Item
1. Financial Statements.
NOVO
INTEGRATED SCIENCES, INC. (formerly Turbine Truck Engines, Inc.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
As
of February 28, 2018 (unaudited) and August 31, 2017
|
|
February
28,
2018
|
|
|
August
31,
2017
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,036,602
|
|
|
$
|
1,896,572
|
|
Accounts
receivable, net
|
|
|
1,348,847
|
|
|
|
1,128,898
|
|
Other
receivables
|
|
|
402,112
|
|
|
|
372,024
|
|
Prepaid
expenses and other current assets
|
|
|
217,286
|
|
|
|
252,536
|
|
Total
current assets
|
|
|
3,004,847
|
|
|
|
3,650,030
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
314,442
|
|
|
|
302,951
|
|
Acquisition
deposits
|
|
|
1,135,824
|
|
|
|
1,162,009
|
|
Goodwill
|
|
|
616,832
|
|
|
|
399,400
|
|
TOTAL
ASSETS
|
|
$
|
5,071,945
|
|
|
$
|
5,514,390
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,743,738
|
|
|
$
|
1,703,342
|
|
Accrued
expenses
|
|
|
291,098
|
|
|
|
341,657
|
|
Accrued
interest (principally to related parties)
|
|
|
142,207
|
|
|
|
403,119
|
|
Due
to related parties
|
|
|
880,915
|
|
|
|
1,812,613
|
|
Notes
payable, current portion
|
|
|
6,205
|
|
|
|
13,171
|
|
Total
current liabilities
|
|
|
3,064,163
|
|
|
|
4,273,902
|
|
|
|
|
|
|
|
|
|
|
Debentures,
related parties
|
|
|
1,249,770
|
|
|
|
5,114,327
|
|
Notes
payable, net of current portion
|
|
|
404,710
|
|
|
|
414,351
|
|
TOTAL
LIABILITIES
|
|
|
4,718,643
|
|
|
|
9,802,580
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Novo
Integrated Sciences, Inc.
|
|
|
|
|
|
|
|
|
Convertible
Preferred stock; $0.001 par value; 1,000,000 shares authorized; 0 and 0 shares issued and outstanding at February 28, 2018
and August 31, 2017
|
|
|
|
|
|
|
|
|
Common
stock; $0.001par value; 499,000,000 shares authorized; 214,673,720 and 201,837,254 shares issued and outstanding at February
28, 2018 and August 31, 2017
|
|
|
214,674
|
|
|
|
201,837
|
|
Additional
paid-in capital
|
|
|
9,834,276
|
|
|
|
3,381,643
|
|
Other
comprehensive income
|
|
|
1,153,503
|
|
|
|
1,240,844
|
|
Accumulated
deficit
|
|
|
(10,823,822
|
)
|
|
|
(9,091,977
|
)
|
Total
Novo Integrated Sciences, Inc. stockholders’ equity (deficit)
|
|
|
378,631
|
|
|
|
(4,267,653
|
)
|
Noncontrolling
interest
|
|
|
(25,329
|
)
|
|
|
(20,537
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
353,302
|
|
|
|
(4,288,190
|
)
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
$
|
5,071,945
|
|
|
$
|
5,514,390
|
|
The
accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
NOVO
INTEGRATED SCIENCES, INC. (formerly Turbine Truck Engines, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For
the Three and Six Months Ended February 28, 2018 and 2017 (unaudited)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
February
28,
2018
|
|
|
February
28,
2017
|
|
|
February
28,
2018
|
|
|
February
28,
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,145,919
|
|
|
$
|
1,834,620
|
|
|
$
|
4,399,656
|
|
|
$
|
3,652,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
1,307,596
|
|
|
|
1,189,908
|
|
|
|
2,715,289
|
|
|
|
2,354,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
838,323
|
|
|
|
644,712
|
|
|
|
1,684,367
|
|
|
|
1,298,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
30,601
|
|
|
|
8,259
|
|
|
|
68,740
|
|
|
|
18,560
|
|
General
and administrative expenses
|
|
|
1,934,479
|
|
|
|
589,378
|
|
|
|
2,914,754
|
|
|
|
1,170,242
|
|
Total
operating expenses
|
|
|
1,965,080
|
|
|
|
597,637
|
|
|
|
2,983,494
|
|
|
|
1,188,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(1,126,757
|
)
|
|
|
47,075
|
|
|
|
(1,299,127
|
)
|
|
|
109,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
operating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
160
|
|
|
|
11,010
|
|
|
|
211
|
|
|
|
21,988
|
|
Interest
expense
|
|
|
(304,132
|
)
|
|
|
(114,617
|
)
|
|
|
(438,285
|
)
|
|
|
(231,705
|
)
|
Total
other income (expense)
|
|
|
(303,972
|
)
|
|
|
(103,607
|
)
|
|
|
(438,074
|
)
|
|
|
(209,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(1,430,729
|
)
|
|
|
(56,532
|
)
|
|
|
(1,737,201
|
)
|
|
|
(99,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
(54,216
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,376,513
|
)
|
|
$
|
(56,532
|
)
|
|
$
|
(1,737,201
|
)
|
|
$
|
(99,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributed to noncontrolling interest
|
|
|
(1,956
|
)
|
|
|
(2,764
|
)
|
|
|
(5,356
|
)
|
|
|
(4,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributed to Novo Integrated Sciences, Inc.
|
|
$
|
(1,374,557
|
)
|
|
$
|
(53,768
|
)
|
|
$
|
(1,731,845
|
)
|
|
$
|
(95,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(1,376,513
|
)
|
|
|
(56,532
|
)
|
|
|
(1,737,201
|
)
|
|
|
(99,781
|
)
|
Foreign
currency translation gain (loss)
|
|
|
(211,528
|
)
|
|
|
(94,248
|
)
|
|
|
(87,341
|
)
|
|
|
66,895
|
|
Comprehensive
loss:
|
|
$
|
(1,588,041
|
)
|
|
$
|
(150,780
|
)
|
|
$
|
(1,824,542
|
)
|
|
$
|
(32,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - basic and diluted
|
|
|
206,091,162
|
|
|
|
167,797,406
|
|
|
|
203,953,457
|
|
|
|
167,797,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
The
accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
NOVO
INTEGRATED SCIENCES, INC. (formerly Turbine Truck Engines, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the Six Months Ended February 28, 2018 and 2017 (unaudited)
|
|
Six
Months Ended
|
|
|
|
February
28, 2018
|
|
|
February
28, 2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,737,201
|
)
|
|
$
|
(99,781
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
32,719
|
|
|
|
30,540
|
|
Fair
value of vested stock options
|
|
|
1,109,416
|
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(250,133
|
)
|
|
|
(318,228
|
)
|
Prepaid
expenses and other current assets
|
|
|
30,326
|
|
|
|
31,770
|
|
Accounts
payable
|
|
|
80,084
|
|
|
|
89,904
|
|
Accrued
expenses
|
|
|
(43,843
|
)
|
|
|
1,615
|
|
Accrued
interest
|
|
|
303,699
|
|
|
|
158,039
|
|
Net
cash used in operating activities
|
|
|
(474,933
|
)
|
|
|
(106,141
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of furniture and equipment
|
|
|
(43,431
|
)
|
|
|
(17,320
|
)
|
Amounts
loaned for other receivables
|
|
|
(39,215
|
)
|
|
|
-
|
|
Repayments
of other receivables
|
|
|
-
|
|
|
|
377,550
|
|
Net
cash provided by (used in) investing activities
|
|
|
(82,646
|
)
|
|
|
360,230
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments
to related parties
|
|
|
(263,403
|
)
|
|
|
(202,314
|
)
|
Payments
on notes payable
|
|
|
(7,108
|
)
|
|
|
(57,986
|
)
|
Net
cash used in financing activities
|
|
|
(270,511
|
)
|
|
|
(260,300
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and equivalents
|
|
|
(31,880
|
)
|
|
|
(1,040
|
)
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(859,970
|
)
|
|
|
(7,251
|
)
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
1,896,572
|
|
|
|
110,315
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
1,036,602
|
|
|
$
|
103,064
|
|
|
|
|
|
|
|
|
|
|
CASH
PAID FOR:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
128,098
|
|
|
$
|
81,598
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
NOVO
INTEGRATED SCIENCES, INC.
