Preferred Stock Dividend and Deemed Dividend
For the year ended September 30, 2021, related to the Series F Preferred stock, we recorded a beneficial conversion feature of $42,808 and the relative fair value of the issued warrant of $957,192 for a total of $1,000,000, accounted for as deemed dividend. For the year ended September 30, 2021, we also recorded dividends for the Series E Preferred stock and Series F Preferred stock in the amount of $159,890 and $6,728, respectively, for a total of $166,618 of preferred stock dividends.
For the year ended September 30, 2020, related to the Series E Preferred stock, we recorded a beneficial conversion feature of $2,000,000 accounted for as deemed dividend and Series E Preferred stock dividends of $6,120.
Net Loss Attributed to Common Stockholders
For the year ended September 30, 2021, net loss attributed to common stockholders amounted to $6,638,267, or $(0.00) per share (basic and diluted) compared to net loss attributed to common stockholders of to $5,176,387, or $(0.06) per share (basic and diluted), for the year ended September 30, 2020, an increase of $1,461,880, or 28%. The increase was a result of the changes in operating expenses and other expenses, net discussed above.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had working capital (deficit) of $(2,657,337) and $314,151 of cash as of September 30, 2021 and working capital of $877,234 and $1,779,283 of cash as of September 30, 2020.
September 30, 2021 | September 30, 2020 | Change | Percentage Change | |||||||||||||
| Working capital (deficit): | ||||||||||||||||
| Total current assets | $ | 638,753 | $ | 2,067,971 | $ | (1,429,218 | ) | 69 | % | |||||||
| Total current liabilities | (3,296,090 | ) | (1,190,737 | ) | (2,105,353 | ) | 177 | % | ||||||||
| Working capital (deficit): | $ | (2,657,337 | ) | $ | 877,234 | $ | (3,534,571 | ) | 403 | % | ||||||
The increase in working capital (deficit) was primarily attributable to the decrease in current assets of $1,429,218 and increase in current liabilities of $2,105,353.
Cash Flows
The following table sets forth a summary of changes in cash flows for the years ended September 30 2021 and 2020:
Years Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash used in operating activities | $ | (4,780,930 | ) | $ | (3,470,755 | ) | ||
| Cash provided by (used in) investing activities | (134,702 | ) | 144,390 | |||||
| Cash provided by financing activities | 3,450,000 | 4,545,241 | ||||||
| Net change in cash | $ | (1,465,132 | ) | $ | 1,218,876 | |||
Net Cash Used in Operating Activities:
Net cash used in operating activities was $4,780,930 for the year ended September 30, 2021 as compared to $3,470,755 for the year ended September 30, 2020, an increase of $1,310,175 or 38%.
Net Cash Provided by (Used in) Investing Activities
Net cash (used in) investing activities was $(134,202) for the year ended September 30, 2021 as compared to net cash provided by investing activities $144,390 for the year ended September 30, 2020, a change of $278,592, or 193%.
Cash Provided by Financing Activities:
Net cash provided by financing activities was $3,450,000 for the year ended September 30, 2021 as compared to $4,545,241 for the year ended September 30, 2020, an increase of $1,095,241 or 24%.
Cash Requirements
Our 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 consolidated 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 consolidated financial statements, the Company had net loss and net cash used in operations of $5,471,649 and $4,780,930, respectively, for the year ended September 30, 2021. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $49,825,855, $4,945,362 and $2,657,337 at September 30, 2021. 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 consolidated 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.
Financings
Sales of Series F Preferred Stock and Warrants Pursuant to Subscription Agreement
On July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder, to purchase an aggregate amount of 500 shares of Series F Convertible Preferred Stock (the “Series F Preferred”) with an accompanying warrant for 63,897,764 shares of common stock (“Warrant”), for total proceeds of $1,000,000. The Series F Preferred Stock has a stated value of $2,000 per share and shall accrue monthly in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid monthly at the option of the holder of the Series F Preferred in either cash or shares of common stock of the Company. The number of shares of common stock issuable upon conversion of the Series F Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00313 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0016. In addition, the investor was issued the Warrant to purchase an amount of common stock equal to 20% of the shares of common stock issuable upon conversion of the Series F Preferred at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until July 30, 2026. The Warrants are exercisable for cash at any time. The Warrant was valued using the relative fair value method and had a grant date fair value $957,192 and the Series F Preferred stock had a grant date fair value $42,808 which was recorded as a beneficial conversion feature (“BCF”).
In accordance to ASC 470 – Debt, the proceeds of $1,000,000 was allocated based on the relative fair values of the Series F preferred stock and the Warrant of $42,808 and $957,192, respectively. Although ASC 470 is for debt instruments issued with warrants, preferred shares issued with warrants should be accounted for in a similar manner.
Convertible Debt – Related Party
On May 12, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder (the “Investor”), to purchase a convertible note (the “Note”) and accompanying warrant for 63,897,764 of common stock, (the “Warrant”) for an aggregate investment amount of $1,000,000. The Note has a principal value of $1,000,000 and bears 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 Note)) and shall mature on May 12, 2026 (the “Maturity Date”). The Company received the proceeds in three tranches with the first tranche of $333,334 received in May 2021, the second tranche of $333,333 received in June 2021 and the third tranche of $333,333 received in July 2021. The Note is convertible at any time into shares of the Company’s common stock at a conversion price equal to $0.00313 per share for any amount of principal and accrued interest remaining outstanding (subject to adjustment as provided therein). The Company may prepay the Note at any time in an amount equal to 110% of the outstanding principal balance and accrued interest. In connection with the Company’s obligations under the Note, the Company entered into a security agreement (the “Security Agreement”) with Ashton Capital Corporation as agent, pursuant to which the Company granted a lien on laboratory equipment of the Company (the “Collateral”), for the benefit of the Investor, to secure the Company’s obligations under the Note. Upon an Event of Default (as defined in the Notes), the Investor may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral. During the year ended September 30, 2021, the Company paid $19,142 of accrued interest. As of September 30, 2021, the Note has an outstanding principal of $1,000,000 and accrued interest of $6,575. It’s reflected in the accompanying consolidated balance sheet as a long-term convertible note payable – related party, net of discount in the amount of $64,981.
In connection with the Note, the Investor was issued a Warrant to purchase up to 63,897,764 shares of common stock at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until May 12, 2026. The Warrants are exercisable for cash at any time. The Warrant was valued at $984,200 using the relative fair value method which was recorded as a debt discount which is being amortized over the life of the Note. In addition, the Note had a BCF in the amount of $15,800 which was recorded as a debt discount which is being amortized over the life of the Note. The debt discount totaled $1,000,000. During the year ended September 30, 2021, the Company amortized $64,981 of the debt discount which is included in interest expense in the accompanying consolidated statement of operations.
Note Payable - Related Party
On April 26, 2021, the Company entered into a Promissory Note Agreement (the “Note”) with Jeffrey Busch who serves as a member of the Board of Directors (“Lender”) 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 of $100,000 and accrued interest of $427.
Sale of Common Stock
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 431,309,904 shares of its common stock, par value $0.0001 per share, at a purchase price of $0.00313 per share for an aggregate purchase price of $1,350,000. These shares of common stock were sold by the Company in reliance upon an exemption from the registration requirements of the Act afforded by Section 4(a)(2) of the Act and/or Rule 506 of Regulation D thereunder. The private placement was made directly by the Company and no underwriter or placement agent was engaged by the Company. The Company did not engage in general solicitation or advertising and did not offer securities to the public in connection with this offering. As of September 30, 2021, this common stock has not been issued. Accordingly, the $1,350,000 is reflected in the accompanying consolidated balance sheet as subscription payable.
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 particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage 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.
Use of Estimates
The preparation of consolidated 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 consolidated 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 years ended September 30, 2021 and 2020 include, but are not necessarily limited to, the valuation of assets and liabilities of discontinued operations, 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 consolidated 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 September 30, 2021. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on 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:
In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 during the quarter ended March 31, 2020 and its adoption did not have any material impact on the Company’s consolidated financial statements.
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 consolidated 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 consolidated 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 consolidated financial statements.
Revenue Recognition
In May 2014, FASB issued an Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard during the fiscal year ended September 30, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.
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. 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 revenue recognized from services provided to private individuals during the year ended September 30, 2021 were minimal and therefore was not disaggregated for disclosure purposes.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The Company will allocate 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 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 consolidated 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 edging—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:
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 is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated 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 is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated 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 consolidated 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules from page F-1 of this annual report on Form 10-K, which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
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 Company’s reports filed under the Exchange Act is 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 Company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2021, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses, which we identified, in our report on internal control over financial reporting.
Internal Control Over Financial Reporting
Management’s Annual report on Internal Control Over Financial Reporting
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 September 30, 2021. Our management’s evaluation of our internal control over financial reporting was based on the framework in 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 September 30, 2021, 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:
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.
Limitations on Effectiveness of Controls
Our principal executive officer and principal financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, 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 a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to SEC rules that permit us to provide only management’s report on internal control over financial reporting in this annual report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes 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 September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors and Executive Officers
The following table sets forth the names, positions and ages of our directors and executive officers as of the date of this report.
| Name | Age | Position | ||
| Chief Executive Officer, | ||||
| Chief Financial Officer and Director | ||||
| Jeffrey Busch | Chairman of the Board | |||
| Director | ||||
| Director | ||||
| Mick Ruxin, M.D. | 78 | Director | ||
| Matthew Schwartz | 50 | Director |
Biographical information concerning the directors and executive officers listed above is set forth below. The information has been provided to us about all the positions they hold, their principal occupation and their business experience for the past five years. In addition to the information presented below regarding each director’s specific experience, qualifications, attributes and skills that led our Board to conclude that they should serve as a director, we also believe that all of our directors have a reputation for integrity, honesty and adherence to high ethical standards. Each has demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to our Company and our Board. Each director is to be elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until their qualified successor is elected.
Faith Zaslavsky
Ms. Zaslavsky was appointed as the Company’s CEO on June 26, 2023. She has also served as President and Chief Operating Officer since December 5, 2022. Prior to her current position, Ms. Zaslavsky served as President of Oncology for Myriad Genetic Laboratories, (NASDAQ- MYGN). Her responsibilities included overseeing all commercial functions which include leading Medical Services, Medical Affairs, National and Enterprise Accounts and Sales and Marketing. She has spent 22 years leading and transforming teams, designing solutions for physicians to support care and advocating for patients facing a journey with cancer. She received a Business Administration degree from Washington State University. Ms. Zaslavsky also serves on the board of directors of the American Society of Breast Surgeons Foundation.
Andrew Kucharchuk
On May 5, 2023, Mr. Kucharchuk was appointed as the Company’s Chief Financial Officer. Mr. Kucharchuk has served as a director of our Company since June 2020. Mr. Kucharchuk also served as our Chief Financial Officer from August 2020 until September 2020. Mr. Kucharchuk was previously the Chief Executive Officer and Chief Financial Officer of OncBioMune, Inc. prior to the Asset Sale. Mr. Kucharchuk is currently the Chief Operating Officer and on the Board of Directors of Adhera Therapeutics, Inc. (OTCQB: ATRX), a late clinical stage biotechnology company, with an asset in the Parkinson’s space. Mr. Kucharchuk is a graduate of Louisiana State University and Tulane University’s Freeman School of Business, where he earned an MBA with a Finance Concentration. Mr. Kucharchuk’s role as a former executive officer of our Company gives him insights into our day-to-day operations and a practical understanding of the issues and opportunities that face us which uniquely qualify him to serve as a member of our Board.
Mick Ruxin, M.D.
Dr. Ruxin has been the Chief Executive Officer, President andserved as a director of the Company since June 2020 and2020. Previously, he was the Chief Executive Officer of the Company from June 2020 to June 2023 and currently serves as the Company’s Chief Medical Officer. Dr. Ruxin was the Chief Executive Officer and President of Avant prior to the Asset Sale. PriorSale to his current role,Theralink.Previously, he was a strategic advisor to Avant since December 2017. Previously, Dr. Ruxinand was the Chairman, CEO and Founder of Global Med Technologies, Inc. (GLOB). He grew GLOB from a foundational concept to an international medical software company, specializing in FDA approved software, with specific diagnostic capabilities, and serving over 30 countries on 4 continents. Under his leadership, GLOB had its initial financing, its initial public offering and subsequent follow-on financings. Dr. Ruxin also founded PeopleMed, Inc., a validation and chronic disease management software subsidiary of GLOB. In addition, he conceived and executed the acquisition and financing of Inlog, a French software company serving the EU, becoming the Directeur General responsible for European Operations—and eDonor, a US based regulated software company serving domestic and international blood donor centers. Prior to Dr. Ruxin engineering the sale of GLOB to a NYSE company, Haemonetics Corp. (HAE), he led his team to national prominence by being awarded the #1 position in quality of product and customer service against billion-dollar software companies, rated by an industry-respected, independent software rating service. After GLOB’s acquisition by Haemonetics, Dr. Ruxin was asked to stay with the company through the transition. Dr. Ruxin was on the Executive Management Team (EMT) at Haemonetics for approximately 6 months after the merger. The EMT was responsible for diagnostic strategies and identified domestic and international software opportunities for the company. Before founding Global Med Technologies, Dr. Ruxin founded and was President and CEO of DataMed International, Inc. (DMI), a private, international drugs of abuse management company (from 1989-1997). DMI’s clients included FedEx, International Multi-Foods, Los Alamos National Laboratories, Chevron, ConAgra, Nestles and AT&T, among over 500 other companies. Dr. Ruxin was one of the first 10 certified Medical Review Officers in the country, and he participated in writing the Federal legislation for drugs of abuse testing. Dr. Ruxin received his M.D. degree from the University of Southern California School of Medicine and his B.A degree in Philosophy from the University of Pittsburgh.
