UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-41875
Graydon Bensler
120 Newport Center Drive, Suite 250
Newport Beach, CA 92660
(Address of principal executive office) (Zip code)
(866) 794-4940
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 13, 2024, there were 517,661,269 shares of our common stock, par value $0.0001 per share, issued and outstanding.
Elevai Labs Inc.Quarterly Report on Form 10-Q
TABLE OF CONTENTS
i
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly Report”) of Elevai Labs Inc. (“we,” “us,” “our,” “Elevai” and the “Company”) contains statements that constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in several different places in this Quarterly Report and, in some cases, can be identified by words such as “anticipates,” “estimates,” “projects,” “expects,” “contemplates,” “intends,” “believes,” “plans,” “may,” “will” or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this Quarterly Report may include, but are not limited to, statements and/or information related to: our financial performance and projections; our business prospects and opportunities; our business strategy and future operations; the projection of timing and delivery of products in the future; projected costs; expected production capacity; expectations regarding demand and acceptance of our products; estimated costs of research and development to develop new pipeline products; trends in the market in which we operate; the plans and objectives of management; our liquidity and capital requirements, including cash flows and uses of cash; trends relating to our industry; plans relating to our current products; and plans and intentions to regain compliance with the listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”), including, among other things, through the implementation of a reverse stock split.
We have based these forward-looking statements on our current expectations about future events on information that is available as of the date of this Quarterly Report, and any forward-looking statements made by us speak only as of the date on which they are made. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed or implied in our forward-looking statements for various reasons, including, our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; our capital needs, and the competitive environment of our business. Additional Factors that could contribute to such differences include, but are not limited to:
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Although management has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There is no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. These cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our Company or persons acting on our Company’s behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements, except as, and to the extent required by, applicable securities laws.
iii
PART I - FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Financial Statements of
For the quarterly periods ended September 30, 2024, and 2023
(Unaudited - Expressed in United States Dollars)
Elevai Labs Inc.
Condensed Consolidated Balance Sheets
(Unaudited - Expressed in United States dollar)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three & Nine months ended September 30, 2024, and 2023
2
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited - Expressed in United States dollars)
3
4
Condensed Consolidated Statements of Cash Flows
For the Nine months ended September 30, 2024, and 2023
5
Notes to the Condensed Consolidated Financial Statements
Elevai Labs Inc. (“Elevai”) was incorporated under the laws of the State of Delaware on June 9, 2020. Elevai and its 100% owned subsidiaries, Elevai Research Inc., Elevai Skincare Inc., and Elevai Biosciences, Inc., are collectively referred to in these unaudited condensed consolidated financial statements as “the Company.”
The Company is a skincare development company engaged in the design, manufacture, and marketing of skincare products in the skincare industry. The Company’s principal activities are developing and manufacturing skincare products.
On April 29, 2024, Elevai Skincare Inc. ("Skincare”) and Elevai Biosciences, Inc. (“BioSciences”) were incorporated under the laws of the state of Delaware. Elevai is the sole shareholder of Skincare and BioSciences. The purpose of Skincare is to operate the Company’s existing business, while the purpose of BioSciences is to hold and develop the Company’s intellectual property. Effective May 1, 2024, Elevai transferred its operating assets and liabilities relating to its skincare business to Skincare in exchange for common stock of Skincare.
These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and the ability of the Company to obtain necessary equity financing to continue operations, and ultimately the attainment of profitable operations.
As of September 30, 2024, and December 31, 2023, the Company had a net working capital of $6,097,404 and $3,622,091, respectively, and has an accumulated deficit of $11,334,888and $7,023,890, respectively. Furthermore, for the nine months ended September 30, 2024, and 2023, the Company incurred a net loss of $4,310,998 and $3,143,601, respectively, and used $3,486,435 and $2,168,661, respectively of cash flows for operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but not limited to, 12 months from the date the financial statements are issued. The Company is aware that material uncertainties related to events or conditions may cast substantial doubt upon the Company’s ability to continue as a going concern.
Management’s plans that alleviate substantial doubt about the Company’s ability to continue as a going concern include raising additional debt or equity financing. Although the Company has been successful in raising funds in the past, and expects to do so in the future, there are no guarantees that it will be able to raise funds as anticipated.
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and are expressed in United States dollars. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, we have included all adjustments considered necessary for a fair presentation and such adjustments are of a normal recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the years ended December 31, 2023, and 2022. The results of operations for the nine months ended September 30, 2024, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2024.
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Principles of Consolidation
The unaudited condensed consolidated financial statements include the account of Elevai, and its 100% owned subsidiaries, Elevai Research Inc., Skincare, and BioSciences. All intercompany accounts, transactions and profits were eliminated in the unaudited condensed consolidated financial statements.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, the collectability of receivables, valuation of inventory, fair value of derivative liabilities and stock options, useful lives and recoverability of long-lived assets, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the unaudited condensed consolidated financial statements in the period they are determined.
Foreign Currency Translation
The Company’s functional and reporting currency is the U.S. dollar. The functional currency of Elevai Research Inc. is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets, liabilities, and items recorded in income arising from transactions denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
The accounts of Elevai Research Inc. are translated to U.S. dollars using the current rate method. Accordingly, assets and liabilities are translated into U.S. dollars at the period-end exchange rate while revenues and expenses are translated at the average exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income (loss).
Intangible Assets
In accordance with ASC 350 “Intangibles—Goodwill and Other”, intangible assets are recorded at cost less accumulated amortization. They are depreciated using the straight-line method over their estimated useful lives, which reflect the period over which economic benefits are expected to be realized. In accordance with ASC 730 “Research and development costs”, an acquired in-process researched and development (“IPR&D”) intangible asset with an alternative future use is capitalized, in accordance with ASC 350, and amortized over its useful life. Although IPR&D assets are likely to be finite-lived, amortization does not begin until the research and development projects are completed. In accordance with the IPR&D asset purchase agreement, the Company is required to meet development milestones starting with the initiation of a pre-clinical IND-enabling study within 2 years of the acquisition date, and ending with obtaining marketing approval from the FDA within 9 years of the acquisition date. Management assesses impairment indicators at each reporting period end. The estimated useful lives of intangible assets are generally as follows:
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Accounting for Freestanding Instruments Issued Together
The Company accounts for multiple instruments issued together in accordance with ASC 470 “Debt”, ASC 480 “Distinguishing Liabilities from Equity” and ASC 505 “Equity”. The Company first identifies all freestanding instruments. When multiple freestanding instruments are issued in a single transaction, the total proceeds from the transaction are allocated among the individual freestanding instruments identified based on their relative fair values at issuance. Transaction costs that are directly attributable to the issuance of both debt and equity are allocated between the liability and equity components based on their relative fair values.
