Item
1. Business
Business
Overview
We
are a company in the business of developing and commercializing innovative technologies. Through Notox, we own 100% of the right,
title and interest in and to the License Agreement with the Clinic formerly held by ZHC. The License Agreement grants us the exclusive
license to certain patented intellectual property of the Clinic relating to the treatment of a neuromuscular defect developed
by Dr. Frank Papay, MD, FACS Chairman Dermatology and Plastic Surgery Institute, Cleveland Clinic, and in particular, the ability
to produce, sell, improve and modernize products that incorporate such intellectual property in the fields of aesthetics, drug
free pain management, body contouring and perspiration control. We plan to develop this intellectual property into the world’s
first credible and healthier non-toxic alternative to Botox, which is a commercial form of the botulinum toxin protein used primarily
for medical and cosmetic purposes.
Through
Tropic Spa, we have finalized the design of a personal tanning product and applied for and acquired patents for it in the United
States (the “US Patent”), Canada, Australia and China. The product consists of a unique tanning system designed for
spas, gyms, clinics and convenient home use that delivers a full-body application and eliminates the harmful health effects associated
with traditional tanning beds, and in particular, exposure to ultraviolet (UV) radiation. We are currently seeking to establish
licensing opportunities for Tropic Spa’s intellectual property, but have not entered into any formal arrangements as of
the date of this Report.
Our
Corporate History and Background
We
were incorporated as “Rockford Minerals Inc.” under the laws of the State of Nevada on October 29, 2007. From our
inception until the closing of the Share Exchange, we sought to be a producer of gold and silver ore, and of other precious metals.
On July 19, 2008, we acquired an undeveloped mining claim called the Rockford Lode Mining Claim located in Clark County, Nevada,
for which we paid $12,000, including the cost of a geological report prepared by Sookochoff Consultants Inc. and Laurence Sookochoff,
P. Eng., as a consulting geologist, for the purpose of recommending an exploration program. Due to lack of capital, we did not
commence any phase of the exploration program recommended in the geological report.
On
August 24, 2010, we filed a certificate of amendment with the Nevada Secretary of State to increase our authorized capital from
10,000,000 shares of common stock to 100,000,000, each with a par value of $0.001 per share. On April 17, 2013, we filed a certificate
of amendment with the Nevada Secretary of State to increase our authorized capital from 100,000,000 shares of common stock to
300,000,000, each with a par value of $0.001 per share.
On
June 24, 2013, we purchased one common share of Subco and one common share of 1894631 Ontario Inc., an Ontario corporation (“Callco”),
from Gregory J. Neely, our former President, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer and director.
Both of these companies were incorporated on April 15, 2013 in anticipation of completing the Share Exchange, and became our wholly
owned subsidiaries as a result of the share purchases.
Prior
to the closing of the Share Exchange, we had not generated any revenue and our operations were primarily limited to capital formation,
organization and development of our business plan. As a result of the Share Exchange, we ceased our prior operations and, through
Tropic Spa, began to operate as a company that manufactures and sells home mist tanning units with a patent-protected feature.
In
order to more accurately reflect our new business operations, on December 6, 2013, we changed our name from “Rockford Minerals
Inc.” to “Tropic International Inc.” as a result of a merger with our wholly-owned subsidiary that was incorporated
solely to effect the name change.
Tropic
Spa was incorporated under the laws of the Province Ontario on September 17, 2007. On April 11, 2013 and in anticipation of completing
the Share Exchange, Tropic Spa completed a vertical amalgamation with 1893211 Ontario Inc., an Ontario corporation and its wholly
owned subsidiary. The amalgamation was approved by the directors of each of Tropic Spa and 1893211 Ontario Inc., and was completed
for the sole purpose of merging the two corporations and carrying on as one entity.
Acquisition
of Tropic Spa
On
the Closing Date, we entered into a share exchange agreement (the “Exchange Agreement”) with Subco, Tropic Spa and
the Tropic Spa Shareholders pursuant to which we acquired approximately 78% of the outstanding capital stock of Tropic Spa in
exchange for the issuance of 78,030,877 (39,015,439 post-split) preferred shares of Subco to the Tropic Spa Shareholders. The
shares issued to the Tropic Spa Shareholders pursuant to the Share Exchange constituted 100% of Subco’s issued and outstanding
preferred shares as of and immediately after the consummation of the Share Exchange. Each one preferred share of Subco (each,
an “Exchangeable Share”) is exchangeable into one share of our common stock at the option of the holder thereof, subject
to the following restrictions:
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the
holders of such preferred shares may not, without the written consent of Subco, exchange, sell or otherwise dispose of, directly
or indirectly, any of their preferred shares until the six month anniversary of the Closing Date;
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within
30 days of that time, and provided Tropic Spa has generated at least $1,000,000 in gross revenue during the preceding six
month period, Subco shall permit the holders of such preferred shares to require Subco to redeem an aggregate of 1% of its
then-outstanding preferred shares on a pro rata basis; and
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within
30 days of each six month anniversary of the Closing Date until June 30, 2015, on which date all restrictions on such preferred
shares shall automatically expire unless extended by the approval of the holders thereof, Subco shall grant the holders of
its preferred shares a permission identical to the one described above.
