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, 2022, as the same may be updated from time to time, including in Part
II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q.
Although
we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to
foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking
statements in this report are made on the basis of management’s assumptions and analyses, as of the time the statements are made,
in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate
under the circumstances.
Except
as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions
to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this
report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any
statement is based.
Overview
of the Company
When
used herein, the terms the “Company,” “we,” “us” and “our” refer to Novo Integrated Sciences,
Inc. and its consolidated subsidiaries.
Novo
Integrated Sciences, Inc. (“Novo Integrated” or the “Company”) was incorporated in Delaware on November 27, 2000,
under the name Turbine Truck Engines, Inc. On February 20, 2008, the Company was re-domiciled to the State of Nevada. Effective July
12, 2017, the Company’s name was changed to Novo Integrated Sciences, Inc. When used herein, the terms the “Company,”
“we,” “us” and “our” refer to Novo Integrated and its consolidated subsidiaries.
The
Company owns Canadian and U.S. subsidiaries which provide, or intend to provide, essential and differentiated solutions to the delivery
of multidisciplinary primary care and related wellness products through the integration of medical technology, interconnectivity, advanced
therapeutics, diagnostic solutions, unique personalized product offerings, and rehabilitative science.
We
believe that “decentralizing” healthcare, through the integration of medical technology and interconnectivity, is an essential
solution to the rapidly evolving fundamental transformation of how non-catastrophic healthcare is delivered now and how it will be delivered
in the future. Specific to non-critical care, ongoing advancements in both medical technology and inter-connectivity are allowing for
a shift of the patient/practitioner relationship to the patient’s home and away from on-site visits to primary medical centers
with mass-services. This acceleration of “ease-of-access” in the patient/practitioner interaction for non-critical care diagnosis
and subsequent treatment minimizes the degradation of non-critical health conditions to critical conditions as well as allowing for more
cost-effective and efficient healthcare distribution.
The
Company’s decentralized healthcare business model is centered on three primary pillars to best support the transformation of non-catastrophic
healthcare delivery to patients and consumers:
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First
Pillar – Service Networks: Deliver multidisciplinary primary care services through (i) an affiliate network of clinic facilities,
(ii) small and micro footprint sized clinic facilities primarily located within the footprint of box-store commercial enterprises,
(iii) clinic facilities operated through a franchise relationship with the Company, and (iv) corporate operated clinic facilities. |
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Second
Pillar – Technology: Develop, deploy, and integrate sophisticated interconnected technology, interfacing the patient to the
healthcare practitioner thus expanding the reach and availability of the Company’s services, beyond the traditional clinic
location, to geographic areas not readily providing advanced, peripheral based healthcare services, including the patient’s
home. |
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Third
Pillar – Products: Develop and distribute effective, personalized health and wellness product solutions allowing for the customization
of patient preventative care remedies and ultimately a healthier population. The Company’s science-first approach to product
innovation further emphasizes our mandate to create and provide over-the-counter preventative and maintenance care solutions. |
Innovation
through science, combined with the integration of sophisticated, secure technology, assures Novo Integrated of continued cutting edge
advancement in patient first platforms.
First
Pillar – Service Networks for Hands-on Patient Care
Our
clinicians and practitioners provide certain multidisciplinary primary health care services, and related products, beyond the medical
doctor first level contact identified as primary care. Our clinicians and practitioners are not licensed medical doctors, physicians,
specialist, nurses or nurse practitioners. Our clinicians and practitioners are not authorized to practice primary care medicine and
they are not medically licensed to prescribe pharmaceutical based product solutions.
Our
team of multidisciplinary primary health care clinicians and practitioners provide assessment, diagnosis, treatment, pain management,
rehabilitation, education and primary prevention for a wide array of orthopedic, musculoskeletal, sports injury, and neurological conditions
across various demographics including pediatric, adult, and geriatric populations through our 16 corporate-owned clinics, a contracted
network of affiliate clinics, and eldercare related long-term care homes, retirement homes, and community-based locations in Canada.
Our
specialized multidisciplinary primary health care services include physiotherapy, chiropractic care, manual/manipulative therapy, occupational
therapy, eldercare, massage therapy (including pre- and post-partum), acupuncture and functional dry needling, chiropody, stroke and
traumatic brain injury/neurological rehabilitation, kinesiology, vestibular therapy, concussion management and baseline testing, trauma
sensitive yoga and meditation for concussion-acquired brain injury and occupational stress-PTSD, women’s pelvic health programs,
sports medicine therapy, assistive devices, dietitian, holistic nutrition, fall prevention education, sports team conditioning programs
including event and game coverage, and private personal training.
Additionally,
we continue to expand our patient care philosophy of maintaining an on-going continuous connection with our current and future patient
community, beyond the traditional confines of brick-and-mortar facilities, by extending oversight of patient diagnosis, care and monitoring,
directly through various Medical Technology Platforms either in-use or under development.
The
occupational therapists, physiotherapists, chiropractors, massage therapists, chiropodists and kinesiologists contracted, by NHL, to
provide occupational therapy, physical therapy and fall prevention assessment services are registered with the College of Occupational
Therapists of Ontario, the College of Physiotherapists of Ontario, College of Chiropractors of Ontario, College of Massage Therapists
of Ontario, College of Chiropodists of Ontario, and the College of Kinesiologists of Ontario regulatory authorities.
Our
strict adherence to public regulatory standards, as well as self-imposed standards of excellence and regulation, have allowed us to navigate
with ease through the industry’s licensing and regulatory framework. Compliant treatment, data and administrative protocols are
managed through a team of highly trained, certified health care and administrative professionals. We and our affiliates provide service
to the Canadian property and casualty insurance industry, resulting in a regulated framework governed by the Financial Services Commission
of Ontario.
Second
Pillar – Interconnected Technology for Virtual Ecosystem of Services, Products and Digital Health Offerings
Decentralization
through the integration of interconnected technology platforms has been adopted and is thriving in a variety of sectors and industries
such as transportation (Uber, Lyft), real estate (Zillow, Redfin, Airbnb, VRBO), used car sales (Carvana, Vroom), stock and financial
markets (Robinhood, Acorns, Webull) and so many other sectors. Yet decentralization of the non-critical primary care and wellness sector
of healthcare is lagging significantly in capability and benefit for patient access and delivery of services and products. The COVID-19
pandemic has taught both patients and healthcare providers the viability, importance, and benefits of decentralized access to primary
care simply through the rapid adoption of telehealth/telemedicine.
The
Company’s focus on a holistic approach to patient-first health and wellness, through innovation and decentralization, includes
maintaining an on-going continuous connection with our current and future patient community, beyond the traditional confines of brick-and-mortar
facilities, by extending oversight of patient evaluation, diagnosis, treatment solutions, and monitoring, directly through various Medical
Technology Platforms and periphery tools either in-use or under development. Through the integration and deployment of sophisticated
and secure technology and periphery diagnostic tools, the Company is working to expand the reach of our non-critical primary care services
and product offerings, beyond the traditional clinic locations, to geographic areas not readily providing advanced primary care service
to date, including the patient’s home.
NovoConnect,
the Company’s proprietary mobile application with a fully securitized tech stock, telemedicine/telehealth and remote patient monitoring
fall under this Second Pillar. In October 2021, we announced the launch of MiTelemed+, Inc. (“MiTelemed”), a joint venture
with EK-Tech Solutions Inc. (“EK-Tech”). MiTelemed will operate, support and expand access and functionality of iTelemed,
EK-Tech’s enhanced proprietary telehealth platform. MiTelemed+, through the iTelemed platform, will allow us to offer the patient
and the practitioner a sophisticated and enhanced telehealth interaction. Through the interface of sophisticated peripheral based diagnostic
tools operated by skilled support workers in the patient’s remote location, we believe that the practitioner’s ability and
comfort to provide a uniquely comprehensive evaluation, diagnosis, and treatment solution will be dramatically elevated.
Third
Pillar – Health and Wellness Products
We
believe our science first approach to product offerings further emphasizes the Company’s strategic vision to innovate, evolve,
and deliver over-the-counter preventative and maintenance care solutions as well as therapeutics and personalized diagnostics that enable
individualized health optimization.
As
the Company’s patient base grows through the expansion of its corporate owned clinics, its affiliate network, its micro-clinic
facility openings, its interconnected technology platforms, and other growth initiatives, the development and distribution of high-quality
wellness product solutions is integral to (i) offering effective product solutions allowing for the customization of patient preventative
care remedies and ultimately a healthier population, and (ii) maintaining an on-going relationship with our patients through the customization
of patient preventative and maintenance care solutions.
The
Company’s product offering ecosystem is being built through strategic acquisitions and engaging in licensing agreements with partners
that share our vision to provide a portfolio of products that offer an essential and differentiated solution to health and wellness globally.
