NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 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

NovAccess Global Inc. is a biopharmaceutical company that is developing novel immunotherapies to treat brain tumor patients in the United States with plans to expand globally. We specialize in cutting-edge research related to utilizing a patient’s own immune system to attack the cancer. We are filing an Investigational New Drug Application (IND) and working closely with the Food and Drug Administration (FDA) to obtain approval for human clinical trials to determine safety and efficacy of our drug product for brain cancer patients. Once we have successfully completed the clinical trials and proven that the new therapy is safe and efficacious, we plan to commercialize the product. We also have expertise in successfully executing clinical trials, bringing products to market and increasing the market size of products through our advisory board. Our scientists are well versed in immunology, stem cell biology, neuroscience, molecular biology, imaging, small molecules development, gene therapy and other technical assays needed for protein and genetic analysis of cancer cells.

NovAccess operates as a research and development (R&D) company out of Ohio and California, and our executive management and scientific advisory board provide over 15 years of extensive experience in all aspects of biopharmaceutical R&D and commercialization of drug candidates. We guide our performance by striving to deliver consistently on the following core objectives: (1) Accountability — taking responsibility for providing safe and effective options for patients; (2) Integrity — doing what is ethically right for the patient; (3) Excellence — doing your best and working hard; and (4) Teamwork — bringing together a strong working team to deliver the best products for brain tumor patients.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the year ended September 30, 2022. For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended September 30, 2021.

Going Concern

The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate 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 and lenders since its inception through the period ended December 31, 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.

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

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.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents include cash in banks and money markets with an original maturity of three months or less.

Property and Equipment

Property and equipment are stated at cost, and are depreciated using the straight line method over its estimated useful lives:

The Company capitalizes property and equipment over $500. Property and equipment under $500 are expensed in the year purchased.

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.

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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). 

Diluted weighted average number of shares for the three months ended December 31, 2021 is the same as basic weighted average number of shares because the Company had a net loss for the three months ended December 31, 2021.

The Company has included shares issuable from convertible debt of $219,952 for the three months ended December 31, 2020, because their impact on the income per share is dilutive.

The Company also included shares issuable from 2,000,000 options issued to compensate our former directors for serving on the board without compensation in fiscal 2019 for the three months ended December 31, 2020, because their impact on the income per share is dilutive.

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 December 31, 2021, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses approximate the fair value because of their short maturities.

We adopted Accounting Standards Codification (“ASC”) Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, an established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 December 31 and September 30, 2021. The Company had liabilities that are required to be measured at fair value on a recurring basis as follows at December 31 and September 30, 2021:

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

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 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 accounting standards update 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 was 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 accounting standards update 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 was 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 Framework – Changes 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 was 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. 

3.    CAPITAL STOCK

At December 31, 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.

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

3.    CAPITAL STOCK (Continued)

Preferred Stock

As of December 31, 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 former 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 could 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 outstanding Series B Preferred Stock entitles the holder to cast 40,000 votes. Each share of Series B Preferred Stock is convertible at the option of the holder 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. Dividend 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 period ended December 31, 2021, the Company issued 147,667 shares of common stock. 36,667 shares were issued to various vendors for services provided; 101,000 shares were issued in relation to stock subscriptions; and 10,000 shares were issued to related parties (please refer to Note 12 for more details).

During the period ended December 31, 2020, the Company issued 10,242,651 shares of common stock. 258,889 shares were issued to various vendors for services provided; 683,762 shares were issued in relation to stock subscriptions; and 9,300,000 shares were issued to related parties.

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

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

4.    CONVERTIBLE PROMISSORY NOTES (Continued)

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 $12.50 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. During the period ended December 31, 2021, the Company and lender agreed to extend the maturity date for the outstanding balance to June 30, 2023. As of December 31, 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. During the period ended December 31, 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 December 31, 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 June 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. On October 5, 2021 the Company paid the balance of this note to the lender including accrued interest and prepayment settlement fee of $17,520. The Company recorded amortization of debt discount of $36,493 and amortization of debt issuance costs of $1,458, both of which were recognized as interest expense during the three months ended December 31, 2021. The Company also recognized a gain of $59,915 on the extinguishment of this convertible note during the three months ended December 31, 2021. As of December 31, 2021, the balance of the June Note was $0.

