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As filed with the Securities and Exchange Commission on July 18, 2022

 

Registration No. 333-264707

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 2

to

FORM S-1

 

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

FIRST PERSON LTD.

(Exact name of registrant as specified in its charter)

 

Alberta, Canada   2833   N/A
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (IRS Employer
Identification Number)

 

1840, 444 – 5th Ave., SW

Calgary, AB, T2P 2T8
(587) 577-9261

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Jan Campbell
Corporate Secretary
1840, 444 – 5th Ave.
, SW

Calgary, AB, T2P 2T8
(403) 225-3003

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copies to:

 

Jeffrey Baumel, Esq.
Dentons US LLP

1221 Avenue of the Americas

New York, NY 10020
Tel. No.: (973) 912-7189

 

Christopher Jones, Esq.

Dentons Bingham Greenebaum LLP

3500 PNC Tower

101 S. 5th Street

Louisville, KY 40202

Tel. No.: (502) 589-4200

 

Lucas Tomei

Dentons Canada LLP

850 – 2nd Street SW

15th Floor, Bankers Court

Calgary, Alberta

Canada, T2P 0R8

Tel. No.: (403) 268-7000

 

David Crandall, Esq.

Brandon Kinnard, Esq.

Hogan Lovells US LLP

1601 Wewatta Street

Suite 900
Denver, CO 80202

Tel. No.: (303) 899-7300

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement is declared 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, please 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 a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, 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, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said 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 solicit an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION    
    DATED JULY 18, 2022    

 

FIRST PERSON LTD.

 

Common Shares and

Warrants to Purchase Common Shares

 

This is an initial public offering of our common shares, no par value (our “Common Shares”), and accompanying warrants (each, a “Warrant”) to purchase one Common Share (and the Common Shares issuable from time to time upon exercise of the Warrants). The Warrants are exercisable immediately at an exercise price of $            per Common Share, 125% of the price per Common Share and accompanying Warrant in this offering, and will expire five years from the date of issuance. We anticipate that the initial public offering price will be between $      and $      per Common Share and accompanying Warrant.

 

Prior to this offering, there has been no public market for our securities. The Common Shares and Warrants are immediately separable and will be issued separately, but will be purchased together in this offering. We have applied to list our Common Shares and Warrants on The Nasdaq Capital Market under the symbols “FP” and “FPERW”, respectively.

 

We are an “emerging growth company” as defined under U.S. securities laws and, as such, we have elected to comply with certain reduced reporting requirements for this Prospectus and may elect to do so in future filings.

 

Investing in our securities is highly speculative and involves a high degree of risk. See “Risk Factors” beginning on page 10 of this Prospectus for a discussion of information that should be considered in connection with an investment in our securities.

 

    Per Common Share and Warrant   

Total

 
Initial public offering price   $              $            
Underwriting discounts and commissions(1)   $     $    
Proceeds to our Company before expenses   $     $    

 

(1) See “Underwriting” beginning on page 105 of this Prospectus for additional information regarding underwriting compensation.

 

We have granted the underwriters an option for a period of forty-five days to purchase up to an additional               Common Shares and/or additional Warrants from us at the initial public offering price, less the underwriting discounts and commissions.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense.

 

Delivery of the securities will be made on or about      , 2022, subject to customary closing conditions.

 

Sole Book-Running Manager

 

EF HUTTON

division of Benchmark Investments, LLC

 

The date of this Prospectus is      , 2022.

 

i

 

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY 1
RISK FACTORS 10
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 36
USE OF PROCEEDS 37
DIVIDEND POLICY 38
CAPITALIZATION 39
DILUTION 40
SELECTED CONSOLIDATED FINANCIAL DATA 41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 43
BUSINESS 48
MANAGEMENT 64
CORPORATE GOVERNANCE 67
EXECUTIVE COMPENSATION 71
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS 78
DESCRIPTION OF SHARE CAPITAL 79
SHARES ELIGIBLE FOR FUTURE SALE 85
MATERIAL DIFFERENCES BETWEEN THE ALBERTA BUSINESS CORPORATIONS ACT AND THE DELAWARE GENERAL CORPORATION LAW 86
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS 97
MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS 103
UNDERWRITING 105
LEGAL MATTERS 110
EXPERTS 110
WHERE YOU CAN FIND ADDITIONAL INFORMATION 110
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1

 

ii

 

 

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this Prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This Prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Prospectus is current only as of its date. You should also read this Prospectus together with the additional information described under “Where You Can Find Additional Information” on page 110 of this Prospectus.

 

The distribution of this Prospectus and the issuance of the securities in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this Prospectus must inform themselves about, and observe any restrictions relating to, the issuance of the securities and the distribution of this Prospectus outside the United States. This Prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, the securities offered by this Prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.

 

In this Prospectus, currency amounts are stated in U.S. dollars (“$”), unless specified otherwise. All references to CAD$ are to Canadian dollars.

 

Unless otherwise indicated, information contained in this Prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry, and assumptions based on such information and knowledge, which we believe to be reasonable. Assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” beginning on page 10 of this Prospectus. These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding Forward-Looking Statements” on page 36 of this Prospectus.

 

This Prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

iii

 

 

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this Prospectus. This summary does not contain all of the information you should consider before investing in the securities offered by this Prospectus. You should read the entirety of this Prospectus carefully, especially “Risk Factors” beginning on page 10 of this Prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 43 of this Prospectus and the financial statements and related notes appearing at the end of this Prospectus before making an investment decision.

 

Unless the context provides otherwise, all references in this Prospectus to “First Person,” “we,” “us,” “our,” “our company,” the “Company,” or similar terms, refer to First Person Ltd., a company incorporated in Alberta, Canada.

 

Overview

 

First Person Ltd., a company incorporated in Alberta, Canada, is a holding company. The Company conducts its business and operations through its wholly-owned operating subsidiaries: First Person, Inc., a Delaware corporation (“FP, Inc.”), and TruMed Limited, a Jamaican company limited by shares (“TruMed”). We intend to compete in the following three markets:

 

  Functional Mushrooms. Functional mushrooms are mushrooms believed to have additional health benefits beyond their basic nutritional value. We intend to produce and distribute for sale 100 percent grain-free, organic functional mushrooms at scale.
     
  Nutraceutical Products. Nutraceuticals are products derived from food sources believed to have additional health benefits beyond their basic nutritional value. We launched our direct-to-consumer line of highly curated cognitive supplements in March 2022.
     
  Psychedelic Mushrooms. Psychedelic mushrooms are mushrooms that contain psilocybin. We are building a robust culture library of psychedelic mushrooms and we intend to grow and distribute psychedelic mushrooms in Jamaica. We also intend to enter the psychedelic mushroom supply chain for the psychedelics market in the United States if we are able to obtain a U.S. Drug Enforcement Administration (“DEA”) manufacturing and research registration, and to expand such capabilities beyond the DEA program if permitted by law in the future.

 

Psilocybin, the naturally occurring drug found in psychedelic mushrooms, is currently a Schedule I controlled substance under the U.S. Controlled Substances Act of 1970 (the “CSA”) and is currently an illegal substance in the State of Washington and all other U.S. states. Therefore, production and research of psilocybin requires approvals from federal and state authorities, which may be granted in the sole discretion of such authorities. Even with the necessary approvals, production and research of psilocybin may be subject to quotas or other restrictions set by federal or state authorities. If we obtain the requisite approvals from all applicable state and federal governmental authorities, including the Washington State Department of Health (“WDOH”) and the DEA, then we intend to build out our naturally-derived psychedelic mushroom supply chain in the United States in full compliance with state and federal laws. Psilocybin is not an illegal drug under Jamaica’s Dangerous Drugs Act, 1948 (the “Jamaica Drug Act”). Unlike mushrooms that contain psilocybin, functional mushrooms and nutraceuticals are fully legal in the United States. We do not intend to market any of our products for medical use.

 

Our goal is to activate the full potential of human cognition through mushroom innovation. We believe that First Person, despite its early stage of development, is building a resilient foundation for long-term growth, and we believe we have positioned ourselves for success in the brain health and wellness markets through our innovative product formulations and production processes.

 

 

1

 

 

 

First Person, Inc.

 

Since its inception in January 2021, FP, Inc. has devoted substantially all of its efforts to business and product development relating to the operations of a functional mushroom farm in Olympia, Washington, and to the development of its own proprietary formulations of cognitive nutraceutical performance products containing functional mushrooms. FP, Inc.’s current activities and goals include:

 

● developing grow and production capacity to become a U.S. domestic producer of 100 percent grain-free, organic functional mushrooms at scale;

 

● bringing to market a legal nutraceutical brand of proprietary nootropics (substances believed to have a positive impact on mental performance) and related protocols designed to work with and without psychedelic protocols to either replicate or enhance and elongate the effects of psychedelics;

 

● actively building a robust fungi culture library of both functional and psychedelic mushrooms; and

 

● constructing an initial 15,000 sq. ft. production and laboratory facility, where it plans to propagate and cultivate its proprietary functional mushrooms, with the intention of acquiring or leasing additional space to expand its production capacity. The facility currently contains three fully constructed functional mushroom greenhouses, totaling 12,000 sq. ft.

 

TruMed Limited

 

TruMed was formed on April 30, 2019, and is focused on research and development of psilocybin mushrooms. On February 15, 2022, we acquired all of the issued and outstanding shares of common stock of TruMed in exchange for an aggregate purchase price of up to $750,000, pursuant to the terms of a share purchase agreement (the “Share Purchase Agreement”) entered into with TruMed and each of the shareholders of TruMed (the “Selling Shareholders”). $130,000 of the purchase price was paid by wire transfer on or before the closing of the acquisition, while $70,000 of the purchase price is being paid pursuant to a promissory note delivered to the Selling Shareholders. The remaining $550,000 of the purchase price will only be paid if TruMed achieves certain milestones within the first twenty-four months following the closing of the acquisition (the “Milestone Payments”). See “Business—Overview” beginning on page 48 of this Prospectus for additional information. TruMed is a pre-revenue company in the development stage with substantially no operations. TruMed intends to carry out psilocybin-related operations in Jamaica. Psilocybin is not an illegal drug under the Jamaica Drug Act. Therefore, research on psychedelic mushrooms is not in contravention of the laws of Jamaica and does not require any permit or authorization from the regulatory authorities in Jamaica. TruMed intends to grow and distribute psychedelic mushrooms in Jamaica, and we plan to use some of the proceeds of this offering to expand TruMed’s Jamaican operations. See “Use of Proceeds” on page 37 of this Prospectus.

 

Our Strategy and Competitive Strengths

 

Building a Vertically Integrated Supply Chain for Functional Mushrooms to Be Used as Supplied Ingredients for Consumer Brands.

 

We intend to become a functional mushroom supplier, leveraging our expertise and innovation to build a supply chain from the ground up, using our proprietary First Grown™ process and techniques. We intend to sell functional mushroom powders and extracts, as well as the unprocessed fruiting bodies of functional mushrooms, as supplied ingredients for consumer brands by entering into supply agreements with other companies. We also intend to use our functional mushroom products in our own nutraceutical brand.

 

The global appetite for functional mushrooms is rapidly expanding. However, a nascent marketplace and fractured supply chain leave businesses and consumers wanting. Demand has currently overwhelmed the industry’s existing supply chain for functional mushrooms and large companies are buying out entire mushroom harvests in advance. In response, functional mushrooms are being grown and imported from overseas to meet demand in North America. Imported mushrooms have, in some instances, been found to contain heavy contaminants, grains, and other substrates, compromising the quality and purity of final consumer products. We intend to set the standard for purity, potency, and transparency while innovating finished mushroom ingredient formats to expand potential end-use product applications.

 

 

2

 

 

 

Functional mushrooms are fully legal, and we intend to market our functional mushrooms as food ingredients if we are granted approval from the U.S. Department of Agriculture (“USDA”) and the U.S. Food and Drug Administration (“FDA”). While we are an early stage company with a history of net losses and have generated limited revenue to date, we believe our planned vertically-integrated structure will allow us to disrupt and potentially dominate this fractured supply chain, secure growth, and generate revenue streams in established markets for functional mushrooms.

 

Using FP, Inc.’s proprietary First Grown™ production process, which FP, Inc. protects as a trade secret, our innovation team, together with our Head of Mycology & Psychedelics, Robert C. Kaelin, has developed a protectable, proprietary, and scalable end product that is 100 percent pure mushrooms, with no fillers or grain residue. Mr. Kaelin has over twenty years of experience in propagation, cultivation, and processing, and has extensive knowledge in the handling of good-manufacturing-practice certified mushrooms and mycelium products for use in the nutraceutical and whole foods industry.

 

We are building in-house processing capabilities to meet demand for our premium grain-free, pure mycelium/fruiting body powders and extracts. Our functional mushrooms are cultivated on wild harvest alder saw dust, then harvested, dried, and shipped to a processing partner for milling, extraction, and spray drying. Our proprietary extraction method uses hot water and ethanol in an ultrasonic assisted extraction (“UAE”) process that utilizes high frequency sound waves to extract compounds from the mushroom fiber. We own all of the UAE equipment, which is housed at the processing partner’s facility, and it is operated by the processing partner’s staff in accordance with our specifications. We do not have a formal agreement with this processing partner, and function under an “on-demand” arrangement. The fungus mycelium is cultivated in a liquid culture similar to brewing yeast for beer production. The mycelium is then filtered from the liquid, dried, and added to the UAE process along with the functional mushroom fruiting bodies. Once fully operational, we believe our proprietary automated processes to grow and process systems will maximize yields and minimize lead times and processing steps.

 

Our production capacity is rapidly growing, and currently consists of 15,000 sq. ft. with plans to acquire or lease additional growing space. The five First Grown™ fungi varieties that we are currently growing and intend to harvest are: (i) First Grown™ Lions Mane (Hericium erinaceus); (ii) First Grown™ Maitaki (Grifola frondosa); (iii) First Grown™ Reishi (Ganoderma lingzhi); (iv) First Grown™ Cordyceps (Cordyceps militaris); and (v) First Grown™ Turkey Tail (Trametes versicolor). On April 8, 2022, we applied for a license certifying our First GrownTM functional mushrooms as organic.

 

We believe that owning our supply chain will allow us to participate in the high-growth mushroom business-to-business ingredient market by eventually becoming the primary supplier and product innovation partner of functional and wellness brands. We anticipate that these relationships will expand to include psychedelic mushrooms if the legal path is cleared to do so.

 

Building Consumer Relationships Through a Direct-to-Consumer Brand.

 

We plan to develop, build, and market a successful direct-to-consumer brand of targeted nutraceuticals containing functional mushrooms and adaptogenic botanicals (plants or plant parts believed to help the body adjust to physical, chemical, or biological stress). We believe that building an early, direct, and trusted brand relationship with the consumer enables seamless product and category expansion.

 

On March 1, 2022, we launched a cognitive supplement system formulated to target specific neurotransmitters, which we believe will help establish our brand in the functional mushroom and the brain health and wellness markets and will position us to enter the psychedelic mushroom market should the legal market be opened in the United States. These are curated and fully legal cognitive supplements, engineered to work with and without psychedelic protocols to either replicate or enhance and elongate the effects of psychedelics. The supplements feature functional mushrooms and a curated blend of nutraceuticals that activate specific neurotransmitters affecting energy, mood, and sleep. Nutraceuticals are dietary supplements and are regulated by the FDA. These consumer products do not require FDA approval prior to marketing and distribution, but are required to include a disclaimer that they have not been evaluated by the FDA and are not intended to diagnose, treat, cure, or prevent any disease.

 

Currently, our nutraceuticals contain functional mushrooms purchased from third parties; however, we intend to include our First GrownTM functional mushrooms in our nutraceuticals by the end of 2022. All of the ingredients used in our nutraceuticals come from three sources—FP, Inc., Nutricode (an FM World brand), and North American Reishi Ltd. d/b/a NAMMEX—and meet the definition of a “dietary ingredient” as used in the Federal Food, Drug, and Cosmetic Act of 1938 (the “FDCA”). We do not intend to market any of our nutraceutical products for medical use.

 

 

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We are branding and marketing these cognitive supplements with a brand agency that has experience in creating and launching successful direct-to-consumer brands. Our brand and product ecosystems are strategically positioned to resonate with forward-thinking consumers who seek to optimize their mental health and cognitive performance. We intend to build and sustain community engagement through high-impact marketing and branding activities, executive communications, and industry recognition. Our team brings a depth of invaluable experience across a diverse range of direct to consumer e-commerce businesses, and are experts in areas involving consumer acquisition costs, order frequency, and retention. We anticipate this will lead to detailed and realistic expectations for lifetime value that can inform and drive our decisions around reasonable marketing spend for customer acquisition. Product-line expansion will focus on innovations in the functional beverage category (a category that includes nutritional and energy drinks).

 

Product Research and Development and Innovation Capabilities in Psychedelic Mushrooms.

 

We plan to conduct psychedelic mushroom product research and development in Jamaica and, subject to obtaining the applicable regulatory approvals, in the United States. We believe our multi-faceted approach, involving supplying functional mushrooms, marketing a nutraceutical brand, and psychedelic mushroom product research and development, will maximize our potential in an emerging and transformative category of mental health products and solutions.

 

Psilocybin, the naturally occurring drug found in psychedelic mushrooms, is currently a Schedule I controlled substance under the CSA and is currently an illegal substance in the State of Washington and all other U.S. states. Therefore, in order to produce and research psilocybin in the United States, we will need to obtain the necessary approvals from federal and state authorities, which may be granted in the sole discretion of such authorities. Even if we receive the necessary approvals, we may be subject to quotas or other restrictions on our production and research set by federal or state authorities.

 

Research involving controlled substances in the State of Washington requires participating individuals to register with both the DEA and the WDOH. Under Section 69.50.508(e) of the Revised Code of Washington (“RCW”), the State of Washington gives the WDOH the authority to authorize certain persons to possess and distribute controlled substances for research purposes. The first step in obtaining the necessary authorizations is to receive state approval from the WDOH. Applicants must obtain controlled substance researcher registration from the WDOH prior to registering with the DEA. Chris L. Claussen, our Chief Innovation Officer, submitted a controlled substance researcher application with the WDOH in order for FP, Inc. to conduct psilocybin research, with such application listing FP, Inc.’s Olympia, Washington, facility as the research lab location. If the WDOH registration is granted, then FP, Inc. intends to utilize such registration to apply for licensure with the DEA to make our current facility in Olympia, Washington, a licensed psilocybin facility. Due to the unpredictable nature of the WDOH review process, the timeline for receiving WDOH’s determination with respect to the application is currently uncertain. If we receive the WDOH license, then the approval process with the DEA is expected to take two to three months from when we initially submit an application with the DEA. If these licenses are obtained, then we expect our facility to include a WDOH- and DEA-compliant culture laboratory and controlled production and research facility for psychedelic mushrooms, built in compliance with all security protocols.

 

If we receive the above approvals from the WDOH and the DEA, then we intend to expand domestic U.S. production to include psychedelic mushrooms for use in research, clinics, therapies, and eventually, if legal regimes surrounding psilocybin are changed, regulated dosed sub-hallucinogenic consumer product applications. We may not commence psilocybin propagation operations until we receive the requisite approvals from such authorities, and there is no guarantee that we will receive such approvals.

 

While we pursue the necessary approvals from the WDOH and the DEA in order to legally produce and research psilocybin in the State of Washington in the United States, TruMed intends to carry out psilocybin-related operations in Jamaica. Psilocybin is not an illegal drug under the Jamaica Drug Act. Therefore, research on psychedelic mushrooms and the sale of psilocybin for use in consumer products, or the sale of consumer products containing psilocybin, is not in contravention of the laws of Jamaica and does not require any permit or authorization from the regulatory authorities in Jamaica. TruMed intends to grow and distribute psychedelic mushrooms in Jamaica, both for research and recreational purposes, and we plan to use some of the proceeds of this offering to expand TruMed’s Jamaican operations. See “Use of Proceeds” on page 37 of this Prospectus. TruMed is a pre-revenue company in the development stage with substantially no operations, and has not yet conducted any research involving psilocybin.

 

 

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In addition, we have entered into a statement of work with Charles River Laboratories Montreal ULC (“Charles River Labs”), an independent research lab in Canada, to conduct two studies involving psilocybin. Charles River Labs is in the process of obtaining the necessary import permits from Health Canada—a department of the Government of Canada responsible for national health policy—and the Company does not need to acquire any approvals in connection with such research. If Charles River Labs obtains the necessary import permits, then Charles River Labs will commence two studies pursuant to the terms of the statement of work, with research and development efforts focused on isolating and studying the individual psychoactive components of mushrooms. Through the exploration of genetic strains and compounds, we hope to discover novel combinations and applications of these analogs for brain health and performance.

 

If we are unable to obtain all of the requisite approvals, including approvals to produce, or conduct research in, psychedelic mushrooms in the United States, then all of our activities involving psychedelic mushrooms and psilocybin will occur in Jamaica through TruMed, or through agreements with independent research labs in accordance with applicable laws.

 

We have filed two provisional patent applications that could provide us with a protected advantage in legal psychedelic mushroom markets. Our goal is to combine these patented innovations, and we believe that doing so will give us product performance and market advantages over other competitors preparing for the possibility of a legal market for sales of natural consumer psychedelic mushroom products. We have only filed provisional patent applications, which help protect inventions for a twelve-month period while a formal patent application is being filed. The patent process can take up to twenty-four months or longer to complete and can be challenged during the process. At this time, we cannot state whether the patent applications will be approved, refused, and/or ultimately registered.

 

We believe our three-part holistic strategy and approach to the developing markets for both functional and psychedelic mushrooms strategically positions us for both near and long-term growth.

 

Risks Associated with Our Business

 

Our business is subject to numerous risks and uncertainties that you should be aware of before making an investment decision, including those highlighted under “Risk Factors” beginning on page 10 of this Prospectus. These risks include, but are not limited to, the following:

 

  the functional-mushroom and psilocybin industries are new in the United States, and the industries and markets may not continue to exist or develop as anticipated or we may ultimately be unable to succeed as anticipated in these industries and markets;
     
  our ability to cultivate and/or acquire mushrooms for our products is subject to risks inherent in agricultural operations;
     
  we may encounter disruptions or delays in the expansion and construction of our facilities, which may impair our ability to grow and produce our own mushroom products for distribution;
     
  we will rely on a third party co-packer for certain product components and other third-parties for the packaging material for our products, and there is no guarantee that the relationships with the co-packers or packaging companies will continue or that the co-packer or packaging companies will deliver goods on a timely basis;
     
  if we are unable to protect the confidentiality of our trade secrets, the value of our proprietary processes could be materially adversely affected and our business would be harmed;
     
  a denial of, or significant delay in obtaining, or any interruption of required government authorizations to produce psilocybin for federally sanctioned purposes would likely significantly, negatively impact the Company;

 

 

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  the dynamic nature of the laws and regulations affecting the psilocybin market, including the federal authorization of psilocybin, or the state-regulated psilocybin industry, could materially adversely affect our proposed operations, and we cannot predict the impact that future regulations may have on us;
     
  the laws, regulations, and guidelines generally applicable to psilocybin in the United States may change in ways that impact our ability to continue our business as currently conducted or proposed to be conducted;
     
  because psilocybin is a controlled substance, our products, equipment, and revenues could be subject to civil or criminal asset forfeiture if we fail to comply with the laws and regulations applicable to psilocybin;
     
  adverse U.S. or international economic conditions, including periods of inflation, could negatively affect our business, financial condition, and results of operations;
     
  the COVID-19 pandemic could have a material adverse impact on our business, results of operations and financial condition;
     
  we may be vulnerable to rising energy costs;
     
  environmental risks may adversely affect our business; and
     
  you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Canadian law and certain of our executive officers and directors reside outside the United States.

