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Form F-1 Bruush Oral Care Inc.

July 1, 2022 3:45 PM EDT

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As filed with the Securities and Exchange Commission on July 1, 2022.

 

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.)

 

30 Wellington Street West, 5th Floor

Toronto, Ontario M5L 1E2

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.

Lahdan S. Rahmati, Esq.

Lucosky Brookman LLP

101 Wood Avenue South, 5th Floor

Woodbridge, NJ 08830

(732) 395-4402

[email protected]

Anthony W. Basch, Esq.

Chenxi Lu, Esq.

Kaufman & Canoles, P.C.

Two James Center

1021 East Cary Street, Suite 1400

Richmond, VA 23219

(804) 771-5700

[email protected]

 

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. 

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED ______, 2022

 

 

[●] Units

Each Unit Consisting of

One Share of Common Stock and

One Warrant to Purchase One Share of Common Stock

 

This is the initial public offering of units (the “Units”), each unit consisting of one share of common stock (“Common Stock”) of Bruush Oral Care Inc. (the “Company”) and one warrant (each a “Warrant” and collectively, the “Warrants”) to purchase one share of Common Stock at an exercise price of $[●] per share, equal to 100% of the initial public offering price of each Unit sold in this offering (the “Initial Exercise Price”). The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The shares of Common Stock and the Warrants comprising the Units are immediately separable and will be issued separately in this offering. Each Warrant offered hereby is immediately exercisable on the date of issuance and will expire five years from the date of issuance. The Company may, at its option, redeem the Warrants if shares of Common Stock trade at a price of at least 200% of the exercise price for 30 consecutive trading days.

 

It is currently estimated that the initial public offering price will be between $[●] and $[●] per Unit.

 

Prior to this offering, there has been no public market for shares of Common Stock or the Warrants. We have applied to list shares of our Common Stock and the Warrants on The Nasdaq Capital Market (“Nasdaq”) under the symbols “BRSH” and “BRSH-W”, respectively. Listing on Nasdaq is subject to the approval of the Nasdaq in accordance with its listing requirements. No assurance can be given that an active trading market for our shares will develop. We have not applied and do not intend to apply to have the Additional Warrants (as defined below) listed on any securities exchange or other nationally recognized trading system.

 

We are a “foreign private issuer”, and an “emerging growth company” each as defined under the federal securities laws and, as such, we will be subject to reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer” for additional information.

 

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 8 for a discussion of information that should be considered in connection with an investment in our securities.

 

    Per Unit     Total  
Initial public offering price   $       $    
Underwriting discounts and commissions (1)   $       $    
Proceeds to us (before expenses) (2)(3)   $       $    

 

(1) We have also agreed to issue warrants to purchase shares of our Common Stock to the underwriter and to reimburse the underwriter for certain expenses. See “Underwriting”.

 

(2) The amount of offering proceeds to us presented in this table does not give effect to any exercise of the: (i) over-allotment option we have granted to the underwriter as described below; (ii) warrants being issued to the underwriter in this offering; or (iii) Warrants or Additional Warrants.

 

(3) Does not include proceeds from the exercise of Warrants or Additional Warrants, if any.

 

We have granted to the underwriter an option to purchase from us up to _____ additional shares of Common Stock at a price of $[●] per share, and up to _____ additional Warrants at a price of $[●] per Warrant, in each case less underwriting discounts and commissions, for 45 days from the date of this prospectus to cover over-allotments, if any. If the underwriter exercises the option in full, the total underwriting discounts and commissions will be $[●], and the total proceeds to us, before expenses, will be $[●].

 

In the event of certain future dilutive issuances of securities by us that result in a reduction of the exercise price of the Warrant, in aggregate, to 50% of the Initial Exercise Price, then in connection with such reduction, each holder of Warrants that purchases at least [●] Warrants (based on an assumed public offering price of $[●] per Unit, the midpoint of the price range of the Units) in connection with this offering (a “Qualified Holder”), will receive two warrants (“Additional Warrants”) for each one Qualified Warrant (as defined below) held by such holder on the date of such reduction. The term “Qualified Warrants” means at least [●] Warrants purchased in connection with the offering by any Warrant holder, including each beneficial holder of the Warrants, taken together with all affiliates of such Warrant holder and/or beneficial holder. The maximum number of Warrants subject to such adjustment by a given Qualified Holder will be limited to the number of Warrants purchased by such Qualified Holder in connection with this offering. Qualified Holders can also receive Additional Warrants in the event of certain adjustments to the exercise price of the Warrants on the date that is 90 calendar days immediately following the initial issuance date of the Warrants. On such date, the exercise price of the Warrants will be adjusted to be equal to the greater of (a) 50% of the Initial Exercise Price or (b) 100% of the lowest daily volume weighted average price per share of Common Stock occurring during the 90 calendar days following the issuance date of the Warrants, or the Reset Price, provided that such value is less than the exercise price in effect on that date. The lowest Reset Price is [●], which is 50% of Initial Exercise Price, based on an assumed public offering price of $[●] per Unit, the midpoint of the price range of the Units. We are therefore also registering under the registration statement of which this prospectus forms a part the Additional Warrants and the shares of Common Stock issuable upon exercise thereof See “Description of the Securities – Additional Warrants” for more information.

 

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 underwriter expects to deliver the securities to investors in this offering on or about [●], 2022.

 

Sole Book-Running Manager

 

Aegis Capital Corp.

 

The date of this prospectus is __________ , 2022.

 

 
 

 

TABLE OF CONTENTS

 

  Page
About This Prospectus 1
Enforcement of Civil Liabilities 1
Cautionary Note Regarding Forward-Looking Statements 2
Prospectus Summary 3
Risk Factors 8
Capitalization 21
Dividend Policy 22
Use of Proceeds 23
Dilution 25
Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Business 37
Management 42
Executive and Director Compensation 46
Principal Shareholders 47
Certain Relationships and Related Person Transactions 48
Description of Securities 49
Shares Eligible for Future Sale 51
Certain Material Tax Considerations 52
Underwriting 58
Selling Restrictions 62
Legal Matters 63
Experts 63
Where You Can Find More Information 63
Index to Financial Statements F-1

 

 
 

 

About This Prospectus

 

Neither we nor the underwriter 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. Neither we nor the underwriter 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.

 

We present our financial statements 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.

 

We and the underwriter are offering to sell the shares, and seeking offers to buy the 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 underwriter 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. See “Selling Restrictions”.

 

Unless the context otherwise requires, the terms “we”, “us”, the “Company”, and “our” refer to Bruush Oral Care Inc.

 

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. Other statements contained in this prospectus, which are not historical facts, are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and other comparable terminology.

 

We caution investors that any forward-looking statements presented in this prospectus, or that we may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information currently available to, us. These 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 “Risk Factors” beginning on page 8 of this prospectus, and as may be included from time-to-time in our reports filed with the SEC.

 

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 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 shares of our Common Stock. 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.

 

 2 
 

 

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” 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.

 

Our Company

 

Overview

 

The Company is on a mission to inspire confidence through brighter smiles and better oral health. Founded in 2018 by Chief Executive Officer Aneil Manhas, a former investment banker and private equity investor turned entrepreneur, we are an oral care company that is disrupting the space by reducing the barriers between consumers and access to premium oral care products because it is our belief that high-quality oral care products should be more accessible. We are an e-commerce business with a product portfolio that currently consists of a sonic-powered electric toothbrush kit and brush head refills. Through our website, consumers can purchase a Brüush starter kit (the “Brüush Kit”), which includes: (i) the Brüush electric toothbrush (the “Brüush Toothbrush”); (ii) three brush heads; (iii) a magnetic charging stand and USB power adapter; and (iv) a travel case. We also sell the brush heads separately which come in a three-pack (the “Brüush Refill”) and can be purchased on a subscription basis, where the customer will automatically receive a Brüush Refill every six months (the “Subscription”). We consider a Subscription to be active (an “Active Subscription”) until it is either cancelled by the customer or terminated due to payment failure (for example, a lost or expired credit card). Later this calendar year, we plan to expand our portfolio with the launch of several new subscription-based consumable oral care products, including toothpaste, mouthwash, dental floss, a whitening pen, as well as an electric toothbrush designed for kids.

 

The Opportunity

 

According to a study concluded by the Oral Health Foundation in 2019, people who use an electric toothbrush have healthier gums, less tooth decay and keep their teeth for longer compared with those who use a manual toothbrush. Electric toothbrushes can generate upwards of 30,000 brush strokes per minute (versus around 300 with a manual toothbrush) and create better oral care habits with features like a smart timer and multiple brush modes. However, although studies have shown that brushing with an electric toothbrush is superior to using a manual brush, most people still use a traditional manual toothbrush. According to an independent report by consumer marketing analysis firm Mintel, only 36 percent of adults say they use an electric toothbrush. They are more popular among older age groups and people with higher incomes, as Mintel reports that half of people 55 years and older with an annual income of $75,000 or more prefer using an electric brush over a manual one.

 

The low adoption rate despite the clear oral care benefits shows that consumers, especially the younger generations, do not find the current electric toothbrush value propositions compelling enough to upgrade from a manual toothbrush for a number of reasons. First and foremost, electric toothbrushes are traditionally expensive, with high-end models retailing for over $200. Furthermore, the buying experience for an electric toothbrush and replacement heads is annoying from the consumer perspective, as they are often locked up in cases within the aisle, which requires finding a store attendant to gain access and then figuring out which brush head is compatible with the consumer’s device. Historically, electric toothbrushes have not been aesthetically pleasing and consumers do not want the devices or charging stands cluttering their countertops.

 

Our Value Proposition

 

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: Independent studies have shown 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. Additionally, we send an email every two months to remind the subscriber that it is time to change their brush head. Overwhelmingly, almost 80% of our customers purchased a Brüush Kit with a Subscription and the churn rate so far has been very low, as only one percent of Active Subscriptions are cancelled on a monthly basis.

 

 3 
 

 

Growth Strategy

 

Our mission is to disrupt the oral care industry by reducing the barriers between consumers and access to premium oral care products. We currently have over 28,000 Active Subscriptions in our program and plan to grow by continuing to pursue the following key growth strategies:

 

Scale e-commerce sales

 

To ensure a steady build of awareness and conversion, the Company employs an always-on digital advertising strategy with a focus on delivering brand and direct response creative throughout Facebook, Instagram and Google, among other channels. With a focus on driving qualified traffic to the website and increasing conversion, this approach allows us to learn, optimize and evolve. We see significant opportunity to continue increasing overall demand and improving conversion at every touchpoint across our subscriber acquisition funnel and plan to test new paid social channels that we have already seen success in from an organic perspective, in addition to scaling other paid media channels such as podcast and streaming media. Additionally, we will continue to drive brand awareness through top-of-funnel social media campaigns, influencer collaborations, public relations initiatives and affiliate partnerships. We will keep differentiating from the competition and build a strong foundation that binds all brand activations.

 

Expand distribution channels

 

Although our focus is scaling our e-commerce business, we will also look to increase awareness by expanding into new distribution channels through partnerships with other millennial-focused brands, brick-and-mortar retailers (both in-store and online) and dental practices. The focus of any new partnership will be to reach new consumers without compromising our brand identity and maintaining the premium nature of our brand. Additionally, we currently sell our products in the United States and Canada, which are very competitive markets for oral care. We will evaluate expanding our sales to other less competitive countries in the future.

 

Introduce new products

 

Later this calendar year, the Company plans to launch a set of auxiliary oral care products including four consumable products (the “Consumables”): toothpaste, mouthwash, dental floss and a whitening pen, in addition to an electric toothbrush designed for kids. We have already finalized the formulas for each of the Consumables, as well as the form, type and artwork for both the primary and secondary packaging. The last step before production of the Consumables is to await the results of stability and compatibility testing with the packaging and formula, which is expected to be completed this summer. Of the Consumables, only the toothpaste is subject to registration with the United States Food and Drug Administration (“FDA”). Please refer to “Business – Regulatory Environment”. Mouthwash, dental floss and whitening pen are categorized as cosmetic products, which do not require FDA approval.

 

The introduction of the new oral care products provides an opportunity for us to continue to increase touch points through our retention funnel, deepen our relationship with our existing subscribers, increase our average order value and grow our monthly recurring revenue. We are currently evaluating additional products that we intend to launch in 2023 and beyond, as our long-term goal is to “own the bathroom”. All new products will be high quality and deliver a similar premium experience to the Brüush Toothbrush.

 

Grow the team

 

With team members in Toronto, Ontario and Vancouver, British Columbia, the Company has seven employees under contract, which does not include consultants or board members. We have a strong management team in place and will focus on growing the team as we scale the business.

 

Business Challenges

 

As a new company in a competitive space, we face risks and limitations that could harm our business and inhibit our strategic plans, which include:

 

Reliance on third-party manufacturers

 

We rely on third-party manufactures based in Canada and China. Since we do not have direct control over our manufacturing processes, we do not have certainty that our manufacturers can continue to satisfy our production requirements or meet our product and packaging quality standards. Although we have not faced any major issues to date, this does not guarantee that our third-party contract manufacturers will continue to be able to produce and deliver products that meet our specifications on a timely basis, or at all, which could be caused by unforeseen circumstances such as capacity constraints, raw material shortages or workplace disruptions caused by COVID-19.

 

Effectiveness of our marketing strategy

 

As an e-commerce business, we are dependent on paid marketing efforts that include digital advertising, podcast and streaming media campaigns, influencer collaborations, public relations initiatives, affiliate partnerships and special discount offers, to drive traffic to our website and ultimately generate sales. These marketing efforts are expensive and may not result in cost-effective acquisitions of customers, as the net profit from new customers could ultimately exceed the cost of acquiring those customers. Additionally, although discount offers help improve customer conversion, they directly lower the profit from the sale. As such, it will make it more challenging for the Company to attain profitability if we offer discounts at a high level.

 

Competition from large, well-funded oral care companies

 

Our industry is intensely competitive, and we have many competitors across the oral care space, including Philips Sonicare and Oral-B, who have dominated the electric toothbrush industry for many years, in addition to new brands that have emerged such as Burst, Goby, Moon and Quip. Some of our competitors have long operating histories, significant brand recognition, large and entrenched customer bases and/or deep financial resources, making it challenging to compete against them.