Thomas E. Chilcott, III
Mr. Chilcott has served as our Chief Financial Officer since September 2020. Prior to taking his current role, Mr. Chilcott served as Chief Financial Officer, Secretary, Treasurer and Controller of Ampio Pharmaceuticals, Inc., or Ampio (NASDAQ: AMPE), from January 2017 until June 2019. Mr. Chilcott also served as the President and Chief Executive Officer of Chilcott Consulting Group from September 2006 to December 2016. Mr. Chilcott began his career as an auditor with KPMG Peat Marwick. He graduated from Villanova University with a BS of Administration in Accountancy and is a Certified Public Accountant in good standing. Mr. Chilcott is a member of the Colorado Society of Certified Public Accountants.
Jeffrey Busch
Mr. Busch has served as the Chairman of our Board since June 2020. Mr. Busch is the current Chairman and CEO of Global Medical REIT, a NYSE listed (NYSE:GMRE) and publicly traded company which acquires licensed medical facilities. Mr. Busch has been a Presidential Appointee, entrepreneur and active investor in various asset classes, including medical and pharmaceutical since 1985. Mr. Busch has had a distinguished career in public service, which included serving as a Chief of Staff to a United States Congressman and serving in senior positions in two U.S. Presidential Administrations. Mr. Busch oversaw hundreds of millions of dollars in economic development programs. Mr. Busch represented the United States before the United Nations in Geneva, Switzerland. Mr. Busch has served as a top advisor to several publicly traded medical companies and has worked in the medical, blood supply and management fields. Mr. Busch also served as President of the Safe Blood International Foundation, where he oversaw the establishment of medical facilities in 35 developing nations, including China. These facilities were funded by the U.S. Centers for Disease Control and Prevention, USAID, Chinese government and corporate and private entities. Mr. Busch is a graduate of the New York University Stern School of Business, holds a Master of Public Administration specializing in health care from New York University, and a Doctor of Jurisprudence from Emory University.
Andrew Kucharchuk
Mr. Kucharchuk has served as a director of our Company since June 2020. Mr. Kucharchuk served as our Chief Financial Officer from August 2020 until September 2020 and as a member of our Board since June 2020. Mr. Kucharchuk was previously the Chief Executive Officer and Chief Financial Officer of OncBioMune, Inc. prior to the Asset Sale. Mr. Kucharchuk is currently the Chief Executive Officer and Chairman of the Board of Directors of Adhera Therapeutics, a late clinical stage biotechnology company, with assets in the Parkinson’s and Type 1 Diabetes space. Mr. Kucharchuk is a graduate of Louisiana State University and Tulane University’s Freeman School of Business, where he earned an MBA with a Finance Concentration. Mr. Kucharchuk’s role as a former executive officer of our Company gives him insights into our day-to-day operations and a practical understanding of the issues and opportunities that face us which uniquely qualify him to serve as a member of our Board.
Yvonne C. Fors
Ms. Fors has served as a director of our Company since June 2020. She has taken an active role in all areas of the business since joining the team in 2000. Ms. Fors is the current Chief Financial Officer and Vice President of Finance for Ashton Capital Corporation. Her achievements at Ashton include growing the company through acquisitions, real estate development and investments. In her role, she establishes relationships and collaborates with banks and other financial institutions to leverage the assets of the corporation to fund future growth. Ms. Fors currently serves on the Board of Directors of Ashton Capital, SaviBank, Savi Financial Corporation and GaffTech. She is also actively involved in SWAN Investments, an early-stage investment fund located in Seattle. Previously, Ms. Fors was the Controller and Manager of four medical clinics in Las Vegas, Nevada. Ms. Fors holds a Bachelor of Science degree in Accounting from the University of Nevada, Las Vegas.
Matthew Schwartz, MD
Dr. Schwartz has served as a director of our Company since April 2022. Dr. Schwartz is a practicing Radiation Oncologist with Comprehensive Cancer Centers of Nevada (CCCN) since 2006. Through his service on the Board of Directors of CCCN as well as the Marketing Chairman, he helped grow CCCN to the largest Oncology group in Nevada with 64 providers in 12 locations. He is also the Chairman of the Board of Managers and co-founder of the Las Vegas Cyberknife at Summerlin which offers state of the art Radiosurgical treatments. Dr. Schwartz was a member of the McKesson Specialty Health Radiation Executive Committee, and he served on the Radiation Oncology Leadership Council of US Oncology. Dr. Schwartz was awarded Alumni of the Year from the UNLV College of Sciences. He received his MD from the University of Nevada School of Medicine, and he was a Resident at Yale University Department of Internal Medicine and McGill University School of Medicine where he was Chief Resident. Dr. Schwartz has been the Principal Investigator on Clinical Research Studies in Oncology and has multiple peer reviewed publications.
Danica Holley
Ms. Holley has served as a director of the Company since April 2022. Ms. Holley serves as the Chief Operating Officer of Global Medical REIT Inc. (NYSE: GMRE) since March 2016. As COO, she has shepherded the organization’s growth from infancy, IPO, to now over $1.4 billion gross real estate assets under management. Ms. Holley leads the operational, risk and ESG initiatives at GMRE. Ms. Holley’s management and business development experience spans more than 18 years with an emphasis on working in an international environment. She has extensive experience in international program management, government procurement, and global business rollouts and start-ups. As Executive Director for Safe Blood International Foundation, from April 2008 to July 2016, she oversaw national health initiatives in Africa and Asia, including an Ebola response project. Ms. Holley has more than two decades of experience managing multinational teams for complex service delivery across disciplines. Ms. Holley currently serves on the Board of Directors for Mobile Infrastructure Corporation, where she is a member of the audit, compensation and nominating and governance committees. She received a B.S.F.S from the Edmund Walsh School of Foreign Service at Georgetown University in International Law, Politics and Organization, an African Studies Certificate and Arabic Proficiency (May 1994). She studied International Organization at the School for International Training, Brattleboro, Vermont and Rabat, Morocco (January 1993 to June 1993). She is an ICF certified executive leadership coach and an alumna of Georgetown University’s Graduate Executive Leadership Coaching Program (September 2010). In 2018, she completed Harvard Business School’s Finance for Senior Executives program.
Family Relationships
There are no family relationships between any of the executive officers and directors.
Delinquent Section 16(a) Reports
None.Section 16(a) of the Exchange Act requires our officers, directors, and persons who beneficially own more than ten percent (10%) of our outstanding common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulations to furnish us with all copies of Section 16(a) forms they file.
Based solely on our review of the forms furnished to us and written representations from certain reporting persons, we believe that all filing requirements applicable to our directors, executive officers, and persons who own more than 10% of our common stock were timely filed during fiscal 2023, except:
| ● | Faith Zaslavsky filed a late Form 3 on December 19, 2023 for a transaction dated December 5, 2022; | |
| ● | Matthew Schwartz filed a late Form 4 on January 26, 2024for a transaction dated November 29, 2022; | |
| ● | Danica Holley filed a late Form 4 on January 26, 2024for a transaction dated November 29, 2022; and | |
| ● | Jeffrey Busch filed a late Form 4 on February 2, 2024 for transactions dated November 29, 2022 and April 22, 2023. |
Code of Ethics
We have not adopted a code of ethics because our Board believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our Board intends to adopt a code of ethics when circumstances warrant.
Involvement in Certain Legal Proceedings
No director, executive officer, promoter or person of control of our Company has, during the last ten years: (i) been convicted in or is currently subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any Federal or state securities or banking or commodities laws including, without limitation, in any way limiting involvement in any business activity, or finding of any violation with respect to such law, nor (iii) been a party to any bankruptcy petition filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy or for the two years prior thereto.
We are not engaged in, nor are we aware of any pending or threatened litigation in which any of our directors, executive officers, affiliates or owner of more than 5% of our common stock is a party adverse to us or has a material interest adverse to us.
Corporate Governance
Term of Office
Each director of our Company is to serve for a term of one year ending on the date of the subsequent annual meeting of stockholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until their successor is elected and qualified or until his or her death, resignation or removal. Our Board is to elect our officers and each officer is to serve until his successor is elected and qualified or until his death, resignation or removal.
Committees of the Board
Our Board held severalsix formal meetings during the year ended September 30, 2021.2023. All other proceedings of our Board were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws of the State of Nevada and our By-laws, as valid and effective as if they had been passed at a meeting of our directors duly called and held. During 2021,2023, each incumbent director attended 75% or more of the meetings of our Board.
We currently do not have nominating or compensation committees or committees performing similar functions, nor do we have a written nominating or compensation committee charter. Our Board does not believe that it is necessary to have such committees because the functions of such committees can be adequately performed by our Board.
We do not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the election of nominees to our Board and we do not have any specific process or procedure for evaluating such nominees. Our Board assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.
A shareholder who wishes to communicate with our Board may do so by directing a written request to the address appearing on the first page of this annual report.
Audit Committee and Audit Committee Financial Expert
We do not have a standing audit committee at the present time. Our Board has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.
Our Board fulfills the functions of an audit committee. We believe that our Board is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The Board does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the Board. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstancescircumstance given the early stages of our development.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
For our fiscal year ended September 30, 2021,2023, our Named Executive Officers were:
| (i) | |||
| (ii) | Andrew Kucharchuk, our Chief Financial Officer, has served as our Chief Financial Officer since May 2023; | ||
| (iii) | |||
| (iv) | Thomas E. Chilcott, our former Chief Financial Officer,who |
The following table shows compensation awarded to, paid to, or earned by our Named Executive Officers for the fiscal years ended September 30, 20212023 and 2020:2022:
SUMMARY COMPENSATION TABLE
FOR OUR NAMED EXECUTIVE OFFICERS
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Mick Ruxin, M.D, | 2021 | 300,000 | (1) | — | — | — | — | — | 10,583 | (2) | 310,583 | |||||||||||||||||||||||||
| Chief Executive Officer, Effective June 2020 | 2020 | 302,430 | (1) | — | — | — | — | — | 9,582 | (2) | 312,012 | |||||||||||||||||||||||||
| Thomas E. Chilcott, III, | 2021 | 225,000 | (4) | — | — | — | — | — | — | 225,000 | ||||||||||||||||||||||||||
| Chief Financial Officer, Effective September 2020 | 2020 | 4,327 | (4) | — | — | — | — | — | — | 4,327 | ||||||||||||||||||||||||||
| Andrew Kucharchuk, | 2021 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Former Chief Financial Officer | 2020 | 56,654 | (3) | — | — | — | — | — | — | 56,654 | ||||||||||||||||||||||||||
| Stock | Option | All | ||||||||||||||||||||||||||
| Name and Principal | Salary | Bonus | Award | Awards | Other | |||||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($)(1) | Compensation | Total ($) | |||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||||
| Named Executive Officers | ||||||||||||||||||||||||||||
| Faith Zaslavsky | ||||||||||||||||||||||||||||
| Chief Executive Officer | 2023 | $ | 330,512 | $ | - | $ | - | $ | - | $ | $ | 330,512 | ||||||||||||||||
| 2022 | - | - | - | - | - | |||||||||||||||||||||||
| Andrew Kucharchuk | ||||||||||||||||||||||||||||
| Chief Financial Officer | 2023 | $ | 71,613 | $ | 30,000 | $ | - | $ | - | $ | 21,000 | (2) | $ | 122,613 | ||||||||||||||
| 2022 | ||||||||||||||||||||||||||||
| Mick Ruxin | ||||||||||||||||||||||||||||
| Chief Executive Officer | 2023 | $ | 224,395 | (3) | $ | - | $ | - | $ | 936,783 | (4) | 1,161,178 | ||||||||||||||||
| (prior) | 2022 | $ | 300,000 | (3) | $ | - | $ | - | $ | 1,972,903 | $ | 10,142 | (4) | 2,283,045 | ||||||||||||||
| Thomas E. Chilcott | ||||||||||||||||||||||||||||
| Chief Financial Officer | 2023 | $ | 192,269 | (5) | $ | 150,000 | (5 | ) | $ | 31,604 | (6) | 373,873 | ||||||||||||||||
| (prior) | 2022 | $ | 259,375 | (5) | $ | 75,000 | (5 | ) | $ | 397,089 | $ | (6) | 740,918 | |||||||||||||||
(1) | The amounts reported under “Option Awards” in the above table reflect the grant date fair value of these awards as determined in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation, rather than amounts paid to or realized by the named individual. The value of the option awards was estimated using the Black-Scholes option pricing model. The valuation assumptions used in the valuation of options granted may be found in Note 10 to our financial statements included in this annual report on Form 10-K for the year ended September 30, 2023. |
| (2) | Consulting fees paid to Mr. Kucharchuk for the period October 1, 2023 thru termination of his consulting agreement on April 30, 2024. |
(3) | On June 5, 2020, Dr. Ruxin was appointed to serve as our Chief Executive Officer with an annual salary of $300,000 pursuant to his employment agreement dated June 5, 2020. |
| (4) | |
| (5) | Mr. Chilcott |
| (6) | Represents Mr. Chilcott’s health insurance allowance of |
Our executive officers are reimbursed by us for any out-of-pocket expenses incurred in connection with activities conducted on our behalf.
Compensation of ManagementEmployment Agreements
Faith Zaslavsky
Dr. Ruxin wasOn December 5, 2022, the Company appointed Faith Zaslavsky, as President and Chief ExecutiveOperating Officer of the Company, effective JuneDecember 5, 2020.
2022. In connection with her appointment, on December 5, 2022, the Company and Ms. Zaslavsky entered into an offer letter which provides that Ms. Zaslavsky’s base salary will be $400,000 per year, and that beginning in calendar year 2023 she will be eligible to receive an annual incentive cash bonus of up to 35% of base salary at the discretion of the Board for the achievement of certain milestones to be agreed upon by Ms. Zaslavsky and the Company within 90 days of the Effective September 29, 2020, Mr. Chilcott was appointed our Chief Financial Officer. Concurrently, Mr. Kucharchuk resignedDate. Upon the Company’s creation of a new equity incentive plan or an increase in the number of shares available under the Company’s existing equity incentive plan, Ms. Zaslavsky will be granted 150,000,000 employee stock options vesting at 20% annually, beginning on the Effective Date. The employee stock options will have a strike price equal to the closing price of the Company’s common stock on the day that the Board approves Ms. Zaslavsky’s stock option package. Ms. Zaslavsky is eligible to participate in the benefit plans and programs generally available to the Company’s employees. Ms. Zaslavsky will also be entitled to reimbursement of reasonable business expenses incurred or paid by her in the performance of her duties and responsibilities for the Company, subject to any restrictions set by the Company from his positiontime to time and to such reasonable substantiation and documentation as may be specified by the Company from time to time. Ms. Zaslavsky’s employment with the Company is “at-will”, and either party can terminate the employment relationship at any time, for or without cause, with or without notice. The Offer Letter also contains standard restrictive covenants prohibiting Ms. Zaslavsky from engaging in competition with the Company within the United States during her employment and for a period of 24 months following the termination of her employment with the Company.
