PMGC Holdings Inc. 10-K

Item 1. Business Overview We are a physician-dispensed skincare company with a focus on modernizing aesthetic skincare. We conduct research and development to advance innovative and science-driven topical skincare that complements the medical aesthetics industry. Upon our founding in 2020, we initiated our research and development phase for our current product formulations. Since 2022, we have principally employed a business-to-business model in which we produce and commercialize a new generation of topical skincare products that contain our proprietary stem cell-derived Elevai Exosomes TM designed to enhance the appearance of skin. We have designed our innovative and meticulously produced Elevai Exosomes TM infused cosmetics for the physician-dispensed industry that we believe has lacked significant and recent new biotechnological innovations or advancements. We expect exosomes, nano-sized, natural delivery mechanism that affect important biological factors, to become a focal point that will change the nature of how medical aesthetics cosmetic skincare and related aesthetic products are used and adopted for years to come. Our team bridges years of cutting-edge molecular biotechnology research with our company’s flexibility to fully scale pipeline products through our refined competencies in biochemical engineering and bioprocessing prowess. We believe this potent combination of know-how is not found elsewhere in the cosmetics brands utilized by the physician-dispensed skincare industry and these proficiencies validate our early-mover advantage. Although the relationship between biochemical engineering, and stem cell research in cosmetics is not widely understood, we have built a team with mastery in both disciplines. Because we strive to refine the advancement of those intersectant technologies, we are well situated in our ambition to develop and market next-generation products that can improve skin aesthetics while maintaining the ability to fully scale our operations at a level that we believe other companies of a similar size cannot. Our exosome manufacturing process from source to skin is known as ‘Precision Regenerative Exosome Technology™’ or ‘PREx™’. PREx™ utilizes advanced patent-pending stem cell processing technology as part of our cohesive production process involving carefully controlled stem cell culture to produce stem cell derived factors that are featured in our topical exosome products. Our proprietary PREx™ process yields exosome lots from any hUMSC supplier that provide the source for our specialty physician-dispensed skincare product lines. Our products are comprised of topical cosmetic solutions. These products are not drug products or considered regenerative medicine, nor have any of our products received FDA approval. Our cosmetic products are not intended to prevent, treat or cure diseases or medical conditions. Moreover, our cosmetic products are not intended to be injected or delivered intravenously. Instead, our exosome-infused skincare products are topically applied to the skin to aid in the reduction of the appearance of a range of the most common cosmetic skin conditions, including the appearance of skin firmness, oxidative stress, photodamage, hyperpigmentation, and texture of soft tissue deficits, such as reducing the appearance of fine lines and wrinkles. More specifically, our E-Series™ line is marketed as a post-procedure care cosmetic that is applied to the skin after a medical aesthetics procedure such as skin laser therapy, micro needling, rejuvenation peels and Botox injections. In addition to antiquated technology, we believe the current skincare market is dominated by confusing marketing claims, leaving skincare consumers with little more than subjective analyses or non-quantitative measures to assess a product before purchasing. We founded Elevai with the intention of offering cosmetics products built on over fifteen years of innovative stem-cell biotechnology and scientific development by our Co-founders and Chief Executive Officer. With this goal in mind, we developed a proprietary commercialization process for producing and distributing non-invasive topical cosmetics products featuring our Elevai Exosomes™. Our aptitude in biochemical research and bioprocessing development coupled with a mission to provide scientifically backed skincare technology enables our high potential to become one of the early movers in the medical aesthetics cosmetics industry with international reach. We believe the potency and innovation of our product lines will be supported by our early-study data which will facilitate a shift in the physician-dispensed market towards the use of biotechnology to complement services provided within the medical aesthetics industry. 1 We seek to revolutionize the physician-dispensed cosmetics skincare market by providing unmet consumer needs to aid those individuals receiving services within the medical aesthetics industry through our innovative, but approachable skin-centric technology: our Elevai Exosomes TM . We believe we will be able to show that our exosomes provide aesthetic benefits and in turn can improve the appearance of skin that is prone to temporary inflammation and damage normally experienced by individuals immediately after receiving cosmetic or medical aesthetic procedures in either a physicians’ office, medical spa or by a licensed aesthetician. Through our ongoing rigorous testing and data analysis, we believe our products have the potential to demonstrate that they complement and enhance commonly performed cosmetic procedures such as skin laser therapy, micro needling, rejuvenation peel, and Botox injections. We believe our products have properties that can reduce the appearance of post-inflammatory hyperpigmentation that typically follows cosmetic or medical aesthetics services, such as laser therapy, micro needling and other minor ablative procedures. We further believe that our products have the potential to be used in a number of applications and other procedures beyond their current use. For example, we are in the early stages of evaluating the adjunctive use of our exosomes in the promotion of healthy hair growth cycles and noticeable improvement to hair appearance, fullness, and thickness. Our current cosmetic product formulations do not contain living cells, are patent pending and utilize our Elevai Exosomes TM . Elevai Exosomes TM are nano-sized extracellular vesicles packed with growth factors that we believe support skin health, including cytokines, peptides and other small molecules involved in the body’s natural healing. Elevai Exosomes™ are the powerhouse ingredient in all current Elevai products that we believe mimics the elegant repair process of the body alongside carefully selected high-quality active ingredients, such as hyaluronic acid and ceramides, to help maintain skin health for any skin type. While our products contain no living cells, they leverage the novel use of ethically sourced and thoroughly tested, human umbilical mesenchymal stem cells (“hUMSC”) that we culture under proprietary in vitro lab conditions and secrete Elevai Exosomes™ from. Elevai Exosomes TM are produced from hUMSCs that are derived under current Good Manufacturing Practices (“cGMP”) conditions. Our hUMSCs are rigorously tested from consenting, and carefully selected donors. These hUMSCs then undergo cell expansion in vitro under proprietary conditions in our state-of-the-art laboratory operated under cGMP compliance. We specifically isolate hUMSCs from the Wharton’s Jelly portion of umbilical cords because these stem cells’ conditioned media (“CM”) or stem cells’ secretome is capable of resulting in exosomes with a protein profile that uniquely mimics the profile of proteins that these very young cells produce naturally when supporting the body’s healing and repair process. CM is a collective term for the paracrine soluble factors (a form of cellular communication in which a cell produces to signal to induce changes in nearby cells) produced by stem cells and utilized for intercellular communication. The CM of the hUMSCs we source is made up of growth factors, exosomes, lipids, microvesicles, and nutrients. Our hUMSCs are purified through our proprietary method, resulting in Elevai Exosomes TM . Every product we develop originates with a deep understanding of the skin, what healthy skin needs to look healthy, and how our next-generation, stem-cell exosome technology can help maintain the appearance of healthy skin. We specifically designed our Elevai Exosomes™ to be bottled in stable solutions so they can be topically applied. hUMSCs, when cultured under the right conditions, produce nano-vesicles (~30-150nm) called exosomes, or extracellular vesicles. Biologically, exosomes are roughly spherical and made up of a lipid bilayer produced by the cell they originate from. This lipid bilayer forms a protective “shell” or outer casing, and within the “shell” exists the exosome payload containing molecules deposited there by the cell that generated the exosome. While exosomes are generated using some of the origin cell’s own cellular material, the exosomes do not contain cells, nor are they explicitly cellular material. Instead, exosomes represent a powerful, nano-sized, natural delivery mechanism for protecting important biological factors and this enables them to be directed to where they are needed most. The use of exosomes has been found to penetrate the skin better, absorb more easily, and protect the active ingredients fused into our products, including stem cell derived proteins, peptides, and growth factors. 