10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 31, 2021

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______, 20___, to _____, 20___.

 

Commission File Number 001-40089

 

Novo Integrated Sciences, Inc.

 

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   59-3691650
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification Number)
     
11120 NE 2nd Street, Suite 100
Bellevue, Washington
  98004
(Address of Principal Executive Offices)   (Zip Code)

 

(206) 617-9797

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former name or former address, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each Exchange on which Registered
Common Stock   NVOS   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
Emerging growth company [  ]    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

There were 26,489,357 shares of the Registrant’s $0.001 par value common stock outstanding as of July 14, 2021.

 

 

 

 
 

 

Novo Integrated Sciences, Inc.

 

Contents

 

PART I – FINANCIAL INFORMATION 3
     
Item 1. Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 25
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 37
     
Item 4. Controls and Procedures 37
     
PART II – OTHER INFORMATION 37
     
Item 1. Legal Proceedings 37
     
Item 1A. Risk Factors 37
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 39
     
Item 3. Defaults Upon Senior Securities 39
     
Item 4. Mine Safety Disclosures 39
     
Item 5. Other Information 39
     
Item 6. Exhibits 40
     
Signatures 41

 

2
 

 

Item 1. Financial Statements.

 

NOVO INTEGRATED SCIENCES, INC.

CONSENSED CONSOLIDATED BALANCE SHEETS

As of May 31, 2021 (unaudited) and August 31, 2020

 

 

   May 31,   August 31, 
   2021   2020 
   (unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $8,367,045   $2,067,718 
Accounts receivable, net   1,295,726    1,732,432 
Other receivables, current portion   805,804    302,664 
Prepaid expenses and other current assets   363,272    191,723 
Total current assets   10,831,847    4,294,537 
           
Property and equipment, net   549,902    353,660 
Intangible assets, net   26,894,115    26,623,448 
Right-of-use assets   2,539,226    2,810,556 
Other receivables, net of current portion   310,650    287,775 
Acquisition deposits   414,200    383,700 
Goodwill   687,572    636,942 
TOTAL ASSETS  $42,227,512   $35,390,618 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities:          
Accounts payable  $849,302   $883,773 
Accrued expenses   278,519    194,708 
Accrued interest (principally to related parties)   381,671    346,264 
Government loans and note payable   88,956    83,292 
Due to related parties   382,468    528,213 
Debentures, related parties   1,027,736    - 
Operating lease liability, current portion   514,931    563,793 
Total current liabilities   3,523,583    2,600,043 
           
Debentures, related parties   -    952,058 
Operating lease liability, net of current portion   2,054,268    2,266,887 
Government loans and note payable, net of current portion   39,536    - 
TOTAL LIABILITIES   5,617,387    5,818,988 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS’ EQUITY          
Novo Integrated Sciences, Inc.          
Convertible preferred stock; $0.001 par value; 1,000,000 shares authorized; 0 and 0 shares issued and outstanding at May 31, 2021 and August 31, 2020, respectively          
Common stock; $0.001par value; 499,000,000 shares authorized; 26,489,357 and 23,466,236 shares issued and outstanding at May 31, 2021 and August 31, 2020, respectively   26,489    23,466 
Additional paid-in capital   54,297,875    44,905,454 
Other comprehensive income   1,376,045    1,199,696 
Accumulated deficit   (19,029,654)   (16,507,127)
Total Novo Integrated Sciences, Inc. stockholders’ equity   36,670,755    29,621,489 
Noncontrolling interest   (60,630)   (49,859)
Total stockholders’ equity   36,610,125    29,571,630 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $42,227,512   $35,390,618 

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

3
 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three and Nine Months Ended May 31, 2021 and 2020 (unaudited)

 

 

   Three Months Ended   Nine Months Ended 
   May 31,   May 31,   May 31,   May 31, 
   2021   2020   2021   2020 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenues  $2,380,974   $1,038,226   $6,612,374   $6,015,700 
                     
Cost of revenues   1,100,516    559,976    3,769,020    3,778,777 
                     
Gross profit   1,280,458    478,250    2,843,354    2,236,923 
                     
Operating expenses:                    
Selling expenses   2,381    2,389    4,226    4,495 
General and administrative expenses   1,680,049    554,412    5,324,768    2,538,572 
Total operating expenses   1,682,430    556,801    5,328,994    2,543,067 
                     
Loss from operations   (401,972)   (78,551)   (2,485,640)   (306,144)
                     
Non operating income (expense)                    
Interest income   8,402    25,773    25,265    81,145 
Interest expense   (21,701)   (48,245)   (68,590)   (126,291)
Write off of acquisition deposit   -    -    -    (344,521)
Total other income (expense)   (13,299)   (22,472)   (43,325)   (389,667)
                     
Loss before income taxes   (415,271)   (101,023)   (2,528,965)   (695,811)
                     
Income tax expense   -    -    -    - 
                     
Net loss  $(415,271)  $(101,023)  $(2,528,965)  $(695,811)
                     
Net loss attributed to noncontrolling interest   (4,084)   (2,728)   (6,438)   (4,912)
                     
Net loss attributed to Novo Integrated Sciences, Inc.  $(411,187)  $(98,295)  $(2,522,527)  $(690,899)
                     
Comprehensive loss:                    
Net loss   (415,271)   (101,023)   (2,528,965)   (695,811)
Foreign currency translation gain (loss)   123,521    (50,624)   176,349    (61,698)
Comprehensive loss:  $(291,750)  $(151,647)  $(2,352,616)  $(757,509)
                     
Weighted average common shares outstanding - basic and diluted   25,298,866    23,294,848    24,192,998    22,913,830 
                     
Net loss per common share - basic and diluted  $(0.02)  $(0.00)  $(0.10)  $(0.03)

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

4
 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three and Nine Months Ended May 31, 2021 and 2020 (unaudited)

 

 

                           Total         
           Additional   Common   Other       Novo         
   Common Stock   Paid-in   Stock To   Comprehensive   Accumulated   Stockholders’   Noncontrolling   Total 
   Shares   Amount   Capital   Be Issued   Income   Deficit   Equity   Interest   Equity 
Balance, August 31, 2020   23,466,236   $23,466   $44,905,454   $-   $1,199,696   $(16,507,127)  $29,621,489   $(49,859)  $29,571,630 
                                              
Common stock issued for cash   21,905    22    91,978    -    -    -    92,000    -    92,000 
Common stock issued for services   65,000    65    247,935    -    -    -    248,000    -    248,000 
Foreign currency translation loss   -    -    -    -    10,596    -    10,596    (225)   10,371 
Net loss   -    -    -    -    -    (771,470)   (771,470)   (1,633)   (773,103)
                                              
Balance, November 30, 2020   23,553,141    23,553    45,245,367    -    1,210,292    (17,278,597)   29,200,615    (51,717)   29,148,898 
                                              
Exercise of stock options   7,500    8    11,992    -    -    -    12,000    -    12,000 
Common stock issued for intellectual property   240,000    240    875,760    -    -    -    876,000    -    876,000 
Common stock to be issued for services rendered   -    -    -    375,000    -    -    375,000    -    375,000 
Rounding due to stock split   957    1    (1)   -    -    -    -    -    - 
Fair value of vested stock options   -    -    22,215    -    -    -    22,215    -    22,215 
Foreign currency translation loss   -    -    -    -    42,232    -    42,232    (965)   41,267 
Net loss   -    -    -    -    -    (1,339,870)   (1,339,870)   (721)   (1,340,591)
                                              
Balance, February 28, 2021   23,801,598    23,802    46,155,333    375,000    1,252,524    (18,618,467)   29,188,192    (53,403)   29,134,789 
                                              
Common stock for services   100,000    100    374,900    (375,000)   -    -    -    -    - 
Common stock issued for acquisition   189,796    190    430,647    -    -    -    430,837    -    430,837 
Common stock issued for services rendered   9,913    9    37,163    -    -    -    37,172    -    37,172 
Common stock issued for cash, net of offering costs   2,388,050    2,388    7,233,192    -    -    -    7,235,580    -    7,235,580 
Fair value of vested stock options   -    -    66,640    -    -    -    66,640    -    66,640 
Foreign currency translation loss   -    -    -    -    123,521    -    123,521    (3,143)   120,378 
Net loss   -    -    -    -    -    (411,187)   (411,187)   (4,084)   (415,271)
                                              
Balance, May 31, 2021   26,489,357   $26,489   $54,297,875   $-   $1,376,045   $(19,029,654)  $36,670,755   $(60,630)  $36,610,125 
                                              
Balance, August 31, 2019   22,369,150   $22,369   $36,014,525   $-   $1,138,919   $(11,591,973)  $25,583,840   $(39,632)  $25,544,208 
                                              
Common stock issued for cash   35,437    35    113,364    -    -    -    113,399    -    113,399 
Foreign currency translation loss   -    -    -    -    5,200    -    5,200    (123)   5,077 
Net loss   -    -    -    -    -    (88,120)   (88,120)   (839)   (88,959)
                                              
