Holders

As of the date of this Report, there are approximately 62 holders of record of our common stock.

Dividends

The Exchangeable Share Provisions require Subco to pay dividends on the Exchangeable Shares that are equivalent to any dividends that we pay on shares of our common stock. The Support Agreement provides commercial certainty for the holders of Exchangeable Shares in this regard since it creates enforceable contractual rights of Subco against us so that in all relevant circumstances Subco is in a position to acquire the necessary shares of our common stock, and finance any dividend payments equivalent to dividends we decide to pay on shares of our common stock, in order to satisfy Subco’s obligations under the Exchangeable Share Provisions. The Support Agreement therefore includes, among other things, a covenant made by us that we will not declare or pay a dividend on shares of our common stock unless Subco can simultaneously pay the same dividend on the Exchangeable Shares.

We have not declared or paid any dividends on our common stock and, despite the language in the Exchangeable Share Provisions and the Support Agreement, we do not expect to declare or pay any such dividends for the foreseeable future. Any future decisions regarding dividends will be made by our Board of Directors. We currently intend to retain and use any future earnings for the development and expansion of our business. Our Board of Directors has complete discretion regarding the payment of dividends, and even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend on our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant.

Penny Stock

Our common stock is subject to the provisions of Section 15(g) of the Exchange Act and Rule 15g-9 thereunder, commonly referred to as the “penny stock rule”. Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines a penny stock to be any equity security that has a market price less than US$5.00 per share, subject to certain exceptions. We are subject to the SEC’s penny stock rules.

Since our common stock is deemed to be penny stock, trading in the shares of our common stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. “Accredited investors” are generally persons with assets in excess of US$1,000,000 or annual income exceeding US$200,000 or US$300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of securities and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document prepared by the SEC relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for penny stocks held in an account and information to the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market in our common stock and may affect the ability of our stockholders to sell their shares.

Securities Authorized for Issuance under Equity Compensation Plans

As of the date of this Report, we do not have any compensation plans under which our equity securities are authorized for issuance. We intend to adopt an equity compensation plan in which our directors, officers, employees and consultants will be eligible to participate. However, no formal steps have yet been taken to adopt such a plan.

Recent Sales of Unregistered Securities

On July 3, 2019, we issued and sold an aggregate of 80,000 shares of common stock to one non-U.S. investor and one U.S. investor at a price of US$1.00 per share in exchange for gross proceeds of US$80,000.

These shares were offered and sold in private transactions in reliance upon the exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 903 of Regulation S promulgated under the Securities Act. Our reliance on Section 4(a)(2) was based on the fact that there was only one U.S. investor and the issuance was an isolated private transaction by us which did not involve a public offering. Our reliance on Rule 903 of Regulation S was based on the fact that the non-U.S. investor was not a “U.S. person” as that term is defined in Rule 902(k) of Regulation S, that the investor acquired the securities for investment purposes for its own account and not as a nominee or agent, and not with a view to the resale or distribution thereof, and that the investor understood that the securities may not be sold or otherwise disposed of without registration under the Securities Act and any applicable state securities laws, or an applicable exemption or exemptions therefrom.

Other than as described above or as disclosed in previous quarterly reports on Form 10-Q or current reports on Form 8-K, we did not issue any equity securities that were not registered under the Securities Act during the fiscal year ended August 31, 2019.

Purchases of Equity Securities by the Issuer and “Affiliated Purchasers”

We did not purchase any shares of our common stock or other securities during the year ended August 31, 2019.

Item 6. Selected Financial Data

Not required.

Item 7. 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 audited consolidated financial statements and the related notes thereto that appear elsewhere in this Report, as well as Item 1 and 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, and through Tropic Spa, we are seeking to establish licensing opportunities for certain intellectual property associated with a personal tanning system.

Results of Operations

Revenue

We did not generate any revenue during the years ended August 31, 2019 or 2018.

