REPCF RepliCel Life Sciences Inc (CE)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of October 2023

Commission File Number 000-50112

RepliCel Life Sciences Inc.

(Translation of registrant's name into English)

Suite 900 - 570 Granville Street, Vancouver, British Columbia  V6C 3P1

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒

Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Note:  Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

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SUBMITTED HEREWITH

Exhibit		Description
99.1		99.1 Condensed Consolidated Interim Financial Statements for the period ended June 30, 2023
99.2		99.2 Management Discussion and Analysis for the period ended June 30, 2023
99.3		99.3 Form 52-109FV2 Certification of Interim Filings Venture Issuer Basic Certificate - CEO
99.4		99.4 Form 52-109FV2 Certification of Interim Filings Venture Issuer Basic Certificate - CFO

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RepliCel Life Sciences Inc.

/s/ Andrew Schutte                                              

Andrew Schutte
President, Chief Executive Officer and Director

Date: October 23, 2023

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REPLICEL LIFE SCIENCES INC.

 

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)

For the six months ended June 30, 2023 and 2022

(Expressed in Canadian Dollars)

 

 

 

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Notice of No Auditor Review of Interim Financial Statements

Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the consolidated interim financial statements; they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these consolidated interim financial statements in accordance with standards established by the International Financial Reporting Standards established by the International Accounting Standards Board for a review of interim financial statements by an entity's auditor.

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REPLICEL LIFE SCIENCES INC. Consolidated Statements of Financial Position (Stated in Canadian Dollars)

As at	Notes		Unaudited June 30, 2023			Audited December 31, 2022
Assets
Current assets
Cash and cash equivalents		$	215,516		$	413,025
Guaranteed investment certificate			17,250			17,250
Sales taxes recoverable			63,348			46,795
Prepaid expenses and deposits			20,508			123,233
Contract asset	5		35,374			35,374
			351,996			635,677
Non-current assets
Contract Asset	5		142,417			160,103
Equipment			1,237			2,438
Total assets		$	495,649		$	798,218
Liabilities
Current liabilities
Accounts payable and accrued liabilities	10, 11	$	362,925		$	1,029,726
Contract liability	5		353,735			353,735
Preference shares	7		743,169			689,290
			1,459,830			2,072,751
Non-current liabilities
CEBA loan payable	8		40,956			40,956
Deferred government grant income			2,818			5,636
Put liability	5		1,530,664			1,370,038
Contract liability	5		1,424,142			1,601,010
Royalty payable	6		2,090,289			1,623,088
Total liabilities			6,548,289			6,713,479
Shareholders' deficiency
Common shares	9		33,014,798			31,661,019
Contributed surplus	9		5,428,545			5,398,590
Accumulated deficit			(44,496,391	)		(42,974,870	)
Total shareholders' deficiency			(6,053,048	)		(5,915,261	)
Total liabilities and shareholders' deficiency		$	495,649		$	798,218
Continuance of Operations	2(a)
Commitments and Contingencies	12

Approved on behalf of the Board,

/s/    "David Hall"		/s/    "Lee Buckler"
Director		Director

The accompanying notes form an integral part of these condensed consolidated interim financial statements

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REPLICEL LIFE SCIENCES INC. Condensed Consolidated Interim Statements of Comprehensive Loss For the three months ended (Stated in Canadian Dollars) (Unaudited)

		For the three months ended						For the six months ended
		June 30,			June 30,			June 30,			June 30,
		2023			2022			2023			2022
		$			$			$			$
Revenue
Licensing fees (Note 6)		88,434			88,434			176,868			176,868
Expenses
Research and development		79,409			130,855			348,816			228,497
General and administrative		209,157			433,519			586,243			776,195
Loss before other items		(295,565	)		(827,824	)		(758,191	)		(827,824	)
Other items:
Accretion on CEBA loan		-			(88	)		-			(1,631	)
Accretion on preference shares		(80,114	)		(27,046	)		(107,246	)		(53,879	)
Accretion on put liability		(63,370	)		(66,272	)		(160,626	)		(129,010	)
Accretion on royalty payable		(229,039	)		(532,407	)		(467,201	)		(920,247	)
Foreign exchange gain (loss)		11,326			10,693			(31,801	)		31,362
Government grant income		2,818			1,409			2,818			2,818
Interest income		-			-			726			43
Net and comprehensive loss		(558,151	)		(1,111,037	)		(1,521,521	)		(1,898,368	)
Loss per Basic and diluted share		(0.01	)		(0.03	)		(0.03	)		(0.05	)
Weighted average shares outstanding		61,429,672			35,688,231			44,144,562			35,180,734

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

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REPLICEL LIFE SCIENCES INC. Condensed Consolidated Interim Statements of Cash Flows For the three months ended (Stated in Canadian Dollars) (Unaudited)

		June 30, 2023			June 30, 2022
Operating activities
Net loss	$	(1,521,522	)	$	(1,898,368	)
Add items not involving cash:
Accretion and accrued dividends		53,879			53,879
Accretion on CEBA loan		-			3,174
Accretion on royalty payable		467,201			878,034
Amortization of contract asset		17,686			17,686
Accretion of put liability (Note 6)		160,626			129,010
Government grant income		(2,818	)		(2,818	)
Loss on re-measurement of derivative liability		-			-
Revenue from contract liability (Note 6)		(176,868	)		(176,868	)
Depreciation		1,201			419
Stock-based compensation (Note 10 (e))		29,955			251,877
Changes in non-cash working capital balances:
Sales taxes recoverable		(16,553	)		(12,901	)
Prepaid expenses and deposits		102,725			1,259
Accounts payable and accrued liabilities		(666,800	)		(21,903	)
Net cash used in operating activities		(1,551,288	)		(777,521	)
Financing activities
Gross proceeds on issuance of common shares (Note 10 b))		1,013,010			759,323
Share subscriptions		-			7,760
Shares issued for debt		340,769			-
Net cash provided by financing activities		1,353,781			767,083
Increase (Decrease) in cash and cash equivalents during the period		(197,509	)		(10,438	)
Cash and cash equivalents, beginning of the period		413,025			221,188
Cash and cash equivalents, end of the period	$	215,516		$	210,750

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

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REPLICEL LIFE SCIENCES INC. Consolidated Statements of Changes in Equity (Deficiency)   For the three months ended March 31, 2023 and 2022 (Stated in Canadian Dollars) (Unaudited)

		Common Stock						Contributed			Accumulated
		Shares			Amount			Surplus			Deficit			Total
Balance January 1, 2022		47,595,327		$	31,661,019		$	5,398,590		$	(42,974,870	)	$	(5,915,261	)
Stock-based compensation (Note 10 (e))		-			-			29,955			-			29,955
Common shares issued private placement		10,130,100			1,013,100			-			-			1,013,100
Common shares issued for debt		3,193,092			284,402			-			-			284,402
Common shares issued for dividends		508,253			56,367			-			-			56,367
Net loss for the period		-			-			-			(1,521,521	)		(1,521,521	)
Balance June 30, 2023		61,426,772		$	33,014,798		$	5,428,545		$	(44,496,391	)	$	6,053,048

		Common Stock						Share			Contributed			Accumulated
		Shares			Amount			subscription			Surplus			Deficit			Total
Balance, January 1, 2021		34,959,207		$	30,291,486		$	-		$	5,097,777		$	(42,231,642	)	$	(6,842,379	)
Stock-based compensation (Note 10 (e))		-			-			-			121,752			-			121,752
Common shares subscriptions		-			-			192,339			-			-			192,339
Net loss for the period		-			-			-			-			(787,331	)		(787,331	)
Balance June 30, 2022		34,959,207		$	30,291,486		$	192,339		$	5,219,529		$	(43,018,973	)	$	(7,315,619	)

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

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REPLICEL LIFE SCIENCES INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended June 30, 2023 (Stated in Canadian Dollars)(Unaudited)

1. Corporate Information

RepliCel Life Sciences Inc. (the "Company" or "RepliCel") was incorporated under the Ontario Business Corporations Act on April 24, 1967 but was continued from Ontario to British Columbia on June 22, 2011.  Its common shares are listed for trading in Canada on the TSX Venture Exchange, trading under the symbol RP, and in the United States on the OTCQB, trading under the symbol REPCF. 

RepliCel is a regenerative medicine company focused on developing autologous cell therapies that treat functional cellular deficits including chronic tendon injuries, androgenetic alopecia and skin aging. 

The Company's corporate office and principal place of business address is Suite 900 - 570 Granville Street, Vancouver, BC, V6C 3P1.

2. Basis of Presentation

These condensed consolidated interim financial statements for the three-month period ended June 30, 2023, have been prepared in accordance with IAS 34 Interim Financial Reporting.  They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the Company's 2022 annual financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The financial statements of subsidiaries are included in these consolidated financial statements from the date that control commences until the date that control ceases.  The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.  Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.  The accompanying consolidated financial statements include the account of RepliCel Life Sciences Inc. and its wholly owned subsidiary, Trichoscience Innovations Inc. ("Trichoscience").

The condensed consolidated interim financial statements have been prepared using accounting policies consistent with those used in the Company's 2022 annual financial statements, except as disclosed in Note 4. The condensed interim financial statements are presented in Canadian dollars, the Company's functional currency unless otherwise indicated.

Preparing financial statements compliant with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies. The areas involving a higher degree of judgment of complexity or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

The condensed consolidated interim financial statements were authorized for issue by the Board of Directors on October 23, 2023.

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2. Basis of Presentation - continued

a) Continuance of Operations

These condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. At June 30, 2023, the Company is in the research stage, has accumulated losses of $44,496,391 since its inception and expects to incur further losses in the development of its business. The Company incurred a consolidated net loss of $1,521,521 during the six month period ended June 30, 2023. The Company will require additional funding to continue its research and development activities, which may not be available on acceptable terms. This will result in material uncertainties which casts substantial doubt about the Company's ability to continue as a going concern.

The Company's ability to continue as a going concern depends on its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.  Management has a plan to address this concern and intends to obtain additional funds by equity financing to the extent there is a shortfall from operations.  While the Company is continuing its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds for operations.

If the going concern assumptions were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported net loss and the financial position classifications used.

3. Critical Accounting Estimates and Judgements

In these financial statements, RepliCel has made estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both.

Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the amounts reported in these financial statements are discussed below:

Share Based Payments

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted.  Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them.  The assumptions and models used for estimating the fair value for share-based payment transactions are disclosed in Note 9(e).

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3. Critical Accounting Estimates and Judgements - continued

Revenue Recognition

The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration that it is entitled to in exchange for the goods and services transferred to the customer. For collaborative arrangements that fall within the scope of IFRS 15, the Company applies the revenue recognition model to part or all of the arrangement when deemed appropriate. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of IFRS 15 to identify distinct performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. Significant judgment is involved in determining whether the transaction price allocated to the license fee should be recognized over the collaboration period or at the inception of the contract and the time period over which revenue is to be recognized.

To determine the price of the Licensing and Collaboration Agreement, the Company has to make judgments and estimates in assessing the value assigned to the put options and of the warrants as attached to the placement (See Note 5 - Licensing and Collaboration Agreement - YOFOTO (China) Health Industry Co. Ltd.).

Preference Shares

Replicel makes estimates on the issuance of preference shares which are compound instruments that consist of both an equity and a liability component.  Management is required to make estimates to determine the fair value of the components of the preference share issuance at the date that it is issued. The Company also needs to make estimates on the effective interest on preference shares to calculate amounts payable on redemption and inclusive of dividends.

