Novo Integrated Sciences (NVOS) 10-Q2024 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended November 30, 2023

For the transition period from ______, 20___, to _____, 20___.

Commission File Number: 001-40089

Novo Integrated Sciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

(206) 617-9797

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 17,748,320 shares of the Registrant’s $0.001 par value common stock outstanding as of January 22, 2024.

Novo Integrated Sciences, Inc.

Contents

Item 1. Financial Statements.

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of November 30, 2023 (unaudited) and August 31, 2023

* The condensed consolidated balance sheets’ common stock amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three Months Ended November 30, 2023 and 2022 (unaudited)

* The condensed consolidated statements of operations and comprehensive loss’s share and per share amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended November 30, 2023 and 2022 (unaudited)

* The condensed consolidated statements of stockholders’ equity share amounts have been retroactively adjusted to account for the Company’s 1:10 reverse stock split, effective November 7, 2023.

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

NOVO INTEGRATED SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended November 30, 2023 and 2022 (unaudited)

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

NOVO INTEGRATED SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended November 30, 2023 and 2022 (unaudited)

Note 1 - Organization and Basis of Presentation

Organization and Line of Business

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 provide, or intend to provide, essential and differentiated solutions to the delivery of multidisciplinary primary care and related wellness products through the integration of medical technology, interconnectivity, advanced therapeutics, diagnostic solutions, unique personalized product offerings, and rehabilitative science.

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 now and how it will be delivered 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 and efficient 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:

On April 25, 2017 (the “Effective Date”), we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) by and between (i) Novo Integrated; (ii) Novo Healthnet Limited (“NHL”), (iii) ALMC-ASAP Holdings Inc. (“ALMC”); (iv) Michael Gaynor Family Trust (the “MGFT”); (v) 1218814 Ontario Inc. (“1218814”); and (vi) Michael Gaynor Physiotherapy Professional Corp. (“MGPP,” and together with ALMC, MGFT and 1218814, the “NHL Shareholders”). Pursuant to the terms of the Share Exchange Agreement, Novo Integrated agreed to acquire, from the NHL Shareholders, all of the shares of both common and preferred stock of NHL held by the NHL Shareholders in exchange for the issuance, by Novo Integrated to the NHL Shareholders, of shares of Novo Integrated common stock such that following the closing of the Share Exchange Agreement, the NHL Shareholders would own 1,677,974 restricted shares of Novo Integrated common stock, representing 85% of the issued and outstanding Novo Integrated common stock, calculated including all granted and issued options or warrants to acquire Novo Integrated common stock as of the Effective Date, but to exclude shares of Novo Integrated common stock that were subject to a then-current Regulation S offering that was undertaken by Novo Integrated (the “Exchange”).

On May 9, 2017, the Exchange closed and, as a result, NHL became a wholly owned subsidiary of Novo Integrated. The Exchange was accounted for as a reverse acquisition under the purchase method of accounting since NHL obtained control of Novo Integrated Sciences, Inc. Accordingly, the Exchange was recorded as a recapitalization of NHL, and not as a business combination, with NHL being treated as the continuing entity. The historical financial statements presented are the financial statements of NHL. At the closing date of the Exchange, the net assets of the legal acquirer, Novo Integrated Sciences, Inc., were $6,904.

Reverse Stock Split

On November 7, 2023, the Company effected a 1-for-10 reverse stock split of its common stock. 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. Unless otherwise noted, the share and per share information in this report have been retroactively adjusted to give effect to the 1-for-10 reverse stock split.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with U.S. GAAP were omitted pursuant to such rules and regulations.

The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended August 31, 2023, that the Company filed on December 14, 2023. The results of operations for the three months ended November 30, 2023 are not necessarily indicative of the results for the fiscal year ending August 31, 2024.

The Company’s Canadian subsidiaries’ functional currency is the Canadian Dollar (“CAD”) and the parent company’s functional currency is the United States Dollar (“$” or “USD”); however, the accompanying unaudited condensed consolidated financial statements were translated and presented in USD.

Going Concern

The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued. The Company has incurred recurring losses from operations, has negative cash flows from operating activities, and has an accumulated deficit as of November 30, 2023. The Company believes that its cash and other available resources may not be sufficient to meet its operating needs and the payment of obligations related to various business acquisitions as they come due within one year after the date the unaudited condensed consolidated financial statements are issued.

In an effort to alleviate these conditions, the Company has considered equity and/or debt financing and/or asset monetization. There can be no assurance that funding would be available, or that the terms of such funding would be on favorable terms if available. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. These conditions, along with the matters noted above, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements are issued.

While management has developed and is in process to implement plans that management believes could alleviate in the future the substantial doubt that was raised, management concluded at the date of the issuance of the unaudited condensed consolidated financial statements that substantial doubt exists as those plans are not completely within the control of management. These unaudited condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated balance sheets classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.

Foreign Currency Translation

The accounts of the Company’s Canadian subsidiaries are maintained in CAD. The accounts of these subsidiaries are translated into USD in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency Transaction, with the CAD as the functional currency. According to Topic 830, all assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income (“OCI”) in accordance with ASC Topic 220, Comprehensive Income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the condensed consolidated statement of operations and comprehensive loss. The following table details the exchange rates used for the respective periods:

Schedule of Foreign Currency Translation, Exchange Rate Used 

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of condensed 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 condensed 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 the going concern assessment, useful lives of non-current assets, impairment of non-current assets, allowance for doubtful receivables, allowance for slow moving and obsolete inventory, valuation of share-based compensation and warrants, valuation of derivative liability, 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.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and entities it controls, including its wholly owned subsidiaries, NHL, Acenzia Inc. (“Acenzia”), Novomerica Health Group, Inc. (“NHG”), Novo Healthnet Rehab Limited, Novo Assessments Inc., PRO-DIP, LLC (“PRO-DIP”), a 91% controlling interest in Terragenx Inc. (“Terragenx”), a 50.1% controlling interest in 12858461 Canada Corp (“1285 Canada”), an 80% controlling interest in Novo Healthnet Kemptville Centre, Inc., a Back on Track Physiotherapy and Health Centre clinic operated by NHL, Clinical Consultants International, LLC and a 70% controlling interest in Novo Earth Therapeutics Inc. (currently inactive).

