Company Quick10K Filing
Novo Integrated Sciences
Price1.05 EPS-0
Shares224 P/E-374
MCap235 P/FCF-375
Net Debt-2 EBIT-1
TEV232 TEV/EBIT-426
TTM 2019-05-31, in MM, except price, ratios
10-Q 2020-05-31 Filed 2020-07-14
10-Q 2020-02-29 Filed 2020-04-20
10-Q 2019-11-30 Filed 2020-01-13
10-K 2019-08-31 Filed 2019-11-20
10-Q 2019-05-31 Filed 2019-07-11
10-Q 2019-02-28 Filed 2019-04-11
10-Q 2018-11-30 Filed 2019-01-11
10-K 2018-08-31 Filed 2018-11-06
10-Q 2018-05-31 Filed 2018-07-11
10-Q 2018-02-28 Filed 2018-04-12
10-Q 2017-11-30 Filed 2018-01-12
10-K 2017-08-31 Filed 2017-12-08
10-Q 2017-05-31 Filed 2017-07-24
10-Q 2017-03-31 Filed 2017-04-14
10-K 2016-12-31 Filed 2017-03-07
10-Q 2016-09-30 Filed 2016-10-31
10-Q 2016-06-30 Filed 2016-07-22
10-Q 2016-03-31 Filed 2016-04-29
10-K 2015-12-31 Filed 2016-03-25
10-Q 2015-09-30 Filed 2015-10-30
10-Q 2015-06-30 Filed 2015-07-31
10-Q 2015-03-31 Filed 2015-05-01
10-K 2014-12-31 Filed 2015-03-27
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-01
10-Q 2014-03-31 Filed 2014-05-19
10-K 2013-12-31 Filed 2014-04-16
10-Q 2013-09-30 Filed 2013-11-19
10-Q 2013-06-30 Filed 2013-08-16
10-Q 2013-03-31 Filed 2013-05-20
10-K 2012-12-31 Filed 2013-04-15
10-Q 2012-09-30 Filed 2012-11-23
10-Q 2012-06-30 Filed 2012-08-20
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-04-06
10-Q 2011-09-30 Filed 2011-11-21
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-31
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-17
10-K 2009-12-31 Filed 2010-04-14
8-K 2020-08-06 Officers, Regulation FD, Exhibits
8-K 2020-07-21 Sale of Shares
8-K 2020-04-07
8-K 2020-03-20
8-K 2020-03-09
8-K 2020-02-04
8-K 2019-12-17
8-K 2019-10-23
8-K 2019-09-24
8-K 2019-09-11
8-K 2019-03-06
8-K 2019-02-26
8-K 2019-02-20
8-K 2019-01-31
8-K 2019-01-14
8-K 2018-12-18
8-K 2018-11-30
8-K 2018-11-23
8-K 2018-11-14
8-K 2018-10-23
8-K 2018-10-17
8-K 2018-10-10
8-K 2018-07-27
8-K 2018-05-31
8-K 2018-04-08
8-K 2018-03-19
8-K 2018-03-15
8-K 2018-01-30
8-K 2018-01-16
8-K 2017-12-29
8-K 2017-12-26

NVOS 10Q Quarterly Report

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

Novo Integrated Sciences Earnings 2020-05-31

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

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended May 31, 2020

 

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

 

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

 

Commission File Number 333-109118

 

Novo Integrated Sciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   59-3691650
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification Number)
     
11120 NE 2nd Street, Suite 200
Bellevue, Washington
  98004
(Address of Principal Executive Offices)   (Zip Code)

 

(206) 617-9797

(Registrant’s Telephone Number, Including Area Code)

 

N/A

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

There were 233,011,454 shares of the Registrant’s $0.001 par value common stock outstanding as of July 10, 2020.

 

 

 

 
 

 

Novo Integrated Sciences, Inc.

 

Contents

 

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of May 31, 2020 (unaudited) and August 31, 2019

 

    May 31, 2020     August 31, 2019  
   (unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $1,394,366   $2,083,666 
Accounts receivable, net   1,117,072    1,463,529 
Other receivables, current portion   1,053,906    300,994 
Prepaid expenses and other current assets   364,154    250,398 
Total current assets   3,929,498    4,098,587 
           
Property and equipment, net   347,243    410,188 
Intangible assets   27,992,798    22,358,567 
Right-of-use assets   2,800,130    3,004,017 
Other receivables, net of current portion   272,363    1,062,241 
Acquisition deposits   627,335    716,688 
Goodwill   602,829    623,081 
TOTAL ASSETS  $36,572,196   $32,273,369 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities:          
Accounts payable  $672,066   $1,144,812 
Accrued expenses   156,265    205,784 
Accrued interest (principally to related parties)   343,425    248,582 
Government loans and note payable   80,004    - 
Due to related parties   742,816    920,083 
Operating lease liability, current portion   535,358    508,305 
Total current liabilities   2,529,934    3,027,566 
           
Debentures, related parties   1,162,536    1,201,591 
Operating lease liability, net of current portion   2,281,174    2,500,004 
TOTAL LIABILITIES   5,973,644    6,729,161 
           
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, 2020 and August 31, 2019                
Common stock; $0.001 par value; 499,000,000 shares authorized; 233,011,454 and 223,691,507 shares issued and outstanding at May 31, 2020 and August 31, 2019     233,011       223,691  
Additional paid-in capital   41,614,335    35,813,203 
Other comprehensive income   1,077,221    1,138,919 
Accumulated deficit   (12,282,872)   (11,591,973)
Total Novo Integrated Sciences, Inc. stockholders’ equity   30,641,695    25,583,840 
Noncontrolling interest   (43,143)   (39,632)
Total stockholders’ equity   30,598,552    25,544,208 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $36,572,196   $32,273,369 

 

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, 2020 and May 31, 2019 (unaudited)

 

   Three Months Ended   Nine Months Ended 
    May 31, 2020     May 31, 2019     May 31, 2020     May 31, 2019  
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenues  $1,038,226   $2,489,575   $6,015,700   $7,001,607 
                     
Cost of revenues   559,976    1,556,865    3,778,777    4,305,688 
                     
Gross profit   478,250    932,710    2,236,923    2,695,919 
                     
Operating expenses:                    
Selling expenses   2,389    3,846    4,495    33,085 
General and administrative expenses   554,412    991,992    2,538,572    3,020,001 
Total operating expenses   556,801    995,838    2,543,067    3,053,086 
                     
Loss from operations   (78,551)   (63,128)   (306,144)   (357,167)
                     
