Novo Integrated Sciences(NVOS) - 2023 Q4 - Annual Report

Part I This section details the company's decentralized healthcare model, service networks, technology platforms, health products, recent strategic developments, and corporate history, alongside risk factors and operational disclosures Business Novo Integrated Sciences, Inc. operates a decentralized healthcare model focused on multidisciplinary primary care and wellness products, structured around three pillars: Service Networks (clinics and eldercare in Canada), Technology (telehealth and patient monitoring platforms), and Products (nutraceuticals and health solutions through subsidiaries like Acenzia and PRO-DIP). The company is pursuing growth through strategic acquisitions, expansion into the U.S. market, and development of its technology and product portfolios Business Overview The company provides multidisciplinary primary care and wellness products through a decentralized model integrating medical technology, advanced therapeutics, and rehabilitative science - The Company provides multidisciplinary primary care and wellness products through a decentralized model integrating medical technology, advanced therapeutics, and rehabilitative science[15] - Novo's business model is centered on three primary pillars: Service Networks for hands-on care, interconnected Technology for virtual services, and development of health and wellness Products[17][19] Service Networks The company operates 16 corporate-owned multidisciplinary primary health care clinics in Canada and maintains a contracted affiliate network, also providing eldercare services - The company operates 16 corporate-owned multidisciplinary primary health care clinics in Canada, providing services like physiotherapy, chiropractic care, and occupational therapy[20][21] - Novo maintains a contracted affiliate network of 127 clinics across Canada, which serves as a key referral source from a Preferred Provider Network (PPN) of 26 major insurance companies[25][26] - The company provides eldercare services, including physiotherapy and occupational therapy, to long-term care homes, retirement homes, and community-based locations across Ontario, Canada[32] - An agreement with LA Fitness to operate micro-clinics within their facilities was amended for Canada, removing specific opening timeline obligations, while the U.S. agreement's status remains uncertain[28][30][31] Technology Platforms The company is developing "Novo Connect" for patient health management, enhancing telehealth with diagnostic tools, and creating a Remote Patient Monitoring program - The company is developing 'Novo Connect,' a proprietary mobile application designed as a secure, cloud-based platform for patients to manage their health and wellness needs. It is in limited commercialization with a broader launch planned for spring 2024[41][44] - Novo is working to enhance its telehealth services by integrating sophisticated peripheral diagnostic tools (e.g., derma scope, otoscope) to improve the effectiveness of virtual visits[46] - A Remote Patient Monitoring (RPM) program is being developed to allow patients to collect and monitor real-time vital signs, maintaining a direct link to their clinician or practitioner from home[47] Health and Wellness Products The company has acquired Acenzia Inc. for nutraceuticals, PRO-DIP, LLC for oral pouches, and a controlling interest in Terragenx Inc. for iodine oral spray - Acquired Acenzia Inc., a company specializing in nutraceutical health solutions, advanced bio-science R&D, and personalized diagnostics, including a patented technology platform (Zgraft) for cancer cell analysis[51] - Acquired PRO-DIP, LLC, which developed a proprietary, patent-pending oral pouch (ION Energy) for delivering vitamins and natural energy supplements. The technology received U.S. Patent No. 11,273,965 in March 2022[53] - Acquired a 91% controlling interest in Terragenx Inc. and its intellectual property for IoNovo, a water-soluble, iodine micro-nutrient oral spray approved by the FDA and Health Canada for over-the-counter distribution[57] Recent Developments Recent developments include securing $3.77 million in financing, an agreement for $1 billion in collateral, a 1-for-10 reverse stock split, and the purchase of the "Ophir Collection" gemstones - In September 2023, the Company secured financing through promissory notes with Mast Hill Fund, L.P. for $3.5 million and FirstFire Global Opportunities Fund, L.P. for $277,778[62][69] - Entered into a Master (Asset Transfer) Agreement with Blacksheep Trust on September 27, 2023, for the transfer of $1 billion in collateral to be used by the Company for monetization[77] - Effectuated a 1-for-10 reverse stock split on November 7, 2023, and subsequently regained compliance with Nasdaq's minimum bid price requirement on November 22, 2023[84][89] - On November 21, 2023, the Company agreed to purchase the "Ophir Collection," a set of 43 gemstones, for $60 million