Novo Integrated Sciences, Inc. [NVOS] Filings

10-Q 1 form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

For the quarterly period ended May 31, 2022

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

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

Commission File Number 001-40089

Novo Integrated Sciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

Nevada

59-3691650

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

11120 NE 2nd Street, Suite 100

Bellevue, Washington

98004

(Address of Principal Executive Offices)

(Zip Code)

(206) 617-9797

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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

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

There were 31,021,645 shares of the Registrant’s $0.001 par value common stock outstanding as of July 13, 2022.

Novo Integrated Sciences, Inc.

Contents

PART I – FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	47

PART II – OTHER INFORMATION		47

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	48

Signatures		49

Item 1. Financial Statements.

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of May 31, 2022 (unaudited) and August 31, 2021


	May 31,			August 31,
	2022			2021
		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	12,677,446		$	8,293,162
Accounts receivable, net		5,166,239			1,468,429
Inventory, net		645,063			339,385
Other receivables, current portion		1,209,137			814,157
Prepaid expenses and other current assets		380,800			218,376
Total current assets		20,078,685			11,133,509

Property and equipment, net		5,931,683			6,070,291
Intangible assets, net		32,192,858			32,029,499
Right-of-use assets, net		2,222,970			2,543,396
Other receivables, net of current portion		-			692,738
Goodwill		11,366,618			9,488,848
TOTAL ASSETS	$	71,792,814		$	61,958,281

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	1,621,719		$	1,449,784
Accrued expenses		1,243,792			1,129,309
Accrued interest (including amounts to related parties)		961,823			366,280
Government loans and notes payable, current portion		5,260,056			4,485,649
Convertible notes payable, net of discount of $0		1,875,000			-
Contingent liability		750,860			-
Due to related parties		456,528			478,920
Finance lease liability, current portion		15,982			23,184
Operating lease liability, current portion		544,690			530,797
Total current liabilities		12,730,450			8,463,923

Debentures, related parties		981,337			982,205
Notes payable, net of current portion		158,645			5,133,604
Convertible notes payable, net of discount of $5,170,205		10,252,017			-
Finance lease liability, net of current portion		8,563			16,217
Operating lease liability, net of current portion		1,734,790			2,057,805
Deferred tax liability		1,499,045			1,500,372
TOTAL LIABILITIES		27,364,847			18,154,126

Commitments and contingencies		-			-

STOCKHOLDERS’ EQUITY
Novo Integrated Sciences, Inc.
Convertible preferred stock; $0.001 par value; 1,000,000 shares authorized; 0 and 0 shares issued and outstanding at May 31, 2022 and August 31, 2021, respectively
Common stock; $0.001 par value; 499,000,000 shares authorized; 30,659,073 and 26,610,144 shares issued and outstanding at May 31, 2022 and August 31, 2021, respectively		30,659			26,610
Additional paid-in capital		64,620,878			54,579,396
Common stock to be issued (4,308,591 and 3,622,199 shares at May 31, 2022 and August 31, 2021)		10,096,332			9,236,607
Other comprehensive income		1,015,993			991,077
Accumulated deficit		(31,391,082	)		(20,969,274	)
Total Novo Integrated Sciences, Inc. stockholders’ equity		44,372,780			43,864,416
Noncontrolling interest		55,187			(60,261	)
Total stockholders’ equity		44,427,967			43,804,155
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	71,792,814		$	61,958,281

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

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three and Nine Months Ended May 31, 2022 and 2021 (unaudited)

	May 31,			May 31,			May 31,			May 31,
	Three Months Ended						Nine Months Ended
	May 31,			May 31,			May 31,			May 31,
	2022			2021			2022			2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Revenues	$	13,851,883		$	2,380,974		$	19,883,033		$	6,612,374

Cost of revenues		11,443,001			1,100,516			14,991,331			3,769,020

Gross profit		2,408,882			1,280,458			4,891,702			2,843,354

Operating expenses:
Selling expenses		9,802			2,381			36,340			4,226
General and administrative expenses		3,601,826			1,680,049			9,542,443			5,324,768
Total operating expenses		3,611,628			1,682,430			9,578,783			5,328,994

Loss from operations		(1,202,746	)		(401,972	)		(4,687,081	)		(2,485,640	)

Non operating income (expense)
Interest income		8,355			8,402			25,233			25,265
Interest expense		(513,398	)		(21,701	)		(1,808,310	)		(68,590	)
Amortization of debt discount		(2,133,890	)		-			(3,654,752	)		-
Foreign currency transaction gains (losses)		97,654			-			(303,714	)		-
Total other income (expense)		(2,541,279	)		(13,299	)		(5,741,543	)		(43,325	)