Put Liability

Replicel made estimates on the issuance of the put liability disclosed in Note 5.  The put liability is a financial liability recorded initially at the present value of the potential exercise price of the put.  Management is required to estimate to determine the effective interest rate to appropriately discount the potential exercise price over the term of the put liability to its fair value at issuance. Subsequent to its initial recording, the put liability is accreted up to the full face value at the end of the term of the agreement.

Derivative Liability

Replicel made estimates in determining the fair value of the derivative liability disclosed in Note 6. The obligation to issue common shares to Mainpointe at an agreed price at a future date is a derivative liability accounted for at FVTPL. The fair value of this derivative liability has been estimated based on the difference between the market value of the Company's shares to be issued under this arrangement at the reporting date compared to the agreed price of such shares.  The derivative liability is fair valued at each measurement date until its settlement.

Royalty Payable

Replicel makes estimates of the expected timing of the payment of royalties as part of the three strategic agreements signed with Mainpointe Pharmaceuticals LLC ("Mainpointe").  Under this royalty arrangement, RepliCel has provided Mainepointe with a right to participate in RepliCel's royalty revenue stream up to a maximum payout of $16 million US and certain distribution rights of RepliCel Injector Product Line in the United States. Management is required to estimate to determine the timing of the Company's royalty revenue stream up to $16 million US.

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3. Critical Accounting Estimates and Judgements - continued

Income Taxes

Significant judgment is required in determining the provision for income taxes. Many transactions and calculations are undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.  The Company recognizes liabilities and contingencies for anticipated tax audit issues based on the Company's current understanding of the tax law.  For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability, including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

In addition, the Company will recognize deferred tax assets relating to tax losses carried forward to the extent of 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 when the losses are used to offset future profits.

4.  Accounting Standards, Amendments, and Interpretations

New Standards, Amendments and Interpretations Effective for the first time

There were no new standards, interpretations and amendments effective from January 1, 2022, that had a material impact on these consolidated financial statements.

5. Licensing and Collaboration Agreement - YOFOTO (China) Health Industry Co. Ltd.

On July 10, 2018, the Company signed a definitive Licensing and Collaborative Agreement with YOFOTO (China) Health Industry Co. Ltd. ("YOFOTO") to commercialize three of RepliCel's programs in Greater China subject to certain Canadian and Chinese approvals (the "Transaction").

The Transaction represents an investment in RepliCel by YOFOTO with milestone payments, minimum program funding commitments, and sales royalties in exchange for an exclusive 15-year license to three of RepliCel products for Greater China (Mainland China, Hong Kong, Macau and Taiwan) (the "Territory").

As part of the transaction, YOFOTO invested CDN $5,090,005 in a private placement of RepliCel common shares at CDN $0.95 per share that included 20% warrant coverage with each warrant exercisable at CDN $0.95 per share for a period of two years.  The warrants have not yet been exercised (Note 13).

The transaction structure also included milestone payments (of up to CDN $4,750,000), sales royalties, and a commitment by YOFOTO to spend a minimum of CDN $7,000,000 on the RepliCel programs and associated cell processing manufacturing facility over the five-year period commencing on July 10, 2018, in Greater China pursuant to a License and Collaboration Agreement. The License and Collaboration Agreement contains a provision permitting YOFOTO to put up to 2/3 of the shares issued in YOFOTO's initial investment back to the Company under certain conditions until January 2027.

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5. Licensing and Collaboration Agreement - YOFOTO (China) Health Industry Co. Ltd. - continued

As part of the Transaction, the Company granted YOFOTO certain financing participation rights along with a board seat nomination. Upon YOFOTO meeting certain defined conditions, relevant Chinese patents, once issued in China, will be assigned to a YOFOTO-owned Canadian subsidiary, with detailed assignment reversion rights upon failure to meet defined targets.  At the date of these financial statements, no such Chinese patents have been assigned to YOFOTO.

On October 9, 2018, the $5,090,005 private placement was closed and the Company issued YOFOTO 5,357,900 RepliCel common shares, representing 19.9% of RepliCel's then-issued common shares.  In association with the YOFOTO deal, the Company agreed to pay a finders/success fee of ten percent (10%) of any upfront fees received by the Company and consequently, a fee of $509,001 was paid in this respect. In addition, the Company will be paying a success fee of five percent (5%) of any milestone fees and royalty fees received by the Company as a result of this License Agreement.

Contract Asset

The finders/success fee paid in connection with the YOFOTO Licensing and Collaboration Agreement of $509,001 was incurred to secure the YOFOTO License and Collaboration Agreement as well as to close the related private placement.  Consequently, the $509,001 finders/success fee was accounted for as a contract asset, a share issuance cost and a cost incurred in connection with the put obligation.

The $509,001 fee was allocated between contract costs, share issuance costs and as an offset to the fair value of the related warrants and as an offset to the fair value of the put liability.  The finders/success fee was allocated based on the relative fair values of these four items.  The contract asset is being amortized over the same period of time that the Company recognizes the upfront license revenue.

Contract liability

The proceeds of $5,090,005 from the placement was allocated based on the fair values of:

• the common shares that were not subject to the put - $715,280 ($794,755 less costs of $79,476);
• the 1,071,580 warrants issued - $161,684 ($179,649 less costs of $17,965); and
• the put liability - $520,426 ($578,251 less costs of $57,825).

The remaining $3,537,350 was allocated to Contract Liability to be recognized as License Fee revenue over a period of 10 years from the commencement date of the Agreement.

Put liability

Under the Agreement, YOFOTO has the right to put back all of the common shares acquired in the event that it is unable to complete human clinical trials for the licensed technologies for reasons that are outside of YOFOTO's controls on or before 8.5 years from the date of the Agreement.  Although the put option can be exercised independently for each of the three licensed technologies at a rate of 1/3 per licensed technology (RCT-01, RCS-01 and RCI-02), the terms of the Agreement provide that only 2/3s of the shares can be put back to RepliCel under conditions that RepliCel does not control.  As this represents an obligation to transfer cash under circumstances not within RepliCel's control, the put option in connection with 2/3s of the shares issued under the Agreement is recognized as a liability.

The Company has recorded a put liability based on management's estimate of its fair value.  The fair value of this put liability was determined by calculating the present value of $3,393,337 repayable in 8.5 years discounted at 23%.  $3,393,337 is 2/3s of the private placement proceeds subject to the put liability.  After its initial recording at $520,426, the put liability is subsequently accreted up to the full face value at the end of the term of the agreement. Accretion expense on put liability at June 30, 2023 amounts to $160,626 (June 30, 2022 - $129,010).

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6. Investment and U.S. Partnership - Mainpointe Pharmaceuticals, LLC

On January 22, 2021, RepliCel signed three strategic agreements with MainPointe: a Share Purchase Agreement, a Distribution Agreement, and a Royalty Agreement. The strategic investment of $2,700,000 under the Share Purchase Agreement from MainPointe will be spread over an 8-month period. Under the limited term distribution partnership for RepliCel's dermal injector and consumables (the "RepliCel Injector Product Line") in the United States, MainPointe has agreed to pay all costs related to securing FDA approvals to launch the RepliCel Injector Product Line in the U.S. market. The Royalty Participation Agreement provides MainPointe the right to be paid a portion of RepliCel's future royalty revenue stream earned from the sale of RCS-01, RCT-01, and RCH-01 products and any derivatives. A shareholder director of RepliCel is the Chief Technology Officer of MainPointe.

Primary Deal Terms

In consideration for an investment of $2,700,000 and the payment of all costs related to obtaining FDA approval for the Company's dermal injector and consumables, RepliCel has agreed to issue MainPointe up to an aggregate of four (4) million common shares, a right to participate in RepliCel's royalty revenue stream up to a maximum payout of 16 million US dollars, and certain distribution rights of RepliCel Injector Product Line in the United States. The investment will be made as to:

• $500,000 within five (5) days of receipt of conditional approval from the TSX Venture Exchange ($492,092 on February 8, 2021),
• $1,200,000 by February 15, 2021 (received $490,000 on March 23, 2021 and $717,871 on April 23, 2021),
• $700,000 by April 21, 2021 (received $500,528 on August 30, 2021, $199,472 received on November 29, 2021), and
• $300,000 by August 21, 2021 ($298,921 received on November 29, 2021).

The common shares will be priced at the greater of $0.675 or the Discounted Market Price as defined in the Policies of the TSX Venture Exchange.

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6. Investment and U.S. Partnership - Mainpointe Pharmaceuticals, LLC - continued

During the year ended December 31, 2021, the Company received the aggregate consideration of $2,700,000 in five tranches, which were accounted for and allocated as follows on initial recognition:

* The difference of $1,116 between the contractual gross proceeds and actual gross proceeds received is attributable to wire fees and foreign exchange translation differences.

The Company issued 3,986,684 common shares to fulfill its obligations pursuant to the Share Purchase Agreement:

Mainpointe is entitled to a royalty up to an aggregate maximum amount of $16 million USD under the agreement equal to:

a) 5% of the amounts earned by and paid to the Company from the sale of any of its "NBDS Products" defined as its RCS-01 (NBDS Fibroblast Therapy - Treatment for Aging Skin), RCT-01 (NBDS Fibroblast Therapy - Treatment for Chronic Tendinosis) and any other product which is comprised of the non-bulbar dermal sheath cells patented by the Company, and

b) 20% of the amounts earned by and paid to the Company from the sale of any of its "DSC Products" defined as its RCH-01 (DSC Therapy for Treatment Androgenic Alopecia) and any other product which is comprised of the dermal sheath cup cells patented by the Company. 

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6. Investment and U.S. Partnership - Mainpointe Pharmaceuticals, LLC - continued

In consideration for paying all expenses required to obtain regulatory approval for the RepliCel Injector Product Line, the exclusive distribution rights shall commence upon receipt of regulatory approval to launch the RepliCel Injector Product Line in the U.S. market for a period expiring on the earlier of:

a) four (4) years, or

b) when MainPointe has earned USD $2,000,000 in gross income from the sale of the products in the RepliCel Injector Product Line.

The Company will have the right, in its discretion, to buy out this exclusivity right for an amount equal to the net-present value of profit to be earned on USD $2,000,000 in gross income, plus a further amount in gross income that is equal to the regulatory approval costs

The arrangement with MainPointe was accounted for as a hybrid instrument with two components: royalty payable, which is a financial liability accounted for initially at fair value and subsequently at amortized cost, and an obligation to issue common shares to MainPointe at an agreed price at a future date, which is a derivative liability accounted for at FVTPL.

The obligation to pay royalties of $16 million USD is classified as a financial liability and measured initially at its fair value and subsequently at amortized cost. Management estimated the present value of future cash flows over the expected term using an estimated effective interest rate. The timing and amount of future cash flows are significant judgments that influence measurement of this financial liability over its term until settled. The effective interest rate will be reassessed at each reporting period end date based on management's estimates of changes to the future cash flows and their timing. The Company incurred no transaction costs to enter into these agreements and has recorded accretion expense based on an effective interest rate of 57%.