Our 2021 acquisitions of Acenzia, PRO-DIP and Terragenx support this Third Pillar. On March 15, 2022, PRO-DIP was issued U.S. Patent
No. 11,273,965 by the U.S. Patent and Trademark Office on March 15, 2022. The ‘965 patent relates to PRO-DIP’s novel technology
for manufacturing its oral supplement pouches. On April 4, 2022, NHL was granted a Natural Product Number (NPN) by Health Canada for
IoNovo GO Iodine which is the Company’s forth iodine related product to recently be granted a NPN by Health Canada following IoNovo
Pure Iodine, IoNovo Iodide, and IoNovo for Kids pure iodine oral spray.
We
have two reportable segments: healthcare services and product sales. During the quarter ended November 30, 2022, revenues from healthcare
services and product sales were 59% and 23%, respectively, of the Company’s total revenues for the quarter. We expect the percentage
of revenues generated from the product sales segment to continue as a greater percentage compared to the revenue generated from healthcare
services over the coming quarters.
Recent
Developments
Coronavirus
(COVID-19)
While
all of the Company’s business units are operational at the time of this filing, any future impact of the COVID-19 pandemic on the
Company’s operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, including 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. For more information regarding the
impact of COVID-19 on the Company, see “—Liquidity and Capital Resources—Financial Impact of COVID-19” of this
quarterly report on Form 10-Q.
Registration
Statement on Form S-1
On
September 13, 2022, the Company filed a registration statement on Form S-1 (File No. 333-267401) (as amended, the “Registration
Statement”). The Registration Statement relates to the Company’s proposed offer of up to 19,138,756 units (“Units”),
with each Unit consisting of (i) one share of common stock, (ii) one warrant with a three-year term to purchase one share of common stock
at an exercise price of $1.045 per share (100% of the offering price per Unit) (“Three-Year Warrant”), and (iii) one warrant
with a five-year term to purchase one share of common stock at an exercise price of $1.045 per share (100% of the offering price per
Unit) (“Five-Year Warrant”) on a best-efforts basis. The assumed public offering price is $1.045 per Unit. Each Three-Year
Warrant and Five-Year Warrant will be immediately exercisable for one share of common stock at an assumed exercise price of $1.045 per
share (not less than 100% of the public offering price of each Unit sold in the offering). The actual public offering price per Unit
will be determined between the Company, Maxim Group LLC and the investors in the offering, and may be at a discount to the current market
price of the Company’s common stock.
As
indicated in the Registration Statement, the Company also proposes to offer to each purchaser of Units that would otherwise result in
the purchaser’s beneficial ownership exceeding 4.99% of the Company’s outstanding common stock immediately following the
consummation of the offering, the opportunity to purchase Units consisting of one pre-funded warrant to purchase one share of common
stock (“Pre-Funded Warrant”) (in lieu of one share of common stock), one Three-Year Warrant and one Five-Year Warrant. Subject
to limited exceptions, a holder of Pre-Funded Warrants will not have the right to exercise any portion of its Pre-Funded Warrants if
the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, such limit may
be increased to up to 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. Each
Pre-Funded Warrant will be exercisable for one share of common stock. The purchase price of each Unit including a Pre-Funded Warrant
will be equal to the price per Unit including one share of common stock, minus $0.01, and the remaining exercise price of each Pre-Funded
Warrant will equal $0.01 per share. The Pre-Funded Warrants will be immediately exercisable (subject to the beneficial ownership cap)
and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. For each Unit including a Pre-Funded Warrant
sold (without regard to any limitation on exercise set forth therein), the number of Units including a share of common stock offered
will be decreased on a one-for-one basis. The common stock and Pre-Funded Warrants, if any, can each be purchased in the offering only
with the accompanying Three-Year Warrant and Five-Year Warrant as part of a Unit, but the components of the Units will immediately separate
upon issuance. The Company also proposes to register the common stock issuable from time to time upon exercise of the Pre-Funded Warrants,
Three-Year Warrants and Five-Year Warrants included in the Units.
There
is no minimum number of Units or minimum aggregate amount of proceeds for the offering to close.
The
Company expects to commence the sale of the securities as of the date on which the Registration Statement is declared effective by the
SEC. No sales will be made prior to effectiveness of the Registration Statement. There can be no assurance that the Registration Statement
will be declared effective by the SEC.
CVI
Investments, Inc. Waiver and Amendment
On
October 13, 2022, the Company entered into a Waiver and Amendment (the “CVI Waiver and Amendment”) with CVI Investments,
Inc. (“CVI”). Pursuant to the terms of the CVI Waiver and Amendment, (i) the Company obtained a limited waiver from CVI with
respect to certain provisions of a Warrant to Purchase Common Stock, dated as of December 14, 2021, issued by the Company to CVI (the
“CVI Warrant”); (ii) the Company and CVI amended certain provisions of the CVI Warrant; (iii) the Company obtained a limited
waiver from CVI with respect to certain provisions of a Senior Secured Convertible Note, dated as of December 14, 2021, issued by the
Company to CVI (the “CVI Note”); and (iv) the Company and CVI amended certain provisions of the CVI Note, all as more fully
described below and as set forth in the CVI Warrant and the CVI Note, as applicable.
Pursuant
to the terms of the CVI Waiver and Amendment, the Company obtained a limited waiver from CVI with respect to the provisions of the CVI
Warrant that would have reduced the exercise price of the CVI Warrant upon the closing of the sale of the Company’s common stock
by the Company (the “Offering”) to be conducted as set forth in and pursuant to the prospectus contained in the Registration
Statement on Form S-1 (File No. 333-267401) filed by the Company on September 13, 2022, as subsequently amended and as declared effective
on October 13, 2022. In addition, the Company and CVI agreed to amend the CVI Warrant to provide that the exercise price of the CVI Warrant
shall be the price at which the Company’s common stock is offered for sale in the Offering.
Also
pursuant to the terms of the CVI Waiver and Amendment, the Company obtained a limited waiver from CVI with respect to the provisions
of the CVI Note that would have reduced the conversion price of the CVI Note upon the closing of the Offering. CVI also agreed to extend
the date on which the Amortization Redemption Amount (as defined in the CVI Note) may be paid from October 14, 2022 to October 19, 2022.
In addition, the Company and CVI agreed to amend the CVI Note to provide that the conversion price set forth in the CVI Note shall be
the price at which the Company’s common stock is being offered for sale in the Offering.
Hudson
Bay Master Fund Ltd. Waiver and Amendment
Also
on October 13, 2022, the Company entered into a Waiver and Amendment (the “Hudson Bay Waiver and Amendment”) with Hudson
Bay Master Fund Ltd. (“Hudson Bay”). Pursuant to the terms of the Hudson Bay Waiver and Amendment, (i) the Company obtained
a limited waiver from Hudson Bay with respect to certain provisions of a Warrant to Purchase Common Stock, dated as of December 14, 2021,
issued by the Company to Hudson Bay (the “Hudson Bay Warrant”); (ii) the Company and Hudson Bay amended certain provisions
of the Hudson Bay Warrant; (iii) the Company obtained a limited waiver from Hudson Bay with respect to certain provisions of a Senior
Secured Convertible Note, dated as of December 14, 2021, issued by the Company to Hudson Bay (the “Hudson Bay Note”); and
(iv) the Company and Hudson Bay amended certain provisions of the Hudson Bay Note, all as more fully described below and as set forth
in the Hudson Bay Warrant and the Hudson Bay Note, as applicable.
Pursuant
to the terms of the Hudson Bay Waiver and Amendment, the Company obtained a limited waiver from Hudson Bay with respect to the provisions
of the Hudson Bay Warrant that would have reduced the exercise price of the Hudson Bay Warrant upon the closing of the Offering. In addition,
the Company and Hudson Bay agreed to amend the Hudson Bay Warrant to provide that the exercise price of the Hudson Bay Warrant shall
be the price at which the Company’s common stock is offered for sale in the Offering.
Also
pursuant to the terms of the Hudson Bay Waiver and Amendment, the Company obtained a limited waiver from Hudson Bay with respect to the
provisions of the Hudson Bay Note that would have reduced the conversion price of the Hudson Bay Note upon the closing of the Offering.
Hudson Bay also agreed to extend the date on which the Amortization Redemption Amount (as defined in the Hudson Bay Note) may be paid
from October 14, 2022 to October 19, 2022. In addition, the Company and Hudson Bay agreed to amend the Hudson Bay Note to provide that
the conversion price set forth in the Hudson Bay Note shall be the price at which the Company’s common stock is being offered for
sale in the Offering.
