NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
1.
Company Overview and Basis of Presentation
Nature
and History of Operations
Notox
Technologies Corp. (the “Company”) was incorporated under the laws of the state of Nevada on October 29, 2007. The
Company has transitioned into developing, commercializing and promoting its patented Notox aesthetic and drug free pain management
platform. The Company’s goals are to market a credible, non-toxic alternative to Botox and subsequently develop other features
of its Notox technology such as drug-free pain management, body countering, skin tightening and anti-perspiration. In addition,
the Company is seeking to build its distribution capabilities for other medical and aesthetic products around the world.
On
June 28, 2013, the Company completed a reverse takeover transaction with Tropic Spa Inc. (“TSI”), a private Ontario
corporation that manufactured and sold Home Mist Tanning units that deliver a full-body application. As a result of this transaction,
the Company became a holding company operating through TSI.
On
June 13, 2016, the Company completed an asset acquisition transaction with Notox Bioscience Inc. (“Notox”), a private
Nevada corporation incorporated on May 31, 2016 for the purpose of acquiring 100% of the right, title and interest in and to an
exclusive license agreement (the “License Agreement”) with The Cleveland Clinic Foundation (the “Clinic”),
an Ohio not-for-profit corporation.
On
December 27, 2018, the automatic expiration date for the preferred shares of 1894632 Ontario Inc. (“Subco”) issued
in connection with the TSI reverse takeover transaction was extended to December 31, 2020.
On
December 1, 2019, the Company entered into an option and put agreement (the “Definitive Agreement”) with Xthetica
Inc. (“NewCo”), a newly incorporated Nevada corporation, and the sole shareholder of NewCo (the “NewCo Shareholder”)
pursuant to which the NewCo Shareholder granted the Company the sole and exclusive right and option to purchase all of the issued
and outstanding capital stock of NewCo (the “NewCo Stock”) in exchange for the issuance of an aggregate of up to 10,000,000
shares of the Company’s common stock and warrants to purchase up to 10,000,000 shares of the Company’s common stock.
The option is exercisable by the Company in tranches over a period of three years beginning on January 1, 2021.
Each
share issued upon the exercise of an option will be issued at a deemed price per share equal to the value of the Company’s
common stock on the OTCQB (or such other stock exchange or quotation medium on which the shares are then trading) on the date
of issuance, while each warrant issued upon the exercise of an option will be exercisable into one share of the Company’s
common stock at a price of US$1.40 per share for a period of three years from the date of issuance, subject to standard adjustments
for stock splits, stock dividends and the like.
Pursuant
to the Definitive Agreement, the Company granted the NewCo Shareholder a corresponding series of put rights covering the NewCo
Stock, also exercisable in tranches over a period of three years beginning on January 1, 2021. Each put right allows the NewCo
Shareholder to cause the Company to purchase up to a certain number of shares of NewCo Stock in exchange for the issuance of a
certain number of shares of the Company’s common stock plus warrants to purchase shares of the Company’s stock on
the same terms as described above. The exercise of each put right is subject to Xthetica Canada Inc. (“Xthetica CA”),
a newly incorporated Canadian federal corporation and subsidiary of the Company, achieving certain EBITDA milestones in each of
its financial years, as reflected in the audited financial statements of Xthetica CA.
Assuming
the full exercise of the option or put rights, of which there is no guarantee, NewCo will become a wholly owned subsidiary of
the Company. To date, no option or put rights have been exercised.
Concurrent
with the execution of the Definitive Agreement the Company entered into an assignment agreement (the “Assignment Agreement”)
with Xthetica, Inc., an Ontario corporation owned by the NewCo Shareholder (the “Assignor”), pursuant to which the
Assignor assigned all of its rights, title and interest in and to certain of its assets to Xthetica CA.
The
accompanying condensed consolidated financial statements also include the financial statements of Xthetica CA since the acquisition
date. Please refer to Note 5 for further details.
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
1.
