Company Quick10K Filing
Quick10K
Tropic International
10-Q 2019-05-31 Quarter: 2019-05-31
10-Q 2019-02-28 Quarter: 2019-02-28
10-Q 2018-11-30 Quarter: 2018-11-30
10-K 2018-08-31 Annual: 2018-08-31
10-Q 2018-05-31 Quarter: 2018-05-31
10-Q 2018-02-28 Quarter: 2018-02-28
10-Q 2017-11-30 Quarter: 2017-11-30
10-K 2017-08-31 Annual: 2017-08-31
10-Q 2017-05-31 Quarter: 2017-05-31
10-Q 2017-02-28 Quarter: 2017-02-28
10-Q 2016-11-30 Quarter: 2016-11-30
10-K 2016-08-31 Annual: 2016-08-31
10-Q 2016-05-31 Quarter: 2016-05-31
10-Q 2016-02-29 Quarter: 2016-02-29
10-Q 2015-11-30 Quarter: 2015-11-30
10-K 2015-08-31 Annual: 2015-08-31
10-Q 2015-05-31 Quarter: 2015-05-31
10-Q 2015-02-28 Quarter: 2015-02-28
10-Q 2014-11-30 Quarter: 2014-11-30
10-K 2014-08-31 Annual: 2014-08-31
10-Q 2014-05-31 Quarter: 2014-05-31
10-Q 2014-02-28 Quarter: 2014-02-28
10-Q 2013-11-30 Quarter: 2013-11-30
8-K 2019-07-19 Enter Agreement
8-K 2019-03-29 Accountant, Exhibits
8-K 2018-12-27 Other Events
8-K 2018-12-07 Other Events
8-K 2018-11-19 Amend Bylaw, Other Events, Exhibits
RSSS Research Solutions 42
PWCO PwrCor 40
ISGN iSIGN Solutions 3
ROYE Royal Energy Resources 0
WUC Western Uranium 0
RTON Right On Brands 0
CLIC CLIC Technology 0
TCE TraqIQ 0
CNCG Concierge Technologies 0
RZZN Jialijia Group 0
TRPO 2019-05-31
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 2019-05-31

TRPO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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, 2019

 

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)

 

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 [  ] 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 [X] 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 15, 2019, the registrant’s outstanding common stock consisted of 57,545,343 shares.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Item 4. Controls and Procedures 11
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 12
Item 1A. Risk Factors 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Mine Safety Disclosures 12
Item 5. Other Information 12
Item 6. Exhibits 12
     
SIGNATURES 14

 

 2 
 

 

Item 1. Financial Statements

 

Notox Technologies Corp. (formerly Tropic International Inc.)

Condensed Consolidated Financial Statements

For the Three and Nine Months Ended May 31, 2019

(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-4
   
Condensed Consolidated Statements of Stockholders’ Deficiency F-5
   
Notes to the Condensed Consolidated Financial Statements F-6

 

 3 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

CONDENSED CONSOLIDATED BALANCE SHEET

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

   May 31, 2019   August 31, 2018 
ASSETS          
Current assets:          
Cash  $206,202   $5,664 
Amounts receivable   6,068    6 
Sales tax receivable   72,295    72,295 
Prepaid expenses   10,072    24,048 
Total current assets   294,637    102,013 
Patents, net   4    4 
License agreement, net (Note 5)   984,199    1,124,799 
Total assets  $1,278,840   $1,226,816 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
Current liabilities:          
Accounts payable and accrued liabilities (Note 6)  $1,914,997   $1,582,691 
Advances from related parties/shareholders (Notes 7 and 8)   441,796    477,509 
License assignment fee and accrued interest payable (Note 9)   1,072,182    882,257 
Stock purchase warrants (Note 11)   223,940    353,517 
Stock subscribed       10,000 
Total current liabilities   3,652,915    3,305,974 
Due to the Clinic (Note 5)   244,017    227,707 
    3,896,932    3,533,681 
           
Stockholders’ deficiency (Note 11):          
Common stock   1,028,256    1,018,256 
Additional paid-in capital   8,458,365    8,458,365 
Shares to be issued   254,456     
Deficit   (12,359,169)   (11,783,486)
Total stockholders’ deficiency   (2,618,092)   (2,306,865)
Total liabilities and stockholders’ deficiency  $1,278,840   $1,226,816 

 

Subsequent event (Note 14)

 

See accompanying notes to the condensed consolidated financial statements.

