Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the Quarterly Period Ended February 28, 2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the Transition Period From ____ To______

Commission file number: 001-33090

NOVATION HOLDINGS, INC.

( Exact Name of Registrant as Specified in its Charter)


Florida	46-1420443
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)


1800 NW Corporate Boulevard, Suite 201, Boca Raton, FL	33431
(Address of principal executive offices)	(Zip Code)

(321)-452-9091

(Registrant ’ s Telephone Number, Including Area Code )

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 [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [ X]

As of May 1, 2014, there were 5,863,234,893 shares of Common Stock ($0.001 par value) outstanding.

TABLE OF CONTENTS


		Page Number

PART I.	FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets as of February 28, 2014(unaudited) and August 31, 2013	2

	Condensed Consolidated Statements of Operations for the three and six months ended February 28, 2014 and February 28, 2013(unaudited)	3
-	Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 2014 and February 28, 2013(unaudited)	4
	Notes to the Condensed Consolidated Financial Statements.	5

ITEM 2.	Management ’ s Discussion and Analysis of Financial Condition and Results of Operations	21

ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	24

ITEM 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION	26

ITEM 1.	Legal Proceedings	26

ITEM 1A.	Risk Factors	26

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

ITEM 3.	Defaults Upon Senior Securities	27

ITEM 4.	(Removed and Reserved)	27
ITEM 5.	Other Information	27

ITEM 6.	Exhibits	27

	SIGNATURES	27

PART 1 – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated balance sheets of Novation Holdings, Inc. and subsidiaries (the "Company ” ) at February 28, 2014 (with comparative figures as at August 31, 2013); and the condensed consolidated statements of operations for the six months ended February 28, 2014 and 2013, and the condensed consolidated statements of cash flows for the six months ended February 28, 2014 and February 28, 2013 have been prepared by the Company ’ s management in conformity with accounting principles generally accepted in the United States of America.

In the opinion of management, all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

Consolidated operating results for the six months ended February 28, 2014 are not necessarily indicative of the results that can be expected for the full year ending August 31, 2014.


Novation Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
			February 28, 2014	August 31, 2013
			( Unaudited)	(Restated)
ASSETS
CURRENT ASSETS
	Cash		$ 29,541	$ 4
	Accounts receivable		222,400	161,110
	Due from ISP		10,765	6,845
	Deposit in subscription		41,000	-
	Deferred loan costs, net of accumulated amortization of $46,000 and $39,148		-	6,853
		Total current assets	303,706	174,812
OTHER ASSETS
Property, plant and equipment (net of accumulated
	depreciation of $857 and $645 respectively)		1,263	1,475
Loan receivable			642,977	646,376
Investment - cost method			248,000	52,000
Intangibles, net			135,000	165,000
Goodwill			20,000	20,000
Advances to related parties			79,500	42,350
		Total assets	$ 1,430,446	$ 1,102,013
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
	Accounts payable and accrued expenses		$ 139,293	$ 177,528
	Accrued interest		75,577	47,878
	Due to related party		30,712	30,712
	Due to third party		24,897	5,694
	Notes payable - net of debt discount of $107,140 and $48,324		55,526	111,205
	Derivative liability		1,549,702	632,794
		Total current liabilities	1,875,707	1,005,811
LONG-TERM LIABILITIES
	Acquisition note payable		-	489,689
	Convertible note payable - net of discount of $415,222 and $5,357		384,149	202,020
		Total liabilities	2,259,856	1,697,520
STOCKHOLDERS' DEFICIT
	Preferred stock, $0.001 par value; 5,000,000 shares authorized
		1,000,000 issued and outstanding at
		February 28, 2014 and August 31, 2013, respectively	1,000	1,000
	Common stock, $0.001 par value; 5,000,000,000 shares authorized,
		3,666,043,518 and 509,999,997 shares issued and outstanding at
		November 30, 2013 and August 31, 2013, respectively	3,666,043	510,000
	Additional paid in capital		7,646,245	9,833,606
	Accumulated other comprehensive income (loss)		220,000	24,000
	Deficit accumulated during the development stage		(12,362,698)	(10,964,112)
		Total stockholders' deficit	(829,410)	(595,507)
		Total liabilities and stockholders' deficit	$ 1,430,446	$ 1,102,013

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


Novation Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
		For the Three Months Ended		For the Six Months Ended
		February 28, 2014	February 28, 2013	February 28, 2014	February 28, 2013
REVENUES		$ 166,218	$ 72,813	$ 302,025	$ 72,813
COST OF GOODS SOLD		17,013	30,897	26,021	30,897
NET REVENUES		$ 149,205	$ 41,916	$ 276,004	$ 41,916
GENERAL AND ADMINISTRATIVE EXPENSES
	Payroll and payroll taxes	30,000	30,000	60,000	60,000
	Professional fees	105,100	297,953	177,933	367,702
	General and administrative	23,860	48,496	53,006	68,149
	Amortization expense	15,000	-	30,000	-
	Impairment loss	-	335,549	-	335,549
	Rent	3,090	11,729	6,180	11,729
	Total operating expenses	177,050	723,727	327,119	843,129
	Loss from operations	(27,845)	(681,811)	(51,115)	(801,213)
OTHER INCOME (EXPENSE)
	Finance cost	-	(9,958)	-	(9,958)
	Sale of subsidiary	-	246,876	-	246,876
	Interest, net	(212,670)	(150,122)	(364,574)	(256,182)
	Derivative expense	(778,888)	-	(1,590,665)	-
	Change in fair value of derivatives	555,199	118,077	607,770	(166,489)
	Other, net	-	-	-	-
	Total other income (expense)	(436,359)	204,873	(1,347,469)	(185,753)

	Net loss	$ (464,204)	$ (476,938)	$ (1,398,584)	$ (986,966)
	Net loss attributable to non-controlling interest	-	205,242	-	205,242
	Net loss	$ (464,204)	$ (271,696)	$ (1,398,584)	$ (781,724)

Net loss per share (basic and diluted)		$ (0.00)	$ (0.04)	$ (0.00)	$ (0.03)

Weighted average number of shares outstanding during the period-basic and diluted		2,495,126,577	13,595,356	1,684,225,691	31,985,904