New Accounting Standards
Recently Adopted Accounting Standards
In March 2022, the FASB issued ASU 2022-02, ASC Subtopic 326 “Credit Losses”: Troubled Debt Restructurings and Vintage Disclosures. Since the issuance of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Board has provided resources to monitor and assist stakeholders with the implementation of Topic 326 (“Update”). Post-Implementation Review (PIR) activities have included forming a Credit Losses Transition Resource Group, conducting outreach with stakeholders of all types, developing educational materials and staff question-and-answer guidance, conducting educational workshops, and performing an archival review of financial reports. ASU No. 2022-02 is effective for annual and interim periods beginning after December 15, 2022. The adoption of this standard did not have a significant impact on the Company’s unaudited condensed consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The FASB is issuing this Update (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.
Stakeholders asserted that the language in the illustrative example resulted in diversity in practice on whether the effects of a contractual restriction that prohibits the sale of an equity security should be considered in measuring that equity security’s fair value. Some stakeholders apply a discount to the price of an equity security subject to a contractual sale restriction, whereas other stakeholders consider the application of a discount to be inappropriate under the principles of Topic 820.
For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The adoption of this standard did not have a significant impact on the Company’s unaudited condensed consolidated financial statements.
Recently Issued Accounting Standards
The Company assesses the adoption impacts of recently issued, but not yet effective, accounting standards by the Financial Accounting Standards Board on the Company’s unaudited condensed consolidated financial statements.
There are no recently issued accounting standards which may have effect on the Company’s unaudited condensed consolidated financial statements
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As of September 30, 2024, receivables consisted of the following:
The Company records sales taxes receivable for recoverable sales taxes paid on eligible purchases in its Canadian subsidiary. As at September 30, 2024, and December 31, 2023, the Company recorded a provision for credit losses of $nil and $nil, respectively.
As of September 30, 2024, and December 31, 2023, prepaid and deposits consisted of the following:
As of December 31, 2023, the security deposit on the Company’s long-term lease in the amount of $10,773 is classified as a non-current deposit on the balance sheet. As this lease term is expected to end in May 2025, this non-current deposit is classified as current on the balance sheet as at September 30, 2024.
As of September 30, 2024, and December 31, 2023, inventory consisted of the following:
Cost of inventory recognized as expense in cost of sales for the nine months ended September 30, 2024, and 2023, totaled $214,272 and $193,805, respectively. In addition, the cost of inventory relating to samples given out and expensed in marketing and promotion for the nine months ended September 30, 2024, and 2023, totaled $134,000 and $96,184, respectively. As of September 30, 2024, and December 31, 2023, the Company recorded an allowance for inventory of $nil and $nil, respectively.
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During the nine months ended September 30, 2024, and 2023, the Company capitalized depreciation of $1,936 and $914, respectively as part of the production of inventory.
On January 15, 2024, the Company entered into a license agreement with a biotechnology company to use their proprietary technology and process to assist in formulating stem cells (“License #1”). The term of the license is 10 years and has a purchase price of $1,000,000. The payment structure for License #1 is as follows:
The cost of License #1 was measured at $861,452, which is the fair value of the consideration payable on initial recognition, determined by discounting the future payments using a market interest rate of 11.75%.
On April 30, 2024, the Company entered into an exclusive license agreement with a pharmaceutical company granting the Company rights to develop, manufacture, and commercialize licensed products (“License #2”). The Company has classified License #2 as an IPR&D asset resulting in only the acquisition costs plus any transaction costs to be capitalized upon acquisition. The research and development project associated with License #2 is not yet complete and as a result the Company has not yet determined the useful life of the IPR&D asset.
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The Company paid consideration of $400,000and 950,000 shares of common stock with a value of $492,850 to the pharmaceutical company. The shares issued to the pharmaceutical company are unregistered and subject to trading restrictions for six months from the issue date resulting in a fair value discount adjustment of $173,100 on the value of the common stock issued to the pharmaceutical company. The Company incurred transaction costs of $12,320 in legal fees and $1,117,771 in common stock paid to a consultant who assisted in acquiring License #2. The common stock to be issued to the consultant will be unregistered and subject to trading restrictions for a 1-year period from the issue date of the first tranche resulting in a fair value discount adjustment of $599,863 on the value of the common stock issued to the consultant. The fair value adjustments were calculated using the Black-Scholes Option Pricing Model.
The Black-Scholes Option Pricing Model requires six basic data inputs: the exercise or strike price, expected time to expiration or exercise, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement.
The following assumptions were used in the Black-Scholes option pricing model:
The consultant is to receive 2,450,000shares of common stock in the following tranches and all shares were earned (i.e. fully vested) upon the Company’s acquisition of License #2 as follows:
The cost of License #2 IPR&D asset is $2,023,097, which is the fair value of the consideration paid on initial recognition.
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During 2022, the Company entered into a non-cancelable operating lease that includes two property locations, one which is being used as the Company’s office and the other as its lab for research and development and the production of inventory. The lease had a commencement date of June 1, 2022, and expires on May 31, 2025, after which the term will continue on a month-to-month basis.
On July 3, 2023, the Company amended the terms of the previously entered lease agreement to lease additional office space from the lessor. Rent increased from $10,773 to $13,477per month commencing July 1, 2023, through May 31, 2025. The lease amendment required a remeasurement of the lease liability which resulted in an increase of $47,986 to the lease liability and an equal increase in the right-of-use asset as of July 1, 2023. The Company used a discount rate of 11.50% upon the remeasurement of the lease liability on July 1, 2023, compared to an original discount rate of 8% on lease commencement, as its incremental cost of borrowing due to the amendment.
The Company recognized a total lease cost related to its non-cancelable operating lease of $119,222 and $103,000 for the nine months ended September 30, 2024, and 2023, respectively.The lease cost has been allocated as follows based on the square footage of each property location.
As of September 30, 2024, and December 31, 2023, the Company recorded a security deposit of $10,773 (Note 5).
Future minimum lease payments under the Company’s operating lease that have an initial non-cancelable lease term in excess of one year at September 30, 2024, are as follows:
The remaining lease term as of September 30, 2024, is 0.67 years (December 31, 2023 – 1.42 years).
As of September 30, 2024, and December 31, 2023, accounts payable and accrued liabilities consisted of the following:
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On January 15, 2024, the Company entered into a license agreement with a Biotechnology company to use their proprietary technology and process to assist in formulating stem cells. The remaining amount of the payments to be made in accordance with the interest-free payment schedule disclosed in Note 8 is $950,000.
The Company has accounted for a discount, using a market interest rate of 11.75%, on the consideration payable to reflect the imputed interest on future installments, totaling $138,548.
