UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 


 

FORM 10-Q

 


 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission File Number: 000-29621

 

NovAccess Global Inc.

(Exact name of registrant as specified in its charter)

 

Colorado

84-1384159

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

8834 Mayfield Road, Suite C, Chesterland, Ohio 44026

(Address of principal executive offices)(Zip Code)

 

440-644-1027

(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

N/A

N/A

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒ Yes   ☐  No  

 

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).   ☒ Yes   ☐  No  

 

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 ☐

 

Non-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   ☒ No 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 13,511,252 shares of common stock outstanding on August 12, 2021.

 

 

 

 

Table of Contents

 

 

PART I — FINANCIAL INFORMATION

1

Item 1. Financial Statements.

1

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

17

Cautionary Statement Concerning Forward-Looking Statements

17

Results of Operations for the Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

17

Results of Operations for the Nine months ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

18

Liquidity and Capital Resources

18

Off-Balance Sheet Arrangements

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

19

Item 4. Controls and Procedures.

19

Evaluation of Disclosure Controls and Procedures

19

Changes in Internal Control Over Financial Reporting

19

   

PART II — OTHER INFORMATION

20

Item 1. Legal Proceedings.

20

Item 1A. Risk Factors.

20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

20

Item 3. Defaults Upon Senior Securities.

20

Item 4. Mine Safety Disclosures.

20

Item 5. Other Information.

21

Item 6. Exhibits.

21

SIGNATURES

22

 

 

 

 

Part IFinancial Information

Item 1. Financial Statements.

 

NOVACCESS GLOBAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

June 30, 2021

   

September 30, 2020

 
   

(Unaudited)

         

ASSETS

               
                 

CURRENT ASSETS

               

   Cash

  $ 1,594     $ 178  

   Employee advances

    2,107       -  

   Prepaid expenses

    22,024       -  
                 

                        TOTAL ASSETS

  $ 25,725     $ 178  
                 
                 

LIABILITIES AND SHAREHOLDERS' DEFICIT

               
                 

CURRENT LIABILITIES

               

   Accounts payable

  $ 374,849     $ 88,519  

   Other payable

    66,894       65,304  

   Accrued expenses and interest on notes payable

    84,867       65,215  

   Accrued payroll

    14,429       -  

   Deferred Compensation

    174,663       -  

   License Fees Payable

    40,402       50,402  

   Derivative liability

    3,449,667       2,989,165  

   Due to related party

    79,771       68,312  

   Loan payable, related party

    20,000       24,287  

   Convertible promissory note, related party

    12,000       12,000  

   Convertible promissory notes net of unamortized portions of debt discount of $50,482 and $0 and debt issuance costs of $3,208 and $0, current portion

    1,810       91,704  
                 

                        Total Current Liabilities

    4,319,352       3,454,908  
                 

LONG TERM LIABILITIES

               

  Convertible promissory notes

    165,880       115,000  
                 

                        Total Long Term Liabilities

    165,880       115,000  
                 

                       TOTAL LIABILITIES

    4,485,232       3,569,908  
                 

SHAREHOLDERS' DEFICIT

               

   Preferred stock 50,000,000 shares authorized, shares issued and outstanding designated as follows:

               

      Preferred Stock Series B, $0.01 par value, 25,000 authorized

      25,000 and 25,000 shares issued and outstanding, respectively

    250       250  

   Common stock, no par value;

     2,000,000,000 authorized common shares

     13,511,252 and 1,603,492 shares issued and outstanding, respectively

    41,441,001       33,369,424  

   Additional paid in capital

    5,360,398       11,710,398  

   Paid in capital, common stock warrants

    4,210,960       4,210,960  

   Paid in capital, preferred stock

    5,088,324       5,088,324  

   Accumulated deficit

    (60,560,440 )     (57,949,086 )
                 

                      TOTAL SHAREHOLDERS' DEFICIT

    (4,459,507 )     (3,569,730 )
                 

                      TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT

  $ 25,725     $ 178  

 

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 NINE MONTHS ENDED JUNE 30, 2021 AND 2020

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30, 2021

   

June 30, 2020

   

June 30, 2021

   

June 30, 2020

 
                                 

SALES

  $ -     $ -     $ -     $ -  
                                 

COST OF GOODS SOLD

    -       -       -       -  
                                 

GROSS PROFIT

    -       -       -       -  
                                 

OPERATING EXPENSES

                               

    Selling, general and administrative expenses

    501,492       489,873       2,182,702       750,682  
                                 

              TOTAL OPERATING EXPENSES

    501,492       489,873       2,182,702       750,682  
                                 

LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)

    (501,492 )     (489,873 )     (2,182,702 )     (750,682 )
                                 

OTHER INCOME/(EXPENSES)

                               

  Gain (Loss) on change in derivative liability

    (1,585,069 )     1,272,932       (405,002 )     1,197,395  

    Interest expense

    (10,701 )     (7,433 )     (23,650 )     (22,985 )
                                 

              TOTAL OTHER INCOME/(EXPENSES)

    (1,595,770 )     1,265,499       (428,652 )     1,174,410  
                                 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

  $ (2,097,262 )   $ 775,626     $ (2,611,354 )   $ 423,728  
                                 

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS

    -       (67,525 )     -       221,252  
                                 

NET INCOME (LOSS)

    (2,097,262 )     708,101       (2,611,354 )     644,980  
                                 

BASIC INCOME (LOSS) PER SHARE

  $ (0.16 )   $ 0.44     $ (0.25 )   $ 0.40  
                                 

DILUTED INCOME (LOSS) PER SHARE

  $ (0.16 )   $ 0.12     $ (0.25 )   $ 0.11  
                                 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

                               

    BASIC

    13,085,646       1,601,888       10,397,784       1,601,888  

    DILUTED

    13,085,646       6,078,866       10,397,784       6,078,866  

 

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, 2021 AND 2020

 

NINE MONTHS ENDED JUNE 30, 2020

 
                                                            Stock Options/     Paid in                  
    Preferred Stock,     Preferred Stock,                    

 Additional

   

Warrants 

   

