Company Quick10K Filing
Tropic International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 58 $86
10-Q 2020-01-22 Quarter: 2019-11-30
10-K 2019-12-02 Annual: 2019-08-31
10-Q 2019-07-16 Quarter: 2019-05-31
10-Q 2019-04-19 Quarter: 2019-02-28
10-Q 2019-01-18 Quarter: 2018-11-30
10-K 2018-12-14 Annual: 2018-08-31
10-Q 2018-07-19 Quarter: 2018-05-31
10-Q 2018-04-19 Quarter: 2018-02-28
10-Q 2018-01-22 Quarter: 2017-11-30
10-K 2017-12-15 Annual: 2017-08-31
10-Q 2017-07-19 Quarter: 2017-05-31
10-Q 2017-04-17 Quarter: 2017-02-28
10-Q 2017-01-19 Quarter: 2016-11-30
10-K 2016-12-14 Annual: 2016-08-31
10-Q 2016-07-15 Quarter: 2016-05-31
10-Q 2016-04-14 Quarter: 2016-02-29
10-Q 2016-01-14 Quarter: 2015-11-30
10-K 2015-11-30 Annual: 2015-08-31
10-Q 2015-07-13 Quarter: 2015-05-31
10-Q 2015-04-14 Quarter: 2015-02-28
10-Q 2015-01-13 Quarter: 2014-11-30
10-K 2014-11-28 Annual: 2014-08-31
10-Q 2014-07-15 Quarter: 2014-05-31
10-Q 2014-04-18 Quarter: 2014-02-28
10-Q 2014-01-14 Quarter: 2013-11-30
10-K 2013-12-09 Annual: 2013-08-31
10-Q 2013-06-20 Quarter: 2013-04-30
10-Q 2013-03-18 Quarter: 2013-01-31
10-K 2013-01-29 Annual: 2012-10-31
10-Q 2012-09-19 Quarter: 2012-07-31
10-Q 2012-06-21 Quarter: 2012-04-30
10-Q 2012-03-21 Quarter: 2012-01-31
10-K 2012-02-13 Annual: 2011-10-31
10-Q 2011-09-16 Quarter: 2011-07-31
10-Q 2011-06-20 Quarter: 2011-04-30
10-Q 2011-04-14 Quarter: 2011-01-31
10-K 2011-03-28 Annual: 2010-10-31
8-K 2019-12-01 Enter Agreement, Exhibits
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
TRPO 2019-11-30
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 2019-11-30

TRPO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NCLC 91 15,962 9,854 6,307 0 994 1,582 6,146 0% 3.9 6%
HGEN 90 2 12 0 0 -10 -9 89 -9.8 -638%
FZMD 90 21 19 24 14 6 6 89 56% 15.2 27%
MATR 89 29 33 50 36 -11 -5 93 72% -20.5 -39%
NOVA 89 1,953 1,404 35 0 -50 -50 1,218 0% -24.5 -3%
TRPO 86 1 4 0 0 -1 -1 86 -98.1 -69%
REPR 86 12 2 19 12 0 0 82 63% 165.2 0%
LSYN 85 42 13 24 20 5 8 78 85% 9.6 11%
CMTV 85 680 614 0 0 9 16 85 5.2 1%
HLIX 84 62 8 10 7 -13 -8 84 64% -9.9 -21%

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 November 30, 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)

 

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 January 21, 2020, the registrant’s outstanding common stock consisted of 57,625,343 shares.

 

 

 

   
 

 

TABLE OF CONTENTS

 

 

 2 
 

 

Item 1. Financial Statements

 

Notox Technologies Corp.

Condensed Consolidated Financial Statements

For the Three Months Ended November 30, 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-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)

 

   November 30, 2019   August 31, 2019 
ASSETS          
Current assets:          
Cash  $9,705   $14,843 
Amounts receivable   11,322    6,584 
Sales tax receivable   101,875    94,726 
Prepaid expenses   15,851    20,440 
Total current assets   138,753    136,593 
Advances – Xthetica (Note 14)   54,048    86,519 
Patents, net   4    4 
License agreement, net (Note 4)   890,466    937,333 
Total assets  $1,083,271   $1,160,449 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
Current liabilities:          
Accounts payable and accrued liabilities (Note 5)  $2,067,675   $1,972,567 
Advances from related parties/shareholders (Notes 6 and 7)   447,692    444,760 
License assignment fee and accrued interest payable (Note 8)   1,104,264    1,042,561 
Stock purchase warrants (Note 10)       1,776 
Stock subscribed in advance (Note 10)   261,692    261,692 
Total current liabilities   3,881,323    3,723,356 
Due to the Clinic (Note 4)   271,908    264,113 
    4,153,231    3,987,469 
           
Stockholders’ deficiency (Note 10):          
Common stock   1,133,146    1,133,146 
Additional paid-in capital   8,458,365    8,458,365 
Accumulated deficit   (12,661,471)   (12,418,531)
Total stockholders’ deficiency   (3,069,960)   (2,827,020)
Total liabilities and stockholders’ deficiency  $1,083,271   $1,160,449 

 

Contingent liability (Note 13)

Subsequent event (Note 14)

 

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 Three Months Ended

November 30,

 
   2019   2018 
         
Production costs:          
Amortization – license agreement (Note 4)   46,867    46,867 
Patenting costs – the Clinic   7,937    7,813 
Total production costs   54,804    54,680 
Gross loss   (54,804)   (54,680)
           
General and administration:          
Consulting fees – management (Note 6)   88,251    81,764 
Interest on advances from related parties/shareholders (Notes 6 and 7)   2,932    2,820 
Interest on license assignment fee payable (Note 8)   62,000    52,900 
(Gain)/loss on foreign exchange   (29)   37,758 
Office and miscellaneous   6,229    364 
Professional fees   15,019    20,480 
Rent   1,574    5,250 
Travel and entertainment   1,070    1,134 
Trust and filing fees   12,866    8,794 
Total general and administration   189,912    211,264 
Loss before other items and income taxes   (244,716)   (265,944)
Other items:          
Gain on revaluation of derivative liabilities (Note 10)   1,776    151,565 
Write-down of sales tax receivable       (8,753)
Loss before income taxes   (242,940)   (123,132)
Income taxes        
Loss and comprehensive loss  $(242,940)   (123,132)
           
Loss per share – basic and diluted  $(0.00)  $(0.00)
           
Weighted-average number of shares outstanding – basic and diluted   57,563,463    57,532,843 

 

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 Three Months Ended
November 30,
 
   2019   2018 
Cash Flows From Operating Activities          
Loss  $(242,940)  $(123,132)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Amortization - license agreement   46,867    46,867 
Unrealized foreign exchange on advances from related parties/shareholders       24 
Unrealized foreign exchange on license assignment fee payable   (297)   13,406 
Unrealized foreign exchange on Interest accrued on license assignment fee payable       4,103 
Unrealized foreign exchange and expense on due to Clinic   (142)   4,421 
Write-down of receivables       8,753 
Interest accrued on advances from related parties/shareholders   2,932    2,820 
Interest accrued on license assignment fee payable   62,000    52,900 
Gain on revaluation of derivative liabilities   (1,776)   (151,565)
Changes in assets and liabilities:          
Amounts receivable   (4,738)   (12,712)
Sales tax receivable   (7,149)    
Prepaid expenses   4,589    4,348 
Accounts payable and accrued liabilities   95,108    109,146 
Due to the Clinic   7,937    7,813 
Net cash used in operating activities   (37,609)   (32,808)
           
Cash Flows From Investing Activities          
Receipts from / (Advances to) Xthetica   32,471     
Net cash provided by investing activities   32,471     
           
Cash Flows From Financing Activities          
Advances from related parties/shareholders, net       27,636 
Net cash provided by financing activities       27,636 
           
Decrease in cash during the period   (5,138)   (5,172)
Cash, beginning of period   14,843    5,664 
Cash, end of period  $9,705   $492 
           
Supplementary Cash Flow Information:          
Interest paid        
Taxes paid  $   $ 

 

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  

Additional

paid-in

       Total stockholders’ 
   Share   Amount   capital   Deficit   deficiency 
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               (123,132)   (123,132)
Balance at November 30, 2018   57,545,343   $1,028,256   $8,458,365   $(11,906,618)  $(2,419,997)
                          
Balance at August 31, 2019   57,625,343   $1,133,146   $8,458,365   $(12,418,531)  $(2,827,020)
                          
Loss               (242,940)   (242,940)
Balance at November 30, 2019   57,625,343   $1,133,146   $8,458,365   $(12,661,471)  $(3,069,960)

 

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.

 

Going Concern

 

As reflected in the accompanying condensed consolidated financial statements, the Company has a deficit of $12,661,471 (August 31, 2019 - $12,418,531) since inception, a working capital deficiency of $3,742,570 (August 31, 2019 - $3,586,763) and a stockholders’ deficiency of $3,069,960 (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.

 

 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)

 

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 three months ended November 30, 2019 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 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 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.

 

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, and stock subscribed in advance approximate fair value because of the short-term nature of these items.

 

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.

 

 F-6 
 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

4. 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 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.

 

As of November 30, 2019, all accrued and unreimbursed patenting costs totaled $271,908 (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:

 

   November 30, 2019 
   Gross carrying amount   Accumulated amortization   Net carrying amount 
License Agreement  $1,499,731   $609,265   $890,466 

 

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

 

As of November 30, 2019, amortization expense on the License Agreement for the next five years was expected to be as follows:

 

   Amount 
Year ending:    
2020  $140,599 
2021   187,466 
2022   187,466 
2023   187,466 
2024   187,469 
Total  $890,466 

 

5. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities consisted of:

 

   November 30, 2019   August 31, 2019 
Trade payables  $1,281,300   $1,193,429 
Vendor accruals   786,375    779,138 
Accounts payable and accrued liabilities  $2,067,675   $1,972,567 

 

 F-7 
 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

6. 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 November 30, 2019, the Company owed $232,000 (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 $41,233 at November 30, 2019 (August 31, 2019 - $39,498).
     
  At November 30, 2019, the Company is owed $8,609 (August 31, 2019 – $8,609) in advances receivable by the CEO of the Company. This balance bears no interest and has no repayment terms.

 

Accounts payable and accrued liabilities include:

 

  At November 30, 2019, the Company owed $1,571,408 (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 three months ended November 30, 2018, the Company had the following transactions with related parties:

 

  The CEO of the Company advanced $27,636 during the three months ended November 30, 2018. These advances are unsecured, bear no interest and have no repayment terms.

 

During the three months ended November 30, 2019, the Company had the following transactions with related parties:

 

  Consulting fees expense of $88,251 (November 30, 2018 - $81,764) in connection with services provided by the companies controlled by the President, and CEO.
     
  Interest expense of $1,735 (November 30, 2018 - $1,735) in connection with advances owing to the President and other shareholders of the Company.

 

7. Advances from Shareholders

 

Advances payable to shareholders totaled $160,000 at November 30, 2019 (August 31, 2019 - $160,000). These advances are unsecured and bear interest at 3% per annum, with no specific repayment terms. As at November 30, 2019 accrued interest payable to shareholders totaled $23,068 (August 31, 2019 - $21,871).

 

8. 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$335,558 ($446,133) was accrued on the balance payable as at November 30, 2019. At November 30, 2019, the balance of the license assignment fee payable and interest payable to ZKC was US$830,558 ($1,104,264) (August 31, 2019 - US$783,667 ($1,042,561)). See Note 4.

 

 F-8 
 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

9. 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. The remaining rent payments total $1,840 plus HST as at November 30, 2019

 

10. Stockholders’ Deficiency

 

Authorized stock

 

As at November 30, 2019, 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 November 30, 2019, the Company had 57,625,343 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 November 30, 2019 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-9 
 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

10. Stockholders’ Deficiency (continued)

 

Share issuances

 

During the year ended August 31, 2019, the Company completed the following common stock transactions:

 

  During the previous 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.

 

During the three months ended November 30, 2019, the Company did not complete any common stock transactions.

 

Stock subscribed in advance

 

During the previous year ended August 31, 2019, the Company received proceeds of $261,692 (US$195,000) as consideration for unit and share private placements, and the exercise of 6,250 warrants. The units/shares were not issued during the three months ended November 30, 2019 and have therefore remained classified as a liability.

 

Stock Purchase Warrants

 

The continuity of Canadian dollar denominated stock purchase warrants for the three months ended November 30, 2019 is as follows:

 

Expiry

Date

  Price  

August 31,
2018

   Issued   Expired   August 31,
2019
   Issued   Expired  

November 30,

2019

 
October 31, 2018  $0.80    117,500        (117,500)                

 

The continuity of US dollar denominated stock purchase warrants for the three months ended November 30, 2019 is as follows:

 

Expiry

Date

  Price US$   August 31,
2018
   Exercised   Issued   Expired  

August 31,

2019

   Expired   November 30,
2019
 
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)    
         1,270,770    (6,250)       (634,520)   630,000    (630,000)    

 

* The shares of common stock underlying the warrants exercised during the previous year ended August 31, 2019 have not been issued as at November 30, 2019.

 

 F-10 
 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

10. Stockholders’ Deficiency (continued)

 

At November 30, 2019, the stock purchase warrants were fair valued at $nil (August 31, 2019 - $1,776) and the weighted-average remaining contractual life of US dollar warrants outstanding was 0.00 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 months ended November 30, 2019 and the year ended August 31, 2019 with the following assumptions:

 

   November 30, 2019   August 31, 2019 
Expected dividend yield       0.00%
Risk-free interest rate       1.78%
Expected stock price volatility       100.00%
Expected life of warrants       0.02 years 

 

11. 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.

 

12. 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 will be 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-11 
 

 

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

13. 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 10.

 

14. Subsequent Event

 

The Company’s management has evaluated subsequent events up to January 21, 2020, the filing date of the 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.

 

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. Importantly, 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.

 

Concurrently with the execution of the Definitive Agreement, the Company, through Xthetica CA, entered into an assignment agreement dated December 1, 2019. Pursuant to this agreement, Xthetica Inc., an Ontario corporation, assigned all of its rights, title and interest in and to certain of its assets to Xthetica CA.

 

Management is currently in the process of analyzing in detail the accounting implications of the above agreements in the light of ASC 805 (Business Combination) and will account for the transaction accordingly in the next quarter.

 

 F-12 
 

 

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. and its consolidated subsidiaries.

 

This Report includes our interim unaudited condensed consolidated financial statements for the three months ended November 30, 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). Since late 2019, we have been engaged in discussions with the Clinic to extend the November 30, 2019 date referenced in the preceding sentence, and we expect to formalize such an extension on or before March 31, 2020.

 

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.

 

 5 
 

 

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.

 

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, pursuant to which Xthetica assigned 100% of its right, title and interest in and to certain assets to Xthetica CA effective July 1, 2019. 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.

 

Results of Operations

 

Revenue

 

We did not generate any revenue during either the three months ended November 30, 2019 or the same period in the prior year.

 

Production Costs

 

During the three months ended November 30, 2019, we incurred production costs of $54,804, 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 $54,680. Our production costs for both periods consisted solely of License Agreement amortization costs ($46,867 during both periods) and patenting costs ($7,937 during the current period vs. $7,813 during the prior period).

