UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For The Quarterly Period
Ended
OR
Commission File Number:
(Exact name of registrant as specified in its charter) |
(State of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive office) (Zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
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).
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.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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 May 15, 2024, there were
Elevai Labs Inc.Quarterly Report on Form 10-Q
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION | 1 | |
Item 1. | Financial Statements | 1 |
Notes to Unaudited Condensed Financial Statements | 5 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 30 |
Item 4. | Controls and Procedures | 30 |
PART II – OTHER INFORMATION | 31 | |
Item 1. | Legal Proceedings | 31 |
Item 1A. | Risk Factors | 31 |
Item 2. | Recent Sales of Unregistered Securities; Use of Proceeds and Issuer Purchases of Equity Securities | 31 |
Item 3. | Defaults Upon Senior Securities | 31 |
Item 4. | Mine Safety Disclosures | 32 |
Item 5. | Other Information | 32 |
Item 6. | Exhibits | 32 |
SIGNATURES | 33 |
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Forward-Looking Statements
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:
● | general economic and business conditions, including changes in interest rates; | |
● | prices of other competitive products, costs associated with research and development of our products and other economic conditions; |
● | the effect of an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, on the Company’s business (natural phenomena, including the lingering effects of the COVID-19 pandemic); |
● | the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations, and our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise; | |
● | breaches in data security, failure of information security systems, cyber-attacks or other security or privacy-related incidents affecting us or our suppliers; |
● | the ability of our information technology systems or information security systems to operate effectively; |
● | actions by government authorities, including changes in government regulation; |
● | uncertainties associated with legal proceedings; |
● | changes in the size of the medical aesthetics, cosmetics and biotechnology market; |
● | future decisions by management in response to changing conditions; |
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● | the Company’s ability to execute prospective business plans; |
● | misjudgments in the course of preparing forward-looking statements; |
● | the Company’s ability to raise sufficient funds to carry out its proposed business plan; |
● | inability to keep up with advances in medical aesthetics and biotechnology; |
● | inability to design, develop, market and sell new medical aesthetics and biotech products that address additional market opportunities to generate revenue and positive cash flows; |
● | dependency on certain key personnel and any inability to retain and attract qualified personnel; |
● | inability to succeed in establishing, maintaining and strengthening the Elevai brand; |
● | our expectations regarding our ability to obtain, maintain, protect, defend, and enforce our intellectual property rights and operate without infringing, misappropriating, or otherwise violating the intellectual property rights of others; |
● | disruption of supply or shortage of raw materials; |
● | the unavailability, reduction or elimination of government and economic incentives; |
● | failure to manage future growth effectively; and |
● | the other risks and uncertainties detailed from time to time in our filings with the Security and Exchange Commission (“SEC”), including but not limited to those described under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K as amended for the year ended December 31, 2023, filed with the SEC on March 29, 2024 (the “Form 10-K”). |
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.
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PART I - FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
Elevai Labs Inc.
Condensed Consolidated Balance Sheets
(Expressed in United States dollar)
As of: | March 31, 2024 | December 31, 2023 | ||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | $ | ||||||
Receivables, net | ||||||||
Prepaids and deposits | ||||||||
Inventory, net | ||||||||
Total Current Assets | ||||||||
Deposit | ||||||||
Property and equipment, net | ||||||||
Intangibles, net | ||||||||
Operating lease right-of-use asset | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | $ | ||||||
Customer deposits | ||||||||
Due to related parties | ||||||||
Current portion of consideration payable | ||||||||
Current portion of lease liability | ||||||||
Derivative liabilities | ||||||||
Total Current Liabilities | ||||||||
Consideration payable | ||||||||
Operating lease liability | ||||||||
TOTAL LIABILIITES | $ | $ | ||||||
Commitments and Contingencies | ||||||||
EQUITY | ||||||||
Common stock, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated other comprehensive income | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
TOTAL EQUITY | ||||||||
TOTAL LIABILITIES AND EQUITY | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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Elevai Labs Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three months ended March 31, 2024, and 2023
(Expressed in United States dollar)
Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
Revenue | $ | |||||||
Cost of sales | ||||||||
Gross profit | $ | |||||||
Expenses | ||||||||
Depreciation and amortization | ||||||||
