UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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Address of principal executive offices, including zip code:
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated Filer ☐ Accelerated Filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were
Table of Contents
PART I — FINANCIAL INFORMATION |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
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PART II — OTHER INFORMATION |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
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Part I- Financial Information
Item 1. Financial Statements
NOVACCESS GLOBAL INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2023 |
September 30, 2022 |
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Unaudited |
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ASSETS |
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CURRENT ASSETS |
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Cash |
$ | $ | ||||||
Other Receivables |
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Prepaid expenses |
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TOTAL ASSETS |
$ | $ | ||||||
LIABILITIES AND SHAREHOLDERS' DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable |
$ | $ | ||||||
Accrued expenses and other current liabilities |
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Derivative and warrants liabilities |
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Due to related parties |
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Short term loan, related party |
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Convertible promissory notes, net of debt discount and debt issuance costs of $ |
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Convertible promissory note related party, net of debt discount and debt issuance cost of $ |
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Total Current Liabilities |
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TOTAL LIABILITIES |
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SHAREHOLDERS' DEFICIT |
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Preferred stock 50,000,000 shares authorized, shares issued and outstanding designated as follows: |
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Preferred Stock Series B, $ 600 shares issued and outstanding, respectively |
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Common stock, |
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Additional paid in capital |
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Paid in capital, common stock option and warrants |
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Paid in capital, preferred stock |
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Accumulated deficit |
( |
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( |
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TOTAL SHAREHOLDERS' DEFICIT |
( |
) | ( |
) | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT |
$ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
NOVACCESS GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2023AND 2022
(Unaudited)
Three Months Ended |
Nine Months Ended |
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June 30, |
June 30, |
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2023 |
2022 |
2023 |
2022 |
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SALES |
$ | $ | $ | $ | ||||||||||||
COST OF GOODS SOLD |
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GROSS PROFIT |
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OPERATING EXPENSES |
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Research and development expenses |
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Selling, general and administrative expenses |
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TOTAL OPERATING EXPENSES |
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LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES) |
( |
) |
( |
) |
( |
) |
( |
) |
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OTHER INCOME/(EXPENSES) |
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Miscellaneous Income |
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Gain/(Loss) on change in derivative liability |
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( |
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Extinguishment of derivatives |
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Extinguishment of debt |
( |
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Change in commitment fee guarantee |
( |
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( |
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Interest expense |
( |
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( |
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( |
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( |
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TOTAL OTHER EXPENSES |
( |
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( |
) |
( |
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( |
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NET LOSS |
( |
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( |
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( |
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( |
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Deemed dividend warrant protection reserve |
( |
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Net loss attributable to common shareholders |
( |
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( |
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( |
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( |
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BASIC LOSS PER SHARE |
$ | ( |
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$ | ( |
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$ | ( |
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$ | ( |
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DILUTED LOSS PER SHARE |
$ | ( |
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$ | ( |
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$ | ( |
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$ | ( |
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WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING |
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BASIC |
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DILUTED |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOVACCESS GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED JUNE 30, 2023, AND JUNE 30, 2022
Preferred Stock, |
Additional |
Options/ Warrants |
Paid in Capital, |
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Class B |
Common Stock |
Paid-in |
Paid in |
Preferred |
Accumulated |
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Shares |
Amount |
Shares |
Amount |
Capital |
Capital |
Stock |
Deficit |
Total |
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Balance as of October 1, 2021 |
$ | $ | $ | $ | $ | $ | ( |
) |
$ | ( |
) |
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Preferred stock redemption |
( |
) |
( |
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- | - | ( |
) | - | |||||||||||||||||||||||||||
Common Stock issued for services |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
Common Stock issued, subscriptions |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
Stock compensation cost |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
Common stock issued as repayment of loans |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
Common stock issued as commitment fee on promissory note payable |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
Common stock issuable, Subscriptions |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Net Loss |
- | - | - | - | - | - | - | ( |
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( |
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Balance as June 30, 2022 |
$ | $ | $ | $ | $ | $ | ( |
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$ | ( |
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Stock |
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Preferred Stock, |
Additional |
Options/ Warrants |
Paid in Capital, |
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Class B |
Common Stock |
Paid-in |
Paid in |
Preferred |
Accumulated |
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Shares |
Amount |
Shares |
Amount |
Capital |
Capital |
Stock |
Deficit |
Total |
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Balance as of Oct 1, 2022 |
$ | $ | $ | $ | $ | $ | ( |
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$ | ( |
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Common Stock issued for services |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
Common Stock issued, subscriptions |
- | - | ( |
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- | - | - | |||||||||||||||||||||||||||||
Common stock issued for commitment fees |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
Stock compensation cost for options |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Common Stock issued on repayment of Loan |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
Warrants issued for Loan Extension |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Net Loss |
- | - | - | - | - | - | - | ( |
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( |
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Balance as of June 30, 2023 (Unaudited) |
$ | $ | $ | $ | $ | $ | ( |
) |
$ | ( |
) |
NOVACCESS GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
For the Nine Months Ended |
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June 30, 2023 |
June 30, 2022 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net Loss |
$ | ( |
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$ | ( |
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Adjustment to reconcile net loss to net cash provided by (used in) operating activities |
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Amortization of debt discount and debt issuance costs recorded as interest expense |
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Change in fair value of derivative liability |
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Settlement of derivatives |
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( |
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Extinguishment of debt |
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Fair Value of shares issued for services |
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Stock compensation expense |
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Stock issued and issuable for services |
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Fair value of commitment shares issued for debt |
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Changes in Assets and Liabilities: |
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Other Receivable |
( |
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Prepaid Expenses & Advances |
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Accounts payable |
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Accrued expenses and Other Current Liabilities |
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NET CASH USED IN OPERATING ACTIVITIES |
( |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Stock subscriptions received |
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Due to related party |
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Proceeds from convertible notes payable |
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Payments related party for redemption of preferred stock |
( |
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( |
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Payments to TN3 for redemption of Preferred stock |
( |
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Proceeds from related parties notes payable |
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Payment on the related parties loans payable |
( |
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Principal payments on convertible debt |
( |
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( |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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NET DECREASE IN CASH |
( |
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( |
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CASH, BEGINNING OF PERIOD |
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CASH, END OF PERIOD |
$ | $ | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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Interest paid |
$ | $ | ||||||
Taxes paid |
$ | $ | ||||||
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS |
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Net Impact of Preferred Stock redemption transaction |
$ | |||||||
Common stock issued as commitment fee on Promissory note |
$ | $ | ||||||
Common stock issued as repayment of loan |
$ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
1. ORGANIZATION AND LINE OF BUSINESS
Organization
NovAccess Global Inc. (“NovAccess” or the “Company”) is a Colorado corporation formerly known as Sun River Mining Inc. and XsunX, Inc. The Company was originally incorporated in Colorado on February 25, 1997. Effective September 24, 2003, the Company completed a plan of reorganization and name change to XsunX, Inc. Effective August 25, 2020, we filed articles of amendment to our articles of incorporation with the Colorado Secretary of State to: effectuate a
Line of Business
NovAccess Global Inc. is a biopharmaceutical company that is developing novel immunotherapies to treat brain tumor patients in the United States with plans to expand globally. We specialize in cutting-edge research related to utilizing a patient’s own immune system to attack the cancer. We are filing an Investigational New Drug Application (IND) and working closely with the Food and Drug Administration (FDA) to obtain approval for human clinical trials to determine the safety and efficacy of our drug product for brain cancer patients. Once we have successfully completed the clinical trials and proven that the new therapy is safe and efficacious, we plan to commercialize the product. We also have expertise in successfully executing clinical trials, bringing products to market and increasing the market size of products through our advisory board. Our scientists are well versed in immunology, stem cell biology, neuroscience, molecular biology, imaging, small molecules development, gene therapy and other technical assays needed for protein and genetic analysis of cancer cells.
NovAccess operates as a research and development (R&D) company out of Ohio and California, and our executive management and scientific advisory board provide over 15 years of extensive experience in all aspects of biopharmaceutical R&D and commercialization of drug candidates.
Going Concern
The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate significant revenue, and has negative cash flows from operations, which raises substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. The Company has obtained funds from its shareholders and from lenders since its inception through the period ended June 30, 2023. Management believes the existing shareholders, prospective new investors and lenders will provide the additional cash needed to meet the Company’s obligations as they become due and will allow the development of its business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of NovAccess Global Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary StemVax, LLC. All significant inter-company accounts and transactions between these entities have been eliminated in these consolidated financial statements.
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements. Significant estimates made in preparing these consolidated financial statements include the estimate of the deferred tax valuation allowance, the fair value of stock options, warrants, and derivative liabilities. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include cash in banks and money markets with an original maturity of three months or less.
Stock-Based Compensation
Share-based Payment applies to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We are required to follow a fair value approach using an option-pricing model, such as the Binomial lattice valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option.
Net Earnings (Loss) per Share Calculations
For the three months ended |
For the nine months ended |
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June 30, |
June 30, |
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2023 |
2022 |
2023 |
2022 |
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Loss to common shareholders (Numerator) |
$ | ( |
) | ( |
) | $ | ( |
) |
( |
) |
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Basic weighted average number of common shares outstanding (Denominator) |
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Diluted weighted average number of common shares outstanding |
Fair Value of Financial Instruments
Fair Value of Financial Instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2023, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses approximate the fair value because of their short maturities.
We adopted Accounting Standards Codification (“ASC”) Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (continued)
Fair value is defined as 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. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Total |
(Level 1) |
(Level 2) |
(Level 3) |
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Assets: |
$ | $ | $ | $ | ||||||||||||
Liabilities: |
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Derivative Liability at fair value as of September 30, 2022 |
$ | $ | $ | $ | ||||||||||||
Derivative Liability warrants at fair value as of September 30, 2022 |
$ | $ | $ | $ | ||||||||||||
Total Derivative Liability as of September 30, 2022 |
$ | $ | ||||||||||||||
Derivative Liability at fair value as of June 30, 2023 |
$ | $ | ||||||||||||||
Derivative Liability warrants at fair value as of June 30, 2023 |
$ | $ | ||||||||||||||
Total Derivative Liability as of June 30, 2023 |
$ | $ |
Derivative Liability Promissory Notes |
Derivative Liability Warrants |
Total Derivative Liability |
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Balance as of September 30, 2021 |
$ | $ | $ | |||||||||
Fiscal year 2022 initial derivative liabilities |
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Net (Gain)/Loss on change in fair value of derivative liability |
( |
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( |
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( |
) |
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Extinguishment of derivative |
( |
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( |
) |
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Ending balance as of September 30, 2022 |
$ | $ | $ | |||||||||
Nine Months ended June 30, 2023, initial derivative liabilities |
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Net (Gain)/Loss on change in fair value of derivative liability |
( |
) |
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Extinguishment of derivative |
( |
) |
( |
) |
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Ending balance as of June 30, 2023 |
$ | $ | $ |
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, “Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”. This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. We are currently evaluating the extent of the impact of this ASU, but do not expect the adoption of this standard to have a significant impact on our consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sales Restrictions, which (1) clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an equity security and (2) requires specific disclosures related to such an equity security. We are currently evaluating the extent of the impact of this ASU, but do not expect the adoption of this standard to have a significant impact on our consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). ASU 2022-02 eliminates the accounting guidance on troubled debt restructurings for creditors in ASC Topic 310 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. ASU 2022-02 also updates the requirements related to accounting for credit losses under ASC Topic 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the extent of the impact of this ASU, but do not expect the adoption of this standard to have a significant impact on our consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
3. CAPITAL STOCK
As of June 30, 2023 the Company’s authorized stock consisted of
The Company is also authorized to issue
Preferred Stock
As of June 30, 2023, the Company had
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
3. CAPITAL STOCK (Continued)
Common Stock
During the nine months ended June 30, 2023, the Company issued
The Company issued
The Company issued
The Company issued
During the nine months ended June 30, 2022, the Company issued
4. CONVERTIBLE PROMISSORY NOTES
Convertible Promissory notes as on June 30, 2023 |
Principal Amount |
Unamortized balance of Debt Discount |
Outstanding balance as on June 30, 2023 |
Derivative balance as on June 30, 2023 |
Warrant liability balance as on June 30, 2023 |
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2013 Note |
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2014 Note |
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2017 Note |
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August 2021 Note |
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February 2022 Note |
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May 2022 Note |
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August 2022 Note |
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February 2023 Note |
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Apr 14, 2023 Note |
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Apr 28, 2023 Note |
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June 20, 2023 Note |
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June 26, 2023 Note |
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Total |
Convertible Promissory note, related party as on June 30, 2023 |
Principal Amount |
Unamortized balance of Debt Discount |
Outstanding balance as on June 30, 2023 |
Derivative balance as on June 30, 2023 |
Warrant liability balance as on June 30, 2023 |
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July 2022 Note |
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
4. CONVERTIBLE PROMISSORY NOTES (Continued)
2013 Note
On October 1, 2013, the Company issued an unsecured convertible promissory note (the “2013 Note”) in the amount of $
2014 Note
On November 20, 2014, the Company issued a
2017 Note
On May 10, 2017, the Company issued a
May 2021 Note
On May 28, 2021, the Company issued a
July 2021 Note
On July 6, 2021, the Company issued a
August 2021 Note
On August 20, 2021, the Company issued a
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
4. CONVERTIBLE PROMISSORY NOTES (Continued)
In connection with the February 2023 Letter Agreement (described below) the warrants issued in connection with this note were repriced to $
February 2022 Note
On February 15, 2022, the Company issued a
On February 9, 2023, the Company entered into a letter agreement in connection with the February 2022 Note, whereby the lender extended the due date of the loan to May 9, 2023, and deferred all interest payments for the period from January 1, 2023, until May 9, 2023. Pursuant to the letter agreement the exercise price of the warrants issued with the February 2022 Note was reduced to $
On June 8, 2023, the Company entered into a further letter agreement which extended the due date of the note until June 30, 2023, as discussed below. On August 8, 2023, the Company entered into a further letter agreement extending the due date of the loan until
May 2022 Note
On May 5, 2022, the Company issued a
On February 9, 2023, the Company entered into a letter agreement in connection with the May 2022 Note deferring all interest payments from January 1, 2023, until May 9, 2023.
On June 8, 2023, the Company entered into a further letter agreement which extended the due date of the of the note until June 30, 2023 as discussed below. On August 8, 2023, the Company entered into a further letter agreement extending the due date of the loan until August 31, 2023 as discussed in Note 14 Subsequent Events.
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
4. CONVERTIBLE PROMISSORY NOTES (Continued)
August 2022 Note
On August 8, 2022, the Company issued a
On August 3, 2023, the Company and the holder signed an agreement extending the loan until
September 2022 Note
On September 22, 2022, the Company issued an
November 2022 Note
On November 1, 2022, the Company issued an
December 2022 Note
On December 7, 2022, the Company issued an
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
4. CONVERTIBLE PROMISSORY NOTES (Continued)
February 2023 Letter Agreement
On February 9, 2023, the Company entered into a letter agreement, whereby the Company borrowed an additional loan amounting to $
Also, as part of this agreement the lender extended the term of February 2022 note to May 9, 2023, and deferred payment of all interest due on both the February 2022 note and May 2022 note until
On June 8, 2023, the company entered into a further letter agreement which extended the due date of the note until June 30, 2023, as discussed below.
On August 8, 2023, the Company entered into a further letter agreement extending the due date of the loan until
April 11, 2023, Note
On April 11, 2023, the Company issued a convertible promissory note for the principal sum of $
April 24, 2023, Note
On April 24, 2023, the Company issued a convertible promissory note in the original principal amount of $
June 8, 2023, Letter Agreement
On June 8, 2023, the Company and lender of the February 2022 Note, the May 2022 Note and the February 2023 Letter Agreement entered into a letter agreement whereby in consideration for an extension of the due date on the notes until June 30, 2023. The Company issued warrants priced at $
The fair value of the warrants was $238,412 which was recorded as an expense in the period ending June 30, 2023.
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
4. CONVERTIBLE PROMISSORY NOTES (Continued)
June 19, 2023, Letter Agreement
On June 19, 2023, the Company entered into a letter agreement whereby it borrowed a further $
On August 8, 2023, the Company entered into a further letter agreement extending the due date of the loan until August 31, 2023 as discussed in Note 14 Subsequent Events.
June 20, 2023, Note
On June 20, 2023, The Company issued a convertible promissory note in the original principal amount of $
We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The notes have no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the notes under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the notes in their entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price fluctuations based upon the Binomial lattice model calculation.
The convertible notes issued and described in this Note do not have fixed settlement provisions because their conversion prices are not fixed. The conversion feature has been characterized as a derivative liability to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
We record the full value of the derivative as a liability at issuance with an offset to valuation discount, which will be amortized over the life of the notes.
Risk free interest rate |
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Between |
Stock volatility factor |
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Between |
Years to Maturity |
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Expected dividend yield |
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NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
5. CONVERTIBLE PROMISSORY NOTES, RELATED PARTY
July 2022 Note, related party
On July 28, 2022, the Company issued a
6. SHORT TERM LOAN, RELATED PARTY
On July 28, 2022, the Company entered into a short-term interest free loan agreement amounting to $
On February 9, 2023, NovAccess entered into a second interest-free loan agreement with Mr. Anderson. Reflecting his faith in NovAccess and our management team, Mr. Anderson loaned the Company $
7. WARRANTS
On August 20, 2021, for value received in connection with the issuance of the August 2021 Note, the Company issued
On February 16, 2022, for value received in connection with the issuance of the February 2022 Note, the Company issued
On May 10, 2022, for value received in connection with the issuance of the May 2022 Note, the Company issued
On February 9, 2023, for value received in connection with the issuance of the February 2023 Note, the Company issued
On June 8, 2023, the Company issued to AJB a common stock purchase warrant to purchase
On June 19, 2023, for value received in connection with the issuance of the June 20, 2023 Note, the Company issued a warrant to purchase
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
7. WARRANTS (Continued)
On June 30, 2023 the fair value of the derivative liability of the warrants was $
Risk free interest rate |
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Between |
Stock volatility factor |
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Between |
Years to Maturity |
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Expected dividend yield |
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Per guidance on ASC 260, the Company determined that the repricing of warrants discussed above, was an exchange of the existing
8. OPTIONS
On June 2, 2020, the Company issued
Risk Free Interest Rate |
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Stock Volatility Factor |
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Weighted Average Expected Option Life |
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Expected Dividend Yield |
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On March 13, 2023, the Company entered into non-qualified stock option agreements and granted vested ten-year options to purchase shares of the Company’s common stock for $
Vesting Schedule. The Options are
Expiration. The Option will expire on the tenth anniversary from the grant date which falls on March, 2033.
For purpose of determining the fair market value of the options, the Company used the Black Scholes valuation model. The significant assumptions used in the Black Scholes valuation model for the options are as follows:
Risk Free Interest Rate |
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Stock Volatility Factor |
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Weighted Average Expected Option Life |
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Expected Dividend Yield |
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NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
8. OPTIONS (Continued)
June 30, 2023 |
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average |
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price |
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$ | |||||||
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June 30, 2023 |
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Life (years) |
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$ | |||||||||||||||
$ |
The entire stock-based compensation expense amounting to $
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
June 30, 2023 |
September 30, 2022 |
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Accrued liabilities |
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Interest payable |
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Provision for guaranteed commitment fees * |
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License Fees Payable |
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Insurance finance liability |
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$ | $ |
* Under the terms of the August 2021 Note, February 2022 Note, May 2022 Note and February 2023 Note, the Company issued a total of
Under the terms of the June 19, Letter Agreement the Company issued a warrant for
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
10. BRIDGE LOAN PAYABLE
Related parties
In December 2021, the Company’s CEO and CFO each advanced funds to the Company for operating expenses in the total amount of $50,000. The notes were payable on demand with a five business day written notice and bore interest at a rate of
In March, 2022, our CEO purchased
On January 25, 2022, the Company issued
Service provider, related party
In December 2021, one of the Company’s service providers advanced funds to the Company for operating expenses in the total amount of $
The total loss on account of extinguishment of debt on the CFO note and service provider note amounting to $
11. DUE TO RELATED PARTIES
Due to Innovest Global
During the periods prior to the year ended September 30, 2022, Innovest Global, Inc. (“Innovest”) advanced funds to the Company for operating expenses in the amount of $
Due to TN3 LLC
On January 31, 2022, the Company entered into a preferred stock redemption agreement with Daniel G. Martin, at the time, our sole board member and chairman, TN3, LLC, a company owned by Mr. Martin, Dwain K. Irvin, our chief executive officer, and Irvin Consulting, LLC, a company owned by Dr. Irvin. TN3 owned
12. COMMITMENTS AND CONTINGENCIES
There are no material pending legal proceedings to which we are a party, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers, or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
12. COMMITMENTS AND CONTINGENCIES (Continued)
Under the terms of the August 2021 Note, February 2022 Note, May 2022 Note and February 2023 Note the Company issued a total of
Under the terms of the June 19, Letter Agreement the company issued a warrant for
13. RELATED PARTY TRANSACTIONS
On February 9, 2023, NovAccess entered into an interest-free loan agreement with Jason M. Anderson, an independent member of our board of directors. Reflecting his faith in NovAccess and our management team, Mr. Anderson loaned the Company $
On July 28, 2022, the Company entered into a short-term interest free loan agreement amounting to $
On July 28, 2022, the Company issued a convertible promissory note to Letzhangout, LLC, a company that provides accounting consulting services to NovAccess and also employs our chief financial officer, Neil J. Laird. Pursuant to the note, Letzhangout loaned the Company $
On January 31, 2022, the Company entered into a preferred stock redemption agreement with Daniel G. Martin, at the time our sole board member and chairman, TN3, LLC, a company owned by Mr. Martin, Dwain K. Irvin, our chief executive officer, and Irvin Consulting, LLC, a company owned by Dr. Irvin. TN3 owned
Upon completion of the redemption transaction, the Company was obligated to pay to TN3 a total of $
NOVACCESS GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2023 AND 2022
13. RELATED PARTY TRANSACTIONS (Continued)
Also in connection with closing the redemption transaction, on March 14, 2022, the Company entered into a common stock distribution agreement with Innovest Global, Inc. Innovest acquired
In December 2021, the Company’s CEO and CFO each advanced funds to the Company for operating expenses in the total amount of $
On September 4, 2020, the Company entered into a management services agreement with TN3, LLC. Pursuant to the agreement, TN3 provided the Company with office space in Chesterland, Ohio and management, administrative, marketing, bookkeeping and IT services for a fee of $
14. SUBSEQUENT EVENTS
On August 3, 2023, the Company and the holder of the August 2022 Note signed an agreement extending the loan until
On August 9, 2023 the Company and the holder of the February 2022 Note, the May 2022 Note, the February 2023 Note and the June 20, 2023 entered into an agreement extending the term until
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary and Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed in this Quarterly Report and under “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2022.
We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should carefully review the factors described in other documents that the Company files from time to time with the SEC.
Business Plan
In 2020, we transitioned our operations from solar contracting operations to the commercialization of developmental healthcare solutions in the biotechnology, medical, and health and wellness markets. On June 2, 2020, we entered into a membership interest purchase agreement with Innovest Global, Inc. to acquire StemVax, LLC (“StemVax”) for 7.5 million shares of our unregistered common stock. The acquisition was completed on September 8, 2020.
StemVax is a biopharmaceutical company developing novel therapies for brain tumor patients that holds an exclusive patent license from Cedars-Sinai Medical Center in Los Angeles, California (Cedars-Sinai) known as StemVax Glioblast (SVX-GB/TLR-AD1). TLR-AD1 specifically targets glioblastoma, the most common and lethal type of adult brain tumor. Christopher Wheeler, President of StemVax, has been involved in the pre-clinical research and development of the drug candidate at Cedars-Sinai Department of Neurosurgery since 1997. Dr. Wheeler began preparing the pre-IND application to obtain U.S. Food and Drug Administration (“FDA”) approval to start human clinical trials. In 2021, Dr. Wheeler led pre-IND interactions with the FDA and obtained a recommended roadmap from the FDA to facilitate the filing of an IND application for a Phase I application or a Phase IIa application. We are currently executing on their recommendations and plan to submit an IND application in early 2024 In August 2022, we filed an application with the FDAfor orphan drug designation (“ODD”) for TLR-AD1, which was granted in October 2022. Receiving ODD status represents a milestone in the development of TLR-AD1 and provides us with multiple incentives, including seven-year marketing exclusivity and federal tax credits, among other benefits.
We believe that investing in the biotechnology industry will significantly increase value for our shareholders. However, we cannot guarantee that we will be successful in this endeavor or that we can locate, acquire and finance the acquisition of additional biotechnology companies.
Results of Operations for the three months ended June 30, 2023, compared to three months ended June 30, 2022
Revenue and Cost of Sales
We are in the research and development phase, and generated no revenue or cost of goods sold in the three months ended June 30, 2023, and 2022.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased by $170,704 during the three months ended June 30, 2023, to $444,481 as compared to $273,777 for the three months ended June 30, 2022. The increase in SG&A expenses during the three months ended June 30, 2023, was resulted primarily to a $238,412 expense relating to warrants issued as consideration for various loan extensions during the current quarter.
Research and Development Expenses
The research and development expense marginally decreased by $10,973 for the three months ended June 30, 2023, to $40,164 as compared to $51,137 for the three months ended June 30, 2022. The reason for the decrease was on account of the decrease in costs for bio-technical services by $10,973.
Other Income/(Expenses)
Other expense increased by $153,290 from other expense of $141,703 for the three months ended June 30, 2022 to other expense of $294,993 for the three months ended June 30, 2023. The change was primarily due to the loss on change in derivative liability worsening by $398,947 and an additional provision of $134,875 for the commitment fee guarantee to one of our lenders. These expenses were partially offset by a reduction in interest expense of $225,848, a gain on extinguishment of derivatives of $98,602 and miscellaneous income of $56,082 relating to the receipt of the Employee Retention Tax Credit. Interest expense was lower because the debt discount being amortized was lower in the current quarter as compared the prior year. The estimates of fair market value are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreements and probabilities of certain outcomes based on managements’ estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Net Income/Loss
For the three months ended June 30, 2023, our net loss was $779,639 as compared to a net loss of $466,617 for the same period in 2022. The increase in net loss of $313,022 was due to the items described above.
Results of Operations for the nine months ended June 30, 2023, compared to nine months ended June 30, 2022
Revenue and Cost of Sales
We are in the research and development phase, and generated no revenue or cost of goods sold in the nine months ended June 30, 2023, and 2022.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased by $1,005,452 during the nine months ended June 30, 2023, to $1,940,587 as compared to $935,135 for the nine months ended June 30, 2022. The increase in SG&A expenses during the nine months ended June 30, 2023, was related primarily to the increase in stock-based compensation by $563,3141 on account of stock options issued during the second quarter, the expense for warrants issued as consideration for various loan extensions of $386,912, and smaller increase in professional fees.
Research and Development Expenses
The research and development expense marginally decreased by $22,888 for the nine months ended June 30, 2023, to $116,164 as compared to $139,052 for the nine months ended June 30, 2022. The primary reason for the decrease was on account of the decrease in costs for bio-technical services.
Other Income/(Expenses)
Net other expenses increased by $316,518 from other expense of $584,012 for the nine months ended June 30, 2022 to other expenses of $900,530 for the nine months ended June 30, 2023. The largest change was in the derivative liability which moved by $621,401 from a gain of $345,816 in the nine months ending June 30, 2022, to a loss of $275,585 in the nine months ending June 30, 2023. This was caused primarily by the change in the Company’s stock price. This loss was partially offset by a reduction in interest expense of $294,989 as a result of lower debt discount amortization included in interest expense in the current quarter. There were also smaller favorable changes in miscellaneous income, extinguishment of debt and extinguishment of derivatives. The estimates of fair market value are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreements and probabilities of certain outcomes based on managements’ estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Net Loss
For the nine months ended June 30, 2023, our net loss was $2,957,281 as compared to a net loss of $1,658,199 for the same period in 2022 as a result of the changes discussed above.
Liquidity and Capital Resources
We had a working capital deficit at June 30, 2023 of $6,232,956 as compared to a working capital deficit of $4,653,066, as of September 30, 2022. The increase of $1,579,890 in the working capital deficit was the result of an increase in the derivative liability on convertible notes amounting to $468,313, an increase in convertible notes payable of $607,656, an increase in the short term loan from a related party, an increase in accounts payable of $144,663, and an increase in accrued expenses and other current liabilities amounting to $405,752 and increase in current assets of $52,126. This was partially offset by a decrease in amounts due to related parties of $5,000.
For the nine months ended June 30, 2023, our cash flow used by operating activities was $469,786 as compared to cash flow used by operating activities of $705,954 for the nine months ended June 30, 2022. The decrease in cash flow used by operating activities was primarily due to changes in assets and liabilities described above as well as the increase in net loss being primarily the result of non-cash charges recorded in the statement of operations.
Cash flow used by investing activities was $0 during the nine months ended June 30, 2023 or 2022.
Cash flow provided by financing activities was $467,000 for the nine months ended June 30, 2023, as compared to cash provided by financing activities of $615,223 during same period in 2022. The decrease in cash flow provided by financing activities was primarily the result of the mix of funds raised by selling equity and debt instruments and repayment of convertible notes and bridge loans.
The Company will need to raise additional funds to finance its ongoing operations, complete its IND application to the FDA and to make payments under its loan agreements. We expect this will require at least $3.0 million through December 31, 2023. We plan to raise this capital through the issuance of additional common stock as well as obtaining additional debt as needed.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance-sheet arrangements or for other contractually narrow or limited purposes. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Critical Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements. Significant estimates made in preparing these consolidated financial statements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, the fair value of stock options, and derivative liabilities. Actual results could differ materially from those estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Because NovAccess is a “smaller reporting company” as defined by the Securities and Exchange Commission we are not required to provide additional market risk disclosure.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management team, with the participation of our chief executive officer, Dwain K. Irvin, and chief financial officer, Neil J. Laird, evaluated the effectiveness of the design and operation of NovAccess’ disclosure controls and procedures (as defined under the Securities Exchange Act) as of June 30, 2023. Based upon this evaluation, Messrs. Irvin and Laird concluded that the Company’s disclosure controls and procedures were effective as of June 30.
Changes in Internal Control Over Financial Reporting
Our senior management team is responsible for establishing and maintaining adequate internal control over financial reporting, defined under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board, senior management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. We continue to review our internal control over financial reporting and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by the Securities Exchange Act that occurred during our third fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II — Other Information
Item 1. Legal Proceedings.
We are not involved in any legal proceedings.
Item 1A. Risk Factors.
Please refer to the risk factors listed under “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2022, for information relating to certain risk factors applicable to NovAccess.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter ended June 30, 2023, we issued 350,429 unregistered shares of our common stock for capital raising and compensatory purposes as described in more detail below.
Effective June 30, 2023, we issued 108,750 unregistered shares of our common stock to Letzhangout, LLC for accounting services provided to NovAccess during the third quarter. Also, effective July 5, 2023, we issued 100,002 shares of our unregistered shares to Darrow Associates for investor relations services provided to NovAccess during the third quarter. The issuances of shares to our service providers were exempt from registration under Section 4(a)(2) of the Securities Act.
On June 14, 2023, we issued 141,677 registered shares to a lender as partial payment for $12,000 of the December 2022 Note. The issuance of shares to our lender upon conversion of the December 2022 Note was exempt from registration under Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
During the quarter ended June 30, 2023, NovAccess was not in material default with respect to any of its material indebtedness.
Item 4. Mine Safety Disclosures.
We are not engaged in mining operations.
Item 5. Other Information.
We have disclosed on Form 8-K all reportable events that occurred in the quarter ended June 30, 2023.
Item 6. Exhibit and Financial Statement Schedules.
(a) Financial Statement Schedules (see Item 1 Financial Statements and Supplementary Data)
(b) Exhibits
Exhibit |
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Description |
31.1 |
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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act — Dwain K. Irvin |
31.2 |
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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act — Neil J. Laird |
32.1 |
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act |
101 |
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The following materials from the NovAccess Global Inc. Quarterly Report on Form 10-Q for the period ended June 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): |
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(i) the Condensed Consolidated Balance Sheets as of June 30, 2023 and September 30, 2022 |
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(ii) the Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2023 and June 30, 2022, |
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(iii) the Condensed Consolidated Statements of Shareholders’ Deficit for the Three and Nine Months Ended June 30, 2023 and June 30, 2022, |
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(iv) the Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended June 30, 2023 and June 30, 2022, and |
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(v) Related Notes to the Condensed Consolidated Financial Statements |
104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, NovAccess has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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NovAccess Global Inc. |
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Date: August 11, 2023 |
/s/ Dwain K. Irvin |
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By Dwain K. Irvin, Chief Executive Officer |
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(Principal Executive Officer) |
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Date: August 11, 2023 |
/s/ Neil J. Laird |
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Neil J. Laird, Chief Financial Officer |
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(Principal Financial and Accounting Officer) |