Unit
Offering
On
October 18, 2022 (the “Closing Date”), the Company sold an aggregate of 4,000,000 units (the “Units”) for an
aggregate of $2,000,000, at a purchase price $0.50 per Unit (the “Offering”), consisting of (i) 4,000,000 shares (the “Shares”)
of the Company’s common stock, (ii) warrants with a three-year term to purchase 4,000,000 shares of common stock at an exercise
price of $0.50 per share (the “Three Year Warrants”), and (iii) warrants with a five-year term to purchase 4,000,000 shares
of common stock at an exercise price of $0.50 per share (the “Five Year Warrants” and together with the Three Year Warrants,
the “Warrants”).
On
October 13, 2022, the Company entered into a Placement Agency Agreement (the “Placement Agency Agreement”) with Maxim Group
LLC, as exclusive placement agent thereunder (the “Placement Agent”), pursuant to which the Placement Agent agreed to act
as the Company’s exclusive placement agent to solicit offers to purchase the Units, and the Common Stock and Warrants forming part
of the Units, offered by the prospectus (“Prospectus”) contained in the Registration Statement on Form S-1 (File No. 333-267401)
declared effective by the Securities and Exchange Commission on October 13, 2022 (the “Registration Statement”). The Placement
Agent did not purchase or sell any securities, nor was it required to arrange for the purchase and sale of any specific number or dollar
amount of securities, other than to use its “reasonable best efforts” to arrange for the sale of the securities by the Company.
Accordingly, there was no minimum amount of proceeds that was a condition to closing of the Offering.
The
Offering resulted in gross proceeds to the Company of approximately $2,000,000 before deducting the Placement Agent fees and related
offering expenses, and excluding proceeds to the Company, if any, that may result from the future exercise of Warrants issued in the
Offering which formed part of the Units. Pursuant to the terms of the Placement Agency Agreement, the Company paid the Placement Agent
a cash fee of $140,000 equal to 7.0% of the gross proceeds of the Offering as well as reimbursed the Placement Agent for its accountable
expenses, resulting in net proceeds to the Company of $1,795,000.
Under
the Placement Agency Agreement, the Company agreed to certain restrictions on future stock offerings, including that during the 90-day
period following the Closing Date, the Company will not issue (or enter into any agreement to issue) any shares of common stock or common
stock equivalents, subject to certain exceptions, and will not file any registration statements. In addition, during the 180-day period
following the Closing Date and subject to certain exceptions, the Company is prohibited from entering into (i) a transaction that would
result in the Company issuing common stock that has a variable conversion price, exercise price, or exchange rate, or such a price that
would reset upon the occurrence of specified or contingent events; or (ii) a transaction in which the Company agrees to issue securities
at a future determined price. Each of the Company’s officers, directors, and any holder of 10% or more of the outstanding common
stock has agreed to a three-month “lock-up” with respect to their shares of common stock, including securities that are convertible
into, or exchangeable or exercisable for, shares of common stock. Subject to certain exceptions, during such lock-up period these holders
may not offer, sell, pledge or otherwise dispose of these securities, without the prior written consent of the Placement Agent. The Placement
Agency Agreement provides that the Placement Agent’s obligations were subject to conditions contained in the Placement Agency Agreement.
Each
Warrant had an exercise price of $0.50 per share and is exercisable upon issuance. As a result of the Company’s entry, on November
14, 2022, into the CVI Exchange Offer and Amendment (as hereinafter defined) and the Hudson Bay Exchange Offer and Amendment (as hereinafter
defined), the exercise price of each Warrant was reduced to $0.10 per share. The Three Year Warrants and the Five Year Warrants will
expire three years and five years from the date of issuance, respectively.
Each
Warrant is exercisable for one share of common stock, subject to adjustment in the event of stock dividends, stock splits, stock combinations,
reclassifications, reorganizations or similar events affecting the common stock as described in the Prospectus. Subject to certain exemptions
outlined in the Three Year Warrants and Five Year Warrants, if the Company sells, enters into an agreement to sell, or grants any option
to purchase, or sell, enters into an agreement to sell, or grants any right to reprice, or otherwise disposes of or issues (or announces
any offer, sale, grant or any option to purchase or other disposition) any shares of common stock or Common Stock Equivalents (as defined
in the Three Year Warrants and Five Year Warrants), at an effective price per share less than the exercise price of the Three Year Warrants
or Five Year Warrants then in effect, the exercise price of the Three Year Warrants and Five Year Warrants will be reduced to equal the
effective price per share in such dilutive issuance; provided, however, in no event will the exercise price of the Three Year Warrants
and Five Year Warrants be reduced to an exercise price lower than $0.10. Additionally, on the date that is 60 calendar days immediately
following the initial issuance date of the Three Year Warrants and Five Year Warrants, the exercise price will be reduced to the Reset
Price (as hereinafter defined), provided that the Reset Price is less than the exercise price in effect on that date. The “Reset
Price” is equal to the greater of (a) 50% of the initial exercise price or (b) 100% of the lowest daily volume weighted average
price per share of common stock (“VWAP”) occurring during the 60 calendar days following the issuance date of the Three Year
Warrants and Five Year Warrants.
On
October 13, 2022, the (i) conversion price of the Senior Secured Convertible Notes, and the (ii) exercise price per share of common stock
under the warrants to purchase common stock, issued by the Company and held by CVI Investments, Inc. and Hudson Bay Master Fund Ltd.
(the “Holders”) was reduced to $0.50 per share of common stock based on the offering price of each Unit in the Offering and
in accordance with waivers by the Holders, as further described in the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 14, 2022.
The
terms of the Three Year Warrants and Five Year Warrants are governed by a Warrant Agency Agreement (the “Warrant Agency Agreement”),
dated as of the Closing Date, by and between the Company and Pacific Stock Transfer Company (the “Warrant Agent”). Pursuant
to the terms of the Warrant Agency Agreement, the Company agreed to indemnify the Warrant Agent in its roles as transfer agent and warrant
agent, its agents and each of its stockholders, directors, officers and employees against all liabilities, including judgments, costs
and reasonable counsel fees that may arise out of acts performed or omitted for its activities in that capacity, except for any liability
due to any gross negligence, willful misconduct or bad faith of the indemnified person or entity.
CVI
Investments, Inc. Exchange Offer and Amendment
On
November 14, 2022, the Company entered into an exchange offer and amendment (the “CVI Exchange Offer and Amendment”) with
CVI. Pursuant to the terms of the CVI Exchange Offer and Amendment, (i) the Company exchanged one share of the Company’s common
stock, for each share of common stock (the “CVI Warrant Exchange”) underlying the warrant to purchase common stock, dated
as of December 14, 2021, issued by the Company to CVI (the “CVI Warrant”); and (ii) the Company and CVI amended certain provisions
of the senior secured convertible note, dated as of December 14, 2021, issued by the Company to CVI (the “CVI Note”), all
as more fully described below and as set forth in the CVI Warrant and the CVI Note, as applicable. On November 15, 2022 and January 5,
2023, 1,757,319 and 1,159,348 shares of common stock were issued under the terms and conditions of the CVI Warrant Exchange.
Pursuant
to the terms of the CVI Exchange Offer and Amendment, the Company and CVI agreed to amend the CVI Note such that (i) the Company shall
pay the interest originally payable in November 2022 and December 2022 upon execution of the CVI Exchange Offer and Amendment, (ii) the
Company shall pay a $50,000 extension fee to CVI ($10,000 on January 15, 2023, $10,000 on February 14, 2023, $10,000 on March 14, 2023,
$10,000 on April 14, 2023, and $10,000 on May 15, 2023), (iii) the payment dates for the principal originally payable in November 2022
and December 2022 shall be extended such that 1/5 of such respective principal amount shall instead be paid on each Amortization Date
(as defined in the CVI Note) during January 2023, February 2023, March 2023, April 2023, and May 2023, in addition to the Amortization
Redemption Amounts (as defined in the CVI Note) (the “Amortization Redemption Amounts”) due on the aforementioned dates in
2023.
Also,
pursuant to the terms of the CVI Exchange Offer and Amendment, the Company agreed to hold an annual or special meeting of stockholders
on or prior to the date that is 90 calendar days after November 14, 2022, for the purpose of obtaining shareholder approval (“Shareholder
Approval”) to amend the CVI Note as follows:
(i)
the definition of Conversion Price (as defined in the CVI Note) (the “Conversion Price”) shall be amended such that, as to
the first $1,000,000 of principal amount of the CVI Note converted after the date that the Shareholder Approval is obtained, the Conversion
Price shall be the lower of (i) the Conversion Price in effect at such time and (ii) 82.0% of the lowest VWAP (as defined in the CVI
Note) during the five trading days immediately prior to the applicable conversion date (the “Adjusted Conversion Price”),
provided, however, that the portion of the first $1,000,000 of principal amount of the CVI Note that is converted pursuant to a voluntary
conversion by CVI shall reduce each of the remaining Amortization Redemption Amounts proportionately on a pro rata basis;
(ii)
CVI may accelerate up to four Amortization Redemption Amounts (as defined in the Notes) provided that CVI agrees to accept shares of
Common Stock instead of cash for such payments at a price per share equal to the Adjusted Conversion Price as calculated on the immediately
preceding Amortization Date (as defined in the CVI Note)); and
(iii)
upon mutual consent by the Company and CVI, CVI may elect to utilize the Adjusted Conversion Price for the balance of the Notes.