 

 F-1 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

  

For the Three Months Ended

May 31,

 
   2019   2018 
Revenue:          
Sales  $   $ 
           
Production costs:          
Amortization – license agreement (Note 5)   46,867    46,867 
Consulting fees – production       240 
Depreciation       1,709 
Patenting costs – the Clinic       2,555 
Total production costs   46,867    51,371 
Gross loss   (46,867)   (51,371)
           
General and administration:          
Consulting fees – management (Note 7)   5,876    120,430 
Depreciation        
Interest on advances from related parties/shareholders (Notes 7 and 8)   3,078    5,633 
Interest on license assignment fee payable (Note 9)   53,602     
Loss (gain) on foreign exchange   23,053    17,092 
Marketing        
Office and miscellaneous   421    2,560 
Patent maintenance fees       259 
Professional fees   51,220    5,000 
Rent   1,042    7,460 
Travel and entertainment   518    1,163 
Trust and filing fees   8,549    5,952 
Total general and administration   147,359    165,549 
Loss before other items and income taxes   (194,226)   (216,920)
Other items:          
Other income        
Discounts received        
Gain on revaluation of stock purchase warrants (Note 11)   84,164    84,690 
Write-down of amounts receivable       (13,000)
Loss before income taxes   (110,062)   (145,230)
Income taxes        
Loss and comprehensive loss  $(110,062)   (145,230)
           
Loss per share – basic and diluted  $(0.00)  $(0.00)
           
Weighted-average number of shares outstanding   57,545,343    57,532,843 

 

See accompanying notes to the condensed consolidated financial statements.

 

 F-2 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

  

For the Nine Months Ended

May 31,

 
   2019   2018 
Revenue:          
Sales  $   $ 
           
Production costs:          
Amortization – license agreement (Note 5)   140,600    140,600 
Consulting fees – production       1,395 
Depreciation       5,129 
Patenting costs – the Clinic   7,813    12,730 
Total production costs   148,413    159,854 
Gross loss   (148,413)   (159,854)
           
General and administration:          
Consulting fees – management (Note 7)   87,875    356,196 
Interest on advances from related parties/shareholders (Notes 7 and 8)   9,035    13,722 
Interest on license assignment fee payable (Note 9)   160,097     
Loss on foreign exchange   286,189    48,202 
Marketing   124    247 
Office and miscellaneous   1,234    7,654 
Patent maintenance fees       1,653 
Professional fees   83,554    34,396 
Rent   11,822    20,599 
Travel and entertainment   2,087    3,589 
Trust and filing fees   23,528    18,027 
Total general and administration   665,545    504,285 
Loss before other items and income taxes   (813,958)   (664,139)
Other items:          
Other income   2,800     
Discounts received   4,172     
Gain on revaluation of stock purchase warrants (Note 11)   130,247    187,306 
Gain on expiration of stock purchase warrants (Note 11)   109,808     
Write-down of amounts receivable   (8,752)   (31,746)
Loss before income taxes   (575,683)   (508,579)
Income taxes        
Loss and comprehensive loss  $(575,683)  $(508,579)
           
Loss per share – basic and diluted  $(0.01)  $(0.01)
           
Weighted-average number of shares outstanding   57,541,314    57,515,920 

 

See accompanying notes to the condensed consolidated financial statements.

 

 F-3 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

  

For the Nine Months Ended

May 31,

 
   2019   2018 
         
Cash Flows Used In Operating Activities          
Loss  $(575,683)  $(508,579)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Amortization – license agreement   140,600    140,600 
Depreciation       5,129 
Discount received and other income   (8,755)    
Unrealized foreign exchange on license assignment fee payable       22,454 
Unrealized foreign exchange on license assignment fee payable interest payable   189,925     
Unrealized foreign exchange on due to the Clinic   16,311    6,891 
Write-down of amounts receivable   8,753    31,746 
Gain on revaluation of stock purchase warrants   (130,246)   (187,306)
Gain on expiration of stock purchase warrants   (109,808)    
Changes in assets and liabilities:          
Amounts receivable   (6,062)   (34,082)
Prepaid expenses   13,976    7,617 
Accounts payable and accrued liabilities   332,306    393,459 
Due to the Clinic       12,729 
Interest accrued on advances from related parties/shareholders       13,722 
Net cash used in operating activities   (128,683)   (95,620)
           
Cash Flows Provided By Financing Activities          
Shares to be issued   364,934     
Stock issue costs       (6,435)
Advances from related parties/shareholders   (35,713)   51,000 
Stock subscriptions received       10,000 
Net cash provided by financing activities   329,221    54,565 
           
Increase (decrease) in cash during the period   200,538    (41,055)
Cash, beginning of period   5,664    63,144 
Cash, end of period  $206,202   $22,089 
           
Supplementary Information:          
Interest paid        
Taxes paid  $   $ 

 

See accompanying notes to the condensed consolidated financial statements.

