[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Securities registered or to be registered pursuant to Section
12(b) of the Act.
Securities registered or to be registered pursuant to Section
12(g) of the Act.
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.
Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report:
21,442,584 common shares as of December
31, 2017
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
[
] YES [X] NO
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.
[ ]
YES [X] NO
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] YES
[ ] NO
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
[X] YES [ ] NO
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one):
If an emerging growth company that prepares its financial
statements in according 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:
If 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
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
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, should, intend,
expect, plan, anticipate, believe, estimate, predict, potential,
or 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:
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:
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 commencing on page 8, which may cause our or
our industrys 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:
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, us, our, and
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.
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.
Unless otherwise stated, $, when used in this annual report
on Form 20-F, refers to Canadian dollars and US$ refers to United States
dollars.
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, 2017, 2016, 2015, 2014 and 2013. The information presented below
for the five year period ended December 31, 2017, 2016, 2015, 2014 and 2013 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 5
Operating and Financial Review and Prospects.
Selected Financial Data
(Stated in Canadian
Dollars Calculated in accordance with IFRS)
|
Year ended
|
Year ended
|
Year ended
|
Year ended
|
Year ended
|
|
Dec. 31, 2017
|
Dec. 31, 2016
|
Dec. 31, 2015
|
Dec. 31, 2014
|
Dec. 31, 2013
|
|
(audited)
|
(audited)
|
(audited)
|
(audited)
|
(audited)
|
|
|
|
|
|
|
Net sales or operating revenues
|
-
|
-
|
-
|
-
|
$4,120,400
|
|
|
|
|
|
|
Total expenses
|
$5,991,915
|
$4,287,628
|
$5,046,928
|
$5,210,616
|
$3,737,412
|
|
|
|
|
|
|
Net income (loss) before tax
|
$(6,014,333)
|
$(4,271,294)
|
$(5,044,014)
|
$(5,198,411)
|
$383,468
|
|
|
|
|
|
|
Income tax
|
-
|
-
|
-
|
-
|
$412,040
|
|
|
|
|
|
|
Total comprehensive loss
|
$(6,014,333)
|
$(4,271,294)
|
$(5,044,014)
|
$(5,198,411)
|
$(28,572)
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$(0.32)
|
$(0.54)
|
$(0.09)
|
$(0.10)
|
$(0.00)
|
|
|
|
|
|
|
Total assets
|
846,026
|
$1,828,187
|
$415,920
|
$2,141,288
|
$2,052,401
|
|
|
|
|
|
|
Net assets
|
$(319,997)
|
$1,206,450
|
$(601,781)
|
$1,806,220
|
$1,474,659
|
|
|
|
|
|
|
Share capital
|
26,182,073
|
$21,910,238
|
$16,498,743
|
$14,047,244
|
$9,430,914
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
Long-term debt
|
-
|
-
|
-
|
-
|
-
|
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):
7
Year
|
Average
|
December 31, 2013
|
1.0636
|
December 31, 2014
|
1.1643
|
December 31, 2015
|
1.2787
|
December 31, 2016
|
1.2735
|
December 31, 2017
|
1.2978
|
Month
|
High / Low
|
January 2018
|
1.2534/1.2293
|
February 2018
|
1.2806/1.2280
|
March 2018
|
1.3096/1.2822
|
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.
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.
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 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
). This revenue was not recurring revenue
from our operations and we may not obtain similar revenue in the future.
As of December 31, 2017, we had accumulated $30,790,017 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.
8
We had cash and cash equivalents in the amount of $497,093 and
a working capital deficit of $331,162 as of December 31, 2017 and we anticipate
that we will require a minimum of approximately $2,100,000 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. 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 opinion on our December 31, 2017 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 for the
cumulative period from September 7, 2006 (inception) to December 31, 2017. We
anticipate generating losses for at least the next 12 months. As at December 31,
2017 we had a working capital deficit of $331,162 (2016: working capital surplus
of $1,191,130) and an equity of $(319,997) (2016: equity of $1,206,450), and
will require additional funding to continue our research and development
activities, which casts substantial doubt about our companys 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
competitors 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.
9
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 managements 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.
10
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
companys business, or the application of existing laws and regulations to cell
replication technology, could have a material adverse effect on our companys
business, prospects, financial condition and results of operations.
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 companys 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 companys 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 companys
directors and officers being directors or officers of other life sciences
companies.
Certain of our companys 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 companys directors are required by law to act honestly and in good
faith with a view to our companys 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 companys 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 companys 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 companys officers and directors
and may discourage or deter our shareholders from suing our companys 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 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.
11
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 companys 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 companys shareholders to sell their
common shares or liquidate their investments.
The trading price and volume of our companys 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 companys
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 companys operating performance. In the past, following
periods of volatility in the market price of a companys 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
managements attention and resources.
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 companys 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 companys other shareholders may be diluted.
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 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 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 customers 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 customers 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
purchasers 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.
12
The Financial Industry Regulatory Authority, or FINRA, has
adopted sales practice requirements which may also limit a shareholders ability
to buy and sell our stock.
In addition to the 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 customers 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 stocks 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.