OTHER COMPREHENSIVE INCOME, NET OF TAX
	Unrealized gain on investment	228,000	-	196,000	-
	Comprehensive loss	(236,204)	(476,938)	(1,202,584)	(986,966)

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


Novation Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
			For the Six Months Ended
			February 28, 2014	February 28, 2013
OPERATING ACTIVITIES
	Net loss		$ (1,398,585)	$ (781,724)
	Adjustments to reconcile net loss to net
		cash used by operations:
		Depreciation expense	212	212
		Change in fair value of derivatives	(607,770)	166,489
		Derivative expense	1,590,665	-
		Amortization of intangibles	30,000	-
		Amortization of deferred loan costs	6,853	11,670
		Amortization of debt discount and non-cash derivative expense	323,340	451,625
	Changes in certain operating assets and liabilities:
		Interest accrued on notes payable	27,699	11,796
		Increase in accounts receivable	(61,290)	(2,912)
		Increase in prepaid expenses	-	(2,376)
		Increase in other current assets	(3,920)	(23,000)
		Loans receivable	3,399	-
		Increase in accounts payable	11,366	-
Net cash used by operating activities			(78,031)	(168,220)
INVESTING ACTIVITIES
	Investment in non-controlling interests		-	(495,689)
	Investment in deposit subscription		(26,000)	-
	Investment in notes receivable, net		-	(159,500)
Net cash used by investing activities			(26,000)	(655,189)
FINANCING ACTIVITIES
	Proceeds from notes payable		135,692	448,091
	Payments on notes payable		-	370,580
	Related party advances		(2,124)	5,000
Net cash provided by financing activities			133,568	823,671
Net increase (decrease) in cash			29,537	262
Cash, beginning of period			4	1,245
Cash, end of period			$ 29,541	$ 1,507
Supplemental cash flow information:
	Cash paid for interest		$ -	$ -
	Cash paid for income taxes		$ -	$ -
	Significant non-cash activities
		Notes payable and accrued interest converted to common stock	$ 240,729	$ 53,070
		Accounts payable converted to notes payable	$ 50,000	$ -
		Accrued interest converted to notes payable	$ 790	$ -
		Debt discount on notes payable from derivative liability	$ -	$ (55,708)
		Reclassification of derivative liabilities to paid-in-capital	$ -	$ 68,530

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

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 1. ORGANIZATION

Novation Holdings, Inc., formerly Allezoe Medical Holdings, Inc., and formerly Stanford Management, Ltd. (the “ Company ” ), was incorporated under the laws of the State of Delaware on September 24, 2008. Effective October 25, 2012, the Company amended its Articles of Incorporation to change its name to Novation Holdings, Inc., increased its authorized capital to 500 million shares of common stock, par value $0.001, and 10 million shares of preferred stock, par value $0.001, and changed its place of incorporation from Delaware to Florida. The corporate trading symbol also was changed from ALZM to NOHO.

The Company was originally organized for the purpose of acquiring and developing mineral properties. On February 18, 2011, all of the mineral properties and related development and exploration activities were disposed of as part of a series of transactions resulting in the Company moving into the medical technology industry.

On February 18, 2011, the Company acquired all of the outstanding shares of Organ Transport Systems, Inc. ( “ OTS ” ), a Nevada corporation, and simultaneously disposed of the assets relating to its former activities in mining exploration, along with all related liabilities. Consequently, OTS was considered to be the surviving entity, with the Company intending to include only the financial results of OTS in its financial statements. Effective March 19, 2012 the Company. agreed to rescind the acquisition of Organ Transport Systems, Inc. The net effect of the rescission transaction has been to remove OTS as a subsidiary of the Company.

As a result of the rescission of the OTS transaction, on July 11, 2012, the Company amended its prior SEC periodic filings to remove the financial results for OTS by filing an amended Form 10-K/A for the year ended August 31, 2011, and amended Forms 10-Q/A for the quarters ended November 30, 2011 and February 29, 2012.

Effective October 25, 2012, the Company completed a 1 for 15 reverse split of its common stock as part of its recapitalization, name change and change of corporate domicile. The reverse stock split has been given retroactive recognition in the Form 10-K for the fiscal year ended August 31, 2012 and in this Form 10-Q. All shares and per share information have been retroactively adjusted to reflect the stock split.

Nature of Operations

On December 1, 2012, we acquired the operating assets of an Internet Service Provider (ISP) based in Utah and have continued the existing, profitable operations. We also plan to acquire similar ISPs located across the US. To date, the Company has identified three possible acquisition targets. Burgoyne Internet Services, Inc. is operated as a wholly-owned subsidiary of the Company and its results of operations are consolidated with the Company.

Burgoyne provides Internet access, emails, and related services to customers throughout the United States, primarily in areas where high speed cable and other high speed Internet access services are not readily available. Its web site is at www.burgoyne.com . As a result of this initial ISP acquisition, the Company plans to undertake acquisitions of other regional ISP companies in a national roll-up strategy. The Company has already identified three other regional ISP companies for sale and believes that, with the added infrastructure provided by the Company, the existing operating success can grow and add to the bottom line for the Company. As part of the transaction, the Company also executed a Transition Services Agreement with ISP Holdings, LLC. under which ISP Holdings will continue to provide administrative services in managing the ISP business of Burgoyne for a nominal fee of the greater of 2 percent of revenues or $200 per month.

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations (Continued)

On January 1, 2013, the Company acquired a portion of an existing administrative and financial consulting business and formed Novation Consulting Services, Inc., as a wholly-owned subsidiary. Novation Consulting Services, Inc. provides administrative, financial, legal and similar consulting services to the Company as well as to other, unrelated companies.

In May, 2013, the Company acquired 1,000,000 shares of Series A Preferred Stock in Crown City Pictures, Inc. (OTC Pink: CCPI), a non-reporting shell company, which the Company intends to use for future acquisitions of operating subsidiaries. The operating results of CCPI are not consolidated with the Company, because CCPI had no significant activity and because the investment in CCPI was written off as impaired for the fiscal year ended August 31, 2013.