 

 F-4 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

   Common Stock   Shares to be   Additional paid-in       Total
stockholders
 
   Share   Amount   issued  

capital

   Deficit  

deficiency

 
Balance at August 31, 2017   56,892,843   $526,182   $   $8,460,414   $(10,972,661)  $(1,986,065)
Stock issued for cash   630,000    491,041                491,041 
Stock issue costs – cash       (6,435)               (6,435)
Stock issue costs – finder’s warrants       (2,581)               (2,581)
Warrants exercised   10,000    10,049        (2,049)       8,000 
Loss for the three months                   (217,090)   (217,090)

Balance at November 30, 2017

   57,532,843   $1,018,256   $   $8,458,365   $(11,189,751)  $(1,713,130)
                               
Loss the three months                   (146,259)   (146,259)

Balance at February 28, 2018

   57,532,843   $1,018,256   $   $8,458,365   $(11,336,010)  $(1,859,389)
                               
Loss the three months                   (145,230)   (145,230)

Balance at May 31, 2018

   57,532,843   $1,018,256   $   $8,458,365   $(11,481,240)  $(2,004,619)
                               
Loss the three months                   (302,246)   (302,246)

Balance at August 31, 2018

   57,532,843   $1,018,256   $   $8,458,365   $(11,783,486)  $(2,306,865)
                               
Warrants exercised   12,500    10,000                10,000 
Loss the three months                   (123,131)   (123,131)

Balance 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 
Loss the three months                   (342,490)   (342,490)

Balance 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)
Loss the three months                   (110,062)   (110,062)

Balance at May 31, 2019

   57,545,343   $1,028,256   $254,456   $8,458,365   $(12,359,169)  $(2,618,092)

 

See accompanying notes to the condensed consolidated financial statements.

 

 F-5 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

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. (formerly Tropic International Inc.) (the “Company”) was incorporated under the laws of the state of Nevada on October 29, 2007 under the name Rockford Minerals Inc. 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 December 6, 2013, the Company changed its name to Tropic International Inc. as a result of a merger with a wholly-owned subsidiary incorporated solely to effect the name change. On November 19, 2018, the Company again changed its name to Notox Technologies Corp.

 

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. As a result of this transaction, the Company is a holding company operating through both TSI and Notox.

 

As reflected in the accompanying condensed consolidated financial statements, the Company has a deficit of $12,359,170 (August 31, 2018 - $11,783,486) since inception, a working capital deficiency of $3,358,278 (August 31, 2018 - $3,203,961) and a stockholders’ deficiency of $2,618,093 (August 31, 2018 - $2,306,865). 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.

 

As at May 31, 2019, the Company’s current cash liabilities total $3,428,975 (August 31, 2018 - $2,942,457). Of this amount accounts payable and accrued liabilities are $1,914,997, advances from related parties/shareholders are $441,796 and license assignment fee and accrued interest payable $1,072,182– is payable to related parties and/or major shareholders who have not and will not require payment until such time as sufficient cash flow is available.

 

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, 2019.

 

 F-6 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

1. Company Overview and Basis of Presentation (continued)

 

Basis of presentation, measurement and consolidation

 

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 generally accepted accounting principles for complete financial statements and should be read in conjunction with Notox Technologies Corp’s audited financial statements for the years ended August 31, 2018 and 2017 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, 2019 are not necessarily indicative of the results that may be expected for the year ending August 31, 2019.

 

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

 

2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the financial statements of the Company, TSI, Notox, 1894632 Ontario Inc. (“Subco”), and 1894631 Ontario Inc., 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 accounting principles generally accepted in the United States (“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 equipment, 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.

 

Fair Value of Financial Instruments

 

Carrying values of cash, accounts payable and accrued liabilities, advances from related parties/shareholders, license assignment fee and accrued interest payable and stock subscribed approximate fair value because of the short-term nature of these items. Amounts receivable consists primarily of Harmonized Sales Tax (“HST”) receivable from the Government of Canada. HST is not a financial instrument.

 

 F-7 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

3. Reverse Takeover

 

On June 28, 2013 (the “Closing Date”), the Company, its wholly-owned subsidiary Subco and TSI entered into a share exchange agreement (the “Exchange Agreement”) with certain of the shareholders of TSI (the “Selling Shareholders”) pursuant to which the Company acquired 39,015,439 common shares, or approximately 78% of the issued and outstanding shares, of TSI in exchange for the issuance of 39,015,439 preferred shares of Subco to the Selling Shareholders on a one-for-one basis. Each one 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.