Accretion expense recorded in the six months ended June 30, 2023 of $467,201 (2022: $920,247) was based management's estimate that they would pay USD $16 million royalty obligation in 2.34 years ("the Payback Period"), commencing from January 1, 2024. On December 31, 2022, the Company changed the estimated commencement date from January 1, 2024 to January 1, 2026 based on new information available. As a result of the change, the Company recognized a gain of $3,310,875 in its statement of comprehensive loss. The change in commencement date did not impact the current estimated Payback Period, which remains at 2.34 years. Any changes in this estimated Payback Period would result in variability to the Company's reported royalty obligation and annual accretion expense. Should the Payback Period extend beyond the current estimated 2.34 years, the royalty obligation at December 31, 2022, the accretion in the year ended December 31, 2022 and the effective interest rate estimate would change as presented below:

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6. Investment and U.S. Partnership - Mainpointe Pharmaceuticals, LLC - continued

The fair value of the derivative liability related to the Company's obligation to issue its common shares at a future date at an agreed price was estimated as the difference between the market price of the Company's common shares on the measurement date and their market price on the inception date of the Mainpointe agreement (January 22, 2021) multiplied by the number of common shares issuable per the contractual terms. The derivative liability was re-measured until the settlement date, (when agreed proceeds for the Company's common shares have been received) with a gain or loss on re-measurement recognized on the statement of profit or loss.  The Company settled the obligation to issue its common shares during 2021 and recognized a loss on the re-measurement of the derivative liability of $662,108 during the settlement period.

The royalty payable is recognized when proceeds from the arrangement are received from MainPointe and is measured as a residual after subtracting the fair value of derivative liability related to the Company's obligation to issue its common shares at a future date at an agreed price from the proceeds. The royalty payable to MainPointe as at June 30, 2023 was  $2,090,289 ($1,623,088 - December 31, 2022).  The increased during the six month period was a result of accretion expense of $390,499 and $ 76,702 as a result of exchange loss.

7. Preference shares

On September 12, 2019, the Company announced that it had completed the first tranche of a private placement pursuant to which it issued 1,089,125 Class A Preference shares at a price of $0.40 per share for aggregate gross proceeds of $435,650.

The finalized terms of the private placement carried certain rights and restrictions, which include:

• a fixed dividend rate which shall accrue on a daily basis (based on a 360- day year consisting of 12 30-day months) at a rate of seven (7%) per annum;
• the right of the Class A Shareholder to convert the paid up amount of each Class A Share, from time-to-time, into shares of the Company (each, a "Share") at any time prior to the date that is five (5) years from the date of issuance of the Class A Shares at a conversion price of $0.33;
• voting rights only on matters pertaining to Class A Shares until they are converted to common shares at which time all voting rights attach; and
• a first priority over all Shares or shares of any other class of the Company as to dividends and upon liquidation.

Subject to the earlier conversion by Class A shareholders and compliance with applicable laws, the Company may, in its discretion at any time, prior to the date that is five (5) years from the date of issuance of the Class A Shares (the "Required Redemption Date") redeem all of the Class A Shares at a price (the "Redemption Price") of:

(i) $0.468 per Class A Share for the period from the date of issuance (the "Issue Date") to the date that is the first anniversary of the Issue Date;

(ii) $0.536 for the period from the date that is the day after the first anniversary of the Issue Date to the date that is the second anniversary of the Issue Date;

(iii) $0.604 for the period from the date that is the day after the second anniversary of the Issue Date to the date that is the third anniversary of the Issue Date;

(iv) $0.672 for the period from the date that is the day after the third anniversary of the Issue Date to the date that is the fourth anniversary of the Issue Date; and

(v) $0.740 for the period from the date that is the day after the fourth anniversary of the Issue Date and the date that is the fifth anniversary of the Issue Date.

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7.  Preference shares - continued

On the Required Redemption Date, the Company must redeem all remaining outstanding Class A Shares at the Redemption Price, subject to compliance with applicable laws.

The financial instrument is being measured at amortized cost.  Given the Company has an obligation to redeem the preference shares in 5 years at $0.74/share, the effective interest was accreted for the redemption amount and accrued cumulative dividends that will be settled in the future.

The continuity of the preferred share liability is presented below:

8.  Government grant

Due to the global outbreak of the Novel Coronavirus ("COVID-19"), the federal government of Canada introduced the Canada Emergency Business Account ("CEBA"). CEBA provided an interest-free loan ("CEBA") of $60,000 to eligible businesses. The CEBA loan has an initial term that expires on December 31, 2023 throughout which the CEBA Loan remains interest free. Repayment of $40,000 by December 31, 2023 results in a $20,000 loan forgiveness. If the balance is not paid prior to December 31, 2023, the remaining balance will be converted to a 3-year term loan at 5% annual interest, paid monthly effective January 1, 2024. The full balance must be repaid by no later than December 31, 2026.

Pursuant to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, the benefit of a government loan at below market rate is treated as a government grant and measured in accordance with IFRS 9, Financial Instruments. The benefit of below market rate shall be measured as the difference between the initial carrying value of the loan (being the present value of a similar loan at market rates) and the proceeds received. The Company has estimated the initial carrying value of the CEBA loan at $26,663 using a discount rate of 18%, which was the estimated rate for a similar loan without the interest free component. The difference of $13,378 will be accreted to the loan liability over the term of the CEBA Loan and offset to other income on the statement of loss and comprehensive loss.

During the year ended December 31, 2022, the total accretion expense recognized for the CEBA loan amounted to $6,701 (December 31, 2021 - $5,528). In addition, the Company recognized $2,818 (2021: $2,819) in Government Grant Income.

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9. Share Capital

a) Authorized:

Unlimited common shares without par value, and unlimited preferred shares without par value.

b) Issued and Outstanding:

During the period ended June 30, 2023, share activities were as below:

On January 17, 2023, the Company announced that, further to its News Release of December 23, 2022, it has received approval from the TSX Venture Exchange to the issuance of 3,193,092 common shares (each, a "Share") at a deemed price of $0.09 per Share in settlement of $287,378.32 owing to various creditors (the "Debt Settlement"). The Shares were issued on January 17, 2023. The Shares are subject to a statutory hold period of four months and one day after the closing of the Debt Settlement.

On February 1, 2023, the Company announced that, further to its News Release of January 16, 2023, it has received approval from the TSX Venture Exchange to the issuance of 508,253 common shares (the "Shares") in settlement of accrued dividends of $53,367.13 outstanding on the Class A Preferred Shares (the "Settlement"). The Shares were issued on February 1, 2023, and are subject to a statutory hold period of four months and one day after the closing of the Settlement.

On March 14, 2023, the Company has completed its previously announced non-brokered private placement (the "Offering"), as described in its News Release dated January 26, 2023, pursuant to which it has issued an aggregate of 10,131,000 units (each, a "Unit") at a price of $0.10 per Unit for gross proceeds of $1,013,100. Each Unit consists of one common share in the capital of the Company (each, a "Share") and one-half of one common share purchase warrant (each whole warrant, a "Warrant"). Each Warrant is exercisable into one additional Share at a price of $0.20 per Share for a period of four years from the closing date.

On May 4, 2022, the Company closed the first tranche of the Offering, pursuant to which it sold an aggregate of 4,218,470 Units for gross proceeds of $759,325. On June 6, 2022, the Company announced that the Exchange has granted a thirty (30) day extension to the Company for completion of its Offering. On July 7, 2022, the Company announced that it does not intend to complete the second tranche of its non-brokered private placement announced on March 21, 2022.

c) Stock Option Plans:

On May 21, 2014, the Company approved a Stock Option Plan whereby the Company may grant stock options to directors, officers, employees and consultants.  The maximum number of shares reserved for issue under the plan cannot exceed 10% of the outstanding common shares of the Company as at the date of the grant. The stock options can be exercisable for 10 years from the grant date and with various vesting terms.

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9. Share Capital - continued

d) Fair value of Company Options Issued from January 1, 2017 to June 30, 2023

There were no stock options granted during the three-month periods ended June 30, 2023 and 2022.

Options Issued to Employees

The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the expected forfeiture rate and the risk free interest rate for the term of the option.

Options Issued to Non-Employees

Options issued to non-employees, are measured based on the fair value of the goods or services received, at the date of receiving those goods or services. If the fair value of the goods or services received cannot be estimated reliably, the options are measured by determining the fair value of the options granted, using a valuation model. 

e) Stock-based Compensation

The Company recognized a fair value of $30,000 (2022: $2,314), as stock based compensation expense for stock options granted under the Company Stock Option Plan and the Founders Stock Option Agreements for the six month ended June 30, 2023 and 2022.

A summary of the status of the stock options outstanding under the Company Stock Option Plan for the three-month period ended June 30, 2023 and 2020 are as follows:

As at June 30, 2023, the range of exercise prices for options outstanding under the Company Stock Option Plan is $0.12 - $0.43 and the weighted average remaining contractual life for stock options under the Company Stock Option Plan is 3.33 years.

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9. Share Capital - continued

f) Warrants

The number of warrants outstanding at June 30, 2023, and December 31, 2022 each exercisable into one common share, is as follows:

10. Related Party Transactions

Related party balances

The following amounts due to related parties are included in accounts payable and accrued liabilities:

(a) These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

The Company incurred the following transactions with companies that are controlled by directors and/or officers of the Company. The transactions were measured at the amount agreed to by the parties.

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10. Related Party Transactions - continued

Key management compensation

Key management personnel are persons responsible for planning, directing and controlling the activities of an entity, and include executive directors, the CEO, the COO and the CFO.

11. Financial Instruments and Risk Management

payable and accrued liabilities, CEBA loan payable, promissory note, put liability, royalty payable and preference shares. The fair values of cash and cash equivalents, accounts payable and accrued liabilities approximate their carrying value due to their short-term maturity. 

The Company is exposed through its operations to the following financial risks:

•  Currency risk;
•  Credit risk;
•  Liquidity risk; and
•  Interest rate risk.

In common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments.  This note describes the Company's objectives, policies and processes for managing those risks and the methods used to measure them.  Further quantitative information in respect of these risks is presented throughout these financial statements.

There have been no substantive changes in the Company's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company has an exposure to Euros and US Dollars as certain expenditures and commitments are denominated in Euros and US Dollars, and the Company is subject to fluctuations due to exchange rate variations to the extent that transactions are made in this currency. In addition, the Company holds an amount of cash in US dollars and is therefore exposed to exchange rate fluctuations on these cash balances. The Company does not hedge its foreign exchange risk. At June 30, 2022 the Company held US dollar cash balances of $4,194 (US$3,363) (December 31, 2022: $4,194 or US$3,363). A 10% increase/decrease in the US dollars foreign exchange rate would have an impact of ±$420 (US$330) on the cash balance held on June 30, 2023.

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11. Financial Instruments and Risk Management - continued

Credit risk is the risk of an unexpected loss if a customer or counterparty fails to meet its contractual obligations.  The Company's credit risk is primarily attributable to its cash and cash equivalents. The Company limits exposure to credit risk by maintaining its cash and cash equivalent with large financial institutions.  The Company's maximum exposure to credit risk is the carrying value of its financial assets.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As the Company's cash and cash equivalent is currently held in an interest-bearing bank account, management considers the interest rate risk to be limited.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure, more specifically, the issuance of new common shares, to ensure there is sufficient capital to meet short term business requirements, after taking into account the Company's holdings of cash and potential equity financing opportunities. The Company believes these sources will be sufficient to cover the known short and long-term requirements. There is no assurance that potential equity financing opportunities will be available to meet these obligations.

The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities as at June 30, 2022:

Contained within accounts payable and accrued liabilities is $272,685 of accrued liabilities at June 30, 2023 (2022: $237,534).

There were no changes to the Company's fair value measurement levels during the period ended March 31, 2023 (2022: no change). The Company does not have any level 3 fair value measurements (2022: none).

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12. Commitments and Contingencies

The Company has entered into a Collaboration and Technology Transfer Agreement with Shiseido Company Limited which has alleged RepliCel breached obligations in the agreement, which may allegedly be terminal to future obligations pursuant to the agreement.  The Company has vigorously denied the existence of such a breach and insists on the ongoing validity of the respective obligations of both parties pursuant to the agreement.  No litigation or the triggering of other dispute mechanisms has been entered into by either party, and the Company's management is actively seeking to continue discussions and/or negotiations.  Management maintains that any data produced from clinical trials of the technology will, by agreement, be made available to the Company.