The
CVI Exchange Offer and Amendment further provides that from November 14, 2022 until 30 days following November 14, 2022, neither the
Company nor any of its subsidiaries shall (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance
of any Common Stock or any securities convertible or exchangeable into Common Stock, or (ii) enter into any agreement to amend, exchange
or otherwise provide any incentive to exercise any of the warrants originally issued together with the Exchange Warrants or any other
warrants of the Company that are outstanding on November 14, 2022, in each such case except with respect to certain exempt issuances.
Hudson
Bay Master Fund Ltd. Exchange Offer and Amendment
Also,
on November 14, 2022, the Company entered into an exchange offer and amendment (the “Hudson Bay Exchange Offer and Amendment”)
with Hudson Bay. Pursuant to the terms of the Hudson Bay Exchange Offer and Amendment, (i) the Company exchanged one share of the Company’s
common stock, for each share of common stock (the “Hudson Bay Warrant Exchange”) underlying the warrant to purchase common
stock, dated as of December 14, 2021, issued by the Company to Hudson Bay (the “Hudson Bay Warrant”); and (ii) the Company
and Hudson Bay amended certain provisions of the senior secured convertible note, dated as of December 14, 2021, issued by the Company
to Hudson Bay (the “Hudson Bay Note”), all as more fully described below and as set forth in the Hudson Bay Warrant and the
Hudson Bay Note, as applicable. On November 15, 2022, 2,916,667 shares of common stock were issued under the terms and conditions of
the Hudson Bay Warrant Exchange.
Pursuant
to the terms of the Hudson Bay Exchange Offer and Amendment, the Company and Hudson Bay agreed to amend the Hudson Bay Note such that
(i) the Company shall pay the interest originally payable in November 2022 and December 2022 upon execution of the Hudson Bay Exchange
Offer and Amendment, (ii) the Company shall pay a $50,000 extension fee to Hudson Bay ($10,000 on January 15, 2023, $10,000 on February
14, 2023, $10,000 on March 14, 2023, $10,000 on April 14, 2023, and $10,000 on May 15, 2023), (iii) the payment dates for the principal
originally payable in November 2022 and December 2022 shall be extended such that 1/5 of such respective principal amount shall instead
be paid on each Amortization Date (as defined in the Hudson Bay Note) during January 2023, February 2023, March 2023, April 2023, and
May 2023, in addition to the Amortization Redemption Amounts (as defined in the Hudson Bay Note) (the “Amortization Redemption
Amounts”) due on the aforementioned dates in 2023.
Also,
pursuant to the terms of the Hudson Bay Exchange Offer and Amendment, the Company agreed to hold an annual or special meeting of stockholders
on or prior to the date that is 90 calendar days after November 14, 2022, for the purpose of obtaining shareholder approval (“Shareholder
Approval”) to amend the Hudson Bay Note as follows:
(i)
the definition of Conversion Price (as defined in the Hudson Bay Note) (the “Conversion Price”) shall be amended such that,
as to the first $1,000,000 of principal amount of the Hudson Bay Note converted after the date that the Shareholder Approval is obtained,
the Conversion Price shall be the lower of (i) the Conversion Price in effect at such time and (ii) 82.0% of the lowest VWAP (as defined
in the Hudson Bay Note) during the five trading days immediately prior to the applicable conversion date (the “Adjusted Conversion
Price”), provided, however, that the portion of the first $1,000,000 of principal amount of the Hudson Bay Note that is converted
pursuant to a voluntary conversion by Hudson Bay shall reduce each of the remaining Amortization Redemption Amounts proportionately on
a pro rata basis;
(ii)
Hudson Bay may accelerate up to four Amortization Redemption Amounts (as defined in the Notes) provided that Hudson Bay agrees to accept
shares of Common Stock instead of cash for such payments at a price per share equal to the Adjusted Conversion Price as calculated on
the immediately preceding Amortization Date (as defined in the Hudson Bay Note)); and
(iii)
upon mutual consent by the Company and Hudson Bay, Hudson Bay may elect to utilize the Adjusted Conversion Price for the balance of the
Notes.
The
Hudson Bay Exchange Offer and Amendment further provides that from November 14, 2022 until 30 days following November 14, 2022, neither
the Company nor any of its subsidiaries shall (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance
of any Common Stock or any securities convertible or exchangeable into Common Stock, or (ii) enter into any agreement to amend, exchange
or otherwise provide any incentive to exercise any of the warrants originally issued together with the Exchange Warrants or any other
warrants of the Company that are outstanding on November 14, 2022, in each such case except with respect to certain exempt issuances.
Promissory
Note Amortization and Extension Fee Payments
On
November 14, 2022, as provided in the CVI Exchange Offer and Amendment, the Company made a cash payment, in the amount of $37,384, for
the monthly interest owed on the CVI Note outstanding principal balance. On November 14, 2022, as provided in the Hudson Bay Exchange
Offer and Amendment, the Company made a cash payment, in the amount of $33,056, for the monthly interest owed on the Hudson Bay Note
outstanding principal balance.
On
January 17, 2023, March 2, 2023, and March 14, 2023, the Company made an interest payment on the Hudson Bay Note, to Hudson Bay, in the
amount of $8,333, $625, and $208, respectively. On January 17, 2023, March 2, 2023, and March 14, 2023, pursuant to the terms of the
Hudson Bay Exchange Offer and Amendment, the Company paid, to Hudson Bay, extension fees in the amount of $10,000, $10,000, and $10,000,
respectively. On March 24, 2023, the Company paid to Hudson Bay an aggregate of $70,069, representing the remaining principal balance
on the Hudson Bay Note ($50,000), interest on the Hudson Bay Note ($69), and extension fees ($20,000). As of March 24, 2023, the Hudson
Bay Note was paid in full and no amounts remain due and outstanding in respect of the Hudson Bay Note.
On
March 14, 2023, the Company made a principal payment on the CVI Note, to CVI, in the amount of $6,111 and an interest payment on the
CVI Note, to CVI, in the amount of $77. Also on March 14, 2023, pursuant to the terms of the CVI Exchange Offer and Amendment, the Company
paid, to CVI, an extension fee in the amount of $30,000. On March 24, 2023, the Company paid to CVI an extension fee in the amount of
$20,000. As of March 24, 2023, the CVI Note was paid in full and no amounts remain due and outstanding in respect of the CVI Note.
Share
Issuances in Connection with Warrant Exercises
Subsequent
to the three month period ended November 30, 2022, the Company issued an aggregate of 4,510,000 shares of common stock to certain warrant
holders upon exercise of their warrants related to the Company’s Registration Statement on Form S-1 (File No. 333-267401) declared
effective by the Securities and Exchange Commission on October 13, 2022.
Share
Issuances in Connection with Note Conversions
Subsequent
to the three month period ended November 30, 2022, the Company issued an aggregate of 94,185,340 shares of common stock to certain note
holders upon conversion of their notes. As of March 31, 2023, (i) the principal balance owed by the Company to Hudson Bay pursuant to
the senior secured convertible note, dated as of December 14, 2021, as amended, issued by the Company to Hudson Bay is $0, (ii) the principal
balance owed by the Company to CVI pursuant to the senior secured convertible note, dated as of December 14, 2021, as amended, issued
by the Company to CVI is $0; and (iii) the principal balance owed by the Company to Jefferson pursuant to the secured convertible note,
dated as of November 17, 2021, as amended, issued by the Company to Jefferson is $0.
Share
Issuance in Exchange for Certain NHL Non-Voting Special Shares
Subsequent
to the three month period ended November 30, 2022, the Company issued 3,202,019 shares of common stock in exchange for certain non-voting
special shares of NHL, previously issued in connection with NHL’s acquisition of Acenzia that closed on June 24, 2021.
Nasdaq
Notification—Minimum Bid Price Requirement
On
November 21, 2022, the Company received a notification letter (the “November Notification Letter”) from The Nasdaq Stock
Market, LLC (“Nasdaq”) that it is not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule
5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain
a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement
exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of the Company’s
common stock between October 10, 2022 and November 11, 2022, the Company no longer meets the minimum bid price requirement. The November
Notification Letter has no immediate effect on the listing or trading of the Company’s common stock on The Nasdaq Capital Market
and, at this time, the common stock will continue to trade on The Nasdaq Capital Market under the symbol “NVOS.”
