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, 2013

or

[ ] 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 April 22, 2013, there were 48,217,237 shares of Common Stock ($0.001 par value) outstanding.

TABLE OF CONTENTS

		Page Number
PART I.	FINANCIAL INFORMATION
ITEM 1.	Consolidated Financial Statements (unaudited)	1
	Consolidated Balance Sheets as of February 28, 2013 and August 31, 2012	2
	Consolidated Statements of Operations for the three and six months ended February 28, 2013 and February 29, 2012 and for the period from September 24, 1998 (Date of Inception) to February 28, 2013	3
-	Consolidated Statements of Cash Flows for the six months ended February 28, 2013and February 29, 2012and for the period from September 24, 1998 (Date of Inception) to February 28, 2013	5
	Notes to the Consolidated Financial Statements.	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	23
ITEM 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION	25
ITEM 1.	Legal Proceedings	25
ITEM 1A.	Risk Factors	25
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
ITEM 3.	Defaults Upon Senior Securities	25
ITEM 4.	(Removed and Reserved)	25
ITEM 5.	Other Information	25
ITEM 6.	Exhibits	25
	SIGNATURES	26

PART 1 – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated balance sheets of Novation Holdings, Inc. and subsidiaries (a development stage company) (the "Company”) at February 28, 2013 (with comparative figures as at August 31, 2012); and the  consolidated statements of operations for the three months ended February 28, 2013and February 29, 2012, and for the period from September 24, 1998 (date of inception) to February 28, 2013; the consolidated statement of stockholders’ equity (deficit) for the period from September 24, 1998 (date of inception) to February 28, 2013; and the consolidated statements of cash flows for the three months ended February 28, 2013 and February 29, 2012 and for the period from September 24, 1998 (date of inception) to February 28, 2013 have been prepared by the Company’s management in conformity with accounting principles generally accepted in the United States of America.

The consolidated financial statements included in this report include the operating results of the Company as well as its wholly-owned subsidiaries, Burgoyne Internet Services, Inc., Novation Consulting Services, Inc., and Casita de los Ninos, LLC, and the results of Alternative Energy Partners, Inc. (AEGY) and its subsidiaries, adjusted to reflect a minority interest in AEGY of approximately 35 percent.

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 three months ended February 28, 2013 are not necessarily indicative of the results that can be expected for the year ending August 31, 2013.

1

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

2

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

3

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

4

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (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.

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.

On December 6, 2012, the Company 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.

On December 6, 2012, the Company also completed the acquisition of Casita de los Ninos, LLC, a California limited liability company doing business as Immersion House^™ (www.immersionhouse.com). The consideration for the acquisition was the issuance of one million shares of convertible preferred stock having a stated value of $100,000, carrying voting power equal to 51 percent of the total voting power of all classes of stock, a dividend preference equal to $0.01 per share, and a conversion option into shares of common stock valued at the time of conversion at 1 million dollars, based on the 5 day trailing average closing price of the stock.  If not already converted, the preferred stock converts automatically five years after issue into shares of common stock valued at the time of conversion at 2 million dollars, based on the 5 day trailing average closing price of the stock.

 

In January, 2013, the Company acquired a controlling interest in Alternative Energy Partners, Inc., a mining and energy holding company whose common shares are traded on the OTCQB under the symbol AEGY.  As a result of the acquisition, Novation acquired 40 million shares of common stock, representing approximately 19 percent of the common shares issued and outstanding, and 1 million shares of Series A Convertible Preferred stock holding voting power equal to 51 percent of the total vote of all shares entitled to vote. AEGY currently has 2 wholly-owned subsidiaries, Clarrix Energy, LLC and SAC Acquisition Corp., and anticipates acquiring a third operating subsidiary shortly, all as previously announced by AEGY.

Effective January 1, 2013, the Company acquired a portion of the administrative consulting business operated by CFOs to Go, Inc. and Matriarch Management, Inc., terminated the consulting agreements between CFOs to Go, Inc. and both the Company and AEGY, and transferred the acquired assets and business to Novation Consulting Services, Inc., a newly formed Florida corporation formed by the Company for the purpose.  The acquisition was accomplished by the assumption of debt.