 

If we are unable to adequately address these and other risks we face, our business, financial condition, results of operations, and prospects may be adversely affected.

 

Implications of Being an Emerging Growth Company

 

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include that:

 

  we are only required to provide reduced disclosure in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
     
  we are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);
     
  we are not required to submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes”; and
     
  we are not required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to our median employee compensation.

 

We may take advantage of these provisions until the last day of the fiscal year during which the fifth anniversary of this listing occurs or such earlier time that we are no longer an emerging growth company. We will remain an emerging growth company until the earliest of: (i) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (ii) the last day of the fiscal year during which the fifth anniversary of this listing occurs; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

 

Under the JOBS Act, emerging growth companies also can delay adopting new or revised accounting standards until such time as those standards would otherwise apply to private companies. We currently intend to take advantage of this exemption.

 

For risks related to our status as an emerging growth company, see “Risk Factors—We are a “smaller reporting company” and “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies and emerging growth companies will make our Common Shares less attractive to investors” on page 29 of this Prospectus.

 

Corporate Information

 

LEIIO Wellness Ltd. (“Wellness”), our predecessor by name change, was incorporated on January 21, 2021 (date of inception), under the laws of the province of Alberta, Canada. On December 15, 2021, we changed our name to First Person Ltd. Our principal executive offices are located at 1840, 444 – 5th Ave., SW, Calgary, AB, T2P 2T8, and our telephone number at such address is (587) 577-9261. Our principal offices in the United States are located at 3900 W. Alameda Avenue, Suite 1200, Burbank, CA 91505. Our website address is https://www.firstpersongroup.com. The information contained on, or that can be accessed through, our website is deemed not to be incorporated in this Prospectus or to be part of this Prospectus. The reference to our website in this Prospectus is an inactive textual reference only and is not a hyperlink. You should not consider information contained on our website to be part of this Prospectus in deciding whether to purchase the securities offered by this Prospectus.

 

 

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THE OFFERING

 

Common Shares Offered:             Common Shares.
     
Warrants Offered:  

Warrants to purchase Common Shares. The Warrants are exercisable immediately, and will be issued separately in this offering, but will be purchased together with the Common Shares in this offering. The exercise price of the Warrants is $    per Common Share (125 percent of the public offering price of one Common Share and accompanying Warrant based on assumed offering price of $    per share). Each Warrant is exercisable for one Common Share, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations, or similar events affecting our Common Shares as described herein. A holder may not exercise any portion of a Warrant to the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more than 4.99 percent of the outstanding Common Shares after exercise, as such percentage ownership is determined in accordance with the terms of the Warrants, except that upon notice from the holder to us, the holder may waive such limitation up to a percentage, not in excess of 9.99 percent. Each Warrant will be exercisable immediately upon issuance and will expire five years after the initial issuance date. The terms of the Warrants will be governed by a Warrant Indenture, dated as of the effective date of this offering, between us and Odyssey Trust Company as the warrant agent (the “Warrant Agent”). This Prospectus also relates to the offering of the Common Shares issuable upon exercise of the Warrants. For more information regarding the Warrants, you should carefully read the section titled “Description of Share Capital” beginning on page 79 of this Prospectus.

     
Over-allotment Option:   We have granted an option to the underwriters, exercisable one or more times in whole or in part for a period of forty-five days from the date of this Prospectus, to purchase up to an additional    Common Shares and/or          additional Warrants in any combination thereof, solely to cover over-allotments, if any, at the public offering price of one Common Share, less the underwriting discount.
     
Common Shares to be outstanding immediately after this offering:         Common Shares (assuming that none of the Warrants are exercised), or Common Shares if the Warrants offered hereby are exercised in full. If the underwriters’ option to purchase additional Common Shares is exercised in full, the total number of Common Shares outstanding immediately after this offering would be Common Shares, and Common Shares if the Warrants offered hereby are exercised in full.
     
Use of proceeds:   We estimate that the net proceeds to us from this offering will be approximately $        million, or approximately $      million if the underwriters exercises the over-allotment option in full, assuming an offering price of $      per Common Share and accompanying Warrant, which is the midpoint of the estimated price range set forth on the cover page of this Prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
     
    We intend to use the net proceeds of this offering primarily for general working capital, launching and growing an initial line of consumer products, research and development, establishment and expansion of operations in Jamaica, and expansion of growing and production capabilities in Olympia, Washington.
     
Risk Factors:   Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in this Prospectus and, in particular, the specific factors set forth in “Risk Factors” beginning on page 10 of this Prospectus, before deciding whether or not to invest in the securities offered by this Prospectus.
     
Proposed Nasdaq Capital Market Listing:   We have applied to list our Common Shares and Warrants on The Nasdaq Capital Market under the symbols “FP” and “FPERW”, respectively.

 

The number of Common Shares to be outstanding after this offering is based on 6,188,754 Common Shares outstanding as of March 31, 2022, and excludes the following:

 

  up to 615,000 Common Shares issuable upon the exercise of outstanding options under the First Person Ltd. Long Term Incentive Plan (as amended, the “Incentive Plan”), of which 365,000 have an exercise price of CAD$2.00 per Common Share, 110,000 have an exercise price of CAD$3.50 per Common Share, and 140,000 have an exercise price of $5.00 per Common Share;
     
  up to 500,620 Common Shares at a price per Common Share of CAD$5.00 issuable upon exercise of outstanding warrants;
     
  20,135 Common Shares reserved for future issuance under the Incentive Plan as of the date hereof;
     
  any securities issuable upon exercise of the underwriters’ over-allotment option; and
     
              Common Shares issuable upon exercise of the Warrants at a price of $    per Common Share.

 

On April 21, 2022, First Person amended its articles of incorporation to effect a consolidation of the outstanding Common Shares (the “Consolidation”) on the basis of a consolidation ratio of one post-Consolidation Common Share for every ten pre-Consolidation Common Shares outstanding prior to the effective date of the Consolidation. All references to Common Shares, options and warrants to purchase Common Shares, share data, per share data and related information have been retroactively adjusted, where applicable, in this Prospectus to reflect the Consolidation as if it had occurred at the beginning of the earliest period presented.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

 

The summary consolidated statements of operations data for the period from January 21, 2021 (inception) through December 31, 2021, have been derived from our audited consolidated financial statements included elsewhere in this Prospectus. The summary consolidated statements of operations data for the three months ended March 31, 2021 and 2022, have been derived from the unaudited consolidated financial statements included elsewhere in this Prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited financial statements and, in our opinion, contain all adjustments, consisting of only normal recurring adjustments, necessary for fair presentation of such financial data. Our historical results are not necessarily indicative of the results that should be expected for any future period.

 

You should read the consolidated financial data set forth below in conjunction with our consolidated financial statements and the accompanying notes and the information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 43 of this Prospectus.

 

First Person Ltd.

Consolidated Statement of Operations and Comprehensive Loss

 

  

From January 21, 2021 (inception) through

December 31, 2021

   Three months ended March 31, 
       2021(1)   2022 
   (in thousands, except per share amounts) 
Revenues  $-   $-   $49 
                
Cost of Goods Sold   -    -    12 
                
Gross Profit   -    -    38 
                
Operating expenses:               
Selling, general and administrative   2,948    309    1,268 
Depreciation and amortization   1    0    1 
Foreign currency transaction losses (gains)   (28)   (2)   - 
Total operating expenses   2,921    308    1,268 
                
Loss from operations   (2,921)   (308)   (1,230)
                
Other income:               
Interest income   0    -    0 
Total other income   0    -    0 
                
Loss before provision for income taxes   (2,921)   (308)   (1,230)
                
Provision for income taxes   -    -    - 
                
Net loss   (2,921)   (308)   (1,230)
                
Other comprehensive loss, net of provision for income taxes:               
Foreign currency translation gain (loss)   (36)   (27)   10 
                
Comprehensive loss  $(2,957)  $(335)  $(1,220)
                
Net Loss per Common Share               
Basic and diluted   (0.60)   (0.11)   (0.21)
                
Weighted Average Number of Common Shares Outstanding               
Basic and diluted   4,918    2,908    5,822 

 

(1) For the period from January 21, 2021 (inception) through March 31, 2021.

 

 

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First Person Ltd.

Consolidated Balance Sheet

 

   December 31, 2021   March 31, 2022 
   (in thousands, except per share amounts) 
         
ASSETS          
           
Current assets:          
Cash  $559   $927 
Accounts Receivable, net   -    10 
Inventory   98    778 
Prepaid expenses and other current assets   540    211 
Deferred offering cost   297    406 
Total current assets   1,494    2,332 
           
Property and equipment, net   10    853 
Construction-in-progress   452    - 
Deposits   3    23 
Intangible Assets   190    195 
Operating lease right-of-use asset   158    153 
Total assets  $2,307   $3,555 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable  $436   $947 
Accrued expenses and other current liabilities   117    14 
Lease liability, current portion   36    36 
Note payables   -    70 
Total current liabilities   589    1,068 
           
Lease liability, net of current portion   122    116 
Total liabilities   711    1,184 
           
Shareholders’ equity          
Preferred shares, no par value – unlimited authorized, 0 shares issued and outstanding   -    - 
Common shares, no par value - unlimited authorized, 6,188,754 and 5,804,254 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   4,358    6,273 
Additional paid-in capital   196    276 
Accumulated deficit   (2,921)   (4,152)
Accumulated other comprehensive loss   (36)   (26)
Total shareholders’ equity   1,596    2,371 
Total liabilities and shareholders’ equity  $2,307   $3,555 

 

 

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RISK FACTORS

 

Investing in our securities involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Prospectus, including our consolidated financial statements, the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 43 of this Prospectus, before deciding to invest in the securities offered by this Prospectus. The occurrence of any of the following risks could have a material and adverse effect on our business, reputation, financial condition, results of operations, and future growth prospects, as well as our ability to accomplish our strategic objectives. As a result, the trading price of our Common Shares could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and the trading price of our Common Shares. Certain statements contained in this section constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” on page 36 of this Prospectus.

 

Risks Related to Our Limited Operating History, Financial Position and Capital Needs

 

We have a limited operating history and a history of net losses, and we may not achieve or maintain profitability in the future.

 

We have a very limited history of operations and are considered an early stage company. We were formed in January 2021. Although this Prospectus includes audited financial statements for the period from January 21, 2021 (inception) through December 31, 2021, and unaudited financial statements for the three months ended March 31, 2022, we commenced our commercial operations in March 2022. As such, there is very limited financial information about us and such information has been supplemented with other relevant information disclosed in this Prospectus so as to enable an investor to make an informed investment decision. We are subject to many risks common to such enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial, and other resources, and lack of revenues, as well as significant competition from existing and emerging competitors, many of which are established and have access to capital. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. We will need to transition from an early stage company to a company capable of supporting larger scale commercial activities. If we are not successful in such a transition, our business, results, and financial condition will be harmed.

 

Although we expect to become profitable, there is no guarantee that will happen, and we may never become profitable. We currently have a negative operating cash flow and may continue to have that for the foreseeable future. For the period from January 21, 2021 (inception) through March 31, 2022, our net loss from operations is $4,151,645. To date, we have generated limited revenues. As a result, our net losses from operations may worsen. Our ability to generate increased revenues and potential to become profitable will depend largely on our ability to manufacture and market our products. There can be no assurance that any such events will occur or that we will ever become profitable. Even if we do achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time, we may be unable to continue our business.

 

We will need additional financing to continue to sustain operations at this time.

 

Our operating cash flow is insufficient to fund all of our operational needs and we will require additional financing to continue our operations. There can be no assurance that such financing will be available on favorable terms or at all. Failure to obtain additional financing could result in delay or indefinite postponement of the deployment of our products. Additional financing may dilute the ownership interest of our shareholders at the time of the financing, and may dilute the value of their investment in our Common Shares. After taking into account the proceeds of this offering, we anticipate that our current cash reserves will last in excess of twelve months under our present operating expectations.

 

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We may face difficulties obtaining additional financing, and additional financing may result in further dilution.

 

We anticipate expending substantial funds to carry out the development, introduction, distribution, and manufacture of our products. We may require additional funds for these purposes through one or more public or private financing transactions. No assurance can be given that such additional funds will be available on acceptable terms or at all. Additionally, U.S. banks often refuse to provide banking services to businesses involved in the psilocybin industry because of the present state of the laws and regulations governing financial institutions in the United States, which discourage the provision of banking services to companies involved in the research or production of controlled substances. Consequently, in comparison to companies in other industries, we may face increased difficulties in obtaining financing from U.S. banks due to the nature of our business. If such funds are unavailable or are only available at a prohibitive cost, we may have to significantly curtail our product development program or seek funds through financing alternatives, including equity financing. Any additional equity financing may result in dilution to existing shareholders.

 

There is substantial doubt about our ability to continue as a going concern.

 

We currently generate limited revenue, and accordingly we are primarily dependent upon financing transactions to obtain additional funds for product development and operating expenses. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2021, included an explanatory paragraph expressing management’s assessment and conclusion that there is substantial doubt about our ability to continue as a going concern, citing our significant working capital deficiency and our significant losses. Our ability to continue as a going concern will be determined by our ability to generate sufficient cash flow to sustain our operations and/or raise additional capital in the form of debt or equity financing. Delays in obtaining the capital, onerous terms for the capital, or a failure to raise additional capital could have a material negative impact on our business or plans of operations. We believe that the inclusion of a going concern explanatory paragraph in the report of our registered public accounting firm may make it more difficult for us to secure additional financing or enter into strategic relationships with distributors on terms acceptable to us, if at all, and likely will materially and adversely affect the terms of any financing that we might obtain. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

We face general risks common to early stage companies, including ongoing requirements for additional capital.

 

Our securities must be considered highly speculative due to the nature of our business, the early stage of our deployment, current financial position, and ongoing capital. An investment in our Common Shares should only be considered by those persons who can afford a total loss of investment, and is not suited to those investors who may need to dispose of their investment in a timely fashion. Investors should consult with their own professional advisors to assess the legal, financial, and other aspects of an investment in our Common Shares.

 

We may be exposed to financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates.

 

We may be adversely affected by foreign currency fluctuations. Our functional currency is the Canadian dollar, but the functional currency of our operating company in the United States is the U.S. dollar. To date, we have been primarily funded through issuances of equity that have been denominated in Canadian dollars. However, a significant portion of our expenditures are paid in U.S. dollars, and we are, therefore, subject to foreign currency fluctuations that may, from time to time, impact our financial position and results of operations.

 

We will incur significant costs during the transition to a public company, and face ongoing costs of maintaining a public listing.

 

We expect this offering will have a significant transformative effect on us. We expect to incur significant additional legal, accounting, reporting, and other expenses as a result of being a public company. We will also incur new costs related to being a public company that we have not incurred previously, including, but not limited to, costs and expenses for managing directors’ and supervisory directors’ fees, increased directors and officers insurance, investor relations, and various other costs of a public company.

 

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We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, laws, regulations, and requirements relating to becoming a reporting issuer in Alberta, Canada, as well as rules implemented by the Securities and Exchange Commission (the “SEC”) and the Nasdaq Stock Market, LLC (“NASDAQ”). We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time consuming and costly. These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to retain, recruit, and bring on a qualified independent supervisory board. We expect that the additional costs we will incur as a public company, including costs associated with corporate governance requirements, will be considerable relative to our costs as a private company.

 

The transition to a public company may disrupt and have a negative effect on our regular operations.

 

The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition, and results

 

Our management team’s financial projections are based on assumptions and estimates that may be inaccurate.

 

Our actual financial position and results of operations may differ materially from management’s expectations. We may experience changes in our operating plans and certain delays with respect to our operating plans. As a result, our revenue, net income and cash flow may differ materially from our projected revenue, net income, and cash flow. The process for estimating our revenue, net income, and cash flow requires the use of judgment in determining the appropriate assumptions and estimates. These estimates and assumptions may be revised as additional information becomes available and as additional analyses are performed. In addition, the assumptions used in planning may not prove to be accurate, and other factors may affect our financial condition or results of operations.

 

Risk Related to Our Products and Business

 

We face significant ongoing costs and obligations related to developing our business and products, and these costs may increase in the future, which may result in significant losses.

 

We expect to incur significant ongoing costs and obligations related to developing our business and products, which could have a material adverse impact on our results of operations, financial condition, and cash flows. In addition, future changes in regulations, more vigorous enforcement thereof, or other unanticipated events could require extensive changes to our operations, increased compliance costs, or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this Prospectus, and unforeseen expenses, difficulties, complications and delays, and other unknown events. If we are unable to achieve and sustain profitability, the market price of our Common Shares may significantly decrease.

 

We have incurred substantial expenses related to the development and initial operations of our business and we may never become profitable, earn revenues, or pay dividends.

 

There is no assurance that we will be profitable, earn revenues or pay dividends. We have incurred, and anticipate that we will continue to incur, substantial expenses relating to the development and initial operations of our business. The payment and amount of any future dividends will depend upon, among other things, our results of operations, cash flow, financial condition, and operating and capital requirements. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividends.

 

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As our operating expenses increase, we may not be able to generate revenue growth or sustain any revenue growth that we achieve.

 

There can be no assurance that we can generate revenue growth, or that any revenue growth that is achieved can be sustained. Revenue growth that we may achieve may not be indicative of future operating results. In addition, we may further increase operating expenses in order to fund higher levels of research and development, increase sales and marketing efforts and increase administrative resources in anticipation of future growth. To the extent that increases in such expenses precede or are not subsequently followed by increased revenues, our business, operating results, and financial condition will be materially adversely affected.

 

The functional-mushroom and psilocybin industries are new in the United States, and the industries and markets may not continue to exist or develop as anticipated or we may ultimately be unable to succeed as anticipated in these industries and markets.

 

We operate our business in a new industry and market. There is no assurance we will be able to derive meaningful revenue from our investment in functional or psychedelic mushrooms, or that we will pursue that business to the extent currently proposed or at all. In addition to being subject to general business risks, we must continue to build brand awareness in this industry and market through significant investments in our strategy, production capacity, quality assurance, and compliance with regulations. In addition, there is no assurance that the industry and market will continue to exist and grow as currently estimated or function and evolve in the manner consistent with management’s expectations and assumptions. Any event or circumstance that adversely affects our industry and market could have a material adverse effect on our business, financial conditions, and results of operations.

 

Psilocybin is highly regulated at the federal and state level, and authorizations for the production of psilocybin are still in the early stages and we may not receive the required approvals.

 

Psilocybin is a Schedule I controlled substance under the CSA. Even in U.S. states or territories that have decriminalized psilocybin to some extent, unless specific authority is obtained from the DEA, the propagation, possession, and sale of psilocybin all remain violations of U.S. federal law punishable by imprisonment, substantial fines and forfeiture. To obtain federal authority to grow or manufacture psilocybin for federally sanctioned research and other limited purposes, one must receive a permit from the DEA and meet certain requirements imposed by the DEA. The registration process to manufacture controlled substances is codified under 21 U.S.C. § 823. It requires that the U.S. Attorney General determine whether registrations are in the public interest; to do so, the U.S. Attorney General is directed to consider multiple factors, including “compliance with applicable State and local law.”

 

Research involving controlled substances in the State of Washington requires participating individuals to register with both the DEA and the WDOH. Applicants must obtain a controlled substance researcher registration from the WDOH prior to registering with the DEA. Chris L. Claussen, our Chief Innovation Officer, submitted a controlled substance researcher application with the WDOH in order for FP, Inc. to conduct psilocybin research, with such application listing FP, Inc.’s Olympia, Washington, facility as the research lab location. If the WDOH registration is granted, then FP, Inc. intends to utilize such registration to apply for licensure with the DEA to make our current facility in Olympia, Washington, a licensed psilocybin facility.

 

We may not be successful in obtaining the necessary approvals from the WDOH or the DEA. If we are successful in obtaining such approvals, we will be subject to strict regulations from both the State of Washington and the DEA relating to security, recordkeeping, reporting, and inventory controls to prevent drug loss and diversion. The licenses from the WDOH and the DEA, if successfully obtained, will only be provided on an annual basis and we may not be successful in renewing such licenses each subsequent year. The failure to obtain the necessary approvals to conduct psilocybin research, or the renewal of such approvals if obtained, could have a material adverse effect on our business, financial conditions, and results of operations.

 

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The dynamic nature of the laws and regulations affecting the psilocybin market, including the federal authorization of psilocybin, or the state-regulated psilocybin industry, could materially adversely affect our proposed operations, and we cannot predict the impact that future regulations may have on us.

 

Local, state, and federal psilocybin laws and regulations have been evolving rapidly and are subject to varied interpretations, which could require us to incur substantial costs associated with compliance or negatively impact, and accordingly cause us to alter, our business plan, which could require further costs and negatively impact our business and future results of operations. We can know neither the nature of any future laws, regulations, interpretations or applications nor how additional governmental regulations or administrative policies and procedures, when and if promulgated, could impact our business. For example, if psilocybin is no longer illegal under federal law, and depending on future laws or guidance on psilocybin for research, we may experience a significant increase in competition. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations or any failure by us to comply with these laws or regulations could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us, or otherwise adversely affect our business.

 

A denial of, or significant delay in obtaining, or any interruption of required government authorizations to produce psilocybin for federally sanctioned purposes would likely have a significant negative impact on the Company.

 

While psilocybin is not an illegal drug under the Jamaica Drug Act and we intend to grow, research, and distribute psychedelic mushrooms in Jamaica through TruMed, a portion of our business plan in the United States depends on receiving the necessary state and federal authorizations to research and produce psilocybin for federally sanctioned purposes. Our Company may not commence psilocybin propagation operations in the United States until both the WDOH and the U.S. federal government, in particular the DEA, have signed off that the Company has met its obligations under state law and is compliance with all applicable DEA regulations. There is no guarantee that we will receive the necessary approvals from either the WDOH or the DEA.

 

For drugs manufactured in the United States, the DEA establishes annually an aggregate quota for the amount of substances within Schedules I and II that may be manufactured or produced in the United States based on the DEA’s estimate of the quantity needed to meet legitimate medical, scientific, research, and industrial needs. The DEA also issues individual production quotas for Schedule I Controlled Substance registrants. These quotas may only be adjusted once per year, at the DEA’s sole discretion. The DEA’s quotas may limit our ability to achieve revenue goals, even if we are able to obtain DEA Controlled Substance Research and/or Manufacturing registrations.

 

Operating in a highly regulated business requires significant resources.

 

We intend to operate a highly regulated, vertically integrated business involving psilocybin. As a result, we expect a significant amount of our management’s time and external resources to be used to comply with the laws, regulations, and guidelines that impact our business, and changes thereto, and such compliance may place a significant burden on our management and other resources.

 

Additionally, we may be subject to a variety of laws, regulations, and guidelines in each of the jurisdictions in which we conduct psilocybin activities, which differ among these various jurisdictions. Complying with multiple regulatory regimes will require additional resources and may negatively impact our ability to expand into certain jurisdictions. For example, even if psilocybin were to become legal under U.S. federal law, companies operating in the psilocybin industry would have to comply with all applicable state and local laws, which may vary greatly between jurisdictions, increasing costs for companies that operate in multiple jurisdictions.

 

We compete for market share with other companies, some of which have longer operating histories and may have more financial resources and manufacturing and marketing experience than we have.