 

A history of operating losses

 

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 for the fiscal years ended October 31, 2021 and January 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 or debt financing more difficult.

 

Additional information regarding the risk factors can be found starting on page 8.

 

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

 

We qualify as an “emerging growth company”, as defined in Section 2(a) of the Securities Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. Upon the effectiveness of the registration statement of which this prospectus forms a part, we will 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 will be 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”.

 

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. See “Risk Factors – We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses”. 

 

 4 
 

 

The Offering

 

Issuer   Bruush Oral Care Inc.
     
Offered securities   [●] Units, each Unit consisting of one share of Common Stock and one Warrant to purchase one share of Common Stock. The Units will not be certificated or issued in stand-alone form. The shares of our Common Stock and the Warrants comprising the Units are immediately separable upon issuance and will be issued separately in this offering.
     
Initial public offering price   $ [●] per Unit.
     
Over-allotment option   We have granted the underwriter an option exercisable for a period of 45 days from the date of this prospectus to purchase from us up to _____ additional shares of Common Stock at a price of _______ per share, and up to _____ additional Warrants at a price of ____ per Warrant, solely to cover over-allotments, if any.
     
The Warrants  

The exercise price of the Warrants is $[●] per share (100% of the initial public offering price of one Unit, based on an assumed public offering price of $[●] per Unit, the midpoint of the range set forth on the cover page of this prospectus). Each Warrant is exercisable for one share of Common Stock, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Common Stock as described herein. Each Warrant will be exercisable immediately upon issuance and will expire five years after the initial issuance date. If shares of Common Stock trade at a price of at least 200% of the exercise price for 30 consecutive trading days, the Company may, at its option, redeem the Warrants. The terms of the Warrants will be governed by a Warrant Agreement, dated as of the effective date of this offering, between us and Endeavor Trust Corporation, as the warrant agent (the “Warrant Agent”). We have applied to list the Warrants on the Nasdaq Capital Market. This prospectus also relates to the offering of the shares of Common Stock issuable upon exercise of the Warrants.

 

Subject to certain exemptions set forth in the Warrant, for a period commencing on the date the Warrants are issued to the later of: (i) two years from the date of issuance of the Warrant, or (ii) on the date no Qualified Holders (as defined below) hold any Warrants, if we sell, enter into an agreement to sell, or grant any option to purchase, or sell, enter into an agreement to sell, or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any shares of Common Stock or a security convertible into shares of Common Stock, at an effective price per share less than the exercise price of the Warrant then in effect, (each a “Dilutive Issuance”), the exercise price of the Warrant shall be reduced to equal the effective price per share in such Dilutive Issuance; provided, however, that in no event shall the exercise price of the Warrant be reduced to an exercise price lower than 50% of initial public offering price per Unit.

 

On the date that is 90 calendar days immediately following the initial issuance date of the Warrants, the exercise price of the Warrants will be reduced to the Reset Price, provided that such value is less than the exercise price in effect on that date. The Reset Price is equal to the greater of (a) 50% of the Initial Exercise Price or (b) 100% of the lowest daily volume weighted average price per share of Common Stock occurring during the 90 calendar days following the issuance date of the Warrants. The lowest Reset Price is $[●] per share of common stock, which is 50% of offering price, based on an assumed public offering price of $[●] per Unit, the midpoint of the price range of the Units.

 

See “Description of Securities –Warrants”.

     
Additional Warrants  

Until the later of (a) two years after the date the Warrants are issued or (b) the date no Qualified Holders (as defined below) hold any Warrants, in the event of a reduction of the exercise price of the Warrants, in aggregate, to 50% of the Initial Exercise Price as a result of a Dilutive Issuance, then in connection with such reduction, each Qualified Holder will receive two Warrants (“Additional Warrants”) for each one Qualified Warrant held by such holder on the date of such reduction. The maximum number of Warrants subject to such adjustment by a given Qualified Holder will be limited to the number of Warrants purchased by such Qualified Holder in connection with this offering. Qualified Holders will receive Additional Warrants as a result of the Reset Price if the Reset Price is equal to 50% of the Initial Exercise Price. Additional Warrants shall be on substantially the same terms as the as-adjusted Warrant; provided, however, that (i) the term of the Additional Warrants shall be five (5) years from the date they are issued, and (ii) such Additional Warrants will not be tradable warrants and not listed on any securities exchange or other nationally recognized trading system.

 

The term “Qualified Holder” means each holder of Warrants that purchases at least [●] Warrants (based on an assumed public offering price of $[●] per Unit, the midpoint of the price range of the Units) in connection with this offering and the term “Qualified Warrants” means at least [●] Warrants purchased in connection with the offering by any Warrant holder, including each beneficial holder of the Warrants, taken together with all affiliates of such Warrant holder and/or beneficial holder.

 

See “Description of Securities – Additional Warrants”.

     
Shares outstanding prior to this offering (1)   ____ shares of Common Stock.
     
Shares outstanding after this offering (2)    ____ shares of Common Stock (or ___ shares if the underwriter exercises the overallotment in full with respect to shares of Common Stock).
     
Underwriter’s Warrants   Upon the closing of this offering, we have agreed to issue to Aegis Capital Corp., warrants (“Underwriter’s Warrants”), to purchase that number of shares of our Common Stock equal to eight percent (8%) of the aggregate number of Units sold in this offering (excluding shares of Common Stock sold to cover over-allotments, if any). The Underwriter’s Warrants will be exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days following the commencement of sales in this offering and expiring five years from the commencement of sales in the offering at an exercise price of $[●] (equal to 125% of the initial public offering price per Unit). See “Underwriting – Underwriter’s Warrants”. The registration statement of which this prospectus is a part also covers the Underwriter’s Warrants and the shares of Common Stock issuable upon the exercise thereof.
     
Use of proceeds  

We estimate that the net proceeds from this offering will be approximately $[●] million, assuming an offering price of $[●] per Unit, the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus, and after deducting underwriting discounts and commissions and offering expenses payable by us. If the underwriter exercises the over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $[●] million, assuming an offering price of $[●] per Unit, and after deducting underwriting discounts and commissions and offering expenses payable by us.

 

We currently expect to use the net proceeds from this offering primarily to execute our growth strategy, fund working capital and repay outstanding bridge loans.

 

See “Use of Proceeds” for more a complete description of the intended use of proceeds from this offering.

 

 

 5 
 

 

Lock-Up Agreements   We and our directors, officers and holders of 5% or more of the outstanding shares of Common Stock, have agreed not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any shares of our Common Stock or securities convertible into shares of Common Stock for a period of 180 days after the closing date of this Offering. See “Underwriting – Lock-Up Agreements”.
     
Dividends   We do not anticipate paying dividends on our Common Stock for the foreseeable future.
     
Risk Factors   You should read the “Risk Factors” section starting on page 8 of this prospectus for a discussion of factors to consider carefully before deciding to invest in our securities.
     
Proposed Nasdaq trading symbols   We have applied to list the shares on the Nasdaq Capital Market under the symbol “BRSH” and the Warrants under the symbol “BRSH-W”. We have not applied and do not intend to apply to have the Additional Warrants listed on any securities exchange or other nationally recognized trading system.
     
Transfer Agent, Registrar and Warrant Agent   Our transfer agent, registrar and warrant agent is Endeavor Trust Corporation, located in Vancouver, British Columbia.

 

(1) The number of shares of Common Stock outstanding prior to this offering reflects (i) the conversion of all outstanding shares of our Class A shares and Class B shares at a conversion ratio of 1:1 into shares of Common Stock, (ii) a subsequent reverse stock split of [●]:[●], effective _______, 2022.

 

(2) The number of shares of Common Stock outstanding after this offering reflects (i) the conversion of all outstanding shares of our Class A shares and Class B shares at a conversion ratio of 1:1 into shares of Common Stock, (ii) a subsequent reverse stock split of [●]:[●], effective _______, 2022 and (iii) the number of shares of Common Stock offered hereby as part of the Units, and excludes:

 

  Any exercise by the underwriter of its over-allotment option;
  Any exercise of the Underwriter’s Warrants;
  Any share of Common Stock issuable upon exercise of a Warrant or an Additional Warrant; and
  Shares of Common Stock issuable under our Stock Option Plan or the 2022 Incentive Plan.

 

Unless we specifically state otherwise, the information in this prospectus assumes no exercise by the underwriter of the overallotment option or of the Underwriter’s Warrants.

 

 6 
 

 

Summary Historical Financial Data

 

We prepare our financial statements in accordance with IFRS as issued by the IASB. The following summary financial data as at and for the fiscal year (nine months) ended October 31, 2021, and as at and for the fiscal year (twelve months) ended January 31, 2021 have been derived from our audited financial statements at such dates and for the periods then ended, which are included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results expected in any future period.

 

On March 16, 2022, the board of directors of the Company approved a change to the Company’s fiscal year end from January 31 to October 31, effective immediately so that the fiscal year following the fiscal year ended January 31, 2021 would be the fiscal year ending on October 31, 2021. Accordingly, the financial statements of the Company included elsewhere in this prospectus include audited financial statements as at and for the fiscal years ended October 31, 2021 (comprising the nine months from February 1, 2021 to October 31, 2021) and January 31, 2021 (comprising a full 12-month period).

 

The financial data set forth below should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this prospectus.

 

Balance Sheet Data

 

   As at
October 31, 2021
   As at
January 31, 2021
 
   (audited)   (audited) 
Assets          
Total current assets   1,031,268    2,068,422 
           
Non-current assets          
Intangible asset   11,466    - 
Property and equipment   7,432    3,196 
Total assets  $1,050,166   $2,071,618 
           
Liabilities and Shareholders’ Equity          
Total liabilities   4,993,364    1,908,479 
           
Shareholder’s equity          
Total shareholders’ equity   (3,943,198)   163,139 
           
Total Liabilities and Shareholders’ Deficiency  $1,050,166   $2,071,618 

 

Income Statement Data

 

  

For the fiscal year
(nine months) ended

October 31, 2021

  

For the fiscal year
(twelve months) ended

January 31, 2021

 
  

(audited)

   (audited) 
Revenues  $1,965,441   $901,162 
           
Gross Profit  $

987,198

   $609,967 
           
Net and Comprehensive Loss  $(4,211,271)  $(8,890,431)

 

Please see financial statements and the notes accompanying the financial statements

 

 7 
 

 

Risk Factors

 

Investing in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes included elsewhere in this prospectus, before making an investment decision. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our securities could decline, and you could lose part or all of your investment.

 

Risks Related to the Company’s Business

 

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.

 

 8 
 

 

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.

 

 9 
 

 

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.

 

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.

 

 10 
 

 

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, Tik Tok and Snapchat, as well as maintain our own Facebook, Instagram and Tik Tok 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.

 

 11 
 

 

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.

 

13

 

 

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.

 

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.

 

14

 

 

Our success depends on management and key personnel.

 

Our success is currently largely dependent on the performance of our directors and officers, specifically our founder and CEO, Aneil Manhas. The loss of the services of any of these persons could have a materially adverse effect on our business and prospects. There is no assurance we can retain the services of our directors, officers or other qualified personnel required to operate our business. As our business activity grows, we will require additional key financial, operations, and marketing personnel as well as additional administrative staff. There can be no assurance that these efforts will be successful in attracting, training and retaining qualified personnel as competition for persons with these skill sets increase. If we are not successful in attracting, training and retaining qualified personnel, the efficiency of our operations could be impaired, which could have an adverse impact on our operations and financial condition.

 

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.

 

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.

 

 15 
 

 

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

 

Upon becoming a reporting issuer, the Company will be subject to reporting requirements under applicable securities law, 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, the Company will be required to file annual and current reports with respect to its business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. 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. The Company may need to hire additional employees to comply with these requirements in the future, which would increase its costs and expenses.

 

Management of the Company expects that being a reporting issuer will make it more expensive to obtain and maintain directors’ and officers’ liability insurance, and the Company may in the future be required to accept reduced coverage or incur substantially higher costs to obtain or maintain adequate coverage. This factor could also make it more difficult for the Company to retain qualified directors and executive officers.

 

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.

 

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.

 

 16 
 

 

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 $1.07 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.

 

Additionally, we are 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 will remain a smaller reporting company until the last day of any fiscal year for so long as either: (i) the market value of our ordinary shares 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.

 

 17 
 

 

We may lose our foreign private issuer status in the future, 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. 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 U.S. GAAP and to report future results according to U.S. GAAP.

 

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 Toronto, 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 the Company’s Securities

 

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

 

An investment in the Company’s securities carries a high degree of risk and should be considered as a speculative investment. The Company has no history of earnings, limited cash reserves, a limited operating history, has not paid dividends and is highly unlikely to pay dividends in the immediate or near future. The likelihood of success of the Company 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 in the Company’s 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 the Company.

 

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 for the fiscal years ended October 31, 2021, and January 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.

 

 18 
 

 

There is no existing market for our securities and we do not know if one will develop to provide you with adequate liquidity.

 

Prior to this offering, there has not been a public market for our securities. We cannot assure you that an active trading market for shares of our Common Stock will develop following this offering, or if it does develop, it may not be maintained. You may not be able to sell your shares of our Common Stock or the Warrants quickly or at the market price if trading in our securities is not active. The initial public offering price for the Units offered hereby will be determined by negotiations between us and the underwriter and may not be indicative of prices that will prevail in the trading market.

 

The price per Unit offered under this prospectus may not accurately reflect the value of your investment.

 

The offering price for shares of Common Stock and Warrants offered under this prospectus has been determined by negotiation among us and the underwriter. We cannot predict the price at which our shares of Common Stock or the Warrants will trade upon the closing of the offering.

 

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.

 

Our publicly traded securities may experience price volatility.

 

The Company’s securities do not currently trade on any exchange or stock market and the Company has applied to list the Company’s securities on Nasdaq. Health and wellness companies have experienced substantial volatility in the past, often based on factors unrelated to the companies’ financial performance or prospects. These factors include macroeconomic developments in North America and globally and market perceptions of the attractiveness of particular industries.