A description of employment agreements follows:On June 28, 2023, the Company appointed Ms. Zaslavsky as the Company’s Chief Executive Officer. There was no change to Ms. Zaslavsky’s offer letter as a result.
Employment AgreementAndrew Kucharchuk
On May 5, 2023, the Company appointed Andrew Kucharchuk, a member of the Board of Directors of the Company, as Chief Financial Officer, effective May 8, 2023. The agreement proved for a base salary of $180,000 per year. Mr. Kucharchuk is eligible to participate in the benefit plans and programs generally available to the Company’s employees. Mr. Kucharchuk will also be entitled to reimbursement of all reasonable business expenses incurred or paid by him in the performance of his duties and responsibilities for the Company, subject to receipt of evidence of such expenses reasonably satisfactory to the Company. Mr. Kucharchuk’s employment with the Company is “at-will”, and either party can terminate the employment relationship at any time, for or without cause, with or without notice.
On September 15, 2023, Mr. Kucharchuk’s salary was increased to $199,999 per year. In addition, on September 30, 2023, the Company approved a $30,000 bonus payable to Mr. Kucharchuk for his successful efforts with respect to the Company’s Registration Statement on Form S-4 filed with the United States Securities and Exchange Commission on September 29, 2023.
Mick 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 RuxinDr. Ruxin’s Employment Agreement iswas for a five-year term commencing on June 5, 2020. The term willagreement could 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 $300,000 and will be eligible for an annual discretionary bonus of 150% of such base salary. In the Ruxin Employment Agreement, Dr. Ruxin is also promised, subject to the approval of the Board or a committee thereof, and under the 2020 Equity Incentive Plan (i) a one-time grant of 49,047,059 Restricted Stock Units (“RSUs”) and (ii) a one-time grant of options to purchase 420,691,653 shares of Common Stock, both of which will be subject to the terms and conditions of the applicable award agreements when executed. Dr. Ruxin iswas entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time. As of September 30, 2021,Per the RSUs and options have not yet been granted or issued sinceagreement, on August 16, 2022, the Board has not yet approvedgranted Dr. Ruxin 469,738,712 options under the grants and the 20202022 Equity Incentive Plan has not been approved by the shareholders. Further, the board and Dr. Ruxin have not yet agreed on the terms of the options.Plan.
Dr. Ruxin iswas an “at-will” employee and his employment may be terminatedsubject to termination by the Company at any time, with or without cause. On July 14, 2023, the Company terminated the employment agreement. 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 and he shall be entitled to reimbursement of any COBRA payments 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 As a result of the employment agreement and in the event ofDr. Ruxin’s 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 duringaccrued $900,000 of severance for Dr. Ruxin per the termterms of thehis employment agreement and for a period of one year thereafter.
Employment Agreement with Jeff Buschagreement.
On June 5, 2020,July 14, 2023, the Company terminated the employment agreement and Jeffrey Busch entered into an employment agreement (the “Busch Employment Agreement”) for Mr. Buscha Chief Medical Officer Consulting Agreement with Dr. Ruxin to serve as the Company’s ChairmanChief Medical Officer. For compensation for services provided by Dr, Ruxin as a Chief Medical Officer Consultant (a) the Company shall pay Dr, Ruxin compensation equal to $10,000 per month, (b) the Company shall amend the Dr. Ruxin’s existing option award agreement so that upon a “Separation from Service” instead of having 3 months to exercise the Board.
The Busch Employment Agreement is for a five-year term commencing on June 5, 2020. The term willoptions, Dr. Ruxin’s options shall be automatically extended for one additional year uponexercisable until their expiration date and (c) 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 $60,000 and will be eligible for an annual discretionary bonus. In the Busch Employment Agreement, Mr. Busch is also promised, subject to the approval of the Board or committee thereof, and under the 2020 Equity Incentive Plan (i) a one-time grant of 49,047,059 Restricted Stock (“RSUs”) and (ii) a one-time grant ofCompany shall issue Dr. Ruxin options to purchase 420,691,653 shares of Common Stock, both of which will be subject to the terms and conditions of the applicable award agreements when executed. Mr. Busch is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday payCompany’s common stock in accordance with the Company’s policies establishednewly planned Equity Incentive Plan, according to the standard amounts awarded to Chief Medical Officers, as well as taking into consideration the past 5 years of service to the company as is planned for current employees, subject to Board approval. This Agreement commenced on July 14, 2023 and in effect from timewill continue for one year and will be brought to time.the Board of Directors annually for renewal approval based on prior year performance metrics and then for subsequent one-year periods if not terminated 60 days prior to renewal.
In connection with the termination of the Ruxin Employment Agreement, the Company accrued a severance payment due of $900,000. As of September 30, 2021,2023, the RSUsCompany had aggregate accrued payroll related to Dr. Ruxin’s salary deferment and options have not yet been granted or issued since the Board has not yet approved the grantsaccrued severance payment of $1,099,974 including accrued severance, deferred compensation and the 2020 Equity Incentive Plan has not been approved by the shareholders. Further, the Board and Mr. Busch have not yet agreed on the terms of the options.paid-time off.
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 termination of employment is the result of termination 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.
Outstanding Equity Awards
AsThe following table provides a summary of equity awards outstanding for each of the Named Executive Officers as of September 30, 2021, there were no outstanding equity awards.2023:
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (4) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
| Current Named Executive Officers | ||||||||||||||||||||||||||||||||||||
| Mick Ruxin | 469,738,712 | (2) | - | (1) | - | 0.0036 | 8/16/2032 | - | - | - | - | |||||||||||||||||||||||||
| Faith Zaslavsky | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Andrew Kucharchuk | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Thomas Chilcott | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| (1) | The options vest on the first anniversary of the grant date and become fully vested on May 1, 2023. The option awards remain exercisable until they expire ten years from the date of grant subject to earlier expiration following termination of Dr. Ruxin’s contractual agreement. |
| (2) | All vested options are only exercisable upon the Company filing an S-8 to register the underlying shares. |
Long-Term Incentive Plans, Retirement or Similar Benefit Plans
There are currently no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that we may reimburse our executive employees for up to 100% of their health insurance premiums under their individual policies.
Our directors, executive officers and employees may receive stock options at the discretion of our Board.
Potential Payments upon Termination or Change in Control
If the employment of Dr. RuxinFaith Zaslavsky
We do not anticipate any payments to Ms. Zaslavsky being triggered upon a potential termination or Mr. Busch is terminated at our election at any time, for reasons other than death, disability, cause (as defined in their agreements) or a voluntary resignation, or if the officer terminates their employment for good reason, the officer in question shall be entitled to receive a lump sum severance payment equal to three times their base salary, respectively. Dr. Ruxin shall be entitled to the continued payment of premiums for continuation of his health and welfare benefits pursuant to COBRA or otherwise, for a period of eighteen months from the date of termination, subject to earlier discontinuation if he is eligible for comparable coverage from a subsequent employer. Mr. Busch is not entitled to any COBRA benefits pursuant to the terms of his employment agreement. If a termination occurs any time during the twelve-month period following a change in control the severance payment shall equal four time their base salary. All severance payments, less applicable withholding, are subject to the officer’s execution and delivery of a general release of us and our affiliates and each of their officers, directors, employees, agents, successors and assigns in a form acceptable to us, and a reaffirmation of the officer’s continuing obligation under the propriety information and inventions agreement (or an agreement without that title, but which pertains to the officer’s obligations generally, without limitation, to maintain and keep confidential all of our proprietary and confidential information, and to assign all inventions made by the officer to us, which inventions are made or conceived during the officer’s employment). If the employment is terminated for cause, no severance shall be payable by us.
“Good Reason” means:
“Cause” means:
In the event of a Change of Control, all outstanding stock options, restricted stock and other stock-based grants held by Dr. Ruxin and Mr. Busch will become fully vested and exercisable, and all such stock options remain exercisable from the date of the Change in Control until the expiration of the term of such stock options.control.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by the consummation of any transaction or series of integrated transactions immediately following which the record holders of our common stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of our assets immediately following such transaction or series of transactions.Andrew Kucharchuk
The employment agreementsWe do not provide for the payment ofanticipate any payments to Mr. Kucharchuk being triggered upon a “gross-up” payment under Section 280G of the Code. The following table provides estimates of the potential severance and other post-termination benefits that each of Dr. Ruxin and Mr. Busch would have been entitled to receive assuming their respective employment was terminated as of September 30, 2021, for the reason set forthtermination or change in each of the columns.control.
| Recipient and Benefit | Cause; Without Good Reason | Without Cause; Good Reason | Death; Disability | Change in Control | ||||||||||||
| Mick Ruxin, M.D.: | ||||||||||||||||
| Salary | $ | — | $ | 900,000 | $ | — | $ | 1,200,000 | ||||||||
| Stock Options | — | — | — | — | ||||||||||||
| Value of Health Benefits Provided after Termination (1) | — | 31,752 | — | 31,752 | ||||||||||||
| Total | $ | — | $ | 931,752 | $ | — | $ | 1,231,752 | ||||||||
| Jeffrey Busch: | ||||||||||||||||
| Salary | $ | $ | 180,000 | $ | — | $ | 240,000 | |||||||||
| Stock Options | — | — | — | — | ||||||||||||
| Value of Health Benefits Provided after Termination (1) | — | — | — | — | ||||||||||||
| Total | $ | $ | 180,000 | $ | — | $ | 240,000 | |||||||||
Compensation of Directors
During the year ended September 30, 2021,2023, we did not pay compensation to any of our non-employee directors in connection with their service on our Board.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock Series E preferred stock and Series F Preferred Stock as of January 13, 2022,February 15, 2024, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, (ii) each director and each of our Named Executive Officers and (iii) all executive officers and directors as a group.
The number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
| Name and Address of Beneficial Owner (1) | Common Stock Beneficial Ownership(2) | Percent of Class | ||||||
| Other 5% Stockholders: | ||||||||
| Avant Diagnostics, Inc | 5,081,549,184 | 63.7 | % | |||||
| Douglas Mergenthaler | 2,390,294,244 | (3) | 30.0 | % | ||||
| Named Executive Officers and Directors: | ||||||||
| Mick Ruxin, M.D. | — | — | ||||||
| Jeffrey Busch | — | — | ||||||
| Thomas Chilcott, III | — | — | ||||||
| Yvonne C. Fors | — | — | ||||||
| Andrew Kucharchuk | 290,000 | * | ||||||
| All executive officers and directors as a group (five persons) | ||||||||
| Name and Address of Beneficial Owner (1) | Common Stock Beneficial Ownership (2) | Percent of Class | ||||||
| 5% Stockholders | ||||||||
| Avant Diagnostics, Inc.(3) | 5,081,549,184 | 70.1 | % | |||||
| Douglas Mergenthaler | 1,099,710,968 | (4) | 15.2 | % | ||||
| Named Executive Officers and Directors: | ||||||||
| Mick Ruxin(3) | 5,081,549,184 | 70.1 | % | |||||
| Faith Zaslavsky | - | - | ||||||
| Jeffrey Busch | - | (5) | - | |||||
| Thomas Chilcott | - | - | ||||||
| Yvonne Fors | - | - | ||||||
| Andrew Kucharchuk | 290,000 | - - * | ||||||
| Matthew Schwartz | - | - | ||||||
| Danica Holly | - | - | ||||||
| All executive officers and directors as a group (eight persons) | - | - | ||||||
* Indicates less than 1%
| (1) | Unless otherwise indicated, the business address of each person listed is in care of Theralink Technologies, Inc., 15000 W. 6th Avenue, Suite 400, Golden, CO 80401. | |
| (2) | The number and percentage of shares beneficially owned are determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares over which the individual or entity has voting power or investment power and any shares of common stock that the individual has the right to acquire within 60 days of | |
| (3) | The address of Avant Diagnosticsm Inc. (“Avant”) is P.O, Box 869, Morrison, CO 80465. Represents 5,081,549,184 shares of common stock held of record by Avant. Mick Ruxin is the chief executive officer and sole director of Avant and as such could be deemed to have voting and dispositive power with respect to the shares held by Avant. Dr. Ruxin disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. | |
| (4) | The address for Douglas Mergenthaler is Ashton Capital Corporation, 1201 Monster Road SW, Suite 350, Renton, WA 98057. All securities held by Mr. Mergenthaler are held either directly or indirectly through Aston Capital, an investment fund that Mr. Mergenthaler controls. The amount shown includes: (1) 656,674,588 shares of common stock issuable upon the exercise of warrants that expire on November 27, 2024 with an exercise price of $.00214; (2) | |
| (5) | This number excludes $175,872 in convertible debentures and 50,249,523 warrants that are not currently convertible or exercisable. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
On June 5, 2020, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as a strategic advisor to the Company’s Chief Executive Officer. Pursuant to the agreement, Mr. Kucharchuk was paid a monthly fee of $15,000. The agreement terminated on December 5, 2020. On August 14, 2020, Mr. Kucharchuk was appointed as the acting Chief Financial Officer. Thereafter, the agreement renewed on a month-to-month basis by mutual agreement of the parties. On September 24, 2020, Mr. Kucharchuk resigned as the acting Chief Financial Officer of the Company.