Balance, November 30, 2019   22,404,587    22,404    36,127,889    -    1,144,119    (11,680,093)   25,614,319    (40,594)   25,573,725 
                                              
Common stock issued for licensing agreement   800,000    800    5,247,200    -    -    -    5,248,000    -    5,248,000 
Foreign currency translation loss   -    -    -    -    (16,274)        (16,274)   426    (15,848)
Net loss   -    -    -    -    -    (504,484)   (504,484)   (1,345)   (505,829)
                                              
Balance, February 29, 2020   23,204,587    23,204    41,375,089    -    1,127,845    (12,184,577)   30,341,561    (41,513)   30,300,048 
                                              
Common stock issued for software license   96,558    97    386,134         -    -    386,231    -    386,231 
Fair value of modification of stock option terms   -    -    62,822         -    -    62,822    -    62,822 
Foreign currency translation loss   -    -    -         (50,624)        (50,624)   1,098    (49,526)
Net loss   -    -    -         -    (98,295)   (98,295)   (2,728)   (101,023)
                                              
Balance, May 31, 2020   23,301,145   $23,301   $  41,824,045    -   $1,077,221   $(12,282,872)  $30,641,695   $(43,143)  $  30,598,552 

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

5
 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended May 31, 2021 and 2020 (unaudited)

 

 

   Nine Months Ended 
   May 31,   May 31, 
   2021   2020 
   (unaudited)   (unaudited) 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(2,528,965)  $(695,811)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   1,118,925    54,681 
Fair value of vested stock options   88,855    - 
Expense associated with modified stock option terms   -    62,822 
Common stock issued/to be issued for services   660,172    - 
Operating lease expense   467,864    398,039 
Write off of acquisition deposit   -    344,521 
Changes in operating assets and liabilities:          
Accounts receivable   543,213    305,966 
Prepaid expenses and other current assets   (143,590)   (123,729)
Accounts payable   (97,659)   (448,202)
Accrued expenses   64,513    (44,280)
Accrued interest   7,455    105,359 
Operating lease liability   (460,063)   (385,500)
Net cash used in operating activities   (279,280)   (426,134)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (201,369)   (3,897)
Cash paid for acquisition   (10,000)   - 
Amounts loaned for other receivables   (470,040)   - 
Payment for acquisition deposit   -    (636,985)
Return of acquisition deposit   -    372,800 
Net cash used in investing activities   (681,409)   (268,082)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayments to related parties   (177,534)   (150,849)
Proceeds from government loans and note payable   -    81,380 
Proceeds from the sale of common stock, net of offering costs   7,327,580    113,399 
Proceeds from exercise of stock options   12,000    - 
Net cash provided by financing activities   7,162,046    43,930 
           
Effect of exchange rate changes on cash and cash equivalents   97,970    (39,014)
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   6,299,327    (689,300)
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   2,067,718    2,083,666 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $8,367,045   $1,394,366 
           
CASH PAID FOR:          
Interest  $33,183   $95,085 
Income taxes  $-   $- 
           
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock issued for intangible assets  $876,000   $5,634,231 
Common stock issued for acquisition  $430,837   $- 

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

6
 

 

NOVO INTEGRATED SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended May 31, 2021 and May 31, 2020 (unaudited)

 

Note 1 - Organization and Basis of Presentation

 

Organization and Line of Business

 

Novo Integrated Sciences, Inc. (“Novo Integrated”) was incorporated in Delaware on November 27, 2000, under the name Turbine Truck Engines, Inc. On February 20, 2008, the Company was re-domiciled to the State of Nevada. Effective July 12, 2017, the Company’s name was changed to Novo Integrated Sciences, Inc. When used herein, the terms the “Company,” “we,” “us” and “our” refer to Novo Integrated and its consolidated subsidiaries.

 

The Company owns Canadian and U.S. subsidiaries which deliver, or intend to deliver, multidisciplinary primary health care related services and product solutions through the integration of medical technology, advanced therapeutics and rehabilitative science. Through May 2021, the Company’s revenue is generated solely through its wholly owned Canadian subsidiary, Novo Healthnet Limited (“NHL”), which provides our services and product solutions through both clinic and eldercare related operations.

 

Our specialized multidisciplinary primary health care services include physiotherapy, chiropractic care, manual/manipulative therapy, occupational therapy, eldercare, massage therapy (including pre- and post-partum), acupuncture and functional dry needling, chiropody, stroke and traumatic brain injury/neurological rehabilitation, kinesiology, vestibular therapy, concussion management and baseline testing, trauma sensitive yoga and meditation for concussion-acquired brain injury and occupational stress-PTSD, women’s pelvic health programs, sports medicine therapy, assistive devices, dietitian, holistic nutrition, fall prevention education, sports team conditioning programs including event and game coverage, and private personal training.

 

Reverse Stock Split

 

On February 1, 2021, the Company effected a 1-for-10 reverse stock split of our common stock. As a result of the reverse stock split, every 10 shares of issued and outstanding common stock were exchanged for one share of common stock, with any fractional shares being rounded up to the next higher whole share. Unless otherwise noted, the share and per share information in this report have been retroactively adjusted to give effect to the 1-for-10 reverse stock split.

 

Impact of COVID-19

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

 

On March 17, 2020, as a result of COVID-19 infections having been reported throughout both Canada and the United States, certain national, provincial, state and local governmental authorities issued proclamations and/or directives aimed at minimizing the spread of COVID-19. Accordingly, on March 17, 2020, the Company closed all corporate clinics for all in-clinic non-essential services to protect the health and safety of its employees, partners and patients. On March 20, 2020, the Company announced the precautionary measures taken as well as announcing the business impact related to the coronavirus (COVID-19) pandemic.

 

Operating under COVID-19 related governmental proclamations and directives, between March 17, 2020 and June 1, 2020, the Company provided in-clinic multi-disciplinary primary healthcare services and products solely to patients with emergency and essential need while also providing certain virtual based services related to physiotherapy. In light of most eldercare related services being deemed essential by national, provincial and local governmental authorities in Canada, NHL’s contracted eldercare related services have been nominally impacted during the fiscal year 2021 initial 9-month period ended May 31, 2021 and we project the same for the fiscal year 2021 fourth quarter.

 

7
 

 

On May 26, 2020, the Ontario Ministry of Health announced updated guidance and directives stating that physiotherapists, chiropractors and other regulated health professionals, including all services and products provided by the Company, can gradually and carefully begin providing all services, including non-essential services, once the clinician and provider are satisfied all necessary precautions and protocols are in place to protect the patients, the clinician and the clinic staff. With all corporate clinics closed due to the COVID-19 pandemic, with the exception of providing certain limited essential and emergency services, the Company had furloughed 48 full-time employees and 35 part-time employees from its pre-closure levels of 81 full-time employees and 53 part-time employees.

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients.

 

As of the date of filing this 10-Q quarterly report form, our clinic facilities have re-opened and are operating under COVID-19 pandemic related mandated guidelines and protocols. During the May 31, 2021 quarter period, the Ontario provincial government issued a stay at home order, effective from April 8, 2021 through June 2, 2021, which permitted only limited, essential activities outside the home, such as going to the grocery store or pharmacy, ‎accessing health care services (including vaccinations), exercising outdoors, or working if such ‎work cannot be done remotely.

 

For the quarter period ended May 31, 2021, NHL’s clinic-based revenue rebounded 85% compared to the Company’s last fully operational, pre COVID-19 quarter period ended February 29, 2020. In addition, for the quarter period ended May 31, 2021, NHL’s eldercare contracted services rebounded 94% compared to the Company’s last fully operational, pre COVID-19 quarter period ended February 29, 2020. The Company’s total revenue from all clinic and eldercare related contracted services for the quarter period ended May 31, 2021 rebounded approximately 90% compared to the Company’s last fully operational, pre-COVID-19 quarter period ended February 29, 2020. As of May 31, 2021, the Company has 70 full-time employees and 58 part-time employees.

 

Canadian federal and provincial COVID-19 governmental proclamations and directives, including interprovincial travel restrictions, have presented unprecedented challenges to launching our Harvest Gold Farms and Kainai Cooperative joint ventures. Accordingly, the Company has decided to delay commencing the projects until the 2022 grow season. These joint ventures relate to the development, management, and arrangement of medicinal farming projects involving industrial hemp for medicinal Cannabidiol (CBD) applications.

 

For fiscal year 2021 and beyond, based on no additional “lockdowns” or new material directives being implemented which may limit the Company’s ability to provide both its clinic and eldercare related contracted services and products, the Company projects a steady quarter-to-quarter increase as (i) recommended guidelines for patient-practitioner on-site interaction are eased, and (ii) more overall movement restrictions are reduced and people are more comfortable in public spaces.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced patient traffic and reduced operations. The full long-term financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition, and results of operations.