All intercompany transactions have been eliminated.

An entity is controlled when the Company has the ability to direct the relevant activities of the entity, has exposure or rights to variable returns from its involvement with the entity, and is able to use its power over the entity to affect its returns from the entity.

Income or loss and each component of OCI are attributed to the shareholders of the Company and to the noncontrolling interests. Total comprehensive income is attributed to the shareholders of the Company and to the noncontrolling interests even if this results in the non-controlling interests having a deficit balance on consolidation.

Noncontrolling Interest

The Company follows FASB ASC Topic 810, Consolidation, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.

The net income (loss) attributed to the NCI is separately designated in the accompanying condensed consolidated statements of operations and comprehensive loss.

Cash Equivalents

For the purpose of the condensed consolidated statements of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less.

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. As of November 30, 2023 and August 31, 2023, the allowance for uncollectible accounts receivable was $855,116 and $864,215, respectively.

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 condensed 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. As of November 30, 2023 and August 31, 2023, the Company’s allowance for slow moving or obsolete inventory was $nil and $nil, respectively.

Other Receivables

Other receivables are recorded at cost and presented as current or long-term based on the terms of the agreements. Management reviews the collectability of other receivables and writes off the portion that is deemed to be uncollectible. During the three months ended November 30, 2023 and year ended August 31, 2023, the Company wrote off $nil and $nil, respectively, of other receivables that were not expected to be collected.

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:

 Schedule of Estimated Useful lives of Assets

Leases

The Company applies the provisions of ASC Topic 842, Leases which requires lessees to recognize lease assets and lease liabilities on the balance sheet. The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.

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. Based on its review at November 30, 2023, the Company believes there was no impairment of its long-lived assets.

Intangible Assets

The Company’s intangible assets are being amortized over their estimated useful lives as follows:

 Schedule of Intangible Assets Amortized Estimated Useful Lives

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. Based on its review at November 30, 2023, the Company believes there was no impairment of its intangible assets.

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 condensed consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed 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.

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. (“APKA”) during the fiscal year ended August 31, 2017, Executive Fitness Leaders (“EFL”) during the fiscal year ended August 31, 2018, Action Plus Physiotherapy Rockland (“Rockland”) during the fiscal year ended August 31, 2019, Acenzia during the fiscal year ended August 31, 2021, and 1285 Canada during the fiscal year ended August 31, 2022. Based on its review at November 30, 2023, the Company believes there was no impairment of its goodwill.

Summary of changes in goodwill by acquired businesses is as follows:

 Schedule of Changes in Goodwill

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued expenses, current portion of finance and operating lease liability, current portion of government loans and notes payable, debentures, convertible notes payable, and due to related parties, the carrying amounts approximate their fair values due to their short-term maturities.

FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the condensed consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization, low risk of counterparty default and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.

For certain financial instruments, the carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, other receivables, and current liabilities, including accounts payable, accrued expenses, current portion of finance and operating lease liability, current portion of government loans and notes payable, debentures, convertible notes payable, and due to related parties, each qualify as a financial instrument, and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of notes payable approximates their fair values due to current market rate on such debt.

As of November 30, 2023 and August 31, 2023, respectively, the Company did not identify any financial assets and liabilities required to be presented on the condensed consolidated balance sheet at fair value, except for contingent liability which is carried at fair value using Level 1 inputs and derivative liability which is carried at fair value using Level 3 inputs.

Derivative Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to the fair value of derivatives.

Revenue Recognition

The Company’s revenue recognition reflects the updated accounting policies as per the requirements of Accounting Standards Update (“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:

These five elements, as applied to the Company’s revenue category, are summarized below:

In arrangements where another party is involved in providing specified services to a customer, the Company evaluates whether it is the principal or agent. In this evaluation, the Company considers if the Company obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. For product sales where the Company is not the principal, the Company recognizes revenue on a net basis. For the periods presented, revenue for arrangements where the Company is the agent was not material.

Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue is included with accrued expenses in the accompanying condensed consolidated balance sheets.

Sales returns and allowances were insignificant for the three months ended November 30, 2023 and 2022. The Company does not provide unconditional right of return, price protection or any other concessions to its customers.

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.

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.

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 condensed 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. The calculations within these condensed consolidated financial statements have been retroactively adjusted to reflect the effects of the 1-for-10 reverse stock split that was effective on November 7, 2023. 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. There were 659,616 and 1,860,950 options/warrants outstanding at November 30, 2023 and 2022, respectively. In addition, at November 30, 2023, there were outstanding convertible notes that could convert into 3,786,454 shares of common stock and there were 17,375 shares of common stock to be issued.

Due to the net loss incurred, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss per share for all periods presented.

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 CAD. Translation gain of $108,976 for the three months ended November 30, 2023 and translation loss of $922,609 for the year ended August 31, 2023, respectively, are classified as an item of other comprehensive loss in the stockholders’ equity section of the condensed consolidated balance sheet.

Condensed Consolidated Statements of Cash Flows

Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the condensed consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the condensed consolidated balance sheets.

Segment Reporting

ASC Topic 280, Segment Reporting, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has two reportable segments. See Note 16.