On September 16, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder, to purchase an aggregate amount of 1,000 shares of Series E Convertible Preferred Stock of the Company (the “Series E Preferred”) for an aggregate investment amount of $2,000,000. The Company’s Series E Preferred Stock has a stated value of $2,000 per share and shall accrue, on a quarterly basis in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid quarterly at the option of the holder of the Series E Preferred in either cash or shares of common stock of the Company. The Series E Preferred is convertible two days after the increase in the Company’s authorized common stock which became effective on September 24, 2020. The number of shares of common stock issuable on the conversion of the Series E Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00375 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0021. For eighteen months from the anniversary of the closing, the Company needs to obtain consent from several investors prior to engaging in any future capital raises.
During the year ended September 30, 2020, a $160,000 outstanding balance owed for consulting fee – related party was converted into 0.24 shares of Series D-1 Preferred.
During the year ended September 30, 2020, the Company repaid an outstanding $20,000 advance to a related party.
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 terms of the agreement, Mr. Kucharchuk shall be paid $2,000 per month. As of September 30, 2021, the Company recorded accrued consulting fees in the amount of $18,000 reflected under accrued liabilities – related party in the accompanying balance sheets.
On April 26,October 21, 2021, the Company entered into a Promissory Note Agreement (the “Note”) with Jeffrey Busch who serves as a member of the Board of Directors and a related party, for a principal amountbalance of $100,000 with$150,000. During the year ended September 30, 2022, the Company receiving proceeds of $100,000.fully paid the outstanding balance on the note. As of September 30, 2021,2022, the Notenote had no outstanding principal of $100,000 and accrued interest of $427.balance.
On May 12,November 1, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is aan existing shareholder (“Affiliated Investor”), to purchase a convertible note (the “Note”) and accompanying warrant for 63,897,76454,644,811 shares of commons stock (the “Warrant”), for an aggregate investment amount of $1,000,000. The Note has a principal value of $1,000,000 and bears 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 Note)) and shall mature on May 12,November 1, 2026 (the “Maturity Date”). As of September 30, 2022, the First November 2021 the NoteNotes had an outstanding principal of $1,000,000 and accrued interest of $6,575. It’s reflected$20,164 and are included in the accompanying consolidated balance sheet at $140,093 as a long termlong-term convertible note payable –- related party, net of discount in the amount of $64,981.$859,907 (see Note 8 to the consoldiated financial statements filed in the 2023 10-K) as of September 30, 2022. On November 29, 2022, the First November 2021 Notes were exchanged for a new convertible debenture (see below).
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 warrants issuable from 20% to 100% of the common stock issuable upon conversion of the notes purchased. As a result, the First November 2021 Investor received additional cashless-exercisable warrants equal to 80% of the common stock issuable upon conversion of the First November 2021 Notes. The Company issued additional warrants to purchase up to 218,579,234 shares of common stock to the First November 2021 Investor which increased the total relative fair value of all warrants in total by $34,630 recorded as debt discount which is being amortized over the life of the First November 2021 Notes.
On April 5, 2022, pursuant to the First April 2022 SPA, Matthew Schwartz, a member of the Board of Directors and a related party, purchased a convertible note with principal amount of $100,000 with accompanying First April 2022 Warrants to purchase 4,201,681 shares of common stock. The Company received net proceeds of $100,000 on March 24, 2022. As of September 30, 2022, the First April 2022 Note had an outstanding principal balance of $100,000 and accrued interest of $3,901 and is reflected in the accompanying balance sheet at $18,959 as a long-term convertible note payable - related party, net of discount in the amount of $81,041 (see Note 8 to the consoldiated financial statements filed in the 2023 10-K) as of September 30, 2022. On November 29, 2022, the First April 2022 Note was exchanged for a new convertible debenture (see below).
On May 9, 2022, pursuant to the May 2022 SPA the May 2022 Investor purchased four convertible notes for an aggregate investment amount of $1,000,000 with accompanying May 2022 Warrants to purchase shares of common stock equal to 20% of the number of the total shares of common stock issuable upon the conversion of the May 2022 Notes. During the year ended September 30, 2022, the Company received an aggregate of $1,000,000 of proceeds and issued an aggregate of 42,016,808 of the May 2022 Warrants. As of September 30, 2022, the May 2022 Notes had an aggregate outstanding principal balance of $1,000,000 and accrued interest of $20,110 and are included in the accompanying balance sheet at $834,803 as a long-term convertible note payable - related party, net of discount in the amount of $165,197 (see Note 8 to the consoldiated financial statements filed in the 2023 10-K) as of September 30, 2022. On November 29, 2022, the May 2022 Note was exchanged for a new convertible debenture (see below).
On June 15, 2022, pursuant to the June 2022 SPA, Danica Holley, a member of the Board of Directors and a related party, purchased a convertible note with principal of $50,000 with accompanying June 2022 Warrants to purchase 2,100,840 shares of common stock. As of September 30, 2022, the June 2022 Note had an outstanding principal balance of $50,000 and accrued interest of $1,173. The June 2022 Note is included in the accompanying balance sheet at $44,438 as a long-term convertible note payable - related party, net of discount in the amount of $5,562 (see Note 8 to the consoldiated financial statements filed in the 2023 10-K) as of September 30, 2022. On November 29, 2022, the June 2022 Note was exchanged for a new convertible debenture (see below).
On July 30, 2021,29, 2022, the Company entered into a Securities PurchaseDemand Promissory Note Agreement (the “SPA”with Jeffrey Busch who serves as a member of the Board of Directors and a related party, for a principal balance of $125,000, and on September 2, 2022, the Company entered into a second Demand Promissory Note Agreement with Jeffrey Busch for a principal balance of $150,000 (collectively referred to as the “Busch Notes”). The Busch Notes bore an annual interest rate of 8% and were payable on demand. The outstanding principal and accrued interest on the Busch Notes were contingently convertible, in full, at the option of the lender, into the same security issued by the Company in its next private placement of equity or equity backed securities at any time after the inception date. As of September 30, 2022, the Busch Notes had an outstanding principal balance of $275,000 and accrued interest of $2,683 and are included in the accompanying balance sheet as a short-term convertible note payable - related party. On November 29, 2022, the Busch Notes were exchanged for a new convertible debenture (see below).
On August 11, 2022, the Company entered into a Demand Note with an affiliated investor, who is an existing shareholder (“Affiliated Investor”), to purchase a convertible note (the “Note”), for an aggregate investment amount of $375,000. The Note has a principal value of $375,000 and bears an interest rate of 8% per annum and is payable on the demand of the holder. As of September 30, 2022, this note had an outstanding principal balance of $375,000 and accrued interest of $4,110 and is included in the accompanying balance sheet as a short-term convertible note payable - related party. On November 29, 2022, this note was exchanged for a new convertible debenture (see below).
On September 2, 2022, the Company entered into a Demand Note with an affiliated investor, who is an existing shareholder (“Affiliated Investor”), to purchase a convertible note (the “Note”), for an aggregate investment amount of $350,000. The Note has a principal value of $350,000 and bears an interest rate of 8% per annum and is payable on the demand of the holder. As of September 30, 2022, this note had an outstanding principal balance of $350,000 and accrued interest of $2,148 and is included in the accompanying balance sheet as a short-term convertible note payable - related party. On November 29, 2022, this note was exchanged for a new convertible debenture (see below).
On November 1, 2022, the Company entered into a Demand Promissory Note Agreements with two related parties, who are affiliate stockholders, for a principal balance of $120,000. The notes bore an annual interest rate of 8% and were payable on demand. The outstanding principal and accrued interest of the notes was contingently convertible, in full, at the option of the lender, into the same security issued by the Company in its next private placement of equity or equity backed securities at any time after the inception date. In December 2022, these short-term loans were repaid.
On November 29, 2022, in connection with the Securities Exchange Agreements and New Convertible Debt discussed below, the May 2021 Warrants, First November 2021 Warrants, First April 2022 Warrants, May 2022 Warrants, and June 2022 Warrants, aggregating 385,441,138 warrants, were amended to reduce the exercise price to $0.003 per share. Additionally, 63,897,764 warrants issued in connection with Series F preferred stock were amended to reduce the exercise price to $0.003 per share. In conjunction with the price reduction, the price protection feature for all these warrants was eliminated. All other terms of the warrants remained the same. As a result of the November 29, 2022, amendment to the exercise price, the Company calculated the difference between the warrants’ fair values on November 29, 2022, the date of the amendment, using the then current exercise price ranging from $0.00366 to $0.00476 and the new exercise price of $0.003 and determined that the difference was insignificant.
Securities Exchange Agreements and New Related Party Convertible Debentures and Warrants dated November 29, 2022
On November 29, 2022, the Company consummated the initial closing of a private placement offering pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of November 29, 2022, by and among the Company, certain related party accredited investors (the “Related Party Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its capacity as collateral agent.. At the initial closing, the Company sold the related party Purchasers (i) 10% Original Issue Discount Senior Secured Convertible Debentures (the “New Related Party Debentures”) in an aggregate principal amount of $550,000 and (ii) warrants (the “New Related Party Warrants”) to purchase up to 157,142,857 shares of common stock of the Company, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $412,092 in net proceeds at the Initial Offering from the Related Party Purchasers, net of the Original Issue Discount of $50,000, commissions of $58,200 and other offering costs of $29,708.
On November 29, 2022, the Company entered into Securities Exchange Agreements with the above related party investors, whereby the May 2021 Note, the First November 2021 Notes, the First April 2022 Note, the May 2022 Notes, the June 2022 Note, the Busch Notes, the August 11, 2022 Demand Promissory Note, and the September 2, 2022 Demand Promissory Note with an aggregate principal amount of $4,150,000 (the “Exchanged Related Party Notes”) and accrued interest payable of $120,750 were exchanged for New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related party investors to exchange the respective convertible notes into the Related Party Debentures, the aggregate principal amount of the Exchanged Related Party Notes and accrued interest payable was increased by 15% (and the August 11, 2022 and September 2, 2022 Demand Promissory Notes were issued with 10% OID), or $589,505, for New Related Party Debentures with an aggregate principal amount of $4,860,255.
On November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related party holders of 1,000 shares of Series E preferred stock with a stated value of $2,000,000 and accrued dividends payable of $66,630, and related party holders of 500 shares of Series F Convertible Preferred Stock (the “Series F Preferred”)preferred stock with accompanying warrants for 63,897,764 shares of common stock (the “Warrant”), for total proceeds of $1,000,000. The Series F Preferred Stock has a stated value of $2,000$1,000,000 and accrued dividends payable of $33,315 were exchanged for the New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related party preferred stockholders to exchange their respective preferred shares into the New Related Party Debentures, the aggregate stated value and accrued dividends payable were increased by 15%, or $464,992, for new Related Party Debentures with an aggregate principal amount of $3,564,937.
On April 11, 2023, the Company consummated a third closing of the Offering pursuant to the terms and conditions of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company and Jeffrey Busch (the “Third Closing Related Party Purchaser”). At the third closing, the Company sold the Purchaser (i) a New Debenture with a principal amount of $155,100 (the “April 2023 Related Party Debenture”) and (ii) Warrants to purchase up to 44,314,286 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $141,000 in net proceeds at the Third Offering, net of a 10% original issue discount of $14,100.
The November 29, 2022, New Related Party Debentures and April 2023 Related Party Debenture matured on November 29, 2023, subject to a three-month extension at the sole discretion of the Company. On November 27, 2023, the Company announced its intention to automatically extend the Maturity Date of the Debentures for an additional three-month period such that the Debentures shall be due and payable on February 29, 2024 (See Note 14 to the consoldiated financial statements filed in the 2023 10-K).
The Company’s obligations under the New Related Party Debentures and April 2023 Related Party Debenture are secured by a first priority lien on all the assets of the Company pursuant to that certain Security Agreement, dated November 29, 2022 (the “Security Agreement”) by and among the Company, the Debenture holders and the Collateral Agent. In connection with the issuance of the IMAC Note, the Company, Collateral Agent and the holders of a majority of the outstanding New Related Party Debentures agreed to amend and restate the Original Security Agreement to include the IMAC Note, pursuant to the Amended and Restated Security Agreement dated as of August 16, 2023 by and between the Company, IMAC and the Collateral Agent.
In connection with the Securities Exchange Agreements with related parties for the exchange of the convertible notes and preferred shares for the New Related Party Debentures and for the April 2023 Related party Debenture discussed above, the Company issued an aggregate of 2,608,654,988 warrants. The New Related Party Warrants and April 2023 Related Party Warrant are exercisable for five years and six months from the earlier of the maturity date of the New Related Party Debentures and the closing of the Qualified Financing, at an exercise price equal to (i) in the event that a Qualified Offering is consummated prior to the exercise of the New Related Party Warrant and April 2023 Related Party Warrant, the price per share at which the Qualified Offering is made (“Qualified Offering Price”), or (ii) in the event that no Qualified Offering has been consummated, the lower of: (A) $0.003 per share and shall accrue monthly(B) an amount equal to 70% of the average of the VWAP (or 50% of the average of the VWAP if an event of default has occurred and has not been cured) for the Common Stock over the ten Trading Days preceding the date of the delivery of the applicable exercise notice. If there is no effective registration statement covering the resale of the shares underlying the New Related Party Warrants and April 2023 Related Party Warrant within 180 days following the closing of the Qualified Offering: (i) exercise may be via cashless exercise, and (ii) 5% additional Warrants will be issued by the Company to the holders for any portion of each month without such effective registration statement, up to a maximum of 25%. The New Related Party Warrants and April 2023 Related Party Warrant contain certain price protection provisions providing for adjustment in arrears,the amount of securities issuable upon exercise of the New Related Party Warrants and April 2023 Related Party Warrant in case of certain future dilutive events or stock-splits and dividends.
