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Novo Integrated Sciences, Inc. - Quarter Report: 2021 November (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended November 30, 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, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class   Trading Symbol(s)   Name of each Exchange on which Registered
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 ☒ 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 ☒ No ☐

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
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

 

There were 28,695,144 shares of the Registrant’s $0.001 par value common stock outstanding as of January 14, 2022.

 

 

 

 
 

 

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 Operations 31
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 43
     
Item 4. Controls and Procedures 43
     
PART II – OTHER INFORMATION 44
     
Item 1. Legal Proceedings 44
     
Item 1A. Risk Factors 44
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 45
     
Item 3. Defaults Upon Senior Securities 45
     
Item 4. Mine Safety Disclosures 45
     
Item 5. Other Information 45
     
Item 6. Exhibits 46
     
Signatures 48

 

 2 
 

 

Item 1. Financial Statements.

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of November 30, 2021 (unaudited) and August 31, 2021

 

 

   November 30,   August 31, 
   2021   2021 
   (unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $8,800,754   $8,293,162 
Accounts receivable, net   1,696,211    1,468,429 
Inventory   364,147    339,385 
Other receivables, current portion   1,118,264    814,157 
Prepaid expenses and other current assets   263,199    218,376 
Total current assets   12,242,575    11,133,509 
           
Property and equipment, net   6,096,534    6,070,291 
Intangible assets, net   33,821,915    32,436,468 
Right-of-use assets, net   2,446,736    2,543,396 
Other receivables, net of current portion   370,833    692,738 
Goodwill   8,955,694    9,081,879 
TOTAL ASSETS  $63,934,287   $61,958,281 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities:          
Accounts payable  $1,314,939   $1,449,784 
Accrued expenses   1,376,848    1,129,309 
Accrued interest (principally to related parties)   370,488    366,280 
Government loans and notes payable, current portion   9,674,981    4,485,649 
Convertible notes payable, net of discount of $702,984   1,172,016    - 
Contingent liability   741,083    - 
Due to related parties   469,199    478,920 
Finance lease liability, current portion   18,921    23,184 
Operating lease liability, current portion   514,568    530,797 
Total current liabilities   15,653,043    8,463,923 
           
Debentures, related parties   968,558    982,205 
Notes payable, net of current portion   172,698    5,133,604 
Finance lease liability, net of current portion   12,982    16,217 
Operating lease liability, net of current portion   1,979,239    2,057,805 
Deferred tax liability   1,479,525    1,500,372 
TOTAL LIABILITIES   20,266,045    18,154,126 
           
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 November 30, 2021 and August 31, 2021, respectively          
Common stock; $0.001 par value; 499,000,000 shares authorized;28,645,144 and 26,610,144 shares issued and outstanding at November 30, 2021 and August 31, 2021, respectively   28,645    26,610 
Additional paid-in capital   55,092,070    54,579,396 
Common stock to be issued (4,359,841 and 3,622,199 shares at November 30, 2021 and August 31, 2021)   10,409,457    9,236,607 
Other comprehensive income   887,544    991,077 
Accumulated deficit   (22,775,861)   (20,969,274)
Total Novo Integrated Sciences, Inc. stockholders’ equity   43,641,855    43,864,416 
Noncontrolling interest   26,387    (60,261)
Total stockholders’ equity   43,668,242    43,804,155 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $63,934,287   $61,958,281 

 

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 Months Ended November 30, 2021 and 2020 (unaudited)

 

   2021   2020 
   Three Months Ended 
   November 30,   November 30, 
   2021   2020 
   (unaudited)   (unaudited) 
         
Revenues  $3,161,927   $2,155,506 
           
Cost of revenues   1,895,461    1,344,056 
           
Gross profit   1,266,466    811,450 
           
Operating expenses:          
Selling expenses   168    1,243 
General and administrative expenses   2,629,957    1,567,931 
Total operating expenses   2,630,125    1,569,174 
           
Loss from operations   (1,363,659)   (757,724)
           
Non operating income (expense)          
Interest income   8,388    8,562 
Interest expense   (68,730)   (23,941)
Amortization of debt discount   (57,840)   - 
Foreign currency transaction losses   (334,554)   - 
Total other income (expense)   (452,736)   (15,379)
           
Loss before income taxes   (1,816,395)   (773,103)
           
Income tax expense   -    - 
           
Net loss  $(1,816,395)  $(773,103)
           
Net loss attributed to noncontrolling interest   (9,808)   (1,633)
           
Net loss attributed to Novo Integrated Sciences, Inc.  $(1,806,587)  $(771,470)
           
Comprehensive loss:          
Net loss   (1,816,395)   (773,103)
Foreign currency translation (loss) gain   (103,533)   10,596 
Comprehensive loss:  $(1,919,928)  $(762,507)
           
Weighted average common shares outstanding - basic and diluted   26,924,705    23,508,353 
           
Net loss per common share - basic and diluted  $(0.07)  $(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 Months Ended November 30, 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, 2021   26,610,144   $26,610   $54,579,396   $9,236,607   $991,077   $(20,969,274)  $43,864,416   $(60,261)  $43,804,155 
                                              
Common stock issued for cash                                             
Common stock issued for cash, shares                                             
Common stock for services   35,000    35    64,715    -    -    -    64,750    -    64,750 
Common stock issued as collateral and held in escrow   2,000,000    2,000    (2,000)   -    -    -    -    -    - 
Common stock to be issued for purchase of Terragenx   -    -    -    983,925    -    -    983,925    97,311    1,081,236 
Common stock to be issued for purchase of Mullin assets   -    -    -    188,925    -    -    188,925    -    188,925 
Value of warrants issued with convertible notes   -    -    295,824    -    -    -    295,824    -    295,824 
Fair value of stock options   -    -    154,135    -    -    -    154,135    -    154,135 
Foreign currency translation loss   -    -    -    -    (103,533)   -    (103,533)   (855)   (104,388)
Net loss   -    -    -    -    -    (1,806,587)   (1,806,587)   (9,808)   (1,816,395)
                                              
Balance, November 30, 2021   28,645,144   $28,645   $55,092,070   $10,409,457   $887,544   $(22,775,861)  $43,641,855   $26,387   $43,668,242 
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 gain   -    -    -    -    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 

 

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 Three Months Ended November 30, 2021 and 2020 (unaudited)

 

 

   2021   2020 
   Three Months Ended 
   November 30,   November 30, 
   2021   2020 
   (unaudited)   (unaudited) 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(1,816,395)  $(773,103)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   694,282    357,924 
Fair value of vested stock options   154,135    - 
Common stock issued for services   64,750    248,000 
Operating lease expense   163,879    149,379 
Amortization of debt discount   57,840    - 
Foreign currency transaction losses   334,554    - 
Changes in operating assets and liabilities:          
Accounts receivable   (253,079)   274,577 
Inventory   12,245    - 
Prepaid expenses and other current assets   (47,335)   (300,743)
Accounts payable   (55,056)   8,552 
Accrued expenses   82,933    31,067 
Accrued interest   9,481    2,858 
Operating lease liability   (161,337)   (146,614)
Net cash used in operating activities   (759,103)   (148,103)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (120,397)   - 
Cash acquired with acquisition   29,291    - 
Net cash used in investing activities   (91,106)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayments to related parties   (3,127)   (48,389)
Repayments of finance leases   (7,088)   - 
Proceeds from the sale of common stock, net of offering costs   -    92,000 
Proceeds from issuance of convertible notes, net   1,410,000    - 
Net cash provided by financing activities   1,399,785    43,611 
           
Effect of exchange rate changes on cash and cash equivalents   (41,984)   7,165 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   507,592    (97,327)
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   8,293,162    2,067,718 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $8,800,754   $1,970,391 
           
CASH PAID FOR:          
Interest  $64,522   $19,642 
Income taxes  $-   $- 
           
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock to be issued for intangible assets  $188,925   $- 
Common stock to be issued for acquisition  $983,925   $- 

 

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 Three Months Ended November 30, 2021 and 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 provide, or intend to provide, essential and differentiated solutions to the delivery of multidisciplinary primary care and related wellness products through the integration of medical technology, interconnectivity, advanced therapeutics, unique personalized product offerings, and rehabilitative science. The Company’s revenue was generated primarily through its wholly owned Canadian subsidiary, Novo Healthnet Limited (“NHL”), which provides our services and products through both clinic and eldercare related operations.

 

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 and efficient 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:

 

  First Pillar – Service Networks: Deliver multidisciplinary primary care services through (i) an affiliate network of clinic facilities, (ii) small and micro footprint sized clinic facilities primarily located within the footprint of box-store commercial enterprises, (iii) clinic facilities operated through a franchise relationship with the Company, and (iv) corporate operated clinic facilities.
     
  Second Pillar – Technology: Develop, deploy, and integrate sophisticated interconnected technology, interfacing the patient to the healthcare practitioner thus expanding the reach and availability of the Company’s services, beyond the traditional clinic location, to geographic areas not readily providing advanced, peripheral based healthcare services, including the patient’s home.
     
  Third Pillar – Products: Develop and distribute effective, personalized health and wellness product solutions allowing for the customization of patient preventative care remedies and ultimately a healthier population. 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 through science, combined with the integration of sophisticated, secure technology, assures Novo Integrated of continued cutting edge advancement in patient first platforms.