Reclassifications

Certain prior period amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had no effect on the net loss or shareholders’ equity.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying condensed consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

Note 3 – Related Party Transactions

Due to related parties

Amounts loaned to the Company by stockholders and officers of the Company are payable upon demand and unsecured. At November 30, 2023 and August 31, 2023, the amount due to related parties was $458,266 and $533,001, respectively. At November 30, 2023, $376,701 was non-interest bearing, $nil bears interest at 6% per annum, and $81,565 bears interest at 13.75% per annum. At August 31, 2023, $451,137 was non-interest bearing, $21,267 bears interest at 6% per annum, and $60,597 bears interest at 13.75% per annum.

Note 4 – Accounts Receivables, Net

Accounts receivables, net at November 30, 2023 and August 31, 2023 consisted of the following:

Schedule of Accounts Receivable, Net

Note 5 – Inventory

Inventory at November 30, 2023 and August 31, 2023 consisted of the following:

Schedule of Inventory

Note 6 – Other Receivables

Other receivables at November 30, 2023 and August 31, 2023 consisted of the following:

 Schedule of Other Receivables

Note 7 – Property and Equipment

Property and equipment at November 30, 2023 and August 31, 2023 consisted of the following:

Schedule of Property and Equipment

Depreciation expense for the three months ended November 30, 2023 and 2022 was $72,604 and $60,043, respectively.

Certain property and equipment have been used to secure notes payable (See Note 10).

Note 8 – Intangible Assets

Intangible assets at November 30, 2023 and August 31, 2023 consisted of the following:

 Schedule of Intangible Assets

Amortization expense for the three months ended November 30, 2023 and 2022 was $499,800 and $526,123, respectively.

Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows:

 Schedule of Expected Amortization Expense of intangible Assets

Note 9 – Accrued Expenses

Accrued expenses at November 30, 2023 and August 31, 2023 consisted of the following:

Schedule of Accrued Expenses

Note 10 – Government Loans and Notes Payable

Notes payable at November 30, 2023 and August 31, 2023 consisted of the following:

Schedule of Governmental Loans and Note Payable  

Future scheduled maturities of outstanding government loans and notes payable are as follows:

 Schedule of Future Maturities Outstanding of government Loans and Notes Payable

Note 11 – Convertible Notes Payable

Novo Integrated

On December 14, 2021, Novo Integrated issued two convertible notes payable for a total of $16,666,666 (the “$16.66m+ convertible notes”) with each note having a face amount of $8,333,333. The $16.66m+ convertible notes accrue interest at 5% per annum and are due on June 14, 2023. The $16.66m+ convertible notes are secured by all assets of the Company. The $16.66m+ convertible notes are convertible at the option of the note holders to convert into shares of the Company’s common stock at $20 per share.

In connection with the $16.66m+ convertible notes, the Company issued the note holders warrants to purchase a total of 583,334 shares of the Company’s common stock at a price of $20 per share. The warrants expire on December 14, 2025. The Company first determined the value of the $16.66m+ convertible notes and the fair value of the detachable warrants issued in connection with this transaction. The estimated value of the warrants of $7,680,156 was determined using the Black-Scholes option pricing model with the following assumptions:

The face amount of the $16.66m+ convertible notes of $16,666,666 was proportionately allocated to the $16.66m+ convertible notes and the warrants in the amount of $11,409,200 and $5,257,466, respectively. The amount allocated to the warrants of $5,257,466 was recorded as a discount to the convertible note and as additional paid in capital. The $16.66m+ convertible notes contained an original issue discount totaling $1,666,666 and the Company also incurred $1,140,000 in loan fees in connection with the $16.66m+ convertible notes. The combined total discount is $8,064,132 and will be amortized over the life of the $16.66m+ convertible notes.

On November 14, 2022, the $16.66m+ convertible notes were amended to provide the holders with conversion rights consisting of a conversion price to the first $1,000,000 of principal amount of each of the notes by the lower of (i) the conversion price in effect at such time and (ii) 82.0% of the lowest VWAP during the five (5) trading days immediately prior to a conversion date. The Company determined that the conversion features of these notes represented embedded derivatives since the notes are convertible into a variable number of shares upon conversion. On the same day, the Company recorded a derivative liability of $1,390,380. The fair value of the derivative liability was calculated using the Black-Scholes pricing model with the following assumptions:

The derivative was recorded as a discount on the convertible notes, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the convertible notes.

During the year ended August 31, 2023, an aggregate of $8,396,666 in principal and an aggregate of $32,559 in accrued interest were converted into 8,527,835 shares of common stock issued to the $16.66m+ convertible note holders. As a result of the first $1,000,000 principal conversion, the derivative liability of $1,390,380 was extinguished and recognized to additional paid-in capital. As of November 30, 2023 and August 31, 2023, the derivative liability balance was $nil and $nil, respectively.

During the year ended August 31, 2023, the Company amortized $4,241,429 of the debt discount and as of November 30, 2023 and August 31, 2023, the unamortized debt discount was $nil.

During the year ended August 31, 2023, the Company made cash payments in the aggregate amount of $3,001,442 for the monthly Amortization Payment, $2,833,888 in principal and $167,554 in interest, pursuant to the terms and conditions of the $16.66m+ convertible notes. As of November 30, 2023 and August 31, 2023, the aggregate principal amount owed to the $16.66m+ convertible note holders is $nil.

Terragenx

On November 17, 2021, Terragenx, a 91% owned subsidiary of the Company, issued two convertible notes payable for a total of $1,875,000 (the “$1.875m convertible notes”) with each note having a face amount of $937,500. The $1.875m convertible notes accrue interest at 1% per annum and were due on May 17, 2022 and extended to November 29, 2022. The $1.875m convertible notes are secured by all assets of the Company. The $1.875m convertible notes are convertible at the option of the note holders to convert into shares of the Company’s common stock at $33.50 per share.

