Novo Integrated Sciences(NVOS) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Novo Integrated Sciences reported significant revenue decline and net loss for the nine months ended May 31, 2023, with a going concern warning Condensed Consolidated Balance Sheets Total assets decreased to $35.7 million, liabilities significantly reduced to $9.5 million due to debt conversion Condensed Consolidated Balance Sheet Highlights (unaudited) | Metric | May 31, 2023 | August 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $464,011 | $2,178,687 | | Total current assets | $3,998,058 | $5,731,795 | | Total Assets | $35,745,030 | $40,872,840 | | Liabilities & Equity | | | | Total current liabilities | $6,208,671 | $14,074,706 | | Convertible notes payable, net | $651,477 | $9,099,654 | | Total Liabilities | $9,453,746 | $18,825,269 | | Total stockholders' equity | $26,291,284 | $22,047,571 | Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues plummeted for both three and nine-month periods, with a $10.1 million net loss for the nine months ended May 31, 2023 Statement of Operations Summary (unaudited) | Metric | Three Months Ended May 31, 2023 | Three Months Ended May 31, 2022 | Nine Months Ended May 31, 2023 | Nine Months Ended May 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $3,292,933 | $13,851,883 | $9,268,722 | $19,883,033 | | Gross Profit | $1,314,094 | $2,408,882 | $4,024,530 | $4,891,702 | | Loss from Operations | ($1,430,418) | ($1,202,746) | ($5,459,188) | ($4,687,081) | | Net Loss | ($1,485,295) | ($3,744,025) | ($10,067,193) | ($10,428,624) | | Net Loss per Share | ($0.01) | ($0.13) | ($0.12) | ($0.37) | Condensed Consolidated Statements of Cash Flows Net cash used in operations improved to $2.0 million, but financing cash provided decreased sharply, leading to a $1.7 million net cash decrease Cash Flow Summary (unaudited) | Metric | Nine Months Ended May 31, 2023 | Nine Months Ended May 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,014,543) | ($6,559,907) | | Net cash (used in) provided by investing activities | ($18,870) | $162,654 | | Net cash provided by financing activities | $296,334 | $10,802,477 | | Net (decrease) increase in cash | ($1,714,676) | $4,384,284 | | Cash and cash equivalents, end of period | $464,011 | $12,677,446 | Notes to Condensed Consolidated Financial Statements Notes detail business structure, accounting policies, and significant financial events, including a going concern warning and convertible debt financings - The company has incurred recurring losses and has an accumulated deficit, raising substantial doubt about its ability to continue as a going concern. Management's plans to raise additional funds are ongoing and not assured[26][27] - During the nine months ended May 31, 2023, an aggregate of $8.4 million in principal and interest from the $16.66m+ convertible notes were converted into 85.3 million shares of common stock. The company also made cash repayments of $3.0 million on these notes[89][91] - Subsequent to the quarter end, the company entered into another securities purchase agreement with Mast Hill Fund for a $445,000 promissory note and warrants. Additionally, the Principal Financial Officer, Jim Zsebok, resigned on June 28, 2023, and Vivek Sethi was appointed as his replacement on July 7, 2023[143][149][150] Segment Revenue (Nine Months Ended May 31) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Healthcare services | $6,075,237 | $6,253,089 | | Product manufacturing and development | $2,576,196 | $13,629,944 | | Corporate | $617,289 | - | | Total | $9,268,722 | $19,883,033 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 53% revenue decline to decreased product sales, highlighting ongoing financing activities, Nasdaq non-compliance, and going concern risk Overview of the Company The company's decentralized healthcare model relies on Service Networks, Technology, and Products, with revenues split between healthcare services and product sales - The company's decentralized healthcare business model is centered on three pillars: Service Networks, Technology, and Products[159] - The company operates through two reportable segments: healthcare services and product sales. For the quarter ended May 31, 2023, these segments contributed 61% and 39% of total revenues, respectively[173] Recent Developments Recent developments include Nasdaq non-compliance, multiple financing agreements, a strategic acquisition attempt, and significant convertible note settlements - The company received a notification from Nasdaq for non-compliance with the minimum bid price requirement and has been granted an extension until November 20, 2023, to regain compliance[201][202] - On April 26, 2023, the company issued a $70 million, 15-year unsecured promissory note to RC Consulting Group, representing a significant capital infusion[229] - The company entered into an agreement to acquire SwagCheck Inc. to gain rights to a precious gem collection, intending to use it to raise capital. The transaction has been amended and has not yet closed[209][212] - During the nine-month period, the company issued an aggregate of 94.2 million shares of common stock to settle convertible notes with Hudson Bay, CVI, and Jefferson[237] Results of Operations Revenue decreased significantly for both periods due to product sales decline, while net loss for the nine months decreased to $10.1 million Financial Performance Comparison | Period | Metric | Q3 2023 | Q3 2022 | Change | 9M 2023 | 9M 2022 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | Total | $3.3M | $13.9M | -76% | $9.3M | $19.9M | -53% | | | Healthcare Services | $2.0M | $2.2M | -8% | $6.1M | $6.3M | -3% | | Cost of Revenues | Total | $2.0M | $11.4M | -83% | $5.2M | $15.0M | -65% | | Net Loss | Attributed to Novo | ($1.5M) | ($3.8M) | -61% | ($10.1M) | ($10.4M) | -4% | Liquidity and Capital Resources The company reported a $10.1 million net loss and used $2.0 million in operations cash, with financing cash significantly reduced, raising going concern doubts - For the nine months ended May 31, 2023, the company had a net loss of $10.1 million and used $2.0 million in cash for operating activities[261][262] - Cash provided by financing activities was only $296,334 for the nine months ended May 31, 2023, compared to $10.8 million in the same period of 2022, primarily due to large convertible note proceeds in the prior year[264] - The company has no credit agreements or immediate sources of liquidity and its capital requirements depend on financing operations until revenues can cover expenses[269] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company - The company has indicated that there are no applicable quantitative and qualitative disclosures about market risk[294] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of May 31, 2023, with no material changes to internal controls - The company's management concluded that as of May 31, 2023, its disclosure controls and procedures were not effective[296] - There were no changes in internal control over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, these controls[297] PART II – OTHER INFORMATION Legal Proceedings The company reports no material pending legal proceedings, other than ordinary routine litigation - As of the report date, there are no material pending legal proceedings against the company[299] Risk Factors No new risk factors are disclosed in this quarterly report - No new risk factors are disclosed in this quarterly report[300] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 955,000 shares of common stock on March 22, 2023, under a registration exemption - The company issued 955,000 shares of common stock on March 22, 2023, in a sale exempt from registration under Regulation S, Section 4(a)(2), and/or Rule 506 of Regulation D[301] Exhibits This section lists exhibits filed with the Form 10-Q, including various agreements and certifications