Replimune Group, Inc. 10-Q

Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected. Based on the evaluation of our disclosure controls and procedures as of September 30, 2020, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2020, our disclosure controls and procedures were not effective at the reasonable assurance level as a result of the material weaknesses discussed below. Notwithstanding these material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that the financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with generally accepted accounting principles, or GAAP. Material Weakness During the audit of our consolidated financial statements as of and for the years ended March 31, 2020 and 2019, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that we identified were as follows: We did not design or maintain an effective control environment commensurate with our financial reporting requirements. We lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. Additionally, the limited personnel resulted in our inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, among other things, our insufficient segregation of duties in our accounting function. This material weakness further contributed to the material weakness below. 43 We did not design and maintain formal accounting policies, processes and controls to analyze, account for and disclose complex transactions, including accounting for preferred stock, stock-based compensation, warrant liabilities and leases. Each of these control deficiencies could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected, and accordingly, we determined that these control deficiencies constitute material weaknesses. These material weaknesses also resulted in adjustments to preferred stock, stock compensation expense, warrant liability and deferred rent in our consolidated financial statements as of and for the year ended March 31, 2017, which were recorded prior to their issuance. Remediation activities We identified and completed certain remediation efforts to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures. The following remedial actions were completed during the three months ended September 30, 2020: · We hired a Vice President of Finance with an appropriate level of experience and reallocated responsibilities within the accounting organization to ensure there is proper segregation of duties and that the appropriate level of knowledge and experience is applied during the review of transactions based on the risk and complexity involved. · We increased the level of involvement and oversight from our new Vice President of Finance and will maintain this level of oversight until the control environment and risk assessment processes have matured. · We continued to test the operating effectiveness of our formal policies, processes and internal controls for compliance with the Sarbanes-Oxley Act, including processes and internal controls to analyze, account for and disclose complex transactions. · We implemented a new procurement system and updated our process and controls documentation for changes in how procurement related transactions are initiated, processed, reviewed and approved. The process of implementing and maintaining an effective financial reporting system is a continuous effort that requires management to anticipate and react to changes in our business, economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate our internal control environment, we may take additional actions to address control deficiencies or modify the remediation measures described above. While significant progress has been made to enhance our internal control over financial reporting, we are still in the process of testing these processes, procedures and controls to ensure they are operating effectively. Additional time is required to complete our assessment to ensure these new procedures are sustainable. While we will continue to devote significant time and attention to these efforts, the material weaknesses previously identified cannot be considered fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Changes in internal control over financial reporting Other than the applicable remediation efforts described above that were implemented or commenced during the three months ended September 30, 2020, there have been no other changes in our internal control over financial reporting during the three months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 44 PART II — OTHER INFORMATION Item 1. Legal Proceedings. We are not currently a party to any material legal proceedings. 45