Loss before income taxes		(3,744,025	)		(415,271	)		(10,428,624	)		(2,528,965	)

Income tax expense		-			-			-			-

Net loss	$	(3,744,025	)	$	(415,271	)	$	(10,428,624	)	$	(2,528,965	)

Net income (loss) attributed to noncontrolling interest		66,029			(4,084	)		(6,816	)		(6,438	)

Net loss attributed to Novo Integrated Sciences, Inc.	$	(3,810,054	)	$	(411,187	)	$	(10,421,808	)	$	(2,522,527	)

Comprehensive loss:
Net loss		(3,744,025	)		(415,271	)		(10,428,624	)		(2,528,965	)
Foreign currency translation gain		13,711			123,521			24,916			176,349
Comprehensive loss:	$	(3,730,314	)	$	(291,750	)	$	(10,403,708	)	$	(2,352,616	)

Weighted average common shares outstanding - basic and diluted		29,817,999			25,298,866			28,498,414			24,192,998

Net loss per common share - basic and diluted	$	(0.13	)	$	(0.02	)	$	(0.37	)	$	(0.10	)

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

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three and Nine Months Ended May 31, 2022 and 2021 (unaudited)

	Shares		Amount		Capital			Be Issued			Income			Deficit			Equity			Interest			Equity
																	Total
					Additional			Common			Other						Novo
	Common Stock				Paid-in			Stock To			Comprehensive			Accumulated			Stockholders’			Noncontrolling			Total
	Shares		Amount		Capital			Be Issued			Income			Deficit			Equity			Interest			Equity
Balance, August 31, 2021		26,610,144	$	26,610	$	54,579,396		$	9,236,607		$	991,077		$	(20,969,274	)	$	43,864,416		$	(60,261	)	$	43,804,155

Common stock for services		35,000		35		64,715			-			-			-			64,750			-			64,750
Common stock issued as collateral and held in escrow		2,000,000		2,000		(2,000	)		-			-			-			-			-			-
Common stock to be issued for purchase of Terragenx		-		-		-			983,925			-			-			983,925			97,311			1,081,236
Common stock to be issued for purchase of Mullin assets		-		-		-			188,925			-			-			188,925			-			188,925
Value of warrants issued with convertible notes		-		-		295,824			-			-			-			295,824			-			295,824
Fair value of stock options		-		-		154,135			-			-			-			154,135			-			154,135
Foreign currency translation loss		-		-		-			-			(103,533	)		-			(103,533	)		(855	)		(104,388	)
Net loss		-		-		-			-			-			(1,806,587	)		(1,806,587	)		(9,808	)		(1,816,395	)

Balance, November 30, 2021		28,645,144		28,645		55,092,070			10,409,457			887,544			(22,775,861	)		43,641,855			26,387			43,668,242

Common stock for services		240,000		240		297,760			-			-			-			298,000			-			298,000
Value of warrants issued with convertible notes		-		-		5,257,466			-			-			-			5,257,466			-			5,257,466
Fair value of stock options		-		-		44,427			-			-			-			44,427			-			44,427
Foreign currency translation gain		-		-		-			-			114,738			-			114,738			355			115,093
Net loss		-		-		-			-			-			(4,805,167	)		(4,805,167	)		(63,037	)		(4,868,204	)

Balance, February 28, 2022		28,885,144		28,885		60,691,723			10,409,457			1,002,282			(27,581,028	)		44,551,319			(36,295	)		44,515,024

Common stock for services		125,000		125		313,875			-			-			-			314,000			-			314,000
Common stock for conversion of convertible notes		623,929		624		1,247,225			-			-			-			1,247,849			-			1,247,849
Common stock for acquisition		800,000		800		1,703,200			-			-			-			1,704,000			-			1,704,000
Common stock to be issued for acquisitions		-		-		-			260,625			-			-			260,625			25,402			286,027
Issuance of common stock to be issued		225,000		225		573,525			(573,750	)		-			-			-			-			-
Fair value of stock options		-		-		91,330			-			-			-			91,330			-			91,330
Foreign currency translation gain		-		-		-			-			13,711			-			13,711			51			13,762
Net loss		-		-		-			-			-			(3,810,054	)		(3,810,054	)		66,029			(3,744,025	)

Balance, May 31, 2022		30,659,073	$	30,659	$	64,620,878		$	10,096,332		$	1,015,993		$	(31,391,082	)	$	44,372,780		$	55,187		$	44,427,967

Balance, August 31, 2020		23,466,236	$	23,466	$	44,905,454		$	-		$	1,199,696		$	(16,507,127	)	$	29,621,489		$	(49,859	)	$	29,571,630

