UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State
or Other Jurisdiction of |
(I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices) | (Zip Code) |
(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 | ||
The
|
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.
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).
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 | ☐ |
☒ | 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 shares of the Registrant’s $0.001 par value common stock outstanding as of July 19, 2024.
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 Operations | 41 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 58 |
Item 4. | Controls and Procedures | 58 |
PART II – OTHER INFORMATION | 58 | |
Item 1. | Legal Proceedings | 58 |
Item 1A. | Risk Factors | 58 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 58 |
Item 3. | Defaults Upon Senior Securities | 58 |
Item 4. | Mine Safety Disclosures | 59 |
Item 5. | Other Information | 59 |
Item 6. | Exhibits | 59 |
Signatures | 60 |
2 |
Item 1. Financial Statements.
NOVO INTEGRATED SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of May 31, 2024 (unaudited) and August 31, 2023
May 31, | August 31, | |||||||
2024 | 2023 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net | ||||||||
Inventory, net | ||||||||
Other receivables, current portion | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Property and equipment, net | ||||||||
Intangible assets, net | ||||||||
Right-of-use assets, net | ||||||||
Goodwill | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Accrued interest (including amounts to related parties) | ||||||||
Government loans and notes payable, current portion | ||||||||
Convertible notes payable, net of discount of $ | ||||||||
Derivative liability | ||||||||
Contingent liability | ||||||||
Debentures, related parties | ||||||||
Due to related parties | ||||||||
Finance lease liability, net of current portion | ||||||||
Operating lease liability, current portion | ||||||||
Total current liabilities | ||||||||
Government loans and notes payable, net of current portion | ||||||||
Operating lease liability, net of current portion | ||||||||
Deferred tax liability | ||||||||
TOTAL LIABILITIES | ||||||||
Commitments and contingencies | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Novo Integrated Sciences, Inc. | ||||||||
Convertible preferred stock; $ shares issued and outstanding at May 31, 2024 and August 31, 2023 | par value; shares authorized;||||||||
Common stock; $ and shares issued and outstanding at May 31, 2024 and August 31, 2023, respectively | par value; shares authorized; ||||||||
Additional paid-in capital | ||||||||
Common stock to be issued ( | and shares at May 31, 2024 and August 31, 2023)||||||||
Other comprehensive (loss) income | ( | ) | ||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Novo Integrated Sciences, Inc. stockholders’ equity | ||||||||
Noncontrolling interest | ( | ) | ( | ) | ||||
Total stockholders’ equity | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ |
* The condensed consolidated balance sheets’ common stock amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
3 |
NOVO INTEGRATED SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three and Nine Months Ended May 31, 2024 and 2023 (unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
May 31, | May 31, | May 31, | May 31, | |||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Revenues | $ | $ | $ | $ | ||||||||||||
Cost of revenues | ||||||||||||||||
Gross profit | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Selling expenses | ||||||||||||||||
General and administrative expenses | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Non operating income (expense) | ||||||||||||||||
Interest income | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other expense | ( | ) | ( | ) | ||||||||||||
Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Exchange currency (loss) gain | ( | ) | ( | ) | ||||||||||||
Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income tax expense | ||||||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net income (loss) attributed to noncontrolling interest | ( | ) | ||||||||||||||
Net loss attributed to Novo Integrated Sciences, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Comprehensive loss: | ||||||||||||||||
Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Foreign currency translation gain (loss) | ( | ) | ( | ) | ||||||||||||
Comprehensive loss: | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
Net loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) |
* The condensed consolidated statements of operations and comprehensive loss’s share and per share amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
4 |
NOVO INTEGRATED SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three and Nine Months Ended May 31, 2024 and 2023 (unaudited)
Additional | Common | Other | Total 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, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | | $ | ( | ) | $ | |||||||||||||||||||||
Cashless exercise of warrants | ||||||||||||||||||||||||||||||||||||
Exercise of warrants for cash | ||||||||||||||||||||||||||||||||||||
Share issuance for convertible debt settlement | ||||||||||||||||||||||||||||||||||||
Issuance of common stock to be issued | ( | ) | ||||||||||||||||||||||||||||||||||
Common stock issued for services | ||||||||||||||||||||||||||||||||||||
Reverse stock split share rounding | ( | ) | ||||||||||||||||||||||||||||||||||
Foreign currency translation gain | – | ( | ) | |||||||||||||||||||||||||||||||||
Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Balance, November 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
Share issuance for convertible debt settlement | ||||||||||||||||||||||||||||||||||||
Foreign currency translation gain | – | |||||||||||||||||||||||||||||||||||
Fair value of stock options | – | |||||||||||||||||||||||||||||||||||
Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Balance, February 29, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
Share issuance for convertible debt settlement | ||||||||||||||||||||||||||||||||||||
Cancellation of agreement | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Foreign currency translation gain | – | ( | ) | |||||||||||||||||||||||||||||||||
Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Balance, May 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ |
5 |
Additional | Common | Other | Total 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, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | | $ | ( | ) | $ | |||||||||||||||||||||||
Common stock issued for cash, net of offering costs | ||||||||||||||||||||||||||||||||||||
Issuance of common stock to be issued | ( | ) | ||||||||||||||||||||||||||||||||||
Cashless exercise of warrants | ||||||||||||||||||||||||||||||||||||
Fair value of stock options | – | |||||||||||||||||||||||||||||||||||
Foreign currency translation loss | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Net loss | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Balance, November 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
Share issuance for convertible debt settlement | ||||||||||||||||||||||||||||||||||||
Exercise of warrants (Cashless Exercise) | ||||||||||||||||||||||||||||||||||||
Exercise of warrants for cash | ||||||||||||||||||||||||||||||||||||
Issuance of common stock to be issued | ( | ) | ||||||||||||||||||||||||||||||||||
Shares issued with convertible notes | ||||||||||||||||||||||||||||||||||||
Value of warrants issued with convertible notes | – | |||||||||||||||||||||||||||||||||||
Fair value of stock options | – | |||||||||||||||||||||||||||||||||||
Extinguishment of derivative liability due to conversion | – | |||||||||||||||||||||||||||||||||||
Foreign currency translation loss | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Net loss | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Balance, February 28, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Share issuance for convertible debt settlement | ||||||||||||||||||||||||||||||||||||
Exercise of warrants for cash | ||||||||||||||||||||||||||||||||||||
Shares issued with convertible notes | ||||||||||||||||||||||||||||||||||||
Value of warrants issued with convertible notes | – | |||||||||||||||||||||||||||||||||||
Beneficial conversion feature upon issuance of convertible debt | – | |||||||||||||||||||||||||||||||||||
Stock option expense | – | |||||||||||||||||||||||||||||||||||
Foreign currency translation loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Balance, May 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ |
* The condensed consolidated statements of stockholders’ equity share amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
6 |
NOVO INTEGRATED SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended May 31, 2024 and 2023 (unaudited)
Nine Months Ended | ||||||||
May 31, | May 31, | |||||||
2024 | 2023 | |||||||
(unaudited) | (unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments for non-cash items: | ||||||||
Depreciation and amortization | ||||||||
Fair value of vested stock options | ||||||||
Change in fair value of derivative liability | ||||||||
Cashless exercise of warrants | ||||||||
Common stock issued for services | ||||||||
Operating lease expense | ||||||||
Amortization of debt discount | ||||||||
Foreign currency transaction losses | ( | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Inventory | ( | ) | ( | ) | ||||
Prepaid expenses and other current assets | ||||||||
Accounts payable | ||||||||
Accrued expenses | ||||||||
Accrued interest | ( | ) | ||||||
Operating lease liability | ( | ) | ( | ) | ||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
(Repayments to) proceeds from related parties | ( | ) | ( | ) | ||||
Proceeds from notes payable | ||||||||
Repayments of notes payable | ( | ) | ||||||
Repayments of finance leases | ( | ) | ( | ) | ||||
Proceeds from issuance of convertible notes, net | ||||||||
Repayment of convertible notes | ( | ) | ( | ) | ||||
Proceeds from the sale of common stock, net of offering costs | ||||||||
Proceeds from exercise of warrants | ||||||||
Net cash provided by financing activities | ||||||||
Effect of exchange rate changes on cash and cash equivalents | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | ||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | ||||||
CASH PAID FOR: | ||||||||
Interest | $ | $ | ||||||
Income taxes | $ | $ | ||||||
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Common stock issued for convertible debt settlement | $ | $ | ||||||
Beneficial conversion feature upon issuance of convertible notes | ||||||||
Debt discount recognized on derivative liability | ||||||||
Debt discount recognized on convertible note | ||||||||
Extinguishment of derivative liability due to conversion | ||||||||
Common stock issued with convertible notes | ||||||||
Warrants issued with convertible notes | $ | $ |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
7 |
NOVO INTEGRATED SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended May 31, 2024 and May 31, 2023 (unaudited)
Note 1 - Organization and Basis of Presentation
Organization and Line of Business
Novo Integrated Sciences, Inc. (“Novo Integrated”) was incorporated in Delaware on November 27, 2000, under the name Turbine Truck Engines, Inc. On February 20, 2008, the Company was re-domiciled to the State of Nevada. Effective July 12, 2017, the Company’s name was changed to Novo Integrated Sciences, Inc. When used herein, the terms the “Company,” “we,” “us” and “our” refer to Novo Integrated and its consolidated subsidiaries.
The Company owns Canadian and U.S. subsidiaries which provide, or intend to provide, essential and differentiated solutions to the delivery of multidisciplinary primary care and related wellness products through the integration of medical technology, interconnectivity, advanced therapeutics, 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. |
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 (“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 common stock such that following the closing of the Share Exchange Agreement, the NHL Shareholders would own restricted shares of Novo Integrated common stock, representing % 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 were subject to a then-current Regulation S offering that was undertaken by Novo Integrated (the “Exchange”).
8 |
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, and not as a business combination, with NHL being treated as the continuing entity.
The historical financial statements presented are the financial statements of NHL. At the closing date of the Exchange, the net assets
of the legal acquirer, Novo Integrated Sciences, Inc., were $
Reverse Stock Split
On
November 7, 2023, the Company effectuated a
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared 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, 2023, that the Company filed on December 14, 2023. The results of operations for the nine months ended May 31, 2024 are not necessarily indicative of the results for the fiscal year ending August 31, 2024.
The Company’s Canadian subsidiaries’ functional currency is the Canadian Dollar (“CAD”) and the parent company’s functional currency is the United States Dollar (“$” or “USD”); however, the accompanying unaudited condensed consolidated financial statements were translated and presented in USD.
Going Concern
The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued. The Company has incurred recurring losses from operations, has negative cash flows from operating activities, and has an accumulated deficit as of May 31, 2024. The Company believes that its cash and other available resources may not be sufficient to meet its operating needs and the payment of obligations related to various business acquisitions as they come due within one year after the date the unaudited condensed consolidated financial statements are issued.
In an effort to alleviate these conditions, the Company has considered equity and/or debt financing and/or asset monetization. There can be no assurance that funding would be available, or that the terms of such funding would be on favorable terms if available. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. These conditions, along with the matters noted above, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements are issued.
9 |
While management has developed and is in process to implement plans that management believes could alleviate in the future the substantial doubt that was raised, management concluded at the date of the issuance of the unaudited condensed consolidated financial statements that substantial doubt exists as those plans are not completely within the control of management. These unaudited condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated balance sheets classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
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 (“OCI”) 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, 2024 | May 31, 2023 | August 31, 2023 | ||||||||||
Period end: CAD to USD exchange rate | $ | $ | $ | |||||||||
Average period: CAD to USD exchange rate | $ | $ | $ |
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 the going concern assessment, useful lives of non-current assets, impairment of non-current assets, allowance for doubtful receivables, allowance for slow moving and obsolete inventory, valuation of share-based compensation and warrants, valuation of derivative liability, 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 unaudited condensed consolidated financial statements include the accounts of the Company and entities it controls, including
its wholly owned subsidiaries, NHL, Acenzia Inc. (“Acenzia”), Novomerica Health Group, Inc. (“NHG”), Novo Healthnet
Rehab Limited, Novo Assessments Inc., PRO-DIP, LLC (“PRO-DIP”), a
10 |
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 condensed consolidated statements of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less.
Accounts Receivable
Accounts receivable consist of amounts due to the Company from customers as a result of the Company’s normal business activities. Accounts receivable is reported on the balance sheets net of an estimated allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts for estimated uncollectible receivables based on historical experience, assessment of specific risk, review of outstanding invoices, and various assumptions and estimates that are believed to be reasonable under the circumstances, and recognizes the provision as a component of selling, general and administrative expenses. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible. The company records the allowance based on past history and if there are doubts on the recoverability. As of May 31, 2024, the Company has recorded an allowance for those balances which it expects to be not recoverable.
