REPLICEL LIFE SCIENCES INC.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)

For the three months ended March 31, 2019

(Stated in Canadian Dollars)

REPLICEL LIFE SCIENCES INC.

Consolidated Statements of Financial Position

(Stated in Canadian Dollars)

(Unaudited)

As at	Notes		March 31, 2019			December 31, 2018
Assets
Current assets
Cash and cash equivalents			$	1,164,665		$	2,418,521
Sales taxes recoverable				54,692			49,504
Prepaid expenses and deposits				399,703			510,741
Contract asset		6		25,261			25,261
				1,644,321			3,004,027
Non-current assets
Contract Asset		6		208,922			215,237
Equipment		5		7,625			8,167
Total assets			$	1,860,868		$	3,227,431

Liabilities
Current liabilities
Accounts payable and accrued liabilities		8, 9	$	533,355		$	1,277,642
Contract liability		6		252,609			252,609
				785,964			1,530,251
Non-current liabilities
Contract liability		6		2,089,211			2,152,363
Total liabilities				2,875,175			3,682,614
Shareholders’ (deficiency) equity
Common shares		7		29,003,179			28,745,992
Contributed surplus		7		4,368,651			4,357,922
Accumulated deficit				(34,386,137	)		(33,559,097	)
Total shareholders’ (deficiency) equity				(1,014,307	)		(455,183	)
Total liabilities and shareholders’ (deficiency) equity			$	1,860,868		$	3,227,431

Continuance of Operations	2(a)
Commitments and Contingencies	10
Events after the reporting date	13

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.

For the period ended	March 31, 2019				March 31, 2018

				$	$
Revenue
Licensing fees (Note 6)		63,152				-

Expenses
Research and development (Note 8)		743,417				58,046
General and administrative (Note 5 and 8)		244,937				428,283
Loss before other items		(925,202	)			(486,329	)
Other items:
Foreign exchange gain (loss)		5,794				(6,137	)
Gain on debt settlement (Note 7 b i)		92,368				-

Net and comprehensive loss	$	(827,040	)		$	(492,466	)
Basic and diluted loss per share	$	(0.03	)		$	(0.03	)

Weighted average shares outstanding		26,873,313				16,720,093

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

REPLICEL LIFE SCIENCES INC.

Condensed Consolidated Interim Statements of Cash Flows

For the three months ended

(Stated in Canadian Dollars)

(Unaudited)

	March 31, 2019			March 31, 2018

Operating activities
Net loss	$	(827,040	)	$	(492,466	)
Add items not involving cash:
Amortization of contract asset		6,315			-
Revenue from contract liability (Note 6)		(63,152	)		-
Depreciation (Note 5)		542			749
Gain on debt settlement (Note 6 & 7 i)		(92,368	)
Stock-based compensation (Note 7 (e))		10,729			-

Changes in non-cash working capital balances:
Sales taxes recoverable		(5,188	)		(6,956	)
Prepaid expenses and deposits		111,038			137,455
Accounts payable and accrued liabilities		(394,732	)		85,488
Net cash used in operating activities		(1,253,856	)		(275,730	)



Decrease in cash and cash equivalents during the period		(1,253,856	)		(275,730	)

Cash and cash equivalents, beginning of the period		2,418,521			497,093

Cash and cash equivalents, end of the period	$	1,164,665		$	221,363

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

REPLICEL LIFE SCIENCES INC.

Condensed Consolidated Interim Statements of Changes in Equity

For the three months ended March 31, 2019 and 2018

(Stated in Canadian Dollars)

(Unaudited)


	Common Stock
					Contributed		Accumulated
	Shares		Amount		Surplus		Deficit			Total

Balance, January 1, 2019		26,800,529	$	28,745,992	$	4,357,922	$	(33,559,097	)	$	(455,183	)
Common shares issued for debt (Note 7(b)(i))		735,904		257,187		-		-			257,187
Stock-based compensation – Note 7 (d)		-		-		10,729		-			10,729
Net loss for the period		-		-		-		(827,040	)		(827,040	)
Balance, March 31, 2019		27,536,433	$	29,003,179	$	4,368,651	$	(34,386,137	)	$	(1,014,307	)