 

Other factors unrelated to our performance that may affect the price of the Company’s securities include the following: (i) the extent of analytical coverage available to investors concerning our business may be limited if investment banks with research capabilities do not follow the Company; (ii) lessening in trading volume and general market interest in the Company’s securities may affect an investor’s ability to trade significant numbers of the Company’s securities; (iii) the size of our public float may limit the ability of some institutions to invest in the Company’s securities; and (iv) a substantial decline in the price of the Company’s securities that persists for a significant period of time could cause the Company’s securities, if listed on an exchange, to be delisted from such exchange further reducing market liquidity. As a result of any of these factors, the market price of the Company’s securities at any given point in time may not accurately reflect our long-term value. Class action litigation often has been brought against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s attention and resources.

 

The fact that no market currently exists for the Company’s securities may affect the pricing of the Company’s securities in the secondary market, the transparency and availability of trading prices and the liquidity of the Company’s securities. The market price of the Company’s securities is affected by many other variables which are not directly related to our success and are therefore not within our control. These include other developments that affect the market for all health and wellness sector securities, the breadth of the public market for our Company’s securities and the attractiveness of alternative investments. The effect of these and other factors on the market price of the Company’s securities is expected to make the price of the Company’s securities volatile in the future, which may result in losses to investors.

 

 19 
 

 

Our investors may experience dilution upon investment in our securities.

 

Sales or issuances of equity securities could decrease the value of the Company’s securities, dilute shareholders’ voting power and reduce future potential earnings per share. We may sell additional equity securities in subsequent offerings (including through the sale of securities convertible into Common Stock) and may issue additional equity securities 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 the Common Stock. 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 the Company’s 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, Warrants or Additional 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 Stock.

 

To date, the Company has not paid any dividends on its outstanding shares of Common Stock. Any decision to pay dividends on the shares of common stock of the Company will be made by the board of directors on the basis of the Company’s earnings, financial requirements and other conditions. See “Dividend Policy”.

 

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

 

Our management will have broad discretion over the use of our net proceeds from this offering and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use the net proceeds from this offering for execute our growth strategy, fund working capital and repay outstanding bridge loans. Our management might not be able to yield a significant return, if any, on any investment or use of these net proceeds. You will not have the opportunity to influence the decision on how to use the net proceeds from this offering.

 

There is no public market for our securities and there is no assurance that one to develop.

 

Prior to this offering, there has been no public market for shares of Common Stock or for the Warrants and there is no assurance such a market will develop. Without an active market, the liquidity of our shares of Common Stock and Warrants will be limited.

 

There is no assurance that the price of the shares of Common Stock will exceed the exercise price of the Warrants and the Warrants may therefore become worthless upon expiration.

 

The Warrants are exercisable for shares of Common Stock. The Warrants issued in this offering will be immediately exercisable and expire five years from issuance. The Warrants will have an initial exercise price equal to $[●]. If our Common Stock price does not exceed the exercise price of the Warrants during the period when the Warrants are exercisable, the Warrants may become worthless on expiration.

 

Since the Warrants are executory contracts, they may have no value in a bankruptcy or reorganization proceeding.

 

In the event a bankruptcy or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any unexercised Warrants are executory contracts that are subject to rejection by us with the approval of the bankruptcy court. As a result, holders of the Warrants may, even if we have sufficient funds, not be entitled to receive any consideration for their Warrants or may receive an amount less than they would be entitled to if they had exercised their Warrants prior to the commencement of any such bankruptcy or reorganization proceeding.

 

Holders of our Warrants will have no rights as a shareholder until they acquire shares of our Common Stock.

 

Until investors acquire shares of our Common Stock upon exercise of the Warrants offered in this offering, they will have no rights with respect to our Common Stock such as voting rights or the right to receive dividends. Upon exercise of such Warrants, holders will be entitled to exercise the rights of a shareholder only as to matters for which the record date occurs after the exercise date.

 

We may amend the terms of the Warrants in a way that may be adverse to holders with the approval by the holders of a majority of the then-outstanding Warrants.

 

The Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. All other modifications or amendments, including any amendment to increase the exercise price of the Warrants or shorten the exercise period of the warrants, shall require the written consent of the registered holders of a majority of the then-outstanding Warrants.

 

The Additional Warrants will not be listed on any securities exchange or other nationally recognized trading system.

 

We have not applied and we do not intend to apply to have the Additional Warrants issuable to Qualified Holders upon the occurrence of certain dilutive events listed on any securities exchange or other nationally recognized trading system. Therefore, there can be no assurance that there will be any active trading market for the Additional Warrants.

 

 20 
 

 

Capitalization

 

The following table sets forth our cash and capitalization, as of October 31, 2021:

 

  on an actual basis; and
   
  on a pro forma, as adjusted basis giving effect to the sale of [●] Units by us in this offering at an assumed initial public offering price of $[●] per Unit (the midpoint of the offering price set forth on the cover page of this prospectus) after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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 included elsewhere in this prospectus.

 

   Actual   Pro Forma
As Adjusted
 
Cash  $14,530   $[●] 
Loan payable   (27,144)  $

[●]

 
           
Class A common shares   

6,416,904

    

-

 
Class B common shares   

6,860,005

    - 
Common stock   -    [●] 
Reserves   400,936    [●] 
Accumulated deficit   

(17,621,043

)   [●] 
Total stockholders’ deficiency   (3,943,198)  $

[●]

 
Total capitalization  $(3,970,342)  $

[●]

 

 

The number of shares of our Common Stock outstanding after this offering reflects (i) the conversion of all outstanding shares of our Class A shares and Class B shares at a conversion ratio of 1:1 into shares of Common Stock, (ii) a subsequent reverse stock split of [●]:[●], effective _______, 2022 and (iii) the number of shares of Common Stock offered hereby as part of the Units, and excludes:

 

  Any exercise by the underwriter of its over-allotment option;
  Any exercise of the Underwriter’s Warrants;
  Any share of Common Stock issuable upon exercise of a Warrant or an Additional Warrant; and
  Shares of Common Stock issuable under our Stock Option Plan or the 2022 Incentive Plan.

  

 21 
 

 

Dividend Policy

 

Since inception, we have not declared or paid any dividends on our Common Stock. 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 shares of Common Stock 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.

 

22

 

 

Use of Proceeds

 

Based upon an assumed public offering price of $[____] per Unit (the mid-point of the estimated offering price range described on the cover of this prospectus), we estimate that the net proceeds in this offering will be approximately $[____] after deducting underwriting discounts and commissions and estimated offering expenses payable by us, or $[____] if the underwriter exercises its over-allotment option in full.

 

Each $1.00 increase or decrease in the assumed public offering price of $[____] per Unit would increase or decrease the net proceeds to us from this offering by approximately $[____] assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of Units we are offering. An increase or decrease of [____] Units offered by us in this offering would increase or decrease the net proceeds to us by approximately $[____], assuming that the assumed price per Unit to the public remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change by these amounts in the offering price to the public or the Units offered by us would have a material effect on our uses of the proceeds from this offering, although it may accelerate the time at which we will need to seek additional capital.

 

Assuming all [____] Units are sold by us, we expect that the net proceeds, together with our existing cash and cash equivalents will enable us to fund our operations for at least [____] months. In addition, we have granted the underwriter a 45-day option to purchase up to [____] additional shares of Common Stock and up to [______] Warrants to cover over-allotments in this offering. We will use the proceeds from the sale of these additional securities for working capital and general corporate purposes.

 

We intend to use the net proceeds from this offering to execute our growth strategy, fund working capital and repay outstanding bridge loans. We plan to use the net proceeds we receive from this offering for the following purposes:

 

   Use of Net Proceeds 
Execute Growth Strategy  $[____] 
Fund Working Capital  $[____] 
Repay Bridge Loans  $[____] 
Total  $[____] 

 

Execute Growth Strategy

 

Net proceeds will be used to execute our growth strategy, of which the key tenets are:

 

  (i) Scale e-commerce sales: We intend to increase our digital advertising efforts on Facebook, Instagram and Google, test new paid social channels that we have already seen success in from an organic perspective and scale other paid media channels, such as podcast and streaming media. We also plan to drive brand awareness through top-of-funnel social media campaigns, influencer collaborations, public relations initiatives and affiliate partnerships. As our advertising efforts grow, we will need to create more brand content that we can utilize across our website, paid media programs and social media channels.
     
  (ii) Expand distribution channels: We will look to increase awareness through partnerships with other millennial-focused brands, brick-and-mortar retailers (both in-store and online) and dental practices, as well as evaluate expanding our sales into new geographical regions.

 

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  (iii) Introduce new products: We plan to launch a set of auxiliary oral care products including toothpaste, mouthwash, dental floss, a whitening pen and an electric toothbrush designed for kids. We are formulating an aggressive launch plan for these new products, which includes digital advertising, paid media, social media, influencer marketing and public relations components.
     
  (iv) Grow the Team: We have a strong management team in place and will focus on growing the team as we scale the business.

 

Fund Working Capital

 

We require capital for ongoing general working capital needs, most notably the purchase of inventory and to fund the Company’s ongoing negative cash flows used in operating activities, while the Company works towards becoming cash flow positive.

 

Repay Bridge Loans

 

The repayment of debt includes $4,650,000 of principal and $[●] of accrued interest on the following two bridge financings. The proceeds from the bridge financings were primarily used to fund marketing and customer acquisition efforts.

 

December 2021 Bridge Loan

 

The repayment of debt includes $3,000,000 of principal and $[●] in accrued interest on our December 2021 bridge financing. Each promissory note issued in the December 2021 bridge financing (each, a “Senior Secured Note”) accrues interest at an annual rate of 8% and is due and payable on the maturity date. Each Senior Secured Note is due and payable on the earlier of: (i) December 3, 2022; (ii) the closing of a “Subsequent Offering” (as defined in each of Senior Secured Notes); or (iii) the closing of an initial public offering.

 

April 2022 Bridge Loan

 

The repayment of debt also includes $1,650,000 of principal and $[●] in accrued interest on our April 2022 bridge financing. Each promissory note issued in the April 2022 bridge financing (each, a “Second Senior Secured Note”) accrues interest at an annual rate of 8% and is due and payable on the maturity date. Each Second Senior Secured Note is due and payable on the earlier of: (i) December 2, 2022; (ii) the closing of a “Subsequent Offering” (as defined in each of the Second Senior Secured Notes); or (iii) the closing of an initial public offering.

 

The expected use of net proceeds represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve and change. The amounts and timing of our actual expenditures, specifically with respect to working capital, may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of such net proceeds. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. Furthermore, in the event we make significant capital expenditures, the net proceeds of this offering may not be sufficient to fund such expenditures and we may need to raise additional capital. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

 

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Dilution

 

If you invest in shares of Common Stock in this offering, your interest will be immediately diluted to the extent of the difference between the public offering price per share of Common Stock in this offering and the pro forma as adjusted net tangible book value per share of Common Stock immediately after this offering, assuming no value is ascribed to the Warrants. For the purposes of calculating the potential impact of dilution, the full value of the offering price of $_____ per Unit has been ascribed to the shares of Common Stock and no value has been ascribed to the Warrants. Dilution results from the fact that the initial public offering price is substantially in excess of the net tangible book value per share of Common Stock.

 

Our historical net tangible book value as of October 31, 2021, was ($3,943,198) million, or ($[●]) per share of Common Stock (based on a conversion ratio for Class A common stock and Class B common stock at a conversion ratio of 1:1 and a reverse stock split of [●]:[●]). Our net tangible book value is the amount of our total tangible assets less our total liabilities. Our net tangible book value per share of Common Stock is our net tangible book value divided by the number of outstanding shares of Common Stock as of October 31, 2021.

 

The pro forma net tangible book value of our Common Stock as of October 31, 2021 was ($[____]) per share of Common Stock. Pro forma net tangible book value per share of Common Stock represents our total tangible assets less our total liabilities, divided by the number of outstanding shares of Common Stock, after giving effect to the pro forma adjustments referenced under “Capitalization”.

 

After giving effect to the sale of Units in this offering, at an assumed initial public offering price of $[____] per Unit, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value on a pro forma adjusted basis as of October 31, 2021 would have been $[____], or $[___] per share of Common Stock. This amount represents an immediate increase in net tangible book value of $[____] per share of Common Stock to our existing stockholders and an immediate dilution of $[____] per share of Common Stock to new investors participating in this offering. Dilution per share to new investors is determined by subtracting the pro forma as adjusted net tangible book value per share after this offering from the public offering price per share paid by new investors.

 

The following table illustrates this dilution:

 

Assumed initial public offering price per share  $[____] 
Net tangible book value per Common Stock as of October 31, 2021  $[____] 
Pro forma net tangible book value per share of Common Stock as of October 31, 2021  $[____] 
Pro forma as adjusted net tangible book value per share of Common Stock as of October 31, 2021, to give effect to this offering  $[____] 
Dilution per share to new investors in this offering  $[____] 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $[_____] per Unit would increase (decrease) the as adjusted net tangible book value per share by $[_____] and decrease dilution to new investors in this offering by $[_____] per share, in each case assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

The information above assumes that the underwriter does not exercise their over-allotment option. If the underwriter exercises its over-allotment option in full to purchase shares, the as adjusted net tangible book value after the offering would be $[_____] per share, the increase in net tangible book value to existing stockholders would be $[_____] per share and the dilution to new investors would be $[_____] per share, in each case assuming an initial public offering price of $[_____] per share.

 

The table above assumes all 6,824,126 Class A shares and 8,350,073 Class B shares outstanding as of July 1, 2022 have been converted into shares of Common Stock at a conversion ratio 1:1 and gives effect to the [●]:[●] reverse stock split effected after such conversion excludes the following:

 

  Any exercise by the underwriter of its over-allotment option;
  Any exercise of the Underwriter’s Warrants;
  Any share of Common Stock issuable upon exercise of a Warrant or an Additional Warrant; and
  Shares of Common Stock issuable under our Stock Option Plan or the 2022 Incentive Plan.