 

 7 
 

 

On April 25, 2017 (the “Effective Date”), we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) by and between (i) Novo Integrated; (ii) Novo Healthnet Limited, a wholly owned subsidiary of the Company (“NHL”), (iii) ALMC-ASAP Holdings Inc. (“ALMC”); (iv) Michael Gaynor Family Trust (the “MGFT”); (v) 1218814 Ontario Inc. (“1218814”) and (vi) Michael Gaynor Physiotherapy Professional Corp. (“MGPP,” and together with ALMC, MGFT and 1218814, the “NHL Shareholders”). Pursuant to the terms of the Share Exchange Agreement, Novo Integrated agreed to acquire, from the NHL Shareholders, all of the shares of both common and preferred stock of NHL held by the NHL Shareholders in exchange for the issuance, by Novo Integrated to the NHL Shareholders, of Novo Integrated common stock such that following the closing of the Share Exchange Agreement, the NHL Shareholders would own 16,779,741 restricted shares of Novo Integrated common stock, representing 85% of the issued and outstanding Novo Integrated common stock, calculated including all granted and issued options or warrants to acquire Novo Integrated common stock as of the Effective Date, but to exclude shares of Novo Integrated common stock that are subject to a then-current Regulation S offering that was undertaken by Novo Integrated (the “Exchange”).

 

On May 9, 2017, the Exchange closed and, as a result, NHL became a wholly owned subsidiary of Novo Integrated. The Exchange was accounted for as a reverse acquisition under the purchase method of accounting since NHL obtained control of Novo Integrated Sciences, Inc. Accordingly, the Exchange was recorded as a recapitalization of NHL, with NHL being treated as the continuing entity. The historical financial statements presented are the financial statements of NHL. The Share Exchange Agreement was treated as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the closing date of the Exchange, the net assets of the legal acquirer, Novo Integrated Sciences, Inc., were $6,904.

 

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. On March 17, 2020, as a result of COVID-19 pandemic 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 May 26, 2020, the Ontario Ministry of Health announced updated guidance and directives stating that physiotherapists, chiropractors, and other regulated health professionals, including 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 specific to on-site clinic and eldercare operations.

 

Specific to our clinic-based services and products, operating under COVID-19 related authorized governmental proclamations and directives, between March 17 through 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.

 

Specific to our eldercare based services and products, operating under COVID-19 related authorized governmental proclamations and directives which included certain eldercare related services being deemed essential, NHL was able to quickly expand its existing eldercare related physiotherapy service “virtual-care” platform, which pre-pandemic was primarily focused on providing “virtual-care” services to both smaller and remote eldercare homes to ensure access to service providers, when needed; and continuity of care to eldercare patients without service providers in their area. Given NHL had established “virtual care” procedures and forms, complete with video consent and assessment forms already vetted and approved by the Ontario College of Physiotherapists, NHL was well-positioned to expand the delivery of certain of its eldercare related contracted services, via “virtual-care” technology, ensuring continuity of service for our long-term care and retirement home clients.

 

 8 
 

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of November 30, 2021, all corporate clinics were open and operational 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.

 

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 during the period ended November 30, 2021. 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.

 

As of November 30, 2021, specific to on-site clinic and eldercare operations, the Company has 91 full-time employees and 60 part-time employees with a total employee count amongst all subsidiaries of 124 full-time and 83 part-time employees.

 

Specific to Acenzia, Inc. (“Acenzia”), Terragenx Inc. (“Terragenx”) and PRO-DIP, LLC (“PRO-DIP”), each company is open and fully operational while following all local, state, provincial, and national guidelines and protocols related to minimizing the spread of the COVID-19 pandemic.

 

While all of the Company’s business units are operational at the time of this filing, any future 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, but not limited to, (i) the duration of the COVID-19 outbreak and additional variants that may be identified, (ii) new information which may emerge concerning the severity of the COVID-19 pandemic, and (iii) 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.

 

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.

 

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, 2021, that the Company filed on December 14, 2021. The results of operations for the three months ended November 30, 2021 are not necessarily indicative of the results for the year ending August 31, 2022. The Company’s Canadian subsidiaries’ functional currency is the Canadian Dollar (“CAD”); however, the accompanying condensed consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).

 

 9 
 

 

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 condensed consolidated statement of operations and comprehensive loss. The following table details the exchange rates used for the respective periods:

 

   November 30, 2021   November 30, 2020   August 31, 2021 
             
Period end: CAD to USD exchange rate  $0.7807   $0.7705   $0.7917 
Average period: CAD to USD exchange rate  $0.7961   $0.7594   $0.7885 

 

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 receivables, allowance for slow moving and obsolete inventory, 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, Acenzia, Novomerica Health Group, Novo Healthnet Rehab Limited, Novo Assessments Inc., PRO-DIP, LLC, a 91% controlling interest in Terragenx, Inc., 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). PRO-DIP is a New York state LLC while all other Company subsidiaries are incorporated under the laws of the Province of Ontario or New Brunswick, Canada. All intercompany transactions have been eliminated.

 

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 loss 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.

 

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Cash Equivalents

 

For the purpose of the condensed consolidated statements 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 November 30, 2021, and August 31, 2021, the allowance for uncollectible accounts receivable was $1,074,852 and $1,097,628, respectively.

 

Inventory

 

Inventories are valued at the lower of cost (determined by the first in, first out method) and net realizable value. Management compares the cost of inventories with the net realizable value and allowance is made for writing down their inventories to net realizable value, if lower. Inventory is segregated into three areas: raw materials, work-in-process and finished goods. The Company periodically assessed its inventory for slow moving and/or obsolete items and any change in the allowance is recorded in cost of revenue in the accompanying condensed consolidated statements of operations and comprehensive loss. If any are identified an appropriate allowance for those items is made and/or the items are deemed to be impaired. As of November 30, 2021 and August 31, 2021, the Company’s allowance for slow moving or obsolete inventory was $1,051,900 and $1,066,721, respectively.

 

Other Receivables

 

Other receivables are recorded at cost and presented as current or long-term based on the terms of the agreements. Management reviews the collectability of other receivables and writes off the portion that is deemed to be uncollectible.

 

Property and Equipment

 

Property and equipment are stated at cost less depreciation and impairment. 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:

 

  Building 30 years
  Leasehold improvements 5 years
  Clinical equipment 5 years
  Computer equipment 3 years
  Office equipment 5 years
  Furniture and fixtures 5 years

 

Leases

 

The Company applies the provisions of ASC Topic 842, Leases which requires lessees to recognize lease assets and lease liabilities on the balance sheet. 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 must discount lease payments based on an estimate of its incremental borrowing rate.

 

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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 November 30, 2021, the Company believes there was no impairment of its long-lived assets.

 

Intangible Assets

 

The Company’s intangible assets are being amortized over their estimated useful lives as follows:

 

Land use rights 50 years (the lease period)
Software license 7 years
Intellectual property 7 years
Customer relationships 5 years
Brand names 7 years
Workforce 5 years

 

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 November 30, 2021, 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 sheets and are expensed on a straight-line basis over the lease term in the condensed consolidated statements of operations and comprehensive loss. 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, Action Plus Physiotherapy Rockland during the fiscal year ended August 31, 2019 and Acenzia, Inc. during fiscal year ended August 31, 2021. Based on its review at November 30, 2021, the Company believes there was no impairment of its goodwill. As of August 31, 2021, the Company performed the required impairment reviews and determined that an impairment charge of $99,593 related to the goodwill for Executive Fitness Leaders was necessary. The impairment was determined based on the fair value of the acquired business, which was estimated based on a discounted cash flow valuation model and the projected future cash flows of the underlying business.

 

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Acquisition Deposits

 

The Company has signed letters of understanding with a potential acquisition candidate which includes refundable acquisition deposits totaling $383,700 as of August 31, 2020. During the year ended August 31, 2021, this acquisition deposit was converted into a receivable that bears interest at 10% and is due on September 1, 2022.

 

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, low risk of counterparty default 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.

 

  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.

 

For certain financial instruments, the carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, current portion of other receivables, and current liabilities, including accounts payable, short-term notes payable, due to related parties and finance lease liability, each qualify as a financial instrument, 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 carrying value of notes payable approximates their fair values due to current market rate on such debt.

 

As of November 30, 2021 and August 31, 2021, 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.

 

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Revenue Recognition

 

The Company’s revenue recognition reflects the updated accounting policies as per the requirements of ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). As sales are and have been primarily from providing healthcare services the Company has no significant post-delivery obligations.

 

Revenue from providing healthcare and healthcare related services and product sales are recognized under Topic 606 in a manner that reasonably reflects the delivery of its products and 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 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.
  Product sales – revenue is recorded at the point of time of delivery

 

Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue is included with accrued expenses in the accompanying condensed consolidated balance sheets.

 

Sales returns and allowances were insignificant for the periods ended November 30, 2021 and 2020. The Company does not provide unconditional right of return, price protection or any other concessions to its customers.

 

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.

 

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 condensed consolidated statements of operations and comprehensive loss 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. The calculations reflect the effects of the 1-for-10 reverse stock split that took place on February 1, 2021. 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 4,509,530 and 1,784,500 option/ warrants outstanding as of November 30, 2021 and 2020, respectively. 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.

 

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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 $887,544 and $991,077 at November 30, 2021 and August 31, 2021, respectively, are classified as an item of other comprehensive income in the stockholders’ equity section of the condensed consolidated 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 condensed consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the condensed consolidated balance sheets.

 

Segment Reporting

 

ASC Topic 280, Segment Reporting, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has two reportable segments. See Note 17.

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was issued to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The new standard represents significant changes to accounting for credit losses. Full lifetime expected credit losses will be recognized upon initial recognition of an asset in scope. The current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold. The expected credit losses estimate will be based upon historical information, current conditions, and reasonable and supportable forecasts. This ASU as amended by ASU 2019-10, is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the effect of this ASU on the Company’s condensed consolidated financial statements and related disclosures.

 

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.

 

In August 2020, the FASB issued guidance that simplifies the accounting for debt with conversion options, revises the criteria for applying the derivative scope exception for contracts in an entity’s own equity, and improves the consistency for the calculation of earnings per share. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2021.