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The
foregoing restrictions do not apply to any exchange, sale or other disposition of the preferred shares of Subco by the holder
thereof:
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to
a person over which such holder exercises sole voting and investment control;
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upon
such holder’s death by will or intestacy; or
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as
a distribution solely to members, partners or stockholders of such holder, if the holder is a corporation, partnership or
other organization.
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The
foregoing description of the preferred shares of Subco is qualified in its entirety by reference to the complete text of the rights,
privileges, restrictions and conditions attached to such preferred shares (the “Exchangeable Share Provisions”), included
as Appendix I to the Exchange Agreement filed as Exhibit 10.1 to our current report on Form 8-K filed with the Securities and
Exchange Commission (the “SEC”) on July 3, 2013.
As
a result of the Share Exchange, Tropic Spa became our majority-owned subsidiary and John Marmora, the sole officer and director
of Tropic Spa, acquired the right to become our principal stockholder by exchanging the Exchangeable Shares he received on the
Closing Date for shares of our common stock. The Share Exchange was accounted for as a reverse merger/recapitalization effected
through a share exchange, with Tropic Spa as the accounting acquirer and the Company as the accounting acquiree. Unless the context
suggests otherwise, when we refer in this Report to business and financial information for periods prior to the consummation of
the Share Exchange, we are referring to the business and financial information of Tropic Spa.
In
connection with the Share Exchange and on the Closing Date, Gregory J. Neely submitted his resignation as our President, Chief
Financial Officer, Principal Accounting Officer, Secretary and Treasurer; John Marmora was appointed by our Board of Directors
to fill the resulting vacancies; Mr. Marmora was appointed as our Chief Executive Officer and a director; Mr. Neely submitted
his resignation as the President, Secretary, Treasurer and sole director of Subco and Callco, and Mr. Marmora was appointed to
fill the resulting vacancies. On November 29, 2013, Mr. Neely also resigned as our director.
As
a result of the Share Exchange, Tropic Spa became our majority-owned subsidiary and we assumed the business and operations of
Tropic Spa.
As
a condition of the closing of the Exchange Agreement, we also entered into the following agreements on the Closing Date:
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a
Support Agreement with Subco and Callco (the “Support Agreement”); and
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a
Voting and Exchange Trust Agreement with Subco, Callco and John Marmora (the “Trustee”), our new President, Chief
Executive Officer, Chief Financial Officer, Secretary, Treasurer and director (the “Trust Agreement”).
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The
structure of the Share Exchange was determined largely based on the potential tax implications for the Tropic Spa shareholders
of exchanging their common shares of Tropic Spa, an Ontario corporation, for shares of our common stock. Under s. 85(1) of the
Income Tax Act (Canada), a tax-deferred “rollover” is not available where shares of a Canadian corporation
are exchanged for shares of a United States corporation and, as a result, we created Subco, also an Ontario corporation, for the
purpose of allowing those shareholders who elected to participate in the Share Exchange to do so on a tax-deferred “rollover”
basis (i.e., by allowing them to defer any capital gain that would accrue upon the exchange of their common shares of Tropic Spa
for shares of our common stock). This was achieved by issuing exchangeable preferred shares of Subco to the holders of Tropic
Spa’s common shares on the Closing Date.
Callco,
our wholly owned subsidiary, was formed solely for the purpose of avoiding a Canadian deemed dividend withholding tax payable
on a dividend or other distribution of Subco to us to the extent that such a dividend or other distribution exceeds the paid-up
capital of Subco. However, in order for this to take place Callco must become the holder of the one issued and outstanding common
share of Subco that we currently hold, since it would then permit the dividend or other distribution to pass through Callco before
being distributed to us.
On
February 17, 2015, we entered into an amendment to the Exchange Agreement (the “Amendment Agreement”) with Subco,
Tropic Spa and the Tropic Spa Shareholders in order to correct a few administrative errors in the Exchange Agreement and provide
for the post-closing execution of the Exchange Agreement by those shareholders of Tropic Spa who were not original signatories
thereto. The complete text of the Amendment Agreement is filed as Exhibit 10.2 to our current report on Form 8-K filed with the
SEC on February 19, 2015.
