NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended May 31, 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, 86 affiliate clinics, 9 retirement homes and over 130 long-term care facilities throughout Canada.
Through our contractual relationships, we provide 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 $6,904.
On
May 9, 2017, our Board of Directors determined, in connection with the closing of the Exchange, to change our fiscal year end
from December 31 to August 31 but did not memorialize such determination in writing. On July 17, 2017, the Board ratified and
memorialized in writing its May 9, 2017 determination regarding the change in fiscal year end.
The
unaudited consolidated financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments, consisting only of normal
recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position,
the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally
present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) were omitted pursuant to such rules and regulations. The results of operations for the three
and nine months ended May 31, 2018 are not necessarily indicative of the results for the year ending August 31, 2018.
Basis
of Presentation
The
accompanying consolidated financial statements were prepared in conformity with U.S. GAAP. The Company’s Canadian subsidiaries’
functional currency is the Canadian Dollar (“CAD”); however, the accompanying consolidated financial statements were
translated and presented in United States Dollars (“$” 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 the Financial
Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 830,
Foreign Currency Transaction
, with the CAD as the functional currency. According to Topic 830, all assets and liabilities
are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and
statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments
are reported under other comprehensive income in accordance with ASC Topic 220,
Comprehensive Income
. Gains and losses
resulting from the translations of foreign currency transactions and balances are reflected in the statement of operations and
comprehensive income. The following table details the exchange rates used for the respective periods:
|
|
May
31, 2018
|
|
|
May
31, 2017
|
|
|
August
31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Period
end: CAD to USD exchange rate
|
|
$
|
0.7712
|
|
|
$
|
0.7405
|
|
|
$
|
0.7988
|
|
Average
period: CAD to USD exchange rate
|
|
$
|
0.7901
|
|
|
$
|
0.7509
|
|
|
|
|
|
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 50% 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 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 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 May 31, 2018 and August 31, 2017, the allowance for uncollectible accounts receivable
was $480,818 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 May 31, 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 May 31, 2018, the Company recorded goodwill of $385,600 and $223,648, respectively, related to
its acquisition of Apka Health, Inc. during the 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 $1,121,859 and $1,162,009 at May 31, 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 May 31, 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
The Company recognizes revenue on arrangements
in accordance with FASB ASC Topic 606,
Revenue from Contracts with Customers
. 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 reserves a provision for contractual adjustment and discounts and deduct from gross service revenue. The Company
recognizes revenue at the time the services have been performed. 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 May 31, 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 dollar. Translation gains of $1,144,998 and $1,240,844 at May 31,
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 adoption of this ASU did not have an impact on its financial statements.
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
adoption of this ASU did not have an impact 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 ASU 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 adoption of this ASU did
not have an impact on its financial statements.
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 ASU on its financial statements.
In
May 2014, the FASB issued 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 adopted this ASU beginning on March
1, 2018 and used the modified prospective method of adoption. The adoption of this ASU did not have a material impact 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.
At August 31, 2017, the amount due to related
parties was $1,812,613. 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 10%
premium added to the calculated per share price. In addition, during the nine months ended May 31, 2018, the Company repaid advances
from related parties of $31,580. At May 31, 2018, the amount due to related parties was $1,094,488.
Note
4 – Other Receivables
Other
receivables at May 31, 2018 and August 31, 2017 consisted of the following:
|
|
May
31, 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; accrued interest at 8% per annum; secured by certain assets; due
May 23, 2018. This receivable is currently past due.
|
|
|
289,200
|
|
|
|
299,550
|
|
Advance
to corporation; non-interest bearing; unsecured; payable upon demand
|
|
|
30,848
|
|
|
|
32,534
|
|
Advance
to corporation; non-interest bearing; unsecured; payable upon demand
|
|
|
77,120
|
|
|
|
-
|
|
Total
other receivables
|
|
$
|
397,168
|
|
|
$
|
372,024
|
|
Note
5 – Property and Equipment
Property
and equipment at May 31, 2018 and August 31, 2017 consisted of the following:
|
|
May
31, 2018
|
|
|
August
31, 2017
|
|
Leasehold
Improvements
|
|
$
|
342,305
|
|
|
$
|
329,985
|
|
Clinical
equipment
|
|
|
201,505
|
|
|
|
177,514
|
|
Computer
equipment
|
|
|
24,873
|
|
|
|
21,020
|
|
Office
equipment
|
|
|
32,339
|
|
|
|
24,319
|
|
Furniture
and fixtures
|
|
|
39,957
|
|
|
|
18,218
|
|
|
|
|
640,979
|
|
|
|
571,056
|
|
Accumulated
depreciation
|
|
|
(309,878
|
)
|
|
|
(268,105
|
)
|
Total
|
|
$
|
331,101
|
|
|
$
|
302,951
|
|
Depreciation
expense for the nine months ended May 31, 2018 and 2017 was $52,287 and $46,870, respectively.
Note
6 – Notes Payable
Notes
payable at May 31, 2018 and August 31, 2017 consisted of the following:
|
|
May
31, 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.
|
|
|
385,600
|
|
|
|
399,400
|
|
Note
payable assumed with acquisition; accrues interest at 6% per annum; monthly principal and interest payment of $615; unsecured;
due April 8, 2019.
|
|
|
20,263
|
|
|
|
20,988
|
|
|
|
|
405,863
|
|
|
|
427,522
|
|
Current
portion
|
|
|
(6,164
|
)
|
|
|
(13,171
|
)
|
Long-term
portion
|
|
$
|
399,699
|
|
|
$
|
414,351
|
|
Aggregate
future maturities of notes payable are as follows:
Twelve
months ending May 31,
|
|
|
|
2019
|
|
$
|
6,164
|
|
2020
|
|
|
399,699
|
|
|
|
$
|
405,863
|
|
Note
7 – Debentures, related parties
On September 30, 2013, the Company issued five
debentures totaling CAD6,402,512 ($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 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 10% premium added to the calculated per
share price. At May 31, 2018, the amount of debentures outstanding was $1,234,404.
Note
8 – Stockholders’ Deficit
Convertible
preferred stock
The
Company has authorized 1,000,000 shares of $0.001 par value convertible preferred stock. At May 31, 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 May 31, 2018 and August 31, 2017 there were 214,698,824
and 201,837,254 common shares issued and outstanding, respectively.
During
the nine months ended May 31, 2018, the Company issued 384,110 restricted 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. The shares were issued on December 5, 2017.
During the nine months ended May 31, 2018,
the Company issued 12,452,356 restricted 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 10% premium added to the calculated per share price. The shares were issued on February 9,
2018.
In addition, during the same period, the Company
issued 25,104 restricted shares of common stock for a $15,564 which was provided to fund the Company’s ongoing operational
and product development expenses. The shares were sold at a price of $0.62 per share which was determined as the per share closing
price as of the close of business on April 23, 2018. The issuance of shares of common stock was exempt from the registration requirements
of the Securities Act of 1933, as amended (the “Securities Act”) in reliance upon 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. The shares were issued on April 25, 2018.
Stock
options/warrants
On September 8, 2015, the Company adopted
the 2015 Incentive Compensation Plan (the “2015 Plan”), which authorized 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 2015 Plan are no longer registered under the Securities Exchange Act of 1934, as amended, the
Company does not intend to issue any additional grants under the 2015 Plan.
On
January 16, 2018, the Company adopted the Novo Integrated Sciences, Inc. 2018 Incentive Plan (the “2018 Plan”). Under
the 2018 Plan, 10,000,000 shares of common stock are authorized for issuance to employees, non-employees, directors and key consultants
to the Company or its subsidiaries. The 2018 Plan authorizes equity-based and cash-based incentives for participants. There were
9,950,000 shares available for award at May 31, 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,
May 31, 2018
|
|
|
10,030,000
|
|
|
|
0.30
|
|
|
|
4.81
|
|
|
|
2,318,200
|
|
Exercisable,
May 31, 2018
|
|
|
9,030,000
|
|
|
$
|
0.30
|
|
|
|
4.88
|
|
|
$
|
2,128,200
|
|
The per share exercise prices
for options/warrants outstanding at May 31, 2018 was as follows:
Outstanding
|
|
Exercisable
|
|
Number
of
|
|
|
|
|
Number
of
|
|
|
|
|
Options/
|
|
Exercise
|
|
|
Options/
|
|
|
Exercise
|
|
Warrants
|
|
Price
Per Share
|
|
|
Warrants
|
|
|
Price
Per Share
|
|
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
|
|
|
|
120,000
|
|
|
|
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
|
|
|
|
|
|
|
9,030,000
|
|
|
|
|
|
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 year 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 year 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 $1,220,419 during the nine months ended May 31, 2018. At May 31, 2018, the unamortized stock option expense
was $54,512.
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
|
%
|
During
the nine months ended May 31, 2018, the Company extended the expiration date of 5,600,000 options by three years. The change in
fair value between the options using the original terms and the options using the new expiration dates was $31,536 which has been
recorded as expense in the accompanying consolidated statement of operations.
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 May 31, 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 $612,343 and $594,842 for the nine months ended May 31, 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 ($7,772) and goodwill ($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.