Exhibit 99.1
BRUUSH ORAL CARE INC.
CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2023
(Expressed in U.S. dollars)
BRUUSH ORAL CARE INC.
CONDENSED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited - Expressed in U.S. dollars)
As at | Note | April 30, 2023 | October 31, 2022 | ||||||||
ASSETS | |||||||||||
Current | |||||||||||
Cash | $ | 194,321 | $ | 72,921 | |||||||
Term deposit | - | 18,506 | |||||||||
Accounts and other receivables | 3 | 152,604 | 175,256 | ||||||||
Inventory | 4 | 142,950 | 241,341 | ||||||||
Prepaid expenses and deposits | 5 | 395,976 | 677,474 | ||||||||
885,851 | 1,185,498 | ||||||||||
Non-current | |||||||||||
Equipment | 4,914 | 5,619 | |||||||||
Total assets | $ | 890,765 | $ | 1,191,117 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
Current | |||||||||||
Accounts payable and accrued liabilities | 6,8 | $ | 2,308,607 | $ | 1,345,288 | ||||||
Due to related party | 8 | 311,774 | - | ||||||||
Loan payable | 7 | 2,336,222 | - | ||||||||
Deferred revenue | 2,009 | 6,045 | |||||||||
Warrant derivative | 10 | 1,107,775 | 1,242,580 | ||||||||
Total liabilities | 6,066,387 | 2,593,913 | |||||||||
SHAREHOLDERS’ EQUITY | |||||||||||
Share capital | 9 | 24,889,414 | 23,845,704 | ||||||||
Obigation to issue securities | 9 | 283 | - | ||||||||
Reserves | 9 | 1,905,507 | 1,137,814 | ||||||||
Accumulated deficit | (31,970,826 | ) | (26,386,314 | ) | |||||||
Total shareholders’ equity | (5,175,622 | ) | (1,402,796 | ) | |||||||
Total liabilities and shareholders’ deficiency | $ | 890,765 | $ | 1,191,117 |
Nature of operations and going concern (Note 1)
Contingencies (Note 14)
Subsequent events (Notes 7, 9 and 14)
Approved and authorized for issue by the Board of Directors on September 13, 2023.
The accompanying notes are an integral part of these condensed interim financial statements.
BRUUSH ORAL CARE INC.
CONDENSED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited - Expressed in U.S. dollars, except for the number of shares)
Three months ended | Six months ended | ||||||||||||||||||
Note | �� | April 30, 2023 | April 30, 2022 | April 30, 2023 | April 30, 2022 | ||||||||||||||
Revenues | $ | 325,532 | $ | 301,978 | $ | 1,401,624 | $ | 1,111,808 | |||||||||||
Cost of goods sold | 4 | 79,336 | 97,825 | 436,086 | 376,088 | ||||||||||||||
Gross Profit | 246,196 | 204,153 | 965,538 | 735,720 | |||||||||||||||
Expenses | |||||||||||||||||||
Advertising and marketing | 620,203 | 425,903 | 4,483,815 | 2,567,496 | |||||||||||||||
Amortization and depreciation expense | 1,062 | 2,787 | 2,110 | 5,640 | |||||||||||||||
Commission | 12,899 | 9,954 | 62,447 | 29,841 | |||||||||||||||
Consulting | 8 | 273,202 | 142,384 | 559,177 | 482,991 | ||||||||||||||
Interest and bank charges | 220,179 | 231,122 | 224,344 | 358,445 | |||||||||||||||
Inventory management | 6,549 | 4,459 | 18,143 | 12,896 | |||||||||||||||
Merchant fees | 9,221 | 27,393 | 47,923 | 56,460 | |||||||||||||||
Office and administrative expenses | 116,982 | 48,882 | 260,122 | 123,782 | |||||||||||||||
Professional fees | 8 | 43,429 | 27,034 | 260,802 | 73,519 | ||||||||||||||
Research and development | 1,500 | - | 1,680 | - | |||||||||||||||
Salaries and wages | 8 | 358,465 | 254,790 | 757,208 | 436,575 | ||||||||||||||
Share-based compensation | 8,9 | 202,884 | - | 406,154 | 7,861 | ||||||||||||||
Shipping and delivery | 152,205 | 135,935 | 450,147 | 350,096 | |||||||||||||||
Travel and entertainment | 38,090 | 52,853 | 68,884 | 127,359 | |||||||||||||||
(2,056,870 | ) | (1,363,496 | ) | (7,602,956 | ) | (4,632,961 | ) | ||||||||||||
Other items | |||||||||||||||||||
Financing costs | 10 | - | (1,650,000 | ) | (417,794 | ) | (3,150,000 | ) | |||||||||||
Foreign exchange | 14,179 | 7,591 | (31,745 | ) | 19,737 | ||||||||||||||
Gain on revaluation of warrant derivative | 10 | 1,292,230 | 68,779 | 1,473,271 | 181,078 | ||||||||||||||
Other income | 11 | 159,324 | - | 159,324 | - | ||||||||||||||
Write down of prepaid inventory | 5 | (130,150 | ) | - | (130,150 | ) | - | ||||||||||||
1,335,583 | (1,573,630 | ) | 1,052,906 | (2,949,185 | ) | ||||||||||||||
Net and comprehensive loss | $ | (475,091 | ) | $ | (2,732,973 | ) | $ | (5,584,512 | ) | $ | (6,846,426 | ) | |||||||
Loss per share - Basic and diluted | $ | (0.95 | ) | $ | (17.39 | ) | $ | (12.79 | ) | $ | (43.56 | ) | |||||||
Weighted average number of common shares outstanding - basic and diluted | 498,721 | 157,154 | 436,525 | 157,154 |
The accompanying notes are an integral part of these condensed interim financial statements.