  

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MANAGEMENT’s DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of financial condition and results of operations together with our financial statements and the notes accompanying those statements included elsewhere in this prospectus.

 

We present our financial statements in United States dollars (U.S. dollars) and in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, which may differ in material respects from generally accepted accounting principles in other jurisdictions, including generally accepted accounting principles in the United States, or U.S. GAAP.

 

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described in the section titled “Risk Factors.” Our actual results may differ materially from those contained in the following discussion and analysis, as well as the section titled “Cautionary Note Regarding Forward-Looking Statements”.

 

Basis of Presentation

 

Our audited financial statements for the fiscal years ended October 31, 2021 (covering the nine-month period then ended) and January 31, 2021 have been prepared in accordance with IFRS and are presented in U.S. dollars. We manage our business based on one operating and reportable segment. Our presentation and functional currency is the U.S. dollar and all the amounts in this management’s discussion and analysis of financial condition and results of operations are in U.S. dollars unless otherwise indicated. Amounts shown as of and for the nine months ended October 31, 2020 have been included for comparison purposes, are unaudited. See “Results of Operations – October 31, 2021 compared to October 31, 2020”.

 

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 nine-month period ended October 31, 2021, the Company has recurring losses, a working capital deficit of $3,962,096 (January 31, 2021 – working capital of $159,943), an accumulated deficit totaling $17,621,043 (January 31, 2021 – accumulated deficit of $13,409,772) and negative cash flows used in operating activities of $671,169 (January 31, 2021 – negative cash flows used in operating activities of $4,052,350). 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.

 

Change in Fiscal Year

 

On March 16, 2022, the board of directors of the Company approved a change to the Company’s fiscal year end from January 31 to October 31, effective immediately so that the fiscal year following the fiscal year ended January 31, 2021 would be the fiscal year ending on October 31, 2021. Accordingly, the financial statements of the Company included elsewhere in this prospectus include audited financial statements as at and for the fiscal years ended October 31, 2021 (comprising the nine months from February 1, 2021 to October 31, 2021) and January 31, 2021 (comprising a full 12-month period).

 

To enable meaningful comparisons in the Company’s financial position, results of operations and cash flows, unaudited financial information as at and for the nine-months ended October 31, 2020 and for the 12 months ended January 31, 2020 are presented in this section.

 

Company Overview

 

The Company is on a mission to inspire confidence through brighter smiles and better oral health. Founded in 2018 by Chief Executive Officer Aneil Manhas, a former investment banker and private equity investor turned entrepreneur, we are an oral care company that is disrupting the space by reducing the barriers between consumers and access to premium oral care products because it is our belief that high-quality oral care products should be more accessible. We are an e-commerce business with a product portfolio that currently consists of a sonic-powered electric toothbrush kit and brush head refills. Through our website, consumers can purchase a Brüush starter kit (the “Brüush Kit”), which includes: (i) the Brüush electric toothbrush (the “Brüush Toothbrush”); (ii) three brush heads; (iii) a magnetic charging stand and USB power adapter; and (iv) a travel case. We also sell the brush heads separately which come in a three-pack (the “Brüush Refill”) and can be purchased on a subscription basis, where the customer will automatically receive a Brüush Refill every six months (the “Subscription”). We consider a Subscription to be active (an “Active Subscription”) until it is either cancelled by the customer or terminated due to payment failure (for example, a lost or expired credit card). Later this calendar year, we plan to expand our portfolio with the launch of several new subscription-based consumable oral care products, including toothpaste, mouthwash, dental floss, a whitening pen, as well as an electric toothbrush designed for kids.

 

Company Highlights

 

  Revenues for the fiscal year (nine months) ended October 31, 2021 were $1,965,441, compared to $901,162 for the fiscal year (twelve months) ended January 31, 2021. The primary reason for the increase in revenues was a 67% 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 a 617% increase in sales of Brüush Refills from $83,384 to $597,663 as our Active Subscription base continued to grow. Since pricing remained relatively consistent between periods, the rise in revenues is primarily due to an increase in the number of Brüush Kit and Brüush Refill units sold.

 

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  Gross profit for the fiscal year (nine months) ended October 31, 2021 was $987,198, compared to $609,967 for the fiscal year (twelve months) ended January 31, 2021. The primary reason for this rise was a 118% increase in revenues that was partially offset by a 236% increase in cost of goods sold. The cause of the higher increase in cost of goods sold in comparison to revenues was an increase in the proportion of sales earned from Brüush Refills, which have a lower gross margin than Brüush Kits. Brüush Refills represented 30% of revenues for the fiscal year (nine months) ended October 31, 2021 compared to 9% of revenues for the fiscal year (twelve months) ended January 31, 2021.
     
  Total expenses for the fiscal year (nine months) ended October 31, 2021 were $5,156,462, compared to $8,970,609 for the fiscal year (twelve months) ended January 31, 2021. The primary reason for this decrease was a reduction in share-based compensation of $4,857,165 as no shares were issued for services rendered during fiscal year (nine months) ended October 31, 2021.
     
  Net cash used in operating activities was $671,169 for the fiscal year (nine months) ended October 31, 2021, compared to $4,052,350 for the fiscal year (twelve months) ended January 31, 2021. The reduction in cash used for operating activities is primarily due to increased change in accounts payable and accruals of $3,057,343 compared to $31,999 in the year-ended January 31, 2021 and a $402,130 decrease in inventory as compared to a $577,656 increase in the year-ended January 31, 2021.
     
  Net loss for the fiscal year (nine months) ended October 31, 2021 was $4,211,271, compared to a net loss of $8,890,431 for the fiscal year (twelve months) ended January 31, 2021. This improvement in net loss was primarily caused by an increase in the Company’s gross profit of $126,231, decrease in total expenses of $4,065,147 mainly due to a reduction in share-based compensation and decrease in loss on warrant derivate of $443,291.
     
  Loss per share – Basic and Diluted was $0.28 for fiscal year (nine months) ended October 31, 2021, compared to $0.93 for the fiscal year (twelve months) ended January 31, 2021. This improvement reflected net loss recorded for the fiscal year (nine months) ended October 31, 2021 and the increased weighted average number of shares outstanding for the fiscal year (nine months) ended October 31, 2021.

 

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, general office and administrative expenses, 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 – October 31, 2021 compared to October 31, 2020

 

The table below sets forth a summary of our results of operations for the fiscal year (nine months) ended October 31, 2021 and for the nine months ended October 31, 2020. The nine months ended October 31, 2021 constitutes our most recent fiscal year after the change in our fiscal year end from January 31 to October 31.

 

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    Nine Months Ended October 31,              
    2021     2020              
    (audited)     (unaudited)     Change     % Change  
                         
Revenues   $ 1,965,441     $ 315,541     $ 1,649,900       523  
Cost of goods sold     978,243       120,958       857,285       709  
Gross profit   $ 987,198     $ 194,583     $ 792,615       407  
Gross margin     50 %     62 %                

 

Revenues

 

Our revenues increased 523% for the nine months ended October 31, 2021 to $1,965,441 from $315,541 for the nine months ended October 31, 2020. This increase was primarily due to a higher number of Brüush Kit sales from expanded marketing and customer acquisition efforts, as well as a higher amount of recurring revenues from Brüush Refills as our Active Subscription base continued to grow.

 

Cost of goods sold

 

Our cost of goods sold increased 709% to $978,243 for the nine months ended October 31, 2021 from $120,958 for the nine months ended October 31, 2020. This increase was mainly due to a higher number of Brüush Kit sales.

 

Gross profit

 

We recorded gross profit of $987,198 and $194,583 for the nine months ended October 31, 2021 and October 31, 2020, respectively. Our gross margin declined to 50% for the nine months ended October 31, 2021 from 62% for the nine months ended October 31, 2020, reflecting our cost of goods sold increasing more than our revenues as described above. The main reason for this is our participation in multiple flash sales and influencer collaborations that featured substantial product discounts during fiscal year (nine months) ended October 31, 2021, which the Company did not offer during the nine months ended October 31, 2020.

 

Operating expenses

 

The following table sets forth our operating expenses for the nine months ended October 31, 2021 and October 31, 2020:

 

   Nine Months Ended October 31,         
   2021   2020         
   (audited)   (unaudited)   Change   % Change 
                 
Advertising and marketing  $2,806,260   $1,620,304   $1,185,956    73 
Commission   26,339    5,151    21,188    411 
Consulting   868,442    200,337    668,105    333 
Amortization and depreciation expense   5,498    -    5,498    100 
Interest and bank charges   60,183    13,969    46,214    331 
Merchant fees   68,073    18,911    49,162    260 
Office and administrative expenses   93,900    43,637    50,263    115 
Professional fees   241,854    153,249    88,605    58 
Salaries and wages   282,003    43,773    238,230    544 
Share-based compensation   92,276    4,949,441    (4,857,165)   (98)
Shipping and delivery   511,567    93,456    418,111    447 
Travel and entertainment   100,068    24,048    76,020    316 
   $5,156,462   $7,166,276   $(2,009,814)   (28)

 

Outside of share-based compensation, our expenses have seen a substantial increase for the nine months ended October 31, 2021, as compared to the nine months ended October 31, 2020. Expenses such as shipping and delivery, advertising and marketing, consulting, professional fees and salaries and wages, which are the result of an increased spending on marketing and brand awareness initiatives, a more aggressive customer acquisition strategy and an expansion in operations due to the increase in revenues.

 

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Operating loss before other items

 

Our operating loss before other items was $4,169,264 for the nine months ended October 31, 2021 as compared to an operating loss before other items of $6,971,693 for the nine months ended October 31, 2020. Excluding share-based compensation our operating loss before other items would have been $4,076,988 and $2,022,252 for the nine months ended October 31, 2021 and October 31, 2020, respectively. The increase in operating loss before other items excluding share-based compensation is due to a reduction in the gross margins realized by the Company during the nine months ended October 31, 2021 in addition to an increase in overall operating expenses as the Company increased advertising and marketing efforts, engaged in a more aggressive customer acquisition strategy and increased operations to support higher sales volumes.

 

Other items

 

The following table sets forth our other income (loss) for the nine months ended October 31, 2021 and October 31, 2020:

 

   Nine Months Ended October 31,         
   2021   2020         
   (audited)   (unaudited)   Change   % Change 
                 
Government grant  $8,763   $14,139   $(5,376)   (38)
Foreign exchange   42,148    (46,670)   88,818    (190)
Loss on revaluation of warrant derivative   (92,918)   (548,886)   455,968    (83)
   $(42,007)  $(581,417)  $539,410    (93)

 

Our loss from other items was $42,007 for the nine months ended October 31, 2021 as compared to $581,417 for the nine months ended October 31, 2020. 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. We believe the increase in share price over a short period of time was caused by: i) a continuing improvement in general market sentiment: (ii) increasing month-over-month revenues; and (iii) investor perception of lower risk due to the Company being in a stronger capital position.

 

The fair market value of the warrants was estimated using the Black-Scholes Option Pricing Model using the following assumptions:

 

   July / August
2020 warrants
   August / September
2020 warrants
   All warrants as of 
   At issue   October 31, 2021 
Fair value of underlying stock   CAD$0.48    CAD$1.46    CAD$1.46 
Expected dividend yield   0%   0%   0%
Expected volatility   100%   100%   100%
Risk-free rate   0.15%   0.30%   1.11%
Expected remaining life (in years)   2.95    2.84    1.66 
Fair value 

$

178,956  

$

774,894  

$

1,582,977 

 

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

 

Balance, January 31, 2021  $1,490,059 
Issued during the period   - 
Change in fair value   92,918 
Balance, October 31, 2021  $1,582,977 

 

The change in the fair value of these derivative instruments of $92,918 is shown as a loss for the fiscal year ended October 31, 2021.

 

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 nine months ended October 31, 2021 and October 31, 2020:

 

   Nine Months Ended October 31,         
   2021   2020         
   (audited)   (unaudited)   Change   % Change 
                 
Net cash flows used in operating activities  $(671,169)  $(2,557,570)  $1,886,401    (74)
Net cash flows used in investing activities   (21,201)   (1,801)   (19,400)   1,077 
Net cash flows from financing activities   14,253    4,567,542    (4,553,289)   (100)
   $(678,117)  $2,008,171   $(2,686,288)   (134)

 

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 $(671,169) for the nine months ended October 31, 2021, as compared to an outflow of $(2,557,570) for the nine months ended October 31, 2020.

 

The main factors that contributed to the decrease in cash outflow from operations were: (i) the reduction of inventory on hand of $402,130 during the nine months ended October 31, 2021 compared to an increase of $200,145 during the nine months ended October 31, 2020, which both reflect changes in the ordinary course of business; (ii) an increase in accounts payable and accrued liabilities of $3,057,343 during the nine months ended October 31, 2021 versus a decrease of $2,235 during the nine months ended October 31, 2020; and (iii) a decrease in prepaid expenses and deposits of $36,795 during the nine months ended October 31, 2021 compared to an increase of $271,174 during the nine months ended October 31, 2020.

 

The Company closely monitors its inventory levels and develops forecasts by analyzing historical results and taking into consideration planned and upcoming marketing initiatives, as well as the overall marketing budget. Since the Subscription automatically sends the customer a Brüush Refill every six months and the churn rate on Active Subscriptions is less than 1% monthly, the Company believes it can forecast its sales of Brüush Refills for the following six-month period with a high degree of confidence. The production lead time for Brüush Refills is six weeks and for Brüush Kits is twelve weeks. Transit time of approximately four weeks is needed to ship the finished goods from our third-party manufacturing partner to our fulfillment center in Salt Lake City, Utah. To minimize freight costs, the Company generally tries to configure a purchase order to fit a 40-foot high-cube container. As such, the Company has historically had a very high level of inventory on hand relative to sales, but this ratio is expected to improve as revenues scale and inventory turns faster.