 Capital,

                 
   

Class A

   

Class B

   

 Common Stock

   

 Paid-in

   

  Paid in

   

 Preferred

   

 Accumulated

         
   

 Shares

   

 Amount

   

 Shares

   

 Amount

   

 Shares

   

 Amount

   

 Capital

   

Capital

   

 Stock

   

 Deficit

   

 Total

 

Balance at September 30, 2019

    5,000     $ 50       -       -       1,601,888     $ 33,369,424     $ 5,335,398     $ 3,811,700     $ -     $ (44,752,523 )   $ (2,235,951 )
                                                                                         

Stock compensation cost, options

    -       -       -       -       -       -       -       399,259       -       -       399,259  
                                                                                         

Net Income

    -       -       -       -       -       -       -       -       -       644,980       644,980  

Balance at June 30, 2020

    5,000     $ 50       -     $ -       1,601,888     $ 33,369,424     $ 5,335,398     $ 4,210,959     $ -     $ (44,107,543 )   $ (1,191,712 )

 

NINE MONTHS ENDED JUNE 30, 2021

(Unaudited)

                   

 

                                    Stock Options/      Paid in                  
    Preferred Stock,     Preferred Stock,                    

 Additional

   

 Warrants

   

Capital,

                 
   

 Class A

   

 Class B

   

 Common Stock

   

 Paid-in

   

 Paid in

   

 Preferred

   

 Accumulated

         
   

 Shares

   

 Amount

   

 Shares

   

 Amount

   

 Shares

   

 Amount

   

 Capital

   

 Capital

   

 Stock

   

 Deficit

   

 Total

 

Balance at September 30, 2020

    -     $ -       25,000     $ 250       1,603,492     $ 33,369,424     $ 11,710,398     $ 4,210,960     $ 5,088,324     $ (57,949,086 )   $ (3,569,730 )
                                                                                         

Common stock issued for StemVax Acquisition - from stock payable

    -       -       -       -       7,500,000       6,375,000       (6,375,000 )     -       -       -       -  
                                                                                         

Stock compensation cost

    -       -       -       -       2,000,000       936,000       -       -       -       -       936,000  
                                                                                         

Common stock issued for Services

    -       -       -       -       592,612       381,668       -       -       -       -       381,668  
                                                                                         

Common Stock Issued - Subscriptions

    -       -       -       -       1,640,905       335,000       -       -       -       -       335,000  
                                                                                         

Common Stock Issued upon conversion of debt and accrued interest

                                    174,243       43,909                                       43,909  
                                                                                         

Subscription stock payable

                                                    25,000                               25,000  
                                                                                         

Net Income

    -       -       -       -       -       -       -       -       -       (2,611,354 )     (2,611,354 )

Balance at June 30, 2021 (Unaudited)

    -     $ -       25,000     $ 250       13,511,252     $ 41,441,001     $ 5,360,398     $ 4,210,960     $ 5,088,324     $ (60,560,440 )   $ (4,459,507 )

 

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 NINE MONTHS ENDED JUNE 30, 2021 AND 2020

(Unaudited)

 

   

For the Nine Months Ended

 
   

June 30, 2021

   

June 30, 2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net Income (Loss)

  $ (2,611,354 )   $ 644,980  

  Adjustment to reconcile net income (loss) to net cash

      provided by (used in) operating activities

               

     Amortization of debt discount and debt issuance costs recorded as interest expense

    5,310       -  

    (Gain)/Loss on change in derivative liability

    405,002       (1,197,395 )

     Stock compensation expense

    936,000       399,259  

     Stock issued for services

    363,811       -  
                 

    Changes in Assets and Liabilities:

               

        Employee advances

    (2,107 )     -  

    Prepaid expenses

    (4,167 )     5,707  

    Accounts payable

    286,330       (86,016 )

    Other payable

    1,590       (5,449 )

    License fees payable

    (10,000 )     -  

    Accrued expenses and interest on notes payable

    22,737       2,477  

    Accrued payroll

    14,429       -  

    Deferred Compensation

    174,663       -  

 

               
              NET CASH USED IN OPERATING ACTIVITIES - CONTINUING OPERATIONS     (417,756 )     (236,437 )

 

               
              NET CASH PROVIDED BY OPERATING ACTIVITIES - DISCONTINUED OPERATIONS     -       167,515  
                 

NET CASH USED IN BY OPERATIONS

    (417,756 )     (68,922 )
                 
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

    Stock subscriptions received

    360,000       -  

    Due to related party

    11,459       68,312  

    Payments on related party promissory notes

    -       (7,200 )

    Proceeds from a convertible note payable net of debt issuance costs

    52,000       -  

    Proceeds from related party loan

    25,000       -  

    Payments on related party loan payable

    (29,287 )     -  
                 
                 

NET CASH PROVIDED BY FINANCING ACTIVITIES

    419,172       61,112  
                 

NET INCREASE (DECREASE) IN CASH

    1,416       (7,810 )
                 

CASH, BEGINNING OF PERIOD

    178       7,964  
                 

CASH, END OF PERIOD

  $ 1,594     $ 154  
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

               

   Interest paid

  $ 82     $ 6,955  

   Taxes paid

  $ -     $ -  
                 

SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS

               

   Debt discount on new issuances

  $ 55,500     $ -  

   Accrued interest capitalized into convertible note

  $ 1,248     $ 3,397  

   Shares issued for StemVax Acquisition – from stock payable

  $ 6,375,000     $ -  

   Issuance of common stock upon conversion of debt and accrued interest

  $ 43,909     $ -  
   Fair value of shares issued for prepaid services   $ 150,000     $ -  

 

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

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

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

During the year ended September 30, 2020, the Company discontinued its direct delivery method for its solar contracting operations. Also, during the year ended September 30, 2020 the Company began efforts to expand its operations to include the commercialization of developmental healthcare solutions in the biotechnology, medical, and health and wellness markets. These efforts are ongoing. There can be no assurance that the Company’s efforts to expand operations into healthcare solutions in the biotechnology, medical, and health and wellness markets will be successful, or that the Company will continue to generate revenues of significance similar to prior periods.