BRUUSH ORAL CARE INC.
CONDENSED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited - Expressed in U.S. dollars, except for the number of shares)
Common Stock | Obligation | |||||||||||||||||||||||
Number | to issue | Accumulated | ||||||||||||||||||||||
of shares | Amount | securities | Reserves | Deficit | Total | |||||||||||||||||||
Balance, October 31, 2021 | 157,154 | $ | 13,276,909 | $ | - | $ | 400,936 | $ | (17,621,043 | ) | $ | (3,943,198 | ) | |||||||||||
Securities to be issued for financing costs | - | - | 3,150,000 | - | - | 3,150,000 | ||||||||||||||||||
Shares issued for services | - | - | - | 7,861 | - | 7,861 | ||||||||||||||||||
Net and comprehensive loss | - | - | - | - | (6,846,426 | ) | (6,846,426 | ) | ||||||||||||||||
Balance, April 30, 2022 | 157,154 | $ | 13,276,909 | $ | 3,150,000 | $ | 408,797 | $ | (24,467,469 | ) | $ | (7,631,763 | ) | |||||||||||
Balance, October 31, 2022 | 326,028 | $ | 23,845,704 | $ | - | $ | 1,137,814 | $ | (26,386,314 | ) | $ | (1,402,796 | ) | |||||||||||
Private placement units | 118,667 | 973,419 | - | - | - | 973,419 | ||||||||||||||||||
Exercise of warrants | 66,666 | 637,812 | 283 | - | - | 638,095 | ||||||||||||||||||
Shares issued for services | - | (361,539 | ) | - | 361,539 | - | - | |||||||||||||||||
Financing costs | - | (205,982 | ) | - | - | - | (205,982 | ) | ||||||||||||||||
Share-based compensation | - | - | - | 406,154 | - | 406,154 | ||||||||||||||||||
Net and comprehensive loss | - | - | - | - | (5,584,512 | ) | (5,584,512 | ) | ||||||||||||||||
Balance, April 30, 2023 | 511,361 | $ | 24,889,414 | $ | 283 | $ | 1,905,507 | $ | (31,970,826 | ) | $ | (5,175,622 | ) |
The accompanying notes are an integral part of these condensed interim financial statements.
BRUUSH ORAL CARE INC.
CONDENSED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited - Expressed in U.S. dollars)
Six months ended | Six months ended | |||||||
April 30, 2023 | April 30, 2022 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (5,584,512 | ) | $ | (6,846,426 | ) | ||
Items not affecting cash: | ||||||||
Amortization and depreciation | 2,110 | 5,640 | ||||||
Share-based compensation | 406,154 | 7,861 | ||||||
Gain on revaluation of warrant derivative | (1,473,271 | ) | (181,078 | ) | ||||
Write down of prepaid inventory | 130,150 | - | ||||||
Accretion of promissory note | 206,968 | 247,261 | ||||||
Unrealized foreign exchange | (21 | ) | - | |||||
Gain on write-off of accounts payable | - | (1,005 | ) | |||||
Listing expense | - | (27 | ) | |||||
Financing costs | - | 3,150,000 | ||||||
Changes in non-cash working capital | ||||||||
Accounts and other receivables | 22,652 | 17,961 | ||||||
Inventory | 98,391 | 167,057 | ||||||
Term deposit | 18,506 | - | ||||||
Prepaid expenses and deposits | 151,348 | 40,015 | ||||||
Accounts payable and accrued liabilities | 1,279,135 | (192,550 | ) | |||||
Deferred revenue | (4,036 | ) | 224,850 | |||||
Net cash flows used in operating activities | (4,746,426 | ) | (3,360,441 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (1,405 | ) | (2,042 | ) | ||||
Net cash flows used in investing activities | (1,405 | ) | (2,042 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from private placement warrants | 2,742,069 | - | ||||||
Proceeds from convertible debentures | - | 3,760,725 | ||||||
Proceeds from promissory notes | 1,874,254 | - | ||||||
Proceeds from exercise of warrants | 1,667 | - | ||||||
Share subscriptions received in advance | 283 | - | ||||||
Proceeds from loans | 508,225 | - | ||||||
Repayment of loans | (257,267 | ) | - | |||||
Net cash flows provided by financing activities | 4,869,231 | 3,760,725 | ||||||
Change in cash | $ | 121,400 | $ | 398,242 | ||||
Cash | ||||||||
Beginning of period | $ | 72,921 | $ | 14,530 | ||||
End of period | $ | 194,321 | $ | 412,772 | ||||
Supplemental cash flow disclosure | ||||||||
Interest | $ | - | $ | - | ||||
Taxes paid | $ | - | $ | - | ||||
Non- cash investing and financing activities | ||||||||
Fair value of warrants exercised | $ | 636,160 | $ | - | ||||
Broker warrants | $ | 361,539 | $ | - |
The accompanying notes are an integral part of these condensed interim financial statements.