Company Overview and Basis of Presentation (continued)
Going
Concern
As
reflected in the accompanying condensed consolidated financial statements, the Company has a deficit of $13,695,097 (August 31,
2019 - $12,418,531) since inception, a working capital deficiency of $3,300,810 (August 31, 2019 - $3,586,763) and a stockholders’
deficiency of $1,386,909 (August 31, 2019 - $2,827,020). This raises substantial doubt about its ability to continue as a going
concern. The ability of the Company to continue as a going concern is dependent on its ability to raise additional capital and
to implement its business plan. The accompanying condensed consolidated financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Management
has evaluated the Company’s ability to continue as a going concern by assessing its ability to meet its obligations as they
become due within one year from the date of issue of the financial statements. Management’s assessment included the following
factors:
|
●
|
The
Company’s financial condition as at the date of issue of the financial statements;
|
|
●
|
The
Company’s actual or anticipated conditional and unconditional obligations due within one year from the date of issue
of the financial statements;
|
|
●
|
The
funds necessary to maintain the Company’s operations considering its current financial condition, obligations and other
expected cash flows; and
|
|
●
|
Other
conditions and events that may affect the Company’s ability to meet its obligations within one year from the date of
issue of the financial statements.
|
The
Company’s CEO and President have committed to providing financing if and when necessary to fund the operating expenses for
the year ended August 31, 2020.
On March 11, 2020, the World Health Organization
declared the ongoing COVID-19 outbreak as a global health emergency. The outbreak of the novel strain of coronavirus identified
as COVID-19 has resulted in a widespread health crisis that has affected economies and financial markets around the world. The
full impact of the COVID-19 pandemic continues to evolve. Management is actively monitoring the global situation and its effects
on the sector and the Company’s financial position and operations.
As at May 31, 2020, the Company was still assessing the potential
risks and uncertainties arising from COVID-19, which will be accounted for when reliable estimates become available. Actual effects
will depend on many factors beyond the control and knowledge of management.
Basis
of Presentation and Measurement
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (“US GAAP”) for interim financial information and the Securities and Exchange
Commission (“SEC”) instructions to Form 10-Q and Article 8 of SEC Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with
the Company’s audited financial statements for the years ended August 31, 2019 and 2018 and their accompanying notes.
The
accompanying unaudited condensed consolidated financial statements are expressed in Canadian Dollars (“CAD”). In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
of financial position and results of operations for the interim periods presented have been reflected herein. Operating results
for the nine months ended May 31, 2020 are not necessarily indicative of the results that may be expected for the year ending
August 31, 2020.
The
unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements include the financial statements of the Company, TSI, Notox, Subco, 1894631 Ontario
Inc. and Xthetica CA, the Company’s subsidiaries. All significant inter-company balances and transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
On an ongoing basis, the Company evaluates its estimates, including those related to fair values of intangible assets, useful
lives of intangible assets and the likelihood of realization of its deferred tax assets. The Company bases its estimates
on assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying
values of assets and liabilities.
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
2.
Summary of Significant Accounting Policies (continued)
Fair
Value of Financial Instruments
Carrying
values of cash, receivables, accounts payable and accrued liabilities, advances from related parties/shareholders, stock purchase
warrants, license assignment fee and accrued interest payable, due to the clinic and stock subscribed in advance approximate fair
value because of the short-term nature of these items.
Business
Combination
Acquisitions
of subsidiaries and businesses are accounted for using the acquisition method. The Company measures goodwill as the fair value
of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net
recognized amount of the identifiable assets and liabilities assumed, all measured as of the acquisition date.
The
Company determined the fair value of the consideration based on the fair value of the net assets acquired. Transaction costs,
other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business
combination are expensed as incurred.
Intangible
Assets
Intangible
assets acquired separately are measured on initial recognition at cost. Following initial recognition, definite-life intangible
assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Subsequent expenditures are
capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other
expenditures are recognized in profit or loss as incurred.
Intangible
assets have been amortized based on the useful life as below:
Patents
- 8 years; and
Trademarks,
License Agreement and customer base - 5 years
3.
Fair Value Measurements
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. There is a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value as follows:
Level
1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level
2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities; and
Level
3 – Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.
The Company measures its financial instruments at fair value.
The
Company’s only financial instrument that is classified as Level 1 is cash. The fair value of the other financial assets
and liabilities approximate their carrying value due to the short-term nature of the instruments. Due to the clinic’s fair
value approximates its carrying amount as amounts are accrued.
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
4.
License Agreement, Net
Under
the License Agreement, Notox has an exclusive worldwide license in the field of aesthetics and pain to make, use, offer to sell,
sell and import certain products throughout the term of the License Agreement. Royalties and other payments are payable quarterly.