Also
on February 17, 2015, the Tropic Spa Shareholders approved certain changes to the rights, privileges, restrictions and conditions
attached to the preferred shares of Subco described above by consent in writing. Of these, the only material change was the deletion
of the “June 30, 2015” date in section 5(b) and its replacement with “June 30, 2017”.
On
August 24, 2016 and pursuant to the Exchange Agreement, as amended, we acquired a further 21,672,623 common shares, or approximately
21.5% of the issued and outstanding shares, of Tropic Spa in exchange for the issuance of 21,672,623 (10,836,312 post-split) preferred
shares of Subco to certain of the shareholders of Tropic Spa. As a result, we now own 99,703,500 common shares of Tropic Spa,
or approximately 99.7% of that company’s issued and outstanding capital stock.
On
February 22, 2017, the holders of 69.53% of the issued and outstanding preferred shares of Subco approved a change to the rights,
privileges, restrictions and conditions attached to such shares by consent in writing in order to delete the “June 30, 2017”
date in section 5(b) and replace it with “December 31, 2018”. This date represents the date on which all restrictions
attached to the preferred shares will automatically expire unless extended by the approval of the holders thereof, and effectively
meant that those shares could be exchanged into shares of our common stock for an additional 18 months, subject to certain limited
exceptions.
On
December 27, 2018, the holders of 68.91% of the issued and outstanding preferred shares of Subco approved a further extension
to the “December 31, 2018” date referenced above to “December 31, 2020”.
Support
Agreement
The
Support Agreement provides and establishes a procedure whereby we are required to take certain actions and make certain payments
and deliveries in connection with the satisfaction of the obligations of Callco and/or Subco under the Exchangeable Share Provisions.
As described in the Exchangeable Share Provisions, Subco is required to deliver shares of our common stock to a holder of Exchangeable
Shares upon the liquidation or insolvency of Subco, upon the redemption of Exchangeable Shares by Subco, and upon the exercise
of the retraction or exchange right by such holder. The Exchangeable Share Provisions also require Subco to pay dividends on the
Exchangeable Shares that are equivalent to any dividends that are paid on shares of our common stock.
The
Support Agreement provides commercial certainty and is in the interests of the holders of Exchangeable Shares because 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 paid on shares of our common stock,
in order to satisfy Subco’s obligations under the Exchangeable Share Provisions. In that respect, the Support Agreement
includes certain covenants made by us, including that we will:
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not
declare or pay a dividend on shares of our common stock unless Subco can simultaneously pay the same dividend on the Exchangeable
Shares;
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ensure
that Subco has a sufficient number of shares of our common stock in the event of the liquidation or insolvency of Subco to
satisfy all retraction or exchange requests or redemptions of Exchangeable Shares; and
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as
the sole holder of common shares of Subco, not cause Subco to be liquidated or dissolved.
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In
general, the Support Agreement ensures that the obligations of Subco are backstopped by covenants made by us or any successor
to us. It will remain in effect until no Exchangeable Shares (or securities or rights convertible into or exchangeable for Exchangeable
Shares) are held by any person other than us or any of our affiliates (in other words, until all the Exchangeable Shares have
been exchanged into shares of our common stock).
Trust
Agreement
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 Exchangeable Shares, other than those Exchangeable Shares held
by us or our affiliates, through the Trustee. The Trustee 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 Exchange Agreement, including the Support Agreement and the Trust Agreement, includes a summary of
all the material provisions but is qualified in its entirety by reference to the complete text of the Exchange Agreement filed
as Exhibit 10.1 to our current report on Form 8-K filed with the SEC on July 3, 2013.
Acquisition
of Notox
On
June 6, 2016, we entered into a share exchange agreement (the “Notox Exchange Agreement”) with Notox and the Notox
Shareholders pursuant to which we agreed to acquire 100% of the outstanding capital stock of Notox in exchange for the issuance
of 100,000,000 (50,000,000 post-split) restricted shares of our common stock to the Notox Shareholders. On the Notox Closing Date,
the closing of the Notox Share Exchange Agreement occurred, at which time Notox acquired 100% of the right, title and interest
in and to the License Agreement, we issued the 100,000,000 restricted shares described above to the Notox Shareholders, and Notox
became our wholly owned subsidiary.
Pursuant
to a stock restriction agreement dated as of the Notox Closing Date, the shares we issued to the Notox Shareholders are subject
to restrictions similar to those attached to the preferred shares of Subco. In particular, the Notox Shareholders could not sell,
transfer or otherwise dispose of their shares until June 30, 2017, subject to certain limited exceptions.
Notox
was incorporated on May 31, 2016 for the primary purpose of acquiring an interest in and to the License Agreement. As such, the
Notox Share Exchange represented an asset acquisition and was accounted for under the asset acquisition method.
