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 Part I, Item 1A, "Risk
Factors," of the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 2020, as the same may be updated from time to time, including in Part
II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q.
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. ("Novo Integrated") was incorporated in Delaware
on November 27, 2000, under the name Turbine Truck Engines, Inc. On February 20,
2008, the Company was re-domiciled to the State of Nevada. Effective July 12,
2017, the Company's name was changed to Novo Integrated Sciences, Inc. When used
herein, the terms the "Company," "we," "us" and "our" refer to Novo Integrated
and its consolidated subsidiaries.
The Company owns Canadian and U.S. subsidiaries which deliver, or intend to
deliver, multidisciplinary primary health care related services and products
through the integration of medical technology, advanced therapeutics and
rehabilitative science. Currently, the Company's revenue is generated solely
through its wholly owned Canadian subsidiary, Novo Healthnet Limited ("NHL"),
which provides our services and products through both clinic and eldercare
related operations.
Our clinicians and practitioners provide certain multidisciplinary primary
health care services, and related products, beyond the medical doctor first
level contact identified as primary care. Our clinicians and practitioners are
not licensed medical doctors, physicians, specialist, nurses or nurse
practitioners. Our clinicians and practitioners are not authorized to practice
primary care medicine and they are not medically licensed to prescribe
pharmaceutical based product solutions.
NHL's team of multidisciplinary primary health care clinicians and practitioners
provide assessment, diagnosis, treatment, pain management, rehabilitation,
education and primary prevention for a wide array of orthopedic,
musculoskeletal, sports injury, and neurological conditions across various
demographics including pediatric, adult, and geriatric populations through NHL's
16 corporate-owned clinics, a contracted network of 103 affiliate clinics, and
218 eldercare related long-term care homes, retirement homes, and
community-based locations in Canada.
Additionally, we continue to expand our patient care philosophy of maintaining
an on-going continuous connection with our patient community, beyond the
traditional confines of brick and mortar facilities, by extending oversight of
patient diagnosis, care and monitoring, directly through various connected
Medical Technology Platforms either in-use or under development.
Our specialized multidisciplinary primary health care services include
physiotherapy, chiropractic care, manual/manipulative therapy, occupational
therapy, eldercare, massage therapy (including pre- and post-partum),
acupuncture and functional dry needling, chiropody, stroke and traumatic brain
injury/neurological rehabilitation, kinesiology, vestibular therapy, concussion
management and baseline testing, trauma sensitive yoga and meditation for
concussion-acquired brain injury and occupational stress-PTSD, women's pelvic
health programs, sports medicine therapy, assistive devices, dietitian, holistic
nutrition, fall prevention education, sports team conditioning programs
including event and game coverage, and private personal training.
23
The occupational therapists, physiotherapists, chiropractors, massage
therapists, chiropodists and kinesiologists contracted, by NHL, to provide
occupational therapy, physical therapy and fall prevention assessment services
are registered with the College of Occupational Therapists of Ontario, the
College of Physiotherapists of Ontario, College of Chiropractors of Ontario,
College of Massage Therapists of Ontario, College of Chiropodists of Ontario,
and the College of Kinesiologists of Ontario regulatory authorities.
Our strict adherence to public regulatory standards, as well as self-imposed
standards of excellence and regulation, have allowed us to navigate with ease
through the industry's licensing and regulatory framework. Compliant treatment,
data and administrative protocols are managed through a team of highly trained,
certified health care and administrative professionals. We and our affiliates
provide service to the Canadian property and casualty insurance industry,
resulting in a regulated framework governed by the Financial Services Commission
of Ontario.
Recent Developments
Coronavirus (COVID-19)
In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan,
Hubei Province, China. While initially the outbreak was largely concentrated in
China and caused significant disruptions to its economy, it has now spread to
several other countries and infections have been reported globally.
On March 17, 2020, as a result of COVID-19 infections having been reported
throughout both Canada and the United States, certain national, provincial,
state and local governmental issued proclamations and/or directives aimed at
minimizing the spread of COVID-19. Accordingly, on March 17, 2020, the Company
closed all corporate clinics for all in-clinic non-essential services to protect
the health and safety of its employees, partners and patients. On March 20,
2020, the Company announced the precautionary measures taken as well as
announcing the business impact related to the coronavirus (COVID-19) pandemic.