From time to time, the Company is subject to claims and lawsuits arising from in the ordinary course of operations.  In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material adverse effect on the Company's financial position.

13. Capital Management

The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern in order to pursue business opportunities. In order to facilitate the management of its capital requirements, the Company prepares periodic budgets that are updated as necessary.  The Company manages its capital structure and makes adjustments to it to effectively support the Company's objectives. In order to continue advancing its technology and to pay for general administrative costs, the Company will use its existing working capital and raise additional amounts as needed.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the company's relative size, is reasonable. The Company considers shareholders' equity, preference shares and working capital as components of its capital base.  The Company can access or increase capital through the issuance of shares and by sustaining cash reserves by reducing its capital and operational expenditure program.  Management primarily funds the Company's expenditures by issuing share capital rather than using capital sources that require fixed principal and/or interest repayments. The Company is not subject to externally imposed capital requirements and does not have exposure to asset-backed commercial paper or similar products, with the exception of pooling and escrowed shares, which are subject to restrictions. The Company believes it can raise additional equity capital as required but recognizes the uncertainty.

The Company's investment policy is to hold cash in interest bearing bank accounts, which pay comparable interest rates to highly liquid short-term interest bearing investments with maturities of one year or less and which can be liquidated at any time without penalties. There has been no change in the Company's approach to capital management.

14. Non-cash Transactions

Investing and financing activities that do not directly impact current cash flows are excluded from the consolidated statements of cash flow. There were no non-cash transactions during the period.

15. Segmental Reporting

The Company is organized into one business unit based on its cell replication technology and has one reportable operating segment.

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REPLICEL LIFE SCIENCES INC.

MANAGEMENT DISCUSSION AND ANALYSIS
FORM 51-102F1
For the period ended June 30, 2023

Dated as of October 23, 2023

This Management's Discussion and Analysis ("MD&A") of RepliCel Life Sciences Inc (referred to as "RepliCel", the "Company", "us" or "our") provides analysis of the Company's financial results for the six-month periods ended June 30, 2023. The following information should be read in conjunction with the accompanying annual financial statements for the year ended December 31, 2022, and the notes to those financial statements, prepared in accordance with IAS 34 under International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board. Financial information contained herein is expressed in Canadian dollars unless stated otherwise. Unless otherwise indicated, all information in this MD&A is current as of October 23, 2023. This MD&A is intended to supplement and complement RepliCel's financial statements for the period ended June 30, 2023, and the notes thereto. Readers are cautioned that this MD&A contains "forward-looking statements" and that actual events may vary from management's expectations. Readers are encouraged to read the cautionary note contained herein regarding such forward-looking statements. This MD&A was approved and authorized for issue by the Company's Audit Committee on behalf of our Board of Directors on October 23, 2023.

Cautionary Statement Regarding Forward-Looking Statements

Statements included in this MD&A that do not relate to present or historical conditions are "forward-looking statements". Forward-looking statements are projections regarding future events or the Company's 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 the Company's:

• belief that chronic tendon injuries resulting from sports-related or occupational overuse is a significant unmet medical need;

• belief that RCT-01 has advantages over current treatments such as the use of non-steroidal anti-inflammatory medication or corticosteroids, which are limited in efficacy;

• belief that the data from a phase 1/2 clinical trial to test the safety and efficacy of injections of RCT-01 on patients suffering from chronic Achilles tendinosis in Canada and other countries are sufficient to support regulatory approvals to proceed to a phase 2 trial and the design of such a dose-finding trial;

• belief that the data from the phase 1 clinical trial to test the safety and certain biological outcomes of injections of RCS-01 in patients with aging and sun-damaged skin supports regulatory approvals to proceed to a phase 2 trial and the design of such a dose-finding trial;

• belief that regulatory agencies, including those in the United States, China, Europe, and Canada will approve applications to market the DermaPrecise product line without major objection or delay;

• research pertaining to and plans to continue to prepare for a phase 2 dose-finding trail for RCH-01 and details of such a trial;

• belief that the DermaPrecise trademark filings will be generally accepted in most jurisdictions where they are submitted;

• belief that the DermaPrecise dermal injector device will have applications in certain dermatological procedures and preparation for its commercialization, including building of commercial/clinical-grade prototypes, validation testing of such prototypes, filing of the regulatory submissions seeking regulatory approval to  market the device, will lead to commercial launch, revenue generation, and commercial partners; expectations regarding regulatory clearances to conduct trials and market products;

• belief that the regulatory agencies in China will approve applications to proceed with clinical studies of RCT-01 and RCS-01 in China without significant objection or delay;

• expectations that the Company will maintain patent protection over its technologies to maximize the financial value of its product prior to and through commercialization;

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• belief as to the potential of the Company's products;

• expectations regarding the performance of its commercial partners, YOFOTO, and MainPointe;

• expectations regarding the payment of milestone payments by YOFOTO;

• expectations regarding the performance of critical suppliers and service providers;

• forecasts of expenditures;

• expectations regarding our ability to raise capital;

• business outlook;

• plans and objectives of management for future operations;

• anticipated financial performance.

Various assumptions or factors are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking information. Those assumptions and factors are based on information currently available to the 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 MD&A in connection with the statements or disclosure containing the forward-looking information. You are cautioned that the following list of material factors and assumptions is not exhaustive. The factors and assumptions include, but are not limited to, our assumption that there be:

• no unforeseen changes in the legislative and operating framework for the business of the Company;

• a stable competitive environment; and

• no significant event occurring outside the ordinary course of business such as a natural disaster or other calamity.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set out in the section entitled "Risks and Uncertainties" commencing on page 19, which may cause the Company's or its industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to the following risks:

• negative results from the Company's clinical studies and/or trials; 

• the effects of government regulation on the Company's business;

• the viability and marketability of the Company's technologies;

• the development of superior technology by the Company's competitors;

• the failure of consumers and the medical community to accept the Company's technology as safe and effective;

• risks associated with the performance of commercial partners, critical suppliers and service providers;

• risks associated with disagreements or disputes with the Company's commercial partners, critical suppliers, and service providers;

• risks associated with the Company's ability to obtain and protect rights to its intellectual property;

• risks associated with the loss or expiry of patent protections over the Company's technologies prior to the commercialization of the products related to those technologies and patents;

• risks and uncertainties associated with the Company's ability to raise additional capital;

• risks and uncertainties associated with supply chain issues caused by global and regional disruptions; and

• other factors beyond the Company's control.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company 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, the Company undertakes 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 the Company's 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.

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DESCRIPTION OF BUSINESS

The Company was incorporated under the Ontario Business Corporations Act on April 24, 1967.  The Company is a foreign private issuer in the United States. The Company's common shares are listed for trading in Canada on the TSX Venture Exchange, trading under the symbol "RP", in the United States on the OTCPK, trading under the symbol REPCF, and in Germany on the Frankfurt Stock Exchange (FRA) under the symbol P6P2.

RepliCel is 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 the Company believes is critical to normal function.  All treatments under development are based on RepliCel's innovative technology which utilizes cells isolated from a patient's own healthy hair follicles. These products are built on the Company's proprietary manufacturing platforms and are covered by issued and filed patents and trade secrets. RepliCel is also developing a programmable injector device and related consumables designed for dermal injections of cells as currently approved other products such as dermal fillers, toxins, enzymes, drugs, and biologics such as fat transfer, platelet-rich plasma, antibodies, etc.

HIGHLIGHTS OF BUSINESS

The Potential of Autologous Cell Therapy

The Company's treatments use autologous cell therapy ("ACT"), one of the most rapidly developing areas of regenerative medicine in developing novel treatments for numerous human disorders. ACT involves isolating an individual's 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 allogeneic derived from a different person) includes minimized risks of systemic immunological (anaphylactic) reactions, bio-incompatibility, and disease transmission. Furthermore, the effects of ACT may be more curative, regenerative, and/or longer lasting than other topical, biologic, pharmacological or surgical interventions.

The Company has an extensive intellectual property portfolio that covers RCT-01 (our platform for tendon repair); RCS-01 (our platform for skin rejuvenation); RCH-01 (our platform for pattern baldness); and DermaPrecise (our dermal injection device and consumables).  Our intellectual property portfolio includes patents and patent applications we have developed and own (discussed in more detail below).

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. The Company believes that the current standard of care is failing to provide a satisfactory solution to this chronic condition.

Treatment

The Company believes that chronic tendon injuries resulting from sports-related or occupational overuse is a significant unmet medical need. Tendons consist of specialized connective tissues that attach muscles to bones, transmitting force and supporting the musculoskeletal system. When mechanical loads exceed the strength of a tendon or tensile range is lost due to aging, micro-tears of the collagen fibers within tendon occur. Once a tendon is injured, healing can occur intrinsically via tenocyte activation within the injured site or extrinsically via recruitment of collagen-producing cells from the surrounding area. Naturally healed tendon does not return to the same physiological state as 'intact' tendon, even when it supports a return to normal function. Inadequate rest and improper healing often result in re-injury and rupture.

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Current treatments manage pain and facilitate healing processes; however, they do not mediate complete recovery and leave patients demobilized for several months during treatment. The Company believes that improved therapeutic strategies are therefore in considerable demand. The Company's fibroblast technology for tendinosis, which the Company refers to as RCT-01, has been developed over five years of research, experimentation and trials. RCT-01 is a tissue-engineered product made from a procedure using collagen-producing fibroblasts isolated from non-bulbar dermal sheath (NBDS) cells within the hair follicle that are replicated in culture. These fibroblasts are efficient producers of type I collagen and because they are of anagen hair follicle mesenchymal origin, they have the potential to replicate efficiently in culture. The use of these fibroblasts are, therefore, ideal for treating chronic tendon disorders that arise due to either a degeneration of collagen producing cells or a deficit of active collagen producing cells. Because RCT-01 directly provides a source of collagen expressing cells to the site of injury, addressing the underlying cause of tendinosis, the Company believes it has advantages over current treatments such as the use of non-steroidal anti-inflammatory medication or corticosteroids which are limited in efficacy. Another advantage of RCT-01 is the autologous nature of the cellular product, thereby reducing the likelihood of adverse immune reactions upon administration.

Pilot Clinical Trials

Phase 1 human pilot clinical trials were conducted by the Company's collaborative partner, Dr. David Connell, which focused on tendinosis of the Achilles, patellar and lateral elbow (commonly referred to as tennis elbow) using skin tissue derived fibroblasts. No adverse events were reported in these trials, where 90 patients were injected with cultured, autologous fibroblasts. The Company has expanded on Dr. Connell's approach by isolating NBDS fibroblasts from the hair follicle that express upwards of five times the amount of type I collagen than fibroblasts derived from skin tissue as pursued by Dr. Connell.

Phase 1 Clinical Trial

On December 1, 2014, the Company 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 Canada's clearance to initiate the trial permitted the participation of 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 ration of 3:1. The mechanics of the Company's treatment involve the extraction of as few as 20 hair follicles from the back of a patient's scalp via a single punch biopsy. NBDS cells are isolated from the hair follicle sheath, replicated in a current Good Manufacturing Practices (cGMP) facility and are then reintroduced under ultrasound guidance directly into the area of damaged tendon. The collagen rich fibroblast cells are expected to initiate and complete the healing of the chronically injured tendon. After injections are performed, subjects will return to the clinic for assessments of safety, function and pain, as well as changes in tendon thickness, echotexture, interstitial tears and neovascularity.

