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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended May 31, 2022

 

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

 

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

 

Commission File Number 001-40089

 

Novo Integrated Sciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   59-3691650

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

11120 NE 2nd Street, Suite 100

Bellevue, Washington

  98004
(Address of Principal Executive Offices)   (Zip Code)

 

(206) 617-9797

(Registrant’s Telephone Number, Including Area Code)

 

N/A

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

 

 

Novo Integrated Sciences, Inc.

 

Contents

 

PART I – FINANCIAL INFORMATION 3
     
Item 1. Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 47
     
Item 4. Controls and Procedures 47
     
PART II – OTHER INFORMATION 47
     
Item 1. Legal Proceedings 47
     
Item 1A. Risk Factors 47
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 47
     
Item 3. Defaults Upon Senior Securities 48
     
Item 4. Mine Safety Disclosures 48
     
Item 5. Other Information 48
     
Item 6. Exhibits 48
     
Signatures 49

 

2

 

 

Item 1. Financial Statements.

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

         
  May 31,   August 31, 
   2022   2021 
    (unaudited)      
ASSETS          
Current Assets:          
Cash and cash equivalents  $12,677,446   $8,293,162 
Accounts receivable, net   5,166,239    1,468,429 
Inventory, net   645,063    339,385 
Other receivables, current portion   1,209,137    814,157 
Prepaid expenses and other current assets   380,800    218,376 
Total current assets   20,078,685    11,133,509 
           
Property and equipment, net   5,931,683    6,070,291 
Intangible assets, net   32,192,858    32,029,499 
Right-of-use assets, net   2,222,970    2,543,396 
Other receivables, net of current portion   -    692,738 
Goodwill   11,366,618    9,488,848 
TOTAL ASSETS  $71,792,814   $61,958,281 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities:          
Accounts payable  $1,621,719   $1,449,784 
Accrued expenses   1,243,792    1,129,309 
Accrued interest (including amounts to related parties)   961,823    366,280 
Government loans and notes payable, current portion   5,260,056    4,485,649 
Convertible notes payable, net of discount of $0   1,875,000    - 
Contingent liability   750,860    - 
Due to related parties   456,528    478,920 
Finance lease liability, current portion   15,982    23,184 
Operating lease liability, current portion   544,690    530,797 
Total current liabilities   12,730,450    8,463,923 
           
Debentures, related parties   981,337    982,205 
Notes payable, net of current portion   158,645    5,133,604 
Convertible notes payable, net of discount of $5,170,205   10,252,017    - 
Finance lease liability, net of current portion   8,563    16,217 
Operating lease liability, net of current portion   1,734,790    2,057,805 
Deferred tax liability   1,499,045    1,500,372 
TOTAL LIABILITIES   27,364,847    18,154,126 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS’ EQUITY          
Novo Integrated Sciences, Inc.          
Convertible preferred stock; $0.001 par value; 1,000,000 shares authorized; 0 and 0 shares issued and outstanding at May 31, 2022 and August 31, 2021, respectively          
Common stock; $0.001 par value; 499,000,000 shares authorized; 30,659,073 and 26,610,144 shares issued and outstanding at May 31, 2022 and August 31, 2021, respectively   30,659    26,610 
Additional paid-in capital   64,620,878    54,579,396 
Common stock to be issued (4,308,591 and 3,622,199 shares at May 31, 2022 and August 31, 2021)   10,096,332    9,236,607 
Other comprehensive income   1,015,993    991,077 
Accumulated deficit   (31,391,082)   (20,969,274)
Total Novo Integrated Sciences, Inc. stockholders’ equity   44,372,780    43,864,416 
Noncontrolling interest   55,187    (60,261)
Total stockholders’ equity   44,427,967    43,804,155 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $71,792,814   $61,958,281 

 

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

 

3

 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

 

   May 31,   May 31,   May 31,   May 31, 
   Three Months Ended   Nine Months Ended 
   May 31,   May 31,   May 31,   May 31, 
   2022   2021   2022   2021 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenues  $13,851,883   $2,380,974   $19,883,033   $6,612,374 
                     
Cost of revenues   11,443,001    1,100,516    14,991,331    3,769,020 
                     
Gross profit   2,408,882    1,280,458    4,891,702    2,843,354 
                     
Operating expenses:                    
Selling expenses   9,802    2,381    36,340    4,226 
General and administrative expenses   3,601,826    1,680,049    9,542,443    5,324,768 
Total operating expenses   3,611,628    1,682,430    9,578,783    5,328,994 
                     
Loss from operations   (1,202,746)   (401,972)   (4,687,081)   (2,485,640)
                     
Non operating income (expense)                    
Interest income   8,355    8,402    25,233    25,265 
Interest expense   (513,398)   (21,701)   (1,808,310)   (68,590)
Amortization of debt discount   (2,133,890)   -    (3,654,752)   - 
Foreign currency transaction gains (losses)   97,654    -    (303,714)   - 
Total other income (expense)   (2,541,279)   (13,299)   (5,741,543)   (43,325)
                     
