PMGC Holdings Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (the Company’s principal executive officer and interim principal accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process used to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our Board and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. 68 Any system of internal control, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the inherent limitations in all internal control systems, no system of internal control over financial reporting can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on this evaluation, management concluded that Elevai has limited accounting personnel and other resources with which to address its internal control over financial reporting in accordance with requirements applicable to public companies. Historically, Elevai had not retained a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters under U.S. GAAP. Material Weakness Our management’s conclusion that our disclosure controls and procedures were ineffective was due to the identification of a material weakness in our internal control over financial reporting in connection with the preparation of our year-end Financial Statements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected on a timely basis. Our management identified the following material weakness in our internal control over financial reporting: ● We have insufficiently designed and operating controls surrounding the accounting policies and controls, including standardized reconciliation schedules to ensure the company’s books and records are maintained in accordance with GAAP. Notwithstanding the identified material weakness, management believes that the consolidated financial statements included in this Form 10-K present fairly, in all material respects, our consolidated financial position, consolidated results of operations, and consolidated cash flows as of and for the periods presented in accordance with U.S. GAAP. Changes in Internal Controls over financial reporting No change in our internal control over financial reporting occurred during the fiscal year ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. During the year ended December 31, 2023, no director or officer adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. The Company has adopted an insider trading policy governing the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees, or the registrant itself, that have been designed to promote compliance with insider trading laws, rules and regulations, and Nasdaq’s listing standards. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 69 PART III Item 10. Directors, Executive Officers and Corporate Governance. The following table sets forth certain information with respect to our directors, executive officers and significant employees: Name Age Position Executive Officers: Jordan R. Plews, PhD 41 Chief Executive Officer, President and Director Graydon Bensler 32 Chief Financial Officer and Director Hatem Abou-Sayed, MD 53 Chief Medical Officer and Director Brenda Buechler 54 Chief Marketing Officer Christoph Kraneiss 52 Chief Commercial Officer Non-Executive Directors: Jeffrey Parry (1)(2)(3) 64 Independent Director and Chair of Nominating Committee George Kovalyov (1)(2)(3) 39 Independent Director and Chair of Compensation Committee Juliana Daley (1)(2)(3) 36 Independent Director and Chair of the Audit Committee (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Nominating Committee No director is currently named as Chair. Each of our directors serves for a term of one year ending on the date of the subsequent annual meeting of stockholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his or her successor is elected and qualified or until his death, resignation or removal. Our Board appoints our officers, and each officer is to serve until his or her successor is appointed and qualified or until his or her death, resignation or removal. Jordan R. Plews PhD , Chief Executive Officer Dr. Plews is one of our co-founders and has served as our Chief Executive Officer since our inception. Dr. Plews is also serves as President and Director of the Board of the Company. Dr. Plews led the acquisition of Reactive Medical Labs Inc and the development and design of Elevai Exosomes TM . After completing his undergraduate in biochemical engineering at University College London in the UK, Dr. Plews worked as part of Pfizer’s bioprocess development group before returning to academia for his doctorate in Stem Cell Research and Molecular Biology. He was recruited by Stanford’s School of Medicine and worked under Dr. Joseph Wu, now head of the American Heart Association, and Joe Gold, who was previously Senior Director at Geron Corporation. After completing a certification from Stanford’s Graduate School of Business, Dr. Plews worked as a product and project manager in the biotech field, developing and launching projects to help researchers and clinicians, before eventually transitioning into entrepreneurship and the founding of Elevai. 70 Prior to cofounding Elevai, Dr. Plews was a senior leader in product management for the oncology division of Natera Inc from 2019-2021, where he led the launch and expansion of Natera Inc.’s first oncology product, Signatera. Signatera is a personalized cancer diagnostic based on next generation sequencing cellular data. Before Natera Inc., from 2015-2019, Dr. Plews served as Chief Scientific Officer of Xytogen Biotech Inc., which produced FACTORFIVE Skincare and a number of white label cosmetic and/or aesthetic products for the physician-dispensed market. Prior to Xytogen Biotech Inc., From 2014-2016 Dr. Plews served as a Global Product Marketing Manager for Becton, Dickinson and Company, focusing on development of products for scientific and regenerative medicine researchers, as well as participating in business development and merger and acquisition activities. Dr. Plews holds a Bachelor of Engineering and Engineering Doctorate from University College London and completed his post-doctoral research at Stanford University in Stem Cells and Regenerative Medicine. Graydon Bensler, CFA , Chief Financial Officer Mr. Bensler has served as our Chief Financial Officer since our inception. Mr. Bensler is a financial professional and analyst with over seven years of experience in financial consulting and management for both private businesses and US/Canadian publicly traded companies and is a Chartered Financial Analyst (CFA). In 2017, Mr. Bensler Co-founded an Ed Tech curriculum management and scheduling company that was implanted in academic schools in Canada and the United States. From 2017 to 2019, Mr. Bensler was an account manager at a leading Canadian investor relations firm where he represented publicly traded companies across a wide range of sectors where he worked directly with investment banks, investment brokers and company executives and directors. During his tenure, Mr. Bensler created and conveyed messaging about his clients’ strategic position in the market and successfully guided several companies through multiple financings. From 2019 to 2021, Mr. Bensler was a Senior Associate at Evans & Evans, a Canadian boutique investment banking firm where he led valuations and going public transactions for Canadian and United States companies. In this capacity, Mr. Bensler gained strong knowledge of the capital markets, public company compliance requirements, and regularly interfaced with regulators, auditors, board and executive management. Mr. Bensler has also been a director of publicly traded Health Logic Interactive Inc. (TSXv:CHIP) since 2020. We believe that Mr. Bensler’s past experience as our Chief Financial Officer, his familiarity with both the banking and the financial consulting sectors and his having served as an account manager for similarly situated companies makes him a qualified director for our Company. Mr. Bensler received his Bachelor of Management and Organizational Studies degree from the University of Western Ontario, with specialization in Finance, and is a CFA Charter holder. Hatem Abou-Sayed , MD, MBA, FACS, Chief Medical Officer Dr. Hatem Abou-Sayed (“Dr. Tim Sayed”) is one of our co-founders and has served as our Chief Medical Officer since our inception. Dr. Sayed is a double-board-certified plastic surgeon with two decades of experience and oversees our product development and marketing, and brings academic knowledge and clinical experience in aesthetics, anti-aging, skincare, and health technology. Since 2017, Dr. Sayed has owned and operated his plastic surgery offices in Southern California where he draws patients from around the world and throughout the United States. From 2012-2015, Dr. Sayed served as a medical director and investor at the electronic health records and practice management company: Modernizing Medicine. From 2015-2017, he served as Vice President at Interpreta, Inc., which provides precision medicine clinical interpretation solutions (acquired by Centene Corporation). Since 2017, Dr. Sayed has served as ZamZam Skin, LLC’s (ZamZam) managing member, a Halal skincare product line that is currently in development. Dr. Sayed oversees ZamZam’s marketing strategy and assists the company with administering the financial aspects of ZamZam’s ongoing research and development. Since 2020, Dr. Sayed has served on the advisory board of ‘Yes Doctor’, a patient financing-driven acquisition platform for plastic surgeons. Dr. Sayed’s educational and professional experience in the medical field, his background and connections in the surgical discipline, his having co-founded our business and provided strategic advice makes him a qualified director for our Company. Dr. Sayed completed medical training at UCSF and surgical residency at Massachusetts General Hospital/Harvard Medical School. Dr. Sayed holds a B.S. in electrical engineering and computer sciences from University of California, Berkeley, an M.D. from the School of Medicine at University of California, San Francisco, and an M.B.A. from the Kellogg School of Management at Northwestern University. 71 Jeffrey Parry , Independent Director, Chair of the Nominating Committee and member of the of Audit Committee and Compensation Committee Mr. Parry was appointed as an independent director in June 2023 and is the president of Mystic Marine Advisors LLC, a Connecticut based advisory firm he founded in 1998 focused on emerging and turnaround situations for strategic and financial stakeholders. Jeffrey served as Executive Chairman of TBS Shipping Limited from 2012 to 2018 where he led a successful restructuring and co-founded Valhalla Shipping, Inc with an $167 million equity investment by institutional investors. From July 2008 to October 2009, Mr. Parry was the Chief Executive Officer of Nasdaq-listed Aries Maritime Transport Limited and led a successful turn-around and sale to strategic investors. Mr. Parry was a Managing Director of Poten & Partners, an international energy advisor, from 2001 to 2007 where in 2006 he co-founded Poten Capital Services LLC, a New York based broker-dealer. Earlier in his career, Mr. Parry founded Cool FM and 7X Television in Athens, Greece and served as President of One Fifth Avenue Apartment Corporation. Since 2010, Jeffrey has served as an independent director of Nasdaq listed Globus Maritime Ltd. where he sits on the audit committee. Since 2022, Jeffrey has also become an independent director of Digitrax Entertainment Inc., a Tennessee based music technology start-up. Mr. Parry’s educational and professional experience in business, his background and familiarity in investment banking, his having served as a director of a company listed on Nasdaq makes him a qualified director candidate for our Company. Jeff holds an MBA in Finance and Accounting from Columbia University and a B.A. in Literature from Brown University. George Kovalyov, Independent Director, Chair of the Compensation Committee and member of the of Audit Committee and Nominating Committee Mr. Kovalyov has acted as Chief Financial Officer and Treasurer of Marizyme, Inc.) since December 2021. Since November 2022, Mr. Kovalyov has also been a director of DGTL Holdings Inc. Previously he served as the chief operating officer and director of Health Logic Interactive Inc. (“HLII”) from September 2020 to November 2021, and as HLII’s chief financial officer from December 2021 to September 2022. In addition, Mr. Kovalyov served as a director and audit committee member of Margaret Lake Diamonds Inc. from January 2021 to August 2022. From September 2018 to September 2020, Mr. Kovalyov was VP of Finance and director of Phivida Holdings Inc., a brand of cannabidiol-infused foods, beverages and clinical products. From October 2016 to September 2020, Mr. Kovalyov was the principal owner of Schindler and Company, an accounting consulting firm. Mr. Kovalyov is a chartered accountant and is a member of Chartered Professional Accountants of Canada. Mr. Kovalyov graduated from Kwantlen University College with a Bachelor of Business Administration (BBA), Accounting. Juliana Daley , CPA Independent Director, Chair of the Audit Committee and member of the of Compensation Committee and Nominating Committee Ms. Daley was appointed as an independent director in June 2023 and holds over eleven years of accounting, controller, and financial reporting experience in the public sector. Ms. Daley has worked a variety of industries in both the United States and Canada. Since July 2021, Ms. Daley has served as Manager of Accounting at Anavex Life Sciences Corp. (NASDAQ: AVXL), a clinical-stage biopharmaceutical company based in New York, NY that is focused on developing treatments for debilitating neurodegenerative and neurodevelopmental diseases. In addition, from August 2021 to July 2022, she served as an independent director and audit committee chair to Vegano Foods (CSE: VAGN) during Vegano Food’s initial public offering in February 2022. From October 2015 to July 2021, Ms. Daley was a Manager of Financial Reporting and Advisory Services to various public companies in the United States and Canada, through her position with the accounting firm, Treewalk (previously ACM Management, Inc.). At Treewalk Ms. Daley assisted clients in meeting their quarterly and annual reporting requirements including the preparation of complete financial reporting packages and managing assurance engagements from start to finish. At Treewalk, she also served as chief financial officer to Makena Resources Inc. (CSE: MKNA) (April 2018 - April 2019) and Naked Brand Group Inc. (NASDAQ: NAKD) (March 2018 - June 2018) until the completion of their prospective mergers in April 2019 and June 2018, respectively. From September 2011 to April 2015, Ms. Daley was employed with Naked Brand Group Inc., where she worked in the accounting department, serving as controller from August 2013 until her departure in April 2015, and where she was also responsible for assisting in various operational functions including EDI implementation, ERP implementation, inventory management, information technology and office administration. From July 2021 to present, Ms. Daley has acted as manager of accounting at Anavex Life Sciences where she assists to in the finalization of all internal reporting, budgeting, and operational matters such as annual SOX audits, quarterly reviews, IT audits, and annual audits. Ms. Daley’s expertise in financial accounting for public companies and her having served as a chief financial officer and controller on companies listed on United States public exchanges makes her a qualified director candidate for our company. In September 2015, Ms. Daley wrote her Common Final Examination (CFE) through the CPA Western School of Business and became designated in May 2016. She also holds a BBA in Accounting and Economics from the University of the Fraser Valley in Abbotsford, British Columbia. 