from a court-appointed receiver, with the sale receiving court approval on December 1, 2023[85][87][94] Corporate History and Acquisitions The company, incorporated in 2000 as Turbine Truck Engines, Inc., changed its name to Novo Integrated Sciences, Inc. in 2017, following the acquisition of Novo Healthnet Limited and subsequent product portfolio expansions - The Company was incorporated as Turbine Truck Engines, Inc. in 2000, re-domiciled to Nevada in 2008, and changed its name to Novo Integrated Sciences, Inc. in 2017[192] - On May 9, 2017, the Company acquired Novo Healthnet Limited (NHL) through a share exchange agreement, making NHL a wholly-owned subsidiary and shifting the company's focus to healthcare[195][196] - Key acquisitions to build its product portfolio include PRO-DIP, LLC (May 2021), Acenzia Inc. (June 2021), and a 91% controlling interest in Terragenx Inc. (November 2021)[207][208][211] Risk Factors The Company faces numerous risks, including a history of operating losses and negative cash flow, challenges in implementing its growth strategy through acquisitions, and competition in the healthcare market. It is also subject to extensive healthcare regulations in both Canada and the U.S., which could impact reimbursement and operations. Additional risks relate to the successful commercialization of its technology platforms, potential changes in laws governing its planned CBD products, and the volatility of its common stock - The Company has a history of operating losses, reporting net losses of $13.2 million in FY2023 and $32.8 million in FY2022, with an accumulated deficit of $67.0 million as of August 31, 2023[233] - The healthcare industry is heavily regulated in both Canada and the U.S. Failure to comply with laws such as the Canada Health Act, HIPAA, Anti-Kickback Statute, and others could result in significant penalties and operational changes[230][318] - Successful commercialization of the Company's Medical Technology Platforms (Telemedicine, RPM, Novo Connect) is uncertain and depends on market acceptance, development of provider relationships, and platform reliability[230][388][392] - The planned entry into the medicinal CBD market is subject to regulatory risks, including potential changes in federal and state laws (such as the 2018 Farm Act) and FDA oversight, which could render products illegal or restrict sales[232][406][407] - The Company's common stock is classified as a "penny stock," which imposes additional sales practice requirements on broker-dealers and may reduce trading activity and liquidity[424] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[462] Properties The company's principal executive office is in Bellevue, Washington. Its Canadian subsidiary, Novo Healthnet Limited, has a corporate office in Vaughan, Ontario, and operates 16 corporate-owned clinics out of leased properties across Ontario, with lease terms expiring between 2023 and 2031 - The Company's U.S. corporate address is in Bellevue, Washington, for which it pays no rent[463] - Novo Healthnet Limited operates 16 corporate-owned clinics in Canada from leased properties with varying terms and monthly rents. The aggregate monthly rent for these clinics is approximately CAD$103,650[466][468] Legal Proceedings As of the filing date, the company is not a party to any material pending legal proceedings, other than ordinary routine litigation incidental to its business - The Company reports no material pending legal proceedings outside of ordinary routine litigation[469] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[470] Part II This section covers the company's common stock market, management's discussion and analysis of financial performance, liquidity, critical accounting policies, and audited financial statements, including internal controls Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq Capital Market under the symbol "NVOS". As of December 13, 2023, the closing price was $1.18 with approximately 527 shareholders of record. The company has not paid cash dividends and does not anticipate doing so. During fiscal year 2023, several unregistered stock issuances were made for transactions including warrant exchanges, consulting agreements, and securities purchase agreements - The Company's common stock is traded on the Nasdaq Capital Market under the symbol "NVOS"[472] - As of December 13, 2023, there were approximately 527 shareholders of record[473] - The Company has not paid any cash dividends and does not plan to in the foreseeable future[474] - During fiscal year 2023, the Company issued unregistered common stock for various purposes, including share exchanges, securities purchase agreements, and consulting services, under exemptions from registration[476][477][483] Management's Discussion and Analysis of Financial Condition and Results of Operations For fiscal year 2023, revenues increased 7% to $12.6 million, driven by product sales, while the net loss attributed to the company