Name
Our legal name is RepliCel Life Sciences Inc.. We changed our
name from 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 the
Business Corporations Act
(Ontario)) on
April 24, 1967 under the name Jolly Jumper Products of America Limited. On
September 25, 1987, our name was changed to Sun Valley Hot Springs Ranch Inc..
We changed our name to Tri-Valley Free Trade Inc. on March 26, 1991 and to
Tri-Valley Investments Corporation on June 19, 1995. On October 2, 1998, we
changed our name to TriLateral Venture Corporation. On May 6, 2004, we changed
our name to Pan American Gold Corporation and on November 10, 2008, we changed
our name to Newcastle Resources Ltd.. On June 22, 2011, we continued our
company from Ontario into British Columbia and changed our name to RepliCel
Life Sciences Inc.. We are a reporting issuer under the securities laws of the
Provinces of British Columbia, Alberta and Ontario. Under the
Business
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.
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.
13
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 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 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 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 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 finders 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 finders 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.
14
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 finders 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. Finders fees of $94,881 were
paid in cash and 30,607 agents options where each agents option entitles the
agent the option to purchase one unit (
Agents Unit
) at a price of
$3.10 per Agents Unit expiring two years from the closing of the private
placement. Each Agents 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. Finders fees of $43,127
were paid in cash and 13,912 agents options where each agents option entitles
the agent the option to purchase one Agents Unit at a price of $3.10 per
Agents Unit expiring two years from the closing of the private placement. Each
Agents 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. Finders fees of $2,952
were paid in cash and 952 agents options where each agents option entitles the
agent the option to purchase one Agents Unit at a price of $3.10 per Agents
Unit expiring two years from the closing of the private placement. Each Agents
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.
15
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. Finders fees of $176,483 were paid in cash, 339,391
finders warrants and 12,000 finders units (the
Finders Units
). Each
Finders 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. Finders fees of $218,130 were paid in cash and 174,504 finders
warrants were issued to the finders in connection with the brokered portion of
the offering. A corporate finance fee and 15,000 finders warrants in connection
with the non-brokered portion of the offering. The finders 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 finders fees of $28,366
was paid in connection with the offering.
16
Capital Expenditures
During the last three fiscal years ended December 31, 2017, 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.
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 patients 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 designed for dermal injections of cells,
currently approved dermal filler products, and a variety of other products
injected through the skin.
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 individuals own cells from harvested tissues and growing more of
those cells, or 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 longer lasting than pharmacological or surgical interventions.
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 believe that the current standard of
care is failing to provide a satisfactory solution to this chronic
condition.
Treatment
We believe 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 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 believe that improved
therapeutic strategies are therefore in considerable demand. Our fibroblast
technology for tendinosis, which we refer 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 believe 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.
17
Phase 1 Clinical Trial
Phase 1 human pilot clinical trials were conducted by our
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 have expanded on Dr. Connells 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 1/2 Clinical Trial
On December 1, 2014, we announced receipt of a No Objection
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 Canadas 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 ratio of 3:1. The mechanics of
our treatment involve the extraction of as few as 20 hair follicles from the
back of a patients 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. The primary end
point is safety while a secondary end point of efficacy is being measured at six
months. We will pursue further indications of other tendon populations including
patellar tendinosis (jumpers knee) and lateral and medial epicondylitis (tennis
and golfers 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.
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).
18
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 patients 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 patients
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 company is now designing a phase 2 clinical trial intended
to measure efficacy of RCT-01 in a larger population of patients with chronic
Achilles tendinosis and answer critical questions related to dosing and
treatment frequency.
Intellectual Property
We have developed and filed patent applications relating to
compositions, methods and uses of NBDS cells for the treatment and repair of
tendons. We have also licensed a family of patent applications relating to the
compositions and uses of dermally derived cells in the treatment of tendons and
ligaments.
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 patients 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.
19
RCS-01: Treatment for Aging and Sun Damaged Skin
Background
Skin is considered one of the most prominent indicators of
ones 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 ones 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
Our NBDS-derived fibroblast therapy, which we refer 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. Our unique manufacturing technology allows for
isolation of fibroblasts derived from anagen-hair follicle mesenchymal tissues,
which elicit more efficient replication potential in culture. Additionally, our
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, we announced that we 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 is 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-markers is being
conducted along with histopathological assessment of treatment sites to
determine structural changes.
In April 2017, we received statistically and clinically
significant positive data from the interim analysis of our phase I study
evaluating RCS-01 for the treatment of aging and sun damaged skin.
The primary objective of this trial was to establish a complete
safety profile for intradermal injections of RCS-01 (RepliCels 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 products
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.
20
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 company is now designing 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. It is intended that this trial will be conducted using
prototypes of the RepliCels RCI-02 dermal injector.
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.
21
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 mothers or fathers 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 our 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 patients scalp
where healthy cycling hair follicles reside. We believe 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 cGMP
compliant facility utilizing our
proprietary cellular replication process, and are then reintroduced back into
balding areas on a patients 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 patients hair.
Phase I Clinical Trial
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 months post-injection compared to placebo. Secondary protocol objectives
were to assess systemic (overall) safety and efficacy (hair growth at treatment
sites) at six months post-injection and local safety at 24 months
post-injection. The six-month interim analysis was designed to provide us with
safety information to support the regulatory filing for a phase II clinical
trial. The six-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 being 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.
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 due to androgenetic alopecia.
