PMGC Holdings Inc. 10-K

Item 1A. Risk Factors. Risks Related to Our Business, Our Brand, Our Products and Our Industry Our revenues and financial results depend significantly on sales of our Elevai Post Treatment E-Series™. If we are unable to manufacture or sell our Elevai Post Treatment E-Series™ in sufficient quantities and in a timely manner or maintain client acceptance of our Elevai Post Treatment E-Series™, our business will be materially and adversely impacted. To date, a substantial majority of our revenues have resulted from sales of our principal product line, our Elevai Post Treatment E-Series™. Our Elevai Post Treatment E-Series™ and related products accounted for a substantial majority of our net sales for the years ended December 31, 2023, and 2022. Although we intend to introduce additional products, we expect sales of our Elevai Post Treatment E-Series™ to continue to account for a significant majority of our sales for the foreseeable future. Because our business is highly dependent on our Elevai Post Treatment E-Series™, factors adversely affecting the pricing of, or demand for, these products could have a material and adverse effect on our business. Additionally, our commercial success depends in large part on our ability to sustain market acceptance of our Elevai Post Treatment E-Series™ through physician practices and under both our exclusive and non-exclusive distribution agreements. If existing users of our products determine that our products do not satisfy their requirements, or if our competitors develop a product that is perceived by medical aesthetics consumers, physicians or distributors to better satisfy their respective aesthetics requirements, sales of our Elevai Post Treatment E-Series™, and our total net sales may correspondingly decline which could adversely affect our business, financial condition, results of operations and prospects. Our results of operations could be harmed if we are unable to accurately forecast demand for our products. To maintain an adequate inventory supply, we must forecast inventory needs and place orders with our third-party suppliers, formulators and packagers before firm orders are placed by our clients or distribution partners. If we fail to accurately forecast client demand, we may experience excess inventory levels or a shortage of product to deliver to our clients. Factors that could affect our ability to accurately forecast demand for our products include: an unanticipated increase or decrease in demand for our products; our failure to accurately forecast acceptance for our new products; product introductions by competitors; unanticipated changes in general market conditions or other factors, which may result in cancellations of advance orders or a reduction or increase in the rate of reorders or at-once orders placed by clients or distribution partners; the impact on demand due to unseasonable weather conditions; weakening of economic conditions or consumer or client confidence in future economic conditions, which could reduce demand for discretionary items, such as aesthetics services and our complementary cosmetics products; and terrorism or acts of war, or the threat thereof, or political or labor instability or unrest, which could adversely affect consumer or client confidence and spending or interrupt production and distribution of product and raw materials. Inventory levels in excess of client or distribution partner demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices or in less preferred distribution channels, which could impair our brand image and harm our business. In addition, if we underestimate the demand for our products, our third-party suppliers, formulators, and packagers may not be able to facilitate bringing our cosmetics products to market or in time to meet our client or distribution partner requirements, and this could result in delays in the shipment of our products and our ability to recognize revenue, lost sales, as well as damage to our reputation and client and distributor relationships. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely affect our business, financial condition, results of operations, and prospects. We face intense competition, in some cases from companies that have significantly greater resources than we do, which could limit our ability to generate sales. The market for aesthetic and cosmetic skin health products is highly competitive and we expect the intensity of competition to increase in the future as market acceptance grows and related technology advances. We also expect to encounter increased competition as we enter new markets and as we attempt to penetrate existing markets with new products. We may not be able to compete effectively in these markets, we may face significant pricing pressure from our competitors, and we may lose market share to our competitors. Our principal competitors are large, well-established companies in the fields of pharmaceuticals, medical devices, cosmetics and health care. Our direct competitors include SkinCeuticals, a division of L’Oréal S.A., SkinMedica, Inc., a division of Allergan, Inc., ZO Skin Health, PCA Skin, EltaMD, each a division of Colgate-Palmolive, Dermalogica, Murad and Eminence. 23 We also face competition from medical device companies offering products used to enhance the skin’s appearance to physicians, such cosmetic device companies that provide complementary microneedling serum treatment, and those companies may offer similar complementary products to physicians, aestheticians, spas, and wellness centers that provide facial treatment services. We may not be able to successfully expand the use of our current product lines or develop new products. We are constantly working to improve, extend the stability of and reformulate our existing products. Continued market acceptance of our products will depend on our ability to successfully develop additional applications of our Elevai Exosomes™. The development of additional applications will require significant commitments of personnel and financial resources and we cannot assure you that they will be successful. If the attempted extensions of our product lines and new applications for our Elevai Exosomes ™ are not commercially successful, our business will be adversely affected. We are researching and working alongside contract research organizations to developing new product lines by applying our Elevai Exosomes ™ technology to new agents. We also have applied for intellectual property rights to cover our use of certain patents in relation to additional methods and formulations of our Elevai Exosomes ™ . New products, in various stages of development, include skin discoloration, and hair loss products and systems. These development activities, as well as new clinical validation studies to demonstrate aesthetic improvements, which may assist us in the marketing and sale of our cosmetic products. Completion of any clinical validation studies requires significant commitments of our personnel, time, and financial resources. We cannot assure you that we will be able to develop new products or formulations in a timely manner, or at all. Delays in the development or testing processes will cause a corresponding delay in revenue generation from those products. Regardless of whether such new products or formulations are ever released to the market, the expense of such processes, which may be considerable, will have already been incurred and we may not be able to recover such expenses. We reevaluate our formulation and product development efforts regularly to assess whether our efforts to develop a particular new product or formulation are progressing at a rate that justifies our continued expenditures. On the basis of these reevaluations, we have abandoned development efforts in the past, and may abandon those development efforts in the future. New products that we develop may not be successfully commercialized. If we fail to take a product or technology from the development stage to market on a timely basis, we may incur significant expenses without a near-term financial return or any financial return. Our failure to successfully research and develop additional technologies would impair our ability to grow. We intend to develop and acquire and market new products and technologies though our own internal research capabilities and through the assistance of CROs. Our business model depends in part on our ability to patents new products and/or technologies. The success of this strategy also depends upon our ability and the ability of our third-party formulators to formulate products under such patents, as well as our ability to manufacture, market and sell such patented products. We may not be able to internally develop new products or technologies successfully. Moreover, vetting, negotiating and implementing design protocols for new product and formulation development with CROs can be a lengthy and complex process. Other companies, including those with substantially greater financial, research and technology, marketing and sales resources, may compete with us for contracts with CROs and development of these technologies. We may not be able to negotiate with or find acceptable CROs to develop such products on terms that we find acceptable, or at all. As a result, our ability to grow our business or increase our profits could be adversely impacted. Our marketed products and our products under development could be rendered obsolete by technological or other medical advances. Our marketed products and our products under development may be rendered obsolete or uneconomical by our competitors’ products or technological advances or those other advances within other markets that may better or more inexpensively address the conditions that our products are designed to address. All of our products address the condition-, and the enhancement of the appearance-of skin by utilizing our Elevai Exosomes ™ . This market is the subject of active research and development by many potential competitors, including major pharmaceutical companies, specialized biotechnology firms, universities, hospitals, clinics and other research institutions. Competitive advances may also include the potential development of new therapies aimed at treating hyperpigmentation and photo-damaged skin that utilize other lab techniques involving stem-cell secretion, lasers or other advanced technologies. While we intend to expand our technological capabilities to remain competitive, research and development by others may render our technology or products obsolete or noncompetitive or result in treatments superior to any therapies we develop, as our competitors may develop and patent products which are better than ours, which could harm our competitive position. 24 To sustain our continued growth, we will need to increase the size of our organization, and we may encounter difficulties managing our growth, which could adversely affect our results of operations. If we are able to successfully develop additional products and expand the application of our current products, we may experience growth in the number of our employees and the scope of our operations. To the extent that we acquire and launch additional cosmetics products, the resulting growth and expansion of our sales force will place a significant demand on our financial, managerial and operational resources. Since many of the new cosmetics products or pipeline products we are working on may involve using our technologies under new applications or circumstances, it may require our entering into new markets. We may not be able to accurately forecast the number of employees required, the timing of their hire or the associated cost with our expansion and/or our entrance into new markets. The extent of any expansion we may experience will be driven largely by the success of our new cosmetics products. As a result, management’s ability to project the size of any such expansion and its cost to the company is limited by the following uncertainties: (i) we will not have previously sold any of the new products and applications and the ultimate success of these new products and applications is unknown; (ii) we will be entering new markets; and (iii) the costs associated with any expansion will be partially driven by factors that may not be fully in our control (e.g., timing of hiring, market salary rates, ability to hire new managerial and senior staff). Subject to these uncertainties, we estimate that our current business plan may require us to hire new rounds of employees, specifically for our salesforce within the next 12 months. Due to the uncertainty surrounding the new cosmetics products, this estimate may prove to be incorrect, and our costs could be significantly higher. Our success will also depend on the ability of our executive officers and senior management to continue to implement and improve our operational, information management and financial control systems, particularly in light of our status as a newly public company subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, and to expand, train and manage our employee base. Our inability to manage growth effectively could cause our operating costs to grow even faster than we are currently anticipating and adversely affect our results of operations. If we are unable to retain our existing sales force and recruit additional people to join our sales force, our revenue may not increase and may even decline. Our products are primarily marketed by our sales force to form new accounts with medical practices, and we depend on those medical practices to generate a substantial majority of our revenue. Our current sales force is independently contracted and may terminate their services at any time, and we may experience high turnover among our sales force from year to year. To increase our revenue, we must increase the number of and/or the productivity of our sales force. We must also expand our outreach and outbound efforts to attract, connect and nurture new customers for a wider medical practice base who purchase product and whom we can foster relationships with to promote retention and higher value over the life of the medical practice. While we take many steps to help train, motivate and retain our sales force, we cannot accurately predict how the number and productivity of our sales force may fluctuate. Our operating results could be harmed if we do not generate sufficient interest in our business and its products to retain and motivate our existing sales force and attract new people to join our sales force. The number and productivity of our sales force is negatively impacted by several additional factors, including: ● any adverse publicity or negative public perception regarding us, our products or ingredients, our sales distribution channel, or our industry or competitors; ● lack of interest in, dissatisfaction with, or the technical failure of, existing or new products; ● lack of compelling products or income opportunities; ● negative sales force reaction to changes in our sales compensation plans or to our failure to make changes that would be necessary to keep our compensation competitive with the market; ● interactions with our company, including our actions to enforce our policies and procedures and the quality of our customer service; 25 ● any regulatory actions or charges against us or others in our industry, as well as regulatory changes that impact product formulations and sales viability; ● general economic, business and public health conditions, including employment levels, employment trends such as the gig and sharing economies, and pandemics or other conditions that curtail person-to-person interactions; ● changes in the policies of social media platforms used to prospect or recruit potential consumers and sales force participants; ● recruiting efforts of our competitors and changes in consumer-loyalty trends; and ● potential saturation or maturity levels in a given market, which could negatively impact our ability to attract and retain our sales force in such market. Our growth may suffer if an economic downturn in any of our major markets inhibits consumers from spending their disposable income on aesthetic and skin health products. Our growth depends significantly on continued economic growth in the markets where we sell our products. Because many treatments in which our products are used are considered cosmetic in nature, they are typically paid directly by consumers out of their disposable income and are not subject to reimbursement by third-party payers such as health insurance organizations. As a result, an economic downturn in any of our major markets could have an adverse effect on the sales and profitability of our products. Our products may cause undesirable side effects that could limit their use, require their removal from the market or prevent further development. While there are no known side-effects of our products during any initial or prolonged use, any occurrence of side-effects or appearance that any of the ingredients we use may cause undesirable side-effects could limit consumer purchase and use of our products, particularly if physicians or their medical aesthetics consumers perceive that the risks or discomfort outweigh the benefits or if they perceive that the side effects of competitive products are less significant. Undesirable side effects that may, in some cases be caused by our products could interrupt, delay or halt our research and development programs, including any clinical validation studies, and could result in adverse regulatory action by the FDA or other regulatory authorities. More severe side effects associated with our products may be observed in the future. Even if we are able to complete the development of a new product and obtain any required regulatory approval, undesirable side effects could prevent us from achieving or maintaining market acceptance of our current or prospective products or could substantially increase the costs and expenses of commercializing any future products. Negative publicity concerning our products, whether accurate or inaccurate, could also reduce market or regulatory acceptance of our products, which could result in decreased product demand, removal from the market or an increased number of product liability claims, whether or not such claims have merit. Product liability lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our products. Our business exposes us to the risk of product liability claims that are inherent to the development, clinical validation studies and testing to demonstrate aesthetic improvement and marketing of aesthetic and cosmetic skin products. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further commercialization of those products. Although we maintain general liability insurance in an amount that we believe is reasonably adequate to insulate us from potential claims, this insurance may not fully cover potential liabilities. In addition, our inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercial production and sale of our products, which could adversely affect our business. 26 We are subject to risks associated with doing business internationally. Our international sales will depend upon the success under both our exclusive and non-exclusive distribution partners and associated marketing efforts of and sales of our third-party distributors via our distribution and license agreements with these partners. Although none of our international distribution or license partners accounted for any of our net sales in 2021 and 2022, our business is subject to certain risks inherent in international business as we continue to expand, many of which are beyond our control. These risks include: ● adverse changes in tariff and trade protection measures; ● unexpected changes in foreign regulatory requirements; ● the potential of negative consequences from changes in tax laws; ● the potential of business failure of one or more of our distribution partners; ● changing economic conditions in countries where our products are sold; unexpected fluctuations in exchange rates; ● potential political unrest and hostilities; ● differing degrees of protection for intellectual property; and ● difficulties in coordinating foreign distribution. Any of the foregoing factors could adversely affect our business, financial condition and results of operations. We cannot assure you that we can successfully manage these risks or avoid their effects when doing business internationally. Potential business combinations could require significant management attention and prove difficult to integrate with our business, which could divert the attention of our management, disrupt our normal course of business, dilute stockholder value and adversely affect our operating results. If we become aware of potential business combination candidates that are complementary to our business, we may decide to combine with such businesses or acquire their assets in the future. Business combinations generally involve a number of additional difficulties and risks to our business, including: ● failure to integrate management information systems, personnel, research and development and marketing, operations, sales and support; ● disruption of our ongoing business and diversion of management’s attention from other business matters; ● potential loss of the acquired company’s customers; ● failure to further develop or integrate the acquired company’s products or technology successfully; ● unanticipated costs and liabilities; and ● other accounting system consequences. In addition, we may not realize benefits from any business combination we may undertake in the future. If we fail to successfully integrate such businesses, or the products and technologies associated with such business combinations into our company, the revenue and operating results of the combined company could be adversely affected. Any integration process would require significant time and resources, and we may not be able to manage the process successfully. If our customers are uncertain about our ability to operate on a combined basis, they may delay or cancel orders for our products. We may not successfully evaluate, integrate or utilize the acquired technology and product lines or accurately forecast the financial impact of a combination, including accounting system charges or volatility in the stock price of the combined entity, should it be a publicly traded target. If we fail to successfully integrate other companies with which we may combine in the future, our business could be adversely affected. 27 If we fail to cost-effectively acquire new client accounts or retain our existing clients, our business could be adversely affected. Our sales and profit are dependent upon our ability to expand sales to our existing client relationships and acquire new client accounts. Our success, and our ability to increase revenue and achieve profitability, depend in part on our ability to cost-effectively acquire new client accounts, retain existing clients and keep existing aesthetics-consumers engaged so that they continue to request and purchase our products. While we intend to continue to invest significantly in sales and marketing to educate medical clients about our brand, our values and our products, there is no assurance that these efforts will generate further demand for our products or expand our client base. Our ability to attract new client accounts and retain our existing accounts will depend on, among other items, the perceived value and quality of our products, consumer demand for thoughtfully designed and innovative cosmetic products at a premium, competitive offerings, our ability to offer new and relevant products and the effectiveness of our marketing efforts. We may also lose loyal clients to our competitors if we are unable to meet client demand for product in a timely manner. If we are unable to cost-effectively acquire new client accounts, retain existing clients and keep existing clients engaged, our business, financial condition, results of operations and prospects could be adversely affected. Any strategies we employ to pursue this growth are subject to numerous factors outside of our control. Our medical clients continue to be aggressively marketed to for other private label or competitive cosmetic products in the medical aesthetics space, which could reduce demand for our products. The expansion of our business also depends on our ability to increase sales through our distribution agreements and white-label product channels. Any growth within our existing distribution agreement channels may also affect our existing client relationships and present additional challenges, including those related to pricing strategies. Our direct connections to our clients may become more limited as we expand our distribution channels. Additionally, we may need to increase or reallocate spending on marketing and promotional activities, such as temporary price reductions, off-invoice discounts, advertisements, product coupons and other trade activities, and these expenditures are subject to risks, including risks related to our clients’ acceptance of our marketing efforts. Our strategy to grow international sales may also increase our marketing spend. Our failure to obtain new clients, or expand our business with existing clients, could have an adverse effect on our business, financial condition, results of operations and prospects. We also use paid and non-paid advertising. Our paid advertising may include search engine marketing, display, paid social media and product placement and traditional advertising, such as direct mail, television, radio and magazine advertising. Our non-paid advertising efforts include search engine optimization, non-paid social media and e-mail marketing. We drive a significant amount of traffic to our website via search engines. However, search engines frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our website can be negatively affected. Moreover, a search engine could, for competitive or other purposes, alter its search algorithms or results, causing our website to place lower in search query results. We also drive a significant amount of traffic to our website via social networking or other ecommerce channels used by our current and prospective clients and medical aesthetics cosmetics consumers. As social networking and ecommerce channels continue to rapidly evolve, we may be unable to develop or maintain a presence within these channels. If we are unable to cost-effectively drive traffic to our website, or if the popularity of our social media presence declines, our ability to acquire new clients or interest via consumers could be adversely affected. Additionally, if we fail to increase our revenue per client, generate repeat purchases or maintain high levels of client engagement, our business, financial condition, results of operations and prospects could be adversely affected. We must expend resources to maintain awareness of our brand, build brand loyalty and generate interest in our products. Our marketing strategies and channels will evolve, and our efforts may or may not be successful. In order to remain competitive and expand and keep market share for our cosmetics products across our various distribution and business channels, we may need to increase our marketing and advertising spending to maintain and increase brand and client awareness, protect and grow our existing market share or promote new products, which could impact our operating results. Substantial advertising and promotional expenditures may be required to maintain or improve our brand’s market position or to introduce new products to the market, presenting at medical aesthetic conferences, traveling to tradeshows as well as increasingly engaging with non-traditional media. Non-traditional media meets many clients and their cosmetic aesthetics consumers where they are most active which includes outreach through social media and web-based channels, however these channels may not prove successful in building brand awareness. Thus, an increase in our marketing and advertising efforts may not maintain our current reputation or lead to increased market share. Further, social media platforms frequently change the algorithms that determine the ranking and display of results of a user’s search and may make other changes to the way results are displayed, or may increase the costs of such advertising, which can negatively affect the placement of our links and, therefore, reduce the number of visits to our website and social media channels or make such marketing cost-prohibitive. In addition, social media platforms typically require compliance with their policies and procedures, which may be subject to change or new interpretation with limited ability to negotiate, which could negatively impact our marketing capabilities. If we are unable to maintain and promote a favorable perception of our brand and products on a cost-effective basis, our business, financial condition, results of operations and prospects could be adversely affected. 28 Failure to leverage our brand value propositions through our novel exosome technology to compete against well-known cosmetics products, especially during an economic downturn, may adversely affect our ability to achieve or maintain profitability. In the medical aesthetic cosmetics product category, we compete not only with other widely advertised branded products, but also with well-known branded cosmetics products that have larger market share within the medical aesthetics cosmetics space and may have the capacity to be sold at lower prices. Medical businesses are more likely to purchase our products if they believe that our products provide greater value than less expensive alternatives and if their medical aesthetics consumers demand our products. If the difference in perceived value between our brand and well-known cosmetics products narrows, or if there is a perception of such a narrowing, clients may choose not to buy our products at prices that are profitable for us. We believe that in periods of economic uncertainty, such as the current economic uncertainty surrounding COVID-19, clients may purchase less inventory from us or more from lower-priced brands despite our value proposition. To the extent this occurs, we could experience a reduction in the sales volume of our products or an unfavorable shift in the types of products medical aesthetics consumers demand, which could have an adverse effect on our business, financial condition, results of operations and prospects. Our brand and reputation may be diminished due to real or perceived quality, safety, aesthetic results or environmental impact issues with our products, which could have an adverse effect on our business, financial condition, results of operations and prospects. We believe our clients and their medical aesthetics consumers rely on us to provide them with high quality, innovative, well-designed, and effective products. Any loss of confidence on the part of medical aesthetics consumers in our products or the ingredients used in our products, whether related to product contamination or product safety or quality failures, actual or perceived, environmental impacts, or inclusion of prohibited ingredients, or ingredients that are perceived to be “toxic”, could tarnish the image of our brand and could cause consumers to choose other products. Allegations of contamination or other adverse effects on product safety or aesthetic results or suitability for use by a particular consumer or on the environment, even if untrue, may require us to expend significant time and resources responding to such allegations and could, from time to time, result in a recall of a product from any or all of the markets in which the recalled product was distributed. Any such issues or recalls could negatively affect our ability to achieve or maintain profitability and brand image. We also have no control over our products once purchased by medical aesthetics consumers of our clients. For example, medical aesthetics consumers may store or use our products under conditions and for periods of time inconsistent with approved directions for use or the listed shelf life or required warnings or other governmental guidelines on our labels, which may adversely affect the quality and safety of our products or the perceived quality and safety. If our products are found to be, or perceived to be, defective or unsafe, or if they otherwise fail to meet our clients and their medical aesthetics consumers’ expectations, our relationships with our client base could suffer, the appeal of our brand could be diminished, we may need to recall some of our products and/or become subject to regulatory action, and we could lose sales or market share or become subject to boycotts or liability claims. In addition, safety or other defects in our competitors’ products or products using our branded name via white-label agreements in other distributed products could reduce overall demand for products with our brand if consumers generally view them to be similar to our products. Any such adverse effect could be exacerbated by our market positioning as a purveyor of high quality, innovative, well-designed, and effective products and may significantly reduce our brand value. Issues regarding the safety, aesthetic results, quality or environmental impact of any of our products, regardless of the cause, may have an adverse effect on our brand, reputation and operating results. Further, the growing use of social and digital media by us, our clients and third parties increases the speed and extent that information or misinformation and opinions can be shared. Negative publicity about us, our brand or our products on social or digital media could seriously damage our brand and reputation. Any loss of confidence on the part of clients and their medical aesthetics consumers in the quality, safety, aesthetic results or environmental suitability of our products would be difficult and costly to overcome, even if such concerns were based on inaccurate or misleading information. If we do not maintain a favorable perception of our brand, and project our positions regarding our product safety effectively, our business, financial condition, results of operations and prospects could be adversely affected. 29 Economic downturns or a change in medical aesthetic consumer preferences, perception and spending habits in the medical aesthetic cosmetic products categories, in particular, could limit aesthetic consumer demand for our cosmetic products and negatively affect our business. We have positioned our brand to capitalize on growing consumer interest in complementary cosmetics for the medical aesthetics services industry. The medical aesthetics cosmetics product industry is sensitive to national and regional economic conditions and the demand for the products that we distribute may be adversely affected from time to time by economic downturns that impact consumer spending on cosmetics products, including discretionary spending. Future economic conditions such as employment levels, business conditions, housing starts, interest rates, inflation rates, energy and fuel costs, and tax rates could reduce consumer spending or change consumer purchasing habits. Among these changes could be a reduction in the number of medical aesthetics cosmetics products that medical aesthetics consumers purchase when they receive medical aesthetics services, given that many products in this category often have higher retail prices than do their conventional counterparts found in retail stores. Further, the high-end cosmetics markets in which we operate are subject to changes in consumer preference, trends, new technology, perception and discretionary spending habits. Our performance depends significantly on factors that may affect the level and pattern of medical aesthetics consumer spending in the markets in which we operate. Such factors include medical aesthetics consumer preference, medical aesthetics consumer confidence, medical aesthetics consumer income, medical aesthetics consumer perception of the safety and quality of our products and shifts in the perceived value for our cosmetics products relative to conventional alternatives. The medical aesthetics cosmetics market is also subject to changes in the rate of procedures, which have been increasing in developed countries like the United States. In addition, media coverage regarding the safety or quality of, our products or the biological raw materials, ingredients or bioengineering processes involved in their manufacturing may damage consumer confidence in our cosmetics products. A general decline in the consumption of our cosmetics products could occur at any time as a result of change in medical aesthetics consumer preference, perception, confidence and spending habits, including an unwillingness to pay a premium or an inability to purchase our products due to financial hardship or increased price sensitivity, which may be exacerbated by the effects of the COVID-19 pandemic or economic downturn. If medical aesthetics consumer preferences shift away from complementary cosmetic products, our business, financial condition and results of operations could be adversely affected. The success of our products depends on a number of factors Including our ability to accurately anticipate changes in the medical aesthetics cosmetics market demand and medical aesthetics consumer preferences, our ability to differentiate the quality and innovativeness of our cosmetics products from those of our competitors, and the effectiveness of our marketing and advertising campaigns for our cosmetics products. We may not be successful in identifying trends in medical aesthetics preferences and developing cosmetics products that respond to or lead the way in such trends in a timely manner. We also may not be able to effectively promote our cosmetics products and related technologies by our marketing and advertising campaigns and gain market acceptance. If our cosmetics products fail to gain market acceptance, are restricted by regulatory requirements or have quality problems, we may not be able to fully recover costs and expenses incurred in our operation, and our business, financial condition, results of operations and prospects could be adversely affected. If we cannot maintain our company culture or focus on our purpose as we grow, our success and our business and competitive position may be harmed. We believe our culture and our mission have been key contributors to our success to date and that the critical nature of the products that we promote a sense of transparency and scientific innovation to our clients. Any failure to preserve our culture or focus on our mission could negatively affect our ability to retain and recruit clients, and personnel, which is critical to our growth and to effectively focus on and pursue our corporate objectives. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important values. If we fail to maintain our company culture or focus on our mission our competitive position and business, financial condition, results of operations and prospects could be adversely affected. If we lose key personnel or are unable to attract and retain other qualified personnel, we may be unable to execute our business plan and our business would be materially adversely affected. As of September 28, 2023, we had 16 employees. Our success depends on our continued ability to attract, retain and motivate highly qualified management, business development, sales and marketing, product development and other personnel. In the future we may not be able to recruit and retain qualified personnel, particularly for senior sales and marketing, research and product development positions due to intense competition for personnel among businesses like ours, and the failure to do so could have a significant negative impact on our future product sales and business results. Our success depends in large part on the efforts and abilities of Jordan R. Plews, our President and Chief Executive Officer; Graydon Bensler, our Chief Financial Officer; Tim Sayed, our Chief Medical Officer; Brenda Buechler, our Chief Marketing Officer; and Christoph Kraneiss, our Chief Commercial Officer—as well as other members of our senior management and our scientific and technical personnel. 30 Our ability to maintain our competitive position is largely dependent on the services of our senior management and other key personnel, including our co-founder, President and Chief Executive Officer, Jordan R. Plews. The loss of the services of Dr. Plews could have an adverse effect on our business, financial condition, results of operations and prospects. Dr. Plews is a well-recognized bioengineer, doctor and entrepreneur. We believe that the success of our brand depends in part on our ongoing affiliation with Dr. Plews. We have an agreement with Dr. Plews, or the Inventions and Proprietary Information Agreement, which, among other things, includes an assignment to us for any of Dr. Plews inventions, know-how or intellectual property, among other items that are legally protectable that result or relatedly-arise from any work performed in his capacity as our employee and imposes various obligations on us. Should that Inventions and Proprietary Information Agreement terminate and upon twelve months after the termination of the Inventions and Proprietary Information Agreement, we could, among other things, lose our ability to control recruiting by Dr. Plews of any of our employees or consultants. Moreover, upon such termination of the Inventions and Proprietary Information Agreement, we may not be able to limit Dr. Plews use of any of our know-how, processes or reverse engineering of our products and sustain reputational damage. We depend on Dr. Plews appearances at industry functions, conferences and his reach and influence to connect with clients and provide insight on current medical aesthetic cosmetics trends. Thus, the loss of the services of Dr. Plews, or the loss of our ability to use Dr. Plews’s likeness, could have an adverse effect on our business, financial condition, results of operations and prospects. Although we maintain “key employee” insurance policies on our executive officers that would compensate us for the loss of their services, even if we lose the services of one or more of these individuals, finding a replacement could be difficult, may take an extended period of time and could significantly impede the achievement of our business objectives. Moreover, the “key employee” insurance policy limit may not fully cover interim expenses for the services and expertise we may require in order to maintain relatively uninterrupted operations of our business. This gap in coverage and the time it may take to replace a key employee may have a material adverse effect on our results of operations and financial condition. We may be unable to accurately forecast revenue and appropriately plan our expenses in the future. Revenue and results of operations are difficult to forecast because they generally depend on the volume, timing and type of orders we receive across our various distribution channels, all of which are uncertain. Forecasts may be particularly challenging as we intend to expand into new markets and geographies and develop and market new cosmetics products. We base our expense levels and investment plans on our estimates of revenue and gross margin. However, we cannot be sure the same growth rates and trends are meaningful predictors of future growth. If our assumptions prove to be wrong, we may spend more than we anticipate acquiring and retaining our client or may generate lower revenue per client account than anticipated, either of which could have an adverse effect on our business, financial condition, results of operations and prospects. We have a limited operating history at our current scale, which may make it difficult to evaluate our business and future prospects. We began commercial operations in 2020 and have a limited history of generating revenue at our current scale. As a result of our relatively short operating history at our current scale, we have limited financial data that can be used to evaluate our business and future prospects. Any evaluation of our business and prospects must be considered in light of our limited operating history, which may not be indicative of future performance. Because of our limited operating history, we face increased risks, uncertainties, expenses, and difficulties, including the risks and uncertainties discussed in this section. A disruption in our operations could have an adverse effect on our business. As a company engages in sales domestically and internationally, our operations, including those of our third-party formulators, suppliers, and distribution partners, and other service providers, are subject to the risks inherent in such activities, including industrial accidents, environmental events, strikes and other labor disputes, disruptions in information systems, product quality control, safety, licensing requirements and other regulatory issues, as well as natural disasters, pandemics or other public health emergencies, border disputes, acts of terrorism and other external factors over which we and our third-party manufacturers, suppliers and delivery service providers have no control. The loss of, or damage to, the facilities of our third-party formulators, suppliers and delivery service providers could have an adverse effect on our business, financial condition, results of operations and prospects. We depend heavily on postal and parcel carriers for the delivery of products sold directly to clients. Interruptions to or failures in these delivery services could prevent the timely or successful delivery of our products. These interruptions or failures may be due to unforeseen events that are beyond our control or the control of our third-party delivery service providers, such as labor unrest or natural disasters Any failure to provide high-quality delivery services to our clients may negatively affect the ordering and likelihood of repeat-purchasing of our clients, damage our reputation and cause us to lose client accounts. 31 The COVID-19 or another pandemic could have an adverse effect on our business, financial condition, results of operations and prospects. In connection with the COVID-19 pandemic, governments have implemented significant measures, including closures, quarantines, travel restrictions and other social distancing directives, intended to control the spread of the virus. Companies have also taken precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses from time to time. To the extent that these restrictions remain in place, additional prevention and mitigation measures are implemented in the future, or there is uncertainty about the effectiveness of these or any other measures to contain or treat COVID-19 or a variant thereof, there has been and continues to be an adverse impact on global economic conditions and consumer confidence and spending, which could adversely affect our supply chain as well as the demand for our cosmetics products. Although at this time we have not experienced disruptions to our supply chain, and we have not experienced decreases in demand or attributed COVID-19 to any material financial impacts, the fluid nature of the COVID-19 pandemic and uncertainties regarding the related economic impact are likely to result in sustained market uncertainty and turmoil, which could also have an adverse effect on our business, financial condition, results of operations and prospects. The impact of the COVID-19 pandemic, or any other eventual pandemic on any of our suppliers, formulators, packagers, shippers, distribution partners, medical business clients or transportation or logistics providers may negatively affect the price and availability of our materials and impact our supply chain. If the disruptions caused by the COVID-19 pandemic continue for an extended period of time, our ability to meet the demands of our clients may be materially impacted. In addition, the conditions caused by the COVID-19 pandemic, or another pandemic may negatively impact collections of accounts receivable and cause some of our clients’ businesses to slow, all of which could adversely affect our business, financial condition, results of operations and prospects. Further, the COVID-19 pandemic may impact medical aesthetic cosmetics consumer demand. Medical aesthetics practices may be impacted if governments continue to implement regional business closures, quarantines, travel restrictions and other social distancing directives to slow the spread of the virus. Further, to the extent our clients’ operations are negatively impacted, their medical aesthetic cosmetics consumers may reduce demand for or spending on our cosmetics products. There may also be significant reductions or volatility in medical aesthetic cosmetics demand for our products due to travel restrictions or social distancing directives, as well as the temporary inability of consumers to purchase our products due to illness, quarantine or financial hardship, shifts in demand away from one or more of our products, decreased consumer confidence and spending or beautification activities, any of which may negatively impact our results, including as a result of an increased difficulty in planning for operations. Additionally, we may be unable to effectively modify our advertising activities to reflect changing medical aesthetic cosmetics interests in beauty, or their general outward appearance, and shopping habits due to event cancellations, reduced in-store visits and travel restrictions, among other things. It is not currently possible to ascertain the overall impact of the COVID-19 pandemic on our business. However, if the pandemic continues to persist as a severe worldwide health crisis, the disease could have an adverse effect on our business, financial condition, results of operations and prospects, and may also have the effect of heightening many of the other risks described in this “Part 1. Item 1A. Risk Factors” section. Our business is at an early stage of product development, and we may not develop additional cosmetics products that can be commercialized or profitably developed and our failure to introduce new products may adversely affect our ability to continue to grow. Our business is at an early stage of product development. As of the date of this report, we have commercialized two cosmetics products for the medical aesthetics market. We are still in the early stages of identifying and conducting research on potential new cosmetic products. A key element of our growth strategy depends on our ability to develop and market new products that meet our standards for quality and appeal to our clients and distribution partners. Our pipeline products will require significant research and development, and clinical validation testing to demonstrate aesthetic improvement of any product. We may not be able to successful commercialize or synthetize any of product candidates or commercialize any products at scale that is profitable. Our product candidates may prove to have undesirable and unintended side effects or other characteristics adversely affecting their safety, aesthetic results or cost effectiveness that could prevent or limit their use. Any product using any of our technology may fail to provide the intended aesthetic improvements or achieve aesthetic results or benefits equal to or better than the standard of treatment at the time of testing or after a product may be formulated. 32 The success of our innovation and product development efforts is affected by our ability to anticipate changes in consumer and market preferences within the medical aesthetics cosmetics industry, the technical capability of our laboratory staff, including biochemists and bioengineers, developing and testing product formulas and prototypes, our ability to comply with applicable governmental regulations, and the success of our management and sales and marketing teams in introducing and marketing new products. Our cosmetics product offerings may change over time, which makes it difficult to forecast our future results of operations. There can be no assurance that we will successfully develop and market new products that appeal to clients. For example, product formulas we develop may not contain the product attributes desired by the medical aesthetics consumers that our clients serve. Any such failure may lead to a decrease in our growth, sales and ability to achieve profitability, which could adversely affect our business, financial condition, results of operations and prospects. Additionally, the development and introduction of new products requires substantial marketing expenditures, which we may be unable to recoup if new products do not gain widespread market acceptance. If we are unsuccessful in meeting our objectives with respect to new or improved products, our business, financial condition, results of operations and prospects could be adversely affected. We may incur product liability claims that could harm our business. We sell a variety of topical cosmetics products for topical human use. Our cosmetics are not generally subject to pre-market approval or registration processes so we cannot rely upon a government safety panel to qualify or approve our products for use, and some ingredients may not have long histories of human consumption or use. We rely upon published and unpublished safety information including clinical validation studies on ingredients used in our products and conduct our own clinical validation and safety studies on some key ingredients and products. A product may be safe for the general population when consumed or used as directed but could cause an adverse reaction for some individuals, such as a person who has a health condition or allergies or who is taking a prescription medication. While we include what we believe are adequate instructions and warnings and we have historically had low or no numbers of reported reactions, previously unknown adverse reactions could occur. While we maintain a policy to insure our product liability risks we will continue to periodically evaluate whether any of our products are found to cause any injury or damage and whether we become subject to product liability claims. As a result of the type of products that we sell, we may be subject to various product liability claims, including that the products fail to meet quality or manufacturing specifications, contain contaminants, include inadequate instructions as to their proper use, include inadequate warnings concerning side effects and interactions with other substances or for persons with health conditions or allergies, or cause adverse reactions or side effects. Consumer protection laws and regulations governing our business continue to expand, and in some states such as California, class-action lawsuits based on increasingly novel theories of liability are expanding. Product liability claims could increase our costs, cause negative publicity, and adversely affect our business and financial results. As we continue to offer an increasing number of new products through large product offerings our product liability risk may increase. If our sales force or employees provide improper or inappropriate advice regarding our products, their use or safety, we may be subject to additional product liability. If we discover that our products are causing adverse reactions, or if we determine that any of our employees have not properly handled reports of adverse reactions, we could suffer further adverse publicity or government sanctions. Our employees, independent contractors, consultants, medical professional clients, distributors and vendors may engage in unethical misconduct or other improper sales activities, including noncompliance with regulatory standards and requirements. We are exposed to the risk that our employees, independent contractors, consultants, medical professional clients, distributors and vendors and other individuals or entities with whom we have arrangements may engage in unethical, fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) the laws of the FDA, other similar foreign regulatory authorities and foreign governments, including those laws requiring the reporting of true, complete and accurate information to such regulators; (ii) manufacturing standards; or (iii) laws that require the true, complete and accurate reporting of financial information or data. These laws may impact, among other things, future sales, marketing and promotional campaigns. 