 

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 nine months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ended September 30, 2021. 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, 2020.

 

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 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 since its inception through the period ended June 30, 2021. 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.

 

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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.

 

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 useful lives of property and equipment, revenue recognition, the deferred tax valuation allowance, the fair value of stock options, and derivative liabilities. Actual results could differ from those estimates.

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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 straight line over its estimated useful lives:

 

Leasehold improvements

Length of the lease

Computer software and equipment

3 Years

Furniture & fixtures

5 Years

Machinery & equipment

5 Years

 

The Company capitalizes property and equipment over $500. Property and equipment under $500 are expensed in the year purchased. The depreciation expense was $0 for the three months ended June 30, 2021, and 2020. The depreciation expense for the nine months ended June 30, 2021, and 2020, was $0 and $478, respectively. Depreciation expense is now included in the discontinued operations. 

 

Revenue Recognition

We recognize revenue from discontinued operations when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.

 

Revenues and related costs on construction contracts were recognized as the performance obligations for work were satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, was recognized as the customer obtained control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs were charged to the periods as incurred. However, in the event a loss on a contract was foreseen, the Company would recognize the loss as it is determined.

 

Revisions in cost and profit estimates during the course of the contract were reflected in the accounting period in which the facts for the revisions became known. Provisions for estimated losses on uncompleted contracts were made in the period in which such losses were determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may have resulted in revisions to costs and income, which were recognized in the period the revisions were determined.

 

Contract receivables of discontinued operations were recorded on contracts for amounts currently due based upon progress billings, as well as any retentions, which were collectible upon completion of the contracts. Accounts payable to material suppliers and subcontractors were recorded for amounts currently due based upon work completed or materials received, as were retention due subcontractors, which were payable upon completion of the contract. General and administrative expenses were charged to operations as incurred and were not allocated to contract costs.

 

Contract Receivable

The Company previously billed its customers in accordance with contractual agreements. The agreements generally required billings to be on a progressive basis as work was completed. Credit was extended based on evaluation of clients’ financial condition and collateral was not required. The Company maintained an allowance for doubtful accounts for estimated losses that may have arose, if any customer was unable to make required payments. As of June 30, 2021 and September 30, 2020, there was no allowance for doubtful accounts.

 

Management previously performed a quantitative and qualitative review of the receivables past due from customers on a monthly basis. The Company recorded an allowance against uncollectible items for each customer after all reasonable means of collection had been exhausted, and the potential for recovery was considered remote. The contract receivables of discontinued operations balance were $0 at June 30, 2021 and September 30, 2020.

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Project Warranties

Customers in our target market of California who purchased solar energy systems are covered by a warranty of up to 10 years in duration for material defects and workmanship. In addition, we provided a pass-through warranty of the major components such as module mounting, inverter and solar panel manufacturers’ warranties to our customers, which generally range from 10 to 25 years. The manufacturers of these major components provide the warranty directly to our customers.  In the event of a component failure the manufacturers provide replacement of the major components such as inverters and solar modules at no charge to our customer, which is an industry standard. In the event of a component failure such as an inverter the standard warranty from the supplier we use, SolarEdge, provides a twelve (12) year no-charge replacement warranty to the customer, and would also provide NovAccess or our subcontractor, with $125 compensation for labor replacement costs, should we be requested to replace an inverter or other SolarEdge components. Additionally, we employed the use of licensed subcontractors for the bulk of our installation processes, who as licensed contractors are required to warrant their work for material defects and workmanship for ten (10) years. The Company has a limited history of project installations, and in accessing the potential for warranty related costs and other allowances, we believe that our reliance on the manufacturers and subcontractor warranties would leave a limited and inconsequential cost associated with warranty claims. During the nine months ended June 30, 2021 and 2020, the Company did not experience costs related to warranty claims.

 

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. This has not had a material impact on our results of operations.

 

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 year. 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 nine months ended

 
   

June 30,

   

June 30,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Gain (Loss) to common shareholders (Numerator)

  $ (2,097,262 )   $ 708,101     $ (2,611,354 )   $ 644,980  
                                 

Basic weighted average number of common shares outstanding (Denominator)

    13,085,646       1,601,888       10,397,784       1,601,888  
                                 

Diluted weighted average number of common shares outstanding (Denominator)

                               
      13,085,646       6,078,866       10,397,784       6,078,866  

 

The Company has excluded shares issuable from convertible debt of $167,690 for the nine months ended June 30, 2021, because their impact on the loss per share is anti-dilutive.

 

The Company also excluded shares issuable from 2,000,000 options issued to compensate our former directors for serving on the board without compensation in fiscal 2019, because their impact on the loss per share is anti-dilutive.

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

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 June 30, 2021, the balances reported for cash, prepaid expenses, accounts payable, and accrued expenses approximate the fair value because of their short maturities.

 

We adopted 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.

 

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:

 

 

Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

 

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

 

 

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 June 30, 2021 and September 30, 2020. The Company had liabilities that are required to be measured at fair value on a recurring basis as follows at June 30, 2021 and September 30, 2020:

 

   

Total

   

(Level 1)

   

(Level 2)

   

(Level 3)

 
                                 

Assets:

  $ -     $ -     $ -     $ -  

Liabilities:

                               
                                 

Derivative Liability at fair value as of June 30, 2021

  $ 3,449,667     $ -     $ -     $ 3,449,667  
                                 

Derivative Liability at fair value as of September 30, 2020

  $ 2,989,165     $ -     $ -     $ 2,989,165  

 

The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:

 

Balance as of September 30, 2020

  $ 2,989,165  

Net Loss on change in fair value of derivative liability

    405,002  

Convertible debt discount

    55,500  

Ending balance as of June 30, 2021

  $ 3,449,667  

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

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 is currently evaluating the effects of the adoption of ASU No. 2021-04 on its consolidated financial statements.

 

In August 2016, FASB issued ASU 2016-15, “Statement of Cash Flows” (Topic 230) – Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2018, and interim periods with fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company has evaluated the impact of the adoption of ASU 2016-15, which had no effect on the Company’s financial statements. 

