NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Six Months Ended February 28, 2021 and February 29, 2020 (unaudited)
Note
1 - Organization and Basis of Presentation
Organization
and Line of Business
Novo
Integrated Sciences, Inc. (“Novo Integrated”) was incorporated in Delaware on November 27, 2000, under the name Turbine
Truck Engines, Inc. On February 20, 2008, the Company was re-domiciled to the State of Nevada. Effective July 12, 2017, the Company’s
name was changed to Novo Integrated Sciences, Inc. When used herein, the terms the “Company,” “we,” “us”
and “our” refer to Novo Integrated and its consolidated subsidiaries.
The
Company owns Canadian and U.S. subsidiaries which deliver, or intend to deliver, multidisciplinary primary health care related
services and products through the integration of medical technology, advanced therapeutics and rehabilitative science. Currently,
the Company’s revenue is generated solely through its wholly owned Canadian subsidiary, Novo Healthnet Limited (“NHL”),
which provides our services and products through both clinic and eldercare related operations.
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.
NHL’s
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 NHL’s 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.
Additionally,
we continue to expand our patient care philosophy of maintaining an on-going continuous connection with our 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.
We
believe that “decentralizing” healthcare, through the integration of medical technology and interconnectivity offers
an essential solution to the fundamental transformation of healthcare delivery. 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 healthcare distribution.
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.
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.
Stock
Split
On
February 1, 2021, the Company effected a 1-for-10 reverse stock split of our common stock. As a result of the reverse stock split,
every 10 shares of issued and outstanding common stock were exchanged for one share of common stock, with any fractional shares
being rounded up to the next higher whole share. Unless otherwise noted, the share and per share information in this report have
been adjusted to give effect to the 1-for-10 reverse stock split.
Impact
of COVID-19
In
December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak
was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries
and infections have been reported globally.
On
March 17, 2020, as a result of COVID-19 infections having been reported throughout both Canada and the United States, certain
national, provincial, state and local governmental issued proclamations and/or directives aimed at minimizing the spread of COVID-19.
Accordingly, on March 17, 2020, the Company closed all corporate clinics for all in-clinic non-essential services to protect the
health and safety of its employees, partners and patients. On March 20, 2020, the Company announced the precautionary measures
taken as well as announcing the business impact related to the coronavirus (COVID-19) pandemic.
Operating
under COVID-19 related governmental proclamations and directives, between March 17, 2020 and June 1, 2020, the Company provided
in-clinic multi-disciplinary primary healthcare services and products solely to patients with emergency and essential need while
also providing certain virtual based services related to physiotherapy. In light of most eldercare related services being deemed
essential by national, provincial and local governmental authorities in Canada, NHL’s contracted eldercare related services
have been nominally impacted during the fiscal year 2021 first and second quarter and we project the same for the fiscal year
2021 third and fourth quarter.
On
May 26, 2020, the Ontario Ministry of Health announced updated guidance and directives stating that physiotherapists, chiropractors
and other regulated health professionals, including all services and products provided by the Company, can gradually and carefully
begin providing all services, including non-essential services, once the clinician and provider are satisfied all necessary precautions
and protocols are in place to protect the patients, the clinician and the clinic staff. With all corporate clinics closed due
to the COVID-19 pandemic, with the exception of providing certain limited essential and emergency services, the Company had furloughed
48 full-time employees and 35 part-time employees from its pre-closure levels of 81 full-time employees and 53 part-time employees.
On
June 2, 2020, the Company commenced opening its corporate clinics and providing non-essential services. As of June 9, 2020, the
Company had opened all corporate clinics while following all mandated guidelines and protocols from Health Canada, the Ontario
Ministry of Health, and the respective disciplines’ regulatory Colleges to ensure a safe treatment environment for our staff
and clients. Certain of these guidelines and protocols include both active and passive screening for staff and clients, enhanced
cleaning measures using only Health Canada approved disinfectants and sanitizers, personal protective equipment usage, appropriate
signage and markers throughout the clinics, and layout changes to the clinics to reflect proper physical distancing measures.
Additional, more restrictive proclamations and/or directives may be issued in the future.
With
our clinic facilities re-opened and operating under COVID-19 pandemic related mandated guidelines and protocols, for the month
ended February 28, 2021, NHL’s clinic-based patient flow has met and exceeds 82% for the same period ended February 2020.
In addition, for the month ended February 28, 2021, NHL’s eldercare contract services provided has met and exceeds 93% of
the same period ended February 2020. As of February 28, 2021, the Company has 78 full-time employees and 59 part-time employees.
Assuming
no additional “lockdowns” or new material directives are implemented limiting the Company’s ability to provide
both its clinic and eldercare community related services, for fiscal year 2021 the Company projects a steady month-over-month
increase as (i) recommended guidelines for patient-clinician on-site interaction are eased, and (ii) more overall movement restrictions
are reduced and people are more comfortable in public spaces.