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. The July Note 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. On December 30, 2021 the Company paid the balance of this note to the lender including accrued interest and prepayment settlement fee of $16,936. The Company recorded amortization of debt discount of $29,620 and amortization of debt issuance costs of $1,996, both of which were recognized as interest expense during the three months ended December 31, 2021. The Company also recognized a gain of $36,289 on the extinguishment of this convertible note during the three months ended December 31, 2021. As of December 31, 2021, the balance of the June Note was $0.

On August 20, 2021, the Company issued a 10% unsecured promissory note (the “August note”) for the principal sum of $500,000 plus accrued interest. The August Note matures on February 20, 2022, unless extended for up to an additional six months. The August Note may be converted, only following an event of default, and therefore not included in summary of convertibles note, by the lender into shares of common stock of the Company at the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price during the previous twenty (20) trading day period ending on the issuance date, or during the previous twenty (20) trading day period. The Company recorded amortization of debt discount of $200,007 related to derivative portion of the August Note and amortization of debt issuance costs of $37,250, both of which were recognized as interest expense during the three months ended December 31, 2021, as well as $17,470 amortization of debt discount representing commitment fee, recorded as commitment fee expense in the consolidated statement of operations for the three months ended December 31, 2021. As of December 31, 2021, the balance of the August Note was $500,000, which is the total of initial debt discount of $391,319, initial debt issuance costs of $74,500 and initial debt discount representing a commitment fee of $34,181.

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

4.    CONVERTIBLE PROMISSORY NOTES (Continued)

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.

At December 31, 2021, the fair value of the derivative liability was $2,105,423.

For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used Binomial lattice valuation model. The significant assumptions used in the Binomial lattice valuation of the derivatives are as follows:

5. CONVERTIBLE PROMISSORY NOTES – 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 $4.50 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.

6. WARRANTS

On August 20, 2021, for value received in connection with the issuance of the August Note (see note 4 for more details), the Company issued 1,000,000 warrants to the lender with an exercise price of $1.50 per share with a five-year exercise period.

At December 31, 2021 and September 30, 2021, the fair value of the derivative liability warrants was $265,968 and $372,643, respectively.

For the purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used the Binomial lattice valuation model. The significant assumptions used in the Binomial lattice valuation of the derivatives are as follows:

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

7.    OPTIONS

On June 2, 2020, the Company issued 2,000,000,000 options to purchase common stock at an exercise price of $0.01 per share (adjusted for the August 2020 stock split). These options will be exercisable on a cashless basis for a period of ten years from August 25, 2020. 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. However, we estimated the value of the services provided by each of our directors during 2019 and believe that the value of the options to be issued to each of our resigning directors approximates that amount.

At December 31, 2021, the weighted average remaining contractual life of options outstanding:

9.    BRIDGE LOANS PAYABLE - RELATED PARTIES

During the period ended December 31, 2021, the Company’s CEO, CFO as well as one of the Company’s service providers, each advanced funds to the Company for operating expenses in the total amount of $75,000. The notes are payable on demand with a five business day written notice and bear interest at a rate of 10% per annum. The Company may prepay all or any part of the balance owed without penalty. In the event of the default, the notes will bear additional interest at a rate of 12% per annum. As of December 31, 2021, no payments of principal or interest had been made.

10.    DUE TO RELATED PARTY

During the periods ended December 31, 2021, Innovest Global, Inc. (Innovest) advanced funds to the Company for operating expenses in the amount of $86,073. As of December 31, 2021, the amount has not been reimbursed to Innovest. Our Chairman Daniel Martin was the CEO of Innovest when the funds were advanced. Imputed interest is calculated on an annual basis at the market rate and is estimated to equal $516 as of December 31, 2021.

11. COMMITMENTS AND CONTINGENCIES

There are no material pending legal proceedings to which we are a party to, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers, or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

12. RELATED PARTY TRANSACTIONS

On September 4, 2020, the Company entered into a management services agreement (the “Agreement”) with TN3, LLC. Pursuant to the Agreement, TN3 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. During the three months ended December 31, 2021, $40,000 was paid to TN3 in relation to this Agreement with the balance of $340,852 reported as the outstanding payable amount.

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 as of the period ended December 31, 2021.

On October 4, 2021, the Company issued 10,000 shares of common stock to Neil J. Laird to compensate him for serving as our chief financial officer. The stock-based compensation expense in the amount of $8,000 was reported on the Company’s financial statements for the three months ended December 31, 2022.

13.  SUBSEQUENT EVENTS

Management has evaluated subsequent events as of February 17, 2022, the date the consolidated financial statements were available to be issued according to the requirements of ASC topic 855.

On January 31, 2022, NovAccess entered into a preferred stock redemption agreement (the “Agreement”) with TN3, LLC (“TN3”), Mr. Daniel G. Martin, Irvin Consulting, LLC (“IC”), and Dr. Dwain Morris-Irvin. Mr. Martin is our chairman of the board and owns TN3. Dr. Irvin is our chief executive officer and owns IC.

TN3 owns 25,000 shares of our Series B Convertible Preferred Stock, $0.01 par value per share (the “Shares”). Each Share is convertible at the option of TN3 into 10,000 shares of our common stock and entitles TN3 to cast 40,000 votes on any action presented to our shareholders. Pursuant to the Agreement, we will redeem 24,400 of the Shares and IC will purchase 600 of the Shares.

To redeem the preferred shares, we will pay TN3 a total of $250,000 over a period of ten months, with payment accelerated if the company raises significant capital. Currently, we owe TN3 $340,852 (see note 12 for more details) under a management services agreement. Pursuant to the Agreement, TN3 will agree to forgo these amounts and the parties will terminate the management agreement. IC will pay NovAccess $6,000 to reimburse the company for IC’s share of the purchase price.

In addition to the cash payments, we will issue to TN3 1,502,670 unregistered common shares, which is equal to 10% of the outstanding common stock of NovAccess on the date the Agreement was signed. Pursuant to their terms, the Shares are convertible into 250,000,000 shares of common stock. IC will pay NovAccess $1,223 to reimburse the company for IC’s share of the common stock portion of the purchase price.

Upon completion of the redemption, Mr. Martin will resign from the NovAccess board and be replaced by Dr. Irvin and John Cassarini. In addition, IC will own 600 Shares but there will be no other shares of NovAccess preferred stock outstanding.

Subsequent to the fiscal quarter ended December 31, 2021, 290,000 shares of common stock were issued by the Company for investment in the Company by various private investors.

On February 15, 2022, NovAccess Global Inc. (“NovAccess” or the “company”), entered into a securities purchase agreement (the “SPA”) with AJB Capital Investments, LLC (“AJB”) and issued a promissory note in the principal amount of $250,000 (the “note”) to AJB pursuant to the SPA. The loan closed and was funded on February 16, 2022. NovAccess will use the proceeds of the loan for general working capital purposes.

NOVACCESS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

DECEMBER 31, 2021 AND 2020

13.  SUBSEQUENT EVENTS (Continued)

The note has an original issuance discount of 10% of the principal and bears interest at 10% a year. The note is due on August 15, 2022 but may be extended for six months by NovAccess. NovAccess may prepay the note at any time without penalty. Under the terms of the note, NovAccess may not sell a significant portion of its assets without the approval of AJB, may not issue additional debt that is not subordinate to AJB, must comply with the company’s reporting requirements under the Securities Exchange Act of 1934, and must maintain the listing of the company’s common stock on the OTC Market or other exchange, among other restrictions and requirements. NovAccess’ failure to make required payments under the note or to comply with any of these covenants, among other matters, would constitute an event of default. Upon an event of default under the SPA or note, the note will bear interest at 20%, AJB may immediately accelerate the note due date, AJB may convert the amount outstanding under the note into shares of NovAccess common stock at a discount to the market price of the stock, and AJB will be entitled to its costs of collection, among other penalties and remedies.

NovAccess provided customary representations and covenants to AJB in the SPA. NovAccess’ breach of any representation or failure to comply with the covenants would constitute an event of default. Also pursuant to the SPA, NovAccess paid AJB a commitment fee of 300,000 unregistered shares of the company’s common stock (the “commitment fee shares”). If, after August 15, 2022 and before August 15, 2023, AJB has been unable to sell the commitment fee shares for $150,000, then AJB may require NovAccess to issue additional shares or pay cash in the amount of the shortfall. However, if NovAccess pays the note off before August 15, 2022, then the company may redeem 150,000 of the commitment shares for one dollar. Pursuant to the SPA, NovAccess also issued to AJB a common stock purchase warrant (the “warrant”) to purchase 500,000 shares of the company’s common stock for $1.50 a share. The warrant expires on February 15, 2027. NovAccess agreed to register the shares issuable upon exercise of the warrant no later than August 15, 2023. NovAccess entered into a security agreement with AJB (the “security agreement”) pursuant to which NovAccess granted to AJB a security interest in all of the company’s assets, including the equity of StemVax, LLC, securing NovAccess’ obligations under the SPA, note and warrant.