Elevai Labs Inc

Previous wording

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website atwww.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Current wording

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website atwww.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Previous wording

During the three months ended June 30, 2023, and 2022, the Company sold 3,030 and 1,607 bottles of Enfinity, respectively, an increase of 2,556 bottles or 539%. In addition, the Company sold 378 (eight packs) of Empower tubes in 2024, compared to 310 (eight packs) of Empower tubes during 2023, and an increase of 68 (eight packs) or 22%. The increase in sales volumes is primarily due to enhanced market acceptance, continued growth in the number of US accounts, onboarding of international distributors, and repeat business from current customers and distributors.

Current wording

During the nine months ended September 30, 2024, and 2023, the Company sold 8,600 and 4,469 bottles of Enfinity, respectively, an increase of 4,131 bottles or 92%. In addition, the Company sold 1,232 (eight packs) of Empower tubes in 2024, compared to 969 (eight packs) of Empower tubes during 2023, and an increase of 263 (eight packs) or 27%. The increase in sales volumes is primarily due to enhanced market acceptance, continued growth in the number of US accounts, onboarding of international distributors, and repeat business from current customers and distributors. During the nine months ended September 30, 2023, the Company also sold its media containing its Elevai Exosomes TM under a white label deal. This white label distribution agreement ended on January 16, 2024.

Previous wording

The increase in cost of revenue is directly attributed to the increase in sales during the six months ended June 30, 2024, compared to 2023. The following is a breakdown of the components of cost of revenue:

Current wording

The increase in cost of revenue is directly attributed to the increase in sales during the nine months ended September 30, 2024, compared to 2023. The following is a breakdown of the components of the cost of revenue:

Previous wording

Gross profit for the six months ended June 30, 2024, was $884,906, as compared to $306,737 for the six months ended June 30, 2023, an increase of $578,169. This represents an overall gross margin percentage of 73% for six months ended June 30, 2024, compared to 67% in 2023. The overall increase in gross margin percentage is primarily due to the Company selling Enfinity at a higher gross margin due to less commissions paid to salespersons compared to overall sales. Additionally, the cost to produce each unit of Enfinity decreased as the company saw gross margin improvements due to operational efficiencies gained and securing better volume pricing with some of its key suppliers.

Current wording

Gross profit for the nine months ended September 30, 2024, was $1,278,807, as compared to $672,882 for the nine months ended September 30, 2023, an increase of $605,925. This represents an overall gross margin percentage of 73% for the nine months ended September 30, 2024, compared to 66% in 2023. The overall increase in gross margin percentage is primarily due to the Company selling Enfinity at a higher gross margin due to less commissions paid to salespersons compared to overall sales. Additionally, the cost to produce each unit of Enfinity decreased as the Company saw gross margin improvements due to operational efficiencies gained and securing better volume pricing with some of its key suppliers.

Previous wording

Research and development expenses for the three months ended June 30, 2024, were $52,385 compared to $133,654 for the three months ended June 30, 2023, a decrease of $81,269. Research and Development related to the Company’s Enfinity, Empower and development of new products for the Company. The decrease in R&D is mainly driven by the company performing more tests on new products to improve formulation efficiency in the three months ended June 30, 2023. During both the three months ended June 30, 2024, and 2023, the Company’s lab staff worked on increasing the efficiency and refining the production process.

Current wording

Research and development expenses for the nine months ended September 30, 2024, were $268,786 compared to $303,769 for the nine months ended September 30, 2023, a decrease of $34,983. Research and Development related to the Company’s Enfinity and Empower products, and development of new products for the Company. The decrease in research and development is mainly driven by the company performing more tests on new products to improve formulation efficiency in the nine months ended September 30, 2023. During both the nine months ended September 30, 2024 and 2023, the Company’s laboratory staff worked on increasing efficiency and refining the production process. The decrease in this expense is partially offset by amortization of intangible assets of $61,019 and $Nil that was recognized in research and development expenses during the years ended September 30, 2024 and 2023, respectively.

Previous wording

Marketing and promotion expenses for the six months ended June 30, 2024, were $1,114,527 compared to $216,727 for the six months ended June 30, 2023, an increase of $897,800. During the six months ended June 30, 2024, the Company increased its marketing and promotion efforts to drive sales and support the Company’s existing customers, which included giving out product samples with a cost of $92,907 (six months ended June 30, 2023 - $64,718), and attending and sponsoring industry conferences.