Production Costs

During the year ended August 31, 2019, we incurred production costs of $219,537, which was equal to our gross loss for the period. During the year ended August 31, 2018, we incurred production costs of $216,617, which was also equal to our gross loss for the period. Our production costs during both years were attributable to a combination of amortization of the License Agreement ($187,466 in each year), patenting costs ($32,071 in the current year vs. $21,201 in the prior year), production-related consulting fees ($Nil in the current year vs. $2,820 in the prior year), depreciation ($Nil in the current year vs. $5,129 in the prior year) and a writedown of inventory ($Nil in the current year vs. $1 in the prior year).

Expenses

During the year ended August 31, 2019, we incurred $753,472 in total general and administrative expenses, compared to $803,456 in such expenses during the year ended August 31, 2018.

Our expenses during the year ended August 31, 2019, consisted of $338,429 in management-related consulting fees, $209,596 in interest on the license assignment fee payable to ZKC, $108,591 in professional fees, $24,655 in trust and filing fees $13,202 in rent, $12,059 in interest on advances from related parties/shareholders, $8,166 in office and miscellaneous expenses and $2,790 in travel and entertainment expenses, plus a foreign exchange loss of $35,984.

During the prior year, our expenses included $384,829 in management-related consulting fees, $167,123 in interest on the license assignment fee payable to ZKC, $105,744 in professional fees, $25,918 in rent, $24,016 in trust and filing fees, $12,854 in office and miscellaneous expenses, $10,549 in interest on advances from related parties/shareholders, $6,331 in travel and entertainment expenses and $1,653 in patent maintenance fees, plus a foreign exchange loss of $64,439.

Apart from the $46,400 decrease in our management-related consulting fees between the two years, the $42,473 increase in interest on the license assignment fee we accrued during the current year, and the change in our foreign exchange gain, our expenses were relatively consistent from year-to-year.

The significant management-related consulting fees we incurred over both years were paid to our principal executive officers and one consultant (during a portion of the prior year only) who provided management-related services to us and is also a major shareholder.

Other Items

During the year ended August 31, 2019, we incurred a $20,749 writedown of sales tax receivable and generated $6,972 in other income. During the same year, we also incurred a $351,741 gain on the revaluation of warrants to purchase shares of our common stock, most of which was associated with the expiry of certain of the warrants.

During the prior year, we incurred a $49,755 writedown of sales tax receivable and a $29,068 loss on the disposal of equipment, which was partially offset by a recovery of inventory written down in the amount of $1,996. We also incurred a $286,075 gain on the revaluation of warrants to purchase shares of our common stock, most of which was again associated with the expiry of certain of the warrants.

Net Loss

During the year ended August 31, 2019, we incurred a net loss and comprehensive loss of $635,045 and a net loss per shares of $0.01. During the prior year, we experienced a net loss and comprehensive loss of $810,825 and a net loss per share of $0.01.

Liquidity and Capital Resources

As of August 31, 2019, we had $14,843 in cash, $136,593 in current assets, $1,160,449 in total assets, $3,731,708 in current liabilities, $3,987,469 in total liabilities and a working capital deficiency of $3,586,763. As of that date, we also had an accumulated deficit of $12,418,531.

During the year ended August 31, 2019, we spent $154,860 in net cash on operating activities, compared to $109,494 in net cash spending on operating activities during the prior year. The increase in our cash spending on operating activities during the fiscal year ended August 31, 2019 was primarily attributable to certain changes in our assets and liabilities during the year, the most significant of which was the $389,876 increase in our accounts payable and accrued liabilities from year-to-year.

We spent $153,519 in net cash on investing activities during the year ended August 31, 2019, including $86,519 in advances to Xthetica and $67,000 in net payments on the license assignment fee payable to ZKC. We did not spend any net cash on investing activities during the prior year.