In connection with the $1.875m convertible notes, the Company issued the note holders warrants to purchase a total of 22,388 shares of the Company’s common stock at a price of $33.50 per share. The warrants expire on November 17, 2024. The Company first determined the value of the $1.875m convertible notes and the fair value of the detachable warrants issued in connection with this transaction. The estimated value of the warrants of $351,240 and was determined using the Black-Scholes option pricing model with the following assumptions:

The face amount of the $1.875m convertible notes of $1,875,000 was proportionately allocated to the $1.875m convertible notes and the warrants in the amount of $1,579,176 and $295,824, respectively. The amount allocated to the warrants of $295,824 was recorded as a discount to the $1.875m convertible notes and as additional paid in capital. The $1.875m convertible notes contained an original issue discount totaling $375,000 and the Company also incurred $90,000 in loan fees in connection with these $1.875m convertible notes. The combined total discount was $760,824 and amortized over the life of the $1.875m convertible notes. The debt discount was fully amortized during the year ended August 31, 2022.

On June 1, 2022, the Company paid the balance owed on one of two Terragenx $1.875 million convertible notes for an aggregate payment of $948,874, including all principal and interest owed. On June 1, 2022, the Company made an interest payment to one of two Terragenx $1.875 million convertible notes for a payment of $192,188 and the note holder agreed to extend the maturity date to November 29, 2022 with a principal amount face value of $937,500 and interest rate that shall accrue at a rate equal to one percent per annum.

On June 1, 2022, the Company and one of the two Terragenx $1.875 million convertible note holders (the “Jefferson Note”) entered into that certain letter agreement pursuant to which the maturity date of the Jefferson Note was extended to November 29, 2022. On December 13, 2022, the Company, Terragenx and Jefferson entered into that certain letter agreement pursuant to which, among other things, Jefferson agreed to forbear from entering an Event of Default under the terms of the Jefferson Note and the related transaction documents until December 29, 2022. The Jefferson Note was not paid on December 29, 2022. Accordingly, on December 29, 2022, among other things, the Liquidated Damages Charge, in the aggregate amount of $186,719 was an addition to the Principal Amount due under the Jefferson Note.

Effective February 16, 2023, aside from the Liquidated Damages Charge, the Jefferson Note was paid in full. On August 21, 2023, Jefferson converted the additional Liquidated Damages Charge and the interest thereon. On August 21, 2023, as a result of the conversion, the Company issued 236,511 shares of common stock to Jefferson.

Novo Integrated – Mast Hill Fund, L.P.

On February 23, 2023, the Company entered into a securities purchase agreement (the “Mast Hill SPA”) with Mast Hill Fund, L.P. (“Mast Hill”), pursuant to which the Company issued an 12% unsecured promissory note (the “Mast Hill Note”) with a maturity date of February 23, 2024 (the “Mast Hill Maturity Date”), in the principal sum of $573,000 (the “Mast Hill Principal Sum”). In addition, the Company issued a common stock purchase warrant for the purchase of up to 100,000 shares of the Company’s common stock (the “Mast Hill Warrant”) to Mast Hill pursuant to the Mast Hill SPA. Pursuant to the terms of the Mast Hill Note, the Company agreed to pay the Mast Hill Principal Sum to Mast Hill and to pay interest on the principal balance at the rate of 12% per annum. The Mast Hill Note carries an OID of $57,300. Accordingly, on the closing date, Mast Hill paid the purchase price of $515,700 in exchange for the Mast Hill Note and the Mast Hill Warrant. Mast Hill may convert the Mast Hill Note into shares of the Company’s common stock at any time at a conversion price equal to $1.75 per share, subject to adjustment as provided in the Mast Hill Note (including but not limited to certain price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions) as well as certain beneficial ownership limitations.

Pursuant to the terms of the Mast Hill Note, the Company agreed to pay accrued interest monthly as well as the Mast Hill Principal Sum as follows: (i) $57,300 on August 23, 2023, (ii) 57,300 on September 23, 2023, (iii) $57,300 on October 23, 2023, (iv) $100,000 on November 23, 2023, (v) $100,000 on December 23, 2023, (vi) $100,000 on January 23, 2024, and (vii) all remaining amounts owed under the Mast Hill Note on the Mast Hill Maturity Date (each of the aforementioned payments are an “Amortization Payment”). If the Company fails to make any Amortization Payment, then Mast Hill shall have the right to convert the amount of such respective Amortization Payment into shares of common stock as provided in the Mast Hill Note at the lesser of (i) the then applicable conversion price under the Mast Hill Note, or (ii) 85% of the lowest VWAP of the Company’s common stock on any trading day during the five trading days prior to the respective conversion date.

The Company may prepay the Mast Hill Note at any time prior to the date that an Event of Default (as defined in the Mast Hill Note) occurs at an amount equal to the Mast Hill Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The Mast Hill Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the Mast Hill Note, Mast Hill Warrant, or Mast Hill SPA.

Upon the occurrence of any Event of Default, the Mast Hill Note shall become immediately due and payable and the Company shall pay to Mast Hill, in full satisfaction of its obligations hereunder, an amount equal to the Mast Hill Principal Sum then outstanding plus accrued interest multiplied by 125%. Upon the occurrence of an Event of Default, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.