In November, 2013, the Company subscribed for 1,000,000 shares of a convertible preferred stock of Focus Gold Corp. (OTC Pink FGLD) with voting power equal to 55 percent of all voting power of all classes of stock. The company paid $41,000 as of February 28, 2014 out of the total subscription amount of $65,000 and the balance of $24,000 has been paid after February 28, 2014.

Basis of Presentation of Interim Period Financial Statements

The accompanying unaudited consolidated financial statements of the Company at February 28, 2014 and February 28, 2013 have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles ( ‘ GAAP ’ ) for interim financial statements, instructions to Form 10-Q, and Regulation S-X.

In management ’ s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make the Company ’ s financial statements not misleading have been included. The results of operations for the periods ended February 28, 2014 presented are not necessarily indicative of the results to be expected for the full year ended August 31, 2014.

Risks and Uncertainties

The Company operates in an industry that is subject to rapid technological change. The Company's operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks associated with start-up companies, including the potential risk of business failure.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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. A significant estimate as of February 28, 2014 and August 31, 2013 included a 100% valuation allowance for deferred tax assets arising from net operating losses incurred since inception and also calculations of derivative liability.

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ materially from estimates.

Cash and Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company had no cash equivalents at February 28, 2014 and August 31, 2013, respectively. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. There were no balances that exceeded the federally insured limit at February 28, 2014 and August 31, 2013, respectively.

Loss per Share

In accordance with Financial Accounting Standards Board “ FASB ” Accounting Standards Codification “ ASC ” Topic 260, “ Earnings per Share, ” basic earnings (loss) per share ( “ EPS ” ) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive. The computation of basic and diluted loss per share for the period ending February 28, 2014, is equivalent since the Company has had continuing losses. The Company also has no common stock equivalents.

Accounting for Stock-Based Compensation

The Company adopted the provisions of FASB ASC 718-20, Stock Compensation – Awards Classified as Equity, which require companies to expense the estimated fair value of employee stock options and similar awards based on the fair value of the award on the date of grant. The cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. At the Annual Meeting of Shareholders held on October 24, 2012, the shareholders approved the adoption of the Novation Holdings, Inc. 2012 Stock Incentive Plan, and the setting aside of 4,500,000 shares of post-reverse split common stock for grants under the Plan. There have been no grants of any stock or other equity under the Plan, or otherwise, as of February 28, 2014.

Non-Employee Stock Based Compensation

Share-based payment awards issued to non-employees for services rendered are recorded in accordance with ASC 505, “ Equity ” at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded and deducted from deferred tax assets when the deferred tax assets are not expected to be realized based on currently available evidence. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Management has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are well documented and supported. Additionally, management believes that no accruals for tax liabilities are necessary. Therefore, no reserves for uncertain income tax positions have been recorded.

Revenue Recognition

The Company recognizes revenue in accordance with FASB ASC 605 on revenue recognition for consulting and ISP services. Revenue from consulting and ISP services will be recognized only when persuasive evidence of a sale or arrangement with a customer exists, price if fixed and determinable, services have been performed, and collectability of the resulting receivable reasonably assured.

Cash received in advance of meeting the revenue recognition criteria described above is recorded as deferred revenue.

Concentrations of Credit Risk

The Company maintains its cash in bank deposit accounts in a bank which participates in the Federal Deposit Insurance Corporation (FDIC) Program. As of February 28, 2014 and August 31, 2013, the Company had no balances in excess of federally insured limits.

Fair Value of Financial Instruments

All financial instruments, including derivatives, are to be recognized on the balance sheet initially at fair value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired.

The carrying amounts of the Company ’ s other short-term financial instruments, including accounts payable and accrued liabilities, approximate fair value due to the relatively short period to maturity for these instruments. The Company does not utilize financial derivatives or other contracts to manage commodity price risks. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fair Value of Measurements

The fair value of the Company's financial assets and liabilities reflects the Company's estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company's assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

Level 2 – inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

Level 3 – unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

Derivative Financial Instruments

The Company evaluates embedded conversion features within convertible debt under ASC 815 “ Derivatives and Hedging ” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company uses a Binomial pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the consolidated statement of operation. Inputs into the Binomial pricing model require estimates, including such items as estimated volatility of the Company ’ s stock, risk-free interest rate and the estimated life of the financial instruments being fair valued.

If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “ Debt with Conversion and Other Options ” for consideration of any beneficial conversion feature.

Going Concern

As reflected in the accompanying consolidated financial statements, the Company has a net loss of $1,398,584 and net cash used in operations of $78,031 for the six months ended February 28, 2014; and negative working capital of $1,572,001 and an accumulated deficit of $12,362,698 at February 28, 2014.

The accompanying consolidated financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company is and has suffered recurring losses and has no established source of revenue. Its ability to continue as a going concern is dependent upon achieving profitable operations and generating positive cash flows.

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There can be no assurances that the Company will be able to achieve profitable operations or obtain additional funding. These factors create substantial doubt about the Company ’ s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty.

Management intends to raise financing through private or public equity financing or other means and interests that it deems necessary to provide the Company with the ability to continue in existence.

Recent Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company ’ s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company ’ s financials properly reflect the change.

NOTE 3. INCOME TAXES

The Company accounts for income taxes in accordance with accounting standards for Accounting for Income Taxes which require the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and tax credit carry-forwards. Additionally, the standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

The following is a schedule of deferred tax assets as of February 28, 2014, and August 31, 2013:


	February 28, 2014	August 31, 2013
Net operating loss	$ 12,362,698	$ 9,997,509
Future tax benefit at 34%	4,203,317	3,399,153
Less: Valuation allowance	(4,203,317)	(3,399,153)
Net deferred tax asset	$ --	$ --

The valuation allowance changed by approximately $796,004 during the six months ended February 28, 2014.

Under Sections 382 and 269 (the ‘ shell corporation ’ rule) of the Internal Revenue Code, following an “ ownership change, ” special limitations ( “ Section 382 Limitations ” ) apply to the use by a corporation of its net operating loss, or NOL, carry-forwards arising before the ownership change and various other carry-forwards of tax attributes (referred to collectively as the ‘ Applicable Tax Attributes ’ ). The Company had NOL carry-forwards due to historical losses of Stanford of approximately $368,374 at February 28, 2014.