1 1 Banerjee R. Overcoming the stratum corneum barrier: a nano approach. Drug Deliv Transl Res. 2013 Jun;3(3):205-8. Doi: 10.1007/s13346-013-0149-8. PMID: 25788129 2 Elevai Exosomes™ are produced in-house through our proprietary manufacturing process, called Precision Regenerative Exosome Technology™ or PREx™ Our PREx™ technology is based on over 15 years of stem-cell research, bioprocessing, pharmaceutical- and biotech-product development by CEO and chief scientist Dr. Jordan R. Plews, PhD. Through PREx™, we have produced exosomes that have been developed into topical serums and creams which we believe aesthetically enhance the skin with a more youthful appearance. To maintain quality control over our Elevai Exosomes™ commercialization and manufacturing process, we only purchase hUMSCs that are derived and banked by a cGMP-compliant third-party manufacturer. We similarly produce our final products in an FDA-inspected, cGMP compliant facility. The hUMSCs are shipped to our laboratory where we similarly operate our lab under strict good laboratory practice (“GLP”) protocols to produce the highest quality of exosomes for our products. Not only are all our ingredients and products subject to multiple quality control tests before bottling, but each lot is also tested, and batch numbered to enhance safety and traceability. Since every stem cell line is carefully derived and closely monitored throughout the process by highly trained personnel, only the highest quality stem cells are used to generate Elevai Exosomes™. If cells show any deviation in morphology or vitality, or any signs of contamination, the cell lines and exosomes from those cells are discarded. Currently, we are reliant on suppliers and manufacturers for both our raw materials and formulations and packaging of our final products, however we may build up additional manufacturing capabilities to become more vertically integrated. To this end, we are currently exploring the possibility of acquiring products, technologies, or companies to assist in our integrative goals. We believe that we are at the fore of the biotech aesthetic revolution by innovating new cosmetic products at a level of biotech and aesthetics cosmetics research rarely observed in over-the-counter or physician-dispensed cosmetics skincare market. Our patent pending flagship Elevai E-Series™ products include Empower™ and Enfinity™ which are sold exclusively through our business-to-business model channel and via our distribution agreements channel. These products complement those individuals receiving services within the medical aesthetics industry who are in need of cosmetics to improve the appearance of skin in addition to receiving aesthetics treatments. Empower™ was developed to provide immediate post-treatment skin support and Enfinity™ for ongoing daily aftercare. Both products contain our patent-pending Elevai Exosomes™. Separately, regenerative medicines, including those that may contain exosomes usually refers to the use of a cell or a gene therapy to actually repair or replace damaged cells, tissues, or organs as opposed to enhancing the appearance of skin through cosmetics. When these regenerative medicines are advertised to repair, or replace damaged cells, or tissues while treating diseases and conditions in humans, they may be regulated as drugs and biological products under the Federal Food Drug and Cosmetic Act (“FD&C Act”). The FDA regulates the interstate manufacture and distribution of certain biological products, and drugs derived from human cells, tissues and cellular and tissue-based products or “HCT/Ps” under the Public Health Service Act (the “PHSA”). Moreover, to lawfully market a drug that is also a biological product, a biologics license must be in effect under the PHSA. As of the date of this report, we are not aware of any FDA approved exosome biological products or drugs for any use. Our products are not considered a regenerative medicine intended to be used to treat any disease or condition. As a result, we do not believe our products qualify as HCT/Ps as it relates to their intended use as defined by the FDA, we expect they will remain cosmetic products. Many of our topical products are currently sold nationally under a business-to-business (“B2B”) model while others are currently sold through our licensing and manufacturing agreements with third-party distributors to sell our products internationally in Kuwait, Serbia, Albania, North Macedonia, Kosovo and Bosnia-Herzegovina (the “Balkans”), the Philippines and Vietnam. As of the date of this report, except for product sales made by our Vietnamese, and Canadian distributors, our distributors have not made any sales under any of our active exclusive distribution agreements, and we have made no direct international sales. However, On March 6, 2024, we received notice from Health Canada that it reviewed the make-up of our cosmetic products and determined our products do not meet the conditions for sale as cosmetics in Canada. On March 18, 2024, we responded to Health Canada to dispute the determination and clarify the materials Health Canada relied upon in order to make its determination. As of March 18, 2024, and the date of this report, we are continuing to communicate with Health Canada and have voluntarily stopped the sale of our products in Canada until a time that a resolution can be reached with Health Canada with regard to how the products can be marketed in Canada. Depending on the outcome of Elevai’s engagement with Health Canada, Elevai products may become subject to additional regulatory requirements in order to be marketed in Canada. This determination will impede sales in Canada until resolved and raises concerns about our future collaboration with our distributor, Evolve Medical Inc. 3 Our products are primarily sold to medical practices or spas often overseen by licensed medical professionals through licensing agreements in which those select outlets are required to provide proof of licensure and sign a reseller’s agreement. These arrangements protect our brand and are designed to ensure that our products remain positioned as professional luxury cosmetics products that are only sold via partners with sufficient training and know-how to properly highlight the unique benefits that our topical products offer. We trust these licensed professionals or medical spa staff know when the topical application of our products is most beneficial to any affected region of the skin following an in-office medical aesthetic treatment to aid and hasten the recovery process and to ameliorate the appearance of inflammation. In turn, licensed skincare professionals value their relationship with us, as it also protects them from unscrupulous non-professional skincare resellers and online outlets that would simply undercut on price and endanger their repeat business. We believe that physicians and their trained staff are the best source of trustworthy skincare information. Their deep understanding of the science, chemistry and structure of skin gives them clinical insight to select the most effective cosmetics products for their clients such as our cosmetics products. In addition to providing client-based physician practices, medical spas and licensed aestheticians with product, we offer complimentary educational programs and webinars, and make appearances at medical aesthetic conferences to showcase our cosmetics products and latest research. From time to time, our free informational sessions educate physicians on the variety of benefits carrying our cosmetics products will have on their practices and patients, and under what circumstances it may be advantageous for physicians to implement use of our cosmetics products. We also host patient-driven events to help our physicians connect with those patients seeking to utilize our cosmetics products which helps to grow their practices. Often, we will also provide useful information and in-office literature on our cosmetics products for those patients who may be interested in our products during a regular visit. Moreover, to further expand our product reach we have entered into a white-label supply contract and other regional and international supply contracts with select sales distribution channel partners that distribute our Elevai branded products internationally or incorporate our proprietary Elevai Exosomes TM into their own new product lines to reach customers globally. As our product lines become more pervasive, we anticipate working with additional distribution channel partners that will fuse our Elevai Exosomes TM into diverse product offerings and increase our overall share of the cosmetics market. Corporate Overview and History Elevai has one wholly owned subsidiary, Elevai Research Inc. (FKA Reactive Medical Inc.). Reactive Medical Labs Inc. (referred to herein as “Reactive Labs”) was incorporated in Delaware on June 9, 2020. On December 3, 2021, Reactive Labs changed its name to Elevai Labs, Inc. (referred to herein as “Elevai”). Reactive Medical Inc. (referred to herein as “Reactive”) was incorporated in British Columbia, Canada on February 5, 2018. On September 7, 2022, Reactive changed its name to Elevai Research Inc. Elevai Research Inc. is a wholly owned subsidiary of Elevai. In June 2021, we entered into a stock transfer agreement with Reactive, whereby we purchased substantially all of the assets and liabilities of Reactive. Under the stock transfer agreement, we acquired 100% of the issued and outstanding common shares of Reactive. Immediately before the stock transfer agreement BWL Investments Ltd., a British Columbia Canada corporation owned 100% of the issued and outstanding common shares of Reactive. In consideration of 100% of the issued and outstanding common shares of Reactive we issued 100 shares of our Common Stock to BWL Investments Ltd. Upon completion of the stock transfer agreement, Reactive became our wholly owned subsidiary. In September 2022, Reactive changed its name to Elevai Research Inc. 4 Our Industry Our Market and Industry We currently distribute our cosmetics products through three distinct channels, including business-to-business and direct-to-consumer sales channels where we sell our products directly within the United States and through our distribution sales channel where we sell our products directly to distributors with international or regional reach under exclusive and non-exclusive territorial agreements. We have employed a combination of multiple distribution channels via distribution agreements, online direct-to-consumer and directed business-to-business channels to optimize our sales reach and strategy. We specifically place our products with physicians’ offices and medically directed businesses through our business-to-business model channel via our online sales portal, and our trained direct sales force comprised of employed, and independently contracted aesthetic account managers. Consumers are increasingly looking to their physicians for advice on cosmetic product selection because they are overwhelmed by the marketing hype that often creates unrealistic expectations and some degree of consumer confusion. Gradually, we believe consumers are also looking for individualized skin care regimens and want to know from their physicians, what works and what does not. In addition to the business-to-business sales channels, our products are available for purchase direct-to-consumer via our digital retail website. Our products are also distributed within the physician-dispensed cosmetics skincare market through both exclusive and non-exclusive distribution agreements. The term ‘physician-dispensed’ refers to a sales channel where cosmetics products are exclusively sold in physician clinics or medically directed businesses by licensed medical professionals or that have a medical professional on staff. We include medical spas under this category such as standalone, or hospitality-affiliated clinics focused on cosmetic treatments such as injections, micro needling, and some plastic surgery services. Cosmetic products like ours are only available through a medically-directed business and are geared towards nourishing, protecting and supporting healthy looking skin. Such cosmetic products are highly sought after by consumers making them one of the fastest growing segments of the personal care market. 