The Mast Hill Warrant is exercisable for five years from February 23, 2023, at an exercise price of $2.50 per share, subject to adjustment as provided in the Mast Hill Warrant. The Mast Hill Warrant also contains certain cashless exercise provisions as well as price protection provisions providing for adjustment of the number of shares of the Company’s common stock issuable upon exercise of the Mast Hill Warrant and the exercise price in case of future dilutive offerings, subject to certain customary exempt transactions. The estimated value of the warrants of $86,327 was determined using the Black-Scholes option pricing model with the following assumptions:

As additional consideration for the purchase of the Mast Hill Note and pursuant to the terms of the Mast Hill SPA, on February 24, 2023, the Company issued 95,500 restricted shares of common stock (the “Commitment Shares”) to Mast Hill at closing. The Mast Hill SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the Commitment Shares as well as the shares of common stock underlying the Mast Hill Note and the Mast Hill Warrant. In addition to the beneficial ownership limitations provided in the Mast Hill Note and the Mast Hill Warrant, the sum of the number of shares of common stock that may be issued under the Mast Hill SPA (including the Commitment Shares), the Mast Hill Note, and the Mast Hill Warrant shall be limited to 19.99% of the issued and outstanding common stock on the closing date (equal to 2,772,045 shares) as further described in the Mast Hill SPA, unless shareholder approval to exceed such limitation is obtained by the Company.

The principal amount of the $573,000 convertible notes was proportionately allocated to the convertible note, common stock issued, and the warrants in the amount of $403,710, $82,963, and $86,327, respectively. The amounts allocated to the equity issuances were recorded as a discount to the convertible note and as additional paid in capital. The convertible note contained an original issue discount totaling $57,300 and the Company also incurred $70,465 in loan fees in connection with the convertible note. The combined total discount is $297,055 and will be amortized over the life of the convertible note. The debt discount was fully amortized during the year ended August 31, 2023.

During the year ended August 31, 2023, the principal amount of $573,000, interest of $6,028 and other fees of $1,750 were converted into 522,777 common stock of the Company. As of November 30, 2023 and August 31, 2023, the aggregate principal amount owed under the Mast Hill Note is $nil.

On September 18, 2023, Mast Hill fully exercised all warrants granted under the terms and conditions of the $573,000 Mast Hill Warrant Agreement, dated February 23, 2023. Under certain cashless exercise provisions as well as price protection provisions providing for adjustment of the number of shares of the Company’s common stock issuable upon exercise of the Mast Hill Warrant, the Company issued 53,567 restricted shares of the Company’s common stock.

Novo Integrated – FirstFire Global Opportunities Fund, LLC

On March 21, 2023, the Company entered into a securities purchase agreement (the “SPA”) with FirstFire Global Opportunities Fund, LLC (“FirstFire”) pursuant to which the Company issued an 12% unsecured promissory note (the “2023 FirstFire Note”) with a maturity date of March 21, 2024, in the principal sum of $573,000 (the “Principal Sum”). In addition, the Company issued a common stock purchase warrant for the purchase of up to 100,000 shares of the Company’s common stock (the “2023 FirstFire Warrant”) to FirstFire pursuant to the SPA. Pursuant to the terms of the 2023 FirstFire Note, the Company agreed to pay the Principal Sum to FirstFire and to pay interest on the principal balance at the rate of 12% per annum. The 2023 FirstFire Note carries an OID of $57,300. Accordingly, on the closing date, FirstFire paid the purchase price of $515,700 in exchange for the 2023 FirstFire Note and the 2023 FirstFire Warrant. FirstFire may convert the 2023 FirstFire Note into the Company’s common stock at any time at a conversion price equal to $1.75 per share, subject to adjustment as provided in the 2023 FirstFire Note (including but not limited to certain price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions) as well as certain beneficial ownership limitations.

Pursuant to the terms of the 2023 FirstFire Note, the Company agreed to pay accrued interest monthly as well as the Principal Sum as follows: (i) $57,300 on September 21, 2023, (ii) 57,300 on October 21, 2023, (iii) $57,300 on November 21, 2023, (iv) $100,000 on December 21, 2023, (v) $100,000 on January 21, 2024, (vi) $100,000 on February 21, 2024, and (vii) all remaining amounts owed under the 2023 FirstFire Note on the maturity date (each of the aforementioned payments are an “Amortization Payment”). If the Company fails to make any Amortization Payment, then FirstFire shall have the right to convert the amount of such respective Amortization Payment into shares of common stock as provided in the 2023 FirstFire Note at the lesser of (i) the then applicable conversion price under the 2023 FirstFire Note or (ii) 85% of the lowest VWAP of the Company’s common stock on any trading day during the five trading days prior to the respective conversion date.

The Company may prepay the 2023 FirstFire Note at any time prior to the date that an event of default (as provided in the 2023 FirstFire Note) occurs at an amount equal to the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The 2023 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the 2023 FirstFire Note, the 2023 FirstFire Warrant, or SPA.

Upon the occurrence of any event of default, the 2023 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied by 125% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.

The 2023 FirstFire Warrant is exercisable for five years from March 21, 2023, at an exercise price of $2.50 per share, subject to adjustment as provided in the 2023 FirstFire Warrant. The 2023 FirstFire Warrant also contains certain cashless exercise provisions as well as price protection provisions providing for adjustment of the number of shares of common stock issuable upon exercise of the 2023 FirstFire Warrants and the exercise price in case of future dilutive offerings, subject to certain customary exempt transactions. The estimated value of the warrants of $93,811 was determined using the Black-Scholes option pricing model with the following assumptions:

As additional consideration for the purchase of the 2023 FirstFire Note and pursuant to the terms of the SPA, on March 22, 2023, the Company issued 95,500 restricted shares of the Company’s common stock (the “Commitment Shares”) to FirstFire at closing. The SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the Commitment Shares as well as the shares of common stock underlying the 2023 FirstFire Note and the 2023 FirstFire Warrant. In addition to the beneficial ownership limitations provided in the 2023 FirstFire Note and the 2023 FirstFire Warrant, the sum of the number of shares of common stock that may be issued under the SPA (including the Commitment Shares), the 2023 FirstFire Note, and 2023 FirstFire Warrant shall be limited to 1,000,000 shares as further described in the SPA, unless shareholder approval to exceed such limitation is obtained by the Company.