Current wording

Marketing and promotion expenses for the nine months ended September 30, 2024, were $1,209,041 compared to $316,436 for the nine months ended September 30, 2023, an increase of $892,605. During the nine months ended September 30, 2024, the Company increased its marketing and promotion efforts to drive sales and support the Company’s existing customers, which included incurring digital advertising costs of $388,283, public relations costs of $331,317, giving out product samples with a cost of $127,919 (nine months ended September 30, 2023 - $96,184), and attending and sponsoring industry conferences.

Previous wording

Office and administrative expenses for the six months ended June 30, 2024, were $1,542,564, compared to $964,009 for the six months ended June 30, 2023, an increase of $578,555. The increase is mainly the result of salaries and wages of $1,044,465 and office rent of $69,665 incurred during the six months ended June 30, 2024, compared to $608,150 and $54,138 in the six months ended June 30, 2023, a combined increase of $415,842. Additionally, the increase is a result on insurance costs of $234,801 during the six months ended June 30, 2024, compared to $23,646 in the six months ended June 30, 2023. The Company increased its headcount and moved into a larger office location to accommodate the commercialization of its products and growth in operations in July 2023. The Company also was required to purchase director and officer insurance in the current period as the Company was now publicly traded. During the six months ended June 30, 2024, office and administrative expenses also include share-based compensation of $7,875, compared to $178,736 in the six ended June 30, 2023. The decrease is due to a director resigning on February 29, 2024, the termination of the Chief Marketing Officer and the Chief Commercial Officer and the termination of three other employees in June 2024. This resulted in the forfeiture of 266,605 options, as well as resulting in the reversal of the share-based compensation.

Current wording

Office and administrative expenses for the nine months ended September 30, 2024, were $2,096,372, compared to $1,628,931 for the nine months ended September 30, 2023, an increase of $467,441. The increase is mainly the result of salaries and wages of $1,310,420 and office rent of $106,694 incurred during the nine months ended September 30, 2024, compared to $1,000,313 and $89,600 of salaries and wages and office rent, respectively, in the nine months ended September 30, 2023, a combined increase of $327,201. Additionally, the increase is a result on insurance costs of $352,222 during the nine months ended September 30, 2024, compared to $23,804 in the nine months ended September 30, 2023, as the Company was required to purchase director and officer insurance due to being publicly traded. The Company increased its headcount and moved into a larger office location to accommodate the commercialization of its products and growth in operations in July 2023. During the nine months ended September 30, 2024, office and administrative expenses also include share-based compensation of $53,977, compared to $337,551 in the nine ended September 30, 2023. This decrease is due to a director resigning on February 29, 2024, the termination of the Chief Marketing Officer and the Chief Commercial Officer and the termination of four other employees in June 2024, and the resignation of the Chief Medical Officer in August 2024. This resulted in the forfeiture of 394,990 options, as well as resulting in the reversal of the share-based compensation.

Previous wording

Consulting fees for the three months ended June 30, 2024, were $185,443, compared to $149,723 for the three months ended June 30, 2023, an increase of $35,720. During the three months ended June 30, 2024, and 2023, the Company incurred consulting fees in relation to recruitment, strategic introductions, business advisory, international relations, and strategy. In addition, the Company received services from a number of parties (including companies controlled by related parties and Chief Financial Officer) in a consulting capacity. The increase in consulting fees is consistent with the increase in operations.

Current wording

Consulting fees for the nine months ended September 30, 2024, were $817,030, compared to $316,468 for the nine months ended September 30, 2023, an increase of $500,562. During the nine months ended September 30, 2024, and 2023, the Company incurred consulting fees in relation to recruitment, strategic introductions, business advisory, international relations, and strategy. In addition, the Company received services from a number of parties (including companies controlled by related parties and Chief Financial Officer (“CFO”)) in a consulting capacity. The increase in consulting fees is consistent with the increase in operations.

Previous wording

Professional fees for the six months ended June 30, 2024, was $338,065, compared to $306,730 for the six months ended June 30, 2023, an increase of $31,335. Professional fees comprise of legal, audit and accounting services. The increase during the six months ended June 30, 2024, is primarily due to an increase in audit, legal and accounting services as the company is now listed on the Nasdaq exchange.