 

On February 17, 2015, the Company, Subco, TSI and the Selling Shareholders entered into an amendment to the Exchange Agreement in order to correct certain administrative errors in the Exchange Agreement and provide for the post-closing execution of the Exchange Agreement by those shareholders of TSI who were not original signatories thereto. In addition, the Selling Shareholders approved certain changes to the rights, privileges, restrictions and conditions attached to the preferred shares of Subco by consent in writing. This included extending the automatic expiration date in respect of the preferred shares of Subco from June 30, 2015 to June 30, 2017. On February 22, 2017, this automatic expiration date was further extended to December 31, 2018, and on December 27, 2018, this date was further extended to December 31, 2020.

 

4. 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 carrying value of cash deposits is a reasonable estimate of its fair value due to the short maturity of the financial instrument.

 

The Company’s stock purchase warrants are measured at fair value on a recurring basis.

 

5. License Agreement, Net

 

On December 1, 2012, Zoran Holding Corporation (“ZHC”) and the Clinic entered into the License Agreement whereby the Clinic granted ZHC an exclusive worldwide license and a non-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: regulatory filings submitted to regulatory authorities by November 30, 2019 and first commercial sale within nine months following regulatory approval. 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.

 

 F-8 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

5. License Agreement, Net (continued)

 

Within 30 days following Notox’s receipt of the first regulatory approval, Notox is required to reimburse the Clinic for current patenting costs. All patenting costs, patent office fees and outside patent counsel costs will, at the Clinic’s option, either be paid directly by Notox or by the Clinic with the Clinic invoicing Notox, provided that Notox has no obligation to pay or reimburse the Clinic until after first regulatory approval has been obtained. Upon termination or expiration of the License Agreement, all accrued and unreimbursed patenting costs become immediately due and payable to the Clinic. As of May 31, 2019, all accrued and unreimbursed patenting costs totaled $244,017 (August 31, 2018 - $227,707).

 

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

 

License Agreement  $133,212 
Cash   131 
Accrued liabilities   (5,423)
Capital stock exchanged (50,000,000 shares at US$0.002 per share)  $127,920 

 

Fair value of License Agreement  $133,212 
Acquisition costs   19,519 
Assignment fee (US$1,000,000)   1,347,000 
Gross carrying value of License Agreement  $1,499,731 

 

   May 31, 2019 
   Gross carrying amount   Accumulated amortization  

Net carrying amount

 
License Agreement  $1,499,731   $515,532   $984,199 

 

   August 31, 2018 
   Gross carrying amount  

Accumulated amortization

  

Net carrying amount

 
License Agreement  $1,499,731   $374,932   $1,124,799 

 

As of May 31, 2019, amortization expense on the License Agreement for the next six years was expected to be as follows:

 

   Amount 
Year ending:     
2019  $46,866 
2020   187,466 
2021   187,466 
2022   187,466 
2023   187,466 
2024   187,469 
Total  $984,199 

 

 F-9 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

6. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities consisted of:

 

   May 31, 2019   August 31, 2018 
Trade payables  $1,154,677   $1,412,277 
Vendor accruals   760,320    170,414 
Accounts payable and accrued liabilities  $1,914,997   $1,582,691 

 

7. Related Party Transactions and balances

 

All transactions with related parties occurred in the normal course of business and were measured at the exchange amount, which was the amount of consideration agreed upon between management and the related parties.

 

Following are the related party balances and transactions:

 

a) Related party balances

 

Advances from related parties include:

 

At May 31, 2019, the Company owed $232,000 (August 31, 2018 - $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 $37,744 at May 31, 2019 (August 31, 2018 - $32,538).
   
At May 31, 2019, the Company owed $6,828 (August 31, 2018 - $51,000) in advances payable to the CEO of the Company. This balance bears no interest and has no repayment terms.

 

Accounts payable and accrued liabilities include:

 

At May 31, 2019, the Company owed $893,867 (August 31, 2018 - $1,090,187) in consulting fees to the President, CEO, and former CFO of the Company.

 

b) Related party transactions

 

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

 

Consulting fees expense of $87,875 (nine months ended May 31, 2018 - $356,196) in connection with the services provided by the companies controlled by the President, and CEO of the Company.
   
Interest expense of $8,347 (nine months ended May 31, 2018 - $13,721) in connection with advances owing to the President and other shareholders of the Company.
   
The CEO of the Company advanced $28,836 (nine months ended May 31, 2018 - $46,000). These advances are unsecured, bear no interest and have no repayment terms.

