NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022,
nine months ended October 31, 2021 and twelve months ended January 31, 2021
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 October 31, 2022,
the Company had a working capital deficit of $1,408,415,
an accumulated deficit totaling $26,386,314.
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.
2. BASIS OF PRESENTATION
Statement
of compliance
These
financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Issues
Committee (“IFRIC”). The principal accounting policies applied in the preparation of these financial statements are set out
below. These policies have been consistently applied to all periods presented, unless otherwise stated.
The
Company has changed its fiscal year end from January 31 to October 31, which became effective for the period ended October 31, 2021.
The Company determined that the change in year end would better reflect the annual business cycle given that the holiday season (November
and December) is a peak period for sales. Given the fiscal year ended October 31, 2021 is for a 9-month period, the results may not be
comparable to the 12-month period ended October 31, 2022.
These
financial statements were approved by the Board of Directors on March 10, 2023.
Basis
of presentation
These
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 financial
statements have been prepared on a historical cost basis except for warrants and options, which are measured at fair value.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES AND JUDGMENTS
Revenue
recognition
The
Company’s revenue is generated from the sale of finished product to customers. Those sales predominantly contain a single performance
obligation and revenue is recognized at a single point in time when ownership, risks and rewards transfer, which is typically the date
of receipt by the customer. When the Company has collected payment from a customer, but the product is in transit, the Company will defer
the recognition of the product sale in revenues until such time the product is delivered to the customer. A provision for payment discounts
and product return allowances is recorded as a reduction of sales in the same period the revenue is recognized. The revenue recorded
is presented net of sales and other taxes the Company collect on behalf of governmental authorities.
Foreign
currency translation
The
functional currency of each entity is determined using the currency of the primary economic environment in which that entity operates.
The Company’s financial statements are presented in U.S. dollars.
The
functional currency for the Company is the U.S. dollar.
Foreign
currency transactions are translated into the functional currency of the Company, using the exchange rates prevailing at the dates of
the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from
the remeasurement of monetary items denominated in foreign currency at year end exchange rates are recognized in the statement of loss
and comprehensive loss.
Non-monetary
items are not retranslated at year end and are measured at historical cost (translated using the exchange rates at the transaction date),
except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.
Inventory
Inventory
consists entirely of finished goods and is valued at the lower of cost or net realizable value. The cost of inventory is maintained using
the average-cost method. The net realizable value of finished goods is the estimated selling price in the ordinary course of business,
less applicable variable selling expenses. The cost of finished goods inventory is based on landed cost, which includes all costs incurred
to bring inventory to the Company’s distribution centers including product costs, inbound freight and duty. If the Company determines
that the estimated net realizable value of its inventory is less than the carrying value of such inventory, it records a charge to cost
of goods sold.
Property
and equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to expense as incurred; cost of major additions and betterments are capitalized.
Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from property and equipment and
any gain or loss is reflected as a gain or loss from operations. The estimated useful life of the computers and software is 3 years.
BRUUSH ORAL CARE INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
3. |
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND USE OF ESTIMATES AND JUDGMENTS (continued) |
Intangible
assets
Purchased
intangible assets are recognized as assets in accordance with IAS 38 – Intangible Assets, where it is probable that the use of
the asset will generate future economic benefits and where the cost of the asset can be determined reliably. Intangible assets acquired
are initially recognized at cost of purchase and are subsequently carried at cost less accumulated amortization, if applicable, and accumulated
impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. All finite-lived intangible assets
are stated at cost less accumulated impairment.
Impairment
of assets
The
Company performs impairment tests on its long-lived assets, including property and equipment and intangible assets, when new events or
circumstances occur, or when new information becomes available relating to their recoverability. When the recoverable amount of each
separately identifiable asset or cash generating unit (“CGU”) is less than its carrying value, the asset or CGU’s assets
are written down to their recoverable amount with the impairment loss charged against profit or loss. A reversal of the impairment loss
in a subsequent period will be charged against profit or loss if there is a significant reversal of the circumstances that caused the
original impairment. The impairment will be reversed up to the amount of depreciated carrying value that would have otherwise occurred
if the impairment loss had not occurred.
Leases
The
Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control
the use of an identified asset for a period of time in exchange for consideration. The Company applies a single recognition and measurement
approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make
lease payments and right-of-use assets representing the right to use the underlying assets.
At
the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made
over the lease term. Lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease payments
also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for
terminating the lease, if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not
depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because
the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities
is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the assessment of
an option to purchase the underlying asset.
The
Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use).
Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement
of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred,
and lease payments made at or before the commencement date less any lease incentives received.
As
at October 31, 2022, October 31, 2021 and January 31, 2021, the Company did not have any leases in place.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
3. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES AND JUDGMENTS (continued) |
Research
and development costs
Expenditure
on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognized in profit or
loss as incurred. During the year ended October 31, 2022, $96,431
(Nine months ended October 31, 2021 - $Nil,
twelve months ended January 31, 2021- $Nil)
of research and development costs were recorded in the Statement of Comprehensive Loss.
Development
activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure
is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future
economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the
asset. The expenditure capitalized includes the cost of materials, direct labor, overhead costs that are directly attributable to preparing
the asset for its intended use and borrowing costs on qualifying assets. Other development expenditures are recognized in profit or loss
as incurred.
Research
and development costs incurred subsequent to the acquisition of externally acquired intangible assets and on internally generated intangible
assets are accounted for as research and development costs.