Marketing and promotion | ||||||||
Consulting fees | ||||||||
Office and administrative | ||||||||
Professional fees | ||||||||
Investor relations | ||||||||
Research and development | ||||||||
Foreign exchange (gain) loss | ||||||||
Travel and entertainment | ||||||||
Total Expenses | $ | |||||||
Net loss before other income (expense) | $ | ( | ) | ( | ) | |||
Other income (expense) | ||||||||
Change in fair value of derivative liabilities | ( | ) | ||||||
Interest income | ||||||||
Interest expense | ( | ) | ( | ) | ||||
Other income | - | |||||||
Net loss | $ | ( | ) | ( | ) | |||
Other comprehensive income (loss) | ||||||||
Currency translation adjustment | ||||||||
Total comprehensive loss | $ | ( | ) | ( | ) | |||
$ | ( | ) | ( | ) | ||||
Weighted average shares outstanding |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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Elevai Labs Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three months ended March 31, 2024, and 2023
(Expressed in United States dollars)
Series seed 1 preferred stock | Series seed 2 preferred stock | Series
A
preferred stock | Common Stock | Additional | Accumulated other | |||||||||||||||||||||||||||||||||||||||||||
Number of shares | Amount | Number of shares | Amount | Number of shares | Amount | Number of shares | Amount | paid-in capital | Accumulated deficit | comprehensive income | Total | |||||||||||||||||||||||||||||||||||||
# | $ | # | $ | # | $ | # | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Private placement | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | ||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
Net loss for the period | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2024 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
Net loss for the period | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2024 | ( | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements
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Elevai Labs Inc.
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2024, and 2023
(Expressed in United States dollars)
March 31, 2024 | March 31, 2023 | |||||||
Operating activities | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | ||||||||
Share-based compensation | ||||||||
Straight-line rent expense | ( | ) | ( | ) | ||||
Change in fair value of derivative liabilities | ( | ) | ||||||
Non-cash interest expense | ||||||||
Changes in operating assets and liabilities: | ||||||||
Receivables | ( | ) | ( | ) | ||||
Prepaid expenses and deposits | ( | ) | ( | ) | ||||
Inventory | ( | ) | ( | ) | ||||
Accounts payable and accrued liabilities | ( | ) | ||||||
Customer deposits | ( | ) | ||||||
Due to related parties | ||||||||
Cash flows used in operating activities | $ | ( | ) | $ | ( | ) | ||
Investing activities | ||||||||
Purchase of equipment | ( | ) | ( | ) | ||||
Purchase of intangible assets | ( | ) | ||||||
Cash flows used in investing activities | $ | ( | ) | $ | ( | ) | ||
Financing activities | ||||||||
Exercise of stock options | ||||||||
Proceeds from issuance of common stock and warrants | ||||||||
Cash flows provided by financing activities | $ | $ | ||||||
Effect of exchange rate changes on cash | ||||||||
Decrease in cash | ( | ) | ( | ) | ||||
Cash, beginning of period | ||||||||
Cash, ending of period | $ | $ | ||||||
Supplemental cash flow information: | ||||||||
Cash paid for interest | $ | $ | ||||||
Cash paid for taxes |
The accompanying notes are an integral part of these condensed consolidated financial statements
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ELEVAI LABS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | Organization and nature of operations |
Elevai Labs Inc. (“Elevai”)
was incorporated under the laws of the State of Delaware on June 9, 2020. Elevai and its
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 develop the Company’s 2 drug candidates, EL-22, a clinical stage engineered probiotic expressing myostatin, and EL-32, a preclinical engineered probiotic expressing dual myostatin and activin-A. Effective May 1, 2024, Elevai transferred its operating assets and liabilities relating to its skincare business to Skincare in exchange for common shares of Skincare.
2. | Going Concern |
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 March 31, 2024, and December 31,
2023, the Company had a net working capital of $
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.
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3. | Summary of Significant Accounting Policies |
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with rules and regulations of the 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 three months ended March 31, 2024, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2024.
Principles of Consolidation
The unaudited condensed consolidated
financial statements include the account of Elevai, and its
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 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.
6
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).
Intangible Asset
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. Management assesses impairment indicators at each reporting period end.
License |
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. 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
7
4. | Receivables |
March 31, 2024 | December 31, 2023 | |||||||
Trade receivable | $ | $ | ||||||
Sales taxes receivable | ||||||||
$ | $ |
The Company records sales taxes receivable for recoverable sales taxes paid on eligible purchases in its Canadian subsidiary. As at March 31, 2024, and December 31, 2023, the Company recorded a provision for credit losses of $
and $ , respectively.