33 It is not always possible to identify and deter unethical misconduct by our employees, medical professional clients and other third parties, and the precautions we take to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance such laws or regulations. If such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in government investigations, legal proceedings, the imposition of significant fines or other sanctions, including the imposition of monetary penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings and curtailment of operations, any of which could adversely affect our ability to operate our business and our results of operations. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these claims or investigations, which could have a material adverse effect on our business, financial condition and results of operations. Moreover, our cosmetics products may be subject to sales and marketing practices subject to business arrangements that may include kickbacks, self-dealing and other abusive practices. Because our medical professional clients receive a markup on each sale of our cosmetics products our medical professional clients may structure their own internal sales and commission programs or promote certain customer incentive programs and other business arrangements that include our cosmetic products and more generally that incentivize monetary gain over effecting positive results for their customers. Such programs may promote perverse incentives relating to the sale, stocking, or purchasing of our cosmetic products. Such programs could negatively impact our marketing capabilities and favorable perception of our brand and products. If we are unable to maintain and promote a favorable perception of our brand and products, our business, financial condition, results of operations and prospects could be adversely affected. We have limited clinical validation and testing data, and clinical validation testing are subject to extensive regulatory requirements, very expensive, time-consuming and difficult to design and implement. Our products may fail to achieve necessary safety and aesthetic results during clinical validation testing, which may limit our ability to generate revenues from our cosmetics products. We have not yet invested significantly in wide-ranging clinical validation testing to demonstrate aesthetic improvement and the few studies we have arranged are in early stages as of the date of this report. We cannot assure you that we will be able to continue to invest or develop resources for conducting these tests in the near future. In particular, clinical validation testing can be very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical validation trial process is time consuming. Furthermore, failure can occur at any stage of the testing, and we could encounter problems that cause us to abandon or repeat clinical validation testing. The commencement and completion of clinical validation studies may be affected by several factors, including: ● unforeseen safety issues; ● determination of product applicative issues; ● inability to demonstrate positive aesthetic results during clinical validation studies; ● slower than expected rates of participant recruitment; ● inability to monitor or document participants adequately during or after product application; and ● developments related to the coronavirus outbreak and impact of it and COVID-19 on the costs and timing associated with the conduct of our clinical validation studies and other related activities. Our success depends largely upon consumer satisfaction with the aesthetic results of our products. In order to generate repeat and referral business from clients, our clients’ medical aesthetics consumers must be satisfied with the aesthetic results of our cosmetics products. Our products are cosmetic in nature and the success of the results are highly subjective. Accordingly, medical aesthetics consumers’ perception of their aesthetic results may greatly vary even if our products and systems associated therewith are shown to be objectively successful. If medical aesthetics consumers are not satisfied with the aesthetic benefits of our products or feel that they are too expensive for the aesthetic results obtained, our reputation and future sales to our clients could suffer. 34 Our products may fail to achieve the broad degree of physician adoption and use or medical aesthetic consumer demand necessary for commercial success. Our cosmetics products, which as of the date of this report are used solely in a clinical or medical spa setting, may fail to gain sufficient market acceptance by physicians and others in the medical aesthetics community. The commercial success of these products and any future products will depend significantly on the broad adoption and use of the resulting product by physicians for the treatment of aesthetic indications that we may seek to pursue. We are aware that other companies are seeking to develop alternative products and treatments, any of which could impact the demand for our cosmetics products. The degree and rate of physician adoption of our exosome serums and any future products depend on a number of factors, including the cost, profitability to our clients, medical aesthetic consumer demand, characteristics and aesthetic results of our products. Our success will also depend on our ability to create compelling marketing programs and ability to overcome any biases physicians or consumers may have toward the use, safety and aesthetic results of existing products over ours. Moreover, our competitors may offer more compelling marketing or discounting programs than we are able to offer, including by bundling multiple aesthetic products to provide a more comprehensive offering than we can. We can provide no assurance that health professionals will continue to recommend our products at their current levels, or at all. Additionally, we may be unable to continue to grow our network of health professional clients and therefore may not continue to achieve revenue growth through this channel. With respect to medical aesthetic consumer demand, use of our cosmetic products is purely elective with a cost that must be borne by the consumer, and costs related to the use of cosmetics is not reimbursable through any third-party payor, such as Medicaid, Medicare or commercial insurance. The decision by a medical aesthetic consumer to purchase our products for aesthetic indications may be influenced by a number of factors, including the cost, aesthetic results, safety, perception, marketing programs for, and physician recommendations of our cosmetics products versus competitive cosmetics products or other procedures provided by the physician. If our cosmetics products or any future pipeline product fail to achieve the broad degree of physician adoption necessary for commercial success or the requisite medical aesthetic consumer demand, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business. The outcome of our clinical and product testing of our products is uncertain, and if we are unable to satisfactorily complete such testing, or if such testing yields unsatisfactory results, we may not achieve the broad degree of physician adoption and use or medical aesthetic consumer demand necessary for commercial success. We have yet to complete clinical testing to demonstrate our products aesthetic results. The clinical testing of our current products may not demonstrate aesthetic results to the degree we may anticipate or at all. Similarly, this testing may not be completed in a timely manner, if at all, or only after significant increases in costs, program delays or both, all of which could harm our ability to generate revenues. In addition, our products may not prove to be more effective for improving appearance than current cosmetic products on the market. Accordingly, we may have to delay or abandon efforts to research, develop or further market our products. The failure to adequately demonstrate the aesthetic results could harm our ability to generate revenues and limit a broader degree of physician adoption necessary for commercial success or the requisite medical aesthetic consumer demand. Accordingly, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business. Even if we are successful in product testing of our cosmetic exosome-based products, it is unclear whether cosmetic exosome products can serve as the foundation for a commercially viable and profitable business because of other evolving technologies. Stem cell technology is rapidly developing and could undergo significant change in the future. Such rapid technological development could result in our technologies becoming obsolete. While our cosmetic products appear promising, and even if they achieve positive test results, they may fail to be successfully adopted by physicians for numerous reasons, including, but not limited to, competing cosmetics technologies for the same treatments. There can be no assurance that we will be able to develop a successful market for our cosmetic exosome products based on stem cell technologies. 35 Moreover, advances in other cosmetic products are rapid and could significantly reduce or entirely eliminate the need for our products. Additionally, keeping up with new technological developments may materially alter the commercial viability of our technology or products and require us to incur significant costs to replace or modify product lines in which we have a substantial investment. We are focused on exosome based cosmetic products, and if this field is substantially unsuccessful, this could jeopardize our success or future results. The occurrence of any of these factors may have a material adverse effect on our business, operating results and financial condition. If we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably. We are engaged in activities in the bioengineering and cosmetics field, which is characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer. Research and discoveries by other bioengineering, cosmetics, pharmaceutical or other companies may render our technologies or potential products or services uneconomical or result in products superior to those we develop. Similarly, any technologies, products or services we develop may not be preferred to any existing or newly developed technologies, products or services. Restrictions on the use of human stem cells, and the ethical, legal and social implications of that research, could prevent us from developing or gaining acceptance for commercially viable products in these areas. Our stem cells are derived under current Good Manufacturing Practices from Wharton’s Jelly portion of the human umbilical mesenchymal stem cells and captured within twenty-four hours of a full-term healthy birth by consenting donors. Because the use of human umbilical mesenchymal stem cells gives rise to ethical, legal and social issues regarding the appropriate use of these cells, our research related to human umbilical mesenchymal stem cells could become the subject of adverse commentary or publicity and some political and religious groups may still raise opposition to our cosmetics products and practices. In addition, many research institutions, including some of our potential scientific collaborators, have adopted policies regarding the ethical use of human umbilical mesenchymal stem cells, which, if applied to our procedures, may have the effect of limiting the scope of research conducted using our stem cells, thereby impairing our ability to conduct research in this field. Our products may be expensive to manufacture, and they may not be profitable if we are unable to control the costs to manufacture them. Our products may be significantly more expensive to manufacture than other traditional cosmetics products currently on the market today. We hope to substantially reduce manufacturing costs through process improvements, development of new methods, increases in manufacturing scale and outsourcing to experienced formulators or manufacturers. If we are not able to make these, or other improvements, and depending on the pricing of our products, our profit margins may be significantly less than that of other cosmetics products on the market today. In addition, we may not be able to charge a high enough price for any cosmetic product we develop, even if they are safe and effective, to make a profit. If we are unable to realize significant profits from our pipeline products, our business would be materially harmed. Our business is based on novel technologies that are inherently expensive, risky and may not be understood by or accepted in the cosmetics marketplace, which could adversely affect our future value. The development, commercialization and marketing of cell and tissue-derived cosmetics are at an early-stage, substantially research-oriented, and financially speculative. To date, very few companies have been successful in their efforts to develop and commercialize a stem cell-derived cosmetic products. In general, stem cell products may be susceptible to various risks, including undesirable and unintended side effects, or other characteristics that may prevent or limit their approval or commercial use. Furthermore, the number of people who currently or may use cell or tissue-derived cosmetics is difficult to forecast with accuracy. Our future success is dependent on the establishment of a significant market for cell- and tissue-derived cosmetics and our ability to capture a share of this market with our product lines. Our development efforts with our cosmetics products are susceptible to the same risks of failure inherent in the development and commercialization of other topical cosmetics products based on new technologies. The novel nature of exosome-based cosmetics creates significant challenges in the areas of product development and optimization, manufacturing, government regulation, and market acceptance. For example, the United States FDA has relatively limited experience regulating cosmetics derived from stem cells, and there are no FDA approved medical products utilizing exosomes. 36 We may not have sufficient product liability insurance, which may leave us vulnerable to future claims we will be unable to satisfy. The testing, manufacturing, marketing and sale of stem cell derived products entail an inherent risk of product liability claims. We currently have a limited amount of product liability insurance, which may not be adequate to meet potential product liability claims. In the event we are forced to expend significant funds on defending product liability actions, and in the event those funds come from operating capital, we will be required to reduce our business activities, which could lead to significant losses. Adequate insurance coverage may not be available in the future on acceptable terms, if at all. If available, we may not be able to maintain any such insurance at sufficient levels of coverage and any such insurance may not provide adequate protection against potential liabilities. Whether or not a product liability insurance policy is obtained or maintained in the future, any product liability claim could harm our business or financial condition. Risks Related to Our Financial Condition As described in the report of our auditors for the twelve months ended December 31, 2023, and 2022 and the notes to our consolidated financial statements, there is substantial doubt about our ability to continue as a going concern, and if we are unable to continue, you may lose your entire investment. The uncertainty about our ability to continue in operation is based on our continuing losses from operation, limited revenue and limited working capital, among other things which existed as of year-end December 31, 2023 and December 31, 2022. As of December 31, 2023 and December 31, 2022, the Company had a net working capital of $ 3,622,091 and $963,050, respectively, and has an accumulated deficit of $7,023,890 and $2,722,373, respectively. Included in the accumulated deficit are losses of $4,301,517 for the year ended December 31, 2023, and $1,800,268 for the year ended December 31, 2022. Given all these facts, we are dependent on obtaining funding from operations and the sale of debt or equity to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern depends on the success of this offering and receipt of additional funds through debt or equity financing and our operations. In the event we are unable to obtain such funding, we may have to delay, reduce or eliminate certain of our planned operations, including some of our research and development and/or clinical validation studies to demonstrate aesthetic improvement, reduce overall overhead expense, or divest assets. This in turn may have an adverse effect on our ability to realize the value of our assets. If we are unable to continue as a going concern, you may lose all or part of your investment. We have a history of net losses, and we may not be able to achieve or maintain profitability in the future. We have incurred net losses each year since our inception, and we may not be able to achieve or maintain profitability in the future. We incurred net losses of $4,301,517 and $1,800,268 in the years ended December 31, 2023 and 2022, respectively. Our expenses will likely increase in the future as we develop and launch new cosmetics product offerings, expand in existing and new markets, increase our sales and marketing efforts, and continue to invest in our laboratory facility. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business. These offerings may require significant capital investments and recurring costs, maintenance, depreciation, asset life and asset replacement costs, and if we are not able to maintain sufficient levels of utilization of such assets or such offerings are otherwise not successful, our investments may not generate sufficient returns and our financial condition may be adversely affected. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow on a consistent basis. If we are unable to successfully address these risks and challenges as we encounter them, our business, financial condition, results of operations and prospects could be adversely affected. If we are unable to generate adequate revenue growth and manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or maintain profitability. 