Operating under COVID-19 related governmental proclamations and directives,
between March 17, 2020 and June 1, 2020, the Company provided in-clinic
multi-disciplinary primary healthcare services and products solely to patients
with emergency and essential need while also providing certain virtual based
services related to physiotherapy. In light of most eldercare related services
being deemed essential by national, provincial and local governmental
authorities in Canada, NHL's contracted eldercare related services have been
nominally impacted during the fiscal third quarter and we project the same for
the fiscal fourth quarter.
On May 26, 2020, the Ontario Ministry of Health announced updated guidance and
directives stating that physiotherapists, chiropractors and other regulated
health professionals, including all services and products provided by the
Company, can gradually and carefully begin providing all services, including
non-essential services, once the clinician and provider are satisfied all
necessary precautions and protocols are in place to protect the patients, the
clinician and the clinic staff. With all corporate clinics closed due to the
COVID-19 pandemic, with the exception of providing certain limited essential and
emergency services, the Company had furloughed 48 full-time employees and 35
part-time employees from its pre-closure levels of 81 full-time employees and 53
part-time employees.
On June 2, 2020, the Company commenced opening its corporate clinics and
providing non-essential services. As of June 9, 2020, the Company had opened all
corporate clinics while following all mandated guidelines and protocols from
Health Canada, the Ontario Ministry of Health, and the respective disciplines'
regulatory Colleges to ensure a safe treatment environment for our staff and
clients. Certain of these guidelines and protocols include both active and
passive screening for staff and clients, enhanced cleaning measures using only
Health Canada approved disinfectants and sanitizers, personal protective
equipment usage, appropriate signage and markers throughout the clinics, and
layout changes to the clinics to reflect proper physical distancing measures.
Additional, more restrictive proclamations and/or directives may be issued in
the future.
With our clinic facilities re-opened and operating under COVID-19 pandemic
related mandated guidelines and protocols, for the month ended November 30,
2020, NHL's clinic-based patient flow has met and exceeds 80% of the same period
in 2019. In addition, for the month ended November 30, 2020, NHL's eldercare
contract services provided have met and exceed 92% of the same period in 2019.
As of November 30, 2020, the Company has 73 full-time employees and 54 part-time
employees.
24
Assuming no additional "lockdowns" or new material directives are implemented
limiting the Company's ability to provide both its clinic and eldercare
community related services, for fiscal year 2021, the Company projects a steady
month-over-month increase as (i) recommended guidelines for patient-clinician
on-site interaction are eased, and (ii) more overall movement restrictions are
reduced and people are more comfortable in public spaces.
The ultimate impact of the COVID-19 pandemic on the Company's operations remains
unknown and will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, including the duration of the COVID-19
outbreak, new information which may emerge concerning the severity of the
COVID-19 pandemic, and any additional preventative and protective actions that
governments, or the Company, may direct, which may result in an extended period
of continued business disruption, reduced patient traffic and reduced
operations. The full long-term financial impact cannot be reasonably estimated
at this time but is anticipated to have a material adverse impact on our
business, financial condition, and results of operations.
The measures taken to date will impact the Company's fiscal year 2021 business
and potentially beyond. Management expects that all of its business segments,
across all of its geographies, will be impacted to some degree, but the
significance of the full impact of the COVID-19 outbreak on the Company's
business and the duration for which it may have an impact cannot be determined
at this time.
For more on the financial impact of COVID-19 on the Company's fiscal year first
quarter, see "-Liquidity and Capital Resources-Financial Impact of COVID-19" of
this quarterly report on Form 10-Q.
Asset Purchase Agreement
On December 11, 2020, the Company entered into that certain Asset Purchase
Agreement by and between the Company and 2794512 Ontario Inc. (the "Seller")
(the "2794512 APA"), pursuant to which the Company agreed to purchase, and
Seller agreed to sell, generic primary and sub-primary drug formulations (known
as bioequivalence) of name brand pharmaceutical reference products related to
usage as injectables, ophthalmic, and topical applications. Pursuant to the
terms of the 2794512 APA, the purchase price is $876,000. As consideration for
payment of the 2794512 APA, the Company issued 2,400,000 restricted shares of
common stock. The shares were issued on December 15, 2020.