(formerly
Turbine Truck Engines, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Six Months Ended February 28, 2018 and 2017 (unaudited)
Note
1 - Organization and Basis of Presentation
Organization
and Line of Business
Novo
Integrated Sciences, Inc. 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 Sciences, Inc. and its consolidated subsidiaries.
We
provide specialized physiotherapy, chiropractic care, occupational therapy, eldercare, laser therapeutics, massage therapy, acupuncture,
chiropodist, neurological functions, kinesiology, private personal training and dental services to our clients. Our multi-disciplinary
primary healthcare services and protocols are directed at assessment, treatment, management, rehabilitation and prevention through
our 14 corporate owned clinics, 150 affiliate clinics, retirement homes, long-term care facilities and institutional locations
throughout Canada. Directly and indirectly through our contractual relationships, we provide our specialized services to over
300,000 patients annually. No employee of the Company or any of its subsidiaries practices primary care medicine and the Company’s
services do not require a medical or nursing license.
On
April 25, 2017 (the “Effective Date”), the Company entered into a Share Exchange Agreement (the “Share Exchange
Agreement”) by and between (i) the Company; (ii) 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, the Company 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 the Company to the NHL Shareholders
of shares of the Company’s common stock, such that following the closing of the Share Exchange Agreement, the NHL Shareholders
would own 167,797,406 restricted shares of Company common stock, representing 85% of the issued and outstanding Company common
stock, calculated including all granted and issued options or warrants to acquire the Company common stock as of the Effective
Date, but to exclude shares of Company common stock that are subject to a then-current Regulation S offering that was undertaking
by the Company (the “Exchange”).
On
May 9, 2017, the Exchange closed and, as a result, NHL became a wholly owned subsidiary of Novo Integrated Sciences, Inc.
The
Exchange was accounted for as a reverse acquisition under the purchase method of accounting since NHL obtained control of Novo
Integrated Sciences, Inc. Accordingly, the Exchange was recorded as a recapitalization of NHL, with NHL being treated as the continuing
entity. The historical financial statements presented are the financial statements of NHL. The Share Exchange Agreement was treated
as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the closing date
of the Exchange, the net assets of the legal acquirer, Novo Integrated Sciences, Inc., were $6,904.
On
May 9, 2017, our Board of Directors determined, in connection with the closing of the Exchange, to change our fiscal year end
from December 31 to August 31 but did not memorialize such determination in writing. On July 17, 2017, the Board ratified and
memorialized in writing its May 9, 2017 determination regarding the change in fiscal year end.
The
unaudited consolidated financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments, consisting only of normal
recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position,
the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally
present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) were omitted pursuant to such rules and regulations. The results of operations for the three
and six months ended February 28, 2018 are not necessarily indicative of the results for the year ending August 31, 2018.
Basis
of Presentation
The
accompanying consolidated financial statements were prepared in conformity with U.S. GAAP. The Company’s Canadian subsidiaries’
functional currency is the Canadian Dollar (“CAD”); however, the accompanying consolidated financial statements were
translated and presented in United States Dollars (“$” 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 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 statement of operations and comprehensive income. The following table details the exchange rates used for the
respective periods:
|
|
February
28, 2018
|
|
|
February
28, 2017
|
|
|
August
31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Period
end: CAD to USD exchange rate
|
|
$
|
0.7808
|
|
|
$
|
0.7548
|
|
|
$
|
0.7988
|
|
Average
period: CAD to USD exchange rate
|
|
$
|
0.7959
|
|
|
$
|
0.7551
|
|
|
|
|
|
Note
2 – Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience
and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, NHL, Novo
Peak Health Inc., Novo Healthnet Rehab Limited, Novo Assessments Inc., an 80% interest in Novo Healthnet Kemptville Centre, Inc.,
a Back on Track Physiotherapy and Health Centre clinic operated by NHL, and a fifty percent stake in a joint venture with the
Sophie Freeman Dental Hygiene Professional Corporation operated as Novo Dental. All of the Company’s subsidiaries are incorporated
under the laws of the Province of Ontario, Canada. All intercompany transactions have been eliminated.
Noncontrolling
Interest
The
Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 810,
Consolidation,
which governs the accounting for and reporting of non-controlling interests (“NCIs”)
in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate,
among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in
the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions
or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such
allocation might result in a deficit balance.
The
net income (loss) attributed to the NCI is separately designated in the accompanying consolidated statements of operations and
other comprehensive income (loss).
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, 2018 and August 31, 2017, the allowance for uncollectible accounts receivable
was $484,145 and $507,636, respectively.
Property
and Equipment
Property
and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals
and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property
and equipment is provided using the declining balance method for substantially all assets with estimated lives as follows:
|
Leasehold
improvements
|
5
years
|
|
Clinical
equipment
|
5
years
|
|
Computer
equipment
|
3
years
|
|
Office
equipment
|
5
years
|
|
Furniture
and fixtures
|
5
years
|
Long-Lived
Assets
The
Company applies the provisions of ASC Topic 360,
Property, Plant, and Equipment
, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which
the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined
in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at February 28, 2018 and
August 31, 2017, the Company believes there was no impairment of its long-lived assets.
Goodwill
Goodwill
represents the excess of purchase price over the underlying net assets of businesses acquired. Under accounting requirements,
goodwill is not amortized but is subject to annual impairment tests. At February 28, 2018, the Company recorded goodwill of $390,400
and $226,432, respectively, related to its acquisition of Apka Health, Inc. during fiscal year ended August 31, 2017 and Executive
Fitness Leaders during the fiscal year ended August 31, 2018.