5. | Prepaids and Deposits |
March 31, 2024 | December 31, 2023 | |||||||
Prepaid expenses | $ | $ | ||||||
Deposits | ||||||||
$ | $ | |||||||
Prepaids and deposits - current | ||||||||
Deposits- non-current |
As of March 31, 2024, and December 31,
2023, the security deposit on the Company’s long-term lease in the amount of $
6. | Inventory |
March 31, 2024 | December 31, 2023 | |||||||
Raw materials | $ | $ | ||||||
Work in progress | ||||||||
Finished goods | ||||||||
$ | $ |
Cost of inventory recognized as expense
in cost of sales for the three months ended March 31, 2024, and 2023, totaled $
8
7. |
Equipment | Furniture and Fixtures | Computers | Total | |||||||||||||
Cost | ||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||||||
Additions | ||||||||||||||||
Disposal | ||||||||||||||||
Foreign currency translation | ||||||||||||||||
Balance, December 31, 2023 | $ | $ | $ | $ | ||||||||||||
Additions | ||||||||||||||||
Foreign currency translation | ( | ) | ( | ) | ||||||||||||
Balance, March 31, 2024 | $ | $ | $ | $ | ||||||||||||
Accumulated depreciation | ||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||||||
Depreciation | ||||||||||||||||
Foreign currency translation | ||||||||||||||||
Balance, December 31, 2023 | $ | $ | $ | $ | ||||||||||||
Depreciation | ||||||||||||||||
Foreign currency translation | ( | ) | ( | ) | ||||||||||||
Balance, March 31, 2024 | $ | $ | $ | $ | ||||||||||||
Net book value | ||||||||||||||||
December 31, 2023 | $ | $ | $ | $ | ||||||||||||
March 31, 2024 | $ | $ | $ | $ |
During the three months ended March
31, 2024, and 2023, the Company capitalized depreciation of $
8. | Intangible assets |
On January 15, 2024, (the “Effective
Date”), 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 term of the license is
a) | $ |
b) | $ |
c) | $ |
The cost of the intangible assets will
be measured at $
License | ||||
Cost | ||||
Balance, December 31, 2023 | $ | |||
Additions | ||||
Balance, March 31, 2024 | $ | |||
Accumulated depreciation | ||||
Balance, December 31, 2023 | $ | |||
Additions | ||||
Balance, March 31, 2024 | $ | |||
Net Book value – March 31, 2024 | $ |
9
9. | Operating Lease |
During 2022, the Company entered into a noncancelable operating lease that includes two property location, 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 3rd, 2023, the Company
amended the terms of the previously entered lease agreement to lease additional office space from the lessor. Rent increased from $
The Company recognized a total lease
cost related to its noncancelable operating lease of $
March 31, 2024 | March 31, 2023 | |||||||
Office space, recorded in office and administration | $ | $ | ||||||
Lab space, recorded in research and development | ||||||||
Lab space, capitalized to production of inventory | ||||||||
$ | $ |
As of March 31, 2024, and December 31,
2023, the Company recorded a security deposit of $
As of March 31, 2024 | Total | |||
2024 | ||||
2025 | ||||
Thereafter | ||||
Less: Imputed interest | ( | ) | ||
Operating lease liability | ||||
Operating lease lability – current | ||||
Operating lease lability – non-current | $ |
The Company used a discount rate of
10
10. | Accounts Payable and Accrued Liabilities |
March 31, 2024 | December 31, 2023 | |||||||
Accounts payable | $ | $ | ||||||
Accrued liabilities | ||||||||
$ | $ |
11. | Consideration payable |
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 fair value of the payments to be made is $
As of January 15, 2024, the fair value
of the consideration payable stands at $
Consideration payable | ||||
Outstanding, December 31, 2023 | $ | |||
Additions | ||||
Payment | ( | ) | ||
Discount | ||||
Accretion expense | ||||
Outstanding, March 31, 2024 | $ | |||
Consideration payable – current | ||||
Consideration payable – non-current | $ |
12. | Derivative liabilities |
On July 15, 2022, the Company issued
On November 21, 2023, the Company completed
its Initial Public Offering (“IPO”) -and issued
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 since the terms allows for a cashless net share settlement at the option of the holder.
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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).