On February 3, 2013, the Company sold its controlling interest in SureScreen Medical, Inc., its wholly-owned medical device development subsidiary, to AVM Licensing Corp., the licensor of the HPV virus treatment technology being developed by SureScreen. SureScreen is the holder of the recently granted European patent rights to the technology, although the US Patent application has recently been denied.  The Company received a combination of cash, stock and notes, secured by the assets of SureScreen, as consideration for the sale.  The total value of the sale was estimated at $250,000.

5

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Company formed a wholly-owned subsidiary, SureScreen Medical, Inc., a Florida corporation, through which it entered into a licensing agreement with AVM Licensing Corp. for the licensing of proprietary, patent pending technology that would enable healthcare providers to "see and treat" Human Papillomavirus (HPV), the most common sexually transmitted infection and a cause of cervical cancer. In addition to offering easy, affordable, and on-the-spot HPV diagnosis, the technology offers an important alternative to the HPV vaccine.  A European patent has been granted for the technology and a patent application to the US Patent and Trademark Office is still pending.  If and when all patent applications have been awarded, the Company then will contract for the development of a working prototype for the device and submit the required approval applications to the FDA and similar agencies in Europe so the marketing and sale of the device can be initiated.  It is estimated that the FDA review and approval process could commence as early as mid-2014.

In addition, effective December 1, 2012, we acquired the operating assets of an Internet Service Provider (ISP) based in Utah and plan to continue the existing, profitable operations as well as to acquire similar ISPs located across the US.  To date, the Company has identified 5 possible acquisition targets. See, Note 9, Subsequent Events.

Basis of Presentation of Interim Period Financial Statements

The accompanying unaudited Condensed Financial Statements of Novation Holdings, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles accepted in the United States for complete financial statements. The unaudited Condensed Financial Statements for the interim period ended February 28, 2013 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim period. This includes all normal and recurring adjustments, but does not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. Financial results for the Company can be seasonal in nature. Operating results for the six-months ended February 28, 2013 are not necessarily indicative of the results that may be expected for the year ended August 31, 2013. For further information, refer to the Financial Statements and footnotes thereto included in the Company’s Form 10-K/A for the year ended August 31, 2012 filed with the Commission on December 17, 2012.

The Company has adopted an August 31 year end.

The Company is in the development stage in accordance with Accounting Standards Codification (“ASC”) Topic No. 915.

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, 2013 and August 31, 2012 included a 100% valuation allowance for deferred tax assets arising from net operating losses incurred since inception.

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.

6

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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, 2013 and August 31, 2012, 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, 2013 and August 31, 2012, respectively.

Earnings 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 from September 24, 1998 (inception) to February 28, 2013, is equivalent since the Company has had continuing losses. The Company also has no common stock equivalents.  The calculation of earnings per share has been done by applying the 1 for 15 reverse split of common stock, effective November 7, 2012, retroactively to September 24, 1998, the date of inception.

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, 2013.

On July 1, 2011, the Company issued 333,333 post-split shares of common stock valued at $2,100,000 to the Company’s Chairman and CEO, with the shares originally vesting over 5 years on a proportionate basis. As of August 31, 2011, one-fifth or 66,667 shares valued at $420,000 had vested. Mr. Gelmon conveyed two thirds of the original 333,333 post-split shares to two other parties for reasons unrelated to the Company, retaining a total of 111,111 shares. The non-vested balance at August 31, 2011 of 266,667 total shares valued at $1,680,000 had been issued but were being held in escrow for release on an annual basis each July 1. During the year ended August 31, 2012, the Company revised the vesting term to 3 years and released an additional 155,556 shares valued at $980,000. The non-vested balance of 111,111 post-split shares at August 31, 2012 was one-third of the original issuance valued as of the original issue date at $700,000, of which Mr. Gelmon holds 37,037 shares to be received, with a current market value of less than $600.  

Non-Employee Stock Based Compensation

Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.

7

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (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.

Concentrations of Credit Risk

The Company maintains its cash in a bank deposit account in a bank which participates in the Federal Deposit Insurance Corporation (FDIC) Program. As of February 28, 2013 and August 31, 2012, 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).