Inventory
Inventories are valued at the lower of cost (determined by the first in, first out method) and net realizable value. Management compares the cost of inventories with the net realizable value and allowance is made for writing down their inventories to net realizable value, if lower. Inventory is segregated into three areas: raw materials, work-in-process and finished goods. The Company periodically assessed its inventory for slow moving and/or obsolete items and any change in the allowance is recorded in cost of revenue in the accompanying condensed consolidated statements of operations and comprehensive loss. If any are identified an appropriate allowance for those items is made and/or the items are deemed to be impaired.
Other Receivables
Other receivables are recorded at cost and presented as current or long-term based on the terms of the agreements. Management reviews the collectability of other receivables and writes off the portion that is deemed to be uncollectible. During the nine months ended May 31, 2024 and the nine months ended May 31, 2023, the Company wrote off $ and $, respectively, of other receivables that were not expected to be collected.
11 |
Property and Equipment
Property and equipment are stated at cost less depreciation and impairment. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the declining balance method for substantially all assets with estimated lives as follows:
Building | |
Leasehold improvements | |
Clinical equipment | |
Computer equipment | |
Office equipment | |
Furniture and fixtures |
Leases
The Company applies the provisions of ASC Topic 842, Leases which requires lessees to recognize lease assets and lease liabilities on the balance sheet. The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.
Long-Lived Assets
The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including right-of-use assets, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at May 31, 2024, the Company believes there was no impairment of its long-lived assets.
Intangible Assets
The Company’s intangible assets are being amortized over their estimated useful lives as follows:
Land use rights | |
Intellectual property | |
Customer relationships | |
Brand names |
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 review at May 31, 2024,
the Company believes there was
12 |
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
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. (“APKA”) during the fiscal year ended August 31, 2017, Executive Fitness Leaders (“EFL”) during the fiscal year ended August 31, 2018, Action Plus Physiotherapy Rockland (“Rockland”) during the fiscal year ended August 31, 2019, Acenzia during the fiscal year ended August 31, 2021, and 1285 Canada during the fiscal year ended August 31, 2022. Based on its review at May 31, 2024, the Company believes there was impairment of its goodwill.
Summary of changes in goodwill by acquired businesses is as follows:
APKA | EFL | Rockland | Acenzia | 1285 Canada | Total | |||||||||||||||||||
Balance, August 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Balance, August 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Balance, May 31, 2024 | $ | $ | $ | $ | $ | $ |
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued expenses, current portion of finance and operating lease liability, current portion of government loans and notes payable, debentures, convertible notes payable, and due to related parties, the carrying amounts approximate their fair values due to their short-term maturities.
13 |
ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the condensed consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization, low risk of counterparty default and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
● | Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging.
For certain financial instruments, the carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, other receivables, and current liabilities, including accounts payable, accrued expenses, current portion of finance and operating lease liability, current portion of government loans and notes payable, debentures, convertible notes payable, and due to related parties, each qualify as a financial instrument, and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of notes payable approximates their fair values due to current market rate on such debt.
As of May 31, 2024, and August 31, 2023, respectively, the Company did not identify any financial assets and liabilities required to be presented on the condensed consolidated balance sheet at fair value, except for contingent liability which is carried at fair value using Level 1 inputs and derivative liability which is carried at fair value using Level 3 inputs.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to the fair value of derivatives.
Revenue Recognition
The Company’s revenue recognition reflects the updated accounting policies as per the requirements of the FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). As sales are and have been primarily from providing healthcare services, the Company has no significant post-delivery obligations.
14 |
Revenue from providing healthcare and healthcare related services and product sales are recognized under Topic 606 in a manner that reasonably reflects the delivery of its products and services to customers in return for expected consideration and includes the following elements:
● | Executed contracts with the Company’s customers that it believes are legally enforceable; | |
● | Identification of performance obligations in the respective contract; | |
● | Determination of the transaction price for each performance obligation in the respective contract; | |
● | Allocation 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. | |
● | Product sales – revenue is recorded at the point of time of delivery. |
In arrangements where another party is involved in providing specified services to a customer, the Company evaluates whether it is the principal or agent. In this evaluation, the Company considers if the Company obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. For product sales where the Company is not the principal, the Company recognizes revenue on a net basis. For the periods presented, revenue for arrangements where the Company is the agent was not material.
Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue is included with accrued expenses in the accompanying condensed consolidated balance sheets.
Sales returns and allowances were insignificant for the nine months ended May 31, 2024, and the nine months ended May 31, 2023. The Company does not provide unconditional right of return, price protection or any other concessions to its customers.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the requisite service period. The Company recognizes in the condensed consolidated statements of operations and comprehensive loss the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
15 |
Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. The calculations within these condensed consolidated financial statements have been retroactively adjusted to reflect the effects of the 1-for-10 reverse stock split that was effective on November 7, 2023. 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 and options/warrants outstanding on May 31, 2024 and May 31, 2023, respectively. In addition, on May 31, 2024, there were outstanding convertible notes that could convert into shares of common stock and there were shares of common stock to be issued.
Due to the net loss incurred, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss per share for all periods presented.
Foreign Currency Transactions and Comprehensive Income
U.S. GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company’s Canadian subsidiaries is the CAD. Translation gain and losses are classified as an item of other comprehensive loss in the stockholders’ equity section of the condensed consolidated balance sheet.
Condensed Consolidated Statements of Cash Flows
Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the condensed consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the condensed consolidated balance sheets.
Segment Reporting
ASC Topic 280, Segment Reporting, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has two reportable segments. See Note 16.
Reclassifications
Certain prior period amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had no effect on the net loss or shareholders’ equity.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by the Company as of the specified effective date.
ASU 2016-13 Current Expected Credit Loss (ASC326)
In December 2021, the FASB issued an update to ASU No. 2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures. This guidance was adopted during the nine months period ended May 31, 2024, and as a result no increase in the allowance is recorded.
16 |
Note 3 – Related Party Transactions
Due to related parties
Amounts
loaned to the Company by stockholders and officers of the Company are payable upon demand and unsecured. At May 31, 2024 and August 31,
2023, the amount due to related parties was $
At
May 31, 2024, $
At
August 31, 2023, $
Note 4 – Accounts Receivables, Net
Accounts receivables, net at May 31, 2024 and August 31, 2023 consisted of the following:
May 31, | August 31, | |||||||
2024 | 2023 | |||||||
Trade receivables | $ | $ | ||||||
Amounts earned but not billed | ||||||||
Allowance for doubtful accounts | ( | ) | ( | ) | ||||
Accounts receivable, net | $ | $ |
Note 5 – Inventory
Inventory at May 31, 2024 and August 31, 2023 consisted of the following:
May 31, | August 31, | |||||||
2024 | 2023 | |||||||
Raw materials | $ | $ | ||||||
Work in process | ||||||||
Finished goods | ||||||||
Allowance for slow-moving and obsolete inventory | ||||||||
Inventory, net | $ | $ |
During
the nine months period ended May 31, 2024, the inventory was written off by $
Note 6 – Other Receivables
Other receivables at May 31, 2024 and August 31, 2023 consisted of the following:
May 31, 2024 | August 31, 2023 | |||||||
Advance to corporation; accrues interest at | $ | $ | ||||||
Advance to corporation; accrues interest at | ||||||||
Advance to corporation; accrues interest at | ||||||||
Total other receivables | ||||||||
Current portion | ( | ) | ( | ) | ||||
Long-term portion | $ | $ |
17 |
Note 7 – Property and Equipment
Property and equipment at May 31, 2024 and August 31, 2023 consisted of the following:
May 31, | August 31, | |||||||
2024 | 2023 | |||||||
Land | $ | $ | ||||||
Building | ||||||||
Leasehold improvements | ||||||||
Clinical equipment | ||||||||
Computer equipment | ||||||||
Office equipment | ||||||||
Furniture and fixtures | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total | $ | $ |
Depreciation
expense for the nine months ended May 31, 2024 and May 31, 2023 was $
Certain property and equipment have been used to secure notes payable (See Note 10).
Note 8 – Intangible Assets
Intangible assets at May 31, 2024 and August 31, 2023 consisted of the following:
May 31, | August 31, | |||||||
2024 | 2023 | |||||||
Land use rights | $ | $ | ||||||
Intellectual property | ||||||||
Customer relationships | ||||||||
Brand names | ||||||||
Accumulated amortization | ( | ) | ( | ) | ||||
Total | $ | $ |
Amortization
expense for the nine months ended May 31, 2024 and May 31, 2023 was $
Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows:
Twelve Months Ending May 31, | ||||
2025 | $ | |||
2026 | ||||
2027 | ||||
2028 | ||||
2029 | ||||
Thereafter | ||||
Total | $ |
18 |
Note 9 – Accrued Expenses
Accrued expenses at May 31, 2024 and August 31, 2023 consisted of the following:
May 31, | August 31, | |||||||
2024 | 2023 | |||||||
Accrued liabilities | $ | $ | ||||||
Accrued payroll | ||||||||
Unearned revenue | ||||||||
$ | $ |
Note 10 – Government Loans and Notes Payable
Notes payable at May 31, 2024 and August 31, 2023 consisted of the following:
May 31, | August 31, | |||||||
2024 | 2023 | |||||||
Government loans issued under the Government of Canada’s Canada Emergency Business Account (“CEBA”) program (A). | ||||||||
Note payable to the Small Business Administration. The note bears interest at | ||||||||
Note payable dated December 3, 2018; accrues interest at | ||||||||
Note payable received May 25, 2023, accruing interest at | ||||||||
Note payable received May 10, 2023, accruing interest at | ||||||||
Total government loans and notes payable | ||||||||
Less current portion | ( | ) | ( | ) | ||||
Long-term portion | $ | $ |
(A) |
19 |
Future scheduled maturities of outstanding government loans and notes payable are as follows:
Twelve Months Ending May 31, | ||||
2025 | $ | |||
2026 | ||||
2027 | ||||
2028 | ||||
2029 | ||||
Thereafter | ||||
Total | $ |
Note 11 – Convertible Notes Payable
Novo Integrated December 2021 Notes, SPA, and Warrants
On
December 14, 2021, Novo Integrated issued two convertible notes payable for a total of $
In
connection with the $16.66m+ convertible notes, the Company issued the note holders warrants to purchase a total of
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
The
face amount of the $16.66m+ convertible notes of $
On
November 14, 2022, the $16.66m+ convertible notes were amended to provide the holders with conversion rights consisting of a conversion
price to the first $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
The derivative was recorded as a discount on the convertible notes, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the convertible notes.
20 |
During
the year ended August 31, 2023, an aggregate of $
During
the year ended August 31, 2023, the Company amortized $
During
the year ended August 31, 2023, the Company made cash payments in the aggregate amount of $
Terragenx November 2021 Notes, SPA, and Warrants
On
November 17, 2021, Terragenx, a
In
connection with the $1.875m convertible notes, the Company issued the note holders warrants to purchase a total of
● | Expected
life of |
● | Volatility
of |
● | Dividend
yield of |
● | Risk
free interest rate of |
The
face amount of the $1.875m convertible notes of $
On
June 1, 2022, the Company paid the balance owed on one of two Terragenx $
On
June 1, 2022, the Company and one of the two Terragenx $
21 |
Effective February 16, 2023, aside from the Liquidated Damages Charge, the Jefferson Note was paid in full. On August 21, 2023, Jefferson converted the additional Liquidated Damages Charge and the interest thereon. On August 21, 2023, as a result of the conversion, the Company issued shares of common stock to Jefferson. As of May 31, 2024 and August 31, 2023, the aggregate principal amount owed under two Terragenx $1.875 million convertible notes was $nil.
Novo Integrated – Mast Hill Fund, L.P. February 2023 Note, SPA, and Warrant
On
February 23, 2023, the Company entered into a securities purchase agreement (the “Mast Hill SPA”) with Mast Hill Fund, L.P.