 

Net cash from (used in) investing activities

 

Cash from (used in) investing activities was $(21,201) for the nine months ended October 31, 2021 as compared to $(1,801) for the nine months ended October 31, 2020. During the fiscal year 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 $14,253 for the nine months ended October 31, 2021 as compared to $4,567,542 for the nine months ended October 31, 2020. The reduction in cash provided from financing activities is due to the Company completing equity financing rounds during the nine months ended October 31, 2020, whereas no financing rounds were completed in the nine months ended October 31, 2021.

 

As of October 31, 2021, the Company had a working capital deficit of $3,962,096, compared to a positive working capital of $1,498,660 as of October 31, 2020.

 

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Funding requirements

 

As of and for the nine-month period ended October 31, 2021, the Company has recurring losses, a working capital deficit of $3,962,096 (January 31, 2021 – working capital of $159,943), an accumulated deficit totaling $17,621,043 (January 31, 2021 – accumulated deficit of $13,409,772) and negative cash flows used in operating activities of $671,169 (January 31, 2021 – negative cash flows of $4,052,350). The ability of the Company to carry out its business objectives is dependent on its ability 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 financing will be available in the future on terms acceptable to the Company.

 

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.

 

Results of Operations – January 31, 2021 compared to January 31, 2020

 

The table below sets forth a summary of our results of operations for the fiscal years ended January 31, 2021 and 2020:

 

   Twelve Months Ended January 31,         
   2021   2020         
   (audited)   (unaudited)   Change   % Change 
                 
Revenues  $901,162   $207,404   $693,758    334 
Cost of goods sold   291,195    66,596    224,599    337 
Gross profit  $609,967   $140,808   $469,159    333 
Gross margin   68%   68%          

 

Revenues

 

Our revenues increased 334% for the fiscal year ended January 31, 2021 to $901,162 from $207,404 for the fiscal year ended January 31, 2020. This increase was primarily due to a higher number of Brüush Kit sales from an increase in brand awareness due to expanded marketing and advertising efforts, as well as a higher amount of recurring revenue from Brüush Refills as our Active Subscription base grew over this period.

 

Cost of goods sold

 

Our cost of goods sold increased 337% to $291,195 for the fiscal year ended January 31, 2021 from $66,596 for the fiscal year ended January 31, 2020. This increase was due to a higher volume of Brüush Kit sales, an increase in the cost of raw materials and rising freight costs.

 

Gross profit

 

We recorded gross profit of $609,967 and $140,808 for the fiscal years ended January 31, 2021 and 2020, respectively. Our gross margin remained consistent at 68% for the fiscal years ended January 31, 2021 and January 31, 2020, respectively, reflecting our cost of goods sold increasing at the same rate as revenues.

 

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Operating Expenses

 

The following table sets forth our operating expenses for the fiscal years ended January 31, 2021 and 2020:

 

   Twelve Months Ended January 31,         
   2021   2020         
   (audited)   (unaudited)   Change   % Change 
                 
Advertising and marketing  $2,670,447   $841,944   $1,828,503    217 
Commission   11,207    3,671    7,536    205 
Consulting   556,864    371,152    185,712    50 
Interest and bank charges   18,130    15,408    2,722    18 
Merchant fees   39,180    12,333    26,847    218 
Office and administrative expenses   75,194    54,709    20,485    37 
Professional fees   222,870    51,455    171,415    333 
Salaries and wages   93,460    -    93,460    100 
Share-based compensation   4,949,441    52,409    4,897,032    9,344 
Shipping and delivery   304,591    46,766    257,825    551 
Travel and entertainment   29,225    68,340    (39,115)   (57)
   $8,970,609   $1,518,187   $7,452,422    491 

 

Our operating expenses have seen a substantial increase for the fiscal year ended January 31, 2021, as compared to the fiscal year ended January 31, 2020. There has been an increase in every category of expenses, except for travel and entertainment, with this reduction reflecting the impact of the COVID-19 pandemic. The increase in shipping and delivery, advertising and marketing, consulting, professional fees, and salaries and wages are the result of a more aggressive customer acquisition strategy and an expansion in operations due to the increase in revenues.

 

Share-based compensation of $4,949,441 for the fiscal year ended January 31, 2021 included a total of $2,524,597 as the aggregate estimated fair value of 417,780 Class A shares issued on February 12, 2020 and of 1,963,566 Class A shares of the Company issued on June 24, 2020 to our Chief Executive Officer as nominal consideration for services rendered. Also included is a total of $1,997,611 as the estimated fair value of 1,870,232 Class B shares of the company issued on July 17, 2020 as nominal consideration to directors of the Company for services rendered. Share-based compensation also included $145,933 for the vesting of 157,781 stock options (out of a total of 309,498 options granted during the fiscal year ended January 31, 2021) on November 23, 2020.

 

Operating loss before other items

 

Our operating loss before other items was $8,360,642 for the fiscal year ended January 31, 2021 as compared to an operating loss before other items of $1,377,379 for the fiscal year ended January 31, 2020, excluding share-based compensation our operating loss before other items would have been $3,411,201 and $1,324,970 for the year ended January 31, 2021 and January 31, 2020, respectively. The increase in operating loss before other items excluding share-based compensation is due to a reduction in the gross margins realized by the Company during the fiscal year ended January 31, 2021, as well as an increase in overall operating expenses as the Company increased advertising and marketing efforts, invested in brand building initiatives and expanded operations to support a higher sales volume.

 

Other items

 

   Twelve Months Ended January 31,         
   2021   2020         
   (audited)   (unaudited)   Change   % Change 
                 
Government grant  $14,139   $-   $14,139    100 
Foreign exchange   (7,719)   (1,481)   (6,238)   421 
Loss on revaluation of warrant derivative   (536,209)   -    (536,209)   100 
   $(529,789)  $(1,481)  $(528,308)   35,672 

 

32

 

 

On May 5, 2020, we received a loan in the amount of CAD$40,000 (approximately $28,506) under the Canada Emergency Business Account program. The loan is non-interest bearing and eligible for forgiveness of CAD$10,000 (approximately $7,127) of the principal amount if it is repaid on or before December 31, 2022. If the loan is not repaid by such date, the loan will bear interest at 5% per year and will be due on December 31, 2025. Government grant income of $14,139 reflects the difference between the face value of the loans and the fair value of the loan (as the loan was issued at below market rates) of $7,012 and $7,127, as we expect to repay the loan on or prior to December 31, 2022 and be eligible for the forgiveness of such amount of the principal of the loan. At January 31, 2021, the value of the loan was $17,580.

 

Foreign exchange loss represents losses resulting from the settlement of transactions denominated in currencies other than in U.S. dollars, the functional currency of the Company, and from the remeasurement of monetary items denominated in currencies other than U.S. dollars at year-end exchange rates.

 

In July and August 2020, in connection with a private placement, we issued 1,033,495 warrants with an exercise price of CAD$0.90 exercisable 24 months from the from the time the Company completes a public offering of shares of its common stock in Canada or the United States (the “Liquidity Event”) Because the warrants have an exercise price denominated in a currency other than the Company’s functional currency, they are derivative financial instruments and measured at fair value at the end of each reporting period. The fair value of the warrants upon issuance was determined to be $178,956 at issue.

 

Additionally, in August and September 2020 in connection with a private placement, we issued 1,557,920 warrants with an exercise price of CAD$2.70 exercisable 24 months from the Liquidity Event. As the warrants have an exercise price denominated in a currency other than the Company’s functional currency, they are derivative financial instruments measured at fair value at the end of each reporting period. The fair value of the warrants upon issuance was determined to be $774,894.

 

The fair market value of the warrants was estimated using the Black-Scholes Option Pricing Model using the following assumptions:

 

   July / August
2020 warrants
   August / September
2020 warrants
   All warrants as of 
   At issue   January 31, 2021 
Expected dividend yield   0%   0%   0%
Expected volatility   100%   100%   100%
Risk-free rate   0.15%   0.30%   0.25%
Expected remaining life (in years)   2.95    2.84    2.41 
Fair value  $178,956   $774,894   $1,490,059 

 

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

 

Balance, January 31, 2020  $- 
Issued during the period   953,850 
Change in fair value   536,209 
Balance, January 31, 2021  $1,490,059 

 

The change in the fair value of these derivative instruments of $536,209 is shown as an expense for the fiscal year ended January 31, 2021.

 

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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 fiscal years ended January 31, 2021 and 2020:

 

   Twelve Months Ended January 31,         
   2021   2020         
   (audited)   (unaudited)   Change   % Change 
                 
Net cash flows used in operating activities  $(4,052,350)  $(1,459,556)  $(2,592,794)   178 
Net cash flows used in investing activities   (3,196)   -    (3,196)   100 
Net cash flows from financing activities   4,567,542    1,578,236    2,989,306    189 
   $511,996   $118,680   $393,316    331 

 

Net cash from (used in) operating activities

 

Net cash used in operating activities, which is generally the net income or loss adjusted for non-cash items, such as depreciation and changes in non-cash working capital items, was an outflow of $(4,052,350) for the fiscal year ended January 31, 2021, compared to an outflow of $(1,459,556) for the fiscal year ended January 31, 2020. The main factors which contributed to decrease in cash outflow from operations were the net loss of $8,890,431 the fiscal year ended January 31, 2021, compared to a net loss of $1,378,860 for the fiscal year ended January 31, 2020, and changes in working capital, primarily in inventory and prepaid expenses and deposits.

 

Net cash used in investing activities

 

Net cash from (used in) investing activities was $(3,196) for the fiscal year ended January 31, 2021 and no cash from or used in investing activities for the fiscal year ended January 31, 2020. For the fiscal year ended January 31, 2021, the outflow of cash was for capital expenditures.

 

Net cash from financing activities

 

Net cash from financing activities was $4,567,542 for the fiscal year ended January 31, 2021, compared to $1,578,236 for the fiscal year ended January 31, 2020. This increase was due primarily to proceeds from the issuance of shares of $4,973,023 for the fiscal year ended January 31, 2021, compared to $1,354,158 of such proceeds in the fiscal year ended January 31, 2020, partially offset in fiscal year 2021 by repayment of loans of $433,987.

 

At January 31, 2021, the Company had working capital (current assets less current liabilities) of $159,943 compared to working capital of $84,956 at January 31, 2020.

 

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.

 

34

 

 

Financial Instruments and Risk Management

 

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 October 31, 2021, the Company’s maximum credit risk exposure is $175,577.

 

Foreign exchange risk

 

Foreign currency risk arises from fluctuations in foreign currencies versus the U.S. dollar that could adversely affect reported balances and transactions denominated in those currencies. As at October 31, 2021, 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 U.S. 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.

 

At October 31, 2021, the Company held the following assets denominated in Canadian dollars: Cash of CAD$388 and accounts and other receivables of CAD$127,432.

 

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.

 

The following is an analysis of the contractual maturities of the Company’s financial liabilities as at October 31, 2021:

 

   Within one year   Between one
and five years
  

More than

five years

 
Accounts payable and accrued expenses  $3,366,062   $-   $- 
Loans payable   27,144    -    - 
   $3,393,206   $-   $- 

 

As of October 31, 2021, the Company had cash of $14,530 and current liabilities of $4,993,364, compared to $692,647 and $1,908,479, respectively, as of January 31, 2021. 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 October 31, 2021, the Company closed a bridge loan on December 3, 2021 for $3,000,000 and a second bridge loan on April 28, 2022 for $1,650,000 to provide short term financing while the Company addresses longer term solutions to capital management.

 

35

 

 

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.

 

Contractual Obligations

 

All of our contractual maturities for liabilities as at October 31, 2021 and January 31, 2021 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.

 

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

 

   October 31, 2021   January 31, 2021 
Director fees  $72,541   $54,585 
Professional fees  $-   $55,625 
Share-based compensation  $-   $1,997,611 

 

b) Key management compensation

 

   October 31, 2021   January 31, 2021 
Consulting fees  $270,427   $206,507 
Share-based compensation  $-   $2,527,596 

 

c) Accounts payable and accrued liabilities – As of October 31, 2021 $155,979 (January 31, 2021 - $2,740) 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. See Note 3 of the Financial Statements for additional information.

 

Recent Accounting Pronouncements

 

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

 

36

 

 

Business

 

Overview

 

The Company, incorporated under the Business Corporations Act of British Columbia on October 10, 2017 under the name “Bruush Oral Care Inc.”, is on a mission to inspire confidence through brighter smiles and better oral health. Founded in 2018 by Chief Executive Officer Aneil Manhas, a former investment banker and private equity investor turned entrepreneur, we are an oral care company that is disrupting the space by reducing the barriers between consumers and access to premium oral care products because it is our belief that high-quality oral care products should be more accessible. We are an e-commerce business with a product portfolio that currently consists of a sonic-powered electric toothbrush kit and brush head refills. Through our website, consumers can purchase a Brüush starter kit (the “Brüush Kit”), which includes: (i) the Brüush electric toothbrush (the “Brüush Toothbrush”); (ii) three brush heads; (iii) a magnetic charging stand and USB power adapter; and (iv) a travel case. We also sell the brush heads separately, which come in a three-pack (the “Brüush Refill”) and can be purchased on a subscription basis, where the customer will automatically receive a Brüush Refill every six months (the “Subscription”). We consider a Subscription to be active (an “Active Subscription”) until it is either cancelled by the customer or terminated due to payment failure (for example, a lost or expired credit card). Later this calendar year, we plan to expand our portfolio with the launch of several new subscription-based consumable oral care products, including toothpaste, mouthwash, dental floss, a whitening pen, as well as an electric toothbrush designed for kids.

 

The Opportunity

 

According to a study concluded by the Oral Health Foundation in 2019, people who use an electric toothbrush have healthier gums, less tooth decay and keep their teeth for longer compared with those who use a manual toothbrush. Electric toothbrushes can generate upwards of 30,000 brush strokes per minute (versus around 300 with a manual toothbrush) and create better oral care habits with features like a smart timer and multiple brush modes. However, although studies have shown that brushing with an electric toothbrush is superior to using a manual brush, most people still use a traditional manual toothbrush. According to an independent report by consumer marketing analysis firm Mintel, only 36 percent of adults say they use an electric toothbrush. They are more popular among older age groups and people with higher incomes, as Mintel reports that half of people 55 years and older with an annual income of $75,000 or more prefer using an electric brush over a manual one.