Reverse Stock Split
On November 9, 2020, stockholders of the Company approved an amendment to the
Company's Articles of Incorporation, as amended (the "Articles"), to effect a
reverse stock split of the Company's outstanding shares of common stock, at a
ratio of no less than 1-for-5 and no more than 1-for-10, with such ratio to be
determined by the sole discretion of the Board of Directors, with any fractional
shares being rounded up to the next higher whole shares (the "Reverse Split").
On November 9, 2020, the Company's Board of Directors approved the Reverse Split
in a ratio of 1-for-10 and the Company filed a certificate of amendment to the
Articles implementing the Reverse Split in a ratio of 1-for-10 effective
November 30, 2020.
On November 23, 2020, in order to change the effective date of the Reverse Split
to December 10, 2020, the Company terminated the November 9, 2020 certificate of
amendment and filed a new certificate of amendment to the Articles implementing
the Reverse Split in a ratio of 1-for-10 effective December 10, 2020.
On December 4, 2020, the Company temporarily delayed the Reverse Split. In order
to delay the effective date of the Reverse Split, the Company terminated the
November 23, 2020 certificate of amendment and filed a new certificate of
amendment to the Articles implementing the Reverse Split in a ratio of 1-for-10
effective January 29, 2021; provided, however, that in no event will the Reverse
Split become effective until it has been processed by the Financial Industry
Regulatory Authority.
25
LA Fitness U.S. License Agreement & Guaranty
On September 24, 2019, Novomerica Health Group Inc. ("Novomerica"), a wholly
owned subsidiary of the Company, entered into a Master Facility License
Agreement with Fitness International, LLC and Fitness & Sports Clubs, LLC
(together with Fitness International, LLC, "LA Fitness U.S."). The Master
Facility License Agreement was amended on February 4, 2020, pursuant to the
terms of that certain First Amendment to Master Facility License Agreement
between Novomerica and Fitness International, LLC ("U.S. License Agreement").
Pursuant to the terms of the U.S. License Agreement, the parties agreed that
from time to time as set forth in the U.S. License Agreement or as the parties
otherwise agree, Novomerica may wish to identify sublicensees to provide certain
services in facilities operated by LA Fitness U.S., and LA Fitness U.S. may
desire to grant to such sublicenses the right to do the same. Upon execution of
applicable documentation as may be required by the U.S. License Agreement, the
sublicensee (which may be Novomerica, if Novomerica desires to provide Services
(as hereinafter defined) itself) shall have the right, subject to the terms of
the U.S. License Agreement, to (i) occupy and use, on an exclusive basis, for
the purposes of providing outpatient physical and/or occupational therapy as
provided in the U.S. License Agreement (the "Services"), with the applicable LA
Fitness U.S. facility, and (ii) access and use, on a non-exclusive basis, for
the purpose of providing the Services, the applicable facility's equipment and a
pool lane, and (iii) use, on a non-exclusive basis, the applicable facility's
common areas solely as necessary to access the facility's service area,
equipment and a pool lane.
Pursuant to the terms of the U.S. License Agreement, five separate initial
licenses in Ohio were granted. Novomerica agreed to develop and open for
business (a) at least two of such facilities by June 30, 2020, (b) at least two
additional facilities by September 30, 2020, and (c) the final remaining
facility by December 31, 2020 ("U.S. Development Schedule"). Pursuant to the
terms of the U.S. License Agreement, in the event that Novomerica fails to meet
the U.S. Development Schedule, the initial licenses that Novomerica has
developed and opened for business will remain unaffected; however, Novomerica
will lose the right to develop the remaining licenses.
With respect to each license granted under the U.S. License Agreement, for the
period beginning as of the commencement date of each such license and continuing
until the expiration or earlier termination of such license, Novomerica shall
pay to LA Fitness U.S. a monthly payment in an agreed upon amount.
Unless sooner terminated as provided in the U.S. License Agreement, the term of
the U.S. License Agreement shall expire simultaneously with the expiration of
earlier termination of the License Term (as such term is defined in the U.S.
License Agreement) of the last remaining license granted under the U.S. License
Agreement.
Pursuant to the terms of the U.S. License Agreement, the Company agreed to
execute that certain Guaranty Agreement (the "U.S. Guaranty") dated September
24, 2019 by and between the Company and LA Fitness U.S. Pursuant to the terms of
the U.S. Guaranty, the Company irrevocably guaranteed the full, unconditional
and prompt payment and performance of all of Novomerica's obligations and
liabilities under the U.S. License Agreement.