Derivative liabilities | ||||
Outstanding, December 31, 2022 | $ | |||
Addition of new derivatives during IPO | ||||
Change in fair value of derivative liabilities | ||||
Outstanding, December 31, 2023 | $ | |||
Change in fair value of derivative liabilities | ( | ) | ||
Outstanding, March 31, 2024 | $ |
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 March 31, 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.
March
31, 2024 | December
31, 2023 | November
21, 2023 | December
31, 2022 | July
15, 2022 | ||||||||||||||||
Risk-free interest rate | % | % | % | % | % | |||||||||||||||
Expected life 1 | ||||||||||||||||||||
Expected dividend rate | % | % | % | % | % | |||||||||||||||
Expected volatility | % | % | % | % | % |
Outstanding | Expiry date1 | Weighted average exercise price ($) | ||
As of March 31, 2024, and December 31,
2023, the weighted average life of derivative liability warrants outstanding was
1 |
12
13. | Equity |
Common Stock
Authorized
As of March 31, 2024, and December 31,
2023, the Company had
Issued and outstanding
As of March 31, 2024, and December 31,
2023, the Company had
Transactions during the three months ended March 31, 2024
No share capital activity in the Company during the three months ended March 31, 2024.
Transactions during the three months ended March 31, 2023
On January 6, 2023, the Company issued
On March 2, 2023, the Company issued
Preferred Stock
Authorized
As of March 31, 2024, and December 31,
2023, the Company had
The holders of Preferred Stock shall have the right to convert their shares of Preferred Stock, at any time, into shares of Common Stock at a conversion price of 1:1. Upon IPO, all preferred shares were converted into common shares on November 21, 2023.
Issued and outstanding
As at March 31, 2024, and December 31, 2023, the Company had
preferred stock issued and outstanding.
Transactions during the three months ended March 31, 2024, and 2023
There were no preferred stock transactions during the three months ended March 31, 2024, and 2023.
13
Equity Warrants
Transactions during the three-month ended March 31, 2024.
There was no equity warrant activity during the three months ended March 31, 2024
Transactions during the three-month ended March 31, 2023.
On March 2, 2023, the Company issued
Outstanding | Expiry date | Weighted average exercise price ($) | ||
As of March 31, 2024, and December 31, 2023, the weighted
average life of equity warrants outstanding was
14
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 March 31, 2024, the aggregate number of shares allocated and made available for issuance pursuant to stock
options granted under the Plan shall not exceed
Transactions during the three-month ended March 31, 2024
In January 2024, the Company granted
On March 6, 2024, the Company granted
Transactions during the three-month ended March 31, 2023
On February 1, 2023, the Company granted
March 31, 2024 | December 31, 2023 | |||||||
Risk-free interest rate | % | % | ||||||
Expected life | ||||||||
Expected dividend rate | % | % | ||||||
Expected volatility | % | % | ||||||
Forfeiture rate | % | % |
Number of stock options | Weighted average exercise price | |||||||
Outstanding, December 31, 2022 | ||||||||
Granted | ||||||||
Forfeited | ( | ) | ||||||
Exercised | ( | ) | ||||||
Outstanding, December 31, 2023 | ||||||||
Granted | ||||||||
Forfeited | ( | ) | ||||||
Exercised | - | - | ||||||
Outstanding, March 31, 2024 |
15
Outstanding | Vested | Expiry date | Weighted average exercise price ($) | |||
As of March 31, 2024, and December 31,
2023, the weighted average life of stock options outstanding was
During the three months ended March
31, 2024, and 2023, the Company recorded $
14. | Related Party Transactions |
Related parties consist of the following individuals and corporations:
● | Braeden Lichti, Chairman and former President, significant shareholder through BWL Investments Ltd. Resigned as President effective October 11, 2022. |
● | Jordan Plews, CEO and Director, significant shareholder through JP Bio Consulting LLC |
● | Graydon Bensler, CFO and Director |
● | Yi Guo, Former Director, resigned effective September 29, 2022 |
● | Tim Sayed, Chief Medical Officer |
● | Brenda Buechler, Chief Marketing Officer |
● | Christoph Kraneiss, Chief Commercial Officer |
● | Jeffrey Parry, Director (appointed June 1, 2023) |
● | Julie Daley, Director (appointed June 1, 2023) |
● | Crystal Muilenburg, Director (appointed June 1, 2023, resigned February 29, 2024) |
16
● | George Kovalyov (appointed March 1, 2024) |
● | GB Capital Ltd., controlled by Graydon Bensler |
● | JP Bio Consulting LLC, significant shareholder and controlled by Jordan Plews |
● | BWL Investments Ltd., significant shareholder and controlled by Braeden Lichti |
● | Northstrive Companies Inc., controlled by Braeden Lichti |
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
Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
Consulting fees | $ | $ | ||||||
Salaries | ||||||||