These DSCC form the basis for our companys RCH-01 product. The
long-term safety of DSCC injections was demonstrated through multiple physician,
patient and independent measures of local and systemic tolerance including
evaluation of adverse events with respect to causality, incidence, severity and
seriousness. No serious adverse events were reported over 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
was also confirmed as none of the systemic adverse events reported during the
extended safety evaluation were related to treatment.
22
The seven top-tier responders in the trial saw >10% increase
in 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 was observed among all the
patients treated per protocol.
Indications of Potential Efficacy
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 have 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 company is currently engaged in molecular marker
research which is expected to lead to improvements in the product
identification, manufacturing, and its clinical effectiveness. We will await the
results of this research prior to submitting the clinical trial application for
a phase 2 study of RCH-01 for regulatory approval.
Collaboration Agreement
We have entered into a Collaboration and Technology Transfer
Agreement with Shiseido, one of the worlds largest cosmetic companies. Both
companies will work towards establishing a clinical research program in Asia,
with the goal of increasing the available human clinical data on RCH-01. We
anticipate 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 our 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 company breached the agreement
which resulted in a termination of the agreement. We have vigorously denied the
existence of any breach of the agreement and believe that the agreement is still
in good standing. No litigation, arbitration or other dispute mechanisms has
been triggered by either party and our management is actively seeking to
continue discussions and/or negotiations with Shiseido to resolve the matter. In
mid-2016, Shiseido announced the commencement of a hospital-sponsored clinical
study of RCH-01 in Japan funded by Shiseido. The clinical data produced in such
a trial would, by agreement, be made available to our company.
Intellectual Property
We have also filed patents on the use of hair follicle derived
stem cells entitled Method for isolating hair follicle mesenchymal stem 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),
the United States (8,431,400) and Canada (2,488,057). Additional related patent
applications are also pending in other jurisdictions.
23
We have also filed patent applications on: 1) other types of
cell compositions (see
e.g.
, granted patents EP 2,362,776 B1, and US
8,932,582); 2) injection devices (see
e.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 (see
e.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 patients 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 patients baldness-resistant donor areas. These 1-, 2-, 3- and 4-hair
follicular unit grafts are then transplanted into a patients 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 Surgerys 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 our RCH-01 and RCS-01 products, we have developed a
second generation dermal injector device. The RCI-02 Injector is able to deliver
programmable volumes of substances into programed 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 improve 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
devices 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.
24
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 believe 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 at
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 February 2017,
we entered into agreements with two European firms, AMI and Art of Technology,
both of whom have committed to work with our company to get our commerce-grade
RCI-02 dermal injector prototypes manufactured and tested.
AMI is an Austrian manufacturer of medical 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.
Intellectual Property
In January 2016, we were granted a patent (EP2623146) by the
European Patent Office for our injection device technologies. In January 2017,
we were granted two patents in Europe related to our multi-needle dermal
injection technologies. The first patent, European Patent No. 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, Sweden and the United Kingdom. The second patent, European
Patent No. 2809381, will also be validated in a number of European countries in
the near future. In April 2017, the U.S. Patent and Trademark Office granted a
patent in the United States (U.S. Patent No. 9,616,182).
Competition
Launched in 2009, the
Restylane® 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.
25
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 $1,500
per month. We formerly rented space at Suite 2020 - 401 West Georgia Street,
Vancouver, BC V6B 5A1 pursuant to a lease agreement for the office premises, the
term for which expired on October 31, 2017. We executed a sub-lease and assigned
the lease to a sub-tenant in July 2016 for almost 100% cost recovery. Research
and development is being conducted under contract with the University of British
Columbia by Kevin McElwee, PhD at the UBC Dermatology facilities in Vancouver,
British Columbia, Canada and by Dr. Rolf Hoffmann in Germany. We have no current
plans to construct or lease dedicated laboratory facilities.
ITEM 4A Unresolved Staff Comments
Not applicable.
ITEM 5 Operating and Financial Review and Prospects
The information in this section is presented in accordance with
IFRS for 2017, 2016 and 2015. IFRS differs in certain significant respects from
U.S. GAAP. Historical results of operations, percentage relationships and any
trends that may be inferred therefrom are not necessarily indicative of the
operating results of any future period.
A. Operating Results
Year Ended December 31, 2017 Compared to Year Ended December
31, 2016
|
Year ended December 31,
|
Change 2017 to 2016
|
|
2017 ($)
|
2016 ($)
|
Increase/
(Decrease) ($)
|
Percent Change
|
Revenue
|
-
|
-
|
-
|
-
|
Licensing fees
|
-
|
-
|
-
|
-
|
Expenses
|
|
|
|
|
Research and development
|
2,541,722
|
1,115,063
|
1,426,659
|
128%
|
General and administrative
|
3,450,193
|
3,172,565
|
277,628
|
9%
|
Other items
|
22,415
|
(16,334)
|
38,749
|
237%
|
Total loss
|
(6,014,330)
|
(4,271,294)
|
1,743,036
|
40%
|
There was no revenue from operations for the years ended
December 31, 2017 and 2016
Research and development expenses totaled $2,541,722 for the
year ended December 31, 2017 compared to $1,115,063 for the year ended December
31, 2016. Research and development expenses are higher than the year
prior as the Companys 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. The
medical device program is its most expensive phase to-date given that it has
transitioned from design and engineering to prototype manufacturing.