Non operating income (expense)                    
Interest income   25,773    4,090    81,145    13,473 
Interest expense   (48,245)   (41,735)   (126,291)   (136,643)
Write off of acquisition deposit   -    -    (344,521)   - 
Total other income (expense)   (22,472)   (37,645)   (389,667)   (123,170)
                     
Loss before income taxes   (101,023)   (100,773)   (695,811)   (480,337)
                     
Income tax expense   -    -    -    - 
                     
Net loss  $(101,023)  $(100,773)  $(695,811)  $(480,337)
                     
Net loss attributed to noncontrolling interest   (2,728)   (1,515)   (4,912)   (10,162)
                     
Net loss attributed to Novo Integrated Sciences, Inc.  $(98,295)  $(99,258)  $(690,899)  $(470,175)
                     
Comprehensive loss:                    
Net loss   (101,023)   (100,773)   (695,811)   (480,337)
Foreign currency translation gain (loss)   (50,624)   (63,607)   (61,698)   (37,627)
Comprehensive loss:  $(151,647)  $(164,380)  $(757,509)  $(517,964)
                     
Weighted average common shares outstanding - basic and diluted   232,948,482    223,258,368    229,138,297    215,193,998 
                     
Net loss per common share - basic and diluted  $(0.00)  $(0.00)  $(0.00)  $(0.00)

 

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

 

4
 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended May 31, 2020 and May 31, 2019 (unaudited)

 

    Common Stock   Additional
Paid-in
    Other
Comprehensive
    Accumulated     Total
Novo
Stockholders’
    Noncontrolling   Total  
   Shares   Amount   Capital   Income   Deficit   Equity   Interest   Equity 
Balance, August 31, 2019   223,691,507   $223,691   $35,813,203   $1,138,919   $(11,591,973)  $25,583,840   $(39,632)  $25,544,208 
                                         
Common stock issued for cash   354,369    355    113,044    -    -    113,399    -    113,399 
Foreign currency translation loss   -    -    -    5,200         5,200    (123)   5,077 
Net loss   -    -    -    -    (88,120)   (88,120)   (839)   (88,959)
                                         
Balance, November 30, 2019   224,045,876    224,046    35,926,247    1,144,119    (11,680,093)   25,614,319    (40,594)   25,573,725 
                                         
Common stock issued for licensing agreement   8,000,000    8,000    5,240,000    -    -    5,248,000    -    5,248,000 
Foreign currency translation loss   -    -    -    (16,274)   -    (16,274)   426    (15,848)
Net loss   -    -    -    -    (504,484)   (504,484)   (1,345)   (505,829)
                                         
Balance, February 29, 2020   232,045,876    232,046    41,166,247    1,127,845    (12,184,577)   30,341,561    (41,513)   30,300,048 
                                         
Common stock issued for software license   965,578    965    385,266    -    -    386,231    -    386,231 
Fair value of modification of stock option terms   -    -    62,822    -    -    62,822    -    62,822 
Foreign currency translation loss   -    -    -    (50,624)        (50,624)   1,098    (49,526)
Net loss   -    -    -    -    (98,295)   (98,295)   (2,728)   (101,023)
                                         
Balance, May 31, 2020   233,011,454   $233,011   $ 41,614,335   $1,077,221   $(12,282,872)  $ 30,641,695   $ (43,143)  $ 30,598,552 
                                         
Balance, August 31, 2018   207,881,743   $ 207,882   $10,053,683   $ 1,139,815   $ (11,199,989)  $201,391   $(28,621)  $172,770 
                                         
Common stock issued for cash   563,222    563    531,366    -    -    531,929    -    531,929 
Fair value of vested stock options   -    -    70,846    -    -    70,846    -    70,846 
Foreign currency translation loss   -    -    -    (1,785)        (1,785)   530    (1,255)
Net loss   -    -    -    -    (251,416)   (251,416)   (5,168)   (256,584)
                                         
Balance, November 30, 2018   208,444,965    208,445    10,655,895    1,138,030    (11,451,405)   550,965    (33,259)   517,706 
                                         
Common stock issued for cash   2,144,891    2,145    2,045,849    -    -    2,047,994    -    2,047,994 
Common stock issued for interest in joint venture   12,000,000    12,000    21,588,000    -    -    21,600,000    -    21,600,000 
Common stock issued for software license   458,349    458    758,109    -    -    758,567    -    758,567 
Foreign currency translation loss   -    -    -    27,765         27,765    (360)   27,405 
Net loss   -    -    -    -    (119,501)   (119,501)   (3,479)   (122,980)
                                         
Balance, February 28, 2019   223,048,205    223,048    35,047,853    1,165,795    (11,570,906)   24,865,790    (37,098)   24,828,692 
                                         
Common stock issued for cash   537,331    537    647,638    -    -    648,175    -    648,175 
Foreign currency translation loss   -    -    -    (63,607)        (63,607)   530    (63,077)
Net loss   -    -    -    -    (99,258)   (99,258)   (1,077)   (100,335)
                                         
Balance, May 31, 2019   223,585,536   $223,585   $35,695,491   $1,102,188   $(11,670,164)  $25,351,100   $(37,645)  $25,313,455 

 

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, 2020 and May 31, 2019 (unaudited)

 

   Nine Months Ended 
    May 31, 2020     May 31, 2019  
   (unaudited)   (unaudited) 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(695,811)  $(480,337)
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation   54,681    71,256 
Fair value of vested stock options   -    70,846 
Expense associated with modified stock option terms   62,822    - 
Operating lease expense   398,039    98,316 
Write off of acquisition deposit   344,521    - 
Changes in operating assets and liabilities:          
Accounts receivable   305,966    (91,318)
Prepaid expenses and other current assets   (123,729)   7,182 
Accounts payable   (448,202)   18,628 
Accrued expenses   (44,280)   (167,126)
Accrued interest   105,359    38,076 
Operating lease liability   (385,500)   (96,498)
Net cash used in operating activities   (426,134)   (530,975)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (3,897)   (103,035)
Payment for acquisition deposit   (636,985)   (377,000)
Amounts loaned for other receivables   -    (225,924)
Return of acquisition deposit   372,800    - 
Net cash used in investing activities   (268,082)   (705,959)
           
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayments to related parties   (150,849)   (151,257)
Proceeds from government loans and note payable   81,380    - 
Proceeds from the sale of common stock   113,399    3,228,098 
Net cash provided by financing activities   43,930    3,076,841 
           