 

We face competition in the markets in which we operate. Some of our competitors have longer operating histories and may have more financial resources and manufacturing and marketing experience than we have. Some of our competitors may also be better positioned to develop superior product features and technological innovations and may be able to better adapt to market trends. Our ability to compete depends on, among other things, high product quality, short lead-time, timely delivery, competitive pricing, range of product offerings, and superior customer service and support. Increased competition may require us to reduce prices or increase costs and may have a material adverse effect on our financial condition and results of operations. Any decrease in the quality of our products or level of service to customers or any occurrence of a price war among our competitors and us may adversely affect the business and results of operations.

 

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We may expend substantial time and financial resources on potential acquisitions of other companies and such acquisitions may not be completed or successful.

 

Our success will depend, in part, on our ability to grow our business in response to the demands of consumers and other constituents within the functional mushroom and psychedelics industry as well as competitive pressures. In some circumstances, we may decide to grow our business through the acquisition of complementary businesses rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly and we may not be able to successfully complete identified acquisitions. In addition, we may not realize the expected benefits from completed acquisitions. Our failure to address risks encountered in connection with any future acquisitions or investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities and harm our business generally. Future acquisitions could also result in the incurrence of debt, contingent liabilities, amortization expenses, or the impairment of goodwill, any of which could harm our financial condition.

 

The psychedelics industry is in a nascent stage so there is a lack of information about the business models of comparable companies and the potential market size.

 

Because the legal psychedelics industry is in a nascent stage, there is a lack of information about comparable companies available for potential investors to review in deciding about whether to invest in our securities, and few, if any, established companies whose business model we can follow or upon whose success we can build. Accordingly, investors will have to rely on their own estimates in deciding about whether to invest in our securities. There can be no assurance that our estimates are accurate or that the market size is sufficiently large for our business to grow as projected, which may negatively impact our financial results.

 

Our ability to cultivate and/or acquire mushrooms for our products is subject to risks inherent in agricultural operations.

 

Our products are derived from mushrooms. Accordingly, we must grow enough mushrooms so that our products can be produced to meet the demand of our customers. Even with the procedures and protections we have put in place, a poor harvest could result in loss of sales and damage our business and results of operations. Agricultural products are vulnerable to climate change, crop disease, natural disaster, and pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. Unfavorable growing conditions caused by these factors can reduce both crop size and crop quality and, in extreme cases, entire harvests may be lost, which would negatively impact our business and results of operations. Additionally, there could be difficulties with the first crop or harvest in any new facility.

 

There are many factors that could impact our ability to attract and retain customers, including that we may not be able to develop as many psilocybin or functional mushroom products, or crops of the consistency or quality that we expect, which could have a negative adverse effect on our business plan and profitability.

 

Our success depends on our ability to attract and retain customers, but we face competition in obtaining customers for our psilocybin and nutraceutical materials and products. There are many factors that could impact our ability to attract and retain customers, including our ability to compete based on price, produce high quality or consistent crops, continually produce desirable and effective products that are superior to others in the market, and implement our customer acquisition plan, as well as maintain continued growth in the aggregate number of potential customers. Competition for customers may result in increasing our costs while also lowering the market prices for our products and reduce our profitability. If we are not successful in attracting and retaining customers, we may fail to be competitive or achieve profitability or sustain profitability over time.

 

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As a result of changing customer preferences, products may attain financial success for a limited period of time. Even if we are successful in introducing new products, a failure to gain consumer acceptance or to update products with compelling attributes could cause a decline in our products’ popularity that could reduce revenues and harm our business, operating results and financial condition. Failure to introduce new products or product types and to achieve and sustain market acceptance could result in our being unable to meet consumer preferences and generate revenue, which would have a material adverse effect on our profitability and financial results from operations.

 

We currently have a limited number of contemplated products, and have limited financial and management resources, and, as a result, we may forego or delay our development of planned or other products. Our resource allocation decisions may cause us to fail to capitalize on profitable market opportunities. If we are unsuccessful in developing the contemplated or additional products, our business may be harmed.

 

Our business relies on the production and distribution of mushroom related products, and such products may not maintain or grow their market acceptance.

 

Our business is focused on the production and distribution of mushrooms and related products. If such products do not maintain or grow their market acceptance, it will be difficult for us to achieve profitability. Our revenues are expected to derive almost exclusively from sales of mushroom based products, and we expect that our mushroom based products will account for substantially all of our revenue for the foreseeable future. If the mushroom market declines or mushrooms fail to achieve substantially greater market acceptance than they currently enjoy, we may not be able to grow our revenues sufficiently for us to achieve consistent profitability. Even if our products conform to international safety and quality standards, sales could be adversely affected if consumers in target markets lose confidence in the safety, efficacy, and quality of mushrooms. Adverse publicity about mushroom based products that we sell may discourage consumers from buying products distributed by us.

 

We may not be successful in developing and commercializing our products, or may not be able to do so at acceptable costs.

 

If we cannot successfully develop, manufacture, sell, and distribute our products, or if we experience difficulties in the development process, such as capacity constraints, quality control problems, or other disruptions, we may not be able to develop market-ready commercial products at acceptable costs, which would adversely affect our ability to effectively enter the market. A failure by us to achieve a low-cost structure through economies of scale or improvements in cultivation and manufacturing processes would have a material adverse effect on our commercialization plans and our business, prospects, results of operations, and financial condition. If there is a shift in consumer demand, we must meet such demand through new and innovative products or else our business may fail.

 

A significant failure or deterioration in our quality control systems could have a material adverse effect on our business and operating results.

 

The quality and safety of our products are critical to the success of our business and operations. As such, it is imperative that our (and our service providers’) quality control systems operate effectively and successfully. Quality control systems can be negatively impacted by the design of the quality control systems, the quality training programs and adherence by employees to quality control guidelines. Although we strive to ensure that all of our service providers have implemented and adhere to high-quality control systems, any significant failure or deterioration of such quality control systems could have a material adverse effect on our business and operating results.

 

We may experience breaches of security at our facilities or loss as a result of the theft of our products.

 

Given the nature of psilocybin and its lack of legal availability outside of government approved channels, and despite meeting or exceeding applicable security requirements, there remains a risk of security breach as well as theft. A security breach at one of our facilities could result in a significant loss of available products, expose us to additional liability under applicable regulations and to potentially costly litigation or increase expenses relating to the resolution and future prevention of these breaches and may deter potential customers from choosing our products, any of which could have an adverse effect on our business, financial condition and results of operations.

 

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We are subject to liability arising from any fraudulent or illegal activity by our employees, contractors and consultants.

 

We are exposed to the risk that our employees, independent contractors and consultants may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless, or negligent conduct or disclosure of unauthorized activities to us that violate (i) government regulations, (ii) manufacturing standards, (iii) federal, state or local healthcare fraud and abuse laws and regulations, or (iv) laws that require the true, complete and accurate reporting of financial information or data. It is not always possible for us to identify and deter misconduct by our employees and other third parties, and the precautions taken by us to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any actions are brought against us, including by former employees, independent contractors and consultants, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment of our operations, any of which would have an adverse effect on our business, financial condition and results from operations.

 

Our production equipment may be damaged, adversely affecting our ability to meet consumer and wholesale demand.

 

All of our products are produced at our manufacturing facility in Olympia, Washington. A significant disruption at that facility or to any of our key production equipment, even on a short-term basis, could impair our ability to timely produce and ship products, which could have a material adverse effect on our business, financial position and results of operations. Our manufacturing operations are vulnerable to interruption and damage from natural and other types of disasters, including earthquake, fire, floods, volcanic events, draughts, environmental accidents, winter storms, power loss, disease outbreaks or pandemics such as the recent COVID-19 pandemic, communications failures, and similar events. If any disaster were to occur at our facilities, our ability to operate our business at our facilities would be seriously impaired.

 

Regulations and evolving legislation governing issues involving climate change and sustainability could result in increased operating costs, which could have a material adverse effect on our business, and the potential physical impacts of climate change on our operations are highly uncertain.

 

A number of international, federal, state, or local governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impact of climate change. For example, the U.S. Environmental Protection Agency (“EPA”) issued a notice of finding and determination that emissions of carbon dioxide, methane, and other greenhouse gases (“GHGs”) present an endangerment to human health and the environment, which allowed the EPA to begin regulating emissions of GHGs under existing provisions of the Clean Air Act. Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring, permitting, reporting, and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas and countries not subject to such limitations. Given the political significance, regulatory or compliance obligations, and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance, and ability to compete. The potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These impacts may adversely impact the cost, production, and financial performance of our operations.

 

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We may encounter disruptions or delays in the expansion and construction of our facilities, which may impair our ability to grow and produce our own mushroom products for distribution.

 

In order to increase production capacity, we are currently constructing additional capacity for cultivating mushrooms at our facility in Olympia, Washington. Chris L. Claussen, our Chief Innovation Officer, submitted a controlled substance researcher application with the WDOH in order for FP, Inc. to conduct psilocybin research legally under state and federal law, with such application listing FP, Inc.’s Olympia, Washington, facility as the research lab location. If the WDOH registration is approved, then we intend to apply for a DEA license to make our current facility in Olympia, Washington, a licensed psilocybin facility. In addition, we intend to expand operations into a larger facility to increase our functional mushroom production capacity in the future. Commercial construction and expansion of operations involves a number of risks and uncertainties, certain of which are outside our control. Any disruption or delay in the construction of facilities, expansion of operations, or in obtaining either a WDOH or DEA license to legally grow psilocybin mushrooms in the United States may impair or impede our ability to grow functional or psychedelic mushrooms and manufacture products for distribution.

 

We are subject to several risks in connection with the construction of our facilities, including the availability and performance of engineers and contractors, suppliers and consultants, the availability of funding, and the receipt of required governmental approvals, licenses and permits, and the projected timeline for construction, which could change due to delays. Any delay in the performance of any one or more of the contractors, suppliers, consultants or other persons on whom we are dependent in connection with our construction activities, a delay in or failure to receive the required governmental approvals, licenses and permits in a timely manner or on reasonable terms, or a delay in or failure in connection with the completion and successful operation of the operational elements in connection with construction could delay or prevent the construction of the additional phases of the facilities as planned. There can be no assurance that current or future construction plans implemented by us will be successfully completed on time, within budget and without design defect, that the necessary personnel and equipment will be available in a timely manner or on reasonable terms to complete construction projects successfully, that we will be able to obtain all necessary governmental approvals, licenses and permits, or that the completion of the construction, the start-up costs and the ongoing operating costs will not be significantly higher than anticipated by us. Any of the foregoing factors could adversely impact our operations and financial condition.

 

We are subject to risks associated with leasing and occupying real property and the inability to extend, renew, or continue to lease real property in key locations could harm our business, profitability, and results of operations.

 

The lease for our facility in the Olympia, Washington, is set to expire in 2023, subject to renewal options (see “Properties” on page 63 of this Prospectus). Accordingly, we are subject to the risks associated with leasing, occupying, and making tenant improvements to real property, including, among others, changes in availability of, and contractual terms for, leasable manufacturing space, as well as potential liability for environmental conditions or various other claims. If demand increases, we may also need to expand into other facilities in order to increase our production capabilities. When our lease expires or when we need to expand into other facilities, we may be unable to negotiate leases or renewals, either on commercially acceptable terms or at all, which could impact our ability to manufacture our products or deliver them to the market, which in turn could harm our business, profitability and results of operations.

 

We may be vulnerable to rising energy costs.

 

Psilocybin and functional mushroom growing operations consume considerable energy, which makes us vulnerable to rising energy costs and/or the availability of stable energy sources. Accordingly, rising or volatile energy costs or the inability to access stable energy sources may have a material adverse effect on our business, financial condition and results of operations.

 

Environmental risks may adversely affect our business.

 

Cultivation and production activities may be subject to licensing requirements relating to environment regulation. Environmental legislation is evolving in such a manner that may result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The application of environmental laws to our business may cause us to increase the costs of our cultivation, production or scientific activities. Unanticipated licensing delays can result in significant delays and cost overruns in our business and could affect our financial condition and results of operations. There can be no assurance that these delays will not occur.

 

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We will rely on a third party co-packer for certain product components and other third-parties for the packaging material for our products, and there is no guarantee that the relationships with the co-packers or packaging companies will continue or that the co-packer or packaging companies will deliver goods on a timely basis.

 

We will rely on a third party co-packer to provide microbeads utilized in our products, and other third party companies for the packaging materials for our products. While we have identified other potential suppliers who can supply similar microbeads, we do not currently own and do not plan to develop in-house manufacturing capabilities for these microbeads, and will be reliant on third-party suppliers for microbeads now and going forward. We also do not manufacture our packaging materials for our products and are reliant on third-party packaging companies for these materials. While other packaging companies exist which could provide these packaging materials for our products, locating and changing suppliers could result in product delivery delays to potential customers, which could materially harm our business and results of operations. This co-packer and these packaging companies are third parties over which we have little or no control, and with which we do not have any long-term agreements. The failure of the co-packer to continue to provide the microbeads or to deliver products on a timely basis, or the failure of the third party packaging companies to provide packaging materials, or the termination of our relationship with any of these parties could have a material adverse effect on our business, financial condition, and operating results.

 

We are dependent on third parties to supply materials used in our products and packaging, and any interruption or failure by these suppliers or other disruptions to our supply chain may have a material adverse effect on our business, financial condition, results of operations, and cash flows.

 

Our ability to make, move, and sell our products is critical to our success. Damage or disruption to our supply chain, including third party manufacturing, assembly, or transportation capabilities, due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics (such as the COVID-19 pandemic), strikes, government action, or other reasons beyond our control or the control of our suppliers and business partners, could impair our ability to manufacture or sell our products. Further, we rely on third parties to supply materials used in our products and packaging. Any interruption or failure by our suppliers or other partners to meet their obligations on schedule or in accordance with our expectations, which, in each case, could be the result of one or many factors outside of our control, could delay or prevent the manufacture or commercialization of our products, disrupt our operations, or cause reputational harm to our company, any or all of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. The global supply chain issues caused by the COVID-19 pandemic have impacted our ability to obtain packaging materials for our products, and we were forced to delay the launch of our consumer packaged goods because of a delay in our initial orders for packaging samples from suppliers in China. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events when they occur, could adversely affect our business or financial results.

 

The ongoing labor shortage, or an increase in its severity, may result in delays in receiving materials from our third party suppliers or an increase in the cost of sourcing materials and producing products.

 

We rely on third party suppliers for materials used in our products and packaging. Our third party suppliers may face difficulties in meeting their obligations on schedule or in accordance with our expectations if they are unable to find sufficient workers as a result of the ongoing labor shortage, caused in part by the COVID-19 pandemic, or an increase in the severity of such labor shortage, which could adversely affect our business or financial results. In addition, we rely in part on our ability to find, hire, and retain capable personnel who can successfully operate our facility in Olympia, Washington, and who can understand, explain, market, and sell our products. The ongoing labor shortage, or an increase in its severity, could result in increased costs related to finding, hiring, and retaining capable personnel, which could adversely affect our business or financial results.

 

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Our financial success will depend on our ability to successfully predict changes in consumer preferences and develop successful new products and marketing strategies in response.

 

Our ability to earn revenues is substantially dependent on the success of our products, which depends upon, among other matters, pronounced and rapidly changing public tastes, and other factors which are difficult to predict and over which we have little, if any, control. Consumer trends change based on many factors, including but not limited to, nutritional values, consumer preferences and general economic conditions. Additionally, there is a growing movement among some consumers to buy local food products in an attempt to reduce the carbon footprint associated with transporting food products from longer distances, and this could result in a decrease in the demand for our food products and ingredients. A shift in consumer demand away from our proposed products or our failure to expand our current market position will harm our business and results of operations.

 

We will be dependent on the popularity and consumer acceptance of our brand.

 

There is no assurance that we will be able to achieve brand awareness in any of our target regions. In addition, we must develop successful marketing, promotional and sales programs in order to sell our products. If we are not able to develop successful marketing, promotional and sales programs, then such failure will have a material adverse effect on our business, financial condition, and operating results.

 

We may face unfavorable publicity or consumer perception.

 

We may depend significantly on consumer perception regarding the safety and quality of our products. Consumer perception of products can be significantly influenced by adverse publicity in the form of published scientific research, media attention, social media, or other publicity, whether or not accurate, that associates consumption of our products or any other similar products with illness or other adverse effects, or questions the benefits of our or similar products or that claims that any such products are ineffective. A new product may initially be received favorably, resulting in high sales of that product, but that sales level may not be sustainable as consumer preferences change. Future scientific research or publicity could be unfavorable to our industry or any of our particular products and may not be consistent with earlier favorable research or publicity. Unfavorable research or publicity could have a material adverse effect on our ability to generate sales.

 

We are highly dependent upon consumer perception of mushrooms and mushroom based products. The public may associate our fully legal functional mushroom and nutraceutical products with illegal psychedelic mushrooms, which are prohibited substances in the United States, except under research and related exceptions pursuant to DEA and state registrations in place. Our revenues may be negatively impacted due to the fact the market does not fully accept mushrooms as a food or nutritional product.

 

If the reputation of our brand erodes significantly, it could have a material impact on our results of operations.

 

In certain circumstances, our reputation could be damaged as a result of the actual or perceived occurrence of any number of events, including negative publicity, whether true or not. Widespread adoption of social media and other web-based tools to generate, publish, and discuss user-generated content and to connect with other users has made it increasingly easy for individuals and groups to communicate and share opinions and views regarding us, our products and our activities, whether true or not. Although we believe that we operate in a manner that is respectful to all stakeholders and take care in protecting our image and reputation, we do not ultimately have direct control over how we are perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations, and impede our ability to advance our projects, thereby having a material adverse impact on financial performance, financial condition, cash flows, and growth prospects.

 

We may not be successful in developing a marketing and sales force for the commercialization of our products, or we may incur substantial expenses to do so.

 

In order to commercialize and market our products, we must either acquire or develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities, or arrange for third parties to perform these services. The acquisition or development of a sales and distribution infrastructure would require substantial resources, which may divert the attention of our management and key personnel, and defer our product development and deployment efforts. To the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of others. These efforts may not be successful. If we fail to develop substantial sales, marketing and distribution channels, or to enter into arrangements with third parties for those purposes, we will experience delays in product sales and incur increased costs.

 

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We may be unable to adequately protect our brand and our other intellectual property rights.

 

Our ability to compete effectively will depend, in part, on our ability to maintain the proprietary nature of our brand and product, and processes and methodologies used to create our products. We have adopted procedures to protect our intellectual property and maintain the secrecy of our confidential business information and trade secrets. However, there can be no assurance that such procedures will afford complete protection of such intellectual property, confidential business information, and trade secrets. There can be no assurance that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. We have trademark applications for our key names and phrases, and two pending patents for innovations related to our products. We have only filed provisional patent applications, which help protect inventions for a twelve-month period while a formal patent application is being filed. The patent process can take up to twenty-four months or longer to complete and can be challenged during the process. At this time, we cannot state whether the patent applications will be approved, refused, and/or ultimately registered. In addition, our trademark, patent, and other intellectual property rights and related registrations may be challenged in the future and could be cancelled or narrowed.

 

Failure to protect our trademark rights could prevent us in the future from challenging third parties who use names and logos similar to our trademarks, which may in turn cause consumer confusion or negatively affect consumers’ perception of our brand and products. Our patent applications may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage. In addition, if we do not keep our trade secrets confidential, others may produce products with our recipes or formulations. Intellectual property disputes and proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liabilities, force us to cease use of certain trademarks or other intellectual property, or force us to enter into licenses with others. Any one of these occurrences may have a material adverse effect on our business, results of operations and financial condition.

 

If we are unable to protect the confidentiality of our trade secrets, the value of our proprietary processes could be materially adversely affected and our business would be harmed.

 

We consider proprietary trade secrets, confidential know-how, and unpatented know-how to be important to our business. We may rely on trade secrets and confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and confidential know-how are difficult to protect. We seek to protect our confidential proprietary information, in part, by entering into confidentiality agreements with parties who have access to them, including our employees. However, we cannot be certain that such agreements have been entered into with all relevant parties that may have or have had access to our trade secrets.

 

We may not be able to enforce our intellectual property rights throughout the world.

 

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop the infringement or misappropriation of our intellectual property rights. The loss of the First Person brand or logo or other registered or common law trade names or a diminution in the perceived quality of products or services associated with our Company would harm our business. Our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

 

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Third parties may assert that we, our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information or misappropriated trade secrets.

 

Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

Our internal computer systems may fail or suffer security breaches, which could result in a significant disruption of our product development programs and our ability to operate our business effectively.

 

Our internal computer systems may fail or suffer damage due to computer viruses, unauthorized access, natural disasters, terrorism, war, or telecommunication and electrical failures. Cyber-attacks are increasing in their frequency, sophistication, and intensity, and have become increasingly difficult to detect. Cyber-attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information. Cyber-attacks also could include phishing attempts or e-mail fraud to cause payments or information to be transmitted to an unintended recipient.

 

While we have not experienced any significant system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. Additionally, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding our employees, could harm our reputation, cause us not to comply with federal and/or state breach notification laws and foreign law equivalents, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. Security breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.

 

Our ability to produce and sell our products is dependent on compliance with regulatory and other requirements.

 

The processing, manufacturing, packaging, labeling, advertising, and distribution of our planned products is subject to regulation by one or more governmental authorities, and various agencies of the federal, state, and localities in which our products are sold. These governmental authorities may attempt to regulate any of our products that fall within their jurisdiction. Our functional mushrooms that we supply to other businesses will be subject to regulation by the USDA and the FDA. Our nutraceutical products will be subject to regulation by the USDA, the FDA, and the FTC. Our production and research of psilocybin will require approval from the WDOH and the DEA. We are also required to comply with the regulations and policies promulgated by the EPA and corresponding state agencies.

 

Such governmental authorities may determine that a particular product or product ingredient presents an unacceptable health risk and may determine that a particular statement of nutritional support that we want to use is an unacceptable claim. Such a determination would prevent us from marketing particular products or using certain statements of nutritional support on our products. We also may be unable to disseminate third-party literature that supports our products if the third-party literature fails to satisfy certain requirements.

 

In addition, governmental authorities could require us to remove a particular product from the market. Any recall or removal would result in additional costs to us, including lost revenues from any products that we are required to remove from the market, any of which could be material. Any such product recalls or removals could lead to liability, substantial costs, and reduced growth prospects, all of which could be material.

 

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If we are not able to comply with all environmental, health, and safety regulations applicable to our operations and industry, we may be held liable for any breaches of those regulations.

 

Our operations are subject to a variety of environmental, health, and safety laws and regulations in each of the jurisdictions in which we operate. These laws and regulations govern, among other things, air emissions, wastewater discharges, the handling and disposal of hazardous substances and wastes, soil and groundwater contamination, and employee health and safety. We are also subject to laws and regulations governing the handling and disposal of noncompliant products and waste, the handling of regulated material that is included in our products and the disposal of products at the end of their useful life. These laws and regulations have increasingly become more stringent, and we may incur additional expenses to ensure compliance with existing or new requirements in the future. Any failure by us to comply with environmental, health, and safety requirements could result in the limitation or suspension of our operations. We also could incur monetary fines, civil or criminal sanctions, third-party claims or cleanup, or other costs as a result of violations of or liabilities under such requirements. In addition, compliance with environmental, health, and safety requirements could restrict our ability to expand our facilities or require us to acquire costly pollution control equipment or incur other significant expenses.

 

Our reputation could suffer from real or perceived issues involving the labeling or marketing of our products.