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 3. INCOME TAXES (continued)

The Company has adopted the provisions of FASB ASC 740-10-25. As a result of its implementation, the Company performed a comprehensive review of its uncertain tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10-25. In this regard, an uncertain tax position represents the Company ’ s expected treatment of a tax position taken in a prepared and filed tax return, or expected to be taken in a tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. The Company does not expect any reasonably possible material changes to the estimated amount of liability associated with uncertain tax positions through February 28, 2014. The Company ’ s continuing policy is to recognize accrued interest and penalties related to income tax matters in income tax expense.


NOTE 4.	CAPITAL STOCK

The Company is authorized to issue 10,000,000,000 shares of common stock, par value $0.001 per share and 5 million shares of preferred stock, par value $0.001.

During the six months ended February 28, 2014, the Company issued Company stock as follows:

In September, 2013 we issued a total of 169,702,236 common shares converting $39,313 in principal amounts of loans and accrued interest.

In October, 2013 we issued a total of 323,992,919 common shares converting $35,337 in principal amounts of loans and accrued interest.

In November, 2013 we issued a total of 519,314,286 common shares converting $37,740 in principal amounts of loans and accrued interest.

In December, 2013 we issued a total of 621,782,600 common shares converting $42,993 in principal amounts of loans and accrued interest.

In January, 2014 we issued a total of 904,923,480 common shares converting $47,780 in principal amounts of loans and accrued interest.

In February, 2014 we issued a total of 616,328,000 common shares converting $37,566 in principal amounts of loans and accrued interest.

As a result of the issue of these shares, we had a total of 3,666,043,518 common shares and 1,000,000 preferred shares issued and outstanding as of February 28, 2014

NOTE 5. NOTES PAYABLE

*The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 "Derivatives and Hedging" and determined that certain outstanding instruments should be classified as liabilities once the conversion option became effective (typically after three or six months) due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 5. NOTES PAYABLE (continued)

The following is a summary of notes payable at February 28, 2014 and August 31, 2013:


Description	February 28, 2014	August 31, 2013
Asher Enterprises, Inc.*
On April 23, 2012, the Company issued its promissory note in the amount of $27,500 to an unrelated third party for additional working capital. The note is due on January 8, 2014 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company after six months, at the election of the Holder, at 51 percent of the average of the three lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert. The note was fully converted at February 28, 2014.	-	27,500
Asher Enterprises, Inc.*
On September 6, 2013, the Company issued its promissory note in the amount of $42,500 to an unrelated third party for additional working capital. The note is due on May 17, 2014 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company after six months, at the election of the Holder, at 35 percent of the average of the three lowest closing bid prices of the common stock for the thirty trading days prior to the date of the election to convert. The carrying amount of the debt discount was $39,464 and $0, respectively. The note was fully outstanding as of February 28, 2014.	3,036	-
Common Stock LLC
On May 2, 2012, the Company issued its promissory note in the amount of $20,000 to an unrelated third party for additional working capital. The note is due on February 8, 2013 and carries interest at 6 percent per annum, payable at maturity. The note was convertible into common stock of the Company after six months, at the election of the Holder, at 60 percent of the average of the three lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert. The carrying amount of the debt discount was $0 and $4,603, respectively. The note was fully converted as of February 28, 2014.	-	59

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 5. NOTES PAYABLE (continued)


Description	February 28, 2014	August 31, 2013
JMJ Financial *
On October 3, 2012, the Company issued its promissory note in the amount of $56,000 to an unrelated third party for additional working capital. The note is due on October 3, 2013. The note is convertible into common stock of the Company after three months, at the election of the Holder, at $0.006 or 70 percent of the lowest closing trading price of the common stock for the twenty-five trading days prior to the date of the election to convert. The Note was issued with an original issue discount of $6,000, of which $547 unamortized portion remains at August 31, 2013. The carrying amount of the debt discount was $0 and $2,057, respectively. The note was fully converted as of February 28, 2014.	-	53,646
WHC Capital, LLC *
On June 21, 2013, the Company issued its promissory note in the amount of $30,000 to an unrelated third party for additional working capital. The note is due on May 1, 2014 and carries interest at 10 percent per annum, payable at maturity. The note was immediately convertible into common stock of the Company, at the election of the Holder, at 50 percent of the average of the three lowest intra-day trading prices of the common stock for the ten trading days prior to the date of the election to convert. The carrying amount of the debt discount was $0 and $16,663, respectively. This note has been fully converted to common stock as of February 28, 2014.	-	-
WHC Capital, LLC *
On July 11, 2013, the Company issued its promissory note in the amount of $25,000 to an unrelated third party for additional working capital. The note is due on July 11, 2014 and carries interest at 5 percent per annum, payable at maturity. The note was immediately convertible into common stock of the Company, at the election of the Holder, at 50 percent of the average of the three lowest intra-day trading prices of the common stock for the ten trading days prior to the date of the election to convert. The carrying amount of the debt discount was $0 and $25,000, respectively. $16,070 has been converted as of February 28, 2014.	8,930	-

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 5. NOTES PAYABLE (continued)


Description	February 28, 2014	August 31, 2013
Indian River Financial Services, LLC*
On March 23, 2013, the Company issued its promissory note in the amount of $19,525 to an unrelated third party for additional working capital. The note is due on March 31, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company after six months, at the election of the Holder, at $0.0013. This note was transferred to a convertible note with Tide Pool as of February 28, 2014.	-	19,525
Tide Pool*
On January 14, 2014, Indian River Financial Services LLC transferred its promissory note in the amount of $19,525 to an unrelated third party. The note is due on January 15, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company at the election of the Holder, at the lesser of $0.0001 or 50% of the lowest trading price for the ten days prior to the date of conversion. $18,275 of this note has been converted as of February 28, 2014.	1,250	-
JSJ Investments
On July 10,2013, the Company issued its promissory note in the amount of $25,000 to an unrelated third party for additional working capital. The note is due on July 31, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company at the election of the Holder, at 50% of the average closing stock price of the Company's common stock for the ten trading days prior to conversion. $19,150 of the note has been converted as of February 28, 2014.	5,850	25,000
Indian River Financial Services, LLC*
On September 1, 2013, the Company issued its promissory note in the amount of $23,950 to an unrelated third party to consolidate liabilities owed to the third party. The note is due on September 30, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company after six months, at the election of the Holder, at 50% of the average closing stock price of the Company's common stock for the ten trading days prior to conversion. The carrying amount of the debt discount was $23,950 and $0, respectively. The note was fully outstanding as of February 28, 2014.	-	-