Effect of exchange rate changes on cash and cash equivalents   (39,014)   (37,309)
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (689,300)   1,802,598 
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   2,083,666    675,705 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $1,394,366   $2,478,303 
           
CASH PAID FOR:          
Interest  $95,085   $104,443 
Income taxes  $-   $- 
           
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock issued for intangible assets  $5,634,231   $22,358,567 

 

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, 2020 and May 31, 2019 (unaudited)

 

Note 1 - Organization and Basis of Presentation

 

Organization and Line of Business

 

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

 

The Company delivers multi-disciplinary primary healthcare through our 16 corporate-owned clinics and a contracted network of 103 affiliate clinics and 220 eldercare centric homes located across Canada. Our team of practitioners and staff are trained for assessment, diagnosis, treatment, pain management, rehabilitation, and primary prevention. Our specialized services and products include physiotherapy, chiropractic care, occupational therapy, eldercare, laser therapeutics, massage therapy, acupuncture, chiropody, neurological functions, kinesiology, concussion management and baseline testing, women’s pelvic health, sports medicine therapy, assistive devices and private personal training. We do not provide primary care medical services, none of our employees practice primary care medicine, and our services do not require a medical or nursing license.

 

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

 

On April 25, 2017 (the “Effective Date”), we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) by and between (i) Novo Integrated; (ii) 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 167,797,406 restricted shares Novo Integrated common stock, representing 85% of the issued and outstanding Novo Integrated common stock, calculated including all granted and issued options or warrants to acquire Novo Integrated common stock as of the Effective Date, but to exclude shares of Novo Integrated common stock that are subject to a then-current Regulation S offering that was undertaken by Novo Integrated (the “Exchange”).

 

On May 9, 2017, the Exchange closed and, as a result, NHL became a wholly owned subsidiary of Novo Integrated.

 

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

 

The unaudited condensed consolidated financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) were omitted pursuant to such rules and regulations. The results of operations for the nine months ended May 31, 2020 are not necessarily indicative of the results for the year ending August 31, 2020.

 

7
 

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements were prepared in conformity with U.S. GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. 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, 2019, that we filed on November 20, 2019. 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 Accounting Standards Codification (“ASC”) Topic 830 Foreign Currency Transaction, with the CAD as the functional currency. According to Topic 830, all assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, Comprehensive Income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the condensed consolidated statements of operations and comprehensive loss. The following table details the exchange rates used for the respective periods:

 

   May 31, 2020   May 31, 2019   August 31, 2019 
             
Period end: CAD to USD exchange rate  $0.7263   $0.7395   $0.7507 
Average period: CAD to USD exchange rate  $0.7435   $0.7540      

 

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. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, NHL, Novo Healthnet Rehab Limited, Novo Assessments Inc., an 80% interest in Novo Healthnet Kemptville Centre, Inc., a Back on Track Physiotherapy and Health Centre clinic operated by NHL, and a 70% interest in Novo Earth Therapeutics Inc. (currently inactive), a joint venture with Harvest Gold Farms Inc. All of the Company’s subsidiaries are incorporated under the laws of the Province of Ontario or New Brunswick, Canada. All intercompany transactions have been eliminated.

 

8
 

 

Noncontrolling Interest

 

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

 

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

 

Cash Equivalents

 

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

 

Accounts Receivable

 

Accounts receivable are recorded, net of allowance for doubtful accounts and sales returns. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends, and changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified. As of May 31, 2020, and August 31, 2019, the allowance for uncollectible accounts receivable was $470,751 and $471,566, respectively.

 

Property and Equipment

 

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

 

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

 

Long-Lived Assets

 

The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets 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, 2020 and August 31, 2019, the Company believes there was no impairment of its long-lived assets.

 

Intangible Assets

 

The Company’s intangible assets consist of land use rights, a software license and intellectual property which will be amortized over 50, 7 and 7 years, respectively. Amortization will begin when the assets are fully placed in service. The Company performs a test for impairment annually. The land use rights, the software license and intellectual property intangible assets were acquired in January 2019, February 2019, and December 2019, respectively. Based on its reviews at August 31, 2019, the Company believes there was no impairment of its intangible assets.

 

9
 

 

Right-of-use Assets

 

The Company’s right-of-use assets consist of leased assets recognized in accordance with ASC 842, Leases, which requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the condensed consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statement of operations. The Company determines the lease term by agreement with lessor. As majority of the Company’s leases 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. At May 31, 2020, the Company recorded goodwill of $181,575, $210,627 and $210,627, respectively, related to its acquisition of APKA Health, Inc. during the fiscal year ended August 31, 2017, Executive Fitness Leaders during the fiscal year ended August 31, 2018 and Action Plus Physiotherapy Rockland during the fiscal year ended August 31, 2019.

 

Summary of changes in goodwill by acquired businesses is as follows:

 

   APKA   EFL   Rockland   Total 
Balance, August 31, 2019  $187,675   $217,703   $217,703   $623,081 
Foreign currency translation adjustment   (6,100)   (7,076)   (7,076)   (20,252)
Balance, May 31, 2020  $181,575   $210,627   $210,627   $602,829 

 

Acquisition Deposits

 

The Company has signed letters of understanding with two potential acquisition candidates which includes refundable acquisition deposits totaling $627,335 and $716,688 at May 31, 2020 and August 31, 2019, respectively. During the nine months ended May 31, 2020, the Company wrote off an acquisition deposit of $344,521 which is considered impaired since the acquiree has been dissolved and is no longer in business. See Financial Note 14 Subsequent Events for an acquisition deposit return note.

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

10
 

 

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

 

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

 

As of May 31, 2020, and August 31, 2019, respectively, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.

 

Fair Value Measurement on a Non-Recurring Basis

 

The Company measures the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include goodwill and intangible assets.

 

Revenue Recognition

 

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

 

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

 

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

 

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

 

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

 

Income Taxes

 

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

 

11
 

 

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

 

Stock-Based Compensation

 

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

 

Basic and Diluted Earnings Per Share

 

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were 10,095,000 options/warrants outstanding as of May 31, 2020. Due to the net loss incurred, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented.

 

Foreign Currency Transactions and Comprehensive Income

 

U.S. GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company’s Canadian subsidiaries is the CAD. Translation gains of $1,077,221 and $1,138,919 at May 31, 2020 and August 31, 2019, respectively, are classified as an item of other comprehensive income in the stockholders’ equity section of the balance sheet.