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.

8

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derivatives

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.

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.

Going Concern

As reflected in the accompanying consolidated financial statements, the Company has not yet emerged from the development stage, has a net loss of $273,874 and net cash used in operations of $112,888 for the three months ended

February 28, 2013; and negative working capital of $404,764 and an accumulated deficit of $9,540,317 at February 28, 2013.

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 a development stage company 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.

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

In September 2011, the FASB issued an amendment to Topic 350, Intangibles—Goodwill and Other, which simplifies how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill for impairment using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated and compared to its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying amount, the amount of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the entity to determine that it is more likely than not that its fair value is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it is required to test goodwill for impairment under the two-step process as described under paragraphs 350-20-35-4 and 350-20-35-9 under Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company is currently evaluating whether early adoption is necessary.

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.

9

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

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, 2013, and August 31, 2012:

		February 28, 2013		August 31, 2012
Net operating loss		$             9,540,317		$                  9,266,443
Future tax benefit at 34%		3,243,708		3,150,591
Less: Valuation allowance		(3,243,708)		(3,150,591)
Net deferred tax asset		$                           --		$                               --

The valuation allowance changed by approximately $93,117 during the three months ended February 28, 2013.

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, 2013.

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, 2013. The Company’s continuing policy is to recognize accrued interest and penalties related to income tax matters in income tax expense.

NOTE 5. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

Matriarch Management Inc. provides financial, accounting, and similar services to the Company at a monthly fixed fee of $10,000, commencing March 1, 2012.  Michael Gelmon, who serves the Company as CEO, is paid as a consultant to the Company at the rate of $10,000 per month, commencing July 1, 2012.  Mr. Gelmon is a Canadian citizen and resident.  Ezequiel Rodriguez, who serves as Corporate Secretary and Assistant Corporate Counsel, and John Burke, who serves as the Company’s principal accounting officer, are both employed by Matriarch Management, Inc.

NOTE 6.	CAPITAL STOCK

The Company is authorized to issue 500,000,000 shares of common stock, par value $0.001 per share and 10 million shares of preferred stock, par value $0.001.  

.

During the quarter ended February 28, 2013, the Company issued Company stock as follows:

In September, 2012 we issued a total of 737,780 common shares to Asher Enterprises, Inc. on a conversion totaling $16,670 in principal amounts of loans and accrued interest, at a price of $0.0225 per share, representing 50 percent of the low price for the shares during a three day trading period.

10

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 6.	CAPITAL STOCK (continued)

In October, 2012 we issued a total of 2,284,848 common shares to Asher Enterprises, Inc. on three conversions totaling $36,400 in principal amounts of loans and accrued interest, at prices of $0.0165, $0.015, and $0.0135 per share respectively, representing 50 percent of the low price for the shares during a three day trading period.

As a result of these transactions, there were 33,117,128 common shares outstanding at February 28, 2013.

In December, 2012 we issued a total of 636,364 common shares to Common Stock, LLC. on a conversion totaling $7,000 in principal amounts of loans, at a price of $0.011, per share, representing 60 percent of the low price for the shares during a three day trading period.

In December, 2012, we issued 1,000,000 shares of Series A Convertible Preferred Stock in connection with the acquisition of Immersion House.

As a result of the issue of these shares, we now have a total of 33,753,492 common shares and 1,000,000 preferred shares issued and outstanding as of January 18, 2013.

NOTE 7.  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.

The following is a summary of notes payable at February 28, 2013 and August 31, 2012:

Description	February 28, 2013 (Unaudited)		August 31, 2012 (Audited)
Asher Enterprises, Inc.*
On April 25, 2012, the Company issued its promissory note in the amount of $37,500 to an unrelated third party for additional working capital. The note is due on January 30, 2013 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 carrying amount of the debt discount was $200 and $0, respectively.	-			37,500

11

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 7.  NOTES PAYABLE (continued)