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
1. | NATURE OF OPERATIONS AND GOING CONCERN |
Bruush Oral Care Inc. (the “Company”) was incorporated in British Columbia under the Business Corporations Act on October 10, 2017. The Company is in the business of selling electric toothbrushes. The Company is located at 128 West Hastings Street, Unit 210, Vancouver, British Columbia V6B 1G8. The Company’s common shares are listed for trading on NASDAQ under the symbol “BRSH”.
As of April 30, 2023, the Company had a working capital deficit of $5,180,536, an accumulated deficit totaling $31,970,826. The ability of the Company to carry out its business objectives is dependent on its ability to secure continued financial support from related parties, to obtain equity financing, or to ultimately attain profitable operations in the future. The Company will need to raise additional capital during the next twelve months and beyond to support current operations and planned development. Whether and when the Company can attain profitability and positive cash flows is uncertain. While the Company has been successful in securing financing in the past, there is no assurance that financing will be available in the future on terms acceptable to the Company.
These factors form a material uncertainty that may cast significant doubt upon the Company’s ability to continue as a going concern. These financial statements do not give effect to adjustments to the carrying value and classification of assets and liabilities and related expense that would be necessary should the Company be unable to continue as a going concern. If the going concern assumption is not appropriate, material adjustments to the statements could be required.
On July 7, 2023, the Company completed a 1-for-25 reverse split of its common shares (“the Consolidation”). The Consolidation is effective as of the close of business on July 31, 2023. Except where otherwise indicated, all historical share numbers and per share amounts have been adjusted on a retroactive basis to reflect following the Consolidation.
2. | BASIS OF PRESENTATION |
Statement of compliance
These unaudited condensed interim financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain disclosures included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB have been condensed or omitted and these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended October 31, 2022.
The Company’s management makes judgments in its process of applying the Company’s accounting policies in the preparation of its unaudited condensed interim financial statements. In addition, the preparation of the financial data requires that the Company’s management make assumptions and estimates of the effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. The critical judgments and estimates applied in the preparation of the Company’s unaudited condensed interim financial statements are consistent with those applied and disclosed in the Company’s financial statements for the year ended October 31, 2022. In addition, other than noted below, the accounting policies applied in these unaudited condensed interim financial statements are consistent with those applied and disclosed in the Company’s audited financial statements for the year ended October 31, 2022.
These unaudited condensed interim financial statements were approved by the Board of Directors on September 13, 2023.
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
Basis of presentation
These condensed interim financial statements have been prepared on a historical cost basis and presented in U.S. dollars which is the functional currency of the Company. The financial statements of the Company have been prepared on an accrual basis, except for cash flow information. The condensed interim financial statements have been prepared on a historical cost basis except for warrants and options, which are measured at fair value.
3. | ACCOUNTS AND OTHER RECEIVABLES |
April 30, 2023 | October 31, 2022 | |||||||
Trade receivables | $ | 52,879 | $ | 103,471 | ||||
Sales taxes receivable | 99,725 | 71,785 | ||||||
$ | 152,604 | $ | 175,256 |
4. | INVENTORY |
Inventory consisted entirely of finished goods.
During the six months ended April 30, 2023, $434,994 (six months ended April 30, 2022 - $332,657) of inventory was sold and recognized in cost of goods sold, and $17,473 (six months ended April 30, 2022 - $89,646) of inventory was used for promotional purposes and recognized in other expense categories, such as selling and marketing and investor relations.
5. | PREPAID EXPENSES AND DEPOSITS |
April 30, 2023 | October 31, 2022 | |||||||
Prepaid expenses | $ | 67,418 | $ | 191,322 | ||||
Deposits on inventory | 317,864 | 475,458 | ||||||
Deposits | 10,694 | 10,694 | ||||||
$ | 395,976 | $ | 677,474 |
Deposits on inventory relate to payment for inventory that is still to be received. During the six months ended April 30, 2023, the Company impaired deposits on inventory of $130,150 (October 31, 2022 – $Nil).
6. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
April 30, 2023 | October 31, 2022 | |||||||
Accounts payable | $ | 1,661,284 | $ | 909,438 | ||||
Accrued liabilities | 647,323 | 435,850 | ||||||
$ | 2,308,607 | $ | 1,345,288 |
7. | PROMISSORY NOTE |
On March 6, 2023, the Company issued an unsecured promissory note (“the Promissory note”) in a principal amount of $2,749,412. The Promissory note was issued at discount of 15% with a maturity date of July 18, 2023. The principal amount outstanding shall bear no interest during the period up until July 18, 2023. The Promissory note will only bear simple interest at the rate of 20% per annum in the event of default from the date of such non-payment until such amount is paid in full.
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
A continuity of the Promissory note is shown below:
Balance October 31, 2022 | $ | - | ||
Additions | 2,749,412 | |||
Discount | (412,412 | ) | ||
Transaction costs | (207,746 | ) | ||
Accretion | 206,968 | |||
Balance April 30, 2023 | $ | 2,336,222 |
Subsequent to the period ended, the Company and the Promissory note holder (“the Holder”) entered into an agreement in which the Holder subscribed for convertible notes (Note 14) in lieu of repayment and Promissory note was cancelled in its entirety.