The
ultimate impact of the COVID-19 pandemic on the Company’s operations remains unknown and will depend on future developments,
which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information
which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that
governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced patient
traffic and reduced operations. The full long-term financial impact cannot be reasonably estimated at this time but is anticipated
to have a material adverse impact on our business, financial condition, and results of operations.
The
measures taken to date will impact the Company’s fiscal year 2021 business and potentially beyond. Management expects that
all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the full
impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined
at this time.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements were prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”) and in conformity with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. The information furnished herein reflects all adjustments, consisting only of normal recurring
adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results
of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in
annual financial statements prepared in accordance with U.S. GAAP were omitted pursuant to such rules and regulations. The financial
information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended
August 31, 2020, that the Company filed on December 9, 2020. The results of operations for the six months ended February 28, 2021
are not necessarily indicative of the results for the year ending August 31, 2021. The Company’s Canadian subsidiaries’
functional currency is the Canadian Dollar (“CAD”); however, the accompanying consolidated financial statements were
translated and presented in United States Dollars (“$” or “USD”).
Foreign
Currency Translation
The
accounts of the Company’s Canadian subsidiaries are maintained in CAD. The accounts of these subsidiaries are translated
into USD in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification
(“ASC”) Topic 830, Foreign Currency Transaction, with the CAD as the functional currency. According to Topic
830, all assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated
at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The
resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, Comprehensive
Income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the
consolidated statement of operations and comprehensive loss. The following table details the exchange rates used for the respective
periods:
|
|
February 28, 2021
|
|
|
February 29, 2020
|
|
|
August 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Period end: CAD to USD exchange rate
|
|
$
|
0.7851
|
|
|
$
|
0.7456
|
|
|
$
|
0.7674
|
|
Average period: CAD to USD exchange rate
|
|
$
|
0.7720
|
|
|
$
|
0.7577
|
|
|
$
|
0.7435
|
|
Note
2 – Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current
facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and
expenses that are not readily apparent from other sources. This applies in particular to useful lives of non-current assets, impairment
of non-current assets, allowance for doubtful accounts, and valuation allowance for deferred tax assets. The actual results experienced
by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences
between the estimates and the actual results, future results of operations will be affected.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of the Company and entities it controls including
its wholly owned subsidiaries, NHL, Novomerica, Novo Healthnet Rehab Limited, Novo Assessments Inc., an 80% controlling interest
in Novo Healthnet Kemptville Centre, Inc., a Back on Track Physiotherapy and Health Centre clinic operated by NHL, and a 70% controlling
interest in Novo Earth Therapeutics Inc. (currently inactive). All of the Company’s subsidiaries are incorporated under
the laws of the Province of Ontario or New Brunswick, Canada. All intercompany transactions have been eliminated.
An
entity is controlled when the Company has the ability to direct the relevant activities of the entity, has exposure or rights
to variable returns from its involvement with the entity, and is able to use its power over the entity to affect its returns from
the entity.
Income
or loss and each component of OCI are attributed to the shareholders of the Company and to the noncontrolling interests. Total
comprehensive income is attributed to the shareholders of the Company and to the noncontrolling interests even if this results
in the non-controlling interests having a deficit balance on consolidation.
Noncontrolling
Interest
The
Company follows FASB ASC Topic 810, Consolidation, which governs the accounting for and reporting of non-controlling interests
(“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions
of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that
increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather
than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated
to the NCI even when such allocation might result in a deficit balance.
The
net income (loss) attributed to the NCI is separately designated in the accompanying condensed consolidated statements of operations
and comprehensive loss.
Cash
Equivalents
For
the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid
debt instruments with original maturities of three months or less.
Accounts
Receivable
Accounts
receivable are recorded, net of allowance for doubtful accounts and sales returns. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends, and
changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful
accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management
has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for
doubtful accounts when identified. As of February 28, 2021, and August 31, 2020, the allowance for uncollectible accounts receivable
was $523,261 and $518,031, respectively.
Property
and Equipment
Property
and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals
and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property
and equipment is provided using the declining balance method for substantially all assets with estimated lives as follows:
Leasehold improvements
|
5 years
|
Clinical equipment
|
5 years
|
Computer equipment
|
3 years
|
Office equipment
|
5 years
|
Furniture and fixtures
|
5 years
|
Long-Lived
Assets
The
Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived
assets, including right of use assets, used in operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to
be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review
at February 28, 2021 and August 31, 2020, the Company believes there was no impairment of its long-lived assets.
Intangible
Assets
The
Company’s intangible assets consist of land use rights, a software license and intellectual property which will be amortized
over 50 (the lease period), 7 and 7 years, respectively. The intangible assets with finite useful lives are reviewed for impairment
when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than
the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds
the fair value of the long-lived assets. Based on its reviews at February 28, 2021 and August 31, 2020, the Company believes there
was no impairment of its intangible assets.