2 We believe consumers often turn to cosmetics to enhance the appearance of dull or aging skin and to brighten the skin by lessening the appearance of a myriad of aesthetics concerns such as unwanted pigmentation, acne, melasma and rosacea because these consumers view these products as alternatives to medications and often try cosmetics products before seeking medicinal solutions. Physicians also value well designed, topical skincare products formulated and manufactured with our biotechnology for their complementary aesthetic effects in conjunction with medications to improve skin appearance and to enhance the benefits of in-office procedures. Most of our product sales are within the physician-dispensed market through business-to-business channels, chiefly to dermatologists, plastic surgeons, and other physicians who are focused on medical aesthetics and therapeutic skincare, including some physicians practicing in medical esthetician practices. Our products complement those medical aesthetics services provided in these professional settings. Our business-to-business sales channel within the physician-dispensed cosmetics skincare market utilizes both online sales, and our trained direct sales force comprised of employed, and independently contracted aesthetic account managers. This business-to-business sales channel is distinct from our leverage of non-exclusive distribution agreements third-party distributors or resellers, who in turn sell our products to end customers. Under distribution agreements our relationship between the seller and the buyer is more indirect, because our distributors serve as an intermediaries, however we believe scaling our product lines through larger distribution sales channels will lead to faster brand expansion, recognition and market reach. Our direct-to-consumer channel allows our cosmetic products to remain conveniently available to those consumers without the need to visit a medically directed business to make a purchase, or prefer the ease of purchasing our products online. The objective of the medical aesthetics industry is to offer medical education and care in a setting that includes spa facilities as well as conventional, complementary, and/or alternative aesthetics-focused therapies and cosmetic treatments. These medical aesthetics services include cosmetic procedures such as micro needling, Botox injections, anti-wrinkle and fine line reduction therapies, acne surgery, fillers and facial and massage services performed with highly specialized lasers and instruments. 2 U.S. Beauty & Personal Care 2023-2026 | Statista. 5 Our Products Current Products and Products in Development Our products rely on Elevai Exosomes TM that are derived from, ethically sourced and thoroughly tested, human umbilical mesenchymal stem cells (“hUMSCs”) originating from umbilical cord tissue. Our products include Empower™ and Enfinity™, two post-skincare procedure care serums that target the face and neck, and upper chest regions which are sold exclusively through our business-to-business model channel and via our distribution agreements channel. 6 We currently purchase our hUMSCs for our products from third parties that source umbilical tissue from consenting donors and are manufactured under cGMP conditions. We infuse our product lines with exosomes derived from these hUMSCs which are replete with growth factors. On January 16, 2023, we entered into a License Agreement (the “EMx License Agreement”) with INmune Bio, Inc., a Nevada corporation (“INmune”). Under the License Agreement, INmune granted the Company certain worldwide exclusive and non-exclusive license rights to develop, manufacture, and commercialize INmunes’s EMx technology, (“EMx”) a proprietary equipment, processes and consumables useful for isolation and cGMP manufacture of hUMSCs for a period of ten years from the effective date of the EMx License Agreement (collectively, the “Field”). Our cosmetic topical products do not contain any living cells but do include our Elevai Exosomes TM . That is because Exosomes are not actually cells. Rather, they are cellular byproducts that are tiny, subcellular, membrane-bound vesicles approximately 30-150 nanometers in diameter. These vesicles are released by and can be derived from almost all cell types, including hUMSCs, whereas growth factors are signaling proteins that assist in hydrating and nourishing skin and do not by their nature have any form of protective envelope or encapsulation naturally. In comparison, exosomes are the delivery mechanism or envelope in which proteins (including growth factors), lipids, and other factors are contained within and can be applied topically to skin. Most notably, hUMSCs’ secretome produced by stem cells, also known as their conditioned media (“CM”) contain exosomes, proteins, growth factors, cytokines and other substances. Many competing products have attempted to synthetically use growth factors to recreate the messaging process from hUMSCs’ CMs, including recombinant bacteria, peptides, and/or small molecules. However, we believe many of these synthetic modalities are ineffective due to their lack of protection or encasement, which our Elevai Exosomes TM provide. Without protection, many synthetic modalities may end up undelivered due to their size, charge, shape, which we believe would not result in positive impact on existing skin concerns or bring skin a more youthful and healthy appearance. Instead, we believe a well-constructed exosome can overcome the deficiencies of synthetic versions. Our platform technology intentionally utilizes hUMSCs derived from umbilical cords of healthy full term newborns. These cells are then triggered under laboratory-controlled in vitro culture conditions to produce a reliable and consistent exosome ingredient harnessed by our Elevai Exosomes TM which support skin health. Our statements herein regarding our topical cosmetic and exosome-containing serums have not been reviewed or approved by the FDA. At this early stage, the continued success of the early positive results of our products is highly subjective to consumers and we have yet to complete clinical validation studies to demonstrate support for any performance claims of our products, such as their ability to aesthetically improve the skin. 7 Rather than try to synthetically design a specific ingredient or synthetic protein or peptide one at a time, we instead rely on hUMSCs’ innate ability to assist in nourishing, protecting and supporting healthy looking skin in the form of their derived exosomes. Under our PREx™ process, we believe our ethically sourced hUMSCs utilize multiple triggering modalities and protocols, enabling us to create multiple types of exosome messages or message profiles, each suited for a different purpose to enhance the texture and appearance of skin. For example, just as an individual would expect their stem cells to produce exosomes to help them smooth skin texture and replace lost moisture, we expect to trigger similar exosomes, isolate and purify them, and then provide them topically in our product lines in order to nourish, protect and support healthy looking skin. We believe our in vitro culture process to create Elevai Exosomes TM leverages this natural support to the moisture recovery and feeling of rejuvenation to skin, as opposed to pulling together a manmade CM which is essentially an educated guess at what that message construction should look like. Many of these synthetic CMs are utilized by our competitors alongside the addition of peptides or growth factors tied to improving skin appearance, which we believe does not make up for their inferior product design. Our hUMSCs are triggered under proprietary laboratory conditions via our PREx™ process so as to result in the secretion of exosomes that carry a variety of proteins, including growth factors and calming cytokines which we then purify and capture to include in our topical products. Elevai Exosomes TM that we secrete are about 1/100 th the diameter of a cell and their lipid bilayer protects their contents while also helps them to be absorbed by the skin and support the skin’s moisture barrier. We believe that our products promote and support healthy support skin rejuvenation of the skin’s moisture barrier that will help skin look and feel healthy by topically providing growth factors tied to maintaining the skin’s moisture barrier and promoting the appearance of a more radiant and even toned complexion that often decreases with age. As the skin ages there is often an increase in the appearance of age-related pigments and fine lines and wrinkles. This appearance may be attributable to diet, genetics, or environmental/lifestyle factors such as the sun or smoking but it generally occurs naturally with age and causes the skin’s repair systems to break down which may result in visual signs of aging or disease. Working together in harmony we believe hUMSC derived growth factors encapsulated in exosomes have the potential to reduce the appearance of aging by supporting the skin’s natural moisture barrier. Our in-house laboratory experience has shown that when we expose the hUMSC-derived growth factors to artificially aged skin, or when we specifically trigger those growth factors using our proprietary PREx™ processes, we are then able to topically deliver growth factors back to skin, so that it appeared to be firmer and youth as if the skin had naturally and abundantly created those growth factors on its own. 8 In our experience, the process of hUMSC derived growth factors being repeatedly introduced and absorbed by skin over time often results in skin appearing more youthful as if the skin was expressing proteins typical of younger skin. We have integrated the use of stem cell exosomes into our initial product line: our Elevai Post Treatment E-Series™. The E-Series™ is comprised of two post-skincare procedure care products that target the face and neck, and upper chest regions. Our products include Empower™-, and Enfinity™-serums, which are sold exclusively through our business-to-business model channel and via our distribution agreements channel. We aim to disrupt the post-procedure market with these products by providing a best-in-class system of topicals that work to complement the aesthetic results of in-office procedures, such as laser skin resurfacing or peels, microdermabrasion, or microneedling, among other procedures. Both E-Series™ products contain our Elevai Exosomes TM , those ultra-small, nanoparticle compartments packed with growth factors known to support skin health alongside hyaluronic acid, vitamin C, ceramides, niacinamide, glutathione and a proprietary blend of peptides to promote our formulations support both skin complexion and appearance. Our Empower™ serum retails at $149 per tube and wholesales for $596 for an eight-product pack. Our Enfinity™ serum retails at $299 a bottle and wholesales for $149 a bottle. Our products are sold as complementary to in-office procedures and are provided at the option of our physician client or at the request of that physician’s customer. In most cases the customer is being examined by the physician beforehand to determine the procedure. Often the customer is purchasing our Enfinity™ serum to precondition the skin prior to the procedure. On the day of the procedure a medical professional applies the Empower™ serum post-procedure. Then the customer is recommended to continue using Enfinity™ at home within 24 to 48 hours of the procedure. Our products are being dispensed in two different models that are complementary to the service provided. In the first model the physician client includes our products in the price of the entire procedure. In the other models the physician client recommends both products and the patients decide whether they would like to add one or both products. In both models the physician client buys the product at the foregoing price points. The physician client retains the difference in between the wholesale price and the suggested retail price. Our statements herein regarding our Empower™, and Enfinity™ topical cosmetic and exosome-containing serums have not been reviewed or approved by the FDA. For a discussion of certain risks and governmental regulation related to these products, see “Part 1. Item 1A. Risk Factors—Risks Related to Our Products Legal and Regulatory Risks” below. Empower™ is our after-treatment topical product that supports skin health and promotes an even toned complexion. Empower™ serum is a concentrated serum, designed specifically for a one-time application post ablative procedures and treatments such as such as post mid-depth chemical peels, post micro needling, and post injectables. The ingredient-rich formulation is designed to support the skin’s moisture recovery and improve the appearance of the health of the skin while promoting the appearance of healthy skin texture. 9 Empower™ is our after-treatment topical product that supports the appearance of healthy skin and is designed to promote an even toned complexion. Empower™ serum is a concentrated serum, designed specifically for application post ablative procedures and treatments such as such as energy device treatments, mid-depth chemical peels, micro needling, or injectables. Enfinity™ is our continuing care product that we recommend for daily use. Our Enfinity™ daily serum is a stable serum for at-home daily use that contains a blend of Elevai Exosomes TM combined with complementary stem cell growth factors. This daily product contains complimentary skincare ingredients designed to support the appearance of healthy skin including Elevai Exosomes TM , vitamin C, hyaluronic acid, and copper peptides. Our exosome-based products, Enfinity™ are designed to remain shelf stable, are subject to minimal degradation over time when used and stored as directed, and do not require freezing or reconstitution prior to each use. We believe that our Enfinity™ serum with repeated use catalyzes healthier looking, and more balanced skin tone and texture, offering results that visibly reduces the appearance of age-related pigment and fine lines. 10 11 We further believe that our products have the potential to be used in a number of applications and other procedures beyond their current use. For example, we are in the early stages of evaluating the adjunctive use of our exosomes in the promotion of healthy hair growth cycles and noticeable improvement to hair appearance, fullness and thickness. Similarly, on November 28, 2023, we entered into a collaboration and license agreement (the “Collaboration Agreement”) with Yuva BioSciences, Inc., a Delaware corporation (“Yuva”). Under the Collaboration Agreement, we have agreed to collaborate with Yuva on the research, development, manufacture and commercialization of a potentially new cosmetic product for Company’s aesthetics skincare offerings. See “Our Product Development and Manufacturing Process” for more information. In December 2021, we achieved positive results from two multi-week clinical dermal safety evaluations of our Empower™ serum and Enfinity™ daily serum. For the dermal safety evaluations, Essex Testing Clinic, Inc. (“Essex”) conducted two separate single-center, semi-occlusive patch test trials to evaluate the irritation and sensitization potential of our Empower™ serum and Enfinity™ daily serum in 56 healthy adult male and female volunteers. The studies utilized cumulative as well as repeat insult patch designs, which aim to provide a standard assessment of cutaneous tolerability and safety. The studies’ results demonstrated our Empower™ serum and Enfinity™ daily serum were topically well tolerated. There was no irritation or sensitization caused by our Empower™ serum and Enfinity™ daily serum at any time during the course of the evaluations, and no adverse events and no severe or serious adverse events were reported. In January 2022, we entered into a white label non-exclusive authorized global distribution agreement and trademark license agreement with the premier aesthetic device company DermapenWorld Inc.. DermaPenWorld are makers of the DermaPen micro needling device and have an established customer base across many geographies. When pressed onto skin, DermaPenWorld’s high quality micro needling device encourages collagen production but causes minor levels of skin trauma and redness. Our Elevai Exosomes™ infused products offer synergistic value to DermapenWorld’s device because our products may be applied afterward to support recovery and enable consumers to conclude their treatment session with what we believe to be less visible redness and faster comfort levels. Under the agreement, DermapenWorld agreed to purchase minimum quantities of Elevai Exosomes™ to be included as a key ingredient within DermapenWorld’s “Dp Dermaceuticals TM Meso-Glide EXO-SKIN TM ” products that will be distributed globally, spanning across Europe, Asia, Africa, the Americas and Australia. DermapenWorld’s Dp Dermaceuticals TM product line was specifically developed to be used when performing microneedling, which are now enhanced by ELEVAI Exosomes™, along with our Enfinity™ daily serum, which will be packaged in DermapenWorld’s Dp Dermaceuticals TM packaging. The DermapenWorld distribution agreement requires a royalty to be paid for sales within the United States or Canada. In FY 2021 the DermapenWorld distribution agreement formed none of our overall revenue and in FY 2022 no sales under the DermapenWorld distribution agreement were recorded within the United States or Canada. In FY 2022 and FY 2023 sales recorded outside of the United States and Canda under the DermapenWorld distribution agreement formed part of our overall revenue. Because of the foregoing, we did not receive any revenue attributable from royalty payments. On June 26, 2023, pursuant to the terms of our white label non-exclusive authorized global distribution agreement and trademark license agreement with DermaPenWorld, we sent a termination letter to DermaPenWorld providing notice that we will not renew the distribution agreement and trademark license agreement upon their expiration. The termination notice was effective as of the end of business on January 16, 2024. In August 2022, we entered into a non-exclusive authorized distribution agreement with one of the preeminent manufacturers and distributors of innovative aesthetic medical device technologies and clinical grade skincare, Refine USA, LLC (“Refine”). Under the agreement, Refine may purchase unlimited quantities of Elevai Exosomes™ and distribute them throughout the United States to their network of consumers and physicians. At times, because of our limited internal research and development capacity, we outsource portions of our product research and development and have joined force with Raydus Research Inc. (“Raydus Research”), a contract research organization (“CRO”) under a formal statement of work to analyze the cell population our cultured hUMSCs produce under varied in-vitro culture conditions and the concentration of exosomes contained therein. Any data resulting from our CRO under this agreed upon statement of work is our own. 12 Together with Raydus Research, we are utilizing a number of advanced analytical techniques to help us improve our current processes and keep our brand at the forefront of exosome products. To analyze our exosomes, we utilize NanoSight, a nanoparticle tracking analysis instrument so we may evaluate the proteomic characteristics (or characterization of the protein makeup) of our exosomes. Through this thorough process we access the make-up of our finalized exosomes while balancing the efficiency of different adjustments to our cell-culturing production process. Taking the time to note the variability in our production based on establishing notable and favorable characteristics of the exosomes produced from those variations help keep our final products optimized. Our analysis is dependent on analyzing characteristics such as those exosomes’ nanoscopic scale (or nanoscale) which is often dependent on the unique culture techniques we may subject our hUMSCs to. Through these measurements, we can better understand those processes that lead to optimal production of exosomes from our hUMSCs that exhibit characteristics that are most effectively absorbed and utilized topically. We will further conduct this analysis from time to time to perform quality control on our processes to confirm the size and distribution of our exosomes and so that we are generating the best possible exosome products under the most efficient production conditions. NanoSight is one of a few technologies to detect the size of exosomes and count them and group them or graph out their distribution. This also helps us to identify whether our process results in fully intact exosomes or if under our culturing process, we may have damaged our hUMSCs. Any such damage tends to release apoptotic bodies (or damaged cells), and allows us to modify our purification process, which can remove most apoptotic bodies. Since we are able to identify those processes that produce the best possible quality exosomes, we are able to remain confident that our products continue to work the way we expect them to. Raydus Research is integral to our research and development to assist in media formulation. With their assistance, we better understand how to trigger the stem cells into producing the right exosomes and in the right quantities. The media we use to grow the stem cells is constantly being fine-tuned with different growth factors to determine what the right ratios should be and which growth factors that are needed to best optimize our production process. Raydus