As discussed above, on November 29, 2022, in order to induce the related party investors to exchange their respective convertible notes and preferred stock into the New Related Party Debentures, the aggregate principal amount and accrued interest payable of the exchanged convertible notes, and the stated value and accrued dividends of exchanged preferred stock was increased by 15% (the August 11, 2022 and September 2, 2022 Demand Promissory Notes were issued with 10% OID), or an aggregate amount of $1,046,167. This inducement fee was included in loss from debt extinguishment on the accompanying statement of operations during the year ended September 30, 2023. Additionally, the remaining debt discount on exchanged related party notes of $1,768,379 was written off and included in loss from debt extinguishment on the accompanying statement of operations for the year-ended September 30, 2023.
IMAC Convertible Secured Note
On August 16, 2023, the Company entered into a Convertible Secured Promissory Note with IMAC Holdings, Inc. for a total principal amount of $2,560,500. The note bears interest at the rate of 8%6% per annum and matures on the stated value. The dividends shall be paid monthlyAugust 16, 2024. Accrued interest is payable at the option of the holder on a quarterly basis. Upon maturity, in lieu of payment or as partial payment, the Company may, upon notice to the Holder, elect to convert some or all of the Series F Preferred in either cash or shares of common stock of the Company. Theoutstanding principal amount plus accrued and unpaid interest under this Note into a number of shares of common stock issuable upon conversion of the Series F Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00313 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversionat a price shall never be less than $0.0016. In addition, the investor was issued the Warrant to purchase an amount of common stock equal to 20% of the shares of common stock issuable upon conversion of the Series F Preferred at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until July 30, 2026. The Warrant is exercisable for cash at any time.
of $0.00313.
Upon the closing of the stock-for-stock reverse merger transaction contemplated in that certain Agreement and Plan of Merger, dated May 23, 2023, by and between the Company and the Holder, pursuant to which the Company will merge with a newly-formed wholly-owned subsidiary of the Holder and in which the Company will survive as a wholly-owned subsidiary of the Holder, the Conversion Amount shall automatically be converted into fully-paid and non-assessable shares of Common Stock at a price per share of $.00313.
This Note is secured by all of the assets of the Company pursuant to that certain Amended and Restated Security Agreement (as amended, restated or otherwise modified from time to time, the “Security Agreement”) dated as of the Issue Date, between the Company and the Holder and each of the other parties thereto from time to time as specified in such Security Agreement. This Note shall rank pari passu as to the payment of principal and interest to those certain 10.0% Original Issue Discount Senior Secured Convertible Debentures of the Company issued pursuant to that certain Securities Purchase Agreement, dated as of November 29, 2022, as amended, and that certain Securities Exchange Agreement, dated as of November 29, 2022. This Note shall rank senior to any unsecured debt of the Company.
On August 28, 2023, the Company repaid $250,000 of the note.
As of September 30, 2021,2023, the Company owednote has an executive for expense reimbursements in the aggregate amountoutstanding principal balance of $3,714$2,310,500, which is reflected onincluded in convertible notes - related parties in the accompanying balance sheet as accountssheets, and has accrued interest payable – related party.of $17,708.
Policies and Procedures for Related Party Transactions
We have adopted a policy that our executive officers, directors, nominees for election as directors, beneficial owners of more than 5% of any class of our common stock and any member of the immediate family of any of the foregoing persons, are not permitted to enter into a related party transaction with us without the prior consent of our Board. If advance approval is not feasible then the related party transaction will be considered at the next regularly scheduled Board meeting. In approving or rejecting any such proposal, our Board is to consider the relevant facts and circumstances available and deemed relevant, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.
Director Independence
Because the Company’s common stock is not currently listed on a national securities exchange, the Company has used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
| ● | the director is, or at any time during the past three years was, an employee of the Company; | |
| ● | the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); | |
| ● | a family member of the director is, or at any time during the past three years was, an executive officer of the Company; | |
| ● | the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); | |
| ● | the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or | |
| ● | the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the Company’s audit. |
Based on this review, the Company has onethree independent directordirectors pursuant to the requirements of the NASDAQ Stock Market.Market, Matthew Schwartz, Danica Holley and Yvonne Fors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Previously, the Company engaged Weinstein International C.P.A. to serve as our independent auditors. On June 4, 2021, the Company’s Board determined that the Company’s independent registered public accounting firm prior to the acquisition of Avant, Salberg & Company, P.A., would be the independent registered public accounting firm for the Company for the fiscal year ending September 30, 2020. Accordingly, Weinstein, the independent public accounting firm of Avant, as the accounting acquirer, was dismissed and will no longer be the Company’s independent registered public accounting firm.
The following table sets forth the fees billed to our Company for the years ended September 30, 20212023 and 20202022 for professional services rendered by Salberg & Company, P.A., our independent registered public accounting firms:
| Fees | 2021 | 2020 | 2023 | 2022 | ||||||||||||
| Audit Fees | $ | 72,000 | $ | 75,000 | $ | 89,800 | $ | 81,500 | ||||||||
| Audit Related Fees | — | — | 12,800 | 1,000 | ||||||||||||
| Tax Fees | — | — | — | — | ||||||||||||
| Other Fees | — | — | — | — | ||||||||||||
| Total Fees | $ | 72,000 | $ | 75,000 | $ | 102,600 | $ | 82,500 | ||||||||
The following table sets forth the fees billed to our Company for the year ended September 30, 2020 for professional services rendered by Weinstein International C.P.A., our prior independent registered public accounting firms:
Audit Fees
| Fees | 2021 | 2020 | ||||||
| Audit Fees | $ | 64,000 | $ | 48,000 | ||||
| Audit Related Fees | — | — | ||||||
| Tax Fees | — | — | ||||||
| Other Fees | — | — | ||||||
| Total Fees | $ | 64,000 | $ | 48,000 | ||||
Audit Fees
Audit fees were for professional services rendered for the audits of our annual financial statements and for review of our quarterly financial statements during the 20212023 and 20202022 fiscal years.
Audit-related Fees
This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees”.
Tax Fees
As our independent registered public accountants did not provide any services to us for tax compliance, tax advice and tax planning during the fiscal years ended September 30, 20212023, and 2020,2022, no tax fees were billed or paid during those fiscal years.
All Other Fees
Our independent registered public accountants did not provide any products and services not disclosed in the table above during the 20212023 and 20202022 fiscal years. As a result, there were no other fees billed or paid during those fiscal years.
Policy on Pre-Approval of Services of Independent Registered Public Accounting Firm
Prior to the engagement, the Board pre-approves these services by category of service. The fees are budgeted, and the Board requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Board requires specific pre-approval before engaging the independent registered public accounting firm.
The Board may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Board at its next scheduled meeting.
Our Board has considered the nature and amount of fees billed by our independent registered public accounting firm and believe that the provision of services for activities unrelated to the audit is compatible with maintaining their respective independence.
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
| (a) | 1. | Financial Statements |
| 2. | Financial Statement Schedules | |
| 3. | Exhibits required by Regulation S-K (including those incorporated by reference). |
* Management contract or compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. | ||
| Dated: | By: | /s/ |
| Chief Executive Officer | ||
| Dated: | By: | /s/ |
| Chief Financial Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 and 2020
CONTENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of:
Theralink Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Theralink Technologies, Inc. and Subsidiaries (the “Company”) as of September 30, 2021 and 2020, the consolidated related statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended September 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the two years in the period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a net loss of $5,471,649 and net cash used in operating activities of $4,780,930 for the fiscal year ended September 30, 2021. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $49,825,855, $4,945,362 and $2,657,337 respectively, at September 30, 2021. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan regarding these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Sale of Series F preferred stock- temporary equity
As described in Footnote 9 “Series F Preferred stock”, On July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor to purchase an aggregate amount of 500 shares of a newly created Series F Convertible Preferred Stock of the Company (the “Series F Preferred”) for total proceeds of $1,000,000. The Company also issued 63,897,764 warrants (the “Warrant”) with the preferred shares. The Series F Preferred Stock has a stated value of $2,000 per share, shall accrue dividends monthly in arrears, at the rate of 8% per annum on the stated value, and is redeemable at the option of the holder under certain circumstances.
We identified the accounting for the sale of the Series F Preferred stock as a critical audit matter. The analysis of the accounting treatment for the sales of the series F preferred stock was complex.
The primary procedures we performed to address these critical audit matters included (a) reviewed and tested management’s conclusions as to whether certain instruments or contracts qualified for derivative treatment or equity or temporary equity by comparing management’s analysis and conclusions to authoritative and interpretive literature, (b) Compared the accounting treatment and presentation of the Series F preferred shares and warrants to that described by the authoritative and interpretive literature, (c) tested management’s process for valuing temporary equity by comparing it to generally accepted methodologies for valuing temporary equity.
/s/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2020.
Boca Raton, Florida
January 13, 2022
295 NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431-7328
Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920
www.salbergco.com ● info@salbergco.com
Member National Association of Certified Valuation Analysts ● Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30 2021 | September 30 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 314,151 | $ | 1,779,283 | ||||
| Other receivable | 23,044 | 15,000 | ||||||
| Prepaid expenses and other current assets | 219,496 | 191,253 | ||||||
| Marketable securities | 11,000 | 11,100 | ||||||
| Laboratory supplies | 71,062 | 71,335 | ||||||
| Total Current Assets | 638,753 | 2,067,971 | ||||||
| OTHER ASSETS: | ||||||||
| Property and equipment, net | 698,927 | 744,822 | ||||||
| Finance right-of-use assets, net | 111,323 | 157,691 | ||||||
| Operating right-of-use asset, net | 168,664 | 206,203 | ||||||
| Security deposits | 20,909 | 19,464 | ||||||
| Total Assets | $ | 1,638,576 | $ | 3,196,151 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 1,018,797 | $ | 617,218 | ||||
| Accounts payable - related party | 3,714 | - | ||||||
| Accrued liabilities | 71,077 | 56,728 | ||||||
| Accrued liabilities - related party | 18,000 | - | ||||||
| Accrued compensation | 186,177 | 32,791 | ||||||
| Accrued director compensation | 132,500 | 72,500 | ||||||
| Deferred revenue | 135,150 | - | ||||||
| Notes payable - related party | 100,000 | - | ||||||
| Notes payable - current | 1,000 | 1,000 | ||||||
| Financing lease liability - current | 47,730 | 42,234 | ||||||
| Operating lease liability - current | 42,411 | 35,943 | ||||||
| Insurance payable | 118,294 | 63,675 | ||||||
| Subscription payable | 1,350,000 | - | ||||||
| Contingent liabilities | 71,240 | 64,040 | ||||||
| Assumed liabilities of discontinued operations | - | 204,608 | ||||||
| Total Current Liabilities | 3,296,090 | 1,190,737 | ||||||
| LONG-TERM LIABILITIES: | ||||||||
| Financing lease liability | 88,385 | 136,116 | ||||||
| Operating lease liability | 134,482 | 176,893 | ||||||
| Convertible debt - related party, net of discount | 64,981 | - | ||||||
| Total Liabilities | 3,583,938 | 1,503,746 | ||||||
| Series E preferred stock; $ par value; shares designated; issued and outstanding at September 30, 2021 and 2020; liquidation value of $2,013,151 and $2,006,120 at September 30, 2021 and 2020, respectively | 2,000,000 | 2,000,000 | ||||||
| Series F preferred stock; $par value; shares designated; and issued and outstanding at September 30, 2021 and 2020, respectively; liquidation value of $1,006,728 at September 30, 2021 | 1,000,000 | - | ||||||
| Temporary equity | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock: $ par value; authorized; | ||||||||
| Series A Preferred stock: $par value; shares designated; issued and outstanding at September 30, 2021 and 2020 | - | - | ||||||
| Series C-1 Preferred stock: $ par value; shares designated; issued and outstanding at September 30, 2021 and 2020 | - | - | ||||||
| Series C-2 Preferred stock: $ par value; shares designated; issued and outstanding at September 30, 2021 and 2020 | - | - | ||||||
| Series D-1 Preferred stock: $ par value; shares designated; issued and outstanding at September 30, 2021 and 2020 | - | - | ||||||
| Series D-2 Preferred stock: $ par value; shares designated; issued and outstanding at September 30, 2021 and 2020 | - | - | ||||||
| Preferred stock | ||||||||
| Common stock: $ par value, shares designated; issued and outstanding at September 30, 2021 and 2020, respectively | 512,416 | 512,416 | ||||||
| Additional paid-in capital | 44,368,077 | 42,367,577 | ||||||
| Accumulated deficit | (49,825,855 | ) | (43,187,588 | ) | ||||
| Total Stockholders’ Deficit | (4,945,362 | ) | (307,595 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 1,638,576 | $ | 3,196,151 | ||||
See accompanying notes to the consolidated financial statements.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| REVENUES, NET | $ | 505,604 | $ | 181,229 | ||||
| COST OF REVENUE | 117,456 | 52,587 | ||||||
| GROSS PROFIT | 388,148 | 128,642 | ||||||
| OPERATING EXPENSES: | ||||||||
| Professional fees | 903,932 | 925,626 | ||||||
| Consulting fee - related party | - | 70,125 | ||||||
| Compensation expense | 2,259,273 | 1,285,858 | ||||||
| Licensing fees | 131,469 | 51,670 | ||||||
| General and administrative expenses | 2,659,453 | 1,152,153 | ||||||
| Total Operating Expenses | 5,954,127 | 3,485,432 | ||||||
| LOSS FROM OPERATIONS | (5,565,979 | ) | (3,356,790 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest expense, net | (121,094 | ) | (31,218 | ) | ||||
| Gain on debt extinguishment, net | 227,294 | 165,439 | ||||||
| Unrealized loss on marketable securities | (100 | ) | (6,900 | ) | ||||
| Gain (loss) on exchange rate, net | (22,686 | ) | 49,202 | |||||
| Gain on disposal of subsidiary | 1,000 | - | ||||||
| Gain on dissolution of subsidiary | 9,916 | - | ||||||
| Other income | - | 10,000 | ||||||
| Total Other Income, net | 94,330 | 186,523 | ||||||
| NET LOSS | (5,471,649 | ) | (3,170,267 | ) | ||||
| Series E preferred stock dividend and deemed dividend | (159,890 | ) | (2,006,120 | ) | ||||
| Series F preferred stock dividend and deemed dividend | (1,006,728 | ) | - | |||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (6,638,267 | ) | $ | (5,176,387 | ) | ||
