Cautionary and Forward-Looking Statements
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this Quarterly Report on
Form 10-Q. In addition to historical consolidated financial information, the
following discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results could differ
materially from those anticipated by these forward-looking statements as a
result of many factors, including those discussed in this Quarterly Report and
under "Item 1A: Risk Factors" in our Annual Report on Form 10-K for the year
ended September 30, 2022.
We undertake no obligation to publicly revise these forward-looking statements
to reflect events or circumstances that arise after the date of this report.
Readers should carefully review the factors described in other documents that
the Company files from time to time with the SEC.
Business Plan
In 2020, we transitioned our operations from solar contracting operations to the
commercialization of developmental healthcare solutions in the biotechnology,
medical, and health and wellness markets. On June 2, 2020, we entered into a
membership interest purchase agreement with Innovest Global, Inc. to acquire
StemVax 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 Three Months Ended December 31, 2022, Compared to
Three Months Ended December 31, 2021
Revenue and Cost of Sales
We are in research and development phase, and generated no revenue or cost of
goods sold in the three months ended December 31, 2022, and 2021.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased by $202,225 during
the three months ended December 31, 2022, to $482,155 as compared to $279,930
for the three months ended December 31,2021. The increase in SG&A expenses
during the three months ended December 31, 2022, was related primarily due to
the increase in professional fees by $245,819 due to new consulting agreements
entered into in the quarter ended December 31, 2022, increase in the insurance
costs by $41,304, increase in payroll costs by $12,832 partially offset by a
decrease in outside services of $87,500 and stock-based compensation of $8,000.
Research and development expenses
The research and development expense marginally decreased by $7,436 for the
three months ended December 31, 2022, to $34,963 as compared to $42,399 for the
2022 quarter. The primary reason for the decrease was on account of the decrease
in costs for bio-technical services by $6,000.
18
--------------------------------------------------------------------------------
Table of Contents
Other Income/(Expenses)
Other expenses increased by $2,293,309 from other income of $179,021 for the
three months ended December 31, 2021 to other expenses of $2,114,288 for the
three months ended December 31, 2022. The change was primarily due to the
increase in loss on change in derivative liability by $2,540,610 and decrease in
gain on extinguishment of derivative liability amounting to $96,205. During the
quarter ended December 31, 2022, the Company recorded gain on account of the
change in make whole provision on shares issued as Commitment fees amounting to
$267,750 to partially offset the increase in other expenses. The increase was
also partially offset by a decrease in interest expense by $75,756 during the
current quarter. The estimates of fair market value are based on multiple
inputs, including the market price of our stock, interest rates, our stock
price, volatility, variable conversion prices based on market prices defined in
the respective agreements and probabilities of certain outcomes based on
managements' estimates. These inputs are subject to significant changes from
period to period, therefore, the estimated fair value of the derivative
liabilities will fluctuate from period to period, and the fluctuation may be
material.
Net Loss
For the quarter ended December 31, 2022, our net loss was $2,631,406 as compared
to a net loss of $143,308 for the same period in 2021. The increase in net loss
of $2,488,098 was due to the increase in SG&A, and the increase in other
expenses as described above.
Liquidity and Capital Resources
We had a working capital deficit at December 31, 2022 of $7,026,302, as compared
to a working capital deficit of $4,653,066, as of September 30, 2022. The
increase of $2,373,236 in the working capital deficit was the result of an
increase in the derivative liability on convertible notes amounting to
$2183,084, an increase in convertible notes payable of $249,862 an increase in
accounts payable of $67,723, and a decrease in cash of $25,308. This was
partially offset by a decrease in accrued expenses and other current liabilities
amounting to $191,291, decrease in amounts due to related parties of $2,500 and
by decrease in prepaid expenses of $41,050.
For the three months ended December 31, 2022, our cash flow used by operating
activities was $159,307, as compared to cash flow used by operating activities
of $190,070 for the three months ended December 3l, 2021. The decrease of
$30,763 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 during the three months ended
December 31, 2022 and 2021.
Cash flow provided by financing activities was $134,000 for the three months
ended December 31, 2022, as compared to cash provided by financing activities of
$34,301 during same period in 2021. The increase in cash flow provided by
financing activities was primarily the result of the mix of funds raised by
selling equity and debt instruments 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.
19
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source Glimpses
NOVACCESS GLOBAL INC. 