During the year ended August 31, 2019, we received $317,558 in net cash from financing activities, including $251,692 in stock subscriptions and $114,890 in proceeds from the issuance of our common stock, less $49,024 in advances that we repaid to related parties and shareholders. During the prior year, we received $52,014 in net cash from financing activities, including $51,000 in advances from related parties/shareholders and $10,000 in stock subscriptions, less $6,435 in stock issue costs and $2,551 in proceeds from the exercise of warrants.

During the year ended August 31, 2019, our cash increased by $9,179 due to a combination of our operating, investing and financing activities.

Plan of Operations

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

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 US, Canadian, Australian and Chinese patents. We plan to target existing and highly-recognized brands in the tanning industry, both locally and internationally, that may be drawn to Tropic Spa’s technology in order to better serve their existing customers and enhance their competitive advantage. We do not anticipate spending any specific amounts for this purpose, as the creation of such opportunities will be covered by our general and administrative expenses described below.

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

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

Critical Accounting Policies

Intangible Assets

Patents

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

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

At the time that the patents were issued, we did not believe that there were any limits to how long the Home Mist Tanning units could sell in the marketplace. 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.

License Agreement

The License Agreement is recorded at estimated fair value plus acquisition costs less accumulated amortization. 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.

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:

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

Foreign Currency

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

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

Stock Purchase Warrants

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

Off-Balance Sheet Arrangements

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 8. Financial Statements and Supplementary Data

Notox Technologies Corp.

Consolidated Financial Statements

Year Ended August 31, 2019

(Expressed in Canadian dollars)

Report of Independent Registered Public Accounting Firm

To the Shareholders and Directors of

Notox Technologies Corp.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheetsheets of Notox Technologies Corp. (formerly Tropic International Inc.) (the “Company”), as of August 31, 2019,2018 and 2017, the related consolidated statements of loss and comprehensive loss, stockholders’ equity (deficiency) and cash flows and stockholders’ deficiency for each of the yearthree years in the period ended August 31, 2019,2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Notox Technologies Corp.the Company as ofat August 31, 2019,2018 and 2017, and the results of its operations and its cash flows for each of the yearthree years in the period ended August 31, 2019,2018, in conformity with accounting principlesU.S. generally accepted in the United States of America.accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operationshad a deficit since inception and has a networking capital deficiencyand stockholders’ deficiencies that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatementsmisstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

CHARTERED PROFESSIONAL ACCOUNTANTS

We have served as the Company’s auditor since 2019.

2010.

“DAVIDSON & COMPANY LLP”

November 29, 2019

NOTOX TECHNOLOGIES CORP.

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN CANADIAN DOLLARS)

Contingent liability (Note 14)

Subsequent event (Note 15)

See accompanying notes to the consolidated financial statements.December 12, 2018

NOTOX TECHNOLOGIES CORP.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(EXPRESSED IN CANADIAN DOLLARS)

See accompanying notes to the consolidated financial statements.

NOTOX TECHNOLOGIES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN CANADIAN DOLLARS)

See accompanying notes to the consolidated financial statements.

NOTOX TECHNOLOGIES CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

See accompanying notes to the consolidated financial statements.

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

1. Company Overview for the Year Ended August 31, 2019

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 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 expiration date for the preferred shares of 1894632 Ontario Inc. (“Subco”), was extended to December 31, 2020. The initial expiration date was part of amendment to the initial Exchange Agreement signed on February 17, 2015.

Going Concern

As reflected in the accompanying consolidated financial statements, the Company has a deficit of $12,418,531 (August 31, 2018 - $11,783,486) since inception, a working capital deficiency of $3,586,763 (August 31, 2018 - $3,203,961) and a stockholders’ deficiency of $2,827,020 (August 31, 2018 - $2,306,865). This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on its ability to raise additional capital and to implement its business plan. The accompanying 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 CEO and President have committed to providing financing if and when necessary to fund the operating expenses for the year ended August 31, 2020.

Basis of presentation and measurement

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and 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 have been reflected herein.

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

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the financial statements of the Company, Tropic Spa International (“TSI”), Notox, 1894632 Ontario Inc. (“Subco”), and 1894631 Ontario Inc., the Company’s subsidiaries. All significant inter-company balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to 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.

