Company Quick10K Filing
Novo Integrated Sciences
Price1.05 EPS-0
Shares224 P/E-374
MCap235 P/FCF-375
Net Debt-2 EBIT-1
TEV232 TEV/EBIT-426
TTM 2019-05-31, in MM, except price, ratios
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NVOS 10Q Quarterly Report

Note 1 - Organization and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Related Party Transactions
Note 4 - Accounts Receivables, Net
Note 5 - Other Receivables
Note 6 - Property and Equipment
Note 7 - Intangible Assets
Note 8 - Accrued Expenses
Note 9 - Government Loans and Note Payable
Note 10 - Debentures, Related Parties
Note 11 - Leases
Note 12 - Stockholders' Deficit
Note 13 - Commitments and Contingencies
Note 14 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm

Novo Integrated Sciences Earnings 2020-11-30

Balance SheetIncome StatementCash Flow
352719113-42012201420172020
Assets, Equity
2.51.70.90.2-0.6-1.42017201820192020
Rev, G Profit, Net Income
3.12.31.50.8-0.0-0.82012201420172020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended November 30, 2020

 

[ ] 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 333-109118

 

Novo Integrated Sciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

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

 

(206) 617-9797

(Registrant’s Telephone Number, Including Area Code)

 

N/A

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

 

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

 

Title of each class   Trading Symbol(s)   Name of each Exchange on which Registered
N/A   N/A   N/A

 

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

 

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

 

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

 

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

 

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

 

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

 

There were 237,931,411 shares of the Registrant’s $0.001 par value common stock outstanding as of January 11, 2021.

 

 

 

   

 

 

Novo Integrated Sciences, Inc.

 

Contents

 

PART I – FINANCIAL INFORMATION
     
Item 1. Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 23
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
     
Item 4. Controls and Procedures 32
     
PART II – OTHER INFORMATION 33
     
Item 1. Legal Proceedings 33
     
Item 1A. Risk Factors 33
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
     
Item 3. Defaults Upon Senior Securities 34
     
Item 4. Mine Safety Disclosures 34
     
Item 5. Other Information 34
     
Item 6. Exhibits 35
     
Signatures 36

 

 2 

 

 

NOVO INTEGRATED SCIENCES, INC.

CONSENSED CONSOLIDATED BALANCE SHEETS

As of November 30, 2020 (unaudited) and August 31, 2020

 

   November 30,   August 31, 
   2020   2020 
   (unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $1,970,391   $2,067,718 
Accounts receivable, net   1,460,839    1,732,432 
Other receivables, current portion   225,924    302,664 
Prepaid expenses and other current assets   497,441    191,723 
Total current assets   4,154,595    4,294,537 
           
Property and equipment, net   333,162    353,660 
Intangible assets, net   26,287,134    26,623,448 
Right-of-use assets   2,670,347    2,810,556 
Other receivables, net of current portion   365,988    287,775 
Acquisition deposits   385,250    383,700 
Goodwill   639,515    636,942 
TOTAL ASSETS  $34,835,991   $35,390,618 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current Liabilities:          
Accounts payable  $895,431   $883,773 
Accrued expenses   227,047    194,708 
Accrued interest (principally to related parties)   350,563    346,264 
Government loans and note payable   83,540    83,292 
Due to related parties   481,250    528,213 
Operating lease liability, current portion   556,675    563,793 
Total current liabilities   2,594,506    2,600,043 
           
Debentures, related parties   955,904    952,058 
Operating lease liability, net of current portion   2,136,683    2,266,887 
TOTAL LIABILITIES   5,687,093    5,818,988 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS' EQUITY          
Novo Integrated Sciences, Inc.          
Convertible preferred stock; $0.001 par value; 1,000,000 shares authorized; 0 and 0 shares issued and outstanding at November 30, 2020 and August 31, 2020, respectively          
Common stock; $0.001 par value; 499,000,000 shares authorized; 235,531,411 and 234,662,363 shares issued and outstanding at November 30, 2020 and August 31, 2020, respectively   235,531    234,662 
Additional paid-in capital   45,033,389    44,694,258 
Other comprehensive income   1,210,292    1,199,696 
Accumulated deficit   (17,278,597)   (16,507,127)
Total Novo Integrated Sciences, Inc. stockholders' equity   29,200,615    29,621,489 
Noncontrolling interest   (51,717)   (49,859)
Total stockholders' equity   29,148,898    29,571,630 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $34,835,991   $35,390,618 

 

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

 

3

 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three Months Ended November 30, 2020 and 2019 (unaudited)

 

   Three Months Ended
   November 30,  November 30,
   2020    2019
   (unaudited)  (unaudited)
       
Revenues  $2,155,506   $2,548,610 
           
Cost of revenues   1,344,056    1,632,941 
           
Gross profit   811,450    915,669 
           
Operating expenses:          
Selling expenses   1,243    1,222 
General and administrative expenses   1,567,931    991,272 
Total operating expenses   1,569,174    992,494 
           
Loss from operations   (757,724)   (76,825)
           
Non operating income (expense)          
Interest income   8,562    28,195 
Interest expense   (23,941)   (40,329)
Total other income (expense)   (15,379)   (12,134)
           
Loss before income taxes   (773,103)   (88,959)
           
Income tax expense   -    - 
           
Net loss  $(773,103)  $(88,959)
           
Net loss attributed to noncontrolling interest   (1,633)   (839)
           
Net loss attributed to Novo Integrated Sciences, Inc.  $(771,470)  $(88,120)
           
Comprehensive loss:          
Net loss   (773,103)   (88,959)
Foreign currency translation gain   10,596    5,200 
Comprehensive loss:  $(762,507)  $(83,759)
           
Weighted average common shares outstanding - basic and diluted   235,083,530    223,873,170 
           
Net loss per common share - basic and diluted  $(0.00)  $(0.00)

 

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, 2020 and 2019 (unaudited)

 

                  Total      
         Additional  Other     Novo      
   Common Stock  Paid-in  Comprehensive  Accumulated  Stockholders’  Noncontrolling  Total
   Shares  Amount  Capital  Income  Deficit  Equity  Interest  Equity
Balance, August 31, 2020   234,662,363   $234,662   $44,694,258   $1,199,696   $(16,507,127)  $29,621,489   $(49,859)  $29,571,630 
                                         