 

In August 2017, FASB issued ASU-2017-12, “D” (Topic 815) – “Targeted Improvements to Accounting for Hedging Activities”, to require an entity to present the earnings effect of the hedging instrument in the same statement line item in which the earnings effect of the hedged item is reported. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods with the fiscal years beginning after December 15, 2020. Early adoption is permitted in any interim period after issuance of the update. The Company has evaluated the impact of the adoption of ASU 2017-12, which had no effect on the Company’s financial statements. 

 

In June 2018, FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company has evaluated the impact of the adoption of ASU 2018-07, which had no effect on the Company’s financial statements. 

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify certain disclosure requirements of fair value measurements and are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company has evaluated the impact of the adoption of ASU 2018-13, 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.

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

3.   CAPITAL STOCK

 

At June 30, 2021, the Company’s authorized stock consisted of 2,000,000,000 shares of common stock, with no par value. Effective August 25, 2020, we filed articles of amendment to our articles of incorporation with the Colorado Secretary of State to effectuate a 1-for-1,000 reverse stock split of the Company’s outstanding shares of common stock.

 

The Company is also authorized to issue 50,000,000 shares of preferred stock with a par value of $0.01 per share. The rights, preferences and privileges of the holders of the preferred stock are determined by the Board of Directors prior to issuance of such shares.

 

Preferred Stock

 

At June 30, 2021 the Company had 25,000 shares of issued and outstanding Series B Preferred Stock following the conversion of 5,000 shares of Series A Preferred Stock. The Series A shares were originally issued in consideration for the contribution of services by Tom Djokovich, the Company’s then President and Chief Executive Officer, to the Company valued at fifty dollars, which the Board deemed full and fair consideration. Because of such issuance, Mr. Djokovich had the ability to influence and determine stockholder votes. On March 18, 2020, the Company, Mr. Djokovich, and TN3, LLC, a Wyoming limited liability company owned by Daniel G. Martin (“TN3”), entered into a Stock Purchase Agreement (the “Agreement”). Pursuant to the Agreement, Mr. Djokovich agreed to sell his 5,000 shares of Series A Preferred Stock to TN3 in a private sale for cash. The holder of the Series A Preferred Stock may cast votes equal to not less than 60% of the total outstanding voting power of the Company on all matters voted on by the shareholders of the Company. On September 4, 2020, the Company issued 25,000 shares of unregistered Series B Convertible Preferred stock, $0.01 par value per share, to TN3 in exchange for the redemption of 5,000 shares of Series A preferred stock. Each share of Series B Preferred Stock entitles the holder to cast 40,000 votes on any action presented to the shareholders. Each share of Series B Preferred Stock is convertible into 10,000 common shares. In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Corporation, the holders of shares of Series B Preferred Stock shall be paid out based on an as converted basis. Dividends for Series B Preferred Stock shall be declared on an as converted basis.

 

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 1-for-1,000 reverse stock split of the Company’s outstanding shares of common stock.

 

During the nine months ended June 30, 2021, the Company issued 11,907,760 shares of common stock. 7,500,000 shares of common stock were issued from stock payable to Innovest Global, Inc. for the September 8, 2020 acquisition of StemVax, LLC. For an expense of $381,668 based on the closing market value on grant date, 592,612 shares were issued to various vendors for services provided; 1,640,905 shares were issued in relation to stock subscriptions for net proceeds of $335,000 with additional 50,000 shares are to be issued from $25,000 stock payable; 174,243 shares were issued on conversion of debt and accrued interest; and 2,000,000 shares were issued to related parties for services and expense at $936,000 based upon the closing market value on grant date.

 

During the nine months ended June 30, 2020, the Company had no issuance of shares of common stock.

 

4.    CONVERTIBLE PROMISSORY NOTES

 

As of June 30, 2021, the outstanding convertible promissory notes are summarized as follows:

 

Convertible Promissory Notes, net of debt discount and debt issuance costs

  $ 167,690  

Less current portion

    1,810  

Total long-term liabilities

  $ 165,880  

 

Maturities of long-term debt for the next four years are as follows:

Year Ending

       

September 30,

       

2021

 

$

-

 

2022

    1,810  

2023

    165,880  
   

$

167,690

 

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

4.   CONVERTIBLE PROMISSORY NOTES (Continued)

 

At June 30, 2021, the $221,380 in convertible promissory notes has a remaining debt discount of $50,482 and remaining debt issuance costs of $3,208, leaving a net balance of $167,690.

 

On October 20, 2015, the Company entered into a third extension of the Note originally issued September 30, 2013. The extension terms included mandatory payments of $10,000 per month beginning November 1, 2015 until the note in the amount of $143,033 is paid in full. The Note bears interest at 12% annum and has a conversion price of 60% of the lowest volume weighted average price (“VWAP”) occurring during the twenty trading days preceding any conversion date by Holder. The balance of the provisions of the Note remained substantially the same. As of September 30, 2020, the Note had matured and was in default. On May 11, 2021, the lender agreed to convert the outstanding principal and interest of $43,909 into 174,243 shares of our common stock pursuant to the terms of the note. No gain or loss was recorded on the conversion.

 

On November 20, 2014, the Company issued a 10% unsecured convertible promissory note (the “November Note”) for the principal sum of up to $400,000 plus accrued interest on any advanced principal funds. The November Note matures eighteen months from each advance. The November Note may be converted by the lender into shares of common stock of the Company at the lesser of $12.5 per share or (b) fifty percent (50%) of the lowest trade prices following issuance of the November Note or (c) the lowest effective price per share granted to any person or entity. On November 20, 2014, the lender advanced $50,000 to the Company under the November Note at inception. On various dates from February 18, 2015 through September 30, 2016, the lender advanced an additional $350,000 under the November Note. Effective June 30, 2021 the Company and lender agreed to extend the maturity date for the outstanding balance to June 30, 2023. As of June 30, 2021, there remains an aggregate outstanding principal balance of $50,880.

