part or all of the arrangement, when deemed appropriate. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of IFRS 15, to identify distinct performance obligations. The Company then recognizes as revenue the amount of the transaction price that is usedallocated to the respective performance obligation when or as the performance obligation is satisfied. Significant judgment is involved in determining whether the transaction price allocated to the license fee should be recognized over the collaboration period or at the inception of the contract and the time period over which revenue is to be recognized.
To determine the price of Licensing and Collaboration Agreement (See Note 8 - Licensing and Collaboration Agreement - YOFOTO (China) Health Industry Co. Ltd. of the Financial Statements), the Company has to make a judgment and estimates in assessing the value assigned to the put options and of the warrants as attached to the placement (see Note 8 and 9(b)(ii) of the Financial Statements).
Preference Shares
Replicel makes estimates on the issuance of preference shares which are compound instruments that consist of both an equity and a liability component. Management is required to make estimates to determine the fair value of derivative liabilities relatedthe components of the preference share issuance at the date that it is issued. The Company also needs to warrants denominated in U.S. dollars. The assumptionsmake estimates on the effective interest on preference shares to calculate amounts payable on redemption and models used for estimating the fair value for derivative liabilities are disclosed in Note 8(g) to our annual audited financial statements for the year ended December 31, 2017.inclusive of dividends.
Income Taxes
Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. We recognizeThe Company recognizes liabilities and contingencies for anticipated tax audit issues based on ourthe Company's current understanding of the tax law. For matters where it is probable that an adjustment will be made, we record ourthe Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Our managementManagement believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.
In addition, wethe Company will recognize deferred tax assets relating to tax losses carried forward to the extent there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped.
Accounting Standards, Amendments and Interpretations
Certain pronouncements were issued by the IASB or the IFRS Interpretations Committee that are not mandatory for accounting periods beginning on or after January 1, 2017. They have not been early adopted in these consolidated financial statements, and are expected to affect the Company in the period of initial application. In all cases the Company intends to apply these standards from application date as indicated below:
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C. Research and Development, Patents and Licenses etc.
Research and development expenses totaled $2,541,722$2,196,364 for the year ended December 31, 20172019 compared to $1,115,063$709,260 for the year ended December 31, 2016. Research expense for the year ended December 31, 2017 was $526,562 compared to $366,426 in the prior year period.2018. The increase was due to increase activities in researchas a result of improved working capital and development.our focus on final development of our RCI-02 product. During the year ended December 31, 2017,2019, we incurred costs of $2,015,160$1,610,539 relating to our clinical trials compared to $748,637$66,360 for the year ended December 31, 2016. Research and Development expenses are significantly higher than 2016 as our research and development budget for 2017 to-date has comprised of finalizing 3 clinical trials, launching a research project at UBC, and finalizing our device engineering and prototype manufacturing.2018.
D. Trend Information
We do not currently know of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
E. Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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F. Contractual Obligations
There is no long-termThe following table sets out the contractual obligationmaturities (representing undiscounted contractual cash-flows) of the Companyfinancial liabilities as at December 31, 2017. For the prior year, there was an operating lease agreement for our office premises which was assigned to a sub-tenant in July 2016 for almost 100% cost recovery. The term of the lease was for three years ending on October 31, 2017 and the annual commitment for 2017 is $119,756.2019:
| Years of Expiry | Financial Instruments | Amounts | ||
| Within 1 year | Accounts payable and accrued liabilities | $ | 741,313 | |
| Within 2 to 5 years | Preference shares | $ | 449,287 | |
| Total | $ | 1,190,600 |
G. Safe Harbor
Not applicable.
ITEM 6.6 Directors, Senior Management and Employees
A. Directors and Senior Management
There are no family relationships between any of the directors, senior management or employees. We have no arrangement or understanding with any major shareholders or other persons pursuant to which any of our directors or officers was selected as a director or officer. The following table sets out information regarding our directors and senior management, and any employees upon whose work our company is dependent.
Name and Age | Present Position with our Company | Age | Date of Commencement |
Lee Buckler | Director, Chief Executive Officer and President | 53 | January 1, 2016 |
Simon Ma | Chief Financial Officer and Director of Finance | 55 | August 22, 2011 |
Dr. Rolf Hoffmann | Chief Medical Officer | 58 | December 22, 2010 |
Dr. Kevin McElwee | Chief Scientific Officer | 49 | December 22, 2010 |
David Hall | Director | 66 | December 22, 2010 |
Peter Lewis(1)(2) | Director | 64 | May 27, 2011 |
Larissa Huang | Director | 30 | December 14, |
Name and Age | Present Position with our Company | Age | Date of Commencement |
Andrew Schutte(2) | Director | 30 | December 14, 2018 |
Peter Lowry(1)(2) | Director | 56 | December 14, 2018 |
Gavin Ye | Director | 35 | December 18, 2019 |
(1)Member of the audit committee and nominating, compensation and corporate governance committee.
(2) Member of the operations committee.
Lee Buckler, B.Ed, LLB –- Chief Executive Officer, President, Corporate Secretary and Director
Mr. Buckler has been an executive in the cell therapy sector since 2000 beginning with Malachite Management in the Stem Cell Technologies group of companies. Most recently he was the Managing Director of Cell Therapy Group, a firm he formed in 2008 where he did business development consulting for companies and organizations in or interested in the cell therapy sector. His work included deal-targeting, transactions, market intelligence, competitive analyses, strategic assessments, and market profile planning for companies ranging from top-tier multinationals to start-ups. Mr. Buckler has a Bachelor’sBachelor's Degree in Education and a Law Degree. After law school, he did a one year judicial clerkship with the B.C. Supreme Court and was a practicing attorney for three years at Edwards, Kenny & Bray. Mr. Buckler served six years as the Executive Director of the International Society for Cellular Therapy and just over two years as Director of Business Development for Progenitor Cell Therapy. He is on the editorial advisory boards of the journal Regenerative Medicine and the BioProcess International magazine and is a member of the Alliance for Regenerative Medicine’sMedicine's Communications and Education Committee. He co-founded Cell Therapy News, founded Cell Therapy Blog, founded and continues to manage the LinkedIn Cell Therapy Industry Group, co-founded Regenerative Medicine Jobs, and is an active industry commentator in publications and in social media. Mr. Buckler serves on numerous industry conference advisory boards, is an advisory board member for BioCision
Simon Ma - CFO and RoosterBio.
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Tom Kordyback, CA – Chief Financial OfficerDirector of Finance
Mr. KordybackSimon Ma is a Chartered Professional Accountant and has over 25 yearsextensive experience with private companies as well as public companies in the resource sector. He graduated from the University of experienceBritish Columbia in corporate finance1987 and management for emerging growth companies. He has held senior financial positions with Glenayre Electronics Inc. and Telelink Communications Inc. In 1995,obtained a degree of Bachelor of Arts in Economics after which he joined Creo Inc. as their Chief Financial Officer where he oversaw private financings totaling more than $80 million and ledworked in the company’s Initial Public Offering on the NASDAQ stock exchange for $90 million. He remained at Creo until 2000. Mr. Kordyback also servedindustry as a directorController to 1990. He started articling in 1990 and memberqualified as a Chartered Accountant in 1994. Simon Ma has been a sole public practitioner since 1997 and is practicing under the name of the Audit, Compensation and Merger and Acquisitions Committees for Extreme CCTV Inc., a developer and manufacturerSimon S. Ma Corporation. He is concurrently serving as chief financial officer of state-of-the-art surveillance systemsseveral public companies listed on the TSX. In 2008,TSX Venture Exchange or Canadian Securities Exchange. These companies include North American Potash Inc., Gem International Resources Inc., E-Energy Ventures Inc., United Coal Holdings Ltd., Quanta Resources Inc., and DGS Minerals Inc. He has also been the Director of Finance for our company was sold to Bosch Security Systems, Inc. for CDN $93 million. Mr. Kordyback currently serves as directorsince June of Silver Sun Resources Corp., a public Canadian-based resource company.2016.
Prof. Rolf Hoffmann, MD –- Chief Medical Officer
Dr. Hoffmann is a European-based clinical researcher who has spent decades researching the fields of pattern hair loss, alopecia areata, endocrinology of the hair follicle and hair follicle morphogenesis. Together with Dr. McElwee, he is the applicant of a landmark patent on the use of hair follicle cup cells and their use in hair diseases. He is working clinically in his private practice, as a teaching professor in the Department of Dermatology for Marburg University, Germany, as well as a researcher on histopathogically on hair diseases, where he has published chapters in text books. Dr. Hoffmann has participated in dozens of clinical hair studies and consulted for a variety of large companies on hair matters. He is the inventor of TrichoScan®, a computerized technique to measure hair growth. Since then, he has run a successful privately owned company to market the device for dermatologists and to offer it as a service for clinical trials.
Dr. Kevin McElwee, PhD –- Chief Scientific Officer
Dr. McElwee is an Associate Professor in the Department of Dermatology and Skin Health at the University of British Columbia, and Director of the Hair Research Laboratory in the Vancouver Coastal Health Research Institute at Vancouver General Hospital (VGH). His research is funded by competitive grants awarded by multiple organizations including the Canadian Institute for Health Research (the equivalent of the National Institute for Health in the USA). Dr. McElwee is one of only a small group of research scientists worldwide who studies hair biology and associated diseases. He has worked as a hair research scientist for 12 years and has published over 70 medical journal articles, research abstracts and academic book chapters on hair loss research. Dr. McElwee received his Bachelor of Science degree from the University of Aberdeen, Scotland and his PhD from the University of Dundee, Scotland. Postdoctoral training included three years at the Jackson Laboratory in Maine, USA and four years at the University of Marburg, Germany, studying various hair loss diseases
David Hall –- Chairman of the Board and Director
Mr. Hall has almost two decades of experience in the life sciences industry. From 1994 through 2008, he served in roles as Chief Financial Officer, Chief Compliance Officer and Senior Vice President of Government & Community Relations for Angiotech Pharmaceuticals Inc. He also acted as the Corporate Secretary and Treasurer of Angiotech. Mr. Hall is highly committed to governmental policy issues related to the biotech industry. He is a past Chairman of Life Sciences BC and currently serves as a director of Advantage BC. He has served as the Chairman of the Biotech Industry Advisory Committee to the BC Competition Council and as a member of the BC Task Force on PharmaCare. Mr. Hall is also a member of the University of British Columbia’sColumbia's Tech Equity Investment Committee, a director and Chairman of the Audit Committee of GLG Lifetech Corporation.
Peter Lewis, CA –- Director
Mr. Lewis is a partner with Lewis and Company, a firm specializing in taxation law since 1993. His areas of expertise include tax planning, acquisitions and divestitures, reorganizations and estate planning. He is a sought after educator, having taught and presented taxation courses at the Institute of Chartered Professional Accountants of British Columbia and the Canadian Tax Foundation.
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Geoff MacKay –Peter Lowry - Director
Mr. MacKayPeter Lowry is an experienced commercial executive having held a skilled biopharmaceutical executive focusednumber of governance roles, with experience in the field of regenerative medicine for the past 20 years. Mr. MacKayUnited Kingdom and New Zealand markets. As a director and consultant with Pkarma Limited he is currently CEO of AVROBIO Inc., a clinical stage company focused on delivering step-change cell & gene therapies targeting cancerbusiness strategy and rare disease. Previously, he spent 11 years as CEOimprovement for private sector companies and government bodies. His work includes the use of Organogenesis Inc. He is credited with helping build Organogenesis intolean methodology and customer focused design, and the leading cell therapy business in the world as measured by revenue, patients treated, FDA indicationsutilization of objective data to drive strategy and overall scale of operations. Mr. MacKay also has a strong pharma heritage, having spent 11 years at Novartis where he held senior leadership positions within the Immunology franchise in Canada, USAprograms. His consulting and at the Global office in Basel Switzerland.
Mr. MacKay has broad international experience and contacts across pharma, biotech and device industries via leadershipoperational management roles within the life science industry. Examples include: Chairmaninclude General Manager of the Board of MassBio, ChairmanGreenlane Heart Unit, one of the Boardlargest Cardiac service in Australasia, leading Auckland Orthopedics, an organization supported by 80 orthopedic surgeons across Auckland, and the development and operational management of the Alliancea number of Regenerative Medicine, Advisory Council to the Health Policy Commission for Massachusetts, Deans Advisory Council Western University Schooljoint-ventures that leverage intellectual property across a range of Podiatric Surgery,clinical and Chairmancommercial settings. Mr. Lowry graduated with a Bachelor of Audit Committee of the Center for Commercialization of Regenerative Medicine (C.C.R.M.).
Hugh Rogers – Director
Mr. Rogers has extensive corporate finance and restructuring experience through his work with various TSX Venture Exchange listed issuers and private companies including his most recent roles as Chief Executive Officer of Coronado Resources Ltd. since March 2015 and Vice President Corporate Finance at 3D Signatures Inc. since April 2015. His corporate finance, restructuring and regulatory experience has been primarily focused on start-ups and small cap companies in the resource and biotechnology industries. Mr. Rogers also serves as a Director of Kootenay Zinc Corp. and Coronado Resources Ltd.