	Common Stock
					Contributed		Accumulated
	Shares		Amount		Surplus		Deficit			Total

Balance, January 1, 2018		21,442,629	$	26,182,073	$	4,287,947	$	(30,790,017	)	$	(319,997	)
Net loss for the period		-		-		-		(492,466	)		(492,466	)
Balance, March 31, 2018		21,442,629	$	26,182,073	$	4,287,947	$	(31,282,483	)	$	(812,463	)

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

REPLICEL LIFE SCIENCES INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the three months ended March 31, 2019

(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. The Company’s reporting jurisdiction is British Columbia. Its common shares are listed for trading in Canada on the TSX Venture Exchange, trading under the symbol RP, and in the United States on the OTCQB, trading under the symbol REPCF.

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

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

2.	Basis of Presentation

These condensed consolidated interim financial statements for the three-month period ended March 31, 2019 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 2018 annual financial statements which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

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

The condensed consolidated interim financial statements have been prepared using accounting policies consistent with those used in the Company’s 2018 annual financial statements. The condensed interim financial statements are presented in Canadian dollars, which is also the Company’s functional currency, unless otherwise indicated.

The condensed consolidated interim financial statements were authorized for issue by the Board of Directors on May 30, 2019.

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

a)	Continuance of Operations

These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. At March 31, 2019, the Company is in the research stage, has accumulated losses of $34,386,137 since its inception and expects to incur further losses in the development of its business. The Company incurred a consolidated net loss of $827,040 during the three month period ended March 31, 2019. The Company will require additional funding to continue its research and development activities which may not be available, or available on acceptable terms. This will result in material uncertainties which casts substantial doubt about the Company’s ability to continue as a going concern.

2.	Basis of Presentation - continued

a)	Continuance of Operations - continued

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

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

3.	Critical Accounting Estimates and Judgements

RepliCel Life Sciences Inc. 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 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 7(d).

Revenue Recognition

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

3.	Critical Accounting Estimates and Judgements - continued

Revenue Recognition - continued

4.	Accounting Standards, Amendments and Interpretations

New Standards, Amendments and Interpretations Effective for the first time

IFRS 16 Leases

The new standard replaces IAS 17 Leases and eliminates the classification of leases as either operating or finance leases by the lessee. The treatment of leases by the lessee will require capitalization of all leases resulting accounting treatment similar to finance leases under IAS 17 Leases. Exemptions for leases of very low value or short-term leases will be applicable. The new standard will result in an increase in lease assets and liabilities for the lessee. Under the new standard the treatment of all lease expense is aligned in the statement of earnings with depreciation, and an interest component recognized for each lease, in line with finance lease accounting under IAS 17 Leases. IFRS 16 is in effect for annual periods beginning on January 1, 2019.

The Company has reviewed the impact this standard is to have on its consolidated interim financial statements and were not able to identify any explicitly or implicitly identified asset that is subject to the new IFRS 16 Lease. Hence, there is no impact on the Company’s condense consolidated interim financial statements.

IFRIC 23 Uncertainly Over Income Tax Treatments

The new standard, to be effective for annual report periods beginning on or after January 1, 2019, clarifies how to apply the recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments, addressing four specific issues:

·	Whether an entity considers uncertain tax treatments separately;

·	The assumptions an entity should make about the examination of tax treatments by taxation authorities;

·	How an entity determines taxable profit or loss, taxes bases, unused tax losses, unused tax credits and tax rates; and

·	How an entity considers changes in facts and circumstances.

The Company has reviewed the standard and believes that this does not have an impact on the Company’s condensed consolidated interim financial statements due to taxable loss position.

There are no other IFRS or IFRIC Interpretations that are not yet effective that would be expected to have a material impact on the Company.

