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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended November 30, 2023

 

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

 

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

 

Commission File Number: 001-40089

 

Novo Integrated Sciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   59-3691650

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

11120 NE 2nd Street, Suite 100

Bellevue, Washington

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

 

(206) 617-9797

(Registrant’s Telephone Number, Including Area Code)

 

N/A

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

There were 17,748,320 shares of the Registrant’s $0.001 par value common stock outstanding as of January 22, 2024.

 

 

 

 
 

 

Novo Integrated Sciences, Inc.

 

Contents

 

PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 51
     
Item 4. Controls and Procedures 51
     
PART II – OTHER INFORMATION 52
     
Item 1. Legal Proceedings 52
     
Item 1A. Risk Factors 52
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 52
     
Item 3. Defaults Upon Senior Securities 52
     
Item 4. Mine Safety Disclosures 52
     
Item 5. Other Information 52
     
Item 6. Exhibits 53
     
Signatures 54

 

2
 

 

Item 1. Financial Statements.

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of November 30, 2023 (unaudited) and August 31, 2023

 

   November 30,   August 31, 
   2023   2023 
ASSETS          
Current Assets:          
Cash and cash equivalents  $1,640,007   $416,323 
Accounts receivable, net   2,636,174    1,467,028 
Inventory, net   1,270,835    1,106,983 
Other receivables   1,047,742    1,051,584 
Prepaid expenses and other current assets   213,812    346,171 
Total current assets   6,808,570    4,388,089 
           
Property and equipment, net   5,306,613    5,390,038 
Intangible assets, net   15,704,218    16,218,539 
Right-of-use assets, net   1,870,204    1,983,898 
Goodwill   7,554,779    7,582,483 
TOTAL ASSETS  $37,244,384   $35,563,047 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities:          
Accounts payable  $3,403,634   $3,513,842 
Accrued expenses   1,300,549    1,233,549 
Accrued interest (including amounts to related parties)   480,719    382,666 
Government loans and notes payable, current portion   93,488    277,405 
Convertible notes payable, net of discount of $3,118,819   1,103,959    558,668 
Derivative liability   2,686,260    - 
Contingent liability   52,749    61,767 
Debentures, related parties   913,474    916,824 
Due to related parties   458,266    533,001 
Finance lease liability   8,907    11,744 
Operating lease liability, current portion   413,506    415,392 
Total current liabilities   10,915,511    7,904,858 
           
Government loans and notes payable, net of current portion   63,777    65,038 
Operating lease liability, net of current portion   1,585,667    1,693,577 
Deferred tax liability   1,395,381    1,400,499 
TOTAL LIABILITIES   13,960,336    11,063,972 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS’ EQUITY          
Novo Integrated Sciences, Inc.          
Convertible preferred stock; $0.001 par value; 1,000,000 shares authorized; 0 and 0 shares issued and outstanding at November 30, 2023 and August 31, 2023, respectively   -    - 
Common stock; $0.001 par value; 499,000,000 shares authorized; 17,291,192 and 15,759,325 shares issued and outstanding at November 30, 2023 and August 31, 2023, respectively   17,292    15,760 
Additional paid-in capital   95,481,354    90,973,316 
Common stock to be issued (17,375 and 91,138 shares at November 30, 2023 and August 31, 2023)   44,443    1,217,293 
Other comprehensive loss   (246,488)   (357,383)
Accumulated deficit   (71,713,384)   (67,033,041)
Total Novo Integrated Sciences, Inc. stockholders’ equity   23,583,217    24,815,945 
Noncontrolling interest   (299,169)   (316,870)
Total stockholders’ equity   23,284,048    24,499,075 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $37,244,384   $35,563,047 

 

* The condensed consolidated balance sheets’ common stock amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.

 

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

 

3
 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three Months Ended November 30, 2023 and 2022 (unaudited)

 

   2023   2022 
   Three Months Ended 
   November 30,   November 30, 
   2023   2022 
         
Revenues  $3,891,218   $3,419,280 
           
Cost of revenues   1,947,200    1,679,747 
           
Gross profit   1,944,018    1,739,533 
           
Operating expenses:          
Selling expenses   9,586    7,332 
General and administrative expenses   5,252,069    3,974,161 
Total operating expenses   5,261,655    3,981,493 
           
Loss from operations   (3,317,637)   (2,241,960)
           
Non-operating income (expense)          
Interest income   2,219    2,281 
Interest expense   (143,374)   (167,243)
Other expense   (652,174)   - 
Change in fair value of derivative liability   585,529    - 
Amortization of debt discount   (1,075,928)   (1,490,513)
Foreign currency transaction losses   (59,358)   (39,301)
Total non-operating expense   (1,343,086)   (1,694,776)
           
Loss before income taxes   (4,660,723)   (3,936,736)
           
Income tax expense   -    - 
           
Net loss  $(4,660,723)  $(3,936,736)
           
Net income (loss) attributed to noncontrolling interest   19,620    (1,323)
           
Net loss attributed to Novo Integrated Sciences, Inc.  $(4,680,343)  $(3,935,413)
           
Comprehensive loss:          
Net loss   (4,660,723)   (3,936,736)
Foreign currency translation gain (loss)   108,976    (420,982)
Comprehensive loss:  $(4,551,747)  $(4,357,718)
           
Weighted average common shares outstanding - basic and diluted   16,726,308    3,385,508 
           
Net loss per common share - basic and diluted  $(0.28)  $(1.16)

 

* The condensed consolidated statements of operations and comprehensive loss’s share and per share amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.