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 5. NOTES PAYABLE (continued)


Description	February 28, 2014	August 31, 2013
Indian River Financial Services, LLC*
On December 1, 2013, the Company issued its promissory note in the amount of $50,000 to an unrelated third party to consolidate liabilities owed to the third party. The note is due on November 30, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company at the election of the Holder, at 50% of the average closing stock price of the Company's common stock for the ten trading days prior to conversion. The carrying amount of the debt discount was $43,646 and $0, respectively. The note was fully outstanding as of February 28, 2014.	6,354	-
Moss Krusick & Associates, LLC*
On June 1,2013, the Company issued its promissory note in the amount of $7,000 to an unrelated third party to convert accounts payable. The note is due on June 30, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company after six months, at the election of the Holder, at $0.00075. The note was transferred to Indian River Financial Services, LLC as of February 28, 2014.	-	7,000
Dana L. Hipple
On January 15, 2013, the Company issued its promissory note in the amount of $25,108 to an unrelated third party as part of an acquisition of notes receivable. The note is due on December 31, 2014 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company after three months, at the election of the Holder, at $0.0007. The note was transferred to Tangiers as of February 28, 2014.	-	25,108
Tangiers Investment Group, LLC
On January 31, 2014, Dana L. Hipple transferred its promissory note in the amount of $25,108 plus accrued interest of $2,084 to an unrelated third party. The note is due on January 31, 2015 and carries interest at 10 percent per annum. The note is convertible into common stock of the Company after three months, at the election of the Holder, at the lesser of $0.0001 or 50% of the lowest trading price for the ten days prior to the date of conversion. . The carrying amount of the debt discount was $10,677 and $0, respectively. $14,248 of this note has been converted as of February 28, 2014.	2,267	-

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 5. NOTES PAYABLE (continued)


Description	February 28, 2014	August 31, 2013
Dana L. Hipple
On June 25, 2013, the Company issued its promissory note in the amount of $30,000 to an unrelated third party as part of an acquisition of notes receivable. The note is due on June 3, 2014 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company after three months, at the election of the Holder, at $0.0004. The note was fully outstanding as of February 28, 2014.	30,000	30,000
Dana L. Hipple
On February 20, 2014, the Company issued its promissory note in the amount of $34,667 to an unrelated third party for additional working capital. The note is due on February 28, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company at the election of the Holder, at 50% of the average closing stock price for the last ten days prior to the date of conversion. The carrying amount of the debt discount was $33,738 and $0, respectively. The note was fully outstanding as of February 28, 2014.	929	-
Indian River Financial Services, LLC*
On January 27, 2014, the Company issued its promissory note in the amount of $19,525 to an unrelated third party for additional working capital. The note is due on January 31, 2014 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company at the election of the Holder, at 50% of the average closing stock price for the last ten days prior to the date of conversion. The carrying amount of the debt discount was $17,635 and $0, respectively. This note was fully outstanding as of February 28, 2014.	1,890	-
Indian River Financial Services, LLC*
On December 20, 2013, Moss Krusick & Associates, LLC transferred its promissory note in the amount of $7,000 to an unrelated third party.. The note is due on June 30, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company at the election of the Holder, at 50% of the average closing stock price for the last ten days prior to the date of conversion. The carrying amount of the debt discount was $5,626 and $0, respectively. The note was fully outstanding as of February 28, 2014.	1,374	-

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 5. NOTES PAYABLE (continued)


Description	February 28, 2014	August 31, 2013
Dana L. Hipple
On October 17, 2013, the Company issued its promissory note in the amount of $39,000 to an unrelated third party for additional working capital. The note is due on December 31, 2015 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company immediately at 50% of the average closing stock price of the Company's common stock for the ten trading days prior to conversion. The carrying amount of the debt discount was $22,728 and $0, respectively. The note was fully outstanding as of February 28, 2014.	16,272	-
CFOs to Go
On December 31, 2012, the Company issued its promissory note in the amount of $495,689 as part of an acquisition of notes receivable from an unrelated third party. The note is due on December 31, 2015 and carries interest at 8 percent per annum. $6,000 has been paid against this note. This note was transferred to a convertible note with JSJ on October 15, 2013.	-	489,689
JSJ Investments
On October 15, 2013, the Company transferred the CFOs to Go acquisition note to an unrelated third party. The note is due on December 31, 2014 and carries interest at 8 percent per annum. The note was immediately convertible into common stock of the Company, at the election of the Holder, at 50 percent of the average of the three lowest trading prices of the common stock for the ten trading days prior to the date of the election to convert. The carrying amount of the debt discount was $324,898 and $0, respectively. $19,079 had been converted to common stock as of February 28, 2014.	145,712
ISP Holdings, Inc.
On December 6, 2012, the Company issued its promissory note in the amount of $280,000 to an unrelated third party for additional working capital. The note is due on May 31, 2014 and carries interest at 8 percent per annum. The note is convertible into common stock of the Company after three months, at the election of the Holder, at $0.03. The Note was issued at a discount of $15,000, of which $0 unamortized portion remains at February 28, 2014. $64,189 had been converted into common stock as of February 28, 2014.	215,811	125,387
Total notes payable	439,675	802,914
Current portion	55,526	111,205
Notes payable-Long-term portion	$ 384,149	$ 691,709

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 6. DERIVATIVE LIABILITIES

The Company has various convertible instruments outstanding more fully described in Note 5. Because the number of shares to be issued upon settlement cannot be determined under these instruments, the Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other of its share-settleable instruments.

As a result, under ASC 815-15 “ Derivatives and Hedging ” , all other share-settleable instruments must be classified as liabilities.