 

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In March 2020, the FASB issued guidance providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance, which became effective on March 12, 2020 and can be applied through December 21, 2022, has not impacted our condensed consolidated financial statements. The Company has various contracts that reference LIBOR and is assessing how this standard may be applied to specific contract modifications through December 31, 2022.

 

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 November 30, 2021 and August 31, 2021, the amount due to related parties was $469,199 and $478,920, respectively. At November 30, 2021, $398,330 was non-interest bearing, $22,466 bears interest at 6% per annum, and $48,403 bears interest at 13.75% per annum. At August 31, 2021, $407,052 was non-interest bearing, $22,783 bears interest at 6% per annum, and $49,085 bears interest at 13.75% per annum.

 

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 due to related parties at November 30, 2021 and August 31, 2021 was $968,558 and $982,205, respectively.

 

Note 4 – Accounts Receivables, net

 

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

 Schedule of Accounts Receivables, Net

   November 30,   August 31, 
   2021   2021 
Trade receivables  $2,627,400   $2,411,499 
Amounts earned but not billed   143,663    154,558 
Accounts receivable gross   2,771,063    2,566,057 
Allowance for doubtful accounts   (1,074,852)   (1,097,628)
Accounts receivable, net  $1,696,211   $1,468,429 

 

Note 5 – Inventory

 

Inventory at November 30, 2021 and 2020 consisted of the following:

 Schedule of Inventory

   November 30,   August 31, 
   2021   2021 
Raw materials  $990,496   $1,017,566 
Work in process   142,618    144,628 
Finished Goods   282,933    243,912 
Inventory Gross   1,416,047    1,406,106 
Allowance for slow moving and obsolete inventory   (1,051,900)   (1,066,721)
Inventory, net  $364,147   $339,385 

 

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Note 6 – Other Receivables

 

Other receivables at November 30, 2021 and August 30, 2021 consisted of the following:

 Schedule of Other Receivables

   November 30,   August 31, 
   2021   2021 
Total other receivables   1,489,097    1,506,895 
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)  $292,763   $296,888 
           
Advance to corporation; accrues interest at 12% per annum; unsecured; due January 31, 2023, as amended   78,070    79,170 
           
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 debtor; due February 1, 2022, as amended   501,990    509,063 
           
Advance to corporation; accrues interest at 10% per annum; secured by assets of debtor; due September 1, 2022, as amended   390,350    395,850 
Total other receivables   1,489,097    1,506,895 
Current portion   (1,118,264)   (814,157)
Long-term portion  $370,833   $692,738 

 

Note 7 – Property and Equipment

 

Property and equipment at November 30, 2021 and August 30, 2021 consisted of the following:

 

   November 30,   August 31, 
   2021   2021 
Land  $468,420   $475,020 
Building   3,513,150    3,562,650 
Leasehold improvements   779,810    691,318 
Clinical equipment   1,933,612    1,875,537 
Computer equipment   25,640    24,679 
Office equipment   46,091    46,510 
Furniture and fixtures   40,449    41,019 
    6,807,172    6,716,733 
Accumulated depreciation   (710,638)   (646,442)
Total  $6,096,534   $6,070,291 

 

Depreciation expense for the three months ended November 30, 2021 and 2020 was $74,606 and $21,610, respectively.

 

Certain property and equipment have been used to secure notes payable (See Note 10).

 

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Note 8 – Intangible Assets

 

Intangible assets at November 30, 2021 and August 30, 2021 consisted of the following:

 

   November 30,   August 31, 
   2021   2021 
Land use rights  $21,600,000   $21,600,000 
Software license   1,144,798    1,144,798 
Intellectual property   11,431,945    9,388,065 
Customer relationships   776,366    787,304 
Brand names   2,037,237    2,065,941 
Assembled workforce   415,154    421,003 
    37,405,500    35,407,111 
Accumulated amortization   (3,583,585)   (2,970,643)
Total  $33,821,915   $32,436,468 

 

Amortization expense for the three months ended November 30, 2021 and 2020 was $619,676 and $336,314, respectively.

 

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

 

Twelve Months Ending November 30,    
2022  $2,758,015 
2023   2,758,015 
2024   2,758,015 
2025   2,758,015 
2026   2,577,449 
Thereafter   20,212,406 
Total  $33,821,915 

 

Note 9 – Accrued Expenses

 

Accrued expenses at November 30, 2021 and August 30, 2021 consisted of the following:

 

   November 30,   August 31, 
   2021   2021 
Accrued liabilities  $1,081,335   $811,660 
Accrued payroll   257,204    279,018 
Unearned revenue   38,309    38,631 
Accrued expenses  $1,376,848   $1,129,309 

 

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Note 10 – Government Loans and Note Payable

 

Notes payable at November 30, 2021 and August 30, 2021 consisted of the following:

 

   November 30,   August 31, 
   2021   2021 
Government loans issued under the Government of Canada’s Canada Emergency Business Account (“CEBA”) program (A).   109,298    63,336 
           
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, and is secured by certain equipment of PRO-DIP.   40,320    40,320 
           
Note payable dated December 3, 2019; accrues interest at 3% per annum; secured by land, building and personal property; due June 30, 2022   5,252,749    5,069,858 
           
Note payable dated December 3, 2018; accrues interest at 4.53% per annum; unsecured; annual payments of approximately $4,000; due December 2, 2028   30,312    30,739 
           
Note payable dated June 24, 2021; accrues interest at 9% per annum; secured by real property of Acenzia; lender at its sole discretion may require monthly principal payments of $950,000 after December 24, 2021; any unpaid principal and interest due on June 24, 2022. This note was repaid subsequent to November 30, 2021.   4,415,000    4,415,000 
Total government loans and notes payable   9,847,679    9,619,253 
Less current portion   (9,674,981)   (4,485,649)
Long-term portion  $172,698   $5,133,604 

 

  (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$62,456 at November 30, 2021), which is unsecured, non-interest bearing and due on or before December 31, 2023. If the loan amount is paid on or before December 31, 2023, 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, 2023, the Early Payment Credit will not apply. In addition, with acquisition of Terragenx, the Company acquired a CEBA loan in the amount of CAD$60,000 (US$46,842 at November 30, 2021) under the same terms.

 

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 three months ended November 30, 2020, recorded a total of approximately $61,000 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. During the three months ended November 30, 2021, the Company did not receive any wage subsidies.

 

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

 

Twelve Months Ending November 30,    
2022  $9,674,981 
2023   114,160 
2024   5,301 
2025   5,746 
2026   6,198 
Thereafter   41,293 
Total  $9,847,679 

 

Note 11 – Convertible Notes Payable

 

On November 17, 2021, Terragenx, a 91% owned subsidiary of the Company, issued two convertible notes payable for a total of $1,875,000. The notes accrue interest at 1% per annum and are due on May 17, 2022. The notes are convertible at the option of the note holders to convert into shares of the Company’s common stock at $3.35 per shares.

 

In connection with the convertible notes payable, the Company issued the note holders warrants to purchase a total of 223,880 shares of the Company’s common stock for $3.35 per shares. The warrant expires on November 17, 2024. The Company first determined the value of the convertible notes payable and the fair value of the detachable warrants issued in connection with this transaction. The estimated value of the warrants of $351,240 and was determined using the Black-Scholes option pricing model with the following assumptions:

 

  Expected life of 3.0 year
  Volatility of 300%;
  Dividend yield of 0%;
  Risk free interest rate of 0.085%

 

The face amount of the convertible notes payable of $1,875,000 was proportionately allocated to the convertible notes payable and the warrant in the amount of $1,579,176 and $295,824, respectively. The amount allocated to the warrants of $295,824 was recorded as a discount to the convertible note and as additional paid in capital. The convertible notes payable contained an original issue discount totaling $375,000 and the Company also incurred $90,000 in loan fees in connection with this convertible notes. The combined total discount is $760,824 and will be amortized over the life of the convertible notes. During the three months ended November 30, 2021, the Company amortized $57,840 of the debt discount and as November 30, 2021, the unamortized debt discount was $702,984.

 

Note 12 – 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 November 2, 2021, the debenture holders agreed to extend the due date to December 1, 2023.

 

On January 31, 2018, the debenture holders converted 75% of the debenture value of $3,894,809 plus accrued interest of $414,965 into 1,047,588 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 November 30, 2021 and August 31, 2021, the amount of debentures outstanding was $968,558 and $982,205, respectively.

 

 20 
 

 

Note 13 – Leases

 

Operating 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.

 

The table below presents the lease related assets and liabilities recorded on the Company’s condensed consolidated balance sheets as of November 30, 2021 and August 31, 2021:

 

      November 30,   August 31,
      2021   2021
   Classification on Balance Sheet       
Assets            
Operating lease assets  Operating lease right of use assets  $2,446,736   $2,543,396
Total lease assets     $2,446,736   $2,543,396
             
Liabilities            
Current liabilities            
Operating lease liability  Current operating lease liability  $514,568   $530,797
Noncurrent liabilities            
Operating lease liability  Long-term operating lease liability   1,979,239    2,057,805
Total lease liability     $2,493,807   $2,588,602

 

Lease obligations at November 30, 2021 consisted of the following:

 

Twelve Months Ending November 30,    
2022  $696,083 
2023   601,851 
2024   447,843 
2025   367,208 
2026   379,833 
Thereafter   644,686 
Total payments   3,137,504 
Amount representing interest   (643,697)
Lease obligation, net   2,493,807 
Less lease obligation, current portion   (514,568)
Lease obligation, long-term portion  $1,979,239 

 

 21 
 

 

During the three months ended November 30, 2021, the Company entered into new lease obligation of $101,348.

 

The lease expense for the three months ended November 30, 2021 and 2020 was $216,905 and $204,446, respectively. The cash paid under operating leases for the three months ended November 30, 2021 and 2020 was $207,683 and $201,680, respectively. At November 30, 2021, the weighted average remaining lease terms were 5.86 years and the weighted average discount rate was 8%.