 

8. Advances from Shareholders

 

Advances payable to shareholders totaled $145,000 at May 31, 2019 (August 31, 2018 - $145,000) These advances are unsecured and bear interest at 3% per annum, with no specific repayment terms. Interest expense of $3,254 was incurred on these advances during the nine months ended May 31, 2019 (nine months ended May 31, 2018 - $3,254). Accrued interest payable to shareholders totaled $20,224 at May 31, 2019 (August 31, 2018 - $16,971).

 

 F-10 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

9. License Assignment Fee Payable

 

Pursuant to the amendment to the Share Exchange Agreement, the Company will 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 $334,960 was accrued on the balance payable during the nine months ended May 31, 2019. At May 31, 2019, the balance of the license assignment fee payable and interest payable to ZKC was $1,072,182 (August 31, 2018 - $882,257). See Note 5.

 

10. Commitments

 

On December 1, 2015, the Company entered into consulting agreements with 1040614 Ontario Ltd., a private Ontario corporation (the “Old 1040614 Agreement”), and MCM Consulting, an Ontario sole proprietorship (the “Old MCM Agreement”, and together with the Old 1040614 Agreement, the “Old Agreements”). Pursuant to the Old 1040614 Agreement, 1040614 Ontario Ltd., through its principal, performed various services related to business development, strategic planning and capital-raising for the Company. Pursuant to the Old MCM Agreement, the sole proprietor acted in the capacity of CEO of the Company. On June 13, 2016, the Old 1040614 and MCM Agreements were terminated and replaced by the 1040614 and MCM Agreements (see below). As at May 31, 2019, 1040614 and MCM are each entitled to $80,770 (August 31, 2018 - $80,770) in accrued remuneration in respect of the Old Agreements.

 

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, MCM, through its principal, performs 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.

 

On August 31, 2018, the Company renewed its premises lease for another year beginning on September 1, 2018 for a rental of $21,000 for the year plus HST.

 

 F-11 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

11. Stockholders’ Deficiency

 

Authorized stock

 

As at May 31, 2019, the Company was authorized to issue 500,000,000 (August 31, 2018 - 300,000,000) 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, 2019, the Company had 57,545,343 shares of common stock legally issued and outstanding (2018 - 57,532,843).

 

Share issuances

 

During the nine months ended May 31, 2018, the Company completed the following common stock transactions:

 

On September 21, 2017, the Company closed a US dollar financing pursuant to which the Company issued 630,000 units at US$1.00 per unit for gross proceeds of $830,674, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of common stock exercisable at a price of US$1.40 per share until September 7, 2019. $491,041 was allocated to common stock and $339,633 was allocated to stock purchase warrants. The Company paid cash finder’s fees of $6,435 and issued 5,000 finder’s stock purchase warrants exercisable at US$1.40 per warrant share until July 17, 2019, valued at $2,581 and credited to stock purchase warrants.

 

During the nine months ended May 31, 2019, the Company did not complete any common stock transactions.

 

Shares to be issued

 

As of May 31, 2019, the Company is obligated to issue 276,250 shares of common stock as follows:

 

6,250 shares at an issue price of $0.80 per share $5,000.
   

120,000 shares with a fair value of $158,364 at an issue price of US$1.00 per share.

   
150,000 shares with a fair value of $91,092 at an issue price of US$1.00 per unit. Each unit consists of one share of the Company’s common stock and one warrant to purchase one share of common stock exercisable at a price of US$1.40 per share for a period of two years. $91,092 was allocated to common stock and $110,478 was allocated to stock purchase warrants.

 

 F-12 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

11. Stockholders’ Deficiency (continued)

 

Warrant exercises

 

During the nine months ended May 31, 2019, the Company completed the following warrant transactions:

 

On November 27, 2018, the Company issued 12,500 shares of common stock at $0.80 per share for gross proceeds of $10,000 pursuant to the exercise of warrants during the three months ended November 30, 2018.

 

Stock Purchase Warrants

 

The continuity of Canadian dollar denominated stock purchase warrants for the nine months ended May 31, 2019 is as follows:

 

Expiry Date  Price  

August

31, 2017

   Issued   Exercised  

August

31, 2018

   Issued   Expired  

May

31, 2019

 
October 31, 2018  $0.80    130,000        (12,500)   117,500       (117,500)     

 

At May 31, 2019, the weighted-average remaining contractual life of Canadian dollar warrants outstanding was 0.00 years (August 31, 2018 - 0.17).