Right-of-use
Assets
The
Company’s right-of-use assets consist of leased assets recognized in accordance with ASC 842, Leases, which requires
lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets
represent the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s
obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future
minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception
are not recorded on the condensed consolidated balance sheet and are expensed on a straight-line basis over the lease term in
the condensed consolidated statement of operations. The Company determines the lease term by agreement with lessor. 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. during the fiscal year ended August 31, 2017, Executive Fitness Leaders during the fiscal year ended August 31, 2018 and
Action Plus Physiotherapy Rockland during the fiscal year ended August 31, 2019. Based on its review at August 31, 2020, the Company
believes there was no impairment of its goodwill.
The
change in the amount of goodwill during the quarter primarily resulted from the foreign currency translation adjustment.
Acquisition
Deposits
The
Company has signed letters of understanding with a potential acquisition candidate which includes refundable acquisition deposits
totaling $392,550 and $383,700 at February 28, 2021 and August 31, 2020, respectively.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, accounts receivable, other receivables,
accounts payable and due to related parties, the carrying amounts approximate their fair values due to their short term maturities.
FASB
ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments
held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying
amounts reported in the condensed consolidated balance sheets for receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of
such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy
are defined as follows:
|
●
|
Level 1 inputs to
the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
|
|
|
●
|
Level 2 inputs to
the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical
or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.
|
|
|
|
|
●
|
Level 3 inputs to
the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing
Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.
As
of February 28, 2021, and August 31, 2020, respectively, the Company did not identify any financial assets and liabilities required
to be presented on the balance sheet at fair value, except for cash and cash equivalents which are carried at fair value using
Level 1 inputs.
Revenue
Recognition
The
FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic
606”), became effective for the Company on March 1, 2018. The Company’s revenue recognition disclosure reflects its
updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective”
transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily from providing
healthcare services, and the Company has no significant post-delivery obligations, this new standard did not result in a material
recognition of revenue on the Company’s accompanying condensed consolidated financial statements for the cumulative impact
of applying this new standard. The Company made no adjustments to its previously reported total revenues, as those periods continue
to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
Revenue
from providing healthcare and healthcare related services is recognized under Topic 606 in a manner that reasonably reflects the
delivery of its services to customers in return for expected consideration and includes the following elements:
|
●
|
executed contracts
with the Company’s customers that it believes are legally enforceable;
|
|
●
|
identification of
performance obligations in the respective contract;
|
|
●
|
determination of
the transaction price for each performance obligation in the respective contract;
|
|
●
|
allocation of the
transaction price to each performance obligation; and
|
|
●
|
recognition of revenue
only when the Company satisfies each performance obligation.
|
These
five elements, as applied to the Company’s revenue category, are summarized below:
|
●
|
Healthcare and healthcare
related services - gross service revenue is recorded in the accounting records at the time the services are provided (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.
|
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the
asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under
ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting
periods presented.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation.
FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the
grant date and recognize the expense over the requisite service period. The Company recognizes in the statement of operations
the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
Basic
and Diluted Earnings Per Share
Earnings
per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”)
is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted.
Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised
at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase
common stock at the average market price during the period. There were 1,849,600 options/warrants outstanding as of February 28,
2021. Due to the net loss incurred, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share
is the same as basic loss for all periods presented.
Foreign
Currency Transactions and Comprehensive Income
U.S.
GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however,
require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as
a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive
income. The functional currency of the Company’s Canadian subsidiaries is the CAD. Translation gains of $1,252,524 and $1,199,696
at February 28, 2021 and August 31, 2020, respectively, are classified as an item of other comprehensive income in the stockholders’
equity section of the balance sheet.
Statement
of Cash Flows
Cash
flows from the Company’s operations are calculated based upon the local currencies using the average translation rates.
As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with
changes in the corresponding balances on the consolidated balance sheets.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments
that are not measured at fair value through net earnings. The new standard is effective for annual periods beginning after December
15, 2019, including interim periods within those annual periods. The new standard will be effective for our fiscal year beginning
September 1, 2020 and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact
it may have on its consolidated financial statements and related disclosures.
In
December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income
Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general
principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for
fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on
a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating
the effect of this ASU on the Company’s condensed consolidated financial statements and related disclosures.
Management
does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying
financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note
3 – Related Party Transactions
Due
to related parties
Amounts
loaned to the Company by stockholders and officers of the Company are payable upon demand and unsecured. At February 28, 2021
and August 31, 2020, the amount due to related parties was $456,269 and $528,213, respectively. At February 28, 2021, $385,000
are non-interest bearing, $22,593 bears interest at 6% per annum, and $48,676 bears interest at 13.75% per annum.
The
Company leased office space from a related party on a month-to-month basis with monthly lease payments of $1,487. The lease was
terminated on May 31, 2020.
On
July 21, 2020, a related party converted $226,363 of outstanding principal and accrued interest into 15,091 shares of the Company’s
common stock. The per share price used for the conversion of this debt was $15.00.
