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.
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Organization
NovAccess Global Inc. is a Colorado corporation that was formerly known as
XsunX, Inc. and Sun River Mining Inc.
New Business Plan
In 2020, we began to transition 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.
We believe that investing in the biotechnology industry will significantly
increase value for our shareholders. However, we cannot guaranty 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, 2021 Compared to
Fiscal Year Ended September 30, 2020
Revenue and Cost of Sales
The Company did not generate any revenue in the fiscal year ended September 30,
2021 ("fiscal 2021") compared to revenues of $1,044,333 in the fiscal year ended
September 30, 2020 ("fiscal 2020"). The decrease of $1,044,333, during fiscal
2021 was primarily due to the Company's change in focus from commercial solar
system sales and the sale of steel canopy construction services to investing in
the biotechnology industry. The costs of goods sold was $0 in fiscal 2021 and
$822,603 is fiscal 2020.
Pursuant to the reporting requirements of ASC 205-20, Presentation of Financial
Statements - Discontinued Operations, the Company has determined that the
business qualified for presentation as a discontinued operation. Therefore, the
Company had reclassified and presented the operating results for fiscal 2020 as
discontinued operations in the accompanying statements of operations.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased by $1,870,048
during fiscal 2021 to $2,698,940 as compared to $828,892 for fiscal 2020. The
2021 expenses reflect a full year while the 2020 expenses cover the period from
discontinuation of the solar operations on June 2, 2020 until September 30,
2020. The increase in SG&A expenses was related primarily due to the Company
recognizing $962,000 in in stock compensation expense in fiscal 2021 compared to
$399,260 recognized in fiscal 2020; an increase of $686,171 professional fees
for investor advisory, legal and accounting services; an increase of $360,500 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 increase of $244,043 in payroll related
expenses.
Other Income/(Expenses)
Other expenses decreased by $6,349,040 from other expenses of $6,162,575 for
fiscal 2020 to other income of $186,465 for fiscal 2021. The decrease was
primarily due to the Company recognizing a loss on conversion of preferred stock
of $5,088,524 in fiscal 2020, as well as the Company recognizing a gain on net
change of fair market value of the derivative instruments of $548,112 in fiscal
2021 compared to a loss of $1,043,515 in fiscal 2020, partially offset by
increase of $347,335 in interest expense recognized.
Net Loss
For fiscal year 2021, our net loss was $2,512,475 as compared to a net loss of
$6,770,215 for fiscal 2020. The majority of the decrease in net loss of
$4,257,740 was due to a decrease in other expenses associated with a loss
recognized on conversion of preferred stock in fiscal 2020 partially offset by
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, therefore, the estimated fair value
of the derivative liabilities will fluctuate from period to period, and the
fluctuation may be material.
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Liquidity and Capital Resources
We had a working capital deficit at September 30, 2021 of $3,762,214, as
compared to a working capital deficit of $3,454,730 as of September 30, 2020.
The increase of $307,484 in working capital deficit was the result of an
increase in accounts payable, accrued expenses and interest on notes payable,
and deferred compensation partially offset by increase in cash and prepaid
expenses.
For fiscal 2021, our cash flow used by operating activities was $682,333, as
compared to cash flow used by operating activities of $93,190 for fiscal 2020.
Out of these amounts, $682,333 was used by and $260,705 was used by continuing
operating activities in fiscal 2021 and 2020, respectively. The balance of
$167,515 was provided by discontinued operating activities in fiscal 2020. The
increase of $421,628 in cash flow used by continuing operating activities was
primarily due to changes in assets and liabilities and non-cash stock issuance
activities.
Cash flow provided by investing activities was $0 in fiscal 2021, compared to
cash flow provided by investing activities of $5 for fiscal 2020. The decrease
of $5 in investing activities was primarily due to StemVax acquisition in fiscal
2020.
Cash flow provided by financing activities was $862,823 for fiscal 2021, as
compared to cash provided by financing activities of $85,399 during fiscal 2020.
The increase in cash flow provided by financing activities was the result of
sales of the Company's common stock and proceeds from promissory notes payable.
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 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.
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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