This trial commenced in 2015 and final data was announced Q1 2017. The primary end point of safety was met while secondary end points related to efficacy were also measured at nine-months post-injection of RCT-01. The Company may pursue further indications of other tendon populations including patellar tendinosis (jumper's knee) and lateral and medial epicondylitis (tennis and golfer's elbow).

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Further Clinical Trials

The Company is now designing further clinical testing intended to measure efficacy of RCT-01 in patients with chronic tendinosis. The Company is currently engaged in a dual-track plan to commercialize RCT-01 in Japan as quickly as possible. The Company is preparing for a university-sponsored clinical research study of RCT-01 in patients with tendinopathy under that country's Act on the Safety of Regenerative Medicine (ASRM) regulations. Successful safety and efficacy data from such a study can be sufficient to support market launch of a product albeit without reimbursement or formal PMDA approval. Secondly, RepliCel has successfully completed the second of three consultations required to obtain clearance from Japan's regulatory agency (the Pharmaceutical and Medical Devices Agency, PMDA) to proceed with a clinical trial of RCT-01 under the PMD Act. This pathway leads to formal PMDA approval and reimbursement. Successful data from such a trial could lead to 'conditional approval' for market launch of RCT-01 in Japan with reimbursement pending data from a larger pivotal trial leading to full non-conditional approval.

In addition to RepliCel's intended conduct of a clinical trial in Japan, RepliCel's partner, YOFOTO (see below), is expected to conduct a clinical trial of RCT-01 in China. This trial is anticipated to be a phase 2 trial designed to answer critical questions related to dosing and treatment frequency.

Collaboration Agreement

The Company has a Collaboration and Technology Transfer Agreement with YOFOTO (China) Health Industry Co. Ltd. ("YOFOTO"). RepliCel and YOFOTO are collaborating on a clinical research program in China, with the goal of increasing the available human clinical data on RCT-01. The Company anticipates that collaborative technology transfer will continue between the companies as any new improvements to the RCT-01 technology are developed by either party. This agreement gives YOFOTO an exclusive 15-year geographic license to develop and market the Company's RCT-01 tendon regeneration technology in Greater China (China, Hong Kong, Macau, and Taiwan).

Intellectual Property

The Company has filed patent applications worldwide relating to compositions, methods and uses of NBDS cells for treating and repairing tendons. Representative examples of this portfolio include patent applications filed in a variety of select jurisdictions such as Australia, Brazil, Canada, China, Israel, India, Japan, South Korea, Mexico, New Zealand, Russia, Singapore, South Africa, the UAE and the United States (see e.g., US Pub No. 20150374757). 

RCS-01: Treatment for Aging and Sun Damaged Skin

Background

Skin is considered one of the most prominent indicators of one's age and health. Maintenance of healthy skin is dictated by intrinsic and extrinsic factors. While intrinsic factors (i.e. chronologic age, sex and genetic makeup) cannot be modified, the adverse effects caused by extrinsic factors such as UV radiation and smoking can be prevented or minimized by lifestyle modification. Although these extrinsic effects can be modulated, the extent to which they can be modified varies significantly among individuals, which largely depends on one's ability to detoxify and repair such damage.

The dermis and epidermis components of the skin lose thickness with age. Solar radiation, particularly UVA, is known to penetrate deep into the dermal layer, damaging fibroblasts, collagen and other fibroblasts expressed proteins, which are the major cellular components of the dermis. Similarly, some studies report 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 the skin's mechanical tensile ability and structural integrity.

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Treatment

The Company's NBDS-derived fibroblast therapy, which it refers to as RCS-01, provides a promising platform to treat intrinsically and extrinsically aged/damaged skin by directly providing UV-naïve collagen-producing fibroblast cells to the affected area. The Company's unique manufacturing technology allows for isolation of fibroblasts derived from anagen-hair follicle mesenchymal tissues, which elicit more efficient replication potential in culture. Additionally, the Company's proprietary culture procedures potentiate these cells to maintain plasticity, allowing them 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 proper alignment within the tissue.

On September 1, 2015, the Company announced it 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 was a randomized, double-blind, placebo controlled study of intradermal injections of RCS-01 designed to assess local safety as well as systemic safety. This trial is now complete with data announced early April 2017 in which the primary endpoint, safety, was successfully established and secondary endpoints related to measurements of the impact on biomarkers related to skin-aging were significantly positive.  A summary of the phase 1 clinical study data was published in the peer-reviewed journal, Skin Pharmacol Physiol.

Further Clinical Trials

The Company is now designing with its partner, YOFOTO (see below), further clinical testing of RCS-01 including a multi-centre phase 2 clinical trial intended to measure efficacy of RCS-01 in a larger population of patients with aging and UV-damaged skin and answer critical questions related to dosing and treatment frequency in China as well a clinical study in Japan.

The Company is currently engaged with the Japanese regulators in the reviews necessary to obtain regulatory clearance from the PMDA and Ministry of Health, Labour and Welfare (MHLW) to conduct its next clinical study of RCS-01 in Japan under the Act for the Safety of Regenerative Medicine (ASRM) with the intention of launching the product on the market in Japan after successful completion of such a trial. Other preparations required for the conduct of such a clinical study have also been initiated in Japan. 

All future clinical trials of RCS-01 will be intended to be conducted using prototypes of RepliCel's DermaPrecise dermal injector.

Collaboration Agreement

The Company has a Collaboration and Technology Transfer Agreement with YOFOTO (China) Health Industry Co. Ltd. ("YOFOTO"). RepliCel and YOFOTO are collaborating on a clinical research program in China, with the goal of increasing the available human clinical data on RCS-01. The Company anticipates that collaborative technology transfer will continue between the companies as any new improvements to the RCS-01 technology are developed by either party. This agreement gives YOFOTO an exclusive 15-year geographic license to develop and market the Company's RCS-01 skin rejuvenation technology in Greater China (China, Hong Kong, Macau, and Taiwan).

Intellectual Property

The Company has filed patent applications relating to compositions, methods and uses of NBDS cells for treating and repairing aging and UV-damaged skin.  Representative examples of this portfolio include patent applications filed in a variety of select jurisdictions such as Australia, Brazil, Canada, China, Europe, Israel, India, Japan, South Korea, Mexico, New Zealand, Singapore, and the United States (see e.g., US Pub No. 20160136206).

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RCH-01: Treatment for Hair Loss

Background

Androgenetic alopecia (pattern hair loss) can affect up to 70% of men and 40% of women during the course of their lives. Although it is not a disease that causes physical pain, it does cause mental pain. Over $3 billion is spent each year on hair loss treatments that provide limited results. Androgenetic alopecia is largely an inherited disease. Males and females can inherit it from either the mother's or father's side of the family. Women with this trait develop thinning hair, but do not commonly become completely bald.

Androgenetic alopecia is a process by which hair follicles shrink and produce smaller hairs thus reducing hair density. These miniaturized hair fibers have a shorter growth cycle and are structurally smaller. They produce thinner and shorter hair, which results in less scalp coverage. Eventually these follicles can regress to a state where they produce no hair.

Treatment

The Company believes its dermal sheath cup (DSC) cell therapy offers several advantages over current hair loss solutions. The current gold standard in hair loss treatment is hair transplant surgery which requires the surgical removal of a prominent band of hair-bearing scalp or multiple micro-biopsies from the back of the head. This band of resected tissue or biopsies are then dissected into hair follicles consisting of one to three hairs which are then implanted into balding areas on the scalp. Often a number of similar procedures are required to achieve the desired result and the patient is limited by the number of hairs that can be redistributed. In contrast, RCH-01 involves the extraction of as few as 20 hair follicles from the back of the patient's scalp where healthy cycling hair follicles reside. The Company believes these cells are responsible for the continued health of the hair follicle and the normal cycling of the hair fiber. DSC cells are isolated from the hair follicles and are then replicated in culture at a cGMP compliant facility utilizing the Company's proprietary cellular replication process, and are then reintroduced back into balding areas on a patient's scalp. The implanted cells are expected to rejuvenate damaged quiescent hair follicles leading to the growth of new healthy hair fibers. The anticipated long-term result of RCH-01 injections is the restoration and maintenance of a patient's hair.

Phase I Clinical Trial (Europe)

The primary protocol objective of the study was to assess the local (at treatment sites) safety profile of injections of autologous DSC cells at nine months post-injection compared to placebo. Secondary protocol objectives were to assess systemic (overall) safety and efficacy (hair growth at treatment sites) at nine-month post-injection and local safety at 24-months post-injection. The nine-month interim analysis was designed to provide us with safety information to support the regulatory filing for a phase II clinical trial. The nine-month interim analysis results support the continued development of DSC cells for treating androgenetic alopecia. Participants of the phase I clinical trial were followed for five years. The study's primary objective was to provide a long-term safety profile of injections of cultured DSC cells five years after injection compared to control. This objective was met with an announcement of the final data from this trial in Q1 2017. In addition to establishing the safety of the product through five years of follow-up, the data announcement also included several successful data measurements related to increased hair density and stabilization of hair loss through the initial 24 months in which these measurements were taken.

Dose-Finding Clinical Study (Japan)

In 2016, a clinical study was launched in Japan as two clinical sites with funding and product manufacturing provided by Shiseido. The study investigated three different one-time injections. This study was completed in 2019 and data from the randomized, double-blinded, placebo-controlled dose-finding clinical study involving 65 patients as published in the Journal for the American Academy of Dermatology (July 2020). The study successfully met its endpoints and established important data regarding which dose was optimal in achieving desired clinical outcomes.

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Pivotal Clinical Study (Japan) Testing Repeated Injections

In early 2020, Shiseido publicly communicated its intention to fund a next-phase clinical study of RCH-01 in Japan investigating a series of injections. In October 2020, Shiseido announced that it had launched such a study to test the efficacy of 'repeated' injections of RCH-01 in 36 male and female patients with hair loss due to androgenic alopecia. The primary clinical endpoint of the study is to measure changes in hair density twelve months after treatment. In addition to testing the impact of repeated injection (which has not yet been tested), the study protocol also involves the treatment of the entire area of the patient's hair loss (which has also not yet been tested).  Shiseido has not reported any updates on the status of this study or any data from the study. 

The Company has designed a phase 2 clinical trial intended to measure efficacy of RCH-01 in a larger population of patients with mild to moderate androgenetic alopecia and answer critical questions related to dosing and treatment frequency. The Company is currently engaged in molecular marker research at the University of British Columbia which is expected to lead to improvements in the product identification, manufacturing, and its clinical effectiveness. The Company will await data from this research and until clinical-grade prototypes of the DermaPrecise dermal injector are available for use in clinical studies prior to submitting the clinical trial application for a phase 2 study of RCH-01 for regulatory approval.