General and administrative expenses totaled $3,450,193 for the
year ended December 31, 2017 compared to $3,172,565 for the same period prior.
The slight increase is primarily attributable to similar spending in the
category of marketing and investor.
26
Total comprehensive loss for the year ended December 31, 2017
was $6,014,330 or $0.32 per share on a basic and diluted basis
,
compared to a net loss of $4,271,294 or $0.54 per share on a basic and diluted
basis for the year ended December 31, 2016. The increase in operating loss was
due primarily to increased expenditure on research and development attributable
to finalizing 3 clinical trials, launching a research project at UBC, and
finalizing our device engineering and prototype manufacturing.
Year Ended December 31, 2016 Compared to Year Ended December
31, 2015
|
Year ended December 31,
|
Change 2016 to 2015
|
|
2016 ($)
|
2015 ($)
|
Increase/
(Decrease) ($)
|
Percent Change
|
Revenue
|
|
|
|
|
Licensing fees
|
-
|
-
|
-
|
-
|
Expenses
|
|
|
|
|
Research and development
|
1,115,063
|
2,319,830
|
(1,204,767)
|
(51%)
|
General and administrative
|
3,172,565
|
2,727,098
|
445,467
|
16%
|
Other items
|
(16,334)
|
(2,914)
|
(13,420)
|
460%
|
Total loss
|
(4,271,294)
|
(5,044,014)
|
(772,720)
|
(15%)
|
Research and development expenses totaled $1,115,063 for the
year ended December 31, 2016 compared to $2,319,830 for the year ended December
31, 2015. Research expense for the year ended December 31, 2016 was $366,426
compared to $1,535,094 in the prior year period. The decrease was the result of
the lack of spending on research and development, including development of the
RCI-02 injector device prototype and the cell replication process for RCH-01,
due to the lack of financial resources. During the year ended December 31, 2016,
we incurred costs of $784,637 relating to our clinical trials compared to
$784,736 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 $3,172,565 for the
year ended December 31, 2016 compared to $2,727,098 for the year ended December
31, 2015. The increase of $445,467 is primarily attributable to an increase in
stock based compensation from $131,714 for 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 2015 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.
Total comprehensive loss for the year ended December 31, 2016
was $4,271,294, or $0.54 per share on a basic and diluted basis, compared to a
net loss of $5,044,014, or $0.89 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.
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, we had accumulated $4,120,400 in revenue from
our business, had an accumulated deficit of $30,790,017 since incorporation and
we expect 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, we had a working capital deficit of $331,162. 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.
27
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, 2017 Compared to Year Ended December
31, 2016
Operating Activities
During the year ended December 31, 2017, $5,385,742 was used in
net cash used in operating activities compared to $3,544,186 of cash used in
operating activities for the same period in the prior year. The increase in cash
used by operating activities was a result of primarily increase in research and
development activities.
Investing Activities
During the year ended December 31, 2017, the net cash provided
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.
Financing Activities
During the year ended December 31, 2017, the Company completed
two private placements and issuance of shares on exercise of warrants for total
gross proceeds of $4,692,048 (2016: $5,093,521), a decrease of $401,473 over
prior year due to company not raising as much funds and the Company having had
three private placements in the prior year over this year. Finders fees of
$319,965 (2016: $214,374) were paid in connection with these private placements.
28
Year Ended December 31, 2016 Compared to Year Ended December
31, 2015
Operating Activities
During the year ended December 31, 2016, $3,544,186 was used in
net cash from operating activities compared to $4,361,430 of cash used in
operating activities for the year ended December 31, 2015. The decrease in cash
used by operating activities was a result of a decrease in net loss with the
stock-based compensation in the amount of $826,307 compared to $131,714 in 2015.
Investing Activities
During the year ended December 31, 2016, the net cash used in
investing activities was $1,450,000 compared to net cash provided by investing
activities of $1,497,808 for the year ended December 31, 2015. Investing
activities relate primarily to the redemption of a guaranteed investment
certificate in 2015.
Financing Activities
During the year ended December 31, 2016, we completed private
placements and the issuance of shares for debt and exercise of warrants for
total gross proceeds of $5,093,521. Finders fees of $214,374 were paid in
connection with these private placements. During the year ended December 31,
2015, we completed private placements for total gross proceeds of $2,645,256.
Finders fees of $140,960 were paid in connection with these private placements.
Going Concern
Due to the uncertainty of our ability to meet our current
operating and capital expenses, in the auditors report on our annual audited
consolidated financial statements for the year ended December 31, 2017, our
auditors included an explanatory paragraph on their report in respect of there
being substantial doubt about our ability to continue as a going concern.
We anticipate that we will require a minimum of approximately
$2,100,000 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 commitments for capital
expenditures.
We do not currently have sufficient capital resources to fund
our plan of operations for the next twelve months. Accordingly, we plan 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 our
plan of operations. We currently do not have any arrangements in place for the
completion of any financings and there is no assurance that we will be
successful in completing any financings. There can be no assurance that
additional financing will be available when needed or, if available, on
commercially reasonable terms. If we are not able to obtain additional financing
on a timely basis, we may not be able to pursue our plan of operations or meet
our obligations as they come due, and may be forced to scale down, or perhaps
even cease, business operations.