As
at October 31, 2022, October 31, 2021 and January 31, 2021, the Company has not capitalized any research and development costs.
Financial
instruments
The
Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”),
at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification
of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for
managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified
as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument
basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured
at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.
Financial
assets and liabilities at amortized cost
Financial
assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently
carried at amortized cost less any impairment.
Financial
assets and liabilities at FVTPL
Financial
assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of
loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets
and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
3. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES AND JUDGMENTS (continued) |
Debt
investments at FVTOCI
These
assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains
and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains
and losses accumulated in OCI are reclassified to profit or loss.
Equity
investments at FVTOCI
These
assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents
a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit
or loss.
(c) |
Impairment
of financial assets at amortized cost |
The
Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting
date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the
credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset
has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount
equal to the twelve month expected credit losses. The Company shall recognize in the statements of loss and comprehensive loss, as an
impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting
date to the amount that is required to be recognized.
Financial
assets
The
Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers
the financial assets and substantially all of the associated risks and rewards of ownership to another entity.
Financial
liabilities
The
Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The Company also derecognizes
a financial liability when the terms of the liability are modified such that the terms and/or cash flows of the modified instrument are
substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.
Gains
and losses on derecognition are generally recognized in profit or loss.
Income
taxes
Current
income tax:
Current
income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to taxation
authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting
date, in the countries where the Company operates and generates taxable income.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
3. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES AND JUDGMENTS (continued) |
Current
income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income
or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations
in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred
tax:
Deferred
tax is recognized on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
The
carrying amount of deferred tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable
that future taxable income will be available to allow all or part of the temporary differences to be utilized.
Deferred
tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability
is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted and are expected to apply by the end of
the reporting period. Deferred tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation
authority.
Loss
per share
Basic
loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares
outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable
to owners of the Company.
Share
capital
Common
shares are classified as equity. Incremental costs directly attributable to the issuance of common shares are recognized as a deduction
from shareholders’ equity, net of tax. In the event that the financing is not completed, these costs are expensed to profit or
loss.
The
Company may engage in equity financing transactions to obtain the funds necessary to continue operations. These equity financing transactions
may involve issuance of common shares or units. A unit comprises a certain number of common shares and a certain number of share purchase
warrants. Depending on the terms and conditions of each financing agreement, the warrants are exercisable into additional common shares
prior to expiry at a price stipulated by the agreement. Warrants that are part of units are assigned a residual value if the unit is
issued at a price exceeding the market price of underlying share at the time of issuance otherwise the warrants are assigned no value
and included in share capital with the common shares that are concurrently issued. Warrants that are issued as payment for an agency
fee or other transactions costs are accounted for as share-based payment transaction costs.
Warrants
that are exercisable in currencies other than the Company’s functional currency of U.S. dollars are considered to be derivative
financial instruments. The Company presents such warrants as derivative liabilities on the balance sheet and measures them at fair value
at the end of each reporting period.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
3. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES AND JUDGMENTS (continued) |
Critical
accounting estimates and significant management judgments
The
preparation of financial statements in accordance with IFRS requires the Company to use judgment in applying its accounting policies
and make estimates and assumptions about reported amounts at the date of the financial statements and in the future. The Company’s
management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in
the period in which the estimates are revised.
Fair
value measurement of broker warrants and warrant derivative
The
Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date on which
they are granted. When the fair value of financial assets and financial liabilities recorded in the Statements of Financial Position
cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques. Estimating fair
value for broker warrants and the warrant derivative requires determining the most appropriate valuation model, which is dependent on
the terms and conditions of the grant. This estimate also requires the determination of the most appropriate inputs to the valuation
model including the expected remaining life of the broker warrants and the warrant derivative, fair value of the underlying stock, volatility,
risk-free interest rate and dividend yield and making assumptions about them. Where possible the Company will utilize contractual and
publicly available information to determine valuation model inputs. If no such information is available, the Company will use historical
performance and if required, the Company will make estimations based on the best information available. Expected remaining life is determined
using the information in the warrant terms, fair value of the underlying stock is determined based the most recently completed financing,
volatility is estimated based on market data and industry assessment, risk-free interest rate is determined based on central bank rates
for a similar period to the expected remaining life and dividend yield is estimated using the Company’s past performance and future
expectations. The assumptions and models used for estimating fair value for broker warrants and the warrant derivative are disclosed
in Note 12. These are either classified as equity instruments or derivative liabilities subject to whether the exercise price is fixed
or variable.
Useful
lives of property and equipment
Estimates
of the useful lives of property and equipment are based on the period over which the assets are expected to be available for use. The
estimated useful lives are reviewed annually and are updated if expectations differ from previous estimates due to physical wear and
tear, technical or commercial obsolescence, not electing to exercise renewal options on Leases, and legal or other limits on the use
of the relevant assets. In addition, the estimation of the useful lives of the relevant assets may be based on internal technical evaluation
and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes
in the estimates brought about by changes in the factors mentioned above. The amounts and timing of recorded expenses for any period
would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property and equipment
would increase the recorded expenses and decrease the non-current assets.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
3. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES AND JUDGMENTS (continued) |
Income
taxes
The
Company recognizes the tax benefit from an uncertain tax position only if it is probable that the tax position will be sustained based
on its technical merits. The Company measures and record the tax benefits from such a position based on the largest benefit that has
a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s estimated liabilities related to these
matters are adjusted in the period in which the uncertain tax position is effectively settled, the statute of limitations for examination
expires or when additional information becomes available. The amount and timing of future taxable income for unrecognized tax benefits
requires the use of assumptions and significant judgement to estimate the exposures associated with our various filing positions. The
Company has not recognized the value of any deferred tax assets in its statements of financial position. Although the Company believes
that the judgements and estimates made are reasonable, actual results could differ and resulting adjustments could materially affect
our effective income tax rate and income tax provision.