Research’s analysis allows us to understand how reproducible our production process from batch to batch is, but also gives us quantitative analysis for how we can best culture our hUMSCs and perfect our PREx™ process. In addition to the above, we are actively seeking potential strategic partnerships in the medical aesthetics skincare market that may add value to our product lines and broaden our distribution. Between February and December of 2023, we entered into five high-volume distribution agreements in Canada, Vietnam, the Philippines, the Balkans and Kuwait. As of March 18, 2024, and the date of this report, we no longer distribute or advertise our products in Canada through our distribution agreement until a time that a resolution can be reached with Health Canada with regard to how the products can be marketed in Canada. Depending on the outcome of Elevai’s engagement with Health Canada, Elevai products may become subject to additional regulatory requirements in order to be marketed in Canada. However aside from expanding sales of our current products, we also plan to continue to invest in our research and development capabilities which will assist in the expansion of manufacturing and marketing new flagship products in addition to our E-Series™ product line through our Collaboration Agreement and through independent research and testing. As of the date of this report, we have several pipeline products in the early development stages that we intend to complement our current product offerings. Our Product Development and Manufacturing Process We currently lease a lab and office space within a larger facility that contains over 5,000 square feet of clean lab space where we manufacture exosomes and run daily business operations that are staffed by trained biochemical engineers from some of the top US medical colleges. All lab staff participate in a stringent training program and detailed standard operating procedures are followed throughout the entire commercialization process with multiple checks in place throughout to promote the quality of our product lines. We have exclusively developed our manufacturing process through our management team’s experience in developing and curating the production needed for our robust skin care products, which we believe provides us with a competitive edge. Success in manufacturing our Elevai Exosomes TM requires refined processes that are reliable, scalable, and economical. In our lab, we grow our ethically sourced stem cells and trigger them such that they produce exosomes under our proprietary method. We take the exosome ingredient from our lab to our formulator on a non-exclusive basis who follows our specified parameters to support our exosomes’ ability to maintain our high quality and integrity standards. We maintain manufacturing scalability and flexibility through our in-house exosome process that we closely monitor to promote quality control in the commercialization of all of our proprietary product concepts. In January 2023, we entered into the EMx License Agreement under which we were granted worldwide exclusive and non-exclusive license rights to develop, manufacture, and commercialize EMx technology which will allow us to isolate and independently engage in the cGMP manufacture of hUMSCs for a period of ten years from the effective date of the License Agreement. 13 As of the date of this report, we own or have an agreement in principle for the right to purchase the related manufacturing processes, and methods with our third-party vendors. We also maintain an agreement with our formulator which provides us with the right to purchase the product formulas. Moreover, we also oversee our leased laboratory space in California which operate under Good Laboratory Practices (“GLP”) and adhere to cGMP for the production of our Elevai Exosomes TM . Similarly, our products are formulated by a third-party in an FDA inspected facility that adheres to GMP guidelines because GMP guidelines promotes the manufacture of our products at the highest recommended safety and quality standards for cosmetic products. In July 2023, we expanded a portion of our laboratory space by an additional 721 square feet in order to store additional materials which in turn enables us to stage larger batches of our Elevai Exosomes TM and increase the amount of Elevai Exosomes TM we can produce per production-run via our Precision Regenerative Exosome Technology TM , or PREx™ Technology. With our expanded space, we estimate our batch size has increased about 50%, therefore we can manufacture about 50% more of our Elevai Exosomes TM per production-run. We believe this expansion will increase our efficiency by enhancing our ability to meet a particular target production level during the timeframe in which we set such a target and with less production-runs via PREx™. Expanding the batch size enables more time in between batches for us to plan, scale, and focus on research and development activities. Our rental facility contains multiple cell and tissue culture suites containing biosafety cabinets and cell culture incubators. Not only does our facility provide a significant amount of cold storage and processing space that permit large-scale culture of hUMSCs and the ability to mass produce of stem cell-derived exosomes but allows us to perform cryo-preservation, cryo-storage, various forms of microscopy and cell analysis. Some additional key features of our rental facility include 24/7 security, advanced climate control, increased cold storage, additional cell culture and R&D suites to perform supplemental in-house research. We have also collaborated with third parties such as through our Collaboration Agreement with Yuva under which we will conduct joint trials in order to evaluate Yuva’s licensed compound’s effect on improving the appearance of skin. Under the Collaboration Agreement, we obtained the non-exclusive, nontransferable, non-assignable, royalty-bearing rights and a license, with the right to sublicense certain of Yuva’s intellectual property to develop, manufacture and commercialize cosmetic products that contains Yuva’s proprietary compound and any of the Company’s exosome-based ingredients, or products under which exosomes serve as a carrier for Yuva’s proprietary compound in the United States, Canada and other mutually agreed to territories . Areas of our rental facility operate under strict aseptic conditions following GLP standards which are used for cell culture and production of the company’s proprietary stem cell exosomes for topical applications while other portions of the lab provide access to a cGMP suite for ultra-pure, medical-grade research and development. Because we maintain the unique capacity to isolate and hUMSCs for use in preclinical and clinical trials and have access to cGMP labs alongside stem cell research and development labs with class II biosafety cabinets and the latest cellular research and production technologies, we are able to not only focus on cosmetic topical products for the physician-dispensed cosmetics skincare market but also address and explore clinical applications of these products in the future. Our manufacturing process begins once we receive ethically sourced and thoroughly tested hUMSCs, from consenting donors who are themselves rigorously questioned and tested for communicable diseases. Elevai purchases hUMSCs from third-party cGMP sources in the US and in the UK where the Wharton’s Jelly portion of the hUMSCs are captured and extracted within twenty-four hours of a full-term healthy birth. Wharton’s Jelly is a mucous connective tissue primarily made up of hyaluronic acid and chondroitin sulfate and the main purpose of Wharton’s jelly is to provide insulation and protection to the umbilical cord. These properties make our use of these cord derived cells ideal for our commercialization process. This is because these stem cells’ conditioned media (“CM”) or stem cells’ secretome is capable of resulting in exosomes with a protein profile that uniquely mimics the profile of proteins that these very young cells naturally produce when supporting healing and repair process that we believe complement the aesthetic results of our serums in improving the appearance of the skin. 14 We work with multiple suppliers to source our high quality hUMSCs for research and development, which are provided after isolating those hUMSCs from multiple umbilical cords under specific proprietary conditions where cell expansion and cryopreservation is utilized, followed by creation of a master and working cell bank under cGMP. A master cell bank (“MCB”) is a uniform, well-characterized, and carefully preserved set of cells. These cells are derived from a single, well-defined source. The advantage of establishing a MCB is to ensure that set of cells serves as the primary stock of cells from which all subsequent cell banks (e.g., working cell banks) and final products are derived. We believe that establishing a MCB is essential for ensuring the consistency, and quality because there are less variations for characterization and increased quality control of the MCB. The formation of an MCB involves rigorous testing for identity, purity, potency, and stability, as well as screening for the presence of any contaminants, such as bacteria, fungi, viruses, or mycoplasma. Similarly, using multiple cords to source our hUMSCs from a blend of Wharton’s Jelly MSCs from ten or more donor cords ensures that any gene expression issues or donor to donor variability is diluted out, protecting from causing variability in our final product. Using a mixture of donors helps to normalize any issue with any single donor and we believe it to improve our batch consistency and limit the impact of any deficiencies from a single donor. 