On
July 21, 2020, the Company made a partial repayment of a debenture due to a related party of $267,768. The remaining principal
balance of debentures to related parties at February 28, 2021 and August 31, 2020 was $974,017 and $952,058, respectively.
Note
4 – Accounts Receivables, net
Accounts
receivables, net at February 28, 2021 and August 31, 2020 consisted of the following:
|
|
February 28,
|
|
|
August 31,
|
|
|
|
2021
|
|
|
2020
|
|
Trade receivables
|
|
$
|
1,756,290
|
|
|
$
|
1,948,520
|
|
Amounts earned but not billed
|
|
|
179,712
|
|
|
|
301,943
|
|
|
|
|
1,936,002
|
|
|
|
2,250,463
|
|
Allowance for doubtful accounts
|
|
|
(523,261
|
)
|
|
|
(518,031
|
)
|
Accounts receivable, net
|
|
$
|
1,412,741
|
|
|
$
|
1,732,432
|
|
Note
5 – Other Receivables
Other
receivables at February 28, 2021 and August 31, 2020 consisted of the following:
|
|
February 28,
|
|
|
August 31,
|
|
|
|
2021
|
|
|
2020
|
|
Notes receivable dated April 1, 2015 and amended on May 23, 2017; accrued interest at 8% per annum; secured by certain assets; due March 1, 2019. (currently in default; if the receivable is not repaid, the Company plans to foreclose on the clinic that secures this receivable)
|
|
$
|
294,413
|
|
|
$
|
287,775
|
|
|
|
|
|
|
|
|
|
|
Advance to corporation; accrues interest at 12% per annum; unsecured; due December 31, 2021, as amended
|
|
|
78,510
|
|
|
|
76,740
|
|
|
|
|
|
|
|
|
|
|
Advance to corporation; accrues interest at 10% per annum after the first 60 days; unsecured; due March 1, 2022.
|
|
|
225,924
|
|
|
|
225,924
|
|
Total other receivables
|
|
|
598,847
|
|
|
|
590,439
|
|
Current portion
|
|
|
(78,510
|
)
|
|
|
(302,664
|
)
|
Long-term portion
|
|
$
|
520,337
|
|
|
$
|
287,775
|
|
Note
6 – Property and Equipment
Property
and equipment at February 28, 2021 and August 31, 2020 consisted of the following:
|
|
February 28,
|
|
|
August 31,
|
|
|
|
2021
|
|
|
2020
|
|
Leasehold improvements
|
|
$
|
476,600
|
|
|
$
|
465,857
|
|
Clinical equipment
|
|
|
308,916
|
|
|
|
301,337
|
|
Computer equipment
|
|
|
24,473
|
|
|
|
23,921
|
|
Office equipment
|
|
|
29,903
|
|
|
|
29,229
|
|
Furniture and fixtures
|
|
|
40,677
|
|
|
|
39,760
|
|
|
|
|
880,569
|
|
|
|
860,104
|
|
Accumulated depreciation
|
|
|
(562,808
|
)
|
|
|
(506,444
|
)
|
Total
|
|
$
|
317,761
|
|
|
$
|
353,660
|
|
Depreciation
expense for the six months ended February 28, 2021 and 2020 was $43,938 and $40,968, respectively.
Note
7 – Intangible Assets
Intangible
assets at February 28, 2021 and August 31, 2020 consisted of the following:
|
|
February 28,
|
|
|
August 31,
|
|
|
|
2021
|
|
|
2020
|
|
Land use rights
|
|
$
|
21,600,000
|
|
|
$
|
21,600,000
|
|
Software license
|
|
|
1,144,798
|
|
|
|
1,144,798
|
|
Intellectual property
|
|
|
6,124,000
|
|
|
|
5,248,000
|
|
|
|
|
28,868,798
|
|
|
|
27,992,798
|
|
Accumulated amortization
|
|
|
(2,062,835
|
)
|
|
|
(1,369,350
|
)
|
Total
|
|
$
|
26,805,963
|
|
|
$
|
26,623,448
|
|
Expected
amortization expense of intangible assets over the next 5 years and thereafter is as follows:
Twelve Months Ending February 28,
|
|
|
|
2022
|
|
$
|
1,470,400
|
|
2023
|
|
|
1,470,400
|
|
2024
|
|
|
1,470,400
|
|
2025
|
|
|
1,470,400
|
|
2026
|
|
|
1,470,400
|
|
Thereafter
|
|
|
19,453,963
|
|
Total
|
|
$
|
26,805,963
|
|
On
January 8, 2019, the Company and 2478659 Ontario Ltd., an Ontario Canada corporation with offices in Ontario Canada (“247”),
entered into an Agreement of Transfer and Assignment (“JV Assignment”), pursuant to which the Company assumed all rights
and obligations provided for in a Joint Venture Agreement, executed January 7, 2019, between 247 and Kainai Cooperative, a cooperative
organized under the laws of Alberta, Canada with offices in Cardston, Alberta, Canada (“KA”). The JV Agreement provides for
farming and greenhouse agricultural development, to include supporting infrastructure, of both hemp and medical cannabis crops on approximately
275,000 acres of Canadian prairie lands for a minimum of 50 years. Under the terms of the JV Assignment, 247 was issued 12,000,000 restricted
shares of the Company’s common stock having a value of $21,600,000, as of February 26, 2019. The shares were issued on January
30, 2019.