 

On May 10, 2017, the Company issued a 10% unsecured convertible promissory note (the “May Note”) for the principal sum of up to $150,000 plus accrued interest on any advanced principal funds. The lender may pay additional consideration at the lender’s discretion. The Company received a tranche in the amount of $25,000 upon execution of the May Note. On various dates, the Company received additional tranches in the aggregate sum of $90,000. The May Note matured twelve months from each tranche. Within thirty (30) days prior to the maturity date, the lender may extend the maturity date to sixty (60) months. Effective June 30, 2021 the Company and lender agreed to extend the maturity date for all tranches of the note to June 30, 2023. The May Note may be converted by the lender into shares of common stock of the Company at the lesser of $10 per share or (b) fifty percent (50%) of the lowest trade price of common stock recorded on any trade day after the effective date, or (c) the lowest effective price per share granted to any person or entity. As of June 30, 2021, the balance remaining on the May Note was $115,000.

 

On June 2, 2021, the Company issued a 12% unsecured convertible promissory note (the “June Note”) for the principal sum of $55,500 plus accrued interest. The note matures on June 2, 2022. The June Note may be converted by the lender into shares of common stock of the Company at sixty-one percent (61%) of the lowest trade price of common stock recorded during the fifteen (15) trading days prior to conversion. The Company recorded amortization of debt discount of $5,018 and amortization of debt issuance costs of $292, both of which were recognized as interest expense during the three months ended June 30, 2021. As of June 30, 2021, the balance of the June Note was $55,500, which is the total initial debt discount.

 

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 note has 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 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.

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

4.   CONVERTIBLE PROMISSORY NOTES (Continued)

 

At June 30, 2021, the fair value of the derivative liability was $3,449,667.

 

For 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:

 

Risk free interest rate

 

Between 0.05%and 0.16%     

Stock volatility factor

 

Between 168.0% and 575.0%

Months to Maturity

 

0 - 5 years

Expected dividend yield

 

None

 

5.   CONVERTIBLE PROMISSORY NOTES – RELATED PARTY

 

Issuance of Convertible Promissory Notes for Services to Related Party

As of March 31, 2016, Company issued the remaining unsecured Convertible Promissory Notes (the “Notes”) in the amount of $12,000 to a Board member (the “Holder”) in exchange for retention as a director during the fiscal year ending September 30, 2014. The Note can be converted into shares of common stock by the Holder for $4.5 per share. The Note matured on October 1, 2015 and bore a one-time interest charge of $1,200, which was applied to the principal on October 1, 2014. So long as any shares issuable under a conversion are subject to transfer and sale restrictions imposed pursuant to SEC Rule 144 of the Rules promulgated under the Securities Act of 1933, the Company shall, upon written request by Holder, file Form S-8, if applicable, with the U.S. Securities and Exchange commission to register the issued. The convertible note has a fixed settlement provision and does not qualify as a derivative.

 

6.   REVENUE FROM CONTRACTS WITH CUSTOMERS – DISCONTINUED OPERATIONS

 

Revenues and related costs on construction contracts were recognized as the performance obligations for work were satisfied over time in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, are recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). The cost of uninstalled materials or equipment would generally be excluded from our recognition of profit, unless specifically produced or manufactured for a project, because such costs are not considered to be a measure of progress.

 

The following table represents a disaggregation of revenue by type of good or service from contracts with customers for the three and nine months ended June 30, 2021 and 2020. 

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 
   

2021

   

2020

   

2021

   

2020

 

Commercial

  $ -     $ 218,311     $ -     $ 998,373  

Residential

    -       -       -       45,960  
    $ -     $ 218,311     $ -     $ 1,044,333  

 

Contract assets represents revenues recognized in excess of amounts billed on contracts in progress. Contract liabilities represents billings in excess of revenues recognized on contracts in progress. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion. The contract asset at June 30, 2021 and September 30, 2020 were $0. The contract liability at June 30, 2021 and September 30, 2020 were $0.

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

7.   OPTIONS

 

On June 2, 2020, the Company issued 2,000,000,000 options to purchase common stock. These options will be exercisable on a cashless basis for a period of ten years from the effective date of the one-for-1,000 reverse stock split at an exercise price of $0.00001 per share on a pre-stock split basis. The number of options on the post stock split basis is 2,000,000, and the exercise price of $0.01 per share. The purpose of the options is to compensate our directors for serving on the board without compensation in fiscal 2019. It is difficult to assess the value of the options given the highly limited trading in our common stock, the fact that the options shares have not been and are not expected to be registered for resale and will be restricted, and the speculative nature of the Company’s future business plans.

 

At June 30, 2021, the weighted average remaining contractual life of options outstanding:

 

       

June 30, 2021

 
                       

Weighted

 
                       

Average

 
                       

Remaining

 

Exercisable

   

Options

   

Options

   

Contractual

 

Prices 

   

Outstanding 

   

Exercisable 

   

Life (years)

 
$ .01       2,000,000       2,000,000       8.76  

 

8.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES     

 

Accounts payable and accrued liabilities consisted of the following at June 30, 2021 and September 30, 2020:

 

   

6/30/2021

   

9/30/2020

 

Trade accounts payable

  $ 374,849     $ 88,519  

Credit cards payable

    66,894       65,304  

Accrued liabilities

    84,867       65,215  

Accrued payroll

    14,429       -  

Deferred compensation

    174,663       -  

License Fees Payable

    40,402       50,402  
    $ 756,104     $ 269,440  

 

9.   LOAN PAYABLE, RELATED PARTY

 

During the nine months ended September 30, 2020, the Company’s chairman and the CEO each advanced funds to the Company for operating expenses in the total amount of $24,287. As of June 30, 2021, these balances have been reimbursed.

 

On March 30, 2021 the Company issued an unsecured promissory note to Innovest Global, Inc. with a principal and waived interest in the amount of $25,000. During the three months ended June 30, 2021, $5,000 was repaid. As of June 30, 2021, the balance is $20,000. Our Chairman Dan Martin is CEO of Innovest.

