UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Quarterly Period Ended:
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| ||
(Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12B-2 of the Exchange Act.
Large accelerated filer | 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 ☐
The registrant had shares of its common stock, $0.0001 par value per share, outstanding as of May 16, 2022.
THERALINK TECHNOLOGIES, INC.
FORM 10-Q
MARCH 31, 2022
TABLE OF CONTENTS
2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment about the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “should,” “plan,” “potential,” “project,” “will,” “would” and other words of similar meaning, or the negatives of such terms or other variations. These include, but are not limited to, statements relating to the following:
● | projected operating or financial results, including anticipated cash flows used in operations; |
● | expectations regarding capital expenditures, research and development expenses and other payments; |
● | our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing; and |
● | our beliefs, assumptions and expectations about the regulatory approval for our technology including, but not limited to our ability to obtain regulatory approval in a timely manner or at all. |
Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors including, among others:
● | our ability to continue as a going concern; |
● | our ability to remain current in filing all reports required to be filed by us under Section 13 or 15(d) of the Securities Exchange Act of 1934; |
● | our ability to maintain pricing; |
● | our ability to employ skilled and qualified workers; |
● | the fact that we have incurred significant losses since inception, expect to incur net losses for at least the next several years and may never achieve or sustain profitability; |
● | the loss of key management personnel upon whom we depend; |
● | our ability to fund our operations; |
● | inadequate insurance coverage for certain losses or liabilities; |
● | our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals on a timely basis; |
● | commercial development of technologies that compete with our technology; |
● | the actual and perceived effectiveness of our technology, and how the technology compares to competitive technologies; |
● | the rate and degree of market acceptance and clinical utility of our technology; |
● | adverse effects of the recent and ongoing COVID-19 pandemic; |
● | the strength of our intellectual property protection, and our success in avoiding infringement of the intellectual property rights of others; |
● | regulations affecting the health care industry; |
● | adverse developments in our research and development activities; |
● | potential liability if our technology causes illness, injury or death, or adverse publicity from any such events; |
● | our ability to operate our business efficiently, manage capital expenditures and costs (including general and administrative expenses) and obtain financing when required; and |
● | our expectations with respect to future licensing, partnering or acquisition activity. |
In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K filed on January 13, 2022 with the Securities and Exchange Commission (“SEC”), particularly in the ‘Risk Factors” section of such report, that could cause results or events to differ materially from the forward-looking statements that we make herein. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement should be relied upon. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. Forward-looking statements apply only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as otherwise required by applicable law.
This Quarterly Report on Form 10-Q includes trademarks for Theralink, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.
3 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THERALINK TECHNOLOGIES, INC.
BALANCE SHEETS
March 31, | September 30, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | $ | ||||||
Accounts receivable | - | |||||||
Other receivable (related party $ | ||||||||
Prepaid expenses and other current assets | ||||||||
Marketable securities | ||||||||
Laboratory supplies | - | |||||||
Total Current Assets | ||||||||
OTHER ASSETS: | ||||||||
Property and equipment, net | ||||||||
Finance right-of-use assets, net | ||||||||
Operating right-of-use asset, net | ||||||||
Security deposits | ||||||||
Total Assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | $ | ||||||
Accounts payable - related party | ||||||||
Accrued liabilities | ||||||||
Accrued liabilities - related party | - | |||||||
Accrued compensation | ||||||||
Accrued director compensation | ||||||||
Contract liabilities | ||||||||
Notes payable - related party | ||||||||
Notes payable - current | ||||||||
Financing lease liability - current | ||||||||
Operating lease liability - current | ||||||||
Insurance payable | ||||||||
Subscriptions payable | - | |||||||
Contingent liabilities | ||||||||
Total Current Liabilities | ||||||||
LONG-TERM LIABILITIES: | ||||||||
Financing lease liability | ||||||||
Operating lease liability | ||||||||
Convertible notes - related party, net of discount | ||||||||
Convertible notes, net of discount | - | |||||||
Total Liabilities | ||||||||
Commitments and Contingencies (Note 10) | ||||||||
Series E preferred stock; $ | par value; shares designated; issued and outstanding at March 31, 2022 and
September 30, 2021; liquidation value of $||||||||
Series F preferred stock; $ | par value; shares designated; and issued and outstanding at March 31, 2022 and
September 30, 2021; liquidation value of $||||||||
STOCKHOLDERS’ DEFICIT: | ||||||||
Preferred stock: $ | par value; authorized;||||||||
Series A Preferred stock: $ | par value; shares designated; issued and outstanding at March 31, 2022 and September 30, 2021- | - | ||||||
Series C-1 Preferred stock: $ | par value; shares designated; and issued and outstanding at March 31, 2022 and September 30, 2021, respectively- | - | ||||||
Series C-2 Preferred stock: $ | par value; shares designated; and issued and outstanding at March 31, 2022 and September 30, 2021, respectively- | - | ||||||
Series D-1 Preferred stock: $ | par value; shares designated; issued and outstanding at March 31, 2022 and September 30, 2021- | - | ||||||
Series D-2 Preferred stock: $ | par value; shares designated; issued and outstanding at March 31, 2022 and September 30, 2021- | - | ||||||
Common stock: $ | par value, shares authorized; and issued and outstanding at March 31, 2022 and September 30, 2021, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | $ |
See accompanying condensed notes to unaudited consolidated financial statements.
4 |
THERALINK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
REVENUES, NET | $ | $ | $ | $ | ||||||||||||
COST OF REVENUE | ||||||||||||||||
GROSS PROFIT | ||||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Professional fees | ||||||||||||||||
Compensation expense | ||||||||||||||||
Licensing fees | ||||||||||||||||
General and administrative expenses | ||||||||||||||||
Total Operating Expenses | ||||||||||||||||
LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Gain on debt extinguishment, net | ||||||||||||||||
Unrealized (loss) gain on marketable securities | ( | ) | ( | ) | ||||||||||||
Unrealized loss on exchange rate | ( | ) | ||||||||||||||
Total Other Income (Loss), net | ( | ) | ( | ) | ( | ) | ||||||||||
NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Series E preferred stock dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Series F preferred stock dividend | ( | ) | ( | ) | ||||||||||||
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
NET LOSS PER COMMON SHARE: | ||||||||||||||||
Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
Basic and Diluted |
See accompanying condensed notes to unaudited consolidated financial statements.
5 |
THERALINK TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||||||
Series
A # of Shares | Series
C-1 # of Shares | Series
C-2 # of Shares | Series
D-1 # of Shares | Series
D-2 # of Shares | Amount | # of Shares | Amount | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | | | | - | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
Relative fair value of warrant issued in connection with convertible notes - related party recorded as debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Relative fair value of warrant issued in connection with convertible notes recorded as debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Series E preferred stock dividend | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Series F preferred stock dividend | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Correction for rounding error | - | - | - | - | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Balance at December 31 2021 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with conversion of Series C-1 preferred stock | ( | ) | - | ( | ) | - | - | |||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with conversion of Series C-2 preferred stock | - | - | ( | ) | - | - | - | ( | ) | - | - | |||||||||||||||||||||||||||||||||
Issuance of common stock in connection with settlement of accounts payable | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with subscriptions payable | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
Relative fair value of warrants issued in connection with convertible notes - related party recorded as debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Relative fair value of warrants issued in connection with convertible notes recorded as debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Relative fair value of additional warrants issued in connection with modification of convertible notes - related party recorded as debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Relative fair value of additional warrants issued in connection with modification of convertible notes recorded as debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Series E preferred stock dividend | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Series F preferred stock dividend | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||||||
Series
A # of Shares | Series
C-1 # of Shares | Series
C-2 # of Shares | Series
D-1 # of Shares | Series
D-2 # of Shares | Amount | # of Shares | Amount | Paid-in Capital | Accumulated Deficit |
Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | | | | - | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
Adjustment related to Series A preferred prior period redemption payment | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Series E preferred stock dividend | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Balance at December 31, 2020 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
Series E preferred stock dividend | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
See accompanying condensed notes to unaudited consolidated financial statements.
6 |
THERALINK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS USED IN OPERATING ACTIVITIES | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation on property and equipment and finance ROU assets | ||||||||
Non-cash lease cost | ||||||||
Amortization of debt discount | - | |||||||
Gain on debt extinguishment | - | ( | ) | |||||
Unrealized loss on exchange rate | - | |||||||
Unrealized (gain) loss on marketable securities | ( | ) | ||||||
Gain on modification of operating lease | ( | ) | - | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Prepaid expenses and other current assets | ( | ) | ||||||
Laboratory supplies | ||||||||
Accounts payable | ( | ) | ||||||
Accrued liabilities and other liabilities | ||||||||
Contract liabilities | ||||||||
NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Adjustment related to Series A preferred prior period redemption payment | - | |||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from sale of common stock | - | |||||||
Proceeds from convertible debt - related party | - | |||||||
Proceeds from convertible debt | - | |||||||
Proceeds of notes payable - related party | - | |||||||
Repayment of notes payable - related party | ( | ) | - | |||||
Repayment of financed lease | ( | ) | - | |||||
Payments for preferred stock dividends | ( | ) | - | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
NET CHANGE IN CASH | ( | ) | ||||||
CASH, beginning of the period | ||||||||
CASH, end of the period | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | $ | ||||||
Income taxes | $ | $ | ||||||
Non-cash investing and financing activities: | ||||||||
Series E preferred stock dividend | $ | $ | ||||||
Series F preferred stock dividend | $ | $ | ||||||
Initial amount of operating ROU asset and related liability | $ | $ | ||||||
Relative fair value of warrant issued in connection with convertible notes - related party recorded as debt discount | $ | $ | ||||||
Relative fair value of warrant issued in connection with convertible notes recorded as debt discount | $ | $ | ||||||
Relative fair value of additional warrants issued in connection with modification of convertible notes - related party recorded as debt discount | $ | $ | ||||||
Relative fair value of additional warrants issued in connection with modification of convertible notes recorded as debt discount | $ | $ |
See accompanying condensed notes to unaudited consolidated financial statements.
