Company Quick10K Filing
Tropic International
Price1.50 EPS-0
Shares58 P/E-98
MCap86 P/FCF-595
Net Debt-0 EBIT-1
TEV86 TEV/EBIT-98
TTM 2019-05-31, in MM, except price, ratios
10-Q 2020-05-31 Filed 2020-07-20
10-Q 2020-02-29 Filed 2020-06-01
10-Q 2019-11-30 Filed 2020-01-22
10-K 2019-08-31 Filed 2019-12-02
10-Q 2019-05-31 Filed 2019-07-16
10-Q 2019-02-28 Filed 2019-04-19
10-Q 2018-11-30 Filed 2019-01-18
10-K 2018-08-31 Filed 2018-12-14
10-Q 2018-05-31 Filed 2018-07-19
10-Q 2018-02-28 Filed 2018-04-19
10-Q 2017-11-30 Filed 2018-01-22
10-K 2017-08-31 Filed 2017-12-15
10-Q 2017-05-31 Filed 2017-07-19
10-Q 2017-02-28 Filed 2017-04-17
10-Q 2016-11-30 Filed 2017-01-19
10-K 2016-08-31 Filed 2016-12-14
10-Q 2016-05-31 Filed 2016-07-15
10-Q 2016-02-29 Filed 2016-04-14
10-Q 2015-11-30 Filed 2016-01-14
10-K 2015-08-31 Filed 2015-11-30
10-Q 2015-05-31 Filed 2015-07-13
10-Q 2015-02-28 Filed 2015-04-14
10-Q 2014-11-30 Filed 2015-01-13
10-K 2014-08-31 Filed 2014-11-28
10-Q 2014-05-31 Filed 2014-07-15
10-Q 2014-02-28 Filed 2014-04-18
10-Q 2013-11-30 Filed 2014-01-14
10-K 2013-08-31 Filed 2013-12-09
10-Q 2013-04-30 Filed 2013-06-20
10-Q 2013-01-31 Filed 2013-03-18
10-K 2012-10-31 Filed 2013-01-29
10-Q 2012-07-31 Filed 2012-09-19
10-Q 2012-04-30 Filed 2012-06-21
10-Q 2012-01-31 Filed 2012-03-21
10-K 2011-10-31 Filed 2012-02-13
10-Q 2011-07-31 Filed 2011-09-16
10-Q 2011-04-30 Filed 2011-06-20
10-Q 2011-01-31 Filed 2011-04-14
10-K 2010-10-31 Filed 2011-03-28
8-K 2020-04-13
8-K 2019-12-01
8-K 2019-07-19
8-K 2019-03-29
8-K 2018-12-27
8-K 2018-12-07
8-K 2018-11-19

TRPO 10Q Quarterly Report

Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Tropic International Earnings 2020-05-31

Balance SheetIncome StatementCash Flow
10.07.54.92.4-0.2-2.72012201420172020
Assets, Equity
0.1-0.8-1.7-2.5-3.4-4.32012201420172020
Rev, G Profit, Net Income
0.70.40.2-0.1-0.3-0.62012201420172020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 31, 2020

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to________________

 

Commission file number 001-34911

 

NOTOX TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)

 

Nevada   None

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

95 Mural Street, Suite 600

Richmond Hill, Ontario, Canada

  L4B 3G2
(Address of principal executive offices)   (Zip Code)

 

(519) 421-1900

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ]   Smaller reporting company [X]
    Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

 

APPLICABLE ONLY TO CORPORATE ISSURS:

 

As of July 20, 2020, the registrant’s outstanding common stock consisted of 57,821,593 shares.

 

 

 

  

 

 

TABLE OF CONTENTS

 

 

 2 
 

 

Item 1. Financial Statements

 

Notox Technologies Corp.

Condensed Consolidated Financial Statements

For the Three and Nine Months Ended May 31, 2020

(Expressed in Canadian dollars)

(unaudited)

 

    Index
     
Condensed Consolidated Balance Sheets   F-1
     
Condensed Consolidated Statements of Loss and Comprehensive Loss   F-2
     
Condensed Consolidated Statements of Cash Flows   F-3
     
Condensed Consolidated Statements of Stockholders’ Deficiency   F-4
     
Notes to the Condensed Consolidated Financial Statements   F-5

 

3

 

 

NOTOX TECHNOLOGIES CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

   May 31, 2020   August 31, 2019 
   $   $ 
ASSETS          
Current assets:          
Cash   82,815    14,843 
Amounts receivable   304,279    6,584 
Inventory   1,104,626    - 
Sales tax receivable   112,932    94,726 
Prepaid expenses   5,402    20,440 
Total current assets   1,610,054    136,593 
Advances to Xthetica   -    86,519 
Office equipment   6,710    - 
Patents   4    4 
License agreement (Note 4)   796,730    937,333 
Intangible assets (Note 5)   1,630,281    - 
Goodwill (Note 5)   186,147    - 
Total assets   4,229,926    1,160,449 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
Current liabilities:          
Accounts payable and accrued liabilities (Note 6)   3,136,956    1,972,567 
Advances from related parties/shareholders (Note 7 and 8)   419,044    444,760 
License assignment fee and accrued interest payable (Note 9)   1,274,325    1,042,561 
Stock purchase warrants (Note 11)   80,539    1,776 
Stock subscribed in advance (Note 11)   -    261,692 
Total current liabilities   4,910,864    3,723,356 
Deferred tax liability (Note 5)   423,873    - 
Due to the Clinic (Note 4)   282,098    264,113 
    5,616,835    3,987,469 
Stockholders’ deficiency (Note 11):          
Common stock   1,306,500    1,133,146 
Additional paid-in capital   8,458,365    8,458,365 
Purchase consideration (Note 5)   2,543,323    - 
Deficit accumulated during the development stage   (13,695,097)   (12,418,531)
Total stockholders’ deficiency   (1,386,909)   (2,827,020)
Total liabilities and stockholders’ deficiency   4,229,926    1,160,449 

 

Contingent liability (Note 14)

Subsequent event (Note 15)

 

See accompanying notes to the condensed consolidated financial statements

 

F-1

 

 

NOTOX TECHNOLOGIES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

  

For the 3
months ended
May 31, 2020

  

For the 3
months ended
May 31, 2019

  

For the 9
months ended
May 31, 2020

  

For the 9
months ended
May 31, 2019

 
   $   $   $   $ 
Revenue:                    
Sales   179,085    -    1,182,265    - 
                     
Production costs:                    
COGS   79,838    -    540,051    - 
Amortization - licence agreement (Note 4)   46,868    46,867    140,603    140,600 
Royalty   -    -    46,073    - 
Patenting costs - the Clinic   -    -    7,937    7,813 
Total production costs   126,706    46,867    734,664    148,413 
Gross margin   52,379    (46,867)   447,601    (148,413)
                     
General and administration:                    
Consulting fees – management (Note 7)   183,514    5,876    397,821    87,875 
Salaries and benefits   74,027    -    291,592    - 
Amortization - intangible assets (Note 5)   85,805    -    176,125    - 
Interest on advances from related parties/shareholders (Note 7 and 8)   2,951    3,078    8,814    9,035 
Interest on license assignment fee payable (Note 9)   83,600    53,602    207,410    160,097 
Advertising and promotion   (631)   -    75,755    124 
Foreign exchange loss   82,871    23,053    91,756    286,189 
Office and miscellaneous   111,981    421    284,218    1,234 
Professional fees   10,850    51,220    95,758    83,554 
Taxes   5,327    -    17,927    - 
Rent   8,213    1,042    18,491    11,822 
Travel and entertainment   2,986    518    51,998    2,087 
Trust and filing fees   5,177    8,549    38,386    23,528 
Total general and administration   656,671    147,359    1,756,051    665,545 
                     