72 Brenda Buechler , Chief Marketing Officer Ms. Buechler is the Chief Marketing Officer for Elevai Labs. In this role, she leads the portfolio and brand marketing strategies to help Elevai achieve its commercial targets and support the global vision. Ms. Buechler has a strong track record in leadership in the pharmaceutical and medical aesthetics industries holding sales, marketing, and business development roles over the course of her 24-year career. Prior to her role with Elevai, Ms. Buechler led the Consumer and HCP marketing efforts for Evofem Biosciences from 2019 to 2022 and was responsible for the launch of a first-in-class technology in the women’s health space. Ms. Buechler spent 6 years in marketing and public relations roles with aesthetic industry leaders Alastin Skincare, from 2016 to 2019, and SkinMedica, from 2008 to 2010, where she helped to bring over 15 new, award-winning physician-dispensed skincare products to the market. From 2011 to 2016 Ms. Buechler held various Business Development and Client Services roles within the medical aesthetic and pharmaceutical industries touching over 50 brands throughout her career. Before her tenure in marketing and advertising, Ms. Buechler spent 10 years in pharmaceutical sales from 1997 to 2007 with Merck and Pfizer working across over a dozen disease states and therapeutic categories. Ms. Buechler is currently an active member of Cosmetic Executive Women (CEW) and the Healthcare Businesswomen’s Association (HBA) where she is currently serving as a group mentor. Ms. Buechler holds a Bachelor of Arts from San Diego State University. Christoph Kraneiss , Chief Commercial Officer Mr. Kraneiss has been our Chief Commercial Officer since August 2022. He holds a proven track record of building successful physician-dispensed aesthetic businesses within top globally recognized brands. Mr. Kraneiss served from 2017-2019 as Senior Vice President of SkinBetter Science, LLC. Similarly, from 2011 -2017, Mr. Kraneiss served as Senior Vice President of ZO Skin Health, Inc., which was founded by renowned dermatologist Zein Obagi, MD. During his 6 years at ZO Skin Health, he led his department from $2M in retail sales to over $100M, establishing the brand in more than 130 countries, and roughly 500,000 points of purchase globally, reaching profitability within less than 3 years. Most recently Mr. Kraneiss served as Managing Director for Noon Aesthetics, Inc. from 2019 - 2021 and as Vice President of International Business Development for Higher Education Skincare, Inc., a B2C company from 2021 – 2022. Mr. Kraneiss has successfully established and managed numerous aesthetic sales teams in different countries and has trained retailers, physicians, and distributors in sales and business strategies, specifically relating to servicing the medical aesthetics industry. Mr. Kraneiss received both an MBA as well as a bachelor’s degree in marketing and communications from University of Saxony Anhalt and speaks English, German, and Russian fluently. Term of Office Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. Board Committees We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating committee. We have adopted a charter for each of the three committees. Copies of our committee charters are posted on our corporate investor relations website. Each committee’s members and functions are described below. Audit Committee. Our Audit Committee consists of Jeffrey Parry, George Kovalyov and Juliana Daley. Ms. Daley is the chairman of our audit committee. We have determined that these directors satisfy the “independence” requirements of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. Our board of directors has determined that Ms. Daley qualifies as an audit committee financial expert and has the accounting or financial management expertise as required under Item 407(d)(5)(ii) and (iii) of Regulation S-K. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things: ● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; ● reviewing with the independent auditors any audit problems or difficulties and management’s response; 73 ● discussing the annual audited financial statements with management and the independent auditors; ● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; ● reviewing and approving all proposed related party transactions; ● monitoring management’s communication and implementation of the Company’s anti-fraud policy; ● reviewing the Company’s cybersecurity mitigation measures and practices periodically; ● meeting separately and periodically with management and the independent auditors; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. Compensation Committee. Our Compensation Committee consists of Jeffrey Parry, George Kovalyov and Juliana Daley. Mr. Kovalyov is the chairman of our compensation committee. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things: ● reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; ● reviewing and recommending to the shareholders for determination with respect to the compensation of our directors; ● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and ● selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. Nomination Committee. Our Nomination Committee consists of Jeffrey Parry, George Kovalyov and Juliana Daley. Mr. Parry is the chairman of our nomination committee. The nomination committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nomination committee is responsible for, among other things: ● selecting and recommending to the board nominees for election by the shareholders or appointment by the board; ● reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity; ● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and ● advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken. 74 Family Relationships There are no family relationships between any of our directors or executive officers. Certain Legal Proceedings To our knowledge, no director, independent director, or executive officer of the Company has been a party in any legal proceeding material to an evaluation of his ability or integrity during the past ten years. Code of Ethics The Company adopted a Code of Ethics applicable to its directors, officers, and employees. This includes our principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. The full text of our Code of Ethics is posted on our website. Compensation Recovery Policy Under the Sarbanes-Oxley Act, in the event of misconduct that results in a financial restatement that would have reduced a previously paid incentive amount, we can recoup those improper payments from our executive officers. The SEC also recently adopted rules which direct national stock exchanges to require listed companies to implement policies intended to recoup bonuses paid to executives if the company is found to have misstated its financial results. In 2023, we adopted an executive compensation recovery policy or “Clawback Policy” in compliance with Nasdaq rules. Under our Clawback Policy, if we are required to prepare an accounting restatement due to material noncompliance with the financial reporting requirements under any United States securities laws, we will be entitled to recover (and will seek to recover), from our executive officers, any excess incentive-based compensation received by our executive officers during the three-year period prior to the date on which we are required to prepare the restatement. This policy applies to both equity-based and cash compensation awards. The “excess compensation” is the difference between the actual amount that was paid and the amount that would have been paid if the financial statements were prepared properly in the first instance. Item 11. Executive Compensation. Introduction We are an emerging growth company, as defined in the JOBS Act. As an emerging growth company, we will be exempt from certain requirements related to executive compensation, including, but not limited to, the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating to the ratio of total compensation of our Chief Executive Officer to the median of the annual total compensation of all of our employees, each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This section provides an overview of our executive compensation program, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below. For the year ended 2023, our named executive officers (“Named Executive Officers” or “NEOs”) were: ● Jordan R. Plews, Chief Executive Officer; ● Brenda Buechler, Chief Marketing Officer; and ● Christoph Kraneiss, Chief Commercial Officer The objective of our compensation program is to provide a total compensation package to each NEO that will enable us to attract, motivate and retain outstanding individuals, align the interests of our executive team with those of our equity holders, encourage individual and collective contributions to the successful execution of our short- and long-term business strategies and reward NEOs for performance. 75 Compensation of Directors and Named Executive Officers The following table presents information regarding the total compensation (excluding equity-based compensation reported) awarded to, earned by, and paid to our NEOs for services rendered to us in all capacities for the years indicated. Name and Principal Position Year Salary ($) Bonus ($) Option Awards ($) 1 All Other Compensation ($) Total ($) Jordan R. Plews 2023 $ 200,000 - - - $ 200,000 CEO, President and Director 2022 $ 200,000 $ 10,000 $ - - $ 210,000 Brenda Buechler 2023 $ 190,000 - - - $ 190,000 Chief Marketing Officer 2022 $ 79,167 $ 5,000 $ 143,679 - $ 227,846 Christoph Kraneiss 2023 $ 180,000 - - - $ 180,000 Chief Commercial Officer 2022 $ 75,000 $ - $ 121,227 - $ 196,227 1 The options granted vest 25% on the first anniversary of the grant date and the remaining 75% vest evenly over 36 months thereafter. The grant date fair value of the options, calculated using the Black-Scholes Option Pricing model, is included in the table above. As of the date of this report, no options have been exercised by the NEOs. Compensation of Directors We review compensation annually for all employees, including our executives. In setting executive base salaries and bonuses and granting equity incentive awards, we consider compensation for comparable positions in the market, the historical compensation levels of our executives, individual performance as compared to our expectations and objectives, our desire to motivate our employees to achieve short- and long-term results that are in the best interests of our stockholders, and a long-term commitment to us. Employment Arrangements with Named Executive Officers Below are descriptions of the material terms of the employment agreements and employment letters with Elevai’s Named Executive Officers. Jordan R. Plews In September 2021, we entered into an employment contract with Dr. Jordan R. Plews as the Company’s Chief Executive Officer, effective as of October 1, 2021. The agreement is at will and subject to termination prior to completion of the services at any time by us, or with 14 days’ prior written notice by Dr. Plews and for any reason not prohibited by law. Pursuant to the terms and provisions of the agreement: (a) Dr. Plews was appointed as our Chief Executive Officer and undertook and performed the duties and responsibilities normally and reasonably associated with such office; and (b) we agreed to pay Dr. Plews an annual salary of $200,000 in addition to equity compensation in the form of stock options in accordance with our 2020 equity incentive plan, as amended (the “2020 Equity Incentive Plan”). Brenda Buechler In June 2022, we entered into an employment contract with Brenda Buechler as the Company’s Chief Marketing Officer, effective as of August 1, 2022. 