 

10.   DUE TO RELATED PARTY

 

During the nine months ended June 30, 2021, Innovest Global, Inc. (Innovest) advanced funds to the Company for operating expenses in the amount of $79,771. As of June 30, 2021, the amount has not been reimbursed to Innovest Global, Inc. Our Chairman Dan Martin is CEO of Innovest.

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

11.   BUSINESS TRANSITION

 

On June 2, 2020, in connection with TN3’s acquisition of shares of NovAccess Series B preferred stock from Tom Djokovich, our former president and chief executive officer, the Company entered into a transition services agreement (the “Services Agreement”) with Solar Energy Builders, Inc. (the “Service Provider”), a company controlled by Mr. Djokovich. The Company has exited the XsunX solar business to transition to the biotechnology business. The Company discontinued its direct delivery method for its solar contracting operations by outsourcing the completion of sold projects under the Services Agreement with the Service Provider. The Company’s intent was to transition from providing contracting services directly to its customers to marketing solar services to potential customers and referring those customers to the Service Provider or engaging the Service Provider to provide the services to customers on behalf of the Company. However, during the nine months ended June 30, 2021 the Company has exited the solar business completely. We anticipate that this change in operations, will have a negative impact on our gross sales and resulting revenues, if any. However, during the period ended September 30, 2020 the Company began efforts to expand its operations to include the commercialization of developmental healthcare solutions in the biotechnology, medical, and health and wellness markets which efforts are ongoing. There can be no assurance that the Company’s change to its contracting operations to focus on referral fee revenues, and its efforts to expand operations into healthcare solutions in the biotechnology, medical, and health and wellness markets will be successful, or that the Company will continue to generate revenues of significance similar to prior periods.

 

Mr. Djokovich withdrew his position as the qualifying individual for the Company’s contractor license for the XsunX solar business and terminated the Services Agreement. Mr. Djokovich may accept contracts initially marketed by the Company with the Service Provider as the qualifying individual for the solar license, without obligation to the Company for any cash flows therefrom.

 

12.   DISCONTINUED OPERATIONS

 

Financial information for the Company for the three and nine months ended June 30, 2021 and 2020, respectively, and as of June 30, 2021 and September 30, 2020 are presented in the following table:

 

   

Three months ended June 30,

   

Nine months ended June 30,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

SALES

  $ -     $ 218,311     $ -     $ 1,044,333  
                                 

COST OF GOODS SOLD

    -       285,836       -       822,603  
                                 

GROSS PROFIT

    -       (67,525 )     -       221,730  
                                 

OPERATING EXPENSES

                               
                                 

Depreciation expense

    -       -       -       478  
                                 

TOTAL OPERATING EXPENSES OF DISCONTINUED OPERATIONS

    -       -       -       478  
                                 

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS

  $ -     $ (67,525 )   $ -     $ 221,252  

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

12.   DISCONTINUED OPERATIONS (Continued)

 

   

June 30,

   

September 30,

 
   

2021

   

2020

 

ASSETS

               
                 

CURRENT ASSETS

               
                 

Contract receivables of discontinued operations

  $ -     $ -  
                 

Total Current Assets of discontinued operations

    -       -  
                 

Net Property and Equipment of discontinued operations

    -       -  
                 

TOTAL ASSETS OF DISCONTINUED OPERATIONS

  $ -     $ -  
                 

LIABILITIES

               
                 

CURRENT LIABILITIES

               
                 

Contract liabilities of discontinued operations

    -       -  
                 

Total Current Liabilities of discontinued operations

    -       -  
                 

TOTAL CURRENT LIABILITIES OF DISCONTINUED OPERATIONS

  $ -     $ -  

 

13.   RELATED PARTY TRANSACTIONS

 

As of March 31, 2016, Company issued the remaining unsecured Convertible Promissory Notes (the “Notes”) in the amount of $12,000 to a Board member (the “Holder”) in exchange for retention as a director during the fiscal year ending September 30, 2014. The Note can be converted into shares of common stock by the Holder for $4.5 per share. The Note matured on October 1, 2015 and bore a one-time interest charge of $1,200, which was applied to the principal on October 1, 2014.

 

On September 4, 2020, the Company entered into a management services agreement (the “Agreement”) with TN3, LLC. Pursuant to the Agreement, TN3 will provide NovAccess with office space in Chesterland, Ohio and management, administrative, marketing, bookkeeping and IT services for a fee of $30,000 a month. The initial term of the Agreement is three years, with subsequent one-year renewals. TN3 holds all of our outstanding preferred stock and is owned by Daniel G. Martin, our chief executive officer at the time of this transaction, and the sole member of our board of directors.

 

On November 23, 2020 the Company issued 7,500,000 shares of common stock to Innovest Global, Inc. for the September 8, 2020 acquisition of StemVax, LLC. Our Chairman Dan Martin is CEO of Innovest.

 

On November 23, 2020 the Company issued 1,800,000 shares of common stock to Dwain K. Morris-Irvin to compensate him for serving as our chief executive officer. The stock-based compensation expense in the amount of $846,000 was reported on the Company’s financial statements for the nine months ended June 30, 2021.

 

On October 21, 2020, L. Michael Yukich joined the Company as chief financial officer. His offer letter provided for the issuance of 200,000 shares of common stock to compensate him for his services. These shares were issued by the Company’s transfer agent on January 19, 2021. The stock-based compensation expense in the amount of $90,000 was reported in the Company’s financial statements for the nine months ended June 30, 2021.

 

During the period ended September 30, 2020, the Company’s chairman and the CEO each advanced funds to the Company for operating expenses in the total amount of $24,287. As of June 30, 2021, these balances have been reimbursed.

 

 

 

 

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

JUNE 30, 2021 AND 2020

 

13.   RELATED PARTY TRANSACTIONS (Continued)

 

On March 30, 2021 the Company issued an unsecured promissory note to Innovest Global, Inc. with a principal and waived interest in the amount of $25,000. During the three months ended June 30, 2021, $5,000 was repaid. As of June 30, 2021, the balance is $20,000. Our Chairman Dan Martin is CEO of Innovest.