 

Finance leases

 

The Company leases certain equipment under lease contracts that are accounted for as finance leases. If the contracts meet the criteria for a finance lease, the related equipment underlying the lease contract is capitalized and amortized over its estimated useful life. If the cost of the equipment is not available, the Company calculates the cost by taking the present value of the lease payments using an implicit borrowing rate of 5%.

 

The net book value of equipment under finance leases included in property and equipment on the accompanying condensed consolidated balance sheets at November 30, 2021 and August 31, 2021 is as follows:

 

   November 30,   August 31, 
   2021   2021 
         
Cost  $209,457   $209,457 
Accumulated amortization   (150,455)   (136,491)
Net book value  $59,002   $72,966 

 

Future minimum finance lease payments are as follows:

 

Twelve Months Ending November 30,    
2022  $19,878 
2023   9,584 
2024   3,195 
Total payments   32,657 
Amount representing interest   (754)
Lease obligation, net   31,903 
Less lease obligation, current portion   (18,921)
Lease obligation, long-term portion  $12,982 

 

Note 14 – Stockholders’ Equity

 

Convertible preferred stock

 

The Company has authorized 1,000,000 shares of $0.001 par value convertible preferred stock. At November 30, 2021 and August 31, 2021, 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 November 30, 2021 and August 31, 2021 there were 28,645,144 and 26,610,144 common shares issued and outstanding, respectively.

 

 22 
 

 

During the three months ended November 30, 2021, the Company issued:

 

 

 

35,000 restricted shares of common stock as consideration for a Consulting and Services Agreement valued at $64,750. 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 September 16, 2021.

 

 

 

2,000,000 restricted shares of common stock as collateral to be held in escrow pursuant to the terms and conditions provided for in a certain Securities Purchase Agreement, Pledge and Security Agreement, Secured Convertible Promissory Note, and Escrow Agreement, all dated November 17, 2021 to which the Company is a guarantor for that certain senior secured convertible promissory note in the principal amount of up to $1,875,000. The shares were issued on November 23, 2021. The Company value these shares at $0 since they are being held in escrow and will only be released to the convertible note holders upon certain conditions, including default on the notes.

 

Stock Options

 

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 November 30, 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 November 30, 2021, the 2021 Plan has 4,321,300 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.

 

 23 
 

 

The following is a summary of stock options activity:

 

      

Weighted

Average

  

Weighted
Average

Remaining

   Aggregate 
   Options   Exercise   Contractual   Intrinsic 
   Outstanding   Price   Life   Value 
Outstanding, August 31, 2021   1,849,600    2.29    3.14   $218,240 
Granted   48,000    1.87           
Forfeited   -                
Exercised   -    1.60           
Outstanding, November 30, 2021   1,897,600    2.28    2.94   $- 
Exercisable, November 30, 2021   1,885,500   $2.27    2.93   $- 

 

The exercise price for stock options outstanding at November 30, 2021:

 

Outstanding   Exercisable 
Number of   Exercise   Number of   Exercise 
Options   Price   Options   Price 
 997,000   $1.60    997,000   $1.60 
 48,000    1.87    48,000    1.87 
 775,000    3.00    775,000    3.00 
 72,600    3.80    60,500    3.80 
 5,000    5.00    5,000    5.00 
 1,897,600         1,885,500      

 

For options granted during the three months ended November 30, 2021 where the exercise price equaled the stock price at the date of the grant, the weighted-average fair value of such options was $1.82, and the weighted-average exercise price of such options was $1.87. No options were granted during the three months ended November 30, 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 $154,135 and $0 during the three months ended November 30, 2021 and 2020, respectively. At November 30, 2021, the unamortized stock option expense was $44,427, 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 three months ended November 30, 2021:

 

Risk-free interest rate   0.93%
Expected life of the options   2.5 years 
Expected volatility   282%
Expected dividend yield   0%

 

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Warrants

 

The following is a summary of warrant activity:

 

   Warrants   Weighted
Average
Exercise
  

Average

Remaining

Contractual

  

Aggregate

Intrinsic

 
   Outstanding   Price   Life   Value 
Outstanding, August 31, 2021   2,388,050    3.35    5.12   $            - 
Granted   223,880    3.35           
Forfeited   -                
Exercised   -                
Outstanding, November 30, 2021   2,611,930    3.35    4.71   $- 
Exercisable, November 30, 2021   2,611,930   $3.35    4.71   $- 

 

The exercise price for warrants outstanding at November 30, 2021:

 

Outstanding and Exercisable
Number of  Exercise 
Warrants  Price 
2,611,930  $3.35 
2,611,930     

 

 25 
 

 

Note 15 – 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 November 30, 2021, results of operations, cash flows or liquidity of the Company.

 

Note 16 – Acquisitions

 

Terragenx

 

On November 17, 2021, the Company and NHL, a wholly owned subsidiary of the Company, entered into that certain Share Exchange Agreement (the “Terra SEA”), dated as of November 17, 2021, by and among the Company, NHL, Terragenx Inc. (“Terra”), TMS Inc. (“TMS”), Shawn Mullins, Claude Fournier, and The Coles Optimum Health and Vitality Trust (“COHV” and collectively with TMS, Mr. Mullins and Mr. Fournier, the “Terra Shareholders”). Collectively, the Terra Shareholders owned 91% of the outstanding shares of Terra (the “Terra Purchased Shares”).

 

Pursuant to the terms of the Terra SEA, NHL agreed to purchase from the Terra Shareholders, and the Terra Shareholders agreed to sell to NHL, the Terra Purchased Shares on the closing date, in exchange for payment by NHL of the purchase price (the “Purchase Price”) of CAD$500,000 (approximately $398,050) (the “Exchange”). The Purchase Price was to be paid with the issuance, by NHL to the Terra Shareholders, of certain non-voting NHL special shares exchangeable into restricted shares of the Company’s common stock (the “NHL Exchangeable Shares”). The total shares of Company common stock allotted in favor of the Terra Shareholders was calculated at a per share price of $3.35.

 

The Exchange closed on November 17, 2021. At the closing of the Exchange, (i) the Terra Shareholders transferred to NHL a total of 910 shares of Terra common stock, representing 91% of Terra’s outstanding shares, and (ii) a total of 100 NHL Exchangeable Shares were issued to the Terra Shareholders, which NHL Exchangeable Shares are exchangeable into a total of 118,821 restricted shares of the Company’s common stock. As a result of the Exchange, NHL has 91% ownership of Terra and full control of the Terra business.

 

In addition, the Company will issue 500,000 shares of the Company’s common stock to Terry Mullins as part of an employment agreement that is considered part of the purchase price. The price of the Company’s common stock on the closing date was $1.59; therefore the purchase price for accounting purposes was $983,925. The Company acquired Terragenx to complement several of the Company’s growth initiatives including (i) to build a health science related IP portfolio, and (ii) through either acquisition, internal development, or third-party licensing distribute effective, personalized health and wellness product solutions allowing for the customization of patient preventative care remedies and over-the-counter preventative and maintenance care solutions. This acquisition was considered an acquisition of a business under ASC 805. From the period from the acquisition date to November 30, 2021, Terragenx had revenues of $0 and a net loss of $90,097.

 

 26 
 

 

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. A summary of the preliminary purchase price allocation at fair value is below.

 

 Summary of Preliminary Purchase Price Allocation at Fair Value

Cash and cash equivalents  $29,291 
Inventory   42,273 
Prepaid expenses and other current assets   398 
Property and equipment   66,759 
Intangible assets   1,179,361 
Accounts payable and accrued expenses   (189,080)
CEBA loan   (47,766)
Minority interest   (97,311)
Purchase price  $983,925 

 

The purchase price was paid as follows:

 Summary of Purchase Price

Cash  $- 
Common stock to be issued   983,925 
   $983,925 

 

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

 

Mullins Asset Purchase Agreement

 

On November 17, 2021, the Company entered into that certain Asset Purchase Agreement (the “Mullins APA”), dated as of November 17, 2021, by and between the Company and Terence Mullins. Pursuant to the terms of the Mullins APA, Mr. Mullins agreed to sell, and the Company agreed to purchase, all of Mr. Mullins’ right, title and interest in and to certain assets (the “Mullins IP Assets”), in exchange for a purchase price of CAD$2,500,000 (approximately $1,990,250) which is to be paid as follows:

 

  (a) CAD$2,000,000 (approximately $1,592,200) is to be issued or allotted to Mr. Mullins only after patent-pending status, in the U.S. or internationally, is designated for all Mullins IP Assets (the “Mullins IP Assets CAD$2m Shares”), as either restricted shares of Company common stock or NHL Exchangeable Shares, as determined by Mr. Mullins. Once issued or allotted, the Mullins IP Assets CAD $2m Shares will be held in escrow pending registration and approval for all Mullins IP Assets, and
     
  (b) CAD$500,000 (approximately $398,050) is to be issued in the form of 118,821 restricted shares of Company common stock, free and clear of all liens, pledges, encumbrances, charges, or known claims of any kind, nature, or description, upon closing of the Mullins APA

 

All shares issued or allotted under the terms and conditions of the Mullins APA are calculated at a value of $3.35 per share. The price of the Company’s common stock on the closing date was $1.59; therefore the purchase price for assets acquired (Intellectual property) by the payment of item (a) above was $755,701 and item (b) above was $188,925. The purchase price for item (a) above has been recorded as a contingent liability at fair value in the accompanying unaudited condensed consolidated balance sheets since the conditions for payment have not been met as of November 30, 2021. The amounts assigned to assets acquired 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.

 

 27 
 

 

In addition, the Company will pay a royalty equal to 10% of net revenue (net profit) of all iodine related sales reported through the Company or any of its wholly owned subsidiaries for a period equal to the commercial validity of the intellectual property.