Share-based compensation | ||||||||
$ | $ |
During the three months ended March
31, 2024, the Company incurred consulting fees of $
Jordan Plews, CEO and Director, earned
a Salary of $
Brenda Buechler, Chief Marketing Officer,
earned a Salary of $
Christoph Kraneiss, Chief Commercial
Officer, earned a Salary of $
During the three months ended March 31, 2024, and 2023, the company issued the following stock options to related parties:
On March 1, 2024, the Company granted
17
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Fair value of stock options granted | ||||||||||
Braeden Lichti, Former Chairman and President | $ | $ | $ | |||||||||
Graydon Bensler, CFO and Director | ||||||||||||
Jordan Plews, CEO and Director | ||||||||||||
Tim Sayed, Chief Medical Officer | ||||||||||||
Jeffrey Parry, Director | ||||||||||||
Crystal Muilenburg, Former Director1 | ( | ) | ||||||||||
Julie Daley, Director | ||||||||||||
George Kovalyov, Director | - | |||||||||||
Brenda Buechler, Chief Marketing Officer | ||||||||||||
Christoph Kraneiss, Chief Commercial Officer | ||||||||||||
$ | $ | $ |
1 |
As of March 31, 2024, and December 31,
2023, the Company had $
As of March 31, 2024, the Company had
$
15. | Commitments and Contingencies |
There were no commitments as of March 31, 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. Termination of the distributor agreement does not result in any penalties or damages.
16. | Concentrations |
Customers
For the three months ended March 31,
2024, the Company recorded
As of March 31 ,2024 and December 31,
2023, the Company had $
The Company expects its dependence on these major customers to decrease over time as it enters into additional distributor agreements and builds out its sales team.
18
Suppliers
During the three months ended March
31 ,2024, and 2023, the Company had 3 key suppliers that represented approximately
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
Supplier 1 | % | % | ||||||
Supplier 2 | % | % | ||||||
Supplier 3 | % | % | ||||||
% | % |
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.
17. | Subsequent Events |
Management has evaluated events subsequent to the year ended March 31, 2024, up to May 15, 2024, for transactions and other events that may require adjustment of and/or disclosure in the consolidated financial statements.
On April 30, 2024, the Company’s appointed Canadian distributor terminated the existing distribution agreement. (Note 15).
On April 30, 2024, the Company
entered into an exclusive licensing agreement with a biomedical and pharmaceutical company for an upfront fee of $
On May 3, 2024, the Company entered
into a consulting agreement with a maturity of May 3, 2025. The consultant is to be paid $
19
ELEVAI LABS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
(Unaudited)
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this quarterly report to “we,” “us,” “Elevai” or the “Company” refer to Elevai Labs Inc. and its subsidiaries. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting our results of operations, liquidity, capital resources and contractual obligations. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included elsewhere herein.
Forward-Looking Statements
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 Securities Exchange Act of 1934, as amended, (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 Form 10-Q 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.
Organization and Overview of Operations
Elevai Labs, Inc. was incorporated in Delaware in June 2020. We are a topical skincare company specializing in aesthetic biotechnology. We have created, and continue to research, and commercialize innovative and science-driven topical skincare technologies for the medical aesthetic skincare market. We principally produce, commercialize, distribute, and sell a new generation of cosmetic topical products containing our proprietary stem cell-derived Elevai ExosomesTM.
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 develop the Company’s 2 drug candidates, EL-22, a clinical stage engineered probiotic expressing myostatin, and EL-32, a preclinical engineered probiotic expressing dual myostatin and activin-A. Effective May 1, 2024, Elevai transferred its operating assets and liabilities relating to its skincare business to Skincare in exchange for common shares of Skincare. To bring our products to market, we developed a robust fully-commercialized process from source to skin (exosome secretion to product bottling) that holds and utilizes advanced patent pending knowledge alongside our cohesive production process. Our specialty product lines are topically applied to the skin to aid in the reduction of the appearance of a range of the most common skin conditions, including pre-mature aging, oxidative stress, photodamage, hyperpigmentation, elasticity, and soft tissue deficits, such as fine lines and wrinkles. We primarily sell our products through the physician dispensed channel.