Description			February 28, 2013 (Unaudited)			August 31, 2012 (Audited)
Asher Enterprises, Inc.*
On March 12, 2012, the Company issued its promissory note in the amount of $35,000 to an unrelated third party for additional working capital. The note is due on December 14, 2012 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 50 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 as of February 28, 2013.	-						35,000
Asher Enterprises, Inc.*
On January 20, 2012, the Company issued its promissory note in the amount of $40,000 to an unrelated third party for additional working capital. The note was due on October 23, 2012 and carried interest at 8 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 50 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 $8,288, respectively. The note was fully converted as of February 28, 2013.		-						6,712
Asher Enterprises, Inc.*
On September 1, 2012, 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 June 7, 2013 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 outstanding as of February 28, 2013.		42,500						-

12

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 7.  NOTES PAYABLE (continued)

Description			February 28, 2013 (Unaudited)			August 31, 2012 (Audited)
Asher Enterprises, Inc.*
On October 3, 2012, the Company issued its promissory note in the amount of $32,500 to an unrelated third party for additional working capital. The note is due on July 5, 2013 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 outstanding as of February 28, 2013.	32,500						-
Asher Enterprises, Inc.*
On December 18, 2012, the Company issued its promissory note in the amount of $32,500 to an unrelated third party for additional working capital. The note is due on September 14, 2013 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 outstanding as of February 28, 2013.		53,000						-
Common Stock LLC *
On January 20, 2012, the Company issued its promissory note in the amount of $20,000 to an unrelated third party for additional working capital. The note was due on October 31, 2012 and carried interest at 6 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 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 note was fully converted as of February 28, 2013.		-						5,507

13

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 7.  NOTES PAYABLE (continued)

Description	February 28, 2013 (Unaudited)		August 31, 2012 (Audited)
Common Stock LLC *
On March 19, 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 December 19, 2012 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 $0, respectively. The Company converted $17,189 into shares.	2,811		20,000
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 $6,596 and $0, respectively.	13,404		20,000
Panache Group *
On January 10, 2012, the Company issued its promissory note in the amount of $50,000 to an unrelated third party for additional working capital. The note is due on January 10, 2013 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 75 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 $1,112 and $0, respectively. $40,320 had been converted to common stock as of February 28, 2013.	-		6,100

14

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 7.  NOTES PAYABLE (continued)

Description	February 28, 2013 (Unaudited)		August 31, 2012 (Audited)
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 at a discount of $6,000, of which $5,047 unamortized portion remains at February 28, 2013.	11,028		50,500
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 at a discount of $6,000, of which $5,047 unamortized portion remains at February 28, 2013.	50,953		-
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 February 28, 2014. 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 $11,786 unamortized portion remains at February 28, 2013.	260,004		-
Total notes payable	467,700		181,319
Current portion	207,695		181,319
Notes payable-Long-term portion	$                 260,004		$                            -

NOTE 8.  DERIVATIVE LIABILITIES

The Company has various convertible instruments outstanding more fully described in Note 7. 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 three months ended February 28, 2013, the Company recognized new derivative liabilities of $220,344 as a result of convertible debt issuances having embedded conversion options. The fair value of these derivative liabilities exceeded the principal balance of the related notes payable by $57,844, and was recorded as a loss on derivatives for the three months ended February 28, 2013.

15

NOVATION HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2013

 (UNAUDITED)

NOTE 7.  NOTES PAYABLE (continued)

As a result of conversion of notes payable described in Note 7, the Company reclassified $68,530 of derivative liabilities to equity and the change in fair value of derivatives was $9,432.

As of February 28, 2013, the fair value of the Company’s derivative liabilities was $173,197 and $9,432 was recognized as a gain on derivatives due to change in fair value of the liabilities during the three months ended February 28, 2013.

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

NOTE 8.  DERIVATIVE LIABILITIES (continued)

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Derivative Liabilities:
Balance at August 31, 2012		$	30,815
ASC 815-15 additions			220,344
Change in fair value			(9,432)
ASC 815-15 deletions			(68,530)
Balance at February 28, 2013		$	173,197

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		$	9,432
Derivative expense			(57,844)
Balance for the three months ended February 28, 2013		$	(48,412)

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			0.21% - 0.30%
Expected volatility			100% - 300%
Expected life			9 months – 12 months

NOTE 9.  SUBSEQUENT EVENTS

In accordance with ASC 855, management evaluated all activity of the Company through the issue date of the financial statements and concluded that no other subsequent events have occurred that would require recognition or disclosure in the financial statements.

16

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, 2013 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 shares for each 15 common shares previously issued.  The amendment to our Articles also provided that we are 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.  At the date of this report, 1 million shares of preferred shares have been issued. 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.

We are engaged in the business of acquiring and managing operating companies, initially in the medical device development and production market, and subsequently in other healthcare, education, technology and similar markets. We formed our Company 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 device 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 then considered to be the surviving entity, with the Company including only the financial results of OTS in our financial statements. In March, 2012, however, the Company determined that the development costs and time to development for the OTS technology were significantly greater than originally expected and that there were other, unexpected issues and concerns relating to the acquisition. As a result, we determined to reverse the acquisition and the transaction was rescinded by agreement.

As a result of the rescission of the OTS transaction, on July 11, 2012, we amended our 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 February 28, 2012 and February 29, 2012.

17

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. The consideration for the acquisition was the issuance of a convertible debt in the principal amount of $280,000, which included a $50,000 cash investment by the seller.

On December 6, 2012, we also completed the acquisition of Casita de los Ninos, LLC, a California limited liability company doing business as Immersion House^™ (www.immersionhouse.com). The consideration for the acquisition was the issuance of one million shares of convertible preferred stock having a stated value of $100,000, carrying voting power equal to 51 percent of the total voting power of all classes of stock, a dividend preference equal to $0.01 per share, and a conversion option into shares of common stock valued at the time of conversion at 1 million dollars, based on the 5 day trailing average closing price of the stock.  If not already converted, the preferred stock converts automatically five years after issue into shares of common stock valued at the time of conversion at 2 million dollars, based on the 5 day trailing average closing price of the stock.

 

In January, 2013, we acquired a controlling interest in Alternative Energy Partners, Inc., a mining and energy holding company whose common shares are traded on the OTCQB under the symbol AEGY.  As a result of the acquisition, Novation acquired 40 million shares of common stock, representing approximately 19 percent of the common shares issued and outstanding, and 1 million shares of Series A Convertible Preferred stock holding voting power equal to 51 percent of the total vote of all shares entitled to vote. AEGY currently has 2 wholly-owned subsidiaries, Clarrix Energy, LLC and SAC Acquisition Corp., and anticipates acquiring a third operating subsidiary shortly, all as previously announced by AEGY.

Effective January 1, 2013, we acquired a portion of the administrative consulting business operated by CFOs to Go, Inc. and Matriarch Management, Inc., terminated the consulting agreements between CFOs to Go, Inc. and both the Company and AEGY, and transferred the acquired assets and business to Novation Consulting Services, Inc., a newly formed Florida corporation formed by the Company for the purpose.  The acquisition was accomplished by the assumption of debt.  The assets acquired and the debt assume in the acquisition are summarized below:

ASSETS

Accounts Receivable:

Alternative Energy Partners, Inc.

$ 164,546

BioCube, Inc.

     87,600

Crown City Pictures, Inc.

   178,650

Total Accounts Receivable

$  430,796

Computers, printers, server and related

$    20,000

Consulting Contracts:

Alternative Energy Partners, Inc.

$   100,000

Total other assets

$  120,000

Total Assets Acquired

$  550,796

LIABILITIES

Promissory Note to CF Consulting, LLC

$    55,108

Acquisition Note (partial)

    495,688

Total liabilities assumed

$ 550,796  

18

The assets received in the acquisition were transferred to our newly formed, wholly-owned subsidiary, Novation Consulting Services, Inc., which provides administrative, financial and legal services to us, our subsidiaries and to Alternative Energy Partners, Inc. and will offer similar services to other companies.

On February 3, 2013, the Company sold its controlling interest in SureScreen Medical, Inc., its wholly-owned medical device development subsidiary, to AVM Licensing Corp., the licensor of the HPV virus treatment technology being developed by SureScreen. SureScreen is the holder of the recently granted European patent rights to the technology, although the US Patent application has recently been denied.  The Company received a combination of cash, stock and notes, secured by the assets of SureScreen, as consideration for the sale.  The total value of the sale was estimated at $250,000.

The Business

Novation Holdings, Inc. (the “Company” or “we”), formerly Allezoe Medical Holdings, Inc., is a development stage company and 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.  

We originally formed our Company 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 device 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 then considered to be the surviving entity, with the Company including only the financial results of OTS in our financial statements. In March, 2012, however, the Company determined that the development costs and time to development for the OTS technology were significantly greater than originally expected and that there were other unexpected issues and concerns relating to the acquisition. As a result, we determined to reverse the acquisition and the transaction was rescinded by agreement.

As a result of the rescission of the OTS transaction, on July 11, 2012, we amended our 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 February 28, 2012 and February 29, 2012.

Current Business of Novation

We are in the business of medical technology development and marketing, childhood language development, ISP management and other new businesses, operating through wholly-owned subsidiaries to which we provide management, administrative, financial and other support services.  We are also actively seeking other related acquisitions in other market segments where the development time and cost are less and the production of operating revenues can be accelerated.

SureScreen

Our wholly-owned subsidiary, SureScreen Medical, Inc., entered into a licensing agreement with AVM Corp. for the licensing of proprietary, patent pending technology that would enable healthcare providers to "see and treat" Human Papillomavirus (HPV), the most common sexually transmitted infection and a cause of cervical cancer. In addition to offering easy, affordable, and on-the-spot HPV diagnosis, the technology offers an important alternative to the HPV vaccine.

A European patent has been granted for the technology and a patent application to the US Patent and Trademark Office was denied.  After reviewing the patent application status, the lack of a working model of the device and the considerable costs anticipated to complete the patent process, develop a working model, obtain regulatory approvals eventually develop a marketing program, our management determined that the costs and time were excessive and the likely return too uncertain to rpocees, so we sold SureScreen back to AVM Licensing Corp. and no longer have any interest in the company or its technology.

19

Burgoyne ISP

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.

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, Novation plans to undertake acquisitions of other regional ISP companies in a national roll-up strategy.  We have already identified 5 other regional ISP companies for sale and believe that, with the added infrastructure provided by Novation, the existing operating success can grow and add to the bottom line for Novation.

During the two prior calendar years, ending December 31, 2011 and 2010, Burgoyne Internet Services, LLC reported the following revenues and expenses:

		December 31, 2011		December 31, 2010
Gross sales income	$	179,983	$	315,142
Less:
General and administrative expenses		130,549		198,684
Net income	$	49,434	$	116,458

 For its current year through October 31, 2012 (10 months), Burgoyne reported revenues of $125,690, expenses of $76,847 and net income of $48,843.  We have included revenues and expenses related to Burgoyne in our consolidated financial statements commencing December 1, 2012, the closing date of the acquisition, in our fiscal quarter ending February 28, 2013.

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, or until August 31,2013, for a nominal fee of the greater of 2 percent of revenues or $200 per month.

20

The acquisition agreement also provided that the parties would undertake a reconciliation of income and expenses as of December 31, 2012 and that ISP Holdings would then transfer the net funds due for the operations of Burgoyne through December 31, 2012 to Burgoyne Internet Services, Inc.  Thereafter, all income and expenses related to the operations of the ISP business will be recorded directly by Burgoyne Internet Services, Inc. and included in the consolidated results of operations with the Company.

Immersion House^TM

On December 6, 2012, the Company also completed the acquisition of Casita de los Ninos, LLC, a California limited liability company doing business as Immersion House^™ (www.immersionhouse.com) which is devoted to helping children learn new languages and gain cultural experiences in those targeted languages. Casita de los Niños, the flagship company for Immersion House, was launched in 2009 in Northern California (Bay Area) and focuses on teaching children Spanish through learning centers and various after school enrichment programs. Immersion House learning centers, products, publications, media, partnerships, resources, and instructors are all committed to one goal: to provide the best “immersive” experience so that students and their families can learn to: Think Global, Act Global, and Be Global.  Immersion House differs from other learning language programs in the way that it “immerses” students in the target language they are learning. When students enter its learning centers they are transported into the “world” of that language. They experience the sights, sounds, and tastes of the target language they are learning. When students eat, bake, converse, play, and interact with native speakers, they not only learn the language, they experience its people, culture, and traditions. Paul Bliss, President, and Christy Bliss, the founders of Immersion House^™, remain as management.  The plan is to expand both the language experiences offered and the geographic locations of Immersion House^™ learning.

The consideration for the acquisition was the issuance of one million shares of convertible preferred stock having a stated value of $100,000, carrying voting power equal to 51 percent of the total voting power of all classes of stock, a dividend preference equal to $0.01 per share, and a conversion option into shares of common stock valued at the time of conversion at 1 million dollars, based on the 5 day trailing average closing price of the stock.  If not already converted, the preferred stock converts automatically five years after issue into shares of common stock valued at the time of conversion at 2 million dollars, based on the 5 day trailing average closing price of the stock.

Novation Consulting Services, Inc.

Effective January 1, 2013, we acquired a portion of the administrative consulting business operated by CFOs to Go, Inc. and Matriarch Management, Inc., terminated the consulting agreements between CFOs to Go, Inc. and both the Company and AEGY, and transferred the acquired assets and business to Novation Consulting Services, Inc., a newly formed Florida corporation formed by the Company for the purpose.  The acquisition was accomplished by the assumption of debt.  As a result of the acquisition, we have been able to bring all of the administrative, legal and financial services in house that were previously contracted for at a monthly fee of $20,000, and also will be able to offer the same services to other companies.  A new consulting agreement to provide these services to Alternative Energy Partners, Inc. (AEGY), was entered into effective January 1, 2013, for a monthly fee of $10,000.

Alternative Energy Partners, Inc.

In January, 2013, the Company acquired a controlling interest in Alternative Energy Partners, Inc., a mining and energy holding company whose common shares are traded on the OTCQB under the symbol AEGY.  As a result of the acquisition, Novation acquired 40 million shares of common stock, representing approximately 19 percent of the common shares issued and outstanding, and 1 million shares of Series A Convertible Preferred stock holding voting power equal to 51 percent of the total vote of all shares entitled to vote. AEGY currently has 2 wholly-owned subsidiaries, Clarrix Energy, LLC and SAC Acquisition Corp., and anticipates acquiring a third operating subsidiary shortly, all as previously announced by AEGY.  The financial results of AEGY have been consolidated with our financial results and the results of operations of our other, wholly-owned subsidiaries for purposes of this Report, although AEGY and its subsidiaries operate on a July 31 fiscal year while we operate on an August 31 fiscal year.  The one month differences resulting from the consolidation as of February 28, 2013 and the comparative figures at February 29, 2012, are not considered material.

Liquidity and Capital Resources

We have historically met our capital requirements through either private placement of equity or private borrowings. Our cash balance decreased $1,388 from $1,245 at August 31, 2012 to a negative $143 at February 28, 2013.

21

We received loan proceeds of $40,000 in September of 2012 from Asher Enterprises, LLC, an unrelated third party, due June 7, 2013 at 8 percent interest. The note is convertible into common stock at a price equal to 51 percent of the three lowest trading prices for our common stock for the ten trading days prior to the notice of conversion. We accrued interest of $792 on this note as of February 28, 2013.

We received loan proceeds of $30,000 in October of 2012 from Asher Enterprises, LLC, an unrelated third party, due July 5, 2013 at 8 percent interest. The note is convertible into common stock at a price equal to 51 percent of the three lowest trading prices for our common stock for the ten trading days prior to the notice of conversion. We accrued interest of $378 on this note as of February 28, 2013.

We received loan proceeds of $50,000 in October of 2012 from JMJ Financial, an unrelated third party, due October 3, 2013 at 5 percent interest. The note is convertible into common stock at a price equal to 70 percent of the lowest trading price for our common stock for the twenty five trading days prior to the notice of conversion. We accrued interest of $712 on this note as of February 28, 2013.