 

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

 

4
 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended November 30, 2023 and 2022 (unaudited)

 

                                     
   Common Stock  

Additional

Paid-in

  

Common

Stock To

  

Other

Comprehensive

   Accumulated  

Total Novo

Stockholders’

   Noncontrolling   Total 
   Shares   Amount   Capital   Be Issued  

(Loss) Income

   Deficit   Equity   Interest   Equity 
                                     
Balance, August 31, 2023   15,759,325   $15,760   $90,973,316   $1,217,293   $(357,383)  $(67,033,041)  $     24,815,945   $(316,870)  $24,499,075 
Cashless exercise of warrants   245,802    246    1,323,152    -    -    -    1,323,398    -    1,323,398 
Exercise of warrants for cash   240,400    240    240,160    -    -    -    240,400    -    240,400 
Share issuance for convertible debt settlement   519,845    520    577,002    -    -    -    577,522    -    577,522 
Issuance of common stock to be issued   73,767    74    1,172,776    (1,172,850)   -    -    -    -    - 
Common stock issued for services   424,080    424    1,194,976    -    -    -    1,195,400    -    1,195,400 
Rounding due to stock split   27,973    28    (28)   -    -    -    -    -    - 
Foreign currency translation gain   -    -    -    -    110,895    -    110,895    (1,919)   108,976 
Net (loss) income   -    -    -    -    -    (4,680,343)   (4,680,343)   19,620    (4,660,723)
Balance, November 30, 2023   17,291,192   $17,292   $95,481,354   $44,443   $(246,488)  $(71,713,384)  $23,583,217   $(299,169)  $23,284,048 
                                              
Balance, August 31, 2022   3,118,063   $3,118   $66,084,887   $9,474,807   $560,836   $(53,818,489)  $22,305,159   $(257,588)  $22,047,571 
                                              
Units issued for cash, net of offering costs   400,000    400    1,794,600    -    -    -    1,795,000    -    1,795,000 
Issuance of common stock to be issued   3,623    4    92,362    (92,366)   -    -    -    -    - 
Cashless exercise of warrants   467,399    467    1,138,583    -    -    -    1,139,050    -    1,139,050 
Fair value of stock options   -    -    60,887    -    -    -    60,887    -    60,887 
Foreign currency translation loss   -    -    -    -    (417,008)   -    (417,008)   (3,974)   (420,982)
Net loss   -    -    -    -    -    (3,935,413)   (3,935,413)   (1,323)   (3,936,736)
Balance, November 30, 2022   3,989,085   $3,989   $69,171,319   $9,382,441   $143,828   $(57,753,902)  $20,947,675   $(262,885)  $20,684,790 

 

* The condensed consolidated statements of stockholders’ equity share amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.

 

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

 

5
 

 

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended November 30, 2023 and 2022 (unaudited)

 

   2023   2022 
   Three Months Ended 
   November 30,   November 30, 
   2023   2022 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(4,660,723)  $(3,936,736)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   572,404    586,166 
Fair value of vested stock options   -    60,887 
Financing costs for debt extension   1,323,398    1,139,050 
Common stock issued for services   1,195,400    - 
Operating lease expense   149,877    209,846 
Amortization of debt discount   1,075,928    1,490,513 
Foreign currency transaction losses   59,358    39,301 
Change in fair value of derivative liability   (585,529)   - 
Changes in operating assets and liabilities:          
Accounts receivable   (1,168,350)   28,174 
Inventory   (166,476)   (157,118)
Prepaid expenses and other current assets   130,584    1,471 
Accounts payable   (98,996)   321,961 
Accrued expenses   71,214    149,945 
Accrued interest   99,430    (9,232)
Operating lease liability   (149,877)   (202,465)
Net cash used in operating activities   (2,152,358)   (278,237)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayments to related parties   (72,402)   (48,480)
Repayments of notes payable   (183,100)   - 
Repayments of finance leases   (2,779)   (2,763)
Proceeds from issuance of convertible notes   3,314,153    - 
Repayment of convertible notes   -    (2,777,778)
Proceeds from the sale of units, net of offering costs   -    1,795,000 
Proceeds from exercise of warrants   240,400    - 
Net cash provided by (used in) financing activities   3,296,272    (1,034,021)
           
Effect of exchange rate changes on cash and cash equivalents   79,770    12,271 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   1,223,684    (1,299,987)
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   416,323    2,178,687 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $1,640,007   $878,700 
           
CASH PAID FOR:          
Interest  $45,321   $186,911 
Income taxes  $-   $- 
           
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Debt discount recognized on derivative liability  $3,071,653   $1,390,380 
Common stock issued for convertible debt settlement  $577,522   $- 
Debt discount recognized on convertible note  $3,735,414   $- 

 

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

 

6
 

 

NOVO INTEGRATED SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended November 30, 2023 and 2022 (unaudited)

 

Note 1 - Organization and Basis of Presentation

 

Organization and Line of Business

 

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

 

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

 

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

 

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

 

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

 

On April 25, 2017 (the “Effective Date”), we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) by and between (i) Novo Integrated; (ii) Novo Healthnet Limited (“NHL”), (iii) ALMC-ASAP Holdings Inc. (“ALMC”); (iv) Michael Gaynor Family Trust (the “MGFT”); (v) 1218814 Ontario Inc. (“1218814”); and (vi) Michael Gaynor Physiotherapy Professional Corp. (“MGPP,” and together with ALMC, MGFT and 1218814, the “NHL Shareholders”). Pursuant to the terms of the Share Exchange Agreement, Novo Integrated agreed to acquire, from the NHL Shareholders, all of the shares of both common and preferred stock of NHL held by the NHL Shareholders in exchange for the issuance, by Novo Integrated to the NHL Shareholders, of shares of Novo Integrated common stock such that following the closing of the Share Exchange Agreement, the NHL Shareholders would own 1,677,974 restricted shares of Novo Integrated common stock, representing 85% of the issued and outstanding Novo Integrated common stock, calculated including all granted and issued options or warrants to acquire Novo Integrated common stock as of the Effective Date, but to exclude shares of Novo Integrated common stock that were subject to a then-current Regulation S offering that was undertaken by Novo Integrated (the “Exchange”).