 

MiTelemed+

 

On October 8, 2021, the Company and NHL completed a Joint Venture Agreement (the “MiTelemed+ JV”) with EK-Tech Solutions Inc. (“EK-Tech”) to establish the joint venture company MiTelemed+ Inc., an Ontario province Canada corporation (“MiTelemed+”), to operate, support, and expand access and functionality of EK-Tech’s enhanced proprietary Telehealth platform. At closing, EK-Tech contributed all intellectual property, source code, and core data of the iTelemed platform, valued at CAD$1,500,000, and NHL issued to EK-Tech, non-voting NHL Exchangeable Special Shares, free and clear of all liens and encumbrances, which are issued solely for the purpose of EK-Tech to exchange, for 185,000 restricted shares of Company’s common stock solely upon EK-Tech meeting terms and conditions for exchange of the NHL Exchangeable Special Shares as defined in the MiTelemed+ JV. The net profits and net losses of the JV will be split 50/50 between NHL and EK-Tech. As of November 30, 2021, the terms and conditions for the exchange of the NHL Exchangeable Special Shares had not been met.

 

Note 17 – Segment Reporting

 

ASC Topic 280, Segment Reporting, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company has two reportable segments: healthcare services and product manufacturing and development.

 

 28 
 

 

The following tables summarize the Company’s segment information for the three months ended November 30, 2021 and 2020:

Schedule of Segment Reporting Information

   Three Months Ended November 30, 
   2021   2020 
         
Sales          
Healthcare services  $2,179,623   $2,155,506 
Product manufacturing and development   982,304    - 
Corporate   -    - 
   $3,161,927   $2,155,506 
           
Gross profit          
Healthcare services  $799,642   $811,450 
Product manufacturing and development   466,824    - 
Corporate   -    - 
   $1,266,466   $811,450 
           
Loss from operations          
Healthcare services  $(111,105)  $(34,897)
Product manufacturing and development   (341,545)   - 
Corporate   (911,009)   (722,827)
   $(1,363,659)  $(757,724)
           
Depreciation and amortization          
Healthcare services  $74,606   $21,610 
Product manufacturing and development   252,076    - 
Corporate   367,600    336,314 
   $694,282   $357,924 
           
Capital expenditures          
Healthcare services  $104,842   $- 
Product manufacturing and development   15,555    - 
Corporate   -    - 
   $120,397   $- 
           
Interest expenses          
Healthcare services  $20,127   $23,941 
Product manufacturing and development   48,603    - 
Corporate   -    - 
   $68,730   $23,941 
           
Net loss          
Healthcare services  $(128,807)  $(56,100)
Product manufacturing and development   (782,542)   - 
Corporate   (905,046)   (717,003)
   $(1,816,395)  $(773,103)

 

   As of  As of
   November 30,  August 31,
   2021  2021
Total assets          
Healthcare services  $7,041,339   $7,318,888 
Product manufacturing and development   24,417,101    21,427,285 
Corporate   32,475,847    33,212,108 
   $63,934,287   $61,958,281 
           
Accounts receivable          
Healthcare services  $871,543   $953,919 
Product manufacturing and development   824,668    514,510 
Corporate        
   $1,696,211   $1,468,429 
Intangible assets          
Healthcare services  $   $ 
Product manufacturing and development   8,118,752    6,365,705 
Corporate   25,703,163    26,070,763 
   $33,821,915   $32,436,468 
           
Goodwill          
Healthcare services  $549,613   $557,357 
Product manufacturing and development   8,406,081    8,524,522 
Corporate         
   $8,955,694   $9,081,879 

 

 29 
 

 

Note 18 – Subsequent Events

 

December 2021 Registered Direct Offering

 

On December 14, 2021, the Company entered into a Securities Purchase Agreement with an accredited institutional investor (the “Purchaser”) pursuant to which the Company agreed to issue to the Purchaser and the Purchaser agreed to purchase (the “Purchase”), in a registered direct offering, (i) $16,666,666 aggregate principal amount of the Company’s senior secured convertible notes, which notes are convertible into shares of the Company’s common stock, under certain conditions (the “Notes”); and (ii) warrants to purchase up to 5,833,334 shares of the Company’s common stock (the “Warrants”). The securities, including up to 68,557,248 shares of common stock issuable upon conversion under the Notes and up to 5,833,334 shares of common stock issuable upon exercise of the Warrants, are being offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-254278), which was declared effective by the SEC on March 22, 2021. The Purchase closed on December 14, 2021.

 

The Notes have an original issue discount of 10%, resulting in gross proceeds to the Company of $15,000,000. The Notes bear interest of 5% per annum and mature on June 14, 2023, unless earlier converted or redeemed, subject to the right of the Purchaser to extend the date under certain circumstances. The Company will make monthly payments on the first business day of each month commencing on the calendar month immediately following the sixth month anniversary of the issuance of the Notes through June 14, 2023, the maturity date, consisting of an amortizing portion of the principal of each Note equal to $1,388,888 and accrued and unpaid interest and late charges on the Notes. All amounts due under the Notes are convertible at any time, in whole or in part, at the holder’s option, into common stock at the initial conversion price of $2.00, which conversion price is subject to certain adjustments; provided, however, that the Notes have a maximum 9.99% equity blocker. If an event of default occurs, the holder may convert all, or any part, of the principal amount of a Note and all accrued and unpaid interest and late charge at an alternate conversion price, as described in the Notes. Subject to certain conditions, the Company has the right to redeem all, but not less than all, of the remaining principal amount of the Notes and all accrued and unpaid interest and late charges in cash at a price equal to 135% of the amount being redeemed.

 

The Warrants are exercisable at an exercise price of $2.00 per share and expire on the fourth-year anniversary of December 14, 2021, the initial issuance date of the Warrants.

 

LA Fitness Canada Amended and Restated License Agreement & Amended and Restated Guaranty

 

On December 15, 2021, NHL entered into an Amended and Restated Master Facility License Agreement (the “Amended and Restated Canada License Agreement”) with LAF Canada Company (“LA Fitness Canada”). The Amended and Restated Canada License Agreement had the effect of (i) removing NHL’s obligation to develop and open a certain number of facilities within certain designated time periods; and (ii) revising the default provisions such that certain defaults will result only in termination with respect to a specific facility, rather than of the license itself. As a result of the Amended and Restated Canada License Agreement, NHL may continue to develop and open additional facilities for business.

 

Pursuant to the terms of the Amended and Restated Canada License Agreement, the Company entered into that certain Guaranty Agreement (the “Canada Guaranty”) dated December 15, 2021 by and between the Company, Fitness International, LLC and LA Fitness Canada, pursuant to which the Company irrevocably guaranteed the full, unconditional, and prompt payment and performance of all of NHL’s obligations and liabilities under the Amended and Restated Canada License Agreement.

 

Consulting Services Agreement

 

On December 20, 2021, the Company executed a Consulting Agreement for financial and corporate consulting services over a 3-month term. As consideration for payment of services, the Company will pay (i) 50,000 restricted shares of common stock, and (ii) $25,000 per month for the 3-month term. On December 20, 2021, the Company issued 50,000 shares of restricted common stock.

 

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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, 2021, 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

 

When used herein, the terms the “Company,” “we,” “us” and “our” refer to Novo Integrated Sciences, Inc. 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. For the period ended November 30, 2021, the Company’s revenue is generated primarily through its wholly owned Canadian subsidiaries.

 

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:

 

  First Pillar: Service Networks. Deliver multidisciplinary primary care services through (i) an affiliate network of clinic facilities, (ii) small and micro footprint sized clinic facilities primarily located within the footprint of box-store commercial enterprises, (iii) clinic facilities operated through a franchise relationship with the Company, and (iv) corporate operated clinic facilities.
     
  Second Pillar: Technology. Develop, deploy, and integrate sophisticated interconnected technology, interfacing the patient to the healthcare practitioner thus expanding the reach and availability of the Company’s services, beyond the traditional clinic location, to geographic areas not readily providing advanced, peripheral based healthcare services, including the patient’s home.
     
  Third Pillar: Products. Develop and distribute effective, personalized health and wellness product solutions allowing for the customization of patient preventative care remedies and ultimately a healthier population. 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.

 

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First Pillar – Service Networks for Hands-on Patient Care

 

Innovation through science combined with the integration of sophisticated, secure technology assures us 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.

 

Our 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 our 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.

 

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.

 

Second Pillar – Interconnected Technology for Virtual Ecosystem of Services, Products and Digital Health Offerings

 

Decentralization through the integration of interconnected technology platforms has been adopted and is thriving in a variety of sectors and industries such as transportation (Uber, Lyft), real estate (Zillow, Redfin, Airbnb, VRBO), used car sales (Carvana, Vroom), stock and financial markets (Robinhood, Acorns, Webull) and so many other sectors. Yet decentralization of the non-critical primary care and wellness sector of healthcare is lagging significantly in capability and benefit for patient access and delivery of services and products. The COVID pandemic has taught both patients and healthcare providers the viability, importance, and benefits of decentralized access to primary care simply through the rapid adoption of telehealth/telemedicine.

 

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The Company’s focus on a holistic approach to patient-first health and wellness, through innovation and decentralization, includes 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 evaluation, diagnosis, treatment solutions, and monitoring, directly through various Medical Technology Platforms and periphery tools either in-use or under development. Through the integration and deployment of sophisticated and secure technology and periphery diagnostic tools, the Company is working to expand the reach of our non-critical primary care services and product offerings, beyond the traditional clinic locations, to geographic areas not readily providing advanced primary care service to date, including the patient’s home.