 

The continuity of US dollar denominated stock purchase warrants for the nine months ended May 31, 2019 is as follows:

 

Expiry Date  Price US$   August 31, 2017   Issued   August 31, 2018   Exercised   Issued   Expired   May
31, 2019
 
September 30, 2018 – Finder   1.40    15,000        15,000            (15,000)    
October 31, 2018   0.80    220,770        220,770            (220,770)    
November 2, 2018   1.40    400,000        400,000            (400,000)    
July 17, 2019 – Finder   1.40        5,000    5,000               5,000 
September 7, 2019   1.40        630,000    630,000              —        630,000 
         635,770    635,000    1,270,770           (635,770)   635,000 

 

At May 31, 2019, the weighted-average remaining contractual life of US dollar warrants outstanding was 0.22 years (August 31, 2018 – 0.59 years).

 

As of May 31, 2019, the Company is obligated to issue 150,000 warrants, each of which is exercisable into one share of the Company’s common stock at a price of US$1.40 per share for a period of two years.

 

 F-13 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

11. Stockholders’ Deficiency (continued)

 

Stock Purchase Warrants (continued)

 

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 years ended August 31, 2018 and 2017 with the following assumptions:

 

   May 31, 2019   August 31, 2018 
Expected dividend yield   0.00%   0.00%
Risk-free interest rate   1.78%   1.47% - 2.04%
Expected stock price volatility   100.00%   100.00%
Expected life of warrants   0.13 – 2 years    0.08 – 2 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 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 will be 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 will be evaluating the impact this standard will have on the Company’s 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.

 

In June 2018, the FASB issued an accounting pronouncement (FASB ASU 2018-07) to expand the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently in the process of evaluating the effects of this pronouncement on the consolidated financial statements, including potential early adoption.

 

 F-14 
 

 

NOTOX TECHNOLOGIES CORP. (FORMERLY TROPIC INTERNATIONAL INC.)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

13. Accounting Pronouncements (continued)

 

In November 2017, the FASB issued an accounting pronouncement (FASB ASU 2017-14) amending Topic 605, which states the required steps to achieve the core principle that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted this pronouncement on a modified retrospective basis. On April 1, 2018, the Company adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”) to clarify existing guidance on revenue recognition.

 

In November 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-18) addressing the treatment of restricted cash equivalents in Topic 230. This guidance requires entities to show changes in the total of cash, cash equivalents and restricted cash in the combined statement of cash flows. On January 1, 2018, the Company adopted the accounting pronouncement issued by the FASB to clarify how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. This guidance was adopted on a retrospective basis, and such adoption did not have a material impact on combined financial position and/or results of operations.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance revises the accounting related to leases by requiring lessees to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions. This ASU is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company does not believe the guidance will have a material impact on its consolidated financial statements.

 

14. Subsequent Event

 

The Company’s management has evaluated subsequent events up to July 15, 2019, the date the condensed consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.

 

 F-15 
 

 

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.

 

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.

 

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. (formerly, Tropic International Inc.) and its consolidated subsidiaries.

 

This Report includes our interim unaudited condensed consolidated financial statements for the three and nine months ended May 31, 2019. 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).

 

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.

 

Results of Operations

 

Revenue

 

We did not generate any revenue during either the nine months ended May 31, 2019 or the same period in the prior year.

 

Three Months Ended May 31, 2019

 

Production Costs

 

During the three months ended May 31, 2019, we incurred production costs of $46,867, which was equal to our gross loss for the period. During the same period in the prior year, we incurred production costs and a gross loss of $51,371. Our production costs for the three months ended May 31, 2019 consisted solely of License Agreement amortization costs, whereas our production costs during the same period in the prior year included $46,867 in License Agreement amortization, $2,555 in patenting costs, $1,709 in depreciation and $240 in production-related consulting fees.

 

5
 

 

Expenses

 

During the three months ended May 31, 2019, we incurred $147,359 in total general and administrative expenses, compared to $165,549 in such expenses during the same period in the prior year.

 

Our expenses during the three months ended May 31, 2019 consisted of $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, $518 in travel and entertainment expenses and $421 in office and miscellaneous expenses.

 

During the same period in the prior year, our expenses included $120,430 in management-related consulting fees, $17,092 in foreign exchange loss, $7,460 in rent, $5,633 in interest on advances from related parties/shareholders, $5,952 in trust and filing fees, $5,000 in professional fees, $2,560 in office and miscellaneous expenses, $1,163 in travel and entertainment expenses and $259 in patent maintenance fees.

 

The management-related consulting fees we incurred over both periods were paid to our principal executive officers and directors and one consultant who provided management-related services to us during the prior period and is also a major shareholder.