Simon Ma – Director of Finance
Simon Ma is a Chartered Professional Accountant and has extensive experience with private companies as well as public companies in the resource sector. He graduatedManagement Studies from the University of British Columbia in 1987 and obtained a degree of Bachelor of Arts in Economics after which he worked in the industry as a Controller to 1990. He started articling in 1990 and qualified asWaikato (4-year degree), is a Chartered Accountant in 1994. Simon MaNew Zealand, and has completed the Executive Program of the Darden Business School, University of Virginia. Mr. Lowry is a long term shareholder in the Company having acquired shares through a number of the capital raisings during this time. In addition, he has provided significant advice to the recently completed share placement and licensing deal.
Andrew Schutte - Director
Andrew Schutte has been the Chief Technology Officer with MainPointe Pharmaceuticals from November 2016 to present. Mr. Schutte was a sole public practitioner since 1997VBA Programmer with Gerimed Inc. from February 2012 to February 2016, a US based company which provides independent pharmacies servicing long-term care and is practicing under the name of Simon S. Ma Corporation.home care patients access to cost effective solutions. He is concurrently serving as chief financial officerthe President and sole proprietor of several public companies listed ontwo oil related LLCs, Nolan Olbohrung LLC and Valence Oil LLC.
Larissa Huang - Director
Larissa Huang has been Vice President of International Operation Center of YOFOTO (China) Health Industry Co. Ltd. from 2016 to present. Ms. Huang was a student from 2011 to 2016.
Gavin Ye - Director
Gavin Ye has a Bachelor's of Science from the TSX Venture Exchange orTechnical University of Delft (The Netherlands) and a Bachelor's of Science for the University of Victoria (Canada). His Canadian Securities Exchange. These companies include North American Potash Inc.work experience since 2011 has taken him through positions in Calgary (Alberta), Gem International Resources Inc., E-Energy Ventures Inc., United Coal Holdings Ltd., Quanta Resources Inc.Saskatoon (Saskatchewan), and DGS Minerals Inc. HeVictoria (British Columbia) in the financial services sector, the commodity exchange industry, and most recently in international product development and brand building driven by deep data analytics. Gavin has also been the Director of Finance for our company since June of 2016.deep cross-border experience between Canada and Hong Kong, China, Singapore, South Korea, and Taiwan.
B. Compensation
The following table sets out the compensation provided to our directors and senior management for performance of their duties during the fiscal year ended December 31, 2017:2019:
SUMMARY COMPENSATION TABLE | |||||||||
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Annual | Long- | ||||||||
Lee Buckler | 2019 | 240,000 | Nil | 26,275 | Nil | Nil | Nil | Nil | 266,375 |
Simon Ma | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | 96,000 | 96,000 |
Dr. Rolf Hoffmann | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | 44,879 | 44,879 |
SUMMARY COMPENSATION TABLE
Name and principal position | Year | Salary ($) | Share- based awards ($) | Option- based awards(1) ($) | Non-equity incentive compensation plan compensation ($) | Pension value ($) | All other Compen- sation ($) | Total Compen- sation ($) | |
Annual incentive plans | Long- term incentive plans | ||||||||
| Lee Buckler CEO, President, Corporate Secretary and Director | 2017 | 240,000 | Nil | Nil | Nil | Nil | Nil | Nil | 240,000 |
| Tom Kordyback Chief Financial Officer | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Dr. Rolf Hoffmann Chief Medical Officer | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | 180,000 | 180,000 |
| Dr. Kevin McElwee Chief Scientific Officer Founder of TrichoScience | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| David Hall Chairman and Director | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Peter Lewis Director | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Geoff MacKay Director | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Simon Ma Director of Finance | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | 57,100 | 57,100 |
| Hugh Rogers Director | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | 33,000 | 33,000 |
| John Challis(2) Director | 2017 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
SUMMARY COMPENSATION TABLE | |||||||||
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Annual | Long- | ||||||||
Dr. Kevin McElwee | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | 35,000 | 35,000 |
David Hall | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | 21,000 | 21,000 |
Peter Lewis | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | 16,250 | 16,250 |
Peter Lowry | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | 15,250 | 15,250 |
Andrew Schutte | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | 12,250 | 12,250 |
Larissa Huang | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Gavin Ye(2) | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Geoff MacKay(3) | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | 9,000 | 9,000 |
(1) | The valuation of option-based awards is based on the fair value of the options at the time of the grant is based on the Black Scholes model and includes the following assumptions; weighted average risk free rate, weighted average expected life, expected volatility and dividend yield. For options that vest, only the vested options are valued. Details of options granted during 2014 are included in the table below under the heading |
(2) | Gavin Ye was appointed as a director of our company on December 18, 2019. |
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Pension, Retirement or Similar Benefits
We do not provide pension, retirement or similar benefits to directors and executive officers. No funds were set aside or accrued by our company during the fiscal year ended December 31, 20172019 to provide pension, retirement or similar benefits to our directors or officers pursuant to any existing plan provided or contributed to by us or our subsidiaries.
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C. Board Practices
Our directors are re-elected at the annual general meeting of our shareholders and our officers are re-appointed by our board of directors at a directors’directors' meeting following the annual general meeting. Each of our current directors and officers will hold their respective office until their successor is elected or appointed, unless such office is earlier vacated under any of the relevant provisions of our articles or theBusiness Corporations Act(British Columbia).
The following sets out terms of the consulting agreement between our company and David Hall. Mr. Hall is the only director of our company who is entitled to receive benefits upon termination of employment, as described below.
Employment Agreement: Lee Buckler
Pursuant to an employment agreement, effective as of January 1, 2016, between Lee Buckler and our company,the Company, Mr. Buckler serves as President, Chief Executive Officer and Corporate Secretary of our companythe Company and President and Chief Executive Officer of TrichoScience for a base salary of $240,000 per annum. Under the agreement, Mr. Buckler will be eligible to participate in a bonus plan as and when established by our company,the Company, which currently is anticipated to provide for bonuses based on a target bonus of 100 percent of the base salary earned by Mr. Buckler during each fiscal year in accordance with milestones to be established by our board of directors.the Board. Mr. Buckler was also entitled to receive a retention bonus ofwhere the Company will pay $45,000 to be paid on the earlier of April 30, 2016 or 30 days after our companythe Company completes an equity financing with minimum gross proceeds of $3,000,000. This was paid inMr. Buckler received the $45,000 bonus during the year ended December 31, 2016. Mr. Buckler may also be eligible to receive additional stock option grants or awards under other equity based incentive plans from time to time. If Mr. Buckler’sBuckler's employment is terminated for any reason other than for just cause, wethe Company will pay Mr. Buckler: any unpaid base salary earned but unpaid; a lump sum amount as severance compensation equal to three months of base salary for the first year of employment or a lump sum amount as severance compensation equal to twelve months of base salary after the first year of employment plus an additional two months of base salary for each full year of employment after the initial year up to a maximum of eighteen months of base salary, and a lump sum payment as compensation for the loss of Mr. Buckler’sBuckler's entitlement to benefits up to a maximum of $100,000.
Consulting Agreement: David Hall
Pursuant to a consulting agreement dated January 1, 2016, David Hall provides advice and strategic guidance in connection with our company’sthe Company's business and advice regarding regulatory compliance. Our companyThe Company has agreed to pay Mr. Hall compensation for such services if required.
Pursuant to a director’sdirector's services agreement dated January 1, 2016, Mr. Hall serves as the chairmanChairman and a member of our board of directors.the Board. In consideration, our companythe Company has agreed to pay an annual retainer of $15,000 to serve as the chairman,Chairman, an annual retainer of $10,000 to serve as a director, a fee of $1,000 per boardBoard meeting, a fee of $1,000 per Audit Committee meeting and $1,000 per Nominating, Compensation and Corporate Governance Committee meeting. The consulting agreement expired on January 1, 2017.
Consulting Agreement: Darrell Panichthrough Ceros Management and Advisory Ltd. (“Ceros”)Simon Ma
Pursuant toThe Company entered into a consulting agreement dated November 14, 2016, Ceroseffective October 17, 2018 with Simon S. Ma Corporation, a company wholly owned by Simon Ma, the CFO and Director of Finance of the Company, pursuant to which Simon Ma provides our companythe Company with clinical trial management servicesfinancial and guidance with respectaccounting services. The Company has agreed to pay Simon S. Ma Corporation a consulting fee of $8,000 plus GST for the term of the consulting agreement, being twelve months after the effective date. The consulting agreement is automatically renewable for twelve months unless either party gives thirty days' written notice to the other of its businesses,intention not to renew the consulting agreement. The consulting agreement may be terminated before its expiry by either party at any time without cause by giving notice to the other party at least thirty days prior to the termination and compliance with applicable regulatory requirements. Ceros’s fees are based on an hourly rateby the Company, without notice, immediately upon the occurrence of $250.any default by Mr. Ma.
Audit Committee
Our audit committee is comprised of Peter Lewis, David Hall, and Geoff MacKay.Peter Lowry. The audit committee reviews and approves the scope of the audit procedures employed by our independent auditors, reviews the results of the auditor’sauditor's examination, the scope of audits, the auditor’sauditor's opinion on the adequacy of internal controls and quality of financial reporting and our accounting and reporting principles, policies and practices, as well as our accounting, financial and operating controls. The audit committee also reports to the board of directors with respect to such matters and recommends the selection of independent auditors. Before financial statements that are to be submitted to the shareholders at an annual general meeting are considered by the board of directors, such financial statements are submitted to the audit committee for review, following which the report of the audit committee on the financial statements is submitted to the board of directors.
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Nominating, Compensation and Corporate Governance Committee
Our nominating, compensation and corporate governance committee is comprised of Peter Lewis, David Hall, Larissa Huang and Geoff MacKay.Peter Lowry. The purpose of the nominating, compensation and corporate governance committee is to identify individuals qualified to become directors on our board of directors or any of its committees, consistent with criteria approved by our board of directors, and to select, or to recommend that our board of directors select, such director nominees, whether at the next annual meeting of the shareholders or otherwise. The committee also periodically evaluates the qualifications and independence of each director on our board of directors or its various committees and recommend to our board of directors, as the committee may deem appropriate, any recommended changes in the composition of our board of directors or any of its committees. The committee also develops and recommends to our board of directors corporate governance principles applicable to our company and annually assess the performance of our board of directors. It also reviews compensation paid
Operations Committee
Our operations committee is comprised of Lee Buckler, David Hall, Peter Lowry and Andrew Schutte. The purpose of the operations committee is to advise management of our company on all operational aspects of our company on a regular basis and report to the executive officers of the Company.Board.
D. Employees
As of December 31, 2017,2019, we had one full time employee and one contractor, the majority of which are located in Vancouver, British Columbia. ThisThese employees hasand contractors have expertise in biotechnology management, clinical trials, financial management and communications.
E. Share Ownership
Our directors, senior management and key employees beneficially own, directly or indirectly, the number of common shares set out in the table below:
| Name and Office Held | Number of Common Shares(1) | Percentage of Common Shares(2) |
| Lee Buckler CEO, President, Corporate Secretary and Director | 3,404 | * |
| Tom Kordyback Chief Financial Officer | 13,772 | * |
| Dr. Rolf Hoffmann Chief Medical Officer | 520,698 | 2.4% |
| Dr. Kevin McElwee Chief Scientific Officer | 424,172 | 2.0% |
| David Hall Chairman and Director | 173,926(3) | * |
| Peter Lewis Director | 5,000 | * |
| Geoff MacKay Director | Nil | Nil |
| Hugh Rogers Director | Nil | Nil |
| Simon Ma Director of Finance | 7,700 | * |
Name and Office Held | Number of Common Shares(1) | Percentage of Common Shares(2) |
Lee Buckler | 3,404 | * |
Name and Office Held | Number of Common Shares(1) | Percentage of Common Shares(2) |
Simon Ma | 7,460 | * |
Dr. Rolf Hoffmann | 520,698 | 1.63% |
Dr. Kevin McElwee | 479,435 | 1.50% |
David Hall | 302,216(3) | * |
Peter Lewis | 75,610 | * |
Peter Lowry | 657,716 | * |
Andrew Schutte Director | 3,016,878 | 9.45% |
Larissa Huang | - | * |
Gavin Ye | - | * |
* | Less than 1%. |
(1)
| Does not include options to acquire common shares of our company held by the persons set forth in the table. For a description of options held by the persons set forth in the table above, see below under the heading |
(2) | Based on |
(3) | Does not include 100,000 common shares held by Mr. |
Stock Option Plan
On April 17, 2014, our board of directors approved the adoption of our 2014 Stock Option Plan (the “"2014 Plan”"), which was ratified by our shareholders on September 13, 2017.December 18, 2019.
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Under the 2014 Plan the number of common shares reserved for issuance pursuant to the exercise of options granted under the 2014 Plan cannot exceed 10% of the total number of issued common shares of our company (calculated on a non-diluted basis) at the time an option is granted. The purpose of the 2014 Plan is to advance the interests of our company and its shareholders by attracting, retaining and motivating selected directors, officers, employees and consultants of our company of high caliber and potential and to encourage and enable such persons to acquire an ownership interest in our company.
The following information is intended as a brief description of the 2014 Plan:
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381. Our board of directors (which for the purposes of the 2014 Plan includes any committee setup by our board of directors to govern the stock options) shall establish the exercise price at the time each option is granted, subject to the following conditions:
(a) if the common shares are listed on the TSX Venture Exchange, the exercise price will not be less than the minimum prevailing price permitted by the policies of the TSX Venture Exchange;
The 2014 Plan provides that other terms and conditions may be attached to a particular stock option at the discretion of our board of directors.