In
connection with the Notox Share Exchange and on the Notox Closing Date, John Marmora submitted his resignation as our Chief Executive
Officer and Zoran Konević, the sole officer and director of both Notox and ZHC, and one of the Notox Shareholders, was appointed
to fill the resulting vacancy. On the Closing Date, Mr. Konević was also appointed as our director.
As
a result of the Notox Share Exchange, we are now a holding company operating through both Tropic Spa and Notox.
The
foregoing description of the Notox Exchange Agreement includes a summary of all the material provisions but is qualified in its
entirety by reference to the complete text of the Notox Exchange Agreement filed as Exhibit 10.3 to our current report on Form
8-K filed with the SEC on June 13, 2016.
Reverse
Split
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.
RFTS
Proposal
On
February 20, 2017, Notox entered into a radio frequency treatment system (“RFTS”) proposal (the “Proposal”)
with RBC Medical Innovations of Lenexa, Kansas (“RBC”) to develop the technology licensed by Notox. Under the Proposal,
RBC is responsible for completing the design and production of the two main RTFS components, a generator console and a disposable
treatment probe.
The
material terms of the Proposal called for RBC to produce commercial-equivalent consoles and probes for use by Notox in human trials
during the fourth quarter of 2017; test the consoles and probes for the purpose of providing technical data for Food and Drug
Administration (“FDA”) Section 510(k) and CE marking submissions; and perform volume production of the components.
In exchange for these services, Notox agreed to pay RBC according to a staged, fixed-fee approach that includes a $56,000 initial
payment, to be followed by two similarly-sized payments prior to the completion of the planning stage. The cost to complete the
second (design and testing) and third (manufacturing transfer) stages are expected to be considerably more expensive, with exact
numbers to be confirmed only upon the conclusion of the previous stage. In general, however, we plan to budget $1,750,000 to bring
the console to market, plus up to $800,000 in order to develop the probe in a process to be led by RBC.
Over
the past 12 months and for a variety of reasons, we decided to postpone the development of the Notox technology under the Proposal;
however, we plan to continue pursuing the technology’s development with RBC or another FDA-certified service provider during
the current fiscal year.
Name
Change
On
October 9, 2018, the holders of a majority of our issued and outstanding common stock on a fully-converted basis approved the
following corporate actions:
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a
name change from Tropic International Inc. to Notox Technologies Corp. (the “Name Change”);
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an
authorized capital increase from 300,000,000 shares of common stock, par value $0.001, to 500,000,000 shares of common stock,
par value $0.001 (the “Authorized Capital Increase”); and
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an
update to our existing bylaws by amending and restating them in their entirety to, among other things, reflect the Name Change
(the “Bylaw Amendment”).
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On
November 19, 2018, we filed a Certificate of Amendment with the Nevada Secretary of State in order to effect the Name Change and
Authorized Capital Increase. Generally speaking, the purpose of the Authorized Capital Increase was to reorganize our capital
structure, which management believes will better position us to attract financing, while the purpose of the Bylaw Amendment was
to modernize our bylaws and make them more comprehensive.
Products
Notox
The
Notox product was designed to be a non-poisonous, less expensive, longer lasting alternative to Botox®, which is
a commercial form of the botulinum toxin protein manufactured by Allergan, Plc, a large publicly-traded pharmaceutical corporation,
and used primarily for medical and cosmetic purposes. Notox is designed to achieve the same effects as Botox® for
cosmetic procedures, drug-free pain management, migraine and perspiration control, but at a healthier level.
Botulinum
toxin is a neurotoxic protein that is most commonly associated with the disease botulism; however, there are actually seven types
of the toxin, two of which are used commercially and medically to, among other things, treat muscle spasms and diseases characterized
by overactive muscle. When locally administered, the toxin is capable of spreading from the injection site to other areas of the
body, a potentially fatal consequence. Disclaimers for this and other negative side effects can be found on the packaging for
Botox® and seen/heard in Allergan’s advertisements for the product.
In
cosmetic applications, botulinum toxin is generally considered safe and effective for reducing facial wrinkles; however, this
may be due to the fact that the long-term effects of using the protein are not widely studied. It is injected into the muscles
under wrinkles causing those muscles to relax, which results in the smoothing of the overlying skin. Following treatment, this
smoothing is usually visible within days, is at its height after two weeks, and diminishes 3-4 months later as the treated muscles
gradually regain function and return to their former appearance. Muscles can be treated repeatedly in order to maintain the smoothed
appearance.
Notox
is best understood as an electronic form of Botox®, in that it is intended to generate the benefits of using the
drug without introducing the potentially harmful side effects that toxic chemicals can produce. The Notox system consists of two
parts: a treatment probe or needle, and a unit that includes a hand piece and a generator. The generator is responsible for creating
an electric current that is administered through the hand piece along with a saline solution. The needle, which is also the patented
feature of the system, is attached to the hand piece and is used to inject the electric current and saline solution into the targeted
nerve of the treatment recipient.
