The following discussion and analysis of the financial condition and results of
operations of Novo Integrated Sciences, Inc. and its subsidiaries (collectively,
the "Company" or "Novo Integrated") should be read in conjunction with our
consolidated financial statements and the accompanying notes thereto included
elsewhere in this Annual Report on Form 10-K. References in this Management's
Discussion and Analysis of Financial Condition and Results of Operations to
"us," "we," "our," and similar terms refer to the Company. This Annual Report on
Form 10-K includes forward-looking statements, as that term is defined in the
federal securities laws, based upon current expectations that involve risks and
uncertainties, such as plans, objectives, expectations and intentions. Actual
results and the timing of events could differ materially from those anticipated
in these forward-looking statements as a result of a number of factors. Words
such as "anticipate," "estimate," "plan," "continuing," "ongoing," "expect,"
"believe," "intend," "may," "will," "should," "could," and similar expressions
are used to identify forward-looking statements. We caution you that these
statements are not guarantees of future performance or events and are subject to
a number of uncertainties, risks and other influences, many of which are beyond
our control, which may influence the accuracy of the statements and the
projections upon which the statements are based. Reference is made to "Risk
Factors", which are included elsewhere in this Annual Report on Form 10-K.
Business Overview
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. For the period ended August 31, 2021, the Company's
revenue is generated primarily through its wholly owned Canadian subsidiaries.
We believe that "decentralizing" healthcare, through the integration of medical
technology and interconnectivity, is an essential solution to the rapidly
evolving fundamental transformation of how non-catastrophic healthcare is
delivered both now and in the future. Specific to non-critical care, ongoing
advancements in both medical technology and inter-connectivity are allowing for
a shift of the patient/practitioner relationship to the patient's home and away
from on-site visits to primary medical centers with mass-services. This
acceleration of "ease-of-access" in the patient/practitioner interaction for
non-critical care diagnosis and subsequent treatment minimizes the degradation
of non-critical health conditions to critical conditions as well as allowing for
more cost-effective healthcare distribution.
The Company's decentralized healthcare business model is centered on three
primary pillars to best support the transformation of non-catastrophic
healthcare delivery to patients and consumers:
? First Pillar: Service Networks. Deliver multidisciplinary primary care
services through (i) an affiliate network of clinic facilities, (ii) small and
micro footprint sized clinic facilities primarily located within the footprint
of box-store commercial enterprises, (iii) clinic facilities operated through
a franchise relationship with the Company, and (iv) corporate operated clinic
facilities.
? Second Pillar: Technology. Develop, deploy, and integrate sophisticated
interconnected technology, interfacing the patient to the healthcare
practitioner thus expanding the reach and availability of the Company's
services, beyond the traditional clinic location, to geographic areas not
readily providing advanced, peripheral based healthcare services, including
the patient's home.
? Third Pillar: Products. Develop and distribute effective, personalized health
and wellness product solutions allowing for the customization of patient
preventative care remedies and ultimately a healthier population. The
Company's science-first approach to product innovation further emphasizes our
mandate to create and provide over-the-counter preventative and maintenance
care solutions.
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Innovation through science combined with the integration of sophisticated,
secure technology assures Novo Integrated Sciences of continued cutting edge
advancement in patient first platforms.
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 affiliate clinics, and
eldercare related long-term care homes, retirement homes, and community-based
locations in Canada. As of August 31, 2021, the Company has 73 full-time
employees and 56 part-time employees.
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.
Additionally, we continue to expand our patient care philosophy of maintaining
an on-going continuous connection with our current and future patient community,
beyond the traditional confines of brick-and-mortar facilities, by extending
oversight of patient diagnosis, care and monitoring, directly through various
Medical Technology Platforms either in-use or under development.
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. On March 17, 2020, as a result of COVID-19 pandemic
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 for all
in-clinic non-essential services to protect the health and safety of its
employees, partners, and patients.
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On May 26, 2020, the Ontario Ministry of Health announced updated guidance and
directives stating that physiotherapists, chiropractors, and other regulated
health professionals, including 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 specific to on-site clinic and eldercare operations.
Specific to our clinic-based services and products, operating under COVID-19
related authorized governmental proclamations and directives, between March 17
through 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.
Specific to our eldercare based services and products, operating under COVID-19
related authorized governmental proclamations and directives which included
certain eldercare related services being deemed essential, NHL was able to
quickly expand its existing eldercare related physiotherapy service
"virtual-care" platform, which pre-pandemic was primarily focused on providing
"virtual-care" services to both smaller and remote eldercare homes to ensure
access to service providers, when needed; and continuity of care to eldercare
patients without service providers in their area. Given NHL had established
"virtual care" procedures and forms, complete with video consent and assessment
forms already vetted and approved by the Ontario College of Physiotherapists,
NHL was well-positioned to expand the delivery of certain of its eldercare
related contracted services, via "virtual-care" technology, ensuring continuity
of service for our long-term care and retirement home clients.
On June 2, 2020, the Company commenced opening its corporate clinics and
providing non-essential services. As of the quarter period ended August 31,
2021, all corporate clinics are open and operational 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.