(“Mast Hill”), pursuant to which the Company issued an
Pursuant
to the terms of the Mast Hill Note, the Company agreed to pay accrued interest monthly as well as the Mast Hill Principal Sum as follows:
(i) $
The
Company may prepay the Mast Hill Note at any time prior to the date that an Event of Default (as defined in the Mast Hill Note) occurs
at an amount equal to the Mast Hill Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $
Upon
the occurrence of any Event of Default, the Mast Hill Note shall become immediately due and payable and the Company shall pay to Mast
Hill, in full satisfaction of its obligations hereunder, an amount equal to the Mast Hill Principal Sum then outstanding plus accrued
interest multiplied by
The
Mast Hill Warrant is exercisable for five years from February 23, 2023, at an exercise price of $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
22 |
As
additional consideration for the purchase of the Mast Hill Note and pursuant to the terms of the Mast Hill SPA, on February 24, 2023,
the Company issued
The
principal amount of the $
During
the year ended August 31, 2023, the principal amount of $
On
September 18, 2023, Mast Hill fully exercised all warrants granted under the terms and conditions of the $
Novo Integrated – FirstFire Global Opportunities Fund, LLC March 2023 Note, SPA, and Warrant
On
March 21, 2023, the Company entered into a securities purchase agreement (the “SPA”) with FirstFire Global Opportunities
Fund, LLC (“FirstFire”) pursuant to which the Company issued an
Pursuant
to the terms of the 2023 FirstFire Note, the Company agreed to pay accrued interest monthly as well as the Principal Sum as follows:
(i) $
The
Company may prepay the 2023 FirstFire Note at any time prior to the date that an event of default (as provided in the 2023 FirstFire
Note) occurs at an amount equal to the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $
23 |
Upon
the occurrence of any event of default, the 2023 FirstFire Note shall become immediately due and payable and the Company shall pay to
FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest
multiplied by
The
2023 FirstFire Warrant is exercisable for five years from March 21, 2023, at an exercise price of $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
As
additional consideration for the purchase of the 2023 FirstFire Note and pursuant to the terms of the SPA, on March 22, 2023, the Company
issued
The
principal amount of the $
The
effective conversion price was determined to be $
The
combined total discount is $
During
the nine months ended May 31, 2024, the principal amount of $
On
October 12, 2023, FirstFire fully exercised all warrants granted under the terms and conditions of the $
24 |
Novo Integrated – Mast Hill June 2023 $445,000 Note, SPA, and Warrant
On
June 20, 2023, the Company entered into a securities purchase agreement (the “MH $445,000 SPA”) with Mast Hill, pursuant
to which the Company issued an
Pursuant
to the terms of the MH $445,000 Note, the Company agreed to pay accrued interest monthly as well as the MH $445,000 Principal Sum as
follows: (i) $
The
Company may prepay the MH $445,000 Note at any time prior to the date that an Event of Default (as defined in the Note) (each an “MH
$445,000 Event of Default”) occurs at an amount equal to the MH $445,000 Principal Sum then outstanding plus accrued and unpaid
interest (no prepayment premium) plus $
Upon
the occurrence of any MH $445,000 Event of Default, the MH $445,000 Note shall become immediately due and payable and the Company shall
pay to Mast Hill, in full satisfaction of its obligations hereunder, an amount equal to the MH $445,000 Principal Sum then outstanding
plus accrued interest multiplied by
The
MH $445,000 Warrant is exercisable for five years from June 20, 2023, at an exercise price of $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
25 |
As
additional consideration for the purchase of the MH $445,000 Note and pursuant to the terms of the MH $445,000 SPA, the Company issued
The
principal amount of the MH $445,000 Note was proportionately allocated to the convertible note, common stock issued, and the warrants
in the amount of $
The
effective conversion price was determined to be $
The
combined total discount is $
Specific
to the MH $445,000 Note, on July 20, 2023, the Company made a monthly interest payment of $
On
October 23, 2023, Mast Hill fully exercised all warrants granted under the terms and conditions of the $
On
December 21, 2023, the principal amount of $
Novo Integrated - Mast Hill September 2023 Note and SPA
On
September 12, 2023, the Company entered into a securities purchase agreement (the “September 2023 Mast Hill SPA”) with Mast
Hill Fund, L.P. (“Mast Hill”), pursuant to which the Company issued an
Pursuant
to the terms of the September 2023 Mast Hill Note, the Company agreed to pay the principal sum and accrued interest as follows: (i) all
accrued interest on December 12, 2023, (ii) $
The
Company may prepay the September 2023 Mast Hill Note at any time prior to the date that an Event of Default (as defined in the Note)
occurs at an amount equal to the principal sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $
26 |
Upon
the occurrence of any Event of Default, the September 2023 Mast Hill Note shall become immediately due and payable and the Company will
pay to Mast Hill an amount equal to the principal sum then outstanding plus accrued interest multiplied by
The
September 2023 Mast Hill SPA contains customary representations, warranties, and covenants of the Company, including, among other things
and subject to certain exceptions, piggy-back registration rights with respect to the common stock underlying the September 2023 Mast
Hill Note. Further, pursuant to the September 2023 Mast Hill SPA, the Company agreed to transfer its rights to the charges/mortgages
evidenced by Instrument Nos. CE925256 (in the amount of CDN$
The Company’s subsidiary, Acenzia Inc. (“Acenzia”), entered into a guaranty with Mast Hill on September 12, 2023. Acenzia guaranteed the repayment of the September 2023 Mast Hill Note and granted Mast Hill a security interest in Acenzia’s assets, including but not limited to, the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada.
The
Company determined that the conversion features of these notes represented embedded derivatives since the notes are convertible into
a variable number of shares upon conversion. On September 12, 2023, the Company recorded a derivative liability of $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
The derivative was recorded as a discount on the convertible notes, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the convertible note.
the
fair value of the derivative liability was $ and for the nine months ended May 31, 2024, the Company recorded a gain of $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
The
September 2023 Mast Hill Note contained a discount on note of $
During
the nine months ended May 31, 2024, the Company amortized the full balance of $
Pursuant
to the terms of the September 2023 Mast Hill Note, on December 12, 2023, the Company made an interest-only payment of $
On
April 9, 2024, the Company paid the full balance owed on the September 2023 Mast Hill Note in the principal amount of $
27 |
Novo Integrated - FirstFire September 2023 Note and SPA
On
September 18, 2023, the Company entered into a securities purchase agreement (the “September 2023 FirstFire SPA”) with FirstFire
Global Opportunities Fund, L.P. (“FirstFire”), pursuant to which the Company issued an
Pursuant
to the terms of the September 2023 FirstFire Note, the Company agreed to pay the principal sum and accrued interest as follows: (i) all
accrued interest on December 18, 2023, (ii) $
The
Company may prepay the September 2023 FirstFire Note at any time prior to the date that an event of default occurs at an amount equal
to the principal sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $
Upon
the occurrence of any event of default, the September 2023 FirstFire Note shall become immediately due and payable and the Company shall
pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the principal sum then outstanding plus accrued
interest multiplied by
The September 2023 FirstFire SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the common stock underlying the September 2023 FirstFire Note. In addition to the beneficial ownership limitations provided in the September 2023 FirstFire Note, the sum of the number of shares of common stock that may be issued under the September 2023 FirstFire SPA and September 2023 FirstFire Note shall be limited to as further described in the September 2023 FirstFire SPA, unless shareholder approval to exceed such limitation is obtained by the Company.
Acenzia entered into a guaranty with FirstFire on September 18, 2023. Acenzia guaranteed the repayment of the September 2023 FirstFire Note and granted FirstFire a security interest in Acenzia’s assets, including but not limited to the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada, which is junior in priority to the security interest granted by Acenzia to FirstFire.
The
Company determined that the conversion features of these notes represented embedded derivatives since the notes are convertible into
a variable number of shares upon conversion. On September 18, 2023, the Company recorded a derivative liability of $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
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The derivative was recorded as a discount on the convertible notes, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the convertible note.
As
at May 31, 2024, the fair value of the derivative liability was $ and for the nine months ended May 31, 2024, the Company recorded
a gain of $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
The
September 2023 FirstFire Note contained a discount on note of $
During
the nine months ended May 31, 2024, the Company amortized $
Pursuant
to the terms of the September 2023 FirstFire Note, on December 18, 2023, the Company made an interest-only payment of $
On
April 9, 2024, the Company paid the full balance owed on the September 2023 FirstFire Note in the principal amount of $
Novo Integrated - Streeterville Capital, LLC April 2024 Note and SPA
On
April 5, 2024, the Company entered into a securities purchase agreement (the “Streeterville SPA”) with Streeterville Capital,
LLC (“Streeterville”), pursuant to which the Company issued a secured convertible promissory note (the “Streeterville
Note”) with a maturity date of
Streeterville
may convert the Streeterville Note into the Company’s common stock on any trading day (and the following trading day) that any
intraday trade price of the common stock is 10% greater than the closing trade price on the previous trading day (each a “Voluntary
Conversion”). With respect to any Voluntary Conversion, the conversion price is equal to
Beginning
on October 8, 2024, Streeterville shall have the right to redeem up to $
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Upon
the occurrence of any Event of Default, the Streeterville Note shall become immediately due and payable and the Company shall pay to
Streeterville, in full satisfaction of its obligations hereunder, an amount equal to the Outstanding Balance plus the Trigger Effect
(as defined herein).
In
addition to the beneficial ownership limitations provided in the Streeterville Note, the sum of the number of shares of common stock
that may be issued under the Streeterville SPA and Streeterville Note shall be limited to
The Streeterville SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, registration rights with respect to the common stock underlying the Streeterville Note. The Streeterville SPA also requires the Company to file a registration statement covering Streeterville’s resale of the common stock underlying the Streeterville Note within 75 days of the closing date.
In connection with the Streeterville Note and Streeterville SPA, the Company and Streeterville also entered into a security agreement (the “Streeterville Security Agreement”). Pursuant to the Streeterville Security Agreement, the Company granted Streeterville a security interest in all of the assets of the Company.
Acenzia, a wholly owned subsidiary of the Company, entered into a guaranty with Streeterville on April 5, 2024 (the “Acenzia Guaranty”). Acenzia guaranteed the repayment of the Streeterville Note and granted Streeterville a security interest in the assets of Acenzia, including but not limited to the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada. Further, NHL, a wholly owned subsidiary of the Company, entered into a guaranty with Streeterville on April 5, 2024 (the “NHL Guaranty”). NHL guaranteed the repayment of the Streeterville Note and granted a security interest in the assets of NHL.
The
Company determined that the conversion features of these notes represented embedded derivatives since the notes are convertible into
a variable number of shares upon conversion. On April 5, 2024, the Company recorded a derivative liability of $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
The derivative was recorded as a discount on the convertible notes, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the convertible note.
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As
at May 31, 2024, the fair value of the derivative liability was $
● | Expected
life of | |
● | Volatility
of | |
● | Dividend
yield of | |
● | Risk
free interest rate of |
The
Streeterville Note contained a discount on note of $
During
the nine months ended May 31, 2024, the Company amortized $
Note 12 – Debentures, Related Parties
On
September 30, 2013, the Company issued five debentures totaling CAD$
During the nine months ended May 31, 2024, the Company could not make repayments to the debenture holders in accordance with the revised agreed repayment schedule, and is therefore in breach of the loan agreement as at period end. Consequently, the Company has reclassified the entire outstanding balance of the loan to current liabilities. At of the date of this filing, the Company is in discussions to formalize the arrangements to make the payment to the holders.
On
January 31, 2018, the debenture holders converted
On
July 21, 2020, the Company made a partial repayment of a debenture due to a related party of $
At
May 31, 2024 and August 31, 2023, the amount of debentures outstanding was $
Note 13 – Leases
Operating leases
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
The Company leases its corporate office space and certain facilities under long-term operating leases expiring through fiscal year 2031.
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The table below presents the lease related assets and liabilities recorded on the Company’s condensed consolidated balance sheets as of May 31, 2024 and August 31, 2023:
May 31, | August 31, | |||||||||
2024 | 2023 | |||||||||
Classification on Balance Sheet | ||||||||||
Assets | ||||||||||
Operating lease assets | Operating lease right of use assets | $ | $ | |||||||
Total lease assets | $ | $ | ||||||||
Liabilities | ||||||||||
Current liabilities | ||||||||||
Operating lease liability | Current operating lease liability | $ | $ | |||||||
Noncurrent liabilities | ||||||||||
Operating lease liability | Long-term operating lease liability | |||||||||
Total lease liability | $ | $ |
Future minimum operating lease payments are as follows:
Twelve Months Ending May 31, | ||||
2025 | $ | |||
2026 | ||||
2027 | ||||
2028 | ||||
2029 | ||||
Thereafter | ||||
Total payments | ||||
Amount representing interest | ( | ) | ||
Lease obligation, net | ||||
Less lease obligation, current portion | ||||
Lease obligation, long-term portion | $ |
During the nine months ended May 31, 2024, the Company entered into two new leases.
The
lease expense for the nine months ended May 31, 2024 and May 31, 2023 was $
Finance Leases
The
Company leases certain equipment under lease contracts that are accounted for as finance leases. If the contracts meet the criteria for
a finance lease, the related equipment underlying the lease contract is capitalized and amortized over its estimated useful life. If
the cost of the equipment is not available, the Company calculates the cost by taking the present value of the lease payments using an
implicit borrowing rate of
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The net book value of equipment under finance leases included in property and equipment on the accompanying condensed consolidated balance sheets at May 31, 2024 and August 31, 2023 was as follows:
May 31, | August 31, | |||||||
2024 | 2023 | |||||||
Cost | $ | $ | ||||||
Accumulated amortization | ( | ) | ( | ) | ||||
$ | $ |
Future minimum finance lease payments were as follows:
Twelve Months Ending May 31, | ||||
2025 | $ | |||
Total payments | ||||
Amount representing interest | ( | ) | ||
Lease obligation, net | ||||
Less lease obligation, current portion | ( | ) | ||
Lease obligation, long-term portion | $ |
Note 14 – Stockholders’ Equity
Reverse Stock Split
On
November 6, 2023, the Company effectuated a
Convertible Preferred Stock
The Company has authorized shares of $ par value convertible preferred stock. At May 31, 2024 and August 31, 2023, there were convertible preferred shares issued and outstanding.