7 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Theralink Technologies, Inc., formerly OncBioMune Pharmaceuticals, Inc. (the “Company”), was a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology. On June 5, 2020, the Company acquired the assets (the “Asset Sale Transaction”) of Avant Diagnostics, Inc., a Nevada corporation established in 2009 (“Avant”) pursuant to the Asset Purchase Agreement dated May 12, 2020, between the Company and Avant (the “Asset Purchase Agreement”). Avant is a commercial-stage precision medicine and molecular data-generating company that focuses on the development and commercialization of a series of patented, proprietary data-generating assays that may provide important actionable information for physicians and patients, as well as biopharmaceutical companies, in the area of oncology.
Pursuant
to the Asset Purchase Agreement, the Company acquired substantially all of the assets of Avant and assumed certain of its liabilities.
Upon the terms and subject to the conditions of the Asset Purchase Agreement, Avant sold to the Company, all of Avant’s title and
interest in all the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including
goodwill), wherever located and whether existing or hereafter acquired, except for the specific excluded assets, which relate to, or
are used or held for use in connection with, Avant’s business. The Company also hired Avant’s employees upon consummation
of the Asset Sale Transaction. As consideration for the Asset Sale Transaction, the Company issued to Avant
On July 11, 2021, the Company’s wholly-owned subsidiary, OncBioMune, LLC, was administratively dissolved by the Louisiana Secretary of State for failing to meet its filing requirements and pay the associated fees (see Note 3).
In
connection with the Asset Sale Transaction, the Company entered into an Exchange Agreement, effective June 5, 2020, by and among OncBioMune
Pharmaceuticals, Inc. and the investors named therein, whereby the Company agreed to exchange certain convertible promissory notes and
warrants outstanding for shares of Series C-1 Convertible Preferred Stock of the Company and options to purchase shares of the Company’s
wholly-owned subsidiary, OncBioMune Sub Inc. OncBioMune Sub Inc. holds the patents used in the prior business of OncBioMune Pharmaceuticals,
Inc. In July 2021, certain of those investors exercised their options to purchase the shares of OncBioMune Sub Inc. On July 26, 2021,
the Company transferred all
On February 25, 2022, FIRNA recognized the Company’s name change to Theralink Technologies, Inc. and the related ticker symbol changed from “OBMP” to “THER” went into effect.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information, which present the unaudited financial statements of the Company as of March 31, 2022. The interim unaudited financial statements do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the audited financial statements of the Form 10-K filed on January 13, 2022. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments and non-recurring adjustments) have been made for the fair presentation of the unaudited financial statements. The results for the interim period are not necessarily indicative of the results to be expected for the year ending September 30, 2022.
8 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Going Concern
These
unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited financial statements, the
Company had net loss and net cash used in operations of $
The Company cannot provide assurance that it will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future.
Although the Company has historically raised capital from sales of equity and the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These unaudited financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The global pandemic COVID-19, otherwise referred to as the Coronavirus, could impair our ability to raise additional funding or make such funding more costly. The ongoing global pandemic has caused cessation of normal business operations and initially caused capital markets to decline sharply. This could make it more difficult for the Company to access capital. It is currently difficult to estimate with any certainty how long the pandemic and resulting curtailment of business will continue, and its effect on capital markets and the Company’s ability to raise funds is, accordingly, difficult to quantify. In addition, to the extent that any of the Company’s personnel or consultants are affected by the virus, this could cause delays or disruption in our planned research and development activities.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the six months ended March 31, 2022 and year ended September 30, 2021 include, but are not necessarily limited to, estimates of contingent liabilities, valuation of marketable securities, useful life of property and equipment, valuation of right-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current and deferred income taxes and deferred tax valuation allowances and the fair value of non-cash equity transactions.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value 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. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on March 31, 2022. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on the disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
9 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s investment policy is to preserve principal and maintain liquidity. The Company periodically monitors its positions with, and the credit quality of, the financial institutions with which it invests.
Prepaid Assets
Prepaid assets are carried at amortized cost. Significant prepaid assets as of March 31, 2022 and September 30, 2021 include, but are not necessarily limited to, prepaid insurance, prepaid consulting fees, prepaid equipment maintenance fees and retainers for professional services.
Laboratory Supplies
Laboratory supplies are normally consumed within a year from purchase and any unused laboratory supplies are classified as current assets and reflected in the accompanying unaudited balance sheet as laboratory supplies.
Property and Equipment
Fixed
assets are stated at cost and depreciated using the straight-line method over their estimated useful lives, which range from to
Impairment of Long-Lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 during the period September 30, 2018, and the adoption did not have any impact on its financial statements.
10 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Revenue Recognition and Contract Assets and Liabilities
In accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead to deferred revenue for services not completed at the end of a period which is reflected as contract liabilities on the accompanying unaudited balance sheet. The Company may include, in accounts receivable, amounts billed to customers in advance of services being initiated or completed. If the Company has a right to such consideration that is unconditional such as for contractually allowed billings, such amounts billed in advance would be offset by a contract liability. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The Company offers these services to biopharmaceutical companies and to private individuals. The Company uses various output methods to recognize revenues. The revenue recognized from services provided to private individuals during the six months ended March 31, 2022 and year ended September 30, 2021 were minimal and therefore was not disaggregated for disclosure purposes.
Contract Liabilities
Contract liabilities are cash deposits received from customers and advance billing included in accounts receivable on uncompleted contracts for which revenues have not been recognized as of the balance sheet date.
Contract liabilities as of March 31, 2022 and September 30, 2021 are as follows:
March 31, 2022 | September 30, 2021 | |||||||
Contract liabilities beginning balance | $ | $ | ||||||
Billings and cash receipts on uncompleted contracts | ||||||||
Less: revenues recognized during the period | ( | ) | ( | ) | ||||
Total contract liabilities | $ | $ |
Cost of Revenue
The cost of revenue consists of the cost of labor, supplies and materials.
Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis and does not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition.
Any charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired.
Concentrations
Concentration of Credit Risk
The
Company maintains its cash in banks and financial institutions that at times may exceed the federally insured limit of $
Concentration of Revenues
For
the three months ended March 31, 2022, the Company generated total revenue of $
For
the six months ended March 31, 2022, the Company generated total revenue of $
Concentration of Accounts Receivable
As
of March 31, 2022, the Company had accounts receivable of $
11 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Concentration of Contract Liabilities
As
of March 31, 2022, the Company had deferred revenue reflected as contract liabilities of $
Concentration of Vendor
Generally, the Company relies on one vendor to perform the Company’s patient reporting and contract research (formerly called sample analysis) which is an integral part of the Company’s operation and revenue stream. Any disruption in this service could have a material adverse effect on the Company’s business, financial condition and results of operations.
During
the six months ended March 31, 2022 and 2021, the Company incurred $
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive equity securities outstanding as of March 31, 2022 and 2021 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:
March 31, | ||||||||
2022 | 2021 | |||||||
Stock warrants | ||||||||
Series C-1 preferred stock | ||||||||
Series C-2 preferred stock | ||||||||
Series E preferred stock | ||||||||
Series F preferred stock | ||||||||
Convertible notes | ||||||||
Income Taxes
The Company accounts for income tax using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position
will be sustained upon examination by the tax authorities. As of March 31, 2022 and September 30, 2021, the Company had
12 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Leases
The Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the unaudited statements of operations.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:
1. | Added a disclosure objective |
2. | Added information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed |
3. | Added information on which party controls the conversion rights |
4. | Aligned disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments |
5. | Required that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate. |
Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.
The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company early adopted ASU 2020-06 and its adoption did not have any material impact on the Company’s financial statements.
13 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
In May 2021, the FASB issued 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). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2020-06 and its adoption did not have any material impact on the Company’s financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s financial statements.
NOTE 3 – DISPOSAL OF SUBSIDIARIES AND RECAPITALIZATION
Administrative Dissolution of OncBioMune, LLC
On
July 11, 2021, the Company’s wholly-owned subsidiary OncBioMune, LLC was administratively dissolved by the Louisiana Secretary
of State for failing to meet its filing requirements and pay the associated fees (see Note 1). The Company deconsolidated OncBioMune,
LLC on July 11, 2021 and recognized a gain of $
Exercise of Options to Purchase Shares of OncBioMune Sub Inc.
In
connection with the Asset Sale Transaction, the Company entered into an Exchange Agreement, effective June 5, 2020, by and among OncBioMune
Pharmaceuticals, Inc. and the investors named therein, whereby the Company agreed to exchange certain convertible promissory notes and
warrants outstanding for shares of Series C-1 Convertible Preferred Stock of the Company and the option to purchase shares of the Company’s
wholly-owned subsidiary, OncBioMune Sub Inc. OncBioMune Sub Inc. holds the patents used in the prior business of OncBioMune Pharmaceuticals,
Inc. In July 2021, certain of those investors exercised their options to purchase the shares of OncBioMune Sub Inc. On July 26, 2021,
the Company transferred all
14 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NOTE 4 – MARKETABLE SECURITIES
During
the fiscal year ended 2017, the Company acquired shares of common stock of Amarantus BioScience
Holdings, Inc. (“AMBS”) with a fair value of $
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Once placed in service, they are depreciated on the straight-line method over their estimated useful lives. Leasehold improvements are accreted over the shorter of the estimated economic life or related lease terms. Fixed assets consist of the following:
Estimated Useful Life in Years |
March 31, 2022 | September 30, 2021 | ||||||||
(Unaudited) | ||||||||||
Laboratory equipment | $ | $ | ||||||||
Furniture | ||||||||||
Leasehold improvements | ||||||||||
Computer equipment | ||||||||||
Less accumulated depreciation | ( | ) | ( | ) | ||||||
Property and equipment, net | $ | $ |
For
the three months ended March 31, 2022 and 2021, depreciation expense related to property and equipment amounted to $
For
the six months ended March 31, 2022 and 2021, depreciation expense related to property and equipment amounted to $
Leased equipment was not included in the table above as it was accounted for in accordance with ASU 842 – Leases. These leases are discussed in Note 7 under financing lease right-of-use (“ROU”) assets and financing lease liabilities.