37 Our current growth may not be indicative of our future growth and, if we begin to grow rapidly, we may not be able to effectively manage our growth or evaluate our future prospects. If we fail to effectively manage our future growth or evaluate our future prospects, our business could be adversely affected. We have experienced minimal growth since our launch in 2020. For example, our revenue increased to $766,277 in 2022, and to $1,712,595 in 2023. Moreover, the number of our full-time employees increased. This growth has placed significant demands on our management, financial, operational, technological and other resources. The anticipated growth and expansion of our business depends on a number of factors, including our ability to: ● increase awareness of our brand and successfully compete with other companies; ● price our products effectively so that we are able to attract new consumers and expand sales to our existing clients; ● expand distribution with new and existing clients; ● continue to innovate and introduce new products; ● expand our supplier and fulfillment capacities; ● maintain quality control over our product offerings; and ● expand internationally. Such growth and expansion of our business will place significant demands on our management and operations teams and require significant additional resources, financial and otherwise, to meet our needs, which may not be available in a cost-effective manner, or at all. We expect to continue to expend substantial resources on: ● our sales and marketing efforts to increase brand awareness, further engaging our existing and prospective clients, and driving sales of our products; ● product innovation and development; ● general administration, including increased finance, legal and accounting expenses associated with being a public company; and ● expanding internationally. These investments may not result in the growth of our business. Even if these investments do result in the growth of our business, if we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy our client requirements or maintain high-quality product offerings, any of which could adversely affect our business, financial condition, results of operations and prospects. You should not rely on our historical rate of revenue growth as an indication of our future performance or the rate of growth we may experience in any new category or internationally. In addition, to support continued growth, we must effectively integrate, develop and motivate a large number of new employees while maintaining our corporate culture. We face significant competition for personnel. To attract top talent, we have had to offer, and expect to continue to offer, competitive compensation and benefits packages before we can validate the productivity of new employees. We may also need to increase our employee compensation levels to remain competitive in attracting and retaining talented employees. The risks associated with a rapidly growing workforce will be particularly acute as we choose to expand into new product categories and global markets. Additionally, we may not be able to hire new employees quickly enough to meet our needs. If we fail to effectively manage our hiring needs or successfully integrate new hires, our efficiency, ability to meet forecasts and employee morale, productivity and retention could suffer, which could have an adverse effect on our business, financial condition, results of operations and prospects. We are also required to manage numerous relationships with various vendors and other third parties. Further growth of our operations, client base, or internal controls and procedures may not be adequate to support our operations. If we are unable to manage the growth of our organization effectively, our business, financial condition, results of operations and prospects may be adversely affected. We will need additional capital to conduct our operations and develop our products and our ability to obtain the necessary funding is uncertain. During the years ended December 31, 2023 and 2022 we used a significant amount of cash to finance our continued operations, and we need to obtain significant additional capital resources in order to develop products going forward. We may not be successful in maintaining our normal operating cash flow and the timing of our capital expenditures may not result in cash flows sufficient to sustain our operations through the next twelve months. If financing is not sufficient and additional financing is not available or available only on terms that are detrimental to our long-term survival, it could have a major adverse effect on our ability to pursue our clinical research and product development programs and could ultimately affect our ability to continue to function. The timing and degree of any future capital requirements will depend on many factors, including: 38 ● the accuracy of the assumptions underlying our estimates for capital needs in 2023 and beyond; ● scientific progress in our research and development programs; ● the magnitude and scope of our research and development programs and our ability to establish, enforce and maintain strategic arrangements for research, development, product testing, manufacturing, third-party agreements and marketing; ● the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; ● the number and type of pipeline product that we pursue; and ● the development of major public health concerns, including the novel coronavirus outbreak or other pandemics arising globally, and the current and future impact of it and COVID-19 on our business operations and funding requirements. Additional financing through strategic collaborations, public or private equity or debt financings or other financing sources may not be available on acceptable terms, or at all. Additional equity financing could result in significant dilution to our stockholders, and any debt financings will likely involve covenants restricting our business activities. Additional financing may not be available on acceptable terms, or at all. Further, if we obtain additional funds through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, pipeline product or products that we might otherwise seek to develop and commercialize on our own. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or product development initiatives, any of which could have a material adverse effect on our financial condition or business prospects. Our need for additional capital and ability to raise capital in the future may be limited and our failure to raise capital when needed could prevent us from growing. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase capital needs or drive spending and depletion of cash resources faster than expected. Accordingly, the Company will need to obtain substantial additional funding in order to continue and maintain its operations. The uncertainties around the Company’s ability to fund operations raise substantial doubt about its ability to continue as a growing concern. Thus, In the future, we may need to raise capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. We may sell Common Stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors in our Common Stock may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our Common Stock. Debt financing, if available, may involve restrictive covenants and could reduce our operational flexibility or ability to achieve or maintain profitability. If we cannot raise funds on acceptable terms, we may be forced to raise funds on undesirable terms, or our business may contract or we may be unable to grow our business or respond to competitive pressures, any of which could have an adverse effect on our business, financial condition, results of operations and prospects. Risks Related to Our Dependence on Third Parties We depend on our collaborators to help us develop and test our proposed products, and our ability to develop and commercialize products may be impaired or delayed if collaborations are unsuccessful. Our strategy for the development, product testing and commercialization of our proposed products may require entering into collaborations with corporate partners, licensors, licensees and others. We may then be dependent upon the subsequent success of these other parties in performing their respective responsibilities and the continued cooperation of our partners. Our potential collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to our research and development activities related to our collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us. 39 Under agreements with collaborators, we may rely significantly on such collaborators to, among other things: ● design and conduct product testing and studies to demonstrate aesthetic improvement; ● fund research and development activities with us; ● pay us fees upon the achievement of milestones; and ● market with us any commercial products that result from our collaborations. Should we collaborate with others in the development and commercialization of potential products, those expected product pipeline timelines may be delayed if collaborators fail to conduct these activities in a timely manner, or at all. In addition, our potential collaborators could terminate their agreements with us, and we may not receive any development or milestone payments. If we do not achieve milestones set forth in the agreements, or if our collaborators breach or terminate their collaborative agreements with us, our business may be materially harmed. Current and future contractual arrangements with licensors or collaborators require or could require that they pay royalties and their failure to do so would adversely affect the level of our future revenues and profits. Some of our contractual arrangements between us and a licensor, collaborator or other third party in connection with the distribution of our products currently require or may require in the future that those third-parties make royalty or other payments to us. Should those third parties fail to pay those royalties, we would not receive all of the revenue derived from commercial sales of such product. Our reliance on the activities of our non-employee consultants, third-party vendors, and operational contractors, whose activities are not wholly within our control, may lead to delays in development of our proposed products. As an early-stage company, we rely extensively upon and have relationships with in-house consultants and with expertise in cosmetics developments strategy or other business matters. These consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We have limited control over the activities of these consultants and, except as otherwise required by our collaboration and consulting agreements to the extent they exist, can expect only limited amounts of their time to be dedicated to our activities. These consultants may have commitments to other commercial and non-commercial entities. We have limited control over the operations of our consultants and can expect only limited amounts of time to be dedicated to our research, development and business goals. We currently contract with third-party contractors, and in some cases, a single contractor, for all aspects of the supply, logistics, and formulation of our cosmetics products, and expect to continue to do so to support commercial scale production of our cosmetics products. There are significant risks associated with contracting with third-party suppliers, including their ability to meet the increased need that may result from our increasing any commercialization efforts. This increases the risk that we will not have sufficient quantities of hUMSCs or be able to obtain such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts. We currently rely on third-party contract suppliers, packagers, shippers and formulators for all of our required raw materials, bottling and packaging, active ingredients and finished products for our cosmetics products. Because there are a limited number of suppliers for the raw materials that we use to formulate our cosmetics products, we may need to engage alternate suppliers to prevent a possible disruption of the formulations of the materials necessary to produce our cosmetic products. We do not have any control over the availability of hUMSCs that form the basis for our products, raw materials that are formulated along with our exosomes or packaging and bottling supplies that form the basis for our product packaging and bottling. If we or our formulators are unable to purchase these raw materials on acceptable terms, at sufficient quality levels or in adequate quantities, if at all, the development and commercialization of our products or any future products would be delayed, or there would be a shortage in supply, which would impair our ability to meet our development objectives for our pipeline products or generate revenues from the sale of our current line of cosmetics products. We also currently rely on a single supplier and formulator for our hUMSCs, to formulate the final products by adding ingredients to bring finished products to market, and for bottling and packaging our final products. While we believe that alternative sources of commercially viable supply exist for both our hUMSCs and raw materials that we use to formulate our products, there can be no assurance that we will be able to quickly establish additional or replacement sources if needed, and a reduction or interruption in supply could adversely affect our ability to supply our products in a timely or cost-effective manner. 40 We expect to continue to rely on these formulators, packagers and bottlers or other subcontractors and suppliers to support our commercial requirements in the near future. We plan to continue to rely on third parties for the raw materials, hUMSCs and formulating of our products necessary to produce our products and bring them to market. Our continuing reliance on third-party contract formulators, and suppliers entails a number of risks, including reliance on the third party for regulatory compliance and quality assurance, the possible breach of the manufacturing or supply agreement by the third party, and the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. In addition, third-party contract formulators and suppliers may not be able to comply with cGMP requirements, or similar regulatory requirements. If any of these risks transpire, we may be unable to timely retain alternate subcontractors or suppliers on acceptable terms and with sufficient quality standards and production capacity, which may disrupt and delay the commercial sale of our products. Our failure or the failure of our third-party formulators, packagers, shippers, bottlers and suppliers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products or pipeline products. Any failure or refusal to supply or any interruption in supply of the components for our products could delay, prevent or impair our ability to bring our products to market. The manufacture and formulation of cosmetics products is complex, and formulators may encounter difficulties in production. If we or any of our third-party formulators encounter any difficulties, our ability to provide our products or any pipeline product candidates commercial sales could be delayed or stopped. The manufacture and formulation of cosmetics products is complex, and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our contract manufacturers also comply with cGMP requirements. Formulators of cosmetics products often encounter difficulties in production, particularly in scaling up and validating initial production and contamination controls. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing and formulating facilities in which our products are made, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability or other issues relating to the manufacture of our products or any future pipeline product will not occur in the future. As our formulation and manufacturing processes are scaled up, they may reveal manufacturing challenges or previously unknown impurities that could require resolution in order to proceed with commercial sales of our cosmetics products. Our reliance on third-party manufacturers and formulators entails risks, including the following: ● the inability to meet our product specifications, including product formulation, and quality requirements consistently; ● a delay or inability to procure or expand sufficient manufacturing and formulation capacity; ● manufacturing and product quality issues, including those related to scale-up of manufacturing; ● costs and validation of new equipment and facilities required for scale-up; ● a failure to comply with cGMP and similar quality standards; ● the inability to negotiate or renegotiate formulation and manufacturing agreements with third parties under commercially reasonable terms; ● termination or nonrenewal of formulation or manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; 41 ● the reliance on a limited number of sources, and in some cases, single sources for some of our key materials, such that if we are unable to secure a sufficient supply of these key materials, we will be unable to manufacture and sell our products in a timely fashion, in sufficient quantities or under acceptable terms; ● the lack of qualified backup suppliers for those materials that are currently or in the future purchased from a sole or single source supplier; ● operations of our third-party manufacturers, formulators or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer, formulator or supplier; ● resource constraints, including as a result of labor disputes or unstable political environments; ● carrier disruptions or increased costs that are beyond our control; and ● the failure to deliver our products under specified storage conditions and in a timely manner. If we or our third-party formulators or manufacturers were to encounter any of these difficulties, and in particular where we rely on a single formulator and manufacturer, our ability to commercialize our products, would be jeopardized. Any adverse developments affecting commercial formulation or manufacturing of our products or any future pipeline product may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly formulation or manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization our products or any future pipeline product and could have a material adverse effect on our business, prospects, financial condition and results of operations. Because we have limited research and development capabilities, we may become more dependent on third parties to perform research and development for us. We have limited internal research and development capabilities and currently outsource portions of our product research and development to third-party research companies. In particular, we have relied heavily on services provided by Radyus Research, Inc. partially in the development of new products, and to analyze the proteomic characteristics of our Elevai Exosomes TM . We have received sufficient support from our third-party research partners to help us drive our new product development, and we expect to continue to rely on third parties to assist in our research and develop new products. There are a limited number of third-party research and development companies that specialize or have the expertise required to assist us in our product development objectives. As a result, it may be difficult for us to engage research and development partners and personnel for our anticipated future needs. If we are unable to arrange for third-party research and development of our products, or to do so on commercially reasonable terms, we may not be able to develop new products or expand the application of our existing products as quickly as we could if we were to only perform research and development of new products internally. Reliance on third-party research and development partners entails risks to which we would not be subject if we performed the research and development ourselves, including reliance on the third party for maintaining the confidentiality of the proprietary information relating to the product being developed and for maintaining quality assurance, the possibility of breach of the research and development agreement by the third party, and the possibility of termination or non-renewal of the agreement by the third party. Dependence upon third parties for the research and development of our future products may limit our ability to commercialize and deliver products on a timely and competitive basis. Because we currently sublease our laboratory to commercialize our products, we will continue to be dependent on third parties for our own manufacturing capabilities for us for some time. We currently sublease our laboratory space from Stem Express LLC in order to meet our commercial manufacturing needs and do not have a long-term lease. The termination of that lease or any loss of services under that agreement would be difficult for us to replace within a short period of time. We expect to continue to rely on third parties to for laboratory space to continue our commercial production of our exosome products. 