Embedded Derivative Liabilities in Convertible Notes

During the six months ended February 28, 2014, the Company recognized new derivative liabilities of $2,385,959 as a result of convertible debt issuances having embedded conversion options. The fair value of these derivative liabilities was more than the principal balance of the related notes payable by $982,895, and was recorded as a loss on derivatives for the six months ended February 28, 2014.

As a result of conversion of notes payable described in Note 5, the Company reclassified $861,281 of derivative liabilities to equity and the change in fair value of derivatives was $607,770.

The following table summarizes the derivative liabilities included in the consolidated balance sheet:


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Derivative Liabilities:
Balance at August 31, 2013	$	632,794
ASC 815-15 additions		2,385,959
Change in fair value		(607,770)
ASC 815-15 deletions		(861,281)
Balance at February 28, 2014	$	1,549,702

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 6. DERIVATIVE LIABILITIES (continued)

The following table summarizes the derivative gain or loss recorded as a result of the derivative liabilities above:


	Included in Other Income (Expense) on Consolidated Statement of Operations
Gain/(Loss) on Derivative Liability:
Change in fair value of derivatives	$	607,770
Derivative expense		(1,590,665)
Balance for the six months ended February 28, 2014	$	(982,895)

The fair values of derivative instruments were estimated using the Binomial pricing model based on the following weighted-average assumptions:


	Convertible Debt Instruments
Risk-free rate		0.16% - 0.18%
Expected volatility		167% - 836%
Expected life		3 months – 12 months

NOTE 7. SEGMENT REPORTING

Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described in Note 1.

Effects of transactions between related companies are eliminated and consist primarily of inter-company transactions and transfers of cash or cash equivalents from corporate to support each business segment ’ s overall operations when each segment has working capital requirements.

A description of our operating segments as of February 28, 2014 can be found below.

Operating revenues and expenses of each of the Company ’ s segments are as follows:

NOVATION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2014

(UNAUDITED)

NOTE 7. SEGMENT REPORTING (continued)



			Novation Holdings, Inc.	Novation Consulting	Burgoyne	Consolidated
Income
	Consulting		-	255,000	-	255,000
	Sales		-	-	50,242	50,242
	Returns		-	-	(3,216)	(3,216)
		Total income	-	255,000	47,026	302,026
Cost of Sales			-	-	26,021	26,021

Gross profit			-	255,000	21,005	276,005

Expense
	Operating expense		240,912	66,533	19,675	327,120
			(240,912)	188,467	1,330	(51,115)

Net income (loss) from operations			(240,912)	188,467	1,330	(51,115)

Accounts receivable			-	240,000	-	240,000
Accounts payable			72,473	20,860	37,750	131,083

NOTE 8. SUBSEQUENT EVENTS

During the period up to the date of this Report, the Company has acquired a controlling interest in Focus Gold Corp., which has formed two operating subsidiaries and commenced business in its new office location near Buffalo, New York. The two subsidiaries have hired employees and commenced business operations, and have already generated revenues. The acquisition had not closed as of February 28, 2014.

Common Stock Transactions :

In April 2014, the Company issued a total of 2,197,191,375 common shares on conversion of principal amount of loans.

As a result of the issue of these shares, the Company had a total of 5,863,234,893 common shares issued and outstanding as of May 1, 2014.

ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION

To the extent that the information presented in this Quarterly Report on Form 10-Q for the quarter ended February 28, 2014 discusses financial projections, information or expectations about our products, services, or markets, or otherwise makes statements about future events or statements regarding the intent, belief or current expectations of Allezoe Medical Holdings, Inc. and its subsidiary (collectively the ‘ Company ’ ), its directors or its officers with respect to, among other things, future events and financial trends affecting the Company, such statements are forward-looking. We are making these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Forward-looking statements are typically identified by the words ‘ believes, ’ ‘ expects, ’ ’ anticipates, ’ and similar expressions. In addition, any statements that refer to expectations or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and that matters referred to in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise these forward-looking statements because of new information, future events or otherwise, except as required by law.

OVERVIEW

We were incorporated under the laws of the State of Delaware on September 24, 1998 with authorized common stock of 25,000,000 shares at $0.001 par value. On March 9, 2007, at the Annual General Meeting of Stockholders a Resolution was approved increasing the authorized share capital to 500,000,000 common shares with a par value of $0.001 per share. In February, 2011, our Articles of Incorporation were amended to change the corporate name to Allezoe Medical Holdings, Inc. Effective October 25, 2012, our corporate name was changed to Novation Holdings, Inc., our place of incorporation was transferred from Delaware to Florida, and we completed a reverse split of our common shares in the ratio of 1 new common share for each 15 common shares previously issued. The amendment to our Articles also provided that we were authorized to issue up to 500 million common shares, par value $0.001, and 10 million preferred shares, par value $0.001. The rights and preferences of any preferred shares we issue may be set by resolution of our Board of Directors. The reverse stock split was given retroactive recognition in our Form 10-K filed on December 14, 2012. All shares and per share information were retroactively adjusted to reflect the stock split. On March 10, 2014, we amended our Articles of Incorporation to increase our authorized common stock to 10,000,000,000 shares, par value $0.001 per share.

Our Business

Novation Holdings, Inc. (the “ Company ” or “ we ” ), formerly Allezoe Medical Holdings, Inc., is engaged in the business of acquiring and managing operating companies, initially in the medical device development and production market, and subsequently in other healthcare, technology and similar markets. We were organized originally under the laws of the State of Delaware as Stanford Management Ltd., on September 24, 1998, and, effective on October 25, 2012, transferred our place of incorporation from Delaware to Florida and changed our corporate name to Novation Holdings, Inc.

Our current operating subsidiaries are:

Burgoyne Internet Services, Inc.