In March 2020, as a result of guidelines issued by local, state, and federal
authorities due to the COVID-19 pandemic, LA Fitness U.S. closed all facilities
nationwide. Currently, under both government and internal corporate directives,
LA Fitness U.S. is cautiously opening certain facilities to limited access and
services. As a result, all contractual terms and conditions of our U.S. License
Agreement are on hold, with all parties indicating the intention to amend the
U.S. License Agreement and its timelines once "normal" activity resumes in the
LA Fitness U.S. facilities. Re-engagement of the contract terms may vary from
state to state; however, our model plan to partner and sub-license with existing
local clinic ownership to launch and operate each LA Fitness U.S. based
micro-clinic remains intact.
Specific to the impact of COVID-19 on LA Fitness U.S. operations and the
ever-changing conditions surrounding the re-opening of LA Fitness U.S.
facilities, we are unable to verify our schedule to commence opening our
micro-clinics. The Company has ongoing communications with LA Fitness U.S. to
best determine the timing of launching out micro-clinics. Furthermore, in our
discussions with LA Fitness U.S., all parties agree that the pandemic has
created renewed awareness of health wellness as a lifestyle rather than as a
treatment. LA Fitness U.S. continues to indicate the desire to continue our
contractual agreements upon LA Fitness U.S. re-opening facilities post-pandemic.
We believe that the addition of our micro-clinics to LA Fitness U.S. facilities
further enhances the benefits available to the facilities' membership by
providing direct access to certain multidimensional primary healthcare services.
26
LA Fitness Canada License Agreement & Guaranty
On September 24, 2019, NHL entered into a Master Facility License Agreement with
LAF Canada Company ("LA Fitness Canada"). The Master Facility License Agreement
was amended on February 4, 2020, pursuant to the terms of that certain First
Amendment to Master Facility License Agreement between NHL and LA Fitness Canada
("Canada License Agreement").
Pursuant to the terms of the Canada License Agreement, the parties agreed that
from time to time as set forth in the Canada License Agreement or as the parties
otherwise agree, NHL may wish to identify sublicensees to provide certain
services in facilities operated by LA Fitness Canada, and LA Fitness Canada may
desire to grant to such sublicensees the right to do the same. Upon execution of
applicable documentation as may be required by the Canada License Agreement, the
sublicensee (which may be NHL, if NHL desires to provide Services (as
hereinafter defined) itself) shall have the right, subject to the terms of the
Canada License Agreement, to (i) occupy and use, on an exclusive basis, for the
purposes of providing the Services, with the applicable LA Fitness Canada
facility, and (ii) access and use, on a non-exclusive basis, for the purpose of
providing the Services, the applicable facility's equipment and a pool lane, and
(iii) use, on a non-exclusive basis, the applicable facility's common areas
solely as necessary to access the facility's service area, equipment and a pool
lane.
Pursuant to the terms of the Canada License Agreement, 17 separate initial
licenses in Ontario, Canada and Alberta, Canada were granted. NHL agreed to
develop and open for business (a) at least four of such facilities by March 31,
2020, (b) at least six additional facilities by June 30, 2020, (c) at least six
additional facilities by September 30, 2020, and (4) the final remaining
facility by December 31, 2020 (the "Canada Development Schedule"). Pursuant to
the terms of the Canada License Agreement, in the event that NHL fails to meet
the Canada Development Schedule, the initial licenses that NHL has developed and
opened for business will remain unaffected; however, NHL will lose the right to
develop the remaining licenses.
As defined in the Canada License Agreement, NHL has provided the initial four
deposits due by March 31, 2020. In addition, NHL has engaged clinicians to
sublicense the roll-out and operation of micro-clinics as defined in the Canada
License Agreement clinics in LAF.
With respect to each license granted under the Canada License Agreement, for the
period beginning as of the commencement date of each such license and continuing
until the expiration or earlier termination of such license, NHL shall pay to LA
Fitness Canada a monthly payment in an agreed upon amount.
Unless sooner terminated as provided in the Canada License Agreement, the term
of the Canada License Agreement shall expire simultaneously with the expiration
of earlier termination of the License Term (as such term is defined in the
Canada License Agreement) of the last remaining license granted under the Canada
License Agreement.