Loss before income taxes   (3,744,025)   (415,271)   (10,428,624)   (2,528,965)
                     
Income tax expense   -    -    -    - 
                     
Net loss  $(3,744,025)  $(415,271)  $(10,428,624)  $(2,528,965)
                     
Net income (loss) attributed to noncontrolling interest   66,029    (4,084)   (6,816)   (6,438)
                     
Net loss attributed to Novo Integrated Sciences, Inc.  $(3,810,054)  $(411,187)  $(10,421,808)  $(2,522,527)
                     
Comprehensive loss:                    
Net loss   (3,744,025)   (415,271)   (10,428,624)   (2,528,965)
Foreign currency translation gain   13,711    123,521    24,916    176,349 
Comprehensive loss:  $(3,730,314)  $(291,750)  $(10,403,708)  $(2,352,616)
                     
Weighted average common shares outstanding - basic and diluted   29,817,999    25,298,866    28,498,414    24,192,998 
                     
Net loss per common share - basic and diluted  $(0.13)  $(0.02)  $(0.37)  $(0.10)

 

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

 

4

 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

 

   Shares   Amount   Capital   Be Issued   Income   Deficit   Equity   Interest   Equity 
                           Total         
           Additional   Common   Other       Novo         
   Common Stock   Paid-in   Stock To   Comprehensive   Accumulated   Stockholders’   Noncontrolling   Total 
   Shares   Amount   Capital   Be Issued   Income   Deficit   Equity   Interest   Equity 
Balance, August 31, 2021   26,610,144   $26,610   $54,579,396   $9,236,607   $991,077   $(20,969,274)  $43,864,416   $(60,261)  $43,804,155 
                                              
Common stock for services   35,000    35    64,715    -    -    -    64,750    -    64,750 
Common stock issued as collateral and held in escrow   2,000,000    2,000    (2,000)   -    -    -    -    -    - 
Common stock to be issued for purchase of Terragenx   -    -    -    983,925    -    -    983,925    97,311    1,081,236 
Common stock to be issued for purchase of Mullin assets   -    -    -    188,925    -    -    188,925    -    188,925 
Value of warrants issued with convertible notes   -    -    295,824    -    -    -    295,824    -    295,824 
Fair value of stock options   -    -    154,135    -    -    -    154,135    -    154,135 
Foreign currency translation loss   -    -    -    -    (103,533)   -    (103,533)   (855)   (104,388)
Net loss   -    -    -    -    -    (1,806,587)   (1,806,587)   (9,808)   (1,816,395)
                                              
Balance, November 30, 2021   28,645,144    28,645    55,092,070    10,409,457    887,544    (22,775,861)   43,641,855    26,387    43,668,242 
                                              
Common stock for services   240,000    240    297,760    -    -    -    298,000    -    298,000 
Value of warrants issued with convertible notes   -    -    5,257,466    -    -    -    5,257,466    -    5,257,466 
Fair value of stock options   -    -    44,427    -    -    -    44,427    -    44,427 
Foreign currency translation gain   -    -    -    -    114,738    -    114,738    355    115,093 
Net loss   -    -    -    -    -    (4,805,167)   (4,805,167)   (63,037)   (4,868,204)
                                              
Balance, February 28, 2022   28,885,144    28,885    60,691,723    10,409,457    1,002,282    (27,581,028)   44,551,319    (36,295)   44,515,024 
                                              
Common stock for services   125,000    125    313,875    -    -    -    314,000    -    314,000 
Common stock for conversion of convertible notes   623,929    624    1,247,225    -    -    -    1,247,849    -    1,247,849 
Common stock for acquisition   800,000    800    1,703,200    -    -    -    1,704,000    -    1,704,000 
Common stock to be issued for acquisitions   -    -    -    260,625    -    -    260,625    25,402    286,027 
Issuance of common stock to be issued   225,000    225    573,525    (573,750)   -    -    -    -    - 
Fair value of stock options   -    -    91,330    -    -    -    91,330    -    91,330 
Foreign currency translation gain   -    -    -    -    13,711    -    13,711    51    13,762 
Net loss   -    -    -    -    -    (3,810,054)   (3,810,054)   66,029    (3,744,025)
                                              
Balance, May 31, 2022   30,659,073   $30,659   $64,620,878   $10,096,332   $1,015,993   $(31,391,082)  $44,372,780   $55,187   $44,427,967 
                                              
Balance, August 31, 2020   23,466,236   $23,466   $44,905,454   $-   $1,199,696   $(16,507,127)  $29,621,489   $(49,859)  $29,571,630 
                                              
Common stock issued for cash   21,905    22    91,978    -    -    -    92,000    -    92,000 
Common stock issued for services   65,000    65    247,935    -    -    -    248,000    -    248,000 
Foreign currency translation gain   -    -    -    -    10,596    -    10,596    (225)   10,371 
Net loss   -    -    -    -    -    (771,470)   (771,470)   (1,633)   (773,103)
                                              