Provisions
for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors.
The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future
date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is
different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such
determination is made.
Other
significant judgments
The
preparation of these financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving
estimates, in applying accounting policies. The most significant judgments in applying the Company’s financial statements include:
- |
The
assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give
rise to significant uncertainty; |
- |
The
determination of the Company’s functional currency; and |
- |
Whether
there are indicators of impairment of the Company’s long-lived assets. |
4. TERM DEPOSIT
The
Company holds a non-redeemable CAD$25,000 ($18,316) term deposit which accrues interest at 4.56% per annum and matures on August 9, 2023.
During the year ended October 31, 2022, interest income of $190 (9 months ended October 31, 2021 - $Nil) has been accrued.
5. ACCOUNTS AND OTHER RECEIVABLES
SUMMARY
OF ACCOUNTS AND OTHER RECEIVABLES
| |
October
31, 2022 | | |
October
31, 2021 | | |
January
31, 2021 | |
Trade receivables | |
$ | 103,471 | | |
$ | 36,734 | | |
$ | 7,206 | |
Sales taxes receivable | |
| 71,785 | | |
| 124,313 | | |
| 73,953 | |
Total | |
$ | 175,256 | | |
$ | 161,047 | | |
$ | 81,159 | |
6. INVENTORY
Inventory
consisted entirely of finished goods.
During
the year ended October 31, 2022, $822,383
(9 months ended October 31, 2021 - $978,243
12
months ended January 31, 2021 - $291,195)
of inventory was sold and recognized in cost of goods sold, and $56,989
(9
months ended October 31, 2021 - $35,683,
12 months ended January 31, 2021 - $64,161)
of inventory was used for promotional purposes and recognized in other expense categories, such as selling and marketing and investor
relations.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
7. PREPAID EXPENSES AND DEPOSITS
SUMMARY
OF PREPAID EXPENSES AND DEPOSITS
| |
October
31, 2022 | | |
October
31, 2021 | | |
January
31, 2021 | |
Prepaid expenses | |
$ | 191,322 | | |
$ | 18,246 | | |
$ | 7,067 | |
Deposits on inventory | |
| 475,458 | | |
| 56,261 | | |
| 111,302 | |
Deposits | |
| 10,694 | | |
| 7,067 | | |
| - | |
Total | |
$ | 677,474 | | |
$ | 81,574 | | |
$ | 118,369 | |
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
SUMMARY
OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| |
October
31, 2022 | | |
October
31, 2022 | | |
January
31, 2021 | |
Accounts payable | |
$ | 909,438 | | |
$ | 2,299,177 | | |
$ | 236,806 | |
Accrued liabilities | |
| 435,850 | | |
| 1,066,885 | | |
| 71,913 | |
Total | |
$ | 1,345,288 | | |
$ | 3,366,062 | | |
$ | 308,719 | |
9. LOANS PAYABLE
On
May 5, 2020, the Company received a loan in the principal amount of CAD$40,000
($28,506)
under the Canada Emergency Business Account (“CEBA”) program. The loan is non-interest bearing and eligible for CAD$10,000 ($7,127)
forgiveness if repaid by December 31, 2022. If not repaid by December 31, 2022, the loan bears interest at 5% per annum and is due on
December 31, 2025. At issuance, the Company intended
to repay the loan by December 31, 2022 and management assessed that the Company will have the financial ability to do so. As it
was probable that the conditions for the forgiveness of the loan will be met, the Company has recognized the CAD$10,000
($7,127)
loan forgiveness as government grant income at loan issuance. As the loan was issued at below market rates, the initial fair value of
the loan was determined to be $20,160,
which was determined using an estimated effective interest rate of 15%.
The difference between the face value of the loan and the fair value of the loans of $14,139
has been recognized as government grant income
during the year ended January 31, 2021. On September 27, 2022, the Company repaid CAD$30,000
($21,902)
of the loan, and as repayment occurred prior to December 31, 2022, CAD$10,000
was forgiven.
On
April 7, 2021, the Company received an additional CAD$20,000 ($14,253) under the CEBA program. The additional loan is non-interest bearing
and eligible for CAD$10,000 ($7,704) forgiveness if repaid by December 31, 2022. If not repaid by December 31, 2022, the loan bears interest
at 5% per annum and is due on December 31, 2025. At issuance, the Company intended to repay the loan by December 31, 2022, and management
had assessed that the Company will have the financial ability to do so. As it was probable that the conditions for the forgiveness of
the loan would be met, the Company recognized the CAD$10,000 ($7,704) loan forgiveness as government grant income at issuance. As the
loan was issued at below market rates, the initial fair value of the loan was determined to be $7,703, which was determined using an
estimated effective interest rate of 15%. The difference between the face value of the loan and the fair value of the loans of $8,763
has been recognized as government grant income during the nine months ended October 31, 2021. On September 27, 2022 the Company repaid
CAD$10,000 ($7,301) of the loan, and as repayment occurred prior to December 31, 2022, CAD$10,000 was forgiven.