The
saline solution’s purpose is to assist with the accuracy of the current while simultaneously cooling the treatment area.
The result is that the targeted nerve is ablated or incapacitated in much the same way as it would be by using Botox®.
We
anticipate that Notox will provide a number of advantages over its similarly-named competitor as follows:
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it
will eliminate the potential morbidity and long-term effects of injecting botulinum toxin that an individual’s body
must process and discard;
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treatments
will be more precise and significantly less expensive;
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the
effects of a Notox treatment will last much longer than a Botox® treatment – up to 12 months vs. 3-4
months; and
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the
probability of damaging the tissue surrounding the target area will be reduced.
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The
design of the treatment probe or needle is covered by U.S. Patent No. 8,512,715 “Apparatus
and Method for Treating a Neuromuscular Defect” dated December 30, 2014. It is a continuation of U.S. Patent Application
No. 12/541,221, filed on August 14, 2009, which claims priority from U.S. Provisional Patent Application No. 61/089,015, filed
on August 14, 2008.
It
is important to note that the Clinic has already conducted successful animal trials using an early Notox system prototype, the
results of which were published in October 2013 edition of the Journal of Plastic and Reconstructive Surgery, Volume 132, Issue
4S-1, pp. 142-143. In addition, the Clinic has performed cadaver studies that generally demonstrated sensitive tissue would not
be damaged using Notox.
During
the second quarter of 2017, we completed further cadaver studies with the Clinic’s participation for the purpose of ensuring
that our needle prototype would produce the desired effect around the human eyes and forehead. Those studies were led by Dr. Papay
and carried out by some of the Clinic’s key experts in the field, and generally satisfied our expectations with regard to
the product.
In
a September 2016 report, Global Industry Analysts, Inc. (“GIA”) estimated that the worldwide market for botulinum
toxin would reach US$4.3 billion by 2018. This represents less than 15% of the estimated $29 billion global market for cosmetic,
plastic surgery and pain management solutions. In its report, GIA suggested that the market for botulinum toxin would be stimulated
by the sustained dominance of existing options, technological advances, rising product approvals and the increasing popularity
of anti-aging products. It is our goal to capture a piece of this market by completing the design, testing and manufacturing of
the Notox unit and treatment probe, undertaking the necessary human trials and FDA Section 510(k) clearance process, and successfully
commercializing the system.
During
the third and fourth quarters of 2019, we successfully completed the design of the hand piece portion of the Notox unit. It was
our intention to design a unique form that would differ from the existing ones in the aesthetic market, a sensitivity that stems
from the fact that the hand piece is the only part of the Notox unit that is both visible to patients and physically held by administrators
during the Notox procedure. The designed form of the hand piece is ergonomic and user-friendly for both short- and long-term use.
We believe that the design is potentially patentable and will explore that possibility in the coming months.
Home
Mist Tanning System
Our
home mist tanning system is capable of delivering a full-body application in 12 seconds resulting in a tan that develops gradually
over a period of five to eight hours and lasts from between five and eight days. The packages we previously marketed contained
everything an individual would need to complete 10 full-body tans in the comfort of their own home.
Our
tanning system was designed for home use to provide users with a salon quality tan. It consists of an application unit, a tanning
kit and a pre-tan kit. The tanning kit includes our proprietary tanning solution, which is a clear fluid with a slight yellow
tinge that contains a blend of DHA or dihydroxyacetone (a chemical approved by the FDA for use in the cosmetics industry), skin
moisturizers and conditioners. DHA is a color additive that darkens the skin by reacting with amino acids in the skin’s
surface. To be clear, the FDA’s approval of DHA is restricted to external applications only; the agency advises against
inhaling, ingesting or applying DHA to the lips and eye areas; and the use of DHA in tanning booths, including misting devices,
as an all-over spray has not been approved by the FDA since safety data to support its use has not been submitted to the agency
for review and evaluation.
Our
proprietary tanning solution is packaged into specially designed cosmetic bladders and housed in aerosol cans, which allows users
to dispense it directly with no cross-contamination of propellant or any other material. In addition to six 2.6oz cans of the
solution, the tanning kit contains a spray applicator and one touch-up can, while the pre-tan kit contains exfoliating wipes or
gloves (selected by the user at the time of purchase), plastic head and foot covers and plastic protective gloves.