Common stock issued for cash   219,048    219    91,781    -    -    92,000    -    92,000 
Common stock issued for services   650,000    650    247,350    -    -    248,000    -    248,000 
Foreign currency translation loss   -    -    -    10,596    -    10,596    (225)   10,371 
Net loss   -    -    -    -    (771,470)   (771,470)   (1,633)   (773,103)
                                         
Balance, November 30, 2020   235,531,411   $235,531   $45,033,389   $1,210,292   $(17,278,597)  $29,200,615   $(51,717)  $29,148,898 
                                         
Balance, August 31, 2019   223,691,507   $223,691   $35,813,203   $1,138,919   $(11,591,973)  $25,583,840   $(39,632)  $25,544,208 
                                         
Common stock issued for cash   354,369    355    113,044    -    -    113,399    -    113,399 
Foreign currency translation loss   -    -    -    5,200    -    5,200    (123)   5,077 
Net loss   -    -    -    -    (88,120)   (88,120)   (839)   (88,959)
                                         
Balance, November 30, 2019   224,045,876   $224,046   $35,926,247   $1,144,119   $(11,680,093)  $25,614,319   $(40,594)  $25,573,725 

 

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, 2020 and 2019 (unaudited)

 

   Three Months Ended
   November 30,  November 30,
   2020  2019
   (unaudited)  (unaudited)
       
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(773,103)  $(88,959)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   357,924    19,918 
Common stock issued for services   248,000    - 
Operating lease expense   149,379    125,561 
Changes in operating assets and liabilities:          
Accounts receivable   274,577    (165,451)
Prepaid expenses and other current assets   (300,743)   (51,300)
Accounts payable   8,552    (71,066)
Accrued expenses   31,067    (21,959)
Accrued interest   2,858    77,903 
Operating lease liability   (146,614)   (122,510)
Net cash used in operating activities   (148,103)   (297,863)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Payment for acquisition deposit   -    (264,185)
Return of acquisition deposit   -    378,200 
Net cash provided by investing activities   -    114,015 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayments to related parties   (48,389)   (83,252)
Proceeds from the sale of common stock   92,000    113,399 
Net cash provided by financing activities   43,611    30,147 
           
Effect of exchange rate changes on cash and cash equivalents   7,165    1,737 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (97,327)   (151,964)
           
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   2,067,718    2,083,666 
           
CASH AND CASH EQUIVALENTS, END OF YEAR  $1,970,391   $1,931,702 
           
CASH PAID FOR:          
Interest  $19,642   $25,608 
Income taxes  $-   $- 

 

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, 2020 and 2019 (unaudited)

 

Note 1 - Organization and Basis of Presentation

 

Organization and Line of Business

 

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

 

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

 

Through NHL’s 16 corporate-owned clinics, a contracted network of 103 affiliate clinics and 218 eldercare related long-term care homes, retirement homes and community-based locations in Canada, 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. 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.

 

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.

 

Since inception and through May 9, 2017, our activities and business operations were limited to raising capital, organizational matters and the implementation of our business plan related to research, development, testing and commercialization of various alternative energy technologies.

 

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) 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 shares of Novo Integrated’s common stock such that following the closing of the Share Exchange Agreement, the NHL Shareholders would own 167,797,406 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.

 

 7 

 

 

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.

 

On November 3, 2017, Novomerica Health Group, Inc. (“Novomerica”) was incorporated, under the laws of the state of Nevada, as a wholly owned subsidiary of the Company for the purpose of expanding the Company’s operations into the United States.

 

On January 7, 2019, 2478659 Ontario Ltd. (“247”) and Kainai Cooperative (“Kainai”) entered into a Joint Venture Agreement (the “Joint Venture Agreement”) for the purpose of developing, managing and arranging for financing of greenhouse and farming projects involving hemp and cannabis cash crops on Kainai related lands, and developing additional infrastructure projects creating jobs and food supply to local communities. On January 8, 2019, we and 247 entered into an Agreement of Transfer and Assignment, pursuant to which 247 agreed to sell, assign and transfer to the Company all rights, contracts, contacts and any and all other assets related in any way to the Joint Venture Agreement. Pursuant to the terms of the Joint Venture Agreement, as assigned to us, the parties will work in a joint venture relationship (“JV”) with the Company providing the finance, development and operation of the project, including sales, and Kainai providing the land and approvals for the development of the projects. Pursuant to the terms of the Joint Venture Agreement, (i) the Company has an 80% controlling interest and Kainai has a 20% interest in the JV; and (ii) the Company has sole discretion to identify the name and entity under which the JV will operate. The legal entity in which the JV will operate has not yet been identified or formed. The JV operations will primarily involve the production – including processing, packaging and sales of natural supplements derived from hemp derived cannabis oils. The joint venture will distribute to the Company and Kainai all net proceeds after debt and principal servicing and repayment allocation, as well as operating capital allotment, on a ratio equal to 80% to the Company and 20% to Kainai. The Joint Venture Agreement has an initial term of 50 years and Kainai may renew the Joint Venture Agreement within five years of the expiry of the initial term upon mutual agreement. On January 30, 2019, pursuant to the terms of the Joint Venture Agreement, the Company issued 12,000,000 restricted common shares to 247 with a value of $21,600,000.

 

On February 26, 2019, the Company entered into a Software License Agreement (the “Cloud DX License”) with Cloud DX Inc. (“Cloud DX”) pursuant to which Cloud DX agreed to sell, and NHL agreed to purchase, a fully paid up, perpetual license, with 5-year conditional exclusivity, for the Cloud DX Bundled Pulsewave PAD-1A USB Blood Pressure Device, up-to-date product releases and Licensed Software Products (the “Licensed Software”) to include the:

 

  Cloud DX Connected Health web portal for clinical users,
     
  Cloud DX Connected Health mobile app,
     
  Cloud DX Connected Health Windows app, and
     
  Cloud DX Connected Health MacOS app.

 

On July 22, 2019, the Company, through NHL, acquired substantially all the assets of Societe Professionnelle de Physiotherapie M Dignard, doing business as Action Plus Physiotherapy Rockland, to expand our corporate owned clinic footprint in the province of Ontario Canada.

 

On September 24, 2019, Novomerica, a wholly owned U.S. based subsidiary of the Company, entered into a Master Facility License Agreement with Fitness International, LLC and Fitness & Sports Clubs, LLC (together with Fitness International, LLC, “LA Fitness U.S.”). On February 24, 2020, this Master Facility License Agreement (the “LA Fitness U.S. Agreement”) was amended pursuant to the terms of that certain First Amendment to the LA Fitness U.S. Agreement.