NOTE 6 – DEBT
At March 31, 2022, the convertible notes payable consisted of the following:
March 31, 2022 | September 30, 2021 | |||||||
Principal amount | $ | $ | ||||||
Less: debt discount | ( | ) | ||||||
Convertible notes payable, net | $ | $ | ||||||
Principal amount – related party | $ | $ | ||||||
Less: debt discount – related party | ( | ) | ( | ) | ||||
Convertible note payable - related party, net | $ | $ | ||||||
Total convertible notes payable, net | $ | $ |
15 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Convertible Debt – Related Party
On May 12, 2021, the Company entered into a Securities
Purchase Agreement (“May 2021 SPA”) with a related party, who is an affiliate stockholder (“May 2021 Investor”)
to purchase a convertible note (“May 2021 Note”) and accompanying warrant (“May 2021 Warrant”)
for an aggregate investment amount of $
The
On
November 1, 2021, the Company entered into a Securities Purchase Agreement (“First November 2021 SPA”) with a related
party, who is an affiliate stockholder (“First November 2021 Investor”), to purchase three convertible notes (collectively
as “First November 2021 Notes”) and three accompanying warrants (collectively as “First November 2021
Warrants”), for an aggregate investment amount of $
On January 26, 2022, a notice and request
for consent regarding a change in offering terms was sent by the Company to the First November 2021 Investor. Upon the approval of
the First November 2021 Investor, the
16 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Convertible Debt
On November 1, 2021, the Company entered into
a Securities Purchase Agreement (“Second November 2021 SPA”) with an investor (“Second November 2021
Investor”) to purchase two convertible notes (collectively as “Second November 2021 Notes”) and two accompanying
warrants (collectively as “Second November 2021 Warrants”), for an aggregate investment amount of $
On January 26, 2022, a notice and request for
consent regarding a change in offering terms was sent by the Company to the Second November 2021 Investor. Upon the approval of the Second
November 2021 Investor, the
On November 1, 2021, the Company entered into
a Securities Purchase Agreement (“Third November 2021 SPA”) with an investor (“Third November 2021 Investor”)
to purchase two convertible notes (collectively as “Third November 2021 Notes”) and two accompanying warrants (collectively
as “Third November 2021 Warrants”), for an aggregate investment amount of $
17 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
On January 26, 2022, a notice and request for
consent regarding a change in offering terms was sent by the Company to the Third November 2021 Investor. Upon the approval of the Third
November 2021 Investor,
On January 27, 2022, the Company entered into
a Securities Purchase Agreement (“First January 2022 SPA”) with an investor (“First January 2022 Investor”)
to purchase a convertible note and accompanying warrants for an aggregate investment amount of $
On January 31, 2022, the Company entered into
a Securities Purchase Agreement (“Second January 2022 SPA”) with an investor (“Second January 2022 Investor”)
to purchase a convertible note and accompanying warrant for an aggregate investment amount of $
18 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Notes Payable - Related Party
On
April 26, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and is considered a related party, for a principal amount of $
On
October 21, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and is considered a related party, for a principal amount of $
On
March 14, 2022, Matthew M. Schwartz, who was elected a member of the board of directors on April 1, 2022 (see Note 1), advanced the Company
$
Note Payable
In
September 2017, the Company entered into a note agreement with a third-party investor. Pursuant to the note, the Company borrowed
a principal amount of $
NOTE 7 –LEASE LIABILITIES
Financing Lease Right-of-Use (“ROU”) Assets and Financing Lease Liabilities
Effective
November 2018, the Company entered into a financing agreement with the first lessor to finance the purchase of equipment. Pursuant
to the financing agreement, the Company shall make a monthly payment of $
Effective
November 2018, the Company entered into a financing agreement with a second lessor to finance the purchase of equipment. Pursuant
to the financing agreement, the Company shall make a monthly payment of $
Effective
March 2019, the Company entered into a financing agreement with a third lessor to finance the purchase of equipment. Pursuant
to the financing agreement, the Company shall make a monthly payment of $
Effective
August 2019, the Company entered into a financing agreement with a fourth lessor to finance the purchase of equipment. Pursuant
to the financing agreement, the Company shall make a monthly payment of $
Effective
January 2020, the Company entered into a financing agreement with a fifth lessor to finance the purchase of equipment. Pursuant
to the financing agreement, the Company shall make a monthly payment of $
19 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
The
significant assumption used to determine the present value of the financing lease payables was the discount rate which ranged from
Financing lease right-of-use assets (“Financing ROU”) is summarized below:
March 31, 2022 | September 30, 2021 | |||||||
(Unaudited) | ||||||||
Financing ROU assets | $ | $ | ||||||
Less accumulated depreciation | ( | ) | ( | ) | ||||
Balance of Financing ROU assets | $ | $ |
For
the three months ended March 31, 2022 and 2021, depreciation expense related to Financing ROU assets amounted to $
For
the six months ended March 31, 2022 and 2021, depreciation expense related to Financing ROU assets amounted to $
Financing lease liability related to the Financing ROU assets is summarized below:
March 31, 2022 | September 30, 2021 | |||||||
(Unaudited) | ||||||||
Financing lease payables for equipment | $ | $ | ||||||
Total financing lease payables | ||||||||
Payments of financing lease liabilities | ( | ) | ( | ) | ||||
Total | ||||||||
Less: short term portion | ( | ) | ( | ) | ||||
Long term portion | $ | $ |
Future minimum lease payments under the financing lease agreements at March 31, 2022 are as follows:
Years ending September 30, | Amount | |||
(Unaudited) | ||||
2022 | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
Total minimum financing lease payments | ||||
Less: discount to fair value | ( | ) | ||
Total financing lease payable at March 31, 2022 | $ |
Operating Lease Right-of-Use (“ROU”) Asset and Operating Lease Liabilities
In
December 2019, the Company entered into a lease agreement for its corporate and laboratory facility in Golden, Colorado.
In
February 2020, pursuant to ASC 842 – Leases, the Company calculated the present value of the total lease payments using
a discount rate of
20 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
On
June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (the “Lease Amendment”), effective October
3, 2021, for its laboratory facility in Golden, CO (see Note 10). The Lease Amendment provided for: (i) an extension to the term of the
original lease to five years following the completion of the Company’s improvements to the Expansion Premises (defined below);
(ii) an expansion of the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden, Colorado 80401,
consisting of approximately
Pursuant
to the Lease Amendment, the
In
October 2021, pursuant to ASC 842 – Leases, the Company wrote off the balances of the operating asset of $
For
the six months ended March 31, 2022, lease costs amounted to $
Operating Right-of-use asset (“ROU”) is summarized below:
March 31, 2022 | September 30, 2021 | |||||||
(Unaudited) | ||||||||
Operating office lease | $ | $ | ||||||
Less accumulated reduction | ( | ) | ( | ) | ||||
Balance of Operating ROU asset | $ | $ |
Operating lease liability related to the ROU asset is summarized below:
March 31, 2022 | September 30, 2021 | |||||||
(Unaudited) | ||||||||
Operating office lease | $ | $ | ||||||
Total operating lease liability | ||||||||
Reduction of operating lease liability | ( | ) | ( | ) | ||||
Total | ||||||||
Less: short term portion | ( | ) | ( | ) | ||||
Long term portion | $ | $ |
Future base lease payments under the non-cancellable operating lease at March 31, 2022 are as follows:
Years ending September 30, | Amount | |||
(Unaudited) | ||||
2022 | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
2027 and thereafter | ||||
Total minimum non-cancellable operating lease payments | ||||
Less: discount to fair value | ( | ) | ||
Total operating lease liability at March 31, 2022 | $ |
21 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NOTE 8 – RELATED-PARTY TRANSACTIONS
Effective
January 1, 2021, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as
a strategic advisor. The agreement was effective for a period of twelve months, commencing on January 1, 2021 and shall renew on a month-to
month basis, subject to the right of the Company and Mr. Kucharchuk to terminate the agreement pursuant to the agreement. Pursuant to
the agreement, Mr. Kucharchuk shall be paid $
On
April 26, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and is considered a related party, for a principal balance of $
On May 12, 2021, the Company and the May 2021
Investor entered into a May 2021 SPA to purchase a convertible May 2021 Note and accompanying May 2021 Warrant for an aggregate investment
amount of $
On
October 21, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and is considered a related party, for a principal balance of $
On
November 1, 2021, pursuant to the First November 2021 SPA the First November 2021 Investor purchased three notes with aggregate principal
of $
On
January 26, 2022, a notice and request for consent regarding a change in offering terms was sent by the Company to the First November
2021 Investor. Upon the approval of the First November 2021 Investor, the Company modified the terms of the First November 2021 SPA which
increased the warrant issuable from 20% to100% of the common stock issuable upon conversion of the notes purchased. As a result, the
First November 2021 Investor received additional cashlessly-exercisable warrant equal to 80% of the common stock issuable upon conversion
of the First November 2021 Notes. The Company issued an additional warrant to purchase up to
22 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
On
March 14, 2022, Matthew M. Schwartz who was elected as a member of the board of directors on April 1, 2022 (see Note 1), advanced the
Company $
During
the six months ended March 31, 2022, the Company advanced a total of $
As
of March 31, 2022 and September 30, 2021, the Company owed several executives and directors for expense reimbursements and consulting
fees in the aggregate amount of $
At March 31, 2022 and September 30, 2021, net amount due to related parties consisted of the following:
March 31, 2022 | September 30, 2021 | |||||||
(Unaudited) | ||||||||
Convertible notes principal – related party | $ | $ | ||||||
Discount on convertible notes - related party | ( | ) | ( | ) | ||||
Note payable principal – related party | ||||||||
Consulting fee – related party | ||||||||
Accounts payable – related party | ||||||||
Other receivable - related party | ( | ) | ( | ) | ||||
Total | $ | $ |
NOTE 9 – STOCKHOLDERS’ DEFICIT
Shares Authorized
On September 22, 2020, the Company filed with the Nevada Secretary of State an amendment to its Articles of Incorporation to change its name from “OncBioMune Pharmaceutical, Inc.” to “Theralink Technologies, Inc.” and increase its authorized shares of common stock from shares of common stock at $ per share par value to shares of common stock at $ per share par value, effective September 24, 2020.
