Novo Integrated Sciences(NVOS) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Revenue surged to $19.9 million, but net loss widened to $10.4 million due to increased operating costs and debt financing expenses Condensed Consolidated Balance Sheets Total assets increased to $71.8 million, driven by cash and receivables, while liabilities rose to $27.4 million due to new convertible notes Condensed Consolidated Balance Sheet Highlights (unaudited) | Balance Sheet Item | May 31, 2022 | August 31, 2021 | | :--- | :--- | :--- | | Total Assets | $71,792,814 | $61,958,281 | | Total current assets | $20,078,685 | $11,133,509 | | Goodwill | $11,366,618 | $9,488,848 | | Total Liabilities | $27,364,847 | $18,154,126 | | Convertible notes payable, net | $12,127,017 | $- | | Total current liabilities | $12,730,450 | $8,463,923 | | Total Stockholders' Equity | $44,427,967 | $43,804,155 | Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues surged to $19.9 million, but net loss widened significantly to $10.4 million due to increased costs, operating expenses, and debt-related charges Statement of Operations Highlights (unaudited) | Metric | Nine Months Ended May 31, 2022 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | | Revenues | $19,883,033 | $6,612,374 | | Gross Profit | $4,891,702 | $2,843,354 | | Loss from Operations | ($4,687,081) | ($2,485,640) | | Amortization of debt discount | ($3,654,752) | $- | | Net Loss | ($10,428,624) | ($2,528,965) | | Net Loss per Share | ($0.37) | ($0.10) | Condensed Consolidated Statements of Cash Flows Net cash used in operations increased to $6.6 million, while financing activities provided $10.8 million, primarily from new convertible notes, increasing cash to $12.7 million Cash Flow Summary (unaudited) | Cash Flow Activity | Nine Months Ended May 31, 2022 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,559,907) | ($279,280) | | Net cash provided by (used in) investing activities | $162,654 | ($681,409) | | Net cash provided by financing activities | $10,802,477 | $7,162,046 | | Net Increase in Cash | $4,384,284 | $6,299,327 | | Cash and cash equivalents, end of period | $12,677,446 | $8,367,045 | Notes to Condensed Consolidated Financial Statements Notes detail business structure, recent acquisitions, significant convertible note financing, customer concentration risk, and subsequent debt repayments and board changes - The company's business model is centered on three pillars: Service Networks, Technology, and Products, aiming to decentralize non-catastrophic healthcare delivery[19][20] - In December 2021, the company issued $16.67 million in convertible notes, and in November 2021, its subsidiary Terragenx issued $1.875 million in convertible notes, significantly increasing debt and future potential dilution[83][86] - The company completed several acquisitions to expand its business, including Terragenx (Nov 2021), 1285 Canada Corp. (Mar 2022), Fairway Physiotherapy (Mar 2022), and Clinical Consultants International (Apr 2022)[110][120][125][131] - A significant customer concentration exists, with one customer accounting for approximately 70% of sales during the three months ended May 31, 2022, and 40% of accounts receivable[63] - Subsequent to the quarter end, in June 2022, the company made several large debt payments totaling over $7.6 million and undertook a major board restructuring, with three directors resigning and one new independent director appointed[139][144][145] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue increased 200.7% to $19.9 million, but net loss grew 313.1% to $10.4 million due to acquisition overhead, interest expense, and debt amortization Results of Operations Comparison (Nine Months Ended May 31) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $19,883,033 | $6,612,374 | +200.7% | | Cost of Revenues | $14,991,331 | $3,769,020 | +297.8% | | Operating Costs | $9,578,783 | $5,328,994 | +79.7% | | Interest Expense | $1,808,310 | $68,590 | +2,536% | | Net Loss | ($10,421,808) | ($2,522,527) | +313.1% | - The increase in revenue is principally due to outsourced product sales, IoNovo iodine, and the acquisitions of Acenzia and Terragenx[208] - The increase in net loss was driven by higher overhead from acquisitions (approx. $2.4 million), increased interest expense from new convertible notes, and $3.7 million in amortization of debt discounts[210][211][212][214] - The company's liquidity was supported by net proceeds of $15.27 million from the issuance of convertible notes in November and December 2021[219] - COVID-19 negatively impacted the healthcare services segment, with revenue decreasing 7.6% in Q3 2022 compared to Q3 2021 due to a virus surge in Ontario and related staffing shortages[222] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company for this reporting period - The company states that this item is not applicable[253] Controls and Procedures The company's disclosure controls and procedures were deemed ineffective as of May 31, 2022, with no material changes to internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were not effective as of May 31, 2022[254] - There were no changes in internal control over financial reporting during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[255] PART II – OTHER INFORMATION Legal Proceedings The company reports no material pending legal proceedings outside of ordinary routine litigation incidental to its business - As of the report date, there are no material pending legal proceedings, other than ordinary routine litigation incidental to the business[257] Risk Factors The company did not report any new or updated risk factors in this section for the quarter - This section is marked as 'None', indicating no new risk factors are being disclosed in this report[258] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 1,125,000 restricted common shares in unregistered sales for various agreements, utilizing Regulation S, Section 4(a)(2), and/or Rule 506 exemptions - Issued 75,000 restricted shares for Independent Contractor Agreements in March 2022[259] - Issued 800,000 restricted shares for a Membership Interest Purchase Agreement in April 2022[260] - Issued 275,000 restricted shares for a Consulting Agreement and a prior Share Exchange Agreement in May 2022[261] Defaults Upon Senior Securities The company reports no defaults on any material payments upon senior securities during the reporting period - There have been no defaults in any material payments during the covered period[263] Other Information The company reports no other material information and no material changes to procedures for security holders to recommend Board nominees - There have been no material changes to the procedures for security holders to recommend nominees to the Company's Board of Directors[265]