 

 8 

 

 

On September 24, 2019, NHL entered into a Master Facility License Agreement with LAF Canada Company (“LA Fitness Canada”). On February 24, 2020, this Master Facility License Agreement (the “LA Fitness Canada Agreement”) was amended pursuant to the terms of that certain First Amendment to the LA Fitness Canada Agreement.

 

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

 

On December 19, 2019, the Company entered into a Joint Venture Agreement (the “HGF JV Agreement”) with Harvest Gold Farms Inc. (“HGF”) relating to the development, management and arrangement of medicinal farming projects involving hemp and cannabis cash crops (the “Project”). Pursuant to the terms of the HGF JV Agreement, the parties agreed to work in a joint venture relationship, with the Company providing the development and operation of the Project, including sales, and HGF providing the land, farming expertise, biomass and necessary approvals for the development of the Project. Pursuant to the terms of the HGF JV Agreement, a corporation, namely, Novo Earth Therapeutics Inc. was formed where we have a 70% controlling interest.

 

The initial term of the HGF JV Agreement will, unless sooner terminated by consent of all parties, expire in five years from the effective date of the HGF JV Agreement. The Company and HGF may renew the HGF JV Agreement within two years of the expiration of the initial term upon mutual understanding.

 

Impact of COVID-19

 

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

 

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

 

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

 

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

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients. Certain of these guidelines and protocols include both active and passive screening for staff and clients, enhanced cleaning measures using only Health Canada approved disinfectants and sanitizers, personal protective equipment usage, appropriate signage and markers throughout the clinics, and layout changes to the clinics to reflect proper physical distancing measures. Additional, more restrictive proclamations and/or directives may be issued in the future.

 

 9 

 

 

With our clinic facilities re-opened and operating under COVID-19 pandemic related mandated guidelines and protocols, for the month ended November 30, 2020, NHL’s clinic-based patient flow has met and exceeds 80% of the same period in 2019. In addition, for the month ended November 30, 2020, NHL’s eldercare contract services provided has met and exceeds 92% of the same period in 2019. As of November 30, 2020, the Company has 73 full-time employees and 54 part-time employees.

 

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

 

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

 

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

 

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 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”) were omitted pursuant to such rules and regulations. The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, that the Company filed on December 9, 2020. The results of operations for the three months ended November 30, 2020 are not necessarily indicative of the results for the year ending August 31, 2021. The Company’s Canadian subsidiaries’ functional currency is the Canadian Dollar (“CAD”); however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).

 

Foreign Currency Translation

 

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

 

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   November 30, 2020  November 30, 2019  August 31, 2020
          
Period end: CAD to USD exchange rate  $0.7705   $0.7531   $0.7674 
Average period: CAD to USD exchange rate  $0.7594   $0.7564   $0.7435 

 

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

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

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and entities it controls including its wholly owned subsidiaries, NHL, Novomerica, Novo Healthnet Rehab Limited, Novo Assessments 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). All of the Company’s subsidiaries are incorporated under the laws of the Province of Ontario or New Brunswick, Canada. All intercompany transactions have been eliminated.

 

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

 

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

 

Noncontrolling Interest

 

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

 

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

 

Cash Equivalents

 

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

 

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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, 2020, and August 31, 2020, the allowance for uncollectible accounts receivable was $515,805 and $518,031, respectively.

 

Property and Equipment

 

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

 

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

 

Long-Lived Assets

 

The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including right of use assets, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at November 30, 2020 and August 31, 2020, the Company believes there was no impairment of its long-lived assets.

 

Intangible Assets

 

The Company’s intangible assets consist of land use rights, a software license and intellectual property which will be amortized over 50 (the lease period), 7 and 7 years, respectively. The intangible assets with finite useful lives are reviewed for impairment when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Based on its reviews at November 30, 2020 and August 31, 2020, the Company believes there was no impairment of its intangible assets.

 

Right-of-use Assets

 

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

 

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Goodwill

 

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

 

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

 

Acquisition Deposits

 

The Company has signed letters of understanding with a potential acquisition candidate which includes refundable acquisition deposits totaling $385,250 and $383,700 at November 30, 2020 and August 31, 2020, respectively.

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

As of November 30, 2020, and August 31, 2020, respectively, the Company did not identify any financial assets and liabilities required to be presented on the balance sheet at fair value , except for cash and cash equivalents which are carried at fair value using Level 1 inputs.

 

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Revenue Recognition

 

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

 

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

 

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

 

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

 

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

 

Income Taxes

 

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

 

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

 

Stock-Based Compensation

 

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

 

Basic and Diluted Earnings Per Share

 

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were 17,845,000 options/warrants outstanding as of November 30, 2020. 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 $1,210,292 and $1,199,696 at November 30, 2020 and August 31, 2020, respectively, are classified as an item of other comprehensive income in the stockholders’ equity section of the balance sheet.

 

Statement of Cash Flows

 

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

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. The new standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The new standard will be effective for our fiscal year beginning September 1, 2020 and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its 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.

 

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, 2020 and August 31, 2020, the amount due to related parties was $481,250 and $528,213, respectively. At November 30, 2020, $411,306 are non-interest bearing, $22,173 bears interest at 6% per annum, and $47,771 bears interest at 13.75% per annum.

 

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

 

On July 21, 2020, a related party converted $226,363 of outstanding principal and accrued interest into 150,909 shares of the Company’s common stock. The per share price used for the conversion of this debt was $1.50.

 

On July 21, 2020, the Company made a partial repayment of a debenture due to a related party of $267,768. The remaining principal balance of debentures to related parties at November 30, 2020 and August 31, 2020 was $955,904 and $952,058, respectively.