8. | RELATED PARTY TRANSACTIONS |
Key Management Compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and Board of Director members.
All related party transactions are in the normal course of operations. All amounts either due from or due to related parties other than specifically disclosed are non-interest bearing, unsecured and have no fixed terms of repayments.
Related party transactions with key management directors, subsequent and former directors and companies and entities over which they have significant influence over:
Three months ended | Six months ended | |||||||||||||||
April 30, 2023 | April 30, 2022 | April 30, 2023 | April 30, 2022 | |||||||||||||
Consulting fees | $ | 11,163 | $ | 35,790 | $ | 11,163 | $ | - | ||||||||
Director fees | 46,500 | - | 93,000 | 47,905 | ||||||||||||
Professional fees | - | 50,000 | - | 50,000 | ||||||||||||
Salaries | 224,949 | 70,880 | 321,234 | 110,354 | ||||||||||||
Share-based compensation | 203,268 | - | 405,419 | - | ||||||||||||
$ | 485,880 | $ | 156,670 | $ | 830,816 | $ | 208,259 |
Accounts payable and accrued liabilities – As of April 30, 2023, $11,163 (October 31, 2022 - $33,918) due to related parties was included in accounts payable and accrued liabilities.
As at June 30, 2023, included in loans payable is $311,774 (September 30, 2022 - $Nil) due to the Chief Executive Officer of the Company. This loan is non-interest bearing, unsecured and payable on demand.
9. | SHARE CAPITAL |
a) | Share capital |
Authorized share capital
Unlimited Common Shares without par value.
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
Shares outstanding
On July 29, 2022, the Company completed a share reorganization (the “Share Reorganization”) to redesignate all Class B shares to common shares and to convert the Class A shares to common shares. The Company also effected a share consolidation on the basis of 1 new share for each 3.86 shares outstanding (the “Consolidation”). Prior to the Share Reorganization and Consolidation, the Company had 6,824,127 Class A and 7,130,223 Class B common shares issued and outstanding. Immediately following the Share Reorganization and Consolidation, the Company had 3,615,116 common shares outstanding. Except where otherwise indicated, all historical share numbers and per share amounts have been adjusted on a retroactive basis to reflect the Share Reorganization and Consolidation.
The Company also completed another Share Reorganization on July 31, 2023 in which 1 new share was issued for each 25 outstanding shares. Prior to this Share Reorganization, a total of 12,784,209 common shares were outstanding and they were converted into 511,361 common shares. Except where otherwise indicated, all historical share numbers and per share amounts have been adjusted on a retroactive basis to also reflect this Share Reorganization.
Six months ended April 30, 2023:
On December 9, 2022, the Company closed a private placement pursuant (“the Private placement”) to a securities purchase agreement with institutional investors. The Company issued 118,667 units (“the units”) and 78,000 pre-funded units (“the pre-funded units”) at a purchase price of $15 per unit for gross proceeds of $2,948,050. The pre-funded units were sold at a purchase price of $14.98. Each of the units consists of one share of common stock and one non-tradable warrant (“the unit warrants”) exercisable for one share of common stock at a price of $15 for a period of 5.5 years from the closing date of the Private placement. The pre-funded Unit consist of one pre-funded common share purchase warrant of the Company (a “pre-funded warrant”) and one unit warrant. As at April 30, 2023, $283 had been received in advance as subscriptions for warrants still to be exercised.
In connection with the Private placement, the Company paid share issuance costs of $623,776 consisting of $295,000 in underwriting fees, $132,500 in legal fees and $196,276 in other related expenses. Total transaction costs of $623,776 were incurred relating to the Private placement and $205,982 was allocated to equity.
During the six months ended April 30, 2023, the Company issued 66,667 common shares as a result of the exercise of 66,667 warrants for total proceeds of $1,667. The weighted average market price of the Company’s common shares at the period of the exercise was $9.56 per share.
Six months ended April 30, 2022:
There were no share issuances during the six months ended April 30, 2022.
a) | Options |
The Company has established a stock option plan for its directors, officers, employees, and consultants under which the Company may grant options (each, an “Option”) from time to time to acquire Shares. The exercise price of each Option shall be determined by the Board of Directors. Options may be granted for a maximum term of five years from the date of grant. Options are non-transferable and expire immediately upon termination of employment for cause, or within 30 days of termination of employment for cause, or within 30 days of termination of employment or holding office as director or officer of the Company or in the case of death. Unless otherwise provided in the applicable grant agreement, Options fully vest upon the grant thereof.
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
Six months ended April 30, 2023:
On April 3, 2023, the Company granted 40,800 stock options to its directors and officers. Each option is exercisable for one common share in the capital of the Company at an exercise price of $6.25 per share. These options vest over four years from the date of grant and expire on April 3, 2028. The fair value of the options was estimated to be $162,384 based on the Black-Scholes Option Pricing Model using the following assumptions: fair value of the underlying stock – $6.48, exercise price $6.50, expected dividend yield - 0%, expected volatility - 72%, risk-free interest rate – 2.94% and an expected remaining life – 5 years.