5. Equipment

	Furniture and Equipment		Computer Equipment		Total
Cost: At January 1, 2019	$	14,249	$	41,751	$	56,000
Additions		-		-		-
Disposals		-		-		-
At March 31, 2019		14,249	$	41,751	$	56,000
Depreciation: At January 1, 2019		11,433		36,400		47,833
Charge for the period		141		401		542
Elimination on disposal		-		-		-
At March 31, 2019		11,574		36,801		48,375
Net book value at March 31, 2019	$	2,675	$	4,950	$	7,625

	Furniture and Equipment		Computer Equipment		Total
Cost: At December 31, 2017	$	14,249	$	41,751	$	56,000
Additions		-		-		-
Disposals		-		-		-
At December 31, 2018		14,249		41,751		56,000
Depreciation: At December 31, 2017		10,729		34,106		44,835
Depreciation		704		2,294		2,998
At December 31, 2018		11,433		36,400		47,833
Net book value at December 31, 2018	$	2,816	$	5,351	$	8,167

6. Licensing and Collaboration Agreement – YOFOTO (China) Health Industry Co. Ltd.

On July 10, 2018, the Company signed the 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 the certain Canadian and Chinese approvals of the transaction (the “Transaction”).

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

As part of the deal, YOFOTO agreed to invest CDN $5,090,005 in a private placement of RepliCel common shares at CDN $0.95 per share to include 20% warrant coverage with each warrant exercisable at CDN $0.95 per share for a period of two years. The warrants are restricted from being exercised without shareholder approval if the exercise of the warrants would increase YOFOTO's ownership of RepliCel's issued and outstanding shares over 19.9%. At the Company’s Annual General Meeting on December 14, 2018, the Company received shareholder approval for YOFOTO to exercise the warrants and obtain an ownership position in the Company that may exceed 19.9%. The warrants have not yet been exercised.

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.

As part of the Transaction, the Company agreed to grant YOFOTO certain financing participation rights along with a board seat nomination. Upon YOFOTO meeting certain defined conditions, relevant Chinese patents, once issued in China, will be assigned to a YOFOTO-owned Canadian subsidiary, with detailed assignment reversion rights upon failure to meet defined targets.

On October 9, 2018, the Transaction was approved by the TSX Venture Exchange and applicable regulatory authorities including but not limited to the reviews and approvals by the State Administration of Foreign Exchange of China and other Chinese foreign investment regulatory authorities. On October 9, 2018, the private placement in the sum of $5,090,005 was closed completing the Transaction with YOFOTO's purchase of 5,357,900 RepliCel common shares which represents 19.9% of RepliCel's issued shares. In association with the YOFOTO deal, the Company has paid a success fee of ten percent (10%) of any upfront fees received by the Company. A fee of $509,001 has been paid in this respect. In addition, the Company will be paying a success fee of five percent (5%) of any milestone fees and royalty fees received by the Company as a result of this License Agreement.

The proceeds of $5,090,005 from the placement was allocated to common shares and warrants issued based on their fair value at the date of issuance which is $2,563,919. The remaining $2,526,086 was allocated to License Fee revenue to be recognized over a period of 10 years from the commencement date of the Agreement. No value was allocated to the put option.

Contract Liability

The Company amortizes and recognizes the revenue earned under the Agreement over a period of 10 years which according to the Agreement represents the time the License will have to complete the technology transfer and to obtain regulatory approval from local authorities.

6.	Licensing and Collaboration Agreement – YOFOTO (China) Health Industry Co. Ltd. – continued

Contract Asset

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

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

7. Share Capital

a)	Authorized:

Unlimited common shares without par value

Unlimited preferred shares without par value

b) Issued and Outstanding:

During the three-month period ended March 31, 2019:

The Company announced on January 17, 2019 a debt settlement in the amount of $349,555 owed by the Company to certain creditors by the issuance of 770,577 common shares (each, a “Share”) of the Company at a price of $0.475 per Share. The Settlement Agreements were signed on November 20, 2018; however, the debt was not settled until January 15, 2019 when the transaction was approved by the TSX Venture Exchange. The securities are subject to a statutory hold period of four months and one day. The Company reported a gain on this debt settlement in the amount of $92,357.