On
December 17, 2019, the Company entered into that certain Intellectual Property Asset Purchase Agreement (the “APA”) by and
between the Company and 2731861 Ontario Corp. (the “Seller”), pursuant to which the Company agreed to purchase, and Seller
agreed to sell (the “Acquisition”), proprietary designs for an innovative cannabis dosing device, in addition to designs,
plans, procedures, and all other material pertaining to the application, construction, operation, and marketing of a cannabis business
under the regulations of Health Canada (the “Intellectual Property”). Pursuant to the terms of the APA, the purchase price
of the Intellectual Property is 8,000,000 shares of restricted common stock of the Company valued at $5,248,000.
On
February 26, 2019, the Company and NHL entered into a Software License Agreement (the “Cloud DX License”) with Cloud DX Inc.
(“Cloud DX”), pursuant to which Cloud DX agreed to sell, and NHL agreed to purchase, a fully paid up, perpetual license,
with 5-year conditional exclusivity, for the Cloud DX Bundled Pulsewave PAD-1A USB Blood Pressure Device, up-to-date product releases
and Licensed Software Products (the “Licensed Software”). Pursuant to the terms of the Cloud DX License, Cloud DX also agreed
to sell, and NHL agreed to purchase, 4,000 fully functional Pulsewave PAD 1A USB blood pressure monitor devices bundled with the perpetual
license discussed above (the “Bundled Devices”).
The
Cloud DX License granted to NHL and its majority-owned subsidiaries, holding companies, divisions and affiliates, other than physiotherapy
clinics owned and operated by Closing The Gap Healthcare Inc., the right to use and sub-license the Licensed Software and re-sell the
Bundled Devices pursuant to the terms of the Cloud DX License in the physical therapy clinic marketplace in North America in exchange
for the purchase price as set forth below:
|
●
|
Upon
the closing, the Company issued 458,349 restricted shares of its common stock having a value (as calculated as set forth in the Cloud
DX License) of CAD$1,000,000 (approximately $758,567 as of February 26, 2019), and
|
|
|
|
|
●
|
Cloud
DX agreed to invoice CAD$250,000 (approximately $189,642 as of February 26, 2019) to NHL based on the following deliverables, and
paid on the following schedule:
|
|
Cloud
DX deliverable
|
|
Novo
payment (terms: Net 15)
|
|
Heart
Friendly Program launches in Clinic #1
|
|
CAD$50,000
(approximately $37,929 as of February 26, 2019)
|
|
Novo-branded
Android app delivered as APK file
|
|
CAD$35,000
(approximately $26,550 as of February 26, 2019)
|
|
Novo-branded
Clinical portal website delivered
|
|
CAD$35,000
(approximately $26,550 as of February 26, 2019)
|
|
Pulsewave
PAD-1A devices – 1st delivery
|
|
CAD$20,000
(approximately $15,171 as of February 26, 2019)
|
|
Marketing
services / materials delivered
|
|
CAD$25,000
(approximately $18,964 as of February 26, 2019)
|
|
Cloud
DX hires dedicated Novo support FTE
|
|
CAD$85,000
(approximately $64,478 as of February 26, 2019)
|
On
March 9, 2020, the Company and NHL entered into that certain First Amendment to Cloud DX Perpetual Software License Agreement (the “Cloud
DX Amendment”) with Cloud DX, effective March 6, 2020, pursuant to which the parties thereto agreed that the CAD$250,000 (approximately
$186,231 as of March 6, 2020) that was to be paid by NHL based on the above deliverables would be paid as a one-time payment of 465,578
restricted shares of Company common stock. In addition, pursuant to the terms of the Cloud DX Amendment, the parties agreed to settle
a $200,000 fee owed by NHL to Cloud DX through payment of 500,000 restricted shares of Company common stock.
Except
as set forth in the Cloud DX Amendment, the remaining terms and conditions of the Cloud DX License remain in full force and effect.
On
December 11, 2020, the Company and 2794512 Ontario Ltd., an Ontario Canada corporation, entered into an Asset Purchase Agreement
pursuant to which the Company acquired generic primary and sub-primary drug formulations (known as bioequivalence) of name brand
pharmaceutical reference products related to usage as injectables, ophthalmic, and topical applications. In consideration,
the Company issued 240,000 shares of common stock that were valued at $876,000.