On July 15, 2022, the Company issued231,828 common stock purchase warrants with an exercise price of $2.01 as part of the conversion of promissory notes.
On November 21, 2023, the Company completed its Initial Public Offering (“IPO”) and issued 75,000 warrants (the “IPO warrants”). Each IPO warrant is exercisable into one share of common stock of the Company at $4 per share and expire on November 21, 2028.
We analyzed the common stock purchase warrants issued as partial settlement of the promissory notes payable and the IPO warrants against the requirements of ASC 480, Distinguishing Liabilities from Equity, and determined that the warrants should be classified as financial liabilities.
ASC 815, Derivatives and Hedging, requires that the warrants be accounted for as derivative liabilities with initial and subsequent measurement at fair value with changes in fair value recorded as other income (expense).
A continuity of the Company’s common stock purchase derivative liability warrants is as follows:
We determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes Option Pricing Model to calculate the fair value as of initial recognition and as of September 30, 2024, and December 31, 2023. The Black-Scholes Option Pricing Model requires six basic data inputs: the exercise or strike price, expected time to expiration or exercise, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement.
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As of September 30, 2024, the following derivative liability warrants were outstanding:
As of September 30, 2024, and December 31, 2023, the weighted average life of derivative liability warrants outstanding was 2.96 and 3.71 years, respectively.
On July 31, 2024, the Company signed a securities purchase agreement (the “Securities Purchase Agreement”) to sell an aggregate of $1,150,000 in Notes with a $150,000original issue discount. Pursuant to the Securities Purchase Agreement, the Company also agreed to issue 1,299,999 shares of common stock (Note 14). Given the original issue discount, the subscription amount received by the Company was an aggregate of $1,000,000. The Notes were non-interest bearing except in the event of default, in which case interest would accrue at 14% per annum. The maturity date of the Notes was 90 days from the date of issuance. While the Notes were outstanding, the Company agreed to use the net proceeds of any offering of its equity or debt securities to first redeem the Notes in full, including the principal amount and all other amounts due and payable pursuant to the Notes.
The fair value of the Notes was $622,239. The Company incurred total transaction costs of $137,500 in relation to the Security Purchase Agreement, of which $85,558 was attributed to the issuance of the Notes and $51,942 was attributed to the issuance of common stock. The Company repaid $1,150,000 in relation to the Notes Payable in September 2024, resulting in a Notes payable balance of $nil at September 30, 2024.
A continuity of the Company’s Notes Payable during the nine months ended September 30, 2024 is as follows:
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Common Stock
Authorized
As of September 30, 2024, and December 31, 2023, the Company had 300,000,000 common stock authorized, each having a par value of $0.0001.
Issued and outstanding
As of September 30, 2024, and December 31, 2023, the Company had 49,376,039 and 17,329,615 shares issued and outstanding, respectively.
Transactions during the nine months ended September 30, 2024
On April 30, 2024, the Company issued950,000 common stock on acquisition of License #2 and $492,945 was recognized in equity. A total of $95 was recognized in common stock and the remainder of $492,850 to additional paid in capital (Note 8). These shares are unregistered and restricted from trading as disclosed in Note 8.
On May 3, 2024, the Company committed to issue 2,450,000 fully vested shares for the acquisition of License #2. As at September 30, 2024, 1,225,000 of these shares have been issued. A total of $1,117,833 was recognized in equity in relation to the issuance of these shares, of which $123 was recognized in common stock and the remainder of $1,117,710 to additional paid in capital (Note 8). These shares are unregistered and restricted from trading as disclosed in Note 8.
On August 2, 2024, the Company issued1,299,999 shares as consideration for purchasers who entered into the Securities Purchase Agreement (Note 13). Transaction costs of $51,942were associated with this share issuance. A total of $325,819 was recognized in equity, of which $130 was recognized in common stock and the remainder of $325,689 to additional paid in capital.
On September 24, 2024, the Company issued8,900,000 shares of the Company’s common stock and 19,671,425 pre-funded warrants in lieu of shares of common stock, along with51,142,850 common stock purchase warrants. The purchasers had the option to elect to purchase pre-funded warrants in lieu of common shares in order to avoid exceeding the Beneficial Ownership Limitation, which is 4.99% (or 9.99% upon election of the holder prior to the issuance of any warrants) of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon exercise of the warrant. The pre-funded warrants had an exercise price of $0.0001, had no expiry date and had a cashless exercise provision. All pre-funded warrants were exercised by September 30, 2024. The purchase price of each share of common stock and accompanying warrants was $0.28, and the purchase price of each pre-funded warrant and accompanying warrants was equal to such price minus $0.0001. Share issuance costs of $955,000 were associated with this offering. A total of $7,045,000 was recognized in equity, of which $2,857 was recognized in common stock and the remainder of $7,042,143 to additional paid in capital.
Transactions during the nine months ended September 30, 2023
On January 6, 2023, the Company issued62,500 common stock upon the exercise of 62,500 stock options with an exercise price of $0.60 per common stock for $37,500, of which $6was recognized in common stock and the remaining $37,494 in additional paid-in capital.
On March 2, 2023, the Company issued250,000 common stock and 250,000 common stock purchase warrants for $750,000, of which $25 was recognized in common stock and the remaining $749,975 in additional paid-in capital. These warrants are accounted for as equity warrants.
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On April 14, 2023, the Company issued97,681 common stock, of which $10 was recognized in common stock and the remaining $293,579 in additional paid-in capital.
On May 15, 2023, the Company issued10,000 common stock, of which $1 was recognized in common stock and the remaining $29,999 was recognized in additional paid-in capital.
On August 25, 2023, the Company issued46,666 common stock, of which $5 was recognized in common stock and the remaining $139,995 was recognized in additional paid-in capital.
On September 13, 2023, the Company issued83,882 common stock and 99,998 common stock purchase warrants, of which $8 was recognized in the common stock and the remaining $249,996was recognized in additional paid-in capital. These warrants are accounted for as equity warrants.
Preferred Stock
As of September 30, 2024, and December 31, 2023, the Company had 75,000,000 of all preferred stock authorized, each having a par value of $0.0001 per stock.
The holders of Preferred Stock shall have the right to convert their shares of Preferred Stock, at any time, into shares of Common Stock at a conversion price of 1:1. Upon IPO, all preferred shares were converted into common stock on November 21, 2023.
As at September 30, 2024, and December 31, 2023, the Company had Nil preferred stock issued and outstanding.
Transactions during the nine months ended September 30, 2024, and 2023
There were no preferred stock transactions during the nine months ended September 30, 2024, and 2023.
Equity Warrants
Transactions during the nine months ended September 30, 2024.