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Outlook
Management’s Plans
Over the next twelve months we intend to focus on:
● | Growing our revenue using our existing infrastructure to accelerate the commercialization of our products; |
● | Utilizing clinical validation studies to show the efficacy of our products; |
● | R&D to create new product formulations and bring them to market; |
● | Expanding our distribution partnerships internationally; and |
● | Pursue the identification and review of strategic acquisitions to complement our business. |
Results of Operations
Comparison of the three months ended March 31, 2024.
The following table provides certain selected financial information for the periods presented:
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | ||||||||||
Revenue | $ | 614,563 | $ | 142,820 | $ | 471,743 | ||||||
Cost of revenue | $ | 168,911 | $ | 44,433 | $ | 124,478 | ||||||
Gross profit | $ | 445,652 | $ | 98,387 | $ | 347,265 | ||||||
Gross profit percentage | 73 | % | $ | 69 | % | 4 | % | |||||
Depreciation and Amortization | $ | 20,331 | $ | 2,497 | $ | 17,834 | ||||||
Marketing and Promotion | $ | 393,038 | $ | 102,676 | $ | 290,362 | ||||||
Consulting Fees | $ | 396,126 | $ | 83,964 | $ | 312,162 | ||||||
Office and Administration | $ | 878,608 | $ | 434,059 | $ | 444,549 | ||||||
Professional Fees | $ | 179,922 | $ | 137,797 | $ | 42,125 | ||||||
Investor Relations | $ | 98,245 | $ | 38,268 | $ | 59,977 | ||||||
Research and Development | $ | 103,194 | $ | 83,741 | $ | 19,453 | ||||||
Foreign exchange (gain) loss | $ | 541 | $ | 259 | $ | 282 | ||||||
Travel and entertainment | $ | 59,108 | $ | 61,515 | $ | (2,407 | ) | |||||
Total operating expenses | $ | 2,129,113 | $ | 944,776 | $ | 1,184,337 | ||||||
Loss from operations | $ | (1,683,461 | ) | $ | (846,389 | ) | $ | (837,072 | ) | |||
Other income (expense)1 | $ | 286,211 | $ | (234,307 | ) | $ | 520,518 | |||||
Net loss | $ | (1,397,250 | ) | $ | (1,080,696 | ) | $ | (316,554 | ) | |||
Total Comprehensive Loss | $ | (1,396,069 | ) | $ | (1,080,583 | ) | $ | (315,486 | ) | |||
Basic and dilutive loss per common share | $ | (0.081 | ) | $ | (0.111 | ) | $ | 0.031 | ||||
Weighted average number of shares outstanding – basic and diluted | 17,329,615 | 9,707,364 | 7,622,251 |
1 | Other expenses relates to interest income, interest expense, insurance settlement and fair value gain/loss on derivative liability. |
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Revenue
Revenue for the three months ended March 31, 2024, was $614,563 as compared to $142,820 for the three months March 31, 2023, an increase of $471,743.
Our revenue by product category is as follows:
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
Enfinity | $ | 358,576 | $ | 65,289 | ||||
Empower | 255,987 | 77,531 | ||||||
Total Revenue | $ | 614,563 | $ | 142,820 |
During the three months ended March 31, 2024, and 2023, the Company sold 2,954 and 474 bottles of Enfinity, respectively, an increase of 2,480 bottles or 523%. In addition, the Company sold 566 (eight packs) of Empower tubes in 2024, compared to 176 (eight packs) of Empower tubes during 2023, and an increase of 390 (eight packs) or 222%. 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.
Cost of Revenue
Cost of Revenue for the three months ended March 31, 2024, was $168,911 as compared to $44,433 for the three months ended March 31, 2023.