Notox is required to achieve two commercial milestones: first commercial sale within nine months following regulatory approval,
and regulatory filings submitted to regulatory authorities by November 30, 2019. The Clinic and Notox are working on completing
an amendment to the License Agreement that would extend the November 30, 2019 deadline referenced above, based on the clear development
milestones and schedule to be agreed upon not later than March 31, 2020. However, due to the disruption brought by COVID-19 pandemic,
Notox is still under discussion with the Clinic for further extension of the deadline.
As
of May 31, 2020, all accrued and unreimbursed patenting costs totaled $282,098 (August 31, 2019 - $264,113). Failure to achieve
these milestones, without satisfactory justification, constitutes a material breach of the License Agreement giving the Clinic
the right, but not the obligation, to convert the License Agreement to a non-exclusive license or terminate the License Agreement.
The Clinic has the right to verify Notox’s compliance with the License Agreement.
Pursuant
to above, the gross carrying value of the License Agreement is as follows:
|
|
May
31, 2020
|
|
|
|
Gross
carrying amount
|
|
|
Accumulated
amortization
|
|
|
Net
carrying amount
|
|
License
Agreement
|
|
$
|
1,499,731
|
|
|
$
|
703,001
|
|
|
$
|
796,730
|
|
|
|
August
31, 2019
|
|
|
|
Gross
carrying amount
|
|
|
Accumulated
amortization
|
|
|
Net
carrying amount
|
|
License
Agreement
|
|
$
|
1,499,731
|
|
|
$
|
562,398
|
|
|
$
|
937,333
|
|
As
of May 31, 2020, amortization expense on the License Agreement for the next five years was expected to be as follows:
|
|
Amount
|
|
Year
ending:
|
|
|
|
2020
|
|
$
|
46,866
|
|
2021
|
|
|
187,466
|
|
2022
|
|
|
187,466
|
|
2023
|
|
|
187,466
|
|
2024
|
|
|
187,466
|
|
Total
|
|
$
|
796,730
|
|
5.
Business Combination
On
December 1, 2019, the Company entered into the Definitive Agreement with NewCo and the NewCo Shareholder, and concurrently, Xthetica
CA entered into the Assignment Agreement with the Assignor (Note 1).
The
transaction was accounted for as a business combination, as the group of assets of the Assignor met the definition of a business.
No transaction costs were incurred and expensed as a result of the acquisition. On completion of the business combination, the
Company determined the fair value of the consideration based on the fair value of the net assets acquired. Due to the timing of
the acquisition, the fair values assigned to the net assets acquired are preliminary and may be revised by the Company within
12 months from the date of acquisition as additional information is received.
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
5.
Business Combination (continued)
The
fair value of identifiable assets acquired and liabilities assumed as at the acquisition date are as follows:
|
|
$
|
|
Purchase
Consideration
|
|
|
|
Option
and put agreement
|
|
|
2,543,323
|
|
|
|
|
|
|
Assets
acquired and liabilities assumed :
|
|
|
|
|
Cash
|
|
|
82,625
|
|
Accounts
receivable
|
|
|
523,012
|
|
Inventory
|
|
|
1,006,549
|
|
Assembled
workforce (Goodwill)
|
|
|
186,147
|
|
Trademarks
|
|
|
395,941
|
|
Licence
agreements
|
|
|
888,307
|
|
Customer
base
|
|
|
522,158
|
|
Accounts
payable and accrued liabilities
|
|
|
(615,234
|
)
|
Deferred
tax liability
|
|
|
(446,182
|
)
|
Total
net assets acquired
|
|
|
2,543,323
|
|
Pursuant
to above, the gross carrying value of the intangible assets is as follows:
|
|
May
31, 2020
|
|
|
|
Gross
carrying amount
|
|
|
Accumulated
amortization
|
|
|
Net
carrying amount
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Trademarks
|
|
|
395,941
|
|
|
|
38,604
|
|
|
|
357,337
|
|
Licence
agreements
|
|
|
888,307
|
|
|
|
86,610
|
|
|
|
801,697
|
|
Customer
base
|
|
|
522,158
|
|
|
|
50,911
|
|
|
|
471,247
|
|
Assembled
workforce (Goodwill)
|
|
|
186,147
|
|
|
|
-
|
|
|
|
186,147
|
|
|
|
|
1,992,553
|
|
|
|
176,125
|
|
|
|
1,816,428
|
|
6.
Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities consisted of:
|
|
May
31, 2020
|
|
|
August
31, 2019
|
|
Trade
payables
|
|
$
|
1,580,526
|
|
|
$
|
1,193,429
|
|
Vendor
accruals
|
|
|
1,556,430
|
|
|
|
779,138
|
|
Accounts
payable and accrued liabilities
|
|
$
|
3,136,956
|
|
|
$
|
1,972,567
|
|
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
7.
Related Party Transactions and Balances
The
Company’s transactions with related parties were carried out on normal commercial terms and in the course of the Company’s
business. Other than disclosed elsewhere in the Company’s condensed consolidated financial statements, related party transactions
are as follows:
a)
Related party balances
Advances
from related parties include:
|
●
|
At
May 31, 2020, the Company owed $225,000 (August 31, 2019 - $232,000) in advances payable to the President of the Company.
These advances are unsecured and bear interest at 3% per annum. Accrued interest payable to the President totaled $44,722
at May 31, 2020 (August 31, 2019 - $39,498).
|
|
|
|
|
●
|
At
May 31, 2020, the Company is owed $36,139 (August 31, 2019 - $8,609) in advances receivable from the CEO of the Company. This
balance bears no interest and has no repayment terms.
|
|
|
|
Accounts
payable and accrued liabilities include:
|
|
|
|
|
●
|
At
May 31, 2020, the Company owed $1,752,564 (August 31, 2019 - $1,481,649) in consulting fees to companies controlled by the
President, CEO, and a major shareholder.
|
b)
Related party transactions
During
the nine months ended May 31, 2020 and 2019, the Company had the following transactions with related parties:
|
●
|
The
Company made advances to the CEO of $27,350 (May 31, 2019 – the CEO made
advances of $28,836) during the nine months ended May 31, 2020. These advances are
unsecured, bear no interest and have no repayment terms.
|
|
|
|
|
●
|
The
Company repaid $7,000 (May 31, 2019 - $Nil) to the President of the Company.
|
|
|
|
|
●
|
The
Company incurred consulting fees expense of $392,821 (May 31, 2019 - $87,875) in connection with services provided by the
companies controlled by the President, and CEO.
|
|
|
|
|
●
|
The
Company incurred interest expense of $8,814 (May 31, 2019 - $8,347) in connection with advances owing to the President and
other shareholders of the Company.
|
8.
Advances from Shareholders
Advances
payable to shareholders totaled $160,000 at May 31, 2020 (August 31, 2019 - $160,000). These advances are unsecured and bear interest
at 3% per annum, with no specific repayment terms. As at May 31, 2020 accrued interest payable to shareholders totaled $25,248
(August 31, 2019 - $21,871).
9.
License Assignment Fee and Accrued Interest Payable
Pursuant
to an amendment to the Share Exchange Agreement between the Company, Notox and the shareholders of Notox, the Company is required
to pay an aggregate of US$1,000,000 to Zoran K Corporation, a private Ontario corporation (“ZKC”) in the form of a
one-time assignment fee. The assignment fee payable is repayable in monthly instalments of US$50,000 beginning on October 1, 2016.
Upon completion of any equity financing pursuant to which the Company raises gross proceeds of at least US$1,000,000, the outstanding
balance is to be repaid in full.
Since
September 1, 2017, interest of 24% per annum, compounding annually, has been accrued on the outstanding balance payable.
Interest expense of US$429,856 ($591,808) was accrued on the balance payable as at May 31, 2020. At May 31, 2020, the balance
of the license assignment fee payable and interest payable to ZKC was US$924,856 ($1,274,325) (August 31, 2019 - US$783,667
($1,042,561)). See Note 4.
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
10.
Commitments
On
June 13, 2016, the Company entered into consulting agreements with 1040614 Ontario Ltd. (the “1040614 Agreement”),
MCM Consulting (the “MCM Agreement”) and ZKC (the “ZKC Agreement”). Pursuant to the 1040614 Agreement,
the principal of 1040614, performed general consulting services on behalf of the Company. Pursuant to the MCM Agreement, the sole
proprietor acts in the capacity of President of the Company. Pursuant to the ZKC Agreement, ZKC, through its principal, acts in
the capacity of CEO of the Company. Each consulting agreement is for a period of 10 years, with successive automatic renewal periods
of two years until terminated. Pursuant to these consulting agreements, each consultant is entitled to receive the following compensation:
|
●
|
Remuneration
– an aggregate of US$125,000 per annum plus HST on a bi-monthly basis;
|
|
●
|
EPS
Bonus – when the Company generates earnings per share of $0.05, plus any multiple thereof, the Company shall issue the
consultant 1,000,000 shares of the Company’s common stock and pay the consultant US$250,000 plus HST;
|
|
●
|
Change
of Control Bonus – immediately prior to the completion of a change of control (as defined in these consulting agreements)
the Company shall issue the consultant an aggregate of 20,000,000 shares of the Company’s common stock; and
|
|
●
|
Additional
Bonus – the company may from time to time pay the consultant one or more bonuses as determined by the Board of Directors
at its sole discretion.
|
Effective
February 3, 2018, the Company terminated the 1040614 Agreement.
The
Company renewed its premises lease for another year during the previous fiscal year on April 1, 2019 for $5,520 plus HST per annum
for a period of twelve months.
11.
Stockholders’ Deficiency
Authorized
stock
As
at May 31, 2020, the Company was authorized to issue 500,000,000 (August 31, 2019 - 500,000,000) shares of common stock at a par
value of US$0.001.
On
October 9, 2018, the Company’s shareholders and directors approved a change of the Company’s name from Tropic International
Inc. to Notox Technologies Corp. and an increase in the Company’s authorized common stock to 500,000,000 shares. The name
change and authorized common stock increase were effected November 19, 2018. At May 31, 2020, the Company had 57,821,593 shares
of common stock legally issued and outstanding (August 31, 2019 - 57,625,343).
On
June 28, 2013, pursuant to the reverse takeover transaction with TSI, the Company acquired 39,015,439 common shares of TSI in
exchange for the issuance of 39,015,439 preferred shares of Subco to certain of the shareholders of TSI on a one-for-one basis.
As a result of the transaction, TSI became the Company’s majority-owned subsidiary. Each preferred share of Subco is exchangeable
into one share of the Company’s common stock at the option of the holder subject to certain restrictions. As at May 31,
2020 and August 31, 2019, none of the preferred shares had been exchanged.
On
August 24, 2016, a further 21,672,623 common shares of TSI were exchanged for 10,836,312 preferred shares of Subco.
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
11.
Stockholders’ Deficiency (continued)
Share
issuances
During
the nine months ended May 31, 2020, the Company:
|
●
|
Issued
150,000 units at a price of US$1.00 per unit for gross proceeds of $200,020 (US$150,000) (received as at August 31, 2019).
Each unit consists of one share and one share purchase warrant exercisable at US$1.40 per share for a period of 2 years, expiring
January 24, 2020. The warrants were determined to be derivative liabilities and were valued using the Black-Scholes option
pricing model, at a fair value of $88,338 with the following inputs: 0% expected dividends, 1.78% risk-free interest rate,
2 year life and 100% expected volatility.
|
|
|
|
|
●
|
Issued
40,000 shares at a price of US$1.00 per share for gross proceeds of $53,338 (US$40,000) (received as at August 31, 2019).
|
|
|
|
|
●
|
Issued
6,250 shares upon the exercise of 6,250 warrants for gross proceeds of $8,334 (US$6,250) (received as at August 31, 2019).
|
|
|
|
During
the year ended August 31, 2019, the Company completed the following common stock transactions:
|
|
|
|
|
●
|
During
the year ended August 31, 2018, $10,000 in stock subscriptions was received pursuant to the exercise of 12,500 warrants at
a price of $0.80 per share in February 2018. The shares were issued in November 2018.
|
|
|
|
|
●
|
On
July 3, 2019, the Company issued 80,000 shares of common stock through a private placement with a fair value of $104,890 at
a price of U$1.00 per share.