15 As of the date of this report, we rely on one supplier to source hUMSCs for our cosmetic products under a non-exclusive supply agreement in principle for the proprietary production of hUMSCs with INmune Bio International Ltd (England) (“INmune UK”). This supply agreement exists in principle at the time of this report, and we operate through purchase orders. INmune UK has developed a proprietary know how manufacturing process that reliably produces clinical grade cGMP quality hUMSCs. INmune UK’s hUMSCs are rigorously tested for common sources of contamination (bacterial and fungal contamination) as well as for a wide variety of viruses, including HIV, Hepatitis, Herpes, and current known viruses that are standard to test for when blood or tissue is donated for transplant. These hUMSCs are express shipped to our lab in California on dry ice, where we keep them cryopreserved until processing using PREx™. These hUMSCs are thereafter subjects in our proprietary production process called Precision Regenerative Exosome Technology TM , or PREx™ Technology, which is used to produce Elevai Exosomes™. Cell therapy and biotech companies also currently utilize this same technique of combining multiple, well tested lots of donor cells to promote reliable, consistent production of their cell-based products and this represents the current standard for safety, aesthetic results, and reproducibility for cell-based therapies. Starting from this well tested cell bank of Wharton’s Jelly hUMSCs, we utilize proprietary cell culture techniques to trigger the production of our Elevai Exosomes TM through proprietary controlled in vitro culture conditions. The conditions in which Elevai Exosomes™ are secreted are designed to simulate what young healthy stem cells experience when damage to the skin occurs. Thereafter, we filter out cells and cell debris, and work to isolate exosomes and nanoscale growth factors that are then further purified and stabilized to formulate our products which are rich in Elevai Exosomes TM . From our lab, we transfer our Elevai Exosomes TM to an FDA inspected cGMP-compliant formulator who specializes in the formulation and manufacture of prescription, over-the-counter pharmaceutical, and cosmetic products. This formulator produces our products pursuant to our specifications under our non-exclusive agreement. The manufacturer is required by law and by our manufacturing standards to comply with current Good Manufacturing Practices. Elevai pre-qualifies its manufacturers and formulators and works only with manufacturer’s that are FDA inspected. This requires our formulators to test both their ingredients and final products for quality, traceability and safety per FDA recommended GMP guidelines for cosmetic products. Additionally, these guidelines include testing each ingredient prior to use in a formulation as well as testing the final product produced for microbial contamination. Once with our formulator, the Elevai Exosomes TM are processed into final formulations and stabilized in a temperature-controlled environment where they are combined with ingredients at a low shear forces and controlled potential of Hydrogen (“pH”) to promote stability. Additionally, the final formulations are preserved using minimal preservatives, kept in viscose solution to prevent effects of shear forces in the downstream processes, such as during transport or rapid temperature fluctuations that may result in the breaking down of exosomes. These final formulations are placed into opaque containers which help protect from oxidation through a sealed and double walled airless pump and final products are stored in a temperature-controlled warehouse prior to being brought to market. We have and will continue to devote significant resources to process development and manufacturing scale-up to optimize process robustness and success rates in developing our Elevai Exosomes TM and other potential product candidates, as well as to reduce per-unit manufacturing costs and enable us to further enhance our scale for regional and global sales. Once infused with our Elevai Exosomes TM , our products require no additional specialty manufacturing capabilities or unique, sole-source components. This reduces our dependence on any single manufacturer. Sales and Marketing In the United States, we are primarily a B2B distributor and sell and market our skincare products to top-end dermatologists, plastic surgeons, medical spa owners and other physicians who are focused on aesthetic and therapeutic skincare. As of the date of this report, we primarily sell and market through our team of eight independent contractors or aesthetic account managers (“AAMs”) and direct sales force of six full time AAMs. This team is led by our director of aesthetic clinical education. Currently we maintain domestic sales coverage in the Pacific Southwest including Texas, Atlantic Northeast including New England, the Atlantic Southeast, and Midwestern regions of the United States. Our AAMs receive ongoing education in both our product lineup and sales strategies, which we believe prepares them for progression to regional sales managers within their designated regions. Following this advancement, our sales strategy involves subdividing the aforementioned territories, with our aim to staff a minimum of one AAM per state in the United States. We believe this subdivision will continue in alignment with our growth trajectory, in order to provide each of our territories with dedicated support from our AAMs, who are trained to provide premium, personalized service. Furthermore, we are committed to implementing a structured engagement plan, including 30-60-90 day calling schedules and setting tailored sales goals for each AAM. These objectives will be adjusted based on both the geographical scope and the market potential of each AAM’s territories. 16 The medical professionals we sell to dispense our products in-office directly to their patients, a distribution method commonly referred to as the “physician-dispensed” channel. Additionally, we have broadened our sales channel to include our cosmetic product offerings at medical spa locations to their customers who receive micro-needling, and laser treatments. Currently, our professional clients receive a markup on each of our products that they sell to customers of their practices. We believe our professional clients financially and strategically benefit by collecting a margin and competitively adding a new income stream and distinguishing product-line to their practices’ milieu. Additionally, we offer these professional clients the ability to sell our products directly to their customers through our online store where capture a percentage of the sale. We also sell our products nationally on a business-to-business basis through our sales representatives. We believe that our market position in the physician-dispensed channel presents us with the opportunity to increase the market share of our existing products and to launch a range of new products. Moreover, we believe the physician-dispensed distribution model ultimately results in higher patient satisfaction because it is better suited to the provision of system-based skin care than traditional distribution channels. We have built long-term relationships with skin health professionals based on the success of our products during the first few formative years since launching our Elevai Post Treatment E-Series™. We will continue our sales and marketing efforts aimed at helping physicians understand how our products can meet growing patient demand for effective skin care treatments, thereby generating additional sources of revenue for physician practices. Furthermore, we believe that our product offerings, and our experienced sales force, uniquely position us to benefit from growth in the number of physicians who dispense skin care products directly to their patients. In 2023, we established three core strategic imperatives to drive our collective marketing and branding campaigns with an overarching goal of opening new physician accounts specifically in the fields of dermatology and plastic surgery. In doing so, we intended to grow our product footprint to grow our month-over-month sales by adding new accounts each month and growing monthly sales in those accounts. Our three core strategies included (i) accelerating our branding through product awareness, (ii) focusing on product differentiation and our unique value proposition, and (iii) building well-regarded clinical evidence alongside key opinion leader (“KOL”) advocacy for our current and future products. In 2024 our strategic imperatives are built on the framework and the momentum gained in 2023 with our core business-to-business strategy. Our growth strategy for 2024 has now expanded to include a new direct-to-consumer sales channel which together with a potential product expansion may drive an effective marketing-led growth strategy designed to produce additional revenue on both the core business-to-business and direct-to-consumer sales channels. We plan to continue to leverage our core strategic imperatives of accelerating brand and product awareness, focusing on differentiation and unique value propositions, and building clinical evidence alongside key opinion leader advocacy among dermatologists and plastic surgeons. In addition to the foregoing relationships with our core physician practices, we plan to continue accelerating our company, brand, and product awareness through multiple marketing channels. These include driving traffic to our branded website through advertising and paid media. These media partners include but not limited to print and digital advertisements, social media advertising, and email marketing and social media campaigns. Our ongoing email campaigns include keeping our current accounts and leads updated regarding our brand and products, and we plan to expand social media presence on TikTok to reach new audiences. Other valuable marketing includes accelerating our industry-specific advertising and sponsorships at key conferences, ten of which we have identified opportunities for in 2023 alone. Additionally, we attempt to create and build relationships with our physician’s clients through these physicians displaying and marketing our products to their patients. We believe that physicians and their trained staff are the best source of trustworthy skincare information. Their deep understanding of the science, chemistry and structure of skin gives them clinical insight to select the most effective products for patients such as ours. To support this effort, we offer educational programs and webinars on our products and patient events to help these physicians grow their practices. We also offer in-office materials on our products for their patients, as an organic form of direct-to-consumer advertising in addition to public relations programs for patient referrals. Together these paid advertisements, conference sponsorships, public webinars and in-office education represents an important part of our overall marketing and advertising strategy. Overall, we believe educating current and potential consumers will drive consumer inclination to request our products from their physician to drive organic demand and market penetration. 