Note
8 – Accrued Expenses
Accrued
expenses at February 28, 2021 and August 31, 2020 consisted of the following:
|
|
February 28,
|
|
|
August 31,
|
|
|
|
2021
|
|
|
2020
|
|
Accrued liabilities
|
|
$
|
39,607
|
|
|
$
|
37,457
|
|
Accrued payroll
|
|
|
276,328
|
|
|
|
117,823
|
|
Other
|
|
|
39,713
|
|
|
|
39,428
|
|
|
|
$
|
355,648
|
|
|
$
|
194,708
|
|
Note
9 – Government Loans and Note Payable
Notes
payable at February 28, 2021 and August 31, 2020 consisted of the following:
|
|
February 28,
|
|
|
August 31,
|
|
|
|
2021
|
|
|
2020
|
|
Note payable issued under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The loan has terms of 24 months and accrues interest at 1% per annum. The Company expects some or all of this loan to be forgiven as provided by in the CARES Act.
|
|
$
|
21,900
|
|
|
$
|
21,900
|
|
|
|
|
|
|
|
|
|
|
Government loans issued under the Government of Canada’s Canada Emergency Business Account (“CEBA”) program (A).
|
|
|
62,808
|
|
|
|
61,392
|
|
|
|
$
|
84,708
|
|
|
$
|
83,292
|
|
|
(A)
|
The
Government of Canada launched the Canada Emergency Business Account loan to ensure that small businesses have access to the capital
that they need during the current challenges faced due to the COVID-19 virus. The Company obtained CAD$80,000 loan (US$62,808 at
February 28, 2021), which is unsecured, non-interest bearing and due on or before December 31, 2022. If the loan amount is paid on
or before December 31, 2022, 25% of the loan will be forgiven (“Early Payment Credit”). In the event that the Company
does not repay 75% of such term debt on or before December 31, 2022, the Early Payment Credit will not apply.
|
Government
Subsidy
In
2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) for Canadian employers whose businesses
were affected by the COVID-19 pandemic. The CEWS provides a subsidy of up to 75% of eligible employees’ employment insurable remuneration,
subject to certain criteria. Accordingly, the Company applied for the CEWS to the extent it met the requirements to receive the subsidy
and during the six months ended February 28, 2021, recorded a total of approximately $101,800 in government subsidies as a reduction
to the associated wage costs recorded in cost of revenues and general and administrative expenses in the condensed consolidated statement
of operations and comprehensive loss.
Note
10 – Debentures, Related Parties
On
September 30, 2013, the Company issued five debentures totaling CAD$6,402,512 (approximately $6,225,163 on September 30, 2013) in connection
with the acquisition of certain business assets. The holders of the debentures are current stockholders, officers and/or affiliates of
the Company. The debentures are secured by all the assets of the Company, accrue interest at 8% per annum and were originally due on
September 30, 2016. On December 2, 2017, the debenture holders agreed to extend the due date to September 30, 2019. On September 27,
2019, the debenture holders agreed to extend the due date to September 30, 2021.
On
January 31, 2018, the debenture holders converted 75% of the debenture value of $3,894,809 plus accrued interest of $414,965 into 1,047,587
shares of the Company’s common stock. The per share price used for the conversion of each debenture was $4.11 which was determined
as the average price of the five (5) trading days immediately preceding the date of conversion with a 10% premium added to the calculated
per share price.
On
July 21, 2020, the Company made a partial repayment of a debenture due to a related party of $267,768.
At
February 28, 2021 and August 31, 2020, the amount of debentures outstanding was $974,017 and $952,058, respectively.
Note
11 – Leases
The
Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification
criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments
to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company
discounts lease payments based on an estimate of its incremental borrowing rate.
The
Company leases its corporate office space and certain facilities under long-term operating leases expiring through fiscal year 2028.
Effective March 1, 2019, the Company adopted the provision of ASC 842 Leases.
The
table below presents the lease related assets and liabilities recorded on the Company’s condensed consolidated balance sheets as
of February 28, 2021 and August 31, 2020:
|
|
|
|
|
February 28,
|
|
|
August 31,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Classification on Balance Sheet
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
|
Operating lease right of use assets
|
|
|
$
|
2,563,459
|
|
|
$
|
2,810,556
|
|
Total lease assets
|
|
|
|
|
|
$
|
2,563,459
|
|
|
$
|
2,810,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability
|
|
|
Current operating lease liability
|
|
|
$
|
526,062
|
|
|
$
|
563,793
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability
|
|
|
Long-term operating lease liability
|
|
|
|
2,063,546
|
|
|
|
2,266,887
|
|
Total lease liability
|
|
|
|
|
|
$
|
2,589,608
|
|
|
$
|
2,830,680
|
|
Lease
obligations at February 28, 2021 consisted of the following:
Twelve Months Ending February 28,
|
|
|
|
2022
|
|
$
|
753,651
|
|
2023
|
|
|
643,569
|
|
2024
|
|
|
486,179
|
|
2025
|
|
|
365,417
|
|
2026
|
|
|
304,567
|
|
Thereafter
|
|
|
674,722
|
|
Total payments
|
|
|
3,228,105
|
|
Amount representing interest
|
|
|
(638,498
|
)
|
Lease obligation, net
|
|
|
2,589,608
|
|
Less lease obligation, current portion
|
|
|
(526,062
|
)
|
Lease obligation, long-term portion
|
|
$
|
2,063,546
|
|
The
lease expense for the six months ended February 28, 2021 and February 29, 2020 was $415,643 and $382,909, respectively. The cash paid
under operating leases for the six months ended February 28, 2021 and February 29, 2020 was $410,175 and $374,180, respectively. At February
28, 2021, the weighted average remaining lease terms were 5.72 years and the weighted average discount rate was 8%.