As of March 31, 2022, the Company did not have sufficient authorized and unissued shares of common stock to cover the conversion of its outstanding convertible debt, conversion of its outstanding preferred shares and exercise of both currently exercisable and currently unexercisable (due to a prohibition on exercise pending an increase in authorized) warrants. However, as of the date of this report, the Board and the Company’s majority shareholder have approved an increase in the authorized common stock of the Company and the Company has filed with the SEC an information statement on Schedule 14C that should permit the Company from effectuating the increase in authorized within 45 days from the filing date (see Note 11).
Series A Preferred Stock
As of March 31, 2022 and September 30, 2021, there were shares of the Company’s Series A Preferred Stock issued and outstanding held by a former member of the Board of Directors.
Series C-1 Preferred Stock
During the three months ended March 31, 2022, various holders of the Series C-1 Preferred Stock converted an aggregate of shares of Series C-1 Preferred Stock into shares of the Company’s common stock (see below – Common Stock Issued Upon Conversion of Series C-1 Preferred Stock).
As of March 31, 2022 and September 30, 2021, the Company had and shares of Series C-1 Preferred Stock, respectively, issued and outstanding.
23 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Series C-2 Preferred Stock
During the three months ended March 31, 2022, a holder of the Series C-2 Preferred Stock converted shares of Series C-1 Preferred Stock into shares of the Company’s common stock (see below – Common Stock Issued Upon Conversion of Series C-2 Preferred Stock).
As of March 31, 2022 and September 30, 2021, the Company had and shares of Series C-2 Preferred Stock, respectively, issued and outstanding.
Series E Preferred Stock
On September 15, 2020, the Company filed a certificate of designation, preferences and rights of Series E Preferred Stock (the “Series E Certificate of Designation”) with the Nevada Secretary of the State to designate shares of its previously authorized preferred stock as Series E Preferred Stock, par value $ per share and a stated value of $ per share. The Series E Certificate of Designation and its filing was approved by the Company’s board of directors without stockholder approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series E Preferred Stock have the following preferences and rights:
● | From
the initial issuance date, cumulative dividends on each share of Series E shall accrue, on a quarterly basis in arrears (with any
partial quarter calculated on a pro-rata basis), at the rate of | |
● | Holders of shares of Series E Preferred Stock are entitled to dividends or distributions on each share on an “as converted” into common stock basis, if, as and when declared from time to time by the Board of Directors. | |
● |
● | ||
● | In the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance (as defined in the Series E Certificate of Designation), at a price, an exercise price or conversion price of less than the conversion price, then upon such issuance or sale, the Series E Preferred Stock conversion price shall be reduced to the sale price or the exercise price or conversion price of the securities sold. | |
● | Holder of Series E Preferred Stock have no voting rights. |
During
the year ended September 30, 2021, the issuance of Series F Preferred Stock triggered the price protection clause in the Series E Preferred
Stock. Thus, the conversion price of the Series E Preferred Stock was reduced from $
24 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
During
the three and six months ended March 31, 2022, the Company recorded dividends related to the Series E Preferred Stock in the amount of
$
As
of March 31, 2022 and September 30, 2021, dividend payable balances were $
As of March 31, 2022 and September 30, 2021, the Company had shares of Series E Preferred Stock issued and outstanding classified as temporary equity in the accompanying unaudited balance sheets.
Series F Preferred Stock
On July 30, 2021, the Company filed a certificate of designation, preferences and rights of Series F Preferred Stock (the “Series F Certificate of Designation”), with the Nevada Secretary of State to designate shares of its previously authorized preferred stock as Series F Preferred Stock, par value $ per share and a stated value of $ per share. The Series F Certificate of Designation and its filing was approved by the Company’s Board of Directors without stockholder approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series F Preferred Stock have the following preferences and rights:
● | From
the Initial Issuance Date, cumulative dividends on each share of Series F shall accrue, on a monthly basis in arrears (with any partial
month being made on a pro-rata basis), at the rate of | |
● | Holders of shares of Series F Preferred Stock are entitled to dividends or distributions on each share on an “as converted” into common stock basis, if, as and when declared from time to time by the Board of Directors. | |
● | ||
● | ||
● | In the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance (as defined in the Series F Certificate of Designation), at a price, an exercise price or conversion price of less than the conversion price, then upon such issuance or sale, the Series F Preferred Stock conversion price shall be reduced to the sale price, or the exercise price or conversion price of the securities sold. | |
● | Series F Preferred Stock shall rank pari passu with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Corporation with the Series C-1 Preferred Stock of the Corporation, the Series C-2 Preferred Stock of the Corporation, and the Series E Preferred Stock of the Corporation (the “Parity Stock”), and all other shares of capital stock of the Corporation shall be junior in rank to all Series F shares with respect to the preferences as to dividends (except for the common stock, which shall be pari passu as provided in the Series F Certificate of Designation), distributions and payments upon the liquidation, dissolution and winding up of the Corporation (such junior stock is referred to herein collectively as “Junior Stock”). The rights of all such Junior Stock shall be subject to the rights, powers, preferences and privileges of the Series F Preferred Stock. Without limiting any other provision of the Series F Certificate of Designation, without the prior express consent of the Required Holder, the Corporation shall not hereafter authorize or issue any additional or other shares of capital stock that is (i) of senior rank to the Series F Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Corporation (collectively, the “Senior Preferred Stock”), or (ii) Parity Stock. Except as provided for herein, in the event of the merger or consolidation of the Corporation into another corporation, the Series F Preferred Stock shall maintain their relative rights, powers, designations, privileges and preferences provided for herein for a period of at least two years following such merger or consolidation and no such merger or consolidation shall cause result inconsistent therewith. |
25 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
During
the three and six months ended March 31, 2022, the Company recorded dividends related to the Series F Preferred Stock in the amount of
$
As
of March 31, 2022 and September 30, 2021, dividend payable balances were $
As of March 31, 2022 and September 30, 2021, the Company had shares of Series F Preferred Stock issued and outstanding classified as temporary equity in the accompanying unaudited balance sheets.
Common Stock
Common Stock Issued Upon Conversion of Series C-1 Preferred Stock
● | During the three months ended March 31, 2022, the Company issued an aggregate of shares of the Company’s common stock to various investors upon their conversion of an aggregate of shares of the Series C-1 Preferred Stock. |
Common Stock Issued Upon Conversion of Series C-2 Preferred Stock
● | During the three months ended March 31, 2022, the Company issued an aggregate of shares of the Company’s common stock to an investor upon conversion of shares of the Series C-2 Preferred Stock. |
Common Stock Issued Upon Accounts Payable Settlements
● | During
the three months ended March 31, 2022, the Company issued an aggregate of |
Common Stock Issued for Subscription Payable
● | During
the three months ended March 31, 2022, the Company issued an aggregate of shares of the Company’s common
stock to various investors in connection with the subscription payable aggregate amount of $ |
As of March 31, 2022, the Company had shares of common stock outstanding of which have not yet been issued.
Stock Options
Effective February 18, 2011, the Company’s Board of Directors adopted and approved the 2011 stock option plan. A total of options to acquire shares of the Company’s common stock were authorized under the 2011 stock option plan. options were granted under the 2011 stock option plan and the plan has expired as of March 31, 2022.
26 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
On April 28, 2020, the Board approved the 2020 Equity Incentive Plan (“2020 Plan”), as amended on May 29, 2020. The 2020 Plan shall be effective upon approval by the Stockholders which shall be within twelve (12) months after the approval of the Board. No Incentive Stock Option shall be exercised unless and until the 2020 Plan has been approved by the Stockholders. Upon the effective date of the 2020 Plan and the effectiveness of the authorized share increase, which occurred on September 24, 2020, shares of the Company’s common stock were reserved for issuance under the Plan (the “Reserved Share Amount”), subject to the adjustments described in the 2020 Plan, and such Reserved Share Amount, when issued in accordance with the 2020 Plan, shall be validly issued, fully paid, and non-assessable. Pursuant to the 2020 Plan, the option price of each incentive stock option (except those that constitute substitute awards under the 2020 Plan) shall be at least the fair market value of a share of common stock on the respective grant date; provided, however, that in the event that a grantee is a ten-percent stockholder as of the grant date, the option price of an incentive stock option shall be not less than % of the fair market value of a share on the grant date. On October 29, 2021, the Board reduced the Reserved Share Amount from shares of common stock to shares of common stock. As of March 31, 2022, the 2020 Plan has not yet been approved by the stockholders and the Company had no options issued and outstanding. Subsequent to March 31, 2022, the 2020 Plan was terminated and any shares reserved thereunder are no longer subject to reservation (see Note 11).
Warrants
On November 1, 2021, the Company issued the
First November 2021 Warrants to purchase an aggregate of
On November 1, 2021, the Company issued the
Second November 2021 Warrants to purchase an aggregate of
On November 1, 2021, the Company issued the Third
November 2021 Warrants to purchase an aggregate of
On January 26, 2022, the Company, upon the
approval of the First November 2021 Investor, amended the First November 2021 SPA whereby the Company issued an
additional cashlessly-exercisable warrant to purchase
On January 26, 2022, the Company, upon the
approval of the Second November 2021 Investor, amended the Second November 2021 SPA whereby the Company issued an
additional cashlessly-exercisable warrant to purchase
On January 26, 2022, the Company, upon the
approval of the Third November 2021 Investor, amended the Third November 2021 SPA whereby the Company issued an
additional cashlessly-exercisable warrant to purchase
27 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
On January 27, 2022, the Company issued the First
January 2022 Warrants to purchase an aggregate of
On January 31, 2022, the Company issued the Second
January 2022 Warrants to purchase an aggregate of
On January 31, 2022, the Company issued
to two consultants and aggregate of
As
of March 31, 2022, the Company had
Warrant activities for the six months ended March 31, 2022 is summarized as follows:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Warrants | Price | Term (Years) | Value | |||||||||||||
Balance Outstanding at September 30, 2021 | $ | $ | ||||||||||||||
Issued in connection with a convertible debt (see Note 6) | $ | $ | ||||||||||||||
Issued in connection with a convertible debt – related party (see Note 6 and Note 8) | $ | |||||||||||||||
Balance Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
Exercisable at March 31, 2022 | $ | $ |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Employment Agreements
Michael Ruxin, M.D.