Collaboration Agreement

The Company has a Collaboration and Technology Transfer Agreement with Shiseido Company, Limited ("Shiseido"), one of the world's largest cosmetic companies. Both companies agreed to work towards establishing a clinical research program in Asia, with the goal of increasing the available human clinical data on RCH-01. The Parties agreed to collaborate as any new improvements to the RCH-01 technology were developed by either party. This agreement gave Shiseido an exclusive geographic license to use the Company's RCH-01 hair regeneration technology in Japan, China, South Korea, Taiwan and the ASEAN countries representing approximately 2.1 billion people. In mid-2016, Shiseido alleged RepliCel had breached its obligations in the agreement, which was potentially terminal to future obligations pursuant to the agreement.  RepliCel has vigorously denied the existence of such a breach and insists on the ongoing validity of the respective obligations of both parties pursuant to the agreement. Despite the allegations of breach and termination, Shiseido funded a hospital-sponsored clinical study of RCH-01 in Japan, which is now complete. By agreement, the clinical data produced in the study is to be made available to the Company. The Company has delivered several demands for the delivery of the data, which Shisedo has refused. The company has made several other demands for compliance with different obligations in the Agreement. Shiseido has refused to comply with all demands. Nonetheless, Shiseido continues to fund clinical testing and development of RCH-01 in Japan, such as the Pivotal Clinical Study described above, which is still ongoing and incomplete. In 2021, the Company actively explored its legal alternatives in the pursuit of a resolution to this disagreement.  In 2021 the Company attempted to engage Shiseido in settlement discussions by written letters, without success. The Company obtained a legal opinion from a lawyer about proceeding with arbitration. Based on that legal advice, the Company consulted with lawyers who specialize in international arbitration and retained a law firm based in Switzerland, Aceris Law, to represent the Company in the arbitration. The Company and Aceris Law filed a Notice of Arbitration with the International Center for Dispute Resolution (ICDR), the arbitral tribunal with jurisdiction over the Agreement between the Parties. The Company issued a Press Release advising shareholders of this milestone. Shiseido served the Company with its Response to the Notice of Arbitration, and the Company's legal counsel reviewed Shiseido's Response with the Company. Based on Shiseido's Response to the Notice of Arbitration, the Company made a strategic and legally necessary step of terminating the Agreement with Shiseido.

In 2022, the Company's legal counsel has continued to fulfil the procedural requirements of the ICDR arbitration process, which to date has included drafting and filing the Notice of Claim, vetting and agreeing to the arbitration panel, making procedural applications, drafting and filing the Statement of Claim and witness statements, corresponding with the panel and opposing counsel regarding the procedural calendar for the full arbitration process, etc. The Company has received the filed Statement of Defence by Shiseido's counsel. An oral hearing was scheduled for May 29, 2023 to June 1, 2023 (completed). The Company expects to have a final, written decision by Q4 2023. In Q1 of 2023, preliminary discussions have been held between the Parties exploring potential settlement. The Company will continue to explore the opportunity to settle the dispute on terms favourable to shareholders, but there is no expectation that such a settlement will occur.

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On October 16, 2023 the tribunal dismissed RepliCel's claims finding that Shiseido validly terminated the collaboration and technology transfer agreement dated effective July 9, 2013. Management is currently considering the impact of the decision and assessing its options.

Intellectual Property

The Company has filed patent applications for the use of hair follicle-derived 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 treating various medical conditions (including hair loss).  Within this portfolio, there are granted patents in Australia (AU 2003246521), Europe (EP 1509597), the United States (8431400) and Canada (2488057). An additional related patent application is also pending in the United States (USSN 16/032728).

DermaPrecise: Dermal Injector Device

Background

To support the Company's RCH-01 and RCS-01 products, the Company is developing a second-generation dermal injector device. The DermaPrecise Injector, the production design of which is now complete, will be able to deliver programmable volumes of substances into programmed 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, the Company improves the chances of success in treating 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 Company believes that this device will have applications in certain other dermatological procedures requiring injections of specific volumes of material at specific depths and is actively exploring licensing opportunities in these areas. In addition to the programmable variables of volume and depth, the device will also have interchangeable heads for different injection procedures (single and multi-needle). The Company received its first functioning prototypes for testing in Q3 2017 and, as a result of extensive testing, made several improvements to the components and design to optimize desired functionality through the following 18 months. Final prototypes were signed off on in late 2019, and first run of commercial-grade prototypes was ordered into production in early 2020. This production run was delayed due to COVID-19-related shutdowns across the supply chain. The Company proceeded to produce its first samples of the commercial-grade prototypes in Q2 2021 and is in the early stages of functional and safety testing which is leading to minor design and production iterations based on results. The company has yet to sign off on a version of the device, which it believes is suitable for serial production. Once this stage of testing and component changes is complete, a full manufacturing run of units will be produced for testing over the following months and an application submitted to regulators for marketing approval. A CE mark will allow the Company to launch DermaPrecise in Europe commercially. An FDA approval (such as a 501(k)) will allow the Company to commercially launch the DermaPrecise Injector and single-use components in the United States. Either one will allow the Company to launch sale of the device and consumables in countries which accept those approvals, such as Hong Kong, where YOFOTO is already licensed to distribute. The registration of European or US marketing approval in Hong Kong is expected to trigger a $500,000 milestone payment from YOFOTO.

A proprietary needle head has also been developed and will have its own regulatory approval where needed. Only this needle-head will work with the device and will be sold/distributed exclusively by RepliCel and its agents. A novel splash guard has also been developed to work with the device and will have its own regulatory approval where needed. This guard will be sold/distributed exclusively by RepliCel and its agents.

RepliCel will also obtain regulatory approval on the assembled syringe cartridge where needed. This is the only cartridge that will work with the device and be sold/distributed exclusively by RepliCel and its agents.

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Collaboration Agreement

The Company has a Collaboration and Technology Transfer Agreement with YOFOTO (China) Health Industry Co. Ltd. ("YOFOTO"). YOFOTO has agreed to work towards commercializing the DermaPrecise device in China. This agreement gives YOFOTO an exclusive 15-year geographic license to commercialize the Company's DermaPrecise dermal injector in technology in Greater China (China, Hong Kong, Macau, and Taiwan).

Intellectual Property

The Company has also filed numbers patents and patent applications on its dermal injection devices for the delivery of therapeutically useful cells, as well the delivery of various other injectables. Representative granted patents include in Europe (EP 2623146 and EP 2809381), and the United States (US 9616182). Additional related patent applications are also pending in a variety of other jurisdictions such as Australia, Canada, China, Europe, Hong Kong, Israel, Japan, South Korea, New Zealand, Singapore, Taiwan, and the United States (US Pub No. 20180021523).

Investment and U.S. Partnership - Mainpointe Pharmaceuticals, LLC

On January 22, 2021, RepliCel signed three strategic agreements with MainPointe: a Share Purchase Agreement, a Distribution Agreement, and a Royalty Agreement. The strategic investment of $2,700,000 under the Share Purchase Agreement from MainPointe will be spread over an 8-month period. Under the limited term distribution partnership for RepliCel's dermal injector and consumables (the "RepliCel Injector Product Line") in the United States, MainPointe has agreed to pay all costs related to securing FDA approvals to launch the RepliCel Injector Product Line in the U.S. market. The Royalty Participation Agreement provides MainPointe the right to be paid a portion of RepliCel's future royalty revenue stream earned from the sale of RCS-01, RCT-01, and RCH-01 products and any derivatives. A shareholder and director of RepliCel is the Chief Technology Officer of MainPointe. The RepliCel and MainPointe teams actively collaborate on the US regulatory strategy and filing preparations.

Primary Deal Terms

In consideration for an investment of $2,700,000 and the payment of all costs related to obtaining FDA approval for the Company's dermal injector and consumables, RepliCel has agreed to issue MainPointe up to an aggregate of four (4) million common shares, a right to participate in RepliCel's royalty revenue stream up to a maximum payout of 16 million US dollars, and certain distribution rights of RepliCel Injector Product Line in the United States. The investment will be made as to:

• $500,000 within five (5) days of receipt of conditional approval from the TSX Venture Exchange ($492,092 on February 8, 2021),
• $1,200,000 by February 15, 2021 (received $490,000 on March 23, 2021 and $717,871 on April 23, 2021),
• $700,000 by April 21, 2021 (received $500,528 on August 30, 2021, $199,472 received on November 29, 2021), and
• $300,000 by August 21, 2021 ($298,921 received on November 29, 2021).

The common shares will be priced at the greater of $0.675 or the Discounted Market Price as such term is defined in the Policies of the TSX Venture Exchange.

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Investment and U.S. Partnership - Mainpointe Pharmaceuticals, LLC - continued

During the year ended December 31, 2021, the Company received the aggregate consideration of $2,700,000 in five tranches which were accounted for and allocated as follows on initial recognition:

Tranche receipt date	Tranche amount $	Share capital or share subscription $	Royalty payable $	Loss on remeasurement of derivative liability $	Derivative liability $
February 8, 2021	492,092	364,512	346,287	(218,707)	-
March 23, 2021	490,000	272,222	344,815	(127,037)	445,384
April 23, 2021	717,871	378,667	507,376	(168,172)	(163,892)
August 30, 2021	500,528	240,995	352,224	(92,691)	(225,991)
November 30, 2021	498,393	203,049	350,845	(55,501)	(55,501)
Total*	2,698,884	1,459,445	1,901,547	(662,108)	-

* The difference of $1,116 between the contractual gross proceeds and actual gross proceeds received is attributable to wire fees and foreign exchange translation differences.

The Company issued 3,986,684 common shares to fulfill its obligations pursuant to the Share Purchase Agreement:

Issue Date		Number of common shares
February 8, 2021		729,024
April 23, 2021		1,777,778
December 17, 2021		1,479,882
		3,986,684

Mainpointe is entitled to a royalty under the agreement equal to:

a) 5% of the amounts earned by and paid to the Company from the sale of any of its "NBDS Products" defined as its RCS-01 (NBDS Fibroblast Therapy - Treatment for Aging Skin), RCT-01 (NBDS Fibroblast Therapy - Treatment for Chronic Tendinosis) and any other product which is comprised of the non-bulbar dermal sheath cells patented by the Company, and

b) 20% of the amounts earned by and paid to the Company from the sale of any of its "DSC Products" defined as its RCH-01 (DSC Therapy for Treatment Androgenic Alopecia) and any other product which is comprised of the dermal sheath cup cells patented by the Company. 

In consideration for paying all expenses required to obtain regulatory approval for the RepliCel Injector Product Line, the exclusive distribution rights shall commence upon receipt of regulatory approval to launch the RepliCel Injector Product Line in the U.S. market for a period expiring on the earlier of:

a) four (4) years, or

b) when MainPointe has earned USD $2,000,000 in gross income from selling the products in the RepliCel Injector Product Line.

The Company will have the right, in its discretion, to buy out this exclusivity right for an amount equal to the net present value of profit to be earned on USD $2,000,000 in gross income, plus a further amount in gross income that is equal to the regulatory approval costs

The arrangement with MainPointe was accounted for as a hybrid instrument with two components: royalty payable, which is a financial liability accounted for initially at fair value and subsequently at amortized cost, and an obligation to issue common shares to MainPointe at an agreed price at a future date, which is a derivative liability accounted for at FVTPL.

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Investment and U.S. Partnership - Mainpointe Pharmaceuticals, LLC - continued

The obligation to pay royalties of $16 million USD is classified as a financial liability and measured initially at its fair value and subsequently at amortized cost. Management estimated the present value of future cash flows over the expected term using an estimated effective interest rate. The timing and amount of future cash flows are significant judgments that influence measurement of this financial liability over its term until settled. The effective interest rate will be reassessed at each reporting period end date based on management's estimates of changes to the future cash flows and their timing. Management has recorded accretion expense of $732,069 in the year ended December 31, 2021 based on an effective interest rate of 57%. The Company incurred no transaction costs to enter into these agreements.