Acquisition
Deposits
The
Company has signed letters of understanding with two potential acquisition candidates which includes refundable acquisition deposits
totaling $1,135,824 and $1,162,009 at February 28, 2018 and August 31, 2017, respectfully.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances
to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due
to their short maturities.
FASB
ASC Topic 820,
Fair Value Measurements and Disclosures
, requires disclosure of the fair value of financial instruments
held by the Company. FASB ASC Topic 825,
Financial Instruments
, defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying
amounts reported in the 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, 2018 and August 31, 2017, respectively, the Company did not identify any assets and liabilities required to be
presented on the balance sheet at fair value.
Revenue
Recognition
Revenue
related to healthcare services provided is recognized at the time services have been performed. Gross service revenue is recorded
in the accounting records on an accrual basis at the provider’s established rates, regardless of whether the health care
entity expects to collect that amount. The Company will reserve a provision for contractual adjustment and discounts and deduct
from gross service revenue. The Company believes that recognizing revenue at the time the services have been performed is appropriate
because the Company’s revenue policies meet the following four criteria in accordance with FASB ASC 605,
Revenue Recognition
:
(i) persuasive evidence that arrangement exists, (ii) services has occurred, (iii) the price is fixed and determinable and (iv)
collectability is reasonably assured. 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 is based on the assumption that all dilutive
securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants
are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby
were used to purchase common stock at the average market price during the period. There were 10,030,000 options/warrants outstanding
as of February 28, 2018. 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 Canadian $. Translation gains of $1,153,503
and $1,240,844 at February 28, 2018 and August 31, 2017, respectively, are classified as an item of other comprehensive income
in the stockholders’ equity section of the balance sheet.
Statement
of Cash Flows
Cash
flows from the Company’s operations are calculated based upon the local currencies using the average translation rates.
As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with
changes in the corresponding balances on the balance sheets.
Recent
Accounting Pronouncements
In
January 2017, the FASB issued an Accounting Standards Update (“ASU”) 2017-01,
Business Combinations (Topic 805)
Clarifying the Definition of a Business
. The amendments in this update clarify the definition of a business with the objective
of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals
of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill,
and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied
prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard
update.
In
November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash,
which requires restricted
cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash
flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet.
ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The
Company is in the process of evaluating the impact of this accounting standard update on its financial statements.
In
October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory
,
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when
the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption
permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and
Cash Payments
. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are
classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for
interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of
evaluating the impact of this accounting standard update on its statements of cash flows.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize lease assets
and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with
early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial
statements.
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from
Contracts with Customers
. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing
revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition.
ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in
the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and
cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from
costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December
15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods
therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of
the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements
and 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 that are payable upon demand.
On
January 31, 2018, a related party converted $813,125 of outstanding amounts loaned to the Company into 1,976,483 shares of the
Company’s common stock. The per share price used for the conversion of this loan was $0.4114 which was determined as the
average price of the five (5) trading days immediately preceding the date of conversion with a ten (10) percent premium added
to the calculated per share price. At February 28, 2018, the amount due to related parties was $880,915.
Note
4 – Other Receivables
Other
receivables at February 28, 2018 and August 31, 2017 consisted of the following:
|
|
February
28, 2018
|
|
|
August
31, 2017
|
|
Notes
receivable dated November 15, 2014; accrues interest at 8% per annum; secured by assets; due November 15, 2016.
|
|
$
|
-
|
|
|
$
|
39,940
|
|
Notes
receivable dated April 1, 2015 and amended on May 23, 2017; accrues interest at 8% per annum; secured by certain assets; due
May 23, 2018.
|
|
|
292,800
|
|
|
|
299,550
|
|
Advance
to corporation; non-interest bearing; unsecured; payable upon demand
|
|
|
31,232
|
|
|
|
32,534
|
|
Advance
to corporation; non-interest bearing; unsecured; payable upon demand
|
|
|
78,080
|
|
|
|
-
|
|
Total
other receivables
|
|
$
|
402,112
|
|
|
$
|
372,024
|
|
Note
5 – Property and Equipment
Property
and equipment at February 28, 2018 and August 31, 2017 consisted of the following:
|
|
February
28, 2018
|
|
|
August
31, 2017
|
|
Leasehold
Improvements
|
|
$
|
331,696
|
|
|
$
|
329,985
|
|
Clinical
equipment
|
|
|
204,013
|
|
|
|
177,514
|
|
Computer
equipment
|
|
|
23,113
|
|
|
|
21,020
|
|
Office
equipment
|
|
|
23,771
|
|
|
|
24,319
|
|
Furniture
and fixtures
|
|
|
26,010
|
|
|
|
18,218
|
|
|
|
|
608,603
|
|
|
|
571,056
|
|
Accumulated
depreciation
|
|
|
(294,161
|
)
|
|
|
(268,105
|
)
|
Total
|
|
$
|
314,442
|
|
|
$
|
302,951
|
|
Depreciation
expense for the six months ended February 28, 2018 and 2016 was $32,719 and $30,540, respectively.
Note
6 – Notes Payable
Notes
payable at February 28, 2018 and August 31, 2017 consisted of the following:
|
|
February
28, 2018
|
|
|
August
31, 2017
|
|
Notes
payable to financial institution; accrues interest at 7.2% per annum; monthly principal and interest payment of $3,567; unsecured;
due October 2017. This note has been fully repaid.
|
|
|
-
|
|
|
|
7,134
|
|
Notes
payable issued in connection with purchase of assets; accrues interest at 0% per annum; due on March 27, 2019.
|
|
|
390,400
|
|
|
|
399,400
|
|
Notes
payable to financial institution assumed with acquisition; accrues interest at 6% per annum; monthly principal and interest
payment of $623; unsecured; due April 8, 2019.
|
|
|
20,515
|
|
|
|
20,988
|
|
|
|
|
410,915
|
|
|
|
427,522
|
|
Current
portion
|
|
|
(6,205
|
)
|
|
|
(13,171
|
)
|
Long-term
portion
|
|
$
|
404,710
|
|
|
$
|
414,351
|
|
Aggregate
future maturities of notes payable as of February 28 are as follows:
Twelve
months ending February 28,
|
|
|
|
2019
|
|
$
|
6,205
|
|
2020
|
|
|
404,710
|
|
|
|
$
|
410,915
|
|
Note
7 – Debentures, related parties
On
September 30, 2013, the Company issued five debentures totaling CAD$6,402,512 ($4,968,900 at November 30, 2017) in connection
with the acquisition of certain business assets. The holders of the debentures are current stockholders, officers and/or affiliates
of the Company. The debentures are secured by all the assets of the Company, accrue interest at 8% per annum and were originally
due on September 30, 2016. On December 2, 2017, the debenture holders agreed to extend the due date to September 30, 2019.