For
the year ended October 31, 2022, the Company recognized interest expense of $4,838
related to the loans (9 months ended October
31, 2021 - $3,315,
12 months ended January 31, 2021 - $1,782).
As
at October 31, 2022, the carrying value of the loans was $nil (October 31, 2021 - $27,144, January 31, 2021 - $17,580).
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
10. SENIOR SECURED PROMISSORY NOTES
December
Financing
On
December 3, 2021, the Company issued senior secured promissory notes (the “December Senior Secured Promissory Notes”) in
the amount of $3,000,000. The December Senior Secured Promissory Notes have a maturity date of December 3, 2022 and bear interest at
8% per annum. The December Senior Secured Promissory Notes are secured by the Company’s assets.
Should
the Company complete any public offering of securities or any other financing or capital-raising transaction of any kind (each a “Subsequent
Offering”) for gross proceeds of over $5,000,000 prior to December 3, 2022, the Company shall repay the notes in their entirety.
In
conjunction with the issuance of the December Senior Secured Promissory Notes, the Company incurred transaction costs consisting of finders’
fees and professional fees in the amount of $396,500, which was offset against the December Senior Secured Promissory Notes at recognition.
The effective interest rate on the December Senior Secured Promissory Notes was determined to be 22% per annum.
As
part of the agreement, the Company is also to issue
units to the holders of the December Senior Secured Promissory Notes (“the Units”) with the same terms as units to be issued
as part of the Company’s initial public offering (“IPO”). The number of Units is determined by dividing 50%
of the principal amount of the Secured Promissory Notes by the unit price of the Company’s IPO. Each Unit will comprise of one
of the common shares and one warrant (the “Warrants”). Each Warrant is exercisable into one common share at an exercise price
equal to the share price of the Company’s IPO. The Warrants will expire five and a half years after the closing of the Company’s
IPO.
On
August 4, 2022, the Company completed its IPO and repaid principal amounts of $3,000,000 and
$130,882 in
interest for the December Senior Secured Promissory Notes. In addition to the repayment, the Company issued 360,577 Units
to the holders of the December Senior Secured Promissory Notes. The fair value of the Units issued of $1,500,000 has
been recognized as financing costs during the year ended October 31, 2022. $488,149 of
the fair value was allocated to the warrants and was estimated using the Black-Scholes Options Pricing Model using the following
assumptions: expected dividend yield - 0%,
expected volatility - 66%,
risk-free interest rate – 2.79%
and an expected remaining life - 5 years.
April
Financing
On
April 28, 2022, the Company issued senior secured promissory notes (the “April Senior Secured Promissory Notes”) in the amount
of $1,650,000. The April Senior Secured Promissory Notes have a maturity date of December 2, 2022 and bear interest at 8% per annum.
The April Senior Secured Promissory Notes are secured by the Company’s assets. In the event of default, the interest rate increases
to 15%.
The
April Senior Promissory Notes were issued with a 10% discount such that funds of $1,500,000 were received by the Company. In conjunction
with the issuance of the April Senior Secured Promissory Notes, the Company incurred transaction costs consisting of finders’ fees
and professional fees in the amount of $242,750, which was offset against the April Senior Secured Promissory Notes at recognition. The
effective interest rate on the April Senior Secured Promissory Notes was determined to be 55% per annum.
Should
the Company complete any public offering of securities or any Subsequent Offering for gross proceeds of over $5,000,000 prior to December
2, 2022, the Company shall repay the notes in their entirety.
As
part of the agreement, the Company is also to issue
shares to the holders of the April Senior Secured Promissory Notes (“the Commitment Shares”) with the same terms as units
to be issued as part of the Company’s IPO. The number of Commitment Shares is determined by dividing 100%
of the principal amount of the April Secured Promissory Notes by the share price of the Company’s IPO.
On
August 4, 2022, the Company completed its IPO and repaid principal amounts of $1,650,000, and
$71,985 in
interest for the April Senior Secured Promissory Notes. In addition to the repayment, the Company issued 396,635 Commitment
Shares to the holders of the April Senior Secured Promissory Notes. The fair value of the Commitment Shares issued of $1,113,036 has
been recognized as financing costs during the year ended October 31, 2022.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
10. SENIOR SECURED PROMISSORY NOTES (continued)
On
September 29, 2022, the Company paid one of the lenders an additional forebearance fee of $75,000 in conjunction with the December and
April financings.
A
continuity of the senior secured promissory notes below:
SCHEDULE
OF SENIOR SECURED PROMISSORY NOTES
| |
December
Senior Secured Promissory Notes | | |
April
Senior Secured Promissory Notes | | |
Total | |
Balance,
January 31, 2021 and October 31, 2021 | |
$ | - | | |
$ | - | | |
$ | - | |
Additions | |
| 3,000,000 | | |
| 1,650,000 | | |
| 4,650,000 | |
Discount | |
| - | | |
| (150,000 | ) | |
| (150,000 | ) |
Transaction costs | |
| (396,500 | ) | |
| (242,750 | ) | |
| (639,250 | ) |
Accretion | |
| 527,382 | | |
| 464,735 | | |
| 992,117 | |
Repayment | |
| (3,130,882 | ) | |
| (1,721,985 | ) | |
| (4,852,867 | ) |
Balance,
October 31, 2022 | |
$ | - | | |
$ | - | | |
$ | - | |
11. 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.