The principal amount of the $573,000 convertible notes was proportionately allocated to the convertible note, common stock issued, and the warrants in the amount of $389,057, $90,132, and $93,811, respectively. The amounts allocated to the equity issuances were recorded as a discount to the convertible note and as additional paid in capital. The convertible note contained an original issue discount totaling $57,300 and the Company also incurred $35,628 in loan fees in connection with the convertible note.

The effective conversion price was determined to be $1.188 based on the allocation of the principal amount and the number of shares to be received upon conversion. As the stock price at the issuance date of $1.390 was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the beneficial conversion feature of $66,068, equal to the intrinsic value of the conversion option, as a discount to the convertible note and as additional paid in capital.

The combined total discount is $342,938 and will be amortized over the life of the convertible note. During the three months ended November 30, 2023, the Company amortized $190,209 of the debt discount and as November 30, 2023, the unamortized debt discount was $nil.

During the three months ended November 30, 2023, the principal amount of $573,000 and interest of $4,521 were converted into 519,845 common stock of the Company. As of November 30, 2023, the aggregate principal amount owed under the 2023 FirstFire Note is $nil.

On October 12, 2023, FirstFire fully exercised all warrants granted under the terms and conditions of the $573,000 FirstFire Warrant Agreement, dated March 21, 2023. Under certain cashless exercise provisions as well as price protection provisions providing for adjustment of the number of shares of the Company’s common stock issuable upon exercise of the FirstFire Warrant, the Company issued 53,532 restricted shares of the Company’s common stock.

Novo Integrated – Mast Hill Fund, L.P. $445,000 Note, SPA, and Warrant

On June 20, 2023, the Company entered into a securities purchase agreement (the “MH $445,000 SPA”) with Mast Hill, pursuant to which the Company issued an 12% unsecured promissory note (the “MH $445,000 Note”) with a maturity date of June 20, 2024 (the “MH $445,000 Maturity Date”), in the principal sum of $445,000 (the “MH $445,000 Principal Sum”). In addition, the Company issued a common stock purchase warrant for the purchase of up to 77,662 shares of the Company’s common stock (the “MH $445,000 Warrant”) to Mast Hill pursuant to the MH $445,000 SPA. Pursuant to the terms of the MH $445,000 Note, the Company agreed to pay the MH $445,000 Principal Sum to Mast Hill and to pay interest on the principal balance at the rate of 12% per annum. The MH $445,000 Note carries an OID of $44,500. Accordingly, on the Closing Date (as defined in the MH $445,000 SPA), Mast Hill paid the purchase price of $400,500 in exchange for the MH $445,000 Note and MH $445,000 Warrant. Mast Hill may convert the MH $445,000 Note into the Company’s common stock at any time at a conversion price equal to $1.75 per share, subject to adjustment as provided in the MH $445,000 Note (including but not limited to certain price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions), as well as certain beneficial ownership limitations.

Pursuant to the terms of the MH $445,000 Note, the Company agreed to pay accrued interest monthly as well as the MH $445,000 Principal Sum as follows: (i) $44,500 on December 20, 2023, (ii) $44,500 on January 20, 2024, (iii) $44,500 on February 20, 2024, (iv) $77,661 on March 20, 2024, (v) $77,661 on April 20, 2024, (vi) $77,661 on May 20, 2024, and (vii) all remaining amounts owed under the MH $445,000 Note on the MH $445,000 Maturity Date (each of the aforementioned payments are an “MH $445,000 Amortization Payment”). If the Company fails to make any MH $445,000 Amortization Payment, then Mast Hill shall have the right to convert the amount of such respective MH $445,000 Amortization Payment into shares of common stock as provided in the MH $445,000 Note at the lesser of (i) the then applicable conversion price under the MH $445,000 Note or (ii) 85% of the lowest VWAP of the common stock on any trading day during the five trading days prior to the respective conversion date.

The Company may prepay the MH $445,000 Note at any time prior to the date that an Event of Default (as defined in the Note) (each an “MH $445,000 Event of Default”) occurs at an amount equal to the MH $445,000 Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The MH $445,000 Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the MH $445,000 Note, the MH $445,000 Warrant, or the MH $445,000 SPA.

Upon the occurrence of any MH $445,000 Event of Default, the MH $445,000 Note shall become immediately due and payable and the Company shall pay to Mast Hill, in full satisfaction of its obligations hereunder, an amount equal to the MH $445,000 Principal Sum then outstanding plus accrued interest multiplied by 125%. Upon the occurrence of an MH $445,000 Event of Default, additional interest will accrue from the date of the MH $445,000 Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.

The MH $445,000 Warrant is exercisable for five years from June 20, 2023, at an exercise price of $2.50 per share, subject to adjustment as provided in the MH $445,000 Warrant. The MH $445,000 Warrant also contains certain cashless exercise provisions, as well as price protection provisions providing for adjustment of the number of shares of common stock issuable upon exercise of the MH $445,000 Warrant and the exercise price in case of future dilutive offerings, subject to certain customary exempt transactions. The estimated value of the warrants of $77,856 was determined using the Black-Scholes option pricing model with the following assumptions:

As additional consideration for the purchase of the MH $445,000 Note and pursuant to the terms of the MH $445,000 SPA, the Company issued 74,167 restricted shares of the Company’s common stock (the “MH $445,000 Commitment Shares”) to Mast Hill at closing. The MH $445,000 SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the MH $445,000 Commitment Shares as well as the shares of common stock underlying the MH $445,000 Note and MH $445,000 Warrant. In addition to the beneficial ownership limitations provided in the MH $445,000 Note and MH $445,000 Warrant, the sum of the number of shares of common stock that may be issued under the MH $445,000 SPA (including the MH $445,000 Commitment Shares), MH $445,000 Note, and MH $445,000 Warrant shall be limited to 1,772,045 as further described in the MH $445,000 SPA, unless shareholder approval to exceed such limitation is obtained by the Company.