Cash on hand and guaranteed investment certificates are
currently our only source of liquidity. We do not have any lending arrangements
in place with banking or financial institutions and we do not know whether we
will be able to secure such funding arrangements in the near future.
29
Critical Accounting Policies and Estimates
We make 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 audited financial statements for the year
ended December 31, 2017 are as follows:
Share Based Payments and Derivatives Liabilities related to
Equities
We measure 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) of our
annual audited financial statements for the year ended December 31, 2017.
Similar methodology to the share-based payments is used to
determine the fair value of derivative liabilities related to warrants
denominated in U.S. dollars. The assumptions 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.
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 recognize liabilities and contingencies for anticipated tax audit
issues based on our current understanding of the tax law. For matters where it
is probable that an adjustment will be made, we record our best estimate of the
tax liability including the related interest and penalties in the current tax
provision. Our 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, we 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:
|
Amendment to IFRS 7, Financial
Instruments: Disclosure
|
|
|
|
Amended to require additional disclosures on transition
from IAS 39 to IFRS 9. Effective on adoption of IFRS 9, which is effective
for annual periods commencing on or after January 1, 2018. The Company is
currently evaluating the impact this standard is expected to have on its
consolidated financial statements.
|
30
|
IFRS 9 Financial Instruments
|
|
|
|
IFRS 9 reflects all phases of the financial instruments
project and replaces IAS 39 Financial Instruments: Recognition and
Measurement and all previous versions of IFRS 9. The standard introduces
new requirements for classification and measurement, impairment, and hedge
accounting. IFRS 9 is effective for annual periods beginning on or after
January 1, 2018, with early application permitted. The Company believes
that there is no significant impact on the Companys consolidated
financial statements.
|
|
|
|
IFRS 15 Revenue from Contracts with Customers
|
|
|
|
The standard replaces IAS 18 Revenue and IAS 11
Construction contracts, and contains a single model that applies to
contracts with customers and two approaches to recognizing revenue: at a
point in time or over time. The model features a contract-based five-step
analysis of transactions to determine whether, how much and when revenue
is recognized. New estimates and judgmental thresholds have been
introduced, which may affect the amount and/or timing of revenue
recognized. IFRS 15 is effective for annual periods beginning on January
1, 2018. Currently, no impact on the Companys consolidated financial
statements is expected.
|
|
|
|
IFRS 16 Leases
|
|
|
|
The new standard will replace IAS 17 Leases and
eliminates the classification of leases as either operating or finance
leases by the lessee. The treatment of leases by the lessee will require
capitalization of all leases resulting accounting treatment similar to
finance leases under IAS 17 Leases. Exemptions for leases of very low
value or short-term leases will be applicable. The new standard will
result in an increase in lease assets and liabilities for the lessee.
Under the new standard the treatment of all lease expense is aligned in
the statement of earnings with depreciation, and an interest component
recognized for each lease, in line with finance lease accounting under IAS
17 Leases. IFRS 16 will be applied prospectively for annual periods
beginning on January 1, 2019. The Company does not expect this new
standard to have significant financial reporting implications, as
currently, no lease agreements within the scope of IFRS 16 have been
entered into.
|
|
|
|
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.
|
C. Research and Development, Patents and Licenses etc.
Research and development expenses totaled $2,541,722 for the
year ended December 31, 2017 compared to $1,115,063 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. The increase was due to increase
activities in research and development. During the year ended December 31, 2017,
we incurred costs of $2,015,160 relating to our clinical trials compared to
$748,637 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.
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.
31
F. Contractual Obligations
There is no long-term contractual obligation of the Company 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.
G. Safe Harbor
Not applicable.
ITEM 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
with our
Company
|
Lee Buckler
|
Director, Chief
Executive Officer and President
Corporate Secretary
|
51
|
January 1, 2016
June 13,
2016
|
Tom Kordyback
|
Chief Financial Officer
|
66
|
August 22, 2011
|
Dr. Rolf Hoffmann
|
Chief Medical
Officer
|
56
|
December 22, 2010
|
Dr. Kevin McElwee
|
Chief Scientific Officer
|
47
|
December 22, 2010
|
David Hall
(1)
|
Director
Chairman of the Board
|
64
|
December 22, 2010
January
1, 2016
|
Peter Lewis
(1)
|
Director
|
62
|
May 27, 2011
|
Geoff Mackay
(1)
|
Director
|
52
|
October 14, 2015
|
Hugh Rogers
|
Director
|
38
|
February 3, 2017
|
Simon Ma
|
Director of
Finance
|
53
|
June 13, 2016
|
(1)
Member of the audit committee and nominating,
compensation and corporate governance 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 Bachelors
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 Medicines 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 and RoosterBio.
32
Tom Kordyback, CA Chief Financial Officer
Mr. Kordyback has over 25 years of experience in corporate
finance and management for emerging growth companies. He has held senior
financial positions with Glenayre Electronics Inc. and Telelink Communications
Inc. In 1995, he joined Creo Inc. as their Chief Financial Officer where he
oversaw private financings totaling more than $80 million and led the companys
Initial Public Offering on the NASDAQ stock exchange for $90 million. He
remained at Creo until 2000. Mr. Kordyback also served as a director and member
of the Audit, Compensation and Merger and Acquisitions Committees for Extreme
CCTV Inc., a developer and manufacturer of state-of-the-art surveillance systems
listed on the TSX. In 2008, the company was sold to Bosch Security Systems, Inc.
for CDN $93 million. Mr. Kordyback currently serves as director of Silver Sun
Resources Corp., a public Canadian-based resource company.