Canadian federal and provincial COVID-19 governmental proclamations and
directives, including interprovincial travel restrictions, have presented
unprecedented challenges to launching our Harvest Gold Farms and Kainai
Cooperative joint ventures during the fiscal year ended August 31, 2021.
Accordingly, the Company has decided to delay commencing the projects until the
2022 grow season. These joint ventures relate to the development, management,
and arrangement of medicinal farming projects involving industrial hemp for
medicinal Cannabidiol (CBD) applications.
For the quarter ended August 31, 2021, the Company's clinic-based revenue
rebounded approximately 27.1% compared to the same period in 2020. For the
quarter ended August 31, 2021, the Company's total revenue from all clinic and
eldercare related contracted services rebounded approximately 15.1% compared to
the same period in 2020. As of August 31, 2021, the Company has 73 full-time
employees and 56 part-time employees specific to on-site clinic and eldercare
operations.
Specific to PRO-DIP and Acenzia, both companies are open and fully operational
while following all local, state, provincial, and national guidelines and
protocols related to minimizing the spread of the COVID-19 pandemic.
For fiscal year 2022 and beyond, based on no additional "lockdowns" or new
material directives being implemented which may limit the Company's ability to
provide its services and products in Canada and the U.S., the Company projects a
steady quarter-to-quarter increase of revenue.
While all of the Company's business units are operational at the time of this
filing, any future 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.
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Reverse Stock Split
On February 1, 2021, we effected a 1-for-10 reverse stock split of our common
stock. We implemented the reverse stock split in connection with our Nasdaq
application. The reverse stock split was an action intended to fulfill the stock
price requirements for listing on Nasdaq. As a result of the reverse stock
split, every 10 shares of issued and outstanding common stock were exchanged for
one share of common stock, with any fractional shares being rounded up to the
next higher whole share. The reverse stock split was approved by the Company's
Board of Directors and by stockholders holding a majority of the Company's
voting power.
Withdrawal of Regulation A+ Offering
On June 29, 2020, the Company commenced a public offering pursuant to Regulation
A+ of up to 2,000,000 shares of its common stock, with an aggregate amount of
$30,000,000, under a qualified Offering Statement (File No. 024-11186), on a
self-underwritten "best efforts" basis. On February 25, 2021, the Company
applied to the SEC for withdrawal of the Offering Statement as the Company had
determined to terminate the offering. On March 1, 2021, the SEC issued an order
granting the withdrawal of the Offering Statement. No securities had been sold
pursuant to the Offering Statement.
Shelf Registration Statement
On March 22, 2021, the SEC declared effective the Company's shelf registration
statement on Form S-3 (File No. 333-254278) (the "Form S-3") originally filed on
March 15, 2021. The Form S-3 is a shelf registration statement relating to (i)
the offer from time to time of securities having a maximum aggregate offering
price of $75,000,000, and (ii) the resale by certain selling stockholders of up
to an aggregate of 597,352 shares of the Company's common stock.
Completion of $8 Million Registered Direct Offering and Concurrent Private
Placement for Warrants
On April 13, 2021, the Company completed the closing pursuant to a securities
purchase agreement with certain accredited institutional investors to purchase
approximately $8,000,000 of its common stock in a registered direct offering
under the Form S-3 and warrants to purchase common stock in a concurrent private
placement. The combined purchase price for one share of common stock and one
warrant is $3.35.
Principal Financial Officer Changes
On April 20, 2021, Thomas Bray notified us of his intent to resign as our
Principal Financial Officer, effective April 20, 2021. On April 20, 2021, our
Board of Directors appointed Sterling Modesto Jimenez Romero as Principal
Financial Officer. Mr. Jimenez also served as our principal accounting officer.
On June 14, 2021, Mr. Jimenez notified us of his intent to resign as the
Company's Principal Financial Officer, effective June 15, 2021. On June 15,
2021, the Board of Directors appointed James Zsebok, as the Company's Principal
Financial Officer. Mr. Zsebok also serves as the Company's principal accounting
officer.
Medical Advisory Board
In April 2021, the Company formed a Medical Advisory Board. The initial members
of the Medical Advisory Board are Dr. Joseph M. Chalil, Dr. Michael G. Muhonen,
and Dr. Zach P. Zachariah. The goal of the Medical Advisory Board is to provide
the Company with important insight and expertise as the Company expands its
personalized consumer engagement across all aspects of the patient/practitioner
relationship through the integration of medical technology, advanced
therapeutics, and rehabilitative sciences.
Formation of Compensation Committee
On May 5, 2021, the Company's Board of Directors formed a Compensation Committee
and named each of Mr. Alex Flesias, Mr. Robert Oliva and Mr. Michael Gaynor to
serve as members thereof. Mr. Oliva serves as the Chair of the Compensation
Committee.
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Formation of Nominating and Corporate Governance Committee
On May 5, 2021, our Board of Directors formed a Nominating and Corporate
Governance Committee and named each of Mr. Alex Flesias, Mr. Robert Oliva and
Mr. Christopher David to serve as members thereof. Mr. Flesias serves as Chair
of the Nominating and Corporate Governance Committee.
Acquisition of PRO-DIP, LLC
On May 24, 2021, the Company completed the acquisition of PRO-DIP, a New York
state limited liability company in the business of providing nutritional oral
energy and medicinal supplement pouches through a proprietary process, under the
terms and conditions of a Share Exchange Agreement, dated May 11, 2021,
resulting in PRO-DIP being a wholly owned subsidiary of the Company. The Company
issued 189,796 restricted shares of common stock and $10,000 in cash as full
consideration for the transaction.
Resale Registration Statement on Form S-3
On June 8, 2021, the Company filed a registration statement on Form S-3 (SEC
File No. 333-256892) relating to the sale of an aggregate of 2,388,050 shares of
the Company's common stock by the selling stockholders identified in the
prospectus that forms a part of the registration statement. The shares are
issuable upon the exercise of warrants purchased by the selling stockholders in
a private placement transaction exempt from registration under Section 4(a)(2)
of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Securities Purchase Agreement dated April 9, 2021. The registration statement
was declared effective by the SEC on June 15, 2021.
Robert Mattacchione Executive Agreement
On June 18, 2021, the Company entered into an executive agreement (the "June
2021 Mattacchione Agreement") with GPE Global Holdings Inc., an entity
controlled by Robert Mattacchione and through which Mr. Mattacchione agreed to
provide services to the Company ("GPE"). See Part III, Item 11, "Executive
Compensation" for additional information regarding the June 2021 Mattacchione
Agreement.
Christopher David Appointment as Chief Operating Officer & Employment Agreement
On June 18, 2021, the Company entered into an employment agreement (the "June
2021 David Agreement") with Christopher David, the Company's then-President and
a member of the Company's Board of Directors. Pursuant to the terms of the June
2021 David Agreement, Mr. David agreed to serve as the Company's President and
Chief Operating Officer. See Part III, Item 11, "Executive Compensation" for
additional information regarding the June 2021 David Agreement.
Acquisition of Acenzia Inc.
On May 28, 2021, the Company and NHL entered into a Share Exchange Agreement
(the "ACZ SEA") by and among the Company and NHL, on the one hand, and Acenzia,
Avec8 Holdings Inc., Ambour Holdings Inc., Indrajit Sinha, Grant Bourdeau and
Derrick Bourdeau, on the other hand (collectively, the "ACZ Shareholders"). On
June 24, 2021, pursuant to the terms of the ACZ SEA, the acquisition of Acenzia
by NHL closed. The closing purchase price could be adjusted within 90 days of
the closing date pending completion of an audit and working capital requirement
provisions (the "Post-Closing Purchase Price Adjustment"). On October 22, 2021,
the parties (i) set the final Purchase Price, as determined by the Post-Closing
Purchase Price Adjustment, at a value of $14,162,795, and (ii) agreed to the
issuance of that number of NHL Exchangeable Shares (as defined in the ACZ SEA)
exchangeable into 3,622,199 restricted shares of Company common stock at an
agreed upon price of $3.91 allotted for the ACZ Shareholders as provided for in
the ACZ SEA. The price of the Company's common stock on the closing date was
$2.55; therefore, the purchase price for accounting purposes was $9,236,607.
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Letter of Intent to Acquire Pharmacies
On August 30, 2021, the Company entered into a non-binding letter of intent to
acquire seven pharmacies in the United States. The acquisition of seven
pharmacies, which collectively generated approximately $55 million in annualized
revenue in 2020, would establish the Company's footprint in the U.S. with
locations in Florida, Virginia, and Arizona. The Company believes that the daily
patient interaction will allow it to leverage its telehealth platform, mobile
application (NovoConnect), on-site diagnostic capabilities such as Zgraft, and
customized nutrition and wellness product offerings, establishing the Company as
a vertically integrated, multidisciplinary health care provider. The proposed
all-stock transactions contemplate the acquisition, by the Company, of a 50%
interest in each pharmacy. The Company expects to negotiate and enter into
definitive agreements and to close the acquisitions during the second half of
2021.
MiTelemed+
In October 2021, we announced the launch of MiTelemed+, Inc. ("MiTelemed"), a
joint venture between NHL and EK-Tech Solutions Inc. ("EK-Tech"). MiTelemed will
operate, support and expand access and functionality of iTelemed, EK-Tech's
enhanced proprietary telehealth platform. MiTelemed+, through the iTelemed
platform, will allow us to offer the patient and the practitioner a
sophisticated and enhanced telehealth interaction. Through the interface of
sophisticated peripheral based diagnostic tools operated by skilled support
workers in the patient's remote location, we believe that the practitioner's
ability and comfort to provide a uniquely comprehensive evaluation, diagnosis,
and treatment solution will be dramatically elevated.
Terragenx Share Exchange
On November 17, 2021, the Company and NHL entered into that certain Share
Exchange Agreement (the "Terra SEA"), dated as of November 17, 2021, by and
among the Company, NHL, Terragenx Inc. ("Terra"), TMS Inc. ("TMS"), Shawn
Mullins, Claude Fournier, and The Coles Optimum Health and Vitality Trust
("COHV" and collectively with TMS, Mr. Mullins and Mr. Fournier, the "Terra
Shareholders"). Collectively, the Terra Shareholders owned 91% of the
outstanding shares of Terra (the "Terra Purchased Shares").
Pursuant to the terms of the Terra SEA, NHL agreed to purchase from the Terra
Shareholders, and the Terra Shareholders agreed to sell to NHL, the Terra
Purchased Shares on the closing date, in exchange for payment by NHL of the
purchase price (the "Purchase Price") of CAD$500,000 (approximately $398,050)
(the "Exchange"). The Purchase Price was to be paid with the issuance, by NHL to
the Terra Shareholders, of certain non-voting NHL special shares exchangeable
into restricted shares of the Company's common stock (the "NHL Exchangeable
Shares"). The total shares of Company common stock allotted in favor of the
Terra Shareholders was calculated at a per share price of $3.35.
Mullins Asset Purchase Agreement
On November 17, 2021, the Company entered into that certain Asset Purchase
Agreement (the "Mullins APA"), dated as of November 17, 2021, by and between the
Company and Terence Mullins. Pursuant to the terms of the Mullins APA, Mr.
Mullins agreed to sell, and the Company agreed to purchase, all of Mr. Mullins'
right, title and interest in and to certain assets directly and indirectly
related to any and all iodine-based related products and technologies as
specified in the Mullins APA (the "Mullins IP Assets"), in exchange for a
purchase price of CAD$2,500,000 (approximately $1,990,250) which is to be paid
as follows:
(a) CAD$2,000,000 (approximately $1,592,200) is to be issued or allotted to Mr.
Mullins only after patent-pending status, in the U.S. or internationally, is
designated for all Mullins IP Assets (the "Mullins IP Assets CAD$2m
Shares"), as either restricted shares of Company common stock or NHL
Exchangeable Shares, as determined by Mr. Mullins. Once issued or allotted,
the Mullins IP Assets CAD $2m Shares will be held in escrow pending
registration and approval for all Mullins IP Assets, and
(b) CAD$500,000 (approximately $398,050) is to be issued in the form of 118,821
restricted shares of Company common stock, free and clear of all liens,
pledges, encumbrances, charges, or known claims of any kind, nature, or
description, upon closing of the Mullins APA
All shares issued or allotted under the terms and conditions of the Mullins APA
are calculated at a value of $3.35 per share.
In addition, the Company will pay a royalty equal to 10% of net revenue (net
profit) of all iodine related sales reported through the Company or any of its
wholly owned subsidiaries for a period equal to the commercial validity of the
intellectual property.
Jefferson Street Capital Stock Purchase Agreement & Secured Convertible
Promissory Note
On November 17, 2021, the Company and Terra entered into that certain securities
purchase agreement (the "Jefferson SPA"), dated as of November 17, 2021, by and
among the Company, Terra and Jefferson Street Capital LLC ("Jefferson").
Pursuant to the terms of the Jefferson SPA, (i) the Company agreed to issue and
sell to Jefferson the Jefferson Note (as hereinafter defined); (ii) the Company
agreed to issue to Jefferson the Jefferson Warrant (as hereinafter defined); and
(iii) the Company agreed to issue to Jefferson 1,000,000 restricted shares of
Company common stock, as collateral on the Jefferson Note, which is being held
by the escrow agent and subject to return to the Company upon full payment of
the Jefferson Note; and (iv) Jefferson agreed to pay to the Company $750,000
(the "Jefferson Purchase Price").
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The Jefferson Note has a maturity date of May 17, 2022. The Company acted as
guarantor on the Jefferson Note. Pursuant to the terms of the Jefferson Note,
Terra agreed to pay to Jefferson $937,500 (the "Principal Amount"), with a
purchase price of $750,000 plus an original issue discount in the amount of
$187,500 (the "OID"), and to pay interest on the Principal Amount at the rate of
1% per annum. Any amount of principal, interest or other amount due on the
Jefferson Note that is not paid when due will bear interest at the rate of the
lesser of (i) 12%, or (ii) the maximum rate allowed by law. See Part I, Item 1.
Business-Recent Developments for additional information regarding the Jefferson
SPA and the Jefferson Note.
Jefferson Street Capital Common Stock Purchase Warrant
Also on November 17, 2021, pursuant to the terms of the Jefferson SPA, the
Company issued to Jefferson a common stock purchase warrant (the "Jefferson
Warrant") for the purchase of 111,940 shares of the Company's common stock. The
per share exercise price under the Jefferson Warrant is, subject to adjustment
as described therein, $3.35. The Jefferson Warrant is exercisable during the
period commencing on November 17, 2021 and ending at 5:00 p.m., New York City
time, on November 17, 2024.
Platinum Point Capital Stock Purchase Agreement & Secured Convertible Promissory
Note
On November 17, 2021, the Company and Terra entered into that certain securities
purchase agreement (the "Platinum SPA"), dated as of November 17, 2021, by and
among the Company, Terra and Platinum Point Capital LLC ("Platinum"). Pursuant
to the terms of the Platinum SPA, (i) the Company agreed to issue and sell to
Platinum the Platinum Note (as hereinafter defined); (ii) the Company agreed to
issue to Platinum the Platinum Warrant (as hereinafter defined); and (iii) the
Company agreed to issue to Platinum 1,000,000 restricted shares of the Company
common stock, as collateral on the Platinum Note, which is being held by the
escrow agent and subject to return to the Company upon full payment of the
Platinum Note; and (iv) Platinum agreed to pay to the Company $750,000 (the
"Platinum Purchase Price").
The Platinum Note has a maturity date of May 17, 2022 (the "Maturity Date"). The
Company acted as guarantor on the Platinum Note. Pursuant to the terms of the
Platinum Note, Terra agreed to pay to Platinum $937,500 (the "Platinum Principal
Amount"), with a purchase price of $750,000 plus an original issue discount in
the amount of $187,500 (the "OID"), and to pay interest on the Principal Amount
at the rate of 1% per annum. Any amount of principal, interest or other amount
due on the Platinum Note that is not paid when due will bear interest at the
rate of the lesser of (i) 12%, or (ii) the maximum rate allowed by law. See Part
I, Item 1. Business-Recent Developments for additional information regarding the
Platinum SPA and the Platinum Note.
Platinum Point Capital Common Stock Purchase Warrant
Also on November 17, 2021, pursuant to the terms of the Platinum SPA, the
Company issued to Platinum a common stock purchase warrant (the "Platinum
Warrant") for the purchase of 111,940 shares of the Company's common stock. The
per share exercise price under the Platinum Warrant is, subject to adjustment as
described therein, $3.35. The Platinum Warrant is exercisable during the period
commencing on November 17, 2021 and ending at 5:00 p.m., New York City time, on
November 17, 2024.
December 2021 Registered Direct Offering
On December 14, 2021, the Company entered into a Securities Purchase Agreement
with an accredited institutional investor (the "Purchaser") pursuant to which
the Company agreed to issue to the Purchaser and the Purchaser agreed to
purchase (the "Purchase"), in a registered direct offering, (i) $16,666,666
aggregate principal amount of the Company's senior secured convertible notes,
which notes are convertible into shares of the Company's common stock, under
certain conditions (the "Notes"); and (ii) warrants to purchase up to 5,833,334
shares of the Company's common stock (the "Warrants"). The securities, including
up to 68,557,248 shares of common stock issuable upon conversion under the Notes
and up to 5,833,334 shares of common stock issuable upon exercise of the
Warrants, are being offered by the Company pursuant to an effective shelf
registration statement on Form S-3 (File No. 333-254278), which was declared
effective by the SEC on March 22, 2021. The Purchase closed on December 14,
2021.
The Notes have an original issue discount of 10%, resulting in gross proceeds to
the Company of $15,000,000. The Notes bear interest of 5% per annum and mature
on June 14, 2023, unless earlier converted or redeemed, subject to the right of
the Purchaser to extend the date under certain circumstances. The Company will
make monthly payments on the first business day of each month commencing on the
calendar month immediately following the sixth month anniversary of the issuance
of the Notes through June 14, 2023, the maturity date, consisting of an
amortizing portion of the principal of each Note equal to $1,388,888 and accrued
and unpaid interest and late charges on the Notes. All amounts due under the
Notes are convertible at any time, in whole or in part, at the holder's option,
into common stock at the initial conversion price of $2.00, which conversion
price is subject to certain adjustments; provided, however, that the Notes have
a 9.99% equity blocker. If an event of default occurs, the holder may convert
all, or any part, of the principal amount of a Note and all accrued and unpaid
interest and late charge at an alternate conversion price, as described in the
Notes. Subject to certain conditions, the Company has the right to redeem all,
but not less than all, of the remaining principal amount of the Notes and all
accrued and unpaid interest and late charges in cash at a price equal to 135% of
the amount being redeemed.
The Warrants are exercisable at an exercise price of $2.00 per share and expire
on the fourth year anniversary of December 14, 2021, the initial issuance date
of the Warrants.
For the fiscal year ended August 31, 2021 compared to the fiscal year ended
August 31, 2020
Revenues for the year ended August 31, 2021 were $9,305,255, representing an
increase of $1,444,688, or 18.4%, from $7,860,567 for the same period in 2020.
The increase in revenue is principally due to periodic easing of COVID pandemic
related restrictions which resulted in our practitioners being able to provide
more patients with additional in-person services compared to the March 17
through June 1, 2020 period in which our practitioners were limited to providing
their services either remotely or in-person to patients requiring emergency and
essential need treatment. In addition, the increase is due to revenue of
$446,390 recorded by Acenzia from the date of acquisition (June 24, 2021)
through the period ended August 31, 2021.
Cost of revenues for the year ended August 31, 2021 were $5,482,257,
representing an increase of $680,062 or 14.2%, from $4,802,195 for the same
period in 2020. The increase was principally due to the increase in revenues.
Cost of revenues as a percentage of revenue was 58.9% for the year ended August
31, 2021 and 61.1% for same period in 2020. 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.
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Operating costs for the year ended August 31, 2021 were $8,196,517, representing
an increase of $875,547, or 12.0%, from $7,320,970 for the same period in 2020.
The increase in operating costs is principally due to (i) additional operating
costs associated with Acenzia's operations, (ii) an increase in amortization of
intangible assets, (iii) common stock issued for services including successful
uplist to the Nasdaq Capital Markets, (iv) salary expense due to hiring of
senior level executives, and (v) legal fees related to the Company's Nasdaq
listing and filing of the Company's registration statement on Form S-3.
Other expense for the year ended August 31, 2021 was $97,416, representing a
decrease of $564,195, or 85.3%, from other expense of $661,611 for the same
period in 2020. The decrease is due to (i) a write-off of an acquisition deposit
in 2020 and nil in 2021, (ii) a decrease in other expenses in 2021 compared to
2020, and (iii) an increase in interest income; offset by an increase in
interest expense in 2021 due to additional debt outstanding.
Net loss attributed to Novo Integrated Sciences for the year ended August 31,
2021 was $4,462,147, representing a decrease of $453,007, or 9.2%, from
$4,915,154 for the same period in 2020. The decrease in net loss is principally
due to (i) an increase in revenues and gross profit offset by additional
operating costs associated with the Acenzia acquisition, (ii) an increase in
amortization of intangible assets, (iii) common stock issued for services
including successful uplist to the Nasdaq Capital Markets, (iv) salary expense
due to hiring of senior level executives, and (v) legal fees related to the
Company's Nasdaq listing and filing of the Company's registration statement on
Form S-3.
Liquidity and Capital Resources
As shown in the accompanying financial statements, for the fiscal years ended
August 31, 2021 and 2020, the Company has had net losses of $4,470,935 and
$4,924,209, respectively.
During the year ended August 31, 2021, the Company used cash in operating
activities of $1,024,802 compared to $441,694 for the same period in 2020. The
principal reason for the increase in cash used in operating activities is
changes in noncash expenses and changes in operating asset and liability
accounts.
During the year ended August 31, 2021, the Company cash provided by investing
activities was $2,999,122 compared to $657,130 for the same period in 2020.
During 2021, the Company (i) acquired cash of $3,738,171 with the acquisition of
Acenzia, (ii) purchased property and equipment for $255,949, (iii) loaned
amounts for other receivables of $473,100, and (iv) paid $10,000 of cash in
connection with an acquisition. During the period in 2020, the Company collected
other receivable of $669,240.
During the year ended August 31, 2021, the Company provided cash from financing
activities of $4,316,862 compared to cash used in financing activities of
$271,687 for the same period in 2020. The principal reason for the increase in
cash provided by financing activities was the sale of 2,388,050 shares of the
Company's common stock in April 2021 for net proceeds of $7,235,580 and the
repayment of $2,767,519 of notes payable in 2021.
On October 12, 2019, the Company accepted a $75,328 subscription agreement from
an accredited investor residing outside the United States for the sale of
235,400 restricted shares of the Company's common stock, resulting in an
effective price per share of $0.32. The shares were issued on October 15, 2019.
The issuance of shares of common stock was exempt from the registration
requirements of the Securities Act in reliance upon Regulation S promulgated
pursuant to the Securities Act. The issuances involved offers and sales of
securities outside the United States. The offers and sales were made in offshore
transactions and no directed selling efforts were made by the issuer, a
distributor, their affiliates or any persons acting on their behalf.
On October 19, 2019, the Company accepted a $38,071 subscription agreement from
an accredited investor residing outside the United States for the sale of
118,969 restricted shares of the Company's common stock, resulting in an
effective price per share of $0.32. The shares were issued on October 22, 2019.
The issuance of shares of common stock was exempt from the registration
requirements of the Securities Act in reliance upon Regulation S promulgated
pursuant to the Securities Act. The issuances involved offers and sales of
securities outside the United States. The offers and sales were made in offshore
transactions and no directed selling efforts were made by the issuer, a
distributor, their affiliates or any persons acting on their behalf.
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On September 24, 2020, the Company accepted a $92,000 subscription agreement
from an accredited investor residing outside the United States for the sale of
21,905 restricted shares of the Company's common stock, resulting in an
effective price per share of $4.20. The shares were issued on September 24,
2020. The issuance of shares of common stock was exempt from the registration
requirements of the Securities Act in reliance upon Regulation S promulgated
pursuant to the Securities Act. The issuances involved offers and sales of
securities outside the United States. The offers and sales were made in offshore
transactions and no directed selling efforts were made by the issuer, a
distributor, their affiliates or any persons acting on their behalf.
On February 9, 2021, the Company received $12,000 as a result of a stock option
for 7,500 options being exercised at a per option price of $1.60. The 7,500
shares issued for this option were registered on a Form S-8 filed by the Company
with the Securities and Exchange Commission on January 25, 2018 (Commission File
No. 333-222686). The Shares were issued on March 1, 2021.
On April 13, 2021, the Company sold 2,388,050 shares of common stock under the
terms and conditions of a Securities Purchase Agreement, dated April 9, 2021, in
a registered direct offering for an agreed upon purchase price of $3.35 per
share resulting in gross proceeds of $7,999,968. The Company incurred offering
cost of $764,388 associated with this offering resulting in net proceeds of
$7,235,580. The shares were issued on April 13, 2021.
Financial Impact of COVID-19
In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan,
Hubei Province, China. On March 17, 2020, as a result of COVID-19 pandemic
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 for all
in-clinic non-essential services to protect the health and safety of its
employees, partners, and patients.
On May 26, 2020, the Ontario Ministry of Health announced updated guidance and
directives stating that physiotherapists, chiropractors, and other regulated
health professionals, including 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 specific to on-site clinic and eldercare operations.
Specific to our clinic-based services and products, operating under COVID-19
related authorized governmental proclamations and directives, between March 17
through 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.
Specific to our eldercare based services and products, operating under COVID-19
related authorized governmental proclamations and directives which included
certain eldercare related services being deemed essential, NHL was able to
quickly expand its existing eldercare related physiotherapy service
"virtual-care" platform, which pre-pandemic was primarily focused on providing
"virtual-care" services to both smaller and remote eldercare homes to ensure
access to service providers, when needed; and continuity of care to eldercare
patients without service providers in their area. Given NHL had established
"virtual care" procedures and forms, complete with video consent and assessment
forms already vetted and approved by the Ontario College of Physiotherapists,
NHL was well-positioned to expand the delivery of certain of its eldercare
related contracted services, via "virtual-care" technology, ensuring continuity
of service for our long-term care and retirement home clients.
On June 2, 2020, the Company commenced opening its corporate clinics and
providing non-essential services. As of the quarter period ended August 31,
2021, all corporate clinics are open and operational 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.
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Canadian federal and provincial COVID-19 governmental proclamations and
directives, including interprovincial travel restrictions, have presented
unprecedented challenges to launching our Harvest Gold Farms and Kainai
Cooperative joint ventures during the fiscal year ended August 31, 2021.
Accordingly, the Company has decided to delay commencing the projects until the
2022 grow season. These joint ventures relate to the development, management,
and arrangement of medicinal farming projects involving industrial hemp for
medicinal Cannabidiol (CBD) applications.
For the quarter ended August 31, 2021, the Company's clinic-based revenue
rebounded approximately 27.1% compared to the same period in 2020. For the
quarter ended August 31, 2021, the Company's total revenue from all clinic and
eldercare related contracted services rebounded approximately 15.1% compared to
the same period in 2020. As of August 31, 2021, the Company has 73 full-time
employees and 56 part-time employees specific to on-site clinic and eldercare
operations.
Specific to PRO-DIP and Acenzia, both companies are open and fully operational
while following all local, state, provincial, and national guidelines and
protocols related to minimizing the spread of the COVID-19 pandemic.
For fiscal year 2022 and beyond, based on no additional "lockdowns" or new
material directives being implemented which may limit the Company's ability to
provide its services and products in Canada and the U.S., the Company projects a
steady quarter-to-quarter increase of revenue.
While all of the Company's business units are operational at the time of this
filing, any future 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.
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. This applies in particular to useful lives
of non-current assets, impairment of non-current assets, allowance for doubtful
accounts, allowance for slow moving and obsolete inventory, 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.
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Property and Equipment
Property and equipment are stated at cost less depreciation and impairment.
Expenditures for maintenance and repairs are charged to earnings as incurred;
additions, renewals and betterments are capitalized. When property and equipment
are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
included in operations. Depreciation of property and equipment is provided using
the declining balance method for substantially all assets with estimated lives
as follows:
Building 30 years
Leasehold improvements 5 years
Clinical equipment 5 years
Computer equipment 3 years
Office equipment 5 years
Furniture and fixtures 5 years
The Company has not changed its estimate for the useful lives of its property
and equipment, but would expect that a decrease in the estimated useful lives of
property and equipment of 20% would result in an annual increase to depreciation
expense of approximately $135,000, and an increase in the estimated useful lives
of property and equipment of 20% would result in an annual decrease to
depreciation expense of approximately $90,000.
Intangible Assets
The Company's intangible assets are being amortized over their estimated useful
lives as follows:
Land use rights 50 years (the lease period)
Software license 7 years
Intellectual property 7 years
Customer relationships 5 years
Brand names 7 years
Workforce 5 years
The intangible assets with finite useful lives are reviewed for impairment when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair value of the long-lived assets. The Company has not
changed its estimate for the useful lives of its intangible assets but would
expect that a decrease in the estimated useful lives of intangible assets of 20%
would result in an annual increase to amortization expense of approximately
$404,000, and an increase in the estimated useful lives of intangible assets of
20% would result in an annual decrease to amortization expense of approximately
$270,000.
Long-Lived Assets
The Company applies the provisions of ASC Topic 360, Property, Plant, and
Equipment, which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. ASC 360 requires impairment losses to be
recorded on long-lived assets, including right-of-use assets, used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amounts. In that event, a loss is recognized based on the amount by which the
carrying amount exceeds the fair value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair values are reduced for the cost of disposal.
Right-of-use Assets
The Company's right-of-use assets consist of leased assets recognized in
accordance with ASC 842, Leases, which requires lessees to recognize a lease
liability and a corresponding lease asset for virtually all lease contracts.
Right-of-use assets represent the Company's right to use an underlying asset for
the lease term and lease liability represents the Company's obligation to make
lease payments arising from the lease, both of which are recognized based on the
present value of the future minimum lease payments over the lease term at the
commencement date. Leases with a lease term of 12 months or less at inception
are not recorded on the consolidated balance sheet and are expensed on a
straight-line basis over the lease term in the consolidated statements of
operations and comprehensive loss. The Company determines the lease term by
agreement with lessor. In cases where the lease does not provide an implicit
interest rate, the Company uses the Company's incremental borrowing rate based
on the information available at commencement date in determining the present
value of future payments.