The
November Notification Letter provides that the Company has 180 calendar days, or until May 22, 2023, to regain compliance with Nasdaq
Listing Rule 5550(a)(2). To regain compliance, the bid price of the Company’s common stock must have a closing bid price of at
least $1.00 per share for a minimum of 10 consecutive business days. If the Company does not regain compliance by May 22, 2023, an additional
180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital Market continued listing requirements (except
for the bid price requirement) and notifies Nasdaq in writing of its intention to cure the deficiency during the second compliance period.
If the Company does not qualify for the second compliance period or fails to regain compliance during the second 180-day period, then
Nasdaq will notify the Company of its determination to delist the Company’s common stock, at which point the Company will have
an opportunity to appeal the delisting determination to a hearings panel.
The
Company intends to monitor the closing bid price of its common stock and will consider implementing available options to regain compliance
with the minimum bid price requirement under the Nasdaq Listing Rules.
Information
Statement on Schedule 14C
On
January 4, 2023, the Company filed with the SEC a definitive information statement on Schedule 14C (the “14C”). The 14C relates
to the notice to stockholders concerning the approval by written consent of stockholders holding a majority of the Company’s issued
and outstanding voting securities (the “Majority Stockholders”) of the effectuation of the transactions provided for in each
exchange offer and amendment entered into on November 14, 2022 by the Company (the “Exchange Offers and Amendments”) with
CVI and Hudson Bay, including but not limited to the following amendments to the senior secured convertible notes, dated as of December
14, 2021, issued by the Company to CVI and Hudson (the “Notes”):
(i)
the definition of Conversion Price (as defined in the Notes) (the “Conversion Price”) shall be amended such that, as to the
first $1,000,000 of principal amount of each of the Notes converted after the date that shareholder approval is obtained, the Conversion
Price shall be the lower of (i) the Conversion Price in effect at such time and (ii) 82.0% of the lowest VWAP (as defined in Notes) during
the five trading days immediately prior to the applicable conversion date (the “Adjusted Conversion Price”), provided, however,
that the portion of the first $1,000,000 of principal amount of each of the Notes that is converted pursuant to a voluntary conversion
by the holders of each of the Notes shall reduce each of the remaining Amortization Redemption Amounts proportionately on a pro rata
basis;
(ii)
Each of the holders of the Notes may accelerate up to four Amortization Redemption Amounts (as defined in the Notes) provided that such
holder agrees to accept shares of Common Stock instead of cash for such payments at a price per share equal to the Adjusted Conversion
Price as calculated on the immediately preceding Amortization Date (as defined in the Notes)); and
(iii)
upon mutual consent by the Company and each of the holders of the Notes, such holder may elect to utilize the Adjusted Conversion Price
for the balance of the Notes.
Accordingly,
the Majority Stockholders approved, by written consent, the issuance of the total number of shares of Company common stock of the Company
necessary to effectuate the Exchange Offers and Amendments, which is currently an indeterminate number due to the methodology of the
conversion pricing as described herein and in the Exchange Offers and Amendments.
Stockholder
approval of the Exchange Offers and Amendments was required by Rule 5635(d) of The Nasdaq Stock Market, which requires stockholder approval
prior to a 20% issuance of securities at a price that is less than the Minimum Price (as defined in the information statement) in a transaction
other than a public offering. A 20% issuance is a transaction, other than a public offering, involving the sale, issuance or potential
issuance by the company of common stock (or securities convertible into or exercisable for common stock), which alone or together with
sales by officers, directors or substantial stockholders of the company, equals 20% or more of the common stock or 20% or more of the
voting power outstanding before the issuance.
Such
approval and consent by the Majority Stockholders constitute the approval and consent of a majority of the total number of shares of
the Company’s outstanding voting stock and is sufficient under the Nevada Revised Statutes, the Company’s Amended and Restated
Articles of Incorporation, as amended, and the Company’s Bylaws to approve the Exchange Offers and Amendments. Accordingly, the
actions will not be submitted to the other stockholders of the Company for a vote, and the information statement has been furnished to
such other stockholders to provide them with certain information concerning the actions in accordance with the requirements of the Exchange
Act, and the regulations promulgated under the Exchange Act, including Regulation 14C.
As
of May 18, 2023, (i) the principal balance owed by the Company to Hudson Bay pursuant to the senior secured convertible note, dated as
of December 14, 2021, as amended, issued by the Company to Hudson Bay is $0, and (ii) the principal balance owed by the Company to CVI
pursuant to the senior secured convertible note, dated as of December 14, 2021, as amended, issued by the Company to CVI is $0. See “—Share
Issuances in Connection with Note Conversions.”
Jefferson
Street Letter Agreement
As
previously disclosed, on June 1, 2022, the Company and Jefferson agreed to extend the maturity date of the Jefferson Note to November
29, 2022 with a principal amount face value of $946,875 and interest rate that shall accrue at a rate equal to 1% per annum. On December
2, 2022, the Company made a partial payment of $200,000 toward principal and interest owed on the Jefferson Note, leaving a balance of
$746,875. On December 13, 2022, the Company, Terra and Jefferson entered into a letter agreement. Pursuant to the terms of the letter
agreement, Jefferson agreed to forbear from entering an event of default under the terms of the Jefferson Note and related transaction
documents until December 29, 2022. In addition, the parties agreed to release the Collateral Shares to Jefferson. Effective February
16, 2023, the Jefferson Note has been paid in full.
Nasdaq
Notification—Delinquent Form 10-K and Form 10-Q Filings
On
December 15, 2022, the Company received a notification letter (the “December Notification Letter”) from Nasdaq that it was
not in compliance with Nasdaq’s continued listing rules due to its failure to timely file its Annual Report on Form 10-K for the
fiscal year ended August 31, 2022 (the “2022 10-K”). On January 25, 2023, the Company received a notification letter (the
“January Notification Letter”) from Nasdaq advising the Company that it was not in compliance with Nasdaq’s continued
listing requirements as a result of its failure to timely file the 2022 10-K and its Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 2022 (the “Form 10-Q”). On February 13, 2023, the Company submitted a plan to regain compliance with Nasdaq’s
continued listing rules with respect to the 2022 10-K and the Form 10-Q. If Nasdaq accepted the Company’s plan, then Nasdaq could
grant an exception of up to 180 calendar days from the due date of the 2022 10-K to regain compliance. On February 17, 2023 and March
22, 2023, based on Nasdaq’s further review, Nasdaq granted an exception to enable the Company to regain compliance with Nasdaq’s
continued listing rules. The terms of the exception are as follows: on or before May 29, 2023, the Company must file the 2022 10-K, the
Form 10-Q, and any other filings required by Nasdaq Listing Rule 5250(c)(1). The Company filed the 2022 10-K on April 3, 2023.
SwagCheck
Agreement
On
December 23, 2022, the Company, SwagCheck Inc. (“SWAG”), and all SWAG shareholders (collectively, the “SWAG Shareholders”)
entered into that certain Share Purchase Agreement (the “SWAG Agreement”). Pursuant to the terms of the SWAG Agreement, the
Company agreed to purchase, and the SWAG Shareholders agreed to sell to the Company, 100% of the outstanding shares of SWAG in exchange
for $1.00 (the “SWAG Purchase”). SWAG holds a specific right of purchase of a precious gem collection (the “Gems”)
as provided for in an agreement between SWAG and a Court-appointed Successor Receiver for the United States District Court for the Central
District of California (the “Receiver”).
The
parties have made customary representations, warranties and covenants in the SWAG Agreement. In addition to certain customary closing
conditions, the obligations of SWAG and the SWAG Shareholders to consummate the closing of the SWAG Purchase are subject to the satisfaction
(or waiver by any of SWAG or the SWAG Shareholders), at or before the closing date, of certain conditions, including that (i) the Company
will have received a financing commitment of at least $90 million by December 27, 2022, with a closing date no later than December 30,
2022, (ii) $60 million will be distributed directly to a Receiver for the purchase of the Gems by SWAG, and (iii) $30 million is a Mark-up
to be distributed for the benefit of the outgoing SWAG Shareholders.
In
addition to certain customary closing conditions in the SWAG Agreement, the obligations of SWAG and the SWAG Shareholders to consummate
the closing of the SWAG Purchase were subject to the satisfaction (or waiver by any of SWAG or the SWAG Shareholders), at or before the
closing date, of certain conditions, including that (i) the Company will have provided SWAG with a binding letter of intent (a “LOI”)
by a competent financing party for financing in the amount of at least $90 million by December 27, 2022 with a closing date no later
than December 30, 2022, (ii) $60 million will be distributed directly to the Receiver for the purchase of the Gems by SWAG, and (iii)
$30 million is a mark-up to be distributed for the benefit of the outgoing SWAG Shareholders.