 

Expenses

 

During the three months ended November 30, 2019, we incurred $189,912 in total general and administrative expenses, compared to $211,264 in such expenses during the same period in the prior year.

 

Our expenses during the three months ended November 30, 2019 consisted of $88,251 in management-related consulting fees, $62,000 in interest on a license assignment fee payable, $15,019 in professional fees, $12,866 in trust and filing fees, $6,229 in office and miscellaneous expenses, $2,932 in interest on advances from related parties/shareholders, $1,574 in rent and $1,070 in travel and entertainment expenses, as offset by a $29 foreign exchange gain.

 

During the same period in the prior year, our expenses included $81,764 in management-related consulting fees, $52,900 in interest on a license assignment fee payable, $37,758 in foreign exchange loss, $20,480 in professional fees, $8,794 in trust and filing fees, $5,250 in rent, $2,820 in interest on advances from related parties/shareholders, $1,134 in travel and entertainment expenses and $364 in office and miscellaneous expenses.

 

Apart from the $37,787 change in our foreign exchange gain/loss and the $9,100 increase in interest on a license assignment fee payable, our expenses were relatively consistent from period-to-period.

 

The significant management-related consulting fees we incurred over both periods were paid to our principal executive officers and directors.

 

 6 
 

 

Other Items

 

During the three months ended November 30, 2019, we incurred a $1,776 gain associated with the revaluation of certain outstanding warrants to purchase shares of our common stock that are denominated in U.S. dollars, compared to a $151,565 gain on the same item during the three months ended November 30, 2018.

 

Net Loss

 

During the three months ended November 30, 2019, we incurred a net loss and comprehensive loss of $242,940 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 $123,132 and a net loss per share of $0.00.

 

Liquidity and Capital Resources

 

As of November 30, 2019, we had $9,705 in cash, $138,753 in current assets, $1,083,271 in total assets, $3,881,323 in current liabilities, $4,153,231 in total liabilities and a working capital deficiency of $3,742,570. As of that date, we also had an accumulated deficit of $12,661,471.

 

During the three months ended November 30, 2019, we spent $37,609 in net cash on operating activities, compared to $32,808 in net cash spending on operating activities during the same period in the prior year. As such, our net cash spending was relatively consistent from period-to-period.

 

During the three months ended November 30, 2019, we received $32,471 in net cash from investing activities, all of which was in the form of advances from Xthetica. We did not spend any cash on investing activities during the same period in the prior year.

 

During the three months ended November 30, 2019, we received $Nil in net cash from financing activities, compared to receiving $27,636 in net cash from financing activities during the same period in the prior year. All of cash we received during the three months ended November 30, 2018 was in the form of advances from related parties/shareholders.

 

During the three months ended November 30, 2019, our cash decreased by $5,138 due to a combination of our operating 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 

 

 7 
 

 

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 since we only completed the asset acquisition on December 1, 2019; however, we anticipate doing so over the next few weeks and will include the plan in our next quarterly report on Form 10-Q.

 

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.

 

 8 
 

 

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. During the year ended August 31, 2017 management was not in a position to be able to estimate the future cash flows attributable to the patents with any degree of certainty. Accordingly, the patents were written down to a nominal amount of $4.

 

Subsequent to August 31, 2019, we were notified that the Canadian, Australian and Chinese patents had lapsed or expired.

 

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.

 

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.

 

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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 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.

 

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.

 

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 November 30, 2019, we had a working capital deficiency of $3,742,570 and an accumulated deficit of $12,661,471. 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.

 

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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 November 30, 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)
     
10.1   Share Exchange Agreement dated June 28, 2013 with 1894632 Ontario Inc., Tropic Spa Inc. and the shareholders of Tropic Spa Inc. (6)

 

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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)
     
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: January 21, 2020 NOTOX TECHNOLOGIES CORP.
     
  By: /s/ John Marmora
    John Marmora
    President, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer, Director

 

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