The principal amount of the $445,000 convertible notes was proportionately allocated to the convertible note, common stock issued, and the warrants in the amount of $292,351, $74,793, and $77,856, respectively. The amounts allocated to the equity issuances were recorded as a discount to the convertible note and as additional paid in capital. The convertible note contained an original issue discount totaling $44,500 and the Company also incurred $39,904 in loan fees in connection with the convertible note.

The effective conversion price was determined to be $1.150 based on the allocation of the principal amount and the number of shares to be received upon conversion. As the stock price at the issuance date of $1.535 was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the beneficial conversion feature of $97,978, equal to the intrinsic value of the conversion option, as a discount to the convertible note and as additional paid in capital.

The combined total discount is $335,031 and will be amortized over the life of the convertible note. During the three months ended November 30, 2023, the Company amortized $83,300 of the debt discount and as at November 30, 2023, the unamortized debt discount was $185,823.

Specific to the MH $445,000 Note, on July 20, 2023, the Company made a monthly interest payment of $4,243. On August 21, 2023, the Company made a monthly interest payment of $4,535. On September 21, 2023, the Company made a monthly interest payment of $4,535. On October 20, 2023, the Company made a monthly interest payment of $4,389.

On October 23, 2023, Mast Hill fully exercised all warrants granted under the terms and conditions of the $445,000 Mast Hill Warrant Agreement, dated June 20, 2023. Under certain cashless exercise provisions as well as price protection provisions providing for adjustment of the number of shares of the Company’s common stock issuable upon exercise of the Mast Hill Warrant, the Company issued 138,703 restricted shares of the Company’s common stock.

September 2023 Mast Hill SPA

On September 12, 2023, the Company entered into a securities purchase agreement (the “September 2023 Mast Hill SPA”) with Mast Hill Fund, L.P. (“Mast Hill”), pursuant to which the Company issued an 12% promissory note (the “September 2023 Mast Hill Note”) with a maturity date of September 12, 2024 (the “September 2023 Mast Hill Maturity Date”), in the principal sum of $3,500,000. Pursuant to the terms of the September 2023 Mast Hill Note, the Company agreed to pay the principal sum to Mast Hill and to pay interest on the principal balance at the rate of 12% per annum. The September 2023 Mast Hill Note carries an original issue discount (“OID”) of $350,000. Accordingly, on the closing date, Mast Hill paid the purchase price of $3,150,000 in exchange for the September 2023 Mast Hill Note. Mast Hill may convert the September 2023 Mast Hill Note into shares of the Company’s common stock at any time at a conversion price equal to the lesser of (i) $4.50 or (ii) 91.5% of the lowest volume weighted average price of the Company’s common stock on any trading day during the five trading day period prior to the respective conversion date, subject to adjustment as provided in the September 2023 Mast Hill Note (including but not limited to price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions) as well as beneficial ownership limitations.

Pursuant to the terms of the September 2023 Mast Hill Note, the Company agreed to pay the principal sum and accrued interest as follows: (i) all accrued interest on December 12, 2023, (ii) $350,000 plus accrued interest on March 12, 2024, (iii) $350,000 plus accrued interest on April 12, 2024, (iv) $350,000 plus accrued interest on May 12, 2024, (v) $595,000 plus accrued interest on June 12, 2024, (vi) $595,000 plus accrued interest on July 12, 2024, (vii) $595,000 plus accrued interest on August 12, 2024, and (viii) all remaining amounts owed under the September 2023 Mast Hill Note on the September 2023 Mast Hill Maturity Date (each of the aforementioned payments is an “Amortization Payment”). If the Company fails to make any Amortization Payment, then Mast Hill will have the right to convert the amount of such respective Amortization Payment into shares of common stock as provided in the September 2023 Mast Hill Note at the lesser of (i) the then applicable conversion price under the September 2023 Mast Hill Note or (ii) 85% the lowest volume weighted average price of the Company’s common stock on any trading day during the five trading day period prior to the respective conversion date.

The Company may prepay the September 2023 Mast Hill Note at any time prior to the date that an Event of Default (as defined in the Note) occurs at an amount equal to the principal sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The September 2023 Mast Hill Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the September 2023 Mast Hill Note or September 2023 Mast Hill SPA.

Upon the occurrence of any Event of Default, the September 2023 Mast Hill Note shall become immediately due and payable and the Company will pay to Mast Hill an amount equal to the principal sum then outstanding plus accrued interest multiplied by 125%. Upon the occurrence of an Event of Default, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.

The September 2023 Mast Hill SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the common stock underlying the September 2023 Mast Hill Note. Further, pursuant to the September 2023 Mast Hill SPA, the Company agreed to transfer its rights to the charges/mortgages evidenced by Instrument Nos. CE925256 (in the amount of CDN$1,600,000) and CE888785 (in the amount of CDN$1,800,000) on the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada, to Mast Hill as security for the Company’s repayment of the September 2023 Mast Hill Note. In addition to the beneficial ownership limitations provided in the September 2023 Mast Hill Note, the sum of the number of shares of common stock that may be issued under the September 2023 Mast Hill SPA and September 2023 Mast Hill Note shall be limited to 1,772,045 as further described in the September 2023 Mast Hill SPA, unless shareholder approval to exceed such limitation is obtained by the Company.