76 The agreement is at will and subject to termination prior to completion of the services at any time by us, or with 14 days’ prior written notice by Ms. Buechler and for any reason not prohibited by law. Pursuant to the terms and provisions of the agreement: (a) Ms. Buechler was appointed as our Chief Marketing Officer and undertook and performed the duties and responsibilities normally and reasonably associated with such office; and (b) we agreed to pay Ms. Buechler an annual salary of $190,000 in addition to equity compensation in the form of stock options in accordance with our 2020 Equity Incentive Plan, as amended. except that 25% of those stock-options shall not vest and become exercisable until the first anniversary of the grant date and, thereafter, the options shall vest at a rate of 25% per annum and become exercisable with respect to 100% of the shares subject to the option on the fourth anniversary of the grant date. Christoph Kraneiss In August 2022, we entered into an employment contract with Christoph Kraneiss as the Company’s Chief Commercial Officer, effective as of August 8, 2022. The agreement is at will and subject to termination prior to completion of the services at any time by us, or with 14 days’ prior written notice by Mr. Kraneiss and for any reason not prohibited by law. Pursuant to the terms and provisions of the agreement: (a) Mr. Kraneiss was appointed as our Chief Commercial Officer and undertook and performed the duties and responsibilities normally and reasonably associated with such office; and (b) we agreed to pay Mr. Kraneiss an annual salary of $180,000 in addition to equity compensation in the form of stock options in accordance with our 2020 Equity Incentive Plan, as amended. except that 25% of those stock-options shall not vest and become exercisable until the first anniversary of the grant date and, thereafter, the options shall vest at a rate of 25% per annum and become exercisable with respect to 100% of the shares subject to the option on the fourth anniversary of the grant date. Health and Welfare Benefits and Perquisites With the exception of our independently contracted chief financial officer, all of Elevai’s executive officers were eligible to participate in its employee benefit plans, including its medical, dental, vision, life and disability insurance plans, in each case on the same basis as all of its other employees. Elevai does not maintain any retirement plans or executive-specific benefit or perquisite programs Annual Cash Bonuses Elevai’s executive officers were eligible to receive a cash bonus for the year ended December 31, 2023. The Company awarded a cash bonus to its Chief Financial Officer for $25,000. No other bonuses to executive officers were awarded or accrued during the year ended December 31, 2023. Equity Incentive Awards Elevai has historically granted stock options to its employees, including its executive officers, under the 2020 Equity Incentive Plan where our Board or any of its committees can grant issuances of incentives stock options, nonstatutory stock options, and restricted stock to our employees, advisors and directors. The exercise price of incentive stock options and nonqualified stock options will be no less than 100% of the fair value per share of the Company’s Common Stock on the date of grant. If an individual owns Common Stock representing more than 10% of the voting shares and the grant is an incentive stock option, the price of each share will be at least 110% of the fair value on the date of grant. The aggregate number of shares of Common Stock allocated and made available for issuance pursuant to stock options granted under the Plan may not exceed 1,734,188 shares of Common Stock. As of the date of this annual report, 1,557,251 options under the Plan were outstanding, and 72,770 were available for future grant. Each option granted under the Plan will carry a term of no more than ten (10) years from the date of grant and the Plan will remain in effect until it is terminated by the Board. The term and vesting periods for options granted under the Plan are determined by the Company’s board of directors. The summary does not contain a complete description of all provisions of the 2020 Plan and is qualified in its entirety by reference to the 2020 Plan, a copy of which was filed as Exhibit 10.2 to our registration statement on Form S-1, filed with the SEC on September 28, 2023, and is incorporated herein by reference. 77 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table provides information with respect to the beneficial ownership of our Common Stock as of the date of this report, by: ● each of our executive officers and directors; ● all of our current directors and executive officers as a group; and ● each person or entity, or group of persons or entities, known by us to own beneficially more than 5% of our Common Stock. We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. In general, under these rules a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares voting power or investment power with respect to such security. A person is also deemed to be a beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares that they beneficially own, subject to applicable community property laws. Percentage ownership is based on 17,329,615 shares of Common Stock outstanding as of March 25, 2024. Name and Address of Beneficial Owner (1) Amount and Nature of Beneficial Ownership Percentage of Beneficial Ownership 5% or Greater Shareholders: BWL Investments Ltd. (2) 1,967,965 11.32 % GB Capital Ltd. (3) 841,454 4.86 % JP JP Bio Consulting LLC (4) 2,851,454 16.45 % Hatem Abou-Sayed MD MBA FACS, a Professional Medical Corporation (5) 1,371,905 7.9 % Hongyu Wang 1,708,406 9.82 % % Directors, Named Executive Officers and Other Executive Officers: Jordan R. Plews, Chief Executive Officer and Director 3,018,120 (6) 17.25 % Graydon Bensler, Chief Financial Officer and Director 1,008,120 (7) 5.76 % Brenda Buechler, Chief Marketing Officer 74,143 (8) * % Christoph Kraneiss, Chief Commercial Officer 43,750 (9) * % Hatem Abou-Sayed, Chief Medical Officer and Director 1,538,571 (10) 8.79 % Jeffrey Parry, Director 73,333 (11) * % George Kovalyov, Director - * % Juliane Daley, Director 1,200 (12) * % All executive officers and directors as a group (8 persons) 5,757,237 (13) 36.37 % * Denotes less than one (1%) percent (1) Unless otherwise indicated, the business address of each of the individuals is our address of c/o Elevai Labs, Inc., 120 Newport Center Drive, Ste. 250, Newport Beach, CA 92660. (2) Braeden Lichti has sole voting and dispositive power over the shares held by BWL Investments Ltd. Mr. Litchi also has sole voting and dispositive power over 828,000 shares of common stock each held by Northstrive Fund II LP, a California corporation and BWL Holdings Ltd., a Canadian corporation which collectively beneficially own 21.59% of our common stock. (3) Graydon Bensler has sole voting and dipositive power over the shares held by GB Capital Ltd. (4) Jordan R. Plews has sole voting and dipositive power over the shares held by JP Bio Consulting LLC. (5) Hatem Abou-Sayed has sole voting and dipositive power over the shares held by Hatem Abou-Sayed MD MBA FACS, a Professional Medical Corporation. (6) Consists of 166,666 shares of Common Stock that Dr. Plews has the right to acquire from us within 60 days of March 24, 2024, pursuant to the exercise of stock options granted under the 2020 Equity Incentive Plan. (7) Consists of 166,666 shares of Common Stock that Mr. Bensler has the right to acquire from us within 60 days of March 24, 2024, pursuant to the exercise of stock options granted under the 2020 Equity Incentive Plan. (8) Consists of 70,416 shares of Common Stock that Ms. Buechler has the right to acquire from us within 60 days of March 24, 2024, pursuant to the exercise of stock options granted under the 2020 Equity Incentive Plan. (9) Consists of 43,750 shares of Common Stock that Mr. Kraneiss has the right to acquire from us within 60 days of March 24, 2024, pursuant to the exercise of stock options granted under the 2020 Equity Incentive Plan. (10) Consists of 166,666 shares of Common Stock that Dr. Abou-Sayed has the right to acquire from us within 60 days of March 24, 2024, pursuant to the exercise of stock options granted under the 2020 Equity Incentive Plan. (11) Consists of 31,666 shares of Common Stock that Mr. Parry has the right to acquire from us within 60 days of March 25, 2024, pursuant to the exercise of stock options granted under the 2020 Equity Incentive Plan. (12) Consists of nil shares of Common Stock that Ms. Daley has the right to acquire from us within 60 days of March 25, 2024, pursuant to the exercise of stock options granted under the 2020 Equity Incentive Plan. (13) Consists of (i) 5,098,844 shares of Common Stock beneficially owned by our directors and executive officers and (ii) 658,393 shares of Common Stock underlying outstanding options, exercisable within 60 days of March 25, 2024. 78 Item 13. Certain Relationships and Related Transactions, and Director Independence. Our audit committee, pursuant to its written charter, is responsible for reviewing and approving related party transactions to the extent we enter into such transactions. The audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer. Other than employment and other agreements set out elsewhere in this annual report, the following summarizes those of transactions since January 1, 2023 to which we have been a participant in which the amount involved exceeded or will exceed $63,000, and in which any of our directors, executive officers or beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described in the section entitled “ Executive Compensation .” Described below are certain other transactions with our directors, executive officers and stockholders. As amended and agreed to on May 1, 2023, and as effective on January 4, 2022, we entered into a consulting agreement (the “CA”) with NorthStrive Companies Inc., a California Corporation (“NorthStrive”) owned and managed by Braeden Lichti. Pursuant to the CA, NorthStrive is to assist us in a variety of business matters, including assistance in our overall investor outreach and communications strategy, and advising us on becoming a “public” company. As of May 31, 2023, the Company had $192,705 (2022 - $120,000, 2021 - $23,520) due to NorthStrive, of which $22,705 (2021 - $23,520) is unsecured, non-interest bearing and are due on demand. $120,000 was due as of December 31, 2022, and the remaining $50,000 was due as of May 31, 2022. The aforementioned fees are due in contemplation for NorthStrive’s advisement under the CA, whereby starting on January 4, 2022, we agreed to compensate NorthStrive $10,000 per month (the “Compensation”). We retain the option, but not the obligation to issue the amount of Compensation due NorthStrive in shares of our Common Stock equal to our series A preferred stock price at $1.34138 per share equal to the value of the Compensation due to NorthStrive for services provided through and up to March 31, 2023 and $3.00 per share equal to the value of the Compensation due to NorthStrive for services provided after March 31, 2023 or via cash payment equal to the amount of Compensation outstanding however, that Compensation due NorthStrive shall accrue interest-free and payment of that Compensation has been deferred until the earlier of either (a) our raising an aggregate of at least US$2,000,000 of equity and/or debt investment from and after October 1, 2022, (b) our becoming listed on any established stock exchange or a national market system, or (c) a determination by our Board that Company has sufficient cash flows to support payment of the Compensation due to NorthStrive at the time of that determination. On May 1, 2023, as effective on February 1, 2023, we entered into an advisory agreement (the “AA”) with Braeden Litchi which terminates after twenty-two months to strategically assist us in our maintenance of board governance, director recruitment, and direction for our board of directors strategy sessions. The AA was entered into under contemplation of Mr. Litchi’s resignation from our Board effective February 1, 2023, and our desire to maintain Mr. Litchi’s compensation as a valuable advisor to us. Pursuant to the AA, we agreed with Mr. Litchi that in exchange for services under the AA, his options granted on February 9, 2021, to purchase 200,000 shares of our Common Stock under our 2020 Equity Incentive Plan shall continue to vest pursuant to the aforementioned terms under this section. On June 1, 2023, we rescinded previously granted but unissued nonstatutory stock options to each of our independent directors and instead granted nonstatutory stock options to purchase 240,000 shares of the Company’s Common Stock to our then independent director nominees and related parties Jeffery Parry, Crystal Muilenburg and Julianna Daley under our 2021 Equity Incentive Plan. The equity compensation grants were directly in relation to the appointment of Mr. Parry, Ms. Daley as our independent directors and Ms. Muilenburg, as our former independent director. The options maintain a contractual life of ten years and an exercise price of $5.00 per share of Common Stock. All options vest at a rate of 25% on the first anniversary of the date of grant and the remaining 75% vest evenly over 36 months thereafter. Upon Ms. Mulenburg’s resignation in 2024, all unvested stock options at the time of her resignation were forfeited. Item 14. Principal Accounting Fees and Services. The following table sets forth fees billed to us by our independent auditor for the years ended December 31, 2023 and 2022 for (i) services rendered for the audit of our annual consolidated financial statements and the review of our quarterly consolidated financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our consolidated financial statements that are not reported as audit fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance. SERVICES 2023 2022 Audit fees $ 29,000 $ 29,000 Audit-related fees - - Tax fees - - All other fees - - Total fees $ 29,000 $ 29,000 Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual consolidated financial statements and the review of our interim consolidated financial statements. Before our independent accountants were engaged to render these services, their engagement was approved by our Directors. 79 PART IV Item 15. Exhibits and Financial Statement Schedules. (a) The following documents are filed as part of this report: (1) Financial Statements: The audited balance sheet of the Company as of December 31, 2023, the related statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the year then ended, the footnotes thereto, and the report of TPS Thyer, independent auditors, are filed herewith. (2) Financial Schedules: None Financial statement schedules have been omitted because they are either not applicable or the required information is included in the financial statements or notes hereto. (3) Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report. (b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included. Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties: ● may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; ● may apply standards of materiality that differ from those of a reasonable investor; and ● were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact. 80 Exhibit Number Description 3.1 Form of Third Amended and Restated Certificate of Incorporation of Elevai Labs Inc. (incorporated by reference to Exhibit 3.3 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 4.1 Form of Common Stock Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 4.2 Description Of Registered Securities 10.1+ 2020 Equity Incentive Plan, as amended, and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 10.2 Form of Amended and Restated Consulting Agreement between Elevai Labs, Inc. and NorthStrive Companies Inc. (incorporated by reference to Exhibit 10.3 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 10.3 Form of Advisory Agreement between Elevai Labs, Inc. and Braeden Lichti (incorporated by reference to Exhibit 10.4 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 10.4† Authorized Distributor Agreement, dated August 30, 2022, between Elevai Labs, Inc. and Refine USA, LLC (incorporated by reference to Exhibit 10.6 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 10.5† Authorized Distributor and Trademark License Agreement, dated January 17, 2022, between Elevai Labs, Inc. and Dermapenworld Pty Ltd (incorporated by reference to Exhibit 10.7 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 10.6† Collaboration Agreement, dated November 28, 2023, by and between the Company and Yuva BioSciences, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A, filed with the SEC on December 5, 2023). 10.7† License Agreement, dated January 16, 2024, by and between the Company and INmune Bio, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 22, 2024). 10.8+† Employment Agreement of Jordan R. Plews, dated September 26, 2021 10.9+† Employment Agreement of Brenda Buechler, dated June 24, 2022 10.10+† Employment Agreement of Chris Kraneiss, dated August 6, 2022 14.1 Code of Ethics (incorporated by reference Exhibit 14.1 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 19. Elevai Insider Trading Policy 21.1 List of Subsidiaries. (incorporated by reference Exhibit 21.1 to the Company’s registration statement on Form S-1, filed with the SEC on September 28, 2023). 24.1 Powers of Attorney (the signature page to this registration statement) 31.1 Certification of Principal Executive Officer required by Rule 13a-14(a). 31.2 Certification of Principal Financial Officer required by Rule 13a-14(a). 32.1 Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code. 97 Elevai Policy Related to Recovery of Erroneously Awarded Compensation 101. INS Inline XBRL Instance Document. 101. SCH Inline XBRL Taxonomy Extension Schema Document. 101. CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101. DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101. LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101. PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). † Information in this exhibit identified by brackets is confidential and has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type the Company treats as private or confidential. + Management contract or compensatory plan ITEM 16. FORM 10-K SUMMARY We have elected not to provide a summary of the information provided in this annual report on Form 10-K. 81 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELEVAI LABS INC. By: /s/ Jordan R. Plews Jordan R. Plews Chief Executive Officer (Principal Executive Officer) By: /s/ Graydon Bensler Graydon Bensler Chief Financial Officer (Principal Accounting Officer) Each person whose signature appears below constitutes and appoints Jordan R. Plews and Graydon Bensler, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ Jordan R. Plews Chief Executive Officer, President and Director March 29, 2024 Jordan R. Plews (Principal Executive Officer) /s/ Graydon Bensler Chief Financial Officer and Director March 29, 2024 Graydon Bensler (Principal Accounting Officer) /s/ Hatem (Tim) Abou-Sayed Director March 29, 2024 Hatem (Tim) Abou-Sayed /s/ Jeffrey Parry Director March 29, 2024 Jeffrey Parry /s/ Juliana Daley Director March 29, 2024 Juliana Daley /s/ George Kovalyov Director March 29, 2024 George Kovalyov 82 INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID 6706 ) F-3 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-4 Consolidated and Combined Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022 F-5 Consolidated and Combined Statements of Changes in Equity for the years ended December 31, 2023 and 2022 F-6 Consolidated and Combined Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-7 Notes to the Consolidated and Combined Financial Statements F-8 F- 1 Consolidated Financial Statements of ELEVAI LABS INC. For the years ended December 31, 2023 and 2022 (Expressed in United States Dollars) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Elevai Labs, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Elevai Labs, Inc. and subsidiaries (collectively, “the Company”) as of December 31, 2023, and 2022, and the related consolidated statements of operations and other comprehensive loss, shareholders’ equity and cash flows for the two year period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its consolidated cash flows for the two year period ended December 31, 2023 and 2022 in conformity with generally accepted accounting principles in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 the financial statements, the Company has suffered recurring losses from operations and has stockholders’ deficit that raise substantial doubt about its ability to continue as going concern. Management’s plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provided a reasonable basis for our opinion. /s/ TPS Thayer, LLC TPS Thayer, LLC We have served as the Company’s auditor since 2022 Sugar Land, Texas March 28, 2024 F- 3 Elevai Labs Inc. Consolidated Balance Sheets (Expressed in United States dollar) As of: December 31, 2023 December 31, 2022 ASSETS Current Assets Cash $ 3,326,851 $ 1,154,901 Receivables, net 36,161 12,854 Prepaids and deposits 1,060,765 153,422 Inventory, net 495,667 230,145 Total Current Assets 4,919,444 1,551,322 Deposit 10,773 10,773 Property and equipment, net 53,119 53,535 Operating lease right-of-use asset 206,582 276,553 TOTAL ASSETS $ 5,189,918 $ 1,892,183 LIABILITIES Current Liabilities Accounts payable and accrued liabilities $ 669,375 $ 244,704 Customer deposits 36,693 10,172 Due to related parties 77,127 154,325 Current portion of lease liability 145,000 110,616 Derivative liabilities 369,158 68,455 Total Current Liabilities 1,297,353 588,272 Operating lease liability 65,489 172,601 TOTAL LIABILIITES $ 1,362,842 $ 760,873 Commitments and Contingencies EQUITY Preferred stock $ 0.0001 par value; 75,000,000 stock authorized: Series seed 1 preferred stock, Nil and 213,730 shares issued and outstanding as of December 31, 2023 and 2022, - 21 Series seed 2 preferred stock, Nil and 3,635,252 shares issued and outstanding as of December 31, 2023 and 2022, respectively - 364 Series A preferred stock, Nil and 1,861,799 shares issued and outstanding as of December 31, 2023, and 2022, - 186 Common stock, $ 0.0001 par value, 300,000,000 shares authorized; 17,329,615 and 9,568,475 shares issued and outstanding as of December 31, 2023 and 2022, respectively 1,733 957 Additional paid-in capital 10,849,031 3,852,044 Accumulated other comprehensive income 202 111 Accumulated deficit ( 7,023,890 ) ( 2,722,373 ) TOTAL EQUITY 3,827,076 1,131,310 TOTAL LIABILITIES AND EQUITY $ 5,189,918 $ 1,892,183 The accompanying notes are an integral part of these consolidated financial statements F- 4 Elevai Labs Inc. Consolidated Statements of Operations and Comprehensive Loss For the years ended December 31, 2023 and 2022 (Expressed in United States dollar) December 31, 2023 December 31, 2022 Revenue $ 1,712,595 766,277 Cost of sales 578,015 318,968 Gross profit $ 1,134,580 447,309 Expenses Depreciation 10,295 5,034 Marketing and promotion 660,291 192,863 Consulting fees 459,498 324,395 Office and administrative 2,329,067 1,019,708 Professional fees 579,111 192,409 Investor relations 91,009 74,003 Research and development 426,243 228,747 Foreign exchange (gain) loss 6,130 2,749 Travel and entertainment 339,147 198,442 Total Expenses $ 4,900,791 2,238,350 Net loss before other income (expense) $ ( 3,766,211 ) ( 1,791,041 ) Other income (expense) Listing expense ( 450,079 ) - Change in fair value of derivative liabilities ( 71,266 ) ( 12,754 ) Interest income 5,564 7,702 Interest expense ( 19,525 ) ( 2,629 ) Loss on sale of equipment - ( 1,546 ) Net loss $ ( 4,301,517 ) ( 1,800,268 ) Other comprehensive income (loss) Currency translation adjustment 91 ( 91 ) Total comprehensive loss $ ( 4,301,426 ) ( 1,800,359 ) Basic and diluted loss per share $ ( 0.400 ) ( 0.189 ) Weighted average shares outstanding 10,745,938 9,528,863 The accompanying notes are an integral part of these consolidated financial statements F- 5 Elevai Labs Inc. Consolidated Statements of Changes in Stockholders’ Equity For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) Series seed 1 preferred stock Series seed 2 preferred stock Series A preferred stock Common Stock Additional Accumulated other Number of shares Amount Number of shares Amount Number of shares Amount Number of shares Amount paid-in capital Accumulated deficit comprehensive income Total # $ # $ # $ # $ $ $ $ $ Balance, January 1, 2022 213,730 21 3,635,252 364 - - 9,526,808 952 1,371,194 ( 922,105 ) 202 450,628 Private placements - - - - 1,629,971 163 - - 2,186,258 - - 2,186,421 Share issuance cost - - - - - - - - ( 33,132 ) - - ( 33,132 ) Conversion of promissory notes - - - - 231,828 23 - - 130,860 - - 130,883 Share-based compensation - - - - - - - - 171,869 - - 171,869 Exercise of stock options - - - - - - 41,667 5 24,995 - - 25,000 Net loss for the year - - - - - - - - - ( 1,800,268 ) - ( 1,800,268 ) Currency translation adjustment - - - - - - - - - - ( 91 ) ( 91 ) Balance, December 31, 2022 213,730 21 3,635,252 364 1,861,799 186 9,568,475 957 3,852,044 ( 2,722,373 ) 111 1,131,310 Balance, January 1, 2023 213,730 21 3,635,252 364 1,861,799 186 9,568,475 957 3,852,044 ( 2,722,373 ) 111 1,131,310 Private placement - - - - - - 487,859 49 1,463,537 - - 1,463,586 Exercise of stock options - - - - - - 62,500 6 37,494 - - 37,500 Conversion of preferred shares on IPO ( 213,730 ) ( 21 ) ( 3,635,252 ) ( 364 ) ( 1,861,799 ) ( 186 ) 5,710,781 571 - - - - Shares issued alongside IPO - - - - - - 1,500,000 150 5,999,850 - - 6,000,000 Share issuance costs for IPO - - - - - - - - ( 991,632 ) - - ( 991,632 ) Share-based compensation - - - - - - - - 487,738 - - 487,738 Net loss for the year - - - - - - - - - ( 4,301,517 ) - ( 4,301,517 ) Currency translation adjustment - - - - - - - - - - 91 91 Balance, December 31, 2023 - - - - - - 17,329,615 1,733 10,849,031 ( 7,023,890 ) 202 3,827,076 The accompanying notes are an integral part of these consolidated financial statements F- 6 Elevai Labs Inc. Consolidated Statements of Cash Flows For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) December 31, 2023 December 31, 2022 Operating activities Net loss $ ( 4,301,517 ) $ ( 1,800,268 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 11,649 6,512 Interest expense - 2,614 Share-based compensation 487,738 171,869 Straight-line rent expense ( 2,757 ) 6,664 Loss on sale of equipment - 1,546 Change in fair value of derivative liabilities 71,266 12,754 Changes in operating assets and liabilities: Receivables ( 23,218 ) ( 11,547 ) Prepaid expenses and deposits ( 907,343 ) ( 102,055 ) Inventory ( 265,522 ) ( 69,328 ) Accounts payable and accrued liabilities 466,891 65,191 Customer deposits 26,521 10,172 Due to related parties ( 120,519 ) 120,000 Cash flows used in operating activities $ ( 4,556,811 ) $ ( 1,585,876 ) Investing activities Purchase of equipment ( 11,191 ) ( 35,527 ) Proceeds on disposal of equipment - 3,500 Cash flows used in investing activities $ ( 11,191 ) $ ( 32,027 ) Financing activities Exercise of stock options 37,500 25,000 Proceeds from the issuance of series A preferred stock - 2,153,289 Private Placement 1,463,585 - Proceeds from IPO 6,000,000 - Share issuance costs for IPO ( 762,195 ) - Proceeds from notes payable - 183,970 Cash flows provided by financing activities $ 6,738,890 $ 2,362,259 Effect of exchange rate changes on cash 1,062 ( 1,313 ) Increase in cash 2,171,950 743,043 Cash, beginning of period 1,154,901 411,858 Cash, ending of period $ 3,326,851 $ 1,154,901 Supplemental cash flow information: Cash paid for interest 14,397 - Cash paid for taxes - - Non-cash Investing and Financing transactions: Conversion of preferred stock to common stock 3,527,701 - Settlement of notes payable and accrued interest through issuance of series A preferred stock and warrants - 186,584 Derivative liability broker warrants included in share issuance cost for IPO 229,437 - The accompanying notes are an integral part of these consolidated financial statements F- 7 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) 1. Organization and nature of operations Elevai Labs Inc. (“Elevai”) was incorporated under the laws of the State of Delaware on June 9, 2020. Elevai and its 100 % owned subsidiary, Elevai Research Inc, are collectively referred to in these consolidated financial statements as “the Company”. The Company is a skincare development company engaged in the design, manufacture, and marketing of skincare products in the skincare industry. The Company’s principal activities are developing and manufacturing skincare products. 2. Going Concern These audited consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and the ability of the Company to obtain necessary equity financing to continue operations, and ultimately the attainment of profitable operations. As of December 31, 2023 and 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. Furthermore, for the years ended December 31, 2023 and 2022, the Company incurred a net loss of $ 4,301,517 and $ 1,800,268 , respectively and used $ 4,556,811 and $ 1,585,876 , respectively of cash flows for operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These audited consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but not limited to, 12 months from the date the financial statements are issued. The Company is aware that material uncertainties related to events or conditions may cast substantial doubt upon the Company’s ability to continue as a going concern. Management’s plans that alleviate substantial doubt about the Company’s ability to continue as a going concern include raising additional debt or equity financing. Although the Company has been successful in raising funds in the past, and expects to do so in the future, there are no guarantees that it will be able to raise funds as anticipated. 3. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and are expressed in U.S. dollars. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions were eliminated upon consolidation. This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements. F- 8 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) Principles of Consolidation The consolidated financial statements include the account of Elevai, and its 100 % owned subsidiary, Elevai Research. All intercompany accounts, transactions and profits were eliminated in the consolidated financial statements. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, the collectability of receivables, valuation of inventory, fair value of derivative liabilities and stock options, useful lives and recoverability of long-lived assets, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined. Foreign Currency Translation The Company’s functional and reporting currency is the U.S. dollar. The functional currency of Elevai Research is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets, liabilities, and items recorded in income arising from transactions denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The accounts of Elevai Research are translated to U.S. dollars using the current rate method. Accordingly, assets and liabilities are translated into U.S. dollars at the period-end exchange rate while revenues and expenses are translated at the average exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income (loss). Reportable Segments and Geographic Areas The Company has one reportable segment. The Company’s activities are interrelated, and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business. The majority of the Company’s operations are conducted from and its assets are located in the United States Elevai Research, the Company’s Canadian subsidiary, is located in Canada and provide limited operational support. The following is a summary of the Company’s operations, assets and liabilities split between the Unites States and Canada: United States Canada Total Revenue $ 1,712,595 $ - $ 1,712,595 Cost of sales 578,015 - 578,015 Gross profit $ 1,134,580 $ - $ 1,134,580 Expenses $ 4,768,011 $ 132,780 $ 4,900,791 Other income (expense) ( 535,330 ) 24 ( 535,306 ) Net loss $ 4,168,761 $ 132,756 $ 4,301,517 Current Assets $ 4,896,675 $ 22,769 $ 4,919,444 Non-current assets 268,733 1,741 270,474 Total Assets $ 5,165,408 $ 24,510 $ 5,189,918 Current liabilities $ 1,241,764 $ 55,589 $ 1,297,353 Non-current liabilities 65,489 - 65,489 Total Liabilities $ 1,307,253 $ 55,589 $ 1,362,842 Total Equity $ 4,227,088 $ ( 400,012 ) $ 3,827,076 F- 9 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) During 2023, the Company’s started exporting products to international markets. Following is a breakdown of the sales per geographical area: United Sates Canada Vietnam Australia Total Revenue 1,248,537 158,603 70,655 234,800 1,712,595 Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products. In instances where financial acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues are recognized under ASC 606, “Revenue from Contracts with Customers,” in a manner that reasonably reflects the delivery of its products and services to customers in return for expected consideration. The Company generates revenue through the sale of skincare products. Revenue from the sale of skincare products are recognized at the point in time when the Company considered revenue realized or realizable and earned, which is typically when all of the five following criteria are met: (1) the contract with the customer is identifiable (i.e. when a sales transaction has been entered into between the Company and the customer), (2) the performance obligation in the contract is identifiable (i.e. the customer has ordered a known quantity of product to be delivered), (3) the transaction price is determinable (i.e. the customer has agreed to the Company’s price for the products ordered), (4) the Company is able to allocate the transaction price to the performance obligations in the contract, and (5) the performance obligations have been satisfied, which is typically upon delivery of the product to the customer. Transaction prices for performance obligations are explicitly outlined in relevant agreements; therefore, the Company does not believe that significant judgements are required with respect to the determination of the transaction price, including any variable consideration identified. The Company is responsible for providing the products to customers. As a result, the Company is considered the Principal when providing products to customers. As the Company collects payment at the time of the customer order, its contracts do not have a significant financing component. Customers are entitled to replacement or full refund of any damaged or defective product, after the return of the damaged or defective product to the Company. There were no significant returns or refunds during the year ended December 31, 2023 and 2022. F- 10 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) Research and development Research and development costs are expensed as incurred in accordance with ASC 730, Research and Development. The Company incurs research and development costs in the pursuit of new products and improving the formulation of existing products. Examples of research costs include laboratory research, studies, surveys, and other activities aimed at acquiring new knowledge. Development costs include expenses incurred in the process of applying research findings or other knowledge to a plan or design for a new product or process. Examples of development costs include engineering, design, testing, and other activities aimed at developing a product or process for commercial production. Development costs may be capitalized if the following criteria are met: (1) technological feasibility has been established, (2) the Company intends to complete the product or process. (3) the Company has the ability to use or sell the product or process, (4) the product or process will generate future economic benefits, and (5) the costs can be reliably measured. As of December 31, 2023 and 2022, the Company has not capitalized any development cost. Marketing and promotion Costs associated with marketing and promoting the Company’s products are expensed when incurred. The Company includes the cost of products given out as samples in marketing and promotion expenses. Leases The Company accounts for leases in accordance with ASC 842, “Leases”. We determine if an arrangement meets the definition of a lease at inception of the contract. Leases are classified as either operating or finance leases. All of the Company’s leases have been assessed as operating leases. Accounting for operating leases, other than short term leases, results in operating lease right-of-use (“ROU”) assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our lease do not provide an implicit rate, we use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred income tax assets and liabilities are recognized for the expected future tax consequence of temporary differences between the financial reporting and taxes basis of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred income tax assets to the amount that it believes more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income tax planning, strategies and results of recent operations. If the Company determines that such deferred tax assets will be recognized in the future in excess of the net recorded amount then the deferred tax asset valuation will be adjusted which would reduce the provision for income taxes. Significant judgments and estimates are required in the determination of the consolidated income tax expense. As of December 31, 2023 and 2022, the Company did not have any amounts recorded pertaining to tax assets or liabilities as the Company has incurred losses since inception and has taken a full valuation allowance against its tax loss carry forwards. In addition, the Company did not have any amounts recorded pertaining to tax expense or recovery. F- 11 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) The Company records uncertain tax provisions in accordance with ASC 740 based on a two-step process whereby (1) a determination is made about whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. As of December 31, 2023 and 2022, the Company did not have any amounts recorded pertaining to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in office and administrative expense. The Company did not incur any penalties or interest during the years ended December 31, 2023 and 2022. Concentration of Credit Risk Cash, receivables and refundable deposits are the only financial instruments that are potentially subject to credit risk. The Company places its cash in what it believes to be credit-worthy financial institutions. Receivables relate to sales taxes paid that is reimbursable from the Canadian government and timing differences on receiving proceeds from sales transactions processed through customer credit cards. Refundable deposits relate to the Company’s security deposit on lease agreements. Risks and Uncertainties The Company is subject to risks from, among other things, competition associated with the industry in general, regulatory environment, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets. Contingencies Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgement. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed. F- 12 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) Cash and Cash Equivalents Cash includes cash on hand and cash in demand deposits. Cash equivalents include all highly liquid instruments with original maturities of three months or less. As of December 31, 2023 and 2022, the Company did not hold any cash equivalents. Receivables All receivables under standard terms are due thirty (30) days from the date billed. If the funds are not received within thirty (30) days, the customer is contacted to arrange payment. The Company uses the allowance method to account for uncollectable receivables. As of December 31, 2023 and 2022, there was no allowance for uncollectable receivables recorded. Inventory Inventory consist of raw materials, work-in-progress and finished goods and are valued at the lower of cost or net realizable value. The Company’s manufacturing process involves the production of our proprietary stem cell-derived Elevai Exosomes TM . Finished goods consists of a new generation of cosmetic topical products containing our proprietary stem cell-derived Elevai Exosomes TM . Cost is determined using the weighted average cost formula. Net realizable value is determined on the basis of anticipated sales proceeds less the estimated selling expenses. Management compares the cost of inventories with the net realizable value and an allowance is made to write down inventories to net realizable value, if lower. Property and Equipment Property and equipment is stated at cost less accumulated depreciation. Renewals and betterments that materially extend the life of assets are capitalized. Expenditures for maintenance and repairs are expensed as incurred. Property and equipment is depreciated using the straight-line method. The estimated useful lives of property and equipment are generally as follows: Lab equipment 7 -year straight-line Furniture and fixtures 7 -year straight-line Computers 5 -year straight-line Impairment of Long-Lived Assets The Company reviews long-lived assets such as equipment for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future cash flows is less than the carrying value of the asset, a loss is recognized for the excess of the carrying amount over the fair value of the asset. The Company’s policy for property and equipment requires judgement in determining whether the present value of future expected economic benefits exceeds capitalized costs. The policy requires management to make certain estimates and assumptions about future economic benefits related to its operations. Estimates and assumptions may change if new information becomes available. If information becomes available suggesting that the recovery of capitalized cost is unlikely, the capitalized cost is written off/impaired to the consolidated statement of operations. F- 13 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statement of operations. The Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Common Stock Warrants The Company classifies as equity any warrants that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any warrants that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control), (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement) or (iii) that contain reset provisions that do not qualify for the scope exception. The Company assesses classification of its common stock warrants at each reporting date to determine whether a change in classification is required. Warrants classified as liabilities are initially recorded at fair value, with gains and losses arising from changes in fair value recognized in other income (expense) in the consolidated statements of operations at each period end while such instruments remain outstanding. Financial Instruments and Fair Value Measurements The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815 “Derivatives and Hedging”. ASC 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows: Level 1 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2 Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3 Level 3 applies to asset or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. F- 14 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) The Company’s financial instruments consist of cash, receivables, accounts payable and accrued liabilities, notes payable, due to related parties and derivative liabilities. Except for cash and derivative liabilities, the Company’s financial instruments’ carrying amounts, excluding unamortized discounts, approximate their fair values due to their short term to maturity. Cash is measured and recognized at fair value based on level 1 inputs for all periods presented. Derivative liabilities are measured and recognized at fair value