 

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Note 4 – Accounts Receivables, net

 

Accounts receivables, net at November 30, 2020 and August 31, 2020 consisted of the following:

 

   November 30,  August 31,
   2020  2020
Trade receivables  $1,825,078   $1,948,520 
Amounts earned but not billed   151,566    301,943 
    1,976,644    2,250,463 
Allowance for doubtful accounts   (515,805)   (518,031)
Accounts receivable, net  $1,460,839   $1,732,432 

 

Note 5 – Other Receivables

 

Other receivables at November 30, 2020 and August 31, 2020 consisted of the following:

 

   November 30,  August 31,
   2020  2020
Notes receivable dated April 1, 2015 and amended on May 23, 2017; accrued interest at 8% per annum; secured by certain assets; due March 1, 2019. (currently in default; if the receivable is not repaid, the Company plans to foreclose on the clinic that secures this receivable)  $288,938   $287,775 
           
Advance to corporation; accrues interest at 12% per annum; unsecured; due December 31, 2021, as amended   77,050    76,740 
           
Advance to corporation; accrues interest at 10% per annum after the first 60 days; unsecured; due February 7, 2021   225,924    225,924 
Total other receivables   591,912    590,439 
Current portion   (225,924)   (302,664)
Long-term portion  $365,988   $287,775 

 

Note 6 – Property and Equipment

 

Property and equipment at November 30, 2020 and August 31, 2020 consisted of the following:

 

   November 30,  August 31,
   2020  2020
Leasehold improvements  $467,737   $465,857 
Clinical equipment   302,554    301,337 
Computer equipment   24,018    23,921 
Office equipment   29,347    29,229 
Furniture and fixtures   39,921    39,760 
    863,577    860,104 
Accumulated depreciation   (530,415)   (506,444)
Total  $333,162   $353,660 

 

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Depreciation expense for the three months ended November 30, 2020 and 2019 was $21,610 and $19,918, respectively.

 

Note 7 – Intangible Assets

 

Intangible assets at November 30, 2020 and August 31, 2020 consisted of the following:

 

   November 30,  August 31,
   2020  2020
Land use rights  $21,600,000   $21,600,000 
Software license   1,144,798    1,144,798 
Intellectual property   5,248,000    5,248,000 
    27,992,798    27,992,798 
Accumulated amortization   (1,705,664)   (1,369,350)
Total  $26,287,134   $26,623,448 

 

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

 

Twelve Months Ending November 30,      
2021   $1,345,257 
2022    1,345,257 
2023    1,345,257 
2024    1,345,257 
2025    1,345,257 
Thereafter    19,560,849 
Total   $26,287,134 

 

On January 8, 2019, the Company and 2478659 Ontario Ltd., an Ontario Canada corporation with offices in Ontario Canada (“247”), entered into an Agreement of Transfer and Assignment (“JV Assignment”), pursuant to which the Company assumed all rights and obligations provided for in a Joint Venture Agreement, executed January 7, 2019, between 247 and Kainai Cooperative, a cooperative organized under the laws of Alberta, Canada with offices in Cardston, Alberta, Canada (“KA”). The JV Agreement provides for farming and greenhouse agricultural development, to include supporting infrastructure, of both hemp and medical cannabis crops on approximately 275,000 acres of Canadian prairie lands for a minimum of 50 years. Under the terms of the JV Assignment, 247 was issued 12,000,000 restricted shares of the Company’s common stock having a value of $21,600,000, as of February 26, 2019. The shares were issued on January 30, 2019.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Note 8 – Accrued Expenses

 

Accrued expenses at November 30, 2020 and August 31, 2020 consisted of the following:

 

   November 30,  August 31,
   2020  2020
Accrued liabilities  $64,694   $37,457 
Accrued payroll   140,723    117,823 
Other   21,630    39,428 
   $227,047   $194,708 

 

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Note 9 – Government Loans and Note Payable

 

Notes payable at November 30, 2020 and August 31, 2020 consisted of the following:

 

   November 30,  August 31,
   2020  2020
Note payable issued under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The loan has terms of 24 months and accrues interest at 1% per annum. The Company expects some or all of this loan to be forgiven as provided by in the CARES Act.  $21,900   $21,900 
           
Government loans issued under the Government of Canada’s Canada Emergency Business Account (“CEBA”) program (A).   61,640    61,392 
   $83,540   $83,292 

 

  (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$61,640 at November 30, 2020), which is unsecured, non-interest bearing and due on or before December 31, 2022. If the loan amount is paid on or before December 31, 2022, 25% of the loan will be forgiven (“Early Payment Credit”). In the event that the Company does not repay 75% of such term debt on or before December 31, 2022, the Early Payment Credit will not apply.

 

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.

 

Note 10 – Debentures, related parties

 

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

 

On January 31, 2018, the debenture holders converted 75% of the debenture value of $3,894,809 plus accrued interest of $414,965 into 10,475,872 shares of the Company’s common stock. The per share price used for the conversion of each debenture was $0.4114 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, 2020 and August 31, 2020, the amount of debentures outstanding was $955,904 and $952,058, respectively.

 

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Note 11 – Leases

 

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

 

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

 

The table below presents the lease related assets and liabilities recorded on the Company’s condensed consolidated balance sheets as of November 30, 2020 and August 31, 2020:

 

      November 30,  August 31,
      2020  2020
   Classification on Balance Sheet          
Assets             
Operating lease assets  Operating lease right of use assets  $2,670,347   $2,810,556 
Total lease assets     $2,670,347   $2,810,556 
              
Liabilities             
Current liabilities             
Operating lease liability  Current operating lease liability  $556,675   $563,793 
Noncurrent liabilities             
Operating lease liability  Long-term operating lease liability   2,136,683    2,266,887 
Total lease liability     $2,693,358   $2,830,680 

 

Lease obligations at November 30, 2020 consisted of the following:

 

Twelve Months Ending November 30,   
2021   $787,829 
2022    629,795 
2023    534,857 
2024    381,967 
2025    301,492 
2026    299,555 
Thereafter    437,346 
Total payments     3,372,841 
Amount representing interest     (679,483)
Lease obligation, net     2,693,358 
Less lease obligation, current portion     (556,675)
Lease obligation, long-term portion    $2,136,683 

 

The lease expense for the three months ended November 30, 2020 and 2019 was $204,446 and $185,371, respectively. The cash paid under operating leases during the three months ended November 30, 2020 and 2019 was $201,680 and $182,321, respectively. At November 30, 2020, the weighted average remaining lease terms were 5.84 years and the weighted average discount rate was 8%.

 

Note 12 – Stockholders’ Deficit

 

Convertible preferred stock

 

The Company has authorized 1,000,000 shares of $0.001 par value convertible preferred stock. At November 30, 2020 and August 31, 2020 there were 0 and 0 convertible preferred shares issued and outstanding, respectively.

 

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Common stock

 

The Company has authorized 499,000,000 shares of $0.001 par value common stock. At November 30, 2020 and August 31, 2020 there were 235,531,411 and 234,662,363 common shares issued and outstanding, respectively.

 

During the period ended November 30, 2020, the Company issued:

 

  219,048 restricted shares of common stock to a non-U.S. person for cash proceeds of $92,000;
     
 

150,000 restricted shares of common stock as consideration for a Statement of Work Agreement with an independent contractor valued at $55,500. The fair value was determined based on the market price of the Company’s common stock on the date of grant; and

 

  500,000 restricted shares of common stock as consideration for a Consulting and Services Agreement valued at $192,500. The fair value was determined based on the market price of the Company’s common stock on the date of grant.

 

During the period ended November 30, 2019, the Company issued 354,369 shares of common stock for cash proceeds of $113,399.

 

Stock options/warrants

 

On September 8, 2015, the Company adopted the 2015 Incentive Compensation Plan (the “2015 Plan”), which authorizes the issuance of up to 5,000,000 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 2020 and 2019, the Company did not grant any awards under the 2015 Plan. As of August 31, 2018, 4,987,500 shares were available under the 2015 Plan for future grants, awards, options or share issuances. However, because the shares issuable under the 2015 Plan or issuable upon conversion of awards granted under the Plan are no longer registered under the Securities Exchange Act of 1934, as amended, the Company does not intend to issue any additional grants under the 2015 Plan.

 

On January 16, 2018, the Company adopted the Novo Integrated Sciences, Inc. 2018 Incentive Plan (the “2018 Plan”). Under the 2018 Plan, 10,000,000 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, 2020, the 2018 Plan has 9,375,000 shares are available for award

 

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

 

         Weighted   
      Weighted  Average   
   Options/  Average  Remaining  Aggregate
   Warrants  Exercise  Contractual  Intrinsic
   Outstanding  Price  Life  Value
Outstanding, August 31, 2020   17,845,000    0.22    4.09   $3,173,800 
Granted   -                
Forfeited   -                
Exercised   -                
Outstanding, November 30, 2020   17,845,000    0.22    3.84   $2,818,900 
Exercisable, November 30, 2020   17,845,000   $0.22    3.84   $2,818,900 

 

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The exercise price for options/warrants outstanding at November 30, 2020:

 

 Outstanding and Exercisable 
 Number of      
 Options/    Exercise 
 Warrants    Price 
 10,045,000   $0.16 
 7,750,000    0.30 
 50,000    0.50 
 17,845,000      

 

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 $0 and $0 during the three months ended November 30, 2020 and 2019, respectively. At November 30, 2020, the unamortized stock option expense was $0.

 

Note 13 – Commitments and Contingencies

 

Litigation

 

The Company is party to certain legal proceedings from time to time incidental to the conduct of its business. These proceedings could result in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that the Company cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on our condensed consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs. However, based on information available to the Company’s management to date, the Company’s management does not expect that the outcome of any matter pending against the Company is likely to have a materially adverse effect on the Company’s condensed consolidated financial position as of November 30, 2020, results of operations, cash flows or liquidity of the Company.

 

Note 14 – Subsequent Events

 

On December 15, 2020, Klara Radulyne notified Novo Integrated Sciences, Inc. (the “Company”) of her intent to resign as the Company’s Principal Financial Officer, effective December 15, 2020. On December 15, 2020, Company’s Board of Directors appointed Thomas Bray as the Company’s Principal Financial Officer.

 

On December 11, 2020, the Company entered into that certain Asset Purchase Agreement by and between the Company and 2794512 Ontario Inc. (the “Seller”) (the “2794512 APA”), pursuant to which the Company agreed to purchase, and Seller agreed to sell, generic primary and sub-primary drug formulations (known as bioequivalence) of name brand pharmaceutical reference products related to usage as injectables, ophthalmic, and topical applications. Pursuant to the terms of the 2794512 APA, the purchase price is $876,000. As consideration for payment of the 2794512 APA, the Company issued 2,400,000 restricted shares of common stock based on the 30-day trading average of $0.365. The shares were issued on December 15, 2020.

 

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

 

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

 

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

 

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

 

Overview of the Company

 

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

 

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

 

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

 

NHL’s team of multidisciplinary primary health care clinicians and practitioners provide assessment, diagnosis, treatment, pain management, rehabilitation, education and primary prevention for a wide array of orthopedic, musculoskeletal, sports injury, and neurological conditions across various demographics including pediatric, adult, and geriatric populations through NHL’s 16 corporate-owned clinics, a contracted network of 103 affiliate clinics, and 218 eldercare related long-term care homes, retirement homes, and community-based locations in Canada.

 

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

 

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.

 

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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.

 

Recent Developments

 

Coronavirus (COVID-19)

 

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

 

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

 

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

 

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

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients. Certain of these guidelines and protocols include both active and passive screening for staff and clients, enhanced cleaning measures using only Health Canada approved disinfectants and sanitizers, personal protective equipment usage, appropriate signage and markers throughout the clinics, and layout changes to the clinics to reflect proper physical distancing measures. Additional, more restrictive proclamations and/or directives may be issued in the future.

 

With our clinic facilities re-opened and operating under COVID-19 pandemic related mandated guidelines and protocols, for the month ended November 30, 2020, NHL’s clinic-based patient flow has met and exceeds 80% of the same period in 2019. In addition, for the month ended November 30, 2020, NHL’s eldercare contract services provided have met and exceed 92% of the same period in 2019. As of November 30, 2020, the Company has 73 full-time employees and 54 part-time employees.

 

 24 

 

 

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

 

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

 

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

 

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

 

Asset Purchase Agreement

 

On December 11, 2020, the Company entered into that certain Asset Purchase Agreement by and between the Company and 2794512 Ontario Inc. (the “Seller”) (the “2794512 APA”), pursuant to which the Company agreed to purchase, and Seller agreed to sell, generic primary and sub-primary drug formulations (known as bioequivalence) of name brand pharmaceutical reference products related to usage as injectables, ophthalmic, and topical applications. Pursuant to the terms of the 2794512 APA, the purchase price is $876,000. As consideration for payment of the 2794512 APA, the Company issued 2,400,000 restricted shares of common stock. The shares were issued on December 15, 2020.

 

Reverse Stock Split

 

On November 9, 2020, stockholders of the Company approved an amendment to the Company’s Articles of Incorporation, as amended (the “Articles”), to effect a reverse stock split of the Company’s outstanding shares of common stock, at a ratio of no less than 1-for-5 and no more than 1-for-10, with such ratio to be determined by the sole discretion of the Board of Directors, with any fractional shares being rounded up to the next higher whole shares (the “Reverse Split”). On November 9, 2020, the Company’s Board of Directors approved the Reverse Split in a ratio of 1-for-10 and the Company filed a certificate of amendment to the Articles implementing the Reverse Split in a ratio of 1-for-10 effective November 30, 2020.

 

On November 23, 2020, in order to change the effective date of the Reverse Split to December 10, 2020, the Company terminated the November 9, 2020 certificate of amendment and filed a new certificate of amendment to the Articles implementing the Reverse Split in a ratio of 1-for-10 effective December 10, 2020.

 

On December 4, 2020, the Company temporarily delayed the Reverse Split. In order to delay the effective date of the Reverse Split, the Company terminated the November 23, 2020 certificate of amendment and filed a new certificate of amendment to the Articles implementing the Reverse Split in a ratio of 1-for-10 effective January 29, 2021; provided, however, that in no event will the Reverse Split become effective until it has been processed by the Financial Industry Regulatory Authority.

 

 25 

 

 

LA Fitness U.S. License Agreement & Guaranty

 

On September 24, 2019, Novomerica Health Group Inc. (“Novomerica”), a wholly owned subsidiary of the Company, entered into a Master Facility License Agreement with Fitness International, LLC and Fitness & Sports Clubs, LLC (together with Fitness International, LLC, “LA Fitness U.S.”). The Master Facility License Agreement was amended on February 4, 2020, pursuant to the terms of that certain First Amendment to Master Facility License Agreement between Novomerica and Fitness International, LLC (“U.S. License Agreement”).

 

Pursuant to the terms of the U.S. License Agreement, the parties agreed that from time to time as set forth in the U.S. License Agreement or as the parties otherwise agree, Novomerica may wish to identify sublicensees to provide certain services in facilities operated by LA Fitness U.S., and LA Fitness U.S. may desire to grant to such sublicenses the right to do the same. Upon execution of applicable documentation as may be required by the U.S. License Agreement, the sublicensee (which may be Novomerica, if Novomerica desires to provide Services (as hereinafter defined) itself) shall have the right, subject to the terms of the U.S. License Agreement, to (i) occupy and use, on an exclusive basis, for the purposes of providing outpatient physical and/or occupational therapy as provided in the U.S. License Agreement (the “Services”), with the applicable LA Fitness U.S. facility, and (ii) access and use, on a non-exclusive basis, for the purpose of providing the Services, the applicable facility’s equipment and a pool lane, and (iii) use, on a non-exclusive basis, the applicable facility’s common areas solely as necessary to access the facility’s service area, equipment and a pool lane.

 

Pursuant to the terms of the U.S. License Agreement, five separate initial licenses in Ohio were granted. Novomerica agreed to develop and open for business (a) at least two of such facilities by June 30, 2020, (b) at least two additional facilities by September 30, 2020, and (c) the final remaining facility by December 31, 2020 (“U.S. Development Schedule”). Pursuant to the terms of the U.S. License Agreement, in the event that Novomerica fails to meet the U.S. Development Schedule, the initial licenses that Novomerica has developed and opened for business will remain unaffected; however, Novomerica will lose the right to develop the remaining licenses.

 

With respect to each license granted under the U.S. License Agreement, for the period beginning as of the commencement date of each such license and continuing until the expiration or earlier termination of such license, Novomerica shall pay to LA Fitness U.S. a monthly payment in an agreed upon amount.

 

Unless sooner terminated as provided in the U.S. License Agreement, the term of the U.S. License Agreement shall expire simultaneously with the expiration of earlier termination of the License Term (as such term is defined in the U.S. License Agreement) of the last remaining license granted under the U.S. License Agreement.

 

Pursuant to the terms of the U.S. License Agreement, the Company agreed to execute that certain Guaranty Agreement (the “U.S. Guaranty”) dated September 24, 2019 by and between the Company and LA Fitness U.S. Pursuant to the terms of the U.S. Guaranty, the Company irrevocably guaranteed the full, unconditional and prompt payment and performance of all of Novomerica’s obligations and liabilities under the U.S. License Agreement.

 

In March 2020, as a result of guidelines issued by local, state, and federal authorities due to the COVID-19 pandemic, LA Fitness U.S. closed all facilities nationwide. Currently, under both government and internal corporate directives, LA Fitness U.S. is cautiously opening certain facilities to limited access and services. As a result, all contractual terms and conditions of our U.S. License Agreement are on hold, with all parties indicating the intention to amend the U.S. License Agreement and its timelines once “normal” activity resumes in the LA Fitness U.S. facilities. Re-engagement of the contract terms may vary from state to state; however, our model plan to partner and sub-license with existing local clinic ownership to launch and operate each LA Fitness U.S. based micro-clinic remains intact.

 

Specific to the impact of COVID-19 on LA Fitness U.S. operations and the ever-changing conditions surrounding the re-opening of LA Fitness U.S. facilities, we are unable to verify our schedule to commence opening our micro-clinics. The Company has ongoing communications with LA Fitness U.S. to best determine the timing of launching out micro-clinics. Furthermore, in our discussions with LA Fitness U.S., all parties agree that the pandemic has created renewed awareness of health wellness as a lifestyle rather than as a treatment. LA Fitness U.S. continues to indicate the desire to continue our contractual agreements upon LA Fitness U.S. re-opening facilities post-pandemic. We believe that the addition of our micro-clinics to LA Fitness U.S. facilities further enhances the benefits available to the facilities’ membership by providing direct access to certain multidimensional primary healthcare services.

 

 26 

 

 

LA Fitness Canada License Agreement & Guaranty

 

On September 24, 2019, NHL entered into a Master Facility License Agreement with LAF Canada Company (“LA Fitness Canada”). The Master Facility License Agreement was amended on February 4, 2020, pursuant to the terms of that certain First Amendment to Master Facility License Agreement between NHL and LA Fitness Canada (“Canada License Agreement”).

 

Pursuant to the terms of the Canada License Agreement, the parties agreed that from time to time as set forth in the Canada License Agreement or as the parties otherwise agree, NHL may wish to identify sublicensees to provide certain services in facilities operated by LA Fitness Canada, and LA Fitness Canada may desire to grant to such sublicensees the right to do the same. Upon execution of applicable documentation as may be required by the Canada License Agreement, the sublicensee (which may be NHL, if NHL desires to provide Services (as hereinafter defined) itself) shall have the right, subject to the terms of the Canada License Agreement, to (i) occupy and use, on an exclusive basis, for the purposes of providing the Services, with the applicable LA Fitness Canada facility, and (ii) access and use, on a non-exclusive basis, for the purpose of providing the Services, the applicable facility’s equipment and a pool lane, and (iii) use, on a non-exclusive basis, the applicable facility’s common areas solely as necessary to access the facility’s service area, equipment and a pool lane.

 

Pursuant to the terms of the Canada License Agreement, 17 separate initial licenses in Ontario, Canada and Alberta, Canada were granted. NHL agreed to develop and open for business (a) at least four of such facilities by March 31, 2020, (b) at least six additional facilities by June 30, 2020, (c) at least six additional facilities by September 30, 2020, and (4) the final remaining facility by December 31, 2020 (the “Canada Development Schedule”). Pursuant to the terms of the Canada License Agreement, in the event that NHL fails to meet the Canada Development Schedule, the initial licenses that NHL has developed and opened for business will remain unaffected; however, NHL will lose the right to develop the remaining licenses.

 

As defined in the Canada License Agreement, NHL has provided the initial four deposits due by March 31, 2020. In addition, NHL has engaged clinicians to sublicense the roll-out and operation of micro-clinics as defined in the Canada License Agreement clinics in LAF.

 

With respect to each license granted under the Canada License Agreement, for the period beginning as of the commencement date of each such license and continuing until the expiration or earlier termination of such license, NHL shall pay to LA Fitness Canada a monthly payment in an agreed upon amount.

 

Unless sooner terminated as provided in the Canada License Agreement, the term of the Canada License Agreement shall expire simultaneously with the expiration of earlier termination of the License Term (as such term is defined in the Canada License Agreement) of the last remaining license granted under the Canada License Agreement.

 

Pursuant to the terms of the Canada License Agreement, the Company agreed to execute that certain Guaranty Agreement (the “Canada Guaranty”) dated September 24, 2019 by and between the Company and LA Fitness Canada. Pursuant to the terms of the Canada Guaranty, the Company irrevocably guaranteed the full, unconditional, and prompt payment and performance of all of NHL’s obligations and liabilities under the Canada License Agreement.

 

In March 2020, as a result of guidelines issued by local, provincial, and federal authorities due to the COVID-19 pandemic, LA Fitness Canada closed all facilities nationwide. Currently, under both government and internal corporate directives, LA Fitness Canada is cautiously opening certain facilities to limited access and services. As a result, all contractual terms and conditions of our Canada License Agreement are on hold with all parties indicating the intention to amend the Canada License Agreement and its timelines once “normal” activity resumes in the LA Fitness Canada facilities. Re-engagement of the contract terms may vary from state to state; however, our model plan to partner and sub-license with existing local clinic ownership to launch and operate each LA Fitness Canada based micro-clinic remains intact.

 

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Specific to the impact of COVID-19 on LA Fitness Canada operations and the ever-changing conditions surrounding the re-opening of LA Fitness Canada facilities, we are unable to verify our schedule to commence opening our micro-clinics. The Company has ongoing communications with LA Fitness Canada to best determine the timing of launching out micro-clinics. Furthermore, in our discussions with LA Fitness Canada, all parties agree that the pandemic has created renewed awareness of health wellness as a lifestyle rather than as a treatment. LA Fitness Canada continues to indicate the desire to continue our contractual agreements upon the re-opening of LA Fitness Canada facilities post-pandemic. We believe that the addition of our micro-clinics to LA Fitness Canada facilities further enhances the benefits available to the facilities’ membership by providing direct access to certain multidimensional primary healthcare services.

 

Regulation A+ Offering

 

Beginning on June 29, 2020, in a “Tier 2 Offering,” pursuant to an Offering Circular on Form 1-A, as amended, pursuant to Regulation A, the Company offered, on a self-underwritten “best efforts” basis, up to 15,000,000 shares of its common stock, with an aggregate amount of $30,000,000. The initial public Offering price per share of the Company’s common stock is $1.50 per share pursuant to the Offering. There is no minimum number of shares that needs to be sold in order for funds to be released to the Company and for the Offering to close. The minimum investment amount per investor is $1,050 (700 shares of common stock), subject to waiver by the Company. As of November 30, 2020, no shares have been sold and no funds have been raised through this Regulation A+ Offering.

 

For the three months ended November 30, 2020 compared to the three months ended November 30, 2019

 

Revenues for the three months ended November 30, 2020 were $2,155,506, representing a decrease of $393,104, or 15.4%, from $2,548,610 for the same period in 2019. The decrease in revenue is principally due to the COVID-19 pandemic. We have rebounded from the closure of our clinics earlier in 2020, but revenues have not fully returned to historical levels.

 

Cost of revenues for the three months ended November 30, 2020 were $1,344,056, representing a decrease of $288,885 or 17.7%, from $1,632,941 for the same period in 2019. The decrease in cost of revenues is principally due the decrease in revenue as described above. Cost of revenues as a percentage of revenue was 62.4% for the three months ended November 30, 2020 and 64.1% for same period in 2019. The decrease in cost of revenues as a percentage of revenue is principally due to the Canada Emergency Wage Subsidy (CEWS) claimed as part of Canada’s COVID-19 Economic Response Plan that offset the salary expense for clinical workers.

 

Operating costs for the three months ended November 30, 2020 were $1,569,174, representing an increase of $576,680, or 58.1%, from $992,494 for the same period in 2019. The increase in operating costs is principally due to an increase in amortization of intangible assets and common stock issued for services; offset by decrease in salary expense due to the CEWS claimed as part of Canada’s COVID-19 Economic Response Plan that offset the salary expense for office staff.

 

Interest expense for the three months ended November 30, 2020 was $23,941, representing a decrease of $16,388, or 40.6%, from $40,329 for the same period in 2019. The decrease is due to reduction of interest bearing debt.

 

Net loss for the three months ended November 30, 2020 was $773,103, representing an increase of $684,144, or 769.1%, from $88,959 for the same period in 2019. The increase in net loss is principally due to a 15.4% decline in revenue and an increase in operating costs related to an increase in amortization of intangible assets and an increase in common stock issued for services.

 

Liquidity and Capital Resources

 

As shown in the accompanying financial statements, for the three months ended November 30, 2020, the Company had a net loss of $773,103.

 

During the three months ended November 30, 2020, the Company used cash in operating activities of $148,103 compared to $297,863 for the same period in 2019. The principal reason for the decrease is the noncash expenses and the decrease in accounts receivable.

