ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe
harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to
time make written or oral statements that are “forward-looking,” including statements contained in this report and
other filings with the Securities and Exchange Commission (“SEC”) and in our reports and presentations to stockholders
or potential stockholders. In some cases forward-looking statements can be identified by words such as “believe,”
“expect,” “anticipate,” “plan,” “potential,” “continue” or similar
expressions. Such forward-looking statements include risks and uncertainties and there are important factors that could cause
actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and
uncertainties can be found in the Part I, Item 1A, “Risk Factors” section of the Company’s Annual Report on
Form 10-K for the fiscal year ended August 31, 2018.
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
Through
Novo Healthnet Limited (“NHL”), our wholly owned Canadian subsidiary, we deliver multi-disciplinary primary healthcare
to over 400,000 patients annually through our 15 corporate-owned clinics and a contracted network of 97 affiliate clinics and
222 eldercare centric homes located across Canada. Our team of practitioners and staff are trained for assessment, diagnosis,
treatment, pain management, rehabilitation and primary prevention. Our specialized services and products include physiotherapy,
chiropractic care, occupational therapy, eldercare, laser therapeutics, massage therapy, acupuncture, chiropody, neurological
functions, kinesiology, concussion management and baseline testing, women’s pelvic health, sports medicine therapy, assistive
devices and private personal training. We do not provide primary care medical services, none of our employees practices primary
care medicine, and our services do not require a medical or nursing license.
As
we continue to build our health science platform of services and products through the integration of technology and rehabilitative
science, one component of our lateral business growth strategy includes developing business units centered on the direct control
of the grow, extraction, manufacturing and distribution processes for hemp and medical cannabidiol products. Additionally, we
continue to expand on our patient care philosophy of maintaining an on-going continuous connection with our patient community,
beyond the traditional confines of a clinic, by extending oversight of patient diagnosis, care and monitoring, directly into the
patient’s home, through various mobile telemedicine and diagnostic tools.
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. We and our affiliates provide
service to the Canadian property and casualty insurance industry, resulting in a regulated framework governed by the Financial
Services Commission of Ontario. All of our services and those of our affiliates are regulated by the various professional associations
related to the clinical professionals contracted or employed by us. In 2013, NHL received its accreditation from the Commission
on Accreditation of Rehabilitation Facilities (“CARF”). Currently, NHL is undergoing the CARF re-accreditation process.
When
used herein, the terms the “Company,” “we,” “us” and “our” refer to Novo Integrated
Sciences, Inc. and its consolidated subsidiaries.
Recent
Developments
Cloud
DX Inc. License Agreement
On
February 26, 2019, we entered into a Software License Agreement (the “Cloud DX License”) with Cloud DX Inc. (“Cloud
DX”) pursuant to which Cloud DX agreed to sell, and NHL agreed to purchase, a fully paid up, perpetual license, with 5-year
conditional exclusivity, for the Cloud DX Bundled Pulsewave PAD-1A USB Blood Pressure Device, up-to-date product releases and
Licensed Software Products (the “Licensed Software”) to include the:
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Cloud
DX Connected Health web portal for clinical users,
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Cloud
DX Connected Health mobile app,
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Cloud
DX Connected Health Windows app, and
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Cloud
DX Connected Health MacOS app.
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Pursuant
to the terms of the Cloud DX License, Cloud DX also agreed to sell, and NHL agreed to purchase, 4,000 fully functional Pulsewave
PAD 1A USB blood pressure monitor devices bundled with the perpetual license discussed above (the “Bundled Devices”).