42 There are a limited number of third-party laboratories that operate under the FDA’s current Good Manufacturing Practices, or cGMP, regulations and that have the necessary expertise and capacity for us to manufacture our products. As a result, should our current relationship with our landlord change or manufacturing needs change it may be difficult for us to locate laboratories for lease that meet our current or anticipated future needs. If we are unable to arrange for third-party laboratory for us to manufacture of our products in, or to find a lease on commercially reasonable terms, we may not be able to complete development of, market and sell our current or new products. Reliance on our use of leased laboratories entails risks to which we would not be subject to if we maintained our own laboratory, including reliance on a third-party landlord for regulatory compliance and maintenance of some of the commercial equipment and facilities used in our manufacturing process, and the possibility of early termination or non-renewal of the agreement by the landlord. As we continue to grow the size of our company, we may need to further invest in the expansion of our leased manufacturing facilities for the potential need to increase our manufacturing capability, product volume and the necessary personnel. However, in order to make that election, we will need to invest substantial additional funds and recruit qualified personnel in order to operate any new or expanded manufacturing laboratory and there can be no assurance that we will successfully recruit enough qualified personnel to staff and manufacture our products. In order to expand we will also rely on an increase in our need for additional raw materials and other laboratory supplies and there can be no assurance that we will be able to make or obtain adequate supplies of our products. If we are not able to recruit or staff sufficient numbers of qualified personnel or acquire enough supplies necessary for our manufacturing process it will be more difficult for us to launch new products and compete effectively. Dependence upon third parties to lease the facilities to manufacture of our products may reduce our profit margins, or the sale of our products and may limit our ability to develop and deliver products on a timely and competitive basis. We cannot assure you that we will be able to continue to lease our manufacturing facilities in order to bring commercial quantities of our products to market at acceptable costs. Our inability to do so would adversely affect our operating results and cause our business to suffer. We or our third-party vendors may experience in the future network or system failures, or service interruptions, including cybersecurity attacks, or other technology risks. Our inability to protect our systems and data against such risks could harm our business and reputation. Our ability to operate uninterrupted and provide high levels of service depends upon the performance of our internal network, systems and related infrastructure, and those of our third-party vendors. Any significant interruptions in, or degradation of, the quality of the services, including infrastructure storage and support, that these third parties provide to us could severely harm our business and reputation and lead to the loss of customers and revenue. Our internal network, systems, and related infrastructure, in addition to the networks, systems, and related infrastructure of our third-party vendors, may be vulnerable to computer viruses and other malware that infiltrate such systems and networks, as well as physical or electronic security breaches, natural disasters, and similar disruptions. They have been and may continue to be the target of attempts to identify and exploit network and system vulnerabilities, penetrate or bypass security measures in order to interrupt or degrade the quality of the services we receive or provide, or otherwise gain unauthorized access to our networks and systems or those of our third-party vendors. These vulnerabilities or other attempts at access may result from, or be caused by, human error or technology failures, however, they may also be the product of malicious actions by third parties intending to harm our business. The methods that may be used by these third parties to cause interruptions or failures or to obtain unauthorized access to information change frequently, are difficult to detect, evolve rapidly, and are increasingly sophisticated and hard to defend against. Although we have not experienced any security breaches or attempted security breaches and continue to invest in security measures, we cannot be certain that our defensive measures, and those employed by our third-party vendors, will be sufficient to defend against all such current and future methods. Any actual or perceived security breach, whether experienced by us or a third-party vendor; the reporting or announcement of such an event, or reports of perceived security vulnerabilities of our systems or the systems of our third-party service providers whether accurate or not; or our failure or perceived failure to respond or remediate an event or make adequate or timely disclosures to the public, regulatory or law enforcement agencies following any such event may be material and lead to harm to our financial condition, business reputation, and prospects of future business due to, among other factors: loss of customer confidence arising from interruptions or outages, delays, failure to meet contractual obligations, and loss of data or public release of confidential data; increase regulatory scrutiny on us; compromise our trade secret and intellectual property; expose us to costly uninsured liabilities such as material fines, penalties, liquidated damages, and overall margin compression due to renegotiation of contracts on less favorable terms or loss of business; liability for claims relating to misuse of personal information in violation of contractual obligations or data privacy laws; and potential theft of our intellectual property. 43 A security breach could occur and persist for an extended period of time without detection. We expect that any investigation of a security breach could take a substantial amount of time, and during such time we may not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all of which could further increase the costs and consequences of such a breach. Further, detecting and remediating such incidents may require specialized expertise and there can be no assurance that we will be able to retain or hire individuals who possess, or otherwise internally develop, such expertise. Our remediation efforts therefore may not be successful. The inability to implement, maintain, and upgrade adequate safeguards could have a material and adverse impact on our business, financial condition and results of operations. Moreover, there could be public announcements regarding any data security-related incidents and any steps we take to respond to or remediate such incidents. The occurrence of any such failure may also subject us to costly lawsuits, claims for contractual indemnities, as well as divert valuable management, research and development, information technology, and marketing resources toward addressing these issues and delay our ability to achieve our strategic initiatives. In addition, we gather, as permitted by law, non-public, personally-identifiable financial information from customers, such as names, addresses, telephone numbers, bank and credit card account numbers and financial transaction information, and the compromise of such data, which may subject us to fines and other related costs of remediation. If our third-party suppliers, logistics, and manufacturers do not comply with ethical business practices or with applicable laws and regulations, our reputation, business, financial condition, results of operations and prospects could be harmed. Our reputation and our clients’ willingness to purchase our products depend in part on our suppliers’, packagers’, manufacturers’, and formulators’ compliance with ethical employment practices, such as with respect to child labor, wages and benefits, forced labor, discrimination, safe and healthy working conditions, and with all legal and regulatory requirements relating to the conduct of their businesses. We do not exercise control over our suppliers, packagers, shippers, manufacturers, and formulators and cannot guarantee their compliance with ethical and lawful business practices. If our suppliers, packagers, shippers, manufacturers, or formulators fail to comply with applicable laws, regulations, safety codes, employment practices, human rights standards, quality standards, environmental standards, production practices, or other obligations, norms, or ethical standards, our reputation and brand image could be harmed, and we could be exposed to litigation, investigations, enforcement actions, monetary liability, and additional costs that would harm our reputation, business, financial condition, results of operations and prospects. If we, or our third-party manufacturers or formulators fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of its business. Our research and development activities and our third-party manufacturers’, formulators’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials and other hazardous compounds. We and our manufacturers, formulators and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts, business operations and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. 44 Risks Related to Our Products Legal and Regulatory Risks A recall or suspension of sale of our products, or the discovery of serious safety issues with our products or the incorrect application of such products by medical professionals to which we sell such products, could have a significant negative impact on us. The FDA and comparable agencies of other countries regulate our cosmetic products. In the United States, FDA regulations govern, among other things, the activities that we perform, including product development, product testing, product labeling, product storage, manufacturing, advertising, promotion, product sales, reporting of certain product adverse events and failures, and distribution. The FDA and equivalent foreign regulatory authorities have the authority to require the recall or suspension, either temporarily or permanently, of commercialized products in the event that a product has a reasonable probability of causing a serious adverse health risk due to adulteration or misbranding. Regulatory authorities have broad discretion to require the recall or suspension of a product or to require that manufacturers alert customers of safety risks. Recalls, suspensions or other notices relating to any products that we distribute would divert managerial and financial resources, and have an adverse effect on our reputation, financial condition and operating results. In addition, regulatory authorities may require us to, or we may voluntarily, suspend sales of a product if we become aware that the medical professionals to which we sell our products have not followed our instructions for application. For example, when our product is marketed and sold by us to medical professionals throughout the United States and internationally, we include instructions specifying that such product must be applied topically by these medical professionals. Administration outside of those specific directions could result in us running afoul of government rules and regulations. FDA and FTC may enforce against our cosmetic products if they do not accept our advertising and marketing or if those products are used beyond the intended uses that we authorize. If our products are marketed outside of their intended use, for example if they are advertised for the treatment, diagnosis, cure, prevention, or mitigation of a disease, then regulatory agencies may issue a warning letter or further investigate our marketing practices to ensure we are complying with advertising and promotional rules that apply to the product category. Domestic and foreign government regulations and private party actions relating to the marketing and advertising of our cosmetics products have and may continue to restrict, inhibit or delay our ability to sell our cosmetics products as regulatory agencies consider the use of hUMSCs in cosmetics. Such regulations governing our products, including the formulation, registration, marketing and sale of our products, could harm our business. Our products are subject to extensive government regulation by numerous federal, state and local government agencies and authorities. Many of these laws and regulations involve a high level of subjectivity, are subject to interpretation, and vary significantly from market to market. These laws and regulations can, and have already had impacts on our business, including but not limited to: ● delays, or altogether prohibitions, in introducing or selling a product or ingredient in one or more markets; ● limitations on our ability to import products into a market; ● limitations on the claims we can make regarding our products; and ● delays and expenses associated with compliance, such as record keeping, documentation of the properties of certain products, labeling, and scientific substantiation; and ● product reformulations, or the recall or discontinuation of certain products that cannot be reformulated to comply with new regulations. We have observed a general increase in regulatory activity and activism in the United States and across many markets globally where we operate, and the regulatory landscape is becoming more complex with increasingly strict requirements. In particular, the requirements are impacting the ingredients we can include in our products, the accepted quantities of those ingredients and the quality and characterization of the ingredients. Global regulators have in recent years become overall more restrictive on the accepted levels of certain ingredients or sources that we can use in our product, in some cases banning them outright. Further, many of the restrictions regarding ingredient quality are not directly applicable to our products, leaving the possibility that our interpretation of compliance may not match that of the enforcing authorities. Often there is a lack of an equivalent ingredients or source present in the marketplace. In other cases, the removal or reduction of a technical ingredient to stabilize our products, leads to a significant change to the character of the product that may make it no longer desirable or safe to the consumer. If this trend in new regulations continues, we may find it necessary to alter some of the ways we have traditionally marketed our products in order to stay in compliance with a changing regulatory landscape and this could add to the costs of our operations and/or have an adverse impact on our business. 45 For example, Health Canada is primarily responsible for administering the Food and Drugs Act (Canada) and the Canadian Regulations. Upon our initial registration of cosmetic products with Health Canada in 2022, the Canadian health ministry confirmed that the ingredients contained in the cosmetic products were permitted for use in cosmetics in Canada, and our cosmetic products as sold were compliant with any applicable requirements of the Food and Drugs Act (Canada) and Cosmetic Regulations pursuant to the Food and Drugs Act (Canada) with respect to all ingredients and composition, including that none of the ingredients contained therein were named on the Cosmetic Ingredient Hotlist (as published by Health Canada). Health Canada is responsible for regulation of the sale of cosmetics under the Food and Drugs Act and Cosmetic Regulations, including the interpretation of what may be represented on labels and in promotional materials regarding the claimed properties of cosmetic products. Elevai markets its products in Canada as cosmetics under the Food and Drugs Act, having submitted cosmetic notifications to Health Canada for both products as required by the Cosmetic Regulations. There is no pre-market approval required from Health Canada to market a cosmetic in Canada. In March 2024, Elevai received correspondence from Health Canada, advising that Health Canada had reviewed certain undisclosed information about Elevai’s products. Health Canada advised Elevai that based on this review, the products did not meet Health Canada’s interpretation of the conditions required to market a cosmetic in Canada. In response to Health Canada’s communication, Elevai voluntarily stopped sale of the products in Canada. Elevai has engaged Health Canada to obtain clarity about the review and how the products can be marked in Canada. Depending on the outcome of the Elevai’s engagement with Health Canada, Elevai products could be subject to additional regulatory requirements in order to be advertised or sold in Canada. Prior to receiving the March 2024 notice, our distribution agreement partner’s sales in Canada contributed approximately $158,603 to our total revenue of approximately $1.7M in 2023, representing about 9.26% of that figure. Many laws and regulations govern aspects of regulatory oversight of our products although the FDA currently does not have a pre-market approval system for cosmetics. However, cosmetic products may become subject to more extensive regulation in the future and have recently. These events could interrupt the marketing and sale of our products, severely damage our brand reputation and image in the marketplace, increase the cost of our products, cause us to fail to meet customer expectations or cause us to be unable to deliver merchandise in sufficient quantities or of sufficient quality to our stores, any of which could result in lost sales. Our operations could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute our products or impose additional burdens or requirements on us in order to continue selling our cosmetics products. In addition, the adoption of new regulations or changes in the interpretations and enforcement of existing regulations may result in significant compliance costs or discontinuation of cosmetics products sales and may impair the marketability of our cosmetics products, resulting in significant loss of net sales. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business. If new or existing laws and regulations restrict, inhibit or delay our ability to introduce or market our products or limit the claims we are able to make regarding our cosmetics products, this could have a material adverse effect on our business, financial condition, and operating results. If we fail to comply with the laws and regulations governing our products, we could face enforcement action, and we could be fined or forced to alter or stop selling our cosmetics products. Government authorities regulate advertising and product claims regarding the benefits of our cosmetics products. These regulatory authorities may require us to provide an adequate and reasonable basis to substantiate and support any marketing or product benefits claims. What constitutes such reasonable basis to substantiate such claims can vary widely from market to market and there is no assurance that the research and development efforts that we undertake to support our claims will be deemed adequate for any particular product or product marketing claim. If we are unable to show adequate and reliable substantiation for our product claims, or if our marketing materials or the marketing materials of our sales force make claims that exceed the scope of allowed claims for cosmetics that we offer, the United States Food and Drug Administration (the “FDA”), the Federal Trade Commission (the “FTC”) or other regulatory authorities could take enforcement action requiring us to revise our marketing materials, amend our claims or stop selling certain products, which could harm our business. 46 For example, in recent years, the FDA has issued warning letters to many cosmetic companies alleging improper structure/function claims regarding their cosmetic products, including, for example, product claims regarding gene activity, cellular rejuvenation, repair, anti-aging and rebuilding collagen. There is a degree of subjectivity in determining whether a claim is an improper structure/function claim. Given this subjectivity and our research and development focus on the appearance of skin and the influence of certain stem-cell derived ingredients on skin, there is a risk that we could receive a warning letter, be required to modify our product claims or take other actions to satisfy the FDA if the FDA determines any of our marketing materials include improper structure/function claims for our cosmetic products. In addition, lawyers have filed class action lawsuits against some cosmetics brands after those brands received these FDA warning letters. There can be no assurance that we will not be subject to government actions or class action lawsuits, which could harm our business. In the United States, the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”) require disclosure of material connections between an endorser and the company they are endorsing, and they generally do not allow marketing using atypical results. Our sales force has historically used testimonials and “before and after” photos to market and sell some of our popular products such as our E-Series™ serums. We intend to continue to use testimonials for our popular products. In highly regulated and scrutinized product categories, such as those that promote healthy hair growth cycles, if we or our sales force fails to comply with the Guides or makes improper product claims, the FTC could bring an enforcement action against us, and we could be fined and/or forced to alter our marketing materials. Our operations could be harmed if we fail to comply with Good Manufacturing Practices. Across our markets, there are regulations on a diverse range of Good Manufacturing Practices (“GCMPs”) that may eventually apply to us under the recently enacted Modernization of Cosmetic Regulation Act of 2022 (“MoCRA”) which requires the FDA to issue proposed rules relating to GCMPs for cosmetics manufacturers. If we are considered a cosmetic manufacture under MoCRA than we and our vendors may be subject to stringent safety requirements on a variety of topics, including vendor qualifications, ingredient identification, manufacturing controls and record keeping. Ingredient identification requirements, which would require us to confirm the levels, identity and potency of ingredients listed on our product labels within a narrow range, which may be particularly burdensome and difficult for us because our products contain many different ingredients. Additionally, under MoCRA we may be obligated to track and periodically report adverse events to government agencies. Compliance with these increasing regulations may further increase the cost of manufacturing certain of our products as we work with our vendors to assure they are qualified and in compliance. In addition, our operations could be harmed if regulatory authorities determine that we or our vendors are not in compliance with these regulations or if public reporting of adverse events harms our reputation for quality and safety. A finding of noncompliance may result in administrative warnings, penalties or actions impacting our ability to continue selling certain products, including public withdrawals, seizures and recalls. For example, in prior years, our competitors have had product recalls in the United States based on labeling issues. Problems associated with product recalls could be exacerbated due to the global nature of our business because a recall in one jurisdiction could lead to recalls in other jurisdictions. Restrictive and extensive government regulation could slow or hinder our production of cosmetics containing a stem-cell byproduct and we may be unsuccessful in our efforts to comply with applicable federal, state and international laws and regulations, which could result in government enforcement actions. Although we seek to conduct our business in compliance with applicable governmental laws and regulations, these laws and regulations are exceedingly complex and often subject to varying interpretations. The cosmetics and stem-cell industry are topics of significant government interest, and thus the laws and regulations applicable to our business are subject to frequent change and/or reinterpretation. As such, there can be no assurance that we will be able, or will have the resources, to maintain compliance with all such laws and regulations. Failure to comply with such laws and regulations, as well as the costs associated with such compliance or with enforcement of such healthcare laws and regulations, may have a material adverse effect on our operations or may require restructuring of our operations or impair our ability to operate profitably. The research and development of stem cell byproducts is subject to and restricted by extensive regulation by governmental authorities in the United States and other countries. If in the future we become subject to additional FDA and other necessary regulatory approvals, that process may be lengthy, expensive and uncertain which may have a material adverse effect on our operations or may require restructuring of our operations or impair our ability to operate profitably. New regulations could prohibit physicians from dispensing our cosmetics products directly. In our primary market, the United States, we market our cosmetics products and systems directly to our physician clients to dispense in their offices. Thereafter, our cosmetics products and systems we sell are dispensed by physicians directly to their medical aesthetics consumers in their offices. In the event state regulations change to limit or prohibit the ability of physicians to dispense our cosmetics products directly to medical aesthetics consumers in their offices, medical aesthetics consumers may be required to purchase our cosmetics products in retail settings or via e-commerce, as opposed to directly from their physicians. If medical aesthetics consumers are unable to purchase our cosmetics products directly from physicians, it could result in medical aesthetics consumers purchasing less of our product than they otherwise would or affect the perception of our cosmetics products are which would harm our business, our operations or impair our ability to operate profitably. 47 Failure to obtain regulatory approvals in foreign jurisdictions would prevent us from marketing our cosmetics products internationally. We market our cosmetics products outside of the United States. In order to market our cosmetics products in many non-U.S. jurisdictions we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. In others, we do not have to obtain prior regulatory approval but do have to comply with other regulatory restrictions on the manufacturing, marketing and sale of our cosmetics products. We may be unable to file for regulatory approvals and may not receive necessary approvals to commercialize our cosmetics products in any market. The approval procedure varies among countries and can involve additional testing and data review. We may not obtain foreign regulatory approvals on a timely basis, if at all. Moreover, approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. The failure to obtain these approvals could harm our business, our operations or impair our ability to operate profitably. Risks related to Our Intellectual Property If we fail to protect or enforce our intellectual property or confidential proprietary information relating to our current and any future cosmetics products or cosmetics pipeline product, others could compete against us more directly and we may not be able to compete effectively in our market. Our success depends in part on our ability to protect our intellectual property rights. We rely on a combination of trademarks, trade secrets, confidential proprietary information, domains, patent rights and other intellectual property rights to protect our intellectual property. In addition, to protect our trade secrets, confidential information and other intellectual property rights, we have entered into confidentiality agreements with third parties, and confidential information and invention assignment agreements with employees, consultants and advisors. There can be no assurances that we will be able to enforce these agreements or alternatively, these agreements may be deemed to be unenforceable. If we cannot adequately protect or enforce our intellectual property rights, we may not be able to adequately compete, and our business and prospects could be adversely affected. Certain of our technology may not be subject to protection through patents, which leaves us vulnerable to theft of our technology. Certain parts of our know-how and technology are not patentable or are trade secrets. To protect our proprietary position in such know-how and technology, we have entered and intend to require all employees, consultants, advisors and collaborators to enter into confidentiality and invention ownership agreements with us. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further, in the absence of patent protection, competitors who independently develop substantially equivalent technology may harm our business. If we fail to generate sufficient cash flow from our operations, we will be unable to continue to develop and commercialize new cosmetics products. We expect capital outlays and operating expenditures to increase over the next several years as we expand our operations, and our commercialization, product validation studies, research and development and manufacturing activities. We believe that our net cash provided by operating activities and existing cash and cash equivalents will be sufficient to fund our operations for at least the next two years. However, our present and future funding requirements will depend on many factors, including, among other things: ● the level of research and development investment required to maintain and improve our competitive position; ● the success of our product sales and related collections; ● our need or decision to acquire or license complementary businesses, cosmetics products or technologies or acquire complementary businesses; ● costs relating to the expansion of the sales force, management and operational support; 48 ● competing technological and market developments; and ● costs relating to changes in regulatory policies or laws that affect our operations. As a result of these factors, we may need to raise additional funds, and we cannot be certain that such funds will be available to us on acceptable terms when needed, if at all. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our future cosmetics products or proprietary technologies, or grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to expand our operations, develop new cosmetics products, take advantage of future opportunities or respond to competitive pressures or unanticipated customer requirements. We may not be able to protect our proprietary technology, which could harm our ability to operate profitably. The molecular biology, stem cells, cosmetics, and bioprocessing industries place considerable importance on obtaining patent and trade secret protection for new technologies, cosmetics products and processes. Our success will depend, to a substantial degree, on our ability to obtain and enforce patent protection for our cosmetics products, preserve any trade secrets and operate without infringing the proprietary rights of others. We cannot assure you that: ● we will succeed in obtaining any patents, obtain them in a timely manner, or that the breadth or degree of protection that any such patents will protect our interests; ● the use of our technology will not infringe on the proprietary rights of others; ● patent applications relating to our potential cosmetics products or technologies will result in the issuance of any patents or that, if issued, such patents will afford adequate protection to us or will not be challenged, invalidated or infringed; or ● patents will not be issued to other parties, which may be infringed by our potential cosmetics products or technologies. We are aware of certain patents that have been granted to others and certain patent applications that have been filed by others with respect to other stem cell technologies and the use of exosomes for cosmetic aesthetics purposes. The fields in which we operate have been characterized by significant efforts by competitors to establish dominant or blocking patent rights to gain a competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy of competitors’ purported patent rights and the technologies they actually utilize in their businesses. Considerable research in the areas of stem cells, molecular biology, cosmetics, and bioprocessing is being performed in countries outside of the United States, and a number of our competitors are located in those countries. The laws protecting intellectual property in some of those countries may not provide adequate protection to prevent our competitors from misappropriating our intellectual property. Patents held by other persons may result in infringement claims against us that are costly to defend and which may limit our ability to use the disputed technologies and prevent us from pursuing research and development or commercialization of potential cosmetics products. A number of biotechnology and other companies, universities and research institutions have filed patent applications or have been issued patents relating to exosomes, stem cells, and other technologies potentially relevant to or required by our expected cosmetics products. We cannot predict which, if any, of such applications will issue as patents or the claims that might be allowed. We are aware that a number of companies have filed applications relating to stem cells. We are also aware of a number of patent applications and patents claiming use of exosomes and other modified cells to improve aesthetics. If third party patents or patent applications contain claims infringed by either our licensed technology or other technology required to make and use our potential cosmetics products and such claims are ultimately determined to be valid, we might not be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology. If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop some cosmetics products commercially. We may be required to defend ourselves in court against allegations of infringement of third-party patents. Patent litigation is very expensive and could consume substantial resources and create significant uncertainties. An adverse outcome in such a suit could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease using such technology. 49 If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our target markets and our business may be adversely affected. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with potential partners or customers in our target markets. If we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively, and our business may be adversely affected. If we infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed. Our research, development and commercialization activities may infringe or otherwise violate or be alleged to infringe or otherwise violate patents owned or controlled by other parties. Competitors in the field of aesthetics and cosmetics have developed large portfolios of patents and patent applications in fields relating to our business. Additionally, there may also be patent applications that have been filed but not published that, when issued as patents, could be asserted against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages and/or we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. Further, if a patent infringement suit were brought against us, during the pendency of the litigation, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors. We may employ individuals who were previously employed at universities or pharmaceutical or cosmetics companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, and we are not currently subject to any claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties, we may in the future be subject to such claims. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms. A third party may hold intellectual property, including patent rights that are important or necessary to the development of our future cosmetics product. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our prospective cosmetic products, in which case we would be required to obtain a license from these third parties. There can be no assurance that such third parties will grant us the necessary licenses on commercially reasonable terms or at all. Failure to obtain such licenses on commercially reasonable terms could limit or eliminate our ability to develop or commercialize our future product candidates, which would have a negative impact on our business and results of operations. Risks Related to Customer Privacy, Cybersecurity and Data Changes in laws or regulations relating to privacy, data protection or the protection or transfer of personal data, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations relating to privacy, data protection or the protection or transfer of personal data, could adversely affect our business. We receive, transmit and stores personally identifiable information and other data relating to the employees, product order processing, and sales transactions. Numerous local, municipal, state, federal and international laws and regulations address privacy, data protection and the collection, storing, sharing, use, disclosure, and protection of certain types of data. These laws, rules and regulations evolve frequently, and their scope may continually change, through new legislation, amendments to existing legislation and changes in enforcement, and may be inconsistent from one jurisdiction to another. Changes in laws or regulations relating to privacy, data protection and information security, particularly any new or modified laws or regulations that require enhanced protection of certain types of data or new obligations with regard to data retention, transfer or disclosure, could greatly increase the cost of providing our offerings, require significant changes to our operations or even prevent us from providing certain offerings in jurisdictions in which we currently operate and in which we may operate in the future. 50 Further, as we continue to expand our geographic reach, our product offerings and user base, we may become subject to additional privacy-related laws and regulations. Additionally, we have incurred, and may continue to incur, significant expenses in an effort to comply with privacy, data protection and information security standards and protocols imposed by law, regulation, industry standards or contractual obligations. In particular, with laws and regulations imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in addressing their requirements and making necessary changes to our policies and practices and may incur significant costs and expenses in an effort to do so. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, product sales platform could be inconsistent with, or fail or be alleged to fail to meet all requirements of, such laws, regulations or obligations. The failure, or the failure by third-party providers or partners, to comply with applicable laws or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access to, or use or release of personally identifiable information or other rider data, or the perception that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing riders from using our product sales platform or result in fines or proceedings by governmental agencies and private claims and litigation, any of which could adversely affect our business, financial condition and results of operations. Even if not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition and results of operations. We may be subject to theft, loss, or misuse of personal data about our employees, customers, or other third parties, which could increase our expenses, damage our reputation, or result in legal or regulatory proceedings. Our business relies on the use of customer accounts linked to bank accounts or credit cards as well as tracking certain movements of our customers. The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business could result in significantly increased business and security costs or costs related to defending legal claims. Global privacy legislation, enforcement, and policy activity in this area are rapidly evolving and expanding, creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. In addition, even our inadvertent failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others. If our information technology systems or sensitive information, or those of our collaborators or other contractors or consultants, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to, a significant disruption of our product development programs and our ability to operate our business effectively, regulatory investigations or actions, litigation, fines and penalties, reputational harm, loss of revenue or profits, and other adverse consequences. We are increasingly dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course of business, we and the third parties upon which we rely process sensitive information, and, as a result, we and the third parties upon which we rely face a variety of evolving threats that could cause security incidents. We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors and other contractors and consultants who have access to our sensitive information. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place. If our third-party service providers experience a security incident or other interruption, we could experience adverse consequences. While we may be entitled to damages if our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award. 51 Our internal computer systems, cloud-based computing services and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage or interruption from a variety of sources, including cyberattacks, malicious internet-based activity, and online and offline fraud. These threats include, but are not limited to, social-engineering attacks (including through deep fakes, which may be increasingly more difficult to identify as fake, and phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), data corruption, intentional or accidental actions or inactions by our employees or others with access to our network, supply chain attacks, ransomware attacks, denial-of-service attacks (such as credential stuffing), credential harvesting, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, attacks enhanced or facilitated by AI, natural disasters, terrorism, war and telecommunication and electrical failures, and other similar threats that affect service reliability and threaten the confidentiality, integrity, and availability of information. Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise, including traditional computer “hackers,” threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services. Ransomware attacks, including by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems or the third-party information technology systems that support us. We may also face increased cybersecurity risks due to the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities and data, as more of our employees utilize network connections, computers, and devices outside our premises or network, including working at home, while in transit and in public locations. Future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program. Because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security incidents that may remain undetected for an extended period. If any of the previously identified or similar threats were to occur and cause interruptions in our operations, it could result in a disruption of our development programs and our business operations, whether due to a loss of our sensitive information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Furthermore, our software systems include cloud-based applications that are hosted by third-party service providers with security and information technology systems subject to similar risks. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed. Security incidents could lead to adverse consequences, including but not limited to: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; diversion of management attention; interruptions in our operations (including availability of data); financial loss; and other similar harms. Additionally, applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. We may expend significant resources or modify our business activities (including our research and development activities) to try to protect against security incidents. Certain data privacy and security obligations may require us to implement and maintain specific security measures, industry-standard or reasonable security measures to protect our information technology systems and sensitive information. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We may be unable in the future to detect vulnerabilities in our information technology systems because such threats and techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred. Despite our efforts to identify and address vulnerabilities, if any, in our information technology systems, our efforts may not be successful. Further, we may experience delays in deploying remedial measures designed to address any such identified vulnerabilities. 52 Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims. Additionally, sensitive information of the Company could be leaked, disclosed, or revealed as a result of or in connection with our employees’, personnel’s, or vendors’ use of generative AI technologies. Risks Related to Our Common Stock Our Common Stock price may be volatile, and the value of our Common Stock may decline. The market price of our Common Stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including: ● our future financial performance, including expectations regarding our revenue, expenses and other operating results; ● changes in customer acceptance rates or the pricing of our products; ● delays in the production of our pipeline products; ● our ability to establish new partnerships and successfully retain existing partnerships; ● our ability to anticipate market needs and develop and introduce new and enhanced products to adapt to changes in our industry; ● the success of our competitors; ● our operating results failing to meet the expectations of securities analysts or investors in a particular period; ● changes in financial estimates and recommendations by securities analysts concerning us or the industry in which we operate in general; ● the stock price performance of other companies that investors deem comparable to us; ● announcements by us or our competitors of significant business developments, acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments; ● future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements; ● disputes or other developments related to our intellectual property or other proprietary rights, including litigation; ● changes in our capital structure, including future issuances of securities or the incurrence of debt; ● changes in senior management or key personnel; ● changes in laws and regulations affecting our business; ● commencement of, or involvement in, investigations, inquiries or litigation; ● the inherent risks related to the electric commercial vehicle industry; ● the trading volume of our Common Stock; and ● general economic and market conditions. 53 Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, may also negatively impact the market price of our Common Stock. In addition, stocks of early stage companies have historically experienced high levels of volatility. In 2023, the closing price of our Common Stock on the Nasdaq Capital Market fluctuated between a high of $4.04 to a low of $1.58.In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention. We have received letters from Nasdaq stating that we are not in compliance with their continued listing requirements, and we might not be able to regain compliance. If as a result of the non-compliance Nasdaq delists our Common Stock, the liquidity and market price of our Common Stock could decline or cease to exist. Our Common Stock is currently listed on the Nasdaq Capital Market. In order to maintain that listing, we must satisfy certain continued listing requirements. If we are deficient in maintaining the necessary listing requirements, our common stock may be delisted. On March 6, 2024, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating we were not in compliance with its minimum bid price requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5450(a)(1) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive trading days. This letter had no immediate effect on the listing of our Common Stock on Nasdaq. However, if Nasdaq after the applicable compliance periods proceeds to delisting and we are not able to remedy the non-compliance, Nasdaq could delist our common stock from trading on its exchange. If we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on the OTCQB or the “pink sheets.” If this occurs, we could face material adverse consequences, including: ● a limited availability of market quotations for our securities; ● reduced liquidity for our securities; ● a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; ● a limited amount of news and analyst coverage; and ● a decreased ability to issue additional securities or obtain additional financing in the future. We have broad discretion in the use of our existing cash, cash equivalents and may not use them effectively. Our management will have broad discretion in the application of our existing cash, cash equivalents. Because of the number and variability of factors that will determine our use of our existing cash, cash equivalents and the net proceeds, their ultimate use may vary substantially from their currently intended use. Our management might not apply our cash resources in ways that ultimately increase the value of your investment. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest our cash resources in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. We have never paid dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We have never declared or paid cash dividends on our Common Stock. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of Common Stock will be our stockholders’ sole source of gain for the foreseeable future. Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to decline. Sales of a substantial number of shares of our Common Stock in the public market or the perception that these sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our Common Stock. 54 Our largest stockholder’s interests may differ from those of our public stockholders. Approximately 20.56% of the voting power of our Common Stock is controlled, directly or indirectly, by one of our founders, Braeden Lichti. To our knowledge, no other stockholder owns more than 20% of our voting power. Mr. Lichti could exert significant influence over corporate management and affairs, as well as matters requiring stockholder approval, and he is able to, subject to applicable law, participate in the election of the members of the and actions to be taken by us, including amendments to the Amended and Restated Certificate of Incorporation and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. It is possible that the interests of this stockholder may in some circumstances conflict with the Company’s interests and the interests of our other stockholders. This could influence his decisions, including with regard to whether and when to dispose of assets and whether and when to incur new or refinance existing indebtedness. In addition, the determination of future tax reporting positions, the structuring of future transactions and the handling of any future challenges by any taxing authorities to the Company’s tax reporting positions may take into consideration this stockholder’s tax or other considerations, which may differ from the Company’s considerations or those of our other stockholders. Concentration of ownership among our executive officers, directors and their affiliates, as well as the Relationship Agreement entered into in connection with the Combination, may prevent new investors from influencing significant corporate decisions. As of March 15, 2024, our executive officers, directors and their affiliates beneficially own, in the aggregate, approximately 50.04% of our outstanding Common Stock. In particular, as of March 15, 2023, Dr. Jordan R. Plews, our Chief Executive Officer, beneficially owned approximately 16.45% of our outstanding Common Stock. Dr. Plews is able to exercise a significant level of influence over all matters requiring shareholder approval, including the election of directors, amendments of our Constitution and approval of significant corporate transactions. This influence could have the effect of delaying or preventing a change of control of our company or changes in management and may make the approval of certain transactions difficult awithout the support of Mr. Plews. We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or Section 404 and disclosure obligations regarding executive compensation. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our Common Stock less attractive to investors. In addition, if we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with new or revised accounting standards. We will remain an emerging growth company until the earliest of: (1) the last day of the fiscal year following the fifth anniversary of November 21, 2028, which was the date of the first sale of our Common Stock pursuant to an effective registration statement; (2) the last day of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the last day of the fiscal year in which the market value of our Common Stock held by non-affiliates exceeded $700 million as of June 30 of such fiscal year. We cannot predict if investors will find our Common Stock less attractive if we choose to rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future results of operations may not be as comparable to the results of operations of certain other companies in our industry that adopted such standards. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock, and our share price may be more volatile. 55