On September 24, 2024, with each of the 28,571,425 shares of common stock or pre-funded warrants issued on the same date, the Company also issued one Series A Warrant (the “Series A Warrants”) and one Series B Warrant (the “Series B Warrants”). The Series A Warrants will be exercisable beginning on the date of completion of the requisite waiting period following the filing of the Information Statement related to the approval by the stockholders of the Company (the “Initial Exercise Date” or “Shareholder Approval Date”) of the issuance of shares upon exercise of the Warrants, among other things (the “Shareholder Approval”). The Initial Exercise Date was October 30, 2024. The Series B Warrants will be exercisable beginning on the Shareholder Approval Date. The Series A Warrants will expire on the five-year anniversary of the Initial Exercise Date and the Series B Warrants will expire on the two and one-half-year anniversary of the Initial Exercise Date.
The exercise price of the Series A and Series B Warrants shall be $0.38, subject to adjustments, including the following:
Furthermore, holders of the Series B Warrants may effect an “alternative cashless exercise”. In such an event, the aggregate number of common shares issuable in such alternative cashless exercise shall equal the product of (i) the aggregate number of common shares that would be issuable upon exercise of a Series B Warrant if such exercise were by means of a cash exercise rather than a cashless exercise, multiplied by (ii) 3.0.
On September 24, 2024, the Company issued1,428,571 placement agent warrants to the placement agent in connection with the financing that closed on the same date (the “Placement Agent Warrants”). These Placement Agent Warrants have an exercise price of $0.336 and shall expire three and a half years from issuance. As these warrants are accounted for as equity warrants, they have no net impact on the consolidated statement of changes in stockholders’ equity.
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On March 2, 2023, the Company issued250,000 common stock and 250,000 common stock purchase warrants. Each warrant is exercisable at $3.00 per common stock. The warrants are exercisable, in whole or in part at the issue date but such exercisability shall cease upon the date of the Company’s IPO and listing of its common stock on the Nasdaq Capital Market or other Trading Market (as defined below) and shall continue to be exercisable in whole or in part immediately after the Lock-up Period but no later than the Warrant Expiration Date or Accelerated Warrant Expiration Date (the period in which these warrants are exercisable, the “Exercise Period”). In the event of the Company’s initial public offering and listing of shares of its common stock on a Trading Market, the Company shall notify the holder at least fifteen (15) calendar days prior to the consummation of such IPO. “Trading Market” shall mean a "national securities exchange" that has registered with the SEC under Section 6 of the Exchange Act. The Expiration Date shall be the earlier of (i) three years and one hundred eighty (180) days from the issue date (the “Warrant Expiration Date”) or (ii) upon the Company’s reasonable judgment and written notice to the purchaser, of the Company’s option to accelerate the Warrant Expiration Date whereby upon purchaser’s receipt of the Company’s written notice of acceleration during the Exercise Period, the Purchaser’s option to exercise any number of warrants shall occur no later than fourteen (14) days following the receipt of the written notice of acceleration (the “Accelerated Warrant Expiration Date”). For the avoidance of doubt, it shall be reasonable for the Company to accelerate the Expiration Date of this warrant to coincide with transactions including, but not limited to (i) a change of control including but not limited to the voluntary or involuntary sale, assignment, transfer or other disposition, or transfer by operation of law, of more than 50% of any direct or indirect equity interest of the Company; or (ii) a subsequent capital financing other than the IPO consisting of but not limited to an offer or proposal for, or indication of interest in, the issuance of debt or the capital stock of the Company.
On September 13, 2023, the Company issued83,332 common stock and 99,998 common stock purchase warrants. Each warrant is exercisable at $3.00 per common stock. The Warrants shall be exercisable, in whole or in part immediately upon issuance, but such exercisability shall cease upon the date of the Company’s initial public offering (the “IPO”) and listing of its common stock on the Nasdaq Capital Market or other Trading Market (as defined herein) and will only become exercisable after the expiration of one hundred eighty (180) days following the Company’s initial public offering (the “Lock-up Period”). The expiration date shall be three years and one hundred eighty (180) days following the issuance of the Warrant Shares.
As of September 30, 2024, the following equity warrants were outstanding:
As of September 30, 2024, and December 31, 2023, the weighted average life of equity warrants outstanding was 3.81 and 2.81 years, respectively.
Stock Options
The Company has a stock option plan included in the Company’s 2020 Equity Incentive Plan (the “Plan”) where the Board of Directors or any of its committees can grant Incentive Stock Options, Nonstatutory Stock Options, and Restricted Stock to employees, advisors and directors of the Company. As of December 31, 2023 and 2022, the aggregate number of shares allocated and made available for issuance pursuant to stock options granted under the Plan shall not exceed 1,734,188 shares. The plan shall remain in effect until it is terminated by the Board of Directors.
Transactions during the nine-month ended September 30, 2024
In January 2024, the Company granted12,500 stock options with a contractual life of ten years and an exercise price of $5.00 per common stock. These stock options were valued at $16,178 using the Black-Scholes Option Pricing Model. The options vest 25% on the first anniversary of the grant date and the remaining75% vest evenly over 36 months thereafter.
On March 6, 2024, the Company granted80,000 stock options with a contractual life of ten years and an exercise price of $1.00 per common stock. These stock options were valued at $52,845 using the Black-Scholes Option Pricing Model. The options vest 25% on the first anniversary of the grant date and the remaining75% vest evenly over 36 months thereafter.
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Transactions during the nine-month ended September 30, 2023
On February 1, 2023, the Company granted10,000 stock options with a contractual life of ten years and an exercise price of $5.00 per common stock. These stock options were valued at $10,767 using the Black-Scholes Option Pricing Model. The options vest 25% on the first anniversary of the grant date and the remaining75% vest evenly over 36 months thereafter.
From May 12, 2023, to June 30, 2023, the Company granted 222,500 stock options (includes 80,000 each to two of its newly appointed independent directors) with a contractual life of ten years and an exercise price of $5.00 per common stock. These stock options were valued at $584,787 using the Black-Scholes Option Pricing Model. The options vest 25% on the first vesting date and the remaining 75% vest evenly over 36 months thereafter.
On June 30, 2023, the Company cancelled and reissued 80,000 options previously issued to an advisor of the Company upon their appointment as a director effective June 1, 2023. The cancelled and re-issued options had the same exercise price of $5.00 per common stock and the same vesting terms and expiry date, and as such the cancellation and reissuance had no impact on the Company’s consolidated financial statements.
On July 1, 2023, the Company granted1,500 stock options with a contractual life of ten years and an exercise price of $5.00 per common stock. These stock options were valued at $3,940 using the Black-Scholes Option Pricing Model. The options vest 25% on the first vesting date and the remaining 75% vest evenly over 36 months thereafter.