based on level 3 inputs. Level 1 Level 2 Level 3 Total December 31, 2023: Cash $ 3,326,851 $ - $ - $ 3,326,851 Derivative liabilities - - 369,158 369,158 $ 3,326,851 $ - $ 369,158 $ 3,696,009 December 31, 2022: Cash $ 1,154,901 $ - $ - $ 1,154,901 Derivative liabilities - - 68,455 68,455 $ 1,154,901 $ - $ 68,455 $ 1,223,356 Loss per Share The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the consolidated statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential shares of common stock outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potential shares if their effect is anti-dilutive. The Company’s preferred stock, stock options and warrants outstanding as of December 31, 2023 and 2022, are considered potential common shares that could dilute earnings per share, but were not included in the diluted loss per share computation because their effect was antidilutive for the periods presented. As a result, there is no difference between the computation of basic and diluted loss per shares for the periods presented. Share-Based Compensation Employees - The Company accounts for share-based compensation under the fair value method which requires all such compensation to employees, including the grant of employee stock options, to be calculated based on its fair value at the measurement date (generally the grant date), and recognized in the consolidated statement of operations over the requisite service period. Nonemployees - During June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. Under the requirements of ASU 2018-07, the Company accounts for share-based compensation to non-employees under the fair value method which requires all such compensation to be calculated based on the fair value at the measurement date (generally the grant date), and recognized in the statement of operations over the requisite service period. F- 15 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) During the years ended December 31, 2023 and 2022, the Company recorded $ 487,738 and $ 171,869 , respectively, in share-based compensation expense, of which $ 476,905 and $ 10,833 , and $ 164,907 and $ 6,962 , respectively is included in office and administration and research and development, respectively. Determining the appropriate fair value model and the related assumptions requires judgment. During the years ended December 31, 2023 and 2022, the fair value of each option grant was estimated using a Black-Scholes option-pricing model. The expected volatility represents the historical volatility of comparable publicly traded companies in similar industries, adjusted for variables such as stock price, market capitalization and life cycle. Due to limited historical data, the expected term for options granted is equal to the contractual life. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. New Accounting Standards Recently Adopted Accounting Standards In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements. In March 2022, the FASB issued ASU 2022-02, ASC Subtopic 326 “Credit Losses”: Troubled Debt Restructurings and Vintage Disclosures. Since the issuance of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Board has provided resources to monitor and assist stakeholders with the implementation of Topic 326. Post-Implementation Review (PIR) activities have included forming a Credit Losses Transition Resource Group, conducting outreach with stakeholders of all types, developing educational materials and staff question-and-answer guidance, conducting educational workshops, and performing an archival review of financial reports. ASU No. 2022-02 is effective for annual and interim periods beginning after December 15, 2022. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements. Recently Issued Accounting Standards The Company assesses the adoption impacts of recently issued, but not yet effective, accounting standards by the Financial Accounting Standards Board on the Company’s consolidated financial statements. In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The FASB is issuing this Update (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. F- 16 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) Stakeholders asserted that the language in the illustrative example resulted in diversity in practice on whether the effects of a contractual restriction that prohibits the sale of an equity security should be considered in measuring that equity security’s fair value. Some stakeholders apply a discount to the price of an equity security subject to a contractual sale restriction, whereas other stakeholders consider the application of a discount to be inappropriate under the principles of Topic 820. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company does not expect the standard to have a significant impact on its consolidated financial statements. 4. Receivables As of December 31, 2023 and 2022, receivables consisted of the following: December 31, 2023 December 31, 2022 Trade receivable $ 33,089 $ 4,180 Sales taxes receivable 3,072 8,674 $ 36,161 $ 12,854 The Company records sales taxes receivable for recoverable sales taxes paid on eligible purchases in its Canadian subsidiary. As at December 31, 2023, and December 31, 2022, the Company recorded a provision for doubtful accounts of $ nil and $ nil , respectively. 5. Prepaids and Deposits As of December 31, 2023 and 2022, prepaid and deposits consisted of the following: December 31, 2023 December 31, 2022 Prepaid expenses $ 957,645 $ 89,819 Deposits 113,893 24,376 Deferred share issuance and listing expense - 50,000 $ 1,071,538 $ 164,195 Prepaids and deposits - current 1,060,765 153,422 Deposits- non-current 10,773 10,773 As of December 31, 2023 and 2022, the security deposit on the Company’s long term lease in the amount of $ 10,773 and $ 10,773 , respectively, is classified as a non-current deposit on the balance sheet. 6. Inventory As of December 31, 2023 and 2022, inventory consisted of the following: December 31, 2023 December 31, 2022 Raw materials $ 279,514 $ 81,133 Work in progress 147,906 116,984 Finished goods 68,247 32,028 $ 495,667 $ 230,145 Cost of inventory recognized as expense in cost of sales for the years ended December 31, 2023 and 2022, totaled $ 363,082 and $ 251,580 , respectively. In addition, the cost of inventory relating to samples given out and expensed in marketing and promotion for the year ended December 31, 2023 and 2022 totaled $ 124,376 and $ 36,501 , respectively. As at December 31 2023, and December 31, 2022, the Company recorded an allowance for inventory of $ nil and $ nil , respectively. F- 17 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) 7. Property and Equipment Equipment Furniture and Fixtures Computers Total Cost Balance, December 31, 2021 $ 32,482 $ - $ - $ 32,482 Additions 24,222 8,365 2,940 35,527 Disposal ( 6,188 ) - - ( 6,188 ) Foreign currency translation - - ( 181 ) ( 181 ) Balance, December 31, 2022 $ 50,516 $ 8,365 $ 2,759 $ 61,640 Additions 2,658 8,533 - 11,191 Disposal - Foreign currency translation 61 61 Balance, December 31, 2023 $ 53,174 $ 16,898 $ 2,820 $ 72,892 Accumulated depreciation Balance, December 31, 2021 $ 2,757 $ - $ - $ 2,757 Depreciation 5,437 548 527 6,512 Disposal ( 1,142 ) - - ( 1,142 ) Foreign currency translation - - ( 22 ) ( 22 ) Balance, December 31, 2022 $ 7,052 $ 548 $ 505 $ 8,105 Depreciation 8,680 2,414 555 11,649 Foreign currency translation 19 19 Balance, December 31, 2023 $ 15,732 $ 2,962 $ 1,079 $ 19,773 Net book value December 31, 2022 $ 43,464 $ 7,817 $ 2,254 $ 53,535 December 31, 2023 $ 37,442 $ 13,936 $ 1,741 $ 53,119 During the years ended December 31, 2023 and 2022, the Company capitalized depreciation of $ 1,354 and $ 1,478 , respectively as part of the production of inventory. 8. Operating Lease During 2022, the Company entered into a noncancelable operating lease that includes two property location, one which is being used as the Company’s office and the other as its lab for research and development and the production of inventory. The lease had a commencement date of June 1, 2022 and expires on May 31, 2025, after which the term will continue on a month-to-month basis. On July 3 rd , 2023, the Company amended the terms of the previously entered lease agreement to lease additional office space from the lessor. Rent increased from $ 10,773 to $ 13,477 per month commencing July 1, 2023, through May 31, 2025. The lease amendment required a remeasurement of the lease liability which resulted in an increase of $ 47,986 to the lease liability and an equal increase in the right of use asset as of July 1, 2023. The Company recognized a total lease cost related to its noncancelable operating lease of $ 142,741 and $ 73,802 for the year ended December 31, 2023, and 2022, respectively. The lease cost has been allocated as follows based on the square footage of each property location. F- 18 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) December 31, 2023 December 31, 2022 Office space, recorded in office and administration 104,928 $ 51,745 Lab space, recorded in research and development 31,010 19,004 Lab space, capitalized to production of inventory 6,803 3,053 142,741 $ 73,802 As of December 31, 2023 and December 31, 2022, the Company recorded a security deposit of $ 10,773 (note 5). Future minimum lease payments under the Company’s operating lease that has an initial noncancelable lease term in excess of one year at December 31, 2023 are as follows: Year ended December 31, Total 2024 161,721 2025 67,384 Thereafter - 229,105 Less: Imputed interest ( 18,616 ) Operating lease liability 210,489 Operating lease lability – current 145,000 Operating lease lability – non-current $ 65,489 On July 3rd, 2023, the Company amended the terms of the previously entered lease agreement on July 4, 2022 to acquire more space. Rent shall increase to $ 13,476.75 per month commencing July 1, 2023. The Company used a discount rate of 11.50 % upon the remeasurement of the lease liability on July 1, 2023, compared to an original discount rate of 8 % on lease commencement, as its incremental cost of borrowing due to the amendment. The remaining lease term as of December 31, 2023, is 1.42 years (December 31, 2022 – 2.42 years). 9. Accounts Payable and Accrued Liabilities As of December 31, 2023 and 2022, accounts payable and accrued liabilities consisted of the following: December 31, 2023 December 31, 2022 Accounts payable $ 596,147 $ 210,840 Accrued liabilities 73,228 33,864 $ 669,375 $ 244,704 10. Notes Payable In April and May 2022, the Company issued promissory notes to five investors (including two related parties of the Company) for a total amount of $ 183,970 . The promissory notes carried simple interest at a rate of 8 % per annum. On July 15 2022, the promissory notes and accrued interest of $ 2,614 , converted into the Series A financing round in accordance with the original terms of the agreements. The conversion price was set at $ 0.80 ( 60 % of the Series A preferred shares financing round price) and as a result the noteholders received 231,828 Series A preferred shares. In addition, the conversion terms contained a 100 % warrant coverage ratio resulting in the note holders receiving 231,828 common stock purchase warrants with an exercise price of $ 2.01 ( 150 % of the Series A financing round price). F- 19 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) 11. Derivative liabilities On July 15, 2022, the Company issued 231,828 common stock purchase warrants with an exercise price of $ 2.01 as part of the conversion of promissory notes (Note 10). On November 21, 2023, the Company completed its Initial Public Offering (“IPO”) (Note 12) and issued 75,000 warrants (the “IPO warrants”). The IPO warrants are exercisable into one common share of the Company at $ 4 per share and expire on November 21, 2028 . We analyzed the common stock purchase warrants issued as partial settlement of the promissory notes payable and the IPO warrants against the requirements of ASC 480, Distinguishing Liabilities from Equity, and determined that the warrants should be classified as financial liabilities since the terms allows for a cashless net share settlement at the option of the holder. ASC 815, Derivatives and Hedging, requires that the warrants be accounted for as derivative liabilities with initial and subsequent measurement at fair value with changes in fair value recorded as other income (expense). A continuity of the Company’s common stock purchase derivative liability warrants is as follows: Derivative liabilities December 31, 2021 $ - Addition of new derivatives recognized as partial settlement of promissory notes 55,701 Change in fair value of derivative liabilities 12,754 Outstanding, December 31, 2022 $ 68,455 Addition of new derivatives during IPO 229,437 Change in fair value of derivative liabilities 71,266 Outstanding, December 31, 2023 $ 369,158 We determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes Option Pricing Model to calculate the fair value as of initial recognition and as of December 31, 2023 and 2022. The Black-Scholes Option Pricing Model requires six basic data inputs: the exercise or strike price, expected time to expiration or exercise, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The following assumptions were used in the Black-Scholes option pricing model: December 31, 2023 November 21, 2023 December 31, 2022 July 15, 2022 Risk-free interest rate 3.84 - 4.01 % 4.41 % 4.73 % 3.12 % Expected life 1 3.32 – 4.90 years 5 years 0.75 years 0.6 years Expected dividend rate 0.00 % 0.00 % 0.00 % 0.00 % Expected volatility 100 % 100 % 100 % 100.00 % F- 20 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) As of December 31, 2023, the following warrants were outstanding: Outstanding Expiry date 1 Weighted average exercise price ($) 75,840 April 27, 2027 2.01 63,037 April 27, 2027 2.01 80,388 April 27, 2027 2.01 12,563 April 27, 2027 2.01 75,000 November 21, 2028 4.00 306,828 2.49 As of December 31, 2023 and December 31, 2022, the weighted average life of derivative liability warrants outstanding was 3.71 and 4.36 years, respectively. 1 On April 28, 2023, the Company amended the warrant agreements for the 231,828 derivative liability warrants outstanding. The amendment removed the clause to automatically convert warrants to shares on IPO date and all warrants were given an expiry date of April 27, 2027 . This led to an increase in the expected life input in the Black-Scholes model as of December 31, 2023 compared to December 31, 2022, when the Company used the expected IPO date to calculate the expected life of the warrants. 