 

Statement of Cash Flows

 

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

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 and additional ASUs are now codified as ASC 842 - Leases (“ASC 842”). ASC 842 supersedes the lease accounting guidance in ASC 840 Leases and requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. The Company adopted ASC 842 on March 1, 2019 and used the modified retrospective transition approach and did not restate its comparative periods. As of the date of implementation on March 1, 2019, the impact of the adoption of ASC 842 resulted in the recognition of a right of use asset and lease payable obligation on the Company’s condensed consolidated balance sheets of $2,360,787. As the right of use asset and the lease payable obligation were the same upon adoption of ASC 842, there was no cumulative effect impact on the Company’s accumulated deficit.

 

12
 

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s condensed consolidated financial statements and related disclosures.

 

In June 2018, the Financial Accounting Standards Board (the “FASB”), issued an accounting pronouncement (FASB ASU 2018-07) to expand the scope of ASC Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted this pronouncement and such adoption did not have a significant impact on the unaudited condensed consolidated financial statements.

 

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

 

Note 3 – Related Party Transactions

 

Due to related parties

 

Amounts loaned to the Company by stockholders and officers of the Company are payable upon demand. At May 31, 2020 and August 31, 2019, the amount due to related parties was $742,816 and $920,083, respectively.

 

The Company leases office space from a related party on a month-to-month basis with monthly lease payments of $1,641.

 

On January 31, 2018, a related party converted $813,125 of outstanding principal and accrued interest into 1,976,483 shares of the Company’s common stock. The per share price used for the conversion of this loan was $0.4114 which was determined based on the average price of the five (5) trading days immediately preceding the date of conversion with a 10% premium added to the calculated per share price.

 

Note 4 – Accounts Receivables, net

 

Accounts receivables, net at May 31, 2020 and August 31, 2019 consisted of the following:

 

    May 31, 2020     August 31, 2019  
Trade receivables  $1,438,892   $1,631,036 
Amounts earned but not billed   148,931    304,059 
    1,587,823    1,935,095 
Allowance for doubtful accounts   (470,751)   (471,566)
Accounts receivable, net  $1,117,072   $1,463,529 

 

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Note 5 – Other Receivables

 

Other receivables at May 31, 2020 and August 31, 2019 consisted of the following:

 

    May 31, 2020     August 31, 2019  
Notes receivable dated April 1, 2015 and amended on May 23, 2017; accrued interest at 8% per annum; secured by certain assets; due March 1, 2019. (currently in default)  $272,363   $281,513 
           
Advance to corporation; non-interest bearing; unsecured; due not later than November 18, 2020   29,052    30,028 
           
Advance to corporation; accrues interest at 12% per annum; unsecured; due December 31, 2020   72,630    75,070 
           
Advance to corporation; accrues interest at 10% per annum after the first 60 days; unsecured; due February 7, 2021   225,924    225,924 
           
Advance to corporation; accrues interest at 10% per annum; secured by property and other assets; due December 31, 2020   726,300    750,700 
           
Total other receivables   1,326,269    1,363,235 
Current portion   (1,053,906)   (300,994)
Long-term portion  $272,363   $1,062,241 

 

Note 6 – Property and Equipment

 

Property and equipment at May 31, 2020 and August 31, 2019 consisted of the following:

 

    May 31, 2020     August 31, 2019  
Leasehold Improvements  $440,905   $453,233 
Clinical equipment   277,176    285,307 
Computer equipment   22,640    23,133 
Office equipment   27,664    28,593 
Furniture and fixtures   37,631    38,895 
    806,016    829,161 
Accumulated depreciation   (458,773)   (418,973)
Total  $347,243   $410,188 

 

Depreciation expense for the nine months ended May 31, 2020 and May 31, 2019 was $54,681 and $71,256, respectively.

 

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Note 7 – Intangible Assets

 

Intangible assets at May 31, 2020 and August 31, 2019 consisted of the following:

 

    May 31, 2020     August 31, 2019  
Land use rights  $21,600,000   $21,600,000 
Software license   1,144,798    758,567 
Intellectual property   5,248,000    - 
    27,992,798    22,358,567 
Accumulated amortization   -    - 
Total  $27,992,798   $22,358,567 

 

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

 

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

 

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

 

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

 

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

 

15
 

 

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

 

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

 

There was no amortization expense during the nine months ended May 31, 2020 and May 31, 2019 as the listed intangible assets have not been placed in service.

 

Note 8 – Accrued Expenses

 

Accrued expenses at May 31, 2020 and August 31, 2019 consisted of the following:

 

    May 31, 2020     August 31, 2019  
Accrued liabilities  $57,737   $59,661 
Accrued payroll   60,852    115,912 
Other   37,676    30,211 
   $156,265   $205,784 

 

Note 9 – Government Loans and Note Payable

 

Notes payable at May 31, 2020 consisted of the following:

 

    May 31, 2020  
Note payable issued under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The loan has terms of 24 months and accrues interest at 1% per annum. The Company expects some or all of this loan to be forgiven as provided by in the CARES Act.  $21,900 
 Government loans issued under the Government of Canada’s Canada Emergency Business Account (“CEBA”) program. 25% of the balance will be forgiven if paid on or before December 31, 2022.   58,104 
   $80,004 

 

During the three months ended May 31, 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) for Canadian employers whose businesses were affected by the COVID-19 pandemic. The CEWS provides a subsidy of up to 75% of eligible employees’ employment insurable remuneration, subject to certain criteria. Accordingly, the Company applied for the CEWS to the extent it met the requirements to receive the subsidy and during the three months ended May 31, 2020, recorded a total of approximately $203,000 in government subsidies as a reduction to the associated wage costs recorded in cost of revenues and general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.

 

16
 

 

Note 10 – Debentures, related parties

 

On September 30, 2013, the Company issued five debentures totaling CAD$6,402,512 ($4,968,990 at November 30, 2017) in connection with the acquisition of certain business assets. The holders of the debentures are current stockholders, officers and/or affiliates of the Company. The debentures are secured by all the assets of the Company, accrue interest at 8% per annum and were originally due on September 30, 2016. On December 2, 2017, the debenture holders agreed to extend the due date to September 30, 2019. On September 27, 2019, the debenture holders agreed to extend the due date to September 30, 2021.

 

On January 31, 2018, the debenture holders converted 75% of the debenture value of $3,894,809 plus accrued interest of $414,965 into 10,475,872 shares of the Company’s common stock. The per share price used for the conversion of each debenture was $0.4114 which was determined based on the average price of the five (5) trading days immediately preceding the date of conversion with a 10% premium added to the calculated per share price. At May 31, 2020, the amount of debentures outstanding was $1,162,536.