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 Columbias 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 Accountants of British Columbia and the Canadian Tax
Foundation.
33
Geoff MacKay Director
Mr. MacKay is a skilled biopharmaceutical executive focused in
the field of regenerative medicine for the past 20 years. Mr. MacKay is
currently CEO of AVROBIO Inc., a clinical stage company focused on delivering
step-change cell & gene therapies targeting cancer and rare disease.
Previously, he spent 11 years as CEO of Organogenesis Inc. He is credited with
helping build Organogenesis into the leading cell therapy business in the world
as measured by revenue, patients treated, FDA indications 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, USA and at the Global office in Basel Switzerland.
Mr. MacKay has broad international experience and contacts
across pharma, biotech and device industries via leadership roles within the
life science industry. Examples include: Chairman of the Board of MassBio,
Chairman of the Board of the Alliance of Regenerative Medicine, Advisory Council
to the Health Policy Commission for Massachusetts, Deans Advisory Council
Western University School of Podiatric Surgery, and Chairman 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 graduated 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
as a Chartered Accountant in 1994. Simon Ma has been a sole public practitioner
since 1997 and is practicing under the name of Simon S. Ma Corporation. He is
concurrently serving as chief financial officer of several public companies
listed on the 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 since
June of 2016.
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:
34
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
|
(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 Share Ownership - Stock Option Plan.
|
|
|
(2)
|
Mr. Challis resigned as a director of our company on
September 13, 2017.
|
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, 2017 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.
35
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 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 the
Business 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, Mr. Buckler serves as President,
Chief Executive Officer and Corporate Secretary of our company and 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, 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.
Mr. Buckler was also entitled to receive a retention bonus of $45,000 to be paid
on the earlier of April 30, 2016 or 30 days after our company completes an
equity financing with minimum gross proceeds of $3,000,000. This was paid in
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.
Bucklers employment is terminated for any reason other than for just cause, we
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. Bucklers 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 companys
business and advice regarding regulatory compliance. Our company has agreed to
pay Mr. Hall compensation for such services if required.
Pursuant to a directors services agreement dated January 1,
2016, Mr. Hall serves as the chairman and a member of our board of directors. In
consideration, our company has agreed to pay an annual retainer of $15,000 to
serve as the chairman, an annual retainer of $10,000 to serve as a director, a
fee of $1,000 per board meeting, a fee of $1,000 per Audit Committee meeting and
$1,000 per Corporate Governance Committee meeting. The consulting agreement
expired on January 1, 2017.
Consulting Agreement: Darrell Panich
through Ceros
Management and Advisory Ltd. (Ceros)
Pursuant to a consulting agreement dated November 14, 2016,
Ceros provides our company with clinical trial management services and guidance
with respect to its businesses, and compliance with applicable regulatory
requirements. Ceross fees are based on an hourly rate of $250.
Audit Committee
Our audit committee is comprised of Peter Lewis, David Hall,
and Geoff MacKay. The audit committee reviews and approves the scope of the
audit procedures employed by our independent auditors, reviews the results of
the auditors examination, the scope of audits, the auditors 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.
36
Nominating, Compensation and Corporate Governance
Committee
Our nominating, compensation and corporate governance committee
is comprised of Peter Lewis, David Hall and Geoff MacKay. 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 to
the executive officers of the Company.
D. Employees
As of December 31, 2017, we had one full time employee located
in Vancouver, British Columbia. This employees has 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
|
*
|
*
|
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 Stock Option Plan.
|
|
|
(2)
|
Based on 21,442,584 common shares
issued and outstanding as of April 30, 2018.
|
|
|
(3)
|
Does not include 100,000 common
shares held by Mr. Halls wife over which Mr. Hall does not exercise
control or direction.
|
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.
37
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:
1.
|
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;
|
|
|
|
|
(b)
|
if the common shares are not listed, posted and trading
on any stock exchange or bulletin board, then the exercise price will be
determined by our board of directors at the time of granting;
|
|
|
|
|
(c)
|
if an option is granted within 90 days of a distribution
by a prospectus by our company, the exercise price will not be less than
the price that is the greater of the minimum prevailing price permitted by
the TSX Venture Exchange policies and the per share price paid by public
investors for common shares acquired under the distribution by the
prospectus, with the 90 day period beginning on the date a final receipt
is issued for the prospectus; and
|
|
|
|
|
(d)
|
in all other cases, the exercise price shall be
determined in accordance with the rules and regulations of any applicable
regulatory bodies.
|
2.
|
Upon expiry of an option, or in the event an option is
otherwise terminated for any reason, without having been exercised in
full, the number of common shares in respect of the expired or terminated
option shall again be available for an option grant under the 2014
Plan.
|
|
|
3.
|
All options granted under the 2014 Plan may not have an
expiry date exceeding ten years from the date on which the option is
granted.