On
December 30, 2022, the Company, SWAG and the SWAG Shareholders entered into Amendment No. 1 to the SWAG Agreement (the “SWAG Amendment”).
Pursuant to the terms of the SWAG Amendment, the parties agreed as follows:
| |
● |
The
closing of the SWAG Purchase will occur no later than January 10, 2023, with all contemplated extensions being subject to the Receiver’s
stipulations, conditions, and limitations. |
| |
|
|
| |
● |
The
condition for the Company to provide SWAG with a binding LOI has been deleted. |
| |
|
|
| |
● |
A
total of $92 million will be distributed as follows: (i) $60 million will be distributed to the Receiver for the purchase of the
Gems by SWAG, and (ii) a $32 million mark-up will be distributed directly for the benefit of the outgoing SWAG Shareholders. |
Although
the SWAG Agreement has not yet closed, the parties continue to work together with the intention of closing the transaction. Following
the closing of SWAG Purchase, SWAG will be a wholly owned subsidiary of the Company and will own title to the Gems, which the Company
intends to either collateralize or sell to raise capital.
Mast
Hill Securities Purchase Agreement & Note
On
February 23, 2023, the Company entered into a securities purchase agreement (the “Mast Hill SPA”) with Mast Hill Fund, L.P.
(“Mast Hill”), pursuant to which the Company issued an 12% unsecured promissory note (the “Mast Hill Note”) with
a maturity date of February 23, 2024 (the “Mast Hill Maturity Date”), in the principal sum of $573,000 (the “Mast Hill
Principal Sum”). In addition, the Company issued a common stock purchase warrant for the purchase of up to 1,000,000 shares of
the Company’s common stock (the “Mast Hill Warrant”) to Mast Hill pursuant to the Mast Hill SPA. Pursuant to the terms
of the Mast Hill Note, the Company agreed to pay the Mast Hill Principal Sum to Mast Hill and to pay interest on the principal balance
at the rate of 12% per annum. The Mast Hill Note carries an OID of $57,300. Accordingly, on the closing date, Mast Hill paid the purchase
price of $515,700 in exchange for the Mast Hill Note and the Mast Hill Warrant. Mast Hill may convert the Mast Hill Note into shares
of the Company’s common stock at any time at a conversion price equal to $0.175 per share, subject to adjustment as provided in
the Mast Hill Note (including but not limited to certain price protection provisions in case of future dilutive offerings, subject to
certain customary exempt transactions) as well as certain beneficial ownership limitations.
Pursuant
to the terms of the Mast Hill Note, the Company agreed to pay accrued interest monthly as well as the Mast Hill Principal Sum as follows:
(i) $57,300 on August 23, 2023, (ii) 57,300 on September 23, 2023, (iii) $57,300 on October 23, 2023, (iv) $100,000 on November 23, 2023,
(v) $100,000 on December 23, 2023, (vi) $100,000 on January 23, 2023, and (vii) all remaining amounts owed under the Mast Hill Note on
the Mast Hill Maturity Date (each of the aforementioned payments are an “Amortization Payment”). If the Company fails to
make any Amortization Payment, then Mast Hill shall have the right to convert the amount of such respective Amortization Payment into
shares of common stock as provided in the Mast Hill Note at the lesser of (i) the then applicable conversion price under the Mast Hill
Note, or (ii) 85% of the lowest VWAP of the Company’s common stock on any trading day during the five trading days prior to the
respective conversion date.
The
Company may prepay the Mast Hill Note at any time prior to the date that an Event of Default (as defined in the Mast Hill Note) occurs
at an amount equal to the Mast Hill Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750
for administrative fees. The Mast Hill Note contains customary events of default relating to, among other things, payment defaults, breach
of representations and warranties, and breach of provisions of the Mast Hill Note, Mast Hill Warrant, or Mast Hill SPA.
Upon
the occurrence of any Event of Default, the Mast Hill Note shall become immediately due and payable and the Company shall pay to Mast
Hill, in full satisfaction of its obligations hereunder, an amount equal to the Mast Hill Principal Sum then outstanding plus accrued
interest multiplied by 125%. Upon the occurrence of an Event of Default, additional interest will accrue from the date of the Event of
Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
The
Mast Hill Warrant is exercisable for five years from February 23, 2023, at an exercise price of $0.25 per share, subject to adjustment
as provided in the Mast Hill Warrant. The Mast Hill Warrant also contains certain cashless exercise provisions as well as price protection
provisions providing for adjustment of the number of shares of the Company’s common stock issuable upon exercise of the Mast Hill
Warrant and the exercise price in case of future dilutive offerings, subject to certain customary exempt transactions.
As
additional consideration for the purchase of the Mast Hill Note and pursuant to the terms of the Mast Hill SPA, on February 24, 2023,
the Company issued 955,000 restricted shares of common stock (the “Commitment Shares”) to Mast Hill at closing. The Mast
Hill SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain
exceptions, piggy-back registration rights with respect to the Commitment Shares as well as the shares of common stock underlying the
Mast Hill Note and the Mast Hill Warrant. In addition to the beneficial ownership limitations provided in the Mast Hill Note and the
Mast Hill Warrant, the sum of the number of shares of common stock that may be issued under the Mast Hill SPA (including the Commitment
Shares), the Mast Hill Note, and the Mast Hill Warrant shall be limited to 19.99% of the issued and outstanding common stock on the closing
date (equal to 27,720,448 shares) as further described in the Mast Hill SPA, unless shareholder approval to exceed such limitation is
obtained by the Company.
On
March 23, 2023, the Company made a monthly interest-only payment to Mast Hill in the amount of $5,086. On April 24, 2023, the Company
made a monthly interest-only payment to Mast Hill in the amount of $5,840.
March
2023 FirstFire Securities Purchase Agreement, Note & Warrant
On
March 21, 2023, the Company entered into a securities purchase agreement (the “SPA”) with FirstFire, pursuant to which the
Company issued an 12% unsecured promissory note (the “2023 FirstFire Note”) with a maturity date of March 21, 2024, in the
principal sum of $573,000 (the “Principal Sum”). In addition, the Company issued a common stock purchase warrant for the
purchase of up to 1,000,000 shares of the Company’s common stock (the “2023 FirstFire Warrant”) to FirstFire pursuant
to the SPA. Pursuant to the terms of the 2023 FirstFire Note, the Company agreed to pay the Principal Sum to FirstFire and to pay interest
on the principal balance at the rate of 12% per annum. The 2023 FirstFire Note carries an OID of $57,300. Accordingly, on the closing
date, FirstFire paid the purchase price of $515,700 in exchange for the 2023 FirstFire Note and the 2023 FirstFire Warrant. FirstFire
may convert the 2023 FirstFire Note into the Company’s common stock at any time at a conversion price equal to $0.175 per share,
subject to adjustment as provided in the 2023 FirstFire Note (including but not limited to certain price protection provisions in case
of future dilutive offerings, subject to certain customary exempt transactions) as well as certain beneficial ownership limitations.
Pursuant
to the terms of the 2023 FirstFire Note, the Company agreed to pay accrued interest monthly as well as the Principal Sum as follows:
(i) $57,300 on September 21, 2023, (ii) 57,300 on October 21, 2023, (iii) $57,300 on November 21, 2023, (iv) $100,000 on December 21,
2023, (v) $100,000 on January 21, 2024, (vi) $100,000 on February 21, 2024, and (vii) all remaining amounts owed under the 2023 FirstFire
Note on the maturity date (each of the aforementioned payments are an “Amortization Payment”). If the Company fails to make
any Amortization Payment, then FirstFire shall have the right to convert the amount of such respective Amortization Payment into shares
of common stock as provided in the 2023 FirstFire Note at the lesser of (i) the then applicable conversion price under the 2023 FirstFire
Note or (ii) 85% of the lowest VWAP of the Company’s common stock on any trading day during the five trading days prior to the
respective conversion date.
The
Company may prepay the 2023 FirstFire Note at any time prior to the date that an event of default (as provided in the 2023 FirstFire
Note) occurs at an amount equal to the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750
for administrative fees. The 2023 FirstFire Note contains customary events of default relating to, among other things, payment defaults,
breach of representations and warranties, and breach of provisions of the 2023 FirstFire Note, the 2023 FirstFire Warrant, or SPA.
Upon
the occurrence of any event of default, the 2023 FirstFire Note shall become immediately due and payable and the Company shall pay to
FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest
multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from
the date of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
The
2023 FirstFire Warrant is exercisable for five years from March 21, 2023, at an exercise price of $0.25 per share, subject to adjustment
as provided in the 2023 FirstFire Warrant. The 2023 FirstFire Warrant also contains certain cashless exercise provisions as well as price
protection provisions providing for adjustment of the number of shares of common stock issuable upon exercise of the 2023 FirstFire Warrants
and the exercise price in case of future dilutive offerings, subject to certain customary exempt transactions.