 

Other Items

 

During the three months ended May 31, 2019, we generated a $84,164 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 $13,000 writedown of amounts receivable and generated a $84,690 gain associated with the revaluation of certain outstanding warrants to purchase shares of our common stock that are denominated in U.S. dollars.

 

Net Loss

 

During the three months ended May 31, 2019, we incurred a net loss and comprehensive loss of $110,062 and a net loss per share of $0.00. During the same period in the prior year, we experienced a net loss and comprehensive loss of $145,230 and a net loss per share of $0.00.

 

Nine Months Ended May 31, 2019

 

Production Costs

 

During the nine months ended May 31, 2019, we incurred production costs of $148,413, which was equal to our gross loss for the period. During the same period in the prior year, we incurred production costs and a gross loss of $159,854. Our production costs for the nine months ended May 31, 2019 included $140,600 in License Agreement amortization and $7,813 in patenting costs, compared to $140,600 in License Agreement amortization, $12,730 in patenting costs, $5,129 in depreciation and $1,395 in production-related consulting fees during the same period in the prior year.

 

Expenses

 

During the nine months ended May 31, 2019, we incurred $665,544 in total general and administrative expenses, compared to $504,285 in such expenses during the same period in the prior year.

 

Our expenses during the nine months ended May 31, 2019 consisted of $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, $9,035 in interest on advances from related parties/shareholders, $2,087 in travel and entertainment expenses, $1,234 in office and miscellaneous expenses and $124 in marketing expenses.

 

6
 

 

During the same period in the prior year, our expenses included $356,196 in management-related consulting fees, $48,202 in foreign exchange loss, $34,396 in professional fees, $20,599 in rent, $18,027 in trust and filing fees, $13,722 in interest on advances from related parties/shareholders, $7,654 in office and miscellaneous expenses, $3,589 in travel and entertainment expenses, $1,653 in patent maintenance fees and $247 in marketing expenses.

 

Apart from the $160,097 and $237,987 increases in interest on a license assignment fee payable and foreign exchange loss, respectively, and the $268,321 decrease in our management-related consulting fees, our expenses were relatively consistent from period-to-period.

 

Other Items

 

During the nine months ended May 31, 2019, 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 as described above.

 

Net Loss

 

During the nine months ended May 31, 2019, we incurred a net loss and comprehensive loss of $575,683 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 $508,579 and a net loss per share of $0.01.

 

Liquidity and Capital Resources

 

As of May 31, 2019, we had $206,202 in cash, $294,637 in current assets, $1,278,840 in total assets, $3,652,915 in current liabilities, $3,896,932 in total liabilities and a working capital deficiency of $3,358,278. As of that date, we also had an accumulated deficit of $12,359,169.

 

During the nine months ended May 31, 2019, we spent $128,684 in net cash on operating activities, compared to $95,620 in net cash spending on operating activities during the same period in the prior year. The increase of approximately 34% 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, notably the $61,153 decrease in our accounts payable and accrued liabilities.

 

We did not spend any cash on investing activities during the nine months ended May 31, 2019 or 2018.

 

During the nine months ended May 31, 2019, we received $329,221 in net cash from financing activities, compared to receiving $54,565 in net cash from financing activities during the same period in the prior year. Of the cash we received during the current period, $364,934 was in the form of proceeds from shares to be issued, less the repayment of $35,713 in advances from related parties/shareholders. During the nine months ended May 31, 2018, substantially all of the cash we received was in the form of advances from related parties/shareholders.

 

During the nine months ended May 31, 2019, our cash increased by $200,538 due to a combination of our operating and financing activities.

 

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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$4,675,000 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   450,000 
Human trial expenses   950,000 
FDA Section 510(k) notification costs and CE marking expenses   750,000 
Marketing and inventory expenses   525,000 
Total   4,675,000 

 

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 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 

 

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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

 

Patents

 

The US Patent is recorded at the value attributed to the shares issued by Tropic Spa in connection with its acquisition less accumulated amortization and impairment writedowns. The US Patent was issued on September 29, 2009 and is effective until September 29, 2026. The Australian, Canadian and Chinese Patents are recorded at the application costs incurred less accumulated amortization and impairment writedowns. The Australian Patent was issued on October 16, 2014 and is effective until April 5, 2027. The Canadian Patent was issued on June 21, 2016 and is effective until April 5, 2027. The Chinese Patent was issued on December 28, 2016 and is effective until February 1, 2033. Upon expiration, the patents can be extended subject to certain changes required to secure the extension. Although the effects of obsolescence, demand, competition and other economic factors (such as stability of the industry, technological advances and legislative action that results in an uncertain or changing regulatory environment) can have an adverse effect on the industry and saleability of patented products, management is not currently aware of any known adverse factors that will affect the patents in the future.