|
|
|
4.
|
Options granted to any one individual in any 12 month
period cannot exceed more than 5% of the issued common shares of our
company, unless our company has obtained disinterested shareholder
approval.
|
|
|
5.
|
Options granted to any one consultant in any 12 month
period cannot exceed more than 2% of the issued common shares of our
company, without the prior consent of the TSX Venture Exchange.
|
|
|
6.
|
Options granted to all persons, in aggregate, conducting
investor relations activities in any 12 month period cannot exceed more
than 2% of the issued common shares, without the prior consent of the TSX
Venture Exchange.
|
|
|
7.
|
Options issued to optionees performing investor relations
activities will vest in stages over 12 months with no more than one
quarter of the options vesting in any three month period.
|
|
|
8.
|
If a director, employee or consultant of our company is
terminated for cause or resigns, then any option granted to such option
holder will terminate immediately upon such option holder ceasing to be a
director, employee, or consultant by reason of termination for cause or by
resignation.
|
|
|
9.
|
If an option holder ceases to be a director, employee or
consultant of our company (other than by reason of death, disability,
resignation or termination of services for cause), as the case may be,
then any option granted to such option holder that had vested and was
exercisable on the date of termination will expire on the earlier of the
expiry date and the date that is 90 days following the date that such
option holder ceases to be a director, employee or service provider of our
company.
|
38
10.
|
If an option holder dies, the option holders lawful
personal representatives, heirs or executors may exercise any option
granted to such option holder that had vested and was exercisable on the
date of death until the earlier of the expiry date and one year after the
date of death of such option holder.
|
|
|
11.
|
If an option holder ceases to be a director, employee or
consultant as a result of a disability, such option holder may exercise
any option granted to such option holder that had vested and was
exercisable on the date of disability until the earlier of the expiry date
and 90 days after the date of disability.
|
|
|
12.
|
Options granted to directors, employees or consultants
will vest when granted unless determined by our board of directors on a
case by case basis, other than options granted to consultants performing
investor relations activities, which will vest in stages over 12 months
with no more than one quarter of the options vesting in any three month
period.
|
|
|
13.
|
Options granted under the 2014 Plan are not assignable or
transferable by an option holder.
|
|
|
14.
|
Our board of directors may, from time to time, subject to
regulatory or shareholder approval, if required under the policies of the
TSX Venture Exchange, amend or revise the terms of the 2014
Plan.
|
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
|
|
|
|
|
(1)
|
These stock options were issued to CTG Consulting Inc., a
private company wholly owned by Lee Buckler.
|
39
ITEM 7 Major Shareholders and Related Party
Transactions
A. Major Shareholders
As at April 30, 2018, no were no persons known to us to be the
beneficial owner of more than five percent (5%) of each class of our common
shares issued and outstanding 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.
The following table sets forth the number of our issued and
outstanding common 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)
|
(1)
|
Based on 21,442,584 common shares issued and outstanding
as of April 30, 2018.
|
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, 2015 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 families; (d) key management
personnel of our company, including directors and senior management of our
company and close members of such 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
|
|
|
|
|
Research and development fees
owing to:
|
|
|
|
|
|
|
|
Tricholog GmbH, a
company controlled by
Rolf
Hoffmann, an
officer of our company,
|
$60,000
|
-
|
$56,030
|
|
|
|
|
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
|
$15,250
|
$15,250
|
|
|
|
|
Kevin McElwee, an
officer of our company
General
and
administrative fees (salaries) owed to:
|
-
|
-
|
-
|
|
|
|
|
David Hall, a director of our company
|
$101,000
|
$146,000
|
$120,000
|
|
|
|
|
Lee Buckler, a
director and officer of our company
|
$12,310
|
$26,354
|
-
|
|
|
|
|
Peter Jensen, a former director of our company
|
$13,500
|
$13,500
|
$8,500
|
40
|
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.
41
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
|
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
|
|
|
|
|
General and administrative salaries
|
$240,000
|
$285,000
|
$578,887
|
|
|
|
|
Directors fees
|
$55,000
|
$55,000
|
$55,000
|
|
|
|
|
Stock-based compensation
|
$115,800
|
$826,307
|
$42,216
|
|
|
|
|
Total
|
$410,800
|
$1,166,307
|
$663,240
|
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:
Audited Annual Financial
Statements as at December 31, 2017 and 2016:
|
|
|
|
Independent
Auditors Report of BDO Canada LLP, dated April 27, 2018;
|
|
|
|
Consolidated Statement of Financial Position as at
December 31, 2017 and 2016;
|
|
|
|
Consolidated Statements of Comprehensive Loss for the
years ended December 31, 2017, 2016 and 2015;
|
|
|
|
Consolidated Statements of Changes in Equity for the
years ended December 31, 2017, 2016 and 2015;
|
|
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2017, 2016 and 2015; and
|
|
|
|
Notes to
the Consolidated Financial Statements.
|
42
The audited consolidated financial statements for the years
ended December 31, 2017 and 2016 can be found under Item 17 Financial
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-ended December 31, 2017
i)
|
During January of 2018, the Company announced that it has
signed a Binding Term Sheet (Term Sheet) with YOFOTO (China) Health
Industry Co. Ltd. ("YOFOTO") to form a strategic partnership in Greater
China (Mainland China, Hong Kong, Macau, and Taiwan) (the
Territory).