Loss before other item and income taxes   (604,292)   (194,226)   (1,308,450)   (813,958)
                     
Other items:                    
Other income   -    -    -    2,800 
Gain on revaluation of derivative liabilities (Note 11)   7,132    84,164    9,575    130,247 
Gain on expiry of warrants   -    -    -    109,808 
Discount received   -    -    -    4,172 
Write-off of amount receivable   -    -    -    (8,752)
Loss before income taxes   (597,160)   (110,062)   (1,298,875)   (575,683)
Income taxes   -    -    -    - 
Deferred tax recovery   22,309    -    22,309    - 
Net loss and comprehensive loss   (574,851)   (110,062)   (1,276,566)   (575,683)
                     
Loss per share – basic and diluted   (0.01)   (0.00)   (0.02)   (0.01)
                     
Weighted-average number of shares outstanding - basic and diluted   57,821,593    57,545,343    57,717,358    57,541,314 

 

See accompanying notes to the condensed consolidated financial statements.

 

F-2

 

 

NOTOX TECHNOLOGIES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

  

For the 9
months ended
May 31, 2020

  

For the 9
months ended
May 31, 2019

 
   $   $ 
Cash Flows From Operating Activities          
Net loss for the period   (1,276,566)   (575,683)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Amortization - intangible assets   176,125     
Amortization - license agreement   140,603    140,600 
Unrealized foreign exchange on license assignment fee payable   41,615    189,925 
Unrealized foreign exchange and expense on due to Clinic       16,311 
Write-down of receivables       8,753 
Interest accrued on advances from related parties/shareholders   8,814     
Interest accrued on license assignment fee payable   207,848     
Discount received and other income       (8,755)
Gain on revaluation of derivative liabilities   (9,575)   (130,246)
Gain on expiration of warrants       (109,808)
Deferred tax recovery   (22,309)    
Changes in assets and liabilities:          
Amounts receivable   225,317    (6,062)
Inventory   (98,077)    
Sales tax receivable   (18,206)    
Prepaid expenses   15,038    13,976 
Accounts payable and accrued liabilities   617,975    332,306 
Due to the Clinic   17,985     
Net cash provided by (used in) operating activities   26,587    (128,683)
           
Cash Flows From Investing Activities          
Purchase of office equipment   (6,710)    
Cash acquired from business combination   82,625     
Net cash provided by investing activities   75,915     
           
Cash Flows From Financing Activities          
Proceeds from private placements       364,934 
Advances from related parties/shareholders, net   (34,530)   (35,713)
Net cash (used in) provided by financing activities   (34,530)   329,221 
           
Increase in cash during the period   67,972    200,538 
Cash, beginning of period   14,843    5,664 
Cash, end of period   82,815    206,202 

 

Period ended May 31, 2020, non-cash information: Issuance of units for subscription received in advance of $261,692 including warrants at a fair value of $88,338 presented as liabilities. There were no non-cash activities for the period ended May 31, 2019.

 

See accompanying notes to the condensed consolidated financial statements.

 

F-3

 

 

NOTOX TECHNOLOGIES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

   Common stock   Shares to be   Purchase   Additional
paid-in
   Accumulated     
   Shares   Amount   issued   consideration   capital   deficit   Total 
   #   $   $   $   $   $   $ 
As at August 31, 2018   57,532,843    1,018,256            8,458,365    (11,783,486)   (2,306,865)
                                    
Warrants excercised   12,500    10,000                    10,000 
                                    
Net loss for the period                       (123,131)   (123,131)
                                    
As at November 30, 2018   57,545,343    1,028,256            8,458,365    (11,906,617)   (2,419,996)
                                    
Shares to be issued           109,890                109,890 
                                    
Net loss for the period                       (342,490)   (342,490)
                                    
As at February 28, 2019   57,545,343    1,028,256    109,890        8,458,365    (12,249,107)   (2,652,596)
                                    
Gross Proceeds from private placements of shares to be issued           255,044                255,044 
                                    
Reclassification of proceeds from private placements to stock purchase warrants           (110,478)               (110,478)
                                    
Net loss for the period                       (110,062)   (110,062)
                                    
As at May 31, 2019   57,545,343    1,028,256    254,456        8,458,365    (12,359,169)   (2,618,092)
                                    
As at August 31, 2019   57,625,343    1,133,146            8,458,365    (12,418,531)   (2,827,020)
                                    
Net loss for the period                       (242,940)   (242,940)
                                    
As at November 30, 2019   57,625,343    1,133,146            8,458,365    (12,661,471)   (3,069,960)
                                    
Shares issued   196,250    261,692                    261,692 
                                    
Purchase consideration (Note 5)               2,543,323            2,543,323 
                                    
Warrants issued (Note 11)       (88,338)                   (88,338)
                                    
Net loss for the period                       (458,775)   (458,775)
                                    
As at February 29, 2020   57,821,593    1,306,500        2,543,323    8,458,365    (13,120,246)   (812,058)
                                    
Net loss for the period                       (574,851)   (574,851)
                                    
As at May 31, 2020   57,821,593    1,306,500        2,543,323    8,458,365    (13,695,097)   (1,386,909)

 

See accompanying notes to the condensed consolidated financial statements.

 

F-4

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

1. Company Overview and Basis of Presentation

 

Nature and History of Operations

 

Notox Technologies Corp. (the “Company”) was incorporated under the laws of the state of Nevada on October 29, 2007. The Company has transitioned into developing, commercializing and promoting its patented Notox aesthetic and drug free pain management platform. The Company’s goals are to market a credible, non-toxic alternative to Botox and subsequently develop other features of its Notox technology such as drug-free pain management, body countering, skin tightening and anti-perspiration. In addition, the Company is seeking to build its distribution capabilities for other medical and aesthetic products around the world.

 

On June 28, 2013, the Company completed a reverse takeover transaction with Tropic Spa Inc. (“TSI”), a private Ontario corporation that manufactured and sold Home Mist Tanning units that deliver a full-body application. As a result of this transaction, the Company became a holding company operating through TSI.

 

On June 13, 2016, the Company completed an asset acquisition transaction with Notox Bioscience Inc. (“Notox”), a private Nevada corporation incorporated on May 31, 2016 for the purpose of acquiring 100% of the right, title and interest in and to an exclusive license agreement (the “License Agreement”) with The Cleveland Clinic Foundation (the “Clinic”), an Ohio not-for-profit corporation.

 

On December 27, 2018, the automatic expiration date for the preferred shares of 1894632 Ontario Inc. (“Subco”) issued in connection with the TSI reverse takeover transaction was extended to December 31, 2020.

 

On December 1, 2019, the Company entered into an option and put agreement (the “Definitive Agreement”) with Xthetica Inc. (“NewCo”), a newly incorporated Nevada corporation, and the sole shareholder of NewCo (the “NewCo Shareholder”) pursuant to which the NewCo Shareholder granted the Company the sole and exclusive right and option to purchase all of the issued and outstanding capital stock of NewCo (the “NewCo Stock”) in exchange for the issuance of an aggregate of up to 10,000,000 shares of the Company’s common stock and warrants to purchase up to 10,000,000 shares of the Company’s common stock. The option is exercisable by the Company in tranches over a period of three years beginning on January 1, 2021.