 

The low adoption rate despite the clear oral care benefits shows that consumers, especially the younger generations, do not find the current electric toothbrush value propositions compelling enough to upgrade from a manual toothbrush for a number of reasons. First and foremost, electric toothbrushes are traditionally expensive, with the high-end models retailing for over $200. Furthermore, the buying experience for an electric toothbrush and replacement heads is annoying from the consumer perspective, as they are often locked up in cases within the aisle, which requires finding a store attendant to gain access and then figuring out what brush head is compatible with the consumer’s device. Historically, electric toothbrushes have not been aesthetically pleasing and consumers do not want the devices or charging stands cluttering their countertops.

 

Our Value Proposition

 

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: Independent studies have shown 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 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. Additionally, we send an email every two months to remind the subscriber that it is time to change their brush head. Overwhelmingly, almost 80% of our customers purchased a Brüush Kit with a Subscription and the churn rate so far has been very low, as only one percent of Active Subscriptions are cancelled on a monthly basis.

 

37

 

 

Facilities, Production and Distribution

 

The Company’s headquarters is located at 30 Wellington Street West, 5th Floor, Toronto, Ontario M5L 1E2 under a month-to-month lease arrangement. We distribute our products through a third-party fulfilment and logistics partner based in Salt Lake City, Utah. We offer free regular shipping to our customers, which takes 2-5 business days depending on the geographical location, as well as express 2-day shipping for a $10 charge.

 

The Company develops and manufactures products with third-party manufacturing partners located in Canada and China. The sourcing and purchase of raw materials is managed by the Company’s third-party manufacturing partners. Although the COVID-19 pandemic has caused global manufacturing challenges and supply chain disruption, particularly in Asia, 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. Additionally, to management’s knowledge, there have been no recent significant availability problems or supply shortages for raw materials or supplies that could have a material adverse effect on our ability to meet the business objectives as set out in this prospectus.

 

Sales Channels

 

We currently sell products in the United States and Canada. The size of the oral care market in North American is an estimated $12 billion, of which electric toothbrushes account for over $1 billion. Our market share is currently infinitesimal. As an e-commerce business, our website – www.bruush.com – accounts for the majority of our sales. We also sell through Amazon and have commercial agreements with some third-party retailers including Indigo, Harry Rosen, Macy’s and Urban Outfitters, who all sell our products on their websites under a drop-ship arrangement. We are not dependent on any one of these third-party commercial agreements.

 

The Company’s breakdown of sales between the United States and Canada is as follows:

 

   9-months ended
October 31, 2021
   12-months ended
January 31, 2021
   12-months ended
January 31, 2020
 
United States of America  $1,238,259   $512,094   $95,091 
Canada   727,182    389,068    112,313 
   $1,965,441   $901,162   $207,404 

 

Seasonality

 

Since the Brüush Kit makes a great gift, the holiday season (November and December) is a peak period for sales. Other than a spike during the holiday shopping period, the business does not face any seasonal fluctuations in terms of revenues throughout the year.

 

Customers

 

We focus our marketing efforts on recruiting consumers that are between 18 and 45 years of age and currently using a manual toothbrush and convincing them that there has never been a more compelling opportunity to upgrade to an electric brush. Currently, this age range is underpenetrated relative to baby boomers when it comes to using an electric toothbrush, but this is expected to shift due to an increased understanding around the importance of oral hygiene among younger people. This group also consists of the first digital generations when it comes to shopping, as recent research has indicated that 67 percent of millennials prefer purchasing online, with self-care driving their spending habits. Studies have also found that the millennial and Generation Z groups have further shifted their preference away from in-store shopping during the COVID-19 pandemic and that even as life returns to normal, issues such as long lines and crowds will remain deterrents, with both groups citing convenience and price comparison among the top benefits of online shopping.

 

Currently, we have over 28,000 Active Subscriptions in our program, with an estimated 70 percent of our customer base between 18 and 45 years old. So far, our value proposition is resonating strongly, as the consumer feedback has been incredibly positive. We have received over 3,000 organic reviews, with a remarkable 90 percent five-star rating. Furthermore, despite offering a 90-day no questions asked return policy, our return rate is less than one percent, which is extremely low for an e-commerce company in the consumer goods space. Our low churn rate on Active Subscriptions of only one percent cancelled monthly, is further proof that our subscribers are enjoying the product. As such, we see a big opportunity to leverage our loyal customers to generate incremental sales. As we prepare to launch new products, we will give exclusive offers to our existing subscriber base to encourage them to expand their Subscriptions to include Consumables.

 

38

 

 

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.

 

Brand Strategy

 

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. In 2021, the Company 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.

 

Partnership with Kevin Hart

 

On November 23, 2020, the Company announced that award-winning comedian and actor, Kevin Hart, had joined as a partner and celebrity endorser. With Kevin Hart’s authentic love for the product, wide demographic appeal and natural alignment with our brand, the partnership is aimed at shaking up the all-too-often humorless, ignorable oral care category by utilizing Mr. Hart’s talents in campaigns, content and social media.

 

Pursuant to the endorsement agreement between the Company and K. Hart Enterprises, Inc., the Company agreed to compensate K. Hart Enterprises through a combination of (i) cash payable in two installments of $750,000 for a total amount of $1,500,000; (ii) royalty payments of three percent based on gross revenues received by the Company during the term of the agreement from the sales of any Brüush products or subscriptions; and (iii) stock options to purchase 309,498 Class B common shares of the Company. Kevin Hart’s deliverables consist of a range of promotional activities including a production day to create comedic videos, appearances, media interviews and social ambassadorship of the Company to his 143 million Instagram followers. The initial two-year term of the endorsement agreement commenced on November 23, 2020 and ends on November 23, 2022, and may be extended for up to two additional years, if mutually agreed upon. This summary does not purport to be complete and is qualified in its entirety by the full text of the endorsement agreement.

 

39

 

 

Growth Strategy

 

Our mission is to disrupt the oral care industry by reducing the barriers between consumers and access to premium oral care products. We currently have over 28,000 Active Subscriptions in our program and plan to grow by continuing to pursue the following key growth strategies:

 

Scale e-commerce sales

 

To ensure a steady build of awareness and conversion, the Company employs an active digital advertising strategy with a focus on delivering brand and direct response creative throughout Facebook, Instagram and Google, among other digital channels. With a focus on driving qualified traffic to the website and increasing conversion, this approach allows us to learn, optimize and evolve. We see significant opportunity to continue increasing overall demand and improving conversion at every touchpoint across our subscriber acquisition funnel and plan to test new paid social channels that we have already seen success in from an organic perspective, in addition to scaling other paid media channels such as radio and podcast. Additionally, we will continue to drive brand awareness through top-of-funnel social media campaigns, influencer collaborations, public relations initiatives and affiliate partnerships. We will keep differentiating from the competition and build a strong foundation that binds all brand activations.

 

Expand distribution channels

 

Although our focus is scaling our e-commerce business, we will also look to increase awareness by expanding into new distribution channels through partnerships with other millennial-focused brands, brick-and-mortar retailers (both in-store and online) and dental practices. The focus of any new partnership will be to reach new consumers without compromising our brand identity and maintaining the premium nature of our brand. Additionally, we currently sell our products in the United States and Canada, which are very competitive markets for oral care. We will evaluate expanding our sales to other less competitive countries in the future.

 

Introduce new products

 

Later this calendar year, the Company plans to launch a set of auxiliary oral care products including four consumable products (the “Consumables”): toothpaste, mouthwash, dental floss and a whitening pen, in addition to an electric toothbrush designed for kids. We have already finalized the formulas for each of the Consumables, as well as the form, type and artwork for the packaging. The last step before production of the Consumables is to await the results of stability and compatibility testing with the packaging and formula, which is expected to be completed this summer. Of the Consumables, only the toothpaste is subject to registration with the United States Food and Drug Administration (“FDA”). Mouthwash, dental floss and whitening pen are categorized as cosmetic products, which do not require FDA approval.

 

The introduction of the new oral care products provides an opportunity for us to continue to increase touch points through our retention funnel, deepen our relationship with our existing subscribers, increase our average order value and grow our monthly recurring revenue. We are currently evaluating additional products that we intend to launch in 2023 and beyond, as our long-term goal is to “own the bathroom”. All new products will be high quality and deliver a similar premium experience to the Brüush Toothbrush.

 

Grow the team

 

With team members in Toronto, Ontario and Vancouver, British Columbia, the Company has seven employees under contract, which does not include consultants or board members. We have a strong management team in place and will focus on growing the team as we scale the business.

 

Regulatory Environment

 

In the United States, powered toothbrushes, such as the Brüush Toothbrush and the new electric brush designed for kids that we will be releasing, 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 2022 (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 are currently working towards ISO 13485:2016 certification and expect to obtain it, as well as receive the Medical Device License, this year. 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 60 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.

 

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Intellectual Property

 

The Company 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. We do not intend to file any new patents as it relates to the new products that we will be launching later this year. Additionally, the Company retains trademarks in the United States, Canada, Australia, United Kingdom and the European Union for our name and symbol “BRÜUSH”.

 

Legal Proceedings

 

We may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

There are no material proceedings to which any director or officer is a party that is adverse to the Company or has a material interest adverse to the Company. We do not believe that any lawsuit filed to date is material or would have a material adverse impact on our Company. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No current director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No current director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No current director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.

 

Corporate Information

 

The Company’s principal executive offices are located at 30 Wellington Street West, 5th Floor, Toronto, Ontario M5L 1E2. Our telephone number is (844) 427-8774 and 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 certain information regarding our directors and executive officers as of the date of this prospectus:

 

Name   Age   Position
Executive Officers        
Aneil Manhas   38   Chief Executive Officer and Chairman
Matthew Kavanagh   38   Chief Financial Officer
Alan MacNevin   46   Chief Operating Officer
         
Non-Executive Directors        
Kia Besharat   38   Director

 

Executive Officers

 

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) from the Richard Ivey School of Business at the University of Western Ontario.

 

Matthew Kavanagh, Chief Financial Officer

 

Matthew Kavanagh joined the Company in February 2022 as Chief Financial Officer to direct and oversee the Company’s finance department. Mr. Kavanagh has over 15 years of experience in a variety of leadership, managerial, financial, accounting, regulatory compliance, assurance, tax and advisory areas.

 

From 2017 to 2021, prior to joining the Company, Mr. Kavanagh was Vice President of Finance for Zenabis Global Inc., where he established the finance department from the ground up to manage all accounting, inventory costing, finance, reporting, budgeting, tax and payroll functions. Mr. Kavanagh led the finance department though the reverse take-over of Bevo Agro Inc. (TSX-V: BEVO) and subsequent up listing from the TSX Venture Exchange to the Toronto Stock Exchange (TSX: ZENA).

 

Prior to Zenabis, Mr. Kavanagh was an Assurance and Advisory Manager at Deloitte LLP in Vancouver, British Columbia and BDO USA, LLP in Madison, Wisconsin from 2014 to 2017, and previously, was a Senior Accountant in Madison, Wisconsin from 2011 to 2014.

 

Mr. Kavanagh holds both a Bachelor of Accounting and Financial Management, as well as a Master of Accounting from the University of Waterloo.

 

Alan MacNevin, Chief Operating Officer

 

Alan MacNevin joined the Company in June 2022 as Chief Operating Officer and leads the Company across all aspects of operations, driving strategic growth by directing and overseeing the scale of digital commerce, execution of strategic partnerships, launch of new products and expansion into new geographical markets. Mr. MacNevin has over 20 years of experience in executive-level positions managing large teams globally, while leading the growth at start-up e-commerce and subscription-based businesses and building them into category leaders.

 

Mr. MacNevin joins the Company from Rakuten Kobo, where over the past ten years he has held various executive positions including Chief Revenue Officer (2014-2015), Chief Marketing Officer (2015-2019), and most recently, Chief Operating Officer (2019-2022), where he managed the day-to-day global operations of the company. Driving growth, profitability and international expansion, Mr. MacNevin played a key role in Kobo’s emergence as a dominant player in the eReading industry.

 

Prior to joining Rakuten Kobo, Mr. MacNevin was a member of the executive team at Sirius Satellite Radio for six years from 2005 to 2011.  At Sirius, Mr. MacNevin led the subscriber management team as the company grew from inception to over two million subscribers before it merged with XM Canada in 2011.  Mr. MacNevin has also held senior marketing and operational roles at the Canadian Broadcasting Company, Chapters-Indigo Online and Bell Mobility.

 

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Non-Executive Directors

 

Kia Besharat, Director

 

Kia Besharat has over 15 years of extensive founder, private equity, investment banking and directorship experience. As Senior Managing Director and Head of Capital Markets Origination at Gravitas Securities Inc., Mr. Besharat leads the advisory, restructuring, corporate finance and mergers and acquisitions mandates across the firm’s platform with a recent focus on the following industry groups: consumer/retail, natural resources, internet/new media, technology and healthcare.

 

Since joining the firm in 2016, he has played a pivotal role in establishing Gravitas Securities Inc. as one of the top independent investment banks in Canada. At Gravitas Securities Inc., his transactions have totaled more than $1 billion and in aggregate of more than $4 billion over the span of his career. Since 2020, Mr. Besharat has been a founder and Director of EMERGE Commerce Ltd. (TSXV: ECOM), a disciplined, diversified, rapidly growing acquirer and operator of direct-to-consumer e-commerce brands across North America. He has also been a founder and Director of Mednow Inc. (TSXV: MNOW) since 2020, a healthcare technology company offering virtual access with exceptional care. as well as a Director of Gravitas II Capital Corp. (TSXV: GII.P).

 

Mr. Besharat holds a Bachelor of Arts in Economics from McGill University, as well as a Master of Science degree (specializing in Finance and Investment) from the University of Edinburgh.

  

Corporate Governance

 

Director Independence

 

The board of directors has reviewed the independence of directors based on Nasdaq listing standards. Based on this review, the board of directors has determined that Kia Besharat and [●] are independent within the meaning of the Nasdaq rules. In making this determination, our board of directors considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence. As required under applicable Nasdaq rules, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present.