On June 5, 2020, the Company and Dr. Michael Ruxin. Entered into an employment agreement (the “Ruxin Employment Agreement”) for Dr. Ruxin to serve as the Company’s Chief Executive Officer, President and a director.
The
Ruxin Employment Agreement provides that Dr. Ruxin will be employed for a five-year term commencing on June 5, 2020. The term will be
automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless
either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment
period will not be extended. Dr. Ruxin will be entitled to receive an annual base salary of $
28 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Dr. Ruxin is an “at-will” employee and his employment may be terminated by the Company at any time, with or without cause. In the event Dr. Ruxin’s employment is terminated by the Company without Cause (as defined in the Ruxin Agreement), with Good Reason (as defined in the Ruxin Agreement) or as a result of a non-renewal of the term of employment under the Ruxin Agreement, Dr. Ruxin shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Dr. Ruxin prior to the date of termination. Dr. Ruxin shall be entitled to reimbursement of any COBRA payment made during the 18-month period following the date of termination.
The Ruxin Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.
Jeffrey Busch
On June 5, 2020, the Company and Jeffrey Busch entered into an employment agreement (the “Busch Employment Agreement”) for Mr. Busch to serve as the Company’s Chairman of the Board of Directors.
The
Busch Employment Agreement provides that Mr. Busch will be employed for a five-year term commencing on June 5, 2020. The term will be
automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless
either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment
period will not be extended. Mr. Busch will be entitled to receive an annual base salary of $
Mr. Busch is an “at-will” employee and his employment may be terminated by the Company at any time, with or without cause. In the event Mr. Busch’s employment is terminated by the Company without Cause (as defined in the Busch Agreement), with Good Reason (as defined in the Busch Agreement) or as a result of a non-renewal of the term of employment under the Busch Agreement, Mr. Busch shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Mr. Busch prior to the date of termination.
The Busch Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.
29 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Thomas E. Chilcott, III
On
September 24, 2020, the Company appointed Thomas E. Chilcott, III, to serve as the Chief Financial Officer. The Company entered into
an offer letter with Mr. Chilcott which provides that his base salary will be $
On
December 31, 2021, the Company’s Board approved an increase in the base salary of Thomas E. Chilcott, III, the Company’s
Chief Financial Officer, from $
Consulting Agreements
On
July 5, 2020, the Company and a consultant entered into a Scientific Advisory Board Service Agreement (“Scientific Advisory
Agreement”) which provides for; (i) $
On
July 5, 2020, the Company and a consultant entered into a Pathology Advisory Board Service Agreement (the “Pathology
Advisory Agreement”) which provides for; (i) $
Effective
January 1, 2021, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as
a strategic advisor. The agreement was effective for a period of twelve months, commencing on January 1, 2021 and shall renew on a month-to
month basis, subject to the right of the Company and Mr. Kucharchuk to terminate the agreement pursuant to the agreement. Pursuant to
the agreement, Mr. Kucharchuk shall be paid $
License Agreements
GMU License Agreement
In
September 2006, the Company entered into an exclusive license agreement with George Mason Intellectual Properties (“GMU License
Agreement”), a non-profit corporation formed for the benefit of George Mason University (“GMU”) which: (1) grants
an exclusive worldwide license, with the right to grant sublicenses, under the licensed inventions to make, have made, import, use, market,
offer for sale and sell products designed, manufactured, used and/or marketed for all fields and for all uses, subject to the exclusions
as defined in the GMU License Agreement; (2) grants an exclusive option to license past, existing, or future inventions in the
Company’s field, from inventors that are obligated to assign to GMU and who have signed a memorandum of understanding acknowledging
that developed intellectual property will be offered, subject to the exclusions as defined in the GMU License Agreement; (3) the
license and option granted specifically excludes biomarkers for lung, ovarian, and breast cancers in a diagnostic field of use and GMU
inventions developed using materials obtained from third parties under agreements granting rights to inventions made using said materials
and; (4) grants right to assign or otherwise transfer the license so long as such assignment or transfer is accompanied by a change of
control transaction and GMU is given 14 days prior notice. In addition, the Company is required to make an annual payment of $
30 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NIH License Agreement
In
March 2018, the Company entered into two license agreements (“NIH License Agreements”) with the National Institutes
of Health (“NIH”) which grants the Company an exclusive and a nonexclusive United States license for certain patents. Pursuant
to the NIH License Agreements, the Company is required to make an annual payment of $
Employee Stock Options
In June 2020, in connection with the Asset Sale Transaction (see Note 1), the Company planned to issue approximately billion stock options to employees, which includes the options in the employment agreements discussed above. As of March 31, 2022, these stock options had not yet been granted by the Company.
Lease
In
December 2019, the Company entered into a lease agreement for its corporate and laboratory facility in Golden, Colorado. The lease is
for a period of
On
June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (“Lease Amendment”), effective October
3, 2021, for its laboratory facility in Golden, CO (see Note 7). The Lease Amendment provided for: (i) an extension to the term of the
original lease to five years following the completion of the Company’s improvements to the Expansion Premises (defined below);
(ii) an expansion of the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden,
Colorado 80401, consisting of approximately
Pursuant
to the Lease Amendment, the
Subscriptions Payable
During the year ended September 30, 2021, the
Company, entered into Subscription Agreements with several accredited investors to sell, in a private placement, an aggregate of
Settlement of Accounts Payable
On
October 18, 2021, the Company entered into separate agreements with two consultants (collectively as “Parties”), to settle
$
31 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Other Contingencies
Pursuant
to ASC 450-20 – Loss Contingencies, liabilities for contingencies arising from claims, assessments, litigation, fines and
penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can
be reasonably estimated. As of March 31, 2022 and September 30, 2021, the Company has recorded a contingent liability of $
Legal Action
In
August 2017, numerous purported plaintiffs brought an action against Avant Diagnostics and their previous executive team in the District
Court of Harris County Texas. The action alleges the plaintiffs were engaged by Avant to perform services prior to 2018, which they were
not compensated for, and were issued certain restricted shares of Avant as payment of those services and Avant did not remove the restrictive
legend from said shares. The plaintiffs are seeking $
On
December 10, 2021, YPH LLC filed a complaint against the Company in the District Court for the Southern District of New York alleging
that Theralink breached its Certificate of Designation for Series C-1 Convertible Preferred Stock by failing to honor a conversion notice
submitted to it by YPH. Based on these and other allegations, Plaintiff asserted a breach of contract claim claiming that it has damages
in excess of $
NOTE 11 – SUBSEQUENT EVENTS
Authorized Shares
As of March 31, 2022, the Company did not have sufficient authorized and unissued shares of common stock to cover the conversion of its outstanding convertible debt, conversion of its outstanding preferred shares and exercise of both its currently exercisable and currently unexercisable (due to a prohibition on exercise pending an increase in authorized) warrants. However, as of the date of this report, the Board and the Company’s majority shareholder have approved an increase in the authorized common stock of the Company and the Company has filed with the SEC an information statement on Schedule 14C that should permit the Company from effectuating the increase in authorized within 45 days from the filing date (see Note 9).
Conversion of Series C-1 Preferred Stock
On May 9, 2022, the Company issued shares of common stock upon conversion of shares of Series C-1 Preferred stock by a shareholder.
32 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Convertible Debt
On April 5, 2022, the Company entered into a
Securities Purchase Agreement with a related party, Matthew Schwartz, who is a member of the board of directors (the “Investor”),
to purchase a convertible note and accompanying warrant for an aggregate investment amount of $
During
April 2022, the Company entered into a Securities
Purchase Agreement with various investors (“Investors”), to purchase convertible notes for an aggregate investment amount
of $
Subsequent to March 31, 2022, the Company
received $
Equity Incentive Plan
On April 18, 2022, the Company’s Board of Directors terminated the 2020 Plan and any shares reserved thereunder are no longer subject to reservation (see Note 9).
On
April 18, 2022, the Company’s Board of Directors (“Board”) and the shareholders approved the 2022 Equity Incentive
Plan (“2022 Plan”) at which time the plan became effective. Upon the effective date of the 2022 Plan, shares of the Company’s common stock were
reserved for issuance under the 2022 Plan (“Reserved Share Amount”), subject to the adjustments described in the 2022
Plan, and such Reserved Share Amount, when issued in accordance with the 2022 Plan, shall be validly issued, fully paid, and non-assessable.
Pursuant to the 2022 Plan, the option price of each incentive stock option (except those that constitute substitute awards) shall be
at least the fair market value of a share on the grant date; provided, however, that in the event that a grantee is a ten percent stockholder
as of the grant date, the option price of an incentive stock option shall be not less than
Amendment of Note Payable – Related Party
On
May 5, 2022, the Company and Jeffrey Busch (“Lender”) who serves as the Company’s Executive Chair and a related
party (collectively as “Parties”) entered into an agreement to amend the April 26, 2021 note with principal amount of $
33 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with our historical financial statements. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see Part II, Item 1A of this Quarterly Report on Form 10-Q, “Risk Factors,” and the risk factors included in our September 30, 2021, Annual Report on Form 10-K.
Special Note Regarding COVID-19
In December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread of the virus had resulted in a world-wide pandemic. The U.S. economy was largely shut down by mass quarantines and government mandated stay-at-home orders (the “Orders”) to halt the spread of the virus. These Orders have required some of our employees to work from home when possible, and other employees were prevented from performing their job duties until the Orders were relaxed or lifted. The COVID-19 pandemic has required alternative selling approaches such as through social media. We may be unable to avoid future reductions in net revenue using these alternative selling approaches that avoid direct contact with our customers. The worldwide response to the pandemic has resulted in a significant downturn in economic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. If an economic recession or depression is sustained, it could have a material adverse effect on our business as demand for our technology could decrease.
While some of these Orders were relaxed or lifted in different jurisdictions at various times during the six months ended March 31, 2022, the overall impact of COVID-19 continues to have an adverse impact on business activities around the world. There is no assurance that Orders that were previously relaxed or lifted will not be reinstated as the spread of COVID-19 continues. For example, many jurisdictions have recently reinstated masking orders after test results have showed a resurgence of the pandemic. If COVID-19 infection trends continue to reverse and the pandemic intensifies and expands geographically, its negative impacts on our sales could be more prolonged and may become more severe. The long-term financial impact on our business cannot be reasonably estimated at this time.