The following table sets forth the amount and terms of options to acquire common shares of our company we have granted to our directors, senior management and key employees:
| Name and Office Held | Number of Options | Date of Grant | Exercise Price | Expiry Date |
| Lee Buckler | 5,000(1) | July 7, 2014 | $6.60 | July 7, 2019 |
| CEO, President, | 15,000 | September 12, 2014 | $5.30 | September 12, 2019 |
| Corporate Secretary and | 5,000(1) | October 1, 2014 | $5.50 | October 1, 2019 |
| Director | 150,000 | December 7, 2016 | $0.60 | December 7, 2021 |
| Tom Kordyback | 10,000 | September 5, 2013 | $5.50 | September 5, 2020 |
| Chief Financial Officer | ||||
| Dr. Rolf Hoffmann | 75,000 | December 7, 2016 | $0.60 | December 7, 2021 |
| Chief Medical Officer | ||||
| Dr. Kevin McElwee | 75,000 | December 7, 2016 | $0.60 | December 7, 2021 |
| Chief Scientific Officer | ||||
| David Hall | 75,000 | December 7, 2016 | $0.60 | December, 2021 |
| Director | ||||
| Peter Lewis | 10,000 | September 5, 2013 | $5.50 | September 5, 2020 |
| Director | 30,000 | December 7, 2016 | $0.60 | December 7, 2021 |
| Geoff MacKay | 15,000 | October 14, 2015 | $3.60 | October 14, 2020 |
| Director | 30,000 | December 7, 2016 | $0.60 | December 7, 2021 |
| Hugh Rogers | 75,000 | February 3, 2017 | $1.64 | February 3, 2022 |
| Director |
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Name and Office Held | Number of Options | Date of Grant | Exercise Price | Expiry Date |
Lee Buckler | 150,000 | December 7, 2016 | $0.60 | December 7, 2021 |
400,000 | July 30, 2018 | $0.43 | July 30, 2023 | |
Simon Ma | 50,000 | July 30, 2018 | $0.43 | July 30, 2023 |
Dr. Rolf Hoffmann | 75,000 | December 7, 2016 | $0.60 | December 7, 2021 |
75,000 | July 30, 2018 | $0.43 | July 30, 2023 | |
Dr. Kevin McElwee | 75,000 | December 7, 2016 | $0.60 | December 7, 2021 |
10,000 | September 5, 2013 | $5.50 | September 5, 2020 | |
75,000 | July 30, 2018 | $0.43 | July 30, 2023 | |
David Hall | 75,000 | December 7, 2016 | $0.60 | December 2021 |
100,000 | July 30, 2018 | $0.43 | July 30, 2023 | |
Peter Lewis | 10,000 | September 5, 2013 | $5.50 | September 5, 2020 |
30,000 | December 7, 2016 | $0.60 | December 7, 2021 | |
50,000 | July 30, 2018 | $0.43 | July 30, 2023 | |
Peter Lowry | 80,000 | July 30, 2018 | $0.43 | July 30, 2023 |
Andrew Schutte | 30,000 | July 30, 2018 | $0.43 | July 30, 2023 |
ITEM 7 Major Shareholders and Related Party Transactions
A. Major Shareholders
As at April 30, 2018, no were noCommon Shares
The following table sets forth, as of July 24, 2020, the only persons known to us to be the beneficial owner of more than five percent (5%) of each class of our common shares:
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| Percentage of |
Andrew Schutte | 4,367,203(2) | 13.67%(3) |
YOFOTO (China) Health Industry Co. | 5,357,900 | 16.78% |
Jamie MacKay | 2,235,833 | 7.00% |
(1) Based on 31,936,816 common shares issued and outstanding as at July 24, 2020, and the number of shares issuable upon the conversion of Class A Preference Shares, the exercise of stock options and warrants which are exercisable within 60 days of July 24, 2020.
(2) Includes: (i) 3,016,878 Shares held directly by Mr. Schutte, (ii) 757,575 common shares issued on the conversion of Class A Preference Shares at a conversion price of $0.33 per Class A Preference Share held directly by Mr. Schutte, (iii) 30,000 options held directly by Mr. Schutte, each of which is exercisable into one common share exercisable at a price of $0.43 per common share until July 30, 2023 and (iv) 562,750 Warrants held directly by Mr. Schutte, each of which is exercisable into one common share at a price of $0.36 per common share until July 15, 2023.
(3) Based on 33,287,141 common shares outstanding on a partially-diluted basis comprised of: (i) 31,936,816 common shares, (ii) 757,575 common shares that may be issuable on conversion of Class A Preference Shares, (iii) 30,000 common shares that may be issuable on exercise of stock options and (iv) 562,750 common shares that may be issuable on exercise of warrants, all held directly by Andrew Schutte.
The voting rights of our major shareholders do not differ from the voting rights of holders of our common shares who are not major shareholders.
Class A Preference Shares
The following table sets forth, as of July 24, 2020, the only persons known to us to be the beneficial owner of more than five (5%) of our Class A Preference Shares:
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| Percentage of |
Andrew Schutte | 250,000 | 22.95% |
(4) Based on 1,089,125 Class A Preference Shares issued and outstanding as at July 24, 2020
The following table sets forth the number of our issued and outstanding common shares and Class A Preference Shares that are held by record holders in the United States. We have no Class A preference shares outstanding:
| Class | Number of Shareholders | Total Common Shares Held | Percentage of Common Shares |
| Common Shares | 37 | 1,095,726 | 5.1%(1) |
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Class | Number of Shareholders | Total Securities Held | Percentage of Securities | |
Common Shares | 36 | 5,395,381 | 16.89%(1) | |
Class A Preference Shares | 1 | 250,000 | 22.95%(2) | |
(1) | Based on 31,936,816 common shares issued and outstanding as of July 24, 2020. | |||
(2) | Based on 1,089,125 Class A Preference Shares issued and outstanding as of July 24, 2020 | |||
To our knowledge we are not directly or indirectly owned or controlled by another company, a foreign government or any other natural or legal person, severally or jointly.
To our knowledge, there are no arrangements the operation of which may, at a subsequent date, result in a change in the control of our company.
B. Related Party Transactions
The following sets forth all material transactions and loans from January 1, 20152018 to the current date between our company and: (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, our company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our company that gives them significant influence over our company and close members of any such individuals’individuals' families; (d) key management personnel of our company, including directors and senior management of our company and close members of such individuals’individuals' families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence. For the purposes of this section, shareholders beneficially owning a 10% interest in the voting power of our company are presumed to have a significant influence.
Related party balances
The following amounts due to related parties are included in trade payables and accrued liabilities:
| December 31, 2017 | December 31, 2016 | December 31, 2015 | ||||
December 31, 2019 | December 31, 2018 | December 31, 2017 | ||||
| Research and development fees owing to: |
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| Tricholog GmbH, a company controlled by Rolf Hoffmann, an officer of our company, | $60,000 | - | $56,030 | $18,376 | $160,811 | $60,000 |
| Dermaticum, a company controlled by Rolf Hoffmann, an officer of our company | - | $1,636 | ||||
| McElwee Consulting Inc., a company controlled by Kevin McElwee, an officer of our company | $15,250 | $25,750 | $30,671 | $15,250 | ||
| Kevin McElwee, an officer of our company General and administrative fees (salaries) owed to: | - | |||||
| Dr. Petra Goessens-Rueck | $12,199 | $- | $- | |||
General and administrative fees (salaries) owed to: |
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| David Hall, a director of our company | $101,000 | $146,000 | $120,000 | $11,500 | $47,000 | $101,000 |
| Lee Buckler, a director and officer of our company | $12,310 | $26,354 | - | $3,069 | $131,332 | $12,310 |
| Peter Jensen, a former director of our company | $13,500 | $8,500 | $- | $13,500 | $13,500 | |
Peter Lewis, a director of our company | $9,750 | $37,250 | $26,500 | |||
Geoff MacKay, a former director of our company | $2,500 | $34,387 | $23,637 | |||
John Challis, a former director of our company | $- | $5,000 | $26,500 | |||
Hugh Rogers, a former director of our company | $- | $53,550 | $31,000 | |||
Tom Kordyback, a former CFO of our Company | $- | $18,000 | $- | |||
Larissa Huang, a director of our company | $- | $3,250 | $- | |||
Peter Lowry, a director of our company | $12,999 | $173,250 | $- | |||
Andrew Schutte, a director of our company | $11,159 | $3,250 | $- | |||
Gavin Ye, a director of our company | $- | N/A | N/A | |||
Total | $107,302 | $726,501 | $309,697 | |||
| December 31, 2017 | December 31, 2016 | December 31, 2015 | |
| Peter Lewis, a director of our company | $26,500 | $16,500 | $5,750 |
| Geoff MacKay, a director of our company | $23,637 | $13,637 | $2,887 |
| John Challis, a former director of our company | $26,500 | $16,500 | $5,750 |
| Hugh Rogers, a director of our company | $31,000 | - | |
| Total | $309,697 | $247,741 | $215,803 |
These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.
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Related party transactions
We incurred the following transactions with companies that are controlled by directors and/or officers of our company. The transactions were measured at the amount established and agreed to by the parties.
| December 31, 2017 | December 31, 2016 | December 31, 2015 | |
| Research and development fees paid to: | |||
| Tricholog GmbH, a company controlled by Rolf Hoffmann, an officer of our company, | $180,000 | - | $168,000 |
| Dermaticum, a company controlled by Rolf Hoffmann, an officer of our company | - | - | $5,910 |
| McElwee Consulting Inc., a company controlled by Kevin McElwee, an officer of our company | - | - | $60,000 |
| Hugh Rogers, a director of the Company | 33,000 | - | - |
| Total | $213,000 | $Nil | $233,910 |
| December 31, 2019 | December 31, 2018 | December 31, 2017 |
Research and development and general and administration fees paid to: |
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Tricholog GmbH, a company controlled by Rolf Hoffmann, an officer of our company, | $44,879 | $100,000 | $180,000 |
McElwee Consulting Inc., a company controlled by Kevin McElwee, an officer of our company | $35,000 | $25,000 | - |
Hugh Rogers, a former director of our company | $- | $27,000 | $33,000 |
Peter Lowry, a director of our company | $- | $220,000 |
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Total | $79,879 | $372,000 | $213,000 |
Key management compensation
Key management personnel are persons responsible for planning, directing and controlling the activities of an entity, and include executive directors, our chief executive officer and our chief financial officer. For details regarding the compensation, please see Item 6.B.
| December 31, 2017 | December 31, 2016 | December 31, 2015 | December 31, 2019 | December 31, 2018 | December 31, 2017 | |
| General and administrative – salaries | $240,000 | $285,000 | $578,887 | |||
| Directors’ fees | $55,000 | |||||
General and administrative - salaries | $336,000 | $380,435 | $240,000 | |||
Directors' fees | $70,500 | $54,750 | $55,000 | |||
| Stock-based compensation | $115,800 | $826,307 | $42,216 | $26,275 | $293,367 | $115,800 |
| Total | $410,800 | $1,166,307 | $663,240 | $432,775 | $728,552 | $410,800 |
C. Interests of Experts and Counsel
Not applicable.
ITEM 8 Financial Information
A. Financial Statements and Other Financial Information
Our financial statements are stated in Canadian dollars and are prepared in accordance with IFRS as issued by the IASB. In this Form 20-F, unless otherwise specified, all dollar amounts are expressed in Canadian dollars. Financial statements included with this annual report are listed below:
42Audited Annual Financial Statements as at December 31, 2019 and 2018:
Independent Auditor's Report of BDO Canada LLP, dated July 31, 2020;
Consolidated Statements of Financial Position as at December 31, 2019 and 2018;
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017;
Consolidated Statements of Changes in Equity (Deficiency) for the years ended December 31, 2019, 2018 and 2017;
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017; and
Notes to the Consolidated Financial Statements.
The audited consolidated financial statements for the years ended December 31, 20172019, 2018 and 20162017 can be found under “Item"Item 17 Financial Statements”Statements".
Legal Proceedings
There are no legal or arbitration proceedings which may have, or have had in the recent past, a significant effect on our financial position or profitability.
Dividend Distributions
Holders of our common shares are entitled to receive such dividends as may be declared from time to time by our board of directors, in its discretion, out of funds legally available for that purpose. We intend to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to pay any cash dividends in the foreseeable future.
B. Significant Changes
Events after the year-endedThere were no significant changes in our financial affairs since December 31, 20172019.
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ITEM 9 The Offer and Listing
A. Offer and Listing Details
Price History
Since April 16, 2004, our common shares have been quoted on the OTC Bulletin Board or the OTCQB, as applicable, currently under the symbol “REPCF”"REPCF". Since January 13, 2014, our common shares have been trading on the TSX Venture Exchange, under the symbol "RP". Since September 2012, our common shares have been trading on the Berlin Stock Exchange under the symbol P6P2 and code number A2APX7. On August 10, 2016, we effected a ten (10) for one (1) reverse split.