 

Products that we sell carry claims as to their origin, ingredients or health benefits, including, by way of example, the use of the term “natural”, “functional”, or “healthy”, or similar synonyms or implied statements relating to such benefits. Although each of the FDA and the USDA has issued statements regarding the appropriate use of the word “natural,” there is no single, United States government regulated definition of the term “natural” for use in the food industry, which is true for many other adjectives common in the better-for-you and functionally-focused food industry. The resulting uncertainty has led to consumer confusion, distrust, and legal challenges. Plaintiffs have commenced legal actions against several food companies that market “natural” products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to genetically modified ingredients. In limited circumstances, the FDA has taken regulatory action against products labeled “natural” but that nonetheless contain synthetic ingredients or components. Should we become subject to similar claims, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value. Any of these events could adversely affect our reputation and brand and decrease our sales, which would have a material adverse effect on our business, financial condition and results of operations.

 

The laws, regulations, and guidelines generally applicable to psilocybin in the United States may change in ways that impact our ability to continue our business as currently conducted or proposed to be conducted.

 

From time to time, U.S. federal, state, or local legislative and governmental authorities may impose additional or more stringent laws or regulations that could apply to us, our business and products, repeal laws or regulations that we consider favorable to us, or impose more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals, or interpretations or to predict the effect that additional governmental regulation, when and if it occurs, would have on our business in the future. Those developments could prohibit the sale and marketing of ingredients and products or require reformulation of products to meet new standards, recalls or discontinuance of products (including products that we sell). Further, we may be subject to requirements for reformulation, labeling, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, quality control requirements, adverse event reporting, or other requirements. Any developments of this nature could increase our costs significantly and could have a material adverse effect on our business, financial condition, and results of operations.

 

Psilocybin is currently classified as a Schedule I controlled substance under the CSA. If psilocybin and/or psilocin, other than the FDA-approved formulation, is rescheduled under the CSA as a Schedule II or lower controlled substance (i.e., Schedule III, IV, or V), the ability to conduct research on psilocybin and psilocin would most likely be improved. However, rescheduling psilocybin and psilocin may materially alter enforcement policies across many federal agencies, primarily the FDA and DEA. The FDA is responsible for ensuring public health and safety through regulation of food, drugs, supplements, and cosmetics, among other products, through its enforcement authority pursuant to the FDCA. The FDA’s responsibilities include regulating the ingredients as well as the marketing and labeling of drugs sold in interstate commerce. Because it is currently illegal under federal law to produce and sell psilocybin and psilocin, and because there are no federally recognized medical uses, the FDA has historically deferred enforcement related to psilocybin and psilocin to the DEA. If psilocybin and psilocin were to be rescheduled to a federally controlled, yet legal, substance, the FDA would likely play a more active regulatory role. The DEA would continue to be active in regulating manufacturing, distribution, and dispensing of such substances. There is no guarantee that our future psilocybin products would be able to meet any new FDA regulations or interpretations of the law, which could inhibit our business prospects even in the case that the federal government were to legalize psilocybin. The potential for multi-agency enforcement post-rescheduling could threaten or have a materially adverse effect on our business.

 

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The failure to comply with any of the above applicable regulations, regulatory authorities, or other requirements may result in civil or criminal penalties, recall or seizure of products, injunctive relief including partial or total suspension of production, or withdrawal of a product from the market.

 

We may encounter difficulties in accessing banking and other financial services due to our involvement in the psilocybin industry.

 

Due to the present state of the laws and regulations governing financial institutions in the United States, banks often refuse to provide banking services to businesses involved in the psilocybin industry. Consequently, businesses involved in the psilocybin industry often have difficulty accessing the U.S. banking system and traditional financing sources. While we currently have a bank account with a U.S. bank, the inability to open bank accounts with certain institutions may make it difficult to operate our business and could make our cash holdings more vulnerable. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies may refuse to process credit card payments due to our involvement in the psilocybin industry. If we are unable or limited in our ability to open or maintain bank accounts, obtain other banking services, or accept credit card and debit card payments, it may be difficult for us to operate and conduct our business as planned.

 

A health or safety issue resulting in litigation against us could harm our business.

 

Health and safety issues related to our products may arise that could lead to litigation or other action against us or to regulation of certain of our product components. We may be required to modify our recipes or packaging and may not be able to do so. In extreme circumstances, we could be required to pay damages that may reduce our profitability and adversely affect our financial condition. Even if these concerns prove to be baseless, the resulting negative publicity could affect our ability to market certain of our products and, in turn, could harm our business and results from operations.

 

Contamination of our products intended for human consumption could result in a product recall or harm our reputation.

 

The sale of products for human consumption involves inherent risks. We could decide to, or be required to, recall products due to suspected or confirmed contamination or product tampering. A product recall could lead to litigation and adversely affect product sales financial condition and results of operation as well as our general reputation in the industry.

 

Our products may be subject to product recalls, withdrawals, or seizures.

 

Manufacturers, producers, and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety, and inadequate or inaccurate labelling disclosure. If any of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention.

 

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Although we have detailed procedures in place for testing our products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if we are subject to recall, our public image could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for our products and could have a material adverse effect on our results of operations and financial condition. Additionally, product recalls may lead to increased scrutiny of our operations by regulatory agencies, requiring further management attention, potential loss of applicable licenses, and potential legal fees and other expenses, which could materially and adversely affect our business, financial condition and results of operations.

 

Because psilocybin is a controlled substance, our products, equipment, and revenues, could be subject to civil or criminal asset forfeiture if we fail to comply with the laws and regulations applicable to psilocybin.

 

Any property owned by participants in the psilocybin industry used in the course of conducting such business, or that is the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture because of the illegality of the psilocybin industry under federal law. Even if the owner of the property is never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture.

 

We face inherent and significant risks related to product liability and similar claims.

 

We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against us could result in increased costs, could adversely affect our reputation with our clients and consumers generally, and could have a material adverse effect on our business, financial condition and results of operations. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our potential products.

 

We may be required to pay for losses or injuries purportedly or actually caused by its products. As we do not yet have any commercial products, we have not been subject to any product liability claims; however we may be subject to such claims in the future, and that liability may exceed the funds available to us.

 

We are highly dependent on our management team, and the loss of any key member of this team may prevent us from implementing our business plan in a timely manner, or at all.

 

Our success is largely dependent on the performance of our directors and officers. There is no assurance we can maintain the services of our directors, officers, or other qualified personnel required to operate our business. In addition, our ability to retain key personnel may be challenged as a result of potential COVID-19 outbreaks or quarantines. The loss of one more of these persons could seriously harm our business and may prevent us from implementing our business plan in a timely manner, or at all.

 

Conflicts of interest may arise between us and our directors and officers as a result of other business activities undertaken by such individuals.

 

Certain of our directors and officers may become associated with other companies in the same or related industries, which may give rise to conflicts of interest. Directors who have a material interest in any person who is a party to a material contract or a proposed material contract with us or our related parties are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, our directors and officers are required to act honestly and in good faith with a view toward our best interests.

 

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We must attract and maintain key personnel or our business could suffer material harm.

 

The loss of certain non-executive employees could have a material adverse effect on our business and results of operations. In addition, an inability to hire, or the increased costs of new personnel, including members of executive management, could have a material adverse effect on our business and operating results. The expansion of marketing and sales of our products will require us to find, hire and retain additional capable personnel who can understand, explain, market and sell our products. There is intense competition for capable personnel in all of these areas and we may not be successful in attracting, training, integrating, motivating, or retaining new personnel, vendors or subcontractors for these required functions. New employees often require significant training and, in many cases, take significant time before they achieve full productivity. As a result, we may incur significant costs to attract and retain contractors, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and may lose new employees to our competitors or other companies before we realize the benefit of the resources we expend in recruiting and training them.

 

We may be unable to manage our growth effectively, which could make it difficult to execute our business strategy.

 

In order to manage growth and change in strategy effectively, we must: (i) maintain adequate systems to meet future customer demands; (ii) expand sales and marketing, distribution capabilities, and administrative functions; (iii) expand the skills and capabilities of our current management team; and (iv) attract and retain qualified employees. While we intend to focus on managing costs and expenses over the long term, we expect to expend substantial resources to support our growth and may have additional unexpected costs. We may not be able to expand quickly enough to exploit potential market opportunities. If we are unable to manage our growth effectively, we may be unable to execute our business plan, which could have a material adverse effect on our business results of operations.

 

Adverse U.S. or international economic conditions, including periods of inflation, could negatively affect our business, financial condition, and results of operations.

 

Consumer spending on nutraceutical products is influenced by general economic conditions and the availability of discretionary income. Adverse U.S. or international economic conditions or periods of inflation or high energy prices may contribute to higher unemployment levels, decreased consumer spending, reduced credit availability, and declining consumer confidence and demand, each of which poses a risk to our business. A decrease in consumer spending or in retailer and consumer confidence and demand for our products could have a significant negative impact on our net sales and profitability, including our operating margins. These economic conditions could cause potential customers or suppliers to experience cash flow or credit problems and impair their financial condition, which could disrupt our business and adversely affect product orders, payment patterns, and default rates and increase our bad debt expense.

 

The COVID-19 pandemic could have a material adverse impact on our business, results of operations, and financial condition.

 

The outbreak of COVID-19, and the subsequent emergence of variant strains of the virus, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods, and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 pandemic is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on our financial results and condition in future periods. However, depending on the length and severity of the pandemic, COVID-19 could: interrupt our operations; increase operating expenses; cause delayed performance of contractual obligations; cause packaging restrictions on shipping; impair our ability to raise funds, depending on the COVID-19 pandemic’s effect on capital markets; adversely affect our supply partners, contractors, customers, and/or transportation carries; and cause changes in our regulatory framework, which may increase competition for the mushrooms and packaging we use or affect our ability to deliver its products to customers—each which could materially affect our business and financial condition.

 

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The continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt our plan of distribution and use of available funds and the timelines, business objectives, or disclosed milestones related thereto, and thus, adversely impact our business, financial condition, results of operations, and prospects. In addition, there can be no assurance that we will not lose members of our workforce or consultants or see our workforce person-hours reduced, or incur increased medical costs as a result of these health risks. It is difficult to predict the impact the COVID-19 pandemic may have on our business in the future, or the price of and demand for our products. It is possible that the COVID-19 pandemic could have a material adverse effect on our business, financial condition, results of operations, and prospects, as well as the market for our securities and/or our ability to obtain financing.

 

Risks Related to Our Common Shares and Warrants

 

Additional issuances of Common Shares or issuances of securities convertible into or exercisable for Common Shares may result in further dilution.

 

In order to finance future operations, we may raise additional funds through the issuance of Common Shares or other securities convertible into or exercisable for Common Shares. We cannot predict the size of future issuances of Common Shares or other securities convertible into or exercisable for Common Shares or the effect, if any, that future issuances will have on the market price of the Common Shares. Any transaction involving the issue of previously unissued Common Shares, or securities convertible into or exercisable for Common Shares, would result in dilution, which may be substantial, to existing holders of Common Shares.

 

The market price for our Common Shares may be volatile, which may affect the price at which you could sell our Common Shares.

 

Securities of small-cap 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. Factors unrelated to our performance that may affect the price of our Common Shares include, but are not limited to:

 

  the extent of analytical coverage available to investors concerning our business may be limited if investment banks with research capabilities do not cover our Common Shares;
     
  lessening in trading volume and general market interest in our Common Shares may affect an investor’s ability to trade significant numbers of our Common Shares; the size of our public float may limit the ability of some institutions to invest in our Common Shares; and
     
  a substantial decline in the price of our Common Shares that persists for a significant period of time could cause our Common Shares to be delisted from the Nasdaq Capital Market, further reducing market liquidity.

 

The market price of our Common Shares at any given time may not accurately reflect our long-term value due to the impacts of events involving one or more of these risks. In addition, securities 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 market price of our Common Shares is affected by many other variables that are not directly related to our success and are, therefore, not within our control. These include other developments that affect the breadth of the public market for our Common Shares and the attractiveness of alternative investments. The effect of these and other factors on the market price of our Common Shares is expected to make our Common Share price volatile in the future, which may result in losses to investors.

 

Warrants are speculative in nature.

 

The Warrants included in this offering do not confer any rights of Common Share ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire our Common Shares at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire Common Shares and pay an exercise price of            per share, at any time prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. Upon exercise of the Warrants, the holder will be entitled to exercise the rights of a shareholder as to the security exercised only as to matters for which the record date occurs after the exercise. Moreover, following this offering, the market value of the Warrants is uncertain and there can be no assurance that the market value of the Warrants will equal or exceed their public offering price. There can be no assurance that the market price of the Common Shares will ever equal or exceed the exercise price of the Warrants, and consequently, whether it will ever be profitable for holders of the Warrants to exercise the Warrants.

 

Sales of substantial amounts of our Common Shares by our existing shareholders in the public market place may have an adverse effect on the market price of our Common Shares.

 

Sales of a large number of our Common Shares in the public markets, or the potential for such sales, could decrease the trading price of our Common Shares and could impair our ability to raise capital through future sales of our Common Shares.

 

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We do not intend to pay dividends on our Common Shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Shares.

 

We intend to retain earnings, if any, to finance the growth and development of our business and do not intend to pay cash dividends on our Common Shares in the foreseeable future, if ever. The payment of future cash dividends, if any, will be reviewed periodically by the Board of Directors and will depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and conditions, and other factors.

 

Our Common Shares, once listed on the Nasdaq Capital Market, may be subject to potential delisting if we do not continue to comply with the listing requirements of the Nasdaq Capital Market.

 

We have applied to list our Common Shares on the Nasdaq Capital Market, under the symbol “FP”. An approval of our listing application by the Nasdaq Capital Market will be subject to, among other things, our fulfilling of all of the initial listing requirements of the Nasdaq Capital Market. There is no guarantee that our Common Shares will be approved for listing on the Nasdaq Capital Market or any other securities exchange. In addition, the Nasdaq Capital Market maintains rules and standards for continued listing, including, without limitation, minimum market capitalization requirements. Failure to maintain our listing (i.e., being de-listed from Nasdaq Capital Market), would make it more difficult for shareholders to sell our Common Shares and more difficult to obtain accurate price quotations for our Common Shares. Any potential or actual de-listing may have significant adverse effects on the price of our Common Shares, our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing.

 

There is a limited trading market for our Common Shares and the Warrants and shareholders may find it difficult to sell our Common Shares and the Warrants.

 

Currently, our Common Shares and the Warrants are not listed on any exchange or quoted on any of the over the counter markets. As a result, investors may find it difficult to sell, or to obtain accurate quotations as to the price of, our Common Shares and the Warrants prior to successful listing with the Nasdaq Capital Market. Even if our Common Shares and the Warrants are listed on the Nasdaq Capital Market, our Common Shares and the Warrants being offered pursuant to this Prospectus may be subject to the “penny stock” rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors. The SEC regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. If we do not obtain or retain a listing on the Nasdaq Capital Market and if the price of our Common Shares is less than $5.00, our Common Shares will be deemed a penny stock. Unless an exception is available, those regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions and high net worth individuals). In addition, the broker-dealer must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. Moreover, broker-dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to transactions prior to sale. Regulations on penny stocks could limit the ability of broker-dealers to sell our Common Shares and the Warrants and thus the ability of purchasers of our Common Shares and the Warrants to sell their securities in the secondary market.

 

We cannot predict the extent to which investor interest in us and our Common Shares will lead to the development or continuance of an active trading market or how liquid that trading market for our Common Shares might become. If an active trading market for our Common Shares does not develop or is not sustained, it may be difficult for investors to sell our Common Shares and the Warrants, particularly large quantities thereof, at a price that is attractive or at all. As a result, an investment in our securities may be illiquid and investors may not be able to liquidate their investment readily or at all when they desire to sell.

 

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There is limited liquidity in our Common Shares, which may adversely affect your ability to sell your Common Shares.

 

The market price of our Common Shares may fluctuate significantly in response to a number of factors, some of which are beyond our control. These factors include, but are not limited to:

 

  developments concerning intellectual property rights and regulatory approvals relating to us;
     
  quarterly variations in our business and financial results or the business and financial results of our competitors;
     
  our ability or inability to generate increases in revenue and profit;
     
  our ability or inability to raise capital, and the terms and conditions associated with any such raising of capital;

 

  developments in our industry and target markets;
     
  the number of market makers who are willing to continue to make a market in our stock and the market or exchange on which they decide to make a market in our stock;
     
  our ability to have our Common Shares listed on the Nasdaq Capital Market; and
     
  general market conditions and other factors, including factors unrelated to our own operating performance.

 

In recent years, the stock market in general has experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme volatility in the price of our Common Shares, which could cause a decline in the value of our Common Shares. Price volatility may be accentuated if trading volume of our Common Shares is low. Any or all of these above factors could adversely affect your ability to sell your Common Shares or the Warrants or to sell at a price that you determine to be fair or favorable.

 

We are a “smaller reporting company” and “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies and emerging growth companies will make our Common Shares less attractive to investors.

 

We are a “smaller reporting company,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including “emerging growth companies” such as, but not limited to, not being required to comply with the auditor 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. Our status as a “smaller reporting company” is determined on an annual basis. We cannot predict if investors will find our Common Shares less attractive or our Company less comparable to certain other public companies because we will rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future financial results may not be as comparable to the financial results of certain other companies in our industry that adopted such standards. If some investors find our Common Shares less attractive as a result, there may be a less active trading market for our Common Shares and our stock price may be more volatile.

 

In connection with this offering, we are concurrently filing a prospectus in Alberta, Canada, in order to become a reporting issuer under applicable securities laws in Alberta, Canada. As a result, we will, thereafter, be required to follow Canadian laws and regulations that are applicable to public Canadian companies, including proxy rules.

 

If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

 

Under Section 404 of the Sarbanes-Oxley Act, a newly public company is not required to comply with either the management or the auditor reporting requirements related to internal control over financial reporting until its second annual report, if applicable.

 

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Further, we intend to qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

  an extended transition period to comply with new or revised accounting standards applicable to public companies; and
     
  an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act.

 

We may take advantage of these provisions until the end of the fiscal year ending after the fifth anniversary of the filing of this registration statement, or such earlier time that we are no longer an emerging growth company and, if we do, the information that we provide shareholders may be different than you might receive from other public companies in which you hold equity. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (ii) the last day of the fiscal year during which the fifth anniversary of this listing occurs; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

 

In addition, if we no longer qualify as an emerging growth company, as an accelerated filer, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

 

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations and lead to a decline in the trading price of our stock.

 

Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

 

In connection with the preparation of our consolidated financial statements for the period from January 21, 2021 (inception) through December 31, 2021, we identified the following material weaknesses in our internal controls:

 

  Due to limited accounting and financial reporting resources, we lack formal processes to identify, update, and assess risks to our financial reporting.
     
  Due to limited accounting and financial reporting resources, certain authorization, approval, and review controls over our financial statements and accounting records have not been implemented or have not been applied consistently. This includes controls over the identification, approval, and disclosure of related party transactions. In certain cases, formal documentation does not exist regarding the design of controls or evidence of implementation of controls, or evidence of occurrence. In addition, our processes lack segregation of duties in certain audit areas.

 

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In order to mitigate these material weaknesses, we have expanded our Board of Directors to include three independent directors (see “Management” beginning on page 64 of this Prospectus) and have established an independent Audit Committee (see “Corporate Governance” beginning on page 67 of this Prospectus).

 

The requirements of being a reporting public company may strain our resources, divert management’s attention, and affect our ability to attract and retain additional executive management and qualified board members.

 

As a reporting public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the Dodd-Frank Act, laws, regulations, and requirements relating to becoming a reporting issuer in Alberta, Canada, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, making some activities more difficult, time-consuming or costly. This will put increased demand on our systems and resources, particularly after we are no longer a “smaller reporting company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and results of operations. As a “smaller reporting company” and “emerging growth company,” as stated above, we receive certain reporting exemptions under the Sarbanes-Oxley Act.

 

Changing laws, regulations, and standards relating to corporate governance and public disclosure create uncertainty for public companies, which increases legal and financial compliance costs and time expenditures for internal personnel. These laws, regulations, and standards are subject to interpretation, which in many cases due to their lack of specificity, their application in practice may evolve over time as regulators and governing bodies provide new guidance. These changes may result in continued uncertainty regarding compliance matters and may necessitate higher costs due to ongoing revisions to filings, disclosures, and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate regulatory or legal proceedings against us and our business may be adversely affected.

 

As a public company under these rules and regulations, we expect that it may make it more expensive for us to hire external auditors to perform requisite outside audited financial statements, as well as obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our Audit Committee and Compensation Committee and could also make it more difficult to attract qualified executive officers.

 

As a result of disclosure of information in this Prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and results of operations.

 

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Canadian law and certain of our executive officers and directors reside outside the United States.

 

We are incorporated under the laws of Alberta, Canada, and our principal executive office is located in Canada. In addition, certain of the directors and officers of the Company are residents of Canada or other jurisdictions outside of the United States, and all or a substantial portion of the assets of those directors and officers are or may be located outside the United States. As a result, it may be difficult or not possible for investors in the United States to effect service of process within the United States upon us, our officers, or our directors, or to enforce against us, our officers, or our directors judgments of U.S. courts based upon civil liability under the U.S. federal securities laws or the securities laws of any state within the United States. There is doubt as to the enforceability in Canada against us, our officers, or our directors in original actions or in actions for enforcement of judgments of U.S. courts of liabilities based solely upon the U.S. federal securities laws or the securities laws of any state within the United States.

 

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Our amended and restated articles of incorporation and amended and restated bylaws contain provisions that could delay, discourage, or prevent a takeover attempt even if a takeover attempt might be beneficial to our shareholders, and such provisions may adversely affect the market price of our Common Shares.

 

Provisions contained in our amended and restated articles of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire us. Our amended and restated articles of incorporation and amended and restated bylaws also impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. For example, our amended and restated articles of incorporation authorizes our Board of Directors to determine the rights, preferences, privileges, and restrictions of unissued series of preferred shares without any vote or action by our shareholders. Thus, our Board of Directors can authorize and issue preferred shares with voting or conversion rights that could adversely affect the voting or other rights of holders of our Common Shares. These rights may have the effect of delaying or deterring a change of control of our company. Additionally, for example, our amended and restated bylaws include advance notice requirements for nominations for election to our Board of Directors and for proposing matters that can be acted upon at shareholder meetings.

 

In addition, our company is subject to the laws of Alberta, Canada, which laws contain certain provisions that could make it more difficult for a third party to acquire us, including that (i) our Board of Directors is expressly authorized to adopt, or to alter or repeal, our amended and restated bylaws, subject to a shareholder ratification requirement by ordinary resolution at the next meeting of shareholders, and (ii) the ability to remove our directors and the ability of our shareholders to call special meetings of shareholders are subject to certain limitations.

 

See “Description of Share Capital—Anti-Takeover Effects of Provisions of Our Amended and Restated Articles of Incorporation, Our Amended and Restated Bylaws, and Alberta Law” beginning on page 80 of this Prospectus. These provisions could limit the price that certain investors might be willing to pay in the future for our Common Shares and the Warrants.

 

Our amended and restated bylaws provide that any derivative actions, actions relating to breach of fiduciary duties, and other matters relating to our internal affairs will be required to be litigated in Alberta, Canada, which could limit investors’ ability to obtain a favorable judicial forum for disputes with us.

 

Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Queen’s Bench of the Province of Alberta, Canada, and appellate Courts therefrom (or, failing such Court, any other court having jurisdiction, and the appellate Courts therefrom), will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action or proceeding asserting a breach of fiduciary duty owed by any of our directors, officers, or other employees to us, (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Business Corporations Act (Alberta) (the “ABCA”) or our amended and restated articles of incorporation or our amended and restated bylaws, or (iv) any action or proceeding asserting a claim otherwise related to our “affairs” (as defined in the ABCA). This provision would not apply to claims brought to enforce a duty or liability created by the Securities Act or the Exchange Act or any other claim for which courts other than those specified in the forum selection bylaw have exclusive jurisdiction. Our forum selection bylaw also provides that our securityholders are deemed to have consented to personal jurisdiction in the Province of Alberta and to service of process on their counsel in any foreign action initiated in violation of our bylaw. Therefore, it may not be possible for securityholders to litigate any action relating to the foregoing matters outside of the Province of Alberta. This may result in increased costs to investors to bring a claim against us, and may discourage claims or limit investors’ ability to bring a claim in a judicial forum that they find favorable.

 

Our forum selection bylaw seeks to reduce litigation costs and increase outcome predictability by requiring derivative actions and other matters relating to our affairs to be litigated in a single forum. While forum selection clauses in corporate charters and bylaws are becoming more commonplace for public companies in the United States and have been upheld by courts in certain states, they are untested in Canada. It is possible that the validity of our forum selection bylaw could be challenged and that a court could rule that such bylaw is inapplicable or unenforceable.

 

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If a court were to find our forum selection bylaw inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions and we may not obtain the benefits of limiting jurisdiction to the courts selected.

 

General economic conditions may negatively impact our operations.

 

Economic downturns may negatively affect our operations. These conditions may be widespread or isolated to one or more geographic regions in which we operate. Higher wages, related labor costs, printing costs, leasing costs, energy, insurance, and fuel costs, and the increasing cost trends in those markets may decrease our margins. In addition, decreases in discretionary spending during economic downturns could impact our businesses, and thereby negatively impact our operations.

 

We could be subject to taxation in both Canada and the United States, which could have a material adverse effect on our financial condition and results of operations.

 

We are a Canadian corporation, and as a result generally would be classified as a non-U.S. corporation under the general rules of U.S. federal income taxation. Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code”), however, contains rules that can cause a non-U.S. corporation to be taxed as a U.S. corporation for U.S. federal income tax purposes. Under Section 7874 of the Code, a corporation created or organized outside of the United States will nevertheless be treated as a U.S. corporation for U.S. federal income tax purposes, which is referred to as an inversion, if certain conditions are met.

 

If, pursuant to Section 7874 of the Code, we are classified as a U.S. corporation for U.S. federal income tax purposes, then we would be subject to U.S. federal income tax on our worldwide income. Regardless of any application of Section 7874 of the Code, however, we expect to be treated as a Canadian resident company for purposes of the Income Tax Act (Canada), as amended. If, as a result of the application of Section 7874 of the Code, we are subject to taxation both in Canada and the United States, then such treatment could have a material adverse effect on our financial condition and results of operations.

 

If we are a passive foreign investment company following this offering, there could be adverse U.S. federal income tax consequences to U.S. Holders.

 

Based on the Company’s current and projected income, assets, activities and market capitalization, we do not expect that the Company will be classified as a passive foreign investment company (“PFIC”) for our taxable year ending December 31, 2021 and we do not expect to become one in the future. However, if we are a PFIC for our taxable year ending December 31, 2021, or any subsequent taxable years, we intend to annually furnish U.S. holders, upon request, a “PFIC Annual Information Statement,” with the information required to allow U.S. holders to make a “qualified electing fund” election, or “QEF Election” for U.S. federal income tax purposes. No assurances regarding our PFIC status can be provided for any past, current, or future taxable years. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis and the applicable law is subject to varying interpretation. In particular, the characterization of our assets as active or passive may depend in part on our current and intended future business plans, which are subject to change. In addition, for our current and future taxable years, the total value of our assets for PFIC testing purposes may be determined in part by reference to the market price of our securities from time to time, which may fluctuate considerably. Under the income test, our status as a PFIC depends on the composition of our income which will depend on the transactions we enter into in the future and our corporate structure. The composition of our income and assets is also affected by how, and how quickly, we spend the cash we raise in any offering, including this offering.

 

If we are a PFIC, U.S. holders of our securities will be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferential tax rates for individuals on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. For further discussion of the PFIC rules and the adverse U.S. federal income tax consequences in the event we are classified as a PFIC, see “Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Rules” beginning on page 98 of this Prospectus.

 

If we or any of our non-U.S. subsidiaries are classified as a controlled foreign corporation, there could be materially adverse U.S. federal income tax consequences to certain U.S. Holders of our securities.

 

Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a controlled foreign corporation (“CFC”) for U.S. federal income tax purposes generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata share of the CFC’s “Subpart F income,” global intangible low taxed income, and investment of earnings in U.S. property, even if the CFC has made no distributions to its shareholders. Subpart F income generally includes dividends, interest, rents, royalties, gains from the sale of securities and income from certain transactions with related parties. In addition, a Ten Percent Shareholder that realizes gain from the sale or exchange of shares in a CFC may be required to classify a portion of such gain as dividend income rather than capital gain. An individual that is a Ten Percent Shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a Ten Percent Shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a Ten Percent Shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such Ten Percent Shareholder’s U.S. federal income tax return for the year for which reporting was due from starting.

 

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A non-U.S. corporation generally will be classified as a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly or indirectly, more than 50 percent of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a U.S. person (as defined by the Code) who owns or is considered to own 10 percent or more of the total combined voting power of all classes of stock entitled to vote or 10 percent or more of the total value of all classes of stock of such corporation.

 

We believe that we were not a CFC in the 2021 taxable year, and we do not expect to become a CFC in the 2022 taxable year or in a subsequent taxable year. However, the determination of CFC status is complex and includes attribution rules, the application of which is not entirely certain. In addition, recent changes to the attribution rules relating to the determination of CFC status may make it difficult to determine our CFC status for any taxable year. In addition, those changes to the attribution rules may result in ownership of the stock of our non-U.S. subsidiary being attributed to our U.S. subsidiary, which could result in our non-U.S. subsidiary being treated as a CFC and certain U.S. holders of our securities being treated as Ten Percent Shareholders of such non-U.S. subsidiary CFC. In addition, it is possible that, following this offering, a shareholder treated as a U.S. person for U.S. federal income tax purposes will acquire, directly or indirectly, enough of our securities to be treated as a Ten Percent Shareholder. We cannot provide any assurances that we will assist holders of our securities in determining whether we or any of our non-U.S. subsidiaries are treated as a CFC or whether any holder of our securities is treated as a Ten Percent Shareholder with respect to any such CFC or furnish to any Ten Percent Shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations.

 

U.S. holders should consult their tax advisors with respect to the potential adverse U.S. tax consequences of becoming a Ten Percent Shareholder in a CFC, including the possibility and consequences of becoming a Ten Percent Shareholder in our non-U.S. subsidiary that may be treated as a CFC due to the changes to the attribution rules. If we are classified as both a CFC and a PFIC, we generally will not be treated as a PFIC with respect to those U.S. holders that meet the definition of a Ten Percent Shareholder during the period in which we are a CFC.

 

Risks Related to this Offering

 

Investors in this offering will experience immediate and substantial dilution in net tangible book value.

 

The public offering price per Common Share is substantially higher than the net tangible book value per share of our outstanding Common Shares. As a result, investors in this offering will incur immediate dilution of $      per Common Share, based on the assumed public offering price of $      per Common Share. Investors in this offering will pay a price per Common Share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” on page 40 of this Prospectus for a more complete description of how the value of your investment will be diluted upon the completion of this offering.

 

We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

 

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in “Use of Proceeds” beginning on page 37 of this Prospectus, and you will not have the opportunity as part of your investment decision to assess whether the net proceeds will be used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We currently intend to use the net proceeds of this offering primarily for general corporate purposes, growing our initial line of consumer products, establishment and expansion of operations in Jamaica, and expansion of growing and production capabilities in Olympia, Washington. See “Use of Proceeds” on page 37 of this Prospectus for additional information.

 

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this Prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the commercial success of our systems, as well as the amount of cash used in our operations. As a result, our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering.

 

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The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our shareholders. If we do not invest or apply the net proceeds from this offering in ways that enhance shareholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

 

Our principal stockholders and management own a significant percentage of our capital stock and will be able to exert significant control over matters subject to shareholder approval.

 

Immediately following the completion of this offering, our executive officers, directors and their affiliates will beneficially hold, in the aggregate, approximately       of our outstanding Common Shares. These stockholders would be able to significantly influence elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our Common Shares that you may feel are in your best interest as one of our shareholders.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our Common Shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our Common Shares would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our Common Shares or publishes inaccurate or unfavorable research about our business, our Common Share price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our Common Shares could decrease, which might cause our Common Share price and trading volume to decline.

 

Future changes to tax laws could materially adversely affect us and reduce net returns to our shareholders.

 

Our tax treatment is subject to changes in tax laws, regulations, and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in jurisdictions in which we operate, as well as tax policy initiatives and reforms related to the Organisation for Economic Co-Operation and Development’s Base Erosion and Profit Shifting Project, and other initiatives. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received, or (in the specific context of withholding tax) dividends paid. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies, or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden, and cost of tax compliance.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this Prospectus, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, timing and likelihood of success, plans and objectives of management for future operations, and future results of current and anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Prospectus and are subject to a number of risks, uncertainties, and assumptions described under “Risk Factors” beginning on page 10 of this Prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 43 of this Prospectus, and elsewhere in this Prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise. All of the forward-looking statements made in this Prospectus are qualified by these cautionary statements.

 

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USE OF PROCEEDS

 

Based upon an assumed public offering price of $      per Common Share and Warrant, which is the midpoint of the price range set forth on the cover of this Prospectus, we estimate that we will receive net proceeds from this offering, after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us, of approximately $       million assuming the underwriters do not exercise the over-allotment option (or $      million if the underwriters exercise the over-allotment option in full).

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $      per Common Share and Warrant, which is the midpoint of the price range set forth on the cover of this Prospectus, would increase (decrease) the net proceeds we receive from this offering by approximately $      million, assuming the number of shares offered by us, as set forth on the cover page of this Prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of       Common Shares and accompanying Warrants offered by us would increase (decrease) the net proceeds we receive from this offering by approximately $      million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions.

 

We plan to use the net proceeds we receive from this offering primarily for the following purposes:

 

  approximately $3.75 million to grow a direct-to-consumers product line of nutraceutical cognitive supplements, as discussed below;
     
  approximately $1.5 million to establish and expand TruMed’s operations in Jamaica, as discussed below;
     
  approximately $1.25 million for the expansion of our growing and production capabilities in Olympia, Washington; and
     
  the remainder for other general corporate purposes, including the payment of legal and accounting fees payable by us in connection with this offering, further research and development and product innovation, marketing spend and brand development, capital expenditures, and working capital.

 

On March 1, 2022, FP, Inc. launched a direct-to-consumers product line of nutraceutical cognitive supplements made of functional mushrooms and other adaptogenic botanicals. There are three initial product offerings, as follows: (i) SunbeamTM, (ii) Golden HourTM, and (iii) MoonlightTM. See “Business— Development of Nutraceutical Consumer Products” beginning on page 50 of this Prospectus for additional information. We intend to use approximately $3,750,000 of the net proceeds in connection with the growth of these consumer products. Of the $3,750,000, we plan to use approximately $1,250,000 for inventory and approximately $2,500,000 for marketing.

 

On February 15, 2022, we acquired all of the issued and outstanding shares of common stock of TruMed pursuant to the terms of the Share Purchase Agreement. See “Business—Overview” beginning on page 48 of this Prospectus for additional information. TruMed is a pre-revenue company in the development stage with substantially no operations. We intend to use approximately $1,500,000 of the net proceeds of this offering to establish and expand TruMed’s operations in Jamaica. Of the $1,500,000, we plan to use approximately $600,000 for capital assets and leasehold improvements, including the purchase or lease of containers for growing functional and psychedelic mushrooms and building-out a grow facility. We plan to use the remaining approximately $900,000 for general working capital, marketing, and research and development, including research involving psychedelic mushrooms. The Share Purchase Agreement provides that $550,000 of the purchase price for the acquisition of TruMed will only be paid if TruMed achieves certain milestones within the first twenty-four months following the closing of the acquisition. See “Business—Overview” beginning on page 48 of this Prospectus for additional information. We anticipate that TruMed will meet one or more of these milestones within twelve months following the effective date of the registration statement of which this Prospectus forms a part. In the event one or more of these milestones is met within such time period, some of the proceeds allocated for general working capital, marketing, and research and development will be used to make the corresponding Milestone Payment(s).

 

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. However, the nature, amounts, and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management has and will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. 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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DIVIDEND POLICY

 

We have never paid dividends on our Common Shares, and currently do not intend to pay any cash dividends on our Common Shares in the foreseeable future. Our current policy is to retain all of our earnings to finance future growth. Any future declaration of dividends will be subject to the discretion of our Board of Directors.

 

In addition, we may incur debt financing in the future, the terms of which will likely prohibit us from paying cash dividends or distributions on our Common Shares. Even if we are permitted to pay cash dividends in the future, we currently anticipate that we will retain all future earnings, if any, to fund the operation and expansion of our business, and for general corporate purposes.

 

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CAPITALIZATION

 

Set forth below is our cash and capitalization as of March 31, 2022:

 

  on an actual basis; and
     
  on an as adjusted basis to reflect the issuance and sale of Common Shares and accompanying Warrants by us in this offering at the public offering price of $      per Common Share and Warrant, which is the midpoint of the price range set forth on the cover of this Prospectus, after deducting the estimated underwriting discounts and the estimated offering expenses payable by us.

 

You should read the information in the below table together with our consolidated financial statements and related notes included elsewhere in this Prospectus, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 43 of this Prospectus.

 

(in thousands)  Actual  

As
Adjusted

(unaudited)

 
Cash  $

927

   $  
Total shareholders’ equity:          
Preferred Shares, no par value - unlimited authorized, 0 shares issued and outstanding   -      
Common Shares, no par value - unlimited authorized, 6,188,754 shares issued and outstanding, actual;            shares issued and outstanding, as adjusted   6,273      
Additional paid-in capital   276      
Accumulated deficit   (4,152)     
Accumulated other comprehensive loss   

(26

)     
Total shareholders’ equity   2,371      
Capitalization  $2,371   $  

 

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DILUTION

 

If you invest in our securities in this offering, your interest will be diluted to the extent of the difference between the public offering price per Common Share and the as adjusted net tangible book value per Common Share immediately after this offering.

 

Our historical net tangible book value as of March 31, 2022, was $1,770,761, or $0.29 per Common Share. Our historical net tangible book value is the amount of our total tangible assets less our liabilities. Historical net tangible book value per Common Share is our historical net tangible book value divided by the number of outstanding Common Shares as of March 31, 2022.

  

Our adjusted net tangible book value of our Common Shares will be $     , or $      per Common Share. Adjusted net tangible book value per Common Share represents adjusted net tangible book value divided by the total number of Common Shares outstanding after giving effect to the sale of the Common Shares in this offering at the assumed public offering price of $      per Common Share, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. This represents an immediate increase in an adjusted net tangible book value of $      per Common Share to existing shareholders and an immediate dilution of $      per Common Share to investors purchasing Common Shares in this offering at the assumed public offering price.

 

The following table illustrates this dilution:

 

Assumed public offering price per Common Share  $      
Net tangible book value per Common Shares as of March 31, 2022  $0.29 
Increase in net tangible book value per Common Share attributable to this offering  $  
As adjusted net tangible book value per Common Share, after this offering  $  
Dilution per Common Share to new investors in this offering  $  

 

A $0.50 increase (decrease) in the assumed public offering price of $      per Common Share, would increase (decrease) the as adjusted net tangible book value per Common Share by $     , and increase (decrease) dilution to new investors by $      per Common Share, in each case assuming that the number of Common Shares 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 foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise of outstanding warrants having a per Common Share exercise or conversion price less than the per Common Share offering price to the public in this offering.

 

If the underwriters exercise in full the over-allotment option to purchase additional Common Shares in this offering, the as adjusted net tangible book value after the offering would be $      per Common Share, the increase in net tangible book value to existing shareholders would be $      per Common Share, and the dilution to new investors would be $      per Common Share, in each case assuming a public offering price of $      per Common Share.

 

The following table presents, as of March 31, 2022, on an as adjusted basis, the number of Common Shares purchased from us, the total consideration paid to us, and the average price paid per Common Share by existing shareholders and by new investors purchasing Common Shares in this offering at an assumed initial public offering price of $      per Common Share (the midpoint of the estimated price range set forth on the cover of this Prospectus), before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (in thousands, except share and per share amounts and percentages):

 

   Common Shares Purchased   Total Cash
Consideration
   Average price per Common 
   Number   Percent   Amount   Percent   Share 
Existing shareholders                    %  $                %  $       
New investors                         
Total        100%  $     100%  $  

 

Except as otherwise indicated, the above discussion and table assume no exercise of the underwriters’ option to purchase additional Common Share from us. If the underwriters’ option to purchase additional Common Share were exercised in full, our existing shareholders would own        percent and our new investors would own        percent of the total number of Common Shares outstanding upon completion of this offering.

 

The number of Common Shares that will be outstanding after this offering is based on 6,188,754 Common Shares outstanding as of March 31, 2022, and excludes the following:

 

  up to 615,000 Common Shares issuable upon the exercise of outstanding options under the First Person Ltd. Long Term Incentive Plan (as amended, the “Incentive Plan”), of which 365,000 have an exercise price of CAD$2.00 per Common Share, 110,000 have an exercise price of CAD$3.50 per Common Share, and 140,000 have an exercise price of $5.00 per Common Share;
     
  up to 500,620 Common Shares at a price per Common Share of CAD$5.00 issuable upon exercise of outstanding warrants;
     
  20,135 Common Shares reserved for future issuance under the Incentive Plan as of the date hereof;
     
  any securities issuable upon exercise of the underwriters’ over-allotment option; and
     
              Common Shares issuable upon exercise of the Warrants at a price of $    per Common Share.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

 

The summary consolidated statements of operations data for the period from January 21, 2021 (inception) through December 31, 2021, have been derived from our audited consolidated financial statements included elsewhere in this Prospectus. The summary consolidated statements of operations data for the three months ended March 31, 2021 and 2022, have been derived from the unaudited consolidated financial statements included elsewhere in this Prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited financial statements and, in our opinion, contain all adjustments, consisting of only normal recurring adjustments, necessary for fair presentation of such financial data. Our historical results are not necessarily indicative of the results that should be expected for any future period.

 

You should read the consolidated financial data set forth below in conjunction with our consolidated financial statements and the accompanying notes and the information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 43 of this Prospectus. Our historical results are not necessarily indicative of the results to be expected for any period in the future.

 

First Person Ltd.

Consolidated Statement of Operations and Comprehensive Loss

 

  

From January 21, 2021 (inception) through

December 31, 2021

   Three months ended March 31, 
       2021(1)   2022 
   (in thousands, except per share amounts) 
Revenues  $-   $-   $49 
                
Cost of Goods Sold   -    -    12 
                
Gross Profit   -    -    38 
                
Operating expenses:               
Selling, general and administrative   2,948    309    1,268 
Depreciation and amortization   1    0    1 
Foreign currency transaction losses (gains)   (28)   (2)   - 
Total operating expenses   2,921    308    1,268 
                
Loss from operations   (2,921)   (308)   (1,230)
                
Other income:               
Interest income   0    -    0 
Total other income   0    -    0 
                
Loss before provision for income taxes   (2,921)   (308)   (1,230)
                
Provision for income taxes   -    -    - 
                
Net loss   (2,921)   (308)   (1,230)
                
Other comprehensive loss, net of provision for income taxes:               
Foreign currency translation gain (loss)   (36)   (27)   10 
                
Comprehensive loss  $(2,957)  $(335)  $(1,220)
                
Net Loss per Common Share               
Basic and diluted   (0.60)   (0.11)   (0.21)
                
Weighted Average Number of Common Shares Outstanding               
Basic and diluted   4,918    2,908    5,822 

 

(1) For the period from January 21, 2021 (inception) through March 31, 2021.

 

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First Person Ltd.

Consolidated Balance Sheet

 

   December 31, 2021   March 31, 2022 
   (in thousands, except per share amounts) 
         
ASSETS          
           
Current assets:          
Cash  $559   $927 
Accounts Receivable, net   -    10 
Inventory   98    778 
Prepaid expenses and other current assets   540    211 
Deferred offering cost   297    406 
Total current assets   1,494    2,332 
           
Property and equipment, net   10    853 
Construction-in-progress   452    - 
Deposits   3    23 
Intangible Assets   190    195 
Operating lease right-of-use asset   158    153 
Total assets  $2,307   $3,555 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable  $436   $947 
Accrued expenses and other current liabilities   117    14 
Lease liability, current portion   36    36 
Note payables   -    70 
Total current liabilities   589    1,068 
           
Lease liability, net of current portion   122    116 
Total liabilities   711    1,184 
           
Shareholders’ equity          
Preferred shares, no par value – unlimited authorized, 0 shares issued and outstanding   -    - 
Common shares, no par value - unlimited authorized, 6,188,754 and 5,804,254 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   4,358    6,273 
Additional paid-in capital   196    276 
Accumulated deficit   (2,921)   (4,152)
Accumulated other comprehensive loss   (36)   (26)
Total shareholders’ equity   1,596    2,371 
Total liabilities and shareholders’ equity  $2,307   $3,555 

 

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

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

The following discussion provides information that management believes is relevant to an assessment and understanding of our past financial condition and plan of operations. The discussion below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Prospectus.

 

As used below, unless the context otherwise requires, the terms “First Person,” “the Company,” “we,” “us,” and “our” refer to First Person Ltd., a company incorporated under the laws of Alberta, Canada.

 

OVERVIEW

 

First Person Ltd., a company incorporated in Alberta, Canada, is a holding company. We conduct our business and operations through our wholly-owned operating subsidiaries, FP, Inc. and TruMed. FP, Inc. intends to produce and distribute for sale grain-free, organic functional mushroom ingredients and a premium brand of cognitive supplement consumer products, and also plans conduct psychedelic mushroom product research and development, subject to obtaining the applicable regulatory approval. TruMed is a pre-revenue company in the development stage with substantially no operations. TruMed intends to carry out psilocybin-related operations in Jamaica. Psilocybin is not an illegal drug under the Jamaica Drug Act. Therefore, research on psychedelic mushrooms is not in contravention of the laws of Jamaica and does not require any permit or authorization from the regulatory authorities in Jamaica.

 

Since our inception, we have devoted substantially all of our efforts to business and product developments relating to the operations of a functional mushroom farm in Olympia, Washington, and to the development of our own proprietary formulations of cognitive performance products containing functional mushrooms.

 

COVID-19: Overview of Impacts

 

While the COVID-19 pandemic has not had a significant impact on our financial performance, it has had, and continues to have, the following impacts on our business operations:

 

  The global supply chain issues caused by the COVID-19 pandemic have impacted our ability to obtain packaging materials for our products. We placed initial orders for packaging samples from multiple suppliers in China, but delivery of those samples was delayed. Due to the ongoing supply chain issues, we delayed the launch of our consumer packaged goods.
     
  The increased restrictions on international travel due to the COVID-19 pandemic has impacted our ability to operate. We are a Canadian company with operations in the United States, and certain members of our management team are based in Canada while others are based in the United States. The enhanced restrictions on international travel have inhibited the ability of members of management to travel to, and personally oversee, operations in other countries. Members of management have also been unable to hold in-person meetings with each other or investors, and have transitioned to virtual meetings.
     
  Some of our employees have contracted COVID-19, resulting in quarantines of those individuals and a decrease in workforce person-hours.

 

OPERATING SUBSIDIARIES

 

As of March 31, 2022, we have two operating subsidiaries: FP, Inc. and TruMed.

 

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First Person, Inc.

 

FP, Inc. is engaged in the business of formulation and distribution of wholesale food grade functional mushrooms as well as cognitive performance products focusing on the mental performance and wellness markets in the United States.

 

TruMed Limited

 

TruMed was formed on April 30, 2019, and is focused on research and development of psilocybin mushrooms. On February 15, 2022, we acquired all of the issued and outstanding shares of common stock of TruMed in exchange for an aggregate purchase price of up to $750,000, pursuant to the terms of the Share Purchase Agreement entered into with TruMed and each of the Selling Shareholders. See “Business—Overview” beginning on page 48 of this Prospectus for additional information. TruMed is a pre-revenue company in the development stage with substantially no operations. TruMed intends to carry out psilocybin-related operations in Jamaica. Psilocybin is not an illegal drug under the Jamaica Drug Act. Therefore, research on psychedelic mushrooms is not in contravention of the laws of Jamaica and does not require any permit or authorization from the regulatory authorities in Jamaica. TruMed intends to grow and distribute psychedelic mushrooms in Jamaica, and we plan to use some of the proceeds of this offering to expand TruMed’s Jamaican operations. See “Use of Proceeds” on page 37 of this Prospectus.

 

BASIS OF PRESENTATION

 

The consolidated financial statements for the periods reflect our financial position, results of operations, and cash flows as of March 31, 2022. The financial statements have been prepared using the historical basis for the assets and liabilities and results of operations.

 

CRITICAL ACCOUNTING POLICIES

 

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to stock-based compensation expense, the Company’s ability to continue as a going concern, and income taxes and related valuation allowance. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 3 to our audited financial statements included elsewhere in this Prospectus, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

 

Foreign Currency

 

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency Matters, we have determined our functional currency is the Canadian dollar. We translate our financial statements to U.S. dollars using month-end exchange rates for assets and liabilities, and average exchange rates for revenues and expenses. Translation gains and losses are recorded in accumulated other comprehensive loss as a component of shareholders’ equity. We recorded realized gains from foreign currency transactions of $28,146 and $0 for the period from January 21, 2021 (date of inception) through December 31, 2021, and for the three months ended March 31, 2022, respectively. Unrealized gains or losses resulting from foreign currency transactions and translation adjustments are reported as an element of other comprehensive loss, net of provision of income taxes. Our unrealized foreign currency translation losses amounted to $35,998 for the period from January 21, 2021 (date of inception) through December 31, 2021. Our unrealized foreign currency translation gains amounted to $9,962 for the three months ended March 31, 2022.

 

Income Taxes

 

It is possible that we could be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code, and be subject to U.S. federal income tax. However, for Canadian tax purposes, we expect, regardless of any application of Section 7874 of the Code, to be treated as a Canadian resident company (as defined in the Income Tax Act (Canada), as amended) for Canadian income tax purposes. If we are treated as a U.S. corporation for U.S. federal income tax purposes, then we will be subject to taxation both in Canada and the United States, however, even in such situation, it is our expectation that our activities will be conducted in such a manner that income from operations will not be subjected to double taxation. Notwithstanding the foregoing, we do not expect to Section 7874 of the Code to apply to us to cause the Company to be treated as a U.S. corporation for U.S. federal income tax purposes. 

 

FP, Inc. accounts for income taxes in accordance with FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes. The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it has less than 50 percent likelihood of being sustained.

 

FP, Inc. is a Delaware C corporation and is subject to taxation and files income tax returns in the United States. Since inception, FP, Inc.’s tax returns are subject to examination by taxing authorities, and no examinations are currently pending.

 

As of December 31, 2021, FP, Inc. does not have any unrecognized tax benefits. FP, Inc. does not anticipate any material changes to its unrecognized tax benefits within the next twelve months.

 

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Share-based Compensation

 

In June 2018, the FASB issued ASU Topic 2018-07, Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of FASB ASC Topic 718, Compensation – Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. Upon adoption, entities shall be required to apply FASB ASC Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. FASB ASU 2018-07 is effective for private entities for fiscal years beginning after December 15, 2019, with early adoption permitted, but no earlier than an entity’s adoption date of FASB ASC Topic 606, Revenue from Contracts with Customers. We adopted FASB ASC 2018-07 effective January 21, 2021 (date of inception). In accordance with ASU 2018-07, we record our share-based payments at the estimated grant date fair value over the service period for equity-classified awards granted to nonemployees in the same period and in the same manner as if we paid cash for the goods or services. In addition, we have elected to account for forfeitures when they occur in accordance with FASB ASC 718-10-35-3. The calculation of expected term is based on the “simplified” method described in Staff Accounting Bulletin (“SAB”) Topic 14, Share-Based Payment. SAB Topic 14 provides a simplified method for estimating the expected term for “plain vanilla” options if a company does not have sufficient appropriate exercise data on which to base its own estimate or exercise data relating to employees of comparable companies is not easily obtainable. The risk-free interest rate is based on the U.S. Treasury yield at the date of grant for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield is zero since we have never paid cash dividends on our Common Shares and have no present intention to pay cash dividends. Options granted under the Incentive Plan generally vest based on three years of continuous service and have five-year contractual terms.

 

We estimate the fair value of each stock option award on the date of grant using a Black-Scholes option-pricing model based on the following weighted average assumptions applied during the period from January 21, 2021 (date of inception) through March 31, 2022:

 

Risk-free interest rate   0.09% - 0.56%
Expected term   3.0 - 3.5 years 
Expected average stock price volatility   106.83% - 120.94%
Expected dividend yield   0.00%
Weighted average grant-date fair value of stock options  $1.70 

 

Estimates used in the Black-Scholes option-pricing model are based, in part, on the price at which our Common Shares were sold during private placement offerings, and are not considered highly complex or subjective. Estimates will not be necessary to determine the fair market value of new awards once the underlying shares begin trading after this offering.

 

Revenue Recognition

 

We recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services. In order to recognize revenue under FASB ASU 2014-09, Revenue from Contracts with Customer, we apply the following five steps: (i) identification of customer contracts, (ii) identification of the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer, (iii) determination of the transaction price we expect to be entitled to in exchange for transferring promised goods or services to a customer, (iv) allocation of the transaction price to the performance obligation(s) in the contract, and (v) recognition of revenue when or as we satisfy the performance obligation(s).

 

Our contracts with customers for the cognitive supplements and other related products consisting of single performance obligations. The performance obligation in a contract is determined based on each individual order and the respective quantities shipped, with revenue being recognized at a point in time when obligations under the terms of the agreement are satisfied. This generally occurs with the transfer of control when the product is shipped to the customer. The amount of revenue recognized is reduced for estimated returns and other customer credits, such as discounts and rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets we serve. Revenue received from shipping and handling fees is reflected in net sales. Shipping and handling costs are included in cost of sales as incurred or at the time revenue is recognized for the related goods.

 

COMPONENTS OF OUR RESULTS OF OPERATIONS

 

Revenue. Since our inception, we have devoted substantially all of our efforts to business and product developments relating to the operations of our functional mushroom farm in Olympia, Washington, and to the development of our own proprietary formulations of cognitive performance products containing functional mushrooms. For the period from January 21, 2021 (date of inception) through December 31, 2021, we did not generate any revenues. We launched our direct-to-consumer line of highly curated cognitive supplements in March 2022, and for the three months ended March 31, 2022, we generated net revenues of $49,447.

 

Operating Expenses. Our operating expenses consist of selling, general, and administrative, depreciation and amortization, and foreign currency transaction losses or gains. Following the completion of this offering, we expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and higher expenses for insurance, investor relations, and professional services. We expect our selling, general, and administrative expenses will increase as our business grows.

 

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Interest Income. For the period from January 21, 2021 (date of inception) through December 31, 2021, we recorded interest income of $152. For the three months ended March 31, 2022, we recorded interest income of $94.

 

Provision for Income Taxes. For the period from January 21, 2021 (date of inception) through December 31, 2021, we had no current or deferred provision for income taxes. As of December 31, 2021, $534,091 of federal net operating losses and $943,365 of foreign net operating losses were available to offset our future taxable income. The federal net operating losses will carry forward indefinitely and the foreign net operating losses will expire in 2041.

 

Other Comprehensive Loss, net of provision for income tax. Unrealized gains or losses resulting from foreign currency transactions and translation adjustments are reported as an element of other comprehensive loss, net of provision of income taxes. Our unrealized foreign currency translation losses amounted to $35,998 for the period from January 21, 2021 (date of inception) through December 31, 2021. Our unrealized foreign currency translation gains amounted to $9,962 for the three months ended March 31, 2022.

 

RESULTS OF OPERATIONS

 

Comprehensive Income (Loss) First Person Ltd.

Consolidated

 

   From January 21, 2021
(inception) through
   For the three months ended March 31, 
   December 31, 2021   2021(1)   2022 
   (in thousands) 
Revenues  $-   $-   $49 
Operating expenses   2,921    308    1,268 
Other income   0    -    0 
Provision for income taxes   -    -    - 
Other comprehensive gain (loss), net of provision for income tax   (36)   (27)   10 
Comprehensive loss  $(2,957)  $(335)  $(1,220)

 

(1) For the period from January 21, 2021 (inception) through March 31, 2021.

 

Comprehensive income (loss). For the period from January 21, 2021 (date of inception) through December 31, 2021, we incurred comprehensive losses in the amount of $2,957,323. For the three months ended March 31, 2022, we incurred comprehensive losses in the amount of $1,220,358.

 

Liquidity and Capital Resources

 

General

 

We satisfy our cash requirements primarily through cash provided by our financing activities.

 

   From January 21, 2021 (inception) through   For the three months ended March 31, 
   December 31, 2021   2021(1)   2022 
   (in thousands) 
Cash flows (used in) provided by:               
Operating activities  $(2,950)  $(286)  $(1,239)
Investing activities   (657)   (3)   (258)
Financing activities   4,198    1,479    1,865 
Effect of exchange rate changes on cash and cash equivalents   (32)   (27)   0 
Net (decrease) increase in cash and cash equivalents  $559   $1,162   $368 

 

(1) For the period from January 21, 2021 (inception) through March 31, 2021.

 

Operating Activities. Our cash flow from operations varies from quarter to quarter and, we expect, from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts payable. Cash flows were used in operating activities based on these factors amounting to approximately $2,949,620 for the period from January 21, 2021 (inception) through December 31, 2021, and $1,239,122 for the three months ended March 31, 2022.

 

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Investing Activities. During the period from January 21, 2021 (inception) through December 31, 2021, our capital expenditures were approximately $657,097. For the three months ended March 31, 2022, our capital expenditures were approximately $258,358.

 

Financing Activities. During the period from January 21, 2021 (inception) through December 31, 2021, we issued Common Shares and warrants to purchase Common Shares for proceeds of $4,198,020. During the three months ended March 31, 2022, we issued Common Shares for proceeds of $1,864,865.

 

Availability of Additional Funds

 

Based upon our working capital deficiency and our significant losses, we require additional funds to meet our obligations and sustain our operations. These conditions indicate that there is substantial doubt about our ability to continue as a going concern.

 

Our consolidated financial statements included elsewhere in this Prospectus have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplate our continuation as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

Other Sources and Uses of Resources

 

Where appropriate, we evaluate strategic investments and acquisitions to complement, expand, and/or enter into new businesses. In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses, to add qualitatively to the range of businesses in our portfolio and to achieve operational synergies. At this time, we cannot guarantee that we will be presented with acquisition opportunities that meet our return on investment criteria, or that our efforts to make acquisitions that meet our criteria will be successful.

 

We anticipate that our expected cash inflows from operations during the next twelve months together with our working capital, including the balance of cash and cash equivalents held as of March 31, 2022, and proceeds from the private placement closed on April 20, 2022, may not be sufficient to sustain our next year of operations and future financings may be required.

 

We plan to use the net proceeds we receive from this offering for the following purposes: most heavily for general working capital and to grow our initial product line of three nutraceutical consumer facing products, as well as supplemental marketing spend for these newly created products and for brand development; additionally, for the establishment and expansion of operations in Jamaica, further research and development and product innovation, and the expansion of growing and production capabilities in Olympia, Washington.

 

We do not have any agreements at this time to potentially acquire other entities or businesses. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. However, the nature, amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management has and will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. 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.

 

Dividends

 

In light of our current growth initiatives, the Board of Directors determined to continue the suspension of the payment of cash dividends. Projects that have already been approved and commenced are placing demands on our resources, and management and the Board of Directors determined that it was in the best interests of the shareholders to utilize available cash resources for investment in these promising and exciting growth opportunities. This position may continue depending on the timing of projects, the cash generation of our operations, and any financing that we may consummate. Decisions as to the payment of dividends in future periods will depend on the financial position, results of operations, prospects, and current and projected competing demands for cash resources at the relevant time. We continue our position of prudent and conservative cash management and we are committed to using all of our resources to maximize shareholder value, balancing short-, medium-, and long-term interests.

 

Foreign Currency Risk

 

Foreign exchange risk arises from the changes in foreign exchange rates that may affect the fair market value or future cash flows of our financial assets or liabilities.

 

   December 31, 2021   March 31, 2022 
Foreign Exchange Balances Held in CAD$  (in thousands) 
Cash  $651   $301 
Accounts receivable   -    - 
Bank loans   -    - 
Total  $651   $301 

 

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BUSINESS

 

Overview

 

LEIIO Wellness Ltd. (“Wellness”), our predecessor by name change, was incorporated on January 21, 2021 (date of inception), under the laws of the province of Alberta, Canada. Wellness’s now wholly-owned subsidiary, LEIIO Inc. (“LEIIO”), was incorporated the next day, on January 22, 2021, in the state of Delaware, United States.

 

On February 17, 2021, Wellness entered into an agreement and plan of merger (the “Plan of Merger”). Pursuant to the Plan of Merger, a merger between LEIIO and LEIIO Merger Sub, Inc., a Delaware corporation wholly-owned by Wellness (“Merger Sub”), occurred. Immediately prior to the merger, and by virtue of the merger, each share of LEIIO issued and outstanding converted into 0.31111112 Common Shares of Wellness (each, a “Wellness Share”). The consideration in the merger consisted of 2,800,000 Wellness Shares, with 700,000 Wellness Shares issued to each of three current members of our management (Cory J. Rosenberg, Chris L. Claussen, and Joseph Claussen) and one former member of our management (Stephen Leider) (the “Wellness Share Recipients”). The first 175,000 Wellness Shares issued to each of the Wellness Share Recipients were issued at a price of CAD$0.05 per share and the remaining Wellness Shares were issued at a price of CAD$0.20 per share. The total consideration in the merger amounted to CAD$455,000. By virtue of the merger, each share of Merger Sub issued and outstanding immediately prior to the effective time of the merger converted into one share of LEIIO. Immediately after the merger, the surviving corporation, LEIIO became a wholly-owned subsidiary of Wellness and the owners of LEIIO obtained control of Wellness, resulting in a reverse acquisition.

 

On October 4, 2021, LEIIO changed its name to “First Person, Inc.”

 

On December 15, 2021, Wellness held a special meeting of its shareholders at which the following actions were taken:

 

  passed an ordinary resolution appointing Marcum LLP as auditor of Wellness for the ensuing year and authorizing the Board of Directors to determine the remuneration to be paid to the auditor;
     
  passed an ordinary resolution fixing the number of directors to be elected at five;
     
  elected Gail D. Hamilton Azodo, Chris L. Claussen, Ariel Fainsod, Rosema J. Nemorin, and Cory J. Rosenberg as directors of Wellness, to hold office until the next annual meeting of the shareholders or until their successors are duly elected or appointed pursuant to the by-laws of Wellness, unless a director ceases to hold office pursuant to the ABCA or the office is otherwise vacated;
     
  passed an ordinary resolution adopting the amended and restated By-Law No. 1 of Wellness and repealing Wellness’s previously adopted By-Law No. 1;
     
  passed a special resolution authorizing the amendment of Wellness’s articles of incorporation (the “Articles”) to change the name of Wellness to “First Person Ltd.”;
     
  passed a special resolution authorizing the amendment of the Articles to effect the Consolidation on the basis of a consolidation ratio within the range of one post-Consolidation Common Share for every two to twelve pre-Consolidation Common Shares outstanding prior to the effective date of the Consolidation;
     
  passed a special resolution authorizing the amendment of the Articles to increase the minimum number of directors from one to three; and
     
  passed a special resolution authorizing the amendment of the Articles to remove certain restrictions on the transfer of shares of Wellness.

 

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On April 21, 2022, First Person amended the Articles to effect the Consolidation on the basis of a consolidation ratio of one post-Consolidation Common Share for every ten pre-Consolidation Common Shares outstanding prior to the effective date of the Consolidation. All references to Common Shares, options and warrants to purchase Common Shares, share data, per share data and related information have been retroactively adjusted, where applicable, in this Prospectus to reflect the Consolidation as if it had occurred at the beginning of the earliest period presented.

 

On February 15, 2022, we acquired all of the issued and outstanding shares of common stock of TruMed in exchange for an aggregate purchase price of up to $750,000, pursuant to the terms of the Share Purchase Agreement entered into with TruMed and each of the Selling Shareholders. $130,000 of the purchase price was paid by wire transfer on or before the closing of the acquisition, while $70,000 of the purchase price is being paid pursuant to a promissory note delivered to the Selling Shareholders. The original promissory note provided that the principal amount was payable on or before the earlier of (i) May 15, 2022 and (ii) the date on which First Person completes an initial public offering of securities on a “designated exchange” within the meaning of Canadian securities legislation; however, the Company and the Selling Shareholders subsequently agreed to amend the promissory note to provide that the principal amount of the promissory note is payable on or before the earlier of (i) October 15, 2022 and (ii) the date on which First Person completes an initial public offering of securities on a “designated exchange” within the meaning of Canadian securities legislation. Interest on the principal balance of the promissory note accrues at a rate equal to the prime rate of the Royal Bank of Canada plus 2 percent per annum. First Person may prepay all or any part of the principal, together with interest accrued, at any time without notice, premium, or penalty. The remaining $550,000 of the purchase price will only be paid if TruMed achieves certain milestones within the first twenty-four months following the closing of the acquisition, including: (i) $125,000 upon the establishment of a cultivation facility in Jamaica with at least three containers or equivalent and at least three trained employees, such facility having remote monitoring capabilities; (ii) $125,000 upon the establishment of an operating extraction laboratory in Jamaica; (iii) $125,000 upon the cultivation and harvest of at least ten kilograms of dry mushrooms; and (iv) $175,000 upon the receipt by TruMed of revenue from sales to arm’s length third party purchasers in the marketplace (each a “Milestone Payment”). In the event one or more of the milestones are met within the twelve months following the effective date of the registration statement of which this Prospectus forms a part, some of the proceeds of this offering will be used to make the corresponding Milestone Payment(s). See “Use of Proceeds” on page 37 of this Prospectus for additional information. The Share Purchase Agreement provides that, upon mutual agreement of the parties, we may pay a Milestone Payment through the issuance of our (or any successor entity’s) Common Shares at the then current fair market value price per share, as determined in good faith by our board of directors, in lieu of cash.

 

First Person Ltd. is referred to as “First Person” or the “Company.” First Person, a company incorporated in Alberta, Canada, is a holding company. We conduct our business and operations through our wholly-owned operating subsidiaries: FP, Inc. and TruMed. Our goal is to activate the full potential of human cognition through mushroom innovation. We believe that First Person, despite its early stage of development, is building a resilient foundation for long-term growth, and we believe we have positioned ourselves for success in the brain health and wellness markets through our innovative product formulations and production processes.

 

First Person, Inc.

 

FP, Inc. intends to produce and distribute for sale grain-free, organic functional mushroom ingredients and a premium brand of cognitive supplement consumer products, and plans to conduct psychedelic mushroom product research and development, subject to obtaining the applicable regulatory approval.

 

Since its inception in January 2021, FP, Inc. has devoted substantially all of its efforts to business and product development relating to the operations of a functional mushroom farm in Olympia, Washington, and to the development of its own proprietary formulations of cognitive nutraceutical performance products containing functional mushrooms. We intend to use some of the net proceeds of this offering to support FP, Inc. in launching and growing an initial product line of three nutraceutical consumer facing products, as well as expansion of growing and production capabilities in Olympia, Washington. See “Use of Proceeds” on page 37 of this Prospectus.

 

Olympia Production Facility

 

The Olympia, Washington, production facility is FP, Inc.’s primary production and processing facility and includes approximately, 15,000 sq. ft. of current production and laboratory space. It is intended to house three functional mushroom greenhouses, all of which have been fully constructed. Each greenhouse is utilized to grow First GrownTM functional mushrooms.

 

Upon maturity and harvest, FP, Inc. processes its mushrooms on site into dry powders. FP, Inc. started its first inoculation in December 2021 and harvested its first batch of functional mushrooms in February 2022. Initially, external testing will be used to test each batch of functional mushrooms. However, as FP, Inc. scales, it intends to develop the capacity to bring that testing function in house. Current production takes approximately nine to sixteen weeks to inoculate, grow, harvest, and process each batch of functional mushrooms. Our functional mushrooms are subject to the standards set forth in the Organic Foods Production Act and the regulations adopted thereunder by the National Organic Program (the “NOP”). On April 8, 2022, we applied for a license certifying our First GrownTM functional mushrooms as organic. We also intend to acquire or lease additional space to expand FP, Inc.’s production footprint at our facility in Olympia, Washington, or elsewhere in the Pacific Northwest. With three operational greenhouse, FP, Inc. has the capacity to produce approximately 5,000 kilograms of dry powder per month.

 

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The remainder of the space at the facility in Olympia, Washington, is intended to house a controlled substance growth, laboratory, and research facility for psychedelic mushrooms, and serve as a library of the large functional and psychedelic mushroom spore collection FP, Inc. owns. Psychedelic mushrooms are currently a Schedule I controlled substance under the CSA in the United States. The State of Washington allows for controlled substance research and production within the state, so long as the operator has a state authorization from the WDOH and also possesses a DEA registration for the controlled substance activities it is conducting. Our facility will have a separate controlled substance area, which is under construction, and will require specialized security, monitoring, and safety equipment. Chris L. Claussen, our Chief Innovation Officer, submitted a controlled substance researcher application with the WDOH in order for FP, Inc. to conduct psilocybin research, with such application listing FP, Inc.’s Olympia, Washington, facility as the research lab location. If the WDOH registration is granted, then FP, Inc. intends to utilize such registration to apply for licensure with the DEA to make our current facility in Olympia, Washington, a licensed psilocybin facility.

 

Supply Contracts for Functional Mushroom Powder and Extracts

 

FP, Inc. is negotiating potential long-term contracts to supply functional whole mushroom dry powder and extracts, as well as the unprocessed fruiting bodies of functional mushrooms, to several prominent brands in the functional food category. FP, Inc. intends to enter into long-term supply agreements and expand the number and volume of these supply relationships throughout the 2022 calendar year. The whole mushroom dry powder and extracts provided to these business-to-business customers can be added as an ingredient in an assortment of consumer food products, including, but not limited to, coffees and other beverages, creamers, gummies, chocolates, and candies.

 

Development of Nutraceutical Consumer Products

 

FP, Inc. has expended significant resources in developing a direct-to-consumers product line of nutraceutical cognitive supplements which are made of functional mushrooms and other adaptogenic botanicals, and completed a product launch for sale to the public on March 1, 2022. There are three initial product offerings, as follows: (i) SunbeamTM, a supplement targeting dopamine, sparking motivation and focus; (ii) Golden HourTM, a supplement targeting oxytocin, sparking connection and joy; and (iii) MoonlightTM, a supplement targeting gamma-aminobutryric acid (GABA), sparking restorative sleep cycles. These consumer products do not require FDA approval prior to marketing and distribution, but these consumer products are required to include a disclaimer that they have not been evaluated by the FDA and are not intended to diagnose, treat, cure, or prevent any disease. Each of these consumer products is sold directly to consumers through FP, Inc.’s website, www.getfirstperson.com. The microbeads and encapsulation for the supplement pills, and packaging materials for the pill tins and shipping boxes, are all produced by third-party manufacturers.

 

We engaged Red Antler, LLC (“Red Antler”) to assist in the initial branding and marketing of these cognitive supplements, including assistance with brand strategy, packaging design, and website development. On July 14, 2021, as payment for certain amounts owed to Red Antler, First Person issued 20,657 Common Shares, and warrants to purchase up to 10,329 Common Shares at a price of CAD$5.00 per Common Share, to Red Antler Ventures 3 LLC, an affiliate of Red Antler. On January 3, 2022, we engaged Dumpling Digital, Inc. (“Dumpling Digital”) to provide certain digital media, customer acquisition, performance strategy, and campaign execution across online marketing channels. On February 4, 2022, as payment for certain amounts owed to Dumpling Digital, First Person issued 6,000 Common Shares to Not Anonymous AZN, LLC, an affiliate of Dumpling Digital.

 

TruMed Limited

 

TruMed was formed on April 30, 2019, and is focused on research and development of psilocybin mushrooms. TruMed is a pre-revenue company in the development stage with substantially no operations. TruMed intends to carry out psilocybin-related operations in Jamaica. Psilocybin is not an illegal drug under the Jamaica Drug Act. Therefore, research on psychedelic mushrooms is not in contravention of the laws of Jamaica and does not require any permit or authorization from the regulatory authorities in Jamaica. TruMed intends to grow and distribute psychedelic mushrooms in Jamaica, and we plan to use some of the proceeds of this offering to expand TruMed’s Jamaican operations. See “Use of Proceeds” on page 37 of this Prospectus.

 

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TruMed’s former President, Pratik Ruparell, has entered into an employment agreement with the Company to serve as Director of Jamaican Operations. TruMed also had two other employees prior to the acquisition. Both employees’ employment was terminated in connection with the acquisition, and both former employees are expected to enter into consulting agreements with TruMed in the fourth quarter of 2022.

 

Our Strategy and Competitive Strengths

 

Building a Vertically Integrated Supply Chain for Functional Mushrooms to Be Used as Supplied Ingredients for Consumer Brands.

 

We intend to become a functional mushroom supplier, leveraging our expertise and innovation to build a supply chain from the ground up, using our proprietary First Grown™ process and techniques. We intend to sell functional mushroom powders and extracts, as well as the unprocessed fruiting bodies of functional mushrooms, as supplied ingredients for consumer brands by entering into supply agreements with other companies. We also intend to use our functional mushroom products in our own nutraceutical brand.

 

The global appetite for functional mushrooms is rapidly expanding. However, a nascent marketplace and fractured supply chain leave businesses and consumers wanting. Demand has currently overwhelmed the industry’s existing supply chain for functional mushrooms and large companies are buying out entire mushroom harvests in advance. In response, functional mushrooms are being grown and imported from overseas to meet demand in North America. Imported mushrooms have, in some instances, been found to contain heavy contaminants, grains, and other substrates, compromising the quality and purity of final consumer products. We intend to set the standard for purity, potency, and transparency while innovating finished mushroom ingredient formats to expand potential end-use product applications.

 

Functional mushrooms are fully legal, and we intend to market our functional mushrooms as food ingredients if we are granted approval from the USDA and the FDA. While we are an early stage company with a history of net losses and have generated limited revenue to date, we believe our planned vertically-integrated structure will allow us to disrupt and potentially dominate this fractured supply chain, secure growth, and generate revenue streams in established markets for functional mushrooms.

 

Using FP, Inc.’s proprietary First Grown™ production process, which FP, Inc. protects as a trade secret, our innovation team, together with our Head of Mycology & Psychedelics, Robert C. Kaelin, has developed a protectable, proprietary, and scalable end product that is 100 percent pure mushrooms, with no fillers or grain residue. Mr. Kaelin has over twenty years of experience in propagation, cultivation, and processing, and has extensive knowledge in the handling of good-manufacturing-practice certified mushrooms and mycelium products for use in the nutraceutical and whole foods industry.

 

We are building in-house processing capabilities to meet demand for our premium grain-free, pure mycelium/fruiting body powders and extracts. Our functional mushrooms are cultivated on wild harvest alder saw dust, then harvested, dried, and shipped to a processing partner for milling, extraction, and spray drying. Our proprietary extraction method uses hot water and ethanol in an ultrasonic assisted extraction (“UAE”) process that utilizes high frequency sound waves to extract compounds from the mushroom fiber. We own all of the UAE equipment, which is housed at the processing partner’s facility, and it is operated by the processing partner’s staff in accordance with our specifications. We do not have a formal agreement with this processing partner, and function under an “on-demand” arrangement. The fungus mycelium is cultivated in a liquid culture similar to brewing yeast for beer production. The mycelium is then filtered from the liquid, dried, and added to the UAE process along with the functional mushroom fruiting bodies. Once fully operational, we believe our proprietary automated processes to grow and process systems will maximize yields and minimize lead times and processing steps.

 

Our production capacity is rapidly growing, and currently consists of 15,000 sq. ft. with plans to acquire or lease additional growing space. The five First Grown™ fungi varieties that we are currently growing and intend to harvest are: (i) First Grown™ Lions Mane (Hericium erinaceus); (ii) First Grown™ Maitaki (Grifola frondosa); (iii) First Grown™ Reishi (Ganoderma lingzhi); (iv) First Grown™ Cordyceps (Cordyceps militaris); and (v) First Grown™ Turkey Tail (Trametes versicolor). On April 8, 2022, we applied for a license certifying our First GrownTM functional mushrooms as organic.

 

We believe that owning our supply chain will allow us to participate in the high-growth mushroom business-to-business ingredient market by eventually becoming the primary supplier and product innovation partner of functional and wellness brands. We anticipate that these relationships will expand to include psychedelic mushrooms if the legal path is cleared to do so.

 

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Building Consumer Relationships Through a Direct-to-Consumer Brand.

 

We plan to develop, build, and market a successful direct-to-consumer brand of targeted nutraceuticals containing functional mushrooms and adaptogenic botanicals. We believe that building an early, direct, and trusted brand relationship with the consumer enables seamless product and category expansion.

 

On March 1, 2022, we launched a cognitive supplement system formulated to target specific neurotransmitters, which we believe will help establish our brand in the functional mushroom and the brain health and wellness markets and will position us to enter the psychedelic mushroom market should the legal market be opened in the United States. These are curated and fully legal cognitive supplements, engineered to work with and without psychedelic protocols to either replicate or enhance and elongate the effects of psychedelics. The supplements feature functional mushrooms and a curated blend of nutraceuticals that activate specific neurotransmitters affecting energy, mood, and sleep.

 

Nutraceuticals are dietary supplements and are regulated by the FDA; however, dietary supplements do not require FDA approval prior to marketing and distribution. Currently, our nutraceuticals contain functional mushrooms purchased from third parties; however, we intend to include our First GrownTM functional mushrooms in our nutraceuticals by the end of 2022. All of the ingredients used in our nutraceuticals come from three sources—FP, Inc., Nutricode (an FM World brand), and North American Reishi Ltd. d/b/a NAMMEX—and meet the definition of a “dietary ingredient” as used in the FDCA. We do not intend to market any of our nutraceutical products for medical use.

 

We are branding and marketing these cognitive supplements with a brand agency that has experience in creating and launching successful direct-to-consumer brands. Our brand and product ecosystems are strategically positioned to resonate with forward-thinking consumers who seek to optimize their mental health and cognitive performance. We intend to build and sustain community engagement through high-impact marketing and branding activities, executive communications, and industry recognition. Our team brings a depth of invaluable experience across a diverse range of direct to consumer e-commerce businesses, and are experts in areas involving consumer acquisition costs, order frequency, and retention. We anticipate this will lead to detailed and realistic expectations for lifetime value that can inform and drive our decisions around reasonable marketing spend for customer acquisition. Product-line expansion will focus on innovations in the functional beverage category (a category that includes nutritional and energy drinks).

 

Product Research and Development and Innovation Capabilities in Psychedelic Mushrooms.

 

We plan to conduct psychedelic mushroom product research and development in Jamaica and, subject to obtaining the applicable regulatory approvals, in the United States. We believe our multi-faceted approach, involving supplying functional mushrooms, marketing a nutraceutical brand, and psychedelic mushroom product research and development, will maximize our potential in an emerging and transformative category of mental health products and solutions.

 

Psilocybin, the naturally occurring drug found in psychedelic mushrooms, is currently a Schedule I controlled substance under the CSA and is currently an illegal substance in the State of Washington and all other U.S. states. Therefore, in order to produce and research psilocybin in the United States, we will need to obtain the necessary approvals from federal and state authorities, which may be granted in the sole discretion of such authorities. Even if we receive the necessary approvals, we may be subject to quotas or other restrictions on our production and research set by federal or state authorities.

 

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Research involving controlled substances in the State of Washington requires participating individuals to register with both the DEA and the WDOH. Under Section 69.50.508(e) of the RCW, the State of Washington gives the WDOH the authority to authorize certain persons to possess and distribute controlled substances for research purposes. The first step in obtaining the necessary authorizations is to receive state approval from the WDOH. Applicants must obtain controlled substance researcher registration from the WDOH prior to registering with the DEA. Chris L. Claussen, our Chief Innovation Officer, submitted a controlled substance researcher application with the WDOH in order for FP, Inc. to conduct psilocybin research, with such application listing FP, Inc.’s Olympia, Washington, facility as the research lab location. If the WDOH registration is granted, then FP, Inc. intends to utilize such registration to apply for licensure with the DEA to make our current facility in Olympia, Washington, a licensed psilocybin facility. Due to the unpredictable nature of the WDOH review process, the timeline for receiving WDOH’s determination with respect to the application is currently uncertain. If we receive the WDOH license, then the approval process with the DEA is expected to take two to three months from when we initially submit an application with the DEA. We expect our facility to contain a WDOH- and DEA-compliant culture laboratory and controlled production and research facility for psychedelic mushrooms, built in line with all security protocols.

 

If we receive these approvals from the WDOH and the DEA, then we intend to expand domestic U.S. production to include psychedelic mushrooms for use in research, clinics, therapies, and eventually, if legal regimes surrounding psilocybin are changed, regulated dosed sub-hallucinogenic consumer product applications. We may not commence psilocybin propagation operations until we receive the requisite approvals from such authorities, and there is no guarantee that we will receive such approvals.

 

While we pursue the necessary approvals from the WDOH and the DEA in order to legally produce and research psilocybin in the United States, TruMed intends to carry out psilocybin-related operations in Jamaica. Psilocybin is not an illegal drug under the Jamaica Drug Act. Therefore, research on psychedelic mushrooms and the sale of psilocybin for use in consumer products, or the sale of consumer products containing psilocybin, is not in contravention of the laws of Jamaica and does not require any permit or authorization from the regulatory authorities in Jamaica. TruMed intends to grow and distribute psychedelic mushrooms in Jamaica, both for research and recreational purposes, and we plan to use some of the proceeds of this offering to expand TruMed’s Jamaican operations. See “Use of Proceeds” on page 37 of this Prospectus. TruMed is a pre-revenue company in the development stage with substantially no operations, and has not yet conducted any research involving psilocybin.

 

In addition, we have entered into a statement of work with Charles River Labs, an independent research lab in Canada, to conduct two studies involving psilocybin. Charles River Labs is in the process of obtaining the necessary import permits from Health Canada—a department of the Government of Canada responsible for national health policy—and the Company does not need to acquire any approvals in connection with such research. If Charles River Labs obtains the necessary import permits, then Charles River Labs will commence two studies pursuant to the terms of the statement of work, with research and development efforts focused on isolating and studying the individual psychoactive components of mushrooms. Through the exploration of genetic strains and compounds, we hope to discover novel combinations and applications of these analogs for brain health and performance.

 

If we are unable to obtain all of the requisite approvals, including approvals to produce, or conduct research in, psychedelic mushrooms in the United States, then all of our activities involving psychedelic mushrooms and psilocybin will occur in Jamaica through TruMed, or through agreements with independent research labs in accordance with applicable laws.

 

We have filed two provisional patent applications that could provide us with a protected advantage in legal psychedelic mushroom markets. Our goal is to combine these patented innovations, and we believe that doing so will give us product performance and market advantages over other competitors preparing for the possibility of a legal market for sales of natural consumer psychedelic mushroom products. We have only filed provisional patent applications, which help protect inventions for a twelve-month period while a formal patent application is being filed. The patent process can take up to twenty-four months or longer to complete and can be challenged during the process. At this time, we cannot state whether the patent applications will be approved, refused, and/or ultimately registered.

 

We believe our three-part holistic strategy and approach to the developing markets for both functional and psychedelic mushrooms strategically positions us for both near and long-term growth.

 

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Competition

 

First Person competes most directly with both public and privately held companies that supply and manufacture functional and psychedelic mushrooms and produce related consumer nutraceutical products. Competitors for First Person include public companies Optimi Health Corp. and Mydecine Innovations Group Inc., and numerous private functional mushroom producers.

 

We compete in the following markets, based on how we categorize our core products:

 

  Functional Mushrooms. Demand for functional mushrooms has overwhelmed the existing supply chain, with large companies purchasing entire functional mushroom harvests in advance. Major North American suppliers are currently growing functional mushrooms and importing them from overseas. Functional mushrooms grown overseas have a reputation of containing heavy contaminants, compromising the quality and purity of final consumer products. We intend to produce and distribute for sale 100 percent grain-free, organic functional mushrooms at scale.
     
  Nutraceutical Products. In March 2022, we launched our direct-to-consumer line of highly curated and fully legal cognitive supplements, engineered to work with and without psychedelic protocols to either replicate or enhance and elongate the effects of psychedelics. These supplements feature functional mushrooms and a curated blend of nutraceuticals that activate neurotransmitters affecting energy, mood, and sleep. This line of products may also expand into innovations in the functional beverage category—a category that includes nutritional and energy drinks.
     
  Psychedelic Mushrooms. In addition to our functional mushrooms, we are building a robust culture library of psychedelic mushrooms and, if legal regimes surrounding psilocybin are changed, intend to enter the psychedelic mushroom supply chain for the psychedelics market. If we obtain the requisite approvals from all applicable state and federal governmental authorities, then we intend to build out our naturally-derived psychedelic mushroom supply chain in the United States.

 

Intellectual Property

 

On February 18, 2021, FP, Inc. filed a provisional patent application (Application No. 63/150,762) with the U.S. Patent and Trademark Office (the “USPTO”) for an innovation that reduces the gastric distress that can be caused by consuming psychedelic mushrooms. On November 5, 2021, FP, Inc. refiled the provisional patent application (Application No. 63/276,142) with the USPTO to provide additional time to provide evidence to prove out the patent. On November 11, 2021, Chris L. Claussen and Joseph Claussen, the inventors of the innovation, filed an assignment with the USPTO assigning their entire interest in the innovation and the patent to us. The provisional patent application recites claims to composition of matter, process of using/treatment, and process of making. The expected expiration year for the provisional patent application is 2022, and the Company intends to file a utility patent application prior to its expiration.

 

On August 5, 2021, FP, Inc. filed a provisional patent application (Application No. 63/229,725) with the USPTO for an innovation that increases bioavailability of tryptamine analogs from psychedelic mushrooms. Contemporaneously with the filing of the provisional patent application, Chris L. Claussen and Joseph Claussen, the inventors of the innovation, filed an assignment with the USPTO assigning their entire interest in the innovation and the patent to us. The provisional patent application recites claims to composition of matter, process of using/treatment, and process of making. The expected expiration year for the provisional patent application is 2023, and the Company intends to file a utility patent application prior to its expiration.

 

On May 19, 2021, we filed a trademark application with the USPTO for the unregistered mark “First Person” (Application No. 90722122). On July 23, 2021, we filed trademark applications with the USPTO for the following three unregistered marks: (i) “Sunbeam” (Application No. 90845607); (ii) “Golden Hour” (Application No. 90845631); and (iii) “Moonlight” (Application No. 90845651). On September 23, 2021, we filed a trademark application with the USPTO for the unregistered mark “First Grown” (Application No. 97042249).

 

On May 19, 2021, we filed a trademark application with the Jamaica Intellectual Property Office for the mark “First Person”. On November 11, 2021, we filed an application for international registration for the mark “First Person”, designating the mark for registration in Australia, Canada, China, the European Union, Japan, and the United Kingdom.

 

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In addition to the intellectual property registrations and applications noted above, FP, Inc. protects its First Grown™ process and techniques as a trade secret. There is no registration procedure for trade secrets, and such rights are secured and maintained by making reasonable efforts to preserve the information’s secrecy.

 

Government Regulation

 

We are subject to a wide range of governmental regulations and policies. We are required to comply with the regulations and policies promulgated by the EPA and corresponding state agencies, as well as the USDA, the FDA, the FTC, the Occupational Safety and Health Administration (“OSHA”), and the DEA and corresponding state agencies. In addition, the Federal Communications Commission monitors claims made by companies, particularly with celebrity spokespeople.

 

USDA National Organic Program and Similar Regulations

 

We are involved in the sourcing, manufacturing, supplying, processing, marketing, selling, and distribution of organic food products and, as such, are subject to certain organic quality assurance standards. The Organic Foods Production Act mandates that the USDA develop national standards for organically produced agricultural products to assure consumers that those products marketed as organic meet consistent, uniform standards. The Organic Foods Production Act established the NOP, a marketing program housed within the Agricultural Marketing Service of the USDA.

 

The USDA’s regulations, among other things, set forth the minimum standards producers must meet, and have reviewed by an accredited USDA-certifying agent, in order to label their products “100% organic,” “organic,” or “made with organic ingredients” and display the USDA organic seal. The regulations impose strict standards on the production of organic food products and limit the use of non-organic or synthetic materials in the production of organic foods. Generally, organic food products are produced using:

 

  agricultural management practices intended to promote and enhance ecosystem health;
     
  no genetically engineered crops, sewage sludge, long-lasting pesticides, herbicides, or fungicides; and
     
  food processing practices intended to protect the integrity of the organic product and disallow irradiation, genetically modified organisms, or synthetic preservatives.

 

After becoming certified, organic operations must retain records concerning the production, harvesting, and handling of agricultural products that are to be sold as organic for a period of five years. Any organic operation found to be in violation of the USDA organic regulations is subject to enforcement actions, which can include financial penalties or suspension or revocation of their organic certificate.

 

Additionally, our organic products may be subject to various state regulations. Many states have adopted their own organic programs making the state agency responsible for enforcing USDA regulations for organic operations. However, state organic programs may also add more restrictive requirements due to specific environmental conditions or the necessity of production and handling practices in the state.

 

We intend to manufacture and distribute a number of organic products that will be subject to the standards set forth in the Organic Foods Production Act and the regulations adopted thereunder by the NOP, and on April 8, 2022, we applied for a license certifying our products as organic once the build-out of our facility in Olympia, Washington, is complete and we are in full production in our greenhouses.

 

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Food-Related Regulations

 

As a manufacturer and distributor of food products, we are also subject to a number of federal, state, and local food-related regulations, including, but not limited to, the FDCA and regulations promulgated thereunder by the FDA. This comprehensive regulatory framework governs the manufacture (including composition and ingredients), labeling, packaging, and safety of food in the United States. The FDA:

 

  regulates manufacturing practices for foods through its Current Good Manufacturing Practices (“CGMP”) regulations and other regulations affecting food manufacturing;
     
  regulates ingredient safety; and
     
  prescribes the format and content of certain information required to appear on food product labels.

 

Some of the key food safety and food labeling regulations in the United States are discussed in the following sections.

 

Food Safety Regulations

 

The FSMA enables the FDA to better protect public health by strengthening the food safety system. The law provides the FDA with new enforcement authorities and tools designed to achieve higher rates of compliance with prevention- and risk-based food safety standards and to better respond to and contain problems when they do occur.

 

The FDA has now finalized its rules necessary to implement FSMA, including: (i) Preventive Controls for Human Food, (ii) Preventive Controls for Food for Animals, (iii) Standards for the Growing, Harvesting, Packing, and Holding of Produce for Human Consumption, (iv) Foreign Supplier Verification Programs for Importers of Food for Humans and Animals, (v) Sanitary Transportation of Human and Animal Food, (vi) Mitigation Strategies to Protect Food Against Intentional Adulteration, and (vii) Accredited Third-Party Certification. Most of these rules have gone into effect. For others, including the Foreign Supplier Verification Program requirements, we face tiered compliance dates that depend on the size of our Company and the size of the company from which we are sourcing the imported ingredient. The intentional adulteration rule went into effect July 27, 2020, for companies the FDA considers small businesses, with fewer than 500 employees, such as our Company.

 

Hazard Analysis and Risk-Based Preventive Controls

 

Many of the rules, particularly those relating to good manufacturing practices and preventive controls relating to food for human consumption, sanitary transport, and foreign supplier verification and import safety, apply to us as we manufacture, process, pack, hold, and transport food for human consumption. We also work with foreign suppliers who provide us with raw materials. We have developed a food safety plan that we believe complies with our obligations under the FDA preventive controls requirements. Under that rule, covered facilities must establish and implement a written food safety system that includes an analysis of hazards and risk-based preventive controls. The hazard analysis must consider known or reasonably foreseeable biological, chemical, and physical hazards. The preventive control measures are required to ensure that hazards requiring a preventive control will be minimized or prevented. They include process, food allergen, and sanitation controls, as well as supply chain controls and a recall plan. In addition to establishing preventive controls, we must continuously ensure that the controls are effective through monitoring and verification activities. If a control fails, prompt corrective actions must be taken to identify a problem with preventive control implementation, to reduce the likelihood the problem will recur, evaluate affected food for safety, and prevent it from entering commerce. All corrective actions must be documented in writing.

 

The final rule mandates that a manufacturing facility have a risk-based supply chain program for those raw materials and other ingredients that have an identified hazard requiring a supply chain applied control. Accordingly, we are responsible for ensuring that foods are received only from approved suppliers, or on a temporary basis from unapproved suppliers whose materials are subject to verification activities before being accepted for use.

 

The final rule updated and clarified CGMPs. Management is required to ensure that all employees who manufacture, process, pack, or hold food are qualified and properly educated to perform their assigned duties. We have developed regulatory compliance programs to ensure we are in compliance with the applicable rules, and we continue to monitor the FDA’s ongoing efforts to develop guidance for industry clarifying the FDA’s expectations under the rule.

 

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We believe that we are in material compliance with the current regulations promulgated to implement FSMA that are applicable to our business, and we intend to partner with manufacturing companies that have CGMP certified facilities. We are continuing to develop internal compliance policies and practices for those rules that have future compliance dates in order to ensure compliance by the required deadlines.

 

Foreign Supplier Verification Program

 

The FDA’s Foreign Supplier Verification Program requires that the U.S. owner or consignee of imported food take steps to verify that the foreign supplier of imported food is manufacturing the food in accordance with FDA requirements, that the importer understand what hazards the foreign supplier is controlling and how those hazards are controlled, and that this oversight program is documented. The regulation is being implemented using a tiered series of compliance dates based on the size of the U.S. importer and the foreign supplier. We have developed a program that we believe is in compliance with this regulation and are monitoring its ongoing implementation.

 

Sanitary Transportation Rule

 

The FDA’s regulations governing the Sanitary Transportation of Food for Humans and Animals requires that the parties involved in shipping food take steps to ensure that food is not contaminated or otherwise rendered unsafe during transportation. Steps include ensuring the conveyance is clean and that refrigerated foods are maintained in a refrigerated state. Fully packaged foods that do not require temperature control for safety, such as the foods that we currently produce, are generally exempt from these requirements. These requirements could become applicable to us, however, if we were to change our product line.

 

Bioterrorism Act

 

In addition, we are subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the “Bioterrorism Act”) and regulations issued thereunder. The Bioterrorism Act authorizes the FDA to take the regulatory action necessary to protect the nation’s food supply against the threat of intentional or accidental contamination. The major components of the Bioterrorism Act include registration of food facilities with the FDA; prior notice of virtually all imported food shipments under the FDA’s authority; recordkeeping requirements for food facilities; authorization of the FDA to administratively detain food; authorization of the FDA to institute debarment of food importers for various violations related to food importation; and creation of a clear way to re-import previously refused foods if certain criteria are met.

 

Other Requirements

 

Lastly, we are subject to numerous other federal, state, and local regulations involving such matters as the licensing and registration of manufacturing facilities, enforcement by government health agencies of standards for our products, inspection of our facilities, and regulation of our trade practices in connection with the sale of food products.

 

Food Labeling Regulations

 

We are subject to certain requirements relating to food labeling under the FDCA and corresponding FDA regulations as well as the Fair Packaging and Labeling Act, enacted in 1967, and corresponding FTC regulations. Although the FTC and the FDA share jurisdiction over claims made by manufacturers of food products (with the USDA also having jurisdiction over “organic” claims), the FDA retains primary jurisdiction over the labeling of food products whereas the FTC regulates advertising.

 

The FDA and the FTC require that all food products be labeled to disclose the net contents, the identity of commodity, nutrition information, and the name and place of business of the product’s manufacturer, packer, or distributor. Both agencies also require that any claim on the product be truthful and not misleading.

 

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In 2016, the FDA updated its nutrition labeling rules, which had not been changed since 1993. The updated nutrition labeling rules require manufacturers to, among other things:

 

  increase the type size for “calories,” “servings per container,” and the “serving size” declaration, and bolding the number of calories and the “serving size” declaration to highlight this information;
     
  declare the actual amount, in addition to percent Daily Value, of vitamin D, calcium, iron, and potassium;
     
  include “added sugars,” in grams and as percent Daily Value on the label; and
     
  display serving sizes on labels based on amounts of foods and beverages that people are actually eating, not what they should be eating.

 

Manufacturers with $10 million or more in annual food sales were required to comply with the new rules by January 1, 2020; all other food manufacturers were required to comply with the new rules by January 1, 2021. We believe we are in material compliance with these new food labeling regulations where applicable to our business.

 

The FDA also has detailed regulations and requirements governing various types of claims about products’ nutritional value and wellness benefits, such as a nutrient content claims, health claims, and structure-function claims. Claims falling under these regulations must be phrased in specific ways to avoid misbranding the food. We believe we are in compliance with applicable FDA claims regulations.

 

Other state and local statutes and regulations may impose additional food labeling requirements. For instance, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly known as Proposition 65) requires, with a few exceptions, that a specific warning appear on any consumer product sold in California that contains a substance, above certain levels, listed by that state as having been found to cause cancer or birth defects. This law exposes all food and beverage producers to the possibility of having to provide warnings on their products.

 

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Dietary Supplements

 

Pursuant to the FDCA the FDA regulates the safety, formulation, manufacturing, processing, packaging, labeling, importation, and distribution of dietary supplements (including nutraceuticals). In addition, the FTC has jurisdiction to regulate the promotion and advertising of these products. The FDCA has been amended several times with respect to dietary supplements, in particular by the Dietary Supplement Health and Education Act of 1994 (“DSHEA”). DSHEA established a framework governing the composition, safety, labeling, manufacturing, and marketing of dietary supplements and established new statutory criteria for evaluating the safety of substances. In the process, DSHEA removed dietary supplements from pre-market approval requirements that apply to food additives and pharmaceuticals and established a combination of notification and post marketing controls for regulating product safety. The FDA does not require notification to market a dietary supplement if it contains only dietary ingredients that were present in the U.S. food supply prior to DSHEA’s enactment on October 15, 1994. However, for a dietary ingredient not present in the food supply prior to this date, the manufacturer must provide the FDA with information supporting the conclusion that the ingredient will reasonably be expected to be safe at least seventy-five days before introducing a new dietary ingredient into interstate commerce.

 

As required by the FSMA, the FDA issued draft guidance in July 2011, which attempts to clarify when an ingredient will be considered a new dietary ingredient, the evidence needed to document the safety of a new dietary ingredient, and the appropriate methods for establishing the identity of a new dietary ingredient. In particular, the new guidance may cause dietary supplement products available in the market before DSHEA to now be classified to include a “new dietary ingredient” if the dietary supplement product was produced using manufacturing processes different from those used in 1994.

 

DSHEA also empowered the FDA to establish binding Good Manufacturing Practice regulations governing key aspects of the production of dietary supplements. DSHEA expressly permits dietary supplements to bear statements describing how a product affects the structure, function, and/or general well-being of the body. Although manufacturers must be able to substantiate any such statement, no premarket approval authorization is required for such statements and manufacturers need only notify FDA that they are employing a given claim. No statement may expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease. DSHEA does, however, authorize supplement sellers to provide third-party literature in connection with the sale of a dietary supplement to consumers. This provision is an exception to the FDA’s broad powers over the promotion of regulated products. Accordingly, the authorization is limited and applies only if the publication is printed in its entirety, is not false or misleading, presents a balanced view of the available scientific information and does not promote a particular manufacturer or brand of dietary supplement, and is displayed in an area physically separate from the dietary supplements.

 

Environmental Regulations

 

We are also subject to various U.S. federal, state, and local environmental regulations. Some of the key environmental regulations in the United States include, but are not limited to, the following:

 

  air quality regulations;
     
  waste treatment/disposal regulations;
     
  sewer regulations;
     
  hazardous chemicals regulations; and
     
  storm water regulations.

 

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Consumer Protection Regulations

 

The FTC has the authority to regulate traditional and digital advertising for most types of consumer products, including our product offerings. The FTC has interpreted the Federal Trade Commission Act (the “FTC Act”) to prohibit unfair or deceptive acts or practices in commerce and oversees express and implied claims in advertising as well as certain promotional activities such as the use of social media influencers by advertising companies.

 

The FTC revised its Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Guides”), which became effective on December 1, 2009. Although the Guides are not binding, they explain how the FTC interprets Section 5 of the FTC Act’s prohibition on unfair or deceptive acts or practices. Consequently, the FTC could bring a Section 5 enforcement action based on practices that are inconsistent with the Guides. Under the revised Guides, advertisements that feature a consumer and convey his or her atypical experience with a product or service are required to clearly disclose the results that consumers can generally expect. In contrast to the 1980 version of the Guides, which allowed advertisers to describe atypical results in a testimonial as long as they included a disclaimer such as “results not typical,” the revised Guides no longer contain such a safe harbor. The revised Guides also add new examples to illustrate the long-standing principle that “material connections” between advertisers and endorsers (such as payments or free products), connections that consumers might not expect, must be disclosed.

 

To the extent we may rely on endorsements or testimonials, we will review any relevant relationships for compliance with the Guides and we will otherwise endeavor to follow legal standards applicable to advertising. Our marketing, advertising, and promotional activities for our consumer products must adhere to the FTC Act’s requirement for truthful, non-misleading, and adequately substantiated claims. If our advertising does not comply with FTC and similar state requirements, we could become subject to an investigation by the FTC or a consent decree, which could have a material adverse impact on our business and reputation.

 

Employee Safety Regulations

 

We are subject to certain safety regulations, including OSHA regulations. These regulations require us to comply with certain manufacturing safety standards to protect our employees from accidents. We believe that we are in material compliance with all employee safety regulations applicable to our business.

 

Controlled Substances

 

The CSA and its implementing regulations establish a “closed system” of regulations for controlled substances. The CSA imposes registration, security, recordkeeping and reporting, storage, manufacturing, distribution, importation, and other requirements under the oversight of the DEA. The DEA is the federal agency responsible for regulating controlled substances, and requires those individuals or entities that manufacture, import, export, distribute, research, or dispense controlled substances to comply with the regulatory requirements in order to prevent the diversion of controlled substances to illicit channels of commerce.

 

The DEA categorizes controlled substances into one of five schedules—Schedule I, II, III, IV, or V—with varying qualifications for listing in each schedule. Schedule I substances by definition have a high potential for abuse, have no currently accepted medical use in treatment in the United States, and lack accepted safety for use under medical supervision. Pharmaceutical products with a currently accepted medical use that are otherwise approved for marketing may be listed as Schedule II, III, IV, or V substances, with Schedule II substances presenting the highest potential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative potential for abuse and dependence.

 

Facilities that manufacture, distribute, import, or export any controlled substance must register annually with the DEA. The DEA registration is specific to the particular location, activity(ies), and controlled substance schedule(s).

 

The DEA inspects all manufacturing facilities to review security, recordkeeping, reporting, and handling prior to issuing a controlled substance registration. The specific security requirements vary by the type of business activity and the schedule and quantity of controlled substances handled. The most stringent requirements apply to manufacturers of Schedule I and Schedule II substances. Required security measures commonly include background checks on employees and physical control of controlled substances through storage in approved vaults, safes, and cages, and through use of alarm systems and surveillance cameras. Once registered, manufacturing facilities must maintain records documenting the manufacture, receipt, and distribution of all controlled substances. Manufacturers must submit periodic reports to the DEA of the distribution of Schedule I and II controlled substances, Schedule III narcotic substances, and other designated substances. Registrants must also report any controlled substance thefts or significant losses, and must obtain authorization to destroy or dispose of controlled substances. Imports of Schedule I and II controlled substances for commercial purposes are generally restricted to substances not already available from a domestic supplier or where there is not adequate competition among domestic suppliers. In addition to an importer or exporter registration, importers and exporters must obtain a permit for every import or export of a Schedule I and II substance or Schedule III, IV, and V narcotic, and submit import or export declarations for Schedule III, IV, and V non-narcotics. In some cases, Schedule III non-narcotic substances may be subject to the import/export permit requirement, if necessary, to ensure that the United States complies with its obligations under international drug control treaties.

 

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For drugs manufactured in the United States, the DEA establishes annually an aggregate quota for the amount of substances within Schedules I and II that may be manufactured or produced in the United States based on the DEA’s estimate of the quantity needed to meet legitimate medical, scientific, research, and industrial needs. The DEA also has individual quotas assigned to controlled substances research and manufacturing registrants.

 

In addition to federal laws, U.S. states also maintain separate controlled substance laws and regulations, including licensing, recordkeeping, security, distribution, and dispensing requirements. State authorities, including boards of pharmacy, regulate use of controlled substances in each state. Most states, including Washington, allow for research activities using controlled substances pursuant to state authorization and DEA registration. Failure to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that could have a material adverse effect on our business, operations, and financial condition. Chris L. Claussen, our Chief Innovation Officer, submitted a controlled substance researcher application with the WDOH in order for FP, Inc. to conduct psilocybin research, with such application listing FP, Inc.’s Olympia, Washington, facility as the research lab location. If the WDOH registration is granted, then FP, Inc. intends to utilize such registration to apply for licensure with the DEA to make our current facility in Olympia, Washington, a licensed psilocybin research and production facility.

 

The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.

 

Unlike in the United States, psilocybin mushrooms are not an illegal drug under the Jamaica Drug Act. As psilocybin is not included in the Jamaica Drug Act, it is not a controlled or restricted substance in Jamaica and therefore no other specific controls, permits, licenses, or authorizations are required to conduct research on psilocybin.

 

Psilocybin Production and Research

 

Federally legal psilocybin research was stalled for many years, but has recently experienced a resurgence while psilocybin continues to become more popular in mainstream culture and consciousness. In 2018, journalist Michael Pollan’s book How to Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression and Transcendence became a New York Times bestseller. Cities such as Denver, Berkeley, and Oakland have decriminalized psilocybin, and a number of state bills are pending for various legalization initiatives. Currently, clinical trials using psilocybin are being conducted at the Johns Hopkins Center for Psychedelic & Consciousness Research, the University of California, New York University, the University of Michigan, Yale University, and the Usona Institute, among others.

 

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In addition to the federally legal process for producing psilocybin and researching the effects of psilocybin, a number of states have recently considered legalizing or decriminalizing the substance for medical patients, and in some cases, for all adults. Many states, including the State of Washington, currently allow for psilocybin research and related activities under state law, with the appropriate controlled substance authorizations from both the state and the DEA. The following legislative discussion focuses on current laws and bills that expand the use of psilocybin beyond the exemption that exists for controlled substances research and DEA permitted controlled substances registration activities. Oregon remains the only state to have legalized the use of psychedelic mushrooms (and such use is limited to therapeutic use in supervised environments), the increased efforts of state legislatures to legalize or decriminalize psilocybin may reflect an increased interest in the populace of those states for psilocybin use or research. The summary of recent and pending state legislation provided below illustrates the types of legislation currently being considered by state legislatures. There is no guarantee that any legislation legalizing or decriminalizing psilocybin will be enacted, and these state laws would not remove or alter the federal constraints on psilocybin.

 

  Oregon – In November 2020, Oregon, through its Measure 109, became the first state to legalize psychedelic mushrooms for therapeutic use in supervised environments. The measure directs the Oregon Healthy Authority to develop regulations for the manufacturing, transport, delivery, sale, and purchase of psilocybin products over a two year development period, from January 1, 2021 to December 31, 2022. Measure 109 will allow people who are aged 21 and over to access psychedelic mushrooms for personal development upon passing a screening conducted by a qualified therapist. People who use the drug are expected to be able to do so at a psilocybin service center, with the supervision of a designated service facilitator. Oregon expects to have a two-year planning period in which lawmakers will determine how the drug will be regulated, including qualifications for therapists intending to prescribe psychedelic mushrooms and for psilocybin facilitators. The program is expected to be regulated by the Oregon Health Authority. Oregon also passed Measure 110 at the same time, which went into effect in February of 2021 and decriminalized the personal possession of small amounts of psilocybin, cocaine, heroin, methamphetamine, and oxycodone. Draft rules by the newly created Oregon Psilocybin Services section of the Oregon Health Authority indicate that only one species of fungi, Psilocybe cubensis, will be authorized for cultivation or possession, that manufacturers will not be allowed to use dung or woodchips to cultivate the mushrooms, that synthetic psilocybin will not be permitted, and that all products can only be designed for oral consumption.
     
  California – S.B. 519, which would have allowed any adult aged 21 and over to use or share psilocybin, DMT, ibogaine, mescaline, LSD, ketamine, and MDMA, passed relevant Senate committees and cleared its appropriations review, but was pulled by one of its authors, state Senator Scott Weiner, last year. He has stated that he plans to reintroduce it in 2022. The bill would also create an advisory panel to look into research projects on these substances.
     
  Colorado – While possession of psilocybin is still illegal in Colorado, H.B. 19-1263, signed by Governor Jared Polis in 2019, changed the personal possession of any Schedule 1 or 2 drug in Colorado from a felony to a misdemeanor. Furthermore, a Denver voter initiative passed in 2019 decriminalized the use of psilocybin by adults aged 21 and over. Terminally ill patients in Colorado can also be permitted access to experimental treatments, including the use of drugs like psilocybin, with their doctor’s approval and assistance. Finally, after polling showed strong support in Colorado for expanding psilocybin decriminalization throughout the state, some believe that a voter initiative that decriminalizes the substance state-wide will be on the ballot in 2022, as the Title Board approved four petitions, with advocates debating which one to put onto the statewide ballot in November.
     
  Connecticut – Governor Ned Lamont signed legislation this year that stated that the Department of Mental Health must convene a working group to study the health benefits of psilocybin. The bill specified that the study shall include an examination of whether the use of psilocybin by a person under the direction of a health care provider may be beneficial to the person’s health. The working group must afterwards submit a report with findings and recommendations. A separate bill, H.B. 5396, would allow medical providers to provide MDMA and psilocybin for medical use to “qualified patients” once the FDA approves these substances for depression and PTSD treatment. The bill was approved by the state legislature’s Public Health committee with bipartisan support, and will need to pass a full floor vote and be signed by the governor in order to become law.

 

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Employees and Human Capital Resources

 

As of December 31, 2021, we had one full-time Canadian employee, and eight full-time U.S. employees, including eight full-time U.S. employees at FP, Inc.

 

Properties

 

Calgary, Alberta Headquarters

 

First Person is headquartered at 1840, 444 – 5th Ave., SW, Calgary, Alberta, Canada, pursuant to a lease agreement that the Company assumed from the prior tenant effective January 1, 2022. The lease is for 2,885 sq. ft. of office space, and the rent amount is CAD$4,567.92 per month. This lease expires on August 31, 2024. The lease does not provide for renewal options.

 

Olympia, Washington Facility

 

First Person leases a 15,000 sq. ft. facility in Olympia, Washington, which is currently utilized by FP, Inc. to grow functional mushrooms. This lease expires April 14, 2023, subject to two renewal options for two years each. The base rent until April 14, 2023, is $3,178 per month. The base rent for the renewal periods, if exercised by the Company, is calculated by multiplying the base rent by the annual change in the Consumer Price Index, published by the Bureau of Labor Statistics, as provided in the most recent publication to the start of the renewal period, by the most recent publication to the option period start date. The Company is currently negotiating a lease extension, and intends to amend the lease to make FP, Inc. the lessee.

 

WeWork Office

 

First Person leases a thirteen-person office space in a WeWork building in Los Angeles, California, which is currently utilized by certain of the Company’s officers. Cory J. Rosenberg, the Company’s Chairman, Chief Executive Officer, and President, initially entered into a Membership Agreement with WeWork (the “Membership Agreement”), dated February 25, 2021, for a five-person office, with a term of six months commencing on March 1, 2021, and expiring on August 31, 2021. The initial rent was $2,760 per month; however, Mr. Rosenberg received a discount of $828 per month until August 31, 2021. On June 30, 2021, the Membership Agreement was amended to extend the expiration date until February 28, 2022, with the rent increasing to $2,920 per month beginning September 1, 2021, with a discount of $992.80 per month from September 1, 2021, until February 28, 2022. The Membership Agreement was further amended on August 10, 2021, to move to a ten-person office beginning September 1, 2021, with the rent increasing to $5,450 per month beginning September 1, 2021, with a discount of $1,907.50 per month from September 1, 2021, until February 28, 2022.

 

On September 29, 2021, First Person assumed the Membership Agreement, and the Membership Agreement was amended to move to a thirteen-person office, with the term for the new office space commencing on October 1, 2021, and expiring on October 31, 2021 (the “Commitment Term”), with the rent increasing to $6,750 per month beginning October 1, 2021, with a discount of $3,208 per month from October 1, 2021, until June 30, 2022. The rent amount is subject to a 3.5 percent increase on each anniversary of the start date with respect to each individual office number (the start date for the currently rented office number was October 1, 2021). Pursuant to the terms of the Membership Agreement, the lease continues on a month-to-month basis after the expiration of the Commitment Term until terminated by either party. Any termination by First Person will be effective on the last business day of the calendar month immediately following the month in which notice of termination is provided. WeWork may terminate the Membership Agreement at any time in its sole discretion.

 

Legal Proceedings

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in our management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or financial position. There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial holder of more than 5 percent of our Common Shares is an adverse party or has a material interest adverse to our interest.

 

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MANAGEMENT

 

Directors, Executive Officers, and Key Employees

 

Set forth below is certain information with respect to the individuals who are our directors, executive officers, and key employees as of the date of this Prospectus:

 

Name   Age   Position
Cory J. Rosenberg   42   Chairman, Chief Executive Officer, and President
Darcy A. Campbell   52   Chief Financial Officer
Adam J. Schoenberg   42   Chief Marketing Officer
Chris L. Claussen   51   Director and Chief Innovation Officer
Ariel Fainsod   41   Director
Gail D. Hamilton Azodo   38   Director
Rosema J. Nemorin   41   Director
Robert C. Kaelin   49   Head of Mycology & Psychedelics

 

Executive Officers

 

Cory J. Rosenberg, has been our Chairman, Chief Executive Officer, and President since January 2021. Prior thereto, Mr. Rosenberg co-founded and led a high-growth premium international fashion and consumer brand, Hook & Albert, in January 2011. He successfully sold the business to a private equity fund in August 2016. Following the sale, Mr. Rosenberg continued as Co-Chief Executive Officer of Hook & Albert and joined the acquiring fund as a Managing Partner, a position he held from August 2016 until September 2019, advising on acquisition and integration strategy and helping build the foundation for an in-house shared services platform, unlocking value for high-growth portfolio brands. In September 2019, Mr. Rosenberg exited to build the framework for First Person. Mr. Rosenberg is a senior executive and seasoned entrepreneur with more than fourteen years of experience building, leading, and growing omni-channel retail and consumer-packaged-goods brands. As a former investment banker, Mr. Rosenberg advised on corporate strategy, mergers and acquisitions, and capital market activities. He received a Bachelor of Arts degree from Union College and a Master of Business Administration degree from the Darden School at the University of Virginia.

 

Key Attributes, Experience and Skills:

 

As founder of the Company and Chairman of the Board of Directors since inception, Mr. Rosenberg brings to the Board of Directors significant knowledge of all aspects of our Company and each of the industries in which it operates. In addition, having Mr. Rosenberg on the Board of Directors provides our Company with effective leadership.

 

Darcy A. Campbell, has been our Chief Financial Officer since January 2021. Mr. Campbell was also our Secretary and a member of our Board of Directors from January 2021 until December 2021. Mr. Campbell brings over twenty-five years of experience in finance and accounting for public and private companies operating in Canada and internationally. From July 1, 2015 until April 1, 2016, Mr. Campbell was the Chief Financial Officer of ATK Oilfield Transportation Inc. (“ATK”), a private oilfield services company. ATK was placed into receivership following an application by its creditors on April 1, 2016. Following the application, the bank called the outstanding loans, closed the company, and sent all the assets to auction. From April 2018 to October 2019, Mr. Campbell served as the Vice President of Finance for Hydrera Water Services, a water services company. From October 2019 to September 2020, he worked as a consultant in his own company, Private Consulting. From September 2020 to May 2021, he served as the Chief Financial Officer for INDVR Brands, a Canadian cannabis company. He is experienced in mergers and acquisitions, dispositions, equity raises, and debt restructuring, and is focused on building highly effective teams within organizations. He received a Bachelor of Commerce degree from the University of Calgary.

 

Adam J. Schoenberg, has been our Chief Marketing Officer since February 2021. Mr. Schoenberg is an award-winning senior branding executive, growth strategist, and pioneering category founder with significant experience launching and building premium direct-to-consumer brands across the fashion, media, and consumer products sectors. Prior to joining the Company, Mr. Schoenberg was the founder of Chasing Eden Consulting from January 2019 to January 2021. Mr. Schoenberg co-founded a high-growth premium international fashion and consumer brand, Hook & Albert, in January 2011, which was successfully sold to a private equity fund in August 2016. Following the sale, Mr. Schoenberg continued as Co-Chief Executive Officer of Hook & Albert. He has helped lead several successful corporate exits, grooming companies and their brands for multimillion-dollar acquisitions. He received a Bachelor of Arts degree from Ramapo College of New Jersey.

 

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Chris L. Claussen, has been our Chief Innovation Officer since January 2021 and a member of our Company’s Board of Directors since December 2021. Prior thereto, Mr. Claussen was a partner and project manager of Three Point Group LLC, a company that assists companies with strategic planning, profit improvement, valuation services, and business exit