Concentration of Risk

The financial instrument which potentially subjects the Company to a concentration of credit risk is cash, amounts receivable, sales tax receivable, and advances to Xthetica. The Company places its cash in an account with a high credit quality financial institution.

Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies. There have been no material changes to the Company’s significant accounting policies that are disclosed in the consolidated financial statements and notes thereto during the year ended August 31, 2019.

Patents

The US Patent is recorded at the value attributed to the shares issued by TSI in connection with its acquisition less accumulated amortization and impairment write-downs. 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 write-downs. 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, the Company 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 estimates of 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, the Company was 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 write-downs. 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.

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

The technology licensed by Notox is a platform that provides the Company 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.

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. The Company applies the following three-step process to identify, recognize and measure impairment of intangible assets:

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.

Leases

The Company currently rents premises classified as a short-term lease as the length of the lease is only 12 months. Therefore, the Company does not need to apply ASC 842 lease recognition and measurement requirements, and the lease is treated as an operating lease.

Impairment of Long-Lived Assets

Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount should be evaluated. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by it. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value.

Stock Purchase Warrants

When the Company undertakes a private placement, it may issue units comprised of common stock of the Company and warrants to acquire common stock of the Company. Warrants with a strike price denominated in the Company’s functional currency (the Canadian dollar) are considered to be indexed to the Company’s stock and are classified as equity. Warrants with a strike price denominated in a currency other than the Company’s functional currency are considered not to be indexed to the Company’s 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.

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

Production Costs

Production costs consist of patent and license agreement amortization, production consulting fees, equipment depreciation, design and production costs, materials and supplies and patenting costs.

Advertising Costs

The Company charges all advertising and marketing costs to expense in the period incurred.

Income Taxes

Deferred income tax is accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income and expense items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At this time, the Company is not able to project future taxable income over the periods in which the deferred tax assets are deductible and, accordingly, management is not able to determine if it is more likely than not that the Company will realize the benefits of these deductible differences.

Fair Value of Financial Instruments

Carrying values of cash, receivables, accounts payable and accrued liabilities, advances from related parties/shareholders, license assignment fee and accrued interest payable and stock subscribed approximate fair value because of the short-term nature of these items. The fair value of stock purchase warrants is determined using Level 3 inputs in the Black-Scholes model.

Foreign Currency

The functional currency of the Company and its subsidiaries is the Canadian dollar. The accompanying 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.

Loss per Share – basic and diluted

The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 260-10 which provides for calculation of “basic” and “diluted” loss per share. Basic loss per share includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the year. Diluted loss per share reflect the potential dilution of securities that could share in the earnings of an entity. Diluted loss per share exclude all potentially dilutive shares if their effect is anti-dilutive. There were no potentially dilutive shares outstanding as at August 31, 2019 and 2018.

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

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.

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 towards the definitive agreement that would extend the above date, to a new date, based on the clear development milestones and schedule to be agreed upon not later than March 31, 2020.

As of August 31, 2019, all accrued and unreimbursed patenting costs totaled $264,113 (August 31, 2018 - $227,707). 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:

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

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

5. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of:

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 consolidated financial statements, related party transactions are as follows:

a) Related party balances

Advances from related parties include:

Accounts payable and accrued liabilities include:

b) Related party transactions

During the year ended August 31, 2019, the Company had the following transactions with related parties:

7. Advances from Shareholders

Advances payable to shareholders totaled $145,000 at August 31, 2019 (August 31, 2018 - $145,000). These advances are unsecured and bear interest at 3% per annum, with no specific repayment terms. Interest expense of $4,350 was incurred on these advances during the year ended August 31, 2019 (August 31, 2018 - $3,589). As at August 31, 2019 accrued interest payable to shareholders totaled $21,321 (August 31, 2018 - $16,971).