The
Cloud DX License granted to NHL and its majority-owned subsidiaries, holding companies, divisions and affiliates, other than physiotherapy
clinics owned and operated by Closing The Gap Healthcare Inc., the right to use and sub-license the Licensed Software and re-sell
the Bundled Devices pursuant to the terms of the Cloud DX License in the physical therapy clinic marketplace in North America
in exchange for the purchase price as set forth below:
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Upon
the closing, the Company issued 458,349 restricted shares of its common stock having a value (as calculated as set forth in
the Cloud DX License) of CAD$1,000,000 (approximately $758,567 as of February 26, 2019), and
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Cloud
DX will invoice CAD$250,000 (approximately $189,642 as of February 26, 2019) to NHL based on the following deliverables, and
paid on the following schedule:
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Cloud
DX deliverable
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Novo
payment (terms: Net 15)
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Heart
Friendly Program launches in Clinic #1
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CAD$50,000
(approximately $37,929 as of February 26, 2019)
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Novo-branded
Android app delivered as APK file
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CAD$35,000
(approximately $26,550 as of February 26, 2019)
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Novo-branded
Clinical portal website delivered
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CAD$35,000
(approximately $26,550 as of February 26, 2019)
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Pulsewave
PAD-1A devices – 1st delivery
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CAD$20,000
(approximately $15,171 as of February 26, 2019)
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Marketing
services / materials delivered
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CAD$25,000
(approximately $18,964 as of February 26, 2019)
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Cloud
DX hires dedicated Novo support FTE
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CAD$85,000
(approximately $64,478 as of February 26, 2019)
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Pulse
Rx Inc. Share Purchase and Exchange Agreement
On
February 20, 2019, we entered into a Share Purchase and Exchange Agreement (the “SPEA”) with Pulse Rx Inc. (“Pulse
Rx”) and the Pulse Rx Stockholders (as hereinafter defined), pursuant to which Pulse Rx will become a wholly owned subsidiary
of NHL.
Pursuant
to the terms of the SPEA, on March 15, 2019 (the “Escrow Closing Date”), the holders of Pulse Rx Class A common shares
(the “Pulse Class A Stockholders”) will endorse for transfer all of their Pulse Rx Class A common shares in our favor
and deliver them to the escrow agent. The purchase price for the Pulse Rx Class A common shares is CAD$10.00 and the condition
precedent that up to CAD$6,000,000 loan is arranged by us and advanced to Pulse Rx (the “Loan”) to discharge payables
and restructure debt as provided in the SPEA.
In
addition, on the terms and subject to the conditions set forth in the SPEA, on the Escrow Closing Date, the holders of Pulse Rx
Class B common shares (the “Pulse Class B Stockholders” and together with the Pulse Class A Stockholders, the “Pulse
Rx Stockholders”) will endorse for transfer all of their Pulse Rx Class B common shares in favor of NHL and deliver them
to the escrow agent. In exchange for the Pulse Rx Class B common shares, on the Escrow Closing Date, NHL will issue in favor of
the Pulse Class B Stockholders exchangeable preferred shares (the “NHL Exchangeable Shares”), which shares can only
be utilized for the purpose of exchange for restricted shares of Company common stock and will be delivered to the escrow agent.
The Company will allot in favor of the Pulse Class B Stockholders $4,546,013 worth of restricted shares of the Company’s
common stock, based on a per share price of $1.7975, or 2,529,076 shares of Company common stock. The transactions described in
this paragraph are referred to herein as the “Exchange”.
The
closing of the transactions contemplated under the SPEA will occur upon our advancing the Loan funds to Pulse Rx, and the mutual
delivery of the Pulse Rx Class A common shares, the Pulse Rx Class B common shares, and the NHL Exchangeable Shares held by the
escrow agent to the respective parties by April 15, 2019 (the “Closing Date”). Notwithstanding the foregoing, the
Closing Date will be accelerated by the earlier availability to us of the Loan funds, which availability will immediately trigger
an earlier Closing Date, to be effected within 10 business days thereof. At the closing:
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The
escrow agent will deliver the NHL Exchangeable Shares to the Pulse Class B Stockholders and the Pulse Rx Class A common shares
and the Pulse Rx Class B common shares to NHL.
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We
will have caused the Loan funds to be advanced to Pulse Rx such that they may be disbursed pursuant to the terms of the SPEA.