Subsequently, it has come to the Company’s attention that the dollar amount to be settled with one of the Creditors was incorrect and should have been $5,000 instead of $21,469 and the Creditor was issued 45,199 Shares instead of 10,526 Shares. The Board wishes to rectify the error by cancelling 45,199 shares and issuing 10,526 Shares in settlement of $5,000 at a deemed price of $0.475 per Reissued Share. Therefore, an amendment was filed with the Exchange for return to treasury 45,199 shares and re-issuance of 10,526 shares resulting the total adjusted debt in the amount of $349,555 settled by the issuance of 735,904 shares of the Company at a price of $0.475 per Share.

There were no share activities during the three months period ended March 31, 2018.

7.	Share Capital – continued

c) Stock Option Plans:

(i)

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

(ii)

Under various Founders’ Stock Option Agreements, certain founders of TrichoScience granted stock options to acquire TrichoScience shares to employees and consultants of TrichoScience. These founders’ options are exercisable at $1 per share expiring after six to seven years. Pursuant to the Share Exchange Agreement, the Founders Stock Option Agreements were converted into rights to receive the number of Founders’ RepliCel shares acquired by conversion of the founders TrichoScience shares under the Share Exchange Agreement. All other terms remained the same. This modification of stock options resulted in no incremental value and therefore no additional stock based compensation expense was recognized for the modification.

d) Fair value of Company Options Issued from January 1, 2017 to March 31, 2019

There were no stock options granted during the three-months period ended March 31, 2019 and 2018.

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.

Share Capital – continued

e) Stock-based Compensation

The Company recognized a fair value of $10,729 (2018: $115,800), as stock based compensation expense for stock options granted in 2018 under the Company Stock Option Plan and the Founders Stock Option Agreements for the three month ended March 31, 2019 and March 31, 2018.

The Company recognized a fair value of $326,367 as stock based compensation expense for stock options granted under the Company Stock Option Plan and the Founders Stock Option Agreements for the year ended December 31, 2018.

A summary of the status of the stock options outstanding under the Company Stock Option Plan for the three months ended March 31, 2019 and the year ended December 31, 2018 are as follows:

	Number of Options		Weighted Average Exercise Price
Outstanding, January 1, 2019		2,080,000	$	0.79
Granted		-		-
Cancelled		-		-
Outstanding, March 31, 2019		2,080,000	$	0.79
Exercisable, March 31, 2019		1,930,000	$	0.82

As at March 31, 2019, the range of exercise prices for options outstanding under the Company Stock Option Plan is $0.36 - $1.64 (2018 $0.36 – $1.64; and 2017: $0.60 - $1.35) and the weighted average remaining contractual life for stock options under the Company Stock Option Plan is 4.20 years (2018: 4.56 years; 2017: 3.48 years).

			Number of Options			Weighted Average Exercise Price
Outstanding, January 1, 2018	1,400,000			$	2.04
Granted	1,110,000				0.43
Cancelled	(430,000	)			0.69
Outstanding, December 31, 2018	2,080,000			$	0.79
Exercisable, December 31, 2018	1,905,000			$	0.82

As at December 31, 2018, the range of exercise prices for options outstanding under the Company Stock Option Plan is $0.36 - $1.64 (2017 $0.36 – $1.64; and 2016: $0.60 - $1.35) and the weighted average remaining contractual life for stock options under the Company Stock Option Plan is 4.56 years (2017: 3.48 years; 2016: 3.14 years).

7.	Share Capital – continued

f) Warrants

The number of warrants outstanding at March 31, 2019 and 2018, each exercisable into one common share, is as follows:

	Warrants Outstanding	Weighted Average Exercise Price	Expiry
February 24, 2017	2,721,604	$ 2.00	February 24, 2020
October 9, 2018	1,071,580	$0.95	October 9, 2020
Outstanding, March 31, 2019	3,793,184	$ 1.70

	Warrants Outstanding			Weighted Average Exercise Price
Outstanding, December 31, 2017		12,748,898		$	1.50
Expired		(111,362	)		0.45
Outstanding, March 31, 2018		12,637,536		$	1.50
Issued		1,071,580			0.95
Expired		(9,915,932	)		0.83
Outstanding, December 31, 2018		3,793,184		$	1.70
Expired		-			-
Outstanding, March 31, 2019		3,793,184		$	1.70