 

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 will be [●] (Chairman), and [●]. The Nominating and Corporate Governance Committee will be [●] (Chairman) and [●]. The Compensation Committee will be [●] (Chairman) and [●]. 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 [●] is an Audit Committee financial expert as defined under current SEC regulations.

 

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.

 

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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.

 

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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Family Relationships

 

There are no family relationships among our directors and/or executive officers.

 

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 Option and Other Incentive Plans” for a description of the 2022 plan.

 

Board Diversity

 

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.

 

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 will become effective from August 7, 2023.

 

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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, 2021 and January 31, 2021 for our Chief Executive Officer (principal executive officer) serving during the year ended October 31, 2021 and the other most highly compensated executive officer serving at January 31, 2021 whose total compensation exceeded $100,000 (the “Named Executive Officers”).

 

Summary Compensation Table

 

Compensation

 

The following table sets out the compensation paid to the individuals in U.S. dollars who were Named Executive Officers during the years ended October 31, 2021 and January 31, 2021.

 

Name and Principal Position  Year ended  (Salary $)  

(Stock-based compensation $)

   (Total $) 
Aneil Manhas, Chief Executive Officer  October 31, 2021  $121,124     $121,124 
   January 31, 2021  $200,717  $

2,527,596

   $2,728,313 
Matthew Kavanagh, Chief Financial Officer (1)  October 31, 2021               
   January 31, 2021               
Alan MacNevin, Chief Operating Officer (2)  October 31, 2021               
   January 31, 2021               

 

(1) Mr. Kavanagh became the Chief Financial Officer of the Company starting on February 22, 2022. His compensation includes an annual salary of CAD$200,000 and stock options to acquire 150,000 Class B common shares at a strike price of CAD$1.80 per share. The stock options will vest annually in equal increments of 37,500 Class B common shares per year over a four-year term. The Company may at any time terminate Mr. Kavanagh without just cause. If Mr. Kavanagh is terminated without cause, the Company must pay him a lump sum amount equal to one month of his then annual salary. Mr. Kavanagh’s employment agreement also includes a Change of Control provision, whereby a change of control means: (i) the occurrence of or combination of, a sale of shares, amalgamation, merger or other consolidation of the Company to which the beneficial shareholders of the Company prior thereto do not retain more than 50% of the beneficial ownership; (ii) a sale, lease or disposition of all or substantially all of the assets of the company; and (iii) for greater certainty an initial public offering on a stock exchange shall not be deemed to constitute a change of control. If Mr. Kavanagh is terminated without cause 60 days preceding or 90 days following a change in control, Mr. Kavanagh will be entitled to an amount equal to 25% of his then annual salary. If within 90 days following a change in control, good reason exists (good reason shall mean, unless consented to in writing by Mr. Kavanagh, a material reduction in title, position or responsibilities, or any material reduction in salary), Mr. Kavanagh shall be entitled to terminate employment by giving the Company one month written notice and will be entitled to an amount equal to 25% of his then annual salary.

 

(2) Mr. MacNevin became the Chief Operating Officer of the Company starting on June 6, 2022. His compensation includes an annual salary of CAD$250,000 and stock options to acquire 300,000 Class B common shares at a strike price of CAD$1.80 per share. The stock options will vest annually in equal increments of 75,000 Class B common shares per year over a four-year term. The Company may at any time terminate Mr. MacNevin without just cause. If Mr. MacNevin is terminated without cause in the first year of employment, the Company must pay him a lump sum amount equal to two months of his then annual salary. One month of Mr. MacNevin’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.

 

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.

 

Stock Options and Other Incentive Plans

 

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.

 

Exercise of Options by Directors and Named Executive Officers

 

During the year ended October 31, 2021, none of the Named Executive Officers or directors of the Company were granted options or other rights to acquire securities of the Company.

 

External Management Companies

 

The Company has not entered into any agreement with any external management company that employs or retains one or more of the Named Executive Officers or Directors and, other than as disclosed below, the Company has not entered into any understanding, arrangement or agreement with any external management company to provide executive management services to the Company, directly or indirectly, in respect of which any compensation was paid by the Company.

 

Pension Plan Benefits

 

The Company does not anticipate having any deferred compensation plan or pension plan that provide for payments or benefits at, following or in connection with retirement.

 

Director Compensation

 

Starting July 1, 2020, the Company has paid each of its directors an annual fee of CAD$60,000. Any additional compensation to be paid to the executive officers and directors of the Company after the date of Listing will be determined by the board of directors.

 

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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 8,350,072.50 Class B shares and 6,824,126 Class A shares issued and outstanding as of July 1, 2022.

  

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., 30 Wellington Street West, 5th Floor, Toronto, Ontario M5L 1E2, Canada.

 

   Class A Shares
Beneficially Owned (1)(2)
   Class B Shares
Beneficially Owned (1)(2)
 
Name of Beneficial Owner  Number   Percentage   Number   Percentage 
Greater than 5% Stockholders                    
Aneil Manhas (3)   2,683,214    39.32%       
Yaletown Bros Ventures Ltd. (4)   1,657,580    24.29%       
DrewGreen.CA Inc. (5)           1,219,850    14.61%
Prodigy Capital Corp. (6)             650,382    7.79%
                     
Executive Officers and Directors                    
Aneil Manhas   

2,683,214

    

39.32

%   

    

Kia Besharat           650,382

    7.79

%
All executive officers and directors as a group   2,683,214    39.32%   650,382    7.79%

 

 

(1) Figures are rounded to the nearest hundredth of a percent.

(2) Holders of Class A stock are entitled to cast one vote for each share held of the Class A stock on all matters presented to the stockholders of the Company for stockholder vote. Class B shares are non-voting shares. See “Description of Securities”.

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

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

(5) DrewGreen.CA Inc. is owned by Charles Andrew Green.

(6) Prodigy Capital Corp. is owned by Kia Besharat, a non-executive director.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth information as of July 1, 2022 with respect to our compensation plans under which equity securities may be issued.

 

Plan Category 

Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights

  

Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights

  

Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a))

 
  

(a)

  

(b)

   (c) 
Equity compensation plans approved by security holders:            
Stock options   859,498   $1.80 CAD      
Restricted stock units   

1,900,000

    

-

      
Total   2,759,498         275,341 

 

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Certain Relationships and Related Person Transactions

 

The following includes a summary of transactions since February 1, 2019 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.

 

For the fiscal year ended October 31, 2021, we did not pay any share-based compensation. For the fiscal year ended January 31, 2021, we paid share-based compensation in the amount of $2,527,596 to the Chief Executive Officer consisting of 2,381,346 Class A common shares.

 

For the fiscal year ended October 31, 2021, we had accounts payable and accrued liabilities in the amount of $139,312 to the Chief Executive Officer. For the fiscal year ended January 31, 2021, we had accounts payable and accrued liabilities in the amount of $Nil to the Chief Executive Officer.

 

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Description of Securities

 

We are offering Units in this offering. Each Unit consists of one share of our Common Stock and one Warrant to purchase one share of our Common Stock. Units will not be certificated and the shares of our Common Stock and the Warrants that comprise the Units are immediately separable. We are also registering the shares of Common Stock issuable upon exercise of the Warrants. You should review the form of Warrant, each filed as exhibits to the registration statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to the Warrants.

 

Class A Voting Common Shares

 

The holders of Class A shares are entitled to one vote in respect of each Class A share held. The holders of the Class A shares are entitled, out of any or all profits or surplus available for dividends, to receive, when, as and if declared by the directors, those dividends as may be declared from time to time in respect of the Class A shares. No dividends may be declared on the Class A shares unless dividends of an equivalent amount per share are also declared on the Class B shares. The Class A shares are not redeemable or retractable.

 

Class B Non-Voting Common Shares

 

The holders of Class B shares do not have any voting rights for the election of directors or for any other purpose and will not be entitled to receive any notice of, or to attend, any meeting of the shareholders of Company. The holders Class B shares will be entitled, out of any or all profits or surplus available for dividends, to receive when, as and if declared by the directors, those dividends as may be declared from time to time in respect of the Class B Shares. No dividends may be declared on the Class B shares unless dividends of an equivalent amount per share are also declared on the Class A shares. The Class B shares are not redeemable or retractable.

 

Conversion of Class A Shares and Class B Shares into Shares of Common Stock

 

Prior to the offering, all outstanding shares of our Class A shares and Class B shares were converted into shares of Common Stock at a conversion ratio of 1:1.

 

Common Stock

 

The following is a description of our common stock and the material provisions of our certificate of incorporation and bylaws.

 

All of our issued and outstanding shares of common stock are fully paid and non-assessable. Shares of our Common Stock are issuable in registered form and are issued when registered in our register of members. Holders of shares of Common Stock are entitled to one vote in respect of each share held. The holders of shares of Common Stock are entitled, out of any or all profits or surplus available for dividends, to receive, when, as and if declared by the directors, those dividends as may be declared from time to time in respect of shares of Common Stock. Shares of Common Stock are not redeemable or retractable Unless the board of directors determine otherwise, each holder of shares of Common Stock will not receive a certificate evidencing such shares. Holders of shares of Common Stock who are non-residents of British Columbia may freely hold and vote their shares.

 

We are authorized to issue an unlimited amount of common shares with no par value per share. Subject to the provisions of the Business Corporations Act (British Columbia) (“Business Corporations Act”) and our articles regarding redemption and purchase of the shares, the directors have general and unconditional authority to allot (with or without confirming rights of renunciation), grant options over or otherwise deal with any unissued shares to such persons, at such times and on such terms and conditions as they may decide. Such authority could be exercised by the directors to allot shares which carry rights and privileges that are preferential to the rights attaching to common shares. No share may be issued at a discount except in accordance with the provisions of the Business Corporations Act. The directors may refuse to accept any application for shares and may accept any application in whole or in part, for any reason or for no reason.

  

After conversion of the Class A and Class B shares into shares of Common Stock at their respective conversion ratios and prior to the offering, the Company effected a [●]:[●] reverse stock split, resulting in [●] shares of Common Stock outstanding prior to the offering.

 

Warrants

 

Overview. The following summary of certain terms and provisions of the Warrants offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the warrant agent agreement (the “Warrant Agent Agreement”) between us and Endeavor Trust Corporation (the “Warrant Agent”), and the form of Warrant, both of which are filed as exhibits to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the Warrant Agent Agreement, including the annexes thereto, and form of Warrant.

 

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Exercisability. The Warrants are exercisable at any time after their original issuance and at any time up to 5:00 p.m., New York City time, five years after the closing of this offering. The Warrants may be exercised upon surrender of the Warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of Warrants being exercised. Under the terms of the Warrant Agreement, we must use our best efforts to maintain the effectiveness of the registration statement and current prospectus relating to shares of our Common Stock issuable upon exercise of the Warrants until the expiration of the Warrants. If we fail to maintain the effectiveness of the registration statement and current prospectus relating to the Common Stock issuable upon exercise of the Warrants, the holders of the Warrants shall have the right to exercise the Warrants solely via a cashless exercise feature provided for in the Warrants, until such time as there is an effective registration statement and current prospectus.

 

Exercise Price. Each Warrant is exercisable for one share of Common Stock at a price equal to $[●] per share (equal to 100% of the public offering price of the Units). The exercise price is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting shares of Common Stock and also upon any distributions of assets, including cash, stock or other property to our shareholders. Subject to certain exemptions outlined in the Warrant, for a period commencing on the date the Warrants are issued to the later of: (i) two years from the date of issuance of the Warrant, or (ii) on the date no Qualified Holders hold any Warrants, if we sell, enter into an agreement to sell, or grant any option to purchase, or sell, enter into an agreement to sell, or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any shares of Common Stock or a security convertible into shares of Common Stock, at an effective price per share less than the exercise price of the Warrant then in effect (each a “Dilutive Issuance”), the exercise price of the Warrant shall be reduced to equal the effective price per share in such Dilutive Issuance; provided, however, that in no event shall the exercise price of the Warrant be reduced to an exercise price lower than 50% of initial public offering price per Unit.

 

On the date that is 90 calendar days immediately following the initial issuance date of the Warrants, the exercise price of the Warrants will be reduced to the Reset Price, provided that the Reset Price is less than the exercise price in effect on that date. The Reset Price is equal to the greater of (a) 50% of the Initial Exercise Price of the Warrants on the issuance date or (b) 100% of the lowest daily volume weighted average price per Ordinary Share occurring during the 90 calendar days following the issuance date of the Warrants. The lowest Reset Price is $[●] per share of Common Stock, which is 50% of initial public offering price of the Units, based on an assumed public offering price of $[●] per Unit, the midpoint of the price range of the Units.

 

The term “Qualified Holder” means each holder of Warrants that purchases at least [●] Warrants (based on an assumed public offering price of $[●] per Unit, the midpoint of the price range of the Units) in connection with this offering and the term “Qualified Warrants” means at least [●] Warrants purchased in connection with the offering by any Warrant holder, including each beneficial holder of the Warrants, taken together with all affiliates of such Warrant holder and/or beneficial holder.

 

Fractional Shares. No fractional shares of Common Stock will be issued upon exercise of the Warrants. If, upon exercise of the Warrant, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, pay a cash adjustment in respect of such fraction in an amount equal to such fraction multiplied by the exercise price. If multiple Warrants are exercised by the holder at the same time, we shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the exercise price.

 

Transferability. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.

 

Redemption. If shares of Common Stock trade at a price of at least 200% of the exercise price for 30 consecutive trading days, the Company may, at its option, redeem the Warrants.

 

Listing. We have applied to list our Warrants on the Nasdaq Capital Market under the symbol “BRSH-W.” No assurance can be given that our listing application will be approved.

 

Global Certificate. The Warrants will be issued in registered form under a Warrant Agent Agreement between the Warrant Agent and us. The Warrants shall initially be represented only by one or more global warrants deposited with the Warrant Agent, as custodian on behalf of The Depository Trust Company (DTC) and registered in the name of Cede & Co., as nominee of DTC, or as otherwise directed by DTC.