 

Each share issued upon the exercise of an option will be issued at a deemed price per share equal to the value of the Company’s common stock on the OTCQB (or such other stock exchange or quotation medium on which the shares are then trading) on the date of issuance, while each warrant issued upon the exercise of an option will be exercisable into one share of the Company’s common stock at a price of US$1.40 per share for a period of three years from the date of issuance, subject to standard adjustments for stock splits, stock dividends and the like.

 

Pursuant to the Definitive Agreement, the Company granted the NewCo Shareholder a corresponding series of put rights covering the NewCo Stock, also exercisable in tranches over a period of three years beginning on January 1, 2021. Each put right allows the NewCo Shareholder to cause the Company to purchase up to a certain number of shares of NewCo Stock in exchange for the issuance of a certain number of shares of the Company’s common stock plus warrants to purchase shares of the Company’s stock on the same terms as described above. The exercise of each put right is subject to Xthetica Canada Inc. (“Xthetica CA”), a newly incorporated Canadian federal corporation and subsidiary of the Company, achieving certain EBITDA milestones in each of its financial years, as reflected in the audited financial statements of Xthetica CA.

 

Assuming the full exercise of the option or put rights, of which there is no guarantee, NewCo will become a wholly owned subsidiary of the Company. To date, no option or put rights have been exercised.

 

Concurrent with the execution of the Definitive Agreement the Company entered into an assignment agreement (the “Assignment Agreement”) with Xthetica, Inc., an Ontario corporation owned by the NewCo Shareholder (the “Assignor”), pursuant to which the Assignor assigned all of its rights, title and interest in and to certain of its assets to Xthetica CA.

 

The accompanying condensed consolidated financial statements also include the financial statements of Xthetica CA since the acquisition date. Please refer to Note 5 for further details.

 

F-5

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

1. Company Overview and Basis of Presentation (continued)

 

Going Concern

 

As reflected in the accompanying condensed consolidated financial statements, the Company has a deficit of $13,695,097 (August 31, 2019 - $12,418,531) since inception, a working capital deficiency of $3,300,810 (August 31, 2019 - $3,586,763) and a stockholders’ deficiency of $1,386,909 (August 31, 2019 - $2,827,020). This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on its ability to raise additional capital and to implement its business plan. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Management has evaluated the Company’s ability to continue as a going concern by assessing its ability to meet its obligations as they become due within one year from the date of issue of the financial statements. Management’s assessment included the following factors:

 

  The Company’s financial condition as at the date of issue of the financial statements;
  The Company’s actual or anticipated conditional and unconditional obligations due within one year from the date of issue of the financial statements;
  The funds necessary to maintain the Company’s operations considering its current financial condition, obligations and other expected cash flows; and
  Other conditions and events that may affect the Company’s ability to meet its obligations within one year from the date of issue of the financial statements.

 

The Company’s CEO and President have committed to providing financing if and when necessary to fund the operating expenses for the year ended August 31, 2020.

 

On March 11, 2020, the World Health Organization declared the ongoing COVID-19 outbreak as a global health emergency. The outbreak of the novel strain of coronavirus identified as COVID-19 has resulted in a widespread health crisis that has affected economies and financial markets around the world. The full impact of the COVID-19 pandemic continues to evolve. Management is actively monitoring the global situation and its effects on the sector and the Company’s financial position and operations.

 

As at May 31, 2020, the Company was still assessing the potential risks and uncertainties arising from COVID-19, which will be accounted for when reliable estimates become available. Actual effects will depend on many factors beyond the control and knowledge of management.

 

Basis of Presentation and Measurement

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and the Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and Article 8 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the Company’s audited financial statements for the years ended August 31, 2019 and 2018 and their accompanying notes.

 

The accompanying unaudited condensed consolidated financial statements are expressed in Canadian Dollars (“CAD”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and results of operations for the interim periods presented have been reflected herein. Operating results for the nine months ended May 31, 2020 are not necessarily indicative of the results that may be expected for the year ending August 31, 2020.

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated.

 

2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the financial statements of the Company, TSI, Notox, Subco, 1894631 Ontario Inc. and Xthetica CA, the Company’s subsidiaries. All significant inter-company balances and transactions have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to fair values of intangible assets, useful lives of intangible assets and the likelihood of realization of its deferred tax assets. The Company bases its estimates on assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

 

F-6

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

2. Summary of Significant Accounting Policies (continued)

 

Fair Value of Financial Instruments

 

Carrying values of cash, receivables, accounts payable and accrued liabilities, advances from related parties/shareholders, stock purchase warrants, license assignment fee and accrued interest payable, due to the clinic and stock subscribed in advance approximate fair value because of the short-term nature of these items.

 

Business Combination

 

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The Company measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount of the identifiable assets and liabilities assumed, all measured as of the acquisition date.

 

The Company determined the fair value of the consideration based on the fair value of the net assets acquired. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.

 

Intangible Assets

 

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, definite-life intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred.

 

Intangible assets have been amortized based on the useful life as below:

 

Patents - 8 years; and

Trademarks, License Agreement and customer base - 5 years

 

3. Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities;

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3 – Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation. The Company measures its financial instruments at fair value.

 

The Company’s only financial instrument that is classified as Level 1 is cash. The fair value of the other financial assets and liabilities approximate their carrying value due to the short-term nature of the instruments. Due to the clinic’s fair value approximates its carrying amount as amounts are accrued.

 

F-7

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

4. License Agreement, Net

 

Under the License Agreement, Notox has an exclusive worldwide license in the field of aesthetics and pain to make, use, offer to sell, sell and import certain products throughout the term of the License Agreement. Royalties and other payments are payable quarterly. Notox is required to achieve two commercial milestones: first commercial sale within nine months following regulatory approval, and regulatory filings submitted to regulatory authorities by November 30, 2019. The Clinic and Notox are working on completing an amendment to the License Agreement that would extend the November 30, 2019 deadline referenced above, based on the clear development milestones and schedule to be agreed upon not later than March 31, 2020. However, due to the disruption brought by COVID-19 pandemic, Notox is still under discussion with the Clinic for further extension of the deadline.

 

As of May 31, 2020, all accrued and unreimbursed patenting costs totaled $282,098 (August 31, 2019 - $264,113). Failure to achieve these milestones, without satisfactory justification, constitutes a material breach of the License Agreement giving the Clinic the right, but not the obligation, to convert the License Agreement to a non-exclusive license or terminate the License Agreement. The Clinic has the right to verify Notox’s compliance with the License Agreement.

 

Pursuant to above, the gross carrying value of the License Agreement is as follows:

 

   May 31, 2020 
   Gross carrying amount   Accumulated amortization   Net carrying amount 
License Agreement  $1,499,731   $703,001   $796,730 

 

   August 31, 2019 
   Gross carrying amount   Accumulated amortization   Net carrying amount 
License Agreement  $1,499,731   $562,398   $937,333 

 

As of May 31, 2020, amortization expense on the License Agreement for the next five years was expected to be as follows:

 

   Amount 
Year ending:    
2020  $46,866 
2021   187,466 
2022   187,466 
2023   187,466 
2024   187,466 
Total  $796,730 

 

5. Business Combination

 

On December 1, 2019, the Company entered into the Definitive Agreement with NewCo and the NewCo Shareholder, and concurrently, Xthetica CA entered into the Assignment Agreement with the Assignor (Note 1).