|
Stock
Purchase Warrants
The
continuity of Canadian dollar denominated stock purchase warrants for the nine months ended May 31, 2020 is as follows:
Expiry
Date
|
|
Price
|
|
|
August
31, 2018
|
|
|
Issued
|
|
|
Expired
|
|
|
August
31, 2019
|
|
|
Issued
|
|
|
Expired
|
|
|
May
31, 2020
|
|
October
31, 2018
|
|
$
|
0.80
|
|
|
|
117,500
|
|
|
|
—
|
|
|
|
(117,500
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
The
continuity of US dollar denominated stock purchase warrants for the nine months ended May 31, 2020 is as follows:
Expiry
Date
|
|
Price
US$
|
|
|
August
31, 2018
|
|
|
Exercised
|
|
|
Expired
|
|
|
August
31, 2019
|
|
|
Issued
|
|
|
Expired
|
|
|
May
31, 2020
|
|
September
30, 2018 – Finder
|
|
|
1.40
|
|
|
|
15,000
|
|
|
|
—
|
|
|
|
(15,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
October 31,
2018
|
|
|
0.80
|
|
|
|
220,770
|
|
|
|
(6,250
|
)
|
|
|
(214,520
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
November 2,
2018
|
|
|
1.40
|
|
|
|
400,000
|
|
|
|
—
|
|
|
|
(400,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
July 17, 2019
– Finder
|
|
|
1.40
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
(5,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
September
7, 2019
|
|
|
1.40
|
|
|
|
630,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
630,000
|
|
|
|
—
|
|
|
|
(630,000
|
)
|
|
|
—
|
|
January
24, 2022
|
|
|
1.40
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150,000
|
|
|
|
—
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
1,270,770
|
|
|
|
(6,250
|
)
|
|
|
(634,520
|
)
|
|
|
630,000
|
|
|
|
150,000
|
|
|
|
(630,000
|
)
|
|
|
150,000
|
|
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
11.
Stockholders’ Deficiency (continued)
On
January 24, 2020, the Company issued 150,000 stock purchase warrants at an exercise price of US$1.40 and was fair valued at $88,338.
At
May 31, 2020, the stock purchase warrants were fair valued at $80,539 (August 31, 2019 - $1,776) and the weighted-average remaining
contractual life of US dollar warrants outstanding was 1.65 years (August 31, 2019 - 0.02 years).
The
Company used the Black-Scholes Option Pricing Model to determine the fair values of unit warrants and finder’s warrants
issued pursuant to private placements during the three and nine months ended May 31, 2020 and the year ended August 31, 2019 with
the following assumptions:
|
|
May
31, 2020
|
|
|
August
31, 2019
|
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Risk-free
interest rate
|
|
|
1.78
|
%
|
|
|
1.78
|
%
|
Expected
stock price volatility
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Expected
life of warrants
|
|
|
1.65
years
|
|
|
|
0.02
years
|
|
12.
Risks and Uncertainties
The
Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect its future
operating results and cause actual results to vary materially from expectations include, but are not limited to: current economic
conditions; the Company’s degree of success in securing regulatory approval and marketing products developed pursuant to
the License Agreement; increasing competition; and dependence on its existing management and key personnel.
13.
Accounting Pronouncements
In
November 2019, the FASB issued ASU 2019-10, “Codification Improvements to Topic 326, Financial Instruments – Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 842, Leases”, to introduce amendments which will affect the effective
dates of the above noted Topics. The Company is evaluating the impact this standard will have on the Company’s financial
statements.
In
April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, to introduce amendments which will affect the
recognition and measurement of financial instruments, including derivatives and hedging. Only Topic 4 is effective for fiscal
years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is evaluating the impact this
standard will have on the Company’s financial statements.
In
March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842)”, to introduce amendments which will affect all lessors
that are not manufactures or dealers, and those which are depository and lending entities. The amendments in this update amend
Topic 842, and are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
The Company is currently in the process of evaluating the effects of this pronouncement on the condensed consolidated financial
statements.
In
August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which
will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard
removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2019. The Company will be evaluating the impact this standard will have on the Company’s
financial statements.
NOTOX
TECHNOLOGIES CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED
IN CANADIAN DOLLARS)
(UNAUDITED)
14.
Contingent Liability
Pursuant
to the reverse takeover transaction with TSI, the Company may be required to acquire up to 296,500 common shares of TSI, being
those TSI shares still outstanding, in exchange for 148,250 preferred shares of Subco on a one-for-two basis. Such preferred shares
would then be exchangeable on the same basis as the 49,851,751 Subco preferred shares currently outstanding. See Note 11.
From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.
At May 31, 2020 there were no significant pending or threatened lawsuits that could reasonably be expected to have a material
effect on the results of the Company’s operations.
15.