Our
system may affect persons of different sizes in different manners since the amount of tanning solution dispensed from each of
the unique, non-clogging mist nozzles on the unit cannot be user-adjusted. The nozzles are manufactured using a plastic injection
molding process in order to ensure that they all perform in an identical fashion and are designed to emit a consistent amount
of solution. As a result, during each tanning cycle the nozzles dispense a total of approximately 1.6oz of tanning solution from
the cosmetic bladders. Due to this consistency, the recommend minimum and maximum user heights for our units are 4’5”
and 6”, respectively. We have not made any provisions to accommodate users who fall outside of this height range, since
we believe that such persons only represent an extremely small proportion of our potential customer base.
Our
application unit has been engineered to apply our tanning solution evenly through unique, non-clogging mist nozzles and deliver
a sufficient amount of the solution in 12 seconds to provide full body coverage. Over-spray is minimal or nonexistent, and the
cordless design of the unit allows it to be used in multiple locations and deliver multiple applications on a single lithium ion
battery charge. Each unit contains an internal counter that indicates when there is only enough tanning solution remaining to
complete two tans, and consists of a simple design that allows for the easy removal and replacement of the solution.
Constructed
of lightweight durable plastic in a neutral tone, the application units are visually appealing, compact in size and come fully
assembled, requiring only a primary battery charge of approximately four hours to begin the tanning process. The units also include
a unique adjustable hanger bracket that permits simple height adjustments and both visual cues and audible electronic tones that
provide important information to users as follows:
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when
the start/stop button on the unit is pushed, the light-emitting diode (LED) on the unit flashes the color blue for 10 seconds;
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if
no further action is taken by a user during the 10-second period, the unit automatically powers down; however, if the user
again pushes the start/stop button, the unit emits an audible beep signalling that the tanning spray will be activated in
six seconds;
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at
the end of the six seconds, the unit emits an “up-tone” sound and begins to mist;
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during
the 12 second tanning cycle, the unit emits an audible beep every three seconds in order to orient the user and suggest that
they rotate 90 degrees in each three-second period (for a total of 360 degrees in 12 seconds);
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following
the fourth audible beep, the unit emits a “down-tone” to signal the conclusion of the tanning cycle; and
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finally,
when the reset button is pushed, the unit emits an audible beep to signal that the unit’s tan count has been reset to
10 tans.
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The
lithium ion battery included with each application unit can be fully recharged in approximately eight hours once fully depleted
through a conventional North American wall socket. The batteries are provided to us by an electronics supplier based in Toronto,
Ontario, Canada, who acquires them from a manufacturer in China. We do not have an agreement in place with the supplier regarding
the purchase and sale of specified quantities of batteries; instead, we purchase them on an as-needed basis using conventional
means.
Our
application unit has been certified by QPS Evaluation Services, Inc. (“QPS”), a nationally and internationally accredited
third-party testing, certification and field evaluation body, under certificate number LR1209. This certification provides an
increased assurance of quality and safety to consumers by demonstrating that the unit has been tested to and meets the requirements
of applicable Canadian and Unites States standards, since QPS’s labels and marks are accepted as equals to those of the
Canadian Standards Association and Underwriters Laboratories.
Because
we are committed to supplying products of superior quality and design, we provide a limited one year warranty on our application
units. If a unit stops operating due to defects in materials or workmanship during this time, we will either repair or replace
it for free.
In
addition to the application units, we also sell tanning solution kit refills that take less than five minutes to replace. Each
tanning solution kit refill contains six 2.6oz cans, which is a sufficient amount of our proprietary solution to provide 10 full-body
tans. To the best of our knowledge, empty cans of our tanning solution can be recycled in the same manner as conventional aerosol
cans in all jurisdictions that offer recycling alternatives to conventional waste collection.
We
currently sell our home mist tanning system for the base price of $300 and our tanning solution kit refills for $100, each plus
applicable shipping and handling. The complete system also includes an operating manual, instructional DVD and simple power adapter.
Proposed
Acquisition
On
July 19, 2019, we entered into binding letter of intent (the “LOI”) with Xthetica Inc. (“Xthetica”), a
private Ontario, Canada corporation, pursuant to which we agreed to acquire all of the issued and outstanding capital stock of
Xthetica Inc. (“NewCo”), a newly incorporated Nevada corporation owned by the sole shareholder of Xthetica, from that
shareholder in exchange for an aggregate of 10,000,000 restricted shares of our common stock and warrants to purchase 10,000,000
restricted shares of our common stock, in each case issuable over a period of three years.
NewCo
was recently formed for the purpose of acquiring 100% of the right, title and interest in and to certain assets owned by Xthetica
(collectively, the “Assets”), including Xthetica’s rights and obligations under a series of distribution agreements
with manufacturers of medical aesthetics products, access to all of Xthetica’s current inventory for the purpose of selling
the same, and the goodwill of Xthetica. The effective date of the Asset acquisition is expected to be July 1, 2019.