| NET LOSS PER COMMON SHARE: | ||||||||
| Basic and Diluted | $ | (0.00 | ) | $ | (0.06 | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and Diluted | 5,369,618,049 | 84,657,988 | ||||||
See accompanying notes to the consolidated financial statements.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 2021 AND 2020
| Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||||||
| Series A | Series C-1 | Series C-2 | Series D-1 | Series D-2 | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||||
| # of Shares | # of Shares | # of Shares | # of Shares | # of Shares | Amount | # of Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | - | - | - | 992 | - | - | - | - | 37,378,841 | (38,011,201 | ) | (632,360 | ) | |||||||||||||||||||||||||||||||
| Preferred stock issued for cash | - | - | - | 7 | - | - | - | - | 2,590,000 | - | 2,590,000 | |||||||||||||||||||||||||||||||||
| Preferred stock issued upon debt conversions | - | - | - | - | - | - | - | - | 217,215 | - | 217,215 | |||||||||||||||||||||||||||||||||
| Preferred stock issued upon conversion of accounts payable and accrued liabilities | - | - | - | 1 | - | - | - | - | 459,153 | - | 459,153 | |||||||||||||||||||||||||||||||||
| Recapitalization resulting from the Asset Sale Transaction (see Note 3) | 667 | 2,966 | 4,917 | 4,121 | - | 1,398,070 | 140 | 246,516 | - | 246,656 | ||||||||||||||||||||||||||||||||||
| Common stock issued for upon conversion of Series D-1 preferred stock | - | - | - | (1,000 | ) | - | - | 5,081,550,620 | 508,155 | (508,155 | ) | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for upon conversion of Series D-2 preferred stock | - | - | - | - | (4,121 | ) | - | 41,216,000 | 4,121 | (4,121 | ) | - | - | |||||||||||||||||||||||||||||||
| Offering cost paid related to sale of Series E preferred stock | - | - | - | - | - | - | - | - | (11,872 | ) | - | (11,872 | ) | |||||||||||||||||||||||||||||||
| Series E preferred stock dividend and deemed dividend | - | - | - | - | - | - | - | - | 2,000,000 | (2,006,120 | ) | (6,120 | ) | |||||||||||||||||||||||||||||||
| Adjustment related to Series A preferred prior period redemption payment | ||||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature related to a convertible note - related party recorded as debt discount | ||||||||||||||||||||||||||||||||||||||||||||
| Relative fair value of warrant issued in connection with a convertible note - related party recorded as debt discount | ||||||||||||||||||||||||||||||||||||||||||||
| Series E preferred stock dividend | ||||||||||||||||||||||||||||||||||||||||||||
| Series F preferred stock dividend | ||||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature related to issuance of Series F preferred stock | ||||||||||||||||||||||||||||||||||||||||||||
| Relative fair value of warrant issued in connection with the sale Series F preferred stock | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (3,170,267 | ) | (3,170,267 | ) | |||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 667 | 2,966 | 4,917 | - | - | - | 5,124,164,690 | 512,416 | 42,367,577 | (43,187,588 | ) | (307,595 | ) | |||||||||||||||||||||||||||||||
| Adjustment related to Series A preferred prior period redemption payment | - | - | - | - | - | - | - | - | 500 | - | 500 | |||||||||||||||||||||||||||||||||
| Beneficial conversion feature related to a convertible note - related party recorded as debt discount | - | - | - | - | - | - | - | - | 15,800 | - | 15,800 | |||||||||||||||||||||||||||||||||
| Relative fair value of warrant issued in connection with a convertible note - related party recorded as debt discount | - | - | - | - | - | - | - | - | 984,200 | - | 984,200 | |||||||||||||||||||||||||||||||||
| Series E preferred stock dividend | - | - | - | - | - | - | - | - | - | (159,890 | ) | (159,890 | ) | |||||||||||||||||||||||||||||||
| Series F preferred stock dividend | - | - | - | - | - | - | - | - | - | (6,728 | ) | (6,728 | ) | |||||||||||||||||||||||||||||||
| Beneficial conversion feature related to issuance of Series F preferred stock | - | - | - | - | - | - | - | - | 42,808 | (42,808 | ) | - | ||||||||||||||||||||||||||||||||
| Relative fair value of warrant issued in connection with the sale Series F preferred stock | - | - | - | - | - | - | - | - | 957,192 | (957,192 | ) | - | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (5,471,649 | ) | (5,471,649 | ) | |||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 667 | 2,966 | 4,917 | - | - | $ | - | 5,124,164,690 | $ | 512,416 | $ | 44,368,077 | $ | (49,825,855 | ) | $ | (4,945,362 | ) | ||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2021 | 2020 | |||||||
| For the Years Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (5,471,649 | ) | $ | (3,170,267 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation on property and equipment and finance ROU assets | 185,730 | 97,761 | ||||||
| Lease cost | 1,596 | 6,633 | ||||||
| Amortization of debt discount | 64,981 | - | ||||||
| Gain on debt extinguishment | (227,294 | ) | (165,439 | ) | ||||
| Unrealized (gain) loss on exchange rate | 22,686 | (49,202 | ) | |||||
| Unrealized loss on marketable securities | 100 | 6,900 | ||||||
| Gain on dissolution of subsidiary | (9,916 | ) | - | |||||
| Gain on disposal of subsidiary | (1,000 | ) | - | |||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (37,732 | ) | (194,994 | ) | ||||
| Laboratory supplies | 273 | - | ||||||
| Accounts payable | 415,190 | 46,341 | ||||||
| Accrued liabilities and other liabilities | 140,955 | (48,488 | ) | |||||
| Deferred revenue | 135,150 | - | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (4,780,930 | ) | (3,470,755 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Adjustment related to Series A preferred prior period redemption payment | 500 | - | ||||||
| Proceed from disposal of a subsidiary | 1,000 | - | ||||||
| Cash acquired from the Asset Sale Transaction (see Note 3) | - | 675,928 | ||||||
| Purchase of property and equipment | (135,702 | ) | (531,538 | ) | ||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (134,202 | ) | 144,390 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of preferred stock | 1,000,000 | 4,590,000 | ||||||
| Proceeds from sale of common stock | 1,350,000 | - | ||||||
| Proceeds from convertible debt - related party | 1,000,000 | - | ||||||
| Proceeds of notes payable - related party | 100,000 | - | ||||||
| Repayment of related party advances, net | - | (20,000 | ) | |||||
| Repayment of convertible debt | - | (24,759 | ) | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 3,450,000 | 4,545,241 | ||||||
| NET CHANGE IN CASH | (1,465,132 | ) | 1,218,876 | |||||
| CASH, beginning of the year | 1,779,283 | 560,407 | ||||||
| CASH, end of the year | $ | 314,151 | $ | 1,779,283 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | 20,582 | ||||
| Income taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Offering cost paid related to sale of Series E preferred stock | $ | - | $ | 11,872 | ||||
| Series E preferred stock dividend and deemed dividend | $ | 159,890 | $ | 2,006,120 | ||||
| Preferred stock issued upon debt conversions | $ | - | $ | 217,215 | ||||
| Preferred stock issued upon conversion of accounts payable and accrued liabilities | $ | - | $ | 459,153 | ||||
| Common stock issued for upon conversion of Series D-1 preferred stock | $ | - | $ | 508,154 | ||||
| Common stock issued for upon conversion of Series D-2 preferred stock | $ | - | $ | 4,122 | ||||
| Relative fair value of warrant issued in connection with a convertible note - related party recorded as debt discount | $ | 984,200 | $ | - | ||||
| Beneficial conversion feature related to a convertible note - related party recorded as debt discount | $ | 15,800 | $ | - | ||||
| Beneficial conversion feature related to issuance of Series F preferred stock | $ | 42,808 | $ | - | ||||
| Relative fair value of warrant issued in connection with the sale Series F preferred stock | $ | 957,192 | $ | - | ||||
| Series F preferred stock dividend | $ | 6,728 | $ | - | ||||
| Net assets acquired from Asset Sale Transaction (see Note 3) | ||||||||
| Cash | $ | - | $ | 675,928 | ||||
| Prepaid expense and other current assets | - | 17,539 | ||||||
| Accounts payable and other liabilities | - | (40,149 | ) | |||||
| Liabilities of discontinued operations | - | (406,662 | ) | |||||
| Net assets acquired | $ | - | $ | 246,656 | ||||
See accompanying notes to the consolidated financial statements.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
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 areas 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 shares of a newly created Series D-1 Preferred Stock which held 54.55% of all voting rights on an as-converted basis with the common stock. Upon the effectiveness of an increase of the Company’s authorized shares of common stock from shares to shares, all such shares of Series D-1 Preferred Stock issued to Avant automatically converted into shares of the Company’s common stock. Avant possessed majority voting control of the Company immediately following the Asset Sale Transaction and controlled the Company’s Board of Directors after the termination of the ten-day waiting period required by Rule 14f-1 under the Exchange Act. Accordingly, the Asset Sale Transaction was accounted for, in substance, as an asset acquisition of the Company’s net asset by Avant and a recapitalization of Avant. Avant is considered the historical registrant and the historical operations presented are those of Avant since Avant obtained 54.55% majority voting control of the Company (see Note 3). All share and per share data in the accompanying consolidated financial statements and footnotes has been retrospectively adjusted for the recapitalization.
On July 11, 2021, the Company’s wholly-owned subsidiary 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 shares of OncBioMune Sub Inc. held by the Company to the various investors for total proceeds of $1,000 (see Note 3).
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 $2,000 per share. The Series F Certificate of Designation and its filing was approved by the Company’s Board of Directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law (see Note 9).
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which present the consolidated financial statements of the Company and its wholly-owned, inactive subsidiaries, OncBioMune, LLC. (through dissolution date of July 11, 2021) and OncBioMune Sub, Inc. (through sale date of July 26, 2021), as of September 30, 2021. All intercompany accounts and transactions have been eliminated in consolidation.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
Going Concern
These consolidated 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 consolidated financial statements, the Company had net loss and net cash used in operations of $5,471,649 and $4,780,930, respectively, for the year ended September 30, 2021. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $49,825,855, $4,945,362and $2,657,337at September 30, 2021. 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 consolidated 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 consolidated 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 consolidated 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 years ended September 30, 2021 and 2020 include, but are not necessarily limited to, the valuation of assets and liabilities of discontinued operations, 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 September 30, 2021. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on 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:
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 during the quarter ended March 31, 2020 and its adoption did not have any material impact on the Company’s consolidated financial statements.
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 September 30, 2021 and 2020 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 asset and reflected in the accompanying consolidated 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 three to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
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 consolidated 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 consolidated 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 consolidated financial statements.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
Revenue Recognition
In May 2014, FASB issued an Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard during the fiscal year ended September 30, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.
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. 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 revenue recognized from services provided to private individuals during the year ended September 30, 2021 were minimal and therefore was not disaggregated for disclosure purposes.
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 do 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 federally insured limits. As of September 30, 2021 and 2020, the cash balance of $68,122 and $1,538,951 was in excess of FDIC insured levels. The Company has not experienced any losses in such accounts through September 30, 2021.
Concentration of Revenues
For the year ended September 30, 2021, the Company generated total revenue of $505,604 of which 31%, 12%, 12% and 11% were from four of the Company’s customers. During the year ended September 30, 2020, the Company generated total revenue of $181,229 of which 56% and 44% were from two of the Company’s customers.
Concentration of Deferred Revenue
As of September 30, 2021, the Company had deferred revenue of $135,150 of which 56%, 24% and 16% were from three of the Company’s customers. As of September 30, 2020, the Company did not have any deferred revenue.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
Concentration of Vendor
Generally, the Company relies on one vendor to perform the Company’s 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 year ended September 30, 2021 and 2020, the Company incurred $860,954 or 100% of it sample analysis expense from one vendor.
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing 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 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 September 30, 2021 and 2020 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Stock warrants | 984,470,116 | 856,674,588 | ||||||
| Series C-1 preferred stock | 445,301,289 | 445,301,289 | ||||||
| Series C-2 preferred stock | 733,542,619 | 733,542,619 | ||||||
| Series E preferred stock | 638,977,636 | 533,333,333 | ||||||
| Series F preferred stock | 319,488,818 | — | ||||||
| Convertible note | 319,488,711 | — | ||||||
| 3,441,269,189 | 2,568,851,829 | |||||||
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 September 30, 2021 and 2020, the Company had 0 uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, 0 such interest and penalties were recorded as of September 30, 2021.
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
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The Company will allocate 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 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 consolidated 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 edging—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:
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 is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated 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 is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
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 consolidated financial statements.
NOTE 3 –RECAPITALIZATION AND DISPOSAL OF SUBSIDIARIES
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 $9,916 which was recorded in the consolidated statement of operations as gain on dissolution of a subsidiary.
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 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 shares of OncBioMune Sub Inc. held by the Company to the various investors for total proceeds of $1,000 recorded in the consolidated statement of operations as gain on disposal of a subsidiary (see Note 1).
Asset Sale and Recapitalization Transaction
Avant provided personalized medical data through its Theralink assays, initially for breast cancer, to assist the treating physician in a data-driven process for treatment decision support and to help enable predictive biomarker-based patient therapy selection. Avant was a developer of phosphoproteomic technologies for measuring the activation state of therapeutic targets and signaling pathways, a key metric for biopharmaceuticals, with applications across multiple cancer types, including breast, non-small cell lung, gastrointestinal (“GI”), gynecologic and pancreatic, among others.