 

During the periods ended June 30, 2021, Innovest Global, Inc. advanced funds to the Company for operating expenses in the amount of $79,771. As of June 30, 2021, the amount has not been reimbursed to Innovest Global, Inc.

 

During the three months ended June 30, 2021 the Company advanced $2,107 to our CEO Dwain K. Morris-Irvin for travel expenses.

 

14.   SUBSEQUENT EVENTS

 

Management has evaluated subsequent events as of August 12, 2021, the date the consolidated financial statements were available to be issued according to the requirements of ASC topic 855.

 

On July 6, 2021, the Company issued a 12% unsecured convertible promissory note (the “July Note”) for the principal sum of $38,750 plus accrued interest which matures on July 6, 2022. The July Note may be converted by the lender into shares of common stock of the Company at sixty-one percent (61%) of the lowest trade price of common stock recorded during the fifteen (15) trading days prior to conversion.

 

 

 

 

 

 

Item 2. Managements 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, 2020.

 

We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this report. You 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 June 30, 2021 Compared to the Three Months Ended June 30, 2020

 

Revenue and Cost of Sales:

 

The Company generated no revenue for the third quarter of fiscal 2021 ended June 30, 2021 compared to $218,311 for the third quarter of fiscal 2020 ended June 30, 2020. The lack of revenue in the third quarter of 2021 was due to our change in focus from selling commercial solar systems and steel canopy construction services to investing in the biotechnology industry following our acquisition of StemVax, LLC, a biopharmaceutical company developing novel therapies for brain tumor patients, in September 2020. The costs of goods sold in the third quarter of 2021 and 2020 was $0 and $285,836, respectively.

 

Pursuant to the reporting requirements of ASC 205-20, Presentation of Financial StatementsDiscontinued Operations, we have determined that the Company’s solar business qualifies for presentation as a discontinued operation. Therefore, we have reclassified and presented these operating results as discontinued operations in the accompanying statements of operations.

 

Selling, General and Administrative Expenses:

 

Selling, general and administrative (SG&A) expenses increased by $11,619 during the third quarter of fiscal 2021 to $501,492 as compared to $489,873 for the third quarter of fiscal 2020. The increase in SG&A expenses was related primarily to an increase of $149,317 in professional fees due to our fundraising and other investor related activities, $97,500 in outside services and $69,417 in payroll related expenses incurred in the third quarter of 2021 partially offset by a decrease of $304,259 in stock compensation expense.

 

Other Income/(Expenses):

 

Other expenses increased by $2,861,269 from $1,265,499 of other income for the third quarter of fiscal 2020 to $1,595,770 of other expense for third quarter of fiscal 2021. The increase in other expenses was primarily due to recognition of a loss on net change in fair market value of the derivative instruments of $1,585,069 in the third quarter of 2021 compared to a gain of $1,272,932 recognized in the third quarter of 2020.

 

Net Loss:

 

For the third quarter of fiscal 2021, our net loss was $2,097,262 as compared to net income of $708,011 (net of $67,525 loss from discontinued operations) for the third quarter of fiscal 2020. The majority of the increase in net loss of $2,805,363 was due to an increase in other expenses associated with the net change in derivative instruments estimated each period in 2021. The derivative instruments estimates 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. As a result, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

 

 

Results of Operations for the Nine Months ended June 30, 2021 Compared to the Nine Months Ended June 30, 2020

 

Revenue and Cost of Sales:

 

The Company generated no revenue for the nine months ended June 30, 2021 compared to $1,044,333 for the nine months ended June 30, 2020. The lack of revenue in 2021 was due to our change in focus from selling commercial solar systems and steel canopy construction services to investing in the biotechnology industry following our acquisition of StemVax, LLC, a biopharmaceutical company developing novel therapies for brain tumor patients, in September 2020. The costs of goods sold for the nine months ended June 30, 2021 and 2020 was $0 and $822,603, respectively.

 

Pursuant to the reporting requirements of ASC 205-20, Presentation of Financial StatementsDiscontinued Operations, we have determined that the Company’s solar business qualifies for presentation as a discontinued operation. Therefore, we have reclassified and presented these operating results as discontinued operations in the accompanying statements of operations.

 

Selling, General and Administrative Expenses:

 

Selling, general and administrative (SG&A) expenses increased by $1,432,020 during the nine months ended June 30, 2021 to $2,182,702 as compared to $750,682 for the nine months ended June 30, 2020. The increase in SG&A expenses was related primarily to an increase of $536,741 in stock compensation expense in connection with the issuance of stock to our chief executive officer and chief financial officer for services rendered; an increase of $450,383 in professional fees due to our fundraising and other investors related activities, of which $381,668 represented non-cash cost of stock issuance for services received; $287,500 in outside services expense incurred during the first nine months of 2021; as well as a $147,888 increase in payroll related expenses.

 

Other Income/(Expenses):

 

Other income/(expenses) decreased by $1,603,062 from other income of 1,174,410 for the nine months ended June 30, 2020 to other expense of $428,652 for first nine months of 2021. The increase in net total other expense was primarily due to recognition of a loss on net change in fair market value of the derivative instruments of $405,002 in the nine months of 2021 compared to a gain of $1,197,395 recognized in 2020.

 

Net Loss:

 

For the nine months ended June 30, 2021, our net loss was $2,611,354 as compared to net income of $644,980 (net of $221,252 income from discontinued operations) for the first nine months of 2020. The majority of the increase in net loss of $3,256,334 was due to an increase in SG&A expenses in 2021 combined with an increase in other expense associated with the net change in derivative instruments estimated each period. These estimates 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. As a result, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

 

Liquidity and Capital Resources

 

We have incurred losses since exiting the solar business to transition to biotechnology and have funded our operations since then primarily through debt and the sale of capital stock. We expect to continue to fund our operations in this way until we are able to generate revenue through the successful commercialization of our biopharmaceutical solutions. We had a working capital deficit as of June 30, 2021 of $4,293,627, compared to a working capital deficit of $3,454,730 as of September 30, 2020. The increase of $838,897 in working capital deficit was primarily the result of an increase in derivative liability, accounts payable, accrued expenses, and deferred compensation, partially offset by an increase in prepaid expenses and extension of a due date on November note.