Pursuant
to the LOI, the parties agreed to work together to determine the appropriate structure for the proposed transaction (the “Transaction”),
which will be governed by a definitive agreement that set outs in full the terms of the Transaction. The definitive agreement
was expected to be executed on or before August 15, 2019, with the closing date of the Transaction no later than 30 days thereafter
(or such other date as the parties may agree upon in writing). Due to a variety of circumstances, many of which were beyond our
control, the definitive agreement has not yet been executed; however, we continue to work diligently with Xthetica and its sole
shareholder to move the Transaction forward, and in fact advanced approximately $86,000 to Xthetica during the fourth quarter
of our fiscal year.
The
shares and warrants issuable by the Company to the sole shareholder of Xthetica or his assigns are anticipated to be issued as
follows:
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(a)
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1,000,000
shares and 1,000,000 warrants on or before December 31, 2019;
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(b)
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3,000,000
shares and 3,000,000 warrants on or before December 31, 2020; and
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(c)
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6,000,000
shares and 6,000,000 warrants on or before December 31, 2021.
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Each
share is expected to be issued at a deemed price per share equal to the value of our common stock on the OTCQB (or such other
stock exchange or quotation medium on which the shares are then trading) on the date of issuance, while each warrant will be exercisable
into one share of our common stock at a price of US$1.40 per share for a period of three (3) years from the date of issuance,
subject to standard adjustments for stock splits, stock dividends and the like.
The
LOI also requires us to cause a new wholly owned subsidiary to enter into employment or consulting agreements in form and substance
acceptable to Xthetica with a maximum of seven (7) individuals recommended to us by Xthetica. In furtherance of this goal, we
incorporated Xthetica Canada Inc. (“Xthetica Canada”), a Canadian federal corporation, as our wholly owned subsidiary
on July 7, 2019. The particulars of the employment and consulting arrangements, including the compensation payable by us (through
Xthetica Canada) to the individuals, are currently being negotiated in good faith by us, Xthetica and the applicable individuals,
and the LOI specifically grants us the right to solicit and engage those persons.
The
LOI includes a number of closing conditions, including the completion of satisfactory due diligence, the completion of the assignment
of the Assets by Xthetica to NewCo or Xthetica Canada, and the satisfactory review by the parties of the tax and securities implications
of the Transaction.
Upon
the completion of the Transaction, of which there is no guarantee, NewCo will become our wholly owned operating subsidiary.
Intellectual
Property
License
Agreement
As
described elsewhere in this Report, on June 13, 2016 we completed the Notox Share Exchange and acquired 100% of the right, title
and interest in and to the License Agreement with the Clinic formerly held by ZHC. The License Agreement grants us the exclusive
license to certain intellectual property of the Clinic, including (i) U.S. Patent No. 8,920,816 “Apparatus
and Method for Treating a Neuromuscular Defect” and associated foreign filings in various countries, (ii) improvement
patents for which we elect in writing to include in the License Agreement, and (iii) foreign equivalents of any of the foregoing,
and all patents issued therefrom and extensions of the same, including reissues and re-examinations. In addition, the License
Agreement grants us the exclusive license to such proprietary information, trade secrets and tangible research property as is
necessary to use the patent materials in the field of aesthetics and pain. Under the License Agreement, such information, secrets
and property must (a) have been developed by Frank Papay, MD, (b) have been in existence as of December 1, 2012, (c) not be subject
to the rights of any third parties or research sponsor restrictions, and (d) be owned by the Clinic.
The
effective date of the License Agreement is December 1, 2012; on July 30, 2013 it was amended to incorporate a revised technology
timeline, and it is valid until the expiration of the last to expire of certain patents. Pursuant to the License Agreement, we
are required to pay the Clinic a royalty based on the sale of certain products, a milestone payment upon first commercial sale
of the first such product and a percentage of any sublicensing revenues. In the month in which our cumulative gross revenues reach
a specified amount, we must reimburse the Clinic for all incurred and to be incurred patent expenses to a specified amount. Royalties
and other payments are payable quarterly.
On
September 26, 2017, the License Agreement was amended a second time to, among other things: (i) clarify certain vague terms of
the License Agreement; (ii) include us as a party for the purpose of guaranteeing the due and prompt payment and performance of
all covenants, agreements, obligations and liabilities of Notox; (iii) record the Clinic’s explicit consent to the assignment
from ZHC to Notox; (iv) extend the deadline for achieving the first commercial milestone (the submission of regulatory filings
to applicable authorities) from November 30, 2017 to November 30, 2019; and (v) establish a second commercial milestone (the completion
of at least one commercial sale within nine months of receiving regulatory approval). The effective date of the amendment was
July 1, 2016.