Pursuant to the terms of the Canada License Agreement, the Company agreed to
execute that certain Guaranty Agreement (the "Canada Guaranty") dated September
24, 2019 by and between the Company and LA Fitness Canada. Pursuant to the terms
of the Canada Guaranty, the Company irrevocably guaranteed the full,
unconditional, and prompt payment and performance of all of NHL's obligations
and liabilities under the Canada License Agreement.
In March 2020, as a result of guidelines issued by local, provincial, and
federal authorities due to the COVID-19 pandemic, LA Fitness Canada closed all
facilities nationwide. Currently, under both government and internal corporate
directives, LA Fitness Canada is cautiously opening certain facilities to
limited access and services. As a result, all contractual terms and conditions
of our Canada License Agreement are on hold with all parties indicating the
intention to amend the Canada License Agreement and its timelines once "normal"
activity resumes in the LA Fitness Canada facilities. Re-engagement of the
contract terms may vary from state to state; however, our model plan to partner
and sub-license with existing local clinic ownership to launch and operate each
LA Fitness Canada based micro-clinic remains intact.
27
Specific to the impact of COVID-19 on LA Fitness Canada operations and the
ever-changing conditions surrounding the re-opening of LA Fitness Canada
facilities, we are unable to verify our schedule to commence opening our
micro-clinics. The Company has ongoing communications with LA Fitness Canada to
best determine the timing of launching out micro-clinics. Furthermore, in our
discussions with LA Fitness Canada, all parties agree that the pandemic has
created renewed awareness of health wellness as a lifestyle rather than as a
treatment. LA Fitness Canada continues to indicate the desire to continue our
contractual agreements upon the re-opening of LA Fitness Canada facilities
post-pandemic. We believe that the addition of our micro-clinics to LA Fitness
Canada facilities further enhances the benefits available to the facilities'
membership by providing direct access to certain multidimensional primary
healthcare services.
Regulation A+ Offering
Beginning on June 29, 2020, in a "Tier 2 Offering," pursuant to an Offering
Circular on Form 1-A, as amended, pursuant to Regulation A, the Company offered,
on a self-underwritten "best efforts" basis, up to 15,000,000 shares of its
common stock, with an aggregate amount of $30,000,000. The initial public
Offering price per share of the Company's common stock is $1.50 per share
pursuant to the Offering. There is no minimum number of shares that needs to be
sold in order for funds to be released to the Company and for the Offering to
close. The minimum investment amount per investor is $1,050 (700 shares of
common stock), subject to waiver by the Company. As of November 30, 2020, no
shares have been sold and no funds have been raised through this Regulation A+
Offering.
For the three months ended November 30, 2020 compared to the three months ended
November 30, 2019
Revenues for the three months ended November 30, 2020 were $2,155,506,
representing a decrease of $393,104, or 15.4%, from $2,548,610 for the same
period in 2019. The decrease in revenue is principally due to the COVID-19
pandemic. We have rebounded from the closure of our clinics earlier in 2020, but
revenues have not fully returned to historical levels.
Cost of revenues for the three months ended November 30, 2020 were $1,344,056,
representing a decrease of $288,885 or 17.7%, from $1,632,941 for the same
period in 2019. The decrease in cost of revenues is principally due the decrease
in revenue as described above. Cost of revenues as a percentage of revenue was
62.4% for the three months ended November 30, 2020 and 64.1% for same period in
2019. The decrease in cost of revenues as a percentage of revenue is principally
due to the Canada Emergency Wage Subsidy (CEWS) claimed as part of Canada's
COVID-19 Economic Response Plan that offset the salary expense for clinical
workers.
Operating costs for the three months ended November 30, 2020 were $1,569,174,
representing an increase of $576,680, or 58.1%, from $992,494 for the same
period in 2019. The increase in operating costs is principally due to an
increase in amortization of intangible assets and common stock issued for
services; offset by decrease in salary expense due to the CEWS claimed as part
of Canada's COVID-19 Economic Response Plan that offset the salary expense for
office staff.
Interest expense for the three months ended November 30, 2020 was $23,941,
representing a decrease of $16,388, or 40.6%, from $40,329 for the same period
in 2019. The decrease is due to reduction of interest bearing debt.
Net loss for the three months ended November 30, 2020 was $773,103, representing
an increase of $684,144, or 769.1%, from $88,959 for the same period in 2019.
The increase in net loss is principally due to a 15.4% decline in revenue and an
increase in operating costs related to an increase in amortization of intangible
assets and an increase in common stock issued for services.
Liquidity and Capital Resources
As shown in the accompanying financial statements, for the three months ended
November 30, 2020, the Company had a net loss of $773,103.
During the three months ended November 30, 2020, the Company used cash in
operating activities of $148,103 compared to $297,863 for the same period in
2019. The principal reason for the decrease is the noncash expenses and the
decrease in accounts receivable.
During the three months ended November 30, 2020, the Company provided cash from
investing activities of $0 compared to $114,015 for the same period in 2019.
During the period in 2019, the Company received $378,200 from the return of a
previous acquisition deposit and made a payment for a deposit on another
potential acquisition of $264,185. During the period in 2020 there were no
return of or payment for acquisition deposits.
28
During the three months ended November 30, 2020, the Company provided cash from
financing activities of $43,611 compared to $30,147 for the same period in 2019.
The principal reason for the increase in cash provided by financing activities
was a decrease in the repayments to related parties offset by a decrease in the
proceeds received from the sale of common stock.
On September 24, 2020, the Company sold 219,048 restricted shares of common
stock to an accredited investor residing outside the United States for a
purchase price of $92,000, resulting in an effective price per share of $0.42.
The shares were issued on September 24, 2020.
Financial Impact of COVID-19
On March 17, 2020, as a result of COVID-19 infections having been reported
throughout both Canada and the United States, certain national, provincial,
state and local governmental authorities issued proclamations and/or directives
aimed at minimizing the spread of COVID-19. Accordingly, on March 17, 2020, the
Company closed all corporate clinics to protect the health and safety of its
employees, partners and patients. On March 20, 2020, the Company announced the
precautionary measures taken as well as announcing the business impact related
to the coronavirus (COVID-19) pandemic.
As a result of certain provincial proclamations and/or directives issued due to
the COVID-19 pandemic, NHL's clinic operations, which historically represent
approximately 53% of the Company's top-line revenue, were closed on March 17,
2020 for all in-clinic non-essential services while only providing certain
virtual based and in-clinic emergency services. Accordingly, the Company's
top-line revenue for the fiscal first quarter (ended November 30, 2020) was
adversely impacted with a top-line revenue reduction of 15.4% compared to the
same period in 2019. However, the pandemic driven clinic shutdown is proving to
have nominal effect on NHL's clinic operating income for the fiscal first
quarter ended November 30, 2020 as compared to the same period in 2019.
As a result of certain provincial proclamations and/or directives issued due to
the COVID-19 pandemic, most of NHL's contracted eldercare services, which
historically represent approximately 45% of the Company's overall top-line
revenue, have been identified as essential; thus, we saw nominal impact on our
eldercare division's fiscal year 1st quarter (ended November 30, 2020) top-line
and bottom-line revenue. We project a nominal impact on our fiscal year 2021
top-line and bottom-line revenue as it relates to the eldercare division
NHL's accounts receivable primarily are comprised of third-party major Canadian
insurer accounts in which the collection process, while arduous, provides the
Company with a high percentage of success for collection. The percentage for
"non-collectable" receivables remains at levels that are typical based on
historical data review. In addition, the pandemic has allowed for concentrated
successful efforts in collecting existing receivables.
Specific to our current working capital position, as a result of the COVID-19
pandemic, the Company is able to participate in certain ongoing relief
assistance programs provided for under Canada's COVID-19 Emergency Response Plan
and the United States CARES Act which provides access to funds for expenses such
as wage subsidy, corporate forgivable loan programs and rental subsidy. Based on
all the above noted factors, the Company's fiscal first quarter (ended November
30, 2020) cash and cash equivalents was $1,970,391 which was less than our
fiscal year end (ended August 31, 2020) cash and cash equivalents position of
$2,067,718.
As a result of the pandemic driven clinic shutdown, the Company projects no
measurable liquidity deficiency. In addition, our identified assets (goodwill
inclusive) are largely non-affected as the vast majority are related to business
growth as identified in our business growth initiatives.
On May 26, 2020, the Ontario Ministry of Health announced updated guidance and
directives stating that physiotherapists, chiropractors and other regulated
health professionals, including all services and products provided by the
Company, can gradually and carefully begin providing all services, including
non-essential services, once the clinician and provider are satisfied all
necessary precautions and protocols are in place to protect the patients, the
clinician and the clinic staff.