 

The transaction was accounted for as a business combination, as the group of assets of the Assignor met the definition of a business. No transaction costs were incurred and expensed as a result of the acquisition. On completion of the business combination, the Company determined the fair value of the consideration based on the fair value of the net assets acquired. Due to the timing of the acquisition, the fair values assigned to the net assets acquired are preliminary and may be revised by the Company within 12 months from the date of acquisition as additional information is received.

 

F-8

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

5. Business Combination (continued)

 

The fair value of identifiable assets acquired and liabilities assumed as at the acquisition date are as follows:

 

   $ 
Purchase Consideration    
Option and put agreement   2,543,323 
      
Assets acquired and liabilities assumed :     
Cash   82,625 
Accounts receivable   523,012 
Inventory   1,006,549 
Assembled workforce (Goodwill)   186,147 
Trademarks   395,941 
Licence agreements   888,307 
Customer base   522,158 
Accounts payable and accrued liabilities   (615,234)
Deferred tax liability   (446,182)
Total net assets acquired   2,543,323 

 

Pursuant to above, the gross carrying value of the intangible assets is as follows:

 

   May 31, 2020 
   Gross carrying amount   Accumulated amortization   Net carrying amount 
   $   $   $ 
Trademarks   395,941    38,604    357,337 
Licence agreements   888,307    86,610    801,697 
Customer base   522,158    50,911    471,247 
Assembled workforce (Goodwill)   186,147    -    186,147 
    1,992,553    176,125    1,816,428 

 

6. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities consisted of:

 

   May 31, 2020   August 31, 2019 
Trade payables  $1,580,526   $1,193,429 
Vendor accruals   1,556,430    779,138 
Accounts payable and accrued liabilities  $3,136,956   $1,972,567 

 

F-9

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

7. Related Party Transactions and Balances

 

The Company’s transactions with related parties were carried out on normal commercial terms and in the course of the Company’s business. Other than disclosed elsewhere in the Company’s condensed consolidated financial statements, related party transactions are as follows:

 

a) Related party balances

 

Advances from related parties include:

 

  At May 31, 2020, the Company owed $225,000 (August 31, 2019 - $232,000) in advances payable to the President of the Company. These advances are unsecured and bear interest at 3% per annum. Accrued interest payable to the President totaled $44,722 at May 31, 2020 (August 31, 2019 - $39,498).
     
  At May 31, 2020, the Company is owed $36,139 (August 31, 2019 - $8,609) in advances receivable from the CEO of the Company. This balance bears no interest and has no repayment terms.
     
Accounts payable and accrued liabilities include:
     
  At May 31, 2020, the Company owed $1,752,564 (August 31, 2019 - $1,481,649) in consulting fees to companies controlled by the President, CEO, and a major shareholder.

 

b) Related party transactions

 

During the nine months ended May 31, 2020 and 2019, the Company had the following transactions with related parties:

 

 

The Company made advances to the CEO of $27,350 (May 31, 2019 – the CEO made advances of $28,836) during the nine months ended May 31, 2020. These advances are unsecured, bear no interest and have no repayment terms.

     
  The Company repaid $7,000 (May 31, 2019 - $Nil) to the President of the Company.
     
  The Company incurred consulting fees expense of $392,821 (May 31, 2019 - $87,875) in connection with services provided by the companies controlled by the President, and CEO.
     
  The Company incurred interest expense of $8,814 (May 31, 2019 - $8,347) in connection with advances owing to the President and other shareholders of the Company.

 

8. Advances from Shareholders

 

Advances payable to shareholders totaled $160,000 at May 31, 2020 (August 31, 2019 - $160,000). These advances are unsecured and bear interest at 3% per annum, with no specific repayment terms. As at May 31, 2020 accrued interest payable to shareholders totaled $25,248 (August 31, 2019 - $21,871).

 

9. License Assignment Fee and Accrued Interest Payable

 

Pursuant to an amendment to the Share Exchange Agreement between the Company, Notox and the shareholders of Notox, the Company is required to pay an aggregate of US$1,000,000 to Zoran K Corporation, a private Ontario corporation (“ZKC”) in the form of a one-time assignment fee. The assignment fee payable is repayable in monthly instalments of US$50,000 beginning on October 1, 2016. Upon completion of any equity financing pursuant to which the Company raises gross proceeds of at least US$1,000,000, the outstanding balance is to be repaid in full.

 

Since September 1, 2017, interest of 24% per annum, compounding annually, has been accrued on the outstanding balance payable. Interest expense of US$429,856 ($591,808) was accrued on the balance payable as at May 31, 2020. At May 31, 2020, the balance of the license assignment fee payable and interest payable to ZKC was US$924,856 ($1,274,325) (August 31, 2019 - US$783,667 ($1,042,561)). See Note 4.

 

F-10

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

10. Commitments

 

On June 13, 2016, the Company entered into consulting agreements with 1040614 Ontario Ltd. (the “1040614 Agreement”), MCM Consulting (the “MCM Agreement”) and ZKC (the “ZKC Agreement”). Pursuant to the 1040614 Agreement, the principal of 1040614, performed general consulting services on behalf of the Company. Pursuant to the MCM Agreement, the sole proprietor acts in the capacity of President of the Company. Pursuant to the ZKC Agreement, ZKC, through its principal, acts in the capacity of CEO of the Company. Each consulting agreement is for a period of 10 years, with successive automatic renewal periods of two years until terminated. Pursuant to these consulting agreements, each consultant is entitled to receive the following compensation:

 

  Remuneration – an aggregate of US$125,000 per annum plus HST on a bi-monthly basis;
  EPS Bonus – when the Company generates earnings per share of $0.05, plus any multiple thereof, the Company shall issue the consultant 1,000,000 shares of the Company’s common stock and pay the consultant US$250,000 plus HST;
  Change of Control Bonus – immediately prior to the completion of a change of control (as defined in these consulting agreements) the Company shall issue the consultant an aggregate of 20,000,000 shares of the Company’s common stock; and
  Additional Bonus – the company may from time to time pay the consultant one or more bonuses as determined by the Board of Directors at its sole discretion.

 

Effective February 3, 2018, the Company terminated the 1040614 Agreement.

 

The Company renewed its premises lease for another year during the previous fiscal year on April 1, 2019 for $5,520 plus HST per annum for a period of twelve months.

 

11. Stockholders’ Deficiency

 

Authorized stock

 

As at May 31, 2020, the Company was authorized to issue 500,000,000 (August 31, 2019 - 500,000,000) shares of common stock at a par value of US$0.001.

 

On October 9, 2018, the Company’s shareholders and directors approved a change of the Company’s name from Tropic International Inc. to Notox Technologies Corp. and an increase in the Company’s authorized common stock to 500,000,000 shares. The name change and authorized common stock increase were effected November 19, 2018. At May 31, 2020, the Company had 57,821,593 shares of common stock legally issued and outstanding (August 31, 2019 - 57,625,343).