 

NovoConnect, the Company’s proprietary mobile application with a fully securitized tech stock, telemedicine/telehealth and remote patient monitoring fall under this Second Pillar. In October 2021, we announced the launch of MiTelemed+, Inc. (“MiTelemed”), a joint venture with EK-Tech Solutions Inc. (“EK-Tech”). MiTelemed will operate, support and expand access and functionality of iTelemed, EK-Tech’s enhanced proprietary telehealth platform. MiTelemed+, through the iTelemed platform, will allow us to offer the patient and the practitioner a sophisticated and enhanced telehealth interaction. Through the interface of sophisticated peripheral based diagnostic tools operated by skilled support workers in the patient’s remote location, we believe that the practitioner’s ability and comfort to provide a uniquely comprehensive evaluation, diagnosis, and treatment solution will be dramatically elevated.

 

Third Pillar – Health and Wellness Products

 

We believe our science first approach to product offerings further emphasizes the Company’s strategic vision to innovate, evolve, and deliver over-the-counter preventative and maintenance care solutions as well as therapeutics and personalized diagnostics that enable individualized health optimization.

 

As the Company’s patient base grows through the expansion of its corporate owned clinics, its affiliate network, its micro-clinic facility openings, its interconnected technology platforms, and other growth initiatives, the development and distribution of high-quality wellness product solutions is integral to (i) offering effective product solutions allowing for the customization of patient preventative care remedies and ultimately a healthier population, and (ii) maintaining an on-going relationship with our patients through the customization of patient preventative and maintenance care solutions.

 

The Company’s product offering ecosystem is being built through strategic acquisitions and engaging in licensing agreements with partners that share our vision to provide a portfolio of products that offer an essential and differentiated solution to health and wellness globally. Our 2021 acquisitions of Acenzia Inc. and PRO-DIP, LLC support this Third Pillar. In December 2021, we were granted a Natural Product Number (NPN) by Health Canada for IoNovo Iodine, a proprietary pure aqueous iodine micronutrient delivered in an oral or nasal spray format for maximum impact and bioavailability.

 

We have two reportable segments: healthcare services and product manufacturing and development. During the quarter ended November 30, 2021, revenues from healthcare services and product manufacturing and development represented 68.9% and 32.2%, respectively, of the Company’s total revenues for the quarter. We expect the percentage of revenues generated from the product manufacturing and development segment to increase at a greater rate than the revenue generated from healthcare services over the coming quarters.

 

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Recent Developments

 

Coronavirus (COVID-19)

 

While all of the Company’s business units are operational at the time of this filing, any future 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. For more information regarding the 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.

 

April 2021 Registered Direct Offering

 

On April 13, 2021, the Company sold 2,388,050 shares of common stock 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 resulting in gross proceeds of $7,999,968. The Company incurred offering costs of $764,388 associated with this offering resulting in net proceeds of $7,235,580. The shares were issued on April 13, 2021.

 

Jefferson Street Capital Stock Purchase Agreement & Secured Convertible Promissory Note

 

On November 17, 2021, the Company and Terragenx Inc., a majority owned subsidiary of the Company (“Terra”), entered into that certain securities purchase agreement (the “Jefferson SPA”), dated as of November 17, 2021, by and among the Company, Terra and Jefferson Street Capital LLC (“Jefferson”). Pursuant to the terms of the Jefferson SPA, (i) the Company agreed to issue and sell to Jefferson the Jefferson Note (as hereinafter defined); (ii) the Company agreed to issue to Jefferson the Jefferson Warrant (as hereinafter defined); and (iii) the Company agreed to issue to Jefferson 1,000,000 restricted shares of Company common stock, as collateral on the Jefferson Note, which is being held by the escrow agent and subject to return to the Company upon full payment of the Jefferson Note; and (iv) Jefferson agreed to pay to the Company $750,000 (the “Jefferson Purchase Price”).

 

Pursuant to the terms of the Jefferson SPA, on November 17, 2021, Terra issued to Jefferson a secured convertible promissory note (the “Jefferson Note”) with a maturity date of May 17, 2022 (the “Maturity Date”), in the principal amount of $937,500. The Company acted as guarantor on the Jefferson Note. Pursuant to the terms of the Jefferson Note, Terra agreed to pay to Jefferson $937,500 (the “Principal Amount”), with a purchase price of $750,000 plus an original issue discount in the amount of $187,500 (the “OID”), and to pay interest on the Principal Amount at the rate of 1% per annum.

 

Any amount of principal, interest or other amount due on the Jefferson Note that is not paid when due will bear interest at the rate of the lesser of (i) 12%, or (b) the maximum rate allowed by law.

 

Jefferson may, at any time, convert all or any portion of the then outstanding and unpaid principal amount and interest into shares of the Company’s common stock at a conversion price of $3.35 per share. The Jefferson Note has a 4.99% equity blocker; provided, however, that the 4.99% equity blocker may be waived (up to 9.99%) by Jefferson, at Jefferson’s election, on not less than 61 days’ prior notice to the Company.

 

On November 17, 2021, Jefferson paid the Jefferson Purchase Price of $750,000 in exchange for the Jefferson Note. Terra intends to use the proceeds for the acquisition of the certain assets directly and indirectly related to any and all iodine-based related products and technologies as specified in the Asset Purchase Agreement (the “Mullins APA”), dated as of November 17, 2021, by and between the Company and Terence Mullins (the “Mullins IP”) and thereafter for working capital and other general purposes.

 

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Terra may prepay the Jefferson Note at any time in accordance with the terms of the Jefferson Note.

 

Except as related to the next transaction after the issue date of the Jefferson Note conducted on the Company’s behalf by the Maxim Group LLC, Terra and the Company agreed to pay to Jefferson on an accelerated basis, any outstanding Principal Amount of the Jefferson Note, along with all unpaid interest, and fees and penalties, if any, from the sources of capital below, at Jefferson’s discretion, it being acknowledged and agreed by Jefferson that the Company and Terra have the right to make bona fide payments to vendors with Company common stock:

 

  At Jefferson’s option, 15% of the net cash proceeds of any future financings by the Company, Terra or any subsidiary, whether debt or equity, or any other financing proceeds such as cash advances, royalties or earn-out payments.
  All net proceeds from any sale of assets of the Company, Terra or any subsidiaries other than sales of inventory in the ordinary course of business or receipt by the Company or any subsidiaries of any tax credits or collections pursuant to any settlement or judgement.
  Net proceeds resulting from the sale of any assets outside of the ordinary course of business or securities in any subsidiary.

 

Platinum Point Capital Stock Purchase Agreement & Secured Convertible Promissory Note

 

On November 17, 2021, the Company and Terra entered into that certain securities purchase agreement (the “Platinum SPA”), dated as of November 17, 2021, by and among the Company, Terra and Platinum Point Capital LLC (“Platinum”). Pursuant to the terms of the Platinum SPA, (i) the Company agreed to issue and sell to Platinum the Platinum Note (as hereinafter defined); (ii) the Company agreed to issue to Platinum the Platinum Warrant (as hereinafter defined); and (iii) the Company agreed to issue to Platinum 1,000,000 restricted shares of the Company common stock, as collateral on the Platinum Note, which is being held by the escrow agent and subject to return to the Company upon full payment of the Platinum Note; and (iv) Platinum agreed to pay to the Company $750,000 (the “Platinum Purchase Price”).

 

Pursuant to the terms of the Platinum SPA, on November 17, 2021, Terra issued to Platinum a secured convertible promissory note (the “Platinum Note”) with a maturity date of May 17, 2022 (the “Maturity Date”), in the principal amount of $937,500. The Company acted as guarantor on the Platinum Note. Pursuant to the terms of the Platinum Note, Terra agreed to pay to Platinum $937,500 (the “Platinum Principal Amount”), with a purchase price of $750,000 plus an original issue discount in the amount of $187,500 (the “OID”), and to pay interest on the Principal Amount at the rate of 1% per annum.

 

Any amount of principal, interest or other amount due on the Platinum Note that is not paid when due will bear interest at the rate of the lesser of (i) 12%, or (b) the maximum rate allowed by law.

 

Platinum may, at any time, convert all or any portion of the then outstanding and unpaid principal amount and interest into shares of the Company’s common stock at a conversion price of $3.35 per share. The Platinum Note has a 4.99% equity blocker; provided, however, that the 4.99% equity blocker may be waived (up to 9.99%) by Platinum, at Platinum’s election, on not less than 61 days’ prior notice to the Company.

 

On November 17, 2021, Platinum paid the Platinum Purchase Price of $750,000 in exchange for the Platinum Note. Terra intends to use the proceeds for the acquisition of the Mullins IP and thereafter for working capital and other general purposes.

 

Terra may prepay the Platinum Note at any time in accordance with the terms of the Platinum Note.

 

Except as related to the next transaction after the issue date of the Platinum Note conducted on the Company’s behalf by the Maxim Group LLC, Terra and the Company agreed to pay to Platinum on an accelerated basis, any outstanding Principal Amount of the Platinum Note, along with all unpaid interest, and fees and penalties, if any, from the sources of capital below, at Platinum’s discretion, it being acknowledged and agreed by Platinum that the Company and Terra have the right to make bona fide payments to vendors with Company common stock:

 

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  At Platinum’s option, 15% of the net cash proceeds of any future financings by the Company, Terra or any subsidiary, whether debt or equity, or any other financing proceeds such as cash advances, royalties or earn-out payments.
  All net proceeds from any sale of assets of the Company, Terra or any subsidiaries other than sales of inventory in the ordinary course of business or receipt by the Company or any subsidiaries of any tax credits or collections pursuant to any settlement or judgement.
  Net proceeds resulting from the sale of any assets outside of the ordinary course of business or securities in any subsidiary

 

December 2021 Registered Direct Offering

 

On December 14, 2021, the Company entered into a Securities Purchase Agreement with an accredited institutional investor (the “Purchaser”) pursuant to which the Company agreed to issue to the Purchaser and the Purchaser agreed to purchase (the “Purchase”), in a registered direct offering, (i) $16,666,666 aggregate principal amount of the Company’s senior secured convertible notes, which notes are convertible into shares of the Company’s common stock, under certain conditions (the “Notes”); and (ii) warrants to purchase up to 5,833,334 shares of the Company’s common stock (the “Warrants”). The securities, including up to 68,557,248 shares of common stock issuable upon conversion under the Notes and up to 5,833,334 shares of common stock issuable upon exercise of the Warrants, are being offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-254278), which was declared effective by the SEC on March 22, 2021. The Purchase closed on December 14, 2021.