8. License assignment fee and accrued interest payable

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

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

Since September 1, 2017, interest of 24% per annum, compounding annually, has been accrued on the outstanding balance payable. Interest expense of US$288,667 ($384,133) was accrued on the balance payable as at August 31, 2019. At August 31, 2019, the balance of the license assignment fee payable and interest payable to ZKC was US$783,667 ($1,042,561) (August 31, 2018 - US$675,800 ($882,257)). See Note 4.

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, MCM, through its principal, performs general consulting services on behalf of the Company. Pursuant to the MCM Agreement, the sole proprietor acts in the capacity of President of the Company. Pursuant to the ZKC Agreement, ZKC, through its principal, acts in the capacity of CEO of the Company. Each consulting agreement is for a period of 10 years, with successive automatic renewal periods of two years until terminated. Pursuant to these consulting agreements, each consultant is entitled to receive the following compensation:

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

As at August 31, 2019, the Company renewed its premises lease for another year beginning on April 1, 2019 for $5,520 plus HST per annum for a period of twelve months.

10. Stockholders’ Deficiency

Authorized stock

As at August 31, 2019, the Company was authorized to issue 500,000,000 (August 31, 2018 - 300,000,000) shares of common stock at a par value of US$0.001.

On October 9, 2018, the Company’s shareholders and directors approved a change of the Company’s name from Tropic International Inc. to Notox Technologies Corp. and an increase in the Company’s authorized common stock to 500,000,000 shares. The name change and authorized common stock increase were effected November 19, 2018.

At August 31, 2019, the Company had 57,625,343 shares of common stock legally issued and outstanding (2018 - 57,532,843). Of those shares, 50,993,270 were restricted and 6,632,073 were unrestricted.

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 August 31, 2019 and August 31, 2018, 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.

Share issuances

During the year ended August 31, 2018, the Company completed the following common stock transactions:

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

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

Stock subscribed in advance

During the 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 as of August 31, 2019 and have therefore been classified as a liability.

Stock Purchase Warrants

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

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

The continuity of US dollar denominated stock purchase warrants for the year ended August 31, 2019 is as follows:

*warrants exercised during the year ended August 31, 2019 have not yet issued shares.

At August 31, 2019, the stock purchase warrants were fair valued at $1,776 (August 31, 2018 – $353,517) and the weighted-average remaining contractual life of US dollar warrants outstanding was 0.02 years (August 31, 2018 – 0.59 years). During the year ended August 31, 2019, the Company recognized a gain on revaluation of $351,741 (August 31, 2018 - 286,075)

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

The Company used the Black-Scholes Option Pricing Model to determine the fair values of unit warrants and finder’s warrants issued pursuant to private placements during the years ended August 31, 2019 and 2018 with the following assumptions:

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 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 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.

13. Income Taxes

The provision for income taxes differs from that computed at combined corporate tax rate of approximately 26% as follows:

Income tax recovery

NOTOX TECHNOLOGIES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

Deferred tax assets

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. A valuation allowance was established based upon management’s inability to determine whether sufficient future profits will be generated.

As of August 31, 2019, and 2018 the Company has approximately $11,258,939 and $7,844,000, respectively, of non-capital losses available to offset future taxable income. These losses will expire between 2024 to 2039.

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 10.

15. Subsequent Event

The Company’s management has evaluated subsequent events up to November 29, 2019, the date the consolidated financial statements were issued, 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 consolidated financial statements.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. 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.

Internal Control over Financial Reporting

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management conducted an assessment of the effectiveness of our internal control over financial reporting as of August 31, 2019 using the criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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 below constitute, both individually and in the aggregate, a material weakness given their potential impact on our financial reporting and internal control over financial reporting.

In its assessment of the effectiveness of our internal control over financial reporting as of August 31, 2019, management determined that there were deficiencies that constitute, both individually and in the aggregate, a material weakness. 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.