17 To brand our current and future products, we believe focusing on our differentiation and unique value proposition will set us apart for maximized growth and new and evolving partnerships. We plan to expand unbranded and branded product education for our aesthetic account managers and KOLs in order to position our brand as a leader in the physician-dispensed cosmetics space with both exosome biotechnology and engineering expertise. This cohesion amongst our key representatives will differentiate our brands from competitors at every stage with our source to skin manufacturing and technology. From there, we will propel our brand forward to promote a clear value proposition and business value for Elevai with our team and KOLs in lockstep. Ultimately, we believe this strategy will demonstrate to our current and prospective physician accounts how our brand can bring value to their practice as a business. Lastly, we intend to build clinical validation study evidence and brand our products through a groundswell of KOL advocacy to establish and expand on core clinic data for our E-Series™ product line and eventual product entrants. As we authenticate and build up quantitative data for new publication opportunities, we plan to validate our product offerings through additional medical aesthetic device pairings. Our ability to form device company collaborations provides additional authenticity and validation amongst larger companies in adjacent cosmetics or aesthetics industries. Our endorsements through branded partnerships will further support KOL development and advocacy through ongoing education and peer-to-peer opportunities including wider endorsements of the Elevai brand to drive physician adoption. A well-developed combination of our core KOLs and co-branding opportunities will present the Elevai brand with the ability to retain a broader reach in the physician-dispensed industry and more of the market share. Internationally, we have the ability to sell our products through authorized wholesale distributors. As of the date of this report, we have not made any direct international sales. Instead, our Vietnamese, Philippines and Canadian distributors have sold our products and are three out of a number of distributors with whom we have entered into exclusive and non-exclusive distribution agreements. Under this distribution agreement channel, we sell our products to a distributor, who resells our products to the physician practice customers after placing their order in a designated territory that is either exclusive or non-exclusive to that distributor. In 2022 alone, we signed a white label non-exclusive authorized global distribution agreement with premier aesthetic device company DermapenWorld Inc. and a non-exclusive distribution agreement with medical device technologies manufacturer and clinical grade skincare distributor, Refine USA, LLC. Between February and December of 2023, we entered into five high-volume distribution agreements in Canada, Vietnam, the Philippines, the Balkans and Kuwait whereby those distributors are permitted to promote, market, sell and distribute our products within their designated countries. Under these exclusive distribution agreements, we granted each a nonexclusive, nontransferable, royalty free license to use our branded products and marketing literature. As of March 18, 2024, and the date of this report, we no longer distribute or advertise our products in Canada through our distribution agreement until a time that a resolution can be reached with Health Canada with regard to how the products can be marketed in Canada. Depending on the outcome of Elevai’s engagement with Health Canada, Elevai products may become subject to additional regulatory requirements in order to be marketed in Canada. Except for product sales made by our Vietnamese, and Canadian distributors, as of the date of this report, our distributors have not made any sales under any of our exclusive distribution agreements. Our Growth Strategy We believe we have the potential to be one of the most disruptive brands in the physician-dispensed cosmetics skincare market. We are in the early stages of new product development and have significant room to grow by attracting more consumers to the brand, making our current products more widely available and offering more innovative products to our consumers. We expect the United States to be the largest source of our growth over the next few years and see ample opportunity to expand in select international markets. We also believe we have an opportunity to improve our margins through greater operating leverage and efficiency once we begin distributing our product more widely. Our Technology and Research : We believe we are one of the first to adapt stem cell technology from cGMP grade hUMSCs to produce purified extracellular vesicles, also referred to as exosomes into topical skincare products to capture market share in the high growth physician-dispensed cosmetics skincare market. This strategy is not only based on our understanding of consumers’ interest in the appearance of a quicker post-procedure recovery, but our research into what the physician-dispensed cosmetics skincare market is currently lacking and our belief in our products’ ability—based on early imaging data leveraging quantitative analysis and visual assessments of photographic progress photos. Our imaging study data is gathered utilizing an advanced imaging and analysis device made by Canfield Scientific, called “VISIA”. This complexion analysis system captures high-quality, standardized images that are monitored following a medical aesthetic procedure at regular intervals to assess redness, discomfort, tone, texture, wrinkles, and other measures of skin appearance. 18 Since 2020, we have invested in the creation of a commercial process that began in 2022 which leverages the use of hUMSCs to produce extracellular vesicles, or exosomes in our products because not only do these factors have the ability to enhance the appearance of the skin, but they can do so without the tumorigenic or ethical concerns associated with the use of embryonic stem cells or induced pluripotent stem cells. 3 Because we recognized the potential of utilizing hUMSCs for the skin, it was natural for us to utilize them as the basis for formulating our products. In addition, we entered into the EMx License Agreement in January 2023 under which we were granted worldwide exclusive and non-exclusive license rights to develop, manufacture, and commercialize EMx technology which will allow us to isolate and independently engage in the cGMP manufacture of hUMSCs for a period of ten years from the effective date of the EMx License Agreement . The investment in the use of hUMSCs and extraction of exosomes found therein is founded on our belief that our products can improve the appearance of skin prone to appearing temporarily red and puffy that is normally experienced by consumers while attending to their aesthetics needs in physicians’ offices or medical spa. A Visionary and Experienced Management Team: We have made significant investments in our business over the past four years by building our own exosome manufacturing lab, hiring top talent to help us build functional and streamlined capabilities in our commercialization process. Our management team comes from leading international skincare companies, with world-class research, marketing, and e-commerce experience to implement growth strategies and drive operational improvements. Brand and Product Expansion : We plan to continue to grow our young brand’s reputation. We plan to continue to expand our brand by attending events, presenting at scientific and medical aesthetic and cosmetic skincare conferences, engaging in our Collaborative Agreement with Yuva, and conducting clinical validation studies to further validate the aesthetic results of our products. We believe what differentiates us from many traditional cosmetics companies is our lean, but aggressive ability to make fast market-driven decisions and execute with quality control standards. We believe we have a major speed-to-market advantage over many other companies because of our size and aptitude in bioprocessing. Similarly, we are highly responsive to market-trends alongside physician and aesthetics consumer needs alike. We will continue to leverage our executional excellence as we combine our aptitude in stem cell research and bioprocessing while seeking to become the preferred partner of our key customers. Additionally, we have a robust product pipeline that we believe is likely to address the many evolving needs of customers, physicians, and clinicians in the aesthetic and cosmetics market ultimately increasing our branding and the number of customers we serve. Should any of our pipeline products over perform, especially those product lines that may focus on aesthetic needs other than skin appearance it may be advantageous for our branding to spin off those product lines and further focus on our core market: skin improvement and appearance. Channel Expansion, Production Capacity, and International Growth : Our strategic focus remains on the physician-dispensed cosmetic skincare market while embracing a broader sales channel approach. We have successfully expanded our sales channels to include direct-to-consumer e-commerce on our own website. This expansion allows us to reach customers directly, offering them comprehensive product information, a seamless purchase experience, and exclusive online offerings. We have also made our products available for purchase through our medical-spa, physician and physician group partners’ websites. We believe being featured on a variety of partner websites will strengthen our brand and provide a unique direct-to-consumer e-commerce model via our business-to-business relationships where our e-commerce partners receive a share of product purchase revenue. Ultimately, our business-to-business model will strengthen our relationships with our physician partners, while an eventual e-commerce model broadens our market exposure and drive traffic and conversion to our other social media profiles. Additionally, we expect our current and prospective exclusive and non-exclusive distribution agreements to penetrate global markets and pique consumer interest not typically within our current reach. We believe both our products and white-label products can drive new market demand for our brand in those international markets that our distribution partners sell our products in. 3 Qiu G, Zheng G, Ge M, Wang J, Huang R, Shu Q, et al . Functional proteins of mesenchymal stem cell-derived extracellular vesicles. Stem Cell Res Ther. 2019;10:1–11. 