The following table sets forth the annual high and low market prices for our common shares on the OTC Bulletin Board or the OTCQB, as applicable, for the five most recent full fiscal years:
| OTC Bulletin Board / OTCQB | ||
| Annual Highs and Lows | High (U.S.$) | Low (U.S.$) |
| 2013 | 0.78 | 0.35 |
| 2014 | 0.87 | 0.30 |
| 2015 | 0.454 | 0.10 |
| 2016 | 0.85 | 0.08 |
| 2017 | 1.46 | 0.28 |
From October 1, 2012 to January 10, 2014, our common shares were quoted on the CSE (formerly the CNSX), under the symbol “RP”. The following table sets forth the annual high and low market prices for our common shares on the CSE for such period:
| CSE | ||
| Annual Highs and Lows | High (CAD$) | Low (CAD$) |
| 2012 | 0.75 | 0.75 |
| 2013 | 0.55 | 0.25 |
| 2014 | 0.50 | 0.50 |
Since January 13, 2014, our common shares have been quoted on the TSX Venture Exchange, under the symbol “RP”. The following table sets forth the annual high and low market prices for our common shares on the TSX Venture Exchange since the listing date:
| TSX Venture Exchange | ||
| Annual Highs and Lows | High (CAD$) | Low (CAD$) |
| 2015 | 5.50 | 1.25 |
| 2016 | 7.20 | 0.42 |
| 2017 | 1.90 | 0.34 |
The high and low market prices for our common shares for each full fiscal quarter for the two most recent full fiscal years on the OTC Bulletin Board or the OTCQB, as applicable, were as follows:
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| OTC Bulletin Board / OTCQB | ||
| Quarterly Highs and Lows | High (U.S.$) | Low (U.S.$) |
| 2016 | ||
| First Quarter | 0.22 | 0.1339 |
| Second Quarter | 0.1469 | 0.08 |
| Third Quarter | 0.66 | 0.0597 |
| Fourth Quarter | 0.85 | 0.50 |
| 2017 | ||
| First Quarter | 1.46 | 0.542 |
| Second Quarter | 0.82 | 0.426 |
| Third Quarter | 0.476 | 0.28 |
| Fourth Quarter | 0.422 | 0.308 |
The high and low market prices for our common shares for the two most recent full fiscal years on the TSX Venture Exchange were as follows:
| TSX Venture Exchange | ||
| Quarterly Highs and Lows | High (CAD$) | Low (CAD$) |
| 2016 | ||
| First Quarter | 3.25 | 1.75 |
| Second Quarter | 1.85 | 0.95 |
| Third Quarter | 1.20 | 0.42 |
| Fourth Quarter | 1.10 | 0.64 |
| 2016 | ||
| First Quarter | 1.90 | 0.71 |
| Second Quarter | 1.07 | 0.56 |
| Third Quarter | 0.63 | 0.34 |
| Fourth Quarter | 0.54 | 0.39 |
The high and low market prices of our common shares for each of the most recent six months on the OTC Bulletin Board or the OTCQB, as applicable, were as follows:
| OTC Bulletin Board / OTCQB | ||
| Monthly Highs and Lows | High (U.S.$) | Low (U.S.$) |
| October 2017 | 0.422 | 0.332 |
| November 2017 | 0.39 | 0.308 |
| December 2017 | 0.406 | 0.308 |
| January 2018 | 0.519 | 0.32 |
| February 2018 | 0.449 | 0.339 |
| March 2018 | 0.36 | 0.26 |
The high and low market prices of our common shares for each of the most recent six months on the TSX Venture Exchange were as follows:
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| TSX Venture Exchange | ||
| Monthly Highs and Lows | High (CAD$) | Low (CAD$) |
| October 2017 | 0.54 | 0.43 |
| November 2017 | 0.49 | 0.405 |
| December 2017 | 0.52 | 0.39 |
| January 2018 | 0.66 | 0.395 |
| February 2018 | 0.52 | 0.42 |
| March 2018 | 0.46 | 0.33 |
The trading price and volume of our company’scompany's common shares has been and may continue to be subject to wide fluctuations. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with little or no current business operations. Because our common shares are only sporadically traded on the OTC Bulletin Board, OTCQB and the TSX Venture Exchange, shareholders may find it difficult to liquidate their common shares, or purchase new common shares, at certain times.
All of our common shares are issued in registered form. The transfer of our common shares is managed by our transfer agent, Computershare Investor Services Inc., 3rd Floor –- 510 Burrard Street, Vancouver, British Columbia, V6C 3B9 (Telephone: 604.661.0271; Facsimile: 604.661.9549).
Our Class A Preference Shares are not listed on any stock exchange.
B. Plan of Distribution
Not applicable.
C. Markets
Since April 16, 2004, our common shares have been quoted on the OTC Bulletin Board or the OTCQB, as applicable, under the symbol “REPCF”; since October 1, 2012, on the CSE (formerly the CNSX) under the symbol “RP”"REPCF"; since January 13, 2014 on the TSX Venture Exchange; and, since September 2012, on the Berlin Stock Exchange under the symbol P6P1P6P2 and code number A1JHCB.A2APX7. Our common shares are not currently listed for trading on any other market or quotation system. On January 10, 2014, we delisted from the CSECanadian Securities Exchange (formerly the CNSX).
Our Class A Preference Shares are not listed on any stock exchange.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10 Additional Information
A. Share Capital
Not applicable.
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B. Memorandum and Articles of Association
We have been continued under the laws of the Province of British Columbia, Canada and have been assigned the number C0913693. Our company is governed by theBusiness Corporations Act (British Columbia).
Our Articles do not contain a description of our objects and purposes.
Our Articles do not restrict a director’sdirector's power to vote on a proposal, arrangement or contract in which the director is materially interested, vote compensation to themselves or any other members of their body in the absence of an independent quorum or exercise borrowing powers. There is no mandatory retirement age for our directors and our directors are not required to own securities of our company in order to serve as directors.
Our authorized capital consists of an unlimited number of common shares without par value and an unlimited number of Class A preference sharesShares without par value. Our Class A preference sharesShares may be issued in one or more series and our board of directors may fix the number of shares which is to comprise each series and designate the rights, privileges, restrictions and conditions attaching to each series. There are noOn August 2, 2019, our board approved the creation of a new class of Class A preference sharesShares to be designated as Class A Preference Shares of which 12,000,000 are authorized to be issued. As of July 24, 2020, there are 1,089,125 Class A Preference Shares issued and outstanding.
Holders of our common shares are entitled to vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote, receive any dividend declared by us and, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares, receive the remaining property of our company upon dissolution.
The provisions in our Articles attaching to our common shares and Class A preference sharesShares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the common shares and two-thirds of the Class A preference shares,Shares, respectively, present in person or by proxy at any such meeting of holders.
Our Articles provide for our directors to hold office until the expiry of his term (which is stipulated to be immediately before the next election or appointment of directors at an annual general meeting of our shareholders) or until his successor is elected or appointed, unless their respective office is earlier vacated in accordance with our Articles or with the provisions of theBusiness Corporations Act (British Columbia).A director appointed or elected to fill a vacancy on the board of directors holds office for the unexpired term of their predecessor.
An annual meeting of shareholders must be held at such time in each year that is not later than fifteen months after the last preceding annual meeting and at such place as our board of directors may from time to time determine. The holders of not less than five percent of our issued common shares that carry the right to vote at a meeting may requisition our board of directors to call a meeting of shareholders for the purposes stated in the requisition. The quorum for the transaction of business at any meeting of shareholders is two persons who are entitled to vote at the meeting in person or by proxy. Only persons entitled to vote, our directors, president, secretary, lawyers and auditors, and others who, although not entitled to vote, are otherwise entitled or required to be present, are entitled to be present at a meeting of shareholders, provided that only persons entitled to vote may be counted in the quorum.
Except as provided in the Investment Canada Act, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia, or in our charter documents. See the section entitled “Exchange Controls”"Exchange Controls" below for a discussion of the principal features of theInvestment Canada Act for non-Canadian residents proposing to acquire our common shares.
Our Articles do not contain provisions that would have an effect of delaying, deferring or preventing a change in control of our company, other than authorizing the issuance by our board of directors of preferred stock in series and limiting the persons who may call special meetings of shareholders. Our Articles do not contain any provisions that would operate only with respect to a merger, acquisition or corporate restructuring of our company.
Our Articles do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed.
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Our Articles are not significantly different from the requirements of the Business Corporations Act(British Columbia), and the conditions imposed by our Articles governing changes in capital are not more stringent than what is required by theBusiness Corporations Act(British Columbia).
Rights and Restrictions of Class A Preference Shares
The Class A Preference Shares have the following rights and restrictions:
Issue Price
The issue price for each Class A Preference Share shall be $0.40 per Class A Preference Share (the "Issue Price").
Rank
(a) All Class A Preference Shares shall be identical with each other in all respects.
(b) The Class A Preference Shares shall rank superior and in first priority to all common shares in the capital of the Company or shares of any other class of the Company as to dividends and upon liquidation, as described below. Any amounts herein shall be subject to appropriate adjustments in the event of any stock splits, consolidations and the like.
Voting Rights
The holders of the Class A Preference Shares (the "Class A Shareholders") shall not be entitled to receive notice of and to attend at and to vote in person or by proxy at any meetings of the holders of common shares. Class A Shareholders are entitled to receive notice and attend and to vote in person or by proxy at any meetings of the holders of Class A Preference Shares.
Dividends
Subject to the requirements of the Business Corporations Act (British Columbia), each holder of a Class A Preference Share shall be entitled to receive on the date fixed for payment thereof, and the Company shall pay, a fixed dividend which shall accrue on a daily basis (based on a 360 day year consisting of 12 30‐day months) in arrears at the rate of seven percent (7%) per annum on the paid up amount of Class A Preference Shares, which shall be paid out of the money properly applicable for the payment of dividends or, at the election (by delivery of a notice to the other party) of the Company or the Class A Shareholder and subject to the approval of the TSX Venture Exchange, by the issuance of common shares, to be determined at a price per common share equal to the Market Price (as such term is defined in the policies of the TSX Venture Exchange) as of the date such dividends become payable or such other date as may be required by the policies of the TSX Venture Exchange. Dividends shall accrue and be paid on the date determined by the Company in its sole discretion, provided that no interest will be paid on any accumulation of dividends. The holders of the Class A Preference Shares shall not be entitled to any dividends other than the dividends provided herein. The declaration of dividends on Class A Preference Shares shall in no way obligate the Company or the directors to declare dividends on any other class of shares. No dividends shall be declared or paid on the Class A Preference Shares if to do so would render the Company insolvent.
Conversion by Class A Shareholders
(a) For the purposes of this section, the "Conversion Price" is equal to $0.33.
(b) At any time commencing after the first issuance of Class A Preference Shares, the paid up amount of each Class A Preference Share may be converted at the Conversion Price, at the option of the Class A Shareholder thereof, into common shares upon:
(i) the Class A Shareholder delivering to the Company a duly completed and executed notice of conversion in the form as provided by the Company (the "Notice of Conversion"), specifying the aggregate number of Class A Preference Shares to be converted and the date on which such conversion is to be effected (the "Conversion Date"), which date shall not be more than thirty (30) days following the date of delivery of the Notice of Conversion, provided that if no Conversion Date is specified in the Notice of Conversion, then the Conversion Date shall be the date that is thirty (30) days following the date of delivery of the Notice of Conversion or such other earlier date as is determined by the Company in its sole discretion; and
(ii) the Class A Shareholder surrendering to the Company for cancellation the share certificate representing the Class A Preference Shares being converted pursuant to the Notice of Conversion.
(c) In the event that the Company delivers a Notice of Redemption (as defined herein) to a Class A Shareholder with respect to redeeming any Class A Preference Shares, the Class A Shareholder may with respect to the Class A Preference Shares indicated in the Notice of Redemption, provide to the Company a Notice of Conversion within thirty (30) days of receipt of such Company notice and the Class A Shareholder's Notice of Conversion shall take precedence over the Notice of Redemption.
(d) Upon the conversion of Class A Preference Shares
(i) the rights of a Class A Shareholder as a holder of the converted Class A Preference Shares shall cease; and
(ii) each person in whose name any certificate for common shares is issuable upon such conversion shall be deemed to have become the holder of record of the common shares represented by such certificate.
(e) No fractional common shares shall be issued upon conversion of any of the Class A Preference Shares. Instead of any fractional common shares that would otherwise be issuable upon conversion of the Class A Preference Shares, each such fractional common share shall be rounded down to the nearest whole common share and any shortfall shall be made up by the Company in cash.
(f) The Company shall not, by amendment of its notice of articles, articles or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this section, but shall at all times in good faith assist in the carrying out of all the provisions of this section and in the taking of any action necessary or appropriate in order to protect the conversion rights of the holders of the Class A Preference Shares against impairment.
Redemption by the Company
(a) Subject to the rights of the Class A Shareholder to convert the Class A Preference Shares into common shares as provided above, the Company may, in its discretion at any time (the "Redemption Date"), redeem any or all of the Class A Preference Shares by delivering to the Class A Shareholder a notice of redemption (the "Notice of Redemption") specifying the aggregate number of Class A Shares to be redeemed and the date on which such redemption is to be effected (the "Redemption Date"), which date shall not be more than ninety (90) days following the date of delivery of the Notice of Redemption, provided that if no Redemption Date is specified in the Notice of Redemption, then the Redemption Date shall be the date that is ninety (90) days following the date of delivery of the Notice of Redemption. The redemption price (the "Redemption Price") shall be: (i) $0.468 for the period from the date of issuance (the "Issue Date") to the date that is the first anniversary of the Issue Date; (ii) $0.536 for the period from the date that is the day after the first anniversary of the Issue Date to the date that is the second anniversary of the Issue Date; (iii) $0.604 for the period from the date that is the day after the second anniversary of the Issue Date to the date that is the third anniversary of the Issue Date; (iv) $0.672 for the period from the date that is the day after the third anniversary of the Issue Date to the date that is the fourth anniversary of the Issue Date; and (v) $0.740 for the period from the date that is the day after the fourth anniversary of the Issue Date and the date that is the fifth anniversary of the Issue Date. At any time prior to the date that is five (5) years from the date of issuance of the Class A Preference Shares (the "Required Redemption Date"), the Company may redeem any portion of the Class A Preference Shares, but on the Required Redemption Date, the Company shall redeem all remaining outstanding Class A Preference Shares at the applicable Redemption Price, subject to compliance with applicable laws.