Overview
Theralink is a commercial-stage precision medicine and molecular data-generating company that focuses on the development and commercialization of a series of patented, proprietary data-generating assays that may provide important actionable information for physicians and patients, as well as biopharmaceutical companies, in the area of oncology. Our near-term goal is to continue to commercialize the technology originally developed by Theranostics Health, a company whose assets we acquired in May 2016. The Company differentiates itself by:
● | An exclusive license agreement with George Mason University (“GMU”), that has well-published scientists in our area of expertise. | |
● | Having access to the Ph.D.’s at GMU who have completed pioneering work in phosphoproteomic-based biomarkers diagnostics. | |
● | Domain expertise in cancer biomarker and data-generating laboratory testing data. | |
● | Development of proprietary, cutting-edge assays focused on precision oncology care. | |
● | Building revenue streams based on our proprietary technology Theralink. | |
● | Having a patent portfolio licensed from GMU and the National Institutes of Health (“NIH”). |
Theralink is advancing its patented, proprietary technology in the field of phosphoproteomic research, a sector that has emerged as one of the most exciting new components in the high-growth field of precision molecular diagnostics. The Theralink platform makes it possible to generate an accurate and comprehensive portrait of protein pathway activation in diseased cells from each patient, and thereby determining which individuals may be better responders to certain targeted molecular therapies. The platform enables the quantitative measurement of the level of activation. Moreover, the sensitivity is many times greater than conventional mass spectrometry and other protein immunoassays. Initially spun-out of GMU in 2006, and subsequently elevated to the federal government’s Center for Medicare & Medicaid Services’ (“CMS”) Clinical Laboratory Improvement Amendments (“CLIA”) standards, our precision medicine suite may be highly relevant for oncology patient management today that may improve (i) chemotherapy drug selection; (ii) immunotherapy drug selection; and (iii) optimization of combination therapy selection.
The biomarker and data-generating tests may provide biopharmaceutical companies, clinical scientists and physicians with molecular-based guidance as to which patients may benefit from the new, molecular targeted therapeutics being developed and used to treat various life-threatening oncology diseases, as well as existing treatment standards that are recognized as the standard of care in the oncology treatment community. This addresses the core aspect of precision treatment today – identifying which individuals are more likely to respond to specific targeted molecular therapies, thus forming the basis for personalized medicine.
34 |
The technology is based upon the pioneering work of three noted scientists, Drs. Lance Liotta, Emanuel Petricoin and Virginia Espina in proteomic-based diagnostics. We benefit from a portfolio of intellectual property derived from licensing agreements with:
● | The US Public Health Service (“PHS”), the federal agency that supervises the NIH, which provides us with broad protection around its technology platform; and | |
● | GMU which provides access to additional intellectual property around improvements to the technology platform and biomarker signatures that form the basis for future diagnostic products. |
Theralink is committed to advancing the technologies from GMU and the NIH as a platform for the development of new clinical biomarkers and precision medicine. These precision medicine and monitoring products have the potential to provide biopharmaceutical companies and doctors with critical molecular-based knowledge to make the best therapeutic decisions based on a patient’s unique, individual medical needs.
Our plan of operation over the next 12 months is to:
● | Establish laboratory Standard Operating Procedures (SOP’s) to comply with New York, Washington, D.C., and Maryland CLIA, and the College of American Pathologists (“CAP”) standards; | |
● | Hire an Assistant Laboratory Director and additional lab techs and sales consultants; | |
● | Choose members to sit on our Medical and Scientific Advisory Boards; |
● | Continue to validate additional Theralink cancer biomarker technology for GYN, head and neck, lung, GI, pancreatic, prostate and liver cancer under CAP/CLIA standards to provide personalized medicine treatment options for biopharmaceutical companies, clinical oncologists and their cancer patients; | |
● | Continue to partner with pharmaceutical companies to perform oncology-related data-generating testing services which generate additional revenues; | |
● | Continue to seek financing to grow the Company and | |
● | Receive a reimbursement amount for our PLA code from Medicare. This will allow the Company to start billing the Medicare and insurance companies for patient care in early 2023. |
Appointment of New Directors
On April 1, 2022, the Board of Directors (“Board”) of the Company, voted to appoint Danica Holley and Matthew M. Schwartz, M.D. to serve as members of the Board, effective April 4, 2022. Ms. Holley and Dr. Schwartz will serve as members of the Board until the next annual meeting of shareholders of the Company or until his or her resignation or removal and otherwise until his or her successor is elected. The Board determined that Ms. Holley and Dr. Schwartz each meet the independence standards of the NASDAQ Stock Market Rules and the applicable rules of the SEC.
Results of Operations
Comparison for Three and Six Months Ended March 31 2022 and 2021
Revenue
● | For the three months ended March 31, 2022 and 2021, total revenue was $19,500 and $126,314, respectively, a decrease of $106,814 or 85%. The decrease was primarily attributable to a decrease in research and development contracts from pharmaceutical companies during the three months ended March 31, 2022. |
● | For the six months ended March 31, 2022 and 2021, total revenue was $98,475 and $136,104, respectively, a decrease of 37,269 or 28%. The decrease was primarily attributable to decrease in research and development contracts from pharmaceutical companies during the six months ended March 31, 2022. |
Costs of Revenues
● | For the three months ended March 31, 2022 and 2021, cost of revenue was $17,180 and $28,442, respectively, a decrease of $11,262 or 40%. The decrease was primarily attributable to the decrease in revenue discussed above. |
● | For the six months ended March 31, 2022 and 2021, cost of revenue was $60,745 and $30,045, respectively, an increase of $30,700 or 102%. The increase in current cost of revenue as a percentage of revenue was greater during the 2022 period because the Company was required to purchase expensive third-party samples for certain pharmaceutical contracts. This increased cost significantly decreased the gross margins for the 2022 period. |
Gross Margin
● | For the three months ended March 31, 2022 and 2021, gross margin was $2,320 and $97,872, respectively, a decrease of $95,552 or 98%. The decrease was primarily attributable to the decrease in revenue and cost of revenue discussed above. |
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● | For the six months ended March 31, 2022 and 2021, gross margin was $37,730 and $106,059, respectively, a decrease of $68,329 or 64%. The decrease was primarily attributable to the decrease in revenue and increase in cost of revenue discussed above. |
Operating Expenses
For the three months ended March 31, 2022 and 2021, total operating expense amounted to $1,562,613 and $1,454,429, an increase of $108,184, or 7%. For the six months ended March 31, 2022 and 2021, total operating expense amounted to $2,980,039 and $3,075,169, a decrease of $95,130, or 3%.
For the three and six months ended March 31, 2022 and 2021, operating expenses consisted of the following:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Professional fees | $ | 297,753 | $ | 213,965 | $ | 515,576 | $ | 411,219 | ||||||||
Compensation expense | 702,633 | 532,104 | 1,328,488 | 1,122,279 | ||||||||||||
Licensing fees | 38,963 | 31,020 | 75,055 | 61,192 | ||||||||||||
General and administrative expenses | 523,264 | 677,340 | 1,060,920 | 1,480,479 | ||||||||||||
Total | $ | 1,562,613 | $ | 1,454,429 | $ | 2,980,039 | $ | 3,075,169 |
Professional fees
● | For the three months ended March 31, 2022 and 2021, professional fees were $297,753 and $213,965, respectively, an increase of $83,788 or 39%. The increase was primarily attributable to an increase in legal fees of $144,078, offset by a decrease in accounting fees of $588, a decrease in consulting fees of $54,346 and a decrease in IT services of $5,356. The increase in legal fees during the 2022 period can be primarily attributed to the issuance of additional convertible notes and defending multiple lawsuits during the three months ended March 31, 2022. There were minimal legal fees incurred for lawsuits during the 2021 period. |
● | For the six months ended March 31, 2022 and 2021, professional fees were $515,576 and $411,219, respectively, an increase of $104,357 or 25%. The increase was primarily attributable to an increase in legal fees of $198,035, an increase in accounting fees of $11,777 offset by a decrease in consulting fees of $81,533 and a decrease in IT services of $23,922. The increase in legal fees during the 2022 period can be primarily attributed to the issuance of additional convertible notes and defending multiple lawsuits during the six months ended March 31, 2022. There were minimal legal fees incurred for lawsuits during the 2021 period. |
Compensation expense
● | For the three months ended March 31, 2022 and 2021, compensation expense was $702,633 and $532,104, respectively, an increase of $170,529 or 32%. The increase was attributable to an increase in administrative compensation and related expenses of $159,824 and an increase in employee benefits of $10,705 resulting from additional employees being hired and a bonus paid to the CFO. |
● | For the six months ended March 31, 2022 and 2021, compensation expense was $1,328,488 and $1,122,279, respectively, an increase of $206,209 or 18%. The increase was attributable to an increase in administrative compensation and related expenses of $182,917 and an increase in employee benefits of $23,292 resulting from additional employees being hired and a bonus paid to the CFO. |
Licensing fees
● | For the three months ended March 31, 2022 and 2021, licensing fees were $38,963 and $31,020, respectively, an increase of $7,943 or 26%. The increase was attributable to an increase in the minimum royalties payable to GMU and the NIH. |
● | For the six months ended March 31, 2022 and 2021, licensing fees were $75,055 and $61,192, respectively, an increase of $13,863 or 23%. The increase was attributable to an increase in the minimum royalties payable to GMU and the NIH. |
General and administrative expenses
● | For the three months ended March 31, 2022 and 2021, general and administrative expenses were $523,264 and $677,340, respectively, a decrease of $154,076 or 23%. The decrease was primarily due to a decrease in patient reporting and contract research (formerly called sample analysis) of $163,845 because the Company reduced the amount of contract research work the vendor was providing during the 2022 period, a decrease in laboratory supplies of $59,687 and a decrease in biological supply expense of $25,471, offset by an increase in sample validation expense of $25,000, an increase in business insurance of $10,789, an increase in rent expense of $27,733 resulting from additional laboratory space rented during 2022 period, an increase in travel and entertainment expenses of $7,191 and an increase in other office expenses of $24,214. |