We September 21, 2013 at 8 percent interest. The note is convertible into common stock at a price equal to 51 percent of the three lowest trading prices for our common stock for the ten trading days prior to the notice of conversion. We accrued interest of $792 on this note as of February 28, 2013.

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 FDA clearance process and bring the HPV technology to market. We expect to do so during the remainder of our fiscal year 2013. 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. We also entered into a consulting agreement with CFOs to GO, Inc. to provide legal, financial, accounting and similar services, including assistance in preparing, filing and converting to EDGAR and XBRL filings for a monthly fee of $10,000, and a similar agreement with Matriarch Management, Inc. for the provision of administrative, IR, PR and related services, also for a fee of $10,000 monthly. The consulting agreements with CFOs to Go, Inc. and Matriarch Management, Inc. were terminated effective December 31, 2012. Novation Consulting Services, Inc. now provides a portion of these services directly or through consultants. John Burke, who serves as our consulting principal financial officer, does so through a consulting arrangement with his company and Novation Consulting Services, Inc. Indian River Financial Services, LLC provides consulting corporate general counsel and financial services directly to us under a consulting agreem,ent effective January 1, 2013.

A summary of notes payable by the Company at August 31, 2012 and February 28, 2013 is contained in Note 7 to the Financial Statements included in this Quarterly Report which summary is incorporated here by reference.

22

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

Results of Operations

For the three months ended February 28, 2013 and February 29, 2012, the Company had no operating revenues.  Since inception, the Company has yet to earn operating revenues and has incurred cumulative net losses of $9,540,317.  For the three months ended February 28, 2013, the Company had a net loss of $273,874. For the three months ended February 28, 2012, the Company had a net loss of $1,248,931. Our activities have been attributed primarily to start up and business development.

 

For the quarters ended February 28, 2013 and February 29, 2012, we incurred operating expenses of $119,402 and $1,003,938, respectively.

For the six months ended February 28, 2013 and February 29, 2012, the Company had no operating revenues.  Since inception, the Company has yet to earn operating revenues and has incurred cumulative net losses of $9,540,317.  For the six months ended February 28, 2013 and February 29, 2012, the Company had a net loss of $273,874 and $  respectively. Our activities have been attributed primarily to start up and business development.

 

For the six months ended February 28, 2013 and February 29, 2012, we incurred operating expenses of $119,402 and $1,003,938, respectively.

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, 2013, except certain convertible promissory notes as detailed in Note 7 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 February 28, 2013. Our shares are traded on the OTCBB under the symbol NOHO. Although the OTCBB does not

have any listing requirements per se, to be eligible for quotation on the OTCBB, 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.

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Trends

 

We are in the development stage and have generated minimal 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, 2012, filed with the SEC on December 14, 2012.

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, 2013 (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, 2013, 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 three and six months ended February 28, 2013, 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.

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(a)

Changes in control over financial reporting

There were no changes in our internal controls over financial reporting during the three months ended February 28, 2013 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, 2012, under Part 1 ITEM 1A, Risk Factors, are incorporated by reference.

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

In December, 2012 we issued a total of 3,611,094 common shares to various unrelated parties on six conversions totaling $63,138 in principal amounts of loans and accrued interest, at a prices of $0.0371, $0.0018, $0.030, $0.0346, $0.0131, and $0.011 per share.

In January 2013, we issued a total of 2,564,102 common shares to various unrelated parties on three conversions totaling $17,991 in principal amounts of loans and accrued interest, at prices of $0.0078, $0.0078, and $0.0066 per share respectively.

In January 2013, we issued a total of 500,000 common shares to an unrelated parties for a six month marketing contract at $0.01 per share.

In February 2013, we issued a total of 8,773,810 common shares to various unrelated parties. on four conversions totaling $22,700 in principal amounts of loans, at a prices of $0.0049, $0.0040, $0.0028, $0.0015 per share.

As a result of the issue of these shares, we now have a total of 48,217,237 common shares issued and outstanding as of April 22, 2013.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. (Removed and Reserved)

ITEM 5. OTHER INFORMATION

None.

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.

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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

/s/JOHN BURKE

John Burke

Consulting Principal Accounting Officer

Dated: April 22, 2013

    

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