Our cost of revenue by product category is as follows:
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
Enfinity | $ | 106,562 | $ | 25,699 | ||||
Empower | 62,349 | 18,734 | ||||||
Total Cost of Revenue | $ | 168,911 | $ | 44,433 |
The increase in cost of revenue is directly attributed to the increase in sales during the three months ended March 31, 2024, compared to 2023. The following is a breakdown of the components of cost of revenue:
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
Cost of inventory | $ | 80,907 | $ | 19,750 | ||||
Sales commission | 47,750 | 16,885 | ||||||
Shipping cost | 40,254 | 7,798 | ||||||
Total Cost of Revenue | $ | 168,911 | $ | 44,433 |
22
Gross Profit
Gross profit for the three months ended March 31, 2024, was $445,652 as compared to $98,387 for the three months ended March 31, 2023, an increase of $347,265. This represents an overall gross margin percentage of 73% for three months ended March 31, 2024, compared to 69% 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:
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
Enfinity | 70 | % | 61 | % | ||||
Empower | 76 | % | 76 | % | ||||
Overall Gross Profit Percentage | 73 | % | 69 | % |
Research and Development Expenses
Research and development expenses for the three months ended March 31, 2024, were $103,194 compared to $83,741 for the three months ended March 31, 2023, an increase of $19,453. Research and Development related to the Company’s Enfinity, Empower and development of new products for the Company. The increase in R&D is mainly driven by the company continuously testing new products and looking for ways to improve its formulation efficiency. During both the three months ended March 31, 2024 and 2023, the Company’s lab staff worked on increasing the efficiency and refining the production process.
Marketing and Promotion
Marketing and promotion expenses for the three months ended March 31, 2024, were $393,038 compared to $102,676 for the three months ended March 31, 2023, an increase of $290,362. During the three months ended March 31, 2024, the Company increased its marketing and promotion efforts to drive sales and support the Company’s existing customers, which included giving out product samples with a cost of $48,989 (three months ended March 31, 2023 - $21,068), and attending and sponsoring industry conferences.
Office and Administrative Expenses
Office and administrative expenses for the three months ended March 31, 2024, were $878,608, compared to $434,059 for the three months ended March 31, 2023, an increase of $444,549. The increase is mainly the result of salaries and wages of $556,772 and office rent of $34,193 incurred during the three months ended March 31, 2024, compared to $284,660 and $25,916 in the three months ended March 31, 2023, a combined increase of $280,389. Additionally, the increase is a result on insurance costs of $117,400 during the three months ended March 31, 2024, compared to $16,189 in the three months ended March 31, 2023. 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. The company also was required to purchase director and officer insurance in the current period as the Company was now publicly traded. During the three months ended March 31, 2024, office and administrative expenses also include share-based compensation of $53,929, compared to $71,902 in the three ended March 31, 2023, a decrease of $17,973. The decrease is due to a director resigning on February 29, 2024, resulting in the forfeiture of 58,333 options.
23
Consulting Fees
Consulting fees for the three months ended March 31, 2024, were $396,126, compared to $83,964 for the three months ended March 31, 2023, an increase of $312,162. During the three months ended March 31, 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
Professional fees for the three months ended March 31, 2024, was $179,922, compared to $137,797 for the three months ended March 31, 2023, an increase of $42,125. Professional fees comprise of legal, audit and accounting services. The increase during 2024 is primarily due to an increase in audit, legal and accounting services as the company is now listed on the NASDAQ exchange.
Travel and Entertainment
Travel and entertainment for the three months ended March 31, 2024, was $59,108, compared to $61,515 for the three months ended March 31, 2023, a decrease of $2,407. Travel and entertainment expenses are related primarily to costs incurred during the attendance of industry trade shows and conferences.
Investor Relations
Investor relations for the three months ended March 31, 2024, was $98,245, compared to $38,298 for the three months ended March 31, 2024. The increase in investor relations spending is consistent with the Company’s growth strategy, which includes promotion to current and potential investors as the company is listed on the NASDAQ exchange.
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 March 31, 2024, and December 31, 2023, the Company had a net working capital of $1,918,631 and $3,622,091, respectively, and has an accumulated deficit of $8,421,140 and $7,023,890, respectively. Furthermore, for the three months ended March 31, 2024, and 2023, the Company incurred a net loss of $1,397,280 and $1,080,696, respectively and used $2,324,068 and $885,506, 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.
24
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, and the issuance of common and preferred stock. As of March 31, 2024, we had cash of $943,797, with $3,326,851 as of December 31, 2023.
The following table provides selected financial data as of March 31, 2024, and December 31, 2023, respectively.