decreased by 60% to $13.2 million, primarily due to lower operating costs and the absence of impairment charges recorded in the prior year. The company has a history of net losses and negative operating cash flow, raising substantial doubt about its ability to continue as a going concern. Management is pursuing debt financing and public offerings to secure funding Results of Operations This section analyzes the company's financial performance for fiscal years 22 and 23, highlighting changes in revenues, operating costs, and net loss Fiscal Year 2023 vs. 2022 Performance | Metric | FY 2023 | FY 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $12,572,019 | $11,737,937 | 7% Increase | | Cost of Revenues | $7,619,304 | $6,938,699 | 10% Increase | | Operating Costs | $13,505,877 | $29,825,915 | 55% Decrease | | Other Expense | $4,716,282 | $8,040,803 | 41% Decrease | | Net Loss (Attributed to Novo) | $13,214,552 | $32,849,215 | 60% Decrease | - The 7% increase in revenue was principally due to higher product sales. Revenue from healthcare services decreased by 2%[537] - The significant decrease in operating costs and net loss was primarily due to the absence of impairment charges for intangible assets and goodwill, which were recognized in fiscal year 2022[539][541] Liquidity and Capital Resources This section examines the company's cash flow, recurring losses, and accumulated deficit, outlining management's strategies to address liquidity and secure funding Cash Flow Summary (Fiscal Years Ended August 31) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($2,243,315) | ($5,884,145) | | Net Cash (Used in)/Provided by Investing Activities | ($49,224) | $163,459 | | Net Cash Provided by/(Used in) Financing Activities | $763,860 | ($427,117) | - The Company has incurred recurring net losses ($13.3 million in FY2023, $33.0 million in FY2022), which raises substantial doubt about its ability to continue as a going concern[542][620] - Management is actively seeking to raise funds through debt financing and a subsequent public offering to alleviate liquidity concerns[621] Critical Accounting Policies and Estimates This section describes the significant management judgments and estimates applied in financial reporting, including going concern, asset impairment, and revenue recognition - The preparation of financial statements requires significant management estimates, particularly regarding going concern assessment, useful lives and impairment of non-current assets, allowance for doubtful accounts, and valuation of share-based compensation[553] - Goodwill is not amortized but is tested for impairment annually. In FY2022, an impairment charge of $1,357,043 related to the Acenzia acquisition was recorded. No additional impairment was identified in FY2023[559] - Revenue is recognized under Topic 606. Healthcare service revenue is recorded at the time services are provided, while product sales revenue is recorded at the point of delivery[567][654] - A full valuation allowance is established against all net deferred tax assets due to the uncertainty of their realization, given the Company's history of losses[562][762] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal years ended August 31, 2023, and 2022. The independent auditor's report includes a "Going Concern" paragraph, highlighting that the company's recurring losses, negative cash flows, and accumulated deficit raise substantial doubt about its ability to continue as a going concern - The Report of Independent Registered Public Accounting Firm includes a "Going Concern" paragraph, citing recurring losses, negative cash flows from operations, and an accumulated deficit as factors that raise substantial doubt about the Company's ability to continue as a going concern[585] Consolidated Balance Sheet Highlights (As of August 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Assets | $35,563,047 | $40,872,840 | | Total Liabilities | $11,063,972 | $18,825,269 | | Total Stockholders' Equity | $24,499,075 | $22,047,571 | | Accumulated Deficit | ($67,033,041) | ($53,818,489) | Consolidated Statement of Operations Highlights (For the Year Ended August 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $12,572,019 | $11,737,937 | | Gross Profit | $4,952,715 | $4,799,238 | | Loss from Operations | ($8,553,162) | ($25,026,677) | | Net Loss | ($13,269,444) | ($33,045,178) | | Net Loss per Share | ($1.30) | ($11.28) | Controls and Procedures Management concluded that the company's disclosure controls and procedures and its internal control over financial reporting were not effective as of August 31, 2023. A material weakness was identified due to a lack of segregation of duties. The company contracts with an outside certified public accountant to assist with its SEC filings - Management concluded that the Company's disclosure controls and procedures were not effective as of August 31, 2023[835] - Management identified a material weakness in its internal