On December 6, 2012, we completed the acquisition of Burgoyne Internet Services, LLC ( “ Burgoyne ” ), a Utah limited liability company, with an effective closing date of December 1, 2012. Since the effect of the change of control of the limited liability company under Utah law was a legal dissolution of the old company, the acquisition has been treated as an asset acquisition by Burgoyne Internet Services, Inc., a newly formed Florida corporation and our wholly-owned subsidiary. In addition to the acquisition consideration of $200,000, the seller, ISP Holdings, LLC, a Utah limited liability company, also agreed to provide $50,000 in working capital at closing and an additional $50,000 in working capital if the median dollar value of Novation ’ s trading volume for its common stock for an consecutive 30 day period equals or exceeds $50,000 during the one year period after closing. The closing was completed on December 6, 2012 on the transfer of the initial $50,000 in working capital funds, although the acquisition transaction has been treated as closing effective on December 1, 2012 for accounting purposes.

Novation has issued its convertible promissory note to ISP Holdings, Inc. in the principal amount of $280,000, representing the $200,000 purchase price for Burgoyne, the initial $50,000 working capital. advance, a $15,000 original issue discount, and a $15,000 expense allowance to cover ISP Holding ’ s expenses related to the transaction. The promissory note has a term of 14 months, bears interest at 8 percent, and is convertible into common stock (subject to a maximum holding of 9.9 percent of the total common shares outstanding at any time) at $0.03 per share. The second working capital loan of $50,000, if made, will bear similar terms, except that there will be no original issue discount or expense allowance.

As part of the transaction, we also executed a Transition Services Agreement with ISP Holdings, LLC. under which ISP Holdings will continue to provide administrative services in managing the ISP business of Burgoyne for a period of 9 months from closing, for a nominal fee of the greater of 2 percent of revenues or $200 per month.

Novation Consulting Services, Inc.

Novation Consulting Services, Inc., a Florida corporation, is a wholly-owned subsidiary, and was formed to acquire and operate the assets and financial management consulting business acquired by us in January 2013 from CFOs to Go, Inc. and Matriarch Management, Inc. Novation Consulting provides administrative, financial, regulatory and legal management services to the Company as well as to other small public and private companies for a monthly management fee.

Liquidity and Capital Resources

We have historically met our capital requirements through either private placement of equity or private borrowings. Our cash balance increased $29,537from $4 at August 31, 2013 to $29,541 at February 28, 2014.

We received loan proceeds of $42,500 in September of 2013 from Asher Enterprises, LLC, an unrelated third party, due May 17, 2014 at 8 percent interest. The note is convertible into common stock at a price equal to 35 percent of the three lowest trading prices for our common stock for the thirty trading days prior to the notice of conversion. We accrued interest of $1,686 on this note as of February 28, 2014.

We received loan proceeds of $39,000 in October 2013 from Dana L. Hipple, an unrelated third party, due December 31, 2015 at 8 percent interest. The note is convertible into common stock at a price equal to 50 percent of the average closing price for our common stock for the ten trading days prior to the notice of conversion. We accrued interest of $1,137 on this note as of February 28, 2014.

We received loan proceeds of $19,525 in February 2014 from Indian River Financial Services, LLC, an unrelated third party, due January 31, 2015 at 8 percent interest. The note is convertible into common stock at a price equal to 50 percent of the average closing price for our common stock for the ten trading days prior to the notice of conversion. We accrued interest of $141 on this note as of February 28, 2014.

We received loan proceeds of $34,667 in February 2014 from Dana L. Hipple, an unrelated third party, due February 28, 2015 at 8 percent interest. The note is convertible into common stock at a price equal to 50 percent of the average closing price for our common stock for the ten trading days prior to the notice of conversion. We accrued interest of $68 on this note as of February 28, 2014.

In our opinion, available funds will satisfy our capital requirements for the next several months while we are in the process of negotiating additional funding to implement our business model. We expect to do so during the remainder of our fiscal year 2014. There can be no assurance that we will be successful in raising additional funds to meet our capital needs.

Recurring Fair Value Measurements

In accordance with accounting principles generally accepted in the United States of America, certain assets and liabilities are required to be recorded at fair value on a recurring basis.

Off-Balance Sheet Arrangements

None

Current Economic Environment

The U.S. economy is currently in a recession, which could be long-term. Consumer confidence continued to deteriorate and unemployment figures continued to increase in 2012. However, in recent months, certain economic indicators have shown modest improvements. The generally deteriorating economic situation, together with the limited availability of debt and equity capital, including bank financing, will likely have a disproportionate impact on all micro-cap companies. As a result, we may not be able to execute our business plan due to our inability to raise sufficient capital and/or be able to develop a customer base for our planned products.

Contractual obligations

We have entered into a consulting agreement dated July 1, 2011 with Michael Gelmon, our Chairman and Chief Executive Officer, under which Mr. Gelmon provides services as an officer and director for a monthly fee of $10,000. The consulting agreement is for an initial term of three years and extends annually unless terminated by either party at the end of the term, as extended..

A summary of notes payable by the Company at February 28, 2014 and August 31, 2012 is contained in Note 5 to the Financial Statements included in this Quarterly Report and which summary is incorporated here by reference.

We now maintain our corporate offices in space made available at no charge by our Chief Executive Officer, located in Boca Raton, Florida.

Regulatory Matters

By letter dated January 14, 2014, we were notified by the Alberta Securities Commission in Calgary, Alberta, Canada, that we are considered to be an “ Alberta reporting company ” by virtue of an Alberta ordinance making any US company with its shares trading in the US over-the-counter markets automatically an Alberta reporting company if any officer, director or consultant with executive or fund-raising responsibilities is a resident of Alberta. Since Michael Gelmon, our CEO, is a Calgary resident, the Alberta Securities Commission deems the Company to be a reporting issuer, required retroactively to file periodic reports in Alberta, and accordingly issued a trading “ cease and desist ” order due to our failure to file these reports. We do not do business in Alberta or anywhere in Canada, have no offices or property located in Canada and have never offered or sold any securities in Canada. Prior to the January 14, 2014 letter, we had no knowledge that the Company could be considered an Alberta reporting company solely by virtue of the fact that Mr. Gelmon ’ s residence is located in Alberta. We are investigating the effect of this order on the Company with Canadian legal counsel, but do not expect the order to have any effect on trading activity in the US.