 

During the three months ended November 30, 2020, the Company provided cash from investing activities of $0 compared to $114,015 for the same period in 2019. During the period in 2019, the Company received $378,200 from the return of a previous acquisition deposit and made a payment for a deposit on another potential acquisition of $264,185. During the period in 2020 there were no return of or payment for acquisition deposits.

 

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During the three months ended November 30, 2020, the Company provided cash from financing activities of $43,611 compared to $30,147 for the same period in 2019. The principal reason for the increase in cash provided by financing activities was a decrease in the repayments to related parties offset by a decrease in the proceeds received from the sale of common stock.

 

On September 24, 2020, the Company sold 219,048 restricted shares of common stock to an accredited investor residing outside the United States for a purchase price of $92,000, resulting in an effective price per share of $0.42. The shares were issued on September 24, 2020.

 

Financial Impact of COVID-19

 

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

 

As a result of certain provincial proclamations and/or directives issued due to the COVID-19 pandemic, NHL’s clinic operations, which historically represent approximately 53% of the Company’s top-line revenue, were closed on March 17, 2020 for all in-clinic non-essential services while only providing certain virtual based and in-clinic emergency services. Accordingly, the Company’s top-line revenue for the fiscal first quarter (ended November 30, 2020) was adversely impacted with a top-line revenue reduction of 15.4% compared to the same period in 2019. However, the pandemic driven clinic shutdown is proving to have nominal effect on NHL’s clinic operating income for the fiscal first quarter ended November 30, 2020 as compared to the same period in 2019.

 

As a result of certain provincial proclamations and/or directives issued due to the COVID-19 pandemic, most of NHL’s contracted eldercare services, which historically represent approximately 45% of the Company’s overall top-line revenue, have been identified as essential; thus, we saw nominal impact on our eldercare division’s fiscal year 1st quarter (ended November 30, 2020) top-line and bottom-line revenue. We project a nominal impact on our fiscal year 2021 top-line and bottom-line revenue as it relates to the eldercare division

 

NHL’s accounts receivable primarily are comprised of third-party major Canadian insurer accounts in which the collection process, while arduous, provides the Company with a high percentage of success for collection. The percentage for “non-collectable” receivables remains at levels that are typical based on historical data review. In addition, the pandemic has allowed for concentrated successful efforts in collecting existing receivables.

 

Specific to our current working capital position, as a result of the COVID-19 pandemic, the Company is able to participate in certain ongoing relief assistance programs provided for under Canada’s COVID-19 Emergency Response Plan and the United States CARES Act which provides access to funds for expenses such as wage subsidy, corporate forgivable loan programs and rental subsidy. Based on all the above noted factors, the Company’s fiscal first quarter (ended November 30, 2020) cash and cash equivalents was $1,970,391 which was less than our fiscal year end (ended August 31, 2020) cash and cash equivalents position of $2,067,718.

 

As a result of the pandemic driven clinic shutdown, the Company projects no measurable liquidity deficiency. In addition, our identified assets (goodwill inclusive) are largely non-affected as the vast majority are related to business growth as identified in our business growth initiatives.

 

On May 26, 2020, the Ontario Ministry of Health announced updated guidance and directives stating that physiotherapists, chiropractors and other regulated health professionals, including all services and products provided by the Company, can gradually and carefully begin providing all services, including non-essential services, once the clinician and provider are satisfied all necessary precautions and protocols are in place to protect the patients, the clinician and the clinic staff.

 

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On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients. Certain of these guidelines and protocols include both active and passive screening for staff and clients, enhanced cleaning measures using only Health Canada approved disinfectants and sanitizers, personal protective equipment usage, appropriate signage and markers throughout the clinics, and layout changes to the clinics to reflect proper physical distancing measures. Additional, more restrictive proclamations and/or directives may be issued in the future.

 

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

 

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

 

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

 

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

 

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 consolidated statements of operations and other comprehensive income (loss).

 

Revenue Recognition

 

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

 

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

 

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

 

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

 

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

 

Stock-Based Compensation

 

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

 

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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.

 

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 balance sheet.

 

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, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. The new standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The new standard will be effective for our fiscal year beginning September 1, 2020 and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its 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.

 

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.

 

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, 2020. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of November 30, 2020, 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, 2020 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 fiscal year ended August 31, 2020 (the “2020 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 2020 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. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

 

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

 

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

 

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

 

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On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients. Certain of these guidelines and protocols include both active and passive screening for staff and clients, enhanced cleaning measures using only Health Canada approved disinfectants and sanitizers, personal protective equipment usage, appropriate signage and markers throughout the clinics, and layout changes to the clinics to reflect proper physical distancing measures. Additional, more restrictive proclamations and/or directives may be issued in the future.

 

With our clinic facilities re-opened and our eldercare contracts operating under COVID-19 pandemic related mandated guidelines and protocols, for the month ended November 30, 2020 NHL’s clinic-based patient flow has met and exceeds 80% for the same period in 2019. In addition, for the month ended November 30, 2020 NHL’s eldercare contract services provided has met and exceeds 92% for the same period in 2019. As of November 30, 2020, the Company has 73 full-time employees and 54 part-time employees.

 

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

 

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

 

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

 

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

 

In September 2020, the Company issued 219,048 restricted shares of common stock to an accredited investor residing outside the United States for a purchase price of $92,000, resulting in an effective price per share of $0.42. The shares were issued on September 24, 2020.

 

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
     
3.1   Certificate of Amendment filed by the registrant with the Nevada Secretary of State on November 9, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K as filed with the Commission on November 30, 2020).
     
3.2   Termination of Amendment filed by the registrant with the Nevada Secretary of State on November 23, 2020 (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K as filed with the Commission on November 30, 2020).
     
3.3   Certificate of Amendment filed by the registrant with the Nevada Secretary of State on November 23, 2020 (incorporated by reference to Exhibit 3.3 to the registrant’s Current Report on Form 8-K as filed with the Commission on November 30, 2020).
     
3.4   Termination of Amendment filed by the registrant with the Nevada Secretary of State on December 4, 2020 (incorporated by reference to Exhibit 3.5 to the registrant’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020).
     
3.5   Certificate of Amendment filed by the registrant with the Nevada Secretary of State on December 4, 2020 (incorporated by reference to Exhibit 3.6 to the registrant’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020).
     
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   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB   XBRL Taxonomy Extension Labels Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

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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 13, 2021 By: /s/ Robert Mattacchione
    Robert Mattacchione
    Chief Executive Officer (principal executive officer)
     
  By: /s/ Thomas Bray
    Thomas Bray
    Principal Financial Officer

 

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