On June 5, 2020, the Company closed the Asset Purchase Agreement entered into with Avant on May 12, 2020. Pursuant to the Asset Purchase Agreement, the Company acquired substantially all of the assets and business of Avant and assumed certain of its liabilities in the Asset Sale Transaction. 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 of 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, Avant was issued shares of a newly created Series D-1 Preferred Stock which held 54.55% of all voting rights on an as-converted basis with the common stock. Upon the increase of the Company’s authorized shares of common stock from shares to shares effective September 24, 2020, all such shares of Series D-1 Preferred Stock issued to Avant automatically converted into shares of the Company’s common stock. Avant possessed majority voting control of the Company immediately following the Asset Sale Transaction and controlled the Company’s Board of Directors after the termination of the ten-day waiting period required by Rule 14f-1 under the Exchange Act. Accordingly, the Asset Sale Transaction was accounted for, in substance, as an asset acquisition of the Company’s net assets by Avant and a recapitalization of Avant as discussed in detail below under “Accounting for the Asset Sale Transaction”. Avant is considered the historical registrant and the historical operations presented are those of Avant since Avant obtained 54.55% majority voting control of the Company.
On June 5, 2020, pursuant to the Asset Purchase Agreement, the Company: (i) entered into an employment agreement with Dr. Michael Ruxin to serve as the Company’s Chief Executive Officer, President and a director (see Note 10); (ii) entered into an employment agreement with Jeffery Busch to serve as the Company’s Chairman of the Board of Directors (see Note 10); and (iii) appointed Yvonne Fors to its Board of Directors.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
Accounting for the Asset Sale Transaction
The Asset Sale Transaction was accounted for, in substance, as an asset acquisition of the Company’s net assets by Avant and a recapitalization of Avant as the Company did not meet the definition of a business under the framework provided under ASC 805-10-55-5D through 55-6 - Business Combination. Avant is considered the historical registrant and the historical operations presented are those of Avant since Avant obtained 54.55% majority voting control of the Company where, in effect, the Company is the legal acquirer (accounting acquiree) and Avant is the accounting acquirer (legal acquiree).
The cost of the Asset Sale Transaction was determined in accordance with ASC 805-50-30-1 through 30-2 Business Combinations, which states in part that assets are recognized based on their cost to the acquiring entity, which generally includes the transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. If the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued), measurement is based on either the cost which shall be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable.
In accordance with ASC 805-50-30-1, the fair value of the shares of Series D-1 Preferred Stock, issued as consideration, was determined to be $246,656 which was the fair value of the Company’s net assets that were acquired by Avant as of the closing date of the transaction. The cost of the Asset Sale Transaction was allocated to the acquired assets and assumed liabilities based on their estimated fair values.
SCHEDULE OF ASSETS AND LIABILITIES IN TRANSACTION
The following assets and liabilities were assumed in the transaction:
| 1 | ||||
| Cash | $ | 675,928 | ||
| Prepaid expense and other current assets | 17,539 | |||
| Total assets acquired | 693,467 | |||
| Accounts payable and other liabilities | (40,149 | ) | ||
| Liabilities of discontinued operations | (406,662 | ) | ||
| Total liabilities assumed | (446,811 | ) | ||
| Net assets acquired | $ | 246,656 |
The functional currency of the former subsidiaries which operated in Mexico is the Mexican Peso (“Peso”). The assumed liabilities of discontinued operations were translated to U.S. dollars using period end rates of exchange for liabilities. Net gains and losses resulting from foreign exchange transactions are reflected as unrealized gain (loss) on exchange rate in the consolidated statements of operations and is a non-cash loss. As a result of foreign currency translations, which are a non-cash adjustment, the Company reported unrealized gain (loss) on exchange rate of $(22,686) and $49,202 during the years ended September 30, 2021, and 2020, respectively.
During the year ended September 30, 2021 and 2020, $227,294 and $158,852, respectively, of the assumed liabilities of discontinued operations were written-off, in accordance with ASC 405-20-40-1b, and were recorded as a gain on debt extinguishment on the accompanying consolidated statement of operations.
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 $40,980. The AMBS common stock is recorded as marketable securities in the accompanying consolidated balance sheets and its fair value is adjusted every reporting period and the change in fair value is recorded in the consolidated statements of operations as unrealized gain or (loss) on marketable securities. During the years ended September 30, 2021 and 2020, the Company recorded $100 and $6,900, respectively, of unrealized loss on marketable securities, respectively. As of September 30, 2021 and 2020, the fair value of these shares were $11,000 and $11,100, respectively.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and once placed in service, 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:
SCHEDULE OF PROPERTY AND EQUIPMENT
Estimated Useful Life in Years | September 30, 2021 | September 30, 2020 | |||||||||
| (Unaudited) | |||||||||||
| Laboratory equipment | 5 | $ | 470,159 | $ | 404,628 | ||||||
| Furniture | 5 | 24,567 | 13,367 | ||||||||
| Leasehold improvements | 5 | 349,115 | 347,809 | ||||||||
| Computer equipment | 3 | 68,490 | 53,060 | ||||||||
| 912,331 | 818,864 | ||||||||||
| Less accumulated depreciation | (213,404 | ) | (74,042 | ) | |||||||
| Property and equipment, net | $ | 698,927 | $ | 744,822 | |||||||
For the years ended September 30, 2021 and 2020, depreciation expense related to property and equipment amounted to $139,362 and $51,392, respectively.
NOTE 6 – DEBT
Convertible Debt
On May 25, 2018, the Company entered into an exchange Agreement (the “Coastal Exchange Agreement”) with Coastal Investment Partners, LLC (“Coastal”). Pursuant to the terms of the Coastal Exchange Agreement, the Company agreed to exchange the principal amount due under the convertible promissory note dated July 6, 2016 plus accrued but unpaid interest, default penalties and other amounts due and payable under such notes, which was $305,664 as of the Effective Date (the “Coastal Notes”) in exchange for (i) shares of Series A Preferred Stock having an aggregate value of $192,832 and (ii) the issuance of a new convertible promissory note due eighteen (18) months from the Effective Date in the aggregate principal amount of $192,832 (the “New Coastal Note”). The New Coastal Note shall bear interest at 8% per annum and is convertible into shares of the Company’s common stock at $0.015 per share, subject to adjustment. Coastal has contractually agreed to restrict their ability to convert the New Coastal Note such that the number of shares of the Company common stock held by them and their affiliates after such conversion does not exceed 9.99% of the Company’s then issued and outstanding shares of common stock. In connection with the Coastal Exchange Agreement, Coastal agreed to waive the defaults and breaches that have resulted on or prior to the Effective Date as well as any penalties, interest or other amounts that may have accrued under the Coastal Notes after March 31, 2018. In addition, Coastal entered into a termination agreement with the Company pursuant to which as of the Effective Date, (i) the securities purchase agreements and pledge agreements entered into with Coastal (the “Coastal Prior Agreements”) were terminated in their entirety and shall have no further force or effect, (ii) the security interests granted by the pledge agreement were terminated and shall have no further force or effect and (iii) neither party shall have any further rights or obligations under the Coastal Prior Agreements. Coastal also authorized the Company or its representatives to take all actions as they determine in their sole discretion to discharge and release any and all security interests, pledges, liens, and other encumbrances held by it on the Company’s assets. As of September 30, 2019, the New Coastal Note had outstanding principal of $192,832 and accrued interest payable of $20,783 which is recorded as accrued liabilities in the accompanying balance sheets. During the year ended September 30, 2020, the lender converted the principal balance of $192,832 and accrued interest of $24,383 into shares of Series D-1 preferred stock. As of September 30, 2020, the Coastal Notes had 0 outstanding balance. This note was a legal liability of Avant which was settled prior to the asset acquisition (see Note 3).
On May 25, 2018, the Company entered into an exchange agreement (the “Black Mountain Exchange Agreement”) with Black Mountain Equity Partners LLC (“Black Mountain”). Pursuant to the terms of the Black Mountain Exchange Agreement, the Company agreed to exchange the principal amount due under the convertible promissory note dated November 11, 2016 (the “Black Mountain Note”) in exchange for the issuance of a new promissory note due twelve (12) months from the Effective Date in the aggregate principal amount of $25,000 (which includes a prepayment amount of $5,000 made on the Effective Date) (the “New Black Mountain Note”). The New Black Mountain Note shall bear interest at 12% per annum and has mandatory payments of $5,000 every 90 days until paid in full. In connection with the Black Mountain Exchange Agreement, Black Mountain agreed to waive the defaults and breaches that have resulted on or prior to the Effective Date as well as any penalties, interest or other amounts that may have accrued under the Black Mountain Note after March 31, 2018. During the fiscal year ended 2018, the Company paid $10,000 of the principal balance. During the fiscal year ended 2019, the Company paid $7,500 of the principal. As of September 30, 2019, the Black Mountain Note had outstanding principal of $7,500. During the year ended September 30, 2020, the Company repaid the outstanding balance. As of September 30, 2020, the Black Mountain Note had 0 outstanding balance. This note was a legal liability of Avant which was settled prior to the asset acquisition (see Note 3).
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On May 25, 2018, the Company entered into an exchange agreement with a certain investor for the issuance of new promissory note due twenty-four (24) months from the Effective Date in the aggregate principal amount of $47,259 (the “New 2016 Investor Note”). The New 2016 Investor Note shall bear interest at 12% per annum and has mandatory payments of $2,000 every 30 days until paid in full starting June 25, 2018. In connection with the 2018 Investor Exchange Agreement, the 2016 Investor has agreed to waive the defaults and breaches that have resulted on or prior to the Effective Date as well as any penalties, interest or other amounts that may have accrued under the 2016 Note after March 31, 2018. During the fiscal year ended 2018, the Company paid $6,000 of the principal balance. During the fiscal year ended 2019, the Company paid $24,000 of the principal. As of September 30, 2019, the New 2016 Investor Note had outstanding principal of $17,259 and accrued interest payable of $5,981 which is recorded as accrued liabilities in the accompanying balance sheets. During the year ended September 30, 2020, the Company repaid the outstanding principal of $17,259 and recognized a gain on debt extinguishment related to the forgiveness for the accrued interest in the amount of $6,587. As of September 30, 2020, the New 2016 Investor Note had 0 outstanding balance. This note was a legal liability of Avant. It was settled prior to the asset acquisition described in in Note 3.
Convertible Debt – Related Party
On May 12, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor (the “Investor”) to purchase a convertible note (the “Note”) and accompanying warrant (the “Warrant”) for an aggregate investment amount of $1,000,000 (see Note 8). The Note has a principal value of $1,000,000 and bears 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 Note)) and shall mature on May 12, 2026(the “Maturity Date”). The Company received the proceeds in three tranches with the first tranche of $333,334 received in May 2021, the second tranche of $333,333 received in June 2021 and the third tranche of $333,333 received in July 2021. The Note is convertible at any time into shares of the Company’s common stock at a conversion price equal to $0.00313 per share for any amount of principal and accrued interest remaining outstanding (subject to adjustment as provided therein). The Company may prepay the Note at any time in an amount equal to 110% of the outstanding principal balance and accrued interest. In connection with the Company’s obligations under the Note, the Company entered into a security agreement (the “Security Agreement”) with Ashton Capital Corporation as agent, pursuant to which the Company granted a lien on laboratory equipment of the Company (the “Collateral”), for the benefit of the Investor, to secure the Company’s obligations under the Note. Upon an Event of Default (as defined in the Notes), the Investor may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral. During the year ended September 30, 2021, the Company paid $19,142 of accrued interest. As of September 30, 2021, the Note has an outstanding principal of $1,000,000 and accrued interest of $6,575. It’s reflected in the accompanying consolidated balance sheet as a long term convertible note payable – related party, net of discount in the amount of $64,981.
In connection with the Note, the Investor was issued a Warrant to purchase up to shares of common stock at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until May 12, 2026 (see Note 9). The Warrants are exercisable for cash at any time. The Warrant was valued at $using the relative fair value method which was recorded as a debt discount which is being amortized over the life of the Note. In addition, the Note had a BCF in the amount of $15,800 which was recorded as a debt discount which is being amortized over the life of the Note. The debt discount totaled $1,000,000. During the year ended September 30, 2021, the Company amortized $64,981 of the debt discount which is included in interest expense in the accompanying consolidated statement of operations.
Note Payable - Related Party
On April 26, 2021, the Company entered into a Promissory Note Agreement (the “Note”) with Jeffrey Busch who serves as a member of the Board of Directors (“Lender”) for a principal amount of $100,000 (see Note 8). 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 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 of $100,000 and accrued interest of $427.
Note Payable
On October 28, 2016, the Company entered into a note agreement (the “Note I”) for the sale of the Company’s convertible note with a principal amount of $20,000. The Company received $20,000 in proceeds from the sale. Note I bears an interest rate of 12% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in Note I)), matured on April 28, 2017 and the principal and interest are convertible at any time at a conversion price equal to the lower of $0.25 or closing price on the date of the conversion, provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the Note I shall be convertible at 65% of the lowest VWAP , as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the Note to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 4.99% of the Company’s issued and outstanding common stock. Note I may be prepaid, in whole or in part, at any time upon five-days written notice to the holder at an amount equal to (i) 110% of the outstanding principal prepayment amount during the first 30 days after the execution of Note I; (ii) 115% of the outstanding principal prepayment amount if paid between the 31st to 60th day after the execution of Note I; (iii) 120% of the outstanding principal prepayment amount if paid between the 61st to 90th day after the execution of Note I and; (iv) 125% of the outstanding principal prepayment amount if paid after the 91st day after the execution of Note I.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On July 28, 2017, the Company entered into an Exchange Agreement, with the holder to exchange Note I dated October 28, 2016, with a principal balance of $20,000 and a maturity date of April 28, 2017, with a new note (“Exchange Note I”). Note I defaulted on the maturity date for non-payment. The Exchange Note I had a purchase price of $20,000, net of $5,600 Original Issue Discount for an aggregate principal amount of $25,600. The Exchange Note I bears an interest rate of 10% per year (which shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in Exchange Note I)), maturity date of July 28, 2019 and convertible at any time at a fix conversion price equal to $0.06 per share. During the fiscal year ended September 30, 2018, the Company failed to meet the requirements set forth in the Exchange Agreement which resulted in the Exchange Agreement being considered null and void by both parties whereas the original Note I remains in full force and effect. As of September 30, 2019, the Note I is in default and had outstanding principal of $20,000 and accrued interest payable of $8,420 which is recorded as accrued liabilities in the accompanying balance sheet. During the year ended September 30, 2020, as a result of the Asset sale and recapitalization transaction (see Note 3), and this promissory note liability not being assumed in the transaction (see Note 10), the Company reclassified the Note I outstanding principal of $20,000 and accrued interest of $12,020 to contingent liabilities for a total amount of $32,020. As of September 31, 2021, Note I had outstanding principal of $20,000 and accrued interest of $15,620 for a total amount of $35,620, reflected in the accompanying consolidated balance sheets under contingent liabilities.