Common Stock
The Company has authorized shares of $ par value common stock. At May 31, 2024 and August 31, 2023, there were and common shares issued and outstanding, respectively.
During the nine-month period ended May 31, 2024, the Company issued common stock as follows:
● | ||
● | ||
● | restricted shares of common stock were issued as consideration pursuant to a consulting agreement. The fair value was determined based on the market price of the Company’s common stock on the date of issuance. The shares were issued on . |
33 |
● | ||
● | restricted shares of common stock were issued as consideration pursuant to a consulting agreement. The fair value was determined based on the market price of the Company’s common stock on the date of issuance. The shares were issued on . | |
● | ||
● | restricted shares of common stock were issued as consideration pursuant to a consulting agreement. The fair value was determined based on the market price of the Company’s common stock on the date of issuance. The shares were issued on . | |
● | restricted shares of common stock were issued in exchange for certain non-voting special shares of NHL, previously issued in connection with NHL’s Share Exchange Agreement with the Terragenx shareholders, the Company’s Asset Purchase Agreement with Mr. Terrence Mullins, and an employment agreement with Mr. Terrence Mullins, each of which closed on November 17, 2021. The fair value was determined based on the market price of the Company’s common stock on the date of closing. The shares were issued on . | |
● | ||
● | restricted shares of common stock were issued as consideration pursuant to a consulting agreement. The fair value was determined based on the market price of the Company’s common stock on the date of issuance. The shares were issued on . | |
● | ||
● | restricted shares of common stock were issued as consideration pursuant to a consulting agreement. The fair value was determined based on the market price of the Company’s common stock on the date of issuance. The shares were issued on . | |
● | restricted shares of common stock were issued pursuant to the terms and conditions of an executive agreement, dated November 15, 2022, between NHL and an officer of NHL. The fair value was determined based on the market price of the Company’s common stock on the date of issuance. The shares were issued on . | |
● | restricted shares of common stock were issued pursuant to the terms and conditions of an executive agreement, dated November 15, 2022, between NHL and an officer of NHL. The fair value was determined based on the market price of the Company’s common stock on the date of issuance. The shares were issued on . | |
● |
34 |
● | ||
● | ||
● |
Common Stock to be Issued
As of May 31, 2024, in connection with the acquisition of 1285 Canada and Poling Taddeo Hovius Physiotherapy Professional Corp, the Company has allotted and is obligated to issue shares of the Company’s common stock. As of May 31, 2024, the fair value of the shares to be issued was $ .
Stock Options
On September 8, 2015, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common stock approved the Novo Integrated Sciences, Inc. 2015 Incentive Compensation Plan (the “2015 Plan”), which authorizes the issuance of up to 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 the nine months ended May 31, 2024, the Company did not grant any awards under the 2015 Plan. The Company does not intend to issue any additional grants under the 2015 Plan.
On January 16, 2018, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common stock approved the Novo Integrated Sciences, Inc. 2018 Incentive Compensation Plan (the “2018 Plan”). Under the 2018 Plan, 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. During the nine months ended May 31, 2024, the 2018 Plan had shares available for award; however, the Company does not intend to issue any additional grants under the 2018 Plan.
On February 9, 2021, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common stock approved the Novo Integrated Sciences, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). Under the 2021 Plan, a total of shares of common stock are authorized for issuance pursuant to the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other cash- or stock-based awards to officers, directors, employees and eligible consultants to the Company or its subsidiaries. Subject to adjustment as provided in the 2021 Plan,
35 |
On July 26, 2023 and September 29, 2023, the Company’s Board of Directors and stockholders, respectively, approved the Novo Integrated Sciences, Inc. 2023 Equity Incentive Plan (the “2023 Plan”). Under the 2023 Plan, a total of shares of common stock are authorized for issuance pursuant to the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other cash- or stock-based awards to officers, directors, employees and eligible consultants to the Company or its subsidiaries. As of May 31, 2024, the 2023 Plan had shares available for award.
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Options | Exercise | Contractual | Intrinsic | |||||||||||||
Outstanding | Price | Life | Value | |||||||||||||
Outstanding, August 31, 2023 | $ | |||||||||||||||
Granted | ||||||||||||||||
Expired | ( | ) | ||||||||||||||
Exercised | ||||||||||||||||
Outstanding, May 31, 2024 | $ | |||||||||||||||
Exercisable, May 31, 2024 | $ | $ |
Outstanding | Exercisable | |||||||||||||
Number of | Exercise | Number of | Exercise | |||||||||||
Options | Price | Options | Price | |||||||||||
$ | $ | |||||||||||||
| ||||||||||||||
options were granted during the nine months ended May 31, 2024 while options were granted during the nine months ended May 31, 2023.
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 $. and $ during the nine months ended May 31, 2024 and May 31, 2023, respectively. At May 31, 2024, the unamortized stock option expense was $
Warrants
The following is a summary of warrant activity:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Warrants | Exercise | Contractual | Intrinsic | |||||||||||||
Outstanding | Price | Life | Value | |||||||||||||
Outstanding, August 31, 2023 | $ | $ | ||||||||||||||
Granted | ||||||||||||||||
Forfeited | ||||||||||||||||
Exercised | ( | ) | ||||||||||||||
Outstanding, May 31, 2024 | $ | $ | ||||||||||||||
Exercisable, May 31, 2024 | $ | $ |
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Outstanding and Exercisable | ||||||
Number of Warrants | Exercise Price | |||||
$ | ||||||
Note 15 – Commitments and Contingencies
Litigation
The Company is party to certain legal proceedings from time-to-time incidental to the conduct of its business. These proceedings could result in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that the Company cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on our condensed consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs. However, based on information available to the Company’s management to date, the Company’s management does not expect that the outcome of any matter pending against the Company is likely to have a materially adverse effect on the Company’s unaudited condensed consolidated financial position as of May 31, 2024, results of operations, cash flows or liquidity of the Company.
During
the period ended May 31, 2024, the Company incurred $
Note 16 – Segment Reporting
ASC Topic 280, Segment Reporting, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the Company for making operating decisions and assessing performance. The Company has two reportable segments: healthcare services and product sales.
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The following tables summarize the Company’s segment information for the three and nine months ended May 31, 2024 and May 31, 2023:
Three Months Ended | Nine Months Ended | |||||||||||||||
May 31, 2024 | May 31, 2023 | May 31, 2024 | May 31, 2023 | |||||||||||||
Sales | ||||||||||||||||
Healthcare services | $ | $ | $ | $ | ||||||||||||
Product manufacturing and development | ||||||||||||||||
Corporate | ||||||||||||||||
Sales | $ | $ | $ | $ | ||||||||||||
Gross profit | ||||||||||||||||
Healthcare services | $ | $ | $ | $ | ||||||||||||
Product manufacturing and development | ||||||||||||||||
Corporate | ||||||||||||||||
Gross profit | $ | $ | $ | $ | ||||||||||||
(Loss) income from operations | ||||||||||||||||
Healthcare services | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Product manufacturing and development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
(Loss) income from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Depreciation and amortization | ||||||||||||||||
Healthcare services | $ | $ | $ | $ | ||||||||||||
Product manufacturing and development | ||||||||||||||||
Corporate | ||||||||||||||||
Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
Capital expenditures | — | |||||||||||||||
Healthcare services | $ | $ | $ | $ | ||||||||||||
Product manufacturing and development | ||||||||||||||||
Corporate | ||||||||||||||||
Capital expenditures | $ | $ | $ | $ | ||||||||||||
Interest expenses | ||||||||||||||||
Healthcare services | $ | $ | $ | $ | ||||||||||||
Product manufacturing and development | ||||||||||||||||
Corporate | ||||||||||||||||
Interest expenses | $ | $ | $ | $ | ||||||||||||
Net loss | ||||||||||||||||
Healthcare services | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Product manufacturing and development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
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As of | As of | |||||||
31-May | August 31, | |||||||
2024 | 2023 | |||||||
Total assets | ||||||||
Healthcare services | $ | $ | ||||||
Product Sales | ||||||||
Corporate | ||||||||
$ | $ | |||||||
Accounts receivable | ||||||||
Healthcare services | $ | $ | ||||||
Product Sales | ||||||||
Corporate | ||||||||
$ | $ | |||||||
Intangible assets | ||||||||
Healthcare services | $ | $ | ||||||
Product Sales | ||||||||
Corporate | ||||||||
$ | $ | |||||||
Goodwill | ||||||||
Healthcare services | $ | $ | ||||||
Product Sales | ||||||||
Corporate | ||||||||
$ | $ |
Note 17 – Subsequent Events
RC Consulting Consortium Group LLC Amendment
On
April 26, 2023, the Company entered into a securities purchase agreement with RC Consulting Consortium Group LLC (“RC”) in
favor of SCP Tourbillion Monaco or registered assigns (the “Holder”), pursuant to which the Company issued an unsecured 15-year
promissory note to the Holder (the “RC Note”) with a maturity date of
On
June 3, 2024, the Company and RC Consulting Consortium Group LLC entered into an amendment (the “June 2024 Amendment”) to
the RC Note. Pursuant to the terms of the June 2024 Amendment, at any time after 12 months and no later than 60 months from the commencement
of the term and prior to an event of default, if the Company’s listed common stock closes over $
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Except as set forth in the June 2024 Amendment, all other provisions and conditions of the Note remain in full force and effect, including the Company’s right, on 15 days’ prior written notice, to prepay the Note at any time prior to an event of default.
Robert Mattacchione Executive Agreement Amendment
As previously disclosed, on June 18, 2021, the Company entered into an executive agreement (the “June 2021 Mattacchione Agreement”) with GPE Global Holdings Inc., an entity controlled by Robert Mattacchione and through which Mr. Mattacchione agreed to provide services to the Company (“GPE”). Pursuant to the terms of the June 2021 Mattacchione Agreement, Mr. Mattacchione agreed to serve as the Company’s Chief Executive Officer in exchange for the compensation set forth therein, and consistent with the terms thereof. Mr. Mattacchione also serves as the Company’s Chairman of the Board.
On June 18, 2024, the Company and GPE entered into an amendment to the June 2021 Mattacchione Agreement (the “Mattacchione Amendment”), pursuant to which the parties agreed to extend the term of the June 2021 Mattacchione Agreement by one year, such that the term of the June 2021 Mattacchione Agreement will continue until June 18, 2025. Except as set forth in the Mattacchione Amendment, the June 2021 Mattacchione Agreement remains in full force and effect.
Christopher David Executive Agreement Amendment
As previously disclosed, on June 18, 2021, the Company entered into an executive agreement (the “June 2021 David Agreement”) with Christopher David. Mr. David serves as the Company’s Chief Operating Officer.
On June 18, 2024, the Company and Mr. David entered into an amendment to the June 2021 David Agreement (the “David Amendment”), pursuant to which the parties agreed to extend the term of the June 2021 David Agreement by one year, such that the term of the June 2021 David Agreement will continue until June 18, 2025. Additionally, the parties agreed to update Mr. David’s title to Chief Operating Officer of the Company, as opposed to President and Chief Operating Officer. Except as set forth in the David Amendment, the June 2021 David Agreement remains in full force and effect.
Streeterville Capital LLC SPA Amendment No. 1
On
April 5, 2024, the Company entered into a securities purchase agreement (the “Streeterville SPA”) with Streeterville pursuant
to which the Company issued a secured convertible promissory note (the “Streeterville Note”) with a maturity date of
On June 23, 2024, the Company and Streeterville entered into the First Amendment to the Transaction Documents (the “First Amendment”), pursuant to which (i) the Streeterville SPA was amended to provide that the Registration Statement may be filed on Form S-1 or S-3 and the Registration Statement will be filed on or before July 3, 2024, and (ii) Streeterville waived any breach or default that occurred under the Streeterville Note as of the June 23, 2024, if any, as a result of any breach by the Company relating to its failure to timely file the Registration Statement.
Resale Registration Statement on Form S-1
On July 8, 2024, the Company filed a registration statement on Form S-1 relating to the resale of up to shares of the Company’s common stock by Streeterville issuable by the Company upon conversion of the Streeterville Note. The prices at which Streeterville may sell the common stock will be determined by the prevailing market price for the shares or in negotiated transactions. The Company will not receive any of the proceeds from the sale of common stock owned by Streeterville, and the Company will not receive any proceeds from the conversion of the Streeterville Note.
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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, 2023, as the same may be updated from time to time, including in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q.
Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this report are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances.
Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
Overview of the Company
When used herein, the terms the “Company,” “we,” “us” and “our” refer to Novo Integrated Sciences, Inc. and its consolidated subsidiaries. The Company owns Canadian and U.S. subsidiaries which 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.