Note
12 – Stockholders’ Deficit
Convertible
preferred stock
The
Company has authorized 1,000,000 shares of $0.001 par value convertible preferred stock. At February 28, 2021 and August 31, 2020, there
were 0 and 0 convertible preferred shares issued and outstanding, respectively.
Common
stock
The
Company has authorized 499,000,000 shares of $0.001 par value common stock. On February 1, 2021, the Company effected a 1-for-10 reverse
stock split of our common stock. As a result of the reverse stock split, every 10 shares of issued and outstanding common stock were
exchanged for one share of common stock, with any fractional shares being rounded up to the next higher whole share. At February 28,
2021 and August 31, 2020 there were 23,801,598 and 23,466,236 common shares issued and outstanding, respectively.
During
the six months ended February 28, 2021, the Company issued:
|
●
|
21,905
restricted shares of common stock to a non-U.S. person for cash proceeds of $92,000;
|
|
|
|
|
●
|
15,000
restricted shares of common stock as consideration for a Statement of Work Agreement with
an independent contractor valued at $55,500. The fair value was determined based on the market
price of the Company’s common stock on the date of grant;
|
|
●
|
50,000
restricted shares of common stock as consideration for a Consulting and Services Agreement valued at $192,500. The fair value was
determined based on the market price of the Company’s common stock on the date of grant;
|
|
●
|
240,000
restricted shares of common stock as consideration for an Asset Purchase Agreement with a value of $876,000 based on the market price
of the Company’s common stock of $3.65 per share on the date of grant;
|
|
|
|
|
●
|
957
shares of common stock to round fractional shares that would have been issued pursuant to
the reverse stock split to the next highest whole share as a result of the Company’s
1-for-10 reverse stock split of our common stock, effective February 1, 2021. As a result
of the reverse stock split, every 10 shares of issued and outstanding common stock were exchanged
for one share of common stock, with any fractional shares being rounded up to the next higher
whole share; and
|
|
●
|
7,500
shares of common stock issued upon the exercise of stock options. The Company received the exercise price of $12,000 in cash.
|
The
Company was obligated to issue 100,000 shares of its common stock to an investment banker upon the successful uplist to the Nasdaq Capital
Markets. The value of these shares of $375,000 is presented as common stock to be issued in the accompanying consolidated financial statements.
The shares were issued in March 2021.
During
the six months ended February 29, 2020, the Company issued:
|
●
|
35,437
restricted shares of common stock for cash proceeds of $113,399
|
|
|
|
|
●
|
800,000
restricted shares of common stock as consideration for the Intellectual Property Asset Purchase Agreement with a value of $5,248,000
based on the closing share price of $6.56 on the execution date of the Agreement.
|
Stock
options/warrants
On
September 8, 2015, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common
stock approved the Novo Integrated Sciences, Inc. 2015 Incentive Compensation Plan (the “2015 Plan”), which authorizes the
issuance of up to 500,000 shares of common stock to employees, officers, directors or independent consultants of the Company, provided
that no person can be granted shares under the 2015 Plan for services related to raising capital or promotional activities. During fiscal
years 2020 and 2019, the Company did not grant any awards under the 2015 Plan. The Company does not intend to issue any additional grants
under the 2015 Plan.
On
January 16, 2018, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common
stock approved the Novo Integrated Sciences, Inc. 2018 Incentive Compensation Plan (the “2018 Plan”). Under the 2018 Plan,
1,000,000 shares of common stock are authorized for the grant of stock options and the issuance of restricted stock, stock appreciation
rights, phantom stock and performance awards to officers, directors, employees and eligible consultants to the Company or its subsidiaries.
As of February 28, 2021, the 2018 Plan has 864,900 shares available for award; however, the Company does not intend to issue any additional
grants under the 2018 Plan.
On
February 9, 2021, the Company’s Board of Directors and stockholders holding a majority of the Company’s outstanding common
stock approved the Novo Integrated Sciences, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). Under the 2021 Plan, a total
of 4,500,000 shares of common stock are authorized for issuance pursuant to the grant of stock options, stock appreciation rights, restricted
stock, restricted stock units, performance units, performance shares or other cash- or stock-based awards to officers, directors, employees
and eligible consultants to the Company or its subsidiaries. Subject to adjustment as provided in the 2021 Plan, the maximum aggregate
number of shares that may be issued under the 2021 Plan will be cumulatively increased on January 1, 2022 and on each subsequent January
1 through and including January 1, 2023, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock
issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by our Board of Directors. As of February
28, 2021, the 2021 Plan has 4,500,000 shares are available for award.