(b) Subject to the provisions of the Business Corporations Act (British Columbia), the Company may, on the Redemption Date, redeem the number of Class A Preference Shares to be redeemed, and on the Required Redemption Date shall redeem all outstanding Class A Preference Shares by paying to the Class A Shareholder the applicable Redemption Price in respect of each redeemed Class A Preference Shares, together with all accrued but unpaid dividends. Payment may be made by certified cheque, bank draft or electronic transfer, and payment is deemed to be made on the date of mailing, delivery to a national or international courier or electronic transfer. Payment may be mailed or couriered to the address of the Class A Shareholder on the shareholder list of the Company. Upon fulfillment of such notice and payment, each such Class A Preference Shares shall be deemed cancelled. If such Class A Shareholder does not return for cancellation any Class A Preference Shares so redeemed, the Company may cancel said Class A Preference Shares with or without being in possession of the certificate representing such Class A Preference Shares.
Liquidation, Dissolution or Winding‐Up
(a) In the event of any distribution of the assets of the Company (the "Assets") on the liquidation, dissolution or winding‐up of the Company, whether voluntary or involuntary, or in the event of any other distribution of the Assets among its shareholders for the purpose of winding‐up its affairs, the Class A Shareholders shall be entitled to receive and to be paid out of any Assets remaining available for distribution, before any payment or distribution is made, if any, to holders of any common shares or shares of any other class of the Company ranking junior to the Class A Preference Shares entitled to receive a portion of such remaining Assets, a liquidation preference equal to the applicable Redemption Price per Class A Preference Share, plus any accrued but unpaid dividends which such Class A Shareholder is entitled up until the date fixed for such liquidation, dissolution or winding‐up of the Company.
(b) Neither the sale of all or substantially all the Assets, nor a merger or consolidation of the Company's share capital into or with any other entity shall be deemed to be a voluntary or involuntary liquidation, dissolution, or winding‐up of the Company and be subject to the liquidation, dissolution and winding‐up rights set forth in this section.
Restrictions on Transfer
The Class A Preference Shares may not be transferred without the prior written consent of the board of directors of the Company.
Modification
The rights and restrictions attaching to the Class A Preference Shares as provided herein may be amended or repealed by the Company with the approval of the Class A Shareholders as provided for in the section below.
Approval of Holders of Class A Preference Shares
Any approval required to be given hereunder at any time by the Class A Shareholder shall, except as otherwise required by the Business Corporations Act (British Columbia), be given by an instrument or instruments in writing signed by the Class A Shareholders holding not less than two‐thirds of the then outstanding Class A Preference Shares or by resolution passed by at least two‐thirds of the votes cast at a meeting, or any adjournment or postponement thereof, of the Class A Shareholders duly called and at which a quorum was present. In the event that such approval is to be given at a meeting of the Class A Shareholders, a quorum for the meeting shall consist of the holders, present in person or represented by proxy, of not less than a majority of the Class A Preference Shares outstanding at the time of the meeting.
C. Material Contracts
Other than as described elsewhere in this annual report on Form 20-F, there are no material contracts which our company and TrichoScience have entered into during the last two years.
D. Exchange Controls
There are presently no governmental laws, decrees or regulations in Canada which restrict the export or import of capital, or which impose foreign exchange controls or affect the remittance of interest, dividends or other payments to non-resident holders of our common shares. However, any remittances of dividends to shareholders not resident in Canada are subject to withholding tax in Canada. See the section entitled “Taxation”"Taxation" below.
Except as provided in theInvestment Canada Act, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia or in our charter documents. The following summarizes the principal features of the Investment Canada Act for non-Canadian residents proposing to acquire our common shares.
This summary is of a general nature only and is not intended to be, and should not be construed to be, legal advice to any holder or prospective holder of our common shares, and no opinion or representation to any holder or prospective holder of our common shares is hereby made. Accordingly, holders and prospective holders of our common shares should consult with their own legal advisors with respect to the consequences of purchasing and owning our common shares.
TheInvestment Canada Act governs the direct or indirect acquisition of control of an existing Canadian business by non-Canadians. Under theInvestment Canada Act, non-Canadian persons or entities acquiring “control”"control" (as defined in the Investment Canada Act) of a corporation carrying on business in Canada are required to either notify, or file an application for review with, Industry Canada, unless a specific exemption, as set out in the Investment Canada Act, applies. Industry Canada may review any transaction which results in the direct or indirect acquisition of control of a Canadian business, where the gross value of corporate assets exceeds certain threshold levels (which are higher for investors from members of the World Trade Organization, including United States residents, or World Trade Organization member-controlled companies) or where the activity of the business is related to Canada’sCanada's cultural heritage or national identity. No change of voting control will be deemed to have occurred, for purposes of theInvestment Canada Act, if less than one-third of the voting control of a Canadian corporation is acquired by an investor. In addition, the Investment Canada Actpermits the Canadian government to review any investment where the responsible Minister has reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security. No financial threshold applies to a national security review. The Minister may deny the investment, ask for undertakings, provide terms or conditions for the investment or, where the investment has already been made, require divestment. Review can occur before or after closing and may apply to corporate re-organizations where there is no change in ultimate control.
If an investment is reviewable under theInvestment Canada Act, an application for review in the form prescribed is normally required to be filed with Industry Canada prior to the investment taking place, and the investment may not be implemented until the review has been completed and the Minister responsible for the Investment Canada Act is satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian applicant must not implement the investment, or if the investment has been implemented, may be required to divest itself of control of the Canadian business that is the subject of the investment. The Minister is required to provide reasons for a decision that an investment is not of net benefit to Canada.
Certain transactions relating to our common shares will generally be exempt from theInvestment Canada Act, subject to the Minister’sMinister's prerogative to conduct a national security review, including:
481. the acquisition of our common shares by a person in the ordinary course of that person's business as a trader or dealer in securities;
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2. the acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Canada Act; and
3. the acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of our company, through ownership of our common shares, remains unchanged.
E. Taxation
Material Canadian Federal Income Tax Consequences
We consider that the following general summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who is a resident of the United States, who is not, will not be and will not be deemed to be, a resident of Canada for purposes of theIncome Tax Act (Canada) and any applicable tax treaty and who does not use or hold, and is not deemed to use or hold, his common shares in the capital of our company in connection with carrying on a business in Canada (a “"non-resident holder”").
This summary is based upon the current provisions of theIncome Tax Act, the regulations thereunder (the “"Regulations”"), the current publicly announced administrative and assessing policies of the Canada Revenue Agency and the Canada-United States Tax Convention (1980), as amended (the “"Treaty”"). This summary also takes into account the amendments to theIncome Tax Act and the Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof (the “"Tax Proposals”") and assumes that all such Tax Proposals will be enacted in their present form. However, no assurances can be given that the Tax Proposals will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian federal income tax consequences applicable to a holder of our common shares and, except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax consequences described herein.
This summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder or prospective holder of our common shares, and no opinion or representation with respect to the tax consequences to any holder or prospective holder of our common shares is made. Accordingly, holders and prospective holders of our common shares should consult their own tax advisors with respect to the income tax consequences of purchasing, owning and disposing of our common shares in their particular circumstances.
Dividends
Dividends paid on our common shares to a non-resident holder will be subject under theIncome Tax Act to withholding tax which tax is deducted at source by our company. The withholding tax rate for dividends prescribed by theIncome Tax Act is 25% but this rate may be reduced under the provisions of an applicable tax treaty. Under the Treaty, the withholding tax rate is reduced to 15% on dividends paid by our company to residents of the United States and is further reduced to 5% where the beneficial owner of the dividends is a corporation resident in the United States that owns at least 10% of the voting common shares of our company.
Capital Gains
A non-resident holder is not subject to tax under theIncome Tax Act in respect of a capital gain realized upon the disposition of a common share of our company unless such share is “taxable"taxable Canadian property”property" (as defined in theIncome Tax Act) of the non-resident holder. Our common shares generally will not be taxable Canadian property of a non-resident holder unless the non-resident holder alone or together with non-arm’snon-arm's length persons owned, or had an interest in an option in respect of, not less than 25% of the issued shares of any class of our capital stock at any time during the 60 month period immediately preceding the disposition of the shares. In the case of a non-resident holder resident in the United States for whom shares of our company are taxable Canadian property, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless the value of such shares is derived principally from real property situated in Canada.
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Material United States Federal Income Tax Consequences
The following is a general discussion of certain possible United States Federal foreign income tax matters under current law, generally applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all aspects of United States Federal income tax matters and does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. SeeTaxation Certain Canadian Federal Income Tax Consequences above.
The following discussion is based upon the Internal Revenue Code of 1986, as amended (the “"Code”"), Treasury Regulations, published Internal Revenue Service (“("IRS”") rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. No assurance can be given that the IRS will agree with such statements and conclusions, or will not take, or a court will not adopt, a position contrary to any position taken herein.
The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal, business or tax advice to any holder or prospective holder of our common shares, and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of common shares are urged to consult their own tax advisors with respect to Federal, state, local, and foreign tax consequences of purchasing, owning and disposing of our common shares.
U.S. Holders
As used herein, a “U.S. Holder”"U.S. Holder" includes a holder of less than 10% of our common shares who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, any entity which is taxable as a corporation for United States tax purposes and any other person or entity whose ownership of our common shares is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.
Distributions
The gross amount of a distribution paid to a U.S. Holder will generally be taxable as dividend income to the U.S. Holder for United States federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions which are taxable dividends and which meet certain requirements will be “unqualified"unqualified dividend income”income" and taxed to U.S. Holders at a maximum United States federal rate of 15%. Distributions in excess of our current and accumulated earnings and profits will be treated first as a tax-free return of capital to the extent the U.S. Holder’sHolder's tax basis in the common shares and, to the extent in excess of such tax basis, will be treated as a gain from a sale or exchange of such shares.
Capital Gains
In general, upon a sale, exchange or other disposition of common shares, a U.S. Holder will generally recognize a capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other distribution and the U.S. Holder’sHolder's adjusted tax basis in such shares. Such gain or loss will be a United States source gain or loss and will be treated as a long-term capital gain or loss if the U.S. Holder’sHolder's holding period of the shares exceeds one year. If the U.S. Holder is an individual, any capital gain will generally be subject to United States federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.
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Foreign Tax Credit
A U.S. Holder who pays (or has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’staxpayer's income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the tax credit, among which is an ownership period requirement and the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’sHolder's United States income tax liability that the U.S. Holder’sHolder's foreign source income bears to his or its worldwide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. The availability of the foreign tax credit and the application of these complex limitations on the tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.
Passive Foreign Investment Corporation
We do not believe that we are a passive foreign investment corporation (a “"PFIC”"). However, since PFIC status depends upon the composition of a company’scompany's income and assets and the market value of its assets and shares from time to time, there is no assurance that we will not be considered a PFIC for any taxable year. If we were treated as a PFIC for any taxable year during which a U.S. Holder held shares, certain adverse tax consequences could apply to the U.S. Holder.
If we are treated as a PFIC for any taxable year, gains recognized by such U.S. Holder on a sale or other disposition of shares would be allocated ratably over the U.S. Holder’sHolder's holding period for the shares. The amount allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as applicable, and an interest charge would be imposed on the amount allocated to such taxable year. Further, any distribution in respect of shares in excess of 125% of the average of the annual distributions on shares received by the U.S. Holder during the preceding three years or the U.S. Holder’sHolder's holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available to U.S. Holders that may mitigate some of the adverse consequences resulting from PFIC status. However, regardless of whether such elections are made, dividends paid by a PFIC will not be “qualified"qualified dividend income”income" and will generally be taxed at the higher rates applicable to other items of ordinary income.
U.S. Holders and prospective holders should consult their own tax advisors regarding the potential application of the PFIC rules to their ownership of our common shares.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
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H. Documents on Display
Documents concerning our company referred to in this annual report may be viewed by appointment during normal business hours at our registered and records office at Suite 900 - 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3H1.
I. Subsidiary Information
We have one subsidiary: TrichoScience Innovations Inc., a company incorporated on September 7, 2006 under the
Business Corporations Act (Canada).
ITEM 11 Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
ITEM 12 Description of Securities Other Than Equity Securities
Not applicable.
PART II
ITEM 13 Defaults, Dividend Arrearages and Delinquencies
Not applicable.
ITEM 14 Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
ITEM 15 Controls and Procedures
A. Disclosure Controls and Procedures
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our principal executive officer and principal financial officer evaluated our company’scompany's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report on Form 20-F. Based on this evaluation, these officers concluded that as of the end of the period covered by this annual report on Form 20-F, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to our company’scompany's management, including our company’scompany's principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting as identified below under the heading “Management’s"Management's Report on Internal Control Over Financial Reporting.”" Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated. Our company intends to remediate the material weaknesses as set out below.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected.