control over financial reporting due to a lack of segregation of duties[840] Part III This section outlines the company's corporate governance structure, executive compensation, beneficial ownership, related party transactions, and principal accounting fees Directors, Executive Officers and Corporate Governance The company's leadership includes Robert Mattacchione as Chairman & CEO and Christopher David as COO & President. The Board of Directors consists of five members, a majority of whom (Messrs. Pope, Flesias, and Ali) are determined to be independent under Nasdaq listing rules. The Board has established an audit committee, a compensation committee, and a nominating and corporate governance committee, each composed of independent directors - The executive team includes Robert Mattacchione (Chairman & CEO), Christopher David (COO, President), and Vivek Sethi (Principal Financial Officer)[845] - The Board of Directors has five members, with a majority (three members: Michael Pope, Alex Flesias, and Sarfaraz Ali) determined to be independent[861][862] - The Board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance, all comprised of independent directors[865] Executive Compensation For fiscal year 2023, CEO Robert Mattacchione's total compensation was $185,000, and COO-President Christopher David's was $434,561, which included a significant option award. Executive agreements include base salaries and performance-based bonuses tied to net income and market capitalization milestones. The company's stockholders approved a new 2023 Equity Incentive Plan, and the Board adopted a new clawback policy in November 2023 FY 2023 Named Executive Officer Compensation | Name | Position | Salary | Option Awards | Total Compensation | | :--- | :--- | :--- | :--- | :--- | | Robert Mattacchione | CEO | $185,000 | $0 | $185,000 | | Christopher David | COO-President | $171,000 | $263,561 | $434,561 | - Executive employment agreements for the CEO and COO include performance bonuses tied to positive net income and increases in the company's market capitalization[883][893] - Stockholders approved the 2023 Equity Incentive Plan, authorizing 2,500,000 shares for issuance as various stock-based awards to attract and retain key personnel[903][911] - On November 22, 2023, the Board adopted a Compensation Recovery Policy (clawback policy) to comply with Section 10D of the Exchange Act, allowing for the recovery of incentive-based compensation in the event of an accounting restatement[925] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 14, 2023, CEO Robert Mattacchione beneficially owned approximately 7.48% of the company's outstanding common stock, primarily through ALMC-ASAP Holdings, Inc. All directors and executive officers as a group beneficially owned 9.45%. The company maintains several equity compensation plans, with the newest being the 2023 Equity Incentive Plan, which authorizes 2.5 million shares for future issuance - CEO Robert Mattacchione is the largest insider beneficial owner, holding 7.48% of outstanding common stock through ALMC-ASAP Holdings, Inc. and his family trust[933] - All directors and executive officers as a group beneficially own 9.45% of the outstanding common stock[933] - The Company has multiple equity compensation plans, with 2,737,424 shares remaining available for future issuance as of August 31, 2023, the majority of which (2,500,000 shares) are under the newly approved 2023 Equity Incentive Plan[938][943] Certain Relationships and Related Transactions, and Director Independence The company has several related party transactions, primarily consisting of outstanding advances and debentures. As of August 31, 2023, advances due to related parties (stockholders, officers, and affiliates) totaled $533,001. Additionally, debentures with a principal balance of $916,824 were outstanding to related parties, stemming from a 2013 asset acquisition, with a maturity date extended to December 1, 2023 - As of August 31, 2023, the Company had outstanding advances totaling $533,001 due to related parties, including stockholders and officers[946][949] - The Company has outstanding debentures with a principal amount of $916,824 due to related parties, originating from a 2013 asset acquisition. The maturity date for these debentures was extended to December 1, 2023[947][948] Principal Accounting Fees and Services Fruci & Associates II, PLLC was appointed as the company's independent registered public accounting firm on July 27, 2022. For the fiscal year ended August 31, 2023, the total fees billed by Fruci were $165,000, all of which were for audit fees Audit Fees (Fruci & Associates II, PLLC) | Fee Category | Fiscal Year 2023 | Fiscal Year 2022 | | :--- | :--- | :--- | | Audit Fees | $165,000 | $ - | | Audit-Related Fees | - | - | | Tax Fees | - | - | | All Other Fees | - | - | | Total | $165,000 | $ - | - Fruci & Associates II, PLLC was appointed as the Company's independent auditor on July 27, 2022[950]