Notox’s
failure to achieve either of the foregoing milestones by the required dates, without satisfactory justification, will constitute
a material breach of the License Agreement, as amended, giving the Clinic the right, but not the obligation, to convert the agreement
to a non-exclusive license or terminate the agreement altogether. In addition, within 30 days of Notox’s receipt of initial
regulatory approval, Notox is required to reimburse the Clinic for at least US$115,495 in patenting costs incurred as of July
1, 2016. All such costs incurred by the Clinic after that date will, at the Clinic’s option, either be paid directly by
Notox or by the Clinic with the Clinic invoicing Notox, provided that Notox has no obligation to pay or reimburse the Clinic until
after that regulatory approval has been obtained. Upon the termination or expiration of the License Agreement, all accrued and
unreimbursed patenting costs become immediately due and payable by Notox to the Clinic. As of August 31, 2019, all accrued and
unreimbursed patenting costs totalled $264,113 (US$198,640).
We
are currently working with the Clinic on completing an amendment to the License Agreement to extend the November 30, 2019 milestone
deadline referenced above, and expect to finalize that no later than March 31, 2020.
Tanning
System
Our
home mist tanning system is currently protected by U.S. Patent No. 7,594,593, which is described below.
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Type
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Name
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Region
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Number
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Date
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Patent
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Apparatus
for Spray Application of a Sunless Tanning Product
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United
States
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7,594,593
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January
17, 2006 (Filed) / September 29, 2009 (Issued)
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Our
United States Patent is a “utility patent”, which in general terms protects the way an article is used and works.
A “design patent”, on the other hand, protects the way an article looks. Other primary distinguishing features between
the two types of patents are as follows: the term of a “utility patent” is 20 years measured from the filing date,
whereas the term of a “design patent” is 14 years measured from the grant date; the holder of a “utility patent”
are required to pay maintenance fees whereas the holder of a “design patent” is not; and the holder of a “utility
patent” is able to file an international application naming various countries under the Patent Cooperation Treaty (PCT),
whereas the holder of a “design patent” is not.
We
also previously held Canadian, Australian and Chinese patents regarding the system, but were recently informed that those patents
had lapsed or expired.
We
also own the copyright in the contents of our website and we guard the composition of our proprietary tanning solution as a trade
secret. Other than that, we do not own any intellectual property and we have not filed for any protection of our trademarks.
Employees
As
of the date of this Report, we do not have any full time or part time employees. We currently rely on the efforts of Zoran Konević
and John Marmora, our principal executive officers and directors, to manage our operations, as well as members of our informal
advisory board and personnel at the Clinic to assist us in navigating certain technical and regulatory hurdles. In the future,
we plan to hire workers on a contract basis from time to time as the need arises.
Government
Regulations
Since
we are only beginning to develop the intellectual property we acquired under the License Agreement, as amended, we do not believe
that any government regulations will affect our operations in that regard until we are able to complete the design of the Notox
unit and treatment probe.
In
terms of our tanning system, legislation regarding sunless tanning in both the United States and Canada has consistently focused
on the harm posed to consumers, and minors in particular, as a result of exposure to UV rays at indoor tanning facilities. Research
indicates that high risk exposure happens more commonly in teens and that blistering sunburns and overexposure during childhood
greatly increase the chances of developing skin cancer later in life. Because sun (and UV) exposure in childhood and the teenage
years can be so damaging, policymakers in many states and provinces have decided to regulate minors’ use of tanning devices
(like tanning beds, booths and sunlamps). Some counties and cities also regulate their use. In addition, most states and provinces
at least require operators of indoor tanning facilities to implement time limitations on tanning beds to the manufacturer’s
maximum exposure recommendation and to provide eye protection to customers.
The
consequence of these regulations is that consumers are effectively being legislated away from using sunless tanning products or
services that involve UV light exposure, leaving a gap in the market. The amount of negative publicity surrounding the laws has
also contributed to a search by consumers for healthy tanning alternatives that provide consistent results.
We
are also required to comply with environmental laws regarding the manufacturing of our proprietary tanning solution. However,
we do not anticipate incurring any costs or effects relating to this since we are not currently manufacturing the solution and
the process required to produce the solution results in no chemical by-products and minimal waste.
Since
our proprietary tanning solution contains DHA, it is subject to the United States Federal Food, Drug, and Cosmetic Act (the “FD&C
Act”) and the purview of the FDA. Section 721 of the FD&C Act authorizes the regulation of color additives, including
their uses and restrictions, and DHA is listed in the regulations as a color additive for use in imparting color to the human
body. However, its usage is restricted to external application, as is its use by the FDA, since the FDA has not received safety
data that would allow it to consider approving DHA for use on other exposure routes such as the lips, the area of the eye or any
body surface covered by a mucous membrane. This includes the use of DHA through misting tanning devices.