 

For the nine months ended June 30, 2021, our cash flow used in operating activities was $417,756, compared to cash flow used in operating activities of $68,922 for first nine months of 2020. Out of these amounts, $417,756 and $236,437 was used by continuing operating activities in the first nine months of 2021 and 2020, respectively. The balance of $167,515 was provided by discontinued operating activities in 2020. The net increase of $348,834 in cash flow used in operating activities was primarily due to changes in assets and liabilities and lack of revenue in 2021.

 

There was no cash flow provided by/(used in) investing activities for the nine months ended June 30, 2021 or 2020.

 

 

Cash flow provided by financing activities was $419,172 for the nine months ended June 30, 2021, compared to cash provided by financing activities of $61,112 during the first nine months of 2020. The increase in cash flow provided by financing activities was primarily the result of stock subscriptions sold to investors and issuance of convertible debt.

 

Our ability to generate revenue and achieve profitability depends on our ability to raise additional capital to fund continuing efforts to expand its operations to include the commercialization of developmental healthcare solutions in the biotechnology, medical, and health and wellness markets. The Company has obtained funds from its shareholders since its inception through the period ended June 30, 2021. 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.

 

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, L. Michael Yukich, 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, 2021. Based upon this evaluation, Messrs. Morris-Irvin and Yukich concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2021 due to the existence of a material weakness in internal control over financial reporting primarily as a result of an audit adjustment relating to stock issuance as compensation for services rendered. To remediate the issue, we have retained an external accounting consulting firm to assist us with the review and reporting of complex and unusual transactions.

 

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.

 

Other than as reported above under Evaluation of Disclosure Controls and Procedures, 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 second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

Part IIOther 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, 2020 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 June 30, 2021, we issued 654,910 unregistered shares of our common stock that were not previously reported on Form 8-K for capital raising and compensatory purposes as described in more detail below.

 

Effective May 11, 2021, we issued 174,243 unregistered shares of common stock to Gemini Master Fund, Ltd. at a per share price of $0.252 in full satisfaction of the outstanding principal and interest of $43,909 due under a promissory note dated September 30, 2013. The note was in default and was convertible by Gemini pursuant to its terms. The issuance of shares to Gemini was exempt from registration under Section 4(a)(2) of the Securities Act.

 

In April 2021, we issued 1,000 unregistered shares of our common stock to each of four individuals for services provided to NovAccess, including accounting and staffing assistance. On each of April 9, May 5 and June 2, 2021, we issued 8,889 of our unregistered shares to Satya Chillara, an employee of Darrow Associates, for investor relations services provided to NovAccess for the months of April, May and June 2021. On May 5, 2021, we issued 250,000 unregistered shares to the Chesapeake Group Inc. 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.

 

During the quarter ended June 30, 2021, we offered unregistered shares of our common stock in a private placement to accredited investors to fund our working capital needs. We sold 200,000 shares to two investors during the quarter for $0.20 a share for a total of $40,000. The issuance of shares in the private placement was exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) under the Securities Act. 

 

Item 3. Defaults Upon Senior Securities.

 

On October 20, 2015, we entered into a third extension of a promissory note issued to Gemini Master Fund, Ltd. on September 30, 2013. The extension terms included mandatory payments of $10,000 per month beginning November 1, 2015 until the note in the amount of $143,033 was paid in full by March 30, 2017. The note bore interest at 12% per year and was convertible by Gemini into shares of our common stock at a per share conversion price of 60% of the lowest volume weighted average price of our stock occurring during the twenty trading days preceding the conversion date. Effective May 11, 2021, we issued 174,243 unregistered shares of common stock to Gemini at a per share price of $0.252 in full satisfaction of the outstanding principal and interest due under the note pursuant to its terms.

 

On November 20, 2014, we issued convertible promissory note to Bountiful Capital, LLC for the principal sum of up to $400,000 plus accrued interest on any advanced principal funds. The Bountiful note matures eighteen months from each advance. The note bears interest at 10% per year and may be converted by the Bountiful into shares of our common stock at the lesser of: $12.5 per share; (b) 50% of the lowest trade prices following issuance of the note; or (c) the lowest effective price per share granted to any person or entity. At issuance, Bountiful loaned $50,000 to the Company under the note. On various dates from February 18, 2015 through September 30, 2016, Bountiful loaned the Company an additional $350,000 under the note. A portion of these loans was subsequently converted into shares of common stock and Bountiful agreed to extend the due date of the remainder of the loans. A tranche of the note matured on June 30, 2021. Another tranche matures on August 18, 2021. As of June 30, 2021, there was an aggregate outstanding principal balance of $50,880 under the Bountiful note. On August 9, 2021 effective June 30, 2021, Bountiful extend the due date of both payments to June 30, 2023..

 

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, 2021.

 

Item 6. Exhibits.

 

Exhibit

 

Description

31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act — Dwain Morris-Irvin

31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act — L. Michael Yukich

32.1

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

101

 

The following materials from the NovAccess Global Inc. Quarterly Report on Form 10-Q for the period ended June 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language):

(i) the Condensed Consolidated Balance Sheets at June 30, 2021 and September 30, 2020,

(ii) the Condensed Consolidated Statements of Operations for the Three and Six months Ended June 30, 2021 and June 30, 2020,

(iii) the Condensed Consolidated Statements of Shareholders’ Deficit for the nine months ended June 30, 2021 and 2020,

(iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2021 and June 30, 2020, and

(v) related notes to the Consolidated Financial Statements.

104

 

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.

 

 

NovAccess Global Inc.

 
     

Date: August 13, 2021

/s/ Dwain K. Morris-Irvin

 
 

Dwain K. Morris-Irvin, Chief Executive Officer

 
 

(Principal Executive Officer)

 
     

Date: August 13, 2021

/s/ L. Michael Yukich

 
 

L. Michael Yukich, Chief Financial Officer

 
 

(Principal Financial and Accounting Officer)

 

 

 

 

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NovAccess Global (PK) (USOTC:XSNX)
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