SCHEDULE OF AMOUNTS DUE TO RELATED PARTIES
a) |
Related
party transactions with directors, subsequent and former directors and companies and entities over which they have significant influence
over: |
| |
12
months ended October
31, 2022 | | |
9
months ended October 31, 2021 | | |
12
months ended January 31, 2021 | |
Director fees | |
$ | 107,168 | | |
| 72,541 | | |
$ | 54,585 | |
Professional fees | |
| 327,370 | | |
| - | | |
| 55,625 | |
Share-based compensation | |
$ | 128,729 | | |
| - | | |
$ | 1,997,611 | |
b) |
Key
management compensation |
| |
12
months ended October
31, 2022 | | |
9
months ended October 31, 2021 | | |
12
months ended January 31, 2021 | |
Consulting fees | |
$ | - | | |
$ | 270,427 | | |
$ | 206,507 | |
Salaries | |
| 686,615 | | |
| - | | |
| - | |
Share-based compensation | |
$ | 143,032 | | |
$ | - | | |
$ | 2,527,596 | |
c) |
Accounts
payable and accrued liabilities – As of October 31, 2022, $33,918
(October 31, 2021 - $155,979;
January 31, 2021 - $2,740)
due to related parties was included in accounts payable and accrued liabilities. |
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
12. SHARE CAPITAL
Authorized
share capital
Unlimited
Common Shares without par value.
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 following the Share
Reorganization and Consolidation.
Year
ended October 31, 2022:
On
July 22, 2022, the Company cancelled 316,023 common shares issued to a former director.
On
August 5, 2022, the Company closed its IPO of 3,728,549
units at $4.16
per unit, each unit consists of one share
of common stock and one warrant, with an exercise price of $4.16
per share. The gross proceeds of the offering
were $15,510,764.
The fair value of the warrants was determined to be $5,047,704
and was estimated using the Black-Scholes Options
Pricing Model using the following assumptions: expected dividend yield - 0%,
expected volatility - 66%,
risk-free interest rate – 2.79%
and an expected remaining life - 5
years. In connection with the IPO, the Company
paid share issuance costs of $1,840,861 consisting
of $1,085,753 in
underwriting fees, $500,000 in
legal fees and $255,108 in
other related expenses. In addition, the Company issued 262,841
warrants to the underwriter exercisable at $5.20
until August 4, 2027. The fair value of the underwriter
warrants was estimated to be $318,581
using the Black-Scholes Options Pricing Model
using the following assumptions: expected dividend yield - 0%,
expected volatility - 66%,
risk-free interest rate – 2.92%
and an expected remaining life - 5
years (Note 13).
On
August 5, 2022, the Company issued 757,212
shares with a fair value of $2,124,886
as part of the repayment of its December
Senior Secured Promissory Notes and April Senior Secured Promissory Notes.
On
September 30, 2022, the Company issued 50,000
shares with a fair value of $140,310
to a consultant for marketing services.
Year
ended October 31, 2021:
On
August 13, 2021, the Company issued 2,277 common shares to a consultant for services rendered. The fair value of the shares was
estimated to be $12,658 based on the price of the most recently completed financing.
Year
ended January 31, 2021:
On
February 12, 2020, the Company issued 108,233
shares for nominal consideration to its CEO for services rendered. The fair value of the shares is estimated to be $452,694
and is recorded as share-based compensation in the statements of comprehensive loss.
On
February 12, 2020, the Company issued 36,078
shares at CAD$5.56
($4.17) per share
for gross proceeds of CAD$200,000
($150,898).
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
12. |
SHARE
CAPITAL (continued) |
On
February 13, 2020, the Company issued 90,194 shares at CAD$5.56 ($4.17) per share for gross proceeds of CAD$525,000 ($377,239).
On
June 24, 2020, the Company issued 508,696 shares for nominal consideration to its CEO for services rendered. The fair value of the shares
is estimated to be $2,074,902 is recorded as share-based compensation in the statements of comprehensive loss.
On
June 24, 2020, the Company issued 112,743 shares at CAD$2.20 ($1.66) per share for gross proceeds of CAD$250,000 ($183,945). As the shares
were issued at a price lower than other financings held during the same period, the Company has determined that the fair value of the
shares issued to be $459,863 based on the share price of the most recent financing of shares. The difference between the proceeds received
and the fair value of the shares of $275,918 has been recognized as consulting fees in the statements of comprehensive loss.
On
July 17, 2020, the Company issued 489,026 shares for nominal consideration to directors of the Company for services rendered. The fair
value of the shares is estimated to be $1,997,611 and has been recorded as share-based compensation on the statements of comprehensive
loss.
In
July and August 2020, the Company completed a private placement of 535,491 units at CAD$2.32 ($1.66) per unit for gross proceeds of CAD$1,240,198
($746,365). Each unit comprises of one share and on half-warrant exercisable at CAD$3.47 ($2.59) for 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”). The fair value of the attached warrants was
determined to be $178,955 and was estimated using the Black-Scholes Options Pricing Model using the following assumptions: expected dividend
yield - 0%, expected volatility - 100%, risk-free interest rate - 0.28% and an expected remaining life - 2.95 years.