 

On June 28, 2013, pursuant to the reverse takeover transaction with TSI, the Company acquired 39,015,439 common shares of TSI in exchange for the issuance of 39,015,439 preferred shares of Subco to certain of the shareholders of TSI on a one-for-one basis. As a result of the transaction, TSI became the Company’s majority-owned subsidiary. Each preferred share of Subco is exchangeable into one share of the Company’s common stock at the option of the holder subject to certain restrictions. As at May 31, 2020 and August 31, 2019, none of the preferred shares had been exchanged.

 

On August 24, 2016, a further 21,672,623 common shares of TSI were exchanged for 10,836,312 preferred shares of Subco.

 

F-11

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

11. Stockholders’ Deficiency (continued)

 

Share issuances

 

During the nine months ended May 31, 2020, the Company:

 

  Issued 150,000 units at a price of US$1.00 per unit for gross proceeds of $200,020 (US$150,000) (received as at August 31, 2019). Each unit consists of one share and one share purchase warrant exercisable at US$1.40 per share for a period of 2 years, expiring January 24, 2020. The warrants were determined to be derivative liabilities and were valued using the Black-Scholes option pricing model, at a fair value of $88,338 with the following inputs: 0% expected dividends, 1.78% risk-free interest rate, 2 year life and 100% expected volatility.
     
  Issued 40,000 shares at a price of US$1.00 per share for gross proceeds of $53,338 (US$40,000) (received as at August 31, 2019).
     
  Issued 6,250 shares upon the exercise of 6,250 warrants for gross proceeds of $8,334 (US$6,250) (received as at August 31, 2019).
     
During the year ended August 31, 2019, the Company completed the following common stock transactions:
     
  During the year ended August 31, 2018, $10,000 in stock subscriptions was received pursuant to the exercise of 12,500 warrants at a price of $0.80 per share in February 2018. The shares were issued in November 2018.
     
  On July 3, 2019, the Company issued 80,000 shares of common stock through a private placement with a fair value of $104,890 at a price of U$1.00 per share.

 

Stock Purchase Warrants

 

The continuity of Canadian dollar denominated stock purchase warrants for the nine months ended May 31, 2020 is as follows:

 

Expiry Date  Price   August 31, 2018   Issued   Expired   August 31, 2019   Issued   Expired   May 31, 2020 
October 31, 2018  $0.80    117,500        (117,500)                

 

The continuity of US dollar denominated stock purchase warrants for the nine months ended May 31, 2020 is as follows:

 

Expiry Date  Price US$   August 31, 2018   Exercised   Expired   August 31, 2019   Issued   Expired   May 31, 2020 
September 30, 2018 – Finder   1.40    15,000        (15,000)                
October 31, 2018   0.80    220,770    (6,250)   (214,520)                
November 2, 2018   1.40    400,000        (400,000)                
July 17, 2019 – Finder   1.40    5,000        (5,000)                
September 7, 2019   1.40    630,000            630,000        (630,000)    
January 24, 2022   1.40                    150,000        150,000 
         1,270,770    (6,250)   (634,520)   630,000    150,000    (630,000)   150,000 

 

F-12

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

11. Stockholders’ Deficiency (continued)

 

On January 24, 2020, the Company issued 150,000 stock purchase warrants at an exercise price of US$1.40 and was fair valued at $88,338.

 

At May 31, 2020, the stock purchase warrants were fair valued at $80,539 (August 31, 2019 - $1,776) and the weighted-average remaining contractual life of US dollar warrants outstanding was 1.65 years (August 31, 2019 - 0.02 years).

 

The Company used the Black-Scholes Option Pricing Model to determine the fair values of unit warrants and finder’s warrants issued pursuant to private placements during the three and nine months ended May 31, 2020 and the year ended August 31, 2019 with the following assumptions:

 

   May 31, 2020   August 31, 2019 
Expected dividend yield   0.00%   0.00%
Risk-free interest rate   1.78%   1.78%
Expected stock price volatility   100.00%   100.00%
Expected life of warrants   1.65 years    0.02 years 

 

12. Risks and Uncertainties

 

The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect its future operating results and cause actual results to vary materially from expectations include, but are not limited to: current economic conditions; the Company’s degree of success in securing regulatory approval and marketing products developed pursuant to the License Agreement; increasing competition; and dependence on its existing management and key personnel.

 

13. Accounting Pronouncements

 

In November 2019, the FASB issued ASU 2019-10, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 842, Leases”, to introduce amendments which will affect the effective dates of the above noted Topics. The Company is evaluating the impact this standard will have on the Company’s financial statements.

 

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, to introduce amendments which will affect the recognition and measurement of financial instruments, including derivatives and hedging. Only Topic 4 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is evaluating the impact this standard will have on the Company’s financial statements.

 

In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842)”, to introduce amendments which will affect all lessors that are not manufactures or dealers, and those which are depository and lending entities. The amendments in this update amend Topic 842, and are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently in the process of evaluating the effects of this pronouncement on the condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will be evaluating the impact this standard will have on the Company’s financial statements.

 

F-13

 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

14. Contingent Liability

 

Pursuant to the reverse takeover transaction with TSI, the Company may be required to acquire up to 296,500 common shares of TSI, being those TSI shares still outstanding, in exchange for 148,250 preferred shares of Subco on a one-for-two basis. Such preferred shares would then be exchangeable on the same basis as the 49,851,751 Subco preferred shares currently outstanding. See Note 11.

 

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. At May 31, 2020 there were no significant pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.

 

15. Subsequent Event

 

The Company’s management has evaluated subsequent events up to July 20, 2020, the filing date of the accompanying condensed consolidated financial statements, pursuant to the requirements of ASC 855 and has determined that there have been events that have occurred that would require a disclosure in the condensed consolidated financial statements.

 

F-14

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q (this “Report”) contains forward-looking statements. The forward-looking statements are contained principally in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Report. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates”, “believes”, “seeks”, “could”, “estimates”, “expects”, “intends”, “may”, “plans”, “potential”, “predicts”, “projects”, “should”, “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; relationships with our customers; consumer demand; financial resources and condition; changes in revenues; changes in profitability; changes in accounting treatment; cost of sales; selling, general and administrative expenses; interest expense; the ability to produce the liquidity or enter into agreements to acquire the capital necessary to continue our operations and take advantage of opportunities; legal proceedings and claims; and the effect of the COVID-19 pandemic.

 

Also, forward-looking statements represent our estimates and assumptions only as of the date of this Report. You should read this Report and the documents that we reference and file or furnish as exhibits to this Report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

 

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies and financial markets globally, leading to an economic downturn. It has also disrupted the normal operations of many businesses, including ours. This outbreak could decrease spending, adversely affect demand for our products and harm our business and results of operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business or results of operations at this time.

 

PRESENTATION OF INFORMATION

 

Except as otherwise indicated by the context, references in this Report to “we”, “us” and “our” are to the combined business of Notox Technologies Corp. and its consolidated subsidiaries.

 

This Report includes our interim unaudited condensed consolidated financial statements for the three and nine months ended May 31, 2020. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”). All financial information in this Report is presented in Canadian dollars, unless otherwise indicated, and should be read in conjunction with our interim unaudited condensed consolidated financial statements and the notes thereto included in this Report.