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Goodwill
Goodwill represents the excess of purchase price over the underlying net assets
of businesses acquired. Under U.S. GAAP, goodwill is not amortized but is
subject to annual impairment tests. The Company recorded goodwill related to its
acquisition of APKA Health, Inc. during the fiscal year ended August 31, 2017,
Executive Fitness Leaders during the fiscal year ended August 31, 2018, Action
Plus Physiotherapy Rockland during the fiscal year ended August 31, 2019 and
Acenzia, Inc. during fiscal year ended August 31, 2021.
Accounts Receivable
Accounts Receivable are recorded, net of allowance for doubtful accounts and
sales returns. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentration, customer credit
worthiness, current economic trends, and changes in customer payment patterns to
determine if the allowance for doubtful accounts is adequate. An estimate for
doubtful accounts is made when collection of the full amount is no longer
probable. Delinquent account balances are written-off after management has
determined that the likelihood of collection is not probable and known bad debts
are written off against the allowance for doubtful accounts when identified. The
Company has not changed its methodology for estimating allowance for doubtful
accounts and historically the change in estimate has not been significant to the
Company's financial statements. If there is a deterioration of the Company's
customers' ability to pay or if future write-offs of receivables differ from
those currently anticipated, the Company may have to adjust its allowance for
doubtful accounts, which would affect earnings in the period the adjustments are
made.
Inventory
Inventories are valued at the lower of cost (determined by the first in, first
out method) and net realizable value. Management compares the cost of
inventories with the net realizable value and allowance is made for writing down
their inventories to net realizable value, if lower. Inventory is segregated
into three areas: raw materials, work-in-process and finished goods. The Company
periodically assessed its inventory for slow moving and/or obsolete items and
any change in the allowance is recorded in cost of revenue in the accompanying
consolidated statements of operations and comprehensive loss. If any are
identified an appropriate allowance for those items is made and/or the items are
deemed to be impaired.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income
Taxes. ASC 740 requires a company to use the asset and liability method of
accounting for income taxes, whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. The Company has not changed it methodology for estimating the
valuation allowance. A change in valuation allowance affect earnings in the
period the adjustments are made and could be significant due to the large
valuation allowance currently established.
Under ASC 740, a tax position is recognized as a benefit only if it is "more
likely than not" that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the
largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the "more likely than not" test,
no tax benefit is recorded. The Company has no material uncertain tax positions
for any of the reporting periods presented.
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Revenue Recognition
The Company's revenue recognition reflects the updated accounting policies as
per the requirements of ASU No. 2014-09, Revenue from Contracts with Customers
("Topic 606"). As sales are and have been primarily from providing healthcare
services the Company has no significant post-delivery obligations.
Revenue from providing healthcare and healthcare related services and product
sales are recognized under Topic 606 in a manner that reasonably reflects the
delivery of its products and 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 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.
? Product sales - revenue is recorded at the point of time of delivery
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 consolidated statements of operations and
comprehensive loss 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.
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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. ASU 2016-13
was issued to improve financial reporting by requiring earlier recognition of
credit losses on financing receivables and other financial assets in scope. The
new standard represents significant changes to accounting for credit losses.
Full lifetime expected credit losses will be recognized upon initial recognition
of an asset in scope. The current incurred loss impairment model that recognizes
losses when a probable threshold is met will be replaced with the expected
credit loss impairment method without recognition threshold. The expected credit
losses estimate will be based upon historical information, current conditions,
and reasonable and supportable forecasts. This ASU as amended by ASU 2019-10, is
effective for fiscal years beginning after December 15, 2023. The Company is
currently evaluating the effect of this ASU on the Company's 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 consolidated financial
statements and related disclosures.
In May, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260),
Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own
Equity (Subtopic 815-40):Issuer's Accounting for Certain Modifications or
Exchanges of Freestanding Equity-Classified Written Call Options.This update
provides guidance for a modification or an exchange of a freestanding
equity-classified written call option that is not within the scope of another
Topic. This update is effective for fiscal years beginning after December 15,
2021. The Company is currently evaluating the effect of this ASU on the
Company's consolidated financial statements and related disclosures.
In August 2020, the FASB issued guidance that simplifies the accounting for debt
with conversion options, revises the criteria for applying the derivative scope
exception for contracts in an entity's own equity, and improves the consistency
for the calculation of earnings per share. The guidance is effective for annual
reporting periods and interim periods within those annual reporting periods
beginning after December 15, 2021, our fiscal 2023.
In March 2020, the FASB issued guidance providing optional expedients and
exceptions to account for the effects of reference rate reform to contracts,
hedging relationships, and other transactions that reference LIBOR or another
reference rate expected to be discontinued. The optional guidance, which became
effective on March 12, 2020 and can be applied through December 21, 2022, has
not impacted our consolidated financial statements. The Company has various
contracts that reference LIBOR and is assessing how this standard may be applied
to specific contract modifications through December 31, 2022.
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.
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