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B. Management’sManagement's Report on Internal Control Over Financial Reporting
Our company’scompany's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for our company. Our company’scompany's internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes.purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our company’scompany's assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that our company’scompany's receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the design and operation of our internal control over financial reporting as of December 31, 20172019 based on the criteria set forth inInternal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Based on this evaluation, our management concluded our internal control over financial reporting was not effective as at December 31, 20172019 due to the following material weaknesses: (i) inadequate segregationa lack of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting, financial reporting and corporate governance.governance; and (ii) inadequate review of accounting entries and accounting positions; (iii) inadequate segregation of incompatible duties; and (iv) inadequate accounting for complex and/or unusual transactions.
Our company has taken steps to enhance and improve the design of our internal controls over financial reporting, however these steps were not complete as of December 31, 2017.2019. During the period covered by this annual report on Form 20-F, we have not been able to remediate the material weaknesses identified above.
Plan for Remediation of Material Weaknesses
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 20182020 assessment of the effectiveness of our internal control over financial reporting.
Subject to receipt of additional financing, we have undertaken, or intend to undertake, the below remediation measures to address the material weaknesses described in this annual report. Such remediation activities include that we intend to continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.
The remediation efforts set out above are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’smanagement's report in this annual report.
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Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
C. Changes in Internal Controls Over Financial Reporting
There were no significant changes in internal controls over financial reporting during the year ended December 31, 20172019 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. However, as a result of the evaluation of our internal control over financial reporting as of December 31, 2017, conducted by our principal executive officer and principal financial officer, we expect to make such changes in the year ended December 31, 2018.
ITEM 16A Audit Committee Financial Expert
Our board of directors has determined that at least one member of its audit committee, being Mr. Peter Lewis, qualifies as an “audit"audit committee financial expert”expert" as defined in Item 16A(b) of Form 20-F. Mr. Lewis is also “independent”"independent" as that term is defined in Nasdaq Marketplace Rule 5605(a)(2).
ITEM 16B Code of Ethics
Code of Ethics
Effective July 15, 2004, our board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our president (being our principal executive officer) and our chief financial officer (being our principal financial and accounting officer), as well as persons performing similar functions. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
1. | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; | |
2. | full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us; | |
3. | compliance with applicable governmental laws, rules and regulations; | |
4. | the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and | |
5. | accountability for adherence to the Code of Business Conduct and Ethics. |
Our Code of Business Conduct and Ethics requires, among other things, that all of our company’scompany's personnel shall be accorded full access to our president and secretary with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further, all of our company’scompany's personnel are to be accorded full access to our company’scompany's board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our President or Secretary.
In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our company’scompany's president. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the president, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company’scompany's Code of Business Conduct and Ethics by another.
54
Our Code of Business Conduct and Ethics was filed with the Securities and Exchange Commission as Exhibit 14.1 to our annual report filed on July 15, 2004. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: RepliCel Life Sciences Inc., Suite 900 –- 570 Granville Street, Vancouver, British Columbia, Canada V6C 3P1.
ITEM 16C Principal Accountant Fees and Services
Audit Fees
Our board of directors appointed BDO Canada LLP, Chartered Accountants, as independent auditors to audit our consolidated financial statements for the fiscal year ended December 31, 2017.2019. The aggregate fees billed by BDO Canada LLP for audit services rendered for the audit of our annual financial statements and interim reviews of our quarterly financial statements for the fiscal years ended December 31, 20172019 and December 31, 20162018 were $93,000$111,500 and $81,203,$82,750, respectively.
Audit Related Fees
For the fiscal year ended December 31, 2017,2019, and 2016,2018, the aggregate fees billed for audit related services by BDO Canada LLP were $nil and $50,750,$nil, respectively.
Tax Fees
For the fiscal years ended December 31, 20172019 and 2016,2018, the aggregate fees billed for tax compliance, tax advice and tax planning by BDO Canada LLP were $nil$8,000 and $20,714,$nil, respectively.
All Other Fees
For the fiscal years ended December 31, 20172019 and 2016,2018, the aggregate fees billed by BDO Canada LLP for other non-audit professional services, other than those services listed above, were $nil and $nil, respectively.
Pre-Approval Policies and Procedures
Our audit committee pre-approves all services provided by our independent auditors. All of the services and fees described under the categories of “Audit Fees”"Audit Fees", “Audit"Audit Related Fees”Fees", “Tax Fees”"Tax Fees" and “All"All Other Fees”Fees" were reviewed and approved by the audit committee before the respective services were rendered, and none of such services were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
The audit committee has considered the nature and amount of the fees billed by BDO Canada LLP, Chartered Accountants, and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of BDO Canada LLP, Chartered Accountants.
ITEM 16D Exemption from the Listing Standards for Audit Committees
Not applicable.
ITEM 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In 2017,2019, neither we nor any affiliated purchaser (as defined in theSecurities Exchange Act of 1934) purchased any of our common shares.
ITEM 16F Change in Registrant’sRegistrant's Certifying Accountant
None.
ITEM 16G. Corporate Governance
Not applicable.
ITEM 16H. Mine Safety Disclosure
Not applicable.
ITEM 17 Financial Statements
Financial Statements Filed as Part of this Report:
56Audited Annual Financial Statements as at December 31, 2019 and 2018:
Independent Auditor's Report of BDO Canada LLP, dated July 31, 2020;
Consolidated Statement of Financial Position as at December 31, 2019 and 2018;
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017;
Consolidated Statements of Changes in Equity (Deficiency) for the years ended December 31, 2019, 2018 and 2017;
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017; and
Notes to the Consolidated Financial Statements.
REPLICEL LIFE SCIENCES INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019, 2018 and 2017
(Stated in Canadian Dollars)
 | ||
Report of Independent Registered Public Accounting Firm |
To the Shareholdersshareholders of RepliCel Life Sciences Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of RepliCel Life Sciences Inc. (the “Company”) and subsidiaries (the "Company"), which comprise the consolidated statements of financial position as of December 31, 20172019 and 2016,2018, the consolidated statements of comprehensive loss, changes in equity (deficiency), and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes, including a summary of significant accounting policies and other explanatory information (collectively referred to as the “consolidated"consolidated financial statements”statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 20172019 and 2016,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.Board ("IASB").
Emphasis of Matter Regarding Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2a2(a) to the consolidated financial statements, the Company has suffered recurring losses from operations and hasincurred a net capital deficiencyloss of $2,953,746 during the year ended December 31, 2019. These events or conditions, along with other matters as set forth in Note 2(a), indicate that raisea material uncertainty exists that may cast substantial doubt about its ability to continue as a going concern. Management’sManagement's plans in regard to these matters are also described in Note 2a.2(a). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not qualified in respect of this matter.
Basis for Opinion
Management’s responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of theseThese consolidated financial statements in accordance with International Financial Reporting Standards as issued byare the International Accounting Standards Board, and for such internal control as management determined is necessary to enableresponsibility of the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility for the Financial Statements
Company's management. Our responsibility is to express an opinion on the Company’sCompany's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. Further, we are required to be independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and to fulfill our other ethical responsibilities in accordance with these requirements.
We conducted our audits in accordance with the standardsstandard of the PCAOB and Canadian generally accepted auditing standards.PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion.
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
| ||
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimatesestimated made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2a, which indicates that the Company incurred a consolidated net loss of $6,014,330 during the year ended December 31, 2017 and, as of that date, the Company’s consolidated current liabilities exceeded its total assets by $319,997. As stated in Note 2a, these events or conditions, along with other matters as set forth in Note 2a, indicate that a material uncertainty exists that casts substantial doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
/s/ “BDO"BDO CANADA LLP”LLP"
Chartered Professional Accountants
Vancouver, British Columbia
July 31, 2020
We have served as the Company's auditor since 2010.
Vancouver, British Columbia
April 30, 20182006.
REPLICEL LIFE SCIENCES INC.
INDEPENDENT AUDITOR’S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017, 2016 and 2015
(Stated in Canadian Dollars)
REPLICEL LIFE SCIENCES INC. |
Consolidated Statements of Financial Position |
(Stated in Canadian Dollars) |
| As at | Notes | December 31, 2017 | December 31, 2016 | ||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 497,093 | $ | 60,752 | |||
| Guaranteed investment certificate | - | 1,450,000 | |||||
| Sales taxes recoverable | 48,542 | 66,060 | |||||
| Prepaid expenses and deposits | 289,226 | 236,055 | |||||
| 834,861 | 1,812,867 | ||||||
| Non-current assets | |||||||
| Equipment | 7 | 11,165 | 15,320 | ||||
| Total assets | $ | 846,026 | $ | 1,828,187 | |||
| Liabilities | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued liabilities | 9, 11 | $ | 1,166,023 | $ | 621,737 | ||
| Shareholders’ (deficiency) equity | |||||||
| Common shares | 8 | 26,182,073 | 21,910,238 | ||||
| Contributed surplus | 8 | 4,287,947 | 4,071,899 | ||||
| Accumulated deficit | (30,790,017 | ) | (24,775,687 | ) | |||
| Total shareholders’ (deficiency) equity | (319,997 | ) | 1,206,450 | ||||
| Total liabilities and shareholders’ (deficiency) equity | $ | 846,026 | $ | 1,828,187 | |||
| Events after the reporting date | 16 | ||||||
| Continuance of Operations | 2 (a) |
Approved on behalf of the Board:
The accompanying notes form an integral part of these consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
1.Corporate Information RepliCel Life Sciences Inc. (the "Company" or "RepliCel") was incorporated under the Ontario Business Corporations Act on April 24, 1967 but was continued from Ontario to British Columbia on June 22, 2011. Its common shares are listed for trading in Canada on the TSX Venture Exchange, trading under the symbol RP, and in the United States on the OTCQB, trading under the symbol REPCF. RepliCel is a regenerative medicine company focused on developing autologous cell therapies that treat functional cellular deficits including chronic tendon injuries, androgenetic alopecia and skin aging. The address of the Company's corporate office and principal place of business is Suite 900 - 570 Granville Street, Vancouver, BC, V6C 3P1. 2.Basis of Presentation These consolidated financial statements for the year‐ended December 31, 2019 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Subsidiaries are entities controlled by RepliCel. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. The accompanying consolidated financial statements include the account of RepliCel Life Sciences Inc. and its wholly-owned subsidiary, Trichoscience Innovations Inc. ("Trichoscience"). The consolidated financial statements are presented in Canadian dollars, which is also the Company's functional currency, unless otherwise indicated. The consolidated financial statements were authorized for issue by the Board of Directors on July 31, 2020. Certain comparative figures have been reclassified to conform to the current year's presentation. The preparation of consolidated financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies. The areas involving a higher degree of judgment of complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3. a)Continuance of Operations These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. At December 31, 2019, the Company is in the research stage, has accumulated losses of $36,512,843 since its inception and expects to incur further losses in the development of its business. The Company incurred a consolidated net loss of $2,953,746 during the year ended December 31, 2019. The Company will require additional funding to continue its research and development activities which may not be available, or available on acceptable terms. This will result in material uncertainties which casts substantial doubt about the Company's ability to continue as a going concern.
2.Basis of Presentation - continued a)Continuance of Operations - continued The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has a plan in place to address this concern and intends to obtain additional funds by equity financing to the extent there is a shortfall from operations. While the Company is continuing its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds for operations. See Note 18 -Events after the Reporting Date. If the going concern assumptions were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported net loss and the financial position classifications used. 3.Critical Accounting Estimates and Judgements RepliCel makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both. Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the amounts reported in these financial statements are discussed below: Share Based Payments The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating the fair value for share-based payment transactions are disclosed in Note 10(d). Revenue Recognition The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration that it is entitled to in exchange for the goods and services transferred to the customer. For collaborative arrangements that fall within the scope of IFRS 15, the Company applies the revenue recognition model to part or all of the arrangement, when deemed appropriate. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of IFRS 15, to identify distinct performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. Significant judgment is involved in determining whether the transaction price allocated to the license fee should be recognized over the collaboration period or at the inception of the contract and the time period over which revenue is to be recognized.
3.Critical Accounting Estimates and Judgements - continued Revenue Recognition - continued To determine the price of Licensing and Collaboration Agreement (See Note 8 - Licensing and Collaboration Agreement - YOFOTO (China) Health Industry Co. Ltd.), the Company has to make a judgment and estimates in assessing the value assigned to the put options and of the warrants as attached to the placement (see Note 8 and 10 (b)iii). Preference Shares Replicel makes estimates on the issuance of preference shares which are compound instruments that consist of both an equity and a liability component. Management is required to make estimates to determine the fair value of the components of the preference share issuance at the date that it is issued. The Company also needs to make estimates on the effective interest on preference shares to calculate amounts payable on redemption and inclusive of dividends. Income Taxes Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognizes liabilities and contingencies for anticipated tax audit issues based on the Company's current understanding of the tax law. For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities. In addition, the Company will recognize deferred tax assets relating to tax losses carried forward to the extent there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped. 4.Summary of Significant Accounting Policies The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements. a)Cash and cash equivalents Cash and cash equivalents include cash on hand with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and subject to an insignificant risk of change in value. b)Guaranteed investment certificate Guaranteed investment certificate, bearing interest at 2.7%, matured on January 15, 2020 and was subsequently reinvested.
d)Impairment of Non-Financial Assets Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amounts, which is the higher of value in use and fair value less costs to sell, the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash-generating unit, which is the lowest group of assets in which the asset belongs for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets. The Company has one cash-generating unit for which impairment testing is assessed. An impairment loss is charged to the profit or loss, except to the extent it reverses gains previously recognized in other comprehensive loss/income.
4.Summary of Significant Accounting Policies - continued e)Revenue IFRS 15 - Revenue from Contracts with Customers applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with IFRS 15, the Company recognizes revenue when the Company's customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expect to receive in exchange for those goods or services. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of IFRS 15, to identify distinct performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. For collaborative arrangements that fall within the scope of IFRS 15, the Company applies the revenue recognition model to part or all of the arrangement, when deemed appropriate. In 2018, the Company entered into a license and collaboration agreement that falls within the scope of IFRS 15. Promised deliverables within this agreement may include grants of licenses, or options to obtain licenses, to our intellectual property, and participation on joint research and/or development committees. The terms of these agreements typically include one or more of the following types of payments to the Company: Licenses of intellectual property including platform technology access: If the license to the Company's intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are not distinct from other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition accordingly. Milestone payments: At the inception of each arrangement that includes research, development or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such
4.Summary of Significant Accounting Policies - continued e)Revenue - continued development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. The process of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is a significant risk that the Company may not earn all of the milestone payments from each of its strategic partners. Research and development milestones in the Company's collaboration agreements may include some, but not necessarily all, of the following types of events: •initiation of Phase 2 clinical trials; and •achievement of certain other technical, scientific or development criteria. Regulatory milestone payments may include the following types of events: •filing of regulatory applications for marketing approval in the Licensed Territories; and •marketing approval in major markets in the Licensed Territories. Royalties and commercial milestones: For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified level of sales, the Company recognizes revenue at the later of: i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon performance of the licensee. Since inception to date, the Company has not recognized any royalty revenue or commercial milestone from any of its out-licensing arrangements. If the expectation at contract inception is such that the period between payment by the licensee and the completion of related performance obligations will be one year or less, the Company assumes that the contract does not have a significant financing component. f)Basic and Diluted Loss per Share Basic loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the relevant period. Diluted earnings/loss per common share is computed by dividing the net income or loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding and all additional common shares that would have been outstanding, if potentially dilutive instruments were converted. The number of shares potentially issuable at December 31, 2019 that were not included in the computation of loss per share since their inclusion would have been anti-dilutive due to a loss in the periods presented. The loss per share totaled 5,623,184 (2018: 5,873,183; 2017: 14,148,898) consisting of 1,830,000 (2018: 2,080,000; 2017: 1,400,000) outstanding stock options; 3,793,184 (2018: 3,793,183; 2017: 12,748,898) warrants.
4.Summary of Significant Accounting Policies - continued g)Income Taxes Income tax expense is comprised of current and deferred tax. Current and deferred tax are recognized in net income except to the extent that it relates to a business combination or items recognized directly in equity or in other comprehensive loss/income. Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the Company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
h)Scientific research and development credit Scientific research and development credits are received on expenditure and are generally deducted in arriving at the carrying amount of the asset purchased. Grants relating to expenditure are recorded in other income when received.
i)Foreign Currency Translation The financial statements are presented in Canadian dollars, which is also the functional currency. At the transaction date, each asset, liability, revenue and expense denominated in a foreign currency is translated into Canadian dollars by the use of the exchange rate in effect at that date. At the year-end date, unsettled monetary assets and liabilities are translated into Canadian dollars by using the exchange rate in effect at the year-end date and the related translation differences are recognized in net income. Non-monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars by using the exchange rate in effect at the date of the initial transaction and are not subsequently restated. Non-monetary assets and liabilities that are measured at fair value or a re-valued amount are translated into Canadian dollars by using the exchange rate in effect at the date the value is determined and the related translation differences are recognized in net income or other comprehensive loss consistent with where the gain or loss on the underlying non-monetary asset or liability has been recognized. j)Share-based Payments The Company has adopted a stock option plan as described in (Note 10(c)). In addition, certain of the Company's founders have entered into option agreements with consultants and employees of the Company. Employees (including senior executives) of the Company receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). Equity-settled transactions The cost of equity-settled transactions is recognized, together with a corresponding increase in contributed surplus in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized as stock based compensation expense (Note 10(e)). No expense is recognized for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled transaction awards are treated equally. No expense is recognized for awards that do not ultimately vest.
j)Share-based Payments - continued The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. Cash-settled transactions The cost of cash-settled transactions is measured initially at fair value at the grant date using a binomial model. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is re-measured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognized as employee benefits expense. k)Leases All leases are accounted for by recognizing a right-of-use asset in equipment and a lease liability except for leases of low value assets and leases with a duration of 12 months or less. There were no lease liabilities or right-of-use assets recognized as at December 31, 2019. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the Company's incremental borrowing rate on commencement of the lease is used. The Company determines its incremental borrowing rate as the rate of interest it would have to pay to borrow over a similar term, and with similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Variable lease payments are expensed in the period to which they relate. Further, lease terms are based on assumptions regarding extension terms that allow for operational flexibility and favorable future market conditions. Subsequent to initial measurement, lease liabilities increase as a result of interest at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortized on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset, whichever is shorter. l)Financial Instruments Non-Derivative Financial Assets The Company classifies its financial assets in the following categories: at fair value through profit or loss ("FVTPL"), at fair value through other comprehensive income ("FVTOCI") or at amortized cost. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of its financial assets at initial recognition. Measurement and classification of financial assets is dependent on the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Financial Assets at FVTPL - Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the income statement. Realized and unrealized gains or losses arising from changes in the fair value of the financial assets held at FVTPL are included in the income statement in the period in which they arise. Derivatives are also categorized as FVTPL unless they are designated as hedges.
l)Financial Instruments - continued Financial Assets at FVTOCI- Investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently, they are measured at fair value, with gains or losses arising from changes in fair value recognized in other comprehensive income. There is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Financial Assets as Amortized costs - Financial assets at amortized cost are initially recognized at fair value and subsequently carried at amortized cost less any expected credit loss provision. They are classified as current assets or non-current assets based on their maturity date. Cash and cash equivalents and guaranteed investment certificates are classified under financial assets measured at amortized costs. Financial assets are derecognized when they mature or are sold, and subsequently all the risks and rewards of ownership have been transferred. Gains and losses on derecognition of financial assets classified as FVTPL or amortized cost are recognized in the income statement. Gains or losses on financial assets classified as FVTOCI remain within accumulated other comprehensive income. Cash and cash equivalents and guaranteed investment certificates are classified under financial assets measured at amortized cost. Financial Liabilities The Company measures all its financial liabilities as subsequently measured at amortized cost. Financial liabilities are recognized initially at fair value, net of transaction costs incurred and are subsequently measured at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in profit and loss over the period to maturity using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where applicable, a shorter period. Accounts payable and accrued liabilities and preference shares are classified as financial liabilities measured at amortized cost. In terms of preference shares, the Company recognized initially at face value and as at December 31, 2019, recorded the accretion based on 5 years. No amount was bifurcated to the equity conversion option on initial recognition. The financial instrument is measured at amortized cost. Given the Company has an obligation to redeem the preference shares in 5 years at $0.74/share, the effective interest was accreted for the redemption amount and accrued cumulative dividends that will be settled in the future. The put option pursuant to the Licensing and Collaboration Agreement with YOFOTO and embedded derivatives pursuant to the preference shares have nil value as at December 31, 2019 but are measured at FVTPL.
4.Summary of Significant Accounting Policies
Impairment of financial assets The Company recognizes a loss allowance for expected credit losses on financial
amortized cost. At each reporting date, the
Equity instruments are contracts that give a residual interest in the net assets of the Company. Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company's common shares, share options and warrants not denominated in a foreign currency are classified as equity instruments. Incremental costs directly attributable to the issue of new shares, warrants, or options are shown in equity as a deduction, net of tax, from the proceeds. The Company's common shares are classified as equity instruments. 5.Accounting Standards, Amendments and Interpretations New Standards, Amendments and Interpretations Effective for the first time IFRS 16 Leases On January 13, 2016, the IASB published a new standard, IFRS 16, eliminating the dual accounting model for lessees, which distinguished between on-balance sheet finance leases and off-balance sheet operating leases. Under the new standard, a lease becomes an on-balance sheet liability that attracts interest, together with a new right-of-use asset. In addition, lessees recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant. The Company adopted IFRS 16 on January 1, 2019. The adoption of this standard had no material impact on the consolidated financial statements of the Company.
5.Accounting Standards, Amendments and Interpretations - continued IFRIC 23 Uncertainly Over Income Tax Treatments This new standard, also to be effective for annual report periods beginning on or after January 1, 2019, clarifies how to apply the recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments, addressing four specific issues:
The adoptions of this standard had no material impact on the Company's consolidated financial statements due to its taxable loss position. There are no other IFRS or IFRIC Interpretations that are not yet effective that would be expected to have a material impact on the Company. 6.Reverse Takeover Transaction and 583885 B.C. Ltd. On December 22, 2010, RepliCel closed a Share Exchange Agreement with TrichoScience Innovations Inc. ("TrichoScience") whereby RepliCel acquired the issued and outstanding shares of TrichoScience. Concurrent with the reverse acquisition, RepliCel also acquired all of the issued and outstanding common shares of 583885 B.C. Ltd. ("583885") in exchange for 440,000 common shares of RepliCel. 583885 did not have any assets or liabilities at the date of acquisition and was a private company controlled by RepliCel's incoming Chief Executive Officer ("CEO"). 340,000 shares of RepliCel controlled by the Company's CEO were deposited with an escrow agent pursuant to the terms of an escrow agreement between RepliCel and the escrow agent. These shares are released upon satisfaction of certain performance conditions as set out in the escrow agreement and each release of shares from escrow will be considered a compensatory award. The compensatory award is recorded as an expense at the fair value of the consideration given based on the price of RepliCel's common shares on the acquisition date. This amount was determined to be US$5.00 per share, based on the price of the shares being offered in the private placement that closed concurrent with the share exchange to arm's length parties at a price of US$5.00. As at December 31, 2019, nil (2018: nil) common shares were held in escrow.
7.Equipment
8.Licensing and Collaboration Agreement - YOFOTO (China) Health Industry Co. Ltd. On July 10, 2018, the Company signed a definitive Licensing and Collaborative Agreement with YOFOTO (China) Health Industry Co. Ltd. ("YOFOTO") to commercialize three of RepliCel's programs in Greater China subject to certain Canadian and Chinese approvals (the "Transaction"). The Transaction represents an investment in RepliCel by YOFOTO with milestone payments, minimum program funding commitments, and sales royalties in exchange for an exclusive 15-year license to three of RepliCel products for Greater China (Mainland China, Hong Kong, Macau and Taiwan) (the "Territory"). As part of the deal, YOFOTO invested CDN $5,090,005 in a private placement of RepliCel common shares at CDN $0.95 per share that included 20% warrant coverage with each warrant exercisable at CDN $0.95 per share for a period of two years. The warrants have not yet been exercised (Note 10). The deal structure also includes milestone payments (of up to CDN $4,750,000), sales royalties, and a commitment by YOFOTO to spend a minimum of CDN $7,000,000 on the RepliCel programs and associated cell processing manufacturing facility over the next four years in Greater China pursuant to a License and Collaboration Agreement. The License and Collaboration Agreement contains a provision permitting YOFOTO to put up to 1/3 of the shares issued in YOFOTO's initial investment back to the Company under certain conditions until January, 2027. As part of the Transaction, the Company granted YOFOTO certain financing participation rights along with a board seat nomination. Upon YOFOTO meeting certain defined conditions, relevant Chinese patents, once issued in China, will be assigned to a YOFOTO-owned Canadian subsidiary, with detailed assignment reversion rights upon failure to meet defined targets. At the date of these financial statements, no such Chinese patents have been assigned to YOFOTO. On October 9, 2018, the $5,090,005 private placement was closed and the Company issued YOFOTO 5,357,900 RepliCel common shares which represented 19.9% of RepliCel's then-issued common shares. In association with the YOFOTO deal, the Company agreed to pay success fee of ten percent (10%) of any upfront fees received by the Company and consequently, a fee of $509,001 was paid in this respect. In addition, the Company will be paying a success fee of five percent (5%) of any milestone fees and royalty fees received by the Company as a result of this License Agreement. Contract Asset The finders/success fees paid in connection with the YOFOTO Licensing and Collaboration Agreement of $509,001 was incurred to secure the YOFOTO License and Collaboration Agreement as well as to close the related private placement. Consequently, the $509,001 finders/success fee was accounted for as a contract asset and as a share issuance cost. The $509,001 fee was allocated between contract costs, share issuance costs and as an offset to the fair value of the related warrants. The finders/success fee was allocated based on the relative fair values of these three items. The contract asset is being amortized over the same period of time that the Company recognizes the upfront license revenue. Contract liability The proceeds of $5,090,005 from the placement was allocated to common shares and warrants issued based on their fair value at the date of issuance which was $2,563,919. The remaining $2,526,086 was allocated to Contract Liability to be recognized as License Fee revenue over a period of 10 years from the commencement date of the Agreement. No value was allocated to the put option on initial recognition and as at December 31, 2019.