 

The Notes have an original issue discount of 10%, resulting in gross proceeds to the Company of $15,000,000. The Notes bear interest of 5% per annum and mature on June 14, 2023, unless earlier converted or redeemed, subject to the right of the Purchaser to extend the date under certain circumstances. The Company will make monthly payments on the first business day of each month commencing on the calendar month immediately following the sixth month anniversary of the issuance of the Notes through June 14, 2023, the maturity date, consisting of an amortizing portion of the principal of each Note equal to $1,388,888 and accrued and unpaid interest and late charges on the Notes. All amounts due under the Notes are convertible at any time, in whole or in part, at the holder’s option, into common stock at the initial conversion price of $2.00, which conversion price is subject to certain adjustments; provided, however, that the Notes have a 9.99% equity blocker. If an event of default occurs, the holder may convert all, or any part, of the principal amount of a Note and all accrued and unpaid interest and late charge at an alternate conversion price, as described in the Notes. Subject to certain conditions, the Company has the right to redeem all, but not less than all, of the remaining principal amount of the Notes and all accrued and unpaid interest and late charges in cash at a price equal to 135% of the amount being redeemed.

 

The Warrants are exercisable at an exercise price of $2.00 per share and expire on the fourth-year anniversary of December 14, 2021, the initial issuance date of the Warrants.

 

For the three months ended November 30, 2021 compared to the three months ended November 30, 2020

 

Revenues for the three months ended November 30, 2021 were $3,161,927, representing an increase of $1,006,421, or 46.7%, from $2,155,506 for the same period in 2020. The increase in revenue is principally due to the acquisition of Acenzia, Inc. in June 2021. Acenzia’s revenue for the three months ended November 30, 2021 were $981,852.

 

Cost of revenues for the three months ended November 30, 2021 were $1,895,461, representing an increase of $551,405 or 41.0%, from $1,344,056 for the same period in 2020. The increase in cost of revenues is principally due the increase in revenue as described above. Cost of revenues as a percentage of revenue was 59.9% for the three months ended November 30, 2021 and 62.4% for same period in 2020. The decrease in cost of revenues as a percentage of revenue is principally due to revenue generated by Acenzia that had a cost of revenue of approximately 52%.

 

Operating costs for the three months ended November 30, 2021 were $2,630,125, representing an increase of $1,060,951, or 67.6%, from $1,569,174 for the same period in 2020. The increase in operating costs is principally due to the temporary increase in overhead expenses associated with the acquisitions of Acenzia, PRO-DIP, and Terragenx which was approximately $808,000 for the three months ended November 30, 2021. In subsequent quarters, this temporary increase in overhead expenses associated with Acenzia, PRO-DIP, and Terragenx is projected to decrease significantly as the Company integrates and consolidates operations.

 

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Interest expense for the three months ended November 30, 2021 was $68,730, representing an increase of $44,789, or 187.1%, from $23,941 for the same period in 2020. The increase is due to an increase in outstanding debt.

 

Foreign currency transaction losses for the three months ended November 30, 2021 was $334,554 compared to $0 for the same period in 2020. Acenzia and Terragenx both have outstanding debt recorded on their books that is payable in US$ . The exchange rate between the Canadian Dollar and the US Dollar has decreased since August 31, 2021; therefore creating a foreign currency transaction loss as it will require more Canadian Dollars to repay the debt.

 

Net loss attributed to Novo Integrated Sciences, Inc. for the three months ended November 30, 2021 was $1,806,587, representing an increase of $1,035,117, or 134.2%, from $771,470 for the same period in 2020. The increase in net loss is principally due (i) an increase in foreign currency transaction losses, and (ii) a temporary increase in overhead expenses associated with the acquisitions of Acenzia, PRO-DIP, and Terragenx which was approximately $808,000 for the three months ended November 30, 2021. In subsequent quarters, this temporary increase in overhead expenses associated with Acenzia, PRO-DIP, and Terragenx is projected to decrease significantly as the Company integrates and consolidates operations.

 

Liquidity and Capital Resources

 

As shown in the accompanying condensed consolidated financial statements, for the three months ended November 30, 2021, the Company had a net loss of $1,816,395.

 

During the three months ended November 30, 2021, the Company used cash in operating activities of $759,103 compared to $148,103 for the same period in 2020. The principal reason for the increase in cash used in operating activities is the net loss incurred and the changes in noncash expenses and changes in operating asset and liability accounts.

 

During the three months ended November 30, 2021, the Company used cash from investing activities of $91,106 compared to $0 for the same period in 2020. During the period in 2021 the Company purchased property and equipment of $120,397 and acquired $29,291 in cash from the acquisition of Terragenx.

 

During the three months ended November 30, 2021, the Company provided cash from financing activities of $1,399,785 compared to $43,611 for the same period in 2020. The principal reason for the increase in cash provided by financing activities was the issuance of convertible notes payable in 2021 for net proceeds of $1,410,000.

 

Financial Impact of COVID-19

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. On March 17, 2020, as a result of COVID-19 pandemic 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 May 26, 2020, the Ontario Ministry of Health announced updated guidance and directives stating that physiotherapists, chiropractors, and other regulated health professionals, including 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 specific to on-site clinic and eldercare operations.

 

Specific to our clinic-based services and products, operating under COVID-19 related authorized governmental proclamations and directives, between March 17 through 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.

 

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Specific to our eldercare based services and products, operating under COVID-19 related authorized governmental proclamations and directives which included certain eldercare related services being deemed essential, NHL was able to quickly expand its existing eldercare related physiotherapy service “virtual-care” platform, which pre-pandemic was primarily focused on providing “virtual-care” services to both smaller and remote eldercare homes to ensure access to service providers, when needed; and continuity of care to eldercare patients without service providers in their area. Given NHL had established “virtual care” procedures and forms, complete with video consent and assessment forms already vetted and approved by the Ontario College of Physiotherapists, NHL was well-positioned to expand the delivery of certain of its eldercare related contracted services, via “virtual-care” technology, ensuring continuity of service for our long-term care and retirement home clients.

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of November 30, 2021, all corporate clinics were open and operational 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.

 

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 during the period ended November 30, 2021. 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 the quarter ended November 30, 2021, the Company’s total revenue from all clinic and eldercare related contracted services was $2,179,623, representing an increase of $24,117 compared to $2,155,506 during the same period in 2020. As of November 30, 2021, specific to on-site clinic and eldercare operations, the Company has 91 full-time employees and 60 part-time employees with a total employee count amongst all subsidiaries of 124 full-time and 83 part-time employees.

 

Specific to Acenzia, Terragenx, and PRO-DIP, each company is open and fully operational while following all local, state, provincial, and national guidelines and protocols related to minimizing the spread of the COVID-19 pandemic.

 

While all of the Company’s business units are operational at the time of this filing, any future 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, but not limited to, (i) the duration of the COVID-19 outbreak and additional variants that may be identified, (ii) new information which may emerge concerning the severity of the COVID-19 pandemic, and (iii) 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.

 

Our capital requirements going forward will consist of financing our operations until we are able to reach a level of revenues and gross margins adequate to equal or exceed our ongoing operating expenses. We do not have any credit agreement or source of liquidity immediately available to us.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements.

 

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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, allowance for slow moving and obsolete inventory, 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.

 

Property and Equipment

 

Property and equipment are stated at cost less depreciation and impairment. 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:

 

Building 30 years
Leasehold improvements 5 years
Clinical equipment 5 years
Computer equipment 3 years
Office equipment 5 years
Furniture and fixtures 5 years

 

The Company has not changed its estimate for the useful lives of its property and equipment, but would expect that a decrease in the estimated useful lives of property and equipment of 20% would result in an annual increase to depreciation expense of approximately $140,000, and an increase in the estimated useful lives of property and equipment of 20% would result in an annual decrease to depreciation expense of approximately $95,000.

 

Intangible Assets

 

The Company’s intangible assets are being amortized over their estimated useful lives as follows:

 

Land use rights 50 years (the lease period)
Software license 7 years
Intellectual property 7 years
Customer relationships 5 years
Brand names 7 years
Workforce 5 years

 

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. The Company has not changed its estimate for the useful lives of its intangible assets but would expect that a decrease in the estimated useful lives of intangible assets of 20% would result in an annual increase to amortization expense of approximately $690,000, and an increase in the estimated useful lives of intangible assets of 20% would result in an annual decrease to amortization expense of approximately $460,000.

 

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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.

 

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 consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statements of operations and comprehensive loss. 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, Action Plus Physiotherapy Rockland during the fiscal year ended August 31, 2019 and Acenzia, Inc. during fiscal year ended August 31, 2021.

 

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. The Company has not changed its methodology for estimating allowance for doubtful accounts and historically the change in estimate has not been significant to the Company’s financial statements. If there is a deterioration of the Company’s customers’ ability to pay or if future write-offs of receivables differ from those currently anticipated, the Company may have to adjust its allowance for doubtful accounts, which would affect earnings in the period the adjustments are made.

 

Inventory

 

Inventories are valued at the lower of cost (determined by the first in, first out method) and net realizable value. Management compares the cost of inventories with the net realizable value and allowance is made for writing down their inventories to net realizable value, if lower. Inventory is segregated into three areas: raw materials, work-in-process and finished goods. The Company periodically assessed its inventory for slow moving and/or obsolete items and any change in the allowance is recorded in cost of revenue in the accompanying condensed consolidated statements of operations and comprehensive loss. If any are identified an appropriate allowance for those items is made and/or the items are deemed to be impaired.