Accretion expense recorded in the six months ended June 30, 2023 of $467,201 (2022: $920,247) was based management's estimate that they would pay USD $16 million royalty obligation in 2.34 years ("the Payback Period"), commencing from January 1, 2024. On December 31, 2022, the Company changed the estimated commencement date from January 1, 2024, to January 1, 2026, based on new information. As a result of the change, the Company recognized a gain of $3,310,875 in its statement of comprehensive loss. The change in commencement date did not impact the current estimated Payback Period, which remains at 2.34 years. Any changes in this estimated Payback Period would result in variability to the Company's reported royalty obligation and annual accretion expense. Should the Payback Period extend beyond the current estimated 2.34 years, the royalty obligation at December 31, 2022, the accretion in the year ended December 31, 2022 and the effective interest rate estimate would change as presented below:

Payback Period (years)		Royalty payable estimate at December 31, 2022 ($)			Accretion expense for December 31, 2022 ($)			Effective interest rate
2.34 (current estimate)		1,623,088			2,031,758			57%
5.00		3,227,547			784,813			29%
7.50		2,969,087			606,255			24%
10.00		2,810,512			498,534			21%

OTHER

On November 28, 2022, the Company announced that Andrew Schutte has accepted the role of President and CEO. Mr. Schutte has served as a Director and been a member of both the Science and Operations Committees since 2018.  RepliCel's previous President and CEO, Mr. Lee Buckler, has resigned these roles and will work with the Board on an ongoing basis.  Mr. Buckler remains as a director of the Company.

In addition, Kevin McElwee, co-founder and Chief Science Officer has agreed to oversee a robust and expanding set of research initiatives, Ben Austring has been appointed Corporate Secretary and Chief Operating Officer, and David Kwok has been appointed Chief Financial Officer after the sudden passing of Simon Ma in July 2023.

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DISCUSSION OF OPERATIONS

		For the six months ended June 30
		2023			2022			Variance
Revenue	$	176,868		$	176,868		$	-
Expenses
Research and development		348,816			228,497			(120,319	)
General and administrative		586,243			776,195			189,952
Other items		763,330			1,070,544			(307,214	)
Total loss		(1,521,521	)		(1,898,368	)		(237,582	)

Research and Development expenses totalled $348,816 for the six months ended June 30, 2023, compared to $228,497 for the same period ended in 2022. The variance is due to the re-execution of the planned projects.

General and administrative expenses totalled $586,243 compared to $776,195, a decrease of $34,410 due to cost saving initiatives by the Company.  A significant portion of the G&A costs were due to legal fees in connection with the Company's arbitration hearings.

Loss from Other items for the six months ended June 30, 2023 compared to the same period last year was also due to cost savings initiatives, even as increases in accretion expense on preference shares and put liability as they reach closer to maturity.

SUMMARY OF QUARTERLY RESULTS

The following summarizes the Company's financial results for the eight most recently completed quarters.

LIQUIDITY AND CAPITAL RESOURCES

The Company's condensed consolidated financial statements have been prepared on a going concern basis, assuming that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. Since its inception, the Company had accumulated $5,879,870 in revenue from its business, had accumulated a deficit of $44,796,391 since incorporation and is expected to incur further losses in the development of its business, which casts substantial doubt about the Company's ability to continue as a going concern. At June 30, 2023, the Company had current liabilities in excess of current assets of $1,107,884. Additional working capital will be required for research and development along with general and administrative expenses and to further its business plans. The Company is currently pursuing both dilutive and non-dilutive financing it expects will satisfy its working capital requirements going forward. Non-dilutive funding includes grant funding and strategic partnerships involving product licenses to defined geographic markets and for specified applications. The Company's 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 the Company cannot continue as a going concern.

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The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company has financed its operations to date through the issuance of equity. The continued volatility in the financial equity markets may make it difficult to raise funds by private placements of shares.  There is no assurance that the Company will be successful with its financing ventures.

Operating Activities

During the six months ended June 30, 2023, $1,551,289 was used in net cash from operating activities compared to $77,521 of cash used in operating activities for the comparative period ended June 30, 2022. The increase in cash used for operating activities was a result of primarily increases in resources due to the recent consecutive private placements.  It is also due to a renewed focus on its research and development programs and arbitration costs with Shiseido.

Additional working capital will be required for research and development and general administration expenses and to further our business plans.

Financing Activities

During the six month period ending June 30, 2023, the Company raised $1,013,1000 in private placement and settled $383,171 in debt by issuing shares.

The Company's ability to continue as a going concern depends on its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.  Management has a plan in place to address this concern and intends to obtain additional funds by equity financing to the extent there is a shortfall from operations. While the Company is continuing its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds for operations.

We anticipate requiring additional funds to proceed with our full current plan of operations through December 31, 2023 focused on finalizing the DermaPrecise device and consumables for a marketing approval application to the US FDA and market launch in the United States and Hong Kong, progressing toward the launch of clinical studies in Japan for RCS-01 and RCT-01 should partners be secured to fund those studies, and providing technology transfer, training and other support to be ready for clinical trial launch of RCS-01 and RCT-01 in China.

In combination with potential revenue from milestone payments and/or upfront licensing fees received pursuant to potential new licensing deals, the Company anticipates that we will require a maximum of $2,000,000 to proceed with our full current plan of operations through December 31, 2023. Accordingly, the Company plans to raise additional capital through the sale of debt or equity securities or other forms of financing in order to raise the funds necessary to pursue the Company's plan of operations.

The Company is currently pursuing both dilutive and non-dilutive financing it expects will satisfy its working capital requirements going forward. Non-dilutive funding includes grant funding and strategic partnerships involving product licenses to defined geographic markets and for specified applications.  There can be no assurance that additional financing will be available when needed or, if available, on commercially reasonable terms. If the Company cannot obtain additional financing on a timely basis, it may not be able to pursue its plan of operations or meet its obligations as they come due and may be forced to scale down, or perhaps even cease, business operations. The Company is actively engaged in several due diligence reviews and partnership discussions. All such discussions involve the injection of new capital into the Company.

Cash on hand and cash equivalents are currently the Company's only source of liquidity. The Company does not have any lending arrangements in place with banking or financial institutions and the Company does not know whether it will be able to secure such funding arrangements in the near future.

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OUTSTANDING SHARE DATA

Common Shares Outstanding

As at the date of this MD&A, there were 65,001,560 common shares issued and outstanding.

As at the date of this MD&A, there were stock options entitling the holders to acquire an aggregate of 4,695,000 common shares.

As at the date of this MD&A, share purchase warrants were outstanding entitling the holders to acquire an aggregate of 13,204,114 common shares.

As at the date of this MD&A, there were no agent's options outstanding.

As at the date of this MD&A, there were 1,089,125 preferred shares issued and outstanding.

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RELATED PARTY TRANSACTIONS

The following amounts due to related parties are included in accounts payable and accrued liabilities:

		June 30, 2023			June 30, 2022
Companies controlled by directors of the Company (a)	$	-		$	47,250
Directors or officers of the Company		95,000			43,500
	$	95,000		$	90,750

These amounts are unsecured, non-interest bearing and have no fixed repayment terms.

The Company incurred the following transactions with companies controlled by directors and/or officers of the Company. The transactions were measured at the amount agreed to by the parties.

		Three months ended
		June 30, 2023			June 30, 2022
Research and development	$	15,000		$	15,000
	$	15,000		$	15,000

Key management compensation

Key management personnel are people responsible for planning, directing and controlling the activities of an entity and include executive directors, the CEO, COO, and the CFO.

		Six months ended
		June 30, 2023			June 30, 2022
General and administrative - salaries	$	96,000		$	84,000
Directors' fees		53,000			21,750
Stock-based compensation		30,000			104,995
	$	179,000		$	210,745

OFF BALANCE SHEET ARRANGEMENTS

As Date of this MD&A, the Company did not have any off-balance sheet arrangements, as defined by applicable securities regulators in Canada and the United States that have or are material effect on our results of operations or financial position.

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EVENT AFTER THE REPORTING DATE

None that are not already disclosed.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

RepliCel makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgements 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 a material adjustment to the amounts reported in these financial statements are discussed below:

Share Based Payments

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted.  Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model, including the expected life of the share option, volatility and dividend yield and making assumptions about them.

Revenue Recognition

The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration that it is entitled to in exchange for the goods and services transferred to the customer. For collaborative arrangements that fall within the scope of IFRS 15, the Company applies the revenue recognition model to part or all of the arrangement, when deemed appropriate. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of IFRS 15, to identify distinct performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. Significant judgement is involved in determining whether the transaction price allocated to the license fee should be recognized over the collaboration period or at the inception of the contract and the time period over which revenue is to be recognized.

Preference Shares

The Company made estimates on the issuance of preference shares, which are compound instruments that consist of both an equity and a liability component. Due to required redemption RepliCel preference shares were classified as liability.  Management was required to make estimates to determine the fair value of the components of the preference share issuance on the date it is issued. The Company also needed to estimate the effective interest on preference shares to calculate the amounts payable on redemption and inclusive of dividends.

Put Liability

The Company made estimates on the issuance of the put liability disclosed in the financial statements.  The put liability is a financial liability recorded initially at the present value of the potential exercise price of the put.  Management is required to estimate to determine the effective interest rate to appropriately discount the potential exercise price over the term of the put liability to its fair value at issuance. Subsequent to its initial recording, the put liability is accreted up to the full face value at the end of the term of the agreement.

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Derivative Liability

Replicel made estimates in determining the fair value of the derivative liability. The obligation to issue common shares to Mainpointe at an agreed price at a future date is a derivative liability accounted for at FVTPL. The fair value of this derivative liability has been estimated based on the difference between the market value of the Company's shares to be issued under this arrangement at the reporting date compared to the agreed price of such shares.  The derivative liability is fair valued at each measurement date until its settlement.

Income Taxes

Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.  The Company recognizes liabilities and contingencies for anticipated tax audit issues based on the Company's current understanding of the tax law.  For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

In addition, the Company will recognize deferred tax assets relating to tax losses carried forward to the extent there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized.  However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped.

FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS

As at June 30, 2023 and the date of this MD&A, the Company's financial instruments are comprised of cash and cash equivalents, accounts payable and accrued liabilities, CEBA loan payable, preference shares, promissory note, put liability, derivative liability and royalty payable. The fair values of cash and cash equivalents, accounts payable and accrued liabilities, CEBA loan and promissory note approximate their carrying value due to their short-term maturity. The Company is exposed through its operations to currency, credit, liquidity and interest rate risk.

In common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments.  For more information, see the Company's annual audited consolidated financial statements.

RISKS AND UNCERTAINTIES

Risks Relating to the Company's Business

In addition to the other risks and uncertainties set out earlier in this MD&A, the Company is also exposed to the following risks and uncertainties:

The Company currently does not generate recurring revenue from its operations, and as a result, it faces a high risk of business failure.

The Company has generated $5,703,001 in licensing revenues from its 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 and $1,582,601 pursuant to a License and Collaboration Agreement with YOFOTO for certain development and commercialization rights to certain products (the "Licensed Technology") for Greater China (Hong Kong, People's Republic of China, Macau, and Taiwan) (the "Licensed Territory"). This revenue was not recurring revenue from its operations and the Company may not obtain similar revenue in the future.

MainPointe Pharmaceuticals LLC - Royalty Participation, Share Purchase, and Distribution Agreements

RepliCel is at risk of a possibility of MainPointe not discharging its obligations in the Agreements such as not funding or adequately or fully funding all regulatory submission costs as defined in the Agreements. Additional risk to the Company exists in MainPointe not fully allocating sufficient 'internal' resources to support the regulatory submission defined in the Agreements. The Company is also at risk that MainPointe does not distributing or adequately distributing the products which are the subject of the Agreements. RepliCel is also at risk of MainPointe refusing to purchase the shares of the Company as agreed to in the Share Purchase Agreement. 

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YOFOTO - License and Collaboration Agreement

The Company is exposed to certain risks related to YOFOTO's inability to obtain local and/or national regulatory approvals required to commercialize its licensed products because of factors outside of their control or ability to impact.  Under such conditions, the License and Collaboration Agreement contains a provision permitting YOFOTO to put up to 2/3 of the shares issued in YOFOTO's initial investment back to the Company, if all conditions are met, for a period of 8.5 years from July 10, 2018.