On October 28, 2016, the Company entered into a note agreement (the “Note II”) for the sale of the Company’s convertible note for a principal amount of $20,000. The Company received $20,000 in proceeds from the sale. Note II bears an interest rate of 12% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in Note II)), matured on April 28, 2017 and the principal and interest are convertible at any time at a conversion price equal to the lower of $0.25 or closing price on the date of the conversion, provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, Note II shall be convertible at 65% of the lowest VWAP, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 4.99% of the Company’s issued and outstanding common stock. Note II may be prepaid, in whole or in part, at any time upon five-days written notice to the holder at an amount equal to (i) 110% of the outstanding principal prepayment amount during the first 30 days after the execution of Note II; (ii) 115% of the outstanding principal prepayment amount if paid between the 31st to 60th day after the execution of Note II; (iii) 120% of the outstanding principal prepayment amount if paid between the 61st to 90th day after the execution of Note II and; (iv) 125% of the outstanding principal prepayment amount if paid after the 91st day after the execution of Note II.
On July 28, 2017, the Company entered into an Exchange Agreement, with the holder to exchange Note II dated October 28, 2016, with a principal balance of $20,000 and a maturity date of April 28, 2017, with a new note (“Exchange Note II”). Note II defaulted on the maturity date for non-payment. The Exchange Note II had a purchase price of $20,000, net of $5,600 Original Issue Discount for an aggregate principal amount of $25,600. The Exchange Note II bears an interest rate of 10% per year (which shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in Exchange Note II)), maturity date of July 28, 2019 and convertible at any time at a fix conversion price equal to $0.06 per share. During the fiscal year ended September 30, 2018, the Company failed to meet the requirements set forth in the Exchange Agreement which resulted in the Exchange Agreement being considered null and void by both parties whereas the original Note II remains in full force and effect. As of September 30, 2019, the Note II is in default and had outstanding principal of $20,000 and accrued interest payable of $8,420 which is recorded as accrued liabilities in the accompanying balance sheet. During the year ended September 30, 2020, as a result of the Asset sale and recapitalization transaction (see Note 3) and this promissory note liability not being assumed in the transaction (see Note 10), the Company reclassified the Note II outstanding principal of $20,000 and accrued interest of $12,020 to contingent liabilities for a total amount of $32,020. As of September 31, 2021, Note II had outstanding principal of $20,000 and accrued interest of $15,620 for a total amount of $35,620, reflected in the accompanying consolidated balance sheets under contingent liabilities.
As of September 30, 2021, the contingent liabilities consisted of two notes payables, discussed above, with a total outstanding principal balance of $40,000 and accrued interest payable of $31,240 for a total amount of $71,240. As of September 30, 2020, the contingent liabilities consisted of two notes payables, discussed above, with a total outstanding principal balance of $40,000 and accrued interest payable of $24,040 for a total amount of $64,040.
In September 2017, the Company entered into a loan agreement with a third-party investor (the “Loan”). Pursuant to the loan agreement, the Company borrowed the principal amount of $1,000. The Loan bears an annual interest rate of 33.3%, is unsecured and in default due to non-payment of the balance pursuant to the repayment terms. As of September 30, 2021, the loan had principal and accrued interest balances of $1,000 and $1,355, respectively.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
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 $379 for a period of 60months commencing in November 2018 throughOctober 2023. At the effective date of the financing agreement, the Company recorded a financing lease payable of $16,064.
Effective November 2018, the Company entered into a financing agreement with the second lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,439 for a period of 60months commencing in November 2018 through October 2023. At the effective date of the financing agreement, the Company recorded a financing lease payable of $62,394.
Effective March 2019, the Company entered into a financing agreement with the third lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,496 for a period of 60months commencing in March 2019 through April 2024. At the effective date of the financing agreement, the Company recorded a financing lease payable of $64,940.
Effective August 2019, the Company entered into a financing agreement with the fourth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $397 for a period of 60months commencing in August 2019 through August 2024. At the effective date of the financing agreement, the Company recorded a financing lease payable of $19,622.
Effective January 2020, the Company entered into a financing agreement with the fifth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,395 for a period of 60months commencing in January 2020 through December 2024. At the effective date of the financing agreement, the Company recorded a financing lease payable of $68,821.
The significant assumption used to determine the present value of the financing lease payables with a discount rate which ranged from between 8% and 15% based on the Company’s estimated effective rate pursuant to the financing agreements.
Financing lease right-of-use assets (“Financing ROU”) is summarized below:
SCHEDULE OF FINANCING RIGHT-OF-USE ASSETS
| September 30, 2021 | September 30, 2020 | |||||||
| Financing ROU assets | $ | 231,841 | $ | 231,841 | ||||
| Less accumulated depreciation | (120,518 | ) | (74,150 | ) | ||||
| Balance of Financing ROU assets | $ | 111,323 | $ | 157,691 | ||||
For the years ended September 30, 2021 and 2020, depreciation expense related to Financing ROU assets amounted to $46,368 and $46,368, respectively.
Financing lease liability related to the Financing ROU assets is summarized below:
SCHEDULE OF FINANCING LEASE LIABILITY
September 30, 2021 | September 30, 2020 | |||||||
| Financing lease payables for equipment | $ | 231,841 | $ | 231,841 | ||||
| Total financing lease payables | 231,841 | 231,841 | ||||||
| Payments of financing lease liabilities | (95,726 | ) | (53,491 | ) | ||||
| Total | 136,115 | 178,350 | ||||||
| Less: short term portion | (47,730 | ) | (42,234 | ) | ||||
| Long term portion | $ | 88,385 | $ | 136,116 | ||||
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
Future minimum lease payments under the financing lease agreements at September 30, 2021 are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS OF FINANCING LEASE
| Years ending September 30, | Amount | |||
| 2022 | $ | 61,266 | ||
| 2023 | 53,787 | |||
| 2024 | 40,875 | |||
| 2025 | 4,185 | |||
| Total minimum financing lease payments | 160,113 | |||
| Less: discount to fair value | (23,998 | ) | ||
| Total financing lease liability at September 30, 2021 | $ | 136,115 | ||
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. The lease is for a period of 60 months, with an option to extend, commencing in February 2020 and expiring inFebruary 2025. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of; (i) $4,878 in the first year; (ii) $5,026 in the second year; (iii) $5,179 in the third year; (iv) $5,335 in the fourth year and; (v) $5,495 in the fifth year, plus a pro rata share of operating expenses beginning February 2020.
In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs (see Note 2). In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. At the effective date of the lease, the Company recorded right-of-use assets and lease liabilities of $231,337.
For the year ended September 30, 2021, lease costs amounted to $66,268 which included base lease costs of $64,454 and other expenses of $1,814, all of which were expensed during the period and included in general and administrative expenses on the accompanying consolidated statements of operations.
The significant assumption used to determine the present value of the lease liability was a discount rate of 12% which was based on the Company’s estimated incremental borrowing rate.
Right-of-use asset (“ROU”) is summarized below:
SCHEDULE OF OPERATING RIGHT-OF-USE ASSET
September 30, 2021 | September 30, 2020 | |||||||
| Operating office lease | $ | 231,337 | $ | 231,337 | ||||
| Less accumulated reduction | (62,673 | ) | (25,134 | ) | ||||
| Balance of Operating ROU asset | $ | 168,664 | $ | 206,203 | ||||
Operating lease liability related to the ROU asset is summarized below:
SCHEDULE OF OPERATING LEASE LIABILITY
| September 30, 2021 | September 30, 2020 | |||||||
| Operating office lease | $ | 231,337 | $ | 231,337 | ||||
| Total operating lease liability | 231,337 | 231,337 | ||||||
| Reduction of operating lease liability | (54,444 | ) | (18,501 | ) | ||||
| Total | 176,893 | 212,836 | ||||||
| Less: short term portion | (42,411 | ) | (35,943 | ) | ||||
| Long term portion | $ | 134,482 | $ | 176,893 | ||||
Future base lease payments under the non-cancellable operating lease at September 30, 2021 are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS OF OPERATING LEASE
| Years ending September 30, | Amount | |||
| 2022 | $ | 61,382 | ||
| 2023 | 63,236 | |||
| 2024 | 65,137 | |||
| 2025 | 27,474 | |||
| Total minimum non-cancellable operating lease payments | 217,229 | |||
| Less: discount to fair value | (40,336 | ) | ||
| Total operating lease liability at September 30, 2021 | $ | 176,893 | ||
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (the “Lease Amendment”) for its laboratory facility in Golden, CO (see Note 10). The amendment was entered into in order to: (i) extend the term of the lease to five years following completion of the Company’s improvements to the Expansion Premises (defined below);(ii) expand the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden, Colorado 80401, consisting of approximately 4,734 rentable square feet (the “Expansion Premises”); (iii) modify the annual basic rent; (iv) increase the security deposit; (v) provide for a tenant improvement allowance; (vi) provide for additional parking; (vii) provide for renewal options; and (viii) make certain other modifications as more particularly set forth below. As of September 30, 2021, the improvements to the Expansion Premises had not yet been completed therefore the completion therefore Lease Amendment is not yet in effect.
Pursuant to the Lease Amendment, the Company must pay a monthly base rent of (i) $5,660 for the year from March 1, 2025 to February 28, 2026 and (ii) $5,829 for each year thereafter. In addition, the Company must pay a monthly base rent for the Expanded Premises of: (i) $4,537 in the first year; (ii) $4,673 in the second year; (iii) $4,813 in the third year; (iv) $4,957 in the fourth year; and (v) $5,106 in the fifth year. As of September 30, 2021, the Lease Amendment is not yet in effect.
NOTE 8 – RELATED-PARTY TRANSACTIONS
On June 5, 2020, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as a strategic advisor to the Company’s Chief Executive Officer. The agreement was effective for a period of six months commencing on June 5, 2020. On August 14, 2020, Mr. Kucharchuk was appointed as the acting Chief Financial Officer. Thereafter, the agreement renewed on a month-to-month basis by mutual agreement of the parties. On September 24, 2020, Mr. Kucharchuk resigned as the acting Chief Financial Officer of the Company. Subsequently, his consulting contract was cancelled in November of 2020. Pursuant to the agreement, Mr. Kucharchuk was paid a monthly fee of $15,000.
On September 16, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder, to purchase an aggregate amount of 1,000 shares of Series E Convertible Preferred Stock of the Company (the “Series E Preferred”) for an aggregate investment amount of $2,000,000 (see Note 9). The Company’s Series E Preferred Stock has a stated value of $2,000 per share and shall accrue, on a quarterly basis in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid quarterly at the option of the holder of the Series E Preferred in either cash or shares of common stock of the Company. The Series E Preferred is convertible two days after the increase in the Company’s authorized common stock which became effective on September 24, 2020. The number of shares of common stock issuable on the conversion of the Series E Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00375 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0021. For eighteen months from the anniversary of the closing, the Company needs to obtain consent from several investors prior to engaging in any future capital raises.
During the year ended September 30, 2020, a $160,000 outstanding balance owed for consulting fee – related party was converted into 0.24 shares of Series D-1 Preferred.
During the year ended September 30, 2020, the Company repaid an outstanding $20,000 advance to a related party.
On 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. In addition, Mr. Kucharchuk shall be paid $2,000 per month. As of September 30, 2021, the Company recorded accrued consulting fees in the amount of $18,000 reflected under accrued liabilities – related party in the accompanying balance sheets (see Note 10).
On April 26, 2021, the Company entered into Promissory Note Agreement (the “Note”) with Jeffrey Busch who serves as a member of the Board of Directors (“Lender”) for a principal amount of $100,000 (see Note 6) with the Company receiving proceeds of $100,000. As of September 30, 2021, the Note had outstanding principal of $100,000 and accrued interest of $427.
On May 12, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder (“Affiliated Investor”), to purchase a convertible note (the “Note”) and accompanying warrant for of commons stocks (the “Warrant”), for an aggregate investment amount of $1,000,000. The Note has a principal value of $1,000,000and bears 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 Note)) and shall mature on May 12, 2026(the “Maturity Date”) (see Note 6). As of September 30, 2021, the Note had outstanding principal of $1,000,000 and accrued interest of $6,575. It’s reflected in the accompanying consolidated balance sheet as a long term convertible note payable – related party, net of discount in the amount of $64,981.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder, to purchase an aggregate amount of 500 shares of Series F Convertible Preferred Stock of the Company (the “Series F Preferred”) with accompanying warrant for 63,897,764 of common stock (the “Warrant”), for total proceeds of $1,000,000 (see Note 9). The Series F Preferred Stock has a stated value of $2,000 per share and shall accrue monthly in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid monthly at the option of the holder of the Series F Preferred in either cash or shares of common stock of the Company. The number of shares of common stock issuable upon conversion of the Series F Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00313 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0016. In addition, the investor was issued a Warrant to purchase an amount of common stock equal to 20% of the shares of common stock issuable upon conversion of the Series F Preferred at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until July 30, 2026. The Warrants are exercisable for cash at any time.
As of September 30, 2021, the Company owed an executive for expense reimbursements in the aggregate amount of $3,714 which is reflected on the accompanying balance sheet as accounts payable – related party.
At September 30, 2021 and 2020, amounts due to related parties consisted of the following:
SCHEDULE OF AMOUNTS DUE TO RELATED PARTIES
| 2021 | 2020 | |||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Convertible note principal – related party | $ | 1,000,