Balance, November 30, 2020   23,553,141    23,553    45,245,367    -    1,210,292    (17,278,597)   29,200,615    (51,717)   29,148,898 
                                              
Exercise of stock options   7,500    8    11,992    -    -    -    12,000    -    12,000 
Common stock issued for intellectual property   240,000    240    875,760    -    -    -    876,000    -    876,000 
Common stock to be issued for services rendered   -    -    -    375,000    -    -    375,000    -    375,000 
Rounding due to stock split   957    1    (1)   -    -    -    -    -    - 
Fair value of vested stock options   -    -    22,215    -    -    -    22,215    -    22,215 

Foreign currency translation

gain

   -    -    -    -    42,232    -    42,232    (965)   41,267 
Net loss   -    -    -    -    -    (1,339,870)   (1,339,870)   (721)   (1,340,591)
                                              
Balance, February 28, 2021   23,801,598    23,802    46,155,333    375,000    1,252,524    (18,618,467)   29,188,192    (53,403)   29,134,789 
                                              
Common stock for services   100,000    100    374,900    (375,000)   -    -    -    -    - 
Common stock issued for acquisition   189,796    190    430,647    -    -    -    430,837    -    430,837 
Common stock issued for services rendered   9,913    9    37,163    -    -    -    37,172    -    37,172 
Common stock issued for cash, net of offering costs   2,388,050    2,388    7,233,192    -    -    -    7,235,580    -    7,235,580 
Fair value of vested stock options   -    -    66,640    -    -    -    66,640    -    66,640 

Foreign currency translation

gain

   -    -    -    -    123,521    -    123,521    (3,143)   120,378 
Net loss   -    -    -    -    -    (411,187)   (411,187)   (4,084)   (415,271)
                                              
Balance, May 31, 2021   26,489,357   $26,489   $54,297,875   $-   $1,376,045   $(19,029,654)  $36,670,755   $(60,630)  $36,610,125 

 

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

 

5

 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

 

   May 31,   May 31, 
   Nine Months Ended 
   May 31,   May 31, 
   2022   2021 
   (unaudited)   (unaudited) 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(10,428,624)  $(2,528,965)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   2,349,434    1,118,925 
Fair value of vested stock options   289,892    88,855 
Common stock issued for services   676,750    660,172 
Operating lease expense   418,188    467,864 
Amortization of debt discount   3,654,752    - 
Foreign currency transaction losses   303,714    - 
Changes in operating assets and liabilities:          
Accounts receivable   (3,650,069)   543,213 
Inventory   (263,539)   - 
Prepaid expenses and other current assets   (150,632)   (143,590)
Accounts payable   117,056    (97,659)
Accrued expenses   (68,871)   64,513 
Accrued interest   598,904    7,455 
Operating lease liability   (406,862)   (460,063)
Net cash used in operating activities   (6,559,907)   (279,280)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (190,973)   (201,369)
Cash acquired from (paid for) acquisition   57,489    (10,000)
Payment on other receivable   296,138    - 
Amounts loaned for other receivables   -    (470,040)
Net cash provided by (used in) investing activities   162,654    (681,409)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayments to related parties   (21,932)   (177,534)
Repayments of finance leases   (14,797)   - 
Repayments of notes payable   (4,430,794)   - 
Proceeds from the sale of common stock, net of offering costs   -    7,327,580 
Proceeds from exercise of stock options   -    12,000 
Proceeds from issuance of convertible notes, net   15,270,000    - 
Net cash provided by financing activities   10,802,477    7,162,046 
           
Effect of exchange rate changes on cash and cash equivalents   (20,940)   97,970 
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   4,384,284    6,299,327 
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   8,293,162    2,067,718 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $12,677,446   $8,367,045 
           
CASH PAID FOR:          
Interest  $1,294,912   $33,183 
Income taxes  $-   $- 
           
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock to be issued for intangible assets  $188,925   $876,000 
Common stock to be issued for acquisitions  $1,244,550   $- 
Common stock issued for acquisition  $1,704,000   $430,837 
Conversion of convertible notes payable and accrued interest to common stock  $1,247,849   $- 

 

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

 

6

 

 

NOVO INTEGRATED SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Note 1 - Organization and Basis of Presentation

 

Organization and Line of Business

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Reverse Stock Split

 

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

 

Impact of COVID-19

 

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

 

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

 

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

 

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

 

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Basis of Presentation

 

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

 

The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, that the Company filed on December 14, 2021. The results of operations for the nine months ended May 31, 2022 are not necessarily indicative of the results for the fiscal year ending August 31, 2022. The Company’s Canadian subsidiaries’ functional currency is the Canadian Dollar (“CAD”); however, the accompanying unaudited condensed consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).

 

Foreign Currency Translation

 

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

 

   May 31, 2022   May 31, 2021   August 31, 2021 
             
Period end: CAD to USD exchange rate  $0.7910   $0.8284   $0.7917 
Average period: CAD to USD exchange rate  $0.7897   $