Six months ended April 30, 2022:
There were no option grants during the six months ended April 30, 2022.
During the six months ended April 30, 2023, the Company recognized share-based compensation expense of $6,245 for the vesting of options (six months ended April 30, 2022 - $7,862).
As at April 30, 2023, the following options were outstanding and vested, entitling the holders thereof the right to purchase one common share for each option held as follows:
Outstanding | Exercise Price | Expiry Date | Vested | ||||||||
3,207 | CAD$172.50 | November 9, 2025 | 3,207 | ||||||||
40,800 | $ | 6.25 | April 3, 2028 | - | |||||||
44,007 | 3,207 |
b) | Warrants |
During August 2022, the Company’s volume weighted average stock price was less than the exercise floor of $52 as per the agreements for the warrants issued as part of the units offered in the Company’s initial public offering (“IPO”) as a result, the following occurred:
● | Effective after the closing of trading on November 3, 2022 (the 90th calendar day immediately following the issuance date of the Warrants), the exercise price of all IPO warrants was reset from $104 to $52 (“reset price”). The other terms of the IPO warrants remained unchanged. | |
● | On November 3, 2022, the Company also issued to an aggregate amount of 266,420 additional warrants (“the additional warrants”) to purchase 266,420 shares of common stock. The Additional Warrants expire November 3, 2027 and are exercisable at a price of $52. |
Continuity of the warrants issued and outstanding as follows:
Number of warrants | Weighted average exercise price | |||||||
Outstanding, October 31, 2021 | 29,210 | $ | 196.75 | |||||
Granted | 174,078 | 105.50 | ||||||
Outstanding, October 31, 2022 | 203,288 | $ | 118.75 | |||||
Granted | 553,019 | 5.25 | ||||||
Exercised | (66,667 | ) | 0.025 | |||||
Outstanding, April 30, 2023 | 689,640 | $ | 46.00 |
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
The following table discloses the number of warrants outstanding as at April 30, 2023:
Number of warrants | Price | Expiry date | |||||
10,736 | CAD$86.75 | August 3, 2024 | |||||
18,474 | CAD$260.50 | August 3, 2024 | |||||
163,565 | $ | 52 | August 4, 2027 | ||||
10,514 | $ | 130 | August 4, 2027 | ||||
11,931 | $ | 0.025 | August 4, 2027 | ||||
266,420 | $ | 52 | November 3, 2027 | ||||
118,667 | $ | 15 | June 9, 2028 | ||||
78,000 | $ | 15 | June 9, 2028 | ||||
11,333 | $ | 0.025 | No expiry | ||||
689,640 |
As at April 30, 2023, the weighted average life remaining of warrants outstanding is 4.36 years.
c) | Restricted Share Awards |
On June 30, 2022, the Company issued 19,689 Restricted Share Awards (“RSU” or “RSU’s”) to directors of the Company. The RSU’s vest over a period of three years, in three equal tranches on the first, second, and third anniversaries of the grant date. At October 31, 2022, none of the RSU’s had vested. The Company recognizes the share-based payment expense over the vesting terms. The share-based compensation costs for the RSU’s are based on the share price at the date of grant at a price of $71.25 per RSU.
During the six months ended April 30, 2023, the Company recognized share-based compensation expense of $399,909 for the vesting of RSUs (Six months ended April 30, 2022 - $nil).
As at April 30, 2023 and October 31, 2022, 19,689 RSU’s were outstanding.
10. | WARRANT DERIVATIVE LIABILITY |
In July and August 2020, in connection with a private placement, the Company issued 10,710 warrants with an exercise price of CAD$86.75 ($66.50) per warrant with an expiry date of twenty-four months from the time the Company completes a bone-fide public offering of common shares under a prospectus or registration statement filed with the securities regulatory authorities in Canada or the United States (the “Liquidity Event”). As the warrants have an exercise price denominated in a currency other than the Company’s functional currency, they are derivative financial instrument measured at fair value at the end of each reporting period. On July 29, 2022, the Company amended the exercise price of 3,461 of the warrants to $66.50. As a result, the derivative liability associated with these warrants at the time of $136,047 was derecognized and recorded to equity. The fair value at the time of derecognition was based on the Black-Scholes Option Pricing Model using the following assumptions: fair value of the underlying stock - $71.25, expected dividend yield – 0%, expected volatility – 100%, risk-free interest rate – 2.92% and an expected remaining life – 2.01 years. As at April 30, 2023, the fair value of the remaining 7,248 warrants which were not repriced (and therefore continue to be recognized as derivative financial instruments) was determined to be $122 based on the Black-Scholes Option Pricing Model using the following assumptions: fair value of the underlying stock – CAD$8.75, expected dividend yield – 0%, expected volatility – 74%, risk-free interest rate – 3.72% and an expected remaining life – 1.26 years (2022 - $30,469 based on the Black-Scholes Option Pricing Model using the following assumptions: fair value of the underlying stock – CAD$37.25, expected dividend yield – 0%, expected volatility – 72%, risk-free interest rate – 3.90% and an expected remaining life – 1.76 years).