 

As disclosed in our current report on Form 8-K dated July 3, 2013, on June 28, 2013 we completed a share exchange with Tropic Spa Inc., an Ontario corporation (“Tropic Spa”), 1894632 Ontario Inc., an Ontario corporation (“Subco”), and certain of the shareholders of Tropic Spa (collectively, the “Tropic Spa Shareholders”), pursuant to which we acquired 78,030,877 common shares, or approximately 78% of the issued and outstanding shares, of Tropic Spa in exchange for the issuance of 78,030,877 preferred shares of Subco, our wholly owned subsidiary, to the Tropic Spa Shareholders on a one-for-one basis (the “Share Exchange”). Each preferred share of Subco is exchangeable into one share of our common stock at the option of the holder thereof, subject to certain restrictions. As a result of the Share Exchange, Tropic Spa became our majority-owned subsidiary and the former shareholders of Tropic Spa became holders of the preferred shares of Subco, a company that has only one issued and outstanding common share which is held by us. The transaction was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein Tropic Spa is considered the acquirer for accounting and financial reporting purposes. Our condensed consolidated financial statements are therefore, in substance, those of Tropic Spa.

 

Also, as disclosed in our current report on Form 8-K dated July 14, 2016, on June 13, 2016 we completed a share exchange with Notox Bioscience Inc., a Nevada corporation (“Notox”), and all the shareholders of Notox (collectively, the “Notox Shareholders”) pursuant to which we acquired all the issued and outstanding shares of Notox from the Notox Shareholders in exchange for the issuance of 100,000,000 restricted shares of our common stock to the Notox Shareholders on a 1,000-for-one basis (the “Notox Share Exchange”). In connection with the Notox Share Exchange, Notox acquired 100% of the right, title and interest in and to an exclusive license agreement dated December 1, 2012, as amended on July 30, 2013 (together, the “License Agreement”) with the Cleveland Clinic Foundation (the “Clinic”) formerly held by Zoran Holding Corporation, a private Ontario corporation (“ZHC”); Notox became our wholly-owned subsidiary; and the Notox Shareholders acquired approximately 89% of our issued and outstanding common stock (52.5% on a fully-exchanged basis). The transaction represented an asset acquisition and was therefore accounted for under the asset acquisition method.

 

Finally, on August 25, 2016, we completed a reverse split of our issued and outstanding common stock at the ratio of one (1) new share for every two (2) existing shares and caused Subco to do the same. All share and per share amounts have been adjusted to reflect the reverse split except as otherwise indicated.

 

4

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our results of operations and financial condition has been derived from and should be read in conjunction with our interim unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Report, as well as the “Presentation of Information” section that appears at the beginning of this Report.

 

Overview

 

We are a company in the business of developing and commercializing innovative technologies. Through Notox, we own 100% of the right, title and interest in and to the License Agreement with the Clinic formerly held by ZHC. The License Agreement grants us the exclusive license to certain patented intellectual property of the Clinic relating to the treatment of a neuromuscular defect developed by Dr. Frank Papay, MD, FACS Chairman Dermatology and Plastic Surgery Institute, Cleveland Clinic, and in particular, the ability to produce sell, improve and modernize products that incorporate such intellectual property in the fields of aesthetics, drug free pain management, body contouring and perspiration control. We plan to develop this intellectual property into the world’s first credible and healthier non-toxic alternative to Botox, which is a commercial form of the botulinum toxin protein used primarily for medical and cosmetic purposes.

 

On September 26, 2017, we entered into a second amendment to the License Agreement with Notox and the Clinic, effective July 1, 2016. The purpose of this amendment was to, among other things: (i) clarify certain vague terms of the License Agreement; (ii) include us as a party for the purpose of guaranteeing the due and prompt payment and performance of all covenants, agreements, obligations and liabilities of Notox; (iii) record the Clinic’s explicit consent to the assignment from ZHC to Notox; (iv) extend the deadline for achieving the first commercial milestone (the submission of regulatory filings to applicable authorities) from November 30, 2017 to November 30, 2019; and (v) establish a second commercial milestone (the completion of at least one commercial sale within nine months of receiving regulatory approval). Since late 2019, we have been engaged in discussions with the Clinic to extend the November 30, 2019 date referenced in the preceding sentence. Those discussions have been delayed by the onset of the COVID-19 pandemic and associated travel restrictions, but are still ongoing.

 

Through Tropic Spa, we have finalized the design of a personal tanning product and applied for and acquired patents for it in the United States (the “US Patent”), Canada, Australia and China. The product consists of a unique tanning system designed for spas, gyms, clinics and convenient home use that delivers a full-body application and eliminates the harmful health effects associated with traditional tanning beds, and in particular, exposure to ultraviolet (UV) radiation. We are currently seeking to establish licensing opportunities for Tropic Spa’s intellectual property, but have not entered into any formal arrangements as of the date of this Report.

 

On December 1, 2019, we entered into an option and put agreement (the “Definitive Agreement”) with Xthetica Inc. (“NewCo”), a newly incorporated Nevada corporation, and Manny Kapur, the sole shareholder of NewCo, pursuant to which Mr. Kapur granted us the sole and exclusive right and option to purchase all of the issued and outstanding capital stock of NewCo (the “NewCo Stock”) in exchange for the issuance of an aggregate of up to 10,000,000 shares of our common stock and warrants to purchase up to 10,000,000 shares of our common stock. The option is exercisable by us in tranches over a period of three years beginning on January 1, 2021.

 

Each share issued upon the exercise of an option will be issued at a deemed price per share equal to the value of our common stock on the OTCQB (or such other stock exchange or quotation medium on which the shares are then trading) on the date of issuance, while each warrant issued upon the exercise of an option will be exercisable into one share of our common stock at a price of US$1.40 per share for a period of three years from the date of issuance, subject to standard adjustments for stock splits, stock dividends and the like.

 

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Pursuant to the Definitive Agreement, we granted Mr. Kapur a corresponding series of put rights covering the NewCo Stock, also exercisable in tranches over a period of three years beginning on January 1, 2021. Each put right allows Mr. Kapur to cause us to purchase up to a certain number of shares of NewCo Stock in exchange for the issuance of a certain number of shares of our common stock plus warrants to purchase shares of our stock on the same terms as described above. Importantly, the exercise of each put right is subject to Xthetica Canada Inc. (“Xthetica CA”), a newly incorporated Canadian federal corporation and our subsidiary, achieving certain EBITDA milestones in each of its financial years, as reflected in the audited financial statements of Xthetica CA.

 

Assuming the full exercise of the option or put rights, of which there is no guarantee, NewCo will become our wholly owned subsidiary.

 

In connection with the execution and delivery of the Definitive Agreement, Xthetica Inc. (“Xthetica”), a private Ontario, Canada corporation owned by Mr. Kapur, entered into an assignment agreement with Xthetica CA, in the form attached as Appendix 1 to the Definitive Agreement (the “Assignment Agreement”), pursuant to which Xthetica assigned 100% of its right, title and interest in and to certain assets to Xthetica CA. The assets include Xthetica’s rights and obligations under a series of license and distribution agreements with manufacturers of medical aesthetics products, certain of Xthetica’s inventory, and the goodwill of Xthetica.

 

Xthetica CA provides products, services and training to a large number of aesthetic clinics and nurses in Canada, mainly in Ontario, Quebec and to a lesser extent, Manitoba, Alberta and British Columbia. The company uses an internal sales force and works closely and together with manufacturers and distribution partners to educate and train for new product launches.

