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 Annual Report on
Form 10-K. 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"
and elsewhere in this Annual Report on Form 10-K.
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.
Organization
NovAccess Global Inc. is a Colorado corporation that was formerly known as
XsunX, Inc. and Sun River Mining Inc.
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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 for 7.5 million shares of our unregistered common stock. The acquisition
was completed on September 8, 2020.
StemVax, LLC ("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 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 2023. In August 2022, we filed an application with
the U.S. Food and Drug Administration for 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 biotechnology companies.
Results of Operations for the Fiscal Year Ended September 30, 2022, Compared to
Fiscal Year Ended September 30, 2021
Revenue and Cost of Sales
The Company generated no revenue or cost of goods sold in the fiscal years ended
September 30, 2022, and 2021.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses decreased by $1,371,321
during fiscal 2022 to $1,181,534 as compared to $2,552,855 for fiscal 2021. The
decrease in SG&A expenses was related primarily due to the Company recognizing
$962,000 in in stock compensation expense in fiscal 2021 compared to $0
recognized in fiscal 2022; a decrease of $185,564 in professional fees for
investor advisory, legal and accounting services; decrease of $264,085 in
outside services provided by TN3 under the management services agreement (please
see Certain Relationships and Related Transactions, and Director Independence
for additional details); as well as an decrease of $57,775 in payroll related
expenses, which was marginally offset by increase in insurance cost.
Research and development expenses
The research and development expense increased by $40,030 for the fiscal year
2022 to $186,115 as compared to $146,085 for the fiscal year 2021 as we invested
more consultant and employee time in preparing for the IND application to the
FDA.
Other Income/(Expenses)
Other income/(expenses) declined by $534,775 from other income of $186,465 for
fiscal 2021 to other expenses of $348,310 for fiscal 2022. The change was
primarily due to the increase in interest expense of $1,316,583 and an expense
in fiscal 2022 of $961,000 relating to a price guarantee on shares issued as a
commitment fee to one of our note holders, and a loss on the extinguishment of
debt of $54,813. These expenses were partially offset by the Company recognizing
a gain on the net change in fair market value of the derivative instruments of
$2,084,242 in fiscal 2022 compared to a gain of $548,112 in fiscal 2021, and a
gain on extinguishment of derivatives amounting to $277,716. 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 fiscal year 2022, our net loss was $1,715,959 as compared to a net loss of
$2,512,475 for fiscal 2021. the decrease in net loss of $796,516 was due to the
decrease in SG&A, partially offset by the increase in other expenses as
described above.
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Liquidity and Capital Resources
We had a working capital deficit at September 30, 2022 of $4,653,066, as
compared to a working capital deficit of $3,762,214, as of September 30, 2021.
The decrease of $890,852 in working capital deficit was the result of an
increase in accounts payable $165,711, decrease in derivative liability on
convertible notes amounting to $1,486,610, increase in accrued expenses and
other current liabilities amounting to $877,381, increase in amounts due to
related parties of $103,925 and increase in convertible notes payable amounting
to $1,147,842, and decrease in cash of $115,417 partially offset by increased
prepaid expenses of $33,184.
For fiscal 2022, our cash flow used by operating activities was $903,489, as
compared to cash flow used by operating activities of $682,333 for fiscal 2021.
The increase of $221,156 in cash flow used by operating activities was primarily
due to changes in assets and liabilities described above as well as the decrease
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 in fiscal 2022 and 2021.
Cash flow provided by financing activities was $787,072 for fiscal 2022, as
compared to cash provided by financing activities of $862,823 during fiscal
2021. 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.
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