 

Note 11 – Leases

 

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

 

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

 

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

 

   Classification on Balance Sheet  May 31, 2020 
Assets        
Operating lease assets  Operating lease right of use assets  $2,800,130 
Total lease assets     $2,800,130 
         
Liabilities        
Current liabilities        
Operating lease liability  Current operating lease liability  $535,358 
Noncurrent liabilities        
Operating lease liability  Long-term operating lease liability   2,281,174 
Total lease liability     $2,816,532 

 

Lease obligations at May 31, 2020 consisted of the following:

 

Twelve Months Ending May 31,    
2021  $768,822 
2022   655,428 
2023   594,278 
2024   395,078 
2025   315,992 
2026   281,961 
Thereafter   553,545 
Total payments   3,565,104 
Amount representing interest   (748,572)
Lease obligation, net   2,816,532 
Less lease obligation, current portion   (535,358)
Lease obligation, long-term portion  $2,281,174 

 

17
 

 

The lease expense for the nine months ended May 31, 2020 was $576,528. The cash paid under operating leases during the nine months ended May 31, 2020 was $563,989. At May 31, 2020, the weighted average remaining lease terms were 6.14 years and the weighted average discount rate was 8%.

 

Note 12 – Stockholders’ Deficit

 

Convertible preferred stock

 

The Company has authorized 1,000,000 shares of $0.001 par value convertible preferred stock. At May 31, 2020 and August 31, 2019 there were 0 and 0 convertible preferred shares issued and outstanding, respectively.

 

Common stock

 

The Company has authorized 499,000,000 shares of $0.001 par value common stock. At May 31, 2020 and August 31, 2019 there were 233,011,454 and 223,691,507 common shares issued and outstanding, respectively.

 

During the nine months ended May 31, 2020, the Company issued:

 

  354,369 restricted shares of common stock for cash proceeds of $113,399;
     
 

8,000,000 restricted shares of common stock as consideration for the Intellectual Property Asset Purchase Agreement with a value of $5,248,000 based on the closing share price of $0.656 on the execution date of the Agreement; and

 

  965,578 restricted shares of common stock as consideration for the License Agreement Amendment No. 1 with a value of $386,231 based on the closing share price of $0.40 on the execution date of the Agreement Amendment No.1.

 

During the nine months ended May 31, 2019, the Company issued:

 

  3,245,444 restricted shares of common stock for cash proceeds of $3,228,098;
     
  12,000,000 restricted shares of common stock as consideration for the Assignment, to the Company, of a Joint Venture Agreement with a value of $21,600,000 based on the closing share price of $1.80 on the execution date of the Closing Certificate, and
     
  458,349 restricted shares of common stock as consideration for a Licensing Agreement based on a per share price of $1.655 with a value of $758,567.

 

Stock options/warrants

 

On September 8, 2015, the Company adopted the 2015 Incentive Compensation Plan (the “2015 Plan”), which authorizes the issuance of up to 5,000,000 shares of common stock to employees, officers, directors or independent consultants of the Company, provided that no person can be granted shares under the 2015 Plan for services related to raising capital or promotional activities. As of May 31, 2020, 4,987,500 shares were available under the 2015 Plan for future grants, awards, options or share issuances. However, because the shares issuable under the 2015 Plan or issuable upon conversion of awards granted under the 2015 Plan are no longer registered under the Securities Exchange Act of 1934, as amended, the Company does not intend to issue any additional grants under the 2015 Plan.

 

On January 16, 2018, the Company adopted the Novo Integrated Sciences, Inc. 2018 Incentive Plan (the “2018 Plan”). Under the 2018 Plan, 10,000,000 shares of common stock are authorized for issuance to employees, non-employees, directors and key consultants to the Company or its subsidiaries. The 2018 Plan authorizes equity-based and cash-based incentives for participants. There were 9,875,000 shares available for award at May 31, 2020 under the 2018 Plan.

 

18
 

 

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

 

   Options/
Warrants
Outstanding
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Life
   Aggregate
Intrinsic
Value
 
Outstanding, August 31, 2019   10,095,000    0.30    3.58   $1,141,500 
Granted   -                
Forfeited   -                
Exercised   -                
Outstanding, May 31, 2020   10,095,000    0.16    3.69   $- 
Exercisable, May 31, 2020   10,095,000   $0.16    3.69   $- 

 

The exercise price for options/warrants outstanding at May 31, 2020:

 

Outstanding and Exercisable 
Number of
Options/
Warrants
   Exercise
Price
 
 9,995,000   $0.16 
 100,000    0.50 
 10,095,000      

 

For options granted during the fiscal year ended August 31, 2019 where the exercise price equaled the stock price at the date of the grant, the weighted-average fair value of such options was $0.94 and the weighted-average exercise price of such options/warrants was $0.95. No options were granted during the fiscal year ended August 31, 2019 where the exercise price was less than the stock price at the date of grant or the exercise price was greater than the stock price at the date of grant.

 

The fair value of the stock options is being amortized to stock option expense over the vesting period. The Company recorded stock option expense of $0 and $70,846 during the three months ended May 31, 2020 and 2019, respectively. At May 31, 2020, the unamortized stock option expense was $0.

 

The assumptions used in calculating the fair value of options granted during the fiscal year ended August 31, 2019 using the Black-Scholes option-pricing model for options granted are as follows:

 

Risk-free interest rate   2.78%
Expected life of the options   3.5 years 
Expected volatility   294%
Expected dividend yield   0%

 

During the nine months ended May 31, 2020, the Company re-priced the exercise price of 4,495,000 options to $0.16 and extended the expiration date of 4,370,000 options by two years. The change in fair value between the options using the original terms and the options using the new expiration dates and exercise prices was $62,823 which has been recorded as expense in the accompanying condensed consolidated statements of operations and comprehensive loss.

 

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Note 13 – Commitments and Contingencies

 

Litigation

 

The Company is party to certain legal proceedings from time to time incidental to the conduct of its business. These proceedings could result in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that the Company cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on our condensed consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs. However, based on information available to the Company’s management to date, the Company’s management does not expect that the outcome of any matter pending against the Company is likely to have a materially adverse effect on the Company’s condensed consolidated financial position as of May 31, 2020, results of operations, cash flows or liquidity of the Company.

 

Note 14 – Subsequent Events

 

The Company’s management has evaluated subsequent events up to the date the interim condensed consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following to be material subsequent events:

 

Return of Acquisition Deposit

 

On June 26, 2020, an acquisition deposit of $254,205 (CAD$350,000) was returned to the Company.