As
additional consideration for the purchase of the 2023 FirstFire Note and pursuant to the terms of the SPA, on March 22, 2023, the Company
issued 955,000 restricted shares of the Company’s common stock (the “Commitment Shares”) to FirstFire at closing. The
SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain
exceptions, piggy-back registration rights with respect to the Commitment Shares as well as the shares of common stock underlying the
2023 FirstFire Note and the 2023 FirstFire Warrant. In addition to the beneficial ownership limitations provided in the 2023 FirstFire
Note and the 2023 FirstFire Warrant, the sum of the number of shares of common stock that may be issued under the SPA (including the
Commitment Shares), the 2023 FirstFire Note, and 2023 FirstFire Warrant shall be limited to 10,000,000 shares as further described in
the SPA, unless shareholder approval to exceed such limitation is obtained by the Company.
On
April 21, 2023, the Company made a monthly interest-only payment to FirstFire in the amount of $5,730.
RC
Consulting Group SPA & Unsecured $70 Million Note
On
April 26, 2023, the Company entered into a securities purchase agreement (the “RC SPA”), dated as of April 26, 2023, with
RC Consulting Group LLC in favor of SCP Tourbillion Monaco or registered assigns (the “RC Noteholder”), pursuant to which
the Company issued an unsecured 15-year promissory note to the RC Noteholder (the “RC Note”) with a maturity date of April
26, 2038, in the principal sum of $70,000,000, which amount represents the $57,000,000 purchase price plus a yield (non-compounding)
of 1.52% (zero coupon) per annum from April 26, 2023 until the same becomes due and payable as provided in the RC Note. The RC Note may
be prepaid as set forth in the RC Note and ranks pari passu with all unsecured indebtedness of the Company.
Pursuant
to the terms of the RC Note, at the RC Noteholder’s option, the sale, conveyance or disposition of all or substantially all of
the Company’s assets, or the consolidation, merger or other business combination of the Company with or into any other person(s)
when the Company is not the survivor will either: (i) be deemed to be an Event of Default (as defined in the RC Note) pursuant to which
the Company will be required to pay to the RC Noteholder upon the consummation of and as a condition to such transaction an amount equal
to the Default Amount (as hereinafter defined), or (ii) be treated pursuant to Section 1.6(b) of the RC Note.
The
RC Note contains customary covenants for a transaction of this type. Among other things, so long as the RC Note is outstanding, the Company
will not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or
in part, Section 3(a)(10) of the Securities Act of 1933, as amended (a “3(a)(10) Transaction”). In the event that the Company
does enter into, or makes any issuance of common stock related to a 3(a)(10) Transaction while the RC Note is outstanding, a liquidated
damages charge of 25% of the outstanding principal balance of the RC Note, but not less than $1,000,000, will be assessed and will become
immediately due and payable to the RC Noteholder at its election in the form of a cash payment or added to the balance of the RC Note
(under the RC Noteholder’s and the Company’s expectation that this amount will tack back to the date of issuance of the RC
Note).
The
RC Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties,
and breach of provisions of the RC SPA or the RC Note.
Upon
the occurrence of any Event of Default (as defined in the RC Note), the RC Note will become immediately due and payable, and the Company
will pay to the RC Noteholder, in full satisfaction of its obligations thereunder, an amount equal to the principal amount then outstanding
plus accrued interest (including any default interest) through the date of full repayment multiplied by 125% (collectively, the “Default
Amount”), as well as all costs, including, without limitation, legal fees and expenses, of collection, all without demand, presentment
or notice.
The
RC SPA contains customary covenants, representations and warranties for a transaction of this type.
For
the three months ended November 30, 2022 compared to the three months ended November 30, 2021
Revenues
for the three months ended November 30, 2022 were $3,419,280, representing an increase of $257,353, or 8.1%, from $3,161,927 for the
same period in 2021. The increase in revenue is principally due to an increase in outsourced product sales which resulted in an increase
in revenue of $607,589. Acenzia’s and Terragenx’s revenue for the three months ended November 30, 2022 was $777,229 and $9,157
, respectively. Revenue from our healthcare services decreased by 7.3% when comparing the revenue for the three months ended November
30, 2022 to the same period in 2021 primarily due to a COVID-19 surge in Ontario province Canada and COVID-19 staffing related shortages
limiting clinic and eldercare patient-practitioner direct personal interaction.
Cost
of revenues for the three months ended November 30, 2022 were $1,679,747, representing a decrease of $215,714 or 11.4%, from $1,895,461
for the same period in 2021. Cost of revenues as a percentage of revenue for our healthcare and product sales segments was 61.2% and
56.0%, respectively, for the three months ended November 30, 2022. The cost of revenue for our healthcare segment was 63.3% for same
period in 2021. The decrease in cost of revenues as a percentage of revenue for our healthcare segment is principally due to the decrease
in related revenues.
Operating costs for the three months ended November 30, 2022 were $3,981,493, representing an increase of $1,351,368, or 51.4%, from $2,630,125
for the same period in 2021. The increase in operating costs is principally due to the increase in overhead expenses associated with the
operations of Acenzia, PRO-DIP, and Terragenx which was approximately $902,756 for the three months ended November 30, 2022. In subsequent
quarters, this increase in overhead expenses associated with Acenzia, PRO-DIP, and Terragenx is projected to decrease as the Company integrates
and consolidates operations. Also, an increase in legal and professional fees contributed to the increase in operating expenses.
Interest expense for the three months ended November 30, 2022 was $167,243, representing an increase of $98,513, or 143.3%, from $68,730
for the same period in 2021. The increase is due to issued and unpaid convertible notes as of November 30, 2022.
Amortization of debt discount for the three months ended November 30, 2022 was $1,490,513, representing an increase of $1,432,673 from
$57,840 for the same period in 2021. The increase is due to amortization of the debt discounts associated with the convertible notes issued
in November 2021 and December 2021.
Foreign
currency transaction losses for the three months ended November 30, 2022 was $39,301 compared to $334,554 for the same period in 2021.
Prior period balance related to the outstanding debt payable in US Dollars.
Net loss attributed to Novo Integrated Sciences, Inc. for the three months ended November 30, 2022 was $3,935,413, representing an increase
of $2,128,826, or 117.8%, from $1,806,587 for the same period in 2021. The increase in net loss is principally due to (i) an increase
in overhead expenses associated with the operations of Acenzia, PRO-DIP, and Terragenx which was approximately $902,756 for the three
months ended November 30, 2022, (ii) an increase in interest expense, and (iii) an increase in amortization of debt discounts.
Liquidity
and Capital Resources
As
shown in the accompanying unaudited condensed consolidated financial statements, for the three months ended November 30, 2022, the Company
had a net loss of $3,936,736.
During
the three months ended November 30, 2022, the Company used cash in operating activities of $278,237 compared to $759,103 of cash used
in operating activities for the same period in 2021. The principal reason for the decrease in cash used in operating activities is the
changes in noncash expenses and changes in operating asset and liability accounts.
During
the three months ended November 30, 2022, the Company used cash from investing activities of $nil compared to cash used from investing
activities of $91,106 for the same period in 2021. The principal reason for the change is due to the no property and equipment purchases
in the three months ended November 30, 2022 compared to the same period in 2021.
During
the three months ended November 30, 2022, the Company used cash in financing activities of $1,034,021 compared to $1,399,785 of cash
provided by financing activities for the same period in 2021. The principal reason for the decrease in cash provided by financing activities
was the repayment of related party payables of $48,480, repayment of finance leases of $2,763, and repayment of convertible notes of
$2,777,778, offset by proceeds received from the sale of units, net of issuance costs of $1,795,000. In 2021, the Company received $1,410,000
from the issuance of convertible notes.
Financial
Impact of COVID-19
In
December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. On March 17, 2020, as a result of COVID-19
pandemic having been reported throughout both Canada and the United States, certain national, provincial, state and local governmental
authorities issued proclamations and/or directives aimed at minimizing the spread of COVID-19. Accordingly, on March 17, 2020, the Company
closed all corporate clinics for all in-clinic non-essential services to protect the health and safety of its employees, partners, and
patients. Commencing in May 2020, the Company was able to begin providing some services, and was fully operational again in June 2020.
As of November 30, 2022, all corporate clinics were open and fully operational, with staffing shortages in some facilities due to ongoing
COVID-19 residual impact, while following all mandated guidelines and protocols from Health Canada, the Ontario Ministry of Health, and
the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff and clients, and our eldercare
operations are fully operational. In addition, Acenzia, Terragenx, PRO-DIP, and CCI are open and fully operational, with staffing shortages
due to ongoing COVID-19 residual impact, while following all local, state, provincial, and national guidelines and protocols related
to minimizing the spread of the COVID-19 pandemic.