9. Preference shares On September 12, 2019, the Company announced that it had completed the first tranche of a private placement pursuant to which it issued 1,089,125 Class A Preference shares at a price of $0.40 per share for aggregate gross proceeds of $435,650. The finalized terms of the private placement were follows and carry certain rights and restrictions, which include:
Subject to the earlier conversion by Class A shareholders and compliance with applicable laws, the Company may, in its discretion at any time, prior to the date that is five (5) years from the date of issuance of the Class A Shares (the "Required Redemption Date") redeem all of the Class A Shares at a price (the "Redemption Price") of: (i) $0.468 per Class A Share for the period from the date of issuance (the "Issue Date") to the date that is the first anniversary of the Issue Date; (ii) $0.536 for the period from the date that is the day after the first anniversary of the Issue Date to the date that is the second anniversary of the Issue Date; (iii) $0.604 for the period from the date that is the day after the second anniversary of the Issue Date to the date that is the third anniversary of the Issue Date; (iv) $0.672 for the period from the date that is the day after the third anniversary of the Issue Date to the date that is the fourth anniversary of the Issue Date; and (v) $0.740 for the period from the date that is the day after the fourth anniversary of the Issue Date and the date that is the fifth anniversary of the Issue Date. On the Required Redemption Date, the Company must redeem all remaining outstanding Class A Shares at the Redemption Price, subject to compliance with applicable laws.
During the year-ended December 31, i) The Company announced on October 10, 2019 a debt settlement in the amount of $210,369 owed by the Company to certain creditors ("Creditors") by the issuance of 751,318 common shares (each, a "Share") of the Company at a price of $0.280 per Share. The Settlement Agreements were signed on September 11, 2019; however, the debt was not settled until October 10, 2019 when the transaction was approved by the TSX Venture Exchange. The securities are subject to a statutory hold period of four months and one day. The Company reported a gain on this debt settlement in the amount of $15,027. ii) The Company announced on January 17, 2019 a debt settlement in the amount of $349,555 owed by the Company to certain creditors ("Creditors") by the issuance of 735,904 common shares (each, a "Share") of the Company at a price of $0.475 per Share. The Settlement Agreements were signed on November 20, 2018; however, the debt was not settled until January 15, 2019 when the transaction was approved by the TSX Venture Exchange. The securities are subject to a statutory hold period of four months and one day. The Company reported a gain on this debt settlement in the amount of $92,368. During the year-ended December 31, 2018: iii) On July 10, 2018, the Company signed the definitive agreement with YOFOTO to commercialize three of RepliCel's programs in Greater China subject to the certain Canadian and Chinese approvals of the transaction (the "Transaction"). The Transaction represents an investment in RepliCel by YOFOTO along with milestone payments, minimum program funding commitments, and sales royalties in exchange for an exclusive 15-year post-commercialization license to three of RepliCel products for Greater China (Mainland China, Hong Kong, Macau and Taiwan) (the "Territory"). As per Agreement, YOFOTO has up to 10 years to advance to pre-commercialization for 2 of the 3 products and for the third one, within 12 months of regulatory and commercial approvals.
During the year-ended December 31, iv) On February 24, 2017, the Company completed a private placement of 2,532,100 units for gross proceeds of $3,165,264. Each unit consists of one common share of the Company and one share purchase warrant. Each warrant entitles the holder to purchase one additional share for a period of three years from the closing of the financing at a price of $2.00 per share. Echelon Wealth Partners Inc. ("Echelon"), Haywood Securities Inc. and Clarus Securities Inc. (collectively, the "Agents") acted as agents with respect to the Brokered Financing. Echelon received a commission of $218,130 and the Agents received agents' warrants to purchase an aggregate of 174,504 Shares of the Company at a price of $2.00 per share for a period of three years from closing of the Financings. Echelon also received a corporate finance fee of $44,800 and 15,000 agent's warrants in connection with the Non-Brokered Financing. The fair value of the agent's warrants was $100,248. The fair value of the agent's warrants has been estimated using the Black Scholes option pricing model. The assumptions used to determine the fair value were as follows: (1) dividend yield - 0% (2) expected volatility - 96.81% (3) risk free rate - 1.11% (4) expected life - 36 months. The agents were paid a finders fees in the sum of $28,669. v) On October 19, 2017, the Company completed a non-brokered private placement of 2,815,881 shares of $0.41 per share for gross proceeds of $1,154,511. It has paid additional finder's fees of $28,366. There were no warrants attached to the financing.
10. Share Capital - continued c)Stock Option Plans: On May 21, 2014, the Company approved a Stock Option Plan whereby the Company may grant stock options to directors, officers, employees and consultants. The maximum number of shares reserved for issue under the plan cannot exceed 10% of the outstanding common shares of the Company as at the date of the grant. The stock options can be exercisable for a maximum of 10 years from the grant date and with various vesting terms.
d)Fair value of Company Options Issued from January 1, 2017 to December 31, 2019 There were no stock options granted during the year ended December 31, 2019. On July 31 and August 1, 2018, the Company granted 1,060,000 and 50,000 stock options to certain directors, officers, consultants and employees of the Company respectively for the purchase of up to an aggregate of 1,110,000 common shares of the Company pursuant to the Company's Stock Option Plan. Each option granted to the Optionees is exercisable for a period of 5 years at an exercisable price of $0.43 per Share. 910,000 vested immediately and 200,000 options shall vest in equal amounts each calendar quarter over the next 24 months. During the year ended December 31, 2017, the Company granted an aggregate of 75,000 (2016: 1,025,000; 2015: 15,000) stock options to certain directors pursuant to the Stock Option Plan. Each option is exercisable for a period of 5 years at a price of $1.64 per common share. The range of exercise price is $0.36 to $1.64, expected life of five to seven years, and vesting over one year to five years from the date of grant. The weighted-average grant date fair value of options granted was estimated using the following weighted average assumptions:
Options Issued to Employees The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the expected forfeiture rate and the risk free interest rate for the term of the option. Options Issued to Non-Employees Options issued to non-employees, are measured based on the fair value of the goods or services received, at the date of receiving those goods or services. If the fair value of the goods or services received cannot be estimated reliably, the options are measured by determining the fair value of the options granted, using a valuation model.
10. Share Capital - continued e)Stock-based Compensation The Company recognized a fair value of $26,275 (2018: $326,367; 2017: $115,800), as stock based compensation expense for stock options granted under the Company's Stock Option Plan for the years ended December 31, 2018 and 2017. A summary of the status of the stock options outstanding under the Company Stock Option Plan for the years ended December 31, 2019, 2018 and 2017 are as follows:
As at December 31,
f) Warrants The number of warrants
The
The
These amounts are unsecured, non-interest bearing and have no fixed terms of repayment. The Company incurred the following transactions with companies that are controlled by directors and/or officers of the Company. The transactions were measured at the
Key management compensation Key management personnel are persons responsible for planning, directing and controlling the activities of an entity, and include executive directors, the Chief Executive Officer and the Chief Financial Officer.
12. Income Taxes a) Income tax recognized in profit or loss:
b) Reconciliation of accounting and taxable income, for the years ended December 31 are as follows:
12. Income Taxes - continued c) The components of the deferred tax asset (liability) balances for the years ended December 31, are as follows:
Deferred tax assets in respect of losses and other temporary differences are recognized when it is more likely than not, that they will be recovered against profits in future periods. No deferred tax asset has been recognized as this criteria has not been met. At December 31,
13. Financial Instruments and Risk Management As at December 31, 2019, the Company's financial instruments are comprised of cash and cash equivalent, accounts payable and accrued liabilities and preference shares. The fair values of cash and cash equivalents, accounts payable and accrued liabilities approximate their carrying value due to their short-term maturity. The Company is exposed through its operations to the following financial risks:
In common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes the There have been no substantive changes in the Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company has an exposure to the Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure, more specifically, the issuance of new common shares, to ensure there is sufficient capital in order to meet short term business requirements, after taking into account the
13. Financial Instruments and Risk Management - continued The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities as at December 31,
Contained within accounts payable and accrued liabilities is $186,220 of accrued liabilities at December 31, 2019 (2018: $406,942). 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. As the Company's cash and cash equivalent is currently held in an interest bearing bank account, management considers the interest rate risk to be limited. There were no changes to the Company's fair value measurement levels during the year ended December 31, 2019 (2018: no change). The Company does not have any level 3 fair value measurements (2018: none). 14. Commitments and Contingencies The Company has entered into a Collaboration and Technology Transfer Agreement with Shiseido Company Limited who have alleged RepliCel breached obligations in the agreement, which may allegedly be terminal to future obligations pursuant to the agreement. The Company has vigorously denied the existence of such a breach and insists on the ongoing validity of the respective obligations on both parties pursuant to the agreement. No litigation or the triggering of other dispute mechanisms has been entered into by either party and the Company's management is actively seeking to continue discussions and/or negotiations. Management maintains the position that any data produced from clinical trials of the technology will, by agreement, be made available to the Company. From time to time the Company is subject to claims and lawsuits arising from the in the ordinary course of operations. In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material adverse effect on the Company's financial position. 15.Capital Management The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern in order to pursue business opportunities. In order to facilitate the management of its capital requirements, the Company prepares periodic budgets that are updated as necessary. The Company manages its capital structure and makes adjustments to it to effectively support the Company's objectives. In order to continue advancing its technology and to pay for general administrative costs, the Company will use its existing working capital and raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company considers shareholders' equity, preference shares and working capital as components of its capital base. The Company can access or increase capital through the issuance of shares, and by sustaining cash reserves by reducing its capital and operational expenditure program. Management primarily funds the Company's expenditures by issuing share capital, rather than using capital sources that require fixed repayments of principal and/or interest. The Company is not subject to externally imposed capital requirements and does not have exposure to asset-backed commercial paper or similar products, with the exception of pooling and escrow
shares which are subject to restrictions. The Company believes it will be able to raise additional equity capital as required, but recognizes the uncertainty attached thereto. The Company's investment policy is to hold cash in interest bearing bank accounts, which pay comparable interest rates to highly liquid short-term interest bearing investments with maturities of one year or less and which can be liquidated at any time without penalties. There has been no change in the Company's approach to capital management during the year-ended December 31, 2019. 16. Non-cash Transactions Investing and financing activities that do not have a direct impact on current cash flows are excluded from the consolidated statements of cash flow. There were no non-cash transactions during the years ended December 31, 2019, 2018 and 2017. During 2019, the Company entered into debt settlement agreements whereby the aggregate amount of $559,924 owed by the company to certain creditors were settled by the issuance of a total of 1,487,222 units. 17. Segmental Reporting The Company is organized into one business unit based on its cell replication technology and has one reportable operating segment. 18. Events after the Reporting Date Subsequent to year-ended December 31, 2019, there was a global outbreak of COVID-19, which has had a significant impact on businesses through the restrictions put in place by the Canadian and U.S. governments regarding travel, business operations and isolation/quarantine orders. At this time, the extent of the impact that the COVID-19 outbreak may have on the Company is unknown as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the virus, and the duration of the outbreak, including the duration of travel restrictions, business closures, and quarantine/isolation measures that are currently, or may be put, in place by Canada, U.S. and other countries to fight the virus. The Company continues to monitor its impact of its operations and financing activities and assess the impact COVID-19 will have on its business activities. The extent of the effect of COVID-19 pandemic on the Company is uncertain, management does not expect the effect to be significant. While the Company has not experienced a direct impact as a result of COVID-19, the raising of capital in this environment has been challenging and caused the delay in the closing of the private placement as disclosed below. In May 2020, the Company obtained a $40,000 loan under the Canada Emergency Business Account (CEBA) under the following conditions: - is an interest free loan until December 31, 2022; - $10,000 of the $40,000 loan is eligible for complete forgiveness if $30,000 is repaid before December 31, 2022; - if the CEBA loan is not repaid by December 31, 2022, it will be extended for an additional three-year term bearing an interest rate of 5% per annum. The CEBA loan may be repaid at any time without penalty.
18. Events after the Reporting Date - continued Private Placement On July 15, 2020, the Company closed a first tranche of its private placement offering (the "Offering"), pursuant to which it sold an aggregate of 3,649,110 units (each, a "Unit"), at a price of $0.18 per Unit, for gross proceeds of $656,840. Each Unit consists of one common share of the Company (each, a "Share") and one-half of one share purchase warrant (each whole warrant, a "Warrant"). One Warrant entitles the holder thereof to purchase one additional Share of the Company at a price of $0.36 per Share for a period of three years from closing of the Offering, subject to an acceleration provision such that in the event that the Shares have a closing price on the TSX Venture Exchange (the "Exchange") of greater than $0.45 per Share for a period of 10 consecutive trading days at any time after four months and one day from the closing of the Offering, RepliCel may accelerate the expiry date of the Warrants by giving notice to the holders thereof and, in such case, the Warrants will expire on the 30th day after the date on which such notice is given to the holder. The Company did not pay any finder's fees in connection with the Offering.
ITEM 18 Financial Statements Refer to Item 17 - Financial Statements ITEM 19 Exhibits The following exhibits are being filed as part of this annual report, or are incorporated by reference where indicated:
* Filed herewith SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. REPLICEL LIFE SCIENCES INC.
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