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Wednesday, June 29, 2022

Did Novo Integrated Sciences, Inc. (NVOS) Shoot Itself in the Foot with its Direct Offering?

Novo Integrated Sciences, Inc. (NVOS) saw its share price fall by a whopping 24% following the news of its direct offering of common shares and warrants to raise capital. It entered into an agreement that will see USD$8 million being sold in common stock and warrants. The price of a combined common stock and warrant will be USD$3.35.

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Possible Downside to Direct Offering?

Direct offerings can spell short-term disaster for businesses because they dilute the value of the existing stock with the injection of an additional supply of shares. Investors could lose faith in the business on account of its illiquidity and the need to raise capital through direct offerings. With a closing date of April 13 2021, NVOS anticipates netting USD$7,258,500 after the deduction of agent’s fees and other offering costs. 

What does NVOS do?

NVOS is based in the US and provides a wide range of primary healthcare services in Canada. Their revenue is generated exclusively by health care practitioners from their subsidiary company, Novo Healthnet Ltd. (NHL). They address a variety of medical concerns over several demographics across NHL’s 16 clinics and a network of affiliated clinics that have a contract with NHL; as well as long-term care, retirement homes and as community-based locations across Canada associated with eldercare.

What do their Financials Look Like?

For the 3-month period ending February 28th, 2021 NVOS’s revenues sat at USD$2,075,894, down 14.5% from the same period of the previous year, when they reported revenues of USD$2,428,864. This can largely be attributed to the global pandemic resulting in decreased clinic visits by patients. The same 3-month period in 2021 saw net losses of USD$1,339,870, which is a 165.6% increase from the same period last year. This is to be expected with the dip in revenue, but other factors which contributed to the net loss are rises in amortization of intangible asset, payroll for senior executives, and the costs associated with getting the company listed on Nasdaq.

What does the Future Hold for NVOS?

The CEO and Chairman of the Board is very optimistic about NVOS’s future on account of their adaptability to and perseverance through the global pandemic. It remains to be seen if the dilution of shares that resulted in such a steep, sudden drop in share prices will be worth it, depending on how efficiently and impactfully the raised capital can be invested.

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