Canadian
federal and provincial COVID-19 governmental proclamations and directives, including interprovincial travel restrictions, have presented
unprecedented challenges to launching our Harvest Gold Farms and Kainai Cooperative joint ventures during the period ended November 30,
2022. Accordingly, the Company has decided to delay commencing the projects until the 2023 grow season. These joint ventures relate to
the development, management, and arrangement of medicinal farming projects involving industrial hemp for medicinal cannabidiol (CBD)
applications.
For
the three month period ended November 30, 2022, the Company’s total revenue from all clinic and eldercare related contracted services
was $2,021,213, representing a 7.3% decrease of $158,410 compared to $2,179,623 during the same period in 2021. This decrease is primarily
due to a 2022 COVID-19 surge in Ontario province Canada and COVID-19 staffing related shortages limiting clinic and eldercare patient-practitioner
direct personal interaction.
While
all of the Company’s business units are operational at the time of this filing, any future impact of the COVID-19 pandemic on the
Company’s operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, including, but not limited to, (i) the duration of the COVID-19 outbreak and additional variants that may be identified,
(ii) new information which may emerge concerning the severity of the COVID-19 pandemic, and (iii) any additional preventative and protective
actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced
patient traffic, and reduced operations.
Our
capital requirements going forward will consist of financing our operations until we are able to reach a level of revenues and gross
margins adequate to equal or exceed our ongoing operating expenses. We do not have any credit agreement or source of liquidity immediately
available to us.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to investors.
Critical
Accounting Policies and Estimates
The
preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
We
believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial
statements.
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates
and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that
it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. This applies in particular
to going concern assessment, useful lives of non-current assets, impairment of non-current assets, allowance for doubtful accounts, allowance
for slow moving and obsolete inventory, and valuation allowance for deferred tax assets. The actual results experienced by the Company
may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates
and the actual results, future results of operations will be affected.
Property
and Equipment
Property
and equipment are stated at cost less depreciation and impairment. Expenditures for maintenance and repairs are charged to earnings as
incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation
of property and equipment is provided using the declining balance method for substantially all assets with estimated lives as follows:
| Building |
30
years |
| Leasehold
improvements |
5
years |
| Clinical
equipment |
5
years |
| Computer
equipment |
3
years |
| Office
equipment |
5
years |
| Furniture
and fixtures |
5
years |
The
Company has not changed its estimate for the useful lives of its property and equipment, but would expect that a decrease in the estimated
useful lives of property and equipment of 20% would result in an annual increase to depreciation expense of approximately $170,396, and
an increase in the estimated useful lives of property and equipment of 20% would result in an annual decrease to depreciation expense
of approximately $113,597.
Intangible
Assets
The
Company’s intangible assets are being amortized over their estimated useful lives as follows:
| Land
use rights |
50
years (the lease period) |
| Intellectual
property |
7
years |
| Customer
relationships |
5
years |
| Brand
names |
7
years |
The
intangible assets with finite useful lives are reviewed for impairment when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. The Company has not changed its estimate
for the useful lives of its intangible assets but would expect that a decrease in the estimated useful lives of intangible assets of
20% would result in an annual increase to amortization expense of approximately $502,022, and an increase in the estimated useful lives
of intangible assets of 20% would result in an annual decrease to amortization expense of approximately $334,681.
Long-Lived
Assets
The
Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including
right-of-use assets, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the
carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair values are reduced for the cost of disposal.
Right-of-use
Assets
The
Company’s right-of-use assets consist of leased assets recognized in accordance with ASC 842, Leases, which requires lessees
to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets represent the Company’s
right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments
arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term
at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the condensed consolidated balance
sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statements of operations and comprehensive
loss. The Company determines the lease term by agreement with lessor. In cases where the lease does not provide an implicit interest
rate, the Company uses the Company’s incremental borrowing rate based on the information available at commencement date in determining
the present value of future payments.
Goodwill
Goodwill
represents the excess of purchase price over the underlying net assets of businesses acquired. Under U.S. GAAP, goodwill is not amortized
but is subject to annual impairment tests. The Company recorded goodwill related to its acquisition of APKA Health, Inc. (“APKA”)
during the fiscal year ended August 31, 2017, Executive Fitness Leaders (“EFL”) during the fiscal year ended August 31, 2018,
Action Plus Physiotherapy Rockland (“Rockland”) during the fiscal year ended August 31, 2019, Acenzia, Inc. (“Acenzia”)
during fiscal year ended August 31, 2021, and 1285 Canada, and Fairway Physiotherapy and Sports Injury Clinic (“Fairway”)
during fiscal year ended August 31, 2022. As of August 31, 2022, the Company performed the required impairment reviews and determined
that an impairment charge of $1,357,043 related to the goodwill for Acenzia was necessary. The Company determined that the carrying value
was in excess of the expected fair value of discounted cash flows based on the current market and business environments, resulting in
the need for impairment. The impairment was determined based on the discounted cash flow valuation model and the projected future cash
flows of the underlying business. Based on its review at November 30, 2022, the Company believes there was no additional impairment of
its goodwill.
Accounts
Receivable
Accounts
Receivable are recorded, net of allowance for doubtful accounts and sales returns. Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends, and changes in customer
payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection
of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood
of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified. The Company
has not changed its methodology for estimating allowance for doubtful accounts and historically the change in estimate has not been significant
to the Company’s condensed consolidated financial statements. If there is a deterioration of the Company’s customers’
ability to pay or if future write-offs of receivables differ from those currently anticipated, the Company may have to adjust its allowance
for doubtful accounts, which would affect earnings in the period the adjustments are made.
Inventory
Inventories
are valued at the lower of cost (determined by the first in, first out method) and net realizable value. Management compares the cost
of inventories with the net realizable value and allowance is made for writing down their inventories to net realizable value, if lower.
Inventory is segregated into three areas: raw materials, work-in-process and finished goods. The Company periodically assessed its inventory
for slow moving and/or obsolete items and any change in the allowance is recorded in cost of revenue in the accompanying condensed consolidated
statements of operations and comprehensive loss. If any are identified an appropriate allowance for those items is made and/or the items
are deemed to be impaired.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset
and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences,
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not
changed it methodology for estimating the valuation allowance. A change in valuation allowance affect earnings in the period the adjustments
are made and could be significant due to the large valuation allowance currently established.
Under
ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that
is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test,
no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
Revenue
Recognition
The
Company’s revenue recognition reflects the updated accounting policies as per the requirements of ASU No. 2014-09, Revenue from
Contracts with Customers (“Topic 606”). As sales are and have been primarily from providing healthcare services the Company
has no significant post-delivery obligations.
Revenue
from providing healthcare and healthcare related services and product sales are recognized under Topic 606 in a manner that reasonably
reflects the delivery of its products and services to customers in return for expected consideration and includes the following elements:
| |
● |
executed
contracts with the Company’s customers that it believes are legally enforceable; |
| |
● |
identification
of performance obligations in the respective contract; |
| |
● |
determination
of the transaction price for each performance obligation in the respective contract; |
| |
● |
allocation
the transaction price to each performance obligation; and |
| |
● |
recognition
of revenue only when the Company satisfies each performance obligation. |
These
five elements, as applied to the Company’s revenue category, are summarized below:
| |
● |
Healthcare
and healthcare related services - gross service revenue is recorded in the accounting records at the time the services are provided
(point-in-time) on an accrual basis at the provider’s established rates. The Company reserves a provision for contractual adjustment
and discounts that are deducted from gross service revenue. The Company reports revenues net of any sales, use and value added taxes. |
| |
|
|
| |
● |
Product
sales - revenue is recorded at the point of time of delivery |
In
arrangements where another party is involved in providing specified services to a customer, the Company evaluates whether it is the principal
or agent. In this evaluation, the Company considers if the Company obtains control of the specified goods or services before they are
transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and
discretion in establishing price. For product sales where the Company is not the principal, the Company recognizes revenue on a net basis.
For the periods presented, revenue for arrangements where the Company is the agent was not material.
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 condensed consolidated statements of operations
and comprehensive loss the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
Basic
and Diluted Earnings Per Share
Earnings
per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is
based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution
is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average
market price during the period.
Foreign
Currency Transactions and Comprehensive Income
U.S.
GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require
entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component
of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional
currency of the Company’s Canadian subsidiaries is the Canadian dollar and the functional currency of the Parent is the United
States. dollar. Translation gains (losses) are classified as an item of other comprehensive income in the stockholders’ equity
section of the condensed consolidated balance sheet.
New
Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying
condensed consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under
the circumstances.
Recent
accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants and the SEC did not or are not believed
by management to have a material effect on the Company’s financial statements.