 

Impact of COVID-19

 

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

 

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

 

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

 

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

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients. Certain of these guidelines and protocols include both active and passive screening for staff and clients, enhanced cleaning measures using only Health Canada approved disinfectants and sanitizers, personal protective equipment usage, appropriate signage and markers throughout the clinics, and layout changes to the clinics to reflect proper physical distancing measures. Additional, more restrictive proclamations and/or directives may be issued in the future. As of July 10, 2020, the Company had increased staffing to 51 full-time employees and 24 part-time employees.

 

20
 

 

Now that our corporate clinics are re-opened under mandated guidelines and protocols, in-clinic patient flow for the month of June 2020 has met and exceeded our projection of 40% of pre-shutdown levels. The Company projects a steady week-over-week increase as (i) recommended guidelines for patient-clinician on-site interaction are eased, and (ii) more overall movement restrictions are reduced and people are more comfortable in public spaces.

 

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

 

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

 

For more on the financial impact of COVID-19 on the Company’s fiscal third quarter, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financial Impact of COVID-19” of this quarterly report on Form 10-Q.

 

Regulation A+ Offering

 

Beginning on June 29, 2020, in a “Tier 2 Offering,” pursuant to an Offering Circular on Form 1-A, as amended, pursuant to Regulation A, the Company offered, on a self-underwritten “best efforts” basis, up to 20,000,000 shares of its common stock, with an aggregate amount of $30,000,000. The initial public offering price per share of the Company’s common stock is $1.50 per share pursuant to the offering. There is no minimum number of shares that needs to be sold in order for funds to be released to the Company and for the Offering to close. The minimum investment amount per investor is $1,050 (700 shares of common stock), subject to waiver by the Company.

 

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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, 2019, as the same may be updated from time to time, including in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q.

 

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

 

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

 

Overview of the Company

 

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

 

Through Novo Healthnet Limited (“NHL”), our wholly owned Canadian subsidiary, we deliver multidisciplinary primary health care services and products through our 16 corporate-owned clinics and a contracted network of 103 affiliate clinics and 220 eldercare centric homes located across Canada. Our team of multidisciplinary primary health care clinicians and practitioners provide assessment, diagnosis, treatment, pain management, rehabilitation, education and primary prevention for a wide array of orthopedic, musculoskeletal, sports injury, and neurological conditions across various demographics including pediatric, adult, and geriatric populations.

 

Our 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 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, fall prevention education, sports team conditioning programs including event and game coverage, and private personal training.

 

22
 

 

Certain of the specialty treatment and recovery programs we offer derive from motor vehicle accident injuries, long-term disability cases, corporate wellness, and job-site injuries approved for treatment by the Workplace Safety and Insurance Board. In addition, we offer specialized treatments and products that include cold laser therapeutics, shockwave therapy, custom bracing and orthotics, custom compression therapy/stockings and lymphatic drainage treatment. Certain of our assessments and treatment technologies include Brain FX, a research based digital cognitive assessment tool measuring cognitive functional skills.

 

As we continue to build our health science platform of services and products through the integration of technology and rehabilitative science, one component of our lateral business growth strategy includes developing business units centered on the direct control of the grow, extraction, manufacturing and distribution processes regarding our hemp and medical cannabidiol products. Additionally, we continue to expand on our patient care philosophy of maintaining an on-going continuous connection with our patient community, beyond the traditional confines of a clinic, by extending oversight of patient diagnosis, care and monitoring, directly into the patient’s home, through remote patient monitoring and mobile telemedicine and diagnostic tools.

 

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.

 

The occupational therapists, physiotherapists 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 and the College of Kinesiologists of Ontario regulatory authorities. In 2013, NHL received its accreditation from the Commission on Accreditation of Rehabilitation Facilities (“CARF”). Currently, NHL is renewing its CARF accreditation.

 

Recent Developments

 

Coronavirus (COVID-19)

 

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

 

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

 

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

 

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

 

23
 

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients. Certain of these guidelines and protocols include both active and passive screening for staff and clients, enhanced cleaning measures using only Health Canada approved disinfectants and sanitizers, personal protective equipment usage, appropriate signage and markers throughout the clinics, and layout changes to the clinics to reflect proper physical distancing measures. Additional, more restrictive proclamations and/or directives may be issued in the future. As of July 10, 2020, the Company had increased staffing to 51 full-time employees and 24 part-time employees.

 

Now that our corporate clinics are re-opened under mandated guidelines and protocols, in-clinic patient flow for the month of June 2020 has met and exceeded our projection of 40% of pre-shutdown levels. The Company projects a steady week-over-week increase as (i) recommended guidelines for patient-clinician on-site interaction are eased, and (ii) more overall movement restrictions are reduced and people are more comfortable in public spaces.

 

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

 

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

 

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

 

Micro-Clinic Facilities under the LA Fitness Master Facility License Agreements

 

Micro-clinic facilities are reduced footprint clinics, primarily located within the premises of larger commercial enterprises, focused on providing multidisciplinary primary health care and medical technology related services. Under the terms of our Agreement with LA Fitness, we are developing and opening micro-clinic facilities within the footprint of LA Fitness facilities throughout both the U.S. and Canada. Each micro-clinic exists through either third-party sub-license agreements or corporate sponsored arrangement. The Company’s LA Fitness based micro-clinic facilities will primarily provide outpatient physical and occupational therapy services.

 

As of July 13, 2020, the Company has completed one sub-license lease in Canada and is currently negotiating three additional sub-license leases in Canada. In addition, as of July 13, 2020, the Company is negotiating an unidentified number of sub-license leases with operators in three states in the United States, including Florida, Georgia, and Ohio.

 

As a result of guidelines issued by local, state, provincial and federal authorities due to the COVID-19 pandemic, LA Fitness has closed all U.S. and Canada facilities which has halted all Company activity to develop and open our LA Fitness micro-clinics. Given the pandemic has created renewed awareness of health wellness as a lifestyle rather than a treatment, LA Fitness continues to indicate strong desire to continue our contractual agreements upon LA Fitness re-opening facilities post pandemic. The addition of our micro-clinics to LA Fitness facilities creates a clear and obvious improvement to the present facility by offering even more proactive healthcare related products and services to its membership base.