 

Results of Operations

 

Three Months Ended May 31, 2020

 

Revenue

 

During the three months ended May 31, 2020, we generated $179,085 in revenue, all of which was in the form of sales revenue through Xthetica CA. We did not generate any revenue during the same period in the prior year.

 

Production Costs

 

During the three months ended May 31, 2020, we incurred production costs of $126,706 and realized a gross margin of $52,379. During the same period in the prior year, we incurred production costs and a gross loss of $46,867. Our production costs for the three months ended May 31, 2020 consisted of $79,838 in COGS and $46,868 in License Agreement amortization costs, whereas our production costs during the same period in the prior year consisted solely of License Agreement amortization costs.

 

Expenses

 

During the three months ended May 31, 2020, we incurred $656,671 in total general and administrative expenses, compared to incurring $147,359 in such expenses during the same period in the prior year. This increase was generally due to the completion of the Xthetica acquisition and the commencement of operations by Xthetica CA during the quarter ended February 29, 2020.

 

Our material expenses during the three months ended May 31, 2020 consisted of the following:

 

$183,514 in management-related consulting fees, a portion of which was paid to consultants of Xthetica CA;
$111,981 in office and miscellaneous expenses;

 

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$85,805 in amortization of intangible assets;
$83,600 in interest on a license assignment fee payable;
$82,871 in foreign exchange loss;
$74,027 in salaries and benefits paid to employees of Xthetica CA;
$10,850 in professional fees ;
$8,213 in rent;
$5,327 in taxes;
$5,177 in trust and filing fees;
$2,986 in travel and entertainment expenses; and
$2,951 in interest on advances from related parties/shareholders.

 

During the same period in the prior year, our material expenses included $53,602 in interest on a license assignment fee payable, $51,220 in professional fees, $23,053 in foreign exchange loss, $8,549 in trust and filing fees, $5,876 in management-related consulting fees, $3,078 in interest on advances from related parties/shareholders, $1,042 in rent.

 

Substantially all of the changes described above were due to the increase in our operations, through Xthetica CA, following the closing of the Definitive Agreement and Assignment Agreement.

 

Other Items

 

During the three months ended May 31, 2020, we generated a $7,132 gain associated with the revaluation of certain outstanding warrants to purchase shares of our common stock that were denominated in U.S. dollars. During the same period in the prior year, we generated a $84,164 gain associated with the same issue.

 

Net Loss

 

During the three months ended May 31, 2020, we incurred a net loss and comprehensive loss of $574,851 and a net loss per share of $0.01. During the same period in the prior year, we experienced a net loss and comprehensive loss of $110,062 and a net loss per share of $0.00.

 

Nine Months Ended May 31, 2020

 

Revenue

 

During the nine months ended May 31, 2020, we generated $1,182,265 in revenue, all of which was in the form of sales revenue through Xthetica CA. We did not generate any revenue during the same period in the prior year.

 

Production Costs

 

During the nine months ended May 31, 2020, we incurred production costs of $734,664 and realized a gross margin of $447,601. During the same period in the prior year, we incurred production costs and a gross loss of $148,413. Our production costs for the nine months ended May 31, 2020 consisted of $540,051 in COGS, $140,603 in License Agreement amortization costs, $46,073 in royalty expenses and $7,937 in patenting costs, compared to $140,600 in License Agreement amortization costs and $7,813 in patenting costs during the same period in the prior year.

 

Expenses

 

During the nine months ended May 31, 2020, we incurred $1,756,051 in total general and administrative expenses, compared to $665,545 in such expenses during the same period in the prior year.

  

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Our material expenses during the nine months ended May 31, 2020 consisted of the following:

  

  $397,821 in management-related consulting fees, a portion of which was paid to consultants of Xthetica CA;
  $291,592 in salaries and benefits paid to employees of Xthetica CA;
  $284,218 in office and miscellaneous expenses;
  $207,410 in interest on a license assignment fee payable;
  $176,125 in amortization of intangible assets;
  $95,758 in professional fees, including amounts paid to the sole shareholder of Xthetica for services rendered to Xthetica CA;
  $91,756 in foreign exchange loss;
  $75,755 in advertising and promotion expenses
  $51,998 in travel and entertainment expenses;
  $38,386 in trust and filing fees;
  $18,491 in rent;
  $17,297 in taxes; and
  $8,814 in interest on advances from related parties/shareholders.

 

During the same period in the prior year, our material expenses included $286,189 in foreign exchange loss, $160,097 in interest on a license assignment fee payable, $87,875 in management-related consulting fees, $83,554 in professional fees, $23,528 in trust and filing fees, $11,822 in rent and $9,035 in interest on advances from related parties/shareholders.

 

As was the case during the three months ended May 31, 2020, substantially all of the changes described above were due to the increase in our operations, through Xthetica CA, following the closing of the Definitive Agreement and Assignment Agreement.

 

Other Items

 

During the nine months ended May 31, 2020, we generated a $9,575 gain associated with the revaluation of certain outstanding warrants to purchase shares of our common stock that are denominated in U.S. dollars. During the same period in the prior year, we incurred a writedown of amounts receivable in the amount of $8,752, a $130,247 gain associated with the revaluation of certain outstanding warrants to purchase shares of our common stock that are denominated in U.S. dollars, and a $109,808 gain on the expiration of certain outstanding warrants to purchase shares of our common stock that are also denominated in U.S. dollars. In addition, we generated $2,800 in other income and received $4,172 in discounts.

 

Net Loss

 

During the nine months ended May 31, 2020, we incurred a net loss and comprehensive loss of $1,276,566 and a net loss per share of $0.02. During the same period in the prior year, we experienced a net loss and comprehensive loss of $575,683 and a net loss per share of $0.01.

 

Liquidity and Capital Resources

 

As of May 31, 2020, we had $82,815 in cash, $1,610,054 in current assets, $4,229,926 in total assets, $4,910,864 in current liabilities, $5,616,835 in total liabilities and a working capital deficiency of $3,300,810. As of that date, we also had an accumulated deficit of $13,695,097.

 

During the nine months ended May 31, 2020, we received $26,587 in net cash from operating activities, compared to $128,683 in net cash spending on operating activities during the same period in the prior year. The change in our spending between the two periods was primarily attributable to the increase in our net loss as adjusted for certain changes in our assets and liabilities from period-to-period, and in particular, a significant increase in our accounts payable and accrued liabilities.

 

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During the nine months ended May 31, 2020, we received $75,915 in net cash from investing activities, substantially all of which was in the form of cash acquired upon the closing of the Xthetica acquisition. We did not spend any cash on investing activities during the same period in the prior year.

 

During the nine months ended May 31, 2020, we spent $34,530 in net cash on financing activities, all of which was attributable to repayments in advances from related parties/shareholders. During the same period in the prior year, we received $329,221 in net cash from financing activities, $364,934 of which was attributable to proceeds from private placements, less the repayment of $35,713 in advances from related parties/shareholders.

 

During the nine months ended May 31, 2020, our cash increased by $67,972 due to a combination of our operating, investing and financing activities.