 

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On May 9, 2017, the Exchange closed and, as a result, NHL became a wholly owned subsidiary of Novo Integrated. The Exchange was accounted for as a reverse acquisition under the purchase method of accounting since NHL obtained control of Novo Integrated Sciences, Inc. Accordingly, the Exchange was recorded as a recapitalization of NHL, and not as a business combination, with NHL being treated as the continuing entity. The historical financial statements presented are the financial statements of NHL. At the closing date of the Exchange, the net assets of the legal acquirer, Novo Integrated Sciences, Inc., were $6,904.

 

Reverse Stock Split

 

On November 7, 2023, the Company effected a 1-for-10 reverse stock split of its common stock. As a result of the reverse stock split, every 10 shares of issued and outstanding common stock were exchanged for one share of common stock, with any fractional shares being rounded up to the next higher whole share. Unless otherwise noted, the share and per share information in this report have been retroactively adjusted to give effect to the 1-for-10 reverse stock split.

 

Basis of Presentation

 

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

 

The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended August 31, 2023, that the Company filed on December 14, 2023. The results of operations for the three months ended November 30, 2023 are not necessarily indicative of the results for the fiscal year ending August 31, 2024.

 

The Company’s Canadian subsidiaries’ functional currency is the Canadian Dollar (“CAD”) and the parent company’s functional currency is the United States Dollar (“$” or “USD”); however, the accompanying unaudited condensed consolidated financial statements were translated and presented in USD.

 

Going Concern

 

The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued. The Company has incurred recurring losses from operations, has negative cash flows from operating activities, and has an accumulated deficit as of November 30, 2023. The Company believes that its cash and other available resources may not be sufficient to meet its operating needs and the payment of obligations related to various business acquisitions as they come due within one year after the date the unaudited condensed consolidated financial statements are issued.

 

In an effort to alleviate these conditions, the Company has considered equity and/or debt financing and/or asset monetization. There can be no assurance that funding would be available, or that the terms of such funding would be on favorable terms if available. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. These conditions, along with the matters noted above, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements are issued.

 

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While management has developed and is in process to implement plans that management believes could alleviate in the future the substantial doubt that was raised, management concluded at the date of the issuance of the unaudited condensed consolidated financial statements that substantial doubt exists as those plans are not completely within the control of management. These unaudited condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated balance sheets classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.

 

Foreign Currency Translation

 

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

 

   November 30, 2023   November 30, 2022   August 31, 2023 
             
Period end: CAD to USD exchange rate  $0.7363   $0.7403   $0.7390 
Average period: CAD to USD exchange rate  $0.7324   $0.7414   $0.7426 

 

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. This applies in particular to the going concern assessment, useful lives of non-current assets, impairment of non-current assets, allowance for doubtful receivables, allowance for slow moving and obsolete inventory, valuation of share-based compensation and warrants, valuation of derivative liability, and valuation allowance for deferred tax assets. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and entities it controls, including its wholly owned subsidiaries, NHL, Acenzia Inc. (“Acenzia”), Novomerica Health Group, Inc. (“NHG”), Novo Healthnet Rehab Limited, Novo Assessments Inc., PRO-DIP, LLC (“PRO-DIP”), a 91% controlling interest in Terragenx Inc. (“Terragenx”), a 50.1% controlling interest in 12858461 Canada Corp (“1285 Canada”), an 80% controlling interest in Novo Healthnet Kemptville Centre, Inc., a Back on Track Physiotherapy and Health Centre clinic operated by NHL, Clinical Consultants International, LLC and a 70% controlling interest in Novo Earth Therapeutics Inc. (currently inactive).

 

All intercompany transactions have been eliminated.

 

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An entity is controlled when the Company has the ability to direct the relevant activities of the entity, has exposure or rights to variable returns from its involvement with the entity, and is able to use its power over the entity to affect its returns from the entity.

 

Income or loss and each component of OCI are attributed to the shareholders of the Company and to the noncontrolling interests. Total comprehensive income is attributed to the shareholders of the Company and to the noncontrolling interests even if this results in the non-controlling interests having a deficit balance on consolidation.

 

Noncontrolling Interest

 

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

 

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

 

Cash Equivalents

 

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

 

Accounts Receivable

 

Accounts receivable 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 November 30, 2023 and August 31, 2023, the allowance for uncollectible accounts receivable was $855,116 and $864,215, respectively.

 

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. As of November 30, 2023 and August 31, 2023, the Company’s allowance for slow moving or obsolete inventory was $nil and $nil, respectively.

 

Other Receivables

 

Other receivables are recorded at cost and presented as current or long-term based on the terms of the agreements. Management reviews the collectability of other receivables and writes off the portion that is deemed to be uncollectible. During the three months ended November 30, 2023 and year ended August 31, 2023, the Company wrote off $nil and $nil, respectively, of other receivables that were not expected to be collected.

 

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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

 

Leases

 

The Company applies the provisions of ASC Topic 842, Leases which requires lessees to recognize lease assets and lease liabilities on the balance sheet. The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.

 

Long-Lived Assets

 

The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including right-of-use assets, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at November 30, 2023, the Company believes there was no impairment of its long-lived assets.

 

Intangible Assets

 

The Company’s intangible assets are being amortized over their estimated useful lives as follows:

 

Land use rights   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. Based on its review at November 30, 2023, 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 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.

 

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Goodwill

 

Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Under U.S. GAAP, goodwill is not amortized but is subject to annual impairment tests. The Company recorded goodwill related to its acquisition of APKA Health, Inc. (“APKA”) during the fiscal year ended August 31, 2017, Executive Fitness Leaders (“EFL”) during the fiscal year ended August 31, 2018, Action Plus Physiotherapy Rockland (“Rockland”) during the fiscal year ended August 31, 2019, Acenzia during the fiscal year ended August 31, 2021, and 1285 Canada during the fiscal year ended August 31, 2022. Based on its review at November 30, 2023, the Company believes there was no impairment of its goodwill.

 

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

 

   APKA   EFL   Rockland   Acenzia  

1285

Canada

   Total 
Balance, August 31, 2022  $190,678   $125,088   $221,188   $7,288,307   $583   $7,825,844 
Foreign currency translation adjustment   (5,928)   (3,892)   (6,878)   (226,645)   (18)   (243,361)
Balance, August 31, 2023  $184,750   $121,196   $214,310   $7,061,662   $565   $7,582,483 
Foreign currency translation adjustment   (675)   (443)   (783)   (25,801)   (2)   (27,704)
Balance, November 30, 2023  $184,075   $120,753   $213,527   $7,035,861   $563   $7,554,779 

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued expenses, current portion of finance and operating lease liability, current portion of government loans and notes payable, debentures, convertible notes payable, and due to related parties, the carrying amounts approximate their fair values due to their short-term maturities.

 

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, low risk of counterparty default and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
     
  Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
     
  Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement.

 

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

 

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For certain financial instruments, the carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, other receivables, and current liabilities, including accounts payable, accrued expenses, current portion of finance and operating lease liability, current portion of government loans and notes payable, debentures, convertible notes payable, and due to related parties, each qualify as a financial instrument, and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of notes payable approximates their fair values due to current market rate on such debt.

 

As of November 30, 2023 and August 31, 2023, respectively, the Company did not identify any financial assets and liabilities required to be presented on the condensed consolidated balance sheet at fair value, except for contingent liability which is carried at fair value using Level 1 inputs and derivative liability which is carried at fair value using Level 3 inputs.

 

Derivative Financial Instruments

 

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification.

 

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to the fair value of derivatives.

 

Revenue Recognition

 

The Company’s revenue recognition reflects the updated accounting policies as per the requirements of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). As sales are and have been primarily from providing healthcare services, the Company has no significant post-delivery obligations.

 

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.

 

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Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue is included with accrued expenses in the accompanying condensed consolidated balance sheets.

 

Sales returns and allowances were insignificant for the three months ended November 30, 2023 and 2022. The Company does not provide unconditional right of return, price protection or any other concessions to its customers.

 

Income Taxes

 

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

 

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

 

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. The calculations within these condensed consolidated financial statements have been retroactively adjusted to reflect the effects of the 1-for-10 reverse stock split that was effective on November 7, 2023. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were 659,616 and 1,860,950 options/warrants outstanding at November 30, 2023 and 2022, respectively. In addition, at November 30, 2023, there were outstanding convertible notes that could convert into 3,786,454 shares of common stock and there were 17,375 shares of common stock to be issued.

 

Due to the net loss incurred, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss per share for all periods presented.

 

Foreign Currency Transactions and Comprehensive Income

 

U.S. GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company’s Canadian subsidiaries is the CAD. Translation gain of $108,976 for the three months ended November 30, 2023 and translation loss of $922,609 for the year ended August 31, 2023, respectively, are classified as an item of other comprehensive loss in the stockholders’ equity section of the condensed consolidated balance sheet.

 

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Condensed Consolidated Statements of Cash Flows

 

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

 

Segment Reporting

 

ASC Topic 280, Segment Reporting, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has two reportable segments. See Note 16.

 

Reclassifications

 

Certain prior period amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had no effect on the net loss or shareholders’ equity.

 

Recent Accounting Pronouncements

 

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.

 

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 November 30, 2023 and August 31, 2023, the amount due to related parties was $458,266 and $533,001, respectively. At November 30, 2023, $376,701 was non-interest bearing, $nil bears interest at 6% per annum, and $81,565 bears interest at 13.75% per annum. At August 31, 2023, $451,137 was non-interest bearing, $21,267 bears interest at 6% per annum, and $60,597 bears interest at 13.75% per annum.

 

Note 4 – Accounts Receivables, Net

 

Accounts receivables, net at November 30, 2023 and August 31, 2023 consisted of the following:

   November 30,   August 31, 
   2023   2023 
Trade receivables  $3,412,783   $2,223,243 
Amounts earned but not billed   78,507    108,000 
Accounts receivables gross   3,491,290    2,331,243 
Allowance for doubtful accounts   (855,116)   (864,215)
Accounts receivable, net  $2,636,174   $1,467,028 

 

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Note 5 – Inventory

 

Inventory at November 30, 2023 and August 31, 2023 consisted of the following:

   November 30,   August 31, 
   2023   2023 
Raw materials  $516,811   $388,391 
Work in process   108,244    81,696 
Finished Goods   

645,780

    636,896 
Inventory Gross   1,270,835    1,106,983 
Allowance for slow moving and obsolete inventory   -    - 
Inventory, net  $1,270,835   $1,106,983 

 

Note 6 – Other Receivables

 

Other receivables at November 30, 2023 and August 31, 2023 consisted of the following:

 

   November 30,
2023
   August 31,
2023
 
Advance to corporation; accrues interest at 12% per annum; unsecured; due January 31, 2024, as amended.  $73,630   $73,900 
Advance to corporation; accrues interest at 12% per annum; secured by property and other assets of debtor; due February 1, 2024, as amended.   532,433    534,386 
Advance to corporation; accrues interest at 10% per annum; secured by assets of debtor; due February 1, 2024, as amended.   441,679    443,298 
Total other receivables   1,047,742    1,051,584 
Current portion   (1,047,742)   (1,051,584)
Long-term portion  $-   $- 

 

Note 7 – Property and Equipment

 

Property and equipment at November 30, 2023 and August 31, 2023 consisted of the following:

   November 30,   August 31, 
   2023   2023 
Land  $441,780   $443,400 
Building   3,313,350    3,325,500 
Leasehold improvements   838,297    841,371 
Clinical equipment   1,909,678    1,916,681 
Computer equipment   33,381    33,504 
Office equipment   44,400    44,502 
Furniture and fixtures   38,149    38,289 
Property and Equipment gross   6,619,035    6,643,247 
Accumulated depreciation   (1,312,422)   (1,253,209)
Total  $5,306,613   $5,390,038 

 

Depreciation expense for the three months ended November 30, 2023 and 2022 was $72,604 and $60,043, respectively.

 

Certain property and equipment have been used to secure notes payable (See Note 10).

 

16
 

 

Note 8 – Intangible Assets

 

Intangible assets at November 30, 2023 and August 31, 2023 consisted of the following:

 

   November 30,   August 31, 
   2023   2023 
Land use rights  $11,573,321   $11,573,321 
Intellectual property   7,487,410    7,497,746 
Customer relationships   2,287,746    2,291,058 
Brand names   1,921,375    1,928,421 
Finite lived intangible assets, gross   23,269,852    23,290,546 
Accumulated amortization   (7,565,634)   (7,072,007)
Total  $15,704,218   $16,218,539 

 

Amortization expense for the three months ended November 30, 2023 and 2022 was $499,800 and $526,123, respectively.

 

Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows:

 

Twelve Months Ending November 30,    
2024  $2,003,586 
2025   1,820,324 
2026   1,454,624 
2027   1,208,004 
2028   639,025 
Thereafter   8,578,655 
Total  $15,704,218 

 

Note 9 – Accrued Expenses

 

Accrued expenses at November 30, 2023 and August 31, 2023 consisted of the following:

   November 30,   August 31, 
   2023   2023 
Accrued liabilities  $1,049,543   $961,897 
Accrued payroll   215,936    236,218 
Unearned revenue   35,070    35,434 
Accrued expense  $1,300,549   $1,233,549 

 

Note 10 – Government Loans and Notes Payable

 

Notes payable at November 30, 2023 and August 31, 2023 consisted of the following:

 

   November 30,   August 31, 
   2023   2023 
Government loans issued under the Government of Canada’s Canada Emergency Business Account (“CEBA”) program (A).   88,356    88,680 
Note payable to the Small Business Administration. The note bears interest at 3.75% per annum, requires monthly payments of $190 after 12 months from funding and is due 30 years from the date of issuance, and is secured by certain equipment of PRO-DIP.   40,320    40,320 
Note payable dated December 3, 2018; accrues interest at 4.53% per annum; unsecured; annual payments of approximately $4,000; due December 2, 2028   28,589    28,693 
Note payable received May 25, 2023, accruing interest at 18% per 3-months term, unsecured, with principal and interest due 3-month from loan issuance. The note was repaid on October 26, 2023.   -    73,900 
Note payable received May 10, 2023, accruing interest at 15% per 4-months term, with a first priority security interest in all of Acenzia’s production equipment, with principal and interest due 4-month from loan issuance. The note was repaid on October 23, 2023.   -    110,850 
Total government loans and notes payable   157,265    342,443 
Less current portion   (93,488)   (277,405)
Long-term portion  $63,777   $65,038 

 

  (A) The Government of Canada launched CEBA 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$58,904 at November 30, 2023), which is unsecured, non-interest bearing and due on or before January 18, 2024. If the loan amount is paid on or before January 18, 2024, 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 January 18, 2024, the Early Payment Credit will not apply and the lender will automatically extend the term of the loan until December 31, 2026 and will accrue interest on the outstanding amount of the CEBA loan at a fixed rate of 5% per year. In addition, with acquisition of Terragenx, the Company acquired a CEBA loan in the amount of CAD$60,000 net of CAD$20,000 repayment (US$29,452 at November 30, 2023) under the same terms.

 

17
 

 

Future scheduled maturities of outstanding government loans and notes payable are as follows:

 

Twelve Months Ending November 30,      
2024   $ 93,488  
2025     6,470  
2026     6,469  
2027     6,469  
2028     6,469  
Thereafter     37,900  
Total   $ 157,265  

 

Note 11 – Convertible Notes Payable

 

Novo Integrated

 

On December 14, 2021, Novo Integrated issued two convertible notes payable for a total of $16,666,666 (the “$16.66m+ convertible notes”) with each note having a face amount of $8,333,333. The $16.66m+ convertible notes accrue interest at 5% per annum and are due on June 14, 2023. The $16.66m+ convertible notes are secured by all assets of the Company. The $16.66m+ convertible notes are convertible at the option of the note holders to convert into shares of the Company’s common stock at $20 per share.

 

In connection with the $16.66m+ convertible notes, the Company issued the note holders warrants to purchase a total of 583,334 shares of the Company’s common stock at a price of $20 per share. The warrants expire on December 14, 2025. The Company first determined the value of the $16.66m+ convertible notes and the fair value of the detachable warrants issued in connection with this transaction. The estimated value of the warrants of $7,680,156 was determined using the Black-Scholes option pricing model with the following assumptions:

 

  Expected life of 4.0 years;
  Volatility of 275%;
  Dividend yield of 0%; and
  Risk free interest rate of 1.23%

 

The face amount of the $16.66m+ convertible notes of $16,666,666 was proportionately allocated to the $16.66m+ convertible notes and the warrants in the amount of $11,409,200 and $5,257,466, respectively. The amount allocated to the warrants of $5,257,466 was recorded as a discount to the convertible note and as additional paid in capital. The $16.66m+ convertible notes contained an original issue discount totaling $1,666,666 and the Company also incurred $1,140,000 in loan fees in connection with the $16.66m+ convertible notes. The combined total discount is $8,064,132 and will be amortized over the life of the $16.66m+ convertible notes.

 

On November 14, 2022, the $16.66m+ convertible notes were amended to provide the holders with conversion rights consisting of a conversion price to the first $1,000,000 of principal amount of each of the notes by the lower of (i) the conversion price in effect at such time and (ii) 82.0% of the lowest VWAP during the five (5) trading days immediately prior to a conversion date. The Company determined that the conversion features of these notes represented embedded derivatives since the notes are convertible into a variable number of shares upon conversion. On the same day, the Company recorded a derivative liability of $1,390,380. The fair value of the derivative liability was calculated using the Black-Scholes pricing model with the following assumptions:

 

  Expected life of 0.58 years;
  Volatility of 148.20%;
  Dividend yield of 0%; and
  Risk free interest rate of 4.55%

 

18
 

 

The derivative was recorded as a discount on the convertible notes, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the convertible notes.

 

During the year ended August 31, 2023, an aggregate of $8,396,666 in principal and an aggregate of $32,559 in accrued interest were converted into 8,527,835 shares of common stock issued to the $16.66m+ convertible note holders. As a result of the first $1,000,000 principal conversion, the derivative liability of $1,390,380 was extinguished and recognized to additional paid-in capital. As of November 30, 2023 and August 31, 2023, the derivative liability balance was $nil and $nil, respectively.

 

During the year ended August 31, 2023, the Company amortized $4,241,429 of the debt discount and as of November 30, 2023 and August 31, 2023, the unamortized debt discount was $nil.

 

During the year ended August 31, 2023, the Company made cash payments in the aggregate amount of $3,001,442 for the monthly Amortization Payment, $2,833,888 in principal and $167,554 in interest, pursuant to the terms and conditions of the $16.66m+ convertible notes. As of November 30, 2023 and August 31, 2023, the aggregate principal amount owed to the $16.66m+ convertible note holders is $nil.

 

Terragenx

 

On November 17, 2021, Terragenx, a 91% owned subsidiary of the Company, issued two convertible notes payable for a total of $1,875,000 (the “$1.875m convertible notes”) with each note having a face amount of $937,500. The $1.875m convertible notes accrue interest at 1% per annum and were due on May 17, 2022 and extended to November 29, 2022. The $1.875m convertible notes are secured by all assets of the Company. The $1.875m convertible notes are convertible at the option of the note holders to convert into shares of the Company’s common stock at $33.50 per share.

 

In connection with the $1.875m convertible notes, the Company issued the note holders warrants to purchase a total of 22,388 shares of the Company’s common stock at a price of $33.50 per share. The warrants expire on November 17, 2024. The Company first determined the value of the $1.875m convertible notes and the fair value of the detachable warrants issued in connection with this transaction. The estimated value of the warrants of $351,240 and was determined using the Black-Scholes option pricing model with the following assumptions:

 

Expected life of 3.0 years;
Volatility of 300%;
Dividend yield of 0%; and
Risk free interest rate of 0.85%

 

The face amount of the $1.875m convertible notes of $1,875,000 was proportionately allocated to the $1.875m convertible notes and the warrants in the amount of $1,579,176 and $295,824, respectively. The amount allocated to the warrants of $295,824 was recorded as a discount to the $1.875m convertible notes and as additional paid in capital. The $1.875m convertible notes contained an original issue discount totaling $375,000 and the Company also incurred $90,000 in loan fees in connection with these $1.875m convertible notes. The combined total discount was $760,824 and amortized over the life of the $1.875m convertible notes. The debt discount was fully amortized during the year ended August 31, 2022.

 

On June 1, 2022, the Company paid the balance owed on one of two Terragenx $1.875 million convertible notes for an aggregate payment of $948,874, including all principal and interest owed. On June 1, 2022, the Company made an interest payment to one of two Terragenx $1.875 million convertible notes for a payment of $192,188 and the note holder agreed to extend the maturity date to November 29, 2022 with a principal amount face value of $937,500 and interest rate that shall accrue at a rate equal to one percent per annum.

 

19
 

 

On June 1, 2022, the Company and one of the two Terragenx $1.875 million convertible note holders (the “Jefferson Note”) entered into that certain letter agreement pursuant to which the maturity date of the Jefferson Note was extended to November 29, 2022. On December 13, 2022, the Company, Terragenx and Jefferson entered into that certain letter agreement pursuant to which, among other things, Jefferson agreed to forbear from entering an Event of Default under the terms of the Jefferson Note and the related transaction documents until December 29, 2022. The Jefferson Note was not paid on December 29, 2022. Accordingly, on December 29, 2022, among other things, the Liquidated Damages Charge, in the aggregate amount of $186,719 was an addition to the Principal Amount due under the Jefferson Note.

 

Effective February 16, 2023, aside from the Liquidated Damages Charge, the Jefferson Note was paid in full. On August 21, 2023, Jefferson converted the additional Liquidated Damages Charge and the interest thereon. On August 21, 2023, as a result of the conversion, the Company issued 236,511 shares of common stock to Jefferson.

 

Novo Integrated – Mast Hill Fund, L.P.

 

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 100,000 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 $1.75 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, 2024, 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.

 

20
 

 

The Mast Hill Warrant is exercisable for five years from February 23, 2023, at an exercise price of $2.50 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. The estimated value of the warrants of $86,327 was determined using the Black-Scholes option pricing model with the following assumptions:

 

  Expected life of 5.0 years;
  Volatility of 252%;
  Dividend yield of 0%; and
  Risk free interest rate of 4.09%

 

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 95,500 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 2,772,045 shares) as further described in the Mast Hill SPA, unless shareholder approval to exceed such limitation is obtained by the Company.

 

The principal amount of the $573,000 convertible notes was proportionately allocated to the convertible note, common stock issued, and the warrants in the amount of $403,710, $82,963, and $86,327, respectively. The amounts allocated to the equity issuances were recorded as a discount to the convertible note and as additional paid in capital. The convertible note contained an original issue discount totaling $57,300 and the Company also incurred $70,465 in loan fees in connection with the convertible note. The combined total discount is $297,055 and will be amortized over the life of the convertible note. The debt discount was fully amortized during the year ended August 31, 2023.

 

During the year ended August 31, 2023, the principal amount of $573,000, interest of $6,028 and other fees of $1,750 were converted into 522,777 common stock of the Company. As of November 30, 2023 and August 31, 2023, the aggregate principal amount owed under the Mast Hill Note is $nil.

 

On September 18, 2023, Mast Hill fully exercised all warrants granted under the terms and conditions of the $573,000 Mast Hill Warrant Agreement, dated February 23, 2023. Under certain cashless exercise provisions as well as price protection provisions providing for adjustment of the number of shares of the Company’s common stock issuable upon exercise of the Mast Hill Warrant, the Company issued 53,567 restricted shares of the Company’s common stock.

 

Novo Integrated – FirstFire Global Opportunities Fund, LLC

 

On March 21, 2023, the Company entered into a securities purchase agreement (the “SPA”) with FirstFire Global Opportunities Fund, LLC (“FirstFire”) pursuant to which the Company issued an 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 100,000 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 $1.75 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.

 

21
 

 

The 2023 FirstFire Warrant is exercisable for five years from March 21, 2023, at an exercise price of $2.50 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. The estimated value of the warrants of $93,811 was determined using the Black-Scholes option pricing model with the following assumptions:

 

  Expected life of 5.0 years;
  Volatility of 251%;
  Dividend yield of 0%; and
  Risk free interest rate of 3.73%

 

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 95,500 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 1,000,000 shares as further described in the SPA, unless shareholder approval to exceed such limitation is obtained by the Company.

 

The principal amount of the $573,000 convertible notes was proportionately allocated to the convertible note, common stock issued, and the warrants in the amount of $389,057, $90,132, and $93,811, respectively. The amounts allocated to the equity issuances were recorded as a discount to the convertible note and as additional paid in capital. The convertible note contained an original issue discount totaling $57,300 and the Company also incurred $35,628 in loan fees in connection with the convertible note.

 

The effective conversion price was determined to be $1.188 based on the allocation of the principal amount and the number of shares to be received upon conversion. As the stock price at the issuance date of $1.390 was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the beneficial conversion feature of $66,068, equal to the intrinsic value of the conversion option, as a discount to the convertible note and as additional paid in capital.

 

22
 

 

The combined total discount is $342,938 and will be amortized over the life of the convertible note. During the three months ended November 30, 2023, the Company amortized $190,209 of the debt discount and as November 30, 2023, the unamortized debt discount was $nil.

 

During the three months ended November 30, 2023, the principal amount of $573,000 and interest of $4,521 were converted into 519,845 common stock of the Company. As of November 30, 2023, the aggregate principal amount owed under the 2023 FirstFire Note is $nil.

 

On October 12, 2023, FirstFire fully exercised all warrants granted under the terms and conditions of the $573,000 FirstFire Warrant Agreement, dated March 21, 2023. Under certain cashless exercise provisions as well as price protection provisions providing for adjustment of the number of shares of the Company’s common stock issuable upon exercise of the FirstFire Warrant, the Company issued 53,532 restricted shares of the Company’s common stock.

 

Novo Integrated – Mast Hill Fund, L.P. $445,000 Note, SPA, and Warrant

 

On June 20, 2023, the Company entered into a securities purchase agreement (the “MH $445,000 SPA”) with Mast Hill, pursuant to which the Company issued an 12% unsecured promissory note (the “MH $445,000 Note”) with a maturity date of June 20, 2024 (the “MH $445,000 Maturity Date”), in the principal sum of $445,000 (the “MH $445,000 Principal Sum”). In addition, the Company issued a common stock purchase warrant for the purchase of up to 77,662 shares of the Company’s common stock (the “MH $445,000 Warrant”) to Mast Hill pursuant to the MH $445,000 SPA. Pursuant to the terms of the MH $445,000 Note, the Company agreed to pay the MH $445,000 Principal Sum to Mast Hill and to pay interest on the principal balance at the rate of 12% per annum. The MH $445,000 Note carries an OID of $44,500. Accordingly, on the Closing Date (as defined in the MH $445,000 SPA), Mast Hill paid the purchase price of $400,500 in exchange for the MH $445,000 Note and MH $445,000 Warrant. Mast Hill may convert the MH $445,000 Note into the Company’s common stock at any time at a conversion price equal to $1.75 per share, subject to adjustment as provided in the MH $445,000 Note (including but not limited to certain price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions), as well as certain beneficial ownership limitations.

 

Pursuant to the terms of the MH $445,000 Note, the Company agreed to pay accrued interest monthly as well as the MH $445,000 Principal Sum as follows: (i) $44,500 on December 20, 2023, (ii) $44,500 on January 20, 2024, (iii) $44,500 on February 20, 2024, (iv) $77,661 on March 20, 2024, (v) $77,661 on April 20, 2024, (vi) $77,661 on May 20, 2024, and (vii) all remaining amounts owed under the MH $445,000 Note on the MH $445,000 Maturity Date (each of the aforementioned payments are an “MH $445,000 Amortization Payment”). If the Company fails to make any MH $445,000 Amortization Payment, then Mast Hill shall have the right to convert the amount of such respective MH $445,000 Amortization Payment into shares of common stock as provided in the MH $445,000 Note at the lesser of (i) the then applicable conversion price under the MH $445,000 Note or (ii) 85% of the lowest VWAP of the common stock on any trading day during the five trading days prior to the respective conversion date.

 

The Company may prepay the MH $445,000 Note at any time prior to the date that an Event of Default (as defined in the Note) (each an “MH $445,000 Event of Default”) occurs at an amount equal to the MH $445,000 Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The MH $445,000 Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the MH $445,000 Note, the MH $445,000 Warrant, or the MH $445,000 SPA.

 

Upon the occurrence of any MH $445,000 Event of Default, the MH $445,000 Note shall become immediately due and payable and the Company shall pay to Mast Hill, in full satisfaction of its obligations hereunder, an amount equal to the MH $445,000 Principal Sum then outstanding plus accrued interest multiplied by 125%. Upon the occurrence of an MH $445,000 Event of Default, additional interest will accrue from the date of the MH $445,000 Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.

 

23
 

 

The MH $445,000 Warrant is exercisable for five years from June 20, 2023, at an exercise price of $2.50 per share, subject to adjustment as provided in the MH $445,000 Warrant. The MH $445,000 Warrant also contains certain cashless exercise provisions, as well as price protection provisions providing for adjustment of the number of shares of common stock issuable upon exercise of the MH $445,000 Warrant and the exercise price in case of future dilutive offerings, subject to certain customary exempt transactions. The estimated value of the warrants of $77,856 was determined using the Black-Scholes option pricing model with the following assumptions:

 

  Expected life of 5.0 years;
  Volatility of 251%;
  Dividend yield of 0%; and
  Risk free interest rate of 3.96%

 

As additional consideration for the purchase of the MH $445,000 Note and pursuant to the terms of the MH $445,000 SPA, the Company issued 74,167 restricted shares of the Company’s common stock (the “MH $445,000 Commitment Shares”) to Mast Hill at closing. The MH $445,000 SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the MH $445,000 Commitment Shares as well as the shares of common stock underlying the MH $445,000 Note and MH $445,000 Warrant. In addition to the beneficial ownership limitations provided in the MH $445,000 Note and MH $445,000 Warrant, the sum of the number of shares of common stock that may be issued under the MH $445,000 SPA (including the MH $445,000 Commitment Shares), MH $445,000 Note, and MH $445,000 Warrant shall be limited to 1,772,045 as further described in the MH $445,000 SPA, unless shareholder approval to exceed such limitation is obtained by the Company.

 

The principal amount of the $445,000 convertible notes was proportionately allocated to the convertible note, common stock issued, and the warrants in the amount of $292,351, $74,793, and $77,856, respectively. The amounts allocated to the equity issuances were recorded as a discount to the convertible note and as additional paid in capital. The convertible note contained an original issue discount totaling $44,500 and the Company also incurred $39,904 in loan fees in connection with the convertible note.

 

The effective conversion price was determined to be $1.150 based on the allocation of the principal amount and the number of shares to be received upon conversion. As the stock price at the issuance date of $1.535 was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the beneficial conversion feature of $97,978, equal to the intrinsic value of the conversion option, as a discount to the convertible note and as additional paid in capital.

 

The combined total discount is $335,031 and will be amortized over the life of the convertible note. During the three months ended November 30, 2023, the Company amortized $83,300 of the debt discount and as at November 30, 2023, the unamortized debt discount was $185,823.

 

Specific to the MH $445,000 Note, on July 20, 2023, the Company made a monthly interest payment of $4,243. On August 21, 2023, the Company made a month