The continuity of stock options for the nine months ended September 30, 2024, and December 31, 2023, is summarized below:
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As of September 30, 2024, the following options were outstanding, entitling the holders thereof the right to purchase one common stock for each option held as follows:
As of September 30, 2024, and December 31, 2023, the weighted average life of stock options outstanding was 7.03 years and 7.84 years, respectively.
During the nine months ended September 30, 2024, and 2023, the Company recorded $57,521 and $346,549, respectively, in share-based compensation expense, of which $53,977 and $3,543, and $337,551 and $8,998, respectively is included in office and administration and research and development, respectively.
Related parties consist of the following individuals and corporations:
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Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of members of the Company’s Board of Directors, corporate officers, and individuals with more than 10% control.
Remuneration attributed to key management personnel are summarized as follows:
During the nine months ended September 30, 2024, the Company incurred consulting fees of $150,833 (September 30, 2023 - $63,750) to GB Capital Ltd., a company controlled by Graydon Bensler, CEO, CFO and Director. In addition, the Company incurred consulting fees of $111,100 (September 30, 2023 - $90,000) to Northstrive Companies Inc., a company controlled by Braeden Litchi, the Company’s Chairman.
Jordan Plews, Director and CEO of Skincare and BioSciences, earned a Salary of $189,385 and $168,050 respectively during the nine months ended September 30, 2024, and 2023 (includes employer taxes of $21,051 and $18,050, respectively).
Brenda Buechler, former Chief Marketing Officer, earned a Salary of $132,807 and $159,950, respectively during the nine months ended September 30, 2024, and 2023 (includes employer taxes of $14,297 and $17,446 respectively).
Christoph Kraneiss, former Chief Commercial Officer, earned a Salary of $122,818 and $148,131, respectively during the nine months ended September 30, 2024, and 2023 (includes employer taxes of $10,639 and $13,131, respectively).
During the nine months ended September 30, 2024, and 2023, the Company issued the following stock options to related parties:
On March 1, 2024, the Company granted80,000 stock options to directors of the company with a contractual life of 10 years and exercise price of $1.00 per share of common stock. These stock options were valued at $45,986 using the Black-Scholes Option Pricing Model. The options vest 25% on the first anniversary of the grant date and the remaining 75% vest evenly over 36 months thereafter.
Details of the fair value granted to each related party in the current and prior periods, and the related expense recorded for the nine months ended September 30, 2024, and 2023 is as follow:
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As of September 30, 2024, and December 31, 2023, the Company had $22,217 and $22,455, respectively due to companies controlled by Braeden Lichti, of which $22,217 and $22,455, respectively, is unsecured, non-interest bearing and are due on demand. Additionally, the Company drew $200,000 on a line of credit provided by a company controlled by Braeden Lichti during the nine months ended September 30, 2024. The line of credit incurs interest at a rate of 20% per annum on the outstanding principal. During the nine months ended September 30, 2024, $6,833 in interest had accrued on this line of credit.
As of September 30, 2024, the Company had $80,368 (December 31, 2023 - $34,378) in consulting fees due to Graydon Bensler, CEO, CFO and Director, $49,500 (December 31, 2023 - $15,143) due to companies controlled by Braeden Lichti, and $Nil and $Nil (December 31, 2023 - $4,272 and $879) due to Jordan Plews, Director and CEO of Skincare and BioSciences, and Christopher Kraneiss, former Chief Commercial Officer, respectively, for expenses incurred on behalf of the Company. As of September 30, 2024, the Company owed Jordan Plews, Director, $60,539 (December 31, 2023 - $Nil) in accrued salaries.
There were no commitments as of September 30, 2024, and December 31, 2023, or during the periods then ended.
As of March 18, 2024, the Company has voluntarily stopped sale of its products in Canada following a communication from Health Canada regarding the way the Company’s products are marketed in Canada. The Company is working with Canadian regulatory and legal counsel to explore options to rectify the issues raised. On April 30, 2024, the Company's appointed Canadian distributor terminated the existing distribution agreement.
Customers
For the nine months ended September 30, 2024, no single customer represented 10% or more of the Company's revenue. During the nine-month period ended September 30, 2023, the Company recorded 14% of its revenue from its largest customers. The Company’s largest customer, representing $139,149 of revenue, relates to sales to a wholesaler during the period.
Suppliers
During the nine months ended September 30, 2024, and 2023, the Company had 3 key suppliers that represented approximately 78% and 3 key suppliers that represented approximately66%, respectively, of the cost incurred in the purchase and production of inventory. The table below represents a breakdown of each supplier as a percentage of the cost incurred. (Suppliers are shown from largest to smallest and do not necessarily represent the same suppliers period over period):
The Company continually evaluates the performance of its suppliers and the availability of alternatives to substitute or supplement its inventory production supply chain. The Company believes that a breakdown in supply from one of its key suppliers would be overcome in a short amount of time given the availability of alternatives.
Management has evaluated events subsequent to the year ended September 30, 2024, up to November 13, 2024, for transactions and other events that may require adjustment of and/or disclosure in the consolidated financial statements.
Issuance of commons shares
On November 1, 2024, the Company issued612,500 shares to a consultant in relation to the acquisition of the License #2 IPR&D asset (Note 8).
Exercise of Series B Warrants
As of November 13, 2024, 155,890,910Series B Warrants have been exercised under the alternative cashless exercise feature into 467,672,730 shares of common stock, resulting in 32,303,390 unexercised Series B Warrants.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report and the audited consolidated financial statements and the other information set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 29, 2024.
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Organization and Overview of Operations
Elevai Labs Inc. manages and operates a diverse portfolio of three wholly owned subsidiaries across the medical aesthetics and biopharmaceutical sectors:
Elevai Labs Inc. is committed to expanding its portfolio by seeking to acquire operating companies and biotech assets that have high market potential while also exploring strategic spin-off opportunities to support our growth and advance our cutting-edge initiatives.
Recent Developments
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Outlook
Management’s Plans
Over the next twelve months we intend to focus on:
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Results of Operations
Comparison of the nine months ended September 30, 2024.
The following table provides certain selected financial information for the periods presented:
Revenue
Revenue for the nine months ended September 30, 2024, was $1,747,570 as compared to $1,014,004 for the nine months September 30, 2023, an increase of $733,566.
Our revenue by product category is as follows:
During the nine months ended September 30, 2024, and 2023, the Company sold 8,600 and 4,469 bottles of Enfinity, respectively, an increase of 4,131 bottles or 92%. In addition, the Company sold 1,232 (eight packs) of Empower tubes in 2024, compared to 969 (eight packs) of Empower tubes during 2023, and an increase of 263 (eight packs) or 27%. The increase in sales volumes is primarily due to enhanced market acceptance, continued growth in the number of US accounts, onboarding of international distributors, and repeat business from current customers and distributors. During the nine months ended September 30, 2023, the Company also sold its media containing its Elevai ExosomesTM under a white label deal. This white label distribution agreement ended on January 16, 2024.
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Cost of Revenue
Cost of Revenue for the nine months ended September 30, 2024, was $468,763 as compared to $341,122 for the nine months ended September 30, 2023.
Our cost of revenue by product category is as follows:
The increase in cost of revenue is directly attributed to the increase in sales during the nine months ended September 30, 2024, compared to 2023. The following is a breakdown of the components of the cost of revenue:
Gross Profit
Gross profit for the nine months ended September 30, 2024, was $1,278,807, as compared to $672,882 for the nine months ended September 30, 2023, an increase of $605,925. This represents an overall gross margin percentage of 73% for the nine months ended September 30, 2024, compared to 66% in 2023. The overall increase in gross margin percentage is primarily due to the Company selling Enfinity at a higher gross margin due to less commissions paid to salespersons compared to overall sales. Additionally, the cost to produce each unit of Enfinity decreased as the Company saw gross margin improvements due to operational efficiencies gained and securing better volume pricing with some of its key suppliers.
The following is a breakdown of gross profit percentage by product category:
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Research and Development Expenses
Research and development expenses for the nine months ended September 30, 2024, were $268,786 compared to $303,769 for the nine months ended September 30, 2023, a decrease of $34,983. Research and Development related to the Company’s Enfinity and Empower products, and development of new products for the Company. The decrease in research and development is mainly driven by the company performing more tests on new products to improve formulation efficiency in the nine months ended September 30, 2023. During both the nine months ended September 30, 2024 and 2023, the Company’s laboratory staff worked on increasing efficiency and refining the production process. The decrease in this expense is partially offset by amortization of intangible assets of $61,019 and $Nil that was recognized in research and development expenses during the years ended September 30, 2024 and 2023, respectively.
Marketing and Promotion
Marketing and promotion expenses for the nine months ended September 30, 2024, were $1,209,041 compared to $316,436 for the nine months ended September 30, 2023, an increase of $892,605. During the nine months ended September 30, 2024, the Company increased its marketing and promotion efforts to drive sales and support the Company’s existing customers, which included incurring digital advertising costs of $388,283, public relations costs of $331,317, giving out product samples with a cost of $127,919 (nine months ended September 30, 2023 - $96,184), and attending and sponsoring industry conferences.
Office and Administrative Expenses
Office and administrative expenses for the nine months ended September 30, 2024, were $2,096,372, compared to $1,628,931 for the nine months ended September 30, 2023, an increase of $467,441. The increase is mainly the result of salaries and wages of $1,310,420 and office rent of $106,694 incurred during the nine months ended September 30, 2024, compared to $1,000,313 and $89,600 of salaries and wages and office rent, respectively, in the nine months ended September 30, 2023, a combined increase of $327,201. Additionally, the increase is a result on insurance costs of $352,222 during the nine months ended September 30, 2024, compared to $23,804 in the nine months ended September 30, 2023, as the Company was required to purchase director and officer insurance due to being publicly traded. The Company increased its headcount and moved into a larger office location to accommodate the commercialization of its products and growth in operations in July 2023. During the nine months ended September 30, 2024, office and administrative expenses also include share-based compensation of $53,977, compared to $337,551 in the nine ended September 30, 2023. This decrease is due to a director resigning on February 29, 2024, the termination of the Chief Marketing Officer and the Chief Commercial Officer and the termination of four other employees in June 2024, and the resignation of the Chief Medical Officer in August 2024. This resulted in the forfeiture of 394,990 options, as well as resulting in the reversal of the share-based compensation.
Consulting Fees
Consulting fees for the nine months ended September 30, 2024, were $817,030, compared to $316,468 for the nine months ended September 30, 2023, an increase of $500,562. During the nine months ended September 30, 2024, and 2023, the Company incurred consulting fees in relation to recruitment, strategic introductions, business advisory, international relations, and strategy. In addition, the Company received services from a number of parties (including companies controlled by related parties and Chief Financial Officer (“CFO”)) in a consulting capacity. The increase in consulting fees is consistent with the increase in operations.
Professional Fees
Professional fees for the nine months ended September 30, 2024, was $587,954, compared to $450,384 for the nine months ended September 30, 2023, an increase of $137,570. Professional fees comprise of legal, audit and accounting services. The increase during the nine months ended September 30, 2024 is primarily due to an increase in audit, legal and accounting services as the company is now listed on the Nasdaq.
Travel and Entertainment Expenses
Travel and entertainment for the nine months ended September 30, 2024, was $160,612, compared to $250,000 for the nine months ended September 30, 2023, a decrease of $89,388. Travel and entertainment expenses are related primarily to costs incurred during the attendance of industry trade shows and conferences. The decrease relates to fewer conferences and trade shows visited by staff of the Company in the nine months ended September 30, 2024.
Investor Relations Expenses
Investor relations expenses for the nine months ended September 30, 2024, was $141,484, compared to $84,820 for the nine months ended September 30, 2023. The increase in investor relations expenses is consistent with the Company’s growth strategy, which includes promotion to current and potential investors as the company is now listed on the Nasdaq.
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Revenue for the three months ended September 30, 2024, was $527,478, as compared to $554,654 for the three months September 30, 2023, a decrease of $27,176.
During the three months ended September 30, 2024, and 2023, the Company sold 2,616 and 2,388 bottles of Enfinity, respectively, an increase of 228 bottles or 10%. This increase in sales volumes is primarily due to increased market acceptance, continued growth in the number of US accounts, onboarding of international distributors, and repeat business from current customers and distributors. The Company sold 288 (eight packs) of Empower tubes in 2024, compared to 483 (eight packs) of Empower tubes during 2023, a decrease of 195 (eight packs) or 40%. During the three months ended September 30, 2024, the Company sold 100 units of its scalp and hair cleanser. During the three months ended September 30, 2023, the Company sold 48 liters under a white label distributor agreement. The Company no longer earns revenue from this white label distributor.
Cost of Revenue for the three months ended September 30, 2024, was $133,577 as compared to $188,509 for the three months ended September 30, 2023.
The decrease in cost of revenue is partly attributable to the decrease in sales during the three months ended September 30, 2024, compared to 2023. However, the Company managed to increase gross margin despite the decline in sales as explained further below. The following is a breakdown of the components of the cost of revenue:
Gross profit for the three months ended September 30, 2024, was $393,901 as compared to $366,145 for the three months ended September 30, 2023, an increase of $27,756. This represents an overall gross margin percentage of 75% for three months ended September 30, 2024, compared to 66% in 2023. The overall increase in gross margin percentage is primarily due to the Company selling Enfinity at a higher gross margin due to less commissions paid to salespersons compared to overall sales. Additionally, the cost to produce each unit of Enfinity decreased as the company saw gross margin improvements due to operational efficiencies gained and securing better volume pricing with some of its key suppliers.
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Research and development expenses for the three months ended September 30, 2024, were $95,260 compared to $86,374 for the three months ended September 30, 2023, an increase of $8,886. Research and development related to the Company’s Enfinity, Empower and development of new products for the Company. This increase in research and development expenses is mainly due to the amortization of intangible assets and increased consulting fees related to research and development in the current period. During both the three months ended September 30, 2024, and 2023, the Company’s lab staff worked on increasing efficiency and refining the production process.
Marketing and promotion expenses for the three months ended September 30, 2024, were $94,514 compared to $99,709 for the three months ended September 30, 2023, a decrease of $5,195. During the three months ended September 30, 2024, the Company decreased its marketing and promotion expenses in an effort to conserve cash now that the Company has achieved higher market acceptance.
Office and administrative expenses for the three months ended September 30, 2024, were $553,808, compared to $664,922 for the three months ended September 30, 2023, a decrease of $111,114. This decrease is mainly attributable to a decrease in the share-based compensation recognized in office and administrative expenses from $158,815 for the three months ended September 30, 2023 to $43,493 for the three months ended September 30, 2024. This decrease is due to a director resigning on February 29, 2024, the termination of the Chief Marketing Officer and the Chief Commercial Officer and the termination of three other employees in June 2024, and the resignation of the Chief Medical Officer in August 2024. These terminations and resignations all have an impact of decreasing share-based compensation for the three months ended September 30, 2024. Payroll also decreased from $392,163 to $265,957 during the three months ended September 30, 2024, compared to 2023, which is also attributable to these terminations and resignations.
Consulting fees for the three months ended September 30, 2024, were $235,461, compared to $82,781 for the three months ended September 30, 2023. This represents an increase of $152,680 from the three months ended September 30, 2023 to the three months ended September 30, 2024. During the three months ended September 30, 2024, and 2023, the Company incurred consulting fees in relation to recruitment, strategic introductions, business advisory, international relations, and strategy. In addition, the Company received services from a number of parties (including companies controlled by related parties and CFO) in a consulting capacity. The increase in consulting fees is consistent with the increase in operations.
Professional fees for the three months ended September 30, 2024, were $249,889, compared to $143,654 for the three months ended September 30, 2023, an increase of $106,234. Professional fees were comprised of legal, audit and accounting services. The increase during the three months ended September 30, 2024 is primarily due to an increase in audit, legal and accounting services as the company is now listed on the Nasdaq.
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Travel and entertainment expenses for the three months ended September 30, 2024 were $44,383, compared to $65,830 for the three months ended September 30, 2023, a decrease of $21,447. Travel and entertainment expenses are related primarily to costs incurred during the attendance of industry trade shows and conferences. The decrease relates to less conferences and trade shows visited by staff of the Company in the three months ended September 30, 2024.
Investor relations expenses for the three months ended September 30, 2024, were $36,862, compared to $9,100 for the three months ended September 30, 2023. The increase is due to the Company engaging in more investor relation activities as it is now a publicly listed entity.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and ultimately the attainment of profitable operations.
As of September 30, 2024, and December 31, 2023, the Company had a net working capital of $6,097,404 and $3,622,091, respectively, and has an accumulated deficit of $11,334,888 and $7,023,890, respectively. Furthermore, for the nine months ended September 30, 2024, and 2023, the Company incurred a net loss of $4,310,998 and $3,143,601, respectively and used $3,486,435 and $2,168,661, respectively of cash flows for operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Our principal liquidity requirements are for working capital, capital expenditure, research and development and inventory production. We fund our liquidity requirements primarily through cash on hand, cash flows from operations, the issuance of common, warrants and preferred stock, and the issuance of notes. As of September 30, 2024, we had cash of $6,425,670, with $3,326,851 as of December 31, 2023.
The following table provides selected financial data as of September 30, 2024, and December 31, 2023, respectively.
The following table summarizes our cash flows from operating, investing and financing activities:
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Cash Flow from Operating Activities
For the nine months ended September 30, 2024, net cash flows used in operating activities was $3,486,435 compared to $2,168,661 used during the nine months ended September 30, 2024, respectively, primarily due to net loss and timing of settlement of assets and liabilities.
Cash Flows from Investing Activities
During the nine months ended September 30, 2024, and 2023, we used $171,480 and $11,191, respectively, in investing activities. In the current period this cash flow primarily related to the payment of $162,320 for intangible assets relating to the purchase of a license to produce stem cells and the purchase of rights to develop, manufacture and commercialize licensed products. The cash flow during the current period also relates to the purchase of equipment for our laboratory space to be used for the production of inventory and research and development.
Cash Flows from Financing Activities
During the nine months ended September 30, 2024, we had net cash flow provided by financing activities of $6,757,501 compared to cash flow provided by financing activities of $1,501,086 in the nine months ended September 30, 2023. During the nine months ended September 30, 2024, and 2023, the Company raised $6,993,059 and $1,463,586, respectively, through the issuance of common stock and common stock purchase warrants; $914,442 and $Nil, respectively, through the issuance of notes; and $Nil and $37,500, respectively, upon the exercise of stock options in exchange for common stock. The cash provided by financing activities during the nine months ended September 30, 2024, was partially offset by the repayment of notes of $1,150,000.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, the collectability of receivables, valuation of inventory, fair value of derivative liabilities and stock options, useful lives and recoverability of long-lived assets, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined.
The Company’s policy for property and equipment requires judgement in determining whether the present value of future expected economic benefits exceeds capitalized costs. The policy requires management to make certain estimates and assumptions about future economic benefits related to its operations. Estimates and assumptions may change if new information becomes available. If information becomes available suggesting that the recovery of capitalized cost is unlikely, the capitalized cost is written off/impaired to the consolidated statement of operations.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate.
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products. In instances where financial acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues are recognized under ASC 606, “Revenue from Contracts with Customers,” in a manner that reasonably reflects the delivery of its products and services to customers in return for expected consideration.
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The Company generates revenue through the sale of skincare products. Revenue from the sale of skincare products are recognized at the point in time when the Company considered revenue realized or realizable and earned, which is typically when all of the five following criteria are met: (1) the contract with the customer is identifiable (i.e. when a sales transaction has been entered into between the Company and the customer), (2) the performance obligation in the contract is identifiable (i.e. the customer has ordered a known quantity of product to be delivered), (3) the transaction price is determinable (i.e. the customer has agreed to the Company’s price for the products ordered), (4) the Company is able to allocate the transaction price to the performance obligations in the contract, and (5) the performance obligations have been satisfied, which is typically upon delivery of the product to the customer.
Transaction prices for performance obligations are explicitly outlined in relevant agreements; therefore, the Company does not believe that significant judgements are required with respect to the determination of the transaction price, including any variable consideration identified.
The Company is responsible for providing the products to customers. As a result, the Company is considered the principal when providing products to customers. As the Company collects payment at the time of the customer order, its contracts do not have a significant financing component. Customers are entitled to replacement or full refund of any damaged or defective product, after the return of the damaged or defective product to the Company. There were no significant returns or refunds during the nine months ended September 30, 2024, and 2023.
The Company’s functional and reporting currency is the U.S. dollar. The functional currency of the Company’s Canadian subsidiary, Elevai Research Inc. (“Elevai Research”) is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets, liabilities, and items recorded in income arising from transactions denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
The accounts of Elevai Research are translated to U.S. dollars using the current rate method. Accordingly, assets and liabilities are translated into U.S. dollars at the period-end exchange rate while revenues and expenses are translated at the average exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income (loss).
Inventory
Inventory consists of raw materials, work-in-progress and finished goods and are valued at the lower of cost or net realizable value. The Company’s manufacturing process involves the production of our proprietary stem cell-derived Elevai ExosomesTM. Finished goods consists of a new generation of cosmetic topical products containing our proprietary stem cell-derived Elevai ExosomesTM. Cost is determined using the weighted average cost formula. Net realizable value is determined on the basis of anticipated sales proceeds less the estimated selling expenses. Management compares the cost of inventories with the net realizable value and an allowance is made to write down inventories to net realizable value, if lower.
Stock-Based Compensation
Employees - The Company accounts for share-based compensation under the fair value method which requires all such compensation to employees, including the grant of employee stock options, to be calculated based on its fair value at the measurement date (generally the grant date), and recognized in the consolidated statement of operations over the requisite service period.
Non-employees - During June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. Under the requirements of ASU 2018-07, the Company accounts for share-based compensation to non-employees under the fair value method which requires all such compensation to be calculated based on the fair value at the measurement date (generally the grant date) and recognized in the statement of operations over the requisite service period.
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During the nine months ended September 30, 2024, and 2023, the Company recorded $57,521 and $346,548, respectively, in share-based compensation expense, of which $53,977 and $337,550, and $3,544 and $8,998, respectively is included in office and administration and research and development, respectively.
Determining the appropriate fair value model and the related assumptions requires judgment. During the nine months ended September 30, 2024, and year ended December 31, 2023, the fair value of each option grant was estimated using a Black-Scholes option-pricing model.
The expected volatility represents the historical volatility of comparable publicly traded companies in similar industries, adjusted for variables such as stock price, market capitalization and life cycle. Due to limited historical data, the expected term for options granted is equal to the contractual life. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero.
Concentrations
For the nine months ended September 30, 2024, no single customer represented 10% or more of the Company’s revenue. During the nine-month period ended September 30, 2023, the Company recorded 14% of its revenue from its largest customers. The Company’s largest customer, representing $139,149 of revenue, relates to sales to a wholesaler during the period.
During the nine months ended September 30, 2024, and 2023, the Company had 3 key suppliers that represented approximately 78% and 3 key suppliers that represented approximately 66%, respectively, of the cost incurred in the purchase and production of inventory. The table below represents a breakdown of each supplier as a percentage of the cost incurred. (Suppliers are shown from largest to smallest and do not necessarily represent the same suppliers period over period):
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
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JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, eases certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Future Related Party Transactions
The Corporate Governance Committee of our Board of Directors is required to approve all related party transactions. All related party transactions are made or entered into on terms that are no less favorable to use than can be obtained from unaffiliated third parties.
Impact of Inflation
We do not believe the impact of inflation on our Company is material.
Inflation Risk
We are also exposed to inflation risk. Inflationary factors, such as increases in labor costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses.
Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. Our market risk exposure is generally limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act at the end of the period covered by this quarterly report.
Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of end of the period covered by this Quarterly Report, our disclosure controls and procedures (as defined in § 240.13a-15(e) or 240.15d-15(e) of Regulation S-K) were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information (i) is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
We recognize that any controls system, no matter how well designed and operated, can provide only reasonable assurance of achieving its objectives, and our management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial conditions. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to make disclosures under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In addition to the following transactions, there have been no sales of unregistered equity securities that we have not previously disclosed in filings with the U.S. Securities and Exchange Commission.
On May 3, 2024, we issued 612,500 shares of our common stock to a consultant for services related to the Company’s wholly owned subsidiary, Biosciences, pursuant to the agreed upon compensation terms in the consulting agreement with the entity. The issuance of the shares was exempt from registration under Rule 701 of the Securities Act of 1933, as amended.
On April 30, 2024, in partial consideration for the exclusive license granted by MOA Life Plus Co., Ltd. (“MOA”), we issued a non-refundable license fee upon execution of the license agreement 950,000 shares of our common stock to MOA. The issuance of the shares was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On August 1, 2024, Hatem Abou-Sayed MD informed us of his decision to resign as a member of our Board of Directors and as Chief Medical Officer effective as of August 1, 2024. His resignation is not the result of any disagreement with us on any matter relating to its operation, policies (including accounting of financial policies) or practices.
On August 1, 2024, we issued 612,500 shares of our common stock to a consultant for services related to the Company’s wholly owned subsidiary Elevai Biosciences, Inc., pursuant to the agreed upon compensation terms in the consulting agreement with Biosciences. The issuance of the shares was exempt from registration under Rule 701 of the Securities Act of 1933, as amended.
On July 31, 2024, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Purchasers”) pursuant to which we sold, in a private placement, notes with an aggregate principal amount of $1,150,000 (the “Notes”), with an original issue discount of $150,000. As consideration for entering into the Securities Purchase Agreement, we issued a total of 1,299,999 shares of common stock of the Company (the “Shares”) to the Purchasers on August 2, 2024 (the “Closing Date”). We issued the Notes dated as of July 31, 2024 to the Purchasers on the Closing Date. The Notes will mature 90 days from July 31, 2024 and do not bear interest unless an event of default occurs, which interest rate will be 14% during the period the event of default is occurring. In addition, if an event of default occurs, the Purchasers have the option to require the Company to redeem all or any portion of the Notes.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
EXHIBIT INDEX
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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