The
following is a summary of stock option/warrant activity:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Options/
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Warrants
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
Outstanding, August 31, 2020
|
|
|
1,784,500
|
|
|
|
2.20
|
|
|
|
4.09
|
|
|
$
|
3,173,800
|
|
Granted
|
|
|
72,600
|
|
|
|
3.80
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7,500
|
)
|
|
|
1.60
|
|
|
|
|
|
|
|
|
|
Outstanding, February 28, 2021
|
|
|
1,849,600
|
|
|
|
2.29
|
|
|
|
3.64
|
|
|
$
|
5,398,336
|
|
Exercisable, February 28, 2021
|
|
|
1,783,050
|
|
|
$
|
2.24
|
|
|
|
3.60
|
|
|
$
|
5,304,501
|
|
The
exercise price for options/warrants outstanding at February 28, 2021:
Outstanding
|
|
|
Exercisable
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
Options/
|
|
|
Exercise
|
|
|
Options/
|
|
|
Exercise
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
997,000
|
|
|
$
|
1.60
|
|
|
|
997,000
|
|
|
$
|
1.60
|
|
|
775,000
|
|
|
|
3.00
|
|
|
|
775,000
|
|
|
|
3.00
|
|
|
72,600
|
|
|
|
3.80
|
|
|
|
6,050
|
|
|
|
3.80
|
|
|
5,000
|
|
|
|
5.00
|
|
|
|
5,000
|
|
|
|
5.00
|
|
|
1,849,600
|
|
|
|
|
|
|
|
1,783,050
|
|
|
|
|
|
For
options granted during the six months ended February 28, 2021 where the exercise price equalled the stock price at the date of the grant,
the weighted-average fair value of such options was $3.76, and the weighted-average exercise price of such options was $3.80. No options
were granted during the six months ended February 28, 2021 where the exercise price was less than the stock price at the date of grant
or the exercise price was greater than the stock price at the date of grant.
The
fair value of the stock options is being amortized to stock option expense over the vesting period. The Company recorded stock option
expense of $22,215 and $0 during the six months ended February 28, 2021 and February 29, 2020, respectively. At February 28, 2021, the
unamortized stock option expense was $244,350, which will be amortized into expense through January 2022.
The
assumptions used in calculating the fair value of options granted using the Black-Scholes option-pricing model for options granted are
as follows for the options granted during the six months ended February 28, 2021:
Risk-free interest rate
|
|
|
0.42
|
%
|
Expected life of the options
|
|
|
2.5 years
|
|
Expected volatility
|
|
|
268
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Note
13 – Commitments and Contingencies
Litigation
The
Company is party to certain legal proceedings from time to time incidental to the conduct of its business. These proceedings could result
in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that the Company
cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on
our condensed consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs.
However, based on information available to the Company’s management to date, the Company’s management does not expect that
the outcome of any matter pending against the Company is likely to have a materially adverse effect on the Company’s condensed
consolidated financial position as of February 28, 2021, results of operations, cash flows or liquidity of the Company.
Note
14 – Subsequent Events
Withdrawal
of Regulation A+ Offering
On
June 29, 2020, the Company commenced a public offering pursuant to Regulation A of up to 2,000,000 shares of its common stock, with an
aggregate amount of $30,000,000, under a qualified Offering Statement (File No. 024-11186), on a self-underwritten “best efforts”
basis. On February 25, 2021, the Company applied to the SEC for withdrawal of the Offering Statement as the Company had determined to
terminate the offering. On March 1, 2020, the SEC issued an order granting the withdrawal of the Offering Statement. No securities had
been sold pursuant to the Offering Statement.
On
March 1, 2021, the Company issued 100,000 restricted shares of common stock under the terms and conditions of a certain Letter of Engagement,
dated July 31, 2020, as a result of the Company’s successful uplist to the Nasdaq Capital Markets.
On
March 18, 2021, the Company issued 9,913 shares of common stock under the Novo Integrated Sciences, Inc. 2021 Equity Incentive Plan and
registered pursuant to the Company’s registration statement on Form S-8 (File No. 333-253289), for payment of legal services.
On
March 22, 2021, the SEC declared effective the Company’s registration statement on Form S-3 (File No. 333- 254278) (the “Form
S-3”). The Form S-3 is a shelf registration statement relating to (i) the offer from time to time of securities having a maximum
aggregate offering price of $75,000,000, and (ii) the resale by certain selling stockholders of up to an aggregate of 597,352 shares
of the Company’s common stock.
On
April 13, 2021, the Company completed the closing pursuant to a securities purchase agreement with certain accredited institutional
investors to purchase approximately $8.0 million of its common stock in a registered direct offering under the Form S-3 and warrants
to purchase common stock in a concurrent private placement. The combined purchase price for one share of common stock and one
warrant is $3.35.