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● | For the six months ended March 31, 2022 and 2021, general and administrative expenses were $1,060,920 and $1,480,479, respectively, a decrease of $419,559 or 28%. The decrease was primarily due to a decrease in patient reporting and contract research (formerly called sample analysis) of $325,549 because the Company reduced the amount of contract research work the vendor was providing during the 2022 period, a decrease in laboratory supplies of $108,411 and a decrease in biological supply expenses of $148,521, offset by an increase in gain on lease modification of $8,229, an increase in sample validation expense of $50,000, an increase in business insurance of $20,804, an increase in rent expense of $56,465 resulting from additional laboratory space rented during the 2022 period, an increase in travel and entertainment expenses of $11,655 and an increase in other office expenses of $15,769. |
Loss from Operations
● | For the three months ended March 31, 2022 and 2021, the loss from operations amounted to $1,560,293 and $1,356,557, respectively, an increase of $203,736 or 15%. The increase was primarily a result of higher operating expenses as discussed above offset by a decrease in revenue. |
● | For the six months ended March 31, 2022 and 2021, the loss from operations amounted $2,942,309 and $2,969,110, respectively, a decrease of $26,801 or 1%. The decrease was primarily a result of lower operating expenses as discussed above and decrease in revenue. |
Other Income (Expense)
● | For the three months ended March 31, 2022 and 2021, the total other expense, net amounted $275,702 and $4,556, respectively, an increase of $271,146 or 5,951%. The increase was primarily due to an increase in interest expense of $259,246 resulting from additional debt incurred in 2022 and an increase in unrealized loss on market securities of $11,900. |
● | For the six months ended March 31, 2022 and 2021, the total other income (expense), net amounted $(405,953) and $188,222, respectively, an increase in total other (expense), net of $(594,175) or 316%. The increase in total other (expense), net was primarily due to an increase in interest expense of $(386,164) resulting from additional debt incurred in 2022 and an increase in unrealized loss on market securities of $(3,400) offset by a decrease in gain on debt extinguishment of $(227,294) as there was no debt extinguishment in 2022 and a decrease in unrealized loss on exchange rate of $22,686 as there was no unrealized loss on exchange rate in 2022. |
Preferred Stock Dividend
● | For the three months ended March 31, 2022 and 2021, the dividends on preferred stocks amounted $59,179 and $39,452, respectively, an increase of $19,727 or 50%. The increase was primarily a result of an increase in dividends of $19,727 on Series F preferred stock which were issued on July 30, 2021. Therefore, there were no dividends related to the Series F preferred stock during the three months ended March 31, 2021. |
● | For the six months ended March 31, 2022 and 2021, the dividends on preferred stocks amounted $119,672 and $79,671, respectively, an increase of $40,001 or 50%. The increase was primarily a result of an increase in dividends of $39,891 on Series F preferred stock which were issued on July 30, 2021. Therefore, there were no dividends related to the Series F preferred stock during the six months ended March 31, 2021. |
Net Loss Attributed to Common Stockholders
● | For the three months ended March 31, 2022, net loss attributable to common stockholders amounted to $1,895,174, or $(0.00) per share (basic and diluted), compared to $1,400,565 or $(0.00) per share (basic and diluted) for the three months ended March 31, 2021, an increase of $494,609 or 35%. |
● | For the six months ended March 31, 2022, net loss attributable to common stockholders amounted to $3,467,934, or $(0.00) per share (basic and diluted), compared to $2,860,599 or $(0.00) per share (basic and diluted) for the six months ended March 31, 2021, an increase of $607,375 or 21%. |
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Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its required needs. We had a working capital deficit of $1,323,228 and cash of $447,467 as of March 31, 2022 and working capital deficit of $2,657,337 and $314,151 of cash as of September 30, 2021.
March 31, 2022 | September 30, 2021 | Change | Percentage Change | |||||||||||||
Working capital deficit: | ||||||||||||||||
Total current assets | $ | 883,743 | $ | 638,753 | $ | 244,990 | 38 | % | ||||||||
Total current liabilities | (2,206,971 | ) | (3,296,090 | ) | (1,089,119 | ) | 33 | % | ||||||||
Working capital deficit: | $ | (1,323,228 | ) | $ | (2,657,337 | ) | $ | 1,334,109 | 50 | % |
The decrease in working capital deficit was primarily attributed to an increase in current assets of $244,990 and a decrease in current liabilities of $1,089,119.
Cash Flows
The following table sets forth a summary of changes in cash flows for the six months ended March 31, 2022 and 2021:
Six Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net cash used in operating activities | $ | (2,819,675 | ) | $ | (2,680,975 | ) | ||
Net cash used in investing activities | (4,711 | ) | (98,605 | ) | ||||
Net cash provided by financing activities | 2,957,702 | 1,250,000 | ||||||
Net change in cash | $ | 133,316 | $ | (1,529,580 | ) |
Net Cash Used in Operating Activities
Net cash used in operating activities during the six months ended March 31, 2022 and 2021 were $2,819,675 and $2,680,975, respectively, an increase of $138,700, or 5%.
● | Net cash used in operating activities for the six months ended March 31, 2022 primarily reflected our net loss of $3,348,262 adjusted for the add-back of non-cash items such as depreciation expense of $95,113, non-cash lease cost of $14,606, amortization of debt discount of $276,170, gain on operating lease modification of $8,229, unrealized loss on marketable securities of $3,100 and changes in operating assets and liabilities consisting primarily of an increase in accounts receivable of $137,038, an increase in prepaid expenses and other current assets of $47,354, an increase in accrued liabilities and other liabilities of $149,795, and an increase in contract liabilities of $198,563 offset by a decrease in laboratory supplies of $71,062 and a decrease in accounts payable of $87,201. | |
● | Net cash used in operating activities for the six months ended March 31, 2021 primarily reflected our net loss of $2,780,888 adjusted for the add-back of non-cash items such as depreciation expense of $92,009, non-cash lease cost of $1,169, gain on debt extinguishment of $227,294, unrealized loss on exchange rate of $26,686, unrealized gain on marketable securities of $300 and changes in operating assets and liabilities consisting primarily of an increase in accounts receivable of $56,527, an increase in accounts payable of $23,006, an increase in accrued liabilities and other liabilities of $7,042, an increase in contract liabilities of $146,025 offset by a decrease in prepaid expenses and other current assets of $37,184, and a decrease in laboratory supplies of $54,913. |
Net Cash Used in Investing Activities
Net cash used in investing activities during the six months ended March 31, 2022 and 2021 were $4,711 and $98,605, respectively, a decrease of $93,894, or 95%.
● | Net cash used in investing activities for the six months ended March 31, 2022, resulted from the purchase of property and equipment of $4,711. |
● | Net cash used in investing activities for the six months ended March 31, 2021, resulted from the financing of property and equipment of $(99,105) offset by an adjustment related to a prior period redemption payment of $500. |
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Net Cash Provided by Financing Activities
Net cash provided by financing activities during the six months ended March 31, 2022 and 2021 were $2,957,702 and $1,250,000, respectively, an increase of $1,707,702, or 137%.
● | Net cash provided by financing activities for the six months ended March 31, 2022, consisted of $1,000,000 of net proceeds from related party convertible debt, $2,000,000 of net proceeds from convertible debt, $250,000 of net proceeds from related party notes payable, offset by repayment of $150,000 of related party convertible note, repayment of $23,132 of financed leases and payments of $119,166 of preferred stock dividends. |
● | Net cash provided by financing activities for the six months ended March 31, 2021, consisted of $1,250,000 of net proceeds from the sale of common stock. |
Cash Requirements
Management does not believe that our current capital resources will be adequate to continue operating our Company and maintaining our business strategy for more than 12 months from the date of this report. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.
Going Concern
These unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited financial statements, the Company had net loss and net cash used in operations of $3,348,262 and $2,819,675, respectively, for the six months ended March 31, 2022. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $53,293,789, $3,918,693 and $1,323,228 at March 31, 2022. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.
The Company cannot provide assurance that it will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future.
Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The global pandemic COVID-19, otherwise referred to as the Coronavirus, could impair our ability to raise additional funding or make such funding more costly. The ongoing global pandemic has caused cessation of normal business operations and initially caused capital markets to decline sharply. This could make it more difficult for the Company to access capital. It is currently difficult to estimate with any certainty how long the pandemic and resulting curtailment of business will continue, and its effect on capital markets and the Company’s ability to raise funds is, accordingly, difficult to quantify. In addition, to the extent that any of the Company’s personnel or consultants are affected by the virus, this could cause delays or disruption in our planned research and development activities.
Current Financings
Convertible Debt – Related Party
On November 1, 2021, pursuant to the First November 2021 SPA the First November 2021 Investor purchased three notes with aggregate principal of $1,000,000 with accompanying First November 2021 Warrants to purchase up to an aggregate of 54,644,811 shares of common stock. The First November 2021 Notes bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default” (as defined in the First November 2021 Notes)) and mature on November 1, 2026. The First November 2021 Warrants are exercisable at any time and expire on November 1, 2026. The First November 2021 Notes and First November 2021 Warrants are convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00366 per share. As of March 31, 2022, the First November 2021 Notes had an outstanding principal balance of $1,000,000 and accrued interest of $6,795.
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On January 26, 2022, the Company, upon the approval of the First November 2021 Investor, amended the First November 2021 SPA whereby the Company issued an additional cashlessly-exercisable warrant to purchase 218,579,234 shares of common stock. As a result, the total relative fair value of all warrants in total increased by $34,630, recorded as debt discount, which is being amortized over the life of the First November 2021 Notes. This warrant is exercisable at a price equal to $0.00366 per share until November 1, 2026.
Convertible Debt
On November 1, 2021, pursuant to the Second November 2021 SPA the Second November 2021 Investor purchased two notes with aggregate principal of $500,000 with accompanying Second November 2021 Warrants to purchase up to an aggregate of 27,322,406 shares of common stock. The Second November 2021 Notes bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default” (as defined in the Second November 2021 Notes)) and mature on November 1, 2026. The Second November 2021 Warrants are exercisable at any time and expire on November 1, 2026. The Second November 2021 Notes and Second November 2021 Warrants are convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00366 per share. As of March 31, 2022, the Second November 2021 Notes had an outstanding principal balance of $500,000 and accrued interest of $14,466.