Current wording

Professional fees for the nine months ended September 30, 2024, was $587,954, compared to $450,384 for the nine months ended September 30, 2023, an increase of $137,570. Professional fees comprise of legal, audit and accounting services. The increase during the nine months ended September 30, 2024 is primarily due to an increase in audit, legal and accounting services as the company is now listed on the Nasdaq.

Previous wording

Travel and entertainment for the six months ended June 30, 2024, was $116,229, compared to $184,170 for the six months ended June 30, 2023, a decrease of $67,941. Travel and entertainment expenses are related primarily to costs incurred during the attendance of industry trade shows and conferences. The decrease relates to less conferences and trade shows visited by staff of the Company in the six months ended June 30, 2024.

Current wording

Travel and entertainment for the nine months ended September 30, 2024, was $160,612, compared to $250,000 for the nine months ended September 30, 2023, a decrease of $89,388. Travel and entertainment expenses are related primarily to costs incurred during the attendance of industry trade shows and conferences. The decrease relates to fewer conferences and trade shows visited by staff of the Company in the nine months ended September 30, 2024.

Previous wording

Investor relations for the six months ended June 30, 2024, was $104,622, compared to $75,720 for the six months ended June 30, 2024. The increase in investor relations spending is consistent with the Company’s growth strategy, which includes promotion to current and potential investors as the company is listed on the Nasdaq exchange.

Current wording

Investor relations expenses for the nine months ended September 30, 2024, was $141,484, compared to $84,820 for the nine months ended September 30, 2023. The increase in investor relations expenses is consistent with the Company’s growth strategy, which includes promotion to current and potential investors as the company is now listed on the Nasdaq.

Previous wording

During the six months ended June 30, 2024, and 2023, the Company sold 5,984 and 2,081 bottles of Enfinity, respectively, an increase of 3,903 bottles or 188%. In addition, the Company sold 944 (eight packs) of Empower tubes in 2024, compared to 486 (eight packs) of Empower tubes during 2023, and an increase of 458 (eight packs) or 94%. The increase in sales volumes is primarily due to enhanced market acceptance, continued growth in the number of U.S. accounts, onboarding of international distributors, and repeat business from current customers and distributors.

Current wording

During the three months ended September 30, 2024, and 2023, the Company sold 2,616 and 2,388 bottles of Enfinity, respectively, an increase of 228 bottles or 10%. This increase in sales volumes is primarily due to increased market acceptance, continued growth in the number of US accounts, onboarding of international distributors, and repeat business from current customers and distributors. The Company sold 288 (eight packs) of Empower tubes in 2024, compared to 483 (eight packs) of Empower tubes during 2023, a decrease of 195 (eight packs) or 40%. During the three months ended September 30, 2024, the Company sold 100 units of its scalp and hair cleanser. During the three months ended September 30, 2023, the Company sold 48 liters under a white label distributor agreement. The Company no longer earns revenue from this white label distributor.

Previous wording

The increase in cost of revenue is directly attributed to the increase in sales during the three months ended June 30, 2024, compared to 2023. The following is a breakdown of the components of cost of revenue:

Current wording

The decrease in cost of revenue is partly attributable to the decrease in sales during the three months ended September 30, 2024, compared to 2023. However, the Company managed to increase gross margin despite the decline in sales as explained further below. The following is a breakdown of the components of the cost of revenue:

Previous wording

Gross profit for the three months ended June 30, 2024, was $439,254 as compared to $208,350 for the three months ended June 30, 2023, an increase of $230,904. This represents an overall gross margin percentage of 73% for three months ended June 30, 2024, compared to 66% in 2023. The overall increase in gross margin percentage is primarily due to the Company selling Enfinity at a higher gross margin due to less commissions paid to salespersons compared to overall sales. Additionally, the cost to produce each unit of Enfinity decreased as the company saw gross margin improvements due to operational efficiencies gained and securing better volume pricing with some of its key suppliers.

Current wording

Gross profit for the three months ended September 30, 2024, was $393,901 as compared to $366,145 for the three months ended September 30, 2023, an increase of $27,756. This represents an overall gross margin percentage of 75% for three months ended September 30, 2024, compared to 66% in 2023. The overall increase in gross margin percentage is primarily due to the Company selling Enfinity at a higher gross margin due to less commissions paid to salespersons compared to overall sales. Additionally, the cost to produce each unit of Enfinity decreased as the company saw gross margin improvements due to operational efficiencies gained and securing better volume pricing with some of its key suppliers.