 

Plan of Operations

 

Our plan of operations over the next 12 months is to continue the process initiated by ZHC to design, manufacture and commercialize the Notox system and its features. We expect to work closely with the Clinic in this regard, and anticipate that we will require at least US$5,025,000 to carry out our plan, as follows:

 

Description 

Amount

(US$)

 
Design, testing and prototyping the Notox unit (including $111,200 in milestone payments to RBC)   600,000 
Design, testing and prototyping the Notox treatment probe   1,400,000 
Acquisition costs payable to ZHC   800,000 
Human trial expenses   950,000 
FDA Section 510(k) notification costs and CE marking expenses   750,000 
Marketing and inventory expenses   525,000 
Total   5,025,000 

 

In addition, over the next 12 months our plan of operations through Tropic Spa is to create licensing opportunities for Tropic Spa’s intellectual property, and in particular, its U.S., Canadian, Australian and Chinese patents. We plan to target existing and highly-recognized brands in the tanning industry, both locally and internationally, that may be drawn to Tropic Spa’s technology in order to better serve their existing customers and enhance their competitive advantage. We do not anticipate spending any specific amounts for this purpose, as the creation of such opportunities will be covered by our general and administrative expenses described below.

 

We have not yet prepared a detailed 12-month plan of operations for Xthetica CA due to business disruptions caused by the COVID-19 pandemic. We expect to prepare an achievable plan upon the receipt of additional information from our manufacturing and distribution partners, as well as applicable levels of government, over the coming months and anticipate including it in our next quarterly report on Form 10-Q.

 

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We expect to incur the following general and administrative expenses over the next 12 months. These expenses are reasonably consistent with those from prior periods, as adjusted to reflect the expected increase in our operations and the costs of maintaining our status as a public company.

 

Description  Amount ($) 
Professional fees and filing fees   120,000 
Management-related consulting fees   333,000 
Rent (including utilities)   30,000 
Travel and entertainment expenses   25,000 
Office and miscellaneous expenses   25,000 
Total   533,000 

 

We do not currently have sufficient funds to carry out our entire plan of operations, so we intend to meet the balance of our cash requirements for the next 12 months through a combination of debt financing and equity financing through private placements. Currently we are active in contacting broker/dealers in Canada and elsewhere regarding possible financing arrangements; however, we do not currently have any agreements in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings. If we are unsuccessful in obtaining sufficient funds through our capital raising efforts, we may review other financing options, although we cannot provide any assurance that any such options will be available to us or on terms reasonably acceptable to us. Further, if we are unable to secure any additional financing then we plan to reduce the amount that we spend on our operations, including management-related consulting fees and other general and administrative expenses, so as not to exceed the capital resources available to us.

 

Critical Accounting Policies

 

Intangible Assets

 

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, definite-life intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred.

 

Intangible assets have been amortized based on the useful life as below:

 

Patents - 8 Years; and

Trademarks, License Agreement and customer base - 5 years

 

Foreign Currency 

 

Our functional currency and the functional currency of our subsidiaries is the Canadian dollar. Our condensed consolidated financial statements are presented in Canadian dollars.

 

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in the loss in the period in which they arise.

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Going Concern

 

Our financial statements have been prepared on a going concern basis, which implies we will continue to realize our assets and discharge our liabilities in the normal course of business. As at May 31, 2020, we had a working capital deficiency of $3,300,810 and an accumulated deficit of $13,695,097. Our continuation as a going concern is dependent upon the continued financial support from our stockholders, our ability to obtain necessary equity financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding our ability to continue as a going concern. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

As of the end of the period covered by this Report, management, with the participation of our Chief Executive and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, management concluded that our disclosure controls and procedures were not effective due to certain deficiencies in our internal control over financial reporting. These deficiencies include the fact that we have no audit committee, traditionally have had no independent directors, and do not have a system in place to review and monitor internal control over financial reporting.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that a reasonable possibility exists that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The deficiencies described above constitute, both individually and in the aggregate, a material weakness given their potential impact on our financial reporting and internal control over financial reporting.

 

Management is currently evaluating remediation plans for the deficiencies and will implement changes as time and financial resources allow.

 

Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the period ended May 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

In June 2020, Manny Kapur and Xthetica (together, the “Plaintiffs”) filed a statement of claim in the Ontario Superior Court of Justice against us, Xthetica CA, Zoran Konević, our Chief Executive Officer and Director, and a private company controlled by Mr. Konević (collectively, the “Defendants”), alleging that, inter alia, the Defendants owed monies to the Plaintiffs pursuant to certain contractual arrangements.

 

On July 10, 2020, we filed a statement of defence and counterclaim in respect of this matter along with Xthetica CA and Mr. Konević, whereby we denied each and every allegation in the Plaintiffs’ statement of claim and initiated a counterclaim against the Plaintiffs, the spouse of Mr. Kapur, certain former employees of Xthetica CA, and certain additional persons related thereto (collectively, the “Counterclaim Defendants”). The counterclaim seeks significant damages from the Counterclaim Defendants along with a number of declarations, injunctions and orders, the substance of which concern the conduct of the Counterclaim Defendants in relation to the business of Xthetica CA.

 

At this time, the outcome of the claim and counterclaim are uncertain.

 

Other than as described above, we are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers or any of our subsidiaries, threatened against or affecting us, our common stock, any of our subsidiaries or our officers or directors of those of our subsidiaries’ in their capacities as such, in which an adverse decision could have a material adverse effect. 

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

The following documents are filed as a part of this Report:

 

 

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10.2   Amendment to Share Exchange Agreement dated February 17, 2015 with 1894632 Ontario Inc., Tropic Spa Inc. and the shareholders of Tropic Spa Inc. (7)
10.3   Share Exchange Agreement dated June 6, 2016 with Notox Bioscience Inc. and the shareholders of Notox Bioscience Inc. (8)
10.4   Amendment to Share Exchange Agreement dated November 23, 2016 with Notox Bioscience Inc. and the shareholders of Notox Bioscience Inc. (9)
10.5   Option and Put Agreement dated December 1, 2019 with Xthetica Inc. and the sole shareholder of Xthetica Inc. (10)
21   1894631 Ontario Inc. (Ontario, Canada), 1894632 Ontario Inc. (Ontario, Canada), Notox Bioscience Inc. (Nevada), Tropic Spa Inc. (Ontario, Canada), Xthetica Canada Inc. (Federal, Canada)
31.1   Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Presentation Linkbase

 

(1)   Incorporated by reference from our registration statement on Form 10, filed with the SEC on October 15, 2010.
     
(2)   Incorporated by reference from our quarterly report on Form 10-Q, filed with the SEC on June 20, 2013.
     
(3)   Incorporated by reference from our annual report on Form 10-K, filed with the SEC on December 9, 2013.
     
(4)   Incorporated by reference from our current report on Form 8-K, filed with the SEC on November 26, 2018.
     
(5)   Incorporated by reference from our annual report on Form 10-K, filed with the SEC on December 14, 2018.
     
(6)   Incorporated by reference from our current report on Form 8-K, filed with the SEC on July 3, 2013.
     
(7)   Incorporated by reference from our current report on Form 8-K, filed with the SEC on February 19, 2015.
     
(8)   Incorporated by reference from our current report on Form 8-K, filed with the SEC on June 13, 2016.
     
(9)   Incorporated by reference from our quarterly report on Form 10-Q, filed with the SEC on January 19, 2017.
     
(10)   Incorporated by reference from our current report on Form 8-K, filed with the SEC on December 10, 2019.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: July 20, 2020 NOTOX TECHNOLOGIES CORP.
     
  By: /s/ John Marmora
    John Marmora
    President, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer, Director

 

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