7.	Share Capital – continued

f) Warrants – continued

The weighted-average grant date fair value of warrants issued was estimated using the following weighted average assumptions:

	March 31, 2019	December 31, 2018
Risk fee rate	-	2.31%
Expected life (years)	-	2
Volatility	-	104%
Expected Dividend	-	$-
Expected forfeiture rate	-	0%
Exercise price	-	$0.95
Grant date fair value	-	$0.45

8. Related Party Transactions

The following amounts due to related parties are included in trade payables and accrued liabilities:

	March 31, 2019		December 31, 2018
Companies controlled by directors of the Company	$	2,500	$	214,361
Directors or officers of the Company		140,110		512,140
	$	142,610	$	726,501

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

Of the $349,555 debt settlement disclosed in note 7 b i), $277,719 belong to directors or officers of the Company and were settled during the three months period ended March 31, 2019.

8.	Related Party Transactions - continued

Related party transactions

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 exchange amount which approximates fair value, being the amount established and agreed to by the parties.

	Three months ended
	March 31, 2019		March 31, 2018
Research and development	$	47,367	$	30,000

Key management compensation

Key management personnel are persons responsible for planning, directing and controlling the activities of an entity, and include executive directors, the Chief Executive Officer and the Chief Financial Officer.

	Three months ended
	March 31, 2019		March 31, 2018
General and administrative – salaries and contracts	$	84,000	$	60,000
Director’s fees		21,000		13,750
Stock-based compensation		10,729		-
	$	115,729	$	73,750

9. Financial Instruments and Risk Management

As at March 31, 2019, the Company’s financial instruments are comprised of cash, and accounts payable and accrued liabilities. 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.

9.	Financial Instruments and Risk Management – continued

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 the European Euros as certain expenditures and commitments are denominated in European Euros and the Company is subject to fluctuations as a result of 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 March 31, 2019, the Company held US dollar cash balances of $10,354 (US$7,779). A 1% increase/decrease in the US dollars foreign exchange rate would have an impact of ±$104 (US478) on the cash balance held March 31, 2019.

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

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure, more specifically, the issuance of new common shares, to ensure there is sufficient capital in order to meet short term business requirements, after taking into account the Company’s holdings of cash and potential equity financing opportunities. The Company believes that these sources will be sufficient to cover the known short and long-term requirements at this time. 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 March 31, 2019:

Year of expiry		Accounts payable and accrued liabilities				Total
Within 1 year		$	533,355			$	533,355

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 is currently held in an interest bearing bank account, management considers the interest rate risk to be limited.

There were no changes to the Company’s fair value measurement levels during the period ended March 31, 2019 (2018: no change). The Company does not have any level 3 fair value measurements (2018: none).

10. Commitments and Contingencies

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

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

11. Capital Management

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

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

The Company’s investment policy is to hold cash in interest bearing bank accounts, which pay comparable interest rates to highly liquid short-term interest bearing investments with maturities of one year or less and which can be liquidated at any time without penalties. There has been no change in the Company’s approach to capital management during the three-month period ended March 31, 2019.

12. Segmental Reporting

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

13. Events after the Reporting Date

Subsequent to the three-months period ended March 31, 2019, the company announced that it intends to conduct a non-brokered private placement offering (the “Offering”) of up to 3,333,333 Class A Preference Shares (each, a “Class A Share”) at a price of $0.75 per Class A Share (the “Issue Price”) for aggregate gross proceeds of up to $2,500,000.

The Class A Shares carry 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 to convert the paid up amount of each Class A Share, from time-to-time, into common 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 that is equal to the greater of: (i) $0.625; and (ii) the Market Price (as defined in the policies of the TSX Venture Exchange (“TSXV”)) at the date of such conversion; 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 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 of $1.50 per Class A Share (the “Redemption Price”). 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.

As of the date of these condensed consolidated interim financial statements, the Company is currently marketing the private placement to investors and it has not yet been closed.