UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)(Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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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 (§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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
Indicate the number of shares outstanding of each of the issuer’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.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2022 |
September 30, 2021 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash |
$ | $ | ||||||
Employee Advances |
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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 |
$ | $ | ||||||
Other payable |
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Accrued expenses and interest on notes payable |
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Accrued payroll |
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Deferred Compensation |
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License Fees Payable |
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Derivative liability |
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Derivative liability warrants |
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Due to related party |
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Payable to TN3 |
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Promissory notes payable net of debt discount and debt issuance costs of $ |
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Bridge Loans Payable - related parties |
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Convertible loan payable |
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Convertible promissory notes net of debt discount and debt issuance costs of $ |
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Total Current Liabilities |
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LONG TERM LIABILITIES |
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Convertible promissory notes |
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Total Long Term 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 and |
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Common stock, |
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Additional paid in capital |
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Paid in capital, common stock warrants |
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Paid in capital, preferred stock |
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Accumulated deficit |
( |
) | ( |
) | ||||
TOTAL SHAREHOLDERS' DEFICIT |
( |
) | ( |
) | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT |
$ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOVACCESS GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
Three Months Ended |
Six Months Ended |
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March 31, 2022 |
March 31, 2021 |
March 31, 2022 |
March 31, 2021 |
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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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Gain (Loss) on change in derivative liability |
( |
) |
( |
) |
( |
) |
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Extinguishment of derivatives |
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Extinguishment of debt |
( |
) |
( |
) |
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Interest expense |
( |
) |
( |
) |
( |
) |
( |
) |
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TOTAL OTHER INCOME/(EXPENSES) |
( |
) |
( |
) |
( |
) |
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NET INCOME (LOSS) |
( |
) |
( |
) |
( |
) |
( |
) |
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BASIC INCOME (LOSS) PER SHARE |
$ | ( |
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$ | ( |
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$ | ( |
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$ | ( |
) |
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DILUTED INCOME (LOSS) PER SHARE |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
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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 SIX MONTHS ENDED MARCH 31, 2022 AND 2021
SIX MONTHS ENDED MARCH 31, 2021 |
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Stock Options/ Warrants Paid in |
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Paid in
Capital, Preferred |
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Additional Paid-in |
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Preferred Stock, Class A |
Preferred Stock, Class B |
Common Stock |
Accumulated |
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Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital |
Capital |
Stock |
Deficit |
Total |
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Balance at September 30, 2020 |
- | $ | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||
Common stock issued for StemVax Acquisition - from stock payable |
- | - | - | - | ( |
) | - | - | - | - | ||||||||||||||||||||||||||||||||||
Stock compensation cost |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Common stock issued for Services |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Common Stock Issued - Subscriptions |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Net Income |
- | - | - | - | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
Balance at March 31, 2021 (Unaudited) |
- | $ | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) |
SIX MONTHS ENDED MARCH 31, 2022 |
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Stock Options/ Warrants Paid in |
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Paid in
Capital, Preferred |
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Additional Paid-in |
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Preferred Stock, Class A |
Preferred Stock, Class B |
Common Stock |
Accumulated |
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Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital |
Capital |
Stock |
Deficit |
Total |
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Balance at September 30, 2021 |
- | $ | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||
Preferred Stock Redemption |
- | - | ( |
) | ( |
) | - | - | ( |
) | - | |||||||||||||||||||||||||||||||||
Stock compensation cost |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Common Stock issued for services |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Common Stock issued , subscriptions |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
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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Balance at March 31, 2022 (Unaudited) |
- | $ | - | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOVACCESS GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
For the Six Months Ended |
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March 31, 2022 |
March 31, 2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net Loss |
$ | ( |
) |
$ | ( |
) |
||
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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(Gain)/Loss on change in derivative liability |
( |
) |
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Extinguishment of derivatives |
( |
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Extinguishment of debt |
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Stock compensation expense |
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Stock issued and issuable for services |
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Stock issued as commitment fee on promissory note payable |
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Non-cash interest expense on bridge loan |
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Changes in Assets and Liabilities: |
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Employee advances |
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Prepaid expenses |
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Accounts payable |
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Other payable |
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License fees payable |
( |
) |
( |
) |
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Accrued expenses and interest on notes payable |
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Accrued payroll |
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Deferred Compensation |
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NET CASH USED IN OPERATING ACTIVITIES |
( |
) |
( |
) |
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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 a note payable |
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Payments to TN3 for redemption of preferred stock |
( |
) |
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Payments on convertible notes payable |
( |
) |
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Proceeds from bridge loans payable - related parties |
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Payment on the bridge loans payable |
( |
) |
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Proceeds from a related party loan |
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Payments on related party loan payable |
( |
) |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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NET INCREASE (DECREASE) IN CASH |
( |
) |
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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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Accrued interest capitalized into convertible note |
$ | $ | ||||||
Shares issued for StemVax Acquisition – from stock payable |
$ | $ | ||||||
Cash payable to TN3 for preferred stock |
$ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
1. ORGANIZATION AND LINE OF BUSINESS
Organization
NovAccess Global Inc. (“NovAccess,” 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. In June 2020, the Company was acquired and changed its name to NovAccess Global Inc.
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 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. We guide our performance by striving to deliver consistently on the following core objectives: (1) Accountability — taking responsibility for providing safe and effective options for patients; (2) Integrity — doing what is ethically right for the patient; (3) Excellence — doing your best and working hard; and (4) Teamwork — bringing together a strong working team to deliver the best products for brain tumor patients.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ended September 30, 2022. For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended September 30, 2021.
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 revenue, and has negative cash flows from operations, which raise 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 infusion. The Company has obtained funds from its shareholders and lenders since its inception through the period ended March 31, 2022. Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due and will allow the development of its business.
This summary of significant accounting policies of NovAccess 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.
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 condensed consolidated financial statements.
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 derivative liabilities, the deferred tax valuation allowance, and the fair value of stock options. 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.
Property and Equipment
Property and equipment are stated at cost, and are depreciated using the straight-line method over its estimated useful lives:
Leasehold improvements |
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Computer software and equipment |
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Furniture & fixtures |
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Machinery & equipment |
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The Company capitalizes property and equipment over $500. Property and equipment under $500 are expensed in the year purchased.
Stock-Based Compensation
Net Earnings (Loss) per Share Calculations
Net earnings (Loss) per share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are computed by dividing by the weighted average number of common shares outstanding during the period. Diluted net earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the effect of stock options and stock-based awards plus the assumed conversion of convertible debt (Notes 4 and 5).
For the three months ended |
For the six months ended |
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March 31, |
March 31, |
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2022 |
2021 |
2022 |
2021 |
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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 (Denominator) |
Diluted weighted average number of shares for the three and six months ended March 31, 2022 and March 31, 2021 is the same as basic weighted average number of shares because the Company had net losses for these respective periods.
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 March 31, 2022, 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, an 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.
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. |
We measure certain financial instruments at fair value on a recurring basis. The Company had no assets that are required to be valued on a recurring basis as of March 31, 2022 and September 30, 2021. The Company had liabilities that are required to be measured at fair value on a recurring basis as follows at March 31, 2022 and September 30, 2021:
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, 2021 |
$ | $ | $ | $ | ||||||||||||
Derivative Liability warrants at fair value as of September 30, 2021 |
$ | $ | $ | $ | ||||||||||||
Derivative Liability at fair value as of March 31, 2022 |
$ | $ | $ | $ | ||||||||||||
Derivative Liability warrants at fair value as of March 31, 2022 |
$ | $ | $ | $ |
The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:
Derivative Liability |
Derivative Liability Warrants |
|||||||
Balance as of September 30, 2021 |
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Extinguishment of derivatives |
( |
) |
||||||
Initial derivative liabilities |
||||||||
Net (Gain)/Loss on change in fair value of derivative liability |
( |
) |
||||||
Ending balance as of March 31, 2022 |
$ | $ |
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In May 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2021-04—Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company has evaluated the impact of the adoption of ASU 2021-04, which had no effect on the Company’s 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
At March 31, 2022, the Company’s authorized stock consisted of
The Company is also authorized to issue
Preferred Stock
As of March 31, 2022 the Company had
Common Stock
Effective August 25, 2020, we filed articles of amendment to our articles of incorporation with the Colorado Secretary of State to effectuate a
NOVACCESS GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
3. CAPITAL STOCK (Continued)
During the six months ended March 31, 2022, the Company issued
During the six months ended March 31, 2021, the Company issued
4. CONVERTIBLE PROMISSORY NOTES
As of March 31, 2022, the outstanding convertible promissory notes are summarized as follows:
Convertible Promissory Notes |
$ | |||
Less current portion |
||||
Total long-term liabilities |
$ |
Maturities of long-term debt for the next four years are as follows:
Year Ending |
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September 30, |
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2023 |
|
|
|
|
|
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$ |
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|
On November 20, 2014, the Company issued a
On May 10, 2017, the Company issued a
On June 2, 2021, the Company issued a
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
4. CONVERTIBLE PROMISSORY NOTES (Continued)
On July 6, 2021, the Company issued a
On August 20, 2021, the Company issued a
On February 16, 2022, the Company issued a
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 4 above, 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.
At March 31, 2022, the fair value of the derivative liability was $
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
4. CONVERTIBLE PROMISSORY NOTES (Continued)
For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used Binomial lattice valuation model. The significant assumptions used in the Binomial lattice valuation of the derivatives are as follows:
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5. CONVERTIBLE LOAN PAYABLE
As of March 31, 2016, Company issued an unsecured Convertible Promissory Note (the “Note”) in the amount of $
6. WARRANTS
On August 20, 2021, for value received in connection with the issuance of the August Note (see note 4 for more details), the Company issued
On February 16, 2022, for value received in connection with the issuance of the February Note (see note 4 for more details), the Company issued
At March 31, 2022, and September 30, 2021, the fair value of the derivative liability warrants was $
For the purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used the Binomial lattice valuation model. The significant assumptions used in the Binomial lattice valuation of the derivatives are as follows:
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7. OPTIONS
On June 2, 2020, the Company issued
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
7. OPTIONS (Continued)
At March 31, 2022, the weighted average remaining contractual life of options outstanding:
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8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following at March 31, 2022 and September 30, 2021:
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9. BRIDGE LOANS 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 bear interest at a rate of
During the period ended March 31, 2022 the Company made payments to our CEO in the total amount of $
Service Provider
In December 2021, one of the Company’s service providers advanced funds to the Company for operating expenses in the total amount of $
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
10. DUE TO RELATED PARTY
During the periods prior to the period ended March 31, 2022, Innovest Global, Inc. (Innovest) advanced funds to the Company for operating expenses in the amount of $
11. COMMITMENTS AND CONTINGENCIES
There are no material pending legal proceedings to which we are a party to, 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.
12. RELATED PARTY TRANSACTIONS
On September 4, 2020, the Company entered into a management services agreement (the “Agreement”) with TN3, LLC. Pursuant to the Agreement, TN3 was to provide NovAccess with office space in Chesterland, Ohio and management, administrative, marketing, bookkeeping and IT services for a fee of $
On October 4, 2021, the Company issued
On January 31, 2022, the Company entered into a preferred stock redemption agreement (the “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. Morris-Irvin, our chief executive officer, and Irvin Consulting, LLC, a company owned by Dr. Irvin. TN3 owned
Upon completion of the redemption, Mr. Martin resigned from the NovAccess board of directors and was replaced by Dr. Irvin and John Cassarini. On March 18, 2022, the board of directors of NovAccess voted to expand the size of the company’s board to three members and appointed Jason M. Anderson to the board to fill the resulting vacancy.
NOVACCESS GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2022 AND 2021
13. SUBSEQUENT EVENTS
Management has evaluated subsequent events as of May 13, 2022, the date the consolidated financial statements were available to be issued according to the requirements of ASC topic 855.
On May 5, 2022, NovAccess entered into a securities purchase agreement (the “SPA”) with AJB Capital Investments, LLC (“AJB”) and issued a promissory note in the principal amount of $
The note has an original issuance discount of
NovAccess provided customary representations and covenants to AJB in the SPA. NovAccess’ breach of any representation or failure to comply with the covenants would constitute an event of default.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement Concerning 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 under Item 1A. Risk Factors of our Form 10-K for the fiscal year ended September 30, 2021.
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 NovAccess files from time to time with the SEC.
Results of Operations for the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021
Revenue and Cost of Sales:
The Company generated no revenue or cost of goods sold in the second quarters of fiscal years ended March 31, 2022 and 2021.
Research and development expenses
In the second quarter of 2022 the Company incurred $45,516 in research and development expenses related to activities performed by Dr. Christopher Wheeler and Dr. Dwain K. Morris-Irvin related to preparing the application to obtain FDA approval to start human clinical trials for StemVax Glioblast (SVX-GB) compared to $8,446 incurred in the second quarter of 2021.
Selling, General and Administrative Expenses:
Selling, general and administrative (SG&A) expenses increased by $108,555 during the second quarter 2022 to $381,428 as compared to $272,873 for the second quarter of 2021. The increase in SG&A expenses was related primarily to increase of $55,541 in legal expenses related to the Series B Convertible Preferred Stock redemption transaction, increase of $48,018 in accounting and CFO services fees, recognition of $25,000 in insurance expense and $45,619 in stock compensation for a service provider, partially offset by $38,643 decrease in payroll related expenses due to the Company having a lower head count in the second quarter of 2022 compared to the second quarter of 2021, as well as a decrease of $25,600 in other professional fees and outside services due to termination of management services Agreement with TN3 and timing of investors relations services.
Other Income/(Expenses):
Other net expense increased by $414,954 to $802,841 for the second quarter of fiscal 2022 from $387,887 for the second quarter of fiscal 2021. The increase in net total other expense was primarily due to recognition of a $109,886 higher loss on net change in fair market value of the derivative instruments in the second quarter of 2022 compared to the loss recognized in the second quarter of 2021, as well as recognition of $202,053 amortization of debt discount, commitment fees on notes payable and debt issuance costs on loans entered to in fiscal 2022.
Net Loss:
For the second quarter of fiscal 2022, our net loss was $1,229,785 as compared to a net loss of $669,206 for the second quarter of fiscal 2021. The increase in net loss of $560,579 was due to an increase in net other expenses associated with the net change in derivative instruments estimated each period and increase in interest expense and other financing costs, as well as an increase in SG&A expenses and higher research and development expenses recognized in fiscal 2022.
Results of Operations for the Six Months Ended March 31, 2022 Compared to the Six Months Ended March 31, 2021
Revenue and Cost of Sales:
The Company generated no revenue or cost of goods sold for the six months ended March 31, 2022 and March 31, 2021.
Research and development expenses
In the six months ended March 31, 2022 the Company incurred $87,915 in research and development expenses related to activities performed by Dr. Christopher Wheeler and Dr. Dwain K. Morris-Irvin related to preparing the application to obtain FDA approval to start human clinical trials for StemVax Glioblast (SVX-GB) compared to $8,446 recognized in the six months ended March 31, 2021.
Selling, General and Administrative Expenses:
Selling, general and administrative (SG&A) expenses decreased by $1,011,406 during the six months ended March, 31 2022 to $661,358 as compared to $1,672,764 for the six months ended March 31, 2021. The decrease in SG&A expenses was related primarily to the Company recognizing $846,000 in stock compensation expense in connection with the issuance of stock to our chief executive officer in fiscal 2021, as well as a decrease of $36,381 in other stock compensation expense. Payroll expenses also decreased by $117,904 in fiscal 2022 due to a $50,000 bonus accrual for our CEO in fiscal 2021, outsourcing CFO services and allocating a portion of our CEO compensation to research and development expenses in fiscal 2022. The decrease in payroll and stock compensation expenses are partially offset by increases of $61,117 in professional fees and outside services due to change in providers and timing of investors relations services.
Other Income/(Expenses):
Net other income decreased by $1,790,938 from other income of $1,167,118 for the six months ended March 31, 2021 to other expenses of $623,820 for the six months ended March 31, 2022. The decrease in net total other income was primarily due to recognition of a $1,213,446 lower gain on net change in fair market value of the derivative instruments in the six months ended March 31, 2022 compared to the gain recognized in the six months ended March 31, 2021, as well as recognition of $526,348 amortization of debt discount, commitment fees on notes payable, and debt issuance costs, partially offset by recognition of $96,205 gain on extinguishment of derivative liability and loss of $54,813 on extinguishment of bridge loans.
Net Loss:
For the six months ended March 31, 2022, our net loss was $1,373,093 as compared to a net loss of $514,092 for the six months ended March 31, 2021. The increase in net loss of $859,001 was due to a decrease in net other income associated with the net change in derivative instruments estimated each period and increase in interest expense and other financing costs partially offset by a decrease in SG&A expenses in 2022.
Liquidity and Capital Resources
We had a working capital deficit as of March 31, 2022 of $4,432,339, compared to a working capital deficit of $3,762,214 as of September 30, 2021. The increase of $670,125 in working capital deficit was primarily the result of an increase in the balance of promissory notes payable and payable to TN3 for the Series B Preferred Stock redemption.
For the six months ended March 31, 2022, our cash flow used in operating activities was $438,844, compared to cash flow used in operating activities of $280,521 for the first half of 2021. The net increase of $158,323 in cash flow used in operating activities was primarily due to lower stock compensation expense, higher net loss and changes in assets and liabilities, partially offset by lower gain on change in derivative liabilities.
There was no cash flow provided by/(used in) investing activities for the six months ended March 31, 2022 or 2021.
Cash flow provided by financing activities was $319,785 for the six months ended March 31, 2022, compared to cash provided by financing activities of $302,341 during the first half of 2021. The increase in cash flow provided by financing activities was primarily the result of the mix of funds raised by selling equity and debt instruments.
The Company will need to raise additional funds to finance its ongoing operations, complete its Investigational New Drug (IND) application to the FDA and to make payments under its loan agreements. We expect this will require approximately $3.0 million through December 31, 2022. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Because NovAccess is a “smaller reporting company” as defined by the Securities and Exchange Commission (the “SEC”) we are not required to provide quantitative and qualitative disclosures about market risk.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management team, with the participation of our chief executive officer, Dwain K. Morris-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 March 31, 2022. Based upon this evaluation, Messrs. Morris-Irvin and Laird concluded that the Company’s disclosure controls and procedures were effective as of March 31.
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.
During the quarter the Company implemented enhanced review procedures for the accounting of certain derivatives and other income. This included engaging a third party to review the assumptions and calculation. There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by the Securities Exchange Act that occurred during our first 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 of our Form 10-K for the fiscal year ended September 30, 2021 for information relating to certain risk factors applicable to NovAccess.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter end of March 31, 2022, we issued 1,069,306 unregistered shares of our common stock for capital raising and compensatory purposes as described in more detail below.
During the quarter end of March 31, 2022, we offered unregistered shares of our common stock in a private placement to accredited investors to fund our working capital needs. During the quarter we sold to ten investors 840,000 shares for an aggregate amount of $170,000. Neil J. Laird, the company’s chief financial officer, and Letzhangout, LLC, a company that provides accounting consulting services to NovAccess (“Letzhangout”), each purchased 250,000 shares in the private placement for $0.20 a share (a portion of which was paid by the cancellation of loans made to the company in December 2021). The issuance of shares in the private placement was exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506(a) under the Securities Act.
On March 31, 2022, we issued 108,750 of our unregistered shares to Letzhangout, LLC for accounting services provided to NovAccess. On February 14, 2022, we issued 85,000 shares to Letzhangout for accounting services. We recognized stock compensation expense in the amount of $45,619 in relation to stock issuances to this service provider. On February 23, 2022, we issued 35,556 shares of our shares to Satya Chillara, an employee of Darrow Associates, for investor relations services provided to NovAccess. The issuances of shares to our service providers were exempt from registration under Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
During the quarter ended March 31, 2022, NovAccess was not in material default with respect to any 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 March 31, 2022.
Item 6. Exhibits.
Exhibit |
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Description |
31.1 |
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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act — Dwain Morris-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 March 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at March 31, 2022 and September 30, 2021, (ii) the Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2022 and March 31, 2021, (iii) the Condensed Consolidated Statements of Shareholders’ Deficit for the Six Months Ended March 31, 2022 and 2021, (iv) the Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2022 and March 31, 2021, and (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 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.
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NovAccess Global Inc. |
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Date: May 13, 2022 |
/s/ Dwain K. Morris-Irvin |
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Dwain K. Morris-Irvin, Chief Executive Officer |
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(Principal Executive Officer) |
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Date: May 13, 2022 |
/s/ Neil J. Laird |
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Neil J. Laird, Chief Financial Officer |
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(Principal Financial and Accounting Officer) |