On
January 31, 2018, the debenture holders converted seventy-five percent (75%) of the debenture value of $3,894,809 plus accrued
interest of $414,965 into 10,475,872 shares of the Company’s common stock. The per share price used for the conversion of
each debenture was $0.4114 which was determined as the average price of the five (5) trading days immediately preceding the date
of conversion with a ten (10) percent premium added to the calculated per share price. At February 28, 2018, the amount of debentures
outstanding was $1,249,770.
Note
8 – Stockholders’ Deficit
Convertible
preferred stock
The
Company has authorized 1,000,000 shares of $0.001 par value convertible preferred stock. At February 28, 2018 and August 31, 2017
there were 0 and 0 convertible preferred shares issued and outstanding, respectively.
Common
stock
The
Company has authorized 499,000,000 shares of $0.001 par value common stock. At February 28, 2018 and August 31, 2017 there were
214,673,720 and 201,837,254 common shares issued and outstanding, respectively.
During
the six months ended February 28, 2018, the Company issued 384,110 shares of common stock for the acquisition of Executive Fitness
Leaders valued at $233,155. The value was based on the closing price of the Company’s common stock on the acquisition date.
In addition, during the same period, the Company issued 12,452,356 shares of common stock for the conversion of debt totaling
$5,122,899. The per share price used for the conversion was $0.4114 which was determined as the average price of the five (5)
trading days immediately preceding the date of conversion with a ten (10) percent premium added to the calculated per share price.
Stock
options/warrants
On
September 8, 2015, the Company adopted the 2015 Incentive Compensation Plan (the “2015 Plan”), which authorizes the
issuance of up to 5,000,000 shares of common stock to employees, officers, directors or independent consultants of the Company,
provided that no person can be granted shares under the 2015 Plan for services related to raising capital or promotional activities.
During 2017 and 2016, the Company did not grant any awards under the 2015 Plan. As of August 31, 2017, 4,987,500 shares were available
under the 2015 Plan for future grants, awards, options or share issuances. However, because the shares issuable under the 2015
Plan or issuable upon conversion of awards granted under the Plan are no longer registered under the Securities Exchange Act of
1934, as amended, the Company does not intend to issue any additional grants under the 2015 Plan.
On
January 16, 2018, the Company adopted the Novo Integrated Sciences, Inc. 2018 Incentive Plan (the “2018 Plan”). Under
the 2018 Plan, 10,000,000 shares of common stock are authorized for issuance to employees, non-employees, directors and key consultants
to the Company or its subsidiaries. The 2018 Plan authorizes equity-based and cash-based incentives for participants. There were
9,950,000 shares available for award at February 28, 2018 under the 2018 Plan.
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, 2017
|
|
|
7,860,000
|
|
|
$
|
0.27
|
|
|
|
3.53
|
|
|
$
|
660,000
|
|
Granted
|
|
|
2,170,000
|
|
|
|
0.42
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
February 28, 2018
|
|
|
10,030,000
|
|
|
|
0.30
|
|
|
|
3.44
|
|
|
|
781,000
|
|
Exercisable,
February 28, 2018
|
|
|
8,970,000
|
|
|
$
|
0.30
|
|
|
|
3.32
|
|
|
$
|
781,000
|
|
The
exercise price for options/warrants outstanding at February 28, 2018:
Outstanding
|
|
Exercisable
|
|
Number
of
|
|
|
|
|
Number
of
|
|
|
|
|
Options/
|
|
Exercise
|
|
|
Options/
|
|
|
Exercise
|
|
Warrants
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
5,500,000
|
|
$
|
0.16
|
|
|
|
5,500,000
|
|
|
$
|
0.16
|
|
1,000,000
|
|
|
0.32
|
|
|
|
-
|
|
|
|
0.32
|
|
50,000
|
|
|
0.33
|
|
|
|
50,000
|
|
|
|
0.33
|
|
120,000
|
|
|
0.40
|
|
|
|
60,000
|
|
|
|
0.40
|
|
2,000,000
|
|
|
0.42
|
|
|
|
2,000,000
|
|
|
|
0.42
|
|
100,000
|
|
|
0.50
|
|
|
|
100,000
|
|
|
|
0.50
|
|
1,000,000
|
|
|
0.62
|
|
|
|
1,000,000
|
|
|
|
0.62
|
|
250,000
|
|
|
0.80
|
|
|
|
250,000
|
|
|
|
0.80
|
|
10,000
|
|
|
2.00
|
|
|
|
10,000
|
|
|
|
2.00
|
|
10,030,000
|
|
|
|
|
|
|
8,970,000
|
|
|
|
|
|
For
options granted during fiscal year 2017 where the exercise price equaled the stock price at the date of the grant, the weighted-average
fair value of such options was $0.58 and the weighted-average exercise price of such options/warrants was $0.42. No options were
granted during fiscal 2017 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.
For
options granted during fiscal year 2018 where the exercise price equaled the stock price at the date of the grant, the weighted-average
fair value of such options was $0.41 and the weighted-average exercise price of such options/warrants was $0.42. No options were
granted during fiscal 2018 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 $1,109,416 during the six months ended February 28, 2018. At February 28, 2018, the unamortized stock option
expense was $165,515.
The
assumptions used in calculating the fair value of options granted using the Black-Scholes option- pricing model for options granted
are as follows:
Risk-free
interest rate
|
|
|
1.83
|
%
|
Expected
life of the options
|
|
|
2.5
to 3.5 years
|
|
Expected
volatility
|
|
|
314
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
Note
9 – 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 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 consolidated financial position as of February 28, 2018, results of operations, cash flows or liquidity of the
Company.
Leases
The
Company leases its office space and certain facilities under long-term operating leases expiring through fiscal year 2023. Rent
expense under these leases was $409,350 and $387,110 for the six months ended February 28, 2018 and 2017, respectively.
Note
10 – Acquisition of Assets
On
December 1, 2017, the Company and Executive Fitness Leaders
, located in Ottawa Ontario Canada,
entered into an Asset Purchase Agreement, pursuant to which the Company acquired substantially all of the assets of Executive
Fitness Leaders in exchange for the issuance, by the Company, of 384,110 restricted shares of its common stock valued at $233,155.
The purchase price was allocated to furniture and equipment of $7,772 and goodwill of $225,383. The transaction closed on December
1, 2017. The purchase of these assets was not considered significant for accounting purposes; therefore, pro forma financial statements
are not presented.
Note
11 – Subsequent Events
Michael
Gaynor Resignation
On
March 15, 2018, Michael Gaynor resigned his position as the Company’s Treasurer. Mr. Gaynor will continue to act as the
Company’s Secretary and as a member of the Company’s board of directors.
Emily
Mattacchione Appointment
Effective
March 15, 2018, Emily Mattacchione was appointed as the Company’s Treasurer. ALMC-ASAP Holdings, Inc. (“ALMC-ASAP”)
owns approximately 59.1% of the Company’s outstanding common stock. ALMC-ASAP’s shares are held by the Mattacchione
Family Trust. Ms. Mattacchione and her spouse, Robert Mattacchione, are co-trustees of the Mattacchione Family Trust and share
voting and depository power over the ALMC-ASAP shares.
At
August 31, 2017 and February 28, 2018, the Company had a debenture totaling $2,396,400 and $585,600, respectively, due to ICC
Healthnet Canada, Inc. Also, at August 31, 2017 and February 28, 2018, the Company had a debenture totaling $1,597,600 and $390,400
respectively, due to Healthnet Assessment Inc. Each of ICC Healthnet Canada, Inc. and Healthnet Assessment Inc. is owned by Mr.
Mattacchione, Ms. Mattacchione’s spouse. The conversion rate used for the respective periods August 31, 2017 and February
28, 2018 is $0.7988 and $0.7808.
Amendment
of Brands Letter of Intent
On
December 26, 2017, the Company entered into a binding letter of intent (the “LOI”) with Brands International Corporation
(“Brands”), pursuant to which the Company agreed to acquire 60% of the issued and outstanding shares of Brands in
exchange for the arrangement of secured debt financing in the amount of CAD$2,350,000 (approximately $1,873,256 per the Bank of
Canada posted exchange rate of 0.7977 on December 29, 2017) arranged or provided by the Company (the “Acquisition”).
Upon completion of the Acquisition, the Company will own 60% of Brands’ issued and outstanding shares and Brands will be
a majority-owned subsidiary of the Company. In connection with the Acquisition, the Company will enter into a shareholder agreement
with Mark Rubinoff and a management agreement with Mark Rubinoff and DJ Rubinoff. In addition, pursuant to the terms of the LOI,
the Company agreed to provide Mark Rubinoff with a buyout structure for the remaining 40% of Brands’ shares with a trigger
date of 24 months from the closing of the Acquisition.
The
parties to the LOI agreed to proceed reasonably and in good faith toward negotiation and execution of a definitive acquisition
agreement, and to use their commercially reasonable best efforts to obtain necessary board, stockholder and regulatory approvals
and third party consents.
The
LOI provided for a termination date of January 30, 2018. On January 30, 2018, the Company and Brands executed a letter agreement
(the “Letter Agreement”) that had the effect of amending the LOI to extend the termination date to March 20, 2018.
On
March 16, 2018, the Company and Brands executed Amendment #2 to the LOI, as amended, that had the effect of amending the LOI to
extend the termination date to April 20, 2018. The terms of the LOI, as amended, otherwise remain in full force and effect.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe harbor for forward-looking statements
made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements
that are “forward-looking,” including statements contained in this report and other filings with the Securities and
Exchange Commission (“SEC”) and in our reports and presentations to stockholders or potential stockholders. In some
cases forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,”
“plan,” “potential,” “continue” or similar expressions. Such forward-looking statements include
risks and uncertainties and there are important factors that could cause actual results to differ materially from those expressed
or implied by such forward-looking statements. These factors, risks and uncertainties can be found in the Part I, Item 1A, “Risk
Factors” section of the Company’s Form 10-K for the fiscal year ended August 31, 2017.
Although
we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible
to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking
statements in this report are made on the basis of management’s assumptions and analyses, as of the time the statements
are made, in light of their experience and perception of historical conditions, expected future developments and other factors
believed to be appropriate under the circumstances.
Except
as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates
or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated
by reference in this report to reflect any change in our expectations with regard thereto or any change in events, conditions
or circumstances on which any statement is based.
Overview
of the Company
Novo
Integrated Sciences, Inc. 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 Sciences, Inc. and its consolidated subsidiaries.
We
provide specialized physiotherapy, chiropractic care, occupational therapy, eldercare, laser therapeutics, massage therapy, acupuncture,
chiropodist, neurological functions, kinesiology, private personal training and dental services to our clients. Our multi-disciplinary
primary healthcare services and protocols are directed at assessment, treatment, management, rehabilitation and prevention through
our 14 corporate owned clinics, 150 affiliate clinics, retirement homes, long-term care facilities and institutional locations
throughout Canada. Directly and indirectly through our contractual relationships, we provide our specialized services to over
300,000 patients annually. No employee of the Company or any of its subsidiaries practices primary care medicine and the Company’s
services do not require a medical or nursing license.
Our
strict adherence to public regulatory standards, as well as self-imposed standards of excellence, 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 healthcare and administrative professionals. Novo Healthnet Limited, our
wholly owned subsidiary (“NHL”), and its direct and indirect subsidiaries are regulated under the Financial Services
Commission of Ontario (“FSCO”). In 2013, NHL received its accreditation from the Commission on Accreditation of Rehabilitation
Facilities (“CARF”). Currently, NHL is undergoing the CARF re-accreditation process.
Recent
Developments
Share
Exchange Agreement
On
April 25, 2017 (the “Effective Date”), the Company entered into a Share Exchange Agreement (the “Share Exchange
Agreement”) by and between (i) the Company; (ii) 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, the Company 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 the Company to the NHL Shareholders
of shares of the Company’s common stock, such that following the closing of the Share Exchange Agreement, the NHL Shareholders
would own 167,797,406 restricted shares of Company common stock, representing 85% of the issued and outstanding Company common
stock, calculated including all granted and issued options or warrants to acquire the Company common stock as of the Effective
Date, but to exclude shares of Company common stock that are subject to a then-current Regulation S offering that was undertaking
by the Company (the “Exchange”).
On
May 9, 2017, the Exchange closed and, as a result, NHL became a wholly owned subsidiary of Novo Integrated Sciences, Inc.
Increase
in Size of Board of Directors; Officer and Director Changes
In
connection with the Exchange closing, our Board of Directors increased the size of the Board, such that the size of the Board
is currently comprised of three members.
On
May 9, 2017, in connection with the Exchange, (i) Enzo Cirillo resigned his positions as the Company’s Chairman of the Board,
a member of the Board of Directors and Interim Chief Executive Officer, (ii) Christopher David resigned his position as the Company’s
Secretary and Treasurer, and (iii) Judith Norstrud resigned her position as the Company’s Principal Financial Officer and
Principal Accounting Officer. Mr. David retained his responsibilities as the Company’s President and as a member of the
Company’s Board of Directors.
Also
on May 9, 2017, the Board appointed Dr. Pierre Dalcourt, D.C. and Mr. Michael Gaynor as directors, and Ms. Klara Radulyne, CPA
as the Company’s Principal Financial Officer, effective immediately. Mr. Gaynor is the trustee of MGFT. As a result of the
Exchange, MGFT acquired 16,779,740 shares of the Company’s common stock, which represented approximately 8.5% of the Company’s
outstanding common stock as of the date of the closing of the Exchange. As of the closing date of the Exchange, the value of MGFT’s
stock ownership was $14,094,982, based on the closing price of the Company’s common stock of $0.84 on May 9, 2017. Dr. Dalcourt
is the President and 50% owner of 1218814. Amanda Dalcourt, NHL’s Chief Executive Officer and Dr. Dalcourt’s spouse,
also is a 50% owner of 1218814. As a result of the Exchange, 1218814 acquired 31,881,507 shares of the Company’s common
stock, which represented approximately 16.2% of the Company’s outstanding common stock as of the date of the closing of
the Exchange. As of the closing date of the Exchange, the value of 1218814’s stock ownership was $26,780,466, based on the
closing price of the Company’s common stock of $0.84 on May 9, 2017. The value of each of Dr. Dalcourt’s and Ms. Dalcourt’s
ownership interests in 1218814’s Company common stock as of May 9, 2017, based on the closing price of the Company’s
common stock on May 9, 2017, was $13,390,233.
Acquisition
of Executive Fitness Leaders
On
December 1, 2017, the Company and Executive Fitness Leaders, located in Ottawa Ontario Canada, entered into an Asset Purchase
Agreement, pursuant to which the Company acquired substantially all of the assets of Executive Fitness Leaders in exchange for
the issuance of 384,110 restricted shares of its common stock valued at approximately $233,155. The transaction closed on December
1, 2017. The purchase of these assets was not considered significant for accounting purposes; therefore, pro forma financial statements
are not presented.
Extension
of Due Date of Debentures
On
December 2, 2017, the Company and certain related party debenture holders of five debentures totaling $5,114,327 (CAD$6,402,512)
dated September 30, 2013 with an original due date of September 30, 2016 (see financial note 7 for further details) agreed to
extend the due date of the debentures to September 30, 2019.
Agreement
to Convert Debentures
On
December 5, 2017, the related party debenture holders and the Company signed a binding Letter of Intent to convert no less than
75% of the debenture value, plus any interest or fees owed, to the Company’s common stock. The per share price to be used
for the conversion of each debenture will be the average price of the five trading days immediately preceding the date of conversion
with a 10% premium added to the calculated per share price.
Brands
International Corporation Letter of Intent
On
December 26, 2017, the Company entered into a binding letter of intent (the “LOI”) with Brands International Corporation
(“Brands”), pursuant to which the Company agreed to acquire 60% of the issued and outstanding shares of Brands in
exchange for the arrangement of secured debt financing in the amount of CAD$2,350,000 (approximately $1,873,256 per the Bank of
Canada posted exchange rate of 0.7977 on December 29, 2017) arranged or provided by the Company (the “Acquisition”).
Upon completion of the Acquisition, the Company will own 60% of Brands’ issued and outstanding shares and Brands will be
a partially-owned subsidiary of the Company. In connection with the Acquisition, the Company will enter into a shareholder agreement
with Mark Rubinoff and a management agreement with Mark Rubinoff and DJ Rubinoff. In addition, pursuant to the terms of the LOI,
the Company agreed to provide Mark Rubinoff with a buyout structure for the remaining 40% of Brands’ shares with a trigger
date of 24 months from the closing of the Acquisition.
The
parties to the LOI agreed to proceed reasonably and in good faith toward negotiation and execution of a definitive acquisition
agreement (a “Definitive Agreement”), and to use their commercially reasonable best efforts to obtain necessary board,
stockholder and regulatory approvals and third party consents.
The
parties to the LOI also agreed that from the date of the LOI until the earlier of January 30, 2018 (the “Termination Date”)
and the date the parties enter into a Definitive Agreement, the parties and their respective directors, officers, agents and representatives
will not:
|
●
|
solicit,
initiate or encourage the initiation of any expression of interest, inquiries or proposals regarding, constituting or that
may reasonably be expected to lead to any merger, amalgamation, takeover bid, tender offer, arrangement, recapitalization,
liquidations, dissolution, share exchange, sale of material assets involving the parties or a proposal or offer to do so (the
“Acquisition Proposal”) (including without limitation, any grant of an option or other right to take any such
action);
|
|
|
|
|
●
|
participate
in any discussions or negotiations regarding an Acquisition Proposal;
|
|
|
|
|
●
|
accept
or enter into, or propose publicly to accept or enter into, any agreement, letter of intent, memorandum of understanding or
any arrangement in respect of an Acquisition Proposal; and
|
|
|
|
|
●
|
otherwise
cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any person to do any of the
foregoing.
|
In
addition, Brands agreed not to solicit funds in any secured or unsecured debt form resulting in a change in the company’s
financials unless the Company is made aware of such solicitation in writing.
If
the Definitive Agreement is not negotiated and executed by both parties on or before the Termination Date, or such other date
as agreed to by the parties in writing, the terms of the LOI will be of no further force or effect except for the confidentiality,
costs and governing laws provisions, which sections will remain in effect for a period of one year following the date on which
the LOI is terminated.
On
January 30, 2018, the Company and Brands executed a letter agreement that had the effect of amending the LOI to extend the termination
date to March 20, 2018. On March 16, 2018, the Company and Brands executed Amendment #2 to the LOI, as amended, that had the effect
of amending the LOI to extend the termination date to April 20, 2018. The terms of the LOI, as amended, otherwise remain in full
force and effect.
David
Employment Agreement & Option Grant
On
December 29, 2017, the Company entered into an employment agreement (the “Employment Agreement”) with Christopher
David, the Company’s President and a member of the board of directors, effective January 1, 2018. The Employment Agreement
terminates on July 30, 2018, subject to the termination provisions contained in the Employment Agreement.
Pursuant
to the terms of the Employment Agreement, Mr. David agreed to serve as the Company’s President. In consideration thereof,
the Company agreed to (i) pay Mr. David a monthly salary of $8,000, and (ii) grant Mr. David a 5-year option (the “Option”)
to purchase 2,000,000 shares of the Company’s restricted common stock at an exercise price of $0.42 per share. The Option
vested on December 29, 2017.
Pursuant
to the terms of the Employment Agreement, the Company may terminate Mr. David at any time, with or without Cause (as defined below);
provided, however, that if the Company terminates Mr. David without Cause:
(a)
The Option shall be deemed fully vested effective as of December 29, 2017, and is not subject to revocation or return, and
(b)
The Company will continue to owe Mr. David his monthly salary through July 30, 2018.
“Cause”
means Mr. David must have (i) been willful, gross or persistent in his inattention to his duties or he committed acts which constitute
willful or gross misconduct and, after written notice of the same, has been given the opportunity to cure the same within 30 days
after such notice, and (ii) been found guilty of having committed a fraud against the Company.
On
December 29, 2017, the Company granted the Option to Mr. David pursuant to that certain Option to Purchase Common Stock (the “Option
Agreement”). The Option Agreement provides for the cashless exercise of all or a portion of the Option, or exercise through
payment of the exercise price in cash.
2018
Incentive Plan
On
January 16, 2018, the Company adopted the Novo Integrated Sciences, Inc. 2018 Incentive Plan (the “2018 Plan”). Under
the 2018 Plan, 10,000,000 shares of common stock are authorized for issuance employees, non-employee directors and key consultants
to the Company or its subsidiaries. The 2018 Plan authorizes equity-based and cash-based incentives for participants. There were
9,950,000 shares available for award at February 28, 2018 under the 2018 Plan.
Debt
Conversion
On
September 30, 2013, NHL issued five debentures totaling approximately $4,968,990 (CAD$6,402,512) at November 30, 2017 in connection
with the acquisition of certain business assets. The holders of the debentures are current stockholders, officers and/or affiliates
of the Company. The debentures are secured by all the assets of the Company, accrue interest at 8% per annum and were originally
due on September 30, 2016. On December 2, 2017, the debenture holders agreed to extend the due date to September 30, 2019.
On
December 5, 2017, the debenture holders, NHL and the Company signed a binding letter of intent to convert no less than 75% of
the respective debenture value plus any interest or fees owed to the Company’s common stock and a per share price equal
to the average price of the five trading days immediately preceding the date of conversion with a 10% premium added to the calculated
per share price.
On
January 31, 2018, each of the debenture holders entered into a debenture amendment with NHL and the Company pursuant to which
(i) each debenture holder agreed to convert 75% of the amount owed, both principal and interest, under the respective debenture
into shares of Company common stock in lieu of accepting a cash payment for 75% of the amount owed, both principal and interest,
and (ii) NHL and the Company agreed to issue to each debenture holder shares of common stock at a Canadian-to-United States dollar
exchange rate of 0.8111.
NHL
and ALMC-ASAP Holdings Inc. (“ALMC”) are parties to that certain loan agreement dated as of January 19, 2016, as amended
(the “Loan Agreement”), totaling approximately $875,988 (CAD$1,080,000). On January 31, 2018, ALMC, NHL and the Company
entered into an amendment to the Loan Agreement pursuant to which (i) ALMC agreed to convert 75% of the amount owed, both principal
and interest, under the Loan Agreement into shares of Company common stock in lieu of accepting a cash payment for 75% of the
amount owed, both principal and interest, and (ii) NHL and the Company agreed that the Company would issue to ALMC shares of the
Company’s common stock at a Canadian-to-United States dollar exchange rate of 0.8111.
As
a result, on January 31, 2018, the Company issued an aggregate of 12,452,346 shares of common stock to the debenture holders and
ALMC.
Officer
Changes
On
February 1, 2018, Amanda Dalcourt resigned her position as Chief Executive Officer of NHL. Effective February 1, 2018, Ms. Dalcourt
will serve as Executive Vice-President of Novo Healthnet Limited’s Eldercare and Long-Term Care divisions and of Novo Peak
Health. Also, effective February 1, 2018, Pierre Dalcourt, the Company’s Chairman of the Board, was appointed as Novo Healthnet’s
President.
O
n
March 15, 2018, Michael Gaynor resigned his position as the Company’s Treasurer. Mr. Gaynor will continue to act as the
Company’s Secretary and as a member of the Company’s board of directors. Effective March 15, 2018, Emily Mattacchione
was appointed as the Company’s Treasurer. ALMC-ASAP Holdings, Inc. (“ALMC-ASAP”) owns approximately 59.1% of
the Company’s outstanding common stock. ALMC-ASAP’s shares are held by the Mattacchione Family Trust. Ms. Mattacchione
and her husband, Robert Mattacchione, are co-trustees of the Mattacchione Family Trust and share voting and depository power over
the ALMC-ASAP shares.
At
August 31, 2017 and February 28, 2018, the Company had a debenture totaling $2,396,400 and $585,600, respectively, due to ICC
Healthnet Canada, Inc. Also, at August 31, 2017 and February 28, 2018, the Company had a debenture totaling $1,597,600 and $390,400
respectively, due to Healthnet Assessment Inc. Each of ICC Healthnet Canada, Inc. and Healthnet Assessment Inc. is owned by Mr.
Mattacchione, Ms. Mattacchione’s husband. The conversion rate used for the respective periods August 31, 2017 and February
28, 2018 is $0.7988 and $0.7808.
For
the three months ended February 28, 2018 compared to the three months ended February 28, 2017
Revenues
for the three months ended February 28, 2018 were $2,145,919, representing an increase of $311,299, or 17.0%, from $1,834,620
for the same period in 2017. The increase in revenue is principally due to the Company’s entry into new occupational therapy
service contracts in January 2017 and the acquisitions of Apka Health, Inc. in April 2017 and Executive Fitness Leaders in December
2017.
Cost
of revenues for the three months ended February 28, 2018 were $1,307,596, representing an increase of $117,688, or 9.9%, from
$1,189,908 for the same period in 2017. The increase in cost of revenues is principally due to the increase in revenues. Cost
of revenues as a percentage of revenue was 60.9% for the three months ended February 28, 2018 and 64.9% for same period in 2017.
The decrease in cost of revenues as a percentage of revenue is principally due to slightly lower costs.
Operating
costs for the three months ended February 28, 2018 were $1,965,080, representing an increase of $1,367,443, or 228.8%, from $597,637
for the same period in 2017. The increase in operating costs is attributed to stock-based compensation of $966,751 for the three
months ended February 28, 2018 (there was no stock-based compensation for the same period in 2017), as well as an increase in
both operating payroll expenses and professional fees.
Interest
expense for the three months ended February 28, 2018 was $304,132, representing an increase of $189,515, or 165.3%, from $114,617
for the same period in 2017. The increase for the three months ended February 28, 2018 is due to interest on debt obligations.
Net
loss for the three months ended February 28, 2018 was $1,376,513, representing an increase of $1,319,981, or 2,335%, from $56,532
for the same period in 2017. The increase in net loss is due to the reasons described above.
For
the six months ended February 28, 2018 compared to the six months ended February 28, 2017
Revenues
for the six months ended February 28, 2018 were $4,399,656, representing an increase of $746,897, or 20.4%, from $3,652,759 for
the same period in 2017. The increase in revenue is principally due to the Company’s entry into new occupational therapy
service contracts in January 2017 and the acquisitions of Apka Health, Inc. in April 2017 and Executive Fitness Leaders in December
2017.
Cost
of revenues for the six months ended February 28, 2018 were $2,715,289, representing an increase of $361,268, or 15.3%, from $2,354,021
for the same period in 2017. The increase in cost of revenues is principally due to the increase in revenues. Cost of revenues
as a percentage of revenue was 61.7% for the six months ended February 28, 2018 and 64.4% for same period in 2017. The decrease
in cost of revenues as a percentage of revenue is principally due to slightly lower costs.
Operating
costs for the six months ended February 28, 2018 were $2,983,494, representing an increase of $1,794,692, or 151.0%, from $1,188,802
for the same period in 2017. The increase in operating costs is attributed to stock-based compensation of $1,109,416 for the six
months ended February 28, 2018 (there was no stock-based compensation for the same period in 2017), as well as an increase in
both operating payroll expenses and professional fees.
Interest
expense for the six months ended February 28, 2018 was $438,285, representing an increase of $206,580, or 89.2%, from $231,705
for the same period in 2017. The increase for the six months ended February 28, 2018 is due to interest on debt obligations and
interest related to payroll withholdings originating in fiscal years 2014 and 2015.
Net
loss for the six months ended February 28, 2018 was $1,737,201, representing an increase of $1,637,420, or 1,641%, from $99,781
for the same period in 2017. The increase in net loss is due to the reasons described above.
Liquidity
and Capital Resources
As
shown in the accompanying financial statements, for the six months ended February 28, 2018, the Company had a net loss of $1,737,201.
During
the six months ended February 28, 2018, the Company used cash in operating activities of $474,933 compared to $106,141 for the
same period in 2017. The principal reason for the increase is the additional net loss incurred during the six months ended February
28, 2018 as compared to the same period in 2017 and a larger increase in operating assets and liabilities during the six months
ended February 28, 2018 compared to the same period in 2017.
During
the six months ended February 28, 2018, the Company used cash in investing activities of $82,646 compared to cash provided by
investing activities of $360,230 for the same period in 2017. The principal reason for the change is the repayment of other receivables
during the six months ended February 28, 2017.
During
the six months ended February 28, 2018, the Company used cash of $270,511 from financing activities compared to $260,300 for the
same period in 2017. The principal reason for the decrease is due to repayments of amounts due to related parties.
On
March 8, 2017, the Company sold 33,333 restricted shares of common stock to 2367416 Ontario, Inc. The shares were sold at a price
of $0.45 per share, for an aggregate purchase price of $15,000. This sale of 33,333 restricted shares occurred prior to the share
exchange as described above. The $15,000 was provided to fund the Company’s ongoing operational and product development
expenses. At the time of the sale, Enzo Cirillo was the Company’s Interim CEO, Chairman of the Board and a greater than
10% shareholder of the Company’s common stock, as well as the principal partner of 2367416 Ontario, Inc. Effective May 9,
2017, Mr. Cirillo resigned as an officer and director of the Company. Additionally, with the closing of the Share Exchange Agreement
between the Company and Novo Healthnet Limited, Mr. Cirillo is no longer a greater than 10% shareholder of the Company’s
common stock.
On
May 19, 2017, the Company sold 8,368,500 restricted shares of common stock to an aggregate of 23 accredited investors. The shares
were sold at a price of $0.30 per share, for an aggregate purchase price of $2,510,550. The $2,510,550 was provided to fund the
Company’s ongoing operational and product development expenses. The shares were issued in reliance upon the exemptions provided
by Regulation S promulgated pursuant to the Securities Act of 1933, as amended (the “Securities Act”). The issuances
involved offers and sales of securities outside the United States. The offers and sales were made in offshore transactions and
no directed selling efforts were made by the issuer, a distributor, their affiliates or any persons acting on their behalf.
On
June 20, 2017, the Company sold 2,140,839 restricted shares of common stock to an aggregate of 12 accredited investors. The shares
were sold at a price of $0.30 per share, for an aggregate purchase price of $642,250. The $642,250 was provided to fund the Company’s
ongoing operational and product development expenses. The shares were issued in reliance upon the exemptions provided by Regulation
S promulgated pursuant to the Securities Act. The issuances involved offers and sales of securities outside the United States.
The offers and sales were made in offshore transactions and no directed selling efforts were made by the issuer, a distributor,
their affiliates or any persons acting on their behalf.
On
August 24, 2017, the Company sold 779,202 restricted shares of common stock to an aggregate of three accredited investors. The
shares were sold at a price of $0.30 per share, for an aggregate purchase price of $233,760. The $233,760 was provided to fund
the Company’s ongoing operational and product development expenses. The shares were issued in reliance upon the exemptions
provided by Regulation S promulgated pursuant to the Securities Act. The issuances involved offers and sales of securities outside
the United States. The offers and sales were made in offshore transactions and no directed selling efforts were made by the issuer,
a distributor, their affiliates or any persons acting on their behalf.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
We
believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial
statements.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience
and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected.
Noncontrolling
Interest
The
Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 810,
Consolidation,
which governs the accounting for and reporting of non-controlling interests (“NCIs”)
in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate,
among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in
the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions
or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such
allocation might result in a deficit balance.
The
net income (loss) attributed to the NCI is separately designated in the accompanying consolidated statements of operations and
other comprehensive income (loss).
Revenue
Recognition
Revenue
related to healthcare services provided is recognized at the time services have been performed. Gross service revenue is recorded
in the accounting records on an accrual basis at the provider’s established rates, regardless of whether the health care
entity expects to collect that amount. The Company will reserve a provision for contractual adjustment and discounts and deduct
from gross service revenue. The Company believes that recognizing revenue at the time the services have been performed is appropriate
because the Company’s revenue policies meet the following four criteria in accordance with FASB ASC 605,
Revenue Recognition
:
(i) persuasive evidence that arrangement exists, (ii) services has occurred, (iii) the price is fixed and determinable and (iv)
collectability is reasonably assured. The Company reports revenues net of any sales, use and value added taxes.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with FASB ASC Topic 718,
Compensation – Stock Compensation
.
FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the
grant date and recognize the expense over the requisite service period. The Company recognizes in the statement of operations
the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
Basic
and Diluted Earnings Per Share
Earnings
per share is calculated in accordance with ASC Topic 260,
Earnings Per Share
. Basic earnings per share (“EPS”)
is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive
securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants
are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby
were used to purchase common stock at the average market price during the period.
Foreign
Currency Transactions and Comprehensive Income
U.S.
GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however,
require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as
a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive
income. The functional currency of the Company’s Canadian subsidiaries is the Canadian $. Translation gains (losses) are
classified as an item of other comprehensive income in the stockholders’ equity section of the balance sheet.
New
Accounting Pronouncements
In
January 2017, the FASB issued an Accounting Standards Update (“ASU”) 2017-01,
Business Combinations (Topic 805)
Clarifying the Definition of a Business
. The amendments in this update clarify the definition of a business with the objective
of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals
of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill,
and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied
prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard
update.
In
November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash,
which requires restricted
cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash
flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet.
ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The
Company is in the process of evaluating the impact of this accounting standard update on its financial statements.
In
October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory
,
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when
the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption
permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and
Cash Payments
. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are
classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for
interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of
evaluating the impact of this accounting standard update on its statements of cash flows.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize lease assets
and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with
early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial
statements.
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from
Contracts with Customers
. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing
revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition.
ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in
the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and
cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from
costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December
15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods
therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of
the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements
and 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.
Recent
accounting pronouncements issued by the FASB, the AICPA and the Securities and Exchange Commission did not or are not believed
by management to have a material effect on the Company’s financial statements.