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
In August and September 2020, in connection with a private placement, the Company issued 15,290 warrants with an exercise price of CAD$260.50 ($195) per warrant with an expiry date of twenty-four months from the Liquidity Event. As the warrants have an exercise price denominated in a currency other than the Company’s functional currency, they are derivative financial instrument measured at fair value at the end of each reporting period. As at April 30, 2023, the fair value of the warrants was determined to be $3 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – CAD$8.75, expected dividend yield – 0%, expected volatility – 74%, risk-free interest rate – 3.72% and an expected remaining life – 1.26 years. (2022 - $8,655 based on the Black-Scholes Option Pricing Model using the following assumptions: fair value of the underlying stock – CAD$37.25, expected dividend yield – 0%, expected volatility – 72%, risk-free interest rate – 3.90% and an expected remaining life – 1.76 years).
In August 2022, in connection with the units issued as part of the Company’s IPO, the Company issued 149,142 warrants with an exercise price of $104 per warrant with an expiry date of five years from the date of issuance. The warrants contain a cashless exercise provision which enables the holder to receive common shares equal to the fair value of the warrants based on the number of warrants to be exercise multiplied by the fair value of the common shares less the exercise price with the difference divided by the fair value of the share. If a warrant holder exercises this option, there will be variability in the number of shares issued, therefore they are a derivative financial instrument measured at fair value at the end of each reporting period. On November 3, 2022 ,the exercise price of these warrants was reset from $104 to $52 the other terms of the IPO warrants remained unchanged (Note 9(b)).
As at April 30, 2023, the fair value of the warrants was determined to be $152,713 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $6.50, expected dividend yield – 0%, expected volatility – 74%, risk-free interest rate – 3.04% and an expected remaining life – 4.27 years. (2022 – $1,097,323 based on the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $27.25, expected dividend yield – 0%, expected volatility – 67%, risk-free interest rate – 3.43% and an expected remaining life – 4.76 years).
Also in connection with the IPO, on November 3, 2022, the Company issued to an aggregate amount of 266,420 additional warrants to purchase 266,420 shares of common stock (Note 9(b)). The Additional Warrants expire November 3, 2027 and are exercisable at a price of $2.08. These warrants also contain a cashless exercise provision which enables the holder to receive common shares equal to the fair value of the warrants based on the number of warrants to be exercise multiplied by the fair value of the common shares less the exercise price with the difference divided by the fair value of the share. . If a warrant holder exercises this option, there will be variability in the number of shares issued, therefore they are a derivative financial instrument measured at fair value at the end of each reporting period. At issuance, the fair value of the warrants was determined to be $2,736,592 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $24.50, expected dividend yield – 0%, expected volatility – 68%, risk-free interest rate – 3.67% and an expected remaining life – 5 years. As at April 30, 2023, the fair value of the warrants was determined to be $291,303 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $6.50, expected dividend yield – 0%, expected volatility – 73%, risk-free interest rate – 3.04% and an expected remaining life – 4.52 years.
In August 2022, in connection with the units issued as part of its December Senior Secured Promissory Notes, the Company issued 14,423 warrants with an exercise price of $104 per warrant with an expiry date of five years from the date of issuance. The warrants contain a cashless exercise provision which enables the holder to receive common shares equal to the fair value of the warrants based on the number of warrants to be exercise multiplied by the fair value of the common shares less the exercise price with the difference divided by the fair value of the share. If a warrant holder exercises this option, there will be variability in the number of shares issued, therefore they are a derivative financial instrument measured at fair value at the end of each reporting period. At issuance, the fair value of the warrants was determined to be $488,147 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $70.25, expected dividend yield – 0%, expected volatility – 66%, risk-free interest rate – 2.79% and an expected remaining life – 5 years. As at April 30, 2023, the fair value of the warrants was determined to be $36,917 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $6.50, expected dividend yield – 0%, expected volatility – 74%, risk-free interest rate – 3.04% and an expected remaining life – 4.27 years. (2022 – $106,119 based on the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $27.25, expected dividend yield – 0%, expected volatility – 67%, risk-free interest rate – 3.43% and an expected remaining life – 4.76 years).
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
During December 2022, in connection with the units issued as part of the private placement (Note 9), the Company issued 118,667 unit warrants with an exercise price of $15 with an expiry date of 5.5 years from the date of issuance. The warrants contain a cashless exercise provision which enables the holder to receive common shares equal to the fair value of the warrants based on the number of warrants to be exercise multiplied by the fair value of the common shares less the exercise price with the difference divided by the fair value of the share. If a warrant holder exercises this option, there will be variability in the number of shares issued, therefore they are a derivative financial instrument measured at fair value at the end of each reporting period. At issuance, the fair value of the warrants was determined to be $806,581 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $10.25, expected dividend yield – 0%, expected volatility – 67%, risk-free interest rate – 3.07% and an expected remaining life – 5.5 years. As at April 30, 2023, the fair value of the warrants was determined to be $333,875 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $6.50, expected dividend yield – 0%, expected volatility – 71%, risk-free interest rate – 3.04% and an expected remaining life – 5.11 years.