|
|
|
|
YOFOTO paid a deposit of USD $650,000 on January 12, 2018
pursuant to the Term Sheet. As part of the Transaction, YOFOTO will
receive an exclusive license for RepliCel's tendon regeneration cell
therapy (RCT-01) in development, skin rejuvenation cell therapy (RCS-01)
in development, and its injection technology in development for dermal
applications (RCI-02) (excluding hair-related treatments) for the
Territory.
|
|
|
|
The investment is by way of the purchase of common shares
at CDN$0.54 per Share, which is a premium over the 20-day average market
price to reflect the accompanying license to YOFOTO in the Term Sheet. The
Company has also agreed to issue share purchase warrants equal to 10% of
the number of Shares issued, which warrants will be exercisable at
CDN$0.54 per Share for a period of two years.
|
|
|
|
The Company is currently working towards completion of a
definitive agreement. The latest amendment of the Term Sheet was signed on
January 31
st
2018 extending the timeline of the signing of the
Definitive Agreements to February 28, 2018. Both parties are now currently
working together towards signing of the extension of the Term Sheet and
the Definitive Agreement. Should the Definitive Agreement not be signed by
the Company and YOFOTO, Replicel will have to return the USD $650,000
deposit currently held in escrow and the deal will become
unenforceable.
|
|
|
ii)
|
Subsequent to its year-ended December 31, 2017, the
Company also announced its intention to settle debt in the amount of
$37,010. (US$30,000) owed by the Company to one creditor by the issuance
of 78,745 common shares of the Company at a price of $0.47 per
Share.
|
|
|
|
The proposed debt settlement is subject to the approval
of the TSX Venture Exchange and entry into a debt settlement agreement
with the creditor.
|
43
ITEM 9 The Offer and Listing
A. Offer and Listing Details
Price History
Since April 16, 2004, our common shares have been quoted on the
OTC Bulletin Board or the OTCQB, as applicable, currently under the symbol
REPCF. On August 10, 2016, we effected a ten (10) for one (1) reverse split.
The following table sets forth the annual high and low market
prices for our common shares on the OTC Bulletin Board or the OTCQB, as
applicable, for the five most recent full fiscal years:
OTC Bulletin Board / OTCQB
|
Annual Highs and Lows
|
High (U.S.$)
|
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$)
|
2015
|
5.50
|
1.25
|
2016
|
7.20
|
0.42
|
2017
|
1.90
|
0.34
|
The high and low market prices for our common shares for each
full fiscal quarter for the two most recent full fiscal years on the OTC
Bulletin Board or the OTCQB, as applicable, were as follows:
44
OTC Bulletin Board / OTCQB
|
|
|
Quarterly Highs and Lows
|
High (U.S.$)
|
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.$)
|
October 2017
|
0.422
|
0.332
|
November 2017
|
0.39
|
0.308
|
December 2017
|
0.406
|
0.308
|
January 2018
|
0.519
|
0.32
|
February 2018
|
0.449
|
0.339
|
March 2018
|
0.36
|
0.26
|
The high and low market prices of our common shares for each of
the most recent six months on the TSX Venture Exchange were as follows:
45
|
TSX Venture Exchange
|
|
Monthly Highs and Lows
|
High (CAD$)
|
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 companys 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) .
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; since
January 13, 2014 on the TSX Venture Exchange; and, since September 2012, on the
Berlin Stock Exchange under the symbol P6P1 and code number A1JHCB. Our common
shares are not currently listed for trading on any other market or quotation
system. On January 10, 2014, we delisted from the CSE (formerly the CNSX).
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.
46
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 the
Business Corporations Act
(British Columbia).
Our Articles do not contain a description of our objects and
purposes.
Our Articles do not restrict a directors 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
shares without par value. Our Class A preference shares 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 no 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 shares 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, 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 the
Business 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 below for a discussion
of the principal features of the
Investment 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.
47
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 the
Business Corporations Act
(British
Columbia).
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 below.
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. 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.
The
Investment Canada Act
governs the direct or indirect
acquisition of control of an existing Canadian business by non-Canadians. Under
the
Investment Canada Act
, non-Canadian persons or entities acquiring
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
Canadas cultural heritage or national identity. No change of voting control
will be deemed to have occurred, for purposes of the
Investment 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 Act
permits 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 the
Investment 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 the
Investment Canada Act
, subject to the
Ministers prerogative to conduct a national security review, including:
48
1.
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the acquisition of our common shares by a person in the
ordinary course of that persons business as a trader or dealer in
securities;
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2.
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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
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3.
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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.
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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 the
Income 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 the
Income 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 the
Income 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 the
Income Tax Act
to withholding tax which tax is
deducted at source by our company. The withholding tax rate for dividends
prescribed by the
Income 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 the
Income
Tax Act
in respect of a capital gain realized upon the disposition of a
common share of our company unless such share is taxable Canadian property (as
defined in the
Income 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-arms 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.
49
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. See
Taxation 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 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 dividend 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. Holders 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.
Holders 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. Holders 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.
50
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
taxpayers 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. Holders United States income tax liability that the U.S. Holders
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 companys 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. Holders 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. Holders 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 dividend 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.
51
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.