12. Equity Common Stock Authorized As of December 31, 2023 and December 31, 2022, the Company had 300,000,000 and 19,000,000 common stock authorized, respectively, each having a par value of $ 0.0001 . Issued and outstanding As of December 31, 2023 and 2022, the Company had 17,329,615 and had 9,568,475 shares issued and outstanding, respectively Transactions during the year ended December 31, 2023 On January 6, 2023, the Company issued 62,500 common stock upon the exercise of 62,500 stock options with an exercise price of $ 0.60 per common stock for $ 37,500 , of which $ 6 was recognized in common stock and the remaining $ 37,494 in additional paid-in capital. On March 2, 2023, the Company issued 250,000 common stock and 250,000 common stock purchase warrants for $ 750,000 , of which $ 25 was recognized in common stock and the remaining $ 749,975 in additional paid-in capital. These warrants are accounted for as equity warrants. On April 14, 2023, the Company issued 97,861 common stock, of which $ 10 was recognized in common stock and the remaining $ 293,579 in additional paid-in capital. On May 15, 2023, the Company issued 10,000 common stock, of which $ 1 was recognized in common stock and the remaining $ 29,999 was recognized in additional paid-in capital. F- 21 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) On August 25, 2023, the Company issued 46,666 common stock, of which $ 5 was recognized in common stock and the remaining $ 139,995 was recognized in additional paid-in capital. On September 13, 2023, the Company issued 83,882 common stock and 99,998 common stock purchase warrants, of which $ 8 was recognized in the common stock and the remaining $ 249,996 was recognized in additional paid-in capital. These warrants are accounted for as equity warrants. On November 21, 2023, the Company completed its IPO and issued 1,500,000 common shares, of which $ 150 was recognized in common stock and the remaining $ 5,999,850 was recognized in additional paid in capital. The gross proceeds of the offering were $ 6,000,000 . The Company issued 75,000 underwriter warrants in connection with the IPO exercisable at $ 4 per warrant (Note 11). Additionally, the 213,730 series 1 preferred shares, 3,635,252 series 2 preferred shares, and 1,861,799 series A preferred shares were converted to common shares on a 1:1 basis. This conversion resulted in accordance with the original terms of the preferred shares and as such no gain or loss were recorded on the conversion. This resulted in the Company issuing a total of 5,710,781 common shares. In connection with the IPO financing, the Company paid share issuance costs of $ 762,194 consisting of $ 730,000 in underwriting fees, and $ 32,194 in other directly related expenses. The Company also incurred listing expenses in the amount of $ 450,079 in connection with its IPO. Transactions during the year ended December 31, 2022 On December 13, 2022, the Company issued 41,667 common stock upon the exercise of 41,667 stock options with an exercise price of $ 0.60 per common stock for $ 25,000 , of which $ 5 was recognized in common stock and the remaining $ 24,995 in additional paid-in capital. Preferred Stock Authorized As of December 31, 2023, the Company had 75,000,000 of all preferred stock authorized, each having a par value of $ 0.0001 per stock As of December 31, 2022, the Company had 213,730 stock of Series Seed 1 preferred stock authorized, each having a par value of $ 0.0001 per stock. As of December 31, 2022, the Company had 3,635,252 stock of Series Seed 2 preferred stock authorized, each having a par value of $ 0.0001 per stock. As of December 31, 2022, the Company had 2,982,003 stock of Series A preferred stock authorized, each having a par value of $ 0.0001 per stock. The holders of Preferred Stock shall have the right to convert their shares of Preferred Stock, at any time, into shares of Common Stock at a conversion price of 1:1. Issued and outstanding As of December 31, 2023 and 2022, the Company had Nil and 213,730 Series Seed 1 preferred stock issued and outstanding, respectively. As of December 31, 2023 and 2022, the Company had Nil and 3,635,252 Series Seed 2 preferred stock issued and outstanding, respectively. F- 22 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) As of December 31, 2023 and 2022, the Company had Nil and 1,861,799 Series A preferred stock issued and outstanding, respectively. Transactions during the year ended December 31, 2023 On November 21, the Company completed its IPO and converted the 213,730 series 1 preferred shares, 3,635,252 series 2 preferred shares, and 1,861,799 series A preferred shares into common shares on a 1:1 basis. Transactions during the year ended December 31, 2022 On July 15, 2022, the Company closed the first tranche of its Series A Financing and issued 1,090,029 Series A preferred shares for gross proceeds of $ 1,462,146 , of which $ 109 was recognized in preferred stock and the remaining $ 1,462,037 in additional paid-in capital. In addition, the Company issued 231,828 Series A preferred shares and 231,828 common stock purchase warrants upon conversion of $ 186,584 of promissory notes and accrued interest, of which $ 23 was recognized in preferred stock, $ 55,701 as derivative liabilities at fair value, and the remaining $ 130,860 in additional paid-in capital. On July 27, 2022, the Company closed the second tranche of its Series A Financing and issued 349,790 Series A preferred shares for gross proceeds of $ 469,207 , of which $ 35 was recognized in preferred stock and the remaining $ 469,172 in additional paid-in capital. On August 4, 2022, the Company closed the third tranche of its Series A Financing and issued 111,884 Series A preferred shares for gross proceeds of $ 150,080 , of which $ 11 was recognized in preferred stock and the remaining $ 150,069 in additional paid-in capital. On October 10, 2022, the Company closed the fourth tranche of its Series A Financing and issued 78,268 Series A Preferred shares for gross proceeds of $ 104,988 , of which $ 8 was recognized in preferred stock and the remaining $ 104,980 in additional paid-in capital. The Company incurred shared issuance cost of $ 33,132 in connection with its Series A Financing which has been recorded as a deduction from additional paid-in capital. Equity Warrants Transactions during the year ended December 31, 2023 On March 2, 2023, the Company issued 250,000 common stock and 250,000 common stock purchase warrants. Each warrant is exercisable at $ 3.00 per common stock. The warrants shall be exercisable, in whole or in part at the issue date but such exercisability shall cease upon the date of the Company’s IPO and listing of its common shares on the Nasdaq Capital Market or other Trading Market and shall continue to be exercisable in whole or in part immediately after the Lock-up Period but no later than the Warrant Expiration Date or Accelerated Warrant Expiration Date (the “Exercise Period”). In the event of the Company’s initial public offering and listing of shares of its common stock on a Trading Market, the Company shall notify the holder at least fifteen (15) calendar days prior to the consummation of such IPO. “Trading Market” shall mean a “national securities exchange” that has registered with the SEC under Section 6 of the Securities Exchange Act of 1934. The Expiration Date shall be the earlier of (i) three years and one hundred eighty (180) days from the issue date (the “Warrant Expiration Date”) or (ii) upon the Company’s reasonable judgment and written notice to the purchaser, of the Company’s option to accelerate the Warrant Expiration Date whereby upon purchaser’s receipt of the Company’s written notice of acceleration during the Exercise Period, the Purchaser’s option to exercise any number of warrants shall occur no later than fourteen (14) days following the receipt of the written notice of acceleration (the “Accelerated Warrant Expiration Date”). For the avoidance of doubt, it shall be reasonable for the Company to accelerate the Expiration Date of this warrant to coincide with transactions including, but not limited to (i) a change of control including but not limited to the voluntary or involuntary sale, assignment, transfer or other disposition, or transfer by operation of law, of more than 50 % of any direct or indirect equity interest of the Company; or (ii) a subsequent capital financing other than the IPO consisting of but not limited to an offer or proposal for, or indication of interest in, the issuance of debt or the capital stock of the Company. F- 23 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) On September 13, 2023, the Company issued 83,332 common stock and 99,998 common stock purchase warrants. Each warrant is exercisable at $ 3.00 per common stock. The Warrants shall be exercisable, in whole or in part immediately upon issuance, but such exercisability shall cease upon the date of the Company’s initial public offering (the “IPO”) and listing of its Common Shares on the Nasdaq Capital Market or other Trading Market (as defined herein) and will only become exercisable after the expiration of one hundred eighty (180) days following the Company’s initial public offering (the “Lock-up Period”). The expiration date shall be three years and one hundred eighty (180) days following the issuance of the Warrant Shares. Transactions during the year ended December 31, 2022. There was no equity warrant activity during the year ended December 31, 2022. As of December 31, 2023, the following equity warrants were outstanding: Outstanding Expiry date Weighted average exercise price ($) 250,000 August 28, 2026 3.00 99,998 March 12, 2027 3.00 349,998 3.00 As of December 31, 2022, there were no equity warrants outstanding. As of December 31, 2023, and December 31, 2022, the weighted average life of equity warrants outstanding was 2.81 and Nil years , respectively. Stock Options The Company has a stock option plan included in the Company’s 2020 Equity Incentive Plan (the “Plan”) where the Board of Directors or any of its committees can grant Incentive Stock Options, Nonstatutory Stock Options, and Restricted Stock to employees, advisors and directors of the Company. As of December 31, 2023 and 2022, the aggregate number of shares allocated and made available for issuance pursuant to stock options granted under the Plan shall not exceed 1,734,188 shares. The plan shall remain in effect until it is terminated by the Board of Directors. Transactions during the year ended December 31, 2023 On February 1, 2023, the Company granted 10,000 stock options with a contractual life of ten years and an exercise price of $ 5.00 per common stock. These stock options were valued at $ 10,767 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first anniversary of the grant date and the remaining 75 % vest evenly over 36 months thereafter. From May 12, 2023 to June 30, 2023, the Company granted 222,500 stock options (includes 80,000 each to two of its newly appointed independent directors) with a contractual life of ten years and an exercise price of $ 5.00 per common stock. These stock options were valued at $ 584,787 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first vesting date and the remaining 75 % vest evenly over 36 months thereafter. F- 24 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) On June 30, 2023, the Company cancelled and reissued 80,000 options previously issued to an advisor of the Company upon their appointment as a director effective June 1, 2023. The cancelled and re-issued options had the same exercise price of $ 5.00 per common stock and the same vesting terms and expiry date, and as such the cancellation and reissuance had no impact on the Company’s consolidated financial statements. On July 1, 2023, the Company granted 1,500 stock options with a contractual life of ten years and an exercise price of $ 5.00 per common stock. These stock options were valued at $ 3,940 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first vesting date and the remaining 75 % vest evenly over 36 months thereafter. Transactions during the year ended December 31, 2022 On April 25, 2022, the Company granted 45,000 stock options with a contractual life of ten years and exercise price of $ 0.60 per common stock. These stock options were valued at $ 11,617 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first anniversary of the grant date and the remaining 75 % vest evenly over 36 months thereafter. From June 1, 2022 to November 1, 2022, the Company granted 262,000 stock options with a contractual life of ten years and exercise price of $ 1.34 per common stock. These stock options were valued at $ 317,652 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first anniversary of the grant date and the remaining 75 % vest evenly over 36 months thereafter. From September 1, 2022 to December 12, 2022, the Company granted 105,000 stock options with a contractual life of ten years and exercise price of $ 5.00 per common stock. These stock options were valued at $ 115,868 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first anniversary of the grant date and the remaining 75 % vest evenly over 36 months thereafter. The following assumptions were used in the Black-Scholes option pricing model: December 31, 2023 December 31, 2022 Risk-free interest rate 3.39 % - 3.86 % 2.81 % - 4.07 % Expected life 10 years 10 years Expected dividend rate 0.00 % 0.00 % Expected volatility 100 % 100 % Forfeiture rate 0.00 % 0.00 % The continuity of stock options for the years ended December 31, 2023 and 2022 is summarized below: Number of stock options Weighted average exercise price Outstanding, December 31, 2021 1,133,334 $ 0.60 Granted 412,000 2.19 Forfeited ( 137,500 ) 0.60 Exercised ( 41,667 ) 0.60 Outstanding, December 31, 2022 1,366,167 1.08 Granted 234,000 5.00 Forfeited ( 14,583 ) 0.60 Exercised ( 62,500 ) 0.60 Outstanding, December 31, 2023 1,523,084 1.71 F- 25 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) As of December 31, 2023, the following options were outstanding, entitling the holders thereof the right to purchase one common stock for each option held as follows: Outstanding Vested Expiry date Weighted average exercise price ($) 841,667 613,722 February 8, 2031 0.60 35,417 35,417 February 27, 2031 0.60 45,000 18,750 April 25, 2032 0.60 16,000 6,000 June 1, 2032 1.34 110,000 38,958 July 1, 2032 1.34 100,000 33,333 August 8, 2032 1.34 16,000 2,708 September 30, 2032 1.34 80,000 25,000 September 30, 2032 5.00 10,000 2,918 October 15, 2032 1.34 10,000 5,000 November 1, 2032 1.34 5,000 1,354 November 1, 2032 5.00 20,000 5,000 December 12, 2032 5.00 10,000 - February 1, 2033 5.00 50,000 - April 16, 2033 5.00 80,000 - May 1, 2033 5.00 80,000 - January 25, 2033 5.00 10,000 - June 27, 2033 5.00 2,500 - July 10, 2033 5.00 1,500 - July 1, 2033 5.00 1,523,084 788,160 2.62 As of December 31, 2023 and 2022, the weighted average life of stock options outstanding was 7.84 years and 8.58 years, respectively. During the years ended December 31, 2023 and 2022, the Company recorded $ 487,738 and $ 171,869 , respectively, in share-based compensation expense, of which $ 476,905 and $ 10,833 , and $ 164,907 and $ 6,962 , respectively is included in office and administration and research and development, respectively. 