 

24
 

 

Cannabidiol (“CBD”) Medical Cannabis Product Platform

 

As a complement to our integration of technology and rehabilitative science for musculoskeletal related pain treatment and management, we intend to expand into the cultivation, manufacturing, distribution and sales of CBD products derived from industrial hemp. We expect that our CBD products will be specifically focused on CBD for use (i) as a treatment aid; (ii) to provide relief for a large array of neurological and musculoskeletal system disorders; and (iii) as an alternative option for health care providers in place of prescribing opioids to patients. Offering our patients access to non-hallucinogenic and non-addictive natural remedies, under required clinical oversight policies and procedures as they relate to medicinal cannabis and CBD, combined with our existing clinic-based treatment protocols allows us to enter this market segment with a unique integration model not readily available in the marketplace. We anticipate introducing our prospective CBD products to patients and consumers through clinic distribution programs.

 

The Company has entered into a joint venture agreement with Kainai Cooperative in January 2019 and a joint venture agreement with Harvest Gold Farms Inc. in December 2019 regarding the cultivation of industrial hemp for the production of CBD products. Other than the Company entering into the joint venture agreements, as of July 11, 2020, the Company has not implemented the cultivation, production, manufacturing, distribution or sale of CBD products derived from industrial hemp. As a result of the COVID-19 pandemic, the Company has delayed the implementation of this initiative as the Company has prioritized controlling costs as we re-open and expand clinic and eldercare operations to both meet and exceed pre-pandemic levels. Upon achieving pre-pandemic patient flow, the Company anticipates restarting the implementation of this initiative.

 

First Amendment to Cloud DX Software License Agreement

 

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

 

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

 

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

 

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

 

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

 

25
 

 

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

 

Regulation A+ Offering

 

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

 

For the three months ended May 31, 2020 compared to the three months ended May 31, 2019

 

Revenues for the three months ended May 31, 2020 were $1,038,226, representing a decrease of $1,451,349, or 58.3%, from $2,489,575 for the same period in 2019. The decrease in revenue is principally due to the closure of our clinics, from March 17, 2020 to June 1, 2020, in response to the COVID-19 pandemic. During this period, we only provided primary healthcare services and products solely to patients with emergency and essential needs.

 

Cost of revenues for the three months ended May 31, 2020 were $559,976, representing a decrease of $996,889 or 64.0%, from $1,556,865 for the same period in 2019. The decrease in cost of revenues is principally due the decrease in revenue as described above. Cost of revenues as a percentage of revenue was 53.9% for the three months ended May 31, 2020 and 62.5% for same period in 2019. The decrease in cost of revenues as a percentage of revenue is principally due to the Canada Emergency Wage Subsidy (CEWS) claimed as part of Canada’s COVID-19 Economic Response Plan that offset the salary expense for clinical workers.

 

Operating costs for the three months ended May 31, 2020 were $556,801, representing a decrease of $439,037, or 44.1%, from $995,838 for the same period in 2019. The decrease in operating costs is due to the closure of our clinics, from March 17, 2020 to June 1, 2020, in response to the COVID-19 pandemic and due to the CEWS claimed as part of Canada’s COVID-19 Economic Response Plan that offset the salary expense for office staff.

 

Interest expense for the three months ended May 31, 2020 was $48,245, representing an increase of $6,510, or 15.6%, from $41,735 for the same period in 2019. The increase is due to an additional interest charge incurred on an outstanding obligation.

 

Net loss for the three months ended May 31, 2020 was $101,023, representing an increase of $250, or 0.2%, from $100,773 for the same period in 2019. The increase in net loss is due to the reasons described above.

 

For the nine months ended May 31, 2020 compared to the nine months ended May 31, 2019

 

Revenues for the nine months ended May 31, 2020 were $6,015,700, representing a decrease of $985,907, or 14.1%, from $7,001,607 for the same period in 2019. The decrease in revenue is due to the closure of our clinics, from March 17, 2020 to June 1, 2020, in response to the COVID-19 pandemic; offset by an increase in revenue as a result of the acquisition of Action Plus Physiotherapy Rockland in July 2019. During the period from March 17, 2020 to June 1, 2020 we only provided primary healthcare services and products solely to patients with emergency and essential needs.

 

Cost of revenues for the nine months ended May 31, 2020 were $3,778,777, representing a decrease of $526,911 or 12.2%, from $4,305,688 for the same period in 2019. The decrease in cost of revenues is principally due the decrease in revenue. Cost of revenues as a percentage of revenue was 62.8% for the nine months ended May 31, 2020 and 61.5% for same period in 2019. The increase in cost of revenues as a percentage of revenue was not significant.

 

Operating costs for the nine months ended May 31, 2020 were $2,543,067, representing a decrease of $510,019, or 16.7%, from $3,053,086 for the same period in 2019. The decrease in operating costs is primarily attributed to the closure of our clinics, from March 17, 2020 to June 1, 2020, in response to the COVID-19 pandemic and a reduction in stock-based compensation and due to the CEWS claimed as part of Canada’s COVID-19 Economic Response Plan that offset the salary expense for office staff.

 

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Interest expense for the nine months ended May 31, 2020 was $126,291, representing a decrease of $10,352, or 7.6%, from $136,643 for the same period in 2019. The decrease is due to less debt outstanding.

 

Write-off of acquisition deposit for the nine months ended May 31, 2020 was $344,521, representing an increase of $344,521, from $0 for the same period in 2019. The increase is due to the write-off of an acquisition deposit which is considered impaired since the acquiree has been dissolved and is no longer in business.

 

Net loss for the nine months ended May 31, 2020 was $695,811, representing an increase of $215,474, or 44.9%, from $480,337 for the same period in 2019. The increase in net loss is due to the reasons described above.

 

Liquidity and Capital Resources

 

As shown in the accompanying financial statements, for the nine months ended May 31, 2020, the Company had a net loss of $695,811.

 

During the nine months ended May 31, 2020, the Company used cash in operating activities of $426,134 compared to $530,975 for the same period in 2019. The principal reason for the decrease is the cash increase from accounts receivable and from noncash expenses offset by a use of cash from a decrease in accounts payable.

 

During the nine months ended May 31, 2020, the Company used cash in investing activities of $268,082 compared to $705,959 for the same period in 2019. The principal reason for the change is the payment for two new acquisition deposits partially offset by the return of a previous acquisition deposit in fiscal year 2020. In addition, in 2019 we provided a loan in the amount of $225,924 that is recorded as other receivable.

 

During the nine months ended May 31, 2020, the Company provided cash of $43,930 in financing activities compared to $3,076,841 for the same period in 2019. The principal reason for the change is the sale of shares of common stock for $113,399 during the nine months ended May 31, 2020, compared to $3,228,098 for the same period in 2019.