 

Fundamental Transactions. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization, recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Stock or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock, the holders of the Warrants will be entitled to receive the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction. The holders of the Warrants may also require us or any successor entity to purchase the Warrants from the holders by paying to the holder an amount in cash (or other types or form of consideration in special circumstances listed in the Warrant) equal to the Black Scholes value of the remaining unexercised portion of the Warrant on the date of the fundamental transaction.

 

Home Country Practice. For so long as any of the Warrants remains outstanding, the Company will elect to follow home country practice in lieu of any rules and regulations of the trading market that would limit the Company’s ability to effect the provisions of the Warrants, including but not limited to shareholder approval rules related to the issuance of securities or adjustment of terms of this Warrant for the benefit of warrant holders.

 

Rights as a Stockholder. The Warrant holders do not have the rights or privileges of holders of Common Stock or any voting rights until they exercise their Warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.

 

Governing Law. The Warrants and the Warrant Agent Agreement are governed by the law of the State of New York.

 

Additional Warrants

 

Until the later of (a) two years after the date the Warrants are issued or (b) the date no Qualified Holders (as defined below) hold any Warrants, in the event of a reduction of the exercise price of the Warrants, in aggregate, to 50% of the Initial Exercise Price as a result of a Dilutive Issuance, then in connection with such reduction, each Qualified Holder will receive two warrants (“Additional Warrants”) for each one Qualified Warrant held by such holder on the date of such reduction. The maximum number of Warrants subject to such adjustment by a given Qualified Holder will be limited to the number of Warrants purchased by such Qualified Holder in connection with this offering. Qualified Holders will receive Additional Warrants as a result of the Reset Price if the Reset Price is equal to 50% of the Initial Exercise Price. Such Additional Warrants shall be on substantially the same terms as the as-adjusted Warrant; provided, however, that the term of the Additional Warrants shall be five (5) years from the date they are issued and such Additional Warrants will not be tradable warrants.

 

Additional Warrants shall be on substantially the same terms as the as-adjusted Warrant; provided, however, that (i) the term of the Additional Warrants shall be five (5) years from the date they are issued, and (ii) such Additional Warrants will not be tradable warrants and not listed on any securities exchange or other nationally recognized trading system.

 

Transfer Agent, Registrar and Warrant Agent

 

Our transfer agent, registrar and warrant agent is Endeavor Trust Corporation located at 702-777 Hornby Street, Vancouver, BC, V6Z 1S4. Their phone number is (604) 559-8880.

 

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Shares Eligible for Future Sale

 

Sales of substantial amounts of shares of Common Stock in the public market, including shares issued upon exercise of outstanding Warrants, or the anticipation that such sales could occur, could adversely affect prevailing market prices of our securities. Upon completion of this offering, we will have [●] shares of Common Stock issued and outstanding, including the shares issued in this offering, the conversion of Class A and Class B shares into shares of Common Stock and the reverse stock split effected after such conversion and prior to the offering, assuming that the underwriter does not exercise its over-allotment option and that the Underwriter’s Warrant and the Warrants are not exercised. All of the shares of Common Stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act by persons other than by our affiliates.

 

Lock-Up Agreements

 

We have agreed not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our shares of common stock or other securities convertible into or exercisable or exchangeable for such shares for a period of one hundred eighty (180) days from the closing date of this offering without the prior written consent of the underwriter.

 

In addition, our executive officers, directors, employees and stockholders holding at least 5% of Common Stock outstanding as of the effective date of the registration statement for this offering have agreed not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any of such shares for a period of one hundred eighty (180) days from the closing date of this offering (the Lock-Up Period).

 

Rule 144

 

In general, under Rule 144 under the Securities Act as in effect on the date hereof, beginning 90 days after the date hereof, a person who holds restricted shares (assuming there are any restricted shares) and is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned these restricted shares for at least six months, would be entitled to sell an unlimited number of such shares, provided current public information about us is available. In addition, under Rule 144, a person who holds restricted shares in us and is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned these restricted shares for at least one year, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available. Beginning 90 days after the date hereof, our affiliates who have beneficially owned shares of our common stock for at least six months will be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

 

  1% of the number of shares of our Common Stock then issued and outstanding; or
     
  the average weekly trading volume of shares of our Common Stock on the Nasdaq Capital Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale; provided that current public information about us is available and the affiliate complies with the manner of sale requirements imposed by Rule 144.

 

Affiliates are also subject to additional restrictions on the manner of sales under Rule 144 and notice filing requirements. We cannot estimate the number of our shares that our existing affiliated or non-affiliated shareholders will elect to sell on the Nasdaq Capital Market following this offering.

 

Regulation S

 

Regulation S under the Securities Act provides that securities owned by any person may be sold without registration in the United States, provided that the sale is affected in an “offshore transaction” and no “directed selling efforts” are made in the United States (as these terms are defined in Regulation S), subject to certain other conditions. In general, this means that our shares may be sold in some manner outside the United States without requiring registration in the United States.

 

Rule 701

 

In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases shares from us in connection with a compensatory share plan or other written agreement executed prior to the completion of this offering is eligible to resell such shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.

 

THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL SHARE TRANSFER RESTRICTION MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN LEGAL ADVISOR REGARDING THE PARTICULAR SECURITIES LAWS AND TRANSFER RESTRICTION CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF THE COMMON STOCK AND WARRANTS INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

 

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Certain Material Tax Considerations

 

The following summary contains a description of some of the material Canadian and U.S. federal income tax consequences of the acquisition, ownership and disposition of shares of our common stock.

 

Certain U.S. Federal Income Tax Considerations

 

The following is a summary of the material U.S. federal income tax consequences to U.S. Holders (as defined below) of purchasing, owing and disposing of shares of our common stock and warrants. This discussion is included for general informational purposes only, does not purport to consider all aspects of U.S. federal income taxation that might be relevant to a U.S. Holder, and does not constitute, and is not, a tax opinion for or tax advice to any particular U.S. Holder. The summary does not address any U.S. tax matters other than those specifically discussed. The summary is based on the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing Treasury Regulations (including temporary regulations) issued thereunder, judicial decisions and administrative rulings and pronouncements and other legal authorities, all as of the date hereof and all of which are subject to change, possibly with retroactive effect. Any such change could alter the tax consequences described herein.

 

The discussion below applies only to U.S Holders holding shares of our common stock and warrants as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment), and does not address the tax consequences that may be relevant to U.S. Holders who, in light of their particular circumstances, may be subject to special tax rules, including without limitation:

 

  insurance companies, tax-exempt organizations, regulated investment companies, real estate investment trusts, brokers or dealers in securities or foreign currencies, banks and other financial institutions, mutual funds, retirement plans, traders in securities that elect to mark-to-market, certain former U.S. citizens or long-term residents;
     
  U.S. Holders that are classified for U.S. federal income tax purposes as partnerships and other pass-through entities and investors therein;
     
  U.S. Holders who hold shares as part of a hedge, straddle, constructive sale, conversion, or other integrated or risk-reduction transaction, as “qualified small business stock,” within the meaning of Section 1202 of the Code or as Section 1244 stock for purposes of the Code;
     
  U.S. Holders who hold shares through individual retirement or other tax-deferred accounts;
     
  U.S. Holders that have a functional currency other than the U.S. dollar;
     
  U.S. Holders who are subject to the alternative minimum tax provisions of the Code or the tax on net investment income imposed by Section 1411 of the Code;
     
  U.S. Holders who acquire common stock pursuant to any employee share option or otherwise as compensation;
     
  U.S. Holders required to accelerate the recognition of any item of gross income with respect to their holding of shares of our common stock as a result of such income being recognized on an applicable financial statement; or
     
  U.S. Holders who hold or held, directly or indirectly, or are treated as holding or having held under applicable constructive attribution rules, 10% or more of our shares, measured by voting power or value.

 

Any such U.S. Holders should consult their own tax advisors.

 

For purposes of this discussion, a “U.S. Holder” means a holder of shares of our common stock or warrants that is or is treated, for U.S. federal income tax purposes, as (i) an individual citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any State thereof or the District of Columbia or any entity treated as such for U.S. federal income tax purposes, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust (A) the administration over which a U.S. court exercises primary supervision and all of the substantial decisions of which one or more U.S. persons have the authority to control, or (B) that has a valid election in effect under the applicable Treasury Regulations to be treated as a U.S. person under the Code.

 

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If a partnership or other pass-through entity (including any entity or arrangement treated as such for purposes of U.S. federal income tax law) holds our shares, the tax treatment of a partner of such partnership or member of such entity will generally depend upon the status of the partner and the activities of the partnership. Partnerships and other pass-through entities holding our shares, and any person who is a partner or member of such entities should consult their own tax advisors regarding the tax consequences of purchasing, owning and disposing of the shares.

 

Passive Foreign Investment Company Considerations

 

A non-U.S. corporation will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such taxable year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (based on an average of the quarterly values of the assets) during such taxable year is attributable to assets that produce or are held for the production of passive income. For this purpose, a foreign corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other non-U.S. corporation in which it owns, directly or indirectly, more than 25% (by value) of the stock. In the PFIC analysis, cash is categorized as a passive asset, and the company’s un-booked intangibles associated with active business activities may generally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets.

 

Based upon its current income and assets and projections as to the value of our shares of common stock, it is not presently expected that we will be classified as a PFIC for the 2022 taxable year or the foreseeable future.

 

The determination of whether we will be or become a PFIC will depend upon the composition of our income (which may differ from our historical results and current projections) and assets and the value of its assets from time to time, including, in particular the value of its goodwill and other unbooked intangibles (which may depend upon the market value of the shares of our common stock from time to time and may be volatile). Among other matters, if our market capitalization is less than anticipated or subsequently declines, we may be classified as a PFIC for the 2022 taxable year, or future taxable years. It is also possible that the IRS may challenge the classification or valuation of our assets, including goodwill and other unbooked intangibles, or the classification of certain amounts received by us, including interest earnings, which may result in our being, or becoming classified as, a PFIC for the 2022 taxable year, or future taxable years.

 

The determination of whether we will be or become a PFIC may also depend, in part, on how, and how quickly, we use liquid assets and the cash proceeds of this offering or otherwise. If we were to retain significant amounts of liquid assets, including cash, the risk of being classified as a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the 2022 taxable year or any future taxable year, and no opinion of counsel has or will be provided regarding our classification as a PFIC. If we were classified as a PFIC for any year during which a holder held shares of our common stock, we generally would continue to be treated as a PFIC for all succeeding years during which such holder held our shares. The discussion below under “—Dividends Paid on Shares of Common Stock” and “—Sale or Other Disposition of Shares” is written on the basis that we will not be classified as a PFIC for U.S. federal income tax purposes.

 

Dividends Paid on Shares of Common Stock

 

Subject to the PFIC rules described below, any cash distributions (including constructive distributions) paid with respect to the shares of our common stock out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution will generally be treated as a “dividend” for U.S. federal income tax purposes. Under current law, a non-corporate recipient of a dividend from a “qualified foreign corporation” will generally be subject to tax on the dividend income at the lower applicable net capital gains rate rather than the marginal tax rates generally applicable to ordinary income, provided certain holding period and other requirements are met.

 

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A non-U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) with respect to any dividend it pays on stock, which is readily tradable on an established securities market in the United States. We believe we are eligible for the benefits of the Convention Between the United States of America and Canada with Respect to Taxes on Income and Capital (or the United States-Canada income tax treaty), which the Secretary of the Treasury of the United States has determined is satisfactory for this purpose and includes an exchange of information program, in which case we would be treated as a qualified foreign corporation with respect to dividends paid in respect of our shares of common stock. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular circumstances. Dividends received in respect of our shares of common stock shares will not be eligible for the dividends received deduction allowed to corporations.

 

Sale or Other Disposition of Shares

 

Subject to the PFIC rules discussed below, a U.S. Holder of our common stock and warrants will generally recognize capital gain or loss, if any, upon the sale or other disposition of common stock and warrants in an amount equal to the difference between the amount realized upon such sale or other disposition and the U.S. Holder’s adjusted tax basis in such shares. Any capital gain or loss will be long-term capital gain or loss if the shares have been held for more than one year and will generally be United States source capital gain or loss for United States foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are currently eligible for reduced rates of taxation.

 

Disposition of Foreign Currency

 

U.S. Holders are urged to consult their tax advisors regarding the tax consequences of receiving, converting or disposing of any non-U.S. currency received as dividends on our common stock.

 

Tax on Net Investment Income

 

U.S. Holders may be subject to an additional 3.8% Medicare tax on some or all of such U.S. Holder’s “net investment income.” Net investment income generally includes income from the shares unless such income is derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). You should consult your tax advisors regarding the effect this tax may have, if any, on your acquisition, ownership or disposition of common stock and warrants.

 

Allocation of Purchase Price and Tax Basis

 

For United States federal income and other applicable tax purposes, each purchaser of Units in this offering must allocate its purchase price between each component (i.e. the shares of Common Stock and Warrants) based on the relative fair market value of each at the time of issuance. These allocated amounts will be the holder’s tax basis in each component. Because each investor must make its own determination of the relative value of each component of the Units, we urge each investor to consult their tax advisor in connection with this analysis.

 

Passive Foreign Investment Company Rules

 

If we are classified as a PFIC for any taxable year during which a U.S. Holder holds shares of our Common Stock, unless the holder makes a mark-to-market election (as described below), the holder will, except as discussed below, be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any “excess distribution” that we make to the holder (which generally means any distribution paid during a taxable year to a holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the holder’s holding period for the shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of shares of our common stock.

 

Under the PFIC rules:

 

  The excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the common stock;
     
  The amount of the excess distribution or gain allocated to the taxable year of the distribution or disposition and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC, or a pre-PFIC year, will be taxable as ordinary income; and
     
  The amount of the excess distribution or gain allocated to each taxable year other than the taxable year of the distribution or disposition or a pre-PFIC year, will be subject to tax at the highest tax rate in effect applicable to the individuals or corporations, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

 

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