Also in connection with the private placement (Note 9), the Company issued 78,000 pre-funded warrants with an exercise price of $0.025 with no expiry date and another 78,000 unit warrants with an exercise price of $15 and with an expiry date of 5.5 years from the date of issuance for total proceeds of $1,168,051. These warrants also contain a cashless exercise provision which enables the holder to receive common shares equal to the fair value of the warrants based on the number of warrants to be exercise multiplied by the fair value of the common shares less the exercise price with the difference divided by the fair value of the share. If a warrant holder exercises this option, there will be variability in the number of shares issued, therefore they are a derivative financial instrument measured at fair value at the end of each reporting period. At issuance, the fair value of the prefunded warrants and unit warrants was $747,917 and $420,134 respectively, the fair value of the pre-funded warrants was determined with reference to the fair value of the Company’s common shares and the fair value of the unit warrants was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $12.13, expected dividend yield – 0%, expected volatility – 67%, risk-free interest rate – 3.07% and an expected remaining life – 5.5 years. As at April 30, 2023 the fair value of the unit warrants was $219,458 respectively and was estimated using the Black-Scholes Options Pricing Model based on the following assumptions: fair value of the underlying stock – $6.50, expected dividend yield – 0%, expected volatility – 71%, risk-free interest rate – 3.04% and an expected remaining life – 5.11 years.
During January 2023, 49,867 pre-funded warrants were exercised (Note 9) and a fair value loss of $39,565 was recognized from the fair valuation of these pre-funded warrants on the dates of exercise and their total fair value was $517,720.
A further 16,800 pre- funded warrants were exercised during April 2023 (Note 9) and a fair value gain of $53,340 was recognized from the fair valuation of these pre-funded warrants on the dates of exercise and their total fair value was $118,440.
As at April 30, 2023 the fair value of the remaining pre-funded warrants was deterimined to be $73,384 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: fair value of the underlying stock – $6.50, expected dividend yield – 0%, expected volatility – 71%, risk-free interest rate – 3.04% and an expected remaining life – 5.11 years.
From the total transaction costs of $623,776 that were incurred relating to the Private placement (Note 9), $417,794 was allocated to the derivative liability.
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
The following is a continuity of the Company’s warrant derivative liability:
Balance, October 31, 2021 | $ | 1,582,977 | ||
Issued during the period | 5,535,852 | |||
Change in fair value of derivative | (5,740,202 | ) | ||
Derecognition of warrant derivative | (136,047 | ) | ||
Balance, October 31, 2022 | $ | 1,242,580 | ||
Issued during the period | 1,974,626 | |||
Change in fair value of derivative | (1,473,271 | ) | ||
Derecognition of warrant derivative | (636,160 | ) | ||
Balance, April 30, 2023 | $ | 1,107,775 |
11. | OTHER INCOME |
During the year ended October 31, 2022, the Company fell victim to a cyber-scam that resulted in the Company making an inappropriate payment of $166,150.
During the six months ended April 30, 2023, the Company has filed an insurance claim and received an indemnity of CAD$217,943 ($159,324) in relation to the cyber-scam.
12. | FINANCIAL INSTRUMENT RISK MANAGEMENT |
Classification of financial instruments
Financial assets included in the statement of financial position are as follows:
Level in fair value hierarchy | April 30, 2023 | October 31, 2022 | ||||||||||
Amortized cost: | ||||||||||||
Cash | $ | 194,321 | $ | 72,921 | ||||||||
Term deposit | - | 18,506 | ||||||||||
Accounts receivable | 152,604 | 175,256 | ||||||||||
$ | 346,925 | $ | 266,683 |
Financial liabilities included in the statement of financial position are as follows:
Level in fair value hierarchy | April 30, 2023 | October 31, 2022 | ||||||||||
Amortized cost: | ||||||||||||
Accounts payable and accrued expenses | $ | 2,308,607 | $ | 1,345,288 | ||||||||
Loans payable | 2,336,222 | - | ||||||||||
Due to related party | 311,774 | - | ||||||||||
FVTPL: | ||||||||||||
Warrant derivative liability | Level 3 | 1,107,775 | 1,242,580 | |||||||||
$ | 6,064,378 | $ | 2,587,868 |
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
Fair value
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
● | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; |
● | Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and |
● | Level 3 – Inputs that are not based on observable market data. |
The carrying value of the Company’s cash, term deposits, accounts receivable and accounts payable and accrued liabilities as at approximate their fair value due to their short terms to maturity.
The following table shows the valuation techniques used in measuring Level 3 fair values for the derivative liability as well as the significant unobservable inputs used.
Type | Valuation technique | Key inputs | Inter-relationship between significant inputs and fair value measurement | |||
Warrant derivative liability | The fair value of the warrant derivative liability at initial recognition and at period-end has been calculated using the Black Scholes option pricing model. | Key observable inputs ● Share price ● Risk free interest rate ● Dividend yield Key unobservable inputs ● Expected volatility
| The estimated fair value would increase (decrease) if: ● The share price was higher (lower) ● The risk-free interest rate was higher (lower) ● The dividend yield was lower (higher) ● The expected volatility was higher (lower) |
For the fair values of the derivative liability, reasonably possible changes to the expected volatility, the most significant unobservable input would have the following effects:
Unobservable Inputs | Change | Impact on comprehensive loss | ||||||||||
Six months ended April 30, 2023 | Six months ended April 30, 2022 | |||||||||||
Volatility | 20 | % | $ | 435,415 | $ | 261,511 |
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures.