The Company’s subsidiary, Acenzia Inc. (“Acenzia”), entered into a guaranty with Mast Hill on September 12, 2023. Acenzia guaranteed the repayment of the September 2023 Mast Hill Note and granted Mast Hill a security interest in Acenzia’s assets, including but not limited to, the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada.

The Company determined that the conversion features of these notes represented embedded derivatives since the notes are convertible into a variable number of shares upon conversion. On September 12, 2023, the Company recorded a derivative liability of $3,071,653. The fair value of the derivative liability was calculated using the Black-Scholes pricing model with the following assumptions:

The derivative was recorded as a discount on the convertible notes, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the convertible note.

As at November 30, 2023, the fair value of the derivative liability was $2,487,726 and for the three months ended November 30, 2023, the Company recorded a gain of $583,927 from the change in fair value of derivative liability as non-operating income in the condensed consolidated statements of operations and comprehensive loss. The fair value of the derivative liability was calculated using the Black-Scholes pricing model with the following assumptions:

The September 2023 Mast Hill Note contained a discount on note of $3,500,000. The total discount will be amortized over the life of the September 2023 Mast Hill Note.

During the three months ended November 30, 2023, the Company amortized $755,464 of the debt discount and as November 30, 2023, the unamortized debt discount was $2,744,536.

September 2023 FirstFire SPA & Note

On September 18, 2023, the Company entered into a securities purchase agreement (the “September 2023 FirstFire SPA”) with FirstFire Global Opportunities Fund, L.P. (“FirstFire”), pursuant to which the Company issued an 12% promissory note (the “September 2023 FirstFire Note”) with a maturity date of September 18, 2024, in the principal sum of $277,778. Pursuant to the terms of the September 2023 FirstFire Note, the Company agreed to pay the principal sum to FirstFire and to pay interest on the principal balance at the rate of 12% per annum. The September 2023 FirstFire Note carries an OID of $27,778. Accordingly, on the closing date, FirstFire paid the purchase price of $250,000 in exchange for the September 2023 FirstFire Note. FirstFire may convert the September 2023 FirstFire Note into the Company’s common stock, at any time at a conversion price equal to the lesser of (i) $4.50 or (ii) 91.5% of the lowest volume weighted average price of the Company’s common stock on any trading day during the five trading day period prior to the respective conversion date, subject to adjustment as provided in the September 2023 FirstFire Note (including but not limited to price protection provisions in case of future dilutive offerings, subject to certain customary exempt transactions) as well as beneficial ownership limitations.

Pursuant to the terms of the September 2023 FirstFire Note, the Company agreed to pay the principal sum and accrued interest as follows: (i) all accrued interest on December 18, 2023, (ii) $27,778 plus accrued interest on March 18, 2024, (iii) $27,778 plus accrued interest on April 18, 2024, (iv) $27,778 plus accrued interest on May 18, 2024, (v) $47,222 plus accrued interest on June 18, 2024, (vi) $47,222 plus accrued interest on July 18, 2024, (vii) $47,222 plus accrued interest on August 18, 2024, and (viii) all remaining amounts owed under the September 2023 FirstFire Note on the maturity date (each of the aforementioned payments is a “FirstFire Amortization Payment”). If the Company fails to make any FirstFire Amortization Payment, then FirstFire shall have the right to convert the amount of such respective FirstFire Amortization Payment into shares of common stock as provided in the September 2023 FirstFire Note at the lesser of (i) the then applicable conversion price under the September 2023 FirstFire Note or (ii) 85% the lowest volume weighted average price of the Company’s common stock on any trading day during the five trading day period prior to the respective conversion date.

The Company may prepay the September 2023 FirstFire Note at any time prior to the date that an event of default occurs at an amount equal to the principal sum then outstanding plus accrued and unpaid interest (no prepayment premium) plus $750 for administrative fees. The September 2023 FirstFire Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of provisions of the September 2023 FirstFire Note or September 2023 FirstFire SPA.

Upon the occurrence of any event of default, the September 2023 FirstFire Note shall become immediately due and payable and the Company shall pay to FirstFire, in full satisfaction of its obligations hereunder, an amount equal to the principal sum then outstanding plus accrued interest multiplied by 125%. Upon the occurrence of an event of default, additional interest will accrue from the date of the event of default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.

The September 2023 FirstFire SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, piggy-back registration rights with respect to the common stock underlying the September 2023 FirstFire Note. In addition to the beneficial ownership limitations provided in the September 2023 FirstFire Note, the sum of the number of shares of common stock that may be issued under the September 2023 FirstFire SPA and September 2023 FirstFire Note shall be limited to 480,156 as further described in the September 2023 FirstFire SPA, unless shareholder approval to exceed such limitation is obtained by the Company.

Acenzia entered into a guaranty with FirstFire on September 18, 2023. Acenzia guaranteed the repayment of the September 2023 FirstFire Note and granted FirstFire a security interest in Acenzia’s assets, including but not limited to the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada, which is junior in priority to the security interest granted by Acenzia to FirstFire.

The Company determined that the conversion features of these notes represented embedded derivatives since the notes are convertible into a variable number of shares upon conversion. On September 18, 2023, the Company recorded a derivative liability of $200,136. The fair value of the derivative liability was calculated using the Black-Scholes pricing model with the following assumptions:

The derivative was recorded as a discount on the convertible notes, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the convertible note.

As at November 30, 2023, the fair value of the derivative liability was $198,534 and for the three months ended November 30, 2023, the Company recorded a gain of $1,602 from the change in fair value of derivative liability as non-operating income in the condensed consolidated statements of operations and comprehensive loss. The fair value of the derivative liability was calculated using the Black-Scholes pricing model with the following assumptions: