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As filed with the Securities and Exchange Commission on January 22, 2024.

 

Registration No. 333-

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM F-1

 

REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933

 

Bruush Oral Care Inc.

(Exact name of Registrant as specified in its charter)

 

British Columbia, Canada   3843   N/A

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

128 West Hastings Street, Unit 210

Vancouver, British Columbia V6B 1G8

Canada

(844) 427-8774

(Address, including zip code, and telephone number, including

area code, of Registrant’s principal executive offices)

 

Cogency Global Inc.

122 East 42nd Street, 18th Floor

New York, NY 10168

(800) 221-0102

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Joseph M. Lucosky, Esq.

Seth A. Brookman, Esq.

Lucosky Brookman LLP

101 Wood Avenue South, 5th Floor

Woodbridge, NJ 08830

(732) 395-4402

jlucosky@lucbro.com

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

 

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to section 8(a), may determine.

 

 

 

 

 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS SUBJECT TO COMPLETION DATED [●], 2024

 

 

 

 

198,111,489 Common Shares

 

This prospectus relates to the offer and sale, from time to time, by the selling securityholders named herein (the “Selling Securityholders”) of an aggregate of up to 198,111,489 common shares without par value (“Common Shares”) of Bruush Oral Care Inc. (the “Company”), consisting of (i) 5,000,000 Common Shares issuable upon exercise of the Second June 2023 Target Prefunded Warrant (as defined herein), (ii) 10,000,000 Common Shares issuable upon exercise of the December 2023 Target Prefunded Warrant (as defined herein), (iii) 16,500,000 Common Shares issuable upon exercise of the January 2024 Alpha Pre-Funded Warrant (as defined herein), (v) 44,444,444 Common Shares issuable upon exercise of the January 2024 Alpha Warrant (as defined herein), (vi) 51,034,857 Commitment Shares, and (vi) 71,132,188 issuable upon conversion of the January 2024 Alpha Note (as defined herein).

 

The Selling Securityholders may sell Common Shares at market prices prevailing at the times of sale, prices related to the prevailing market prices or negotiated prices. The Selling Securityholders may offer Common Shares to or through underwriters, dealers or other agents, directly to investors or through any other manner permitted by law, on a continued or delayed basis. We will bear all costs, expenses and fees in connection with the registration of the securities offered by this prospectus, and the Selling Securityholders will bear all incremental selling expenses, including commissions and discounts, brokerage fees and other similar selling expenses they incur in sale of the securities. See “Plan of Distribution”.

 

We are not selling any securities in this offering, and we will not receive any proceeds from the sale of any Common Shares by the Selling Securityholders. The registration of the Common Shares covered by this prospectus does not necessarily mean that any Common Shares will be offered or sold by the Selling Securityholders. The timing and amount of any sale is within the sole discretion of the Selling Securityholders, subject to certain restrictions. To the extent that the Selling Securityholders sell any Common Shares, the Selling Securityholders may be required to provide this prospectus to you. We may receive proceeds of up to $500 in the event of the exercise in full of the Second June 2023 Target Prefunded Warrant for cash, up to $10,000 in the event of the exercise in full of the December 2023 Target Prefunded Warrant for cash, up to $16,500 in the event of the exercise in full of the January 2024 Alpha Pre-Funded Warrant, and up to a total of $6,000,000 in the event of the exercise in full of the January 2024 Alpha Warrant for cash.

 

The Selling Securityholders and intermediaries through whom Common Shares are sold may be deemed “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), with respect to such Common Shares, and any profits realized or commissions received may be deemed underwriting compensation.

 

Our Common Shares and warrants are quoted on The Nasdaq Stock Market LLC (“Nasdaq”) under the trading symbols “BRSH” and “BRSHW”, respectively. On January 18, 2024, the closing price of our Common Shares on Nasdaq was $0.14 per share, and the closing price of our warrants on Nasdaq was $0.01 per warrant.

 

On December 14, 2023, we entered into an agreement and plan of merger (the “Merger Agreement”) with Arrive Technology Inc. (“Arrive”) pursuant to which our newly formed wholly owned subsidiary will merge with and into Arrive, as a result of which Arrive would become our wholly owned subsidiary. See “Prospectus Summary – Recent Developments – Agreement and Plan of Merger”. After the closing, the Company is expected to be renamed “Arrive Technology Inc.” and our Common Shares will trade on Nasdaq under the ticker symbol “ARRV”. The consummation of the merger and the transactions contemplated by the Merger Agreement is subject to a number of conditions. There can be no assurance that such conditions will be satisfied or waived to permit consummation of the merger or that the terms of any merger or other corporate combination will not be substantially different from those set forth in the Merger Agreement. Moreover, there can be no assurance that, if the Merger is not consummated, there will be no material adverse consequences to us. See “Risk Factors – Risks Associated with the Proposed Merger”.

 

On November 15, 2023, the Company received written notice from the Nasdaq notifying the Company that, based on the closing bid price of the Company’s common shares, for the last 30 consecutive trading days, the Company no longer complies with the minimum bid price requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, The Notice has no immediate effect on the listing of the Company’s common shares on the Nasdaq Capital Market. Pursuant to the Nasdaq Listing Rules, the Company has been provided an initial compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of the Company’s common shares must be at least $1.00 per share for a minimum of 10 consecutive trading days prior to May 13, 2024, and the Company must otherwise satisfy The Nasdaq Capital Market’s requirements for listing.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of material risks of investing in the Common Shares and our Company. See “Risk Factors” beginning on page 13 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

 

We are a “foreign private issuer” and an “emerging growth company” each as defined under the federal securities laws, and, as such, we are subject to reduced public company reporting requirements. However, if the Merger is consummated, we expect that we will no longer qualify as a foreign private issuer. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer” and “Risk Factors -  We expect that we will lose our foreign private issuer status after closing of the merger, which could result in significant additional costs and expenses”.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is [●], 2024

 

 

 

 

TABLE OF CONTENTS

 

  Page
About this Prospectus 1
Enforcement of Civil Liabilities 1
Cautionary Note Regarding Forward-Looking Statements 1
Prospectus Summary 3
Risk Factors 13
Capitalization 34
Use of Proceeds 35
Dividend Policy 36
Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
Management 56
Executive and Director Compensation 61
Principal Shareholders 63
Certain Relationship and Related Person Transactions 64
Selling Securityholders 65
Description of Common Shares 66
Certain Material Tax Considerations 68
Plan of Distribution 74
Legal Matters 75
Experts 75
Where You Can Find More Information 75
Index to Financial Statements F-1

 

i

 

 

About This Prospectus

 

Neither we nor the Selling Securityholders have authorized anyone to provide information different from or additional to that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus prepared by us or on our behalf. The Selling Securityholders named in this prospectus may, from time to time, sell the securities described in this prospectus in one or more offerings. Neither we nor the Selling Securityholders take any responsibility for, and can provide no assurance as to the reliability of, any information other than the information in this prospectus, any amendment or supplement to this prospectus, and any free writing prospectus prepared by us or on our behalf. Neither the delivery of this prospectus nor the sale of our securities in this offering means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy these shares in any circumstances under which such offer or solicitation is unlawful.

 

Our financial statements included in this prospectus have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB. None of the financial statements included herein were prepared in accordance with generally accepted accounting principles in the United States, or US GAAP. IFRS differs from US GAAP in certain material respects and thus may not be comparable to financial information presented by U.S. companies.

 

The Selling Securityholders are offering to sell the Common Shares, and seeking offers to buy Common Shares, only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the securities.

 

For investors outside of the United States: Neither we nor the Selling Securityholders have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

 

Throughout this prospectus, unless otherwise designated or the context requires otherwise, the terms “we”, “us”, the “Company”, and “our” refer to Bruush Oral Care Inc. Unless the context requires otherwise, all references to our financial statements mean the financial statements of our Company included herein.

 

Enforcement of Civil Liabilities

 

We are a company incorporated under the law of British Columbia, Canada. Some of our directors and officers, and some of the experts named in this prospectus, are residents of Canada or otherwise reside outside of the United States, and all or a substantial portion of their assets, and all or a substantial portion of our assets, are located outside of the United States. We have appointed an agent for service of process in the United States, but it may be difficult for shareholders who reside in the United States to effect service within the United States upon those directors, officers and experts who are not residents of the United States. It may also be difficult for shareholders who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability of our directors, officers and experts under the United States federal securities laws. There can be no assurance that U.S. investors will be able to enforce against us, directors, officers or certain experts named herein who are residents of Canada or other countries outside the United States, any judgments in civil and commercial matters, including judgments under the federal securities laws.

 

Cautionary Note Regarding Forward-Looking Statements

 

We discuss in this prospectus our business strategy, market opportunity, capital requirements, product introductions and development plans and the adequacy of our funding. These statements, and other statements contained in this prospectus, which are not historical facts, are also forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters.

 

1
 

 

Forward-looking statements include, without limitation, our expectations concerning the outlook for our business, productivity, plans and goals for future operational improvements and capital investments, operational performance, future market conditions or economic performance and developments in the capital and credit markets and expected future financial performance, as well as any information concerning possible or assumed future results of operations of the Company.

 

We caution investors against placing undue reliance on forward-looking statements presented in this prospectus, or that we may make orally or in writing from time to time, which are based on the beliefs of, assumptions made by, and information currently available to, us. These forward-looking statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not a guarantee of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results and trends at the time they are made, to anticipate future results or trends. Certain risks are discussed in this prospectus and also from time to time in our other filings with the U.S. Securities and Exchange Commission (“SEC”). For additional information regarding risk factors that could affect the Company’s projections, see the “Risk Factors” section in our Annual Report on Form 20-F for the year ended October 31, 2022 incorporated by reference herein, and as may be included from time-to-time in our reports filed with the SEC which will be accessible at www.sec.gov, and which you are advised to consult.

 

This prospectus and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. The forward-looking statements speak only as of the time of such statements and we do not undertake or plan to update or revise such forward-looking statements as more information becomes available or to reflect changes in expectations, assumptions or results, except as and to the extent required by applicable securities laws. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in our Annual Report on Form 20-F for the year ended October 31, 2022 incorporated by reference in this prospectus, could materially and adversely affect our results of operations, financial condition, liquidity, and our future performance.

 

Industry Data and Forecasts

 

This prospectus contains data related to the oral healthcare products industry in Canada and the United States. This industry data includes projections that are based on a number of assumptions which have been derived from industry and government sources which we believe to be reasonable. The oral healthcare products industry may not grow at the rate projected by industry data, or at all. The failure of the industry to grow as anticipated is likely to have a material adverse effect on our business and the market price of our Common Shares. In addition, the rapidly changing nature of the oral healthcare products industry and consumer preferences subjects any projections or estimates relating to the growth prospects or future condition of our industries to significant uncertainties. Furthermore, if any one or more of the assumptions underlying the industry data turns out to be incorrect, actual results may, and are likely to, differ from the projections based on these assumptions.

 

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Prospectus Summary

 

The following summary highlights selected information contained elsewhere in this prospectus.  This summary is not complete and does not contain all the information you should consider before investing in our securities. You should carefully read this prospectus in its entirety before investing in our securities, including the sections entitled “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

Unless otherwise noted, the share and per share information in this prospectus reflects a 1-for-25 reverse stock split of our outstanding Common Shares effective as of August 1, 2023.

 

This summary highlights certain information contained elsewhere in this prospectus. You should read this entire prospectus carefully, including the “Risk Factors” and the financial statements and related notes incorporated by reference herein. This prospectus includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” References to “we,” “our,” “Bruush,” and the “Company” refer to Bruush Oral Care Inc.

 

Our Company

 

Overview

 

The Company, incorporated under the Business Corporations Act of British Columbia on October 10, 2017 under the name “Bruush Oral Care Inc.” Bruush is an oral care company that is disrupting the space by reducing the barriers between consumers and access to premium oral care products because of its belief that high-quality oral care products should be more accessible. Bruush is an e-commerce business with a product portfolio that currently consists of a sonic-powered electric toothbrush kit and brush head refills. Through Bruush’s website, consumers can purchase a Brüush starter kit (the “Brüush Kit”), which includes: (i) the Brüush electric toothbrush (“Brüush Toothbrush”); (ii) three brush heads; (iii) a magnetic charging stand and USB power adapter; and (iv) a travel case. Bruush also sells the brush heads separately which come in a three-pack (“Brüush Refill”) and can be purchased on a subscription basis, where the customer will automatically receive a Brüush Refill every six months (the “Subscription”).

 

Recent Developments

 

Agreement and Plan of Merger

 

Effective December 14, 2023, the Company, Bruush Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of the Company (the “Merger Sub”), and Arrive Technology Inc., a Delaware corporation (“Arrive”) entered into an Agreement and Plan of Merger (as it may be amended, supplemented, or otherwise modified from time to time (the “Merger Agreement”). Upon the closing (the “Closing”) of the merger (the “Merger”) contemplated by the Merger Agreement and pursuant to the terms and subject to the conditions of the Merger Agreement and applicable Delaware law, Merger Sub will merge with and into Arrive, as a result of which Arrive will become as a wholly owned subsidiary of the Company.

 

Arrive is a technology development business with a focus on designing and implementing commercially viable smart mailboxes and a platform system for smart, secure and seamless exchange of packages, goods and supplies between people, robots and drones. After the Closing, the Company is expected to be renamed “Arrive Technology Inc.” and trade on Nasdaq under the ticker symbol “ARRV.”

 

As a result of the Merger and as set forth in the Merger Agreement, at Closing the outstanding shares of common stock of Arrive, will be exchanged for Common Shares representing, upon issuance, 94.5% of our issued and outstanding Common Shares on a fully diluted basis and the holders of our Common Shares immediately prior to the Closing will own Common Shares representing 5.5% of our issued and outstanding Common Shares on a fully diluted basis.

 

Upon closing of the Merger, we expect that we will no longer qualify as a foreign private issuer and therefore will become subject to the SEC reporting and other requirements applicable to US domestic companies. See “Risk Factors – We expect that we will lose our status as a foreign private issuer after closing of the merger, which could result in significant additional costs and expenses”.

 

Prior to Closing, we will, among other things, effect a reverse stock split with respect to our Common Shares at a ratio within the range of 6-for-1 to 200-for-1.

 

 

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As of the Closing, we are required under the terms of the Merger Agreement to maintain cash and cash equivalents equal to US$10,000,000, after full payment of current liabilities, including any financing in connection with the above referenced amount and all expenses related to the Merger (“Net Cash Minimum”). After Closing, the Company will sell, transfer and assign all existing legacy business, assets and liabilities of the Company (“Legacy Business”) to a purchaser, including in the form of a newly established entity (“Purchaser”), and pursuant to that certain separation and distribution agreement to be entered into by and between the Company and Purchaser on terms and conditions to be mutually agreed by the Company and Purchaser (the “Separation Agreement”). The sale, transfer and assignment of the Legacy Business will be conducted after the Merger becomes effective. The Merger will become effective at the time that the properly executed and certified copy of the Certificate of Merger is filed and accepted by the Secretary of State of the State of Delaware or, to the extent permitted by applicable law, at such later time as is agreed to by the parties to the Merger Agreement prior to the filing of such Certificate of Merger and specified in the Certificate of Merger.

 

Representations, Warranties and Covenants

 

The Merger Agreement contains customary representations and warranties by the parties thereto. Certain of the representations and warranties are qualified by materiality or by “Material Adverse Effect” on either the Company or Arrive (as defined in the Merger Agreement).

 

The Merger Agreement also contains pre-Closing covenants by the parties thereto, including obligations of the parties to use reasonable efforts to operate their respective businesses in the ordinary course consistent with past practice, and to refrain from taking certain specified actions without the prior written consent of the other applicable parties, in each case, subject to certain exceptions and qualifications. Additionally, the parties have agreed not to solicit, negotiate or enter into competing transactions, as further provided in the Merger Agreement. The covenants do not survive the Closing (other than those that are to be performed after the Closing).

 

The warranties, covenants and other terms, provisions and conditions that the parties to the Merger Agreement made to each other were made as of specific dates. The assertions embodied therein were made solely for purposes of the Merger Agreement and may be subject to important qualifications and limitations agreed to by the parties thereto in connection with negotiating their respective terms. Moreover, they may be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders or shareholders, as applicable, or may have been used for the purpose of allocating risk between the parties thereto rather than establishing matters as facts. For the foregoing reasons, no person should rely on such representations, warranties, covenants or other terms, provisions or conditions as statements of factual information at the time they were made or otherwise. Unless required by applicable law, the Company undertakes no obligation to update such information.

 

Conditions to the Parties’ Obligations to Consummate the Merger

 

Under the Merger Agreement, the obligations of the parties thereto to consummate the Merger are subject to a number of customary conditions including, among others: (i) the approval of the Merger Agreement by our board of directors and the stockholders of Arrive; (ii) the effectiveness of the registration statement on Form F-4 that we will file with the SEC registering our Common Shares issuable pursuant to the Merger Agreement and no stop order suspending the effectiveness of such registration statement or proceeding for that purpose having been initiated or threatened in writing by the SEC or its staff; (iii) our having satisfied any applicable continuing listing requirements of Nasdaq and the our not having received any notice of non-compliance therewith; (iv) our Common Shares having been approved for listing on Nasdaq, subject only to official notice of issuance; (v) the absence of any law or order preventing or prohibiting the consummation of the Merger Agreement and the transactions contemplated thereby (the “Transactions”); and (vi) satisfaction of all due diligence review reasonably required by the relevant party.

 

Termination Rights

 

The Merger Agreement contains certain termination rights, and may be terminated: (i) upon the mutual written consent of the Company and Arrive; (ii) by either us or Arrive if the consummation of the Merger is prohibited or prevented by a governmental order; (iii) by either us or Arrive if the Closing has not occurred on or before August 31, 2024; (iv) by a party upon a material breach of a representation, warranty, covenant or other agreement by the other party that is either incapable of being cured or, if curable, remain uncured for a specified period of time; (v) by Arrive, if our board of directors approves, endorses or recommends to the shareholders of the Company a “superior proposal” as defined in the Merger Agreement; or (vi) by Arrive, if the Separation Agreement, in a form acceptable to Arrive in its sole discretion, is not executed within a reasonable period after the consummation of the Merger.

 

If a party terminates the Merger Agreement pursuant to certain termination sections of the Merger Agreement, such party will be required to pay to the other party a termination fee of $250,000. The parties have acknowledged that the right to receive such termination fee will be the sole and exclusive remedy whether at law, in equity, in contract, tort or otherwise of the respective parties for: (i) the damages suffered as a result of the failure of the Transactions to be consummated; and (ii) any other damages suffered as a result of or in connection with the Merger Agreement and the Transactions.

 

 

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Arrive Voting Agreement

 

Concurrently with the execution of the Merger Agreement, all directors, executive officers and holders of three percent (3%) or more of the issued and outstanding shares of common stock of Arrive entered into a voting agreement (the “Arrive Voting Agreement”) pursuant to which, among other things, certain shareholders of Arrive agreed to: (i) vote, and in any action by written resolution of the stockholders of Arrive, provide written consent with respect to, all of their shares of common stock of Arrive in favor of the Merger and the Transactions; (ii) waive any rights to seek appraisal, rights of dissent, or any similar rights in connection with the Merger Agreement and the Transactions; and (iii) vote, or cause to be voted, against or withhold written consent, or cause written consent to be withheld, with respect to, as applicable, any other matter, action or proposal that would reasonably be expected to result in a material breach of any of the covenants, agreements or obligations under the Merger Agreement, or the breach of any of the conditions to the Closing.

 

Lock-Up Agreements

 

Prior to the Effective Time, we and Arrive have entered into separate lock-up agreements, pursuant to which the shares of common stock of Arrive and our Common Shares held by them and all of their respective executive officers, directors, and holders of three percent (3%) or more of each of the shares of common stock of Arrive and our Common Shares, respectively, will be subject to limitations on disposition, until the earlier of (i) six (6) months from the date of the Closing, (ii) subsequent to the Merger, if the last sale price of our Common Shares equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 90 days after the Merger, or (iii) the date after the Closing on which we completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of holders of our Common Shares having the right to exchange their Common Shares in for cash, securities or other property. Notwithstanding the forgoing, a holder of 3% or more of our Common Shares that is therefore a party to a lock-up agreement will be able to sell, transfer or otherwise dispose of up to ten percent (10%) of its Common Shares without any restrictions set forth in such lock-up agreement.

 

Approval of our Board of Directors

 

Our board of directors has approved the Merger Agreement and the Transactions.

 

We intend to rely on and comply with home country practices pursuant to British Columbia law with respect to stockholder voting requirements applicable to the Merger and the Transactions, Pursuant to Nasdaq Listing Rule 5615(a)(3), a foreign private issuer may follow its home country practice in lieu of the requirements of the corporate governance requirements set forth in the Nasdaq listing rules. In reliance on and in compliance with home country practices pursuant to British Columbia law, we are not required to obtain shareholder approval of (i) the Merger Agreement, (ii) the updated notice of articles (including the reverse stock split contemplated therein), (iii) the issuance of the Common Shares pursuant to the Merger Agreement, and (iv) any of the Transactions. The Transactions are also subject to the satisfaction of other customary closing conditions.

 

Composition of Board of Directors of the Company Post-Merger

 

Upon the Closing, the our board of directors will consist of five directors; four (4) of which will be designated by the shareholders of Arrive and one (1) individual from our existing board of directors (or as may be otherwise designated by our board of directors prior to the closing of the Merger) to serve as an independent director of the our board of directors, provided, that such individual is reasonably acceptable to Arrive.

 

The foregoing descriptions of the Merger Agreement, Lock-Up Agreement and the Arrive Voting Agreement do not purport to be complete and are subject to, and qualified by, the full text of those documents, copies of which are filed as Exhibits 10.35, 10.36, 10.37 to the registration statement of which this prospectus is a part, respectively.

 

Equity and Note Financings

 

On January 1, 2024, the Company closed an equity financing pursuant to a Securities Purchase Agreement with. (the “Equity Financing SPA”) and a Registration Rights Agreement (the “Equity Financing Registration Rights Agreement”) with Generating Alpha Ltd (“Alpha”) for aggregate gross proceeds of $500,000. In consideration of the investment, the Company issued a pre-funded common share purchase warrant (the “January 2024 Alpha Pre-Funded Warrant”) exercisable for 16,500,000 common shares at an exercise price of $0.001, subject to adjustment pursuant to the terms of the January 2024 Alpha Pre-Funded Warrant. Pursuant to the Equity Financing Registration Rights Agreement, the Company has agreed to file a registration statement with the Securities and Exchange Commission under the Securities Act of 1933, as amended within 45 days following the closing date of the financing.

 

On the same day, the Company entered into another Securities Purchase Agreement (the “Convertible Note Financing SPA”) with Alpha, pursuant to which the Company has agreed to sell a convertible promissory note of the Company (the “January 2024 Alpha Note”), in an aggregate principal amount of up to $6,000,000. Alpha funded $1,500,000 of the January 2024 Alpha Note on January 5, 2024. In connection with the purchase and sale of the January 2024 Alpha Note, the Company issued to Alpha a warrant (the “January 2024 Alpha Warrant”) exercisable for 5.5 years from the date of issuance to acquire a total of up to 44,444,444 Common Shares and has an exercise price of $0.135 per Common Share. On January 19, 2024, the Company entered into a letter agreement with Alpha. Pursuant to this letter agreement, Alpha funded an additional $1,000,000 of the January 2024 Alpha Note. As an additional consideration, the Company issued a total of 51,034,857 Common Shares (the “Commitment Shares”) to Alpha. Pursuant to a registration rights agreement, the Company is required to file an initial registration statement with the SEC within thirty (30) days following January 1, 2024. EF Hutton LLC acted as placement agent for the financing.

 

 

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The January 2024 Alpha Note in the aggregate principal amount of up to $6,000,000 has a one (1) year maturity with an interest at the greater of (i) twelve (12) percent and (ii) WSJ Prime Rate plus 3.5% per annum. The January 2024 Alpha Note is convertible at the option of Alpha into Common Shares at a price equal to the lesser of (i) $0.1625 per share or (ii) 80% of the lowest Volume Weighted Average Price per share during the previous ten (10) Trading Day period ending on the Trading Day prior to the Conversion Date (the “Conversion Price”), which is subject to anti-dilution protections in the event that the Company issues any Common Shares at a per share price lower than the Conversion Price (each a “Dilutive Price”) then in effect, provided, however, that Alpha shall have the sole discretion in deciding whether to utilize such Dilutive Price instead of the Conversion Price otherwise in effect at the time of the respective conversion. In the event of an Event of Default (as described in the January 2024 Alpha Note), Alpha is entitled to an additional twenty percent (20%) discount for that conversion and all future conversions, for each occurrence, cumulative or otherwise, to be factored into the Conversion Price until the January 2024 Alpha Note is no longer outstanding, and an additional $15,000 of principal will be added to the January 2024 Alpha Note.

 

December 2023 Private Placement

 

On December 22, 2023, the Company closed a private placement transaction pursuant to a securities purchase agreement and a registration rights agreement with Target Capital 14 LLC (“Target”) for aggregate gross proceeds of $500,000. In connection with this transaction, the Company issued a pre-funded common share purchase warrant (the “December 2023 Target Prefunded Warrant”) exercisable for 10,000,000 common shares of the Company at an exercise price of $0.001, subject to adjustment pursuant to the terms of the December 2023 Target Prefunded Warrant. Pursuant to the registration rights agreement, the Company has agreed to file a registration statement with the Securities and Exchange Commission under the Securities Act of 1933, as amended within 45 days following the closing date of this transaction.

 

Consulting Agreement

 

On October 23, 2023, the Company entered into a consulting agreement (the “Alchemy Consulting Agreement”) with Alchemy Advisors LLC (the “Consultant”), whereby the Consultant was engaged by the Company as a business consultant. In return for services rendered by the Consultant, the Company issued to the Consultant 3,000,000 prefunded warrants of the Company (the “Alchemy Warrants”) to purchase 3,000,000 Common Shares. The Alchemy Warrants are exercisable for five years at an exercise price is $0.001 per share. The exercise of Alchemy Warrants is subject to limitations should a proposed exercise exceed certain beneficial ownership levels. The Alchemy Warrants also permit for cashless exercise and have piggyback registration rights.

 

October 2023 Private Placement

 

On October 2, 2023, the Company entered into a private placement transaction (the “October 2023 Private Placement”), pursuant to a Securities Purchase Agreement (the “Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Generating Alpha Ltd. (“Generating Alpha”) for aggregate gross proceeds of $5,010,000, before deducting fees to the placement agent and other expenses payable by the Company in connection with the October 2023 Private Placement. EF Hutton, division of Benchmark Investments, LLC, acted as the exclusive placement agent for the October 2023 Private Placement.

 

As part of the October 2023 Private Placement, the Company issued to Generating Alpha 79,724 Common Shares, a prefunded warrant (the “Prefunded Warrant”) to purchase 7,181,146 Common Shares, and a warrant (the “Warrant” and together with the Prefunded Warrant, the “Warrants”) to purchase 8,350,000 Common Shares. The Warrants have a term of five years from the date of issuance and an exercise price of $0.0001 per share.

 

To secure performance of the Company’s obligations pursuant to the Agreement, the Company executed a Confession of Judgment (the “Confession of Judgment”), whereby the Company confessed judgment in favor of Generating Alpha in an amount equal to the fair market value of the common shares of the Company that Generating Alpha submitted an exercise notice under either the Pre-Funded Warrant or the Warrant.

 

On November 15, 2023, the Company entered into a letter agreement (the “Generating Alpha Waiver”) with Generating Alpha. Pursuant to the Generating Alpha Waiver, the obligation of the Company to change its transfer agent from Endeavor Trust Corporation to VStock Transfer LLC or Continental Stock Transfer & Trust Company within 30 days of October 2, 2023 pursuant to Section 4(b) of the Agreement will be deemed satisfied if the Company changes its transfer agent from Endeavor Trust Corporation to Odyssey Transfer US Inc. by December 31, 2023 (the “Modifications”). Further to the foregoing, Generating Alpha agreed to pay $380,000 to the Company (the “Additional Funding Amount”) and waive the payment by the Company to Generating Alpha of the $120,000.00 in penalty amounts that would have been owing under Section 4(b) of the Agreement for failure to have changed its transfer agent as previously required (the “Fee Waiver”). In consideration for the Modifications, the Additional Funding Amount and the Fee Waiver, the Company agreed to (i) issue to Generating Alpha a prefunded warrant (the “November Prefunded Warrant”) to purchase 6,250,000 common shares of the Company (the “Waiver Shares”), and (ii) and cause the Waiver Shares to be included in a registration statement of the Company filed with the Securities and Exchange Commission with five days of the date hereof.

 

 

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In connection with the October 2023 Private Placement, the Company entered into a Waiver and Notice Letter with Target Capital 14, LLC (“Target Capital”) (the “Waiver and Notice Letter”), whereby the Company requested that Target Capital waive certain provisions of the securities purchase agreement between the Company and Target Capital, dated June 26, 2023 and the related convertible note in the initial principal amount of $3,341,176 in exchange for the Company issuing to Target Capital a prefunded warrant to purchase 1,000,000 Common Shares (the “Waiver Warrant”).

 

The descriptions of the Agreement, Registration Rights Agreement, Pre-Funded Warrant, Warrant, Generating Alpha Waiver, November Prefunded Warrant, Confession of Judgment, Waiver and Notice Letter, and Waiver Warrant set forth above are qualified in their entirety by reference to the full text of those documents.

 

Credit Support Share Agreement

 

On August 25, 2023, the Company entered into a credit support fee agreement (the “Credit Support Agreement”) with one of the Company’s shareholders, Yaletown Bros Ventures Ltd. (“YBV”), pursuant to which YBV agreed to provide for the Company an irrevocable standby letter of credit in the face amount of $2,000,000 (the “Credit Support”).

 

On October 23, 2023, the Company and YBV entered into an amendment to the Credit Support Agreement (the “Amendment to Credit Support Agreement”). Pursuant to the Amendment to Credit Support Agreement, if the Credit Support has been drawn as of October 24, 2023, the Company shall cause to be issued to YBV additional Shares in an amount equal to 100% of the Drawn Credit Amount (as defined below), divided by the closing price of the Shares on the last trading day prior to October 24, 2023. Further, following the sale by YBV of all of such Shares as YBV shall have received in respect of this Agreement (the “YBV Share Sale”), if the proceeds of the YBV Share Sale shall be less than the amount of the Credit Support drawn by the creditor (the “Drawn Credit Amount”), the Company shall pay to YBV cash in an amount equal to the difference between Drawn Credit Amount and the proceeds of the YBV Share Sale.

 

In consideration of the Credit Support, the Company issued to YBV 9,980,398 Common Shares. The Company filed a registration statement on Form F-1 with the SEC to register 9,980,398 Common Shares issued under the Credit Support Agreement, which was declared effective by the SEC on October 31, 2023.

 

Inducement Letter

 

As previously reported on December 20, 2022, the Company entered into a $3 million private placement transaction, pursuant to which the Company issued to certain investors (the “Holders”) warrants (the “Existing Warrants”), each warrant exercisable for one share of Common Share. On August 22, 2023, the Company issued an offer letter to the Holders (the “Inducement Letter”), providing the Holders the opportunity to exercise for cash all or some of the Existing Warrants at an exercise price of $3.33 per Common Share in consideration for the issuance to each exercising Holder of a new warrant (the “New Warrant”) exercisable at an exercise price of $3.33 per share for a number of Common Shares equal to 250% of the number of Common Shares issued in connection with the Inducement Letter. The New Warrants are exercisable up to 5:00 p.m., New York City time, on June 9, 2028. In connection with the Inducement Letter, the Holders elected to exercise Existing Warrants for 633,026 Common Shares. As a result of such exercise, New Warrants exercisable for an aggregate 1,582,566 Common Shares were issued. On September 14, 2023, the Company filed a registration statement on Form F-1 with the SEC to register the shares issuable upon exercise of the New Warrants, which was declared effective on October 19, 2023.

 

 

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Reverse Stock Split

 

On August 1, 2023, the Company effected a 1-for-25 reverse stock split (the “Reverse Stock Split”) to comply with the Nasdaq’s minimum bid price requirement. As a result of the Reverse Stock Split, every 25 Common Shares issued and outstanding were exchanged for one Common Share. Immediately after the Reverse Stock Split became effective, the Company had approximately 511,368 Common Shares issued and outstanding. Unless otherwise noted, the share and per share information in this prospectus reflects a 1-for-25 reverse stock split of our outstanding Common Shares effective as of August 1, 2023.

 

June 2023 Private Placement

 

On June 26, 2023, the Company completed a private placement (the “June 2023 Private Placement”) of an unsecured convertible note with a principal aggregate amount of $3,341,176 (the “June 2023 Note”) to Target Capital. The June 2023 Note will mature on June 26, 2024 and, if any Event of Default occurs an interest rate equal to 20% per annum shall immediately accrue which shall be paid in cash monthly to Target Capital until the Event of Default is cured. The conversion price in effect on any Conversion Date shall be equal to (i) for the first nine (9) months following the date hereof, shall be $0.25, or $6.25 after giving effect to the Reverse Stock Split, which amount may adjusted by mutual agreement by the parties; and (ii) following the nine (9) month anniversary of the date hereof, 90% of the lowest closing price of the Company’s shares for the previous three (3) Trading Days prior to the conversion date (the “Conversion Price”); provided, however, that such price shall in no event be less than $0.15, or $3.75 after giving effect to the Reverse Stock Split. Consequently, a maximum of 890,980 Common Shares are issuable by the Company upon conversion of the June 2023 Note. The June 2023 Note contains customary and standard representations and warranties, and covenants.

 

In connection with the issuance of the June 2023 Note, the Company entered into a securities purchase agreement and a registration rights agreement with Target Capital and issued to Target Capital a common share purchase warrant to purchase 400,941 Common Shares (the “Purchase Warrant”), with an Exercise Price of $0.001 or on a cashless basis. Pursuant to the Registration Rights Agreement, the Company must file a registration statement covering the resale of such number of shares equal to 200% of the number of Common Shares issuable upon conversion of the June 2023 Note and the exercise of the Purchase Warrant, or a total of 2,583,842 Common Shares.

 

On June 26, 2023, the Company filed a registration statement on Form F-1 with the SEC to register the shares issuable pursuant to the June 2023 Private Placement and shares issuable upon exercise of the June 2023 Note and Purchase Warrants for resale, which was declared effective on October 19, 2023.

 

As stated above, in connection with the October 2023 Private Placement, the Company entered into the Waiver and Notice Letter with Target Capital whereby the Company requested that Target Capital waive certain provisions of the securities purchase agreement between the Company and Target Capital, dated June 26, 2023 and the related convertible note in the initial principal amount of $3,341,176 in exchange for the Company issuing to Target Capital a prefunded warrant to purchase 1,000,000 Common Shares.

 

On November 8, 2023, the Company entered into a letter agreement (the “Amendment”) with Target Capital to amend the conversion price of the June 2023 Note to $1.53 per share and Target Capital agreed to convert as promptly as commercially reasonable all amounts outstanding under the June 2023 Note. In consideration of the foregoing, the Company issued to Target Capital a pre-funded warrant (the “First June 2023 Target Prefunded Warrant”) to purchase 9,500,000 common shares, with no par value, of the Company (the “First June 2023 Target Prefunded Warrant Shares”). The First June 2023 Target Prefunded Warrant has an exercise price of $0.0001, are exercisable for a term of 5 years, commencing on the date of issuance and have demand registration rights. The First June 2023 Target Prefunded Warrants Shares have been registered on a registration statement on Form F-1 filed with the SEC of which this prospectus is a part.

 

On December 3, 2023, the Company entered into another letter agreement with Target Capital to release the remaining balance of the escrowed property currently held in escrow by the escrow agent. In consideration of the foregoing, the Company issued to Target Capital a pre-funded warrant (the “Second June 2023 Target Prefunded Warrant”) to purchase 5,000,000 Common Shares (the “Second June 2023 Target Prefunded Warrant”). The Second June 2023 Target Prefunded Warrant has an exercise price of $0.0001, are exercisable for a term of 5 years, commencing on the date of issuance.

 

 

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March 2023 Promissory Note

 

On March 20, 2023, the Company closed its issuance of an unsecured promissory note in the principal amount of $2,749,412 (the “Note”) to Target Capital (the “March 2023 Note”). The March 2023 Note was issued at an original issue discount of 15% and set to mature on July 18, 2023. On June 26, 2023, the Company and Target Capital entered into the June 2023 Note and cancelled the March 23 Promissory Note in its entirety. As a result, the Company has no obligations pursuant to the March 2023 Note.

 

December 2022 Private Placement

 

On December 9, 2022, the Company closed a private placement of 2,966,667 units not reflecting the Reverse Stock Split and 1,950,001 pre-funded units not reflecting the Reverse Stock Split (the units and pre-funded units together, the “Units”) at a purchase price of $0.60 per Unit not reflecting the Reverse Stock Split (the “December Private Placement”) for aggregate gross proceeds of approximately $3 million, before deducting fees to the placement agent and other expenses payable by the Company.

 

Each Unit is comprised of one Common Share (or pre-funded funded warrant) and one non-tradable warrant (each, a “December Warrant,” and collectively, the “December Warrants”) exercisable for one Common Share at a price of $0.60 (not reflecting the Reverse Stock Split) subject to adjustment. The December Warrants are exercisable for five and one-half (5.5) years from the date of issuance. Each pre-funded warrant is exercisable by the holder for one Common Share at an exercise price of $0.001 per share.

 

The Company used the net proceeds from the December Private Placement for working capital, growth capital and other general corporate purposes.

 

On December 7, 2022, the Company entered into a Securities Purchase Agreement and Registration Rights Agreement with institutional investors and into a Placement Agent Agreement with Aegis Capital Corp. (“Aegis”) as the exclusive placement agent in connection with the December Private Placement. Pursuant to the Placement Agent Agreement, Aegis was paid a commission equal to 10% for the placement of the securities sold at closing and 10% of the proceeds from the exercise of Warrants, and a non-accountable expense allowance equal to 3% of the amount of securities sold at closing.

 

Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form F-1 with the SEC to register the shares issuable upon exercise of the Warrants for resale. The registration statement was declared effective on January 17, 2023.

 

Nasdaq Notice

 

Minimum Bid Price Requirement

 

On November 15, 2023, the Company received written notice (the “November 2023 Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that, based on the closing bid price of the Common Shares, for the last 30 consecutive trading days, the Company no longer complies with the minimum bid price requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive trading days.

 

The November 2023 Notice has no immediate effect on the listing of the Common Shares on the Nasdaq Capital Market. Pursuant to the Nasdaq Listing Rules, the Company has been provided an initial compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of the Common Shares must be at least $1.00 per share for a minimum of 10 consecutive trading days prior to May 13, 2024, and the Company must otherwise satisfy The Nasdaq Capital Market’s requirements for listing.

 

 

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If the Company does not regain compliance by May 13, 2024, the Company may be eligible for an additional time. To qualify, the Company would be required, among other things, to meet the continued listing requirement for the market value of its publicly held shares, as well as all other standards for initial listing on the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and would need to provide written notice of its intention to cure the bid price deficiency during the second compliance period. If the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the Common Shares will be subject to delisting. The Company would then be entitled to appeal Nasdaq’s determination to a Nasdaq Listing Qualifications Panel and request a hearing.

 

The Company intends to monitor the closing bid price of the Common Shares and consider its available options to resolve the noncompliance with the Minimum Bid Price Requirement. There can be no assurance that the Company will be able to regain compliance with the Nasdaq Capital Market’s continued listing requirements or that Nasdaq will grant the Company a further extension of time to regain compliance, if applicable.

 

Minimum Stockholders’ Equity Requirement

 

On March 16, 2023, the Company received written notice (the “March 2023 Notice”) from the Listing Qualifications Department of the Nasdaq notifying the Company that, based on the Company’s stockholders’ equity as reported in the Company’s Annual Report on Form 20-F for the fiscal year ended October 31, 2022 filed with the Securities and Exchange Commission on March 10, 2023, the Company did not meet the minimum stockholders’ equity requirement (“Minimum Stockholders’ Equity Requirement”), or the alternatives of market value of listed securities or net income from continuing operations for continued listing of its securities on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1) (the “Rule”).

 

The March 2023 Notice has no immediate effect on the listing of the Company’s Common Shares or listing warrants on the Nasdaq Capital Market. As provided in the Rule and in the March 2023 Notice, the Company had 45 calendar days to submit a plan to regain compliance with the continued listing requirements under the Rule, and if the plan is accepted, Nasdaq can grant an extension of up to 180 days to evidence compliance. If the plan is not accepted, the Company would then be entitled to appeal to the Nasdaq Listing Qualifications Panel and request a hearing.

 

To regain compliance, the Company must meet one of the following alternatives: a minimum stockholders’ equity of $2.5 million, a minimum of $35 million in the market value of listed securities or a minimum net income from continuing operations of $500,000, and the Company must otherwise satisfy The Nasdaq Capital Market’s requirements for listing. The Company will consider various options available to regain compliance and maintain the listing of its securities on Nasdaq. There can be no assurance that the Company will be able to regain compliance with the Nasdaq Capital Market’s continued listing requirements or that Nasdaq will grant the Company a further extension of time to regain compliance, if applicable.

 

The Company submitted a plan (the “Submission”) to regain compliance with the Minimum Stockholders’ Equity Requirement on May 24, 2023, as supplemented with additional materials on June 9, 2023. Based on the Submission, Nasdaq informed the Company on June 14, 2023 (the “Notice”) that it had granted the Company an extension of time to regain compliance with the Rule. Under the terms of the extension, on or before September 12, 2023, the Company must complete certain proposed financing transactions and opt for one of the two alternatives provided by Nasdaq to evidence compliance with the Rule. Pursuant to the first alternative (“Alternative 1”), the Company must furnish to the SEC and Nasdaq a publicly available report including: (1) a disclosure of Nasdaq’s deficiency letter and the specific deficiencies cited, (2) a description of the completed transaction or event that enabled the Company to satisfy the Minimum Stockholders’ Equity Requirement, (3) an affirmative statement that, as of the date of such publicly available report, the Company believes it has regained compliance with the Minimum Stockholders’ Equity Requirement based upon the specific transaction or event referenced in (2), and (4) a disclosure stating that Nasdaq will continue to monitor that Company’s ongoing compliance with the Minimum Stockholders’ Equity Requirement and, if at the time of its next periodic report the Company does not evidence compliance, that it may be subject to delisting. If the Company fails to evidence compliance upon filing its periodic report for the period ended October 31, 2023 with the SEC and the Nasdaq, the Company may be subject to delisting. In the event the Company does not satisfy the terms set forth in the Notice, Nasdaq will provide written notification to the Company that its securities will be delisted. At such time, the Company may appeal such determination to the Panel.

 

On August 31, 2023, the Company received written notice from Nasdaq notifying the Company that, following the July 2023 Notice and in accordance with Nasdaq Listing Rule 5810(c)(2)(A), Nasdaq is no longer permitted to consider the Company’s Plan to regain compliance with the Minimum Stockholders’ Equity Requirement and that the Panel, at a hearing scheduled for September 21, 2023, will consider the Company’s appeal of the determination by Nasdaq to delist the Company’s securities.

 

On September 21, 2023, the Panel held on a hearing to consider our appeal of Nasdaq’s determination that we were not in compliance with the minimum stockholders’ equity requirement for continued listing and its determination to delisting our securities. At the hearing, we presented our plan for regaining and sustaining compliance Nasdaq’s continued listing requirements. On October 2, 2023, the Company received a letter from the Nasdaq notifying the Company that the Panel has granted an exception to the Company for continued listing on the Nasdaq, subject to the Company demonstrating compliance with the Rule on or before December 31, 2023. The Panel reserves the right to reconsider the terms of this exception based on any event, condition or circumstance that exists or develops that would, in the opinion of the Panel, make continued listing of the Company’s securities on the Nasdaq inadvisable or unwarranted.

 

On January 18, 2024, the Company received written confirmation from Nasdaq that the company has regained compliance with the Minimum Stockholders’ Equity Requirement. Accordingly, in application of Nasdaq Listing Rule 5815(d)(4)(B), the Company will be subject to a Mandatory Panel Monitor for a period of one year. If, within that one-year monitoring period, the Nasdaq finds the Company again out of compliance with the Minimum Stockholders’ Equity Requirement, the Company will not be permitted to provide the Nasdaq with a plan of compliance and Nasdaq will not grant additional time for the Company to regain compliance with respect to that deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Listing Rule 5810(c)(3).

 

 

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Audit Committee Requirement

 

On May 8, 2023, the Company received written notice (the “May 2023 Notice”) from the Listing Qualifications Department of Nasdaq notifying the Company that, as a result of the resignation of Brett Yormark from our board of directors and from the Audit Committee of our board of directors, the Company is not in compliance with Nasdaq Listing Rule 5605, including Rule 5605(c)(2), which requires the Audit Committee of our board of directors of a listed company to consist of at least three members, each of whom is an independent director under the Nasdaq Listing Rules and who meets heightened independence standards for Audit Committee members. The Audit Committee currently consists of two independent directors.

 

The May 2023 Notice has no immediate effect on the listing of the Common Shares on Nasdaq. The May 2023 Notice states that, consistent with Nasdaq Listing Rule 5605(c)(4), the Company is afforded a cure period to regain compliance until the earlier of (a) the Company’s next annual shareholders’ meeting or April 12, 2024 and (b) October 9, 2023, if the next annual shareholders’ meeting is held before such date. The Company has not yet scheduled its annual shareholders’ meeting.

 

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

 

We qualify as an “emerging growth company”, as defined in the US federal securities laws. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies.

 

We currently report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status under the Exchange Act, and we are currently exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies. In addition, we will not be required to file annual reports and financial statements with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, and are not required to comply with Regulation FD, which restricts the selective disclosure of material information. See “Risk Factors – We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make it more difficult to compare our performance with other public companies”.

 

It is expected that we will no longer qualify as a foreign private issuer under the federal securities laws after consummation of the Merger and the Transactions. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we do not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange. These expenses will relate to, among other things, the obligation to reconcile our financial information that is reported according to IFRS to US GAAP and to report future results according to US GAAP. See “Risk Factors – We expect that we will lose our foreign private issuer status after closing of the merger, which could result in significant additional costs and expenses.”

 

Both foreign private issuers and emerging growth companies are also exempt from certain executive compensation disclosure rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Even if we no longer qualify as an emerging growth company, so long as we remain a foreign private issuer, we will continue to be exempt from certain executive compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.

 

Corporate Information

 

Our principal office is located at 128 West Hastings Street, Unit 210, Vancouver, British Columbia V6B 1G8. The SEC maintains a website (www.sec.gov) that makes available reports and other information regarding issuers that file electronically with the SEC. Our website address is www.bruush.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our securities.

 

 

11
 

 

 

The Offering

 

This prospectus relates to the offer and sale from time to time of up to an aggregate of 198,111,489 Common Shares by the Selling Securityholders.

 

Securities being offered   The Selling Securityholders may offer up to 198,111,489 Common Shares.
     
Common Shares outstanding prior to this offering   66,970,818 Common Shares. (1)
     
Common Shares outstanding after this offering   265,082,307 Common Shares.
     
Use of proceeds   We will not receive any proceeds from the sale of Common Shares by the Selling Securityholders. We may receive proceeds of up to $500 in the event of the exercise in full of the Second June 2023 Target Prefunded Warrant, $10,000 in the event of the exercise in full of the December 2023 Target Prefunded Warrant for cash, up to $16,500 in the event of the exercise in full of the January 2024 Alpha Pre-Funded Warrant, and up to a total of $6,000,000 in the event of the exercise in full of the January 2024 Alpha Warrant for cash. Please refer to the sections entitled “Selling Securityholders” and “Plan of Distribution”. We have agreed to bear the expenses relating to the registration of the Common Shares for the Selling Securityholders.
     
Risk factors   Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 13 before deciding to invest in our securities.
     
Dividends   We do not anticipate paying dividends on our Common Shares for the foreseeable future.

 

(1) Based on 66,970,818 Common Shares outstanding as of January 11, 2024.

 

 

12
 

 

RISK FACTORS

 

An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, all risk factors set forth in this Annual Report, including our financial statements and related notes in connection with your ownership of our securities. If any of these risks actually occur, our business and financial results could be materially adversely affected. This could cause the trading price of our securities to decline, perhaps significantly, and you therefore may lose all or part of your investment. These risks are not exhaustive and do not comprise all of the risks associated with an investment in the Company. Additional risks and uncertainties not currently known to us or which we currently deem immaterial may also have a material adverse effect on our business, financial condition and results of operations.

 

References in this section to “we,” “us” or “Bruush” refer to Bruush Oral Care Inc. unless the context otherwise requires or indicates otherwise.

 

Risks Related to the Merger

 

The Merger may not be completed, and the Merger Agreement may be terminated in accordance with its terms. The termination of the Merger Agreement could negatively impact Bruush and the market price of our Common Shares.

 

The Merger is subject to a number of conditions that must be satisfied. These conditions to the completion of the Merger, some of which are beyond the control of Arrive and Bruush, may not be satisfied or waived in a timely manner or at all, and, accordingly, the Merger may be delayed or not completed.

 

13
 

 

If the Merger is not completed for any reason, the ongoing businesses of Bruush and Arrive may be adversely affected and, without realizing any of the expected benefits of having completed the Merger, we would be subject to a number of risks, including the following:

 

  we may experience negative reactions from the financial markets, including negative impacts on its stock price;
     
  we may experience negative reactions from its customers, suppliers, distributors and employees;
     
  we will be required to pay its costs relating to the Merger, such as financial advisory, legal and accounting costs and associated fees and expenses, whether or not the Merger is completed; and
     
  the Merger Agreement places certain restrictions on the conduct of our business prior to completion of the Merger and such restrictions, the waiver of which is subject to the consent of Arrive, which may prevent us from taking actions during the pendency of the Merger that could be beneficial.

 

As a result of the Merger, the market price for our Common Shares may be affected by factors different from, or in addition to, those that historically have affected or currently affect the market prices of our Common Stock.

 

Arrive’s businesses differ from those of our business, and, accordingly, our results of operations post-Merger will be affected by some factors that are different from those currently or historically affecting our results of operations. Our results of operations post-Merger may also be affected by factors different from those that currently affect or have historically affected us.

 

The market price of our Common Shares post-Merger will continue to fluctuate after the Merger.

 

Upon completion of the Merger, the market price of the our Common Shares will continue to fluctuate, potentially significantly, following completion of the Merger, as a result of a variety of factors, including for example, among others, general market and economic conditions, changes in Bruush’s or Arrive’s respective businesses, operations and prospects, interest rates, general market, industry and economic conditions and other factors generally affecting the stock prices, federal, state and local legislation, and governmental regulation and legal developments in the industry segments in which we will operate. our market capitalization and trading volume may contribute to greater volatility. In addition, any significant price or volume fluctuations in the stock market generally could have a material adverse effect on the market for, or liquidity of, our Common Shares, regardless of our post-Merger actual operating performance.

 

After the Merger, Bruush shareholders will have a significantly lower ownership and voting interest in Bruush post-Merger than they currently have in Bruush and will exercise less influence over management and policies of Bruush post-Merger.

 

Based on the number of shares of Arrive’s common stock and our Common Shares outstanding as of the close of business on December 14, 2023, the date of the Merger Agreement, upon completion of the Merger, Bruush shareholders are expected to own approximately 5.5% of the outstanding Common Shares of Bruush and Arrive shareholders immediately prior to the Merger are expected to own approximately 94.5% of the outstanding Common Shares. Consequently, former Bruush stockholders will have less influence over the management and policies of Bruush post-Merger than they currently have over our management and policies. Additionally, holders of our Common shares and the stockholders of Arrive may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

Until the completion of the Merger or the termination of the Merger Agreement in accordance with its terms, we are restricted from entering into certain transactions and taking certain actions that might otherwise be beneficial to us and/or our shareholders.

 

From and after the date of the Merger Agreement and prior to completion of the Merger, the Merger Agreement restricts us from taking specified actions without the consent of Arrive and requires that we conduct our business in all material respects in the ordinary course of business consistent with past practice. These restrictions may prevent us from taking actions during the pendency of the Merger that would have been beneficial. Adverse effects arising from these restrictions during the pendency of the Merger could be exacerbated by any delays in consummation of the Merger or termination of the Merger Agreement.

 

14
 

 

Obtaining required approvals and satisfying closing conditions may prevent or delay completion of the Merger.

 

The Merger is subject to a number of conditions to closing as specified in the Merger Agreement. These closing conditions include, among others, the effectiveness of a registration statement on Form F-4 that we will file with the SEC to register our Common Shares issuable pursuant to the Merger Agreement and the absence of any stop order or proceedings by or before the SEC with respect thereto, all required approvals obtained (or the expiration or termination of any applicable waiting period) under any applicable antitrust laws, approval for listing on Nasdaq of the Common Shares to be issued pursuant to the Merger Agreement, and the absence of governmental laws or orders preventing the consummation of the Merger. The obligation of each of Arrive and Bruush to consummate the Merger is also conditioned on, among other things, the truth and accuracy of the representations and warranties made by the other party on the date of the Merger Agreement and on the closing date of the Merger (subject to certain materiality and material adverse effect qualifiers), and the performance by the other party in all material respects of its obligations under the Merger Agreement. No assurance can be given that the required stockholder, governmental and regulatory consents and approvals will be obtained or that the required conditions to closing will be satisfied, additionally, if all required consents and approvals are obtained and the required conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents and approvals. Any delay in completing the Merger could cause us not to realize, or to be delayed in realizing, some or all of the benefits that Arrive and Bruush expect to achieve if the Merger is successfully completed within its expected time frame.

 

Except in specified circumstances, if the effective time has not occurred by the Termination Date, either Arrive or Bruush may choose not to proceed with the transaction.

 

Either Arrive or Bruush may terminate the Merger Agreement if the Merger has not been consummated by August 31, 2024 (the “Termination Date”). However, this right to terminate the Merger Agreement will not be available to Arrive or Bruush if such party has materially breached any of its representations, warranties, covenants or agreements under the Merger Agreement and such breach has been a contributing factor that resulted in the failure of the Merger to be consummated by the Termination Date.

 

Failure to attract, motivate and retain executives and other key employees could diminish the anticipated benefits of the Merger.

 

The success of the Merger will depend in part on our ability post-Merger to retain the talents and dedication of the professionals currently employed by Arrive or Bruush. It is possible that these employees may decide not to remain with us or with Arrive, while the Merger is pending, or with us post-Merger. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities post-Merger may be adversely affected and management’s attention may be directed to hiring suitable replacements, all of which may cause our business to suffer. In addition, Arrive and Bruush may not be able to locate suitable replacements for any key employees that leave either company or offer employment to potential replacements on reasonable terms. No assurance can be given that, post-Merger, we will be able to attract or retain key employees of Arrive and Bruush to the same extent that those companies have been able to attract or retain their own employees in the past.

 

Whether or not the Merger is completed, the announcement and pendency of the Merger could cause disruptions in our business, which could have an adverse effect on our business and financial results.

 

Regardless of whether the Merger is completed, the announcement and pendency of the Merger could cause disruptions in our business, including by diverting the attention of our management toward the completion of the Merger. In addition, we have diverted significant management resources in an effort to complete the Merger and we are subject to restrictions contained in the Merger Agreement on the conduct of our business. If the Merger is not completed, We will have incurred significant costs, including the diversion of management resources, for which we will have received little or no benefit.

 

15
 

 

The Merger will involve substantial costs.

 

We have incurred and expects to incur non-recurring costs associated the Merger Agreement, including transaction fees and other costs related to the Merger. We estimate that aggregate costs associated with the Merger and related transactions incurred by us will be approximately $1 million. These costs include filing and registration fees with the SEC, printing and mailing costs associated with this prospectus, and legal, accounting, investment banking, and consulting, public relations. These costs do not include severance and retention payments that may be made to certain of our employees and costs that will be incurred in connection with the Merger Agreement. We are required to pay some of these costs regardless of whether the Merger is completed.

 

After the Merger, we may also incur costs in connection with the separation of the our business. The costs related to the separation will be expensed as a cost of our ongoing results of operations post-Merger.

 

Lawsuits filed against Bruush and/or Arrive may delay or prevent the merger from being completed.

 

Bruush, Arrive, and members of the board of directors of Bruush and Arrive may in the future be parties, among others, to various claims and litigation related to the Merger Agreement and the Merger, including shareholder class actions. Among other remedies, the plaintiffs in such matters may seek to enjoin the Merger. The results of complex legal proceedings are difficult to predict, could prevent or delay the Merger from being completed in a timely manner, and could result in substantial costs to us, including, but not limited to, costs associated with the indemnification of our directors and officers. The existence of litigation relating to the Merger could also impact the likelihood of obtaining the required approvals from Arrive’s stockholders. Moreover, any future litigation could be time consuming and expensive, could divert the attention of our management away from its regular business and, if any one of these lawsuits is adversely resolved against us, could have a material adverse effect on our financial condition.

 

16
 

 

One of the conditions to the completion of the Merger is that no governmental entity having jurisdiction over Arrive or Bruush shall have enacted, issued, promulgated, enforced, or entered any law or order, whether temporary, preliminary, or permanent, that make illegal, enjoin, or otherwise prohibit consummation of the Merger or the other transactions contemplated by the Merger Agreement. As such, if there is litigation initiated challenging the Merger and any of the plaintiffs of such lawsuit or lawsuits are successful in obtaining an injunction preventing the consummation of the Merger, that injunction may delay or prevent the Merger from becoming effective or from becoming effective.

 

Risks Relating to Bruush post-Merger

 

We may be exposed to increased litigation, which could have an adverse effect on our business and operations post-Merger.

 

We may be exposed to increased litigation from stockholders, customers, suppliers, distributors, consumers and other third parties following the Merger. Such litigation may have an adverse impact on our business and results of operations or may cause disruptions to our operations.

 

Upon consummation of the Merger, we will likely lose its status as a foreign private issuer and become subject to additional reporting and other requirements to which are not currently subject.

 

Upon consummation of the transactions contemplated by the Merger Agreement, we will likely lose its status as a foreign private issuer and will become subject to the reporting and other requirements applicable to US domestic companies subject to reporting under the Exchange Act and to other laws to which we are not currently subject, including, among others, the following:

 

  We will be required prepare its financial statements in accordance with US GAAP rather than IFRS.
  We will be required to file Annual Reports on Form 10-K with the SEC within 90 days of the end of the fiscal year as a non-accelerated filer, rather than filing annual reports on Form 20-F due within 4 months of the end of the fiscal year.
  We will be required to file Quarterly Reports on Form 10-Q with the SEC within 45 days of the end of the fiscal quarter. We are not currently subject to quarterly reporting.
  We will be required to file Current Reports on Form 8-K within 4 days of the event requiring such filing. We currently furnish Reports of Foreign Private Issuers on Form 6-K to the SEC which are not deemed to be filed for purposes of the Exchange Act that including disclosure of information that we (i) make or are required to make public pursuant to the law of the jurisdiction of domicile or in which it is incorporated or organized, or (ii) file or are required to file with a stock exchange on which its securities are traded and which was made public by that exchange, or (iii) distribute or are required to distribute to its security holders.
  We will become subject to the SEC’s Regulation Fair Disclosure (FD).
  We will become subject to Section 16 of the Exchange Act requiring insiders to report their beneficial ownership and changes in beneficial ownership of the Company’s securities.
  We will become subject to Section 14 of the Exchange Act relating to shareholder meetings and proxy statements.
  We will lose its exemption from certain provisions of the Dodd-Frank Act.
  We will lose our exemptions from the application of Nasdaq’s corporate governance listing requirements and we will need to comply with such corporate governance standards, without exception.

 

A company that no longer qualifies as a foreign private issuer is required to comply with the rules and reporting requirements applicable to U.S. domestic issuers beginning on the first day of its next fiscal year; however, if the company no longer qualifies as a foreign private issuer because it (re)incorporates within a state, territory or possession of the United States, it must commence reporting as a domestic company immediately.

 

17
 

 

This means that on such day, we must commence making periodic reports (including its financial statements) to the SEC under the Exchange Act, on a quarterly basis, on Form 10-Q, file annual reports on Form 10-K and file Current Reports on Form 8-K. From such day, we must also use the registration statement and other forms prescribed by the SEC for US domestic companies under the Securities Act. Compliance with these additional requirements will require increased management time and significant costs and expenses.

 

After the Merger, holders of our Common Shares will have no equity or other ownership interest in its current business, as after the merger we will sell, transfer and assign its existing business to an unrelated purchaser. Investors will therefore after such sale, transfer and assignment have a continuing equity interest only in the business of Arrive.

 

Pursuant to a Separation Agreement to be entered into pursuant to the Merger Agreement (the “Separation Agreement”), after consummation of the Merger, we will sell, transfer and assign or otherwise divest itself of all of its existing business (the “Legacy Business”) to a purchaser, pursuant to terms and conditions which are currently unknown. After such sale, transfer, assignment or divestiture, Common Shares will represent equity interests solely in the business of Arrive and not any equity interest in the Legacy Business.

 

The separation of the Legacy Business is dependent on the Merger, may not result in monetization, and holders of Common Shares will not receive any consideration in connection with the separation of Legacy Business.

 

Upon consummation of the Merger, pursuant to the Separation Agreement, to be entered into, the terms of which are currently unknown, we will sell, transfer, assign, or otherwise divest itself of the Legacy Business to a purchaser. The separation of the Legacy Business may not involve a monetization transaction and the consummation of such sale, transfer, assignment or other divestiture may be completed at a discount to the fair market value or on terms less favorable to us and to our shareholders that might otherwise have been obtainable under other circumstances. In connection with the separation of the Legacy Business, holders of Common Shares will not receive any consideration related to the Legacy Business.

 

Our debt post-Merger may limit our financial flexibility.

 

In connection with, and a condition to, the consummation of the Merger, we have entered into the Convertible Note Financing pursuant to the Securities Purchase Agreement dated as of January 1, 2024 with Generating Alpha Ltd. providing us with access to borrowings of up to $6,000,000, and we may enter into additional debt or equity financing as the result of our obligation in the Merger Agreement to have a net cash minimum of $10,000,000 at the Closing. Following the consummation of the Merger, there is no limitation on our access to this debt financing or the timing of making draws on such financing. If we were to fully draw the amount available under any financing or security agreement, there is no guarantee that we will have access to any additional financing or be able to refinance this facility or any of our other debt. If we seek to refinance any of our existing indebtedness, there can be no guarantee that we will be able to execute the refinancing on favorable terms or at all.

 

Our indebtedness or that of Arrive pre-Merger could have adverse effects on our financial condition and results of operations post-Merger, including:

 

  increasing our vulnerability to changing economic, regulatory and industry conditions;
     
  limiting our ability to compete and its flexibility in planning for, or reacting to, changes in its business and the industry;
     
  limiting our ability to pay dividends to its stockholders, if at all;
     
  limiting ours ability to borrow additional funds; and
     
  increasing our interest expense and requiring us post-Merger to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for working capital, capital expenditures, acquisitions, share repurchases, dividends and other purposes.

 

18
 

 

Our ability post-Merger to arrange any additional financing for the purposes described above or otherwise will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond its control.

 

Declaration, payment and amounts of dividends, if any, to holders of Common Shares post-Merger will be uncertain.

 

We have not historically paid cash dividends on its capital stock. Whether any dividends are declared or paid to holders of Common Shares, and the amounts of any such dividends, are uncertain and depend on a number of factors. After the consummation of the Merger, our board of directors will have the discretion to determine our dividend policy, including the amount and timing of dividends, if any, that we may declare from time to time, which may be impacted by any of the following factors:

 

  we may not have enough cash to pay such dividends or to repurchase shares due to its cash requirements, capital spending plans, cash flow or financial position;
     
  decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the our board of directors post-Merger, which could change its dividend practices at any time and for any reason;
     
  the amount of dividends that we may distribute to holders of Common Shares is subject to restrictions under Canadian law and is limited by restricted payment and leverage covenants in our credit facilities and, potentially, the terms of any future indebtedness that we may incur; and
     
  certain limitations on the amount of dividends our subsidiaries can distribute to us, as imposed by law, regulators or agreements.

 

Holders of Common Shares should be aware that they have no contractual or other legal right to dividends that have not been declared.

 

19
 

 

Risks Related to Our Business

 

Our business has incurred and expects to continue to incur operating losses and may not establish and maintain profitability in the future.

 

Our business post-Merger depends on the strength of Arrive’s brand, and if Arrive is not able to maintain and enhance its brand, we may be unable to sell its products or services, and its consumer engagement may decline, which could have a material adverse effect on our business, financial condition, and results of operations.

 

We face competition from companies with longer operating histories, greater brand recognition and significantly greater financial, marketing and other resources.

 

Our business is rapidly evolving and intensely competitive and we have many competitors across the oral care space. Our competition with respect to these offerings includes toothbrush and brush head manufacturers as well as ancillary product manufacturers. Our core toothbrush product competes with new and established manufacturers, direct-to-consumer companies and white label in-house brands offered by some large retail chains and department stores, some of which are sold at a lower price point than ours. We believe that our ability to compete successfully depends upon many factors both within and beyond our control, including:

 

  the size and composition of our customer base;
  the quality, consumer appeal, price and reliability of our products;
  the range of products we offer on our website and through our third-party retail partners;
  our ability to improve and iterate on our existing product line and introduce new products;
  our ability to find reliable and cost-effective suppliers of our products;
  our ability to distribute our products and manage our inventory and operations;
  our selling and marketing efforts; and
  our reputation and brand strength.

  

Some of our current competitors have, and potential competitors may have, longer operating histories, greater brand recognition, larger fulfilment infrastructures, faster and less costly shipping, greater resources and technical capabilities, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to derive greater revenues and profits from their existing customer base, capture market share from us, acquire customers at lower costs or respond more quickly than we can to new or emerging technologies and changes in consumer preferences or habits. These competitors may engage in more extensive research and development efforts, undertake larger and more impactful marketing campaigns and adopt more aggressive pricing strategies, which may allow them to build larger customer bases or generate revenues from their customer bases more effectively than we do.

 

We must maintain and enhance our brand or we may not achieve our growth objectives.

 

Our brand name and image are integral to the growth of our business and to the implementation of our strategies for expanding our business. We believe that our brand image has significantly contributed to the success of our business and is critical to maintaining and expanding our customer base. Maintaining and enhancing our brand may require us to make substantial investments in research and development, marketing and building awareness, and these investments may not be successful.

 

We anticipate that, as our business expands into new markets and new product categories, and as the industries in which we operate become increasingly competitive, maintaining and enhancing our brand may become difficult and expensive. For example, consumers in any new international markets into which we expand may not know our brand and/or may not accept our brand resulting in increased costs to market and attract customers to our brand. Further, as we develop retail partnerships, it may be difficult for us to maintain control of our brand with our retail partners, which may result in negative perceptions of our brand. Our brand may also be adversely affected if our public image or reputation is tarnished by negative publicity, including negative social media campaigns or poor reviews of our products or customer experiences. In addition, ineffective marketing, product diversion to unauthorized distribution channels, product defects, unfair labor practices and failure to protect our intellectual property rights are some of the potential threats to the strength of our brand, and those and other factors could rapidly and severely diminish consumer confidence in us. Failure to maintain the strength of our brand could have a material adverse effect on our business, financial condition and results of operations.

 

20
 

 

Our inability to successfully launch new products may adversely affect our business.

 

Launching new products can involve a significant investment in advertising and public relations campaigns. There are also certain risks involved in launching new products, including increased costs in the near term associated with the introduction of new product lines, development delays, failure of new products to achieve anticipated levels of market acceptance, the possibility of increased competition with our current products and unrecovered costs associated with failed product introductions.

 

Our ability to design, develop and commercially launch new products depends on a number of factors, including, but not limited to, our ability to design and implement solutions at an acceptable cost and quality, the availability of critical components from third parties and our ability to successfully complete the development of products in a timely manner. There is no guarantee that we will be able to respond to market demands. If we are unable to respond effectively to technological changes, or we fail to develop products in a timely and cost-effective manner, our products may become obsolete, and we may be unable to recover our research and development expenses which could negatively impact sales, profitability and the continued viability of our business.

  

Launching new products or updating existing products may also leave us with inventory that we may not be able to sell, or we may be required to sell at significantly discounted prices. Further, as we expand into new markets, we may not accurately predict consumer preferences in that market, which could result in lower-than-expected sales. Additionally, launching new products requires substantial investments in research and development. Investments in research and development are inherently speculative and require substantial capital and other expenditures. Unforeseen obstacles and challenges that we encounter in the research and development process could result in delays or the abandonment of plans to launch new products and may substantially increase development costs. If we are unable to maintain the high product-quality standards expected by our customers when we launch new products, or if our competitors are able to produce higher quality or more accessible products, our sales may be harmed. Should this occur, we may need to increase our investments in research and development and manufacturing processes, lower our prices or take other measures to address any loss of sales, which could increase our expenses, reduce our margins and/or negatively impact our brand and our ability to execute our overall pricing and promotion strategy. We may not be successful in executing our growth strategy related to launching new products, and failure to successfully launch new products could have a material adverse effect on our business, financial condition and results of operations.

 

We are dependent on the effectiveness of our marketing programs.

 

We are dependent on the effectiveness of our marketing programs and the efficiency of our related expenditures in generating consumer awareness and sales of our products. We rely on a combination of paid and unpaid advertising and public relations efforts to market our products.

 

Our paid marketing efforts include digital advertising, podcast and streaming media campaigns, influencer collaborations, public relations initiatives, affiliate partnerships and special discount offers. These efforts are expensive and may not result in the cost-effective acquisition of customers. We cannot ensure that the net profit from new customers we acquire will ultimately exceed the cost of acquiring those customers. Moreover, we rely in part upon third parties, such as marketing agencies, social media influencers and product reviewers, for both paid and unpaid services, and we are unable to fully control their efforts. We obtain a significant amount of traffic via search engines and, therefore, rely on search engines such as Google. Search engines frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our site can be negatively affected. Moreover, a search engine could, for competitive or other purposes, alter its algorithms or results in a manner that negatively affects our paid or unpaid search ranking, and competitive dynamics could impact the effectiveness of search engine marketing or search engine optimization. We also obtain a significant amount of traffic via social networking websites or other channels used by current and prospective customers. As e-commerce and social networking continue to evolve rapidly, we must continue to establish relationships with these channels and may be unable to develop or maintain these relationships on acceptable terms. If we are unable to cost-effectively drive traffic to our sites, our ability to acquire new customers and our financial condition would suffer. In addition, the number of third-party providers of consumer product reviews, consumer recommendations and referrals is growing across industries and may influence consumers.

 

21
 

 

Moreover, if any of the third parties on which we rely were to cease operations, temporarily or permanently, face financial distress or other business disruption, we could suffer increased costs and delays in their ability to provide similar services until an equivalent service provider could be found, or until we could develop replacement technology or operations, any of which could also have an adverse impact on our business and financial performance. We continue to evolve our marketing strategies by adjusting our messages, the amount we spend on advertising and where we spend it with no assurance that we will be successful in developing future effective messages or in achieving efficiency in our marketing and advertising expenditures. Our marketing activities and the marketing activities of any third parties on which we rely are subject to various types of regulations, including laws relating to the protection of personal information, consumer protection and competition.

 

Product liability claims could hurt our business.

 

We may be required to pay for losses or injuries purportedly caused by our products or be subject to various product liability claims in the future. Claims could be based on allegations that, among other things, our products contain contaminants, include inadequate instructions or provide inadequate warnings concerning side effects or interactions with other products or substances. In addition, product liability claims may result in negative publicity that may materially adversely affect our sales. Also, if one of our products is found to be defective, we may be required to recall it, which may result in substantial expense and adverse publicity and materially adversely affect our sales. Potential product liability claims may exceed the amount of our insurance coverage or potential product liability claims may be excluded under the terms of our policy, which could adversely affect our financial condition. In addition, we may be required to pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage in the future.

 

Changing consumer preferences may negatively impact our business.

 

The market for electric toothbrushes as a retail category is still emerging and if it does not continue to grow, if it grows more slowly than expected or if it does not achieve the growth potential we expect, our brand, business, financial condition or results of operations could be adversely affected. The Company’s success depends on the ongoing need for and appeal of an electric toothbrush with subscription-based brush head replacement program. Consumer preferences with respect to such personal items are continuously changing and are difficult to predict. As a result of changing consumer preferences, many specialized toothbrushes are successfully marketed for a short period of time, but then interest or demand or consumer requirements change. We cannot ensure that our electric toothbrush will achieve customer acceptance or that it will continue to be popular with consumers for any significant period of time. We also cannot ensure that new products will achieve an acceptable degree of market acceptance, or that if such acceptance is achieved, it will be maintained for any significant period of time. Our success is dependent upon our ability to develop, introduce and gain customer acceptance and their willingness to continue on a long-term basis to adapt their normal hygiene routine to using the Company’s electric toothbrush and to keep enticing new customers to transition from a manual toothbrush to an electric toothbrush. The failure of our product to achieve and sustain market acceptance could have a material adverse effect on our financial condition and results of operations.

 

We have a limited operating history.

 

We have a limited operating history with the current scale of our business, which makes it difficult to forecast our future results, particularly with respect to our own and third-party retail channels, which we have only recently developed. You should not rely on our past annual or quarterly results of operations as indicators of future performance. You should consider and evaluate our prospects in light of the risks and uncertainty frequently encountered by companies like ours. We may experience fluctuations in our quarterly results of operations due to seasonality and other factors, which could make sequential quarter to quarter comparison an unreliable indication of our performance.

 

22
 

 

Failure to attract new customers and subscribers, or retain existing customers and subscribers, or failure to do either in a cost-effective manner will harm our business.

 

Our success depends, in part, on our ability to attract new customers and retain existing subscribers in a cost-effective manner. Although we have historically experienced a high percentage of customers enroll in our brush head refill plan, where they are automatically charged and shipped a three-pack of replacement brush heads every six months, our customers may choose not to do so in the future or we may encounter difficulties during the technical processing of the renewal of credit card processing due to, for instance, the expiration or blocking of the applicable credit card. We have made, and we expect that we will continue to make, significant investments in attracting and retaining customers and subscribers through paid marketing efforts including digital advertising, podcast and streaming media campaigns, influencer collaborations, public relations initiatives, affiliate partnerships and special discount offers. Marketing campaigns can be expensive and may not result in the cost-effective acquisition or retention of customers and subscribers. Further, as our brand becomes more widely known, future marketing campaigns may not attract new or retain customers and subscribers at the same rate as past campaigns. If we are unable to attract new customers and subscribers, or retain existing customers and subscribers, our business will be harmed.

 

We rely on social media and influencers.

 

We use third-party social media platforms as marketing tools, among other things. For example, we deliver brand and direct response creative throughout Facebook, Instagram, Google, YouTube, TikTok and Snapchat, as well as maintain our own Facebook, Instagram and TikTok accounts. We also maintain relationships with social media influencers and engage in sponsorship initiatives. As existing e-commerce and social media platforms continue to rapidly evolve and new platforms develop, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms. If we are unable to cost-effectively use social media platforms as marketing tools or if the social media platforms we use do not evolve quickly enough for us to fully optimize such platforms, our ability to acquire new consumers and our financial condition may suffer. Furthermore, as laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our network of social media influencers, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices or otherwise could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and have a material adverse effect on our business, financial condition and operating results.

 

Our reliance on third-party contract manufacturers and inability to fully control them may harm our business.

 

Our products are produced by third-party contract manufacturers. We face the risk that these third-party contract manufacturers may not produce and deliver our products on a timely basis, or at all. These difficulties may include reductions in the availability of production capacity, errors in complying with product specifications and customer requirements, insufficient quality control, sharing competitively sensitive information with our competitors, failure to meet production deadlines, failure to achieve our product or packaging quality standards, inability to access new or quality materials, shipping mistakes, increases in costs of materials and manufacturing or other business interruptions. The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or damage to their operations caused by fire, terrorist attack, natural disaster or other events. The failure of any manufacturer to perform to our expectations could result in supply shortages or delays for certain products and harm our business. If we experience significantly increased demand, or if we need to replace an existing manufacturer due to lack of performance, we may be unable to supplement or replace our manufacturing capacity on a timely basis or on terms that are acceptable to us, which may increase our costs, reduce our margins or harm our ability to deliver our products on time. For certain of our products, it may take a significant amount of time to identify and qualify a manufacturer that has the capability and resources to produce our products to our specifications in sufficient volume and satisfy our service and quality control standards.

 

The capacity of our manufacturers to produce our products is also dependent upon the availability of raw materials. Our manufacturers may not be able to obtain sufficient supply of raw materials, which could result in delays in deliveries of our products by our manufacturers or increased costs. Any shortage of raw materials or inability of a manufacturer to produce or ship our products in a timely manner, or at all, could impair our ability to ship orders of our products in a cost-efficient, timely manner and could cause us to miss the delivery requirements of our customers. As a result, we could experience cancellations of orders, refusals to accept deliveries or reductions in our prices and margins, any of which could harm our financial performance, reputation and results of operations. Moreover, third-party manufacturers of our products and components must comply with applicable regulatory requirements, which may require significant resources and subject our manufacturers to potential regulatory inspections, stoppages or enforcement actions. It is difficult for us to accurately and consistently monitor and control third-party manufacturer compliance with all application laws, rules and regulations. Additionally, we currently have third-party manufacturing partners located in Canada and China, where it is even more difficult for us to ensure compliance with all applicable domestic and foreign laws, rules and regulations. Our reliance on third-party manufacturers and inability to fully control any operational difficulties with our third-party manufacturers could have a material adverse effect on our business, financial condition and results of operations.

 

23
 

 

We have contracts with our manufacturers who may breach these agreements, and we may not be able to enforce our rights under these agreements or may incur significant costs attempting to do so. As a result, we cannot predict with certainty our ability to obtain products in adequate quantities, of required quality and at acceptable prices from our suppliers and manufacturers in the future. Any one of these risks could harm our ability to deliver our products on time, or at all, damage our reputation and our relationships with our retail partners and customers or increase our product costs thereby reducing our margins.

 

Also, because most of our arrangements with our manufacturers are not exclusive, manufacturers could produce similar products for our competitors. Even when we have exclusivity arrangements, those manufacturers could choose to breach our agreements and work with our competitors and we may not become aware of such breaches or have remedies against the manufacturer for such breaches.

 

Manufacturing risks, including risks related to manufacturing in China, may adversely affect our ability to manufacture our products and could reduce our gross margin and our profitability.

 

We rely on third party manufacturers in China to manufacture our products. As a result, our business is subject to risks associated with doing business in China, including:

 

  trade protection measures, such as tariff increases, import and export licensing and control requirements;
  potentially negative consequences from changes in tax laws;
  difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing contractual obligations in China;
  historically lower protection of intellectual property rights;
  unexpected or unfavorable changes in regulatory requirements; and
  changes and volatility in currency exchange rates.

 

Economic regulation, trade restrictions and increasing manufacturing costs in China could adversely impact our business and results of operations.

 

We contract with manufacturing facilities in China. For many years, the Chinese economy has experienced periods of rapid growth. An increase in the cost of labor or taxes on wages in China may lead to an increase in the cost of goods manufactured in China. Significant increases in wages or wage taxes paid by contract manufacturing facilities may increase the cost of goods manufactured in China which could have a material adverse effect on the Company’s profit margins and profitability. Additionally, government trade policies, including the imposition of tariffs, export restrictions, sanctions or other retaliatory measures could limit our ability to source materials and products from China at acceptable prices or at all. We do not currently have arrangements with contract manufacturers in other countries that may be acceptable substitutes. We cannot predict what actions may ultimately be taken with respect to tariffs, export controls, countermeasures or other trade measures between the U.S. and China or other countries and what products may be subject to such actions. To the extent such actions inhibit our transactions with contract manufacturing facilities and suppliers in China, our business may be materially adversely affected.

 

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The COVID-19 pandemic may negatively impact the manufacturing of our products by third-party manufacturers and the shipment of products to our fulfilment center in the United States.

 

The COVID-19 pandemic and the travel restrictions, quarantines and related public health measures and actions taken by governments and the private sector have adversely affected global economies and financial markets. The extent to which it may continue to impact our future results of operations and overall financial performance remains uncertain. The global macroeconomic effects of the pandemic may persist for an indefinite period of time, even though the initial waves of the pandemic have subsided.

 

We develop and manufacture products with third-party manufacturing partners located in China and Canada. The sourcing and purchase of raw materials is managed by the Company’s third-party manufacturing partners. Although to date we have not experienced any material interruptions or delays related to the manufacture of our products in China or Canada or moving our products from our manufacturers in China and Canada to our third-party fulfilment and logistics partner in Salt Lake City, Utah, there can be no assurance that we will not experience these impacts in the future. Such impacts if material and sustained would affect, among other things:

 

  inventory shortages caused by longer lead-times and component shortages in the manufacturing of our products due to work restrictions related to COVID-19, disruption of international suppliers or adverse import/export conditions such as port congestion or local government orders;
  disruptions of the operations of our third-party suppliers, which could impact our ability to purchase components at efficient prices and in sufficient amounts, and
  our ability to meet consumer demand and delays in the delivery of our products to our customers, potentially negatively affecting our reputation and customer relationships.

 

Our failure or the failure of third-party service providers to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information, could damage our reputation and brand and substantially harm our business and operating results.

 

We collect, maintain, transmit and store data about our customers, employees, contractors, suppliers, vendors and others, including credit card information and personally identifiable information, as well as other confidential and proprietary information. We also employ third-party service providers that store, process and transmit certain proprietary, personal and confidential information on our behalf. We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit, encrypt, anonymize or pseudonymize certain confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction and personal data or other confidential and sensitive information from being breached or compromised.

 

Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, ransom-ware, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our sites, networks and systems, or that we or our third-party service providers otherwise maintain, including payment card systems and human resources management platforms. We and our service providers may not anticipate, discover or prevent all types of attacks until after they have already been launched, and techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers. In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships.

 

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Breaches of our security measures or those of our third-party service providers or cyber security incidents could result in: (i) unauthorized access to our sites, networks and systems; (ii) unauthorized access to and misappropriation of personal information, including consumers’ and employees’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; (iii) limited or terminated access to certain payment methods or fines or higher transaction fees to use such methods; (iv) viruses, worms, spyware or other malware being served from our sites, networks or systems; (v) deletion or modification of content or the display of unauthorized content on our sites; (vi) interruption, disruption or malfunction of operations; (vii) costs relating to breach remediation, deployment or training of additional personnel and protection technologies, responses to governmental investigations and media inquiries and coverage; (vii) engagement of third-party experts and consultants, or (vii) litigation, regulatory action and other potential liabilities. If any of these breaches of security occur: (i) our reputation and brand could be damaged; (ii) our business may suffer; (iii) we could be required to expend significant capital and other resources to alleviate problems caused by such breaches, or (iv) we could be exposed to a risk of loss, litigation or regulatory action and possible liability. In addition, any party who is able to illicitly obtain a customer’s password could access that customer’s transaction data or personal information. Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data security and other laws, and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business, financial condition and operating results. We may need to devote significant resources to protect against security breaches or to address problems caused by breaches, diverting resources from the growth and expansion of our business.

 

Global economy risk may negatively impact our business operations and our ability to raise capital.

 

The volatility of global capital markets over the past several years has generally made the raising of capital by equity or debt financing more difficult. We may be dependent upon capital markets to raise additional financing in the future. As such, the Company is subject to liquidity risks in meeting its operating expenditure requirements and future cost requirements in instances where adequate cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact our ability to raise equity or obtain loans and other credit facilities in the future and on favorable terms. If these levels of volatility persist or if there is a further economic slowdown, our operations, our ability to raise capital and the trading price of our Company’s securities could be adversely impacted.

 

Claims and legal proceedings may harm our business and divert the attention of management.

 

From time to time in the ordinary course of our business, or otherwise, the Company and/or its directors and officers may be subject to a variety of civil or other legal proceedings, with or without merit including commercial, employment and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause the Company to incur significant expenses. Furthermore, because litigation is inherently unpredictable, the results of any such actions may have a material adverse effect on the Company’s business, operating results or financial condition.

 

We may be subject to intellectual property claims that create uncertainty about ownership or use of technology essential to our business and divert our managerial and other resources.

 

Our success depends, in part, on our ability to operate without infringing the intellectual property rights of others. Third parties may, in the future, claim our current or future products, trademarks, technologies, business methods or processes infringe their intellectual property rights or challenge the validity of our intellectual property rights. We may be subject to patent infringement claims or other intellectual property infringement claims that would be costly to defend and could limit our ability to use certain critical technologies or business methods. We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions.

 

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The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings can become very costly and may divert our technical and management personnel from their normal responsibilities. We may not prevail in any of these suits or proceedings. An adverse determination of any litigation or defense proceedings could require us to pay substantial compensatory and exemplary damages, could restrain us from using critical technologies, business methods or processes, and could result in us losing or not gaining valuable intellectual property rights.

 

Furthermore, due to the voluminous amount of discovery frequently conducted in connection with intellectual property litigation, some of our confidential information could be disclosed to competitors during this type of litigation. In addition, public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation could be perceived negatively by investors and thus have an adverse effect on the trading price of our Common Stock.

 

Complying with requirements related to being a reporting company may be difficult, costly, divert the attention of management and harm our business.

 

We are subject to reporting requirements under applicable securities laws, the listing requirements of Nasdaq and other applicable securities rules and regulations. Compliance with these requirements will increase legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on existing systems and resources. Among other things, we are required to file annual reports with the SEC with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. We are also required to furnish reports to the SEC as a foreign private issuer as required under cover of Form 6-K. In order to maintain and, if required, improve disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm the Company’s business and results of operations. We may need to hire additional employees to comply with these requirements in the future, which would increase its costs and expenses.

 

Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.

 

Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations, rules of the Nasdaq Stock Market, are creating uncertainty for companies like ours and adding complexity to our corporate compliance regime. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards. We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and significant management time and attention. In addition, the new laws, regulations and standards regarding corporate governance may make it more difficult for us to obtain or maintain directors’ and officers’ liability insurance. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may face difficulties attracting and retaining qualified board members and executive officers, which could harm our business. In certain instances, compliance requirements under certain rules of the Nasdaq Stock Market are more onerous than those under the Sarbanes-Oxley Act of 2002. For example, our board of directors is required to state that they have established internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively.

 

27
 

 

If we fail to or are unable to implement and maintain effective internal controls over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.

 

We are subject to reporting obligations under U.S. securities laws. The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring every public company to include a report of management on the effectiveness of such company’s internal control over financial reporting in its annual report. In addition, an independent registered public accounting firm must issue an attestation report on the effectiveness of the Company’s internal control over financial reporting.

 

We recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. If we fail to maintain effective internal control over financial reporting in the future, we and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act. If we are not able to continue to meet the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by the SEC, the Nasdaq or other regulatory authorities. Any such action could adversely affect the accuracy and timeliness of our financial reporting.

 

We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make it more difficult to compare our performance with other public companies.

 

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies. We currently prepare our financial statements in accordance with IFRS as issued by the IASB, so we are unable to make use of the extended transition period. However, in the event that we convert to US GAAP (which we do not currently intend to do) while we remain an emerging growth company, we have irrevocably elected to opt out of such extended transition period.

 

As a result, our shareholders may not have access to certain information they may deem important. We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest of the following: (i) the last day of the first fiscal year in which our annual revenues were at least $1.235 billion; (ii) the last day of the fiscal year following the fifth anniversary of this offering; (iii) the date on which we have issued more than $1.0 billion of non-convertible debt securities over a three-year period; or (iv) the last day of the fiscal year during which we meet the following conditions: (i) the worldwide market value of our common equity securities held by non-affiliates as of our most recently completed second fiscal quarter is at least $700 million; (ii) we have been subject to U.S. public company reporting requirements for at least 12 months; or (iii) we have filed at least one annual report as a U.S. public company.

  

If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

 

Emerging growth companies are exempt from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. An emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

 

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As a “foreign private issuer” under the rules and regulations of the SEC, we are permitted to, and will, file less or different information with the SEC than a company incorporated in the United States or otherwise subject to these rules, and will follow certain home country corporate governance practices in lieu of certain Nasdaq requirements applicable to U.S. issuers.

 

We are considered a “foreign private issuer” under the Exchange Act and is therefore exempt from certain rules under the Exchange Act. For example, we are not required to file current reports on Form 8-K or quarterly reports on Form 10-Q, we are exempt from the U.S. proxy rules which impose certain disclosure and procedural requirements for U.S. proxy solicitations and we will not be required to file financial statements prepared in accordance with or reconciled to US GAAP so long as our financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards Board. We are not required to comply with Regulation FD, which imposes restrictions on the selective disclosure of material information to shareholders, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act. In addition, we are not required to file periodic reports and financial statements with the SEC as frequently or within the same time frames as U.S. companies with securities registered under the Exchange Act. Accordingly, holders of the Company’s securities may receive less or different information about the Company than they may receive with respect to public companies incorporated in the United States.

 

In addition, as a “foreign private issuer” whose common shares are listed on Nasdaq, we are permitted to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements.

 

We could lose our status as a “foreign private issuer” under current SEC rules and regulations if more than 50% of our outstanding voting securities become directly or indirectly held of record by U.S. holders and one of the following is true: (i) the majority of our directors or executive officers are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States. If we lose our status as a foreign private issuer in the future, we will no longer be exempt from the rules described above and, among other things, will be required to file periodic reports and annual and quarterly financial statements as if we were a company incorporated in the United States (including preparation of financial statements in accordance with US GAAP). If this were to happen, we would likely incur substantial costs in fulfilling these additional regulatory requirements and members of our management would likely have to divert time and resources from other responsibilities to ensuring these additional regulatory requirements are fulfilled.

 

We expect that we will lose our foreign private issuer status after closing of the Merger, which could result in significant additional costs and expenses.

 

We are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of Common Stock is directly or indirectly held by residents of the United States on the date of determination, and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on such date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning at the end of the first fiscal year ending after such date, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to comply with U.S. federal proxy requirements and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing rules.

 

It is expected that we will no longer qualify as a foreign private issuer under the federal securities laws after consummation of the Merger and the Transactions. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we do not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange. These expenses will relate to, among other things, the obligation to reconcile our financial information that is reported according to IFRS to US GAAP and to report future results according to US GAAP.

 

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If we lose our status as a foreign private issuer, we may qualify as a “smaller reporting company” under SEC regulations and still subject to reduced disclosure obligations.

 

If we lose our status as a foreign private issuer, we may qualify as a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We would remain a smaller reporting company until the last day of any fiscal year for so long as either: (i) the market value of our shares of common stock held by non-affiliates does not equal or exceed $250 million as of the prior June 30th; or (ii) our annual revenues did not equal or exceed $100 million during such completed fiscal year. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

 

Because we are a corporation incorporated in British Columbia and some of our directors and officers are resident in Canada, it may be difficult for investors in the United States to enforce civil liabilities against us based solely upon the federal securities laws of the United States.

 

We are a corporation incorporated under the laws of British Columbia with our principal place of business in Vancouver, Canada. Some of our directors and officers and the auditors or other experts named herein are residents of Canada and all or a substantial portion of our assets and those of such persons are located outside the United States. Consequently, it may be difficult for U.S. investors to effect service of process within the United States upon us or our directors or officers or such auditors who are not residents of the United States, or to realize in the United States upon judgments of courts of the United States predicated upon civil liabilities under the Securities Act. Investors should not assume that Canadian courts: (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or “blue sky” laws of any state within the United States; or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or any such state securities or “blue sky” laws.

 

Risks Related to Arrive’s Business

 

Arrive has a limited operating history and operates in an evolving sector and has a history of losses. Its future earnings, if any, and cash flows may be volatile, resulting in uncertainty about our prospects post-Merger.

 

Arrive was founded in 2020 and has a history of incurring substantial operating losses. Its lack of a significant history and the evolving nature of the market in which we will operate post-Merger have risks inherent to the business that are yet to be recognized by Bruush post-Merger or others, or not fully appreciated, and that could result in the our suffering further losses. As a result of the foregoing, an investment in our Common Shares involves uncertainty about the stability of our results of operations after consummation of the Merger.

 

Consequently, Arrive is subject to all the risks and uncertainties inherent in a new business and in connection with the development and sale of new services. In addition, the automated service industry is a relatively new and an evolving sector. Accordingly, investors should consider Arrive’s prospects in light of the costs, uncertainties, delays, and difficulties frequently encountered by companies in this early stage of development and operating in a changing and evolving sector. Investors should carefully consider the risks and uncertainties that a company, such as Arrive, with a limited operating history will face. In particular, investors should consider that Arrive cannot provide assurance that it will be able to:

 

  successfully implement or execute Arrive’s current business plan;
  maintain Arrive’s management team;
  raise sufficient funds in the capital markets to effectuate Arrive’s business plan;
  attract, enter or maintain contracts with, and retain clients; and/or
  compete effectively in the extremely competitive environment in which Arrive operates.

 

If Arrive cannot successfully accomplish any of the foregoing objectives, Arrive’s business may not succeed.

 

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Risks Related to Ownership of our Securities

 

Because of the speculative nature of investment risk, you may lose your entire investment.

 

An investment in our securities carries a high degree of risk and should be considered as a speculative investment. We have no history of earnings, limited cash reserves, a limited operating history, have not paid dividends and are highly unlikely to pay dividends in the immediate or near future. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the establishment of any business. An investment our securities may result in the loss of an investor’s entire investment. Only potential investors who are experienced in high-risk investments and who can afford to lose their entire investment should consider an investment in our securities.

 

Our auditor has expressed substantial doubt about our ability to continue as a going concern. We may be unable to obtain additional capital on favorable terms.

 

As a result of recurring net losses and limited cash reserves, our independent auditor has included a going concern paragraph to its report on our financial statements as of and for the fiscal years ended October 31, 2022 and October 31, 2021 due to the substantial doubt that exists in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to achieve sustainable revenues and profitable operations. Since inception, we have raised funds primarily through the sale of equity securities and the issuance of debt. We will need and are currently seeking additional funds to operate our business and the recent volatility of global capital markets has made the raising of capital by equity and debt financing more difficult. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations or cause substantial dilution for our stockholders. If we are unable to obtain additional funds, our ability to carry out and implement our planned business objectives and strategies will be significantly delayed, limited or may not occur. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability and our failure to do so would adversely affect our business, including our ability to raise additional funds.

 

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Securities or industry analysts may not regularly publish reports on us which could cause the price of our securities or trading volumes to decline.

 

The trading market for our securities could be influenced by research and reports that industry and/or securities analysts may publish us, our business, the market or our competitors. We do not have any control over these analysts and cannot assure that such analysts will cover us or provide favorable coverage. If any of the analysts who may cover our business change their recommendation regarding our securities adversely, or provide more favorable relative recommendations about our competitors, the price of our securities would likely decline. If any analysts who may cover our business were to cease coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our securities or trading volumes to decline.

 

The trading price of our Common Shares could be subject to wide fluctuations due to a variety of factors, including:

 

  our actual or anticipated operating performance and the operating performance of our competitors;
  failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow us, or our failure to meet the estimates or the expectations of investors;
  any major change in our board of directors, management, or key personnel;
  market conditions in our industry;
  the COVID-19 pandemic and its impact on the markets and economies in which we operate;
  general economic conditions such as recessions, inflation, interest rates, fuel prices, international currency fluctuations;
  rumors and market speculation involving us or other companies in our industry;
  announcements by us or our competitors of significant innovations, new products, services or capabilities, acquisitions, strategic investments, partnerships, joint venture or capital commitments;
  the legal and regulatory landscape and changes in the application of existing laws or adoption of new laws that impact our business;
  legal and regulatory claims, litigation, or pre-litigation disputes and other proceedings;
  other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; and
  sales or expected sales of our common shares by us, our officers, directors, significant shareholders, and employees.

 

In addition, stock markets have experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. The stock market in general and the Nasdaq have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. These fluctuations may be even more pronounced in the trading market for our common shares as a result of the supply and demand forces for newly public companies. In the past, stockholders have instituted securities class action litigation following periods of stock volatility.

 

Nasdaq may delist our Common Shares, which could limit investors’ ability to engage in transactions in our common shares and subject us to additional trading restrictions.

 

Our common shares are listed on the Nasdaq. Although we were able to meet the initial listing requirements, we may be unable to maintain the listing of our common shares in the future.

 

If the Nasdaq were to delist our common shares, we could face significant material adverse consequences, including: a limited availability of market quotations for our securities and a limited amount of news and analyst coverage for the Company; and a decreased ability to obtain capital.

 

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Nasdaq has notified the company that it does not meet the Audit Committee Requirement for continued listing of shares of its Common Stock and that the shares may be subject to delisting if the deficiencies are not cured.

 

On May 8, 2023, the Company received the May 2023 Notice from the Listing Qualifications Department of Nasdaq notifying the Company that, as a result of the resignation of Brett Yormark from our board of directors and from the Audit Committee of our board of directors, the Company is not in compliance with Nasdaq Listing Rule 5605, including Rule 5605(c)(2), which requires the Audit Committee of our board of directors of a listed company to consist of at least three members, each of whom is an independent director under the Nasdaq Listing Rules and who meets heightened independence standards for Audit Committee members. The Audit Committee currently consists of two independent directors.

 

The May 2023 Notice has no immediate effect on the listing of the Common Shares on Nasdaq. The May 2023 Notice states that, consistent with Nasdaq Listing Rule 5605(c)(4), the Company is afforded a cure period to regain compliance until the earlier of (a) the Company’s next annual shareholders’ meeting or April 12, 2024 and (b) October 9, 2023, if the next annual shareholders’ meeting is held before such date. The Company has not yet scheduled its annual shareholders’ meeting.

 

Our investors may experience dilution upon investment in our securities.

 

Sales or issuances of equity securities could decrease the value of our securities, dilute shareholders’ voting power and reduce future potential earnings per share. We may sell additional equity securities (including through the sale of securities convertible or exchangeable into Common Shares) to finance our operations, acquisitions or other business projects. We cannot predict the size of future sales and issuances of equity securities or the effect, if any, that future sales and issuances of equity securities will have on the market price of our Common Shares. Sales or issuances of a substantial number of equity securities, or the perception that such sales could occur, may adversely affect prevailing market prices for our securities. With any additional sale or issuance of equity securities, including sales or issuances of equity securities in connection with this offering, investors will suffer dilution of their voting power and may experience dilution in our earnings per share. Moreover, to the extent outstanding options or warrants are exercised, you will incur further dilution.

 

We have not and do not intend to declare or pay any dividends with respect to our Common Shares.

 

To date, we have not paid any dividends in respect of our Common Shares. Any decision to pay dividends on our Common Shares will be made by the board of directors on the basis of the Company’s earnings, financial requirements and other conditions. See “Dividend Policy”.

 

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Capitalization

 

The following table sets forth our cash and capitalization as of April 30, 2023.

 

You should read the following table in conjunction with “Use of Proceeds”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, appearing elsewhere in this prospectus.

 

  

As of

April 30, 2023

 
Cash  $194,321 
Loan payable  $2,336,222 
Warrant derivative   1,107,775 
      
Share capital   24,889,414 
Obligation to issue securities   283 
Reserves   1,905,507 
Accumulated deficit   (31,970,826)
Total stockholders’ equity   (5,175,622)
Total capitalization  $(1,731,625)

 

Outstanding warrants are classified as financial liabilities in the table above and are included in the warrant derivative line on the Company’s financial statements.

 

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Use of Proceeds

 

The Company will not receive any proceeds from the sale of Common Shares by the Selling Securityholders. We may receive proceeds up to $500 in the event of the exercise in full of the Second June 2023 Target Prefunded Warrant, up to $10,000 in the event of the exercise in full of the December 2023 Target Prefunded Warrant for cash, up to $16,500 in the event of the exercise in full of the January 2024 Alpha Pre-Funded Warrant, and up to a total of $6,000,000 in the event of the exercise in full of the January 2024 Alpha Warrant for cash. All proceeds from the sale of such Common Shares will be paid directly to the Selling Securityholders.

 

35
 

 

Dividend Policy

 

Since inception, we have not declared or paid any dividends on our Common Shares. We do not have any current plans to pay any such dividends in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. Because we do not anticipate paying any cash dividends on Common Shares or making any other distribution of any other property in respect of our Common Shares in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

 

The determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors, including our future operations and earnings, capital requirements and surplus, general financial condition, contractual and legal restrictions and other factors that the board of directors may deem relevant.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following management’s discussion and analysis of financial condition and results of operations together with our audited financial statements as of and for the twelve months ended October 31, 2022 and the nine months ended October 31, 2021 and our unaudited condensed interim financial statements as of and for the six months ended April 30, 2023 and April 30, 2022, appearing elsewhere in this prospectus. We prepare our financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, or IASB.

 

Basis of Presentation

 

Our unaudited condensed interim financial statements as of and for the three and six months ended April 30, 2023 and April 30, 2022 and our audited financial statements as of and for the twelve months ended October 31, 2022 and the nine months ended October 31, 2021 are presented in U.S. dollars and have been prepared in accordance with IFRS which may differ in material respects from US GAAP. Our presentation and functional currency is the U.S. dollar and, accordingly, all the amounts in this discussion and analysis are in U.S. dollars unless otherwise indicated. See “Results of Operations”.

 

Non-IFRS Financial Measures

 

This discussion may refer to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation or as a substitute for analysis of our financial information reported under IFRS.

 

Going Concern

 

As of and for the six months ended April 30, 2023, the Company has recurring losses, a working capital deficit of $5,180,536 (October 31, 2022 – working capital deficit of $1,408,415), an accumulated deficit totaling $31,970,826 (October 31, 2022 – accumulated deficit of $26,386,314) and negative cash flows used in operating activities of $4,746,426 (April 30, 2022 – negative cash flows used in operating activities of $3,360,441). The ability of the Company to carry out its business objectives is dependent on its ability to secure continued financial support from related parties, to obtain equity financing or to ultimately attain profitable operations in the future. The Company will need to raise additional capital during the next twelve months and beyond to support current operations and planned development. Whether and when the Company can attain profitability and positive cash flows is uncertain. While the Company has been successful in securing financing in the past, there is no assurance that we will be able to obtain financing in the future on terms acceptable to us.

 

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Financial Operations Overview

 

Revenues

 

Revenues are comprised of sales of Brüush Kits and of Brüush Refills net of changes in the provision for payment discounts and product return allowances.

 

Cost of goods sold

 

Cost of goods sold consists of: (i) the costs of finished goods sold; and (ii) the freight expense of transporting the finished goods from the manufacturer to our third-party distribution facility in Salt Lake City, Utah.

 

Operating expenses

 

Operating expenses consist primarily of advertising and marketing expenses, salaries and wages, consulting services, professional fees, interest charges, and shipping and delivery expense. We offer free regular shipping on all of our website orders. All of these expenses have increased year-over-year and are expected to keep rising as we continue to scale our brand building and customer acquisition efforts, as well as expand our operations to facilitate higher revenues.

 

Results of Operations – Six months ended April 30, 2023 compared to six months ended April 30, 2022

 

The table below sets forth a summary of our results of operations for the six months ended April 30, 2023 and April 30, 2022:

 

   Six months ended April 30,     
   2023   2022         
   (unaudited)   (unaudited)   Change   % Change 
                 
Revenues  $1,401,624   $1,111,808   $289,816    26%
Cost of goods sold   (436,086)   (376,088)   (59,998)   (16)%
Gross profit  $965,538   $735,720   $229,818    31%
Gross margin   69%   66%          

 

Revenues

 

Our revenues increased 26% for the six months ended April 30, 2023 to $1,401,624 from $1,111,808 for the six months ended April 30, 2022, due primarily to the results of our expanded marketing and customer acquisition efforts.

 

Cost of goods sold

 

Our cost of goods sold increased 16% to $436,086 for the six months ended April 30, 2023 from $376,088 for the six months ended April 30, 2022. The increase was mainly due to the increase in goods sold during the six months ended April 30, 2023 compared to six months ended April 30, 2022 as explained above.

 

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Gross profit

 

We recorded gross profit of $965,538 and $735,720 for the six months ended April 30, 2023 and the six months ended April 30, 2022. Our gross margin increased to 69% for the six months ended April 30, 2023 from 66% for the six months ended April 30, 2022. The increase in gross profit is primarily due to the fact that a larger portion of revenue came from Brüush Kits, which have a higher gross margin compared to Brüush Refills. The split between Brüush Kit and Brüush Refill sales was 78% and 22%, respectively during the six months ended April 30, 2023, compared to 60% and 40%, respectively during the six months ended April 30, 2022.

 

Operating expenses

 

The following table sets forth our operating expenses for the six months ended April 30, 2023, and April 30, 2022:

 

   Six months ended April 30,     
   2023   2022       % 
   (unaudited)   (unaudited)   Change   Change 
Advertising and marketing  $(4,483,815)  $(2,567,496)  $(1,916,319)   (75)%
Depreciation expense   (2,110)   (5,640)   3,530    63%
Commission   (62,447)   (29,841)   (32,606)   (109)%
Consulting   (559,177)   (482,991)   (76,186)   (16)%
Interest and bank charges   (224,344)   (358,445)   134,101    37%
Inventory management   (18,143)   (12,896)   (5,247)   (41)%
Merchant fees   (47,923)   (56,460)   8,537    15%
Office and administrative expenses   (260,122)   (123,782)   (136,340)   (110)%
Professional fees   (260,802)   (73,519)   (187,283)   (255)%
Research and development   (1,680)   -    (1,680)   - 
Salaries and benefits   (757,208)   (436,575)   (320,633)   (73)%
Share-based compensation   (406,154)   (7,861)   (398,293)   (5067)%
Shipping and delivery   (450,147)   (350,096)   (100,051)   (29)%
Travel and entertainment   (68,884)   (127,359)   58,475    46%
   $(7,602,956)  $(4,632,961)  $(2,969,995)   (64)%

 

Operating expenses for the six months ended April 30, 2023 were $7,602,956, compared to $4,632,961, for the six months ended April 30, 2022. The primary reasons for the increase are: (i) increased advertising and marketing efforts, particularly during the holiday season; (ii) increased shipping and delivery to facilitate a higher level of sales; (iii) a higher salaries and benefits expense due to expansion of the team during this period, including the addition of senior team members in operations and sales roles; (iii) a higher office and administrative expense as we expanded our office in Toronto to support a growing team; (iv) higher professional fees due to an increase in legal fees related to maintaining the Company’s listing on the Nasdaq Stock Market; and (v) and increased share-based compensation.

 

Operating loss before other items

 

   Six months ended April 30,     
   2023   2022       % 
   (unaudited)   (unaudited)   Change   Change 
                 
Gross profit  $965,538   $735,720   $229,818    31%
Operating expenses   (7,602,956)   (4,632,961)   (2,969,995)   (64)%
Operating loss before other items  $(6,637,418)  $(3,897,241)  $(2,740,177)   (70)%

 

Our operating loss before other items was $6,637,418 for the six months ended April 30, 2023 as compared to an operating loss before other items of $3,897,241 for the six months ended April 30, 2022. The increase of $2,740,177 in operating loss is due to an increase in overall operating expenses as described above.

 

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Other items

 

The following table sets forth our other income (loss) for the six months ended April 30, 2023, and April 30, 2022:

 

   Six months ended April 30,     
   2023   2022       % 
   (unaudited)   (unaudited)   Change   Change 
                 
Foreign exchange  $(31,745)  $19,737   $(51,482)   (261)%
Gain on revaluation of warrant derivative   1,473,271    181,078    1,292,193    714%
Financing costs   (417,794)   (3,150,000)   2,732,206    87%
Other income (refer to Note 11 of the financial statements)   159,324    -    159,324    100%
Write down of prepaid inventory (refer to Note 5 of the financial statements)   (130,150)   -    (130,150)   (100)%
   $1,052,906   $(2,949,185)  $4,002,091    136%

 

Income from other items was $1,052,906 for the six months ended April 30, 2023 as compared to a loss from other items of $2,949,185 for the six months ended April 30, 2022. This is largely due to the $1,473,271 gain on the revaluation of the warrant derivative for six months ended April 30, 2023 in comparison to a gain of $181,078 during the six months ended April 30, 2022. The main drivers of the gain on the revaluation of the warrant derivative from the time of issuance are the decrease in the estimated stock price for the underlying shares. This gain is offset by financing costs of $417,794 related to the transaction costs incurred on issuance of warrants during the December 2022 private placement. See “Subsequent Events — December 2022 Private Placement and Inducement Letter” below.

 

The following table shows the evolution of the Company’s derivate warrant liability:

 

 

Balance, October 31, 2022  $1,242,580 
Issued during the period   1,974,626 
Change in fair value of derivative   (1,473,271)
Derecognition of warrant derivative   (636,160)
Balance, April 30, 2023  $1,107,775 

 

Results of Operations – Fiscal year ended October 31, 2022 compared to fiscal year ended October 31, 2021

 

The table below sets forth a summary of our results of operations for the years indicated:

 

   12 months ended   9 months ended   12 months ended 
   October 31,   October 31,   January 31, 
   2022   2021   2021 
             
Revenues  $2,632,442   $1,965,441   $901,162 
Cost of goods sold   822,383    978,243    291,195 
Gross profit  $1,810,059   $987,198   $609,967 
Gross margin   69%   50%   68%

 

Fiscal year (twelve months) ended October 31, 2022 compared to fiscal year (nine months) ended October 31, 2021

 

Revenues

 

Our revenues were $2,632,442 for the fiscal year (twelve months) ended October 31, 2022 compared to $1,965,441 for the fiscal year (nine months) ended October 31, 2021.

 

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Cost of goods sold

 

Our cost of goods sold were $822,383 for the fiscal year (twelve months) ended October 31, 2022 compared to $978,243 for the fiscal year (nine months) ended October 31, 2021. The decrease was mainly due to the sale of fewer Brüush Kits at high discounts, as the Company provided subsidized product in some very low-margin influencer collaborations and partnerships to build brand awareness during the fiscal year (nine months) ended October 31, 2021, which it did not do during the fiscal year (twelve months) ended October 31, 2022.

 

Gross profit

 

We recorded gross profit of $1,810,059 and $987,198 for the fiscal year (twelve months) ended October 31, 2022 and fiscal year (nine months) ended October 31, 2021, respectively. Our gross margin increased to 69% for the fiscal year (twelve months) ended October 31, 2022 from 50% for the fiscal year (twelve months) ended October 31, 2021. The Company participated in multiple flash sales, and influencer collaborations and partnerships that drove down the overall gross margin on Brüush Kit revenues during the fiscal year (nine months) ended October 31, 2021, which it scaled back significantly during the fiscal year (twelve months) ended October 31, 2022, as the Company focused on maintaining sales at a higher margin.

 

Fiscal year (nine months) ended October 31, 2021 compared to fiscal year (twelve months) ended January 31, 2021

 

Revenues

 

Our revenues increased for the fiscal year (nine months) ended October 31, 2021 to $1,965,441 from $901,162 for the fiscal year (twelve months) ended January 31, 2021. The primary reason for the increase in revenues was an increase in sales of Brüush Kits from $817,778 to $1,367,778, which is attributed to expanded marketing and customer acquisition efforts, as well as an increase in sales of Brüush Refills from $83,384 to $597,663 as our Active Subscription base continued to grow.

 

Cost of goods sold

 

Our cost of goods sold increased to $978,243 for the fiscal year (nine months) ended October 31, 2021 from $291,195 for the fiscal year (twelve months) ended January 31, 2021. This increase was mainly due to a higher number of Brüush Kit sales.

 

Gross profit

 

We recorded gross profit of $987,198 and $609,967 for the fiscal year (nine months) ended October 31, 2021 and fiscal year (twelve months) ended January 31, 2021, respectively. Our gross margin declined to 50% for the fiscal year (nine months) ended October 31, 2021 from 68% for the fiscal year (twelve months) ended January 31, 2021, reflecting our cost of goods sold increasing more than our revenues as described above. This was partly due to our participation in multiple flash sales and influencer collaborations that featured product discounts on Brüush Kits during the fiscal year (nine months) ended October 31, 2021 and caused a lower selling price per unit. The decline in gross profit is also due to the change in product mix, as a larger portion of revenue came from Brüush Refill units sold, which have a lower gross margin compared to Brüush Kits. The split between Brüush Kit and Brüush Refill sales was 70% and 30%, respectively during the fiscal year (nine months) ended October 31, 2021 compared to 91% and 9%, respectively during the fiscal year (twelve months) ended January 31, 2021.

 

Operating expenses

 

The following table sets forth our operating expenses for the years indicated:

 

   12 months ended   9 months ended   12 months ended 
   October 31,   October 31,   January 31, 
   2022   2021   2021 
             
Advertising and marketing  $7,162,046   $2,806,260   $2,670,447 
Depreciation expense   15,348    5,498    - 
Commission   91,050    26,339    11,207 
Consulting   1,197,831    868,442    556,864 
Interest and bank charges   1,155,288    60,183    18,130 
Inventory management   47,405    -    - 
Merchant fees   99,293    68,073    39,180 
Office and administrative expenses   328,956    93,900    75,194 
Professional fees   521,064    241,854    222,870 
Research and development   96,431    -    - 
Salaries and benefits   1,222,171    282,003    93,460 
Share-based compensation   279,622    92,276    4,949,441 
Shipping and delivery   832,395    511,566    304,591 
Travel and entertainment   259,372    100,068    29,225 
   $13,308,272   $5,156,462   $8,970,609 

 

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Fiscal year (twelve months) ended October 31, 2022 compared to fiscal year (nine months) ended October 31, 2021

 

Operating expenses for the fiscal year (twelve months) ended October 31, 2022 were $13,308,272, compared to $5,156,462 for the fiscal year (nine months) ended October 31, 2021. The increase was primarily due to higher advertising costs as the Company expanded its marketing and customer acquisition efforts, higher salary expenses as the Company moved some external resources in-house and the number of team members grew and higher interest charges due to the senior secured promissory notes issued during the fiscal year (twelve months) ended October 31, 2022.

 

Fiscal year (nine months) ended October 31, 2021 compared to fiscal year (twelve months) ended January 31, 2021

 

Outside of share-based compensation, our expenses have remained generally consistent for the fiscal year (nine months) ended October 31, 2021, as compared to the fiscal year (twelve months) ended January 31, 2021.

 

Operating loss before other items

 

   12 months ended   9 months ended   12 months ended 
   October 31,   October 31,   January 31, 
   2022   2021   2021 
             
Gross Profit  $1,810,059   $987,198   $609,967 
Operating Expenses   (13,308,272)   (5,156,462)   (8,970,609)
Operating Loss before other items  $(11,498,213)  $(4,169,264)  $(8,360,642)

  

Fiscal year (twelve months) ended October 31, 2022 compared to fiscal year (nine months) ended October 31, 2021

 

Our operating loss before other items was $11,498,213 for the fiscal year (twelve months) ended October 31, 2022 as compared to an operating loss before other items of $4,169,264 for the fiscal year (nine months) ended October 31, 2021. The increase of $7,328,949 in operating loss is due to an increase in overall operating expenses as the Company increased advertising and marketing efforts and scaled operations to support its future growth strategies.

 

Fiscal year (nine months) ended October 31, 2021 compared to fiscal year (twelve months) ended January 31, 2021

 

Our operating loss before other items was $4,169,264 for the fiscal year (nine months) ended October 31, 2021 as compared to an operating loss before other items of $8,360,642 for the fiscal year (twelve months) ended January 31, 2021. The increase in operating loss before other items is mostly due to share-based compensation of $4,949,441 recognized during the fiscal year (twelve months) ended January 31, 2021 versus $92,276 in share-based compensation recognized for the fiscal year (nine months) ended October 31, 2021.

 

Other items

 

The following table sets forth our other income (loss) for the for the years indicated:

 

   12 months ended   9 months ended   12 months ended 
   October 31,   October 31,   January 31, 
   2022   2021   2021 
             
Government grant  $-   $8,763   $14,139 
Foreign exchange   (153,076)   42,148    (7,719)
Gain (loss) on revaluation of warrant derivative   5,740,202    (92,918)   (536,209)
Financing costs   (2,688,034)   -    - 
Bad debt   (166,150)          
Other income (loss)  $2,732,942   $(42,007)  $(529,789)

 

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Fiscal year (twelve months) ended October 31, 2022 compared to fiscal year (nine months) ended October 31, 2021

 

Our income from other items was $2,732,942 for the fiscal year (twelve months) ended October 31, 2022 as compared to other loss of $42,007 for the fiscal year (nine months) ended October 31, 2021. This is largely due to the $5,740,202 gain on the revaluation of the warrant derivative in comparison to a loss of $92,918 during the fiscal year (nine months) ended October 31, 2021. The main drivers of the gain on the revaluation of the warrant derivative from the time of issuance are the decrease in the estimated stock price for the underlying shares, decrease in the estimated volatility and the derecognition of a portion of the derivative as some of the exercise prices of the warrants were changed to be designated in US dollars. This gain is offset by financing costs of $2,688,034 related to the senior secured promissory notes.

 

Fiscal year (nine months) ended October 31, 2021 compared to fiscal year (twelve months) ended January 31, 2021

 

Our loss from other items was $42,007 for the fiscal year (nine months) ended October 31, 2021 as compared to $529,789 for the fiscal year (twelve months) ended January 31, 2021. The improvement in other loss is due to the change in valuation of warrant derivatives, with the main driver of the increase in the fair value of the warrants from the time of issuance being the increase in the estimated stock price for the underlying shares. At the time of the issuance of the July/August 2020 warrants, the private placement of units was priced at CAD$0.60 per unit and the fair value allocated to the shares in the unit was CAD$0.48. At the time of issuance of the August/September 2020 warrants, the private placement of units was priced at CAD$1.80 per unit and the fair value allocated to the shares in the unit was CAD$1.46.

 

Selected Quarterly Information

 

The following table presents selected financial information for each of the previous eight quarters:

 

   April 30,   January 31,   October 31,   July 31, 
   2023

(unaudited)

   2023

(unaudited)

   2022

(audited)

   2022

(unaudited)

 
                 
Revenues  $325,532   $1,076,092   $789,678   $730,956 
Net loss   (475,091)   (5,109,421)   (625,947)   (1,292,898)
Net loss per share   (0.95)   (32.58)   (2.00)   (9.00)

 

   April 30,   January 31,   October 31,   July 31, 
   2022

(unaudited)

   2022

(unaudited)

   2021

(audited)

   2021

(unaudited)

 
                 
Revenues  $301,978   $809,830   $528,359   $516,367 
Net loss   (2,732,972)   (4,113,453)   (1,568,006)   (1,929,305)
Net loss per share   (17.39)   (26.25)   (10.00)   (12.25)

 

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Liquidity and Capital Resources

 

The following table sets forth a summary of our cash flows from (used in) operating activities, investing activities and financing activities for the six months ended April 30, 2023 and April 30, 2022:

 

   Six months ended April 30,         
   2023   2022       % 
   (unaudited)   Change   Change 
                 
Net cash flows used in operating activities  $(4,746,426)  $(3,360,441)  $(1,385,985)   (41)%
Net cash flows used in investing activities   (1,405)   (2,042)   637    31%
Net cash flows from financing activities   4,869,231    3,760,725    1,108,506    29%
   $121,400   $398,242   $(276,842)   (70)%

  

Net cash used in operating activities

 

Cash flows used in operations, which is generally the net income or loss adjusted for non-cash items, such as amortization and depreciation, fair valuation changes of the warrant derivative and changes in non-cash working capital items, was an outflow of $4,746,426 for the six months ended April 30, 2023, as compared to an outflow of $3,360,441 for the six months ended April 30, 2022. The main factor that contributed to the increase in cash outflow from operations was the higher operating loss of $6,637,418 for the six months ended April 30, 2023 compared to the operating loss for the six months ended April 30, 2022 of $3,897,241.

 

Net cash used in investing activities

 

Cash used in investing activities was $1,405 for the six months ended April 30, 2023 as compared to $2,042 for the six months ended April 30, 2022. Investing activities in both the current period and the comparative period consisted of purchases of equipment.

 

Net cash from financing activities

 

Cash provided by financing activities was $4,869,231 for the six months ended April 30, 2023 as compared to $3,760,725 for the six months ended April 30, 2022. The increase in cash provided from financing activities is due to: (i) a private placement that closed on December 9, 2022 for aggregate gross proceeds of approximately $3.0 million, before deducting fees to the placement agent and other offering expenses payable by the Company; and (ii) the issuance of an unsecured promissory note on March 20, 2023 in a principal amount of US$2,749,412 to Target Capital 14 LLC. The unsecured promissory note was issued at an original issue discount of 15% with a maturity date of July 18, 2023. See “Subsequent Events — Issuance of Convertible Note” below.

 

As of April 30, 2023, the Company had a working capital deficit of $5,180,536, compared to a working capital deficit of $1,408,415 as of October 31, 2022.

 

Funding requirements

 

As of and for the six-month period ended April 30, 2023, the Company has recurring losses, a working capital deficit of $5,180,536 (October 31, 2022 – working capital deficit of $1,408,415), an accumulated deficit totaling $31,970,826 (October 31, 2022 – accumulated deficit of $26,386,314) and negative cash flows used in operating activities of $4,746,426 (October 31, 2022 – negative cash flows used in operating activities of $12,590,778). The ability of the Company to carry out its business objectives is dependent on its ability to raise additional capital to support current operations and planned development.

 

44
 

 

Off-balance asset arrangements

 

During the periods presented, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

The following table sets forth a summary of our cash flows from (used in) operating activities, investing activities and financing activities for the years indicated:

 

   12 months ended   9 months ended   12 months ended 
   October 31,   October 31,   January 31, 
   2022

(audited)

   2021

(audited)

   2021

(unaudited)

 
             
Net cash flows from operating activities  $(12,590,778)  $(671,169)  $(4,052,350)
Net cash flows from investing activities   (2,042)   (21,201)   (3,196)
Net cash flows from financing activities   12,651,211    14,253    4,567,542 
Increase (decrease) in cash  $58,391   $(678,117)  $511,996 

 

Net cash from (used in) operating activities

 

Cash flows from (used in) operations, which is generally the net income or loss adjusted for non-cash items, such as amortization and depreciation and changes in non-cash working capital items, was an outflow of $12,590,778 for the fiscal year (twelve months) ended October 31, 2022, as compared to an outflow of $671,169 for the fiscal year (nine months) ended October 31, 2021. The main factor that contributed to the increase in cash outflow from operations was the higher net loss of the Company for the fiscal year (twelve months) ended October 31, 2022.

 

Net cash from (used in) investing activities

 

Cash used in investing activities was $2,042 for the fiscal year (twelve months) ended October 31, 2022 as compared to $21,201 for the fiscal year (nine months) ended October 31, 2021. During the fiscal year (nine months) ended October 31, 2021, the outflow of cash was for the purchase of equipment and intangible assets, namely customer lists.

 

Net cash from (used in) financing activities

 

Cash provided by financing activities was $12,651,211 for the fiscal year (twelve months) ended October 31, 2022 as compared to $14,253 for the fiscal year (nine months) ended October 31, 2021. The increase in cash provided from financing activities is due to the Company completing its initial public offering during the fiscal year (twelve months) ended October 31, 2022.

 

Funding requirements

 

As of and for the fiscal year (twelve months) ended October 31, 2022, the Company has recurring losses, a working capital deficit of $1,408,415, an accumulated deficit totaling $26,386,314 and negative cash flows used in operating activities of $12,590,778. The ability of the Company to carry out its business objectives is dependent on its ability to raise additional capital to support current operations and planned development.

 

Warrant derivative liability

 

The following table shows the evolution of the Company’s derivative warrant liability from January 30, 2020 to October 31, 2022:

 

Balance, January 31, 2020  $- 
Issued during the period   953,850 
Change in fair value of derivative   536,209 
Balance, January 31, 2021  $1,490,059 
Change in fair value of derivative   92,918 
Balance, October 31, 2021  $1,582,977 
Issued during the period   5,535,852 
Change in fair value of derivative   (5,740,202)
Derecognition of warrant derivative   (136,047)
Balance, October 31, 2022  $1,242,580 

 

The change in the fair value of these derivative instruments of $5,740,202 is shown as a loss for the fiscal year (twelve months) ended October 31, 2022.

 

45
 

 

Off-balance asset arrangements

 

During the periods presented, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Contractual Obligations

 

All of our contractual maturities for liabilities as at October 31, 2022 are due within one year, consisting of accounts payable and accrued expenses and loans payable.

 

The following shows the breakdown of the Company’s financial liabilities by contractual maturity as at October 31, 2022:

 

   Within one year  

Between one

and five years

  

More than

five years

 
Accounts payable and accrued expenses  $1,345,288   $-   $- 

 

Financial Instruments and Risk Management

 

The following table shows the valuation techniques used in measuring Level 3 fair values for the derivative liability as well as the significant unobservable inputs used.

 

Type   Valuation technique   Key inputs   Inter-relationship between significant
inputs and fair value measurement
Warrant derivative liability   The fair value of the warrant derivative liability at initial recognition and at period-end has been calculated using the Black Scholes option pricing model.  

Key observable inputs

● Share price

● Risk free interest rate

● Dividend yield

Key unobservable inputs

● Expected volatility

 

The estimated fair value would increase (decrease) if:

● The share price was higher (lower)

● The risk-free interest rate was higher (lower)

● The dividend yield was lower (higher)

● The expected volatility was higher (lower)

 

For the fair values of the derivative liability, reasonably possible changes to the expected volatility, the most significant unobservable input would have the following effects:

 

Unobservable Inputs  Change   Impact on comprehensive loss 
       Six months ended
April 30, 2023
   Six months ended
April 30, 2022
 
Volatility   20%  $435,415   $261,511 

 

The Company is exposed in varying degrees to a variety of financial instrument-related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures.

 

46
 

 

Risk Management

 

In the normal course of our business, we are exposed to a number of financial risks that can affect our operating performance and financial condition. These risks, and the actions taken to manage them, are as noted below.

 

Interest rate risk

 

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to any material interest rate risk.

 

Credit risk

 

Credit risk is the risk of loss associated with the counterparty’s inability to fulfill its payment obligations. For financial assets, this is typically the gross carrying amount, net of any amounts offset and any impairment losses.

 

The Company’s principal financial assets are cash and trade accounts receivable. The Company’s credit risk is primarily concentrated in its cash which is held with institutions with a high credit worthiness. Credit risk is not concentrated with any particular customer. The Company’s accounts receivable consists primarily of GST receivable. Trade receivables are generally insignificant.

 

At April 30, 2023, the Company’s maximum credit risk exposure is $152,604.

 

Foreign exchange risk

 

Foreign currency risk arises from fluctuations in foreign currencies versus the United States dollar that could adversely affect reported balances and transactions denominated in those currencies. As at April 30, 2023, a portion of the Company’s financial assets are held in Canadian dollars. The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in United States dollars. The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currency cash flows as management has determined that this risk is not significant at this point in time. The Company is not exposed to any material foreign currency risk.

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis.

 

Historically, the Company’s primary source of funding has been the issuance of equity securities for cash, primarily through the issuance of common shares. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding.

 

As of April 30, 2023, the Company had cash of $194,321 and current liabilities of $6,066,387, compared to $72,921 and $2,593,913, respectively, as of October 31, 2022. Appropriate going concern disclosures have been made in Notes to the financial statements. To address the negative working capital balance and any short-term cash shortfalls as of April 30, 2023, the Company issued convertible debentures for gross proceeds of $3,341,176 in June 2023.

 

Capital Management

 

In the management of capital, the Company includes components of shareholders’ equity. The Company aims to manage its capital resources to ensure financial strength and to maximize its financial flexibility by maintaining strong liquidity and by utilizing alternative sources of capital including equity, debt and bank loans or lines of credit to fund continued growth. The Company sets the amount of capital in proportion to risk and based on the availability of funding sources. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. Issuance of equity has been the primary source of capital to date. Additional debt and/or equity financing may be pursued in future as deemed appropriate to balance debt and equity. To maintain or adjust the capital structure, the Company may issue new shares, take on additional debt or sell assets to reduce debt.

 

47
 

 

Contractual Obligations

 

All of our contractual maturities for liabilities as at April 30, 2023 and October 31, 2022 are within one year, consisting of accounts payable and accrued expenses and loans payable.

 

Related Party Transactions

 

Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and Board of Director members.

 

All related party transactions are in the normal course of operations. All amounts either due from or due to related parties other than specifically disclosed are non-interest bearing, unsecured and have no fixed terms of repayments.

 

Related party transactions with directors, subsequent and former directors and companies and entities over which they have significant influence:

 

   Six months ended April 30, 
   2023   2022 
Consulting fees  $11,163   $- 
Director fees   93,000    47,905 
Professional fees   -    50,000 
Salaries   321,234    110,354 
Share-based compensation   405,419    - 
   $830,816   $208,259 

 

Accounts payable and accrued liabilities – As of April 30, 2023, $11,163 (October 31, 2022 - $33,918) due to related parties was included in accounts payable and accrued liabilities.

 

Critical Accounting Estimates and Judgments

 

The preparation of the Company’s Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if revision affects current and future periods.

 

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are prepared in accordance with the same accounting policies, critical estimates and methods described in the Company’s Financial Statements. The Company based its assumptions and estimates on parameters available when the Financial Statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

 

48
 

 

Recent Accounting Pronouncements

 

None that specifically apply to the Company as evaluated by management.

 

Subsequent Events

 

Reverse Stock Split

 

On August 1, 2023, the Company effected a 1-for-25 reverse stock split (the “Reverse Stock Split”) to comply with the Nasdaq’s minimum bid price requirement. As a result of the Reverse Stock Split, every 25 Common Shares issued and outstanding were exchanged for one Common Share. Immediately after the Reverse Stock Split became effective, the Company had approximately 511,368 Common Shares issued and outstanding. Unless otherwise noted, the share and per share information in this prospectus reflects a 1-for-25 reverse stock split of our outstanding Common Shares effective as of August 1, 2023.

 

Issuance of Convertible Note

 

On June 26, 2023, the Company issued an unsecured convertible note in an aggregate principal amount of $3,341,176 (the “June 2023 Note”) to Target Capital 14 LLC (“Target Capital”) with a maturity date of June 26, 2024. The conversion price in effect is equal to $6.25 for the first seven months, and thereafter, 90% of the lowest closing price of the Company’s shares for the previous three trading days prior to the conversion date; provided, however, that such price shall in no event be less than $3.75. Consequently, a maximum of 890,980 shares of Common Stock are issuable by the Company upon conversion of the June 2023 Note. The June 2023 Note contains customary and standard representations and warranties, and covenants.

 

In connection with the issuance of the June 2023 Note, the Company entered into a securities purchase agreement with Target Capital and issued to Target Capital a common share purchase warrant to purchase 400,941 common shares (the “Purchase Warrant”), with an exercise price of $0.001 or on a cashless basis. The Purchase Warrants are classified as financial liabilities since the terms allows for a cashless net share settlement at the option of the holder.

 

The June 2023 Note cancelled an unsecured promissory note in the principal amount of $2,749,412 (the “Note”) that was issued to Target Capital on March 20, 2023 (the “March 2023 Note”). The March 2023 Note was issued at an original issue discount of 15% with a maturity date of July 18, 2023. As a result, the Company has no obligations pursuant to the March 2023 Note.

 

December 2022 Private Placement and Inducement Letter

 

On December 9, 2022, the Company closed a $3 million private placement transaction, pursuant to which the Company issued to certain investors (the “Holders”) common share purchase warrants (the “Existing Warrants”), each warrant exercisable for one share of Common Stock. On August 22, 2023, the Company issued an offer letter to the Holders (the “Inducement Letter”), providing the Holders the opportunity to exercise for cash all or some of the Existing Warrants at an exercise price of $3.33 per share of Common Stock in consideration for the issuance to each exercising Holder of a new Common Stock purchase warrant (the “New Warrant”) exercisable at an exercise price of $3.33 per share for a number of shares of Common Stock equal to 250% of the number of shares of Common Stock issued in connection with the Inducement Letter. In connection with the Inducement Letter, the Holders elected to exercise Existing Warrants for 633,026 shares of Common Stock. As a result of such exercise, New Warrants exercisable for an aggregate 1,582,565 shares of Common Stock were issued.

 

October 2023 Private Placement

 

On October 2, 2023, the Company entered into a private placement transaction (the “October 2023 Private Placement”), pursuant to a Securities Purchase Agreement (the “Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Generating Alpha Ltd. (“Generating Alpha”) for aggregate gross proceeds of $5,010,000, before deducting fees to the placement agent and other expenses payable by the Company in connection with the October 2023 Private Placement. EF Hutton, division of Benchmark Investments, LLC, acted as the exclusive placement agent for the October 2023 Private Placement.

 

As part of the October 2023 Private Placement, the Company issued to Generating Alpha 79,724 Common Shares, a prefunded warrant (the “Prefunded Warrant”) to purchase 7,181,146 Common Shares, and a warrant (the “Warrant” and together with the Prefunded Warrant, the “Warrants”) to purchase 8,350,000 Common Shares. The Warrants have a term of five years from the date of issuance and an exercise price of $0.0001 per share.

 

49
 

 

To secure performance of the Company’s obligations pursuant to the Agreement, the Company executed a Confession of Judgment (the “Confession of Judgment”), whereby the Company confessed judgment in favor of Generating Alpha in an amount equal to the fair market value of the common shares of the Company that Generating Alpha submitted an exercise notice under either the Pre-Funded Warrant or the Warrant.

 

On November 15, 2023, the Company entered into a letter agreement (the “Generating Alpha Waiver”) with Generating Alpha. Pursuant to the Generating Alpha Waiver, the obligation of the Company to change its transfer agent from Endeavor Trust Corporation to VStock Transfer LLC or Continental Stock Transfer & Trust Company within 30 days of October 2, 2023 pursuant to Section 4(b) of the Agreement will be deemed satisfied if the Company changes its transfer agent from Endeavor Trust Corporation to Odyssey Transfer US Inc. by December 31, 2023 (the “Modifications”). Further to the foregoing, Generating Alpha agreed to pay $380,000 to the Company (the “Additional Funding Amount”) and waive the payment by the Company to Generating Alpha of the $120,000.00 in penalty amounts that would have been owing under Section 4(b) of the Agreement for failure to have changed its transfer agent as previously required (the “Fee Waiver”). In consideration for the Modifications, the Additional Funding Amount and the Fee Waiver, the Company agreed to (i) issue to Generating Alpha a prefunded warrant (the “November Prefunded Warrant”) to purchase 6,250,000 common shares of the Company (the “Waiver Shares”), and (ii) and cause the Waiver Shares to be included in a registration statement of the Company filed with the Securities and Exchange Commission with five days of the date hereof.

 

In connection with the October 2023 Private Placement, the Company entered into a Waiver and Notice Letter with Target Capital 14, LLC (“Target Capital”) (the “Waiver and Notice Letter”), whereby the Company requested that Target Capital waive certain provisions of the securities purchase agreement between the Company and Target Capital, dated June 26, 2023 and the related convertible note in the initial principal amount of $3,341,176 in exchange for the Company issuing to Target Capital a prefunded warrant to purchase 1,000,000 Common Shares (the “Waiver Warrant”).

 

The descriptions of the Agreement, Registration Rights Agreement, Pre-Funded Warrant, Warrant, Generating Alpha Waiver, November Prefunded Warrant, Confession of Judgment, Waiver and Notice Letter, and Waiver Warrant set forth above are qualified in their entirety by reference to the full text of those documents.

 

December 2023 Private Placement

 

On December 22, 2023, the Company closed a private placement transaction pursuant to a securities purchase agreement and a registration rights agreement with Target Capital 14 LLC (“Target”) for aggregate gross proceeds of $500,000. In connection with this transaction, the Company issued a pre-funded common share purchase warrant (the “December 2023 Target Prefunded Warrant”) exercisable for 10,000,000 common shares of the Company at an exercise price of $0.001, subject to adjustment pursuant to the terms of the December 2023 Target Prefunded Warrant. Pursuant to the registration rights agreement, the Company has agreed to file a registration statement with the Securities and Exchange Commission under the Securities Act of 1933, as amended within 45 days following the closing date of this transaction.

 

Issuance of Warrants and Convertible Note

 

On January 1, 2024, the Company closed an equity financing pursuant to a Securities Purchase Agreement with. (the “Equity Financing SPA”) and a Registration Rights Agreement (the “Equity Financing Registration Rights Agreement”) with Generating Alpha Ltd (“Alpha”) for aggregate gross proceeds of $500,000. In consideration of the investment, the Company issued a pre-funded common share purchase warrant (the “January 2024 Alpha Pre-Funded Warrant”) exercisable for 16,500,000 common shares at an exercise price of $0.001, subject to adjustment pursuant to the terms of the January 2024 Alpha Pre-Funded Warrant. Pursuant to the Equity Financing Registration Rights Agreement, the Company has agreed to file a registration statement with the Securities and Exchange Commission under the Securities Act of 1933, as amended within 45 days following the closing date of the financing.

 

On the same day, the Company entered into another Securities Purchase Agreement (the “Convertible Note Financing SPA”) with Alpha, pursuant to which the Company has agreed to sell a convertible promissory note of the Company (the “January 2024 Alpha Note”), in an aggregate principal amount of up to $6,000,000. Alpha funded $1,500,000 of the January 2024 Alpha Note on January 5, 2024. In connection with the purchase and sale of the January 2024 Alpha Note, the Company issued to Alpha a warrant (the “January 2024 Alpha Warrant”) exercisable for 5.5 years from the date of issuance to acquire a total of up to 11,111,111 Common Shares and has an exercise price of $0.135 per Common Share. Pursuant to a registration rights agreement, the Company is required to file an initial registration statement with the SEC within thirty (30) days following January 1, 2024. EF Hutton LLC acted as placement agent for the financing.

 

The January 2024 Alpha Note in the aggregate principal amount of up to $6,000,000 has a one (1) year maturity with an interest at the greater of (i) twelve (12) percent and (ii) WSJ Prime Rate plus 3.5% per annum. The January 2024 Alpha Note is convertible at the option of Alpha into Common Shares at a price equal to the lesser of (i) $0.1625 per share or (ii) 80% of the lowest Volume Weighted Average Price per share during the previous ten (10) Trading Day period ending on the Trading Day prior to the Conversion Date (the “Conversion Price”), which is subject to anti-dilution protections in the event that the Company issues any Common Shares at a per share price lower than the Conversion Price (each a “Dilutive Price”) then in effect, provided, however, that Alpha shall have the sole discretion in deciding whether to utilize such Dilutive Price instead of the Conversion Price otherwise in effect at the time of the respective conversion. In the event of an Event of Default (as described in the January 2024 Alpha Note), Alpha is entitled to an additional twenty percent (20%) discount for that conversion and all future conversions, for each occurrence, cumulative or otherwise, to be factored into the Conversion Price until the January 2024 Alpha Note is no longer outstanding, and an additional $15,000 of principal will be added to the January 2024 Alpha Note. 

 

Share Capital

 

From August 1 to August 25, 2023, a total of 883,131 shares were issued from warrants being exercised for proceeds of $2,855,979. On August 10 and 14, 2023, the company issued 50,000 and 150,000 common shares, respectively, as compensation for consulting services.

 

50
 

 

Outstanding Share Data

 

The Company is authorized to issue an unlimited number of common shares without par value.

 

As at April 30, 2023, the Company had a total of 511,361 common shares outstanding and 19,689 restricted share units (“RSUs”) outstanding, and none of the RSUs had vested.

 

As of April 30, 2023, the following options were outstanding and vested, entitling the holders thereof the right to purchase one common share for each option held as follows:

 

Outstanding   Exercise Price   Expiry Date  Vested 
 3,207    CAD$172.50   November 9, 2025   3,207 
 40,800   $6.25   April 3, 2028   - 
 44,007            3,207 

 

The following table sets forth the number of warrants outstanding as at April 30, 2023:

 

Number of warrants   Exercise Price   Expiry date
 10,736    CAD$86.75   August 3, 2024
 18,474    CAD$260.50   August 3, 2024
 163,565   $52   August 4, 2027
 10,514   $130   August 4, 2027
 11,931   $0.025   August 4, 2027
 266,420   $52   November 3, 2027
 118,667   $15   June 9, 2028
 78,000   $15   June 9, 2028
 11,333   $0.025   No expiry
 689,640         

 

As of September 13, 2023, the Company had a total of 1,594,492 shares outstanding and 19,689 restricted share units (“RSUs”) outstanding, and 6,563 RSUs had vested.

 

The Company also had the following warrants outstanding as of such date:

 

 

Number of warrants   Exercise Price   Expiry date
 10,736    CAD$86.85   August 3, 2024
 18,474    CAD$260.55   August 3, 2024
 149,142   $52   August 4, 2027
 10,514   $130   August 4, 2027
 266,420   $52   November 3, 2027
 11,931   $0.025   August 4, 2027
 1,582,566   $3.33   June 9, 2028
 2,049,783         

 

51
 

 

BUSINESS

 

Overview

 

Bruush is an oral care company that is disrupting the space by reducing the barriers between consumers and access to premium oral care products because of its belief that high-quality oral care products should be more accessible. Bruush is an e-commerce business with a product portfolio that currently consists of a sonic-powered electric toothbrush kit and brush head refills. Through Bruush’s website, consumers can purchase a Brüush starter kit (the “Brüush Kit”), which includes: (i) the Brüush electric toothbrush (“Brüush Toothbrush”); (ii) three brush heads; (iii) a magnetic charging stand and USB power adapter; and (iv) a travel case. Bruush also sells the brush heads separately which come in a three-pack (“Brüush Refill”) and can be purchased on a subscription basis, where the customer will automatically receive a Brüush Refill every six months (the “Subscription”). 

 

Products

 

With such a glaring opportunity in the market, we have developed an electric toothbrush that makes upgrading to an electric brush appealing. The key tenets of our value proposition include:

 

(i) Quality: Through our direct-to-consumer business model, we eliminate the “middleman” (i.e., the retailer such as a grocery/drug store) and believe that we offer consumers a high-quality electric toothbrush at a more affordable price than a comparable electric toothbrush from the competition. The Brüush Toothbrush is equipped with sonic technology that delivers over 31,000 brush strokes per minute and features that include: (i) six cleaning modes; (ii) a smart timer that pauses every 30 seconds to prompt the user to move the toothbrush to a different quadrant of their mouth and then shuts off after two minutes; (iii) a rechargeable battery that lasts an incredible four weeks on a single charge; and (iv) a custom-designed brush head that is equipped with extra soft DuPont™ Tynex® bristles.

 

(ii) Design: In addition to being highly functional, we believe that the Brüush Toothbrush is one of the sleekest looking brushes on the market. Our goal was to develop a toothbrush that our consumers would be proud to showcase on their countertop. We paid significant attention to detail, not only to the aesthetics of the device itself, but also the packaging to facilitate a premium unboxing experience. The Brüush Toothbrush comes in three core colors - black, white and pink - as well as a variety of trend-driven seasonal colors that are introduced on a limited quantity basis.

 

(iii) Convenience: A 2018 independent survey conducted by Electric Teeth indicated that over 40% of people do not change their toothbrush or the brush head at least once every three months as recommended by the American Dental Association, which could cause the bristles to become frayed or excess bacteria to develop on the brush head. To help consumers maintain good oral health by changing their brush head regularly, as well as eliminate the frustrating experience of purchasing replacement heads at the grocery/drug store, we give our customers the option to subscribe to a brush head refill program. The Subscription automatically sends a three-pack of brush heads every six months at a price that we believe is lower than comparable brush heads from competing brands. As an incentive to subscribe, we offer the consumer a discount on the Brüush Kit if they enroll in the Subscription at the time of purchase, but they have the flexibility to cancel their Subscription at any time. Once the initial purchase of the Brüush Kit is made, the cost of the Subscription is in-line with what a consumer would pay to regularly replace their manual brush.

 

52
 

 

Growth Strategies

 

Marketing

 

Our brand strategy is focused on becoming the go-to oral care brand for the 18 to 45-year-old age group. The Company has helped differentiate itself from the competition by building a unique and human brand identity that resonates with the millennial and Generation Z cohorts. We have helped accomplish this by creating supercharged content that features bright colors and bold expressions and fits with our objective of shaking up the traditionally dull oral care category. We utilize this content across our website, paid media programs and social media channels. In addition to our campaign assets, we generate omni-channel content through customer excitement that has driven a steady stream of user-generated content and brand mentions.

 

The millennial and Generation Z demographic groups have a propensity to naturally and purposefully engage in social media to endorse the brands and products that they use and love. As such, we are very active on social media, where we aim to connect deeper with our target customer by building a community to drive brand engagement. We have primarily focused our social media efforts on Instagram, where we currently have over 28,000 followers. As part of our social media strategy, we have collaborated with over 200 on-brand influencers, mostly in an unpaid capacity. To facilitate these collaborations, we work both directly (outreach from the Company to the influencer) and with best-in-class influencer seeding tools to gift the Brüush Kit to influencers in exchange for a product review or authentic content (both static and video) that showcases our product in a genuine manner. We embed this content across our owned and operated social channels and in our customer outreach initiatives, repurposing it to our audience so they get direct product feedback from their peers. We also receive many inbound requests from micro-influencers, who want to collaborate with us to promote the Brüush Toothbrush. We continue to engage with our top performing influencers to turn them into a team of loyal brand ambassadors that we can leverage as we introduce new products to market.

 

Media exposure has also proven to be successful in terms of building the brand by way of creative pitching and tactical product seeding, often to existing relationships with commerce editors. Since 2021, the Company has received over 200 brand-elevating press placements, the majority of which were earned (unpaid), including coverage in Allure Magazine, New York Times, Vogue, Refinery29, The Wall Street Journal, Essence and Rolling Stone Magazine. Having these notable publications backlink our website not only improved search engine optimization, but also generated a rise in key performance indicators on our site for up to 48 hours after new placements. When we engage in paid placements, it is mainly focused in the affiliate channel, where we typically provide a small commission on sales that are generated by a publication covering our product. Even in this capacity, an editor typically chooses among several different electric toothbrushes, whereby the Brüush Toothbrush would need to be deemed the strongest before they would cover or advocate for our brand.

 

Competition

 

The electric toothbrush industry has traditionally been dominated by two major brands: (i) Philips Sonicare (owned by Dutch conglomerate Koninklijke Philips N.V.); and (ii) Oral-B (owned by American multinational consumer goods corporation Proctor & Gamble). In our view, these companies make high-quality products, but they can be expensive with their high-end models retailing for over $200. In North America, it is our belief that both Philips Sonicare and Oral-B primarily sell their products to the baby boomer generation through their brick-and-mortar retail networks, where the buying experience can be poor and there is a limited ability to lower prices. From a marketing standpoint, it seems that both companies rely on traditional initiatives, such as television ads and print media, with messaging that is targeted to an older demographic and may not resonate as well with the younger millennial and Generation Z groups.

 

In recent years, a number of competing brands have emerged, such as Burst, Goby, Moon and Quip. These companies usually offer electric toothbrushes at a lower price point than Philips Sonicare and Oral-B, but we feel that the product quality is inferior. Our value proposition is centered around offering an electric toothbrush that we believe is comparable to the high-end models of Philips Sonicare and Oral-B in terms of quality, but at the lower price point, which is more in-line with the emerging competition. Additionally, we are focused on: (i) distributing our products online versus through a brick-and-mortar retail network; (ii) offering our consumers the option to conveniently have their replacement brush heads shipped automatically to their door through our Subscription; and (iii) marketing to a younger demographic that is between 18 and 45 years of age through relevant channels such as social media.

 

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Intellectual Property

 

Patents

 

Bruush has a registered United States design patent for the ornamental and industrial design for the manufacture of The Brüush Toothbrush, which expires on November 19, 2034. We also have a similar industrial design registration for The Brüush Toothbrush in Canada that expires on December 13, 2028. As of now, we do not intend to file any new patents.

 

Trademarks

 

The Company retains trademarks in the United States, Canada, Australia, United Kingdom and the European Union for our name and symbol “BRÜUSH”. As of now, we do not intend to file any new trademarks.

 

Trademark / Patent   Country   Matter Type   Application Number   Reg Number / Patent No.   Owner   Status
BRÜUSH   Australia   Trademark   1980452   1980452   Bruush Oral Care Inc.   Registered from January 2, 2019
BRÜUSH   Australia   Trademark   1980453   1980453   Bruush Oral Care Inc.   Registered from January 2, 2019
BRÜUSH   Canada   Trademark   1908400   1908400   Bruush Oral Care Inc.   Registered from July 15, 2022
BRÜUSH   Canada   Trademark   1908402   1908402   Bruush Oral Care Inc.   Registered from July 15, 2022
Respect Yourmoüth   Canada   Trademark   1986760       Bruush Oral Care Inc.   Application filed September 25, 2019
BRÜUSH   European Union   Trademark   017944251   017944251   Bruush Oral Care Inc.   Registration date March 5, 2019
BRÜUSH   United Kingdom   Trademark   UK00003364265   UK00003364265   Bruush Oral Care Inc.   Registered on March 22, 2019
BRÜUSH   United States of America   Trademark   88/232525   6230281   Bruush Oral Care Inc.   Registered December 22, 2020
BRÜUSH   United States of America   Trademark   88/232529   6230282   Bruush Oral Care Inc.   Registered December 22, 2020

 

Human Capital Resources

 

As of January 1, 2024, Bruush had three employees under contract including two officers, the Chief Executive Officer and the Chief Financial Officer, all of which are located in Vancouver, British Columbia.

 

Property

 

Bruush’s principal office is located at 128 West Hastings Street, Unit 210, Vancouver, BC V6B 1G8.

 

Legal Proceedings

 

We are, from time to time, subject to various claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business. We are not currently a party to any such claims, lawsuits or proceedings, the outcome of which, if determined adversely to us, we believe would, individually or in the aggregate, be material to our business or result in a materially adverse effect on our future operating results, financial condition or cash flows.

 

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Regulatory Matters

 

In the United States, powered toothbrushes, such as the Brüush Toothbrush, are regulated as a Class I device by the FDA, Federal Trade Commission (“FTC”) and other regulatory authorities (regulation number: 872.6865 and product code: JEQ). The FDA has exempted almost all Class I devices (with the exception of reserved devices) from the premarket notification requirement. The Brüush Toothbrush falls under the exemption and therefore the Company is not required to submit a premarket notification application or obtain FDA clearance before marketing the product in the U.S., however, the Company is required to register its establishment with the FDA. The Company’s annual renewal for the medical device establishment has been successfully completed for 2024 (registration number: 3014925406 and owner operator number: 10058820).

 

Of the consumables that we will be launching later this year, only the toothpaste is subject to registration with the FDA. Mouthwash, dental floss and the whitening pen are all categorized as cosmetic products, which do not require FDA authorization. Our toothpaste will be classified as an over-the-counter (“OTC”) drug product, which is subject to the FDA OTC drug regulatory requirements due to the inclusion of sodium fluoride as an active ingredient. Third-party manufacturing facilities for OTC drug products must comply with the FDA’s drug Good Manufacturing Practices (GMPs) that require them to maintain, among other things, good manufacturing processes, including stringent vendor qualifications, ingredient identification, manufacturing controls and record keeping. The third-party manufacturer of our toothpaste located in Canada is registered with the FDA and in full compliance with the FDA’s GMPs, as they already produce a range of OTC toothpastes that are currently selling in the United States.

 

As an OTC drug product, our toothpaste will be permitted to be produced and marketed without prior approval from FDA, but it must comply with the monograph for OTC anticaries drug products, which regulate its formulation, packaging and indications by establishing acceptable active ingredients, labelling requirements and product claims that are generally recognized as safe and effective. If our toothpaste is not in compliance with the applicable FDA monograph for OTC anticaries drug products, we may be required to stop making claims or stop selling the product until we are able to obtain the requisite FDA approvals. Based on separate assessments conducted by our team, manufacturing partner in Canada and third-party regulatory advisors, we are confident that our toothpaste will comply with FDA OTC drug regulatory requirements.

 

In Canada, electronic toothbrushes are a Class II device and require ISO 13485:2016 with Medical Device Single Audit Program (MDSAP) certification through a recognized registrar, in addition to a Medical Device License application. To facilitate the possibility of Canadian-based warehousing and fulfilment, we obtained ISO 13485:2016 certification in October 2023 and expect to receive our Medical Device License in the second quarter of 2024. For Canada, our toothpaste will require a Natural Product Number (“NPN”) and bilingual packaging. Getting an NPN requires pre-market approval from Health Canada, which can take at least 180 days from the submission date. We do not anticipate any issues receiving Health Canada approval, since the formula and the OTC ingredients are in the prescribed levels in the monograph and all packaging will follow Canadian labelling requirements. Additionally, the third-party manufacturer of our toothpaste is located in Canada, registered with Health Canada, and already produces a range of OTC toothpastes that are currently selling in the Canadian market.

 

Corporate Information

 

Our principal office is located at 128 West Hastings Street, Unit 210, Vancouver, British Columbia V6B 1G8. The SEC maintains a website (www.sec.gov) that makes available reports and other information regarding issuers that file electronically with the SEC. Our website address is www.bruush.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our securities.

 

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MANAGEMENT

 

The following table sets forth the name, office held, age, and functions and areas of experience in our company of each of our directors and senior management as of the date of this prospectus:

 

Name, Office Held, Age   Area of Experience and Functions in Our Company

Aneil Manhas

Chief Executive Officer and Chairman

Age: 39

  As our Chief Executive Officer and Chairman, Mr. Manhas is responsible for strategic planning and operations, as well as managing our relations with our investment bankers, lawyers, regulatory authorities and investor community. Mr. Manhas is also Principal Executive Officer, Acting Principal Financial and Accounting Officer.
     

Mandeek Manhas

Chief Financial Officer

Age: 42

  As our Chief Financial Officer, Mr. Manhas directs and oversees the Company’s finance department.
     

Kia Besharat Director

Age: 40

  As an independent director, Mr. Besharat supervises our management and helps to ensure compliance with our corporate governance policies and standards. Mr. Besharat is Chairman of the Audit Committee, Nominating and Corporate Governance Committee and the Compensation Committee.
     

Dr. Robert Ward Director

Age: 39

  As an independent director, Dr. Ward supervises our management and helps to ensure compliance with our corporate governance policies and standards. Dr. Ward is a member and of the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee.

 

The following is a brief account of the business experience of each of our directors and senior management.

 

Aneil Manhas, Chief Executive Officer and Chairman

 

Aneil Manhas, the founder of the Company, has served as Chief Executive Officer since inception in 2018. Mr. Manhas has a career spanning over 15 years working in the financial services industry and in CEO positions of his previous companies.

 

Recently, he was CEO of Surface 604 from 2015 until 2019, an electric bike company that he founded and grew to be one of North America’s leading e-bike brands. During the same period, he was also President and CEO of GVA Brands / Rosso Sports from 2014 until 2019, a company he purchased and transformed into Canada’s leader in entry-level powersports.

 

Mr. Manhas previously worked at Credit Suisse in Los Angeles, California for two years as an Investment Banking Analyst before joining Onex Corporation in Toronto, Ontario as a member of the investment team for five years, evaluating and executing large private equity transactions across multiple industries.

 

Aneil holds an Honors Business Administration (HBA) degree from the Richard Ivey School of Business at the University of Western Ontario.

 

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Mandeek Manhas, Chief Financial Officer

 

Mandeek Manhas joined the Company in April 2023 as Chief Financial Officer to direct and oversee the Company’s finance department. Mr. Manhas has over 17 years of experience in a variety of leadership, managerial, financial, accounting, regulatory compliance, assurance, tax and advisory areas. This includes leading initiatives over operational and financial strategy, assessment of growth opportunities, governance and risk management.

 

Mr. Manhas joined the Company from Shape Properties, a real estate management, development and investment company with over $2.5 billion in asset value under management. As Director of Finance and Accounting for the income producing properties group, he led the finance and accounting functions through budgeting and forecasting, cash management, financial reporting, tax compliance, commercial support and overall growth of the portfolio of assets under management.

 

Previously, Mr. Manhas was Corporate Controller at Jervois Global (ASX: JRV, TSX-V: JRV), a dual-listed, multinational mining company with advanced development stage and exploration projects, where he left the finance department through a three-way merger with Ecobalt Solutions Inc. (TSX: ECS) and M2 Cobalt Corp. (TSX-V: MC). Prior to this, Mr. Manhas spent eleven years providing audit and advisor services with major accounting firms including Deloitte, Grant Thornton and Crowe Mackay, primarily working with small to mid-market cap corporations listed on Canadian and U.S. exchanges.

 

Mr. Manhas is a Chartered Professional Accountant and holds a Bachelor of Commerce Degree from the University of British Columbia, with a double major in Finance and Accounting.

 

Non-Executive Directors

 

Kia Besharat, Director

 

Kia Besharat has over 15 years of extensive investment banking, private equity, venture capital and directorship experience. He was former Senior Managing Director, Head of Capital Markets Origination at a leading independent investment bank, where he founded the investment banking group and led the capital markets, advisory, restructuring, corporate finance and mergers and acquisitions mandates across the firm’s platform. He played a pivotal role in establishing the firm as one of the top boutique investment banks in Canada and his transactions have totaled over $50 billion.

 

Mr. Besharat holds a Bachelor of Arts (Economics with a minor in Management) from McGill University as well as a Master of Science (Finance and Investment) from the University of Edinburgh. In 2018, he was recognized by the Investment Industry Association of Canada (IIAC) as a Top 40 Under 40 Award Nominee.

 

Dr. Robert Ward, Director

 

Dr. Robert Ward has served as a director of the Company since August 2022 and is a Certified Specialist in Orthodontics licensed in the provinces of Manitoba and Alberta, where he maintains a private practice. He is also the CEO of XerosGuard, a company that he founded in 2018 and offers dentists a revolutionary product that maintains intra-oral isolation and moisture control while a patient occludes their teeth.

 

Previously, from 2016-2019, Dr. Ward’s ownership group successfully acquired and green-fielded 11 dental and orthodontic offices in Central Canada and proceeded to have a successful exit in the summer of 2019. This sale is widely believed to be one of the largest transactions in the space in Canadian history. Dr. Ward is passionate about innovative, cutting-edge techniques and technologies to provide the highest level of care to patients. This keen interest has led to his involvement in several intellectual property-focused dental start-up businesses and he currently holds three dental-related patents in the United States.

 

Dr. Ward attended the University of Manitoba and holds a Bachelor of Science (Biology), Bachelor of Science (Dentistry), Doctor of Medicine in Dentistry and Master of Science in Orthodontics. Dr. Ward is involved with several continuing education and professional organizations, including the Canadian Association of Orthodontists and American Association of Orthodontists. He also maintains a part-time professor position in the College of Dentistry at University of Manitoba in Orthodontics.

 

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Family Relationships

 

Mandeek Manhas, our Chief Financial Officer, is the cousin of Aneil Manhas, our Chief Executive Officer. There are no other family relationships between or among any of our executive officers or other directors.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past 10 years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K that are material to an evaluation of the ability or integrity of any director or executive officer of the Company.

 

Equity Compensation Plan

 

On June 30, 2022, our board of directors approved an Omnibus Securities and Incentive Plan effective June 29, 2022, replacing the Stock Option Plan previously approved on August 6, 2021. We plan to grant awards under this new plan, See “Executive and Director Compensation – Stock Options and Other Compensation Securities” for a description of the 2022 plan.

 

Board Diversity

 

On August 6, 2021, the Securities and Exchange Commission approved a proposed rule from Nasdaq on diversity of boards of directors of companies listed on Nasdaq. Under the rule as approved, “foreign private issuers” can meet the diversity requirement with either two female directors or one female director and one director who is an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in its home country or LGBTQ+. Companies with five or fewer directors can meet the requirement by having at least one director who meets the definition of “diverse” under the new rule. The requirements became effective from August 7, 2023. As of the date of this filing, at least one of our directors meets the definition of “diverse” under the new rule.

 

While we do not have a formal policy on diversity, our board of directors considers diversity to include the skill set, background, reputation, type and length of business experience of our board members as well as a particular nominee’s contributions to that mix. Our board of directors believes that diversity promotes a variety of ideas, judgments and considerations to the benefit of our Company and shareholders.

 

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Corporate Governance

 

Term of Office

 

Each director of our Company holds office until the next annual general meeting of our company or until his successor is elected or appointed, unless his office is earlier vacated in accordance with the articles of our Company or the provisions of the Business Corporations Act (British Columbia). Each officer of our Company is appointed to serve at the discretion of our board of directors.

 

Committees of the Board of Directors

 

The board of directors has established an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee. The members of the Audit Committee are Kia Besharat (Chairman) and Dr. Robert Ward. The members of the Nominating and Corporate Governance Committee are Kia Besharat (Chairman) and Dr. Robert Ward. The members of the Compensation Committee are Kia Besharat (Chairman) and Dr. Robert Ward. Each of the directors on the Audit Committee has been determined by our board of directors to be independent.

 

Audit Committee

 

The Audit Committee is governed by a written charter, which is approved and annually adopted by the board of directors. The board of directors has determined that the members of the Audit Committee meet the applicable independence requirements of the SEC and the Nasdaq Stock Market, that all members of the Audit Committee fulfill the requirement of being financially literate and that Kia Besharat is an Audit Committee financial expert as defined under current SEC regulations. Currently, there is a vacancy on the audit committee and Nasdaq has granted the Company a cure period to regain compliance until the earlier of (a) the Company’s next annual shareholders’ meeting or April 12, 2024 and (b) October 9, 2023, if the next annual shareholders’ meeting is held before such date. The Company has not yet scheduled its annual shareholders’ meeting.

 

The Audit Committee is appointed by the board of directors and is responsible for, among other matters, overseeing the:

 

  integrity of the Company’s financial statements, including its system of internal controls;
     
  Company’s compliance with legal and regulatory requirements;
     
  independent auditor’s qualifications and independence;
     
  retention, setting of compensation for, termination and evaluation of the activities of the Company’s independent auditors, subject to any required shareholder approval; and
     
  performance of the Company’s independent audit function and independent auditors.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee is appointed by the board of directors and is responsible for, among other matters:

 

  reviewing the structure, size and composition of board of directors and making recommendations to the board of directors with regard to any adjustments that are deemed necessary;
     
  identifying candidates for the approval of the board of directors to fill vacancies on the board as and when they arise as well as developing plans for succession, in particular, of the chairman and executive officers;
     
  overseeing the annual evaluation of the board of directors of its performance and the performance of other board committees;
     
  retaining, setting compensation and retentions terms for and terminating any search firm to be used to identify candidates; and
     
  developing and recommending to the board of directors for adoption a set of Corporate Governance Guidelines applicable to the Company and to periodically review the same.

 

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Compensation Committee

 

The Compensation Committee is appointed by the board of directors and is responsible for, among other matters:

 

  establishing and periodically reviewing the Company’s compensation programs;
     
  reviewing the performance of directors, officers and employees of the Company who are eligible for awards and benefits under any plan or program and adjust compensation arrangements as appropriate based on performance;
     
  reviewing and monitoring management development and succession plans and activities;
     
  reporting on compensation arrangements and incentive grants to the board of directors;
     
  retaining, setting compensation and retention terms for, and terminating any consultants, legal counsel or other advisors that the Compensation Committee determines to employ to assist it in the performance of its duties; and
     
  preparing any Compensation Committee report included in our annual proxy statement.

 

Risk Oversight

 

Our board of directors oversees a company-wide approach to risk management. Our board of directors determines the appropriate risk level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks. While our board of directors will have ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.

 

Specifically, our compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our audit committee oversees management of enterprise risks and financial risks, as well as potential conflicts of interests. Our board of directors is responsible for overseeing the management of risks associated with the independence of our board of directors.

 

Code of Business Conduct and Ethics

 

Our board of directors adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees. A copy of this code is available on our website. We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

 

The following information is related to the compensation paid, distributed or accrued by us for the fiscal years ended October 31, 2022 and October 31, 2021 for our Chief Executive Officer (principal executive officer) serving during the year ended October 31, 2022 and the other most highly compensated executive officer serving at October 31, 2021 whose total compensation exceeded $100,000 (the “Named Executive Officers”).

 

Summary Compensation Table

 

The following table sets forth all direct and indirect compensation paid, payable, awarded, granted, given or otherwise provided, directly or indirectly, by our company or any subsidiary thereof to members of our management, in any capacity, including, for greater certainty, all plan and non-plan compensation, direct and indirect pay, remuneration, economic or financial award, reward, benefit, gift or perquisite paid, payable, awarded, granted, given or otherwise provided to the members of our management for services provided and for services to be provided, directly or indirectly, to our company or any subsidiary thereof for the years ended October 31, 2022, other than stock options and other compensation securities:

 

Name and Position  Year ended   Salary ($)   Stock-based compensation  Total Compensation ($) 
Aneil Manhas, Chief Executive Officer and Chairman (1)   2022   $505,767   $ 143,032   $648,799 
Mandeek Manhas, Chief Financial Officer (2)   

2022

    

Nil

    

Nil

    

Nil

 
Matthew Kavanagh, former Chief Financial Officer (3)   2022   $100,322   $                         Nil   $100,322 
Alan MacNevin, former Chief Operating Officer (4)   2022   $80,526   $ Nil   $80,526 
Kia Besharat, Director   2022   $59,188   $ 128,729   $187,917 
Dr. Robert Ward, Director   2022   $12,000   $ Nil   $12,000 
Brett Yormark, Former Director (5)   2022   $12,000   $ Nil   $12,000 
Charles Green, Former Director   2022   $23,979   $ Nil   $23,979 

 

Notes:

 

(1) Mr. Manhas has served as Chief Executive Officer of the Company since inception in 2018. Pursuant to his employment agreement with the Company dated July 28, 2022, his compensation includes: (i) an annual salary of $400,000; and (ii) an annual cash bonus equal to the higher of an amount determined by the board of directors or 1.5% of the Company’s total gross revenues for the Company’s fiscal year ended October 31 of each year. If Mr. Manhas is terminated without cause, the Company must pay him a severance, in a lump sum upon termination or as and when normal payroll payments are made, in the amount of equal to two years of his then annual salary and the prior year’s cash bonus and retain the benefits as set forth in the Mr. Manhas’ employment agreement for the balance of the term and all outstanding compensation owing as of the termination date.

 

(2) Mr. Manhas became the Chief Financial Officer of the Company in April 2023. His compensation includes an annual salary of CAD$225,000 and stock options to acquire 12,000 common shares that vest annually in equal increments over a four-year term. The Company may at any time terminate Mr. Manhas without just cause. If Mr. Manhas is terminated without cause, the Company must pay him a lump sum amount equal to one month of his then annual salary. One month of Mr. Manhas’s annual salary will be added for each full calendar year he has been working at Company up to a maximum lump sum payment of 12 months of then annual salary.

 

(3) Mr. Kavanagh was the Chief Financial Officer of the Company from February 2022 until October 2022. Mr. Kavanagh’s compensation included an annual salary of CAD$200,000 and stock options to acquire 38,860 common shares that vested annually in equal increments over a four-year term. Mr. Kavanagh’s employment ended before any of his stock options would have vested.

 

(4) Mr. MacNevin was the Chief Operating Officer of the Company from June 2022 until December 2023. Mr. MacNevin’s compensation included an annual salary of CAD$250,000 and stock options to acquire 24,000 common shares that vested annually in equal increments over a four-year term. Mr. MacNevin’s employment ended before any of his stock options would have vested.

 

The compensation set out above is based on current conditions in the Company’s industry and on the associated approximate allocation of time for the Named Executive Officers listed above and is subject in future to adjustments based on changing market conditions and corresponding changes to required time commitments. Following the Listing, the Company will review its compensation policies and may adjust them if warranted by factors such as market conditions.

 

(5) Brett Yormark resigned from the board of directors of the Company and from the Audit Committee of the board of directors on April 12, 2023.

 

Employment, Consulting and Management Agreements

 

Benefits Upon Termination

 

We have no contract, agreement, plan or arrangement, whether written or unwritten, that provides for benefits to our directors or members of our management upon termination of employment of our directors or members of our management.

 

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Stock Options and Other Compensation Securities

 

On June 30, 2022, our board of directors approved the 2022 Omnibus Securities and Incentive Plan (the “2022 Incentive Plan”) effective June 29, 2022, replacing the Stock Option Plan previously approved on August 6, 2021.

 

The 2022 Incentive Plan was implemented for the purpose granting incentive share options, non-qualified share options, restricted share awards, restricted share unit awards, share appreciation rights, unrestricted share awards (collectively, “Awards”) to incentivize our directors, employees and consultants and the directors, employees and consultants of our subsidiary companies.

 

The board of directors may grant Awards from time to time under the 2022 Incentive Plan to one or more employees, directors or consultants that the Company determines to be eligible for participation in the 2022 Incentive Plan, as the board may determine at its discretion, subject to an aggregate number of shares of Common Stock that may be issued under the 2022 Incentive Plan limited to 20% of the overall outstanding shares of the Company.

 

Class of Share: An Award granted under the 2022 Incentive Plan entitles the option holder, subject to the satisfaction, waiver or acceleration of specific exercise conditions, to subscribe for shares of Common Stock.

 

Adjustment of Award: In the event there is any variation in our share capital that affects the value of the options, adjustments to the number and purchase price of shares subject to each Award in accordance with the plan. Any adjustment to an incentive share option shall comply with the requirements of Section 424(a) of the Code and any adjustment to a non-qualified share option shall comply with the requirements of Section 409A of the Code.

 

Transferability: No Award under the 2022 Incentive Plan may be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or disposed of by the holder (other than in the case of an assignment to personal representatives upon death or the by gift to any family member (as defined in the 2022 Incentive Plan).

 

Amendment: The 2022 Incentive Plan will terminate on the tenth anniversary of the date on which it is adopted by the board of directors. The board of directors in its discretion may terminate the 2022 Incentive Plan at any time with respect to any share for which Awards have not been granted. The board may alter or amend the 2022 Incentive Plan; however, certain changes to the plan will require shareholder approval. No change in any Award granted under the 2022 Incentive Plan may be made that would materially and adversely impair the rights of the holder of the Award without the consent of such holder.

 

The following table sets out all compensation securities granted or issued to members of our management and directors of our company during the year ended October 31, 2022 for services provided, or to be provided, directly or indirectly, to our company or any subsidiary thereof:

 

Name and Position   Type of Compensation Security   Number of Compensation Securities, Number of Underlying Securities   Date of Issue or Grant   Issue, Conversion or Exercise Price   Closing Price of Security or Underlying Security on Date of Grant   Closing Price of Security or Underlying Security at October 31, 2022   Expiry Date
Aneil Manhas Chief Executive Officer and Chairman   Restricted Share Units   259,067(1)   Jun. 30, 2022   N/A   N/A   USD$1.09   N/A
Kia Besharat Director   Restricted Share Units   233,161(1)   Jun. 30, 2022   N/A   N/A   USD$1.09   N/A

 

Notes:

 

(1) Restricted share units vest 33.3% one year after the grant date, 33.3% two years after the grant date and 33.3% three years after the grant date.

 

Pension, Retirement or Similar Benefits

 

We have not set aside or accrued any amounts to provide pension, retirement or similar benefits for our directors or members of our management during the year ended October 31, 2022.

 

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PRINCIPAL SHAREHOLDERS

 

Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our shares of our capital stock of:

 

  each of our directors and executive officers; and
     
  each person known to us to beneficially own more than 5% of our capital stock on an as-converted basis.

 

The calculations in the table below are based on 16,392,190 shares of common stock issued and outstanding as of November 7, 2023.

 

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

 

Unless otherwise indicated, the address for each beneficial owner listed in the table below is c/o Bruush Oral Care Inc., 128 West Hastings Street, Unit 210, Vancouver, BC V6B 1G8, Canada.

 

Name of Beneficial Owner  Number   Percentage 
Greater than 5% Stockholders          
Yaletown Bros Ventures Ltd. (1)   9,997,575    14.9%
           
Executive Officers and Directors          
Aneil Manhas(2)   26,541    0.0%
Kia Besharat (3)   6,740    0.0%
Dr. Robert Ward (4)   864    0.0%
All executive officers and directors as a group   34,145    0.0%

 

(1) Yaletown Bros Ventures Ltd. is jointly owned by Matthew Friesen and Bradley Friesen.

(2) Aneil Manhas is the Chief Executive Officer and Chairman of the Company.

(3) Kia Besharat is a non-executive director.

(4) Shares are held in Ward Dental Corp., which is owned by Dr. Robert Ward, a non-executive director.

 

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

 

The following includes a summary of transactions since October 31, 2021 to which we have been a party in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, 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 under “Executive and Director Compensation.” We also describe below certain other transactions with our directors, executive officers and stockholders.

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and Board of Director members.

 

All related party transactions are in the normal course of operations. All amounts either due from or due to related parties other than specifically disclosed are non-interest bearing, unsecured and have no fixed terms of repayments.

 

  a) Related party transactions with directors, subsequent and former directors and companies and entities over which they have significant influence over:

 

  

12 months ended

October 31, 2022

   9 months ended October 31, 2021   12 months ended January 31, 2021 
Director fees  $107,168    72,541   $54,585 
Professional fees   327,370    -    55,625 
Share-based compensation  $128,729    -   $1,997,611 

 

  b) Key management compensation:

 

  

12 months ended

October 31, 2022

   9 months ended October 31, 2021   12 months ended January 31, 2021 
Consulting fees  $-   $270,427   $206,507 
Salaries   686,615    -    - 
Share-based compensation  $143,032   $-   $2,527,596 

 

  c) Accounts payable and accrued liabilities - As of October 31, 2022, $33,918 (October 31, 2021, $155,979; January 31, 2021, $2,740) due to related parties was included in accounts payable and accrued liabilities.

 

Compensation

 

For information regarding compensation for our directors and senior management, see “Executive And Director Compensation.”

 

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SELLING SECURITYHOLDERS

 

The Selling Securityholders are offering up to 198,111,489 Common Shares issuable upon exercise of the Target Prefunded Warrant and November Prefunded Warrant, as applicable. For additional information regarding the issuance of the Common Shares, see “Prospectus Summary – Recent Developments – Equity and Note Financings” and “Prospectus Summary – Recent Developments – December 2023 Private Placement.” We are registering these Common Shares in order to permit the Selling Securityholders to offer the Common Shares for resale from time to time. Except as otherwise described in the footnotes to the table below and for the ownership of the registered shares issued pursuant to the Security Purchase Agreements, neither the Selling Securityholders nor any of the persons that control any of them has had any material relationships with us or our affiliates within the past three (3) years.

 

The table below lists the Selling Securityholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the Exchange Act (and the rules and regulations thereunder) of Common Shares offered hereby.

 

The second column lists the number of Common Shares beneficially owned by the Selling Securityholders before this offering (including Common Shares that the Selling Securityholders have the right to acquire within 60 days, including upon conversion of any convertible securities or exercise of any warrants or options to purchase Common Shares).

 

The third column lists the Common Shares that may be offered by the Selling Securityholders pursuant to this prospectus.

 

The fourth and fifth columns list the number of Common shares beneficially owned by the Selling S