41 |
First Pillar – Service Networks for Hands-on Patient Care
Our clinicians and practitioners provide certain multidisciplinary primary health care services, and related products, beyond the medical doctor first level contact identified as primary care. Our clinicians and practitioners are not licensed medical doctors, physicians, specialist, nurses or nurse practitioners. Our clinicians and practitioners are not authorized to practice primary care medicine and they are not medically licensed to prescribe pharmaceutical based product solutions.
Our team of multidisciplinary primary health care clinicians and practitioners provide assessment, diagnosis, treatment, pain management, rehabilitation, education and primary prevention for a wide array of orthopedic, musculoskeletal, sports injury, and neurological conditions across various demographics including pediatric, adult, and geriatric populations through our 16 corporate-owned clinics, a contracted network of affiliate clinics, and eldercare related long-term care homes, retirement homes, and community-based locations in Canada.
Our specialized multidisciplinary primary health care services include physiotherapy, chiropractic care, manual/manipulative therapy, occupational therapy, eldercare, massage therapy (including pre- and post-partum), acupuncture and functional dry needling, chiropody, stroke and traumatic brain injury/neurological rehabilitation, kinesiology, vestibular therapy, concussion management and baseline testing, trauma sensitive yoga and meditation for concussion-acquired brain injury and occupational stress-PTSD, women’s pelvic health programs, sports medicine therapy, assistive devices, dietitian, holistic nutrition, fall prevention education, sports team conditioning programs including event and game coverage, and private personal training.
Additionally, we continue to expand our patient care philosophy of maintaining an on-going continuous connection with our current and future patient community, beyond the traditional confines of brick-and-mortar facilities, by extending oversight of patient diagnosis, care and monitoring, directly through various Medical Technology Platforms either in-use or under development.
The occupational therapists, physiotherapists, chiropractors, massage therapists, chiropodists and kinesiologists contracted, by NHL, to provide occupational therapy, physical therapy and fall prevention assessment services are registered with the College of Occupational Therapists of Ontario, the College of Physiotherapists of Ontario, College of Chiropractors of Ontario, College of Massage Therapists of Ontario, College of Chiropodists of Ontario, and the College of Kinesiologists of Ontario regulatory authorities.
Our strict adherence to public regulatory standards, as well as self-imposed standards of excellence and regulation, have allowed us to navigate with ease through the industry’s licensing and regulatory framework. Compliant treatment, data and administrative protocols are managed through a team of highly trained, certified health care and administrative professionals. We and our affiliates provide service to the Canadian property and casualty insurance industry, resulting in a regulated framework governed by the Financial Services Commission of Ontario.
Second Pillar – Interconnected Technology for Virtual Ecosystem of Services, Products and Digital Health Offerings
Decentralization through the integration of interconnected technology platforms has been adopted and is thriving in a variety of sectors and industries such as transportation (Uber, Lyft), real estate (Zillow, Redfin, Airbnb, VRBO), used car sales (Carvana, Vroom), stock and financial markets (Robinhood, Acorns, Webull) and so many other sectors. Yet decentralization of the non-critical primary care and wellness sector of healthcare is lagging significantly in capability and benefit for patient access and delivery of services and products. The COVID-19 pandemic has taught both patients and healthcare providers the viability, importance, and benefits of decentralized access to primary care simply through the rapid adoption of telehealth/telemedicine.
The Company’s focus on a holistic approach to patient-first health and wellness, through innovation and decentralization, includes maintaining an on-going continuous connection with our current and future patient community, beyond the traditional confines of brick-and-mortar facilities, by extending oversight of patient evaluation, diagnosis, treatment solutions, and monitoring, directly through various Medical Technology Platforms and periphery tools either in-use or under development. Through the integration and deployment of sophisticated and secure technology and periphery diagnostic tools, the Company is working to expand the reach of our non-critical primary care services and product offerings, beyond the traditional clinic locations, to geographic areas not readily providing advanced primary care service to date, including the patient’s home.
NovoConnect, the Company’s proprietary mobile application with a fully securitized tech stock, telemedicine/telehealth and remote patient monitoring fall under this Second Pillar. In October 2021, we announced the launch of MiTelemed+, Inc. (“MiTelemed”), a joint venture with EK-Tech Solutions Inc. (“EK-Tech”). MiTelemed will operate, support and expand access and functionality of iTelemed, EK-Tech’s enhanced proprietary telehealth platform. MiTelemed+, through the iTelemed platform, will allow us to offer the patient and the practitioner a sophisticated and enhanced telehealth interaction. Through the interface of sophisticated peripheral based diagnostic tools operated by skilled support workers in the patient’s remote location, we believe that the practitioner’s ability and comfort to provide a uniquely comprehensive evaluation, diagnosis, and treatment solution will be dramatically elevated.
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Third Pillar – Health and Wellness Products
We believe our science first approach to product offerings further emphasizes the Company’s strategic vision to innovate, evolve, and deliver over-the-counter preventative and maintenance care solutions as well as therapeutics and personalized diagnostics that enable individualized health optimization.
As the Company’s patient base grows through the expansion of its corporate owned clinics, its affiliate network, its micro-clinic facility openings, its interconnected technology platforms, and other growth initiatives, the development and distribution of high-quality wellness product solutions is integral to (i) offering effective product solutions allowing for the customization of patient preventative care remedies and ultimately a healthier population, and (ii) maintaining an on-going relationship with our patients through the customization of patient preventative and maintenance care solutions.
The Company’s product offering ecosystem is being built through strategic acquisitions and engaging in licensing agreements with partners that share our vision to provide a portfolio of products that offer an essential and differentiated solution to health and wellness globally. Our 2021 acquisitions of Acenzia, PRO-DIP and Terragenx support this Third Pillar. On March 15, 2022, PRO-DIP was issued U.S. Patent No. 11,273,965 by the U.S. Patent and Trademark Office on March 15, 2022. The ‘965 patent relates to PRO-DIP’s novel technology for manufacturing its oral supplement pouches. On April 4, 2022, NHL was granted a Natural Product Number (NPN) by Health Canada for IoNovo GO Iodine which is the Company’s forth iodine related product to recently be granted a NPN by Health Canada following IoNovo Pure Iodine, IoNovo Iodide, and IoNovo for Kids pure iodine oral spray.
We have two reportable segments: healthcare services and product sales. During the quarter ended May 31, 2024, revenues from healthcare services and product sales were 53% and 45%, respectively, of the Company’s total revenues for the quarter.
Recent Developments
September 2023 Mast Hill SPA
On September 12, 2023, the Company entered into a securities purchase agreement (the “September 2023 Mast Hill SPA”) with Mast Hill Fund, L.P. (“Mast Hill”), pursuant to which the Company issued an 12% promissory note (the “September 2023 Mast Hill Note”) with a maturity date of September 12, 2024 (the “September 2023 Mast Hill Maturity Date”), in the principal sum of $3,500,000. Pursuant to the terms of the September 2023 Mast Hill Note, the Company agreed to pay the principal sum to Mast Hill and to pay interest on the principal balance at the rate of 12% per annum. The September 2023 Mast Hill Note carries an original issue discount (“OID”) of $350,000. Accordingly, on the closing date, Mast Hill paid the purchase price of $3,150,000 in exchange for the September 2023 Mast Hill Note. Mast Hill may convert the September 2023 Mast Hill Note into shares of the Company’s common stock at any time at a conversion price equal to the lesser of (i) $4.50 or (ii) 91.5% of the lowest volume weighted average price of the Company’s common stock on any trading day during the five trading day period prior to the respective conversion date, subject to adjustment as provided in the September 2023 Mast Hill Note (including but not limited to price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions) as well as beneficial ownership limitations.
Pursuant to the terms of the September 2023 Mast Hill Note, the Company agreed to pay the principal sum and accrued interest as follows: (i) all accrued interest on December 12, 2023, (ii) $350,000 plus accrued interest on March 12, 2024, (iii) $350,000 plus accrued interest on April 12, 2024, (iv) $350,000 plus accrued interest on May 12, 2024, (v) $595,000 plus accrued interest on June 12, 2024, (vi) $595,000 plus accrued interest on July 12, 2024, (vii) $595,000 plus accrued interest on August 12, 2024, and (viii) all remaining amounts owed under the September 2023 Mast Hill Note on the September 2023 Mast Hill Maturity Date (each of the aforementioned payments is an “Amortization Payment”). If the Company fails to make any Amortization Payment, then Mast Hill will have the right to convert the amount of such respective Amortization Payment into shares of common stock as provided in the September 2023 Mast Hill Note at the lesser of (i) the then applicable conversion price under the September 2023 Mast Hill Note or (ii) 85% the lowest volume weighted average price of the Company’s common stock on any trading day during the five trading day period prior to the respective conversion date.
The Company may prepay the September 2023 Mast Hill Note at any time prior to the date that an Event of Default (as defined in the Note) occurs at an amount equal to the principal sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The September 2023 Mast Hill Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the September 2023 Mast Hill Note or September 2023 Mast Hill SPA.
Upon the occurrence of any Event of Default, the September 2023 Mast Hill Note shall become immediately due and payable and the Company will pay to Mast Hill an amount equal to the principal sum then outstanding plus accrued interest multiplied by 125%. Upon the occurrence of an Event of Default, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
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The September 2023 Mast Hill SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the common stock underlying the September 2023 Mast Hill Note. Further, pursuant to the September 2023 Mast Hill SPA, the Company agreed to transfer its rights to the charges/mortgages evidenced by Instrument Nos. CE925256 (in the amount of CDN$1,600,000) and CE888785 (in the amount of CDN$1,800,000) on the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada, to Mast Hill as security for the Company’s repayment of the September 2023 Mast Hill Note. In addition to the beneficial ownership limitations provided in the September 2023 Mast Hill Note, the sum of the number of shares of common stock that may be issued under the September 2023 Mast Hill SPA and September 2023 Mast Hill Note shall be limited to 1,772,045 shares as further described in the September 2023 Mast Hill SPA, unless shareholder approval to exceed such limitation is obtained by the Company.
The Company’s subsidiary, Acenzia Inc. (“Acenzia”), entered into a guaranty with Mast Hill on September 12, 2023. Acenzia guaranteed the repayment of the September 2023 Mast Hill Note and granted Mast Hill a security interest in Acenzia’s assets, including but not limited to, the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada.
Pursuant to the terms of the September 2023 Mast Hill Note, on December 12, 2023, the Company made an interest-only payment of $104,712 to Mast Hill. Between March 14, 2024 and April 4, 2024, the Company issued 826,203 shares of common stock to Mast Hill upon conversion of outstanding debt which consisted of a principal amount of $271,226 and an interest amount of $104,712, for a total amount of $375,938.
On April 9, 2024, the Company paid the full balance owed on the September 2023 Mast Hill Note in the principal amount of $3,228,774 and the interest amount of $30,571. As of May 31, 2024, the September 2023 Mast Hill Note is paid in full.
September 2023 FirstFire SPA & Note
On September 18, 2023, the Company entered into a securities purchase agreement (the “September 2023 FirstFire SPA”) with FirstFire Global Opportunities Fund, L.P. (“FirstFire”), pursuant to which the Company issued an 12% promissory note (the “September 2023 FirstFire Note”) with a maturity date of September 18, 2024, in the principal sum of $277,778. Pursuant to the terms of the September 2023 FirstFire Note, the Company agreed to pay the principal sum to FirstFire and to pay interest on the principal balance at the rate of 12% per annum. The September 2023 FirstFire Note carries an OID of $27,778. Accordingly, on the closing date, FirstFire paid the purchase price of $250,000 in exchange for the September 2023 FirstFire Note. FirstFire may convert the September 2023 FirstFire Note into the Company’s common stock, at any time at a conversion price equal to the lesser of (i) $4.50 or (ii) 91.5% of the lowest volume weighted average price of the Company’s common stock on any trading day during the five trading day period prior to the respective conversion date, subject to adjustment as provided in the September 2023 FirstFire Note (including but not limited to price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions) as well as beneficial ownership limitations.
Pursuant to the terms of the September 2023 FirstFire Note, the Company agreed to pay the principal sum and accrued interest as follows: (i) all accrued interest on December 18, 2023, (ii) $27,778 plus accrued interest on March 18, 2024, (iii) $27,778 plus accrued interest on April 18, 2024, (iv) $27,778 plus accrued interest on May 18, 2024, (v) $47,222 plus accrued interest on June 18, 2024, (vi) $47,222 plus accrued interest on July 18, 2024, (vii) $47,222 plus accrued interest on August 18, 2024, and (viii) all remaining amounts owed under the September 2023 FirstFire Note on the maturity date (each of the aforementioned payments is a “FirstFire Amortization Payment”). If the Company fails to make any FirstFire Amortization Payment, then FirstFire shall have the right to convert the amount of such respective FirstFire Amortization Payment into shares of common stock as provided in the September 2023 FirstFire Note at the lesser of (i) the then applicable conversion price under the September 2023 FirstFire Note or (ii) 85% the lowest volume weighted average price of the Company’s common stock on any trading day during the five trading day period prior to the respective conversion date.
The Company may prepay the September 2023 FirstFire Note at any time prior to the date that an event of default occurs at an amount equal to the principal sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The September 2023 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the September 2023 FirstFire Note or September 2023 FirstFire SPA.
Upon the occurrence of any event of default, the September 2023 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the principal sum then outstanding plus accrued interest multiplied by 125%. Upon the occurrence of an event of default, additional interest will accrue from the date of the event of default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
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The September 2023 FirstFire SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the common stock underlying the September 2023 FirstFire Note. In addition to the beneficial ownership limitations provided in the September 2023 FirstFire Note, the sum of the number of shares of common stock that may be issued under the September 2023 FirstFire SPA and September 2023 FirstFire Note shall be limited to 480,156 as further described in the September 2023 FirstFire SPA, unless shareholder approval to exceed such limitation is obtained by the Company.
Acenzia entered into a guaranty with FirstFire on September 18, 2023. Acenzia guaranteed the repayment of the September 2023 FirstFire Note and granted FirstFire a security interest in Acenzia’s assets, including but not limited to the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada, which is junior in priority to the security interest granted by Acenzia to FirstFire.
Pursuant to the terms of the September 2023 FirstFire Note, on December 18, 2023, the Company made an interest-only payment of $8,333 to FirstFire. On April 4, 2024, the Company issued 480,000 shares of common stock to FirstFire upon conversion of outstanding debt which consisted of a principal amount of $195,016 and an interest amount of $8,333, for a total amount of $203,349.
On April 9, 2024, the Company paid the full balance owed on the September 2023 FirstFire Note in the principal amount of $82,761 and the interest amount of $1,552. As of May 31, 2024, the September 2023 FirstFire Note is paid in full.
Blacksheep Master (Asset Transfer) Agreement
On September 27, 2023, the Company entered into a Master (Asset Transfer) Agreement (the “Master Agreement”) by and between the Company and Blacksheep Trust (“Blacksheep”). Pursuant to the terms of the Master Agreement, Blacksheep agreed to transfer, on such dates as agreed to by the Company and Blacksheep, to the Company certain collateral equal to $1 billion and controlled by Blacksheep (the “Collateral”). The Collateral will be used by the Company for monetization. The consideration for the Collateral is equal to 15% of the monetization, advanced within five business days of clear access to the monetization or monetization facility.
The parties to the Master Agreement intend that the transfer of Collateral will be duly validated and authenticated by third-party audit procedures, said audit will allow for the transfer and monetization of the transferred Collateral, free and clear of any liens, claims or encumbrances, from Blacksheep to the Company and that the Collateral will not be a part of Blacksheep’s property for any purposes under state or federal law.
Pursuant to the terms of the Master Agreement, Blacksheep will be entitled to an annual distribution of 10% of net profits as identified by an independent auditor based on the Company’s business activity resulting from the direct investment of any funds derived from the monetization of transferred Collateral.
The Company has the right to the Collateral for no more than 15 years from the date of monetization, with the Company’s exclusive right to repatriate the Collateral to Blacksheep sooner without penalty. Blacksheep will be permitted one seat on the Company’s Board, which position will remain available for the term of the Collateral transfer or until the Collateral is repatriated to Blacksheep. Any draw against the monetization of the Collateral will require unanimous Board consent.
The Master Agreement contains customary representations, warranties, and covenants of the Company and Blacksheep.
Purchase and Sale Agreement – Ophir Collection
On November 21, 2023, the Company entered into a Purchase and Sale Agreement (“Ophir Agreement”) between the Company and Blake Alsbrook, solely in his capacity as Court-appointed successor receiver (the “Successor Receiver”) in Ocean Thermal Energy Corporation v. C. Robert Coe II, et al., United States District Court for the Central District of California (the “Court”) Case No. 2:19-cv-04299 VAP (JPRx) (the “Action”). Pursuant to the terms of the Ophir Agreement, the Company agreed to purchase, and the Successor Receiver agreed to sell to the Company, the Ophir Collection (as hereinafter defined), subject to the contingencies outlined in the Ophir Agreement, including Court approval, which was received on December 1, 2023. The Ophir Agreement was effective upon execution by both parties; however, the Ophir Agreement was subject to approval by the Court.
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Pursuant to the Court’s July 2, 2019 order in the Action, as modified by the Court’s February 25, 2022 order in the Action, the Successor Receiver has possession of and right to sell a certain collection of 43 gemstones, 42 of which are certified by the Gemological Institute of America, known as the “Ophir Collection”. Together, the Court’s July 2, 2019 order appointing the original receiver, the Court’s December 3, 2019, order appointing the Successor Receiver, and the Court’s February 25, 2022, order are referred to collectively as the “Receivership Orders.” The Receivership Orders authorized the Successor Receiver to take sole custody, possession, and control of the Ophir Collection and to sell, assign, transfer, convey and deliver title and rights in and to the Ophir Collection subject to the approval of the Court to protect the interests of certain identified creditors.
Within two business days following the Company’s execution of the Ophir Agreement, the Company was required to, and did, deposit $25,000 with the Successor Receiver. In addition, to extend and maintain exclusivity related to the Ophir Agreement, (i) during the three month period ended February 2024, the Company paid additional deposits, totaling $75,000, to the Successor Receiver; (ii) during the three-month period ended May 2024, the Company paid additional deposits, totaling $100,000, to the Successor Receiver; and (iii) subsequent to the period ended May 31, 2024, the Company paid an additional deposit, totaling $30,000, to the Successor Receiver for an aggregate deposit amount of $230,000 as of the filing date of this Form 10-Q.
Pursuant to the terms of the Ophir Agreement, the Company agreed to pay $60,000,000 to the Successor Receiver to purchase the Ophir Collection as follows:
(i) | The Company has the right, at all times after November 21, 2023, to conduct a full and unfettered inspection of the Ophir Collection. While the Company has the right to inspect the Ophir Collection prior to closing, the Company’s inspection will not be a contingency to closing and the inability of the Company to inspect (or the Company’s decision not to inspect) the Ophir Collection prior to closing will not delay or prevent closing. | |
(ii) | After the Successor Receiver obtains Court approval of the Ophir Agreement, the Company will cause $59,975,000 (representing the $60,000,000 purchase price, less the Deposit) to be paid to the Successor Receiver, on or before December 19, 2023. Although such amount has not yet been delivered to the Successor Receiver, the parties continue to work toward closing. | |
(iii) | Within one business day thereafter, the Successor Receiver will assign, transfer, convey and deliver free and clear title and interest in and to, and possession of, the Ophir Collection to the Company. |
As a result of entry into the Ophir Agreement, the Company no longer intends to pursue a transaction with SwagCheck Inc. (“SWAG”). The Share Purchase Agreement, dated as of December 23, 2022, by and among the Company, SWAG and all SWAG shareholders, as amended, previously terminated pursuant to its terms.
Officer Option Grant
On January 16, 2024, the Board of Directors granted to Christopher David, the Company’s Chief Operating Officer and a member of the Board of Directors, an option to purchase 200,000 shares of the Company’s common stock pursuant to the 2023 Equity Incentive Plan. The option was fully vested at grant and is exercisable until January 16, 2030. The option has an exercise price of $0.78 per share.
Novo Integrated – Mast Hill Fund, L.P. $445,000 Note, SPA, and Warrant
On June 20, 2023, the Company entered into a securities purchase agreement (the “MH $445,000 SPA”) with Mast Hill, pursuant to which the Company issued an 12% unsecured promissory note (the “MH $445,000 Note”) with a maturity date of June 20, 2024 (the “MH $445,000 Maturity Date”), in the principal sum of $445,000 (the “MH $445,000 Principal Sum”). In addition, the Company issued a common stock purchase warrant for the purchase of up to 77,662 shares of the Company’s common stock (the “MH $445,000 Warrant”) to Mast Hill pursuant to the MH $445,000 SPA. Pursuant to the terms of the MH $445,000 Note, the Company agreed to pay the MH $445,000 Principal Sum to Mast Hill and to pay interest on the principal balance at the rate of 12% per annum. The MH $445,000 Note carries an OID of $44,500. Accordingly, on the Closing Date (as defined in the MH $445,000 SPA), Mast Hill paid the purchase price of $400,500 in exchange for the MH $445,000 Note and MH $445,000 Warrant. Mast Hill may convert the MH $445,000 Note into the Company’s common stock at any time at a conversion price equal to $1.75 per share, subject to adjustment as provided in the MH $445,000 Note (including but not limited to certain price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions), as well as certain beneficial ownership limitations.
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Pursuant to the terms of the MH $445,000 Note, the Company agreed to pay accrued interest monthly as well as the MH $445,000 Principal Sum as follows: (i) $44,500 on December 20, 2023, (ii) $44,500 on January 20, 2024, (iii) $44,500 on February 20, 2024, (iv) $77,661 on March 20, 2024, (v) $77,661 on April 20, 2024, (vi) $77,661 on May 20, 2024, and (vii) all remaining amounts owed under the MH $445,000 Note on the MH $445,000 Maturity Date (each of the aforementioned payments are an “MH $445,000 Amortization Payment”). If the Company fails to make any MH $445,000 Amortization Payment, then Mast Hill shall have the right to convert the amount of such respective MH $445,000 Amortization Payment into shares of common stock as provided in the MH $445,000 Note at the lesser of (i) the then applicable conversion price under the MH $445,000 Note or (ii) 85% of the lowest VWAP of the common stock on any trading day during the five trading days prior to the respective conversion date.
The Company may prepay the MH $445,000 Note at any time prior to the date that an Event of Default (as defined in the Note) (each an “MH $445,000 Event of Default”) occurs at an amount equal to the MH $445,000 Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The MH $445,000 Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the MH $445,000 Note, the MH $445,000 Warrant, or the MH $445,000 SPA.
Upon the occurrence of any MH $445,000 Event of Default, the MH $445,000 Note shall become immediately due and payable and the Company shall pay to Mast Hill, in full satisfaction of its obligations hereunder, an amount equal to the MH $445,000 Principal Sum then outstanding plus accrued interest multiplied by 125%. Upon the occurrence of an MH $445,000 Event of Default, additional interest will accrue from the date of the MH $445,000 Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
The MH $445,000 Warrant is exercisable for five years from June 20, 2023, at an exercise price of $2.50 per share, subject to adjustment as provided in the MH $445,000 Warrant. The MH $445,000 Warrant also contains certain cashless exercise provisions, as well as price protection provisions providing for adjustment of the number of shares of common stock issuable upon exercise of the MH $445,000 Warrant and the exercise price in case of future dilutive offerings, subject to certain customary exempt transactions. The estimated value of the warrants of $77,856 was determined using the Black-Scholes option pricing model with the following assumptions:
● | Expected life of 5.0 years; | |
● | Volatility of 251%; | |
● | Dividend yield of 0%; and | |
● | Risk free interest rate of 3.96% |
As additional consideration for the purchase of the MH $445,000 Note and pursuant to the terms of the MH $445,000 SPA, the Company issued 74,167 restricted shares of the Company’s common stock (the “MH $445,000 Commitment Shares”) to Mast Hill at closing. The MH $445,000 SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the MH $445,000 Commitment Shares as well as the shares of common stock underlying the MH $445,000 Note and MH $445,000 Warrant. In addition to the beneficial ownership limitations provided in the MH $445,000 Note and MH $445,000 Warrant, the sum of the number of shares of common stock that may be issued under the MH $445,000 SPA (including the MH $445,000 Commitment Shares), MH $445,000 Note, and MH $445,000 Warrant shall be limited to 1,772,045 as further described in the MH $445,000 SPA, unless shareholder approval to exceed such limitation is obtained by the Company.
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Specific to the MH $445,000 Note, on July 20, 2023, the Company made a monthly interest payment of $4,243. On August 21, 2023, the Company made a monthly interest payment of $4,535. On September 21, 2023, the Company made a monthly interest payment of $4,535. On October 20, 2023, the Company made a monthly interest payment of $4,389.
On October 23, 2023, Mast Hill fully exercised all warrants issued pursuant to the terms and conditions of the MH $445,000 Mast Hill Warrant Agreement, dated June 20, 2023. Under certain cashless exercise provisions, as well as price protection provisions providing for adjustment of the number of shares of the Company’s common stock issuable upon exercise of the Mast Hill Warrant, the Company issued 138,703 restricted shares of the Company’s common stock.
On December 21, 2023, the total principal and interest of $454,071 owed on the MH $445,00 Note was converted to 457,128 shares of the Company’s common stock at $1.11095 per share. The MH $445,000 Note is paid in full.
Nasdaq Notification – Non-Compliance with Minimum Bid Price Requirement
On February 9, 2024, the Company received a notification letter (the “Notification Letter”) from The Nasdaq Stock Market, LLC (“Nasdaq”) that it was not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of the Company’s common stock between December 27, 2023, and February 8, 2024, the Company no longer meets the minimum bid price requirement. The Notification Letter has no immediate effect on the listing or trading of the Company’s common stock on The Nasdaq Capital Market and, at this time, the common stock will continue to trade on The Nasdaq Capital Market under the symbol “NVOS.”