Subsequent Event
The
Company’s management has evaluated subsequent events up to July 20, 2020, the filing date of the accompanying condensed
consolidated financial statements, pursuant to the requirements of ASC 855 and has determined that there have been events that
have occurred that would require a disclosure in the condensed consolidated financial statements.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
quarterly report on Form 10-Q (this “Report”) contains forward-looking statements. The forward-looking statements
are contained principally in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
section of this Report. These statements involve known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from any future results, performances or achievements expressed
or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates”,
“believes”, “seeks”, “could”, “estimates”, “expects”, “intends”,
“may”, “plans”, “potential”, “predicts”, “projects”, “should”,
“would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect
our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these forward-looking statements. Such statements may include, but are not
limited to, information related to: anticipated operating results; relationships with our customers; consumer demand; financial
resources and condition; changes in revenues; changes in profitability; changes in accounting treatment; cost of sales; selling,
general and administrative expenses; interest expense; the ability to produce the liquidity or enter into agreements to acquire
the capital necessary to continue our operations and take advantage of opportunities; legal proceedings and claims; and the effect
of the COVID-19 pandemic.
Also,
forward-looking statements represent our estimates and assumptions only as of the date of this Report. You should read this Report
and the documents that we reference and file or furnish as exhibits to this Report completely and with the understanding that
our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation
to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those
anticipated in any forward-looking statements, even if new information becomes available in the future.
In
March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies and
financial markets globally, leading to an economic downturn. It has also disrupted the normal operations of many businesses, including
ours. This outbreak could decrease spending, adversely affect demand for our products and harm our business and results of operations.
It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business
or results of operations at this time.
PRESENTATION
OF INFORMATION
Except
as otherwise indicated by the context, references in this Report to “we”, “us” and “our” are
to the combined business of Notox Technologies Corp. and its consolidated subsidiaries.
This
Report includes our interim unaudited condensed consolidated financial statements for the three and nine months ended May 31,
2020. These financial statements have been prepared in accordance with generally accepted accounting principles in the United
States (“US GAAP”). All financial information in this Report is presented in Canadian dollars, unless otherwise indicated,
and should be read in conjunction with our interim unaudited condensed consolidated financial statements and the notes thereto
included in this Report.
As
disclosed in our current report on Form 8-K dated July 3, 2013, on June 28, 2013 we completed a share exchange with Tropic Spa
Inc., an Ontario corporation (“Tropic Spa”), 1894632 Ontario Inc., an Ontario corporation (“Subco”), and
certain of the shareholders of Tropic Spa (collectively, the “Tropic Spa Shareholders”), pursuant to which we acquired
78,030,877 common shares, or approximately 78% of the issued and outstanding shares, of Tropic Spa in exchange for the issuance
of 78,030,877 preferred shares of Subco, our wholly owned subsidiary, to the Tropic Spa Shareholders on a one-for-one basis (the
“Share Exchange”). Each preferred share of Subco is exchangeable into one share of our common stock at the option
of the holder thereof, subject to certain restrictions. As a result of the Share Exchange, Tropic Spa became our majority-owned
subsidiary and the former shareholders of Tropic Spa became holders of the preferred shares of Subco, a company that has only
one issued and outstanding common share which is held by us. The transaction was accounted for as a reverse takeover/recapitalization
effected by a share exchange, wherein Tropic Spa is considered the acquirer for accounting and financial reporting purposes. Our
condensed consolidated financial statements are therefore, in substance, those of Tropic Spa.
Also,
as disclosed in our current report on Form 8-K dated July 14, 2016, on June 13, 2016 we completed a share exchange with Notox
Bioscience Inc., a Nevada corporation (“Notox”), and all the shareholders of Notox (collectively, the “Notox
Shareholders”) pursuant to which we acquired all the issued and outstanding shares of Notox from the Notox Shareholders
in exchange for the issuance of 100,000,000 restricted shares of our common stock to the Notox Shareholders on a 1,000-for-one
basis (the “Notox Share Exchange”). In connection with the Notox Share Exchange, Notox acquired 100% of the right,
title and interest in and to an exclusive license agreement dated December 1, 2012, as amended on July 30, 2013 (together, the
“License Agreement”) with the Cleveland Clinic Foundation (the “Clinic”) formerly held by Zoran Holding
Corporation, a private Ontario corporation (“ZHC”); Notox became our wholly-owned subsidiary; and the Notox Shareholders
acquired approximately 89% of our issued and outstanding common stock (52.5% on a fully-exchanged basis). The transaction represented
an asset acquisition and was therefore accounted for under the asset acquisition method.
Finally,
on August 25, 2016, we completed a reverse split of our issued and outstanding common stock at the ratio of one (1) new share
for every two (2) existing shares and caused Subco to do the same. All share and per share amounts have been adjusted to reflect
the reverse split except as otherwise indicated.