 

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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. The Company has not changed it methodology for estimating the valuation allowance. A change in valuation allowance affect earnings in the period the adjustments are made and could be significant due to the large valuation allowance currently established.

 

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.

 

Revenue Recognition

 

The Company’s revenue recognition reflects the updated accounting policies as per the requirements of ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). As sales are and have been primarily from providing healthcare services the Company has no significant post-delivery obligations.

 

Revenue from providing healthcare and healthcare related services and product sales are recognized under Topic 606 in a manner that reasonably reflects the delivery of its products and 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 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.
     
  Product sales – revenue is recorded at the point of time of delivery

 

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 condensed consolidated statements of operations and comprehensive loss 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.

 

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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 Canadian dollar. Translation gains (losses) are classified as an item of other comprehensive income in the stockholders’ equity section of the condensed consolidated balance sheets.

 

New Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was issued to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The new standard represents significant changes to accounting for credit losses. Full lifetime expected credit losses will be recognized upon initial recognition of an asset in scope. The current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold. The expected credit losses estimate will be based upon historical information, current conditions, and reasonable and supportable forecasts. This ASU as amended by ASU 2019-10, is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the effect of this ASU on the Company’s condensed consolidated financial statements and related disclosures.

 

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.

 

In August 2020, the FASB issued guidance that simplifies the accounting for debt with conversion options, revises the criteria for applying the derivative scope exception for contracts in an entity’s own equity, and improves the consistency for the calculation of earnings per share. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2021, our fiscal 2023.

 

In March 2020, the FASB issued guidance providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance, which became effective on March 12, 2020 and can be applied through December 21, 2022, has not impacted our condensed consolidated financial statements. The Company has various contracts that reference LIBOR and is assessing how this standard may be applied to specific contract modifications through December 31, 2022.

 

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

 

Recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material effect on the Company’s financial statements.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The Company’s Chief Executive Officer and Principal Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of November 30, 2021. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of November 30, 2021, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the fiscal quarter ended November 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Except as set forth herein, as of the date of this Quarterly Report on Form 10-Q, there are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or which our property is the subject. In addition, none of our officers, directors, affiliates or 5% stockholders (or any associates thereof) is a party adverse to us, or has a material interest adverse to us, in any material proceeding.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the period ended August 31, 2021 (the “2021 10-K”), as updated from time to time. However, in light of the recent coronavirus (COVID-19) pandemic, set forth below is a risk factor relating to COVID-19. Other than as set forth below, as of the filing date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors faced by the Company from those previously disclosed in the 2021 10-K, as updated from time to time.

 

Public health epidemics or outbreaks could adversely impact our business.

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. On March 17, 2020, as a result of COVID-19 pandemic 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 May 26, 2020, the Ontario Ministry of Health announced updated guidance and directives stating that physiotherapists, chiropractors, and other regulated health professionals, including 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 specific to on-site clinic and eldercare operations.

 

Specific to our clinic-based services and products, operating under COVID-19 related authorized governmental proclamations and directives, between March 17 through 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.

 

Specific to our eldercare based services and products, operating under COVID-19 related authorized governmental proclamations and directives which included certain eldercare related services being deemed essential, NHL was able to quickly expand its existing eldercare related physiotherapy service “virtual-care” platform, which pre-pandemic was primarily focused on providing “virtual-care” services to both smaller and remote eldercare homes to ensure access to service providers, when needed; and continuity of care to eldercare patients without service providers in their area. Given NHL had established “virtual care” procedures and forms, complete with video consent and assessment forms already vetted and approved by the Ontario College of Physiotherapists, NHL was well-positioned to expand the delivery of certain of its eldercare related contracted services, via “virtual-care” technology, ensuring continuity of service for our long-term care and retirement home clients.

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of November 30, 2021, all corporate clinics were open and operational 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.

 

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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 during the period ended November 30, 2021. 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.

 

Specific to Acenzia, Terragenx, and PRO-DIP, each company is open and fully operational while following all local, state, provincial, and national guidelines and protocols related to minimizing the spread of the COVID-19 pandemic.

 

While all of the Company’s business units are operational at the time of this filing, any future 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, but not limited to, (i) the duration of the COVID-19 outbreak and additional variants that may be identified, (ii) new information which may emerge concerning the severity of the COVID-19 pandemic, and (iii) 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.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On September 16, 2021, the Company issued 35,000 restricted shares of common stock under the terms and conditions of a certain Contractor Agreement, dated November 16, 2020.

 

On November 23, 2021, the Company issued 2,000,000 restricted shares of common stock as collateral, to be held in escrow, pursuant to the terms and conditions provided for in two separate Securities Purchase Agreements, Pledge and Security Agreements, Secured Convertible Promissory Notes, and Escrow Agreements, each dated November 17, 2021, and to which the Company is a guarantor for each of the 2 senior secured convertible promissory notes with each having a principal amount of up to nine hundred thirty-seven thousand five hundred Dollars ($937,500.00).

 

The above sales were made pursuant to an exemption from registration as set forth in Regulation S under the Securities Act, Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

There have been no defaults in any material payments during the covered period.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

(a) None.

 

(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.

 

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ITEM 6. EXHIBITS

 

Exhibit

Number

  Description of Document
     
4.1*   Guaranty Agreement dated December 15, 2021 by and between the registrant and LAF Canada Company.
     
10.1   Amendment No. 1 to Share Exchange Agreement entered into and effective as of September 22, 2021, by and between the registrant, Novo Healthnet Limited, Acenzia Inc., Avec8 Holdings Inc., Ambour Holdings Inc., Indrajit Sinha, Grant Bourdeau, and Derrick Bourdeau (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 23, 2021).
     
10.2   Amendment No. 2 to Share Exchange Agreement entered into and effective as of October 7, 2021, by and between the registrant, Novo Healthnet Limited, Acenzia Inc., Avec8 Holdings Inc., Ambour Holdings Inc., Indrajit Sinha, Grant Bourdeau, and Derrick Bourdeau (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 14, 2021).
     
10.3   Amendment No. 3 to Share Exchange Agreement entered into and effective as of October 22, 2021, by and between the registrant, Novo Healthnet Limited, Acenzia Inc., Avec8 Holdings Inc., Ambour Holdings Inc., Indrajit Sinha, Grant Bourdeau, and Derrick Bourdeau (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 28, 2021).
     
10.4   Letter Agreement dated November 2, 2021 by and between Novo Healthnet Limited and Healthnet Assessments Inc. (incorporated by referenced to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2021).
     
10.5   Letter Agreement dated November 2, 2021 by and between Novo Healthnet Limited and ICC Healthnet Canada Inc. (incorporated by referenced to Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2021).
     
10.6   Letter Agreement dated November 2, 2021 by and between Novo Healthnet Limited and Peak Health LTC Inc. (incorporated by referenced to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2021).
     
10.7   Letter Agreement dated November 2, 2021 by and between Novo Healthnet Limited and Michael Gaynor Physiotherapy Professional Corporation (incorporated by reference to Exhibit 10.38 to the registrant’s Annual Report on Form 10-K for the fiscal year ended August 31, 2021).
     
10.8   Letter Agreement dated November 2, 2021 by and between Novo Healthnet Limited and Peak Health LTC Inc. (incorporated by reference to Exhibit 10.39 to the registrant’s Annual Report on Form 10-K for the fiscal year ended August 31, 2021).
     
10.9   Share Exchange Agreement, dated as of November 17, 2021, by and among the registrant, Novo Healthnet Limited, Terragenx Inc., TMS Inc., Shawn Mullins, Claude Fournier, and The Coles Optimum Health and Vitality Trust (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2021).
     
 10.10   Asset Purchase Agreement, dated as of November 17, 2021, by and between the registrant and Terence Mullins (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2021).

 

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10.11   Securities Purchase Agreement, dated as of November 17, 2021, by and among the registrant, Terragenx Inc. and Jefferson Street Capital LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2021).
     
10.12   Secured Convertible Promissory Note, dated November 17, 2021, issued by Terragenx Inc. in favor of Jefferson Street Capital, LLC (registrant as guarantor) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2021).
     
10.13   Common Stock Purchase Warrant dated November 17, 2021 (Jefferson Street Capital, LLC as holder) (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2021).
     
10.14   Securities Purchase Agreement, dated as of November 17, 2021, by and among the registrant, Terragenx Inc. and Platinum Point Capital LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2021).
     
10.15   Secured Convertible Promissory Note, dated November 17, 2021, issued by Terragenx Inc. in favor of Platinum Point Capital, LLC (registrant as guarantor) (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2021).
     
10.16   Common Stock Purchase Warrant dated November 17, 2021 (Platinum Point Capital, LLC as holder) (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the Commission on November 24, 2021).
     
10.17*   Amended and Restated Master Facility License Agreement, dated December 15, 2021, by and between LAF Canada Company and Novo Healthnet Limited.
     
31.1*   Rule 13a-14(a) Certification of Principal Executive Officer.
     
31.2*   Rule 13a-14(a) Certification of Principal Financial Officer.
     
32.1*   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Principal Executive Officer and Principal Financial Officer.
     
101.INS*   Inline XBRL Instance Document
     
101.SCH*   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase
     
101.LAB*   Inline XBRL Taxonomy Extension Labels Linkbase
     
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase
     
104*   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

 

  NOVO INTEGRATED SCIENCES, INC.
     
Dated: January 18, 2022 By: /s/ Robert Mattacchione
    Robert Mattacchione
    Chief Executive Officer (principal executive officer)
     
  By: /s/ James Zsebok
    James Zsebok
    Principal Financial Officer (principal financial officer and principal accounting officer)

 

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