The Notification Letter provides that the Company has 180 calendar days, or until August 7, 2024, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of the Company’s common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. If the Company does not regain compliance by August 7, 2024, an additional 180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital Market continued listing requirements (except for the bid price requirement) and notifies Nasdaq in writing of its intention to cure the deficiency during the second compliance period. If the Company does not qualify for the second compliance period or fails to regain compliance during the second 180-day period, then Nasdaq will notify the Company of its determination to delist the Company’s common stock, at which point the Company will have an opportunity to appeal the delisting determination to a hearings panel.
The Company intends to monitor the closing bid price of its common stock and will consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules.
Securities Purchase Agreement Waivers and Amendment
On April 26, 2023, the Company entered into a securities purchase agreement (the “SPA”) with RC Consulting Group LLC in favor of SCP Tourbillion Monaco or registered assigns (the “Holder”), pursuant to which the Company issued an unsecured 15-year promissory note to the Holder (the “Note”) with a maturity date of April 26, 2038, in the principal sum of $70,000,000, which amount represents the $57,000,000 purchase price plus a yield (non-compounding) of 1.52% (zero coupon) per annum from the Issue Date.
The Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the SPA or the Note. Upon the occurrence of any Event of Default (as defined in the Note), the Note is to become immediately due and payable, and the Company will pay to the Holder, in full satisfaction of its obligations thereunder, an amount equal to the principal amount then outstanding plus accrued interest (including any default interest) through the date of full repayment multiplied by 125% (collectively, the “Default Amount”), as well as costs, including, without limitation, legal fees and expenses, of collection, all without demand, presentment or notice.
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According to the SPA, the Company’s non-compliance with the Minimum Bid Price Requirement constituted an Event of Default under the terms of the SPA and Note.
On February 16, 2024, the Company and the Holder entered into a Limited Waiver (the “Waiver”) exempting any determination of non-compliance associated with the Minimum Bid Price Requirement; and is solely related to any notice of deficiency in accordance with the Minimum Bid Price Requirement but does not extend to any delisting associated with the Minimum Bid Price Requirement under the SPA and the Note. Nothing in the Waiver is be deemed to: (1) constitute a waiver, modification or amendment of any other term, provision or condition of the SPA or any other instrument or agreement referred to therein; (2) prejudice any right or remedy that the Holder may now have or may have in the future under or in connection with the SPA or any other instrument or agreement referred to therein, except as otherwise set forth therein.
On March 18, 2024, the Company entered into the Assignment of Security Purchase Agreement and Promissory Note (the “Assignment”) with the Holder and RC Consulting Consortium Group LLC. Pursuant to the terms of the Assignment, the Holder assigned and transferred to RC Consulting Consortium Group LLC all of the Holder’s right, title, claim and interest in and to the SPA and the Note, and RC Consulting Consortium Group LLC agreed to assume the same. Except as set forth in the Assignment, the terms of the SPA and the Note, each as amended from time to time, including by the Waiver, remain in full force and effect.
On March 19, 2024, the Company and RC Consulting Consortium Group LLC entered into a Limited Waiver (the “March 2024 Waiver”) applicable to the SPA. In particular, as a result of the March 2024 Waiver, RC Consulting Consortium Group LLC waived the SPA provision requiring the Company to use the proceeds of the Note for business development and general working expenses, and not for any other purpose, including but not limited to (i) the repayment of any indebtedness owed to officers, directors or employees of the Company, (ii) any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with the Company’s currently existing operations), (iii) any loan, credit, or advance to any officers, directors, employees, or affiliates of the Company, or (iv) in violation or contravention of any applicable law, rule or regulation. Nothing in the March 2024 Waiver will be deemed to: (1) constitute a waiver, modification or amendment of any other term, provision or condition of the SPA or any other instrument or agreement referred to therein; (2) prejudice any right or remedy that RC Consulting Consortium Group LLC, in favor of SCP Tourbillion Monaco may now have or may have in the future under or in connection with the SPA or any other instrument or agreement referred to therein, except as otherwise set forth therein. All other provisions and conditions of the SPA and any other documents related to the SPA remain in full force and effect.
On June 3, 2024, the Company and RC Consulting Consortium Group LLC entered into an amendment (the “June 2024 Amendment”) to the Note. Pursuant to the terms of the June 2024 Amendment, at any time after 12 months and no later than 60 months from the commencement of the term and prior to an event of default, if the Company’s listed common stock closes over $15 per share for a period of five consecutive trading days, the Company may (upon its sole discretion), prepay up to 50% of the outstanding RC Note in restricted shares of the Company’s common stock, as prescribed under Rule 144, at a value equal to 15% greater than the average closing price of the Company’s common stock over the five consecutive days above $15 per share. In the event the Company elects to prepay any outstanding amount in restricted stock, upon the removal of the restriction, RC Consulting Consortium Group LLC (or its designates) will be limited to selling no more than one-sixth the amount of shares available from the lifting of the Rule 144 restriction over a single 30-day period.
Except as set forth in the June 2024 Amendment, all other provisions and conditions of the Note remain in full force and effect, including the Company’s right, on 15 days’ prior written notice, to prepay the Note at any time prior to an event of default.
Departure of Christopher David as President
On February 15, 2024, Mr. David, the Company’s then-President, Chief Operating Officer and member of the Company’s Board of Directors informed the Company of his decision to voluntarily resign from his position as the Company’s President effective as of February 15, 2024. Mr. David did not resign as a result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
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Mr. David will continue in his positions of Chief Operating Officer and member of the Board of Directors.
Appointment of Robert Oliva as President
Pursuant to Mr. David’s departure as President, the Board of Directors of the Company appointed Robert Oliva as President, effective February 15, 2024. Mr. Oliva previously served the Company between January 26, 2021 and June 30, 2022 in the role of Director. During his time as Director, Mr. Oliva has also served the Company as a member of the Compensation Committee and Nominating and Corporate Governance Committees. On June 30, 2022, Mr. Oliva resigned from the Board of Directors.
Mr. Oliva is not currently party to an employment agreement with the Company, nor is there any current compensation arrangement, however Mr. Oliva and the Company plan to enter into a compensation agreement.
There are no family relationships between Mr. Oliva and any director or executive officer of the Company, and he has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Streeterville Capital, LLC Transaction
On April 5, 2024, the Company entered into a securities purchase agreement (the “Streeterville SPA”) with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company issued a secured convertible promissory note (the “Streeterville Note”) with a maturity date of April 8, 2025, in the principal sum of $6,210,000 (the “Streeterville Principal Sum”). Pursuant to the terms of the Streeterville Note, the Company agreed to pay the Streeterville Principal Sum to Streeterville and to pay interest on the principal balance at the rate of 10.9% per annum. The Streeterville Note carries an OID of $660,000. In addition, $50,000 was withheld from the Streeterville Principal Sum to cover Streeterville’s transaction costs. Accordingly, on April 8, 2024, Streeterville paid the purchase price of $5,500,000 in exchange for the Streeterville Note. Upon receipt of the Streeterville Purchase Price, the Company repaid in full the remaining outstanding balances under that certain promissory note in the original principal amount of $3,500,000 issued on September 12, 2023, as well as that certain promissory note in the original principal amount of $277,777.77 issued on September 18, 2023.
Streeterville may convert the Streeterville Note into the Company’s common stock on any trading day (and the following trading day) that any intraday trade price of the common stock is 10% greater than the closing trade price on the previous trading day (each a “Voluntary Conversion”). With respect to any Voluntary Conversion, the conversion price is equal to 85% of the lowest daily volume weighted average price of the common stock on any trading day during the five-trading day period prior to the respective conversion date (the “Conversion Price”), subject to adjustment as provided in the Streeterville Note as well as beneficial ownership limitations.
Beginning on October 8, 2024, Streeterville shall have the right to redeem up to $950,000 of the Streeterville Note per calendar month. The Company is required to pay such redemption amounts in cash, provided, however, that if certain equity conditions are satisfied, then the Company may pay all or any portion of such applicable redemption amount by issuing shares of common stock at the applicable Conversion Price at such time.
The Company may prepay the Note at any time prior to the date that an Event of Default (as defined in the Streeterville Note) (each an “Event of Default”) occurs at an amount equal to 105% of the Outstanding Balance (as defined below). “Outstanding Balance” means the Streeterville Principal Sum then outstanding plus accrued and unpaid interest. The Streeterville Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of covenants in the Streeterville Note or Streeterville SPA.
Upon the occurrence of any Event of Default, the Streeterville Note shall become immediately due and payable and the Company shall pay to Streeterville, in full satisfaction of its obligations hereunder, an amount equal to the Outstanding Balance plus the Trigger Effect (as defined herein). The “Trigger Effect” means 20% of the Outstanding Balance upon the occurrence of any Major Trigger Event (as defined in the Streeterville Note) and 5% of the Outstanding Balance upon the occurrence of any Minor Trigger Event (as defined in the Streeterville Note). The Trigger Effect for any Minor Trigger Event may occur up to three times. Upon the occurrence of an Event of Default, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 22% per annum or the highest rate permitted by law.
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In addition to the beneficial ownership limitations provided in the Streeterville Note, the sum of the number of shares of common stock that may be issued under the Streeterville SPA and Streeterville Note shall be limited to 19.99% of the outstanding common stock of the Company on April 5, 2024, unless shareholder approval to exceed such limitation is obtained by the Company. The Company is required, under the terms of the Streeterville Note, to seek shareholder approval with respect to the transaction within 6 months of April 5, 2024. If the Company is unable to obtain such shareholder approval within 9 months of April 5, 2024, then the Company must repay the Streeterville Note in cash.
The Streeterville SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, registration rights with respect to the common stock underlying the Streeterville Note. The Streeterville SPA also requires the Company to file a registration statement covering Streeterville’s resale of the common stock underlying the Streeterville Note within 75 days of the closing date.
In connection with the Streeterville Note and Streeterville SPA, the Company and Streeterville also entered into a security agreement (the “Streeterville Security Agreement”). Pursuant to the Streeterville Security Agreement, the Company granted Streeterville a security interest in all of the assets of the Company.
Acenzia, a wholly owned subsidiary of the Company, entered into a guaranty with Streeterville on April 5, 2024 (the “Acenzia Guaranty”). Acenzia guaranteed the repayment of the Streeterville Note and granted Streeterville a security interest in the assets of Acenzia, including but not limited to the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada. Further, NHL, a wholly owned subsidiary of the Company, entered into a guaranty with Streeterville on April 5, 2024 (the “NHL Guaranty”). NHL guaranteed the repayment of the Streeterville Note and granted a security interest in the assets of NHL.
Pursuant to the terms of the Streeterville SPA, among other things, the Company agreed to file a registration statement on Form S-1 within 75 days of the closing date registering at least 3,500,000 shares of common stock for Streeterville for conversions under the Note (“Registration Statement”).
On June 23, 2024, the Company and Streeterville entered into the First Amendment to the Transaction Documents (the “First Amendment”), pursuant to which (i) the Streeterville SPA was amended to provide that the Registration Statement may be filed on Form S-1 or S-3 and the Registration Statement will be filed on or before July 3, 2024, and (ii) Streeterville waived any breach or default that occurred under the Note as of the June 23, 2024, if any, as a result of any breach by the Company relating to its failure to timely file the Registration Statement.
Robert Mattacchione Executive Agreement Amendment
As previously disclosed, on June 18, 2021, the Company entered into an executive agreement (the “June 2021 Mattacchione Agreement”) with GPE Global Holdings Inc., an entity controlled by Robert Mattacchione and through which Mr. Mattacchione agreed to provide services to the Company (“GPE”). Pursuant to the terms of the June 2021 Mattacchione Agreement, Mr. Mattacchione agreed to serve as the Company’s Chief Executive Officer in exchange for the compensation set forth therein, and consistent with the terms thereof. Mr. Mattacchione also serves as the Company’s Chairman of the Board.
On June 18, 2024, the Company and GPE entered into an amendment to the June 2021 Mattacchione Agreement (the “Mattacchione Amendment”), pursuant to which the parties agreed to extend the term of the June 2021 Mattacchione Agreement by one year, such that the term of the June 2021 Mattacchione Agreement will continue until June 18, 2025. Except as set forth in the Mattacchione Amendment, the June 2021 Mattacchione Agreement remains in full force and effect.
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Christopher David Executive Agreement Amendment
Also as previously disclosed, on June 18, 2021, the Company entered into an executive agreement (the “June 2021 David Agreement”) with Christopher David. Mr. David serves as the Company’s Chief Operating Officer.