March 31, 2024 | December 31, 2023 | Change | ||||||||||
Current assets | $ | 3,140,753 | $ | 4,919,444 | $ | (1,778,691 | ) | |||||
Current liabilities | $ | 1,222,122 | $ | 1,297,353 | $ | (75,231 | ) | |||||
Working capital | $ | 1,918,631 | $ | 3,622,091 | $ | (1,703,460 | ) |
The following table summarizes our cash flows from operating, investing and financing activities:
Three Month Ended March 31, 2024 | Three Month Ended March 31, 2023 | Change | ||||||||||
Cash used in operating activities | $ | (2,324,068 | ) | $ | (885,506 | ) | $ | (1,438,562 | ) | |||
Cash used in investing activities | $ | (59,160 | ) | $ | (11,191 | ) | $ | (47,969 | ) | |||
Cash provided by financing activities | $ | - | $ | 787,500 | $ | (787,500 | ) |
Cash Flow from Operating Activities
For the three months ended March 31, 2024, net cash flows used in operating activities was $2,324,068 compared to $885,506 used during the three months ended March 31, 2023, respectively, primarily due to net loss and timing of settlement of assets and liabilities.
Cash Flows from Investing Activities
During the three months ended March 31, 2024, and 2023, we used $59,190 and $11,191, respectively, in investing activities primarily related to the purchase of equipment for our lab space to be used on the production of inventory and research and development. In the three months ended March 31, 2024, the company paid $50,000 for an intangible asset relating to the purchase of a license to produce stem cells.
Cash Flows from Financing Activities
During the three months ended March 31, 2024, we had cash flow provided by financing activities of $Nil compared to cash flow provided by financing activities of $787,500 in the three months ended March 31, 2023. During the three months ended March 31, 2023, the Company raised $750,000 through the issuance of common stock and common stock purchase warrants, and another $37,500 upon the exercise of stock options in exchange for common stock.
25
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 accounting principles generally accepted in the United States (“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.
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.
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.
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 three months ended March 31, 2024, and 2023.
26
Foreign Currency Translation
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 Eleva 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.
Nonemployees - 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.
During the three months ended March 31, 2024, and 2023, the Company recorded $55,339 and $75,161, respectively, in share-based compensation expense, of which $53,929 and $1,410, and $71,901 and $3,260, 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 three months ended March 31, 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.
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Concentrations
Customers
For the three months ended March 31, 2024, the Company recorded 11% of its revenue from its largest customer. The Company’s largest customer, representing $67,500 of revenue, relates to sales to a distributor during the period. During the three months ended March 31, 2023, the Company recorded 18% of its revenue from its largest customer. The Company’s largest customer, representing $25,500 of revenue, relates to a distributor agreement.
As of March 31 ,2024 and December 31, 2023, the Company had $49 receivables due from these customers and $Nil in customer deposits were received from its largest customer.
The Company expects its dependence on these major customers to decrease over time as it enters into additional distributor agreements and builds out its sales team.
Suppliers
During the three months ended March 31 ,2024, and 2023, the Company had 3 key suppliers that represented approximately 66% and 3 key suppliers that represented approximately 70%, 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 does not necessarily represent the same suppliers period over period):
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
Supplier 1 | 33 | % | 41 | % | ||||
Supplier 2 | 18 | % | 18 | % | ||||
Supplier 3 | 15 | % | 11 | % | ||||
66 | % | 70 | % |
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.
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
Our Corporate Governance and Nominating Committee of our Board of Directors are required to approve all related party transactions. All related party transactions will be 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 Securities Exchange Act of 1934, as amended (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 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 of the Securities Act of 1933, as amended.
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 Elevai Biosciences Inc, pursuant to the agreed upon compensation terms in the consulting agreement with the entity. The issuance of the shares was exempt from registration under Section 4(a)(2) of the of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Trading Arrangements of Section 16 Reporting Persons.
During the quarter ended March 31, 2024, no person
who is required to file reports pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as amended, with respect to
holdings of, and transactions in, the Company’s common shares (i.e. directors and certain officers of the Company) maintained,
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
* | Filed herewith. |
** | Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Elevai Labs Inc. | ||
Date: May 15, 2024 | By: | /s/ Jordan R. Plews |
Name: | Jordan R. Plews | |
Title: | Chief Executive Officer | |
(Principal Executive Officer) | ||
Date: May 15, 2024 | By: | /s/ Graydon Bensler |
Name: | Graydon Bensler | |
Title: | Chief Financial Officer | |
(Principal Accounting and Financial Officer) |
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