Previous wording

Research and development expenses for the six months ended June 30, 2024, were $173,526 compared to $217,395 for the six months ended June 30, 2023, a decrease of $43,869. Research and Development related to the Company’s Enfinity, Empower and development of new products for the Company. The decrease in R&D is mainly driven by the company performing more tests on new products to improve formulation efficiency in the six months ended June 30, 2023. During both the six months ended June 30, 2024 and 2023, the Company’s lab staff worked on increasing efficiency and refining the production process.

Current wording

Research and development expenses for the three months ended September 30, 2024, were $95,260 compared to $86,374 for the three months ended September 30, 2023, an increase of $8,886. Research and development related to the Company’s Enfinity, Empower and development of new products for the Company. This increase in research and development expenses is mainly due to the amortization of intangible assets and increased consulting fees related to research and development in the current period. During both the three months ended September 30, 2024, and 2023, the Company’s lab staff worked on increasing efficiency and refining the production process.

Previous wording

Office and administrative expenses for the three months ended June 30, 2024, were $663,956, compared to $529,950 for the three months ended June 30, 2023, an increase of $134,006. The increase is mainly the result of salaries and wages of $487,693 and office rent of $35,472 incurred during the three months ended June 30, 2024, compared to $272,620 and $28,862 in the three months ended June 30, 2023, a combined increase of $221,683. Additionally, the increase is a result on insurance costs of $117,401 during the three months ended June 30, 2024, compared to $19,251 in the three months ended June 30, 2023. The Company increased its headcount and moved into a larger office location to accommodate the commercialization of its products and growth in operations in July 2023. The company also was required to purchase director and officer insurance in the current period as the Company was now publicly traded. During the three months ended June 30, 2024, office and administrative expenses also include share-based compensation of $(46,054), compared to $106,834 in the three ended June 30, 2023. The decrease is due to a director resigning on February 29, 2024, the termination of chief marketing officer and chief commercial officer and the termination of three other employees in June 2024. This resulted in the forfeiture of 208,272 options, as well as resulting in the reversal of the share-based compensation.

Current wording

Office and administrative expenses for the three months ended September 30, 2024, were $553,808, compared to $664,922 for the three months ended September 30, 2023, a decrease of $111,114. This decrease is mainly attributable to a decrease in the share-based compensation recognized in office and administrative expenses from $158,815 for the three months ended September 30, 2023 to $43,493 for the three months ended September 30, 2024. This decrease is due to a director resigning on February 29, 2024, the termination of the Chief Marketing Officer and the Chief Commercial Officer and the termination of three other employees in June 2024, and the resignation of the Chief Medical Officer in August 2024. These terminations and resignations all have an impact of decreasing share-based compensation for the three months ended September 30, 2024. Payroll also decreased from $392,163 to $265,957 during the three months ended September 30, 2024, compared to 2023, which is also attributable to these terminations and resignations.

Previous wording

Consulting fees for the six months ended June 30, 2024, were $581,569, compared to $233,687 for the six months ended June 30, 2023, an increase of $347,882. During the six months ended June 30, 2024, and 2023, the Company incurred consulting fees in relation to recruitment, strategic introductions, business advisory, international relations and strategy. In addition, the Company received services from a number of parties (including companies controlled by related parties and the Chief Financial Officer) in a consulting capacity. The increase in consulting fees is consistent with the increase in operations.

Current wording

Consulting fees for the three months ended September 30, 2024, were $235,461, compared to $82,781 for the three months ended September 30, 2023. This represents an increase of $152,680 from the three months ended September 30, 2023 to the three months ended September 30, 2024. During the three months ended September 30, 2024, and 2023, the Company incurred consulting fees in relation to recruitment, strategic introductions, business advisory, international relations, and strategy. In addition, the Company received services from a number of parties (including companies controlled by related parties and CFO) in a consulting capacity. The increase in consulting fees is consistent with the increase in operations.

Previous wording

Professional fees for the three months ended June 30, 2024, was $158,143, compared to $168,933 for the three months ended June 30, 2023, a decrease of $10,790. Professional fees comprise of legal, audit and accounting services. The decrease is primarily due to the company required increased accounting, legal and audit services in preparation of the Company’s initial public offering in the 2023 period.

Current wording

Professional fees for the three months ended September 30, 2024, were $249,889, compared to $143,654 for the three months ended September 30, 2023, an increase of $106,234. Professional fees were comprised of legal, audit and accounting services. The increase during the three months ended September 30, 2024 is primarily due to an increase in audit, legal and accounting services as the company is now listed on the Nasdaq.

Previous wording

Travel and entertainment for the three months ended June 30, 2024, was $ 57,121, compared to $122,655 for the three months ended June 30, 2023, a decrease of $65,534. Travel and entertainment expenses are related primarily to costs incurred during the attendance of industry trade shows and conferences. The decrease relates to less conferences and trade shows visited by staff of the Company in the three months ended June 30, 2024.

Current wording

Travel and entertainment expenses for the three months ended September 30, 2024 were $44,383, compared to $65,830 for the three months ended September 30, 2023, a decrease of $21,447. Travel and entertainment expenses are related primarily to costs incurred during the attendance of industry trade shows and conferences. The decrease relates to less conferences and trade shows visited by staff of the Company in the three months ended September 30, 2024.

Previous wording

As of June 30, 2024, and December 31, 2023, the Company had a net working capital of $95,872 and $3,622,091, respectively, and has an accumulated deficit of $9,833,631 and $7,023,890, respectively. Furthermore, for the six months ended June 30, 2024, and 2023, the Company incurred a net loss of $2,809,741 and $2,360,554, respectively and used $3,104,757 and $1,654,262, respectively of cash flows for operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Current wording

As of September 30, 2024, and December 31, 2023, the Company had a net working capital of $6,097,404 and $3,622,091, respectively, and has an accumulated deficit of $11,334,888 and $7,023,890, respectively. Furthermore, for the nine months ended September 30, 2024, and 2023, the Company incurred a net loss of $4,310,998 and $3,143,601, respectively and used $3,486,435 and $2,168,661, respectively of cash flows for operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Previous wording

Our principal liquidity requirements are for working capital, capital expenditure, research and development and inventory production. We fund our liquidity requirements primarily through cash on hand, cash flows from operations and the issuance of common and preferred stock. As of June 30, 2024, we had cash of $100,034, with $3,326,851 as of December 31, 2023.

Current wording

Our principal liquidity requirements are for working capital, capital expenditure, research and development and inventory production. We fund our liquidity requirements primarily through cash on hand, cash flows from operations, the issuance of common, warrants and preferred stock, and the issuance of notes. As of September 30, 2024, we had cash of $6,425,670, with $3,326,851 as of December 31, 2023.

Previous wording

For the six months ended June 30, 2024, net cash flows used in operating activities was $3,104,757 compared to $1,654,262 used during the six months ended June 30, 2024, respectively, primarily due to net loss and timing of settlement of assets and liabilities.

Current wording

For the nine months ended September 30, 2024, net cash flows used in operating activities was $3,486,435 compared to $2,168,661 used during the nine months ended September 30, 2024, respectively, primarily due to net loss and timing of settlement of assets and liabilities.

Previous wording

During the six months ended June 30, 2024, and 2023, we used $121,480 and $11,191, respectively, in investing activities primarily related to the purchase of equipment for our lab space to be used on the production of inventory and research and development. In the six months ended June 30, 2024, the Company paid $112,320 for an intangible asset relating to the purchase of a license to produce stem cells.

Current wording

During the nine months ended September 30, 2024, and 2023, we used $171,480 and $11,191, respectively, in investing activities. In the current period this cash flow primarily related to the payment of $162,320 for intangible assets relating to the purchase of a license to produce stem cells and the purchase of rights to develop, manufacture and commercialize licensed products. The cash flow during the current period also relates to the purchase of equipment for our laboratory space to be used for the production of inventory and research and development.

Previous wording

During the six months ended June 30, 2024, we had cash flow provided by financing activities of $nil compared to cash flow provided by financing activities of $1,111,089 in the six months ended June 30, 2023. During the six months ended June 30, 2023, the Company raised $1,073,589 through the issuance of common stock and common stock purchase warrants, and another $37,500 upon the exercise of stock options in exchange for common stock.