On June 18, 2024, the Company and Mr. David entered into an amendment to the June 2021 David Agreement (the “David Amendment”), pursuant to which the parties agreed to extend the term of the June 2021 David Agreement by one year, such that the term of the June 2021 David Agreement will continue until June 18, 2025. Additionally, the parties agreed to update Mr. David’s title to Chief Operating Officer of the Company, as opposed to President and Chief Operating Officer. Except as set forth in the David Amendment, the June 2021 David Agreement remains in full force and effect.
Resale Registration Statement on Form S-1
On July 8, 2024, the Company filed a registration statement on Form S-1 relating to the resale of up to 3,500,000 shares of the Company’s common stock by Streeterville issuable by the Company upon conversion of the Streeterville Note. The prices at which Streeterville may sell the common stock will be determined by the prevailing market price for the shares or in negotiated transactions. The Company will not receive any of the proceeds from the sale of common stock owned by Streeterville, and the Company will not receive any proceeds from the conversion of the Streeterville Note.
For the three months ended May 31, 2024 compared to the three months ended May 31, 2023
Revenues for the three months ended May 31, 2024 were $3,151,851, representing a decrease of $141,082, or 4%, from $3,292,933 for the three months ended May 31, 2023. The decrease in revenue is principally due to a decrease in product sales. Acenzia’s and Terragenx’s revenue for the three months ended May 31, 2024 were $884,396 and $103,399, respectively. Despite a decrease in total revenue, revenue from our healthcare services increased by 8.1% when comparing the revenue for the three months ended May 31, 2024 to the three months ended May 31, 2023.
Cost of revenues for the three months ended May 31, 2024 was $2,254,958, representing an increase of $276,119, or 14%, from $1,978,839, for the three months ended May 31, 2023. Cost of revenues as a percentage of revenue for our healthcare and product sales segments was 68% and 79%, respectively, for the three months ended May 31, 2024. The cost of revenue for our healthcare and product sales segment was 66% and 51%, respectively, for the three months ended May 31, 2023. The overall change in cost of revenues as a percentage of revenue for our product sales segment was principally due to the change in product costs.
Operating costs for the three months ended May 31, 2024, were $3,417,096, representing an increase of $672,584, or 25%, from $2,744,512 for the three months ended May 31, 2023. The increase in operating costs was due to the inflationary impact on operating cost.
Interest expense for the three months ended May 31, 2024, was $178,445, representing an increase of $168,875, or 1,765%, from $9,570 for the three months ended May 31, 2023. Due to the significantly higher average principal balance of the Company’s convertible notes throughout the three months ended May 31, 2024, compared to the prior period led to a significantly increased interest expense.
Amortization of debt discount for the three months ended May 31, 2024, was $2,904,830, representing an increase of $2,748,793, or 1,762%, from $156,037 for the three months ended May 31, 2023. The increase was due to convertible notes which were settled and the issuance of a new convertible debt with a higher original principal balance during the period.
Net loss attributed to Novo Integrated Sciences, Inc. for the three months ended May 31, 2024, was $13,741,903, representing an increase of $12,244,573, or 818%, from $1,497,330 for the three months ended May 31, 2023. The increase in net loss of $12,244,573 is mainly attributed to the recognition of a $6,724,690 loss in the fair value of the derivative liability, loss from operations of $1,089,785, amortization of the debt discount of $ 2,748,793 and foreign currency exchange loss of $1,455,248 arising as a result of intercompany balance reconciliation.
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For the nine months ended May 31, 2024, compared to the nine months ended May 31, 2023
Revenues for the nine months ended May 31, 2024, were $10,213,661, representing an increase of $944,939, or 10%, from $9,268,722 for the nine months ended May 31, 2023. Despite the decrease in revenue during the three months ended May 31, 2024, the increase in the nine-month period was principally due to higher product sales in the six months ended February 29, 2024. Acenzia’s and Terragenx’s revenue for the nine months ended May 31, 2024, were $2,568,247 and $120,370, respectively. Revenue from our healthcare services increased by 4.2% when comparing the revenue for the nine months ended May 31, 2024, to the nine months ended May 31, 2023.
The cost of revenues for the nine months ended May 31, 2024, was $6,048,664, representing an increase of $804,472, or 15%, from $5,244,192 for the nine months ended May 31, 2023. Cost of revenues as a percentage of revenue for our healthcare and product sales segments was 66% and 49%, respectively, for the nine months ended May 31, 2024. The cost of revenue for our healthcare and product sales segment was 63% and 55%, respectively, for the nine months ended May 31, 2023. The overall change in cost of revenues as a percentage of revenue for our product sales segment was principally due to the change in product costs.
Operating costs for the nine months ended May 31, 2024, were $11,542,605, representing an increase of $2,058,887, or 22%, from $9,483,718 for the nine months ended May 31, 2023. The increase in operating costs was principally due to the higher fair value of stock options issued, common stock issuance for services, and cashless warrant exercise.
Interest expense for the nine months ended May 31, 2024, was $460,503, representing an increase of $219,983, or 91%, from $240,520 for the nine months ended May 31, 2023. The increase was due to cash payment and conversion of the Company’s convertible notes to common stock and the issuance of a new convertible note with a higher principal balance as of May 31, 2024.
Amortization of debt discount for the nine months ended May 31, 2024, was $5,095,331, representing an increase of $708,432, or 16%, from $4,386,899 for the nine months ended May 31, 2023. The increase was due to convertible notes which were settled and the issuance of a new convertible debt with a higher original principal balance during the period.
Net loss attributed to Novo Integrated Sciences, Inc. for the nine months ended May 31, 2024 was $21,168,374, representing an increase of $11,114,276, or 111%, from $10,054,098 for the nine months ended May 31, 2023. The increase in net loss of $11,114,276 for the nine months ended May 31, 2024 is mainly attributed to the recognition of a $5,765,822 loss in the fair value of the derivative liability, loss from operations of $1,918,420, amortization of the debt discount of $ 708,432 and foreign currency exchange loss of $1,498,513 arising as a result of intercompany balance reconciliation.
Liquidity and Capital Resources
As shown in the accompanying unaudited condensed consolidated financial statements, for the nine months ended May 31, 2024, the Company had a net loss of $21,142,583.
Operating Activities
During the nine months ended May 31, 2024, the Company used cash in operating activities of $6,009,784 compared to $2,014,543 of cash used in operating activities for the nine months ended May 31, 2023. The principal reason for the increase in cash used in operating activities was due to the increased utilization of cash in operating asset and liability accounts.
Investing Activities
During the nine months ended May 31, 2024 and 2023, the Company used $2,005 and $18,870, respectively, to purchase property and equipment.
Financing Activities
During the nine months ended May 31, 2024, the Company had cash provided by financing activities of $5,119,060 compared to cash used by financing activities of $296,334 for the nine months ended May 31, 2023. The principal reason for the increase in cash provided by financing activities was the $8,649,153 proceeds received from the issuance of convertible notes and the $240,400 proceeds received from the exercise of warrants, offset by $3,311,536 repayment of convertible notes, $267,756 repayment to related parties, $184,125 repayment of notes payable, and $7,350 repayment for finance leases.
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During the nine months ended May 31, 2023, the Company received $1,795,000 from the sale of common stock, net of offering costs, proceeds of $925,306 from issuance of convertible notes offset by $3,033,888 repayment of convertible notes, and $6,435 repayment for finance leases and repayment of $56,649 to related parties.
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 condensed consolidated 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 the preparation of our financial statements.
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 going concern assessment, useful lives of non-current assets, impairment of non-current assets, allowance for doubtful accounts, allowance for slow moving and obsolete inventory, valuation of share-based compensation and warrants, valuation of derivative liability, and valuation allowance for deferred tax assets. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Property and Equipment
Property and equipment are stated at cost less depreciation and impairment. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the declining balance method for substantially all assets with estimated lives as follows:
Building | 30 years | |
Leasehold improvements | 5 years | |
Clinical equipment | 5 years | |
Computer equipment | 3 years | |
Office equipment | 5 years | |
Furniture and fixtures | 5 years |
The Company has not changed its estimate for the useful lives of its property and equipment.
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Intangible Assets
The Company’s intangible assets are being amortized over their estimated useful lives as follows:
Land use rights | 50 years (the lease period) | |
Intellectual property | 7 years | |
Customer relationships | 5 years | |
Brand names | 7 years |
The intangible assets with finite useful lives are reviewed for impairment when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets.
Long-Lived Assets
The Company applies the provisions of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including right-of-use assets, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal.
Right-of-use Assets
The Company’s right-of-use assets consist of leased assets recognized in accordance with ASC 842, Leases, which requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the condensed consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statements of operations and comprehensive loss. The Company determines the lease term by agreement with the lessor. In cases where the lease does not provide an implicit interest rate, the Company uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Under U.S. GAAP, goodwill is not amortized but is subject to annual impairment tests. The Company recorded goodwill related to its acquisition of APKA Health, Inc. (“APKA”) during the fiscal year ended August 31, 2017, Executive Fitness Leaders (“EFL”) during the fiscal year ended August 31, 2018, Action Plus Physiotherapy Rockland (“Rockland”) during the fiscal year ended August 31, 2019, Acenzia, Inc. (“Acenzia”) during fiscal year ended August 31, 2021, and 1285 Canada, and Fairway Physiotherapy and Sports Injury Clinic (“Fairway”) during fiscal year ended August 31, 2022. Based on its review at May 31, 2024, the Company believes there was no impairment of its goodwill.
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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. The Company has not changed its methodology for estimating allowance for doubtful accounts and historically the change in estimate has not been significant to the Company’s condensed consolidated financial statements. If there is a deterioration of the Company’s customers’ ability to pay or if future write-offs of receivables differ from those currently anticipated, the Company may have to adjust its allowance for doubtful accounts, which would affect earnings in the period the adjustments are made.
Inventory
Inventories are valued at the lower of cost (determined by the first in, first out method) and net realizable value. Management compares the cost of inventories with the net realizable value and allowance is made for writing down their inventories to net realizable value, if lower. Inventory is segregated into three areas: raw materials, work-in-process and finished goods. The Company periodically assessed its inventory for slow moving and/or obsolete items and any change in the allowance is recorded in cost of revenue in the accompanying condensed consolidated statements of operations and comprehensive loss. If any are identified an appropriate allowance for those items is made and/or the items are deemed to be impaired.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not changed its methodology for estimating the valuation allowance. A change in valuation allowance affects earnings in the period the adjustments are made and could be significant due to the large valuation allowance currently established.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
Revenue Recognition
The Company’s revenue recognition reflects the updated accounting policies as per the requirements of FASB’s Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). As sales are and have been primarily from providing healthcare services, the Company has no significant post-delivery obligations.
Revenue from providing healthcare and healthcare related services and product sales are recognized under Topic 606 in a manner that reasonably reflects the delivery of its products and services to customers in return for expected consideration and includes the following elements:
● | Executed contracts with the Company’s customers that it believes are legally enforceable; | |
● | Identification of performance obligations in the respective contract; | |
● | Determination of the transaction price for each performance obligation in the respective contract; | |
● | Allocation the transaction price to each performance obligation; and | |
● | Recognition of revenue only when the Company satisfies each performance obligation. |
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These five elements, as applied to the Company’s revenue category, are summarized below:
● | Healthcare and healthcare related services - gross service revenue is recorded in the accounting records at the time the services are provided (point-in-time) on an accrual basis at the provider’s established rates. The Company reserves a provision for contractual adjustment and discounts that are deducted from gross service revenue. The Company reports revenues net of any sales, use and value added taxes. | |
● | Product sales - revenue is recorded at the point of time of delivery |
In arrangements where another party is involved in providing specified services to a customer, the Company evaluates whether it is the principal or agent. In this evaluation, the Company considers if the Company obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. For product sales where the Company is not the principal, the Company recognizes revenue on a net basis. For the periods presented, revenue for arrangements where the Company is the agent was not material.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to the fair value of derivatives.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the requisite service period. The Company recognizes in the condensed consolidated statements of operations and comprehensive loss the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
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 and the functional currency of the parent is the United States dollar. Translation gains (losses) are classified as an item of other comprehensive income in the stockholders’ equity section of the condensed consolidated balance sheet.
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New Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying condensed consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material effect on the Company’s condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure 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 May 31, 2024. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of May 31, 2024, 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 period ended May 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the quarter ended May 31, 2024, there were no material defaults in the payment of principal, interest, a sinking or purchase fund installment, or any other material default not cured within 30 days, with respect to any indebtedness of the registrant or any of its significant subsidiaries exceeding 5% of the total assets of the registrant and its consolidated subsidiaries.
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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.
(c)
During the quarter ended May 31, 2024, no director or officer of the Company
ITEM 6. EXHIBITS
* Filed herewith.
** Furnished herewith
† Management contract or compensatory plan or arrangement.
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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: July 19, 2024 | By: | /s/ Robert Mattacchione |
Robert Mattacchione | ||
Chief Executive Officer (principal executive officer) | ||
Dated: July 19, 2024 | By: | /s/ Vivek Sethi |
Vivek Sethi | ||
Principal Financial Officer (principal financial officer and principal accounting officer) |
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