 

On October 12, 2019, the Company sold 235,400 restricted shares of common stock to an accredited investor residing outside the United States for a purchase price of $75,328, resulting in an effective price per share of $0.32. The shares were issued on October 15, 2019.

 

On October 19, 2019, the Company sold 118,969 restricted shares of common stock to an accredited investor residing outside the United States for a purchase price of $38,071, resulting in an effective price per share of $0.32. The shares were issued on October 22, 2019.

 

Financial Impact of COVID-19

 

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

 

As a result of certain provincial proclamations and/or directives issued due to the COVID-19 pandemic, NHL’s clinic operations, which historically represent approximately 53% of the Company’s top-line revenue, were closed on March 17, 2020 for all in-clinic non-essential services while only providing certain virtual based and in-clinic emergency services. Accordingly, the Company’s top-line revenue for the fiscal third quarter (ended May 31, 2020) was adversely impacted with a top-line revenue reduction of 58.3% compared to the same period in 2019. However, the pandemic driven clinic shutdown is proving to have nominal effect on bottom-line income for the fiscal third quarter (ended May 31, 2020) as clinic related losses correlate directly with clinic operations.

 

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As a result of certain provincial proclamations and/or directives issued due to the COVID-19 pandemic, most of NHL’s contracted eldercare services, which historically represent approximately 45% of the Company’s overall top-line revenue, have been identified as essential; thus, we saw nominal impact on our eldercare division’s fiscal year 3rd quarter (ended May 31, 2020) top-line and bottom-line revenue. We project a nominal impact on our fiscal year 2020 top-line and bottom-line revenue as it relates to the eldercare division

 

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

 

Specific to our current working capital position, as a result of the COVID-19 pandemic, the Company is able to participate in certain ongoing relief assistance programs provided for under Canada’s COVID-19 Emergency Response Plan and the United States CARES Act which provides access to funds for expenses such as wage subsidy, corporate forgivable loan programs and rental subsidy. Based on all the above noted factors, the Company’s fiscal third quarter (ended May 31, 2020) cash and cash equivalents was $1,394,366 which was greater than our fiscal second quarter (ended February 29, 2020) cash and cash equivalents position of $1,209,339.

 

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

 

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

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients. As of July 10, 2020, the Company had increased staffing to 51 full-time employees and 24 part-time employees.

 

Now that our corporate clinics are re-opened under mandated guidelines and protocols, in-clinic patient flow for the month of June 2020 has met and exceeded and exceeded our projection of 40% of pre-shutdown levels. The Company projects a steady week-over-week increase as (i) recommended guidelines for patient-clinician on-site interaction are eased, and (ii) more overall movement restrictions are reduced and people are more comfortable in public spaces.

 

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

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

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

 

Use of Estimates

 

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

 

Noncontrolling Interest

 

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

 

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

 

Revenue Recognition

 

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

 

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

 

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

 

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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 on an accrual basis at the provider’s established rates. The Company reserves a provision for contractual adjustment and discounts that are deducted from gross service revenue. The Company reports revenues net of any sales, use and value added taxes.

 

Stock-Based Compensation

 

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

 

Basic and Diluted Earnings Per Share

 

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

 

Foreign Currency Transactions and Comprehensive Income

 

U.S. GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company’s Canadian subsidiaries is the Canadian dollar. Translation gains (losses) are classified as an item of other comprehensive income in the stockholders’ equity section of the balance sheet.

 

New Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 and additional ASUs are now codified as ASC 842 - Leases (“ASC 842”). ASC 842 supersedes the lease accounting guidance in ASC 840 Lease and requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. The Company adopted ASC 842 on March 1, 2019 and used the modified retrospective transition approach and did not restate its comparative periods. As of the date of implementation on March 1, 2019, the impact of the adoption of ASC 842 resulted in the recognition of a right of use asset and lease payable obligation on the Company’s consolidated balance sheets of $2,360,787. As the right of use asset and the lease payable obligation were the same upon adoption of ASC 842, there was no cumulative effect impact on the Company’s accumulated deficit.

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s consolidated financial statements and related disclosures.

 

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

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The Company’s Chief Executive Officer and Principal Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of May 31, 2020. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of May 31, 2020, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the fiscal quarter ended May 31, 2020 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

 

As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2019 (the “2019 10-K”), as updated from time to time. However, in light of the recent coronavirus (COVID-19) pandemic, set forth below is a risk factor relating to COVID-19. Other than as set forth below, as of the filing date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors faced by the Company from those previously disclosed in the 2019 10-K, as updated from time to time.

 

Public health epidemics or outbreaks could adversely impact our business.

 

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

 

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

 

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

 

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

 

On June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients. Certain of these guidelines and protocols include both active and passive screening for staff and clients, enhanced cleaning measures using only Health Canada approved disinfectants and sanitizers, personal protective equipment usage, appropriate signage and markers throughout the clinics, and layout changes to the clinics to reflect proper physical distancing measures. Additional, more restrictive proclamations and/or directives may be issued in the future. As of July 10, 2020, the Company had increased staffing to 51 full-time employees and 24 part-time employees.

 

Now that our corporate clinics are re-opened under mandated guidelines and protocols, in-clinic patient flow for the month of June 2020 has met our projection of 40% of pre-shutdown levels. The Company projects a steady week-over-week increase as (i) recommended guidelines for patient-clinician on-site interaction are eased, and (ii) more overall movement restrictions are reduced and people are more comfortable in public spaces.

 

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

 

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

 

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

 

In March 2020, the Company issued 965,578 restricted shares of common stock to Cloud DX pursuant to the terms of the Cloud DX Amendment. The shares had a value of $386,231.

 

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

 

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

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

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

(a) None.

 

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

 

ITEM 6. EXHIBITS

 

Exhibit
Number
  Description of Document
     
10.1   First Amendment to Cloud DX Perpetual Software License Agreement dated March 6, 2020 and entered into on March 9, 2020 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on March 12, 2020).
     
31.1   Rule 13a-14(a) Certification of Principal Executive Officer.
     
31.2   Rule 13a-14(a) Certification of Principal Financial Officer.
     
32.1   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Principal Executive Officer and Principal Financial Officer.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB   XBRL Taxonomy Extension Labels Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

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SIGNATURES

 

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

 

  NOVO INTEGRATED SCIENCES, INC.
     
Dated: July 14, 2020 By:  /s/ Robert Mattacchione
    Robert Mattacchione
    Chief Executive Officer (principal executive officer)
     
  By: /s/ Klara Radulyne
    Klara Radulyne
    Principal Financial Officer

 

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