On January 26, 2022, the Company, upon the approval of the Second November 2021 Investor, amended the Second November 2021 SPA whereby the Company issued an additional cashlessly-exercisable warrant to purchase 109,289,616 shares of common stock. As a result, the total relative fair value of all warrants in total increased by $22,429, recorded as debt discount, which is being amortized over the life of the Second November 2021 Notes. This warrant is exercisable at a price equal to $0.00366 per share until November 1, 2026.
On November 1, 2021, pursuant to the Third November 2021 SPA the Third November 2021 Investor purchased two notes with aggregate principal of $500,000 with accompanying Third November 2021 Warrants to purchase up to an aggregate of 27,322,406 shares of common stock. The Third November 2021 Notes bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default” (as defined in the Third November 2021 Notes)) and mature on November 1, 2026. The Third November 2021 Warrants are exercisable at any time and expire on November 1, 2026. The Third November 2021 Notes and Third November 2021 Warrants are convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00366 per share. As of March 31, 2022, the Third November 2021 Notes had an outstanding principal balance of $500,000 and accrued interest of $14,356.
On January 26, 2022, the Company, upon the approval of the Third November 2021 Investor, amended the Third November 2021 SPA whereby the Company issued an additional cashlessly-exercisable warrant to purchase 109,289,616 shares of common stock. As a result, the total relative fair value of all warrants in total increased by $22,429, recorded as debt discount, which is being amortized over the life of the Third November 2021 Notes. This warrant is exercisable at a price equal to $0.00366 per share until November 1, 2026.
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On January 27, 2022, pursuant to the First January 2022 SPA the First January 2022 Investor purchased a note with principal of $500,000 with accompanying First January 2022 Warrants to purchase up to an aggregate of 136,612,022 shares of common stock. The First January 2022 Note bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default” (as defined in the First January 2022 Note)) and mature on November 1, 2026. The First January 2022 Warrants are exercisable at any time and expire on November 1, 2026. The First January 2022 Note and First January 2022 Warrants are convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00366 per share. As of March 31, 2022, the First January 2022 Note had an outstanding principal balance of $500,000 and accrued interest of $6,904.
On January 31, 2022, pursuant to the Second January 2022 SPA the Second January 2022 Investor purchased a note with principal of $500,000 with accompanying Second January 2022 Warrants to purchase up to an aggregate of 136,612,022 shares of common stock. The Second January 2022 Note bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default” (as defined in the Second January 2022 Note)) and mature on November 1, 2026. The Second January 2022 Warrants are exercisable at any time and expire on November 1, 2026. The Second January 2022 Note and Second January 2022 Warrants are convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00366 per share. As of March 31, 2022, the Second January 2022 Note had an outstanding principal balance of $500,000 and accrued interest of $6,466.
Note Payable - Related Party
On April 26, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors and is considered a related party, for a principal amount of $100,000. The Company received proceeds of $100,000. The note bears an annual interest rate of 1%, matures on April 1, 2022 and can be prepaid in whole or in part without penalty. Pursuant to the note, the Company has a 90-day grace period following the maturity date after which the lender shall charge a late payment fee equal to 1% of the outstanding principal balance and cost of collection, including legal fees. As of September 30, 2021, the note had an outstanding principal balance of $100,000 and accrued interest of $428. As of March 31, 2022, the note had an outstanding principal balance of $100,000 and accrued interest of $928.
On October 21, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors and is considered a related party, for a principal balance of $150,000. The Company received proceeds of $150,000. The note bore an annual interest rate of 1%, matured on December 1, 2021 and could have been prepaid in whole or in part without penalty. Pursuant to the note, the Company has a 90-day grace period following the maturity date after which the lender was permitted to charge a late payment fee equal to 1% of the outstanding principal balance and cost of collection, including legal fees. During the six months ended March 31, 2022, the Company fully paid the outstanding balance on the note. As of March 31, 2022, the note had no outstanding balance.
On March 14, 2022, Matthew M. Schwartz, who was elected a member of the board of directors on April 1, 2022, advanced the Company $100,000 to fund its working capital.
Future Financings
We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing, if the volatile conditions of the stock and financial markets, and more particularly, the market for early-stage development company stocks persist.
There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Critical Accounting Policies
We have identified the following policies as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.
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Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the three months ended March 31, 2022 and year ended September 30, 2021 include, but are not necessarily limited to, estimates of contingent liabilities, valuation of marketable securities, useful life of property and equipment, valuation of right-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current and deferred income taxes and deferred tax valuation allowances and the fair value of non-cash equity transactions.
Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future results of operation will be affected.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value 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. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on March 31, 2022. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on the disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, are recognized in the financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 during the period September 30, 2018, and the adoption did not have any impact on its financial statements.
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Revenue Recognition and Contract Assets and Liabilities
In accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead to deferred revenue for services not completed at the end of a period which is reflected as contract liabilities in the accompanying unaudited balance sheets. The Company may include, in accounts receivable, amounts billed to customers in advance of services being initiated or completed. If the Company has a right to such consideration that is unconditional such as for contractually allowed billings, such amounts billed in advance would be offset by a contract liability. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The Company offers these services to biopharmaceutical companies and to private individuals. The Company uses various output methods to recognize revenues. The revenue recognized from services provided to private individuals during the six months ended March 31, 2022 and year ended September 30, 2021 were minimal and therefore was not disaggregated for disclosure purposes.
Contract Liabilities
Contract liabilities are cash deposits received from customers and advance billing included in accounts receivable on uncompleted contracts for which revenues have not been recognized as of the balance sheet date.
Leases
The Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assesses whether the contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the unaudited statements of operations.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:
1. | Added a disclosure objective |
2. | Added information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed |
3. | Added information on which party controls the conversion rights |
4. | Aligned disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments |
5. | Required that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate. |
Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.
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The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company early adopted ASU 2020-06 and its adoption did not have any material impact on the Company’s financial statements.
In May 2021, the FASB issued 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). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2020-06 and its adoption did not have any material impact on the Company’s financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2022, our disclosure controls and procedures were not effective.
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2022. Our management’s evaluation of our internal control over financial reporting was based on the Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of March 31, 2022, our internal control over financial reporting was not effective.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal controls over financial reporting:
(1) | The lack of multiple levels of management review on complex accounting and financial reporting issues, and business transactions, | |
(2) | a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting processing and accounting functions as a result of our limited financial resources to support the hiring of the necessary personnel and the implementation of more robust accounting systems, |
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A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management’s Remediation Plan
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the future:
(i) | appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and | |
(ii) | adopt sufficient written policies and procedures for accounting and financial reporting. |
The remediation efforts set out in (i) are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes.
Management believes that despite our material weaknesses set forth above, our unaudited financial statements for the quarter ended March 31, 2022 are fairly stated, in all material respects, in accordance with US GAAP.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 2017, numerous purported plaintiffs brought an action against Avant Diagnostics and its previous executive team in the District Court of Harris County Texas. The action alleges the plaintiffs were engaged by Avant to perform services prior to 2018, which they were not compensated for, and were issued certain restricted shares of Avant as payment of those services and Avant did not remove the restrictive legend from said shares. The plaintiffs are seeking $1,000,000 in monetary relief. On July 1, 2021, the Company and Dr. Ruxin were added as defendants in the lawsuit. On March 7, 2022, the Court granted the Company and Dr. Ruxin’s Motion to Dismiss for lack of personal jurisdiction. The remaining claims against Avant Diagnostics and the previous executive team are still pending.
On December 10, 2021, YPH LLC filed a complaint against the Company in the District Court for the Southern District of New York alleging that Theralink breached its Certificate of Designation for Series C-1 Convertible Preferred Stock by failing to honor a conversion notice submitted to it by YPH. Based on these and other allegations, Plaintiff asserted a breach of contract claim claiming that it has damages in excess of $100 million. The case continues to be in the pleadings stage with Theralink filing its last response on March 30, 2022. The Company believes these claims are without merit and intends to defend plaintiffs’ lawsuits vigorously. The Company currently believes the likelihood of a loss contingency related to these matters is remote and, therefore, no provision for a loss contingency is required.
ITEM 1A. RISK FACTORS
Risk factors that may affect our business and financial results are discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. There have been no material changes to the disclosures relating to this item from those set forth in our 2021 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
● | During the three months ended March 31, 2022, the Company issued an aggregate of 26,913,738 shares of the Company’s common stock to two consultants upon the close of their respective settlement agreements, dated October 18, 2021, to settle accounts payable balance in aggregate amount of $84,240 or $0.00313 per share, valued with the share price of common stock sold in private placements during the same period. |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
Number | Exhibit Description | Form | Exhibit | Filing Date | Herewith | |||||
3.1 | Amended and Restated Articles of Incorporation, as amended | 10-K | 3.1 | 01/13/2022 | ||||||
3.2 | Amended and Restated Bylaws | 8-K | 3.1 | 11/01/2013 | ||||||
4.1 | Form of Convertible Promissory Note for April 2022 | X | ||||||||
4.2 | Form of Common Stock Purchase Warrant for April 2022 | X | ||||||||
10.1 | Form of Securities Purchase Agreement for April 2022 | X | ||||||||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002. | X | ||||||||
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002. | X | ||||||||
32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002. | X | ||||||||
101.INS | INLINE XBRL INSTANCE DOCUMENT | X | ||||||||
101.SCH | INLINE XBRL TAXONOMY EXTENSION SCHEMA | X | ||||||||
101.CAL | INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | X | ||||||||
101.DEF | INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | X | ||||||||
101.LAB | INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE | X | ||||||||
101.PRE | INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | X | ||||||||
104 | COVER PAGE INTERACTIVE DATA FILE (EMBEDDED WITHIN THE INLINE XBRL DOCUMENT) | X |
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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.
THERALINK TECHNOLOGIES, INC. | ||
Date: May 23, 2022 | By: | /s/ Mick Ruxin, MD |
Mick Ruxin, MD | ||
Chief Executive Officer | ||
Date: May 23, 2022 | By: | /s/ Thomas E. Chilcott, III |
Thomas E. Chilcott, III | ||
Chief Financial Officer, Treasurer and Secretary |
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