19 We intend to expand the production capacity of our products and to develop new pipeline products in response to a number of potential growth factors, including: our organic growth, the development of research and development of pipeline products, and the expected increase in our product popularity, expansions of our distributor networks and channels through exclusive and non-exclusive international distributional agreements, and other potential strategic partnerships with industry leaders. Moreover, in addition to and as a result of the foregoing growth factors we expect an increase in orders for our products and a continuous rise in sales volume in the future based on our market research and estimates. To keep pace with this rise in sales volume, we anticipate the need to expand our production capacity in 2025. This expansion will enable us to meet our projected demand and we anticipate doubling our production capacity would cost between $1,500,000 and $2,000,000. This additional capital would cover our expenses relating to expanded capacity, including increased rent, additional lab equipment, and an increase to our overall headcount. We expect increasing our production capacity will lower manufacturing costs through economies of scale and improve overall cost-efficiency and profit margins. Ultimately, we can provide our products at a competitive price, especially to cost-sensitive physicians or medical spa owners, and consumers in the skincare aesthetics market, who may be relatively new to the concept of medical aesthetics cosmetic skincare. We expect to expand our product offerings in response to this estimated growth, which are subject to additional costs. To expand a single pipeline product, we currently estimate capital requirements of approximately $250,000 for equipment to support the initial development of that product. We further estimate an additional $100,000 worth of funds to arrange for the testing protocol, clinical validations and to fully launch any product at scale. We estimate the operational framework to prepare for the launch of a pipeline product such as a topical haircare product, would take six to twelve months of development work with an additional four to six months to fully scale such product before an official product launch. We estimate that this pipeline development and scaling effort would not likely begin until the end of quarter one of 2024 and conclude until quarter two of 2025. This estimate depends on whether we may need to expand our operations and development work of any new pipeline product, which is dependent on the results of the development work, continued research and initial rounds of validation testing. Currently, we directly distribute our products in the United States through both our business-to-business and direct-to-consumer sales channels and licensing and manufacturing agreements with third-party distributors that include our products in their suite of domestic and international sales through our sales distribution channel. Under this sales distribution channel, we sell our products to a distributor, who resells our products to the physician practice customers after placing their order in a designated territory that is either exclusive or non-exclusive to that distributor. We have broadened our sales channel to include our cosmetic product offerings at medical spa locations throughout the United States, many of which are housed inside boutique and upscale hotels. In March 2023, we entered negotiations to provide our cosmetic products to the spa operator. In May 2023, we began supplying a number of that company’s medical spa locations that provide ablative services such as micro-needling, and laser treatments. 20 To bolster our regional sales, we entered into a non-exclusive authorized distribution agreement in August 2022 with Refine USA, LLC (“Refine”), one of the preeminent manufacturers and distributors of innovative aesthetic medical device technologies and clinical grade skincare. Under the agreement, Refine may purchase unlimited quantities of our topical cosmetics subject to minimum order size limits and distribute them throughout the United States to their network of consumers and physicians. As we continue to enhance our own United States sales channels, we are focused on bringing on third-party distributors in key large international markets, such as Canada, Europe, Brazil, Southeast Asia and the Middle East. We also plan to drive the distribution of our products through strategic relationships in specific countries, such as Japan. To continue growing in the physician-dispensed market, we intend to onboard more direct sales representatives that can reach geographic markets we currently do not have a presence in and partner with cosmetic device companies to co-market and sell our products. To this end, in January 2022, we signed a white label non-exclusive authorized global distribution agreement with premier aesthetic device company DermapenWorld, which expanded the reach of our branding and serum integration. Under a ‘white label’ agreement our products or ingredients may be combined with another company’s ingredients or products and sold under that company’s brand name. Essentially, under these arrangements we provide products or ingredients that can be customized with branding and packaging to match the branding of the company that will be selling the product directly. Pursuant to that white label agreement, we provide a shared distributor wholesale quantities of our serums that are formulated together with DermapenWorld’s and products which are marketed globally subject to previously agreed upon key performance indicators. In addition, February and December of 2023, we entered into five high-volume distribution agreements in Canada, Vietnam, the Philippines, the Balkans and Kuwait whereby those distributors are permitted to promote, market, sell and distribute our products within their designated countries. Under these exclusive distribution agreements, we granted each a nonexclusive, nontransferable, royalty free license to use our branded products and marketing literature. Because we are entering new markets under each contract, we also arranged for each distributor to assist us in obtaining any required registrations, licenses and other applicable governmental approvals necessary to import, sell and distribute our products at our expense. As of March 18, 2024, and the date of this report we have voluntarily stopped the sale of our products in Canada through our distribution agreement following a communication from Health Canada determining that our products do not meet the conditions for sale as cosmetics in Canada. As of March 18, 2024, and the date of this report, we are continuing to communicate with Health Canada and have voluntarily stopped the sale of our products in Canada until a time that a resolution can be reached with Health Canada with regard to how the products can be marketed in Canada. Depending on the outcome of Elevai’s engagement with Health Canada, Elevai products may become subject to additional regulatory requirements in order to be marketed in Canada. This will impede sales in Canada until resolved and raises concerns about our future collaboration with our distributor, Evolve Medical Inc. Moreover, on June 26, 2023, pursuant to the terms of our white label non-exclusive authorized global distribution agreement with DermaPenWorld, we sent a termination letter to DermaPenWorld providing notice that we will not renew the distribution agreement upon its expiration. The termination notice was effective as of the end of business on January 16, 2024. Once commercially viable, as our manufacturing process becomes more vertically integrated partially through the EMx License Agreement, we may expand our business model to provide mesenchymal stem cells (MSCs) to companies needing MSCs, large-scale stem cell culturing, or those companies developing MSC-derived products. This expanded role would position the company as a contract manufacturer and distributor of MSCs because we may become a dependable and well-regarded source of exosomes enriched cosmetic products which have been designed for topical application to assist in the recovery after the delivery of medical aesthetic services. Nonetheless, we aim to remain focused on developing and marketing topical products that are enhanced by unique stem cell derived additives and possibly expand from there into other high-science aesthetic skincare applications, given our biochemical engineering and bioprocessing prowess and ability to manufacture laboratory-based skincare additives ourselves. Thus, any expansion into our role as a manufacturer and distributor of MSCs would only come to fruition if funding and bandwidth were such that we felt we met all our aesthetic market goals and had remaining capacity, or we identified an overwhelming interest and opportunity to benefit from such a paradigm shift. In expanding under this strategic channel, we would likely partner, license, or outsource any non-aesthetics-based business so as not to complicate or defocus our Elevai product brand. 21 Intellectual Property We are committed to developing and protecting our intellectual property and, where appropriate, filing patent applications to protect our technology. Since our establishment, we have focused on building an established brand for our products to achieve brand recognition and to increase our market share. We believe that increased brand awareness will increase sales and sales margins and improve customer loyalty. We have consistently marketed our products under the Elevai brand. We rely on a combination of patent, copyright, trademark and trade secret laws and other agreements with employees and third parties to establish and protect our proprietary intellectual property rights. We require our officers, employees and consultants to enter into standard agreements containing provisions requiring confidentiality of proprietary information and assignment to us of all inventions made during the course of their employment or consulting relationship. We also enter into nondisclosure agreements with our commercial counterparties and limit access to, and distribution of, our proprietary information. As of the date of this report, we have 15 registered trademarks inclusive of 12 global trademarks and 3 United States trademarks, and 15 trademark applications pending, 2 registered domain names, 1 patent, 2 pending US patent applications, and 3 pending International Patent Corporation Treaty (“PCT”) patents. Our Precision Regenerative Exosome Technology™, or PREx™, process is used to produce Elevai Exosomes™ and the exact process remains a trade secret. We have strategically decided to not pursue a patent around the process. Our Employees As of the date hereof, we have 18 full-time employees. The following table sets forth the number of our employees by function: Functional Area Number of Employees (1) Operating 2 Research and Development 3 Financial Department 0 Sales 9 Branding/Marketing 4 Total 18 (1) This figure does not include our approximately 8 independently contracted aesthetic account managers, as of the date of this report. We provide employee benefits for each employee which include medical, unemployment, and work injury compensation. Our employees have not formed any employee union or association. We have developed various methods to train our employees adequately for the functions they perform and are aware of the laws and regulations affecting our industry. Our success depends on our ability to attract, retain, and motivate qualified employees. We endeavor to offer employees competitive compensation packages and a positive, dynamic, and creative work environment. We believe that we maintain a good working relationship with our employees and have not experienced any difficulty in recruiting staff for our operations. 22