Credit risk
The Company’s principal financial assets are cash and trade accounts receivable. The Company’s credit risk is primarily concentrated in its cash which is held with institutions with a high credit worthiness. Credit risk is not concentrated with any particular customer. The Company’s accounts receivable consists primarily of GST receivable.
The Company’s maximum credit risk exposure is $152,604.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis.
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
Historically, the Company’s primary source of funding has been the issuance of equity securities for cash, primarily through the issuance of preferred shares. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding.
The following is an analysis of the contractual maturities of the Company’s financial liabilities as at April 30, 2023:
Within one year | Between one and five years | More than five years | ||||||||||
Accounts payable and accrued expenses | $ | 2,308,607 | $ | - | $ | - |
Foreign exchange risk
Foreign currency risk arises from fluctuations in foreign currencies versus the United States dollar that could adversely affect reported balances and transactions denominated in those currencies. As at April 30, 2023, a portion of the Company’s financial assets are held in Canadian dollars. The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in United States dollars. The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currency cash flows as management has determined that this risk is not significant at this point in time. The Company is not exposed to any material foreign currency risk.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to any material interest rate risk.
Capital Management
In the management of capital, the Company includes components of shareholders’ equity. The Company aims to manage its capital resources to ensure financial strength and to maximize its financial flexibility by maintaining strong liquidity and by utilizing alternative sources of capital including equity, debt and bank loans or lines of credit to fund continued growth. The Company sets the amount of capital in proportion to risk and based on the availability of funding sources. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. Issuance of equity has been the primary source of capital to date. Additional debt and/or equity financing may be pursued in future as deemed appropriate to balance debt and equity. To maintain or adjust the capital structure, the Company may issue new shares, take on additional debt or sell assets to reduce debt.
13. | SEGMENTED INFORMATION |
The Company’s breakdown of sales by geographical region is as follows:
Six months ended April 30, 2023 | Six months ended April 30, 2022 | |||||||
United States of America | $ | 1,319,868 | $ | 1,079,617 | ||||
Canada | 81,756 | 32,191 | ||||||
$ | 1,401,624 | $ | 1,111,808 |
Three months ended April 30, 2023 | Three months ended April 30, 2022 | |||||||
United States of America | $ | 295,627 | $ | 289,670 | ||||
Canada | 29,905 | 12,308 | ||||||
$ | 325,532 | $ | 301,978 |
BRUUSH ORAL CARE INC.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. dollars)
Three and six months ended April 30, 2023 and 2022
The Company’s breakdown of sales by product segment is as follows:
Six months ended April 30, 2023 | Six months ended April 30, 2022 | |||||||
Devices | $ | 1,088,876 | $ | 665,475 | ||||
Consumables | 312,748 | 446,333 | ||||||
$ | 1,401,624 | $ | 1,111,808 |
Three months ended April 30, 2023 | Three months ended April 30, 2022 | |||||||
Devices | $ | 280,450 | $ | 62,683 | ||||
Consumables | 45,082 | 238,295 | ||||||
$ | 325,532 | $ | 1,111,808 |
14. | SUBSEQUENT EVENTS |
Litigation
During the subsequent period, litigation was brought against the Company by the Toronto Dominion Bank (“TD Bank”) in which TD Bank made a claim for an amount of $1,721,345 (the “Principal Amount”) relating to a bank overdraft. TD Bank and the Company reached a settlement agreement in which the Company agreed to repay the Principal Amount plus interest and additional costs. The Settlement was guaranteed by a letter of credit issued to TD Bank by the Royal Bank of Canada of $2,000,000.
Convertible debentures
On June 26, 2023, the Company completed its issuance of an unsecured convertible note with a principal aggregate amount of $3,341,176 (the “June 2023 Note”) to the Selling Securityholder with a maturity date of June 26, 2024. The conversion price in effect on any Conversion Date shall be equal to (i) for the first seven months following the date hereof, shall be $0.25, and (ii) following the seven month anniversary of the date hereof, 90% of the lowest closing price of the Company’s shares for the previous three Trading Days prior to the conversion date provided, however, that such price shall in no event be less than $0.15. A maximum of 22,274,507 shares of Common Stock are issuable by the Company upon conversion of the June 2023 note.
In connection with the issuance of the June 2023 Note, the Company entered into a securities purchase agreement with the Selling Securityholder and issued a common stock purchase warrant to purchase 10,023,530 shares of Common Stock (the “Purchase Warrant”), with an Exercise Price of $0.001 or on a cashless basis, to the Selling Securityholder. The Purchase Warrants will be classified as financial liabilities since the terms allows for a cashless net share settlement at the option of the holder.
Share capital
On August 25, 2023, the company offered warrant holders the option to exercise their existing warrants at $3.33 per share, resulting in 633,026 Warrant Shares being issued. Holders were also given new warrants (New Warrants) allowing them to purchase up to 250% of the exercised Warrant Shares at the same price, with an expiration date of June 9, 2028. The exercise of Existing Warrants led to the issuance of New Warrants for a total of 1,582,566 New Warrant Shares.
From August 1 to August 25, 2023, a total of 883,131 shares were issued from warrants being exercised for proceeds of $2,855,979. On August 10 and 14th, the company issued 50,000 and 150,000 common shares as compensation for consulting services.