The deal structure also includes milestone payments (of up to CDN $4,750,000), sales royalties, and a commitment by YOFOTO to spend a minimum of CDN $7,000,000 on the RepliCel programs and associated cell processing manufacturing facility over the next five years in Greater China pursuant to a License and Collaboration Agreement. The License and Collaboration Agreement contains a provision permitting YOFOTO to put up to 1/3 of the shares issued in YOFOTO's initial investment back to the Company under certain conditions for a period of 8.5 years from July 10, 2018.

RepliCel is at risk of a possibility of YOFOTO not being able to discharge its obligations in the Agreement and thereby causing RepliCel not to receive its scheduled milestone payments. Should it be deemed not to be YOFOTO's fault in not meeting its milestone targets, the Company may have the risk of having YOFOTO exercising its put options and have RepliCel buy back 2/3 of the shares.

There is a potential risk of YOFOTO not protecting RepliCel's intellectual property in the Licensed Territory in the event an actual or alleged infringement, by a third party, of the Licensed Technology or the Issued Patents or any right with respect to the Licensed Technology or the Issued Patents in the License Territory.

The Company's 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, the Company will incur substantial expenses in the development of its business. The Company therefore expect to incur significant losses in the foreseeable future. The Company recognizes that if it is unable to generate significant revenues from its activities, the Company's entire business may fail. There is no history upon which to base any assumption as to the likelihood that the Company will be successful in its plan of operation, and the Company can provide no assurance to investors that it will generate operating revenues or achieve profitable operations in the future.

The Company anticipates that it will require approximately $2,000,000 in the next twelve months to proceed with its current plan of operations focused on completing the DermaPrecise device and preparing the regulatory application for marketing approval, meeting its obligations to support YOFOTO's activities in Greater China, and preparing for next-phase clinical development and commercialization in Japan.

In order to fund its plan of operations for the next twelve months, the Company 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 its shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict its operations and liquidity.

Management has concluded that substantial doubt exists about the Company's ability to continue as a going concern.

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The Company anticipates generating losses for at least the next twelve months. Therefore, there is substantial doubt about its ability to continue operations in the future as a going concern, as described in Note 2a) of the Company's audited consolidated interim financial statements.  The Company's 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 the Company cannot continue in existence. The Company's business operations may fail if its actual cash requirements exceed its estimates and the Company is not able to obtain further financing. If the Company cannot continue as a viable entity, its shareholders may lose some or all of their investment in the Company.

The Company's 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 its autologous cell therapies.

The Company's autologous cell therapy technology is at an early stage of development and the Company may not develop a cell replication technology that can be commercialized. The Company is still in the early stages of identifying and conducting research on its technology. The Company's technology will require significant research and development and preclinical and clinical testing prior to regulatory approval, if required, being obtained in the United States or other countries. The Company may not be able to obtain regulatory approvals, if required, to complete necessary clinical trials for its cell replication technology, or to commercialize it. The Company's 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. The Company's technology may fail to provide its intended benefit, or achieve benefits equal to or better than its competitor's products at the time of testing or production and, if so, its business may fail.

The Company's clinical trials may fail to produce successful results or could be suspended due to unacceptable safety risks, which could cause its 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. The Company's products may fail to achieve necessary safety and efficacy endpoints during clinical trials. The Company believes that its clinical trials will take a substantial period of time to complete. Furthermore, failure can occur at any stage of the trials, and the Company 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, the Company or regulatory officials may suspend the Company's clinical trials at any time if it appears that the Company is exposing participants to unacceptable health risks. If the Company's clinical trials fail to produce successful results, or are suspended due to unacceptable safety risks, the Company's business may fail.

The Company's success depends on the acceptance of its cell replication technology by the medical community and consumers as a safe and effective solution.

The success of its cell replication technology will depend on its acceptance by potential consumers and the medical community. Because its 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 its 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 its 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 its business will be harmed.

The Company faces significant competition and if it is unable to successfully compete, the Company's business may suffer a material negative impact.

The life sciences industry is highly competitive. The Company anticipates that it 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 its 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 its competitors will not succeed in developing or marketing technologies and products that are more effective or commercially attractive than the products the Company is 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 its business, financial condition and results of operations. Also, even if the Company is able to compete successfully, there can be no assurance that it could do so in a profitable manner.

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If the Company is not able to effectively protect its existing intellectual property or it expires prior to product commercialization, the Company's business may suffer a material negative impact and may fail.

The success of the Company will be dependent on its ability to protect and develop its technology and to do so prior to patent expiry. The Company currently has registered patents for its cell replication technology in Australia, the United States, Japan and the European Union. If the Company is unable to protect its intellectual property, its business may be materially adversely affected. Further, the Company cannot be sure that its activities do not and will not infringe on the intellectual property rights of others. If the Company is compelled to prosecute infringing parties, defend its intellectual property or defend itself from intellectual property claims made by others, it may face significant expense and liability, as well as the diversion of management's attention from the Company's business, any of which could negatively impact its 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. The Company's ability to maintain and solidify its proprietary position for its products will depend on its success in obtaining effective claims and enforcing those claims once granted. The Company's 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. The Company also relies on trade secrets to protect some of its technology, especially where it is believed that patent protection is not appropriate or obtainable. However, trade secrets are difficult to maintain. While the Company uses reasonable efforts to protect its trade secrets, its employees, consultants, contractors or scientific and other advisors may unintentionally or wilfully disclose the Company's 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 the Company's competitors independently develop equivalent knowledge, methods and know-how, the Company would not be able to assert its trade secrets against them and its business could be harmed.

The Company lost its claims in the Arbitration and the Company's business has suffered a material negative impact and may fail.

The tribunal dismissed RepliCel's claims finding that Shiseido validly terminated the collaboration and technology transfer agreement dated effective as of July 9, 2013. Management is currently considering the impact of the decision and assessing its options.

The successful acquisition and maintenance of patent rights is critical to its business and any failure in this regard could hinder the development and marketing of its technology.

The Company currently has patent applications pending in several other countries around the world. The Company's 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, its patent applications have experienced delays and its patent applications may be delayed in the future. If others file patent applications or obtain patents similar to those the Company has licensed, such patents may restrict the use of its discoveries. The Company cannot predict the ultimate scope and validity of existing patents and patents that may be granted to third parties, nor can it predict the extent to which it 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 its manufacturing and marketing of the affected technology. If the Company becomes involved in patent litigation, it could consume a substantial portion of its resources.

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The Company may be subject to changes and uncertainties in laws and government regulations.

The 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 the Company's business, or the application of existing laws and regulations to cell replication technology, could have a material adverse effect on the Company's business, prospects, financial condition and results of operations.

Risks Relating to the Company's Management

The Company is dependent on the services of certain key consultants and the loss of any of these key consultants may have a materially adverse effect on the Company.

While engaged in the business of developing a new cell replication technology, the Company's ability to continue to develop a competitive edge in the marketplace will depend, in large part, on its ability to attract and maintain qualified key management personnel. Competition for such personnel is intense, and it may not be able to attract and retain such personnel. The Company's growth has depended, and in the future will continue to depend, on the efforts of its key management consultants. Loss of any of these people would have a material adverse effect on the Company. Currently, the Company does not have key-man life insurance.

Conflicts of interest may arise as a result of the Company's directors and officers being directors or officers of other life sciences companies.

Certain of the Company's directors and officers are, or may become, directors or officers of other life sciences companies. While the Company is 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. The Company's directors are required by law to act honestly and in good faith with a view to the Company's best interests and to disclose any interest that they may have in any project or opportunity. If a conflict of interest arises at a meeting of the Company's board of directors, any director in a conflict must disclose his interest and abstain from voting on such matter. In determining whether or not the Company will participate in any project or opportunity, the Company's directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at the time.

The Company's articles contain provisions indemnifying its officers and directors against all costs, charges and expenses incurred by them.

The Company's articles contain provisions limiting the liability of its officers and directors for all acts, receipts, neglects or defaults of themselves and all of its other officers or directors or for any loss, damage or expense incurred by the 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 the Company's officers and directors and may discourage or deter its shareholders from suing the Company's officers and directors based upon breaches of their duties to the Company, though such an action, if successful, might otherwise benefit the Company and its shareholders.

As a majority of the Company's 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 the Company, directors and officers.

A majority of the Company's 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 the Company.

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Risks Relating to the Company's Common Stock

If the Company's business is unsuccessful, its shareholders may lose their entire investment.

Although shareholders will not be bound by or be personally liable for its expenses, liabilities or obligations beyond their total original capital contributions, should it suffer a deficiency in funds with which to meet its obligations, the shareholders as a whole may lose their entire investment in the Company.

Trading of the Company's common shares on the OTCQB (operated by the OTC Markets Group) and the TSX Venture Exchange is limited and sporadic, making it difficult for the Company's shareholders to sell their shares or liquidate their investments.

The trading price of the Company's common shares has been and may continue to be subject to wide fluctuations. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with little or no current business operations. There can be no assurance that trading prices and price earnings ratios previously experienced by the Company's common shares will be matched or maintained. These broad market and industry factors may adversely affect the market price of the common shares, regardless of the Company's operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for the Company and a diversion of management's attention and resources.

Investors' interests in the Company will be diluted and investors may suffer dilution in their net book value per share if it issues additional options to any of its officers, directors, employees or consultants.

Because the Company's success is highly dependent upon its directors, officers and consultants, it has granted, and may again in the future grant, options to some or all of its key officers, directors, employees and consultants to purchase its common shares as non-cash incentives. Options may be granted at exercise prices below that of its 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 the Company's other shareholders may be diluted.

Investors' interests in the Company will be diluted and investors may suffer dilution in their net book value per share if the Company issues additional shares or raises funds through the sale of equity securities.

In the event that the Company is required to issue additional shares in order to raise financing, investors' interests in the 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 the Company's shares.

Penny stock rules limit the ability of the Company's 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. The Company's securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade its securities.

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The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholder's ability to buy and sell the Company's 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 customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy its common stock, which may limit your ability to buy and sell its stock and have an adverse effect on the market for its shares.

The Company does not intend to pay dividends on any investment in the shares of stock of the Company.

The Company has never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that the Company requires additional funding currently not provided for in its financing plan, its funding sources may prohibit the payment of a dividend. Because the Company does not intend to declare dividends, any gain on an investment in the Company will need to come through an increase in the stock's price. This may never happen and investors may lose all of their investment in the Company.

OTHER INFORMATION

The Company's website address is www.replicel.com. Other information relating to the Company may be found on SEDAR at www.sedar.com

BOARD APPROVAL

The board of directors of the Company have approved this MD&A.

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Form 52-109FV2

Certification of Interim Filings

Venture Issuer Basic Certificate

I, Andrew Schutte, President and Chief Executive Officer of RepliCel Life Sciences Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of RepliCel Life Sciences Inc., (the "issuer") for the interim period ended June 30, 2023.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Date: October 23, 2023

"Andrew Schutte"                                          

Andrew Schutte

President & Chief Executive Officer

RepliCel Life Sciences Inc.

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Form 52-109FV2

Certification of Interim Filings

Venture Issuer Basic Certificate

I, David Kwok, Chief Financial Officer of RepliCel Life Sciences Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of RepliCel Life Sciences Inc., (the "issuer") for the interim period ended June 30, 2023.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Date: October 23, 2023

"David Kwok"                                

David Kwok

Chief Financial Officer

RepliCel Life Sciences Inc.

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