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The
Exchange is intended to qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986,
as amended.
Assignment
of Joint Venture Agreement
On
January 7, 2019, 2478659 Ontario Ltd. (“247”) and Kainai Cooperative (“Kainai”) entered into a Joint Venture
Agreement (the “Joint Venture Agreement”) for the purpose of developing, managing and arranging for financing of greenhouse
and farming projects involving hemp and cannabis cash crops on Kainai related lands, and developing additional infrastructure
projects creating jobs and food supply to local communities. On January 8, 2019, we and 247 entered into an Agreement of Transfer
and Assignment, pursuant to which 247 agreed to sell, assign and transfer to the Company all rights, contracts, contacts and any
and all other assets related in any way to the Joint Venture Agreement. Pursuant to the terms of the Joint Venture Agreement,
as assigned to us, the parties will work in a joint venture relationship with the Company providing the finance, development and
operation of the project, including sales, and Kainai providing the land and approvals for the development of the projects.
The
joint venture will distribute to the Company and Kainai all net proceeds after debt and principal servicing and repayment allocation,
as well as operating capital allotment, on a ratio equal to 80% to the Company and 20% to Kainai.
The
Joint Venture Agreement has an initial term of 50 years and Kainai may renew the Joint Venture Agreement within five years of
the expiry of the initial term upon mutual agreement.
In
January 2019, pursuant to the terms of the Joint Venture Agreement, we issued 12,000,000 restricted common shares to 247 with
a value of $21,600,000.
CannaPiece
Group Inc. Share Exchange Agreement, as Amended, & Subscriptions
On
December 18, 2018, we entered into a Share Exchange Agreement (the “SEA”) with CannaPiece Group Inc. (“CannaPiece”).
Pursuant
to the terms of the SEA, CannaPiece agreed that it would issue to NHL shares representing 25% of CannaPiece’s outstanding
shares, which shares are valued at CAD$25,000,000 ($18,672,500) in the aggregate, based on an agreed pre-revenue, post-licensing
valuation of CannaPiece in the amount of CAD$100,000,000 ($74,690,000).
In
exchange for the issuance of the CannaPiece shares to NHL, the Company agreed to issue to CannaPiece CAD$25,000,000 ($18,672,500)
worth of Company restricted common stock. The number of shares of Company common stock to be issued will be based on a per share
price of $0.92, as determined by establishing the 30-trading day closing average ($1.15 per share) on October 10, 2018, the execution
date of the binding letter of intent between the parties, with a 20% discount to the determined average.
In
addition, CannaPiece agreed to execute one or more subscription agreements for Company common stock with an aggregate value of
CAD$5,000,000 (approximately $3,734,500) (the “Investment”) no later than January 7, 2019. CannaPiece’s obligation
is independent of the closing of the exchange. The parties agreed that the per share price for the subscription agreements will
be $0.92 per share, determined by establishing the 30-trading day closing average ($1.15 per share) on October 10, 2018, the execution
date of the binding letter of intent among the parties, with a 20% discount to the determined average. Of this aggregate subscription
amount, $501,929 was paid prior to execution of the SEA. In addition, on December 18, 2018, the Company accepted a $1,867,250
subscription agreement from CannaPiece for 2,029,620 shares of the Company’s restricted common stock, resulting in an effective
price per share of $0.92.
We
have the right to appoint one board member, with voting rights, to CannaPiece’s board of directors, and CannaPiece has the
right to appoint one board member, with voting rights, to the Company’s Board of Directors. As of the closing, the Company
and CannaPiece will take such actions as required to expand the size of each board of directors such that the Company and CannaPiece
can each appoint one member to the other party’s board of directors.
The
parties also agreed that the Company’s shares issued to CannaPiece and the CannaPiece shares issued to NHL pursuant to the
terms of the SEA will be held in escrow until the earlier of the termination date (June 1, 2019, as the same may be amended by
the parties) or the date on which CannaPiece receives approved Licensed Producer Status under the Cannabis Act (Canada) and its
associated regulations.
The
SEA may be terminated in certain circumstances including, among others, by the mutual written consent of the parties; and by us,
or by CannaPiece, if certain closing conditions have not been met by June 1, 2019.
The
parties have agreed to extend the delivery date of the Investment to April 30, 2019.
For
the three months ended February 28, 2019 compared to the three months ended February 28, 2018
Revenues
for the three months ended February 28, 2019 were $2,200,410, representing an increase of $54,491, or 2.5%, from $2,145,919 for
the same period in 2018. The increase in revenue is due to the opening of a new clinic in September 2018 and the relocation of
certain clinics, during the summer of 2018, allowing the Company to sell additional services to customers as a result of more
spacious facilities.
Cost
of revenues for the three months ended February 28, 2019 were $1,320,740, representing an increase of $13,144, or 1.0%, from $1,307,596
for the same period in 2018. The increase in cost of revenues is principally due the increase in revenue. Cost of revenues as
a percentage of revenue was 60.0% for the three months ended February 28, 2019 and 60.9% for same period in 2018. 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, 2019 were $958,357, representing a decrease of $1,006,723, or 51.2%, from $1,965,080
for the same period in 2018. The decrease in operating costs is attributed to a decrease in stock-based compensation of $966,751
and a decrease in professional fees.
Interest
expense for the three months ended February 28, 2019 was $48,587, representing a decrease of $255,545, or 84.0%, from $304,132
for the same period in 2018. The decrease is due to less debt outstanding as a result of approximately $5.1 million of related
party debt being converted to common stock in January 2018.
Net
loss for the three months ended February 28, 2019 was $122,980, representing a decrease of $1,253,533, or 91.1%, from $1,376,513
for the same period in 2018. The decrease in net loss is due to the reasons described above.
For
the six months ended February 28, 2019 compared to the six months ended February 28, 2018
Revenues
for the six months ended February 28, 2019 were $4,512,032, representing an increase of $112,376, or 2.6%, from $4,399,656 for
the same period in 2018. The increase in revenue is due to us being able to sell additional services to customers as a result
of the acquisition of Executive Fitness Leaders in December 2017, the opening of a new clinic in September 2018, and the relocation
of certain clinics during the summer of 2018 to more spacious facilities.
Cost
of revenues for the six months ended February 28, 2019 were $2,748,823, representing an increase of $33,534, or 1.2%, from $2,715,289
for the same period in 2018. The increase in cost of revenues is principally due to the increase in revenue. Cost of revenues
as a percentage of revenue was 60.9% for the six months ended February 28, 2019 and 61.7% for same period in 2018. 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, 2019 were $2,057,248, representing a decrease of $926,246, or 31.0%, from $2,983,494
for the same period in 2018. The decrease in operating costs is attributed to a decrease in stock-based compensation of $1,038,570
offset by an increase in payroll and rental fees.
Interest
expense for the six months ended February 28, 2019 was $94,908, representing a decrease of $343,377, or 78.3%, from $438,285 for
the same period in 2018. The decrease is due to less debt outstanding as a result of approximately $5.1 million of related party
debt being converted to common stock in January 2018.
Net
loss for the six months ended February 28, 2019 was $379,564, representing a decrease of $1,357,637, or 78.2%, from $1,737,201
for the same period in 2018. The decrease 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, 2019, the Company had a net loss of $379,564.
During
the six months ended February 28, 2019, the Company used cash in operating activities of $459,540 compared to $474,933 for the
same period in 2018. The principal reason for the decrease is the decrease in net loss incurred during the six months ended February
28, 2019 as compared to the same period in 2018, changes in non-cash expenses of depreciation and stock-based compensation and
changes in working capital accounts during the six months ended February 28, 2019 compared to the same period in 2018.
During
the six months ended February 28, 2019, the Company used cash in investing activities of $301,871 compared to $82,646 for the
same period in 2018. The principal reason for the change is the increase of amounts loaned for other receivables and of investment
in leasehold improvements during the six months ended February 28, 2019 compared to the same period in 2018.
During
the six months ended February 28, 2019, the Company generated cash of $2,437,547 from financing activities compared to cash used
in financing activities of $270,511 for the same period in 2018. The principal reason for the change is the sale of shares of
common stock for $2,579,923 during the six months ended February 28, 2019, and the decrease of repayments of amounts due
to related parties of $121,027. During the six months ended February 28, 2018 there were no sales of shares of common stock.
On
November 16, 2018, the Company accepted a $30,000 subscription agreement from an accredited investor residing outside the United
States for the sale of 17,647 shares of restricted common stock, resulting in an effective price per share of $1.70. The shares
were issued on November 20, 2018.
Also
on November 16, 2018, the Company accepted a $501,929 subscription agreement from an accredited investor residing outside the
United States for the sale of 545,575 shares of restricted common stock, resulting in an effective price per share of $0.92. The
shares were issued on November 20, 2018.
On
December 18, 2018, the Company accepted a $1,867,250 subscription agreement from an accredited investor residing outside the United
States for the sale of 2,029,620 shares of restricted common stock, resulting in an effective price per share of $0.92. The shares
were issued on December 20, 2018.
On
January 15, 2019, the Company accepted a $180,744 subscription agreement from an accredited investor residing outside the United
States for the sale of 115,271 shares of restricted common stock, resulting in an effective price per share of $1.57. The shares
were issued on January 18, 2019.
On
April 3, 2019, the Company accepted a $149,740 subscription agreement from an accredited investor residing outside the United
States for the sale of 116,078 shares of restricted common stock, resulting in an effective price per share of $1.29. The shares
were issued on April 5, 2019.
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
Accounting
Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
(“Topic 606”), became
effective for the Company on March 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting
policies that are affected by this new standard. The Company applied the “modified retrospective” transition method
for open contracts for the implementation of Topic 606
.
As sales are and have been primarily from providing healthcare
services, and the Company has no significant post-delivery obligations, this new standard did not result in a material recognition
of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new
standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented
in accordance with its historical accounting practices under Topic 605
, Revenue Recognition
.
Revenue
from providing healthcare services are recognized under Topic 606 in a manner that reasonably reflects the delivery of its services
to customers in return for expected consideration and includes the following elements:
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executed
contracts with the Company’s customers that it believes are legally enforceable;
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identification
of performance obligations in the respective contract;
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determination
of the transaction price for each performance obligation in the respective contract;
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allocation
the transaction price to each performance obligation; and
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recognition
of revenue only when the Company satisfies each performance obligation.
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These
five elements, as applied to healthcare services, the Company’s sole revenue category, is summarized below:
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Healthcare
services - gross service revenue is recorded in the accounting records at the time the services are provided on an accrual
basis at the provider’s established rates, regardless of whether the provider expects to collect that amount. The Company
reserves a provision for contractual adjustment and discounts that are deducted from gross service revenue. The Company reports
revenues net of any sales, use and value added taxes.
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Stock-Based
Compensation
The
Company records stock-based compensation in accordance with FASB ASC Topic 718,
Compensation – Stock Compensation
.
FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the
grant date and recognize the expense over the requisite service period. The Company recognizes in the statement of operations
the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
Basic
and Diluted Earnings Per Share
Earnings
per share is calculated in accordance with ASC Topic 260,
Earnings Per Share
. Basic earnings per share (“EPS”)
is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted.
Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised
at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase
common stock at the average market price during the period.
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 (losses)
are classified as an item of other comprehensive income in the stockholders’ equity section of the balance sheet.
New
Accounting Pronouncements
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
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 retrospective 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.
Recent
accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants and the SEC did not or are
not believed by management to have a material effect on the Company’s financial statements.