Results of Operations

Six months ended February 28, 2014:

For the six months ended February 28, 2014 and February 28, 2013, the Company had operating revenues of $302,025 and $72,813, respectively. Since inception, the Company has incurred cumulative net losses of $12,362,698. For the six months ended February 28, 2014, the Company had a net loss of $1,398,584. For the six months ended February 28, 2013, the Company had a net loss of $986,966. Other expenses attributed to the net loss for the six months ended February 28, 2014 include derivative expenses of $1,590,665and offset by gain in changes in derivative fair value of $607,770.

Three Months ended February 28, 2014

For the three months ended February 28, 2014 and February 28, 2013, the Company had operating revenues of $166,218 and $72,813, respectively. For the three months ended February 28, 2014, the Company had a net loss of $464,204. For the three months ended February 28, 2013, the Company had a net loss of $476,938. Our activities have been attributed primarily to consulting and business development. Other expenses attributed to the net loss for the three months ended February 28, 2014 include derivative expenses of $778,888 and offset by gain in changes in derivative fair value of $555,199.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market Information

There are no common shares subject to outstanding options, warrants or securities convertible into common equity of our Company at February 28, 2014, except certain convertible promissory notes as detailed in Note 5 to the financial statements included in this Report.

There are no shares that have been offered pursuant to an employee benefit plan or dividend reinvestment plan as of November 30, 201Q. Our shares are traded on the OTCQB under the symbol NOHO. Although the OTCBB does not

have any listing requirements per se, to be eligible for quotation on the OTCQB, we must remain current in our filings with the SEC, being at a minimum Forms 10-Q and 10-K. Securities already quoted on the OTCBB that become delinquent in their required filings will be removed following a 30 or 60 day grace period if they do not make their filing during that time.

In the future our common stock trading price might be volatile with wide fluctuations. Things that could cause wide fluctuations in our trading price of our stock could be due to one of the following or a combination of several of them:


●	variations in our operations results, either quarterly or annually;

●	trading patterns and share prices in other medical technology companies which our shareholders consider similar to ours; and

●	other events which we have no control over.

In addition, the stock market in general, and the market prices for thinly traded companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These wide fluctuations may adversely affect the trading price of our shares regardless of our future performance. In the past, following periods of volatility in the market price of a security, securities class action litigation has often been instituted against such company. Such litigation, if instituted, whether successful or not, could result in substantial costs and a diversion of management ’ s attention and resources, which would have a material adverse effect on our business, results of operations and financial conditions.

Trends

We are in the development stage and have not generated any revenue as of February 28, 2013. We are unaware of any known trends, events or uncertainties that have had, or are reasonably likely to have, a material impact on our business or income, either in the long term or short term, as more fully described under “ Risk Factors ” in our annual report on Form 10-K for the year ended August 31, 2013, as amended on January 21, 2014.

ITEM 4. CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures

It is management ’ s responsibility for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, we have evaluated the effectiveness of our disclosure controls and procedures as required by the Exchange Act Rule 13a-15(d) as of February 28, 2014 (the “ Evaluation Date ” ). Based on the evaluation by management, they have concluded these disclosure controls and procedures were not effective as of the Evaluation Date as a result of material weaknesses in internal control over financial reporting as more fully discussed below.

Under Rule 13a-15(e)/15d-15(e); Regulation S-K, Item 307, the SEC states that “ disclosure controls and procedures ” have the following characteristics:


●	designed to ensure disclosure of information that is required to be disclosed in the reports that we file or submit under the Exchange Act;

●

recorded, processed, summarized and reported with the time period required by the SEC ’ s rules and forms; and

●

accumulated and communicated to management to allow them to make timely decisions about the required disclosures.

As of February 28, 2014, our management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ( “ COSO ” ) and SEC guidance on conducting such assessments.

Management concluded, during the six months ended February 28, 2014, internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules. Management realized there are deficiencies in the design or operation of our internal control that adversely affected our internal controls which management considers to be material weaknesses.

Material Weaknesses

Management assessed the effectiveness of our internal control over financial reporting as of the Evaluation Date and identified the following material weaknesses:

●

Due to a significant number and magnitude of out-of-period adjustments identified during the quarter-end closing process, management has concluded that the controls over the quarter-end financial reporting process were not operating effectively. A material weakness in the quarter-end financial reporting process could result in our not being able to meet our regulatory filing deadlines and, if not remedied, has the potential to cause a material misstatement or to miss a filing deadline in the future. Management override of existing controls is possible given the small size of the organization and lack of personnel.


●	There is no system in place to review and monitor internal control over financial reporting. This is due to our maintaining an insufficient complement of personnel to carry out ongoing monitoring responsibilities and ensure effective internal control over financial reporting.

(a)

Changes in control over financial reporting

There were no changes in our internal controls over financial reporting during the six months ended February 28, 2014 that have materially affected, or are reasonably likely to material affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no legal proceedings to which we are a party or to which we are subject, nor, to the best of our knowledge, are any material legal proceedings contemplated.

ITEM 1A RISK FACTORS

The list of risk factors contained in our Annual Report on Form 10-K for the year ended August 31, 2013, under Part 1 ITEM 1A, Risk Factors, are incorporated by reference.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

In September, 2013 we issued a total of 169,702,236 common shares converting $39,313 in principal amounts of loans and accrued interest.

In October, 2013 we issued a total of 323,992,919 common shares converting $35,337 in principal amounts of loans and accrued interest.

In November, 2013 we issued a total of 519,314,286 common shares converting $37,740 in principal amounts of loans and accrued interest.

In December, 2013 we issued a total of 621,782,600 common shares converting $42,993 in principal amounts of loans and accrued interest.

In January, 2014 we issued a total of 904,923,480 common shares converting $47,780 in principal amounts of loans and accrued interest.

In February, 2014 we issued a total of 616,328,000 common shares converting $37,566 in principal amounts of loans and accrued interest.

As a result of the issue of these shares, we had a total of 3,666,043,519 common shares and 1,000,000 preferred shares issued and outstanding as of February 28, 2014

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. (Removed and Reserved)

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS


31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NOVATION HOLDINGS, INC. (Registrant)

/s/MICHAEL GELMON

Michael Gelmon

Chief Executive Officer

Dated: May 30, 2014

/s/JOHN F BURKE

John F. Burke

Consulting Principal Accounting Officer

Dated: May 30, 2014

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