 

Costs incurred for patents which are in the process of being completed will be amortized over the life of the patent when the patent is issued.

 

At the time that the patents were issued, we did not believe that there were any limits to how long the Home Mist Tanning units could sell in the market place. Accordingly, management had determined that the best estimate of the useful lives of the US, Australian, Canadian and Chinese Patents were 17, 13, 11 and 16 years, respectively. At this time, we do not believe that the patents will have a residual value at the end of their useful lives.

 

License Agreement

 

The License Agreement is recorded at estimated fair value plus acquisition costs less accumulated amortization and impairment writedowns. The term of the License Agreement continues until the expiration of the last to expire of the Licensed Patents (as defined in the License Agreement). All costs related to the development of the licensed technology are expensed as incurred.

 

The technology licensed by Notox is a platform that provides us access to four large market segments or verticals (derma, pain, body and headache) that include the fields of aesthetics, drug-free pain management, body contouring and perspiration control. Based on management’s experience, it takes approximately two years to fully develop each vertical, with each vertical being developed in sequence. Accordingly, management’s best estimate of the amortization period for the License Agreement is eight years.

 

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Amortization and Impairment

 

Definite-lived intangible assets are required to be amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or utilized. Management was not able to determine with any amount of certainty the number of Home Mist Tanning units that would be sold over the useful lives of the patents. Accordingly, the patents were being amortized on a straight-line basis over the period of their useful lives. The License Agreement is being amortized over eight years based on management’s best estimate of the time required to develop the four verticals as explained above.

 

Intangible assets subject to amortization are required to be reviewed for impairment. An impairment loss must be recognized if the intangible asset’s carrying amount is not recoverable and the carrying amount exceeds fair value. We apply the following three-step process to identify, recognize and measure impairment of intangible assets:

 

  Consider whether indicators of impairment are present indicating that the intangible assets’ carrying amount might not be recoverable;
  If indicators are present, perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the intangible assets to their carrying amounts; and
  If the undiscounted cash flows used in the recoverability test are less than the intangible assets’ carrying amount, determine the intangible assets’ fair value and recognize an impairment loss if the carrying amount exceeds fair value.

 

Because of the unique nature of a patent and a license agreement, income-producing definite-lived intangible assets, the calculation of cash flows can be very difficult to estimate. In this case, the estimated cash flows reflect the direct revenue expected to be generated by the License Agreement as well as an allocation of expenses.

 

Foreign Currency

 

Our functional currency and the functional currency of our subsidiaries is the Canadian dollar. Our 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.

 

Stock Purchase Warrants

 

When we undertake a private placement, we may issue units comprised of our common stock and warrants to acquire our common stock. Warrants with a strike price denominated in our functional currency (the Canadian dollar) are considered to be indexed to our stock and are classified as equity. Warrants with a strike price denominated in a currency other than our functional currency are considered not to be indexed to our stock and are classified as a liability. Warrants classified as equity are initially measured at fair value. Subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity. Warrants classified as a liability are initially measured at fair value with changes in fair value recorded in profit or loss in each reporting period.

 

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.

 

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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, 2019, we had a working capital deficiency of $3,358,278 and an accumulated deficit of $12,359,169. 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, 2019 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

 

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:

 

Exhibit Number   Exhibit Description
3(i).1   Articles of Incorporation filed with the Nevada Secretary of State on October 29, 2007 (1)
     
3(i).2   Certificate of Amendment filed with the Nevada Secretary of State on August 24, 2010 (1)
     
3(i).3   Certificate of Amendment filed with the Nevada Secretary of State on April 17, 2013 (2)
     
3(i).4   Articles of Merger filed with the Nevada Secretary of State on December 6, 2013 (3)
     
3(i).5   Certificate of Amendment filed with the Nevada Secretary of State on November 19, 2018 (4)
     
3(ii).1   By-Laws (1)
     
3(ii).2   Amended and Restated Bylaws (5)

 

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10.1   Share Exchange Agreement dated June 28, 2013 with 1894632 Ontario Inc., Tropic Spa Inc. and the shareholders of Tropic Spa Inc. (6)
     
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)
     
21   1894631 Ontario Inc. (Ontario, Canada), 1894632 Ontario Inc. (Ontario, Canada), Notox Bioscience Inc. (Nevada), Tropic Spa Inc. (Ontario, 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.

 

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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 15, 2019 NOTOX TECHNOLOGIES CORP.
     
  By: /s/ John Marmora
    John Marmora
    President, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer, Director

 

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