 

The measures taken to date may continue to impact the Company’s fiscal year 2021 business and potentially beyond. Management expects that all of its business segments, across all of its geographies, may continue to be impacted to some degree, but the significance of the full impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

 

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Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with U.S. GAAP were omitted pursuant to such rules and regulations.

 

The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, that the Company filed on December 9, 2020. The results of operations for the nine months ended May 31, 2021 are not necessarily indicative of the results for the year ending August 31, 2021. The Company’s Canadian subsidiaries’ functional currency is the Canadian Dollar (“CAD”); however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).

 

Foreign Currency Translation

 

The accounts of the Company’s Canadian subsidiaries are maintained in CAD. The accounts of these subsidiaries are translated into USD in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency Transaction, with the CAD as the functional currency. According to Topic 830, all assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, Comprehensive Income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the consolidated statement of operations and comprehensive loss. The following table details the exchange rates used for the respective periods:

 

   May 31, 2021   May 31, 2020   August 31, 2020 
             
Period end: CAD to USD exchange rate  $0.8284   $0.7263   $0.7674 
Average period: CAD to USD exchange rate  $0.7834   $0.7435   $0.7435 

 

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. This applies in particular to useful lives of non-current assets, impairment of non-current assets, allowance for doubtful accounts, and valuation allowance for deferred tax assets. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and entities it controls including its wholly owned subsidiaries, NHL, Novomerica Health Group, Novo Healthnet Rehab Limited, Novo Assessments Inc., PRO-DIP, LLC, an 80% controlling interest in Novo Healthnet Kemptville Centre, Inc., a Back on Track Physiotherapy and Health Centre clinic operated by NHL, and a 70% controlling interest in Novo Earth Therapeutics Inc. (currently inactive). All of the Company’s subsidiaries are incorporated under the laws of the Province of Ontario or New Brunswick, Canada. All intercompany transactions have been eliminated.

 

9
 

 

An entity is controlled when the Company has the ability to direct the relevant activities of the entity, has exposure or rights to variable returns from its involvement with the entity, and is able to use its power over the entity to affect its returns from the entity.

 

Income or loss and each component of OCI are attributed to the shareholders of the Company and to the noncontrolling interests. Total comprehensive income is attributed to the shareholders of the Company and to the noncontrolling interests even if this results in the non-controlling interests having a deficit balance on consolidation.

Noncontrolling Interest

 

The Company follows FASB ASC Topic 810, Consolidation, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.

 

The net income (loss) attributed to the NCI is separately designated in the accompanying condensed consolidated statements of operations and comprehensive loss.

 

Cash Equivalents

 

For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less.

 

Accounts Receivable

 

Accounts receivable are recorded, net of allowance for doubtful accounts and sales returns. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends, and changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified. As of May 31, 2021, and August 31, 2020, the allowance for uncollectible accounts receivable was $688,063 and $518,031, respectively.

 

Property and Equipment

 

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the declining balance method for substantially all assets with estimated lives as follows:

 

  Leasehold improvements 5 years
  Clinical equipment 5 years
  Computer equipment 3 years
  Office equipment 5 years
  Furniture and fixtures 5 years

 

Long-Lived Assets

 

The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including right of use assets, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at May 31, 2021 and August 31, 2020, the Company believes there was no impairment of its long-lived assets.

 

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Intangible Assets

 

The Company’s intangible assets consist of land use rights, a software license and intellectual property which will be amortized over 50 (the lease period), 7 and 7 years, respectively. The intangible assets with finite useful lives are reviewed for impairment when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Based on its reviews at May 31, 2021 and August 31, 2020, the Company believes there was no impairment of its intangible assets.

 

Right-of-use Assets

 

The Company’s right-of-use assets consist of leased assets recognized in accordance with ASC 842, Leases, which requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the condensed consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statement of operations. The Company determines the lease term by agreement with lessor. In cases where the lease does not provide an implicit interest rate, the Company uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

 

Goodwill

 

Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Under U.S. GAAP, goodwill is not amortized but is subject to annual impairment tests. The Company recorded goodwill related to its acquisition of APKA Health, Inc. during the fiscal year ended August 31, 2017, Executive Fitness Leaders during the fiscal year ended August 31, 2018 and Action Plus Physiotherapy Rockland during the fiscal year ended August 31, 2019. Based on its review at August 31, 2020, the Company believes there was no impairment of its goodwill.

 

The change in the amount of goodwill during the quarter primarily resulted from the foreign currency translation adjustment.

 

Acquisition Deposits

 

The Company has signed letters of understanding with a potential acquisition candidate which includes refundable acquisition deposits totaling $414,200 and $383,700 at May 31, 2021 and August 31, 2020, respectively.

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and equivalents, accounts receivable, other receivables, accounts payable and due to related parties, the carrying amounts approximate their fair values due to their short term maturities.

 

FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the condensed consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

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  Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
     
  Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement.

 

The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.

 

As of May 31, 2021, and August 31, 2020, respectively, the Company did not identify any financial assets and liabilities required to be presented on the balance sheet at fair value, except for cash and cash equivalents which are carried at fair value using Level 1 inputs.

 

Revenue Recognition

 

The FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on March 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily from providing healthcare services, and the Company has no significant post-delivery obligations, this new standard did not result in a material recognition of revenue on the Company’s accompanying condensed consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.

 

Revenue from providing healthcare and healthcare related services is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services to customers in return for expected consideration and includes the following elements:

 

  executed contracts with the Company’s customers that it believes are legally enforceable;
  identification of performance obligations in the respective contract;
  determination of the transaction price for each performance obligation in the respective contract;
  allocation of the transaction price to each performance obligation; and
  recognition of revenue only when the Company satisfies each performance obligation.

 

These five elements, as applied to the Company’s revenue category, are summarized below:

 

  Healthcare and healthcare related services – gross service revenue is recorded in the accounting records at the time the services are provided (point in time) on an accrual basis at the provider’s established rates. The Company reserves a provision for contractual adjustment and discounts that are deducted from gross service revenue. The Company reports revenues net of any sales, use and value added taxes.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

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Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

Stock-Based Compensation

 

The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the requisite service period. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.

 

Basic and Diluted Earnings Per Share

 

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were 1,849,600 options and 2,388,050 warrants outstanding as of May 31, 2021. Due to the net loss incurred, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented.

 

Foreign Currency Transactions and Comprehensive Income

 

U.S. GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company’s Canadian subsidiaries is the CAD. Translation gains of $1,376,045 and $1,199,696 at May 31, 2021 and August 31, 2020, respectively, are classified as an item of other comprehensive income in the stockholders’ equity section of the balance sheet.

 

Statement of Cash Flows

 

Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

 

Recent Accounting Pronouncements

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s condensed consolidated financial statements and related disclosures.

 

In May, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This update provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. This update is effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the effect of this ASU on the Company’s condensed consolidated financial statements and related disclosures.

 

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Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

Note 3 – Related Party Transactions

 

Due to related parties

 

Amounts loaned to the Company by stockholders and officers of the Company are payable upon demand and unsecured. At May 31, 2021 and August 31, 2020, the amount due to related parties was $382,468 and $528,213, respectively. At May 31, 2021, $307,268 (August 31, 2020: $458,550) are non-interest bearing, $23,839 (August 31, 2020: $22,084) bears interest at 6% per annum, and $51,361 (August 31, 2020: $47,579) bears interest at 13.75% per annum.

 

The Company leased office space from a related party on a month-to-month basis with monthly lease payments of $1,487. The lease was terminated on May 31, 2020.

 

On July 21, 2020, a related party converted $226,363 of outstanding principal and accrued interest into 15,091 shares of the Company’s common stock. The per share price used for the conversion of this debt was $15.00.

 

On July 21, 2020, the Company made a partial repayment of a debenture due to a related party of $267,768. The remaining principal balance of debentures to related parties at May 31, 2021 and August 31, 2020 was $1,027,736 and $952,058, respectively.

 

Note 4 – Accounts Receivables, net

 

Accounts receivables, net at May 31, 2021 and August 31, 2020 consisted of the following:

 

   May 31,   August 31, 
   2021   2020 
Trade receivables  $1,947,471   $1,948,520 
Amounts earned but not billed   36,318    301,943 
    1,983,789    2,250,463 
Allowance for doubtful accounts   (688,063)   (518,031)
Accounts receivable, net  $1,295,726   $1,732,432 

 

Note 5 – Other Receivables

 

Other receivables at May 31, 2021 and August 31, 2020 consisted of the following:

 

   May 31,   August 31, 
   2021   2020 
Notes receivable dated April 1, 2015 and amended on May 23, 2017; accrued interest at 8% per annum; secured by certain assets; due March 1, 2019. (currently in default; if the receivable is not repaid, the Company plans to foreclose on the clinic that secures this receivable)  $310,650   $287,775 
Advance to corporation; accrues interest at 12% per annum; unsecured; due December 31, 2021, as amended   82,840    76,740 
Advance to corporation; accrues interest at 10% per annum after the first 60 days; unsecured; due March 1, 2022   225,924    225,924 
Advance to corporation; accrues interest at 12% per annum; secured by property and other assets of the debtor; due August 17, 2021   497,040    - 
Total other receivables   1,116,454    590,439 
Current portion   (805,804)   (302,664)
Long-term portion  $310,650   $287,775 

 

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Note 6 – Property and Equipment

 

Property and equipment at May 31, 2021 and August 31, 2020 consisted of the following:

 

   May 31,   August 31, 
   2021   2020 
Leasehold improvements  $715,159   $465,857 
Clinical equipment   325,953    301,337 
Computer equipment   25,823    23,921 
Office equipment   47,908    29,229 
Furniture and fixtures   42,921    39,760 
    1,157,764    860,104 
Accumulated depreciation   (607,862)   (506,444)
Total  $549,902   $353,660 

 

Depreciation expense for the nine months ended May 31, 2021 and 2020 was $57,840 and $54,681, respectively, and for the three months ended May 31, 2021 and 2020 was $13,902 and $13,713, respectively.

 

Note 7 – Intangible Assets

 

Intangible assets at May 31, 2021 and August 31, 2020 consisted of the following:

 

   May 31,   August 31, 
   2021   2020 
Land use rights  $21,600,000   $21,600,000 
Software license   1,144,798    1,144,798 
Intellectual property   6,579,752    5,248,000 
    29,324,550    27,992,798 
Accumulated amortization   (2,430,435)   (1,369,350)
Total  $26,894,115   $26,623,448 

 

Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows:

 

Twelve Months Ending May 31,    
2022  $1,535,507 
2023   1,535,507 
2024   1,535,507 
2025   1,535,507 
2026   1,508,415 
Thereafter   19,243,672 
Total  $26,894,115 

 

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On December 17, 2019, the Company entered into that certain Intellectual Property Asset Purchase Agreement (the “APA”) by and between the Company and 2731861 Ontario Corp. (the “Seller”), pursuant to which the Company agreed to purchase, and Seller agreed to sell (the “Acquisition”), proprietary designs for an innovative cannabis dosing device, in addition to designs, plans, procedures, and all other material pertaining to the application, construction, operation, and marketing of a cannabis business under the regulations of Health Canada (the “Intellectual Property”). Pursuant to the terms of the APA, the purchase price of the Intellectual Property is 8,000,000 shares of restricted common stock of the Company valued at $5,248,000.

 

On February 26, 2019, the Company and NHL entered into a Software License Agreement (the “Cloud DX License”) with Cloud DX Inc. (“Cloud DX”), pursuant to which Cloud DX agreed to sell, and NHL agreed to purchase, a fully paid up, perpetual license, with 5-year conditional exclusivity, for the Cloud DX Bundled Pulsewave PAD-1A USB Blood Pressure Device, up-to-date product releases and Licensed Software Products (the “Licensed Software”). Pursuant to the terms of the Cloud DX License, Cloud DX also agreed to sell, and NHL agreed to purchase, 4,000 fully functional Pulsewave PAD 1A USB blood pressure monitor devices bundled with the perpetual license discussed above (the “Bundled Devices”).

 

The Cloud DX License granted to NHL and its majority-owned subsidiaries, holding companies, divisions and affiliates, other than physiotherapy clinics owned and operated by Closing The Gap Healthcare Inc., the right to use and sub-license the Licensed Software and re-sell the Bundled Devices pursuant to the terms of the Cloud DX License in the physical therapy clinic marketplace in North America in exchange for the purchase price as set forth below:

 

  Upon the closing, the Company issued 458,349 restricted shares of its common stock having a value (as calculated as set forth in the Cloud DX License) of CAD$1,000,000 (approximately $758,567 as of February 26, 2019), and
     
  Cloud DX agreed to invoice CAD$250,000 (approximately $189,642 as of February 26, 2019) to NHL based on the following deliverables, and paid on the following schedule:

 

Cloud DX deliverable   Novo payment (terms: Net 15)
Heart Friendly Program launches in Clinic #1   CAD$50,000 (approximately $37,929 as of February 26, 2019)
Novo-branded Android app delivered as APK file   CAD$35,000 (approximately $26,550 as of February 26, 2019)
Novo-branded Clinical portal website delivered   CAD$35,000 (approximately $26,550 as of February 26, 2019)
Pulsewave PAD-1A devices – 1st delivery   CAD$20,000 (approximately $15,171 as of February 26, 2019)
Marketing services / materials delivered   CAD$25,000 (approximately $18,964 as of February 26, 2019)
Cloud DX hires dedicated Novo support FTE   CAD$85,000 (approximately $64,478 as of February 26, 2019)

 

On March 9, 2020, the Company and NHL entered into that certain First Amendment to Cloud DX Perpetual Software License Agreement (the “Cloud DX Amendment”) with Cloud DX, effective March 6, 2020, pursuant to which the parties thereto agreed that the CAD$250,000 (approximately $186,231 as of March 6, 2020) that was to be paid by NHL based on the above deliverables would be paid as a one-time payment of 465,578 restricted shares of Company common stock. In addition, pursuant to the terms of the Cloud DX Amendment, the parties agreed to settle a $200,000 fee owed by NHL to Cloud DX through payment of 500,000 restricted shares of Company common stock.

 

Except as set forth in the Cloud DX Amendment, the remaining terms and conditions of the Cloud DX License remain in full force and effect.

 

On December 11, 2020, the Company and 2794512 Ontario Ltd., an Ontario Canada corporation, entered into an Asset Purchase Agreement pursuant to which the Company acquired generic primary and sub-primary drug formulations (known as bioequivalence) of name brand pharmaceutical reference products related to usage as injectables, ophthalmic, and topical applications. In consideration, the Company issued 240,000 shares of common stock that were valued at $876,000.

 

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On May 24, 2021, the Company and PRO-DIP, LLC, a New York limited liability company, entered into a Share Exchange Agreement (the “ PD SEA”), pursuant to which the Company acquired 100% of the PRO-DIP, LLC units held by the PRO-DIP, LLC members making PRO-DIP, LLC a wholly owned subsidiary of the Company. Pursuant to the terms of the PD SEA, the Company issued 189,796 restricted shares of Company common stock to the PD members. $455,752 of the purchase price allocation of PRO-DIP, LLC was allocated to intellectual property.

 

Note 8 – Accrued Expenses

 

Accrued expenses at May 31, 2021 and August 31, 2020 consisted of the following:

 

   May 31,   August 31, 
   2021   2020 
Accrued liabilities  $52,714   $37,457 
Accrued payroll   184,162    117,823 
Other   41,643    39,428 
   $278,519   $194,708 

 

Note 9 – Government Loans and Note Payable

 

Notes payable at May 31, 2021 and August 31, 2020 consisted of the following:

 

   May 31,   August 31, 
   2021   2020 
Note payable issued under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The loan has terms of 24 months and accrues interest at 1% per annum. The Company expects some or all of this loan to be forgiven as provided by in the CARES Act.  $21,900   $21,900 
Government loans issued under the Government of Canada’s Canada Emergency Business Account (“CEBA”) program (A).   66,272    61,392 
Note payable to the Small Business Administration (“SBA”). The note bears interest at 3.75% per annum, requires monthly payments of $190 after 12 months from funding and is due 30 years from the date of issuance.   40,320    - 
Total notes payable   128,492    83,292 
Less current portion   (88,956)   (83,292)
Long-term portion  $39,536   $- 

 

  (A) The Government of Canada launched the Canada Emergency Business Account loan to ensure that small businesses have access to the capital that they need during the current challenges faced due to the COVID-19 virus. The Company obtained CAD$80,000 loan (US$66,272 at May 31, 2021), which is unsecured, non-interest bearing and due on or before December 31, 2022. If the loan amount is paid on or before December 31, 2022, 25% of the loan will be forgiven (“Early Payment Credit”). In the event that the Company does not repay 75% of such term debt on or before December 31, 2022, the Early Payment Credit will not apply.

 

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Government Subsidy

 

In 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) for Canadian employers whose businesses were affected by the COVID-19 pandemic. The CEWS provides a subsidy of up to 75% of eligible employees’ employment insurable remuneration, subject to certain criteria. Accordingly, the Company applied for the CEWS to the extent it met the requirements to receive the subsidy and during the nine months ended May 31, 2021, recorded a total of approximately $731,000 in government subsidies as a reduction to the associated wage costs recorded in cost of revenues and general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.

 

Future scheduled maturities of outstanding government loans and notes payable are as follows:

 

Twelve Months Ending May 31,    
2022  $88,956 
2023   814 
2024   845 
2025   877 
2026   911 
Thereafter   36,089 
Total  $128,492 

 

Note 10 – Debentures, Related Parties

 

On September 30, 2013, the Company issued five debentures totaling CAD$6,402,512 (approximately $6,225,163 on September 30, 2013) in connection with the acquisition of certain business assets. The holders of the debentures are current stockholders, officers and/or affiliates of the Company. The debentures are secured by all the assets of the Company, accrue interest at 8% per annum and were originally due on September 30, 2016. On December 2, 2017, the debenture holders agreed to extend the due date to September 30, 2019. On September 27, 2019, the debenture holders agreed to extend the due date to September 30, 2021.

 

On January 31, 2018, the debenture holders converted 75% of the debenture value of $3,894,809 plus accrued interest of $414,965 into 1,047,587 shares of the Company’s common stock. The per share price used for the conversion of each debenture was $4.11 which was determined as the average price of the five (5) trading days immediately preceding the date of conversion with a 10% premium added to the calculated per share price.

 

On July 21, 2020, the Company made a partial repayment of a debenture due to a related party of $267,768.

 

At May 31, 2021 and August 31, 2020, the amount of debentures outstanding was $1,027,736 and $952,058, respectively.

 

Note 11 – Leases

 

The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.

 

The Company leases its corporate office space and certain facilities under long-term operating leases expiring through fiscal year 2028. Effective March 1, 2019, the Company adopted the provision of ASC 842 Leases.

 

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The table below presents the lease related assets and liabilities recorded on the Company’s condensed consolidated balance sheets as of May 31, 2021 and August 31, 2020:

 

      May 31,   August 31, 
      2021   2020 
   Classification on Balance Sheet          
Assets             
Operating lease assets  Operating lease right of use assets  $2,539,226   $2,810,556 
Total lease assets     $2,539,226   $2,810,556 
              
Liabilities             
Current liabilities             
Operating lease liability  Current operating lease liability  $514,931   $563,793 
Noncurrent liabilities             
Operating lease liability  Long-term operating lease liability   2,054,268    2,266,887 
Total lease liability     $2,569,199   $2,830,680 

 

Lease obligations at May 31, 2021 consisted of the following:

 

Twelve Months Ending May 31,    
2022  $747,565 
2023   677,819 
2024   450,616 
2025   360,412 
2026   321,598 
Thereafter   631,360 
Total payments   3,189,370 
Amount representing interest   (620,172)
Lease obligation, net   2,569,199 
Less lease obligation, current portion   (514,931)
Lease obligation, long-term portion  $2,054,268 

 

The lease expense for the nine months ended May 31, 2021 and 2020 was $629,029 and $576,528, respectively. The cash paid under operating leases for the nine months ended May 31, 2021 and 2020 was $621,228 and $563,989, respectively. At May 31, 2021, the weighted average remaining lease terms were 5.60 years and the weighted average discount rate was 8%.

 

Note 12 – Stockholders’ Deficit

 

Convertible preferred stock

 

The Company has authorized 1,000,000 shares of $0.001 par value convertible preferred stock. At May 31, 2021 and August 31, 2020, there were 0 and 0 convertible preferred shares issued and outstanding, respectively.

 

Common stock

 

The Company has authorized 499,000,000 shares of $0.001 par value common stock. On February 1, 2021, the Company effected a 1-for-10 reverse stock split of our common stock. As a result of the reverse stock split, every 10 shares of issued and outstanding common stock were exchanged for one share of common stock, with any fractional shares being rounded up to the next higher whole share. At May 31, 2021 and August 31, 2020 there were 26,489,357 and 23,466,236 common shares issued and outstanding, respectively.

 

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During the nine months ended May 31, 2021, the Company issued:

 

  21,905 restricted shares of common stock to a non-U.S. person for cash proceeds of $92,000;
     
 

15,000 restricted shares of common stock as consideration for a Statement of Work Agreement with an independent contractor valued at $55,500. The fair value was determined based on the market price of the Company’s common stock on the date of grant;

 

  50,000 restricted shares of common stock as consideration for a Consulting and Services Agreement valued at $192,500. The fair value was determined based on the market price of the Company’s common stock on the date of grant;
     
  240,000 restricted shares of common stock as consideration for an Asset Purchase Agreement with a value of $876,000 based on the market price of the Company’s common stock of $3.65 per share on the date of grant;
     
 

957 shares of common stock to round fractional shares that would have been issued pursuant to the reverse stock split to the next highest whole share as a result of the Company’s 1-for-10 reverse stock split of our common stock, effective February 1, 2021. As a result of the reverse stock split, every 10 shares of issued and outstanding common stock were exchanged for one share of common stock, with any fractional shares being rounded up to the next higher whole share;

 

  7,500 shares of common stock issued upon the exercise of stock options. The Company received the exercise price of $12,000 in cash.
     
 

100,000 restricted shares of common stock under the terms and conditions of a certain Letter of Engagement, dated July 31, 2020, as a result of the Company’s successful uplist to the Nasdaq Capital Markets.

 

 

9,913 shares of common stock under the Company’s 2021 Equity Incentive Plan and registered pursuant to the Company’s registration statement on Form S-8 (File No. 333-253289), for payment of legal services valued at $37,172.

 

  2,388,050 shares of common stock, to accredited investors, under the terms and conditions of a Securities Purchase Agreement, dated April 9, 2021, in a registered direct offering for an agreed upon purchase price of $3.35 per share. The Company incurred offering cost of $764,388 associated with this offering. The shares were offered pursuant to an effective shelf registration statement on Form S-3 (File No. 333-254278), which was declared effective on March 22, 2021. The shares were issued on April 13. 2021.
     
  189,796 restricted shares of common stock as consideration for a Share Exchange Agreement with the securities exchange valued at $430,837, or $2.27 per share. The fair value was determined based on the market price of the Company’s common stock on the date of grant. The shares were issued on May 24, 2021.

 

During the nine months ended May 31, 2020, the Company issued:

 

  35,437 restricted shares of common stock for cash proceeds of $113,399
     
  800,000 restricted shares of common stock as consideration for the Intellectual Property Asset Purchase Agreement with a value of $5,248,000 based on the closing share price of $6.56 on the execution date of the Agreement.
     
  96,558 restricted shares of common stock as consideration for the License Agreement Amendment No. 1 with a value of $386,231 based on the closing share price of $4.00 on the execution date of the Agreement Amendment No.1.

 

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Stock options/warrants

 

On September 8, 2015, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common stock approved the Novo Integrated Sciences, Inc. 2015 Incentive Compensation Plan (the “2015 Plan”), which authorizes the issuance of up to 500,000 shares of common stock to employees, officers, directors or independent consultants of the Company, provided that no person can be granted shares under the 2015 Plan for services related to raising capital or promotional activities. During fiscal years 2020 and 2019, the Company did not grant any awards under the 2015 Plan. The Company does not intend to issue any additional grants under the 2015 Plan.

 

On January 16, 2018, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common stock approved the Novo Integrated Sciences, Inc. 2018 Incentive Compensation Plan (the “2018 Plan”). Under the 2018 Plan, 1,000,000 shares of common stock are authorized for the grant of stock options and the issuance of restricted stock, stock appreciation rights, phantom stock and performance awards to officers, directors, employees and eligible consultants to the Company or its subsidiaries. As of May 31, 2021, the 2018 Plan has 864,900 shares available for award; however, the Company does not intend to issue any additional grants under the 2018 Plan.

 

On February 9, 2021, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common stock approved the Novo Integrated Sciences, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). Under the 2021 Plan, a total of 4,500,000 shares of common stock are authorized for issuance pursuant to the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other cash- or stock-based awards to officers, directors, employees and eligible consultants to the Company or its subsidiaries. Subject to adjustment as provided in the 2021 Plan, the maximum aggregate number of shares that may be issued under the 2021 Plan will be cumulatively increased on January 1, 2022 and on each subsequent January 1 through and including January 1, 2023, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by our Board of Directors. As of May 31, 2021, the 2021 Plan has 4,490,087 shares are available for award.

 

In connection with the Securities Purchase Agreement, dated April 9, 2021, the Company also issued to the investors an aggregate of 2,388,050 warrants to purchase shares of the Company’s common stock at $3.35 per shares. The warrants vest immediately and expire on October 13, 2026.

 

The following is a summary of stock option/warrant activity:

 

           Weighted     
       Weighted   Average     
   Options/   Average   Remaining   Aggregate 
   Warrants   Exercise   Contractual   Intrinsic 
   Outstanding   Price   Life   Value 
Outstanding, August 31, 2020   1,784,500    2.20    4.09   $3,173,800 
Granted   2,460,650    3.36           
Forfeited   -                
Exercised   (7,500)   1.60           
Outstanding, May 31, 2021   4,237,650    2.89    4.51   $595,200 
Exercisable, May 31, 2021   4,189,250   $2.88    4.51   $595,200 

 

The exercise price for options/warrants outstanding at May 31, 2021:

 

Outstanding   Exercisable 
Number of       Number of     
Options/   Exercise   Options/   Exercise 
Warrants   Price   Warrants   Price 
 997,000   $1.60    997,000   $1.60 
 775,000    3.00    775,000    3.00 
 2,388,050    3.35    2,388,050    3.35 
 72,600    3.80    24,200    3.80 
 5,000    5.00    5,000    5.00 
 4,237,650         4,189,250      

 

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For options granted during the nine months ended May 31, 2021 where the exercise price equaled the stock price at the date of the grant, the weighted-average fair value of such options was $3.76, and the weighted-average exercise price of such options was $3.80. No options were granted during the nine months ended May 31, 2021 where the exercise price was less than the stock price at the date of grant or the exercise price was greater than the stock price at the date of grant.

 

The fair value of the stock options is being amortized to stock option expense over the vesting period. The Company recorded stock option expense of $88,855 and $0 during the nine months ended May 31, 2021 and 2020, respectively. At May 31, 2021, the unamortized stock option expense was $177,709, which will be amortized into expense through January 2022.

 

The assumptions used in calculating the fair value of options granted using the Black-Scholes option-pricing model for options granted are as follows for the options granted during the nine months ended May 31, 2021:

 

Risk-free interest rate   0.42%
Expected life of the options   2.5 years 
Expected volatility   268%
Expected dividend yield   0%

 

Note 13 – Commitments and Contingencies

 

Litigation

 

The Company is party to certain legal proceedings from time-to-time incidental to the conduct of its business. These proceedings could result in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that the Company cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on our condensed consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs. However, based on information available to the Company’s management to date, the Company’s management does not expect that the outcome of any matter pending against the Company is likely to have a materially adverse effect on the Company’s condensed consolidated financial position as of May 31, 2021, results of operations, cash flows or liquidity of the Company.

 

Note 14 – Acquisition

 

On May 24, 2021, the Company’s acquired PRO-DIP, LLC, to complement several of the Company’s growth initiatives (i) to build a health science related IP portfolio, and (ii) deliver wellness and preventative healthcare products to the marketplace. This acquisition was considered an acquisition of a business under ASC 805.

 

A summary of the purchase price allocation at fair value is below. The business combination accounting is not yet complete and the amounts assigned to assets acquired and liabilities assumed are provisional. Therefore, this may result in future adjustments to the provisional amounts as information is obtained about facts and circumstances that existed at the acquisition date.

 

Office equipment  $16,355 
Inventory   9,050 
Intellectual property   455,752 
SBA loan   (40,320)
   $440,837 

 

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The purchase price was paid as follows:

 

Issuance of common stock  $430,837 
Cash   10,000 
Total consideration  $440,837 

 

The purchase of PRO-DIP, LLC was not considered significant for accounting purposes; therefore, pro forma financial statements are not presented.

 

Note 15 – Subsequent Events

 

Resale Registration Statement on Form S-3

 

On June 8, 2021, the Company filed a registration statement on Form S-3 (SEC File No. 333-256892) relating to the sale of an aggregate of 2,388,050 shares of the Company’s common stock by the selling stockholders identified in the prospectus that forms a part of the registration statement. The shares are issuable upon the exercise of warrants purchased by the selling stockholders in a private placement transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a Securities Purchase Agreement dated April 9, 2021. The registration statement was declared effective by the SEC on June 15, 2021.

 

Robert Mattacchione Executive Agreement

 

On June 18, 2021, the Company entered into an executive agreement (the “June 2021 Mattacchione Agreement”) with GPE Global Holdings Inc., an entity controlled by Robert Mattacchione and through which Mr. Mattacchione will provide services to the Company (“GPE”). Mr. Mattacchione serves as the Company’s Chairman of the Board and Chief Executive Officer; and is the Company’s majority stockholder. Pursuant to the terms of the June 2021 Mattacchione Agreement, Mr. Mattacchione will continue to serve as the Company’s Chief Executive Officer. Mr. Mattacchione also continues to serve as Chairman of the Board. In consideration thereof, the Company agreed to (i) pay Mr. Mattacchione an annual base salary of $186,000, (ii) pay Mr. Mattacchione a monthly bonus reconciled quarterly and paid as follows: (a) quarterly cash bonuses equal to 10% of positive net income (“PNI”), and (b) PNI will be reconciled within 30 days after the close of the quarter with payments to Mr. Mattacchione made within 45 days of the close of the quarter, and (iii) pay Mr. Mattacchione bonuses based on increases in the Company’s market cap valuation (“MCV”) from the date of the June 2021 Mattacchione Agreement, with the following milestone bonus parameters:

 

  (a) For each and every $50,000,000 Company MCV increase sustained for a period of not less than 30 days (the “50M Bonus Event”), Mr. Mattacchione will receive $1,000,000, or 2% of $50,000,000, in Company common stock. For the sake of clarity, Mr. Mattacchione will only be issued compensation based on $50,000,000 MCV increments; there will be no compensation issued for anything above $50,000,000 until the subsequent $50,000,000 MCV milestone is achieved. This bonus will be capped at a Company MCV of $1 billion. The 50M Bonus Event stock will be issued as (i) 50% restricted shares within 30 days of the respective 50M Bonus Event or at a later date as requested by Mr. Mattacchione, and held as an allocation to Mr. Mattacchione, until the requisition date as provided in writing, by Mr. Mattacchione, to the Company, and (ii) 50% registered shares from the Company’s current active incentive plan within 30 days of the respective 50M Bonus Event.
     
  (b) Upon the Company reaching and sustaining a MCV of $1 billion for a period of not less than 30 days (the “1B Bonus Event”), Mr. Mattacchione will receive $50,000,000, or 5% of $1 billion, in restricted shares of Company common stock. The 1B Bonus Event stock will be issued within 30 days of the 1B Bonus Event or at a later date as requested by Mr. Mattacchione, and held as an allocation to Mr. Mattacchione, until the requisition date as provided in writing, by Mr. Mattacchione, to the Company.

 

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  (c) For each additional $1 billion MCV, beyond the initial 1B Bonus Event, sustained for a period of no less than 30 days, Mr. Mattacchione will receive $50,000,000, or 5% of $1 billion, in restricted shares of the Company’s common stock. This additional 1B Bonus Event Stock, commencing with a $2 billion MCV and each additional 1B MCV increase, beyond $2 billion, will be issued within 30 days of the Bonus Event, or at a later date as requested by Mr. Mattacchione, and held as an allocation to Mr. Mattacchione, until the requisition date as provided in writing, by Mr. Mattacchione, to the Company.

 

The term of the June 2021 Mattacchione Agreement will run for an initial term of 36 months. The term may be extended at the end of the initial term if the Company and Mr. Mattacchione mutually agree. The June 2021 Mattacchione Agreement supersedes all prior compensation arrangements between the Company and Mr. Mattacchione and is subject to the termination provisions set forth in the June 2021 Mattacchione Agreement.

 

Christopher David Appointment as Chief Operating Officer & Employment Agreement

 

On June 18, 2021, the Company entered into an employment agreement (the “June 2021 David Agreement”) with Christopher David, the Company’s President and a member of the Company’s Board of Directors. Pursuant to the terms of the June 2021 David Agreement, Mr. David will serve as the Company’s President and Chief Operating Officer. In consideration thereof, the Company agreed to (i) pay Mr. David an annual base salary of $171,000, (ii) pay Mr. David a monthly bonus reconciled quarterly and paid as follows: (a) quarterly cash bonuses equal to 10% of PNI, and (b) PNI will be reconciled within 30 days after the close of the quarter with payments to Mr. David made within 45 days of the close of the quarter, and (iii) pay Mr. David bonuses based on increases in the Company’s MCV from the date of the June 2021 David Agreement, with the following milestone bonus parameters:

 

  (a) For each and every $50,000,000 Company MCV increase sustained for a period of not less than 30 days (the “50M Bonus Event”), Mr. David will receive $500,000, or 1% of $50,000,000, in Company common stock. For the sake of clarity, Mr. David will only be issued compensation based on $50,000,000 MCV increments; there will be no compensation issued for anything above $50,000,000 until the subsequent $50,000,000 MCV milestone is achieved. This bonus will be capped at a Company MCV of $1 billion. The 50M Bonus Event stock will be issued as (i) 50% restricted shares within 30 days of the respective 50M Bonus Event or at a later date as requested by Mr. David, and held as an allocation to Mr. David, until the requisition date as provided in writing, by Mr. David, to the Company, and (ii) 50% registered shares from the Company’s current active incentive plan within 30 days of the respective 50M Bonus Event.
     
  (b) Upon the Company reaching and sustaining a MCV of $1 billion for no less than 30 days (the “1B Bonus Event”), Mr. David will receive $20,000,000, or 2% of $1 billion, in restricted shares of Company common stock. The 1B Bonus Event stock will be issued within 30 days of the 1B Bonus Event or at a later date as requested by Mr. David, and held as an allocation to Mr. David, until the requisition date as provided in writing, by Mr. David, to the Company.
     
  (c) For each additional $1 billion MCV, beyond the initial 1B Bonus Event, sustained for a period of no less than 30 days, Mr. David will receive $20,000,000, or 2% of $1 billion, in restricted shares of the Company’s common stock. This additional 1B Bonus Event Stock, commencing with a $2 billion MCV and each additional 1B MCV increase, beyond $2 billion, will be issued within 30 days of the Bonus Event, or at a later date as requested by Mr. David, and held as an allocation to Mr. David, until the requisition date as provided in writing, by Mr. David, to the Company.

 

The term of the June 2021 David Agreement will run for an initial term of 36 months. The term may be extended at the end of the initial term if the Company and Mr. David mutually agree. The June 2021 David Agreement supersedes the employment agreement, dated August 6, 2020, between the Company and Mr. David and is subject to the termination provisions set forth in the June 2021 David Agreement.

 

Acquisition of Acenzia Inc.

 

On May 28, 2021, the Company and NHL entered into a Share Exchange Agreement (the “ACZ SEA”) by and among the Company and NHL, on the one hand, and Acenzia Inc., Avec8 Holdings Inc., Ambour Holdings Inc., Indrajit Sinha, Grant Bourdeau and Derrick Bourdeau, on the other hand (collectively the “ACZ Shareholders”). On June 24, 2021, pursuant to the terms of the ACZ SEA, the acquisition of Acenzia by NHL closed. The closing purchase price may be adjusted within 90 days of the closing date pending completion of an audit and working capital requirement provisions (the ‘Post-Closing Purchase Price Adjustment”). The final Purchase Price, as determined by the Post-Closing Purchase Price Adjustment, will be paid with the issuance, by NHL to the ACZ Shareholders, of certain non-voting NHL preferred shares exchangeable, solely at the determination of the ACZ Shareholders, into restricted shares of the Company’s common stock (the “NHL Exchangeable Shares”). At closing of the ACZ SEA and prior to the Post-Closing Purchase Price Adjustment, the ACZ Shareholders NHL Exchangeable Shares represent an aggregate allotment of 3,806,660 restricted shares of the Company’s common stock. The actual number of restricted shares of Company common stock to be allotted and issued upon exchange of the NHL Exchangeable Shares will be determined based on the Post-Closing Purchase Price Adjustment.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission (“SEC”) and in our reports and presentations to stockholders or potential stockholders. In some cases, forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions. Such forward-looking statements include risks and uncertainties and there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and uncertainties can be found in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020, as the same may be updated from time to time, including in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q.

 

Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this report are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances.

 

Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

 

Overview of the Company

 

Novo Integrated Sciences, Inc. (“Novo Integrated”) was incorporated in Delaware on November 27, 2000, under the name Turbine Truck Engines, Inc. On February 20, 2008, the Company was re-domiciled to the State of Nevada. Effective July 12, 2017, the Company’s name was changed to Novo Integrated Sciences, Inc. When used herein, the terms the “Company,” “we,” “us” and “our” refer to Novo Integrated and its consolidated subsidiaries.

 

The Company owns Canadian and U.S. subsidiaries which deliver, or intend to deliver, multidisciplinary primary health care related services and products through the integration of medical technology, advanced therapeutics and rehabilitative science. Currently, the Company’s revenue is generated solely through its wholly owned Canadian subsidiary, Novo Healthnet Limited (“NHL”), which provides our services and products through both clinic and eldercare related operations.

 

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We believe that “decentralizing” healthcare, through the integration of medical technology and interconnectivity, is an essential solution to the rapidly evolving fundamental transformation of how non-catastrophic healthcare is delivered both now and in the future. Specific to non-critical care, ongoing advancements in both medical technology and inter-connectivity are allowing for a shift of the patient/practitioner relationship to the patient’s home and away from on-site visits to primary medical centers with mass-services. This acceleration of “ease-of-access” in the patient/practitioner interaction for non-critical care diagnosis and subsequent treatment minimizes the degradation of non-critical health conditions to critical conditions as well as allowing for more cost-effective healthcare distribution. The Company’s decentralized healthcare business model is centered on three primary pillars to best support the transformation of non-catastrophic healthcare delivery to patients and consumers. The first pillar is building a foundation of traditional hands-on healthcare delivery, through small and micro footprint sized clinic facilities, within a significant service delivery network. The second pillar is the development, integration, and deployment of sophisticated technology, through interconnectivity, which expands the reach of healthcare related service, beyond the traditional clinic location, to geographic areas not readily providing advanced healthcare service to date, including the patient’s home. The third pillar is the development and distribution of effective wellness product solutions allowing for the customization of patient preventative care remedies and ultimately a healthier population. Additionally, the Company’s science first approach to product innovation further emphasizes our mandate to create and provide over-the-counter preventative and maintenance care solutions. Innovation in science as represented by the proprietary technology assures Novo Integrated of continued cutting edge advancement in patient first platforms.

 

Our clinicians and practitioners provide certain multidisciplinary primary health care services, and related products, beyond the medical doctor first level contact identified as primary care. Our clinicians and practitioners are not licensed medical doctors, physicians, specialist, nurses or nurse practitioners. Our clinicians and practitioners are not authorized to practice primary care medicine and they are not medically licensed to prescribe pharmaceutical based product solutions.

 

NHL’s team of multidisciplinary primary health care clinicians and practitioners provide assessment, diagnosis, treatment, pain management, rehabilitation, education and primary prevention for a wide array of orthopedic, musculoskeletal, sports injury, and neurological conditions across various demographics including pediatric, adult, and geriatric populations through NHL’s 16 corporate-owned clinics, a contracted network of affiliate clinics, and eldercare related long-term care homes, retirement homes, and community-based locations in Canada. As of May 31, 2021, the Company has 70 full-time employees and 58 part-time employees.

 

Our specialized multidisciplinary primary health care services include physiotherapy, chiropractic care, manual/manipulative therapy, occupational therapy, eldercare, massage therapy (including pre- and post-partum), acupuncture and functional dry needling, chiropody, stroke and traumatic brain injury/neurological rehabilitation, kinesiology, vestibular therapy, concussion management and baseline testing, trauma sensitive yoga and meditation for concussion-acquired brain injury and occupational stress-PTSD, women’s pelvic health programs, sports medicine therapy, assistive devices, dietitian, holistic nutrition, fall prevention education, sports team conditioning programs including event and game coverage, and private personal training.

 

Additionally, we continue to expand our patient care philosophy of maintaining an on-going continuous connection with our current and future patient community, beyond the traditional confines of brick-and-mortar facilities, by extending oversight of patient diagnosis, care and monitoring, directly through various Medical Technology Platforms either in-use or under development.

 

The occupational therapists, physiotherapists, chiropractors, massage therapists, chiropodists and kinesiologists contracted, by NHL, to provide occupational therapy, physical therapy and fall prevention assessment services are registered with the College of Occupational Therapists of Ontario, the College of Physiotherapists of Ontario, College of Chiropractors of Ontario, College of Massage Therapists of Ontario, College of Chiropodists of Ontario, and the College of Kinesiologists of Ontario regulatory authorities.

 

Our strict adherence to public regulatory standards, as well as self-imposed standards of excellence and regulation, have allowed us to navigate with ease through the industry’s licensing and regulatory framework. Compliant treatment, data and administrative protocols are managed through a team of highly trained, certified health care and administrative professionals. We and our affiliates provide service to the Canadian property and casualty insurance industry, resulting in a regulated framework governed by the Financial Services Commission of Ontario.

 

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Recent Developments

 

Coronavirus (COVID-19)

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

 

On March 17, 2020, as a result of COVID-19 infections having been reported throughout both Canada and the United States, certain national, provincial, state and local governmental authorities issued proclamations and/or directives aimed at minimizing the spread of COVID-19. Accordingly, on March 17, 2020, the Company closed all corporate clinics for all in-clinic non-essential services to protect the health and safety of its employees, partners and patients. On March 20, 2020, the Company announced the precautionary measures taken as well as announcing the business impact related to the coronavirus (COVID-19) pandemic.

 

Operating under COVID-19 related governmental proclamations and directives, between March 17, 2020 and June 1, 2020, the Company provided in-clinic multi-disciplinary primary healthcare services and products solely to patients with emergency and essential need while also providing certain virtual based services related to physiotherapy. In light of most eldercare related services being deemed essential by national, provincial and local governmental authorities in Canada, NHL’s contracted eldercare related services have been nominally impacted during the fiscal year 2021 initial 9-month period ended May 31, 2021 and we project the same for the fiscal year 2021 fourth quarter.

 

On May 26, 2020, the Ontario Ministry of Health announced updated guidance and directives stating that physiotherapists, chiropractors and other regulated health professionals, including all services and products provided by the Company, can gradually and carefully begin providing all services, including non-essential services, once the clinician and provider are satisfied all necessary precautions and protocols are in place to protect the patients, the clinician and the clinic staff. With all corporate clinics closed due to the COVID-19 pandemic, with the exception of providing certain limited essential and emergency services, the Company had furloughed 48 full-time employees and 35 part-time employees from its pre-closure levels of 81 full-time employees and 53 part-time employees.

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients.

 

As of the date of filing this 10-Q quarterly report form, our clinic facilities have re-opened and are operating under COVID-19 pandemic related mandated guidelines and protocols. During the May 31, 2021 quarter period, the Ontario provincial government issued a stay at home order, effective from April 8, 2021 through June 2, 2021, which permitted only limited, essential activities outside the home, such as going to the grocery store or pharmacy, ‎accessing health care services (including vaccinations), exercising outdoors, or working if such ‎work cannot be done remotely.

 

For the quarter period ended May 31, 2021, NHL’s clinic-based revenue rebounded 85% compared to the Company’s last fully operational, pre COVID-19 quarter period ended February 29, 2020. In addition, for the quarter period ended May 31, 2021, NHL’s eldercare contracted services rebounded 94% compared to the Company’s last fully operational, pre COVID-19 quarter period ended February 29, 2020. The Company’s total revenue from all clinic and eldercare related contracted services for the quarter period ended May 31, 2021 rebounded approximately 90% compared to the Company’s last fully operational, pre-COVID-19 quarter period ended February 29, 2020. As of May 31, 2021, the Company has 70 full-time employees and 58 part-time employees.

 

Canadian federal and provincial COVID-19 governmental proclamations and directives, including interprovincial travel restrictions, have presented unprecedented challenges to launching our Harvest Gold Farms and Kainai Cooperative joint ventures. Accordingly, the Company has decided to delay commencing the projects until the 2022 grow season. These joint ventures relate to the development, management, and arrangement of medicinal farming projects involving industrial hemp for medicinal Cannabidiol (CBD) applications.

 

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For fiscal year 2021, based on no additional “lockdowns” or new material directives being implemented which may limit the Company’s ability to provide both its clinic and eldercare community related services and products, the Company projects a steady month-over-month increase as (i) recommended guidelines for patient-clinician on-site interaction are eased, and (ii) more overall movement restrictions are reduced and people are more comfortable in public spaces.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced patient traffic and reduced operations. The full long-term financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition, and results of operations.

 

The measures taken to date may continue to impact the Company’s fiscal year 2021 business and potentially beyond. Management expects that all of its business segments, across all of its geographies, may continue to be impacted to some degree, but the significance of the full impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

 

For more on the financial impact of COVID-19 on the Company, see “—Liquidity and Capital Resources—Financial Impact of COVID-19” of this quarterly report on Form 10-Q.

 

Reverse Stock Split

 

On February 1, 2021, we effected a 1-for-10 reverse stock split of our common stock. We implemented the reverse stock split in connection with our Nasdaq application. The reverse stock split was an action intended to fulfill the stock price requirements for listing on Nasdaq. As a result of the reverse stock split, every 10 shares of issued and outstanding common stock were exchanged for one share of common stock, with any fractional shares being rounded up to the next higher whole share. The reverse stock split was approved by the Company’s Board of Directors and by stockholders holding a majority of the Company’s voting power.

 

Withdrawal of Regulation A+ Offering

 

On June 29, 2020, the Company commenced a public offering pursuant to Regulation A+ of up to 2,000,000 shares of its common stock, with an aggregate amount of $30,000,000, under a qualified Offering Statement (File No. 024-11186), on a self-underwritten “best efforts” basis. On February 25, 2021, the Company applied to the SEC for withdrawal of the Offering Statement as the Company had determined to terminate the offering. On March 1, 2021, the SEC issued an order granting the withdrawal of the Offering Statement. No securities had been sold pursuant to the Offering Statement.

 

Shelf Registration Statement

 

On March 22, 2021, the SEC declared effective the Company’s shelf registration statement on Form S-3 (File No. 333-254278) (the “Form S-3”) originally filed on March 15, 2021. The Form S-3 is a shelf registration statement relating to (i) the offer from time to time of securities having a maximum aggregate offering price of $75,000,000, and (ii) the resale by certain selling stockholders of up to an aggregate of 597,352 shares of the Company’s common stock.

 

Completion of $8 Million Registered Direct Offering and Concurrent Private Placement for Warrants

 

On April 13, 2021, the Company completed the closing pursuant to a securities purchase agreement with certain accredited institutional investors to purchase approximately $8.0 million of its common stock in a registered direct offering under the Form S-3 and warrants to purchase common stock in a concurrent private placement. The combined purchase price for one share of common stock and one warrant is $3.35.

 

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New Principal Financial Officer

 

On April 20, 2021, Thomas Bray notified us of his intent to resign as our Principal Financial Officer, effective April 20, 2021. On April 20, 2021, our Board of Directors appointed Sterling Modesto Jimenez Romero as Principal Financial Officer. Mr. Jimenez also served as our principal accounting officer.

 

Medical Advisory Board

 

In April 2021, the Company formed a Medical Advisory Board. The initial members of the Medical Advisory Board are Dr. Joseph M. Chalil, Dr. Michael G. Muhonen, and Dr. Zach P. Zachariah. The goal of the Medical Advisory Board is to provide the Company with important insight and expertise as the Company expands its personalized consumer engagement across all aspects of the patient/practitioner relationship through the integration of medical technology, advanced therapeutics, and rehabilitative sciences.

 

Formation of Compensation Committee

 

On May 5, 2021, the Company’s Board of Directors formed a Compensation Committee and named each of Mr. Alex Flesias, Mr. Robert Oliva and Mr. Michael Gaynor to serve as members thereof. Mr. Oliva serves as the Chair of the Compensation Committee.

 

Formation of Nominating and Corporate Governance Committee

 

On May 5, 2021, our Board of Directors formed a Nominating and Corporate Governance Committee and named each of Mr. Alex Flesias, Mr. Robert Oliva and Mr. Christopher David to serve as members thereof. Mr. Flesias will serve as Chair of the Nominating and Corporate Governance Committee.

 

Acquisition of PRO-DIP, LLC

 

On May 24, 2021, the Company completed the acquisition of PRO-DIP, LLC (“PD”), a New York state limited liability company in the business of providing nutritional oral energy and medicinal supplement pouches through a proprietary process, under the terms and conditions of a Share Exchange Agreement, dated May 11, 2021, resulting in PD being a wholly owned subsidiary of the Company.. The Company issued 189,796 restricted shares of common stock as full consideration for the transaction.

 

Robert Mattacchione Executive Agreement

 

On June 18, 2021, the Company entered into an executive agreement (the “June 2021 Mattacchione Agreement”) with GPE Global Holdings Inc., an entity controlled by Robert Mattacchione and through which Mr. Mattacchione will provide services to the Company (“GPE”). Mr. Mattacchione serves as the Company’s Chairman of the Board and Chief Executive Officer; and is the Company’s majority stockholder. Pursuant to the terms of the June 2021 Mattacchione Agreement, Mr. Mattacchione will continue to serve as the Company’s Chief Executive Officer. Mr. Mattacchione also continues to serve as Chairman of the Board. In consideration thereof, the Company agreed to (i) pay Mr. Mattacchione an annual base salary of $186,000, (ii) pay Mr. Mattacchione a monthly bonus reconciled quarterly and paid as follows: (a) quarterly cash bonuses equal to 10% of positive net income (“PNI”), and (b) PNI will be reconciled within 30 days after the close of the quarter with payments to Mr. Mattacchione made within 45 days of the close of the quarter, and (iii) pay Mr. Mattacchione bonuses based on increases in the Company’s market cap valuation (“MCV”) from the date of the June 2021 Mattacchione Agreement, with the following milestone bonus parameters:

 

  (a) For each and every $50,000,000 Company MCV increase sustained for a period of not less than 30 days (the “50M Bonus Event”), Mr. Mattacchione will receive $1,000,000, or 2% of $50,000,000, in Company common stock. For the sake of clarity, Mr. Mattacchione will only be issued compensation based on $50,000,000 MCV increments; there will be no compensation issued for anything above $50,000,000 until the subsequent $50,000,000 MCV milestone is achieved. This bonus will be capped at a Company MCV of $1 billion. The 50M Bonus Event stock will be issued as (i) 50% restricted shares within 30 days of the respective 50M Bonus Event or at a later date as requested by Mr. Mattacchione, and held as an allocation to Mr. Mattacchione, until the requisition date as provided in writing, by Mr. Mattacchione, to the Company, and (ii) 50% registered shares from the Company’s current active incentive plan within 30 days of the respective 50M Bonus Event.

 

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  (b) Upon the Company reaching and sustaining a MCV of $1 billion for no less than 30 days (the “1B Bonus Event”), Mr. Mattacchione will receive $50,000,000, or 5% of $1 billion, in restricted shares of Company common stock. The 1B Bonus Event stock will be issued within 30 days of the 1B Bonus Event or at a later date as requested by Mr. Mattacchione, and held as an allocation to Mr. Mattacchione, until the requisition date as provided in writing, by Mr. Mattacchione, to the Company.
     
  (c) For each additional $1 billion MCV, beyond the initial 1B Bonus Event, sustained for a period of no less tha