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

Changes in 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 our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

As of the date of this Report, the names, ages and positions of our executive officers and directors are as follows:

Zoran Konević – Chief Executive Officer, Director

Mr. Konević was appointed as our Chief Executive Officer and director on June 13, 2016. He is an independent consultant who, through his various holding companies, has been investing in early stage businesses in a variety of industries for over 30 years. Those industries range from manufacturing and technology to licensing and bioscience. In addition to providing capital, Mr. Konević’s participation has included creating strategic marketing themes, securing distribution channels and using international relations to benefit the subject entities.

John Marmora – President, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer, Director

Mr. Marmora was appointed as our President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer and director on the Closing Date. On November 16, 2015, he resigned as our Chief Financial Officer and Principal Accounting Officer, but was reappointed to those positions on November 10, 2016. Mr. Marmora has served as the President, Secretary, Treasurer and sole director of Tropic Spa since its inception on September 17, 2007.

Mr. Marmora has more than three decades of operational and management experience in a wide variety of industries. In 2003, he founded MCM Consulting, a sole proprietorship that manufactured and marketed a sunless tanning system, and since that time, he has been involved in the development, manufacturing and marketing of the patented sunless tanning system currently owned by Tropic Spa.

From 1977 to 1983, Mr. Marmora served as the President of Celmar Productions Inc., an award-winning company in the business of writing and producing jingles for commercial radio and television. Following that, he acted as the President of Erotico Music Inc., a music company that wrote and produced international commercial recordings and managed recording artists, from 1990 to 2004. During this period, Mr. Marmora engaged in the negotiation of multimillion-dollar contracts on behalf of the company’s clients with record labels such as Universal Music and Arista Records (a wholly owned subsidiary of Sony Music Entertainment). Over the course of his music career, he earned several notable awards for work on various recordings, including the 2002 SOCAN Songwriter of the Year Award (Pop Music) and a 2004 Juno for Instrumental Album of the Year.

Neither Mr. Marmora nor Mr. Konević has been a director of any company with a class of securities registered pursuant to section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to the requirements of section 15(d) of the Exchange Act, or any company registered as an investment company under the Investment Company Act of 1940, during the past five years.

Corporate Governance

Our business and affairs are managed under the direction of our Board of Directors, which currently consists of Mr. Konević and Mr. Marmora.

Term of Office

Our directors are elected to serve until our next annual meeting of stockholders and until their successors have been elected and qualified. Our officers are appointed to serve until the meeting of our Board of Directors following the next annual meeting of our stockholders and until their successors have been elected and qualified.

Board Committees

We do not have an audit, nominating or compensation committee. We intend, however, to establish an audit committee and a compensation committee of our Board of Directors in the future. We envision that the audit committee will be primarily responsible for reviewing the services performed by our auditors and evaluating our accounting policies and our system of internal controls. The compensation committee will be primarily responsible for reviewing and approving our salary and benefits policies (including stock options) and other compensation of our executive officers.

Significant Employees

Other than our executive officers, we do not expect any other individuals to make a significant contribution to our business.

Family Relationships

There are no family relationships among our directors or executive officers or persons nominated or chosen by us to become directors or executive officers.

Legal Proceedings

None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past 10 years:

Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

Code of Ethics

We have not yet adopted a code of ethics because we have not yet finalized the content of such a code.

Management Agreements

On November 16, 2015, we entered into a consulting agreement with a corporation controlled by Azmatali Mehrali, our former Chief Financial Officer and Principal Accounting Officer, pursuant to which, among other things, we agreed to cause Subco to issue an aggregate of 1,500,000 exchangeable preferred shares to Mr. Mehrali’s corporation over two years, all of which could be rescinded in certain limited circumstances. In addition, the consulting agreement provided that we would pay Mr. Mehrali’s corporation fees of $100,000 per year plus applicable taxes upon raising an aggregate of $500,000 in gross proceeds from the sale of debt or equity securities, and grant that corporation a bonus tied to our earnings per share results in any fiscal year during the term of the agreement. On August 24, 2016, we caused Subco to issue 750,000 of the foregoing exchangeable preferred shares to Mr. Mehrali’s corporation and as at August 31, 2019, we owed $75,000 in accrued remuneration to the corporation. Effective November 10, 2016, this agreement was terminated.