29
On June 2, 2020, the Company commenced opening its corporate clinics and
providing non-essential services. As of June 9, 2020, the Company had opened all
corporate clinics while following all mandated guidelines and protocols from
Health Canada, the Ontario Ministry of Health, and the respective disciplines'
regulatory Colleges to ensure a safe treatment environment for our staff and
clients. Certain of these guidelines and protocols include both active and
passive screening for staff and clients, enhanced cleaning measures using only
Health Canada approved disinfectants and sanitizers, personal protective
equipment usage, appropriate signage and markers throughout the clinics, and
layout changes to the clinics to reflect proper physical distancing measures.
Additional, more restrictive proclamations and/or directives may be issued in
the future.
Based on no additional "lockdowns" or new material directives are implemented
limiting the Company's ability to provide both its clinic and eldercare
community related services, for fiscal year 2021 the Company projects a steady
month-over-month increase as (i) recommended guidelines for patient-clinician
on-site interaction are eased, and (ii) more overall movement restrictions are
reduced and people are more comfortable in public spaces.
The ultimate impact of the COVID-19 pandemic on the Company's operations remains
unknown and will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, including the duration of the COVID-19
outbreak, new information which may emerge concerning the severity of the
COVID-19 pandemic, and any additional preventative and protective actions that
governments, or the Company, may direct, which may result in an extended period
of continued business disruption, reduced patient traffic and reduced
operations. The full long-term financial impact cannot be reasonably estimated
at this time but is anticipated to have a material adverse impact on our
business, financial condition, and results of operations.
The measures taken to date will impact the Company's fiscal year 2021 business
and potentially beyond. Management expects that all of its business segments,
across all of its geographies, will be impacted to some degree, but the
significance of the full impact of the COVID-19 outbreak on the Company's
business and the duration for which it may have an impact cannot be determined
at this time.
Our capital requirements going forward will consist of financing our operations
until we are able to reach a level of revenues and gross margins adequate to
equal or exceed our ongoing operating expenses. We do not have any credit
agreement or source of liquidity immediately available to us.
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.
30
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. This applies in particular to useful lives
of non-current assets, impairment of non-current assets, allowance for doubtful
accounts, and valuation allowance for deferred tax assets. The actual results
experienced by the Company may differ materially and adversely from the
Company's estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be affected.
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).
Revenue Recognition
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 and healthcare related 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:
? executed contracts with the Company's customers that it believes are
legally enforceable;
? identification of performance obligations in the respective contract;
? determination of the transaction price for each performance obligation in
the respective contract;
? allocation of the transaction price to each performance obligation; and
? recognition of revenue only when the Company satisfies each performance
obligation.
These five elements, as applied to the Company's revenue category, are
summarized below:
? Healthcare and healthcare related services - gross service revenue is
recorded in the accounting records at the time the services are provided
(point-in-time) on an accrual basis at the provider's established rates.
The Company reserves a provision for contractual adjustment and discounts
that are deducted from gross service revenue. The Company reports revenues
net of any sales, use and value added taxes.
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.
31
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 June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments, which
changes the way entities measure credit losses for most financial assets and
certain other instruments that are not measured at fair value through net
earnings. The new standard is effective for annual periods beginning after
December 15, 2019, including interim periods within those annual periods. The
new standard will be effective for our fiscal year beginning September 1, 2020
and early adoption is permitted. The Company is currently evaluating the new
guidance to determine the impact it may have on its consolidated financial
statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for
Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is
intended to simplify accounting for income taxes by removing certain exceptions
to the general principles in ASC 740 and amending existing guidance to improve
consistent application of ASC 740. This update is effective for fiscal years
beginning after December 15, 2021. The guidance in this update has various
elements, some of which are applied on a prospective basis and others on a
retrospective basis with earlier application permitted. The Company is currently
evaluating the effect of this ASU on the Company's condensed consolidated
financial statements and related disclosures.
Management does not believe that any recently issued, but not yet effective,
accounting standards could have a material effect on the accompanying financial
statements. As new accounting pronouncements are issued, we will adopt those
that are applicable under the circumstances.
© Edgar Online, source Glimpses
NOVO INTEGRATED SCIENCES, INC. 