13. Related Party Transactions Related parties consist of the following individuals and corporations: ● Braeden Lichti, Chairman and former President, significant shareholder through BWL Investments Ltd. Resigned as President effective October 11, 2022. ● Jordan Plews, CEO and Director, significant shareholder through JP Bio Consulting LLC ● Graydon Bensler, CFO and Director ● Yi Guo, Former Director, resigned effective September 29, 2022 ● Tim Sayed, Chief Medical Officer ● Brenda Buechler, Chief Marketing Officer ● Christoph Kraneiss, Chief Commercial Officer ● Jeffrey Parry, Director (appointed June 1, 2023) ● Julie Daley, Director (appointed June 1, 2023) ● Crystal Muilenburg, Director (appointed June 1, 2023) ● GB Capital Ltd., controlled by Graydon Bensler ● JP Bio Consulting LLC, significant shareholder and controlled by Jordan Plews ● BWL Investments Ltd., significant shareholder and controlled by Braeden Lichti ● Northstrive Companies Inc., controlled by Braeden Lichti Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of members of the Company’s Board of Directors, corporate officers, and individuals with more than 10 % control. F- 26 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) Remuneration attributed to key management personnel are summarized as follows: December 31, 2023 December 31, 2022 Consulting fees $ 230,000 $ 215,078 Salaries 633,957 403,180 Share-based compensation 357,349 129,980 $ 1,221,306 $ 748,238 During the year ended December 31, 2023, the Company incurred consulting fees of $ 110,000 (December 31, 2022 - $ 95,078 ) to GB Capital Ltd., a company controlled by Graydon Bensler, CFO and Director. In addition, the Company incurred consulting fees of $ 120,000 (December 31, 2022 - $ 120,000 ) to Northstrive Companies Inc., a company controlled by the Company’s Chairman and former President. Jordan Plews, CEO and Director, earned a Salary of $ 223,646 and $ 222,446 respectively during the year ended December 31, 2023 and 2022 (includes employer taxes of $ 23,646 and $ 12,446 , respectively). Brenda Buechler, Chief Marketing Officer, earned a Salary of $ 212,913 and $ 107,937 , respectively during the year ended December 31, 2023 and 2022 (includes employer taxes of $22 ,913and $ 7,937 respectively). Christoph Kraneiss, Chief Commercial Officer, earned a Salary of $ 197,398 and $ 72,792 , respectively during the year ended December, 2023 and 2022 (includes employer taxes of $ 17,398 and $ 5,292 , respectively). On February 9, 2021, the Company granted 800,000 stock options to four related parties ( 200,000 stock options each) with a contractual life of ten years and exercise price of $ 0.60 per share of common stock. These stock options were valued at $ 203,972 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first anniversary of the grant date and the remaining 75 % vest evenly over 36 months thereafter. On June 1, 2023, the Company granted 160,000 stock options to directors of the company ( 80,000 stock options each) with a contractual life of ten years and exercise price of $ 5.00 per share of common stock. These stock options were valued at $ 420,521 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first anniversary of the grant date and the remaining 75 % vest evenly over 36 months thereafter. On June 1, 2023, the Company cancelled and re-issued 80,000 stock options to a director of the company with a contractual life of ten years and exercise price of $ 5.00 per share of common stock. The cancelled and re-issued options had the same exercise price of $ 5.00 per common stock and the same vesting terms and expiry date, and as such the cancellation and reissuance is not expected to impact on the Company’s consolidated financial statements. (Note 12). Details of the fair value of the options granted to each individual and the related expense recorded for the year ended December 31, 2023 and 2022 are as follow: On July 20, 2021, the Company granted 200,000 stock options to a related party, Yi Guo, former Director, with a contractual life of ten years and exercise price of $ 0.60 per share of common stock. These stock options were valued at $ 51,014 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first anniversary of the grant date and the remaining 75 % vest evenly over 36 months thereafter. On October 17, 2022, Yi Guo resigned from the board of directors of the Company and as a result, 137,500 unvested options were forfeited. The remaining 62,500 vested option remain exercisable for 3 months after the resignation. The share-based compensation expense recorded for the years ended December 31, 2023 and 2022 relating to these stock options was Nil and $ 1,424 , respectively. F- 27 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) During 2023, the Company granted 250,000 stock options to two related parties ( 150,000 stock options to Brenda Buechler, Chief Marketing Officer, and 100,000 options to Christoph Kraneiss, Chief Commercial Officer) with a contractual life of ten years and weighted average exercise price of $ 1.22 per share of common stock. These stock options were valued at $ 264,906 using the Black-Scholes Option Pricing Model. The options vest 25 % on the first anniversary of the grant date and the remaining 75 % vest evenly over 36 months thereafter. Details of the fair value granted to each individual and the related expense recorded for the year ended December 31, 2023 is as follow: December 31, 2023 December 31, 2022 Fair value of stock options granted Braeden Lichti, Former Chairman and President $ 6,563 $ 14,181 $ 50,995 Graydon Bensler, CFO and Director 6,563 14,181 50,995 Jordan Plews, CEO and Director 6,563 14,181 50,995 Tim Sayed, Chief Medical Officer 6,563 14,181 50,995 Jeffrey Parry, Director 29,855 - 107,669 Julie Daley, Director 98,613 - 210,245 Crystal Muilenburg, Director 82,252 - 210,245 Brenda Buechler, Chief Marketing Officer 62,705 - 143,671 Christoph Kraneiss, Chief Commercial Officer 57,672 - 121,243 $ 357,349 $ 56,724 $ 997,053 As of December 31, 2023 and 2022, the Company had $ 22,455 and $ 142,705 , respectively due to companies controlled by Braeden Lichti, of which $ 22,455 and $ 22,705 , respectively is unsecured, non-interest bearing and are due on demand. As of December 31, 2023, the Company had $ 34,378 (December 31, 2022 - $ 7,165 ) in consulting fees due to Graydon Bensler, CFO and Director, $ 15,143 (December 31, 2022 - $ 1,485 ) due to companies controlled by Braeden Lichti, and $ 4,272 and $ 879 (December 31, 2022 - $ 2,971 and $ Nil ) due to Jordan Plews, CEO and Director, and Christopher Kraneiss, Chief Commercial Officer, respectively, for expenses incurred on behalf of the Company. 14. Income Tax During the years ended December 31, 2023 and 2022, there is $ Nil and $ Nil current and deferred income tax expense, respectively, reflected in the Statement of Operations and Comprehensive Loss. The following are the components of income before income tax reflected in the Consolidated Statement of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022: Component of Loss Before Income Tax December 31, 2023 December 31, 2022 Net loss before income tax $ ( 4,301,517 ) $ ( 1,800,268 ) Effective tax rate 27.87 % 27.87 % Expected recovery ( 1,198,833 ) ( 501,735 ) Share-based compensation 135,947 47,906 Other non-deductible items 19,864 3,555 Foreign exchange ( 2,168 ) 3,602 Tax rate differences 1,031 1,292 Change in valuation allowance 1,044,159 445,380 Tax expense (recovery) - - F- 28 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the ability to recover the deferred tax assets within the jurisdiction from which they arise, the Company considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial operations. In projecting future taxable income, the Company began with historical results adjusted for changes in accounting policies and incorporates assumptions including the amount of future pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgement about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage the underlying businesses. In evaluating objective evidence that historical results provide, the Company consider three years of cumulative operating income (loss). During the year ended December 31, 2023, the Company had aggregate net operating losses for income tax purposes of $ 4,168,622 (2022 – $ 1,615,645 ) to offset future taxable income in the United States and Canada. As of December 31, 2023, the deferred tax asset related to these loss carry forwards amounted to approximately $ 1,710,000 (2022 - $ 662,000 ) and were fully reserved. Management believes that it is not yet more likely than not that these assets will be realized in the near future. 15. Commitments and Contingencies There were no commitments as of December 31, 2023 and 2022 or during the years then ended. The Company had an ongoing dispute with a vendor regarding unpaid invoices. The Company disputed the services claimed to have been rendered by the vendor. In May 2023, the Company and the vendor agreed to settle the matter, resulting in the Company agreeing to pay a final settlement of Cnd$ 12,500 (approximately $ 9,225 ), an amount that is significantly less than the unpaid invoices originally claimed by the vendor. The Company included the settlement amount in accrued liabilities as of December 31, 2022 and the amount was paid over to the vendor during the year ended December 31, 2023. Upon the Company’s 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. The Company 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, The Company received correspondence from Health Canada, advising that Health Canada had reviewed certain undisclosed information about the Company’s products. Health Canada advised 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, The Company 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 Company’s engagement with Health Canada, the Company’s 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 $ 158,603 to our total revenue of $ 1,712,595 , representing about 9.26 % of total revenue for the year ended December 31, 2023. As of March 18, 2024, the Company has voluntarily stopped sale of its products in Canada. The Company is working with Canadian regulatory and legal counsel to explore options to rectify the issues raised. This will impede sales in Canada until resolved and raises concerns about our future collaboration with our distributor, Evolve Medical Inc. F- 29 Elevai Labs Inc. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 (Expressed in United States dollars) 16. Concentrations Customers For the year ended December 31, 2023, the Company recorded 34 % of its revenue from its 3 largest customers. The Company’s largest customer, representing $ 234,800 of revenue, relates to sales to a wholesaler during the period. During the year ended December 31, 2022, the Company recorded 54 % of its revenue from its two largest customers, each representing 45 % and 9 % respectively. The Company’s largest customer, representing $ 344,018 of revenue, relates to a white label distributor agreement signed during the year. As of December 31, 2023, the Company had $ 49 receivables due from these customers and $ 7,500 in customer deposits were received from its largest customer. The Company expects its dependence on these major customers to decrease over time as it enters into additional distributor agreements and builds out its sales team. Suppliers During the year end December 31, 2023, and 2022, the Company had 3 key suppliers that represented approximately 73 % and 3 key suppliers that represented approximately 64 %, respectively, of the cost incurred in the purchase and production of inventory. The table below represents a breakdown of each supplier as a percentage of the cost incurred (Suppliers are shown from largest to smallest and does not necessarily represent the same suppliers period over period): December 31, 2023 December 31, 2022 Supplier 1 32 % 39 % Supplier 2 29 % 14 % Supplier 3 12 % 11 % 73 % 64 % The Company continually evaluates the performance of its suppliers and the availability of alternatives to substitute or supplement its inventory production supply chain. The Company believes that a breakdown in supply from one of its key suppliers would be overcome in a short amount of time given the availability of alternatives. 17. Subsequent Events Management has evaluated events subsequent to the year ended December 31, 2023 up to March 28, 2024, for transactions and other events that may require adjustment of and/or disclosure in the consolidated financial statements. From January 2 to February 13, 2024, the Company issued 12,500 stock options to purchase common stock of the company at an exercise price equal to $ 5.00 per share that mature in 10 years. On March 6, 2024, Health Canada notified the Company that it has classified the Company’s products as a drug. This classification could impede sales in Canada and raises concerns about our future collaboration with our distributor, Evolve Medical Inc (Note 15) On March 6, 2024, the Company issued 80,000 stock options to purchase common stock of the Company at an exercise price equal to $ 1.00 per share that mature in 10 years. Additionally, 160,000 stock options previously issued were repriced from $ 5.00 per share to $ 1.00 per share. F- 30