Current wording

During the nine months ended September 30, 2024, we had net cash flow provided by financing activities of $6,757,501 compared to cash flow provided by financing activities of $1,501,086 in the nine months ended September 30, 2023. During the nine months ended September 30, 2024, and 2023, the Company raised $6,993,059 and $1,463,586, respectively, through the issuance of common stock and common stock purchase warrants; $914,442 and $Nil, respectively, through the issuance of notes; and $Nil and $37,500, respectively, upon the exercise of stock options in exchange for common stock. The cash provided by financing activities during the nine months ended September 30, 2024, was partially offset by the repayment of notes of $1,150,000.

Previous wording

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, the collectability of receivables, valuation of inventory, fair value of derivative liabilities and stock options, useful lives and recoverability of long-lived assets, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined.

Current wording

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, the collectability of receivables, valuation of inventory, fair value of derivative liabilities and stock options, useful lives and recoverability of long-lived assets, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined.

Previous wording

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 six months ended June 30, 2024, and 2023.

Current wording

The Company is responsible for providing the products to customers. As a result, the Company is considered the principal when providing products to customers. As the Company collects payment at the time of the customer order, its contracts do not have a significant financing component. Customers are entitled to replacement or full refund of any damaged or defective product, after the return of the damaged or defective product to the Company. There were no significant returns or refunds during the nine months ended September 30, 2024, and 2023.

Previous wording

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.

Current wording

Non-employees - During June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. Under the requirements of ASU 2018-07, the Company accounts for share-based compensation to non-employees under the fair value method which requires all such compensation to be calculated based on the fair value at the measurement date (generally the grant date) and recognized in the statement of operations over the requisite service period.

Previous wording

During the six months ended June 30, 2024, and 2023, the Company recorded $10,484 and $185,068, respectively, in share-based compensation expense, of which $7,875 and $2,609, and $178,735 and $6,333, respectively is included in office and administration and research and development, respectively.

Current wording

During the nine months ended September 30, 2024, and 2023, the Company recorded $57,521 and $346,548, respectively, in share-based compensation expense, of which $53,977 and $337,550, and $3,544 and $8,998, respectively is included in office and administration and research and development, respectively.

Previous wording

Determining the appropriate fair value model and the related assumptions requires judgment. During the six months ended June 30, 2024, and year ended December 31, 2023, the fair value of each option grant was estimated using a Black-Scholes option-pricing model.

Current wording

Determining the appropriate fair value model and the related assumptions requires judgment. During the nine months ended September 30, 2024, and year ended December 31, 2023, the fair value of each option grant was estimated using a Black-Scholes option-pricing model.

Previous wording

For the six months ended June 30, 2024, the Company recorded 10% of its revenue from its largest customer. The Company’s largest customer, representing $120,000 of revenue, relates to sales to a distributor during the period. During the six months ended June 30, 2023, the Company recorded 16% of its revenue from its largest customer. The Company’s largest customer, representing $73,548 of revenue, relates to a distributor agreement.

Current wording

For the nine months ended September 30, 2024, no single customer represented 10% or more of the Company’s revenue. During the nine-month period ended September 30, 2023, the Company recorded 14% of its revenue from its largest customers. The Company’s largest customer, representing $139,149 of revenue, relates to sales to a wholesaler during the period.

Previous wording

During the six months ended June 30, 2024, and 2023, the Company had 3 key suppliers that represented approximately 66% and 3 key suppliers that represented approximately 65%, 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):

Current wording

During the nine months ended September 30, 2024, and 2023, the Company had 3 key suppliers that represented approximately 78% and 3 key suppliers that represented approximately 66%, respectively, of the cost incurred in the purchase and production of inventory. The table below represents a breakdown of each supplier as a percentage of the cost incurred. (Suppliers are shown from largest to smallest and do not necessarily represent the same suppliers period over period):

Previous wording

Our Corporate Governance and Nominating Committee of our Board of Directors are required to approve all related party transactions. All related party transactions will be made or entered into on terms that are no less favorable to use than can be obtained from unaffiliated third parties.

Current wording

The Corporate Governance Committee of our Board of Directors is required to approve all related party transactions. All related party transactions are made or entered into on terms that are no less favorable to use than can be obtained from unaffiliated third parties.