On December 1, 2015, we entered into consulting agreements with 1040614 Ontario Ltd., a private Ontario corporation (“1040614”) and MCM Consulting, an Ontario sole proprietorship (“MCM”). Pursuant to those agreements, 1040614, through its principal, performed various services related to business development, strategic planning and capital-raising for us and MCM, through its sole proprietor, John Marmora, our office and director, acted as our Chief Executive Officer. On June 13, 2016, those agreements were terminated and replaced by new consulting agreements.

On February 4, 2016, we entered into a consulting agreement with Zoran K Corporation, a private Ontario corporation (“ZKC”). Pursuant to that agreement, ZKC, through its principal, Zoran Konević, acted as our exclusive sales, marketing and product development agent. On June 13, 2016, the agreement was terminated and replaced by a new consulting agreement.

On June 13, 2016, we entered into new consulting agreements with 1040614 (the “1040614 Agreement”), MCM (the “MCM Agreement”) and ZKC (the “ZKC Agreement”). Pursuant to the 1040614 Agreement, 1040614, through its principal, performs general consulting services on our behalf; pursuant to the MCM Agreement, MCM, through Mr. Marmora, acts as our President; and pursuant to the ZKC Agreement, ZKC, through Mr. Konević, acts as our Chief Executive Officer. 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:

Section 16(a) Beneficial Ownership Compliance Reporting

Section 16(a) of the Exchange Act requires a company’s directors and officers, and persons who own more than 10% of any class of a company’s equity securities which are registered under Section 12 of the Exchange Act, to file with the SEC reports of ownership on Form 3 and reports of changes in ownership on Forms 4 and 5. Such officers, directors and 10% stockholders are also required to furnish the company with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms received by us and on written representations from certain reporting persons as August 31, 2019, we believe that all Section 16(a) reports applicable to our officers, directors and 10% stockholders with respect to our fiscal year ended August 31, 2019 have not been filed.

Item 11. Executive Compensation

Summary Compensation Table

The following sets forth information with respect to the compensation awarded or paid to John Marmora, our President, Chief Financial Officer, Secretary, Treasurer and director, and Zoran Konević, our Chief Executive Officer and director, for all services rendered in all capacities to us and our subsidiaries over the past two fiscal years. We do not have any other executive officers and no other individual received total compensation from us in excess of US$100,000 during those years. Pursuant to Item 402(a)(5) of Regulation S-K we have omitted certain columns from the table since there was no compensation awarded to, earned by or paid to these individuals required to be reported in such columns in either year.

Outstanding Equity Awards at Fiscal Year-End

As of August 31, 2019, we did not have any outstanding equity awards.

Benefit Plans

We do not have any pension plan, profit sharing plan or similar plan for the benefit of our officers, directors or employees. However, we may establish such plans in the future.

Director Compensation

We have not compensated any of our directors for their service on the Board of Directors. Management directors are not compensated for their service as directors; however, they may receive compensation for their services as employees or consultants. The compensation received by our management directors is shown in the “Summary Compensation Table” above.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information regarding our common stock beneficially owned as of the date of this Report for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each of our officers and directors and (iii) our officers and directors as a group. A person is considered to beneficially own any shares over which such person, directly or indirectly, exercises sole or shared voting or investment power, or over which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our officers and directors is exercised solely by the beneficial owner thereof.

For the purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of our common stock that such person has the right to acquire within 60 days. For the purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.

Trust Agreement

As described in the “Business” section of this Report, the Trust Agreement provides and establishes a procedure whereby the voting rights attached to shares of our common stock are exercisable by the registered holders (the “Beneficiaries”) of the preferred shares of Subco (the “Exchangeable Shares”), other than those Exchangeable Shares held by us or our affiliates, through the trustee, John Marmora, who is also one of our principal executive officers and directors (the “Trustee”). The Trustee’s address is included in the table above, and he holds legal title to a special voting share (the “Special Voting Share”) to which voting rights are attached for the benefit of the Beneficiaries.