In
August and September 2020, the Company completed a brokered private placement of 756,230 units at CAD$6.95 ($5.17) per unit for gross
proceeds of CAD$5,311,684 ($3,217,886). Each unit comprises of one share and on half-warrant exercisable at CAD$10.42 ($7.80) for twenty-four
months from Liquidity Event. The fair value allocated to the attached warrants upon issuance was estimated to be $821,346. In conjunction
with the private placement, the Company paid finders fees of $400,083 and issued 179,434 finders’ units. Each finders’ unit
comprises of one share and on half-warrant with the same terms as the unit warrants. The Company also issued 236,073 broker warrants
with the same terms as the unit warrants. The fair value of the broker warrants upon issuance was determined to be $123,981 and was estimated
using the Black-Scholes Options Pricing Model using the following assumptions: expected dividend yield - 0%, expected volatility - 100%,
risk-free interest rate - 0.30% and an expected remaining life - 2.84 years.
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.
During
the year ended January 31, 2021, the Company granted 80,181
options exercisable at CAD$6.95
until November 9, 2025. 40,876
of the options vested on November 23, 2020,
with the remaining options vesting on November 23, 2021. The fair value of the options was determined to be $145,933
and was estimated using the Black-Scholes Options
Pricing Model using the following assumptions: expected dividend yield - 0%,
expected volatility - 100%,
risk-free interest rate - 0.25%
and an expected remaining life - 5
years.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
12. |
SHARE
CAPITAL (continued) |
During
the year ended October 31, 2022, the Company recognized share-based compensation expense of $7,861 for the vesting of options (9 months
ended October 31, 2021 - $92,276; 12 months ended January 31, 2021 - $145,933).
As
at October 31, 2022, October 31, 2021, and January 31, 2021, 80,181
options with an exercise price of CAD$6.90,
expiring on November 9, 2025, were outstanding and exercisable.
During
the year ended October 31, 2022, the Company granted 360,577 warrants of the Company related to its December Senior Secured Promissory
Notes. These warrants have an exercise price of $4.16, expiring on August 4, 2027. These warrants have a cashless exercise provision
and are accounted for as derivative liabilities, see Note 13.
During
the year ended October 31, 2022, the Company issued 3,728,549
warrants of the Company as part of its IPO. These
warrants have an exercise price of $4.16,
expiring on August
4, 2027.
These warrants have a cashless exercise provision and are accounted for as derivative liabilities, see Note 13.
During
the year ended October 31, 2022, the Company issued 262,841
warrants of the Company to the underwriter
of its IPO. These warrants have an exercise price of $5.20,
expiring on August
4, 2027.
During
the year ended January 31, 2021, in connection with a private placement, the Company issued 267,745
warrants with an exercise price of CAD$3.47
($2.66)
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 instruments measured at fair value at the
end of each reporting period see Note 13. 661
broker warrants with the same terms were
also issued.
During
the year ended January 31, 2021, in connection with a private placement, the Company issued 401,354
warrants with an exercise price of CAD$10.42
($7.80)
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 instruments measured at fair value at the
end of each reporting period, see Note 13. 60,498
broker warrants with the same terms were
also issued.
Continuity
of the warrants issued and outstanding as follows:
SUMMARY
OF WARRANTS ISSUED AND OUTSTANDING
| |
Number
of warrants | | |
Weighted
average exercise price | |
Outstanding, January 31, 2020 | |
| - | | |
$ | - | |
Granted | |
| 730,258 | | |
| 7.87 | |
Outstanding, January 31, 2021 and October 31, 2021 | |
| 730,258 | | |
$ | 7.87 | |
Granted | |
| - | | |
| - | |
Outstanding, January 31, 2021 and October 31, 2021 | |
| 730,258 | | |
$ | 7.87 | |
Granted | |
| 4,351,967 | | |
| 4.22 | |
Outstanding, October 31, 2022 | |
| 5,082,225 | | |
$ | 4.75 | |
The
following table discloses the number of warrants outstanding as at October 31, 2022:
SUMMARY OF WARRANTS OUTSTANDING
Number
of warrants | |
Price | | |
Expiry
date | |
181,869 | |
| CAD$3.47 | | |
| June
30, 2023 | |
86,537 | |
$ | 2.85 | | |
| June 30, 2023 | |
461,852 | |
| CAD$10.42 | | |
| June
30, 2023 | |
4,089,126 | |
$ | 4.16 | | |
| August
4, 2027 | |
262,841 | |
$ | 5.20 | | |
| August
4, 2027 | |
5,082,225 | |
| | | |
| | |
As
at October 31, 2022, the weighted average life remaining of warrants outstanding is 4.17 years.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
12. |
SHARE
CAPITAL (continued) |
c) |
Restricted
Share Awards |
On
June 30, 2022, the Company issued 492,228 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 $2.85 per RSU.
During
the year ended October 31, 2022, the Company recognized share-based compensation expense of $271,761
for the vesting of RSUs (9 months ended October
31, 2021 - $nil,
12 months ended January 31, 2021 - $nil).
SUMMARY
OF RESTRICTED SHARE AWARDS
| |
Number
of RSUs | | |
Weighted
average grant date fair value | |
Outstanding, January 31, 2021 and October 31, 2021 | |
| - | | |
$ | - | |
Granted | |
| 492,228 | | |
| 2.85 | |
Outstanding, October 31, 2022 | |
| 492,228 | | |
$ | 2.85 | |
Vested, October 31, 2022 | |
| - | | |
$ | - | |
13. DERIVATIVE WARRANT LIABILITY
In
July and August 2020, in connection with a private placement, the Company issued 267,745 warrants with an exercise price of CAD$3.47
($2.66) 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 86,537 of the warrants to $2.66. 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 - $2.85, expected dividend yield – 0%, expected
volatility – 100%, risk-free interest rate – 2.92% and an expected remaining life – 2.01 years. As at October 31, 2022, the
fair value of the remaining 181,208 warrants which were not repriced (and therefore continue to be recognized as derivative financial
instruments) was determined to be $30,469 based on the Black-Scholes Option Pricing Model using the following assumptions: fair value
of the underlying stock – CAD$1.49, expected dividend yield – 0%, expected volatility – 72%, risk-free interest rate – 3.90% and
an expected remaining life – 1.76 years (2022 - $818,871 based on the Black-Scholes Option Pricing Model using the following assumptions:
fair value of the underlying stock – CAD$5.64, expected dividend yield – 0%, expected volatility – 100%, risk-free interest rate –
1.11% and an expected remaining life – 1.66 years).
In
August and September 2020, in connection with a private placement, the Company issued 382,246
warrants with an exercise price of CAD$10.42
($7.80)
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 October 31, 2022, the fair value of the warrants was determined to be $8,655
and was estimated using the Black-Scholes Options
Pricing Model using the following assumptions: fair value of the underlying stock – CAD$1.49,
expected dividend yield – 0%,
expected volatility – 72%,
risk-free interest rate – 3.90%
and an expected remaining life – 1.76
years. (2021 - $764,106
based on the Black-Scholes Option Pricing Model
using the following assumptions: fair value of the underlying stock – CAD$5.64,
expected dividend yield – 0%,
expected volatility – 100%,
risk-free interest rate – 1.11%
and an expected remaining life – 1.66
years).
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
13. |
DERIVATIVE
WARRANT LIABILITY (continued) |
In
August 2022, in connection with the units issued as part of the Company’s IPO, the Company issued 3,728,549
warrants with an exercise price of $4.16
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. As at October 31, 2022, the fair value of the warrants was determined to be $1,097,323
and was estimated using the Black-Scholes Options
Pricing Model using the following assumptions: fair value of the underlying stock – $1.09,
expected dividend yield – 0%,
expected volatility – 67%,
risk-free interest rate – 3.43%
and an expected remaining life – 4.76
years.
In
August 2022, in connection with the units issued as part of its December Senior Secured Promissory Notes, the Company issued 360,577
warrants with an exercise price of $4.16
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 – $2.81,
expected dividend yield – 0%,
expected volatility – 66%,
rick-free interest rate – 2.79% and an expected remaining life – 5
years. As at October 31, 2022, the fair
value of the warrants was determined to be $106,119
and was estimated using the Black-Scholes Options Pricing
Model using the following assumptions: fair value of the underlying stock – $1.09,
expected dividend yield – 0%,
expected volatility – 67%, rick-free interest rate – 3.43%
and an expected remaining life – 4.76
years.
The
following is a continuity of the Company’s derivative warrant liability:
SCHEDULE OF DERIVATIVE WARRANT LIABILITY
| |
| | |
Balance, January 31, 2020 | |
$ | - | |
Issued during the period | |
| 953,850 | |
Change in fair value
of derivative | |
| 536,209 | |
Balance, January 31, 2021 | |
$ | 1,490,059 | |
Change in fair value
of derivative | |
| 92,918 | |
Balance, October 31, 2021 | |
$ | 1,582,977 | |
Beginning balance | |
$ | 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 | |
Ending balance | |
$ | 1,242,580 | |
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
14.
OTHER LOSS
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. The
Company is in the process of filing an insurance claim, however, at this time it is unknown as to whether the amount can be recovered.
15.
FINANCIAL
INSTRUMENT RISK MANAGEMENT
Classification
of financial instruments
Financial
assets included in the statement of financial position are as follows:
SCHEDULE
OF FINANCIAL ASSETS
| |
Level
in fair value hierarchy | | |
October
31, 2022 | | |
October
31, 2021 | | |
January
31, 2021 | |
Amortized cost: | |
| | | |
| | | |
| | | |
| | |
Cash | |
| | | |
$ | 72,921 | | |
$ | 14,530 | | |
$ | 692,647 | |
Term deposit | |
| | | |
| 18,506 | | |
| - | | |
| - | |
Accounts receivable | |
| | | |
| 175,256 | | |
| 161,047 | | |
| 81,159 | |
Financial
assets | |
| | | |
$ | 266,683 | | |
$ | 175,577 | | |
$ | 773,806 | |
Financial
liabilities included in the statement of financial position are as follows:
SCHEDULE
OF FINANCIAL LIABILITIES
| |
Level
in fair value hierarchy | | |
October
31, 2022 | | |
October
31, 2021 | | |
January
31, 2021 | |
Amortized cost: | |
| | | |
| | | |
| | | |
| | |
Accounts payable
and accrued expenses | |
| | | |
$ | 1,345,288 | | |
$ | 3,366,062 | | |
$ | 308,719 | |
Loans payable | |
| | | |
| - | | |
| 27,144 | | |
| 17,580 | |
| |
| | | |
| | | |
| | | |
| | |
FVTPL: | |
| | | |
| | | |
| | | |
| | |
Warrant
derivative liability | |
| Level
3 | | |
| 1,242,580 | | |
| 1,582,977 | | |
| 1,490,059 | |
Financial
liabilities | |
| | | |
$ | 2,587,868 | | |
$ | 4,976,183 | | |
$ | 1,816,358 | |
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) |
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
15. |
FINANCIAL
INSTRUMENT RISK MANAGEMENT (continued) |
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:
SCHEDULE
OF UNOBSERVABLE INPUTS LIABILITY
Unobservable Inputs | |
Change | | |
Impact on comprehensive loss |
| |
| | |
12
months ended October 31, 2022 | | |
9
months ended October 31, 2021 | | |
12
months ended January
31, 2021 | |
Volatility | |
| 20 | % | |
$ | 537,641 | | |
$ | 258,303 | | |
$ | 144,370 | |
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 $175,256.
Liquidity
risk
Liquidity
risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and
budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing
basis.
Historically,
the Company’s primary source of funding has been the issuance of equity securities for cash, primarily through the issuance of
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 October 31, 2022:
SCHEDULE
OF ANALYSIS OF CONTRACTUAL MATURITIES FINANCIAL LIABILITIES
| |
Within
one year | | |
Between
one and five years | | |
More
than five years | |
Accounts
payable and accrued expenses | |
$ | 1,345,288 | | |
$ | - | | |
$ | - | |
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 October 31, 2022, 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.
BRUUSH
ORAL CARE INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
Twelve months ended October 31, 2022, nine months ended October 31, 2021 and twelve months ended January 31, 2021
16.
SEGMENTED
INFORMATION
The
Company’s breakdown of sales by geographical region is as follows:
SCHEDULE
OF SALES BY GEOGRAPHICAL REGION
| |
12-months
ended October 31, 2022 | | |
9-months
ended October 31, 2021 | | |
12-months
ended January 31, 2021 | |
United States of America | |
$ | 1,656,215 | | |
$ | 1,238,259 | | |
$ | 512,094 | |
Canada | |
| 976,227 | | |
| 727,182 | | |
| 389,068 | |
Revenue | |
$ | 2,632,442 | | |
$ | 1,965,441 | | |
$ | 901,162 | |
The
Company’s breakdown of sales by product segment is as follows:
SCHEDULE
OF SALES BY PRODUCT SEGMENT
| |
12-months
ended October 31, 2022 | | |
9-months
ended October 31, 2021 | | |
12-months
ended January 31, 2021 | |
Devices | |
$ | 1,663,939 | | |
$ | 1,367,778 | | |
$ | 817,778 | |
Consumables | |
| 968,503 | | |
| 597,663 | | |
| 83,384 | |
Revenue | |
$ | 2,632,442 | | |
$ | 1,965,441 | | |
$ | 901,162 | |
17.
INCOME TAXES
SCHEDULE
OF RECONCILIATION OF INCOME TAX EXPENSES (RECOVERY)
| |
12-months ended October 31, 2022 | | |
9-months ended October 31, 2021 | | |
12-months ended January 31, 2021 | |
Net loss | |
$ | (8,765,271 | ) | |
$ | (4,211,271 | ) | |
$ | (8,890,431 | ) |
Statutory income tax rate | |
| 26.50 | % | |
| 26.50 | % | |
| 26.50 | % |
Income tax benefit computed at the statutory tax rate | |
| (2,322,797 | ) | |
| (1,115,987 | ) | |
| (2,355,964 | ) |
Non-deductible items | |
| (1,375,505 | ) | |
| 62,336 | | |
| 1,457,569 | |
Financing fees charged to equity | |
| (487,828 | ) | |
| - | | |
| (106,022 | ) |
Change in tax assets not recognized | |
| 4,186,130 | | |
| 1,053,651 | | |
| 1,004,417 | |
Income tax recovery | |
$ | - | | |
$ | - | | |
$ | - | |
The
Company had the following unrecognized deferred tax assets and liabilities:
SCHEDULE OF DEFERRED TAX ASSET AND LIABILITIES
| |
October 31, 2022 | | |
October 31, 2021 | | |
January 31, 2021 | |
Non-capital losses | |
$ | 6,357,780 | | |
$ | 2,541,736 | | |
$ | 1,467,401 | |
Equipment | |
| 1,549 | | |
| 520 | | |
| - | |
Share issuance costs | |
| 432,671 | | |
| 63,613 | | |
| 84,818 | |
Total | |
| 6,792,000 | | |
| 2,605,869 | | |
| 1,552,219 | |
Unrecognized deferred tax assets | |
| (6,792,000 | ) | |
| (2,605,869 | ) | |
| (1,552,219 | ) |
Net deferred tax assets | |
$ | - | | |
$ | - | | |
$ | - | |
As
at October 31, 2022, the Company had approximately $24,000,000
in non-capital losses expiring as between
2038 and 2042.
18.
SUBSEQUENT
EVENTS
On December 9, 2022,
the Company closed a private placement pursuant to a securities purchase agreement with institutional investors. The Company issued
2,966,667 units and 1,950,001 pre-funded units at a purchase price of $0.60 per unit for gross proceeds of $2,948,050. The
pre-funded units were sold at the same price less the pre-funded warrant exercise price of $0.001. Each unit and pre-funded unit
consist of one share of common stock and one non-tradable warrant exercisable for one share of common stock at a price of $0.60. The
warrants have a term of 5.5 years from the issuance date.
In connection with the private placement, the Company paid share issuance
costs of $623,750 consisting of $295,000 in underwriting fees, $132,500 in legal fees and $196,250 in other related expenses.