Common stock issued for cash		21,905		22		91,978			-			-			-			92,000			-			92,000
Common stock issued for services		65,000		65		247,935			-			-			-			248,000			-			248,000
Foreign currency translation gain		-		-		-			-			10,596			-			10,596			(225	)		10,371
Net loss		-		-		-			-			-			(771,470	)		(771,470	)		(1,633	)		(773,103	)

Balance, November 30, 2020		23,553,141		23,553		45,245,367			-			1,210,292			(17,278,597	)		29,200,615			(51,717	)		29,148,898

Exercise of stock options		7,500		8		11,992			-			-			-			12,000			-			12,000
Common stock issued for intellectual property		240,000		240		875,760			-			-			-			876,000			-			876,000
Common stock to be issued for services rendered		-		-		-			375,000			-			-			375,000			-			375,000
Rounding due to stock split		957		1		(1	)		-			-			-			-			-			-
Fair value of vested stock options		-		-		22,215			-			-			-			22,215			-			22,215
Foreign currency translation gain		-		-		-			-			42,232			-			42,232			(965	)		41,267
Net loss		-		-		-			-			-			(1,339,870	)		(1,339,870	)		(721	)		(1,340,591	)

Balance, February 28, 2021		23,801,598		23,802		46,155,333			375,000			1,252,524			(18,618,467	)		29,188,192			(53,403	)		29,134,789

Common stock for services		100,000		100		374,900			(375,000	)		-			-			-			-			-
Common stock issued for acquisition		189,796		190		430,647			-			-			-			430,837			-			430,837
Common stock issued for services rendered		9,913		9		37,163			-			-			-			37,172			-			37,172
Common stock issued for cash, net of offering costs		2,388,050		2,388		7,233,192			-			-			-			7,235,580			-			7,235,580
Fair value of vested stock options		-		-		66,640			-			-			-			66,640			-			66,640
Foreign currency translation gain		-		-		-			-			123,521			-			123,521			(3,143	)		120,378
Net loss		-		-		-			-			-			(411,187	)		(411,187	)		(4,084	)		(415,271	)

Balance, May 31, 2021		26,489,357	$	26,489	$	54,297,875		$	-		$	1,376,045		$	(19,029,654	)	$	36,670,755		$	(60,630	)	$	36,610,125

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

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended May 31, 2022 and 2021 (unaudited)

	May 31,			May 31,
	Nine Months Ended
	May 31,			May 31,
	2022			2021
	(unaudited)			(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,428,624	)	$	(2,528,965	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,349,434			1,118,925
Fair value of vested stock options		289,892			88,855
Common stock issued for services		676,750			660,172
Operating lease expense		418,188			467,864
Amortization of debt discount		3,654,752			-
Foreign currency transaction losses		303,714			-
Changes in operating assets and liabilities:
Accounts receivable		(3,650,069	)		543,213
Inventory		(263,539	)		-
Prepaid expenses and other current assets		(150,632	)		(143,590	)
Accounts payable		117,056			(97,659	)
Accrued expenses		(68,871	)		64,513
Accrued interest		598,904			7,455
Operating lease liability		(406,862	)		(460,063	)
Net cash used in operating activities		(6,559,907	)		(279,280	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(190,973	)		(201,369	)
Cash acquired from (paid for) acquisition		57,489			(10,000	)
Payment on other receivable		296,138			-
Amounts loaned for other receivables		-			(470,040	)
Net cash provided by (used in) investing activities		162,654			(681,409	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to related parties		(21,932	)		(177,534	)
Repayments of finance leases		(14,797	)		-
Repayments of notes payable		(4,430,794	)		-
Proceeds from the sale of common stock, net of offering costs		-			7,327,580
Proceeds from exercise of stock options		-			12,000
Proceeds from issuance of convertible notes, net		15,270,000			-
Net cash provided by financing activities		10,802,477			7,162,046

Effect of exchange rate changes on cash and cash equivalents		(20,940	)		97,970

NET INCREASE IN CASH AND CASH EQUIVALENTS		4,384,284			6,299,327

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		8,293,162			2,067,718

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	12,677,446		$	8,367,045

CASH PAID FOR:
Interest	$	1,294,912		$	33,183
Income taxes	$	-		$	-

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock to be issued for intangible assets	$	188,925		$	876,000
Common stock to be issued for acquisitions	$	1,244,550		$	-
Common stock issued for acquisition	$	1,704,000		$	430,837
Conversion of convertible notes payable and accrued interest to common stock	$	1,247,849		$	-

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

NOVO INTEGRATED SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended May 31, 2022 and 2021 (unaudited)

Note 1 - Organization and Basis of Presentation

Organization and Line of Business

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

The Company owns Canadian and U.S. subsidiaries which provide, or intend to provide, essential and differentiated solutions to the delivery of multidisciplinary primary care and related wellness products through the integration of medical technology, interconnectivity, advanced therapeutics, diagnostic solutions, unique personalized product offerings, and rehabilitative science.

We believe that “decentralizing” healthcare, through the integration of medical technology and interconnectivity, is an essential solution to the rapidly evolving fundamental transformation of how non-catastrophic healthcare is delivered now and how it will be delivered in the future. Specific to non-critical care, ongoing advancements in both medical technology and inter-connectivity are allowing for a shift of the patient/practitioner relationship to the patient’s home and away from on-site visits to primary medical centers with mass-services. This acceleration of “ease-of-access” in the patient/practitioner interaction for non-critical care diagnosis and subsequent treatment minimizes the degradation of non-critical health conditions to critical conditions as well as allowing for more cost-effective and efficient healthcare distribution.

The Company’s decentralized healthcare business model is centered on three primary pillars to best support the transformation of non-catastrophic healthcare delivery to patients and consumers:

	●	First Pillar – Service Networks: Deliver multidisciplinary primary care services through (i) an affiliate network of clinic facilities, (ii) small and micro footprint sized clinic facilities primarily located within the footprint of box-store commercial enterprises, (iii) clinic facilities operated through a franchise relationship with the Company, and (iv) corporate operated clinic facilities.

	●	Second Pillar – Technology: Develop, deploy, and integrate sophisticated interconnected technology, interfacing the patient to the healthcare practitioner thus expanding the reach and availability of the Company’s services, beyond the traditional clinic location, to geographic areas not readily providing advanced, peripheral based healthcare services, including the patient’s home.

	●	Third Pillar – Products: Develop and distribute effective, personalized health and wellness product solutions allowing for the customization of patient preventative care remedies and ultimately a healthier population. The Company’s science-first approach to product innovation further emphasizes our mandate to create and provide over-the-counter preventative and maintenance care solutions.

Innovation through science, combined with the integration of sophisticated, secure technology, assures Novo Integrated of continued cutting edge advancement in patient first platforms.

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

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

Reverse Stock Split

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

Impact of COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. On March 17, 2020, as a result of COVID-19 pandemic having been reported throughout both Canada and the United States, certain national, provincial, state and local governmental authorities issued proclamations and/or directives aimed at minimizing the spread of COVID-19. Accordingly, on March 17, 2020, the Company closed all corporate clinics for all in-clinic non-essential services to protect the health and safety of its employees, partners, and patients. Commencing in May 2020, the Company was able to begin providing some services, and was fully operational again in June 2020. As of May 31, 2022, all corporate clinics were open and operational, with staffing shortages in some facilities due to ongoing COVID-19 residual impact, 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, and our eldercare operations are fully operational. In addition, Acenzia Inc. (“Acenzia”), Terragenx Inc. (“Terragenx”), PRO-DIP, LLC (“PRO-DIP”), and Clinical Consultants International LLC (“CCI”), each of which is a wholly owned subsidiary of Novo Integrated, are open and fully operational, with staffing shortages due to ongoing COVID-19 residual impact, while following all local, state, provincial, and national guidelines and protocols related to minimizing the spread of the COVID-19 pandemic.

Canadian federal and provincial COVID-19 governmental proclamations and directives, including interprovincial travel restrictions, have presented unprecedented challenges to launching our Harvest Gold Farms and Kainai Cooperative joint ventures during the period ended May 31, 2022. The Company intends to commence pilot projects for each joint venture in the period ended August 31, 2022. These joint ventures relate to the development, management, and arrangement of medicinal farming projects involving industrial hemp for medicinal Cannabidiol (CBD) applications.

While all of the Company’s business units are operational at the time of this filing, any future impact of the COVID-19 pandemic on the Company’s operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including, but not limited to, (i) the duration of the COVID-19 outbreak and additional variants that may be identified, (ii) new information which may emerge concerning the severity of the COVID-19 pandemic, and (iii) any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced patient traffic, and reduced operations.

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

Basis of Presentation

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

The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, that the Company filed on December 14, 2021. The results of operations for the nine months ended May 31, 2022 are not necessarily indicative of the results for the fiscal year ending August 31, 2022. The Company’s Canadian subsidiaries’ functional currency is the Canadian Dollar (“CAD”); however, the accompanying unaudited condensed 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 ASC Topic 830, all assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, Comprehensive Income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the condensed consolidated statement of operations and comprehensive loss. The following table details the exchange rates used for the respective periods:

	May 31, 2022		May 31, 2021		August 31, 2021

Period end: CAD to USD exchange rate	$	0.7910	$	0.8284	$	0.7917
Average period: CAD to USD exchange rate	$	0.7897	$