The Special Voting Share confers on the Trustee the number of votes equal to the number of outstanding Exchangeable Shares, other than Exchangeable Shares held by us or our affiliates, on all matters on which the holders of shares of our common stock are entitled to vote. Under the Trust Agreement, the Trustee is required to hold the Special Voting Share as trustee solely for the use and benefit of the Beneficiaries and has no power or authority to sell, transfer, vote or otherwise deal with the Special Voting Share.

The Trust Agreement provides a mechanism under which a Beneficiary may instruct the Trustee regarding how to vote the votes conferred by the Special Voting Share relating to such Beneficiary’s Exchangeable Shares. This mechanism ensures that Beneficiaries have a complete bundle of rights that collectively is equivalent to the rights each Beneficiary would have if it owned shares of our common stock directly, and is exercised by Beneficiaries providing written instructions to the Trustee following the mailing of any communications by us to the holders of our common stock as well as the holders of Exchangeable Shares.

For commercial reasons, it is in the interests of a holder of Exchangeable Shares to obtain additional protection with respect to its ability to exercise retraction or exchange rights in the event of the liquidation or insolvency of us or Subco. As a result, the Trust Agreement also grants such holders “insolvency put rights”, including the right to automatically exchange their Exchangeable Shares for shares of our common stock upon the occurrence of certain events.

The right of a Beneficiary to exercise any voting rights in respect of the Exchangeable Shares held by such Beneficiary will cease immediately upon the exercise of any exchange right, automatic exchange, retraction or redemption of Exchangeable Shares for shares of our common stock, or the liquidation, dissolution or winding-up of Subco.

The foregoing description of the Trust Agreement is qualified in its entirety by reference to the complete text of the Trust Agreement include as Appendix 3 to the Exchange Agreement filed as Exhibit 10.1 to our current report on Form 8-K filed with the SEC on July 3, 2013.

Changes in Control

As of the date of this Report, we are not aware of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in our control.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The following includes a summary of transactions since September 1, 2016, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds US$120,000 and in which any related person had or will have a direct or indirect material interest. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

Other than as described above, we have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of those persons wherein the amount involved in the transaction or a series of similar transactions exceeded the lesser of US$120,000 or 1% of the average of our total assets for the last two fiscal years.

Director Independence

Because our common stock is not currently listed on a national securities exchange, we currently use the definition in NASDAQ Listing Rule 5605(a)(2) for determining director independence, which provides that an “independent director” is a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

We have determined that our directors do not meet this definition of independence due to the fact that they are also our executive officers.

We do not currently have a separately designated audit, nominating or compensation committee.

Item 14. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees for professional services rendered by our current auditors, Davidson & Company LLP, and our former auditors, DeVisser Gray LLP, in connection with the audit of our financial statements for the years ended August 31, 2019 and 2018, respectively, as well as reviews of our interim financial statements, services provided in connection with our statutory and regulatory filings or engagements, and any other fees billed for services rendered by our auditors during these periods.

In the above table, “audit fees” are fees billed by our auditors for services provided in auditing our annual financial statements, reviewing our quarterly financial statements or services that are normally provided in connection with statutory and regulatory filings or engagements. “Audit-related fees” are fees not included in audit fees that are billed by our auditors for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. “Tax fees” are fees billed by our auditors for professional services rendered for tax compliance, advice and planning. “All other fees” are fees billed by our auditors for products and services not included in the foregoing categories.

Policy on Pre-Approval

Our Board of Directors pre-approves all services provided by our auditors. All of the above services and fees were reviewed and approved by the Board either before or after the respective services were rendered.

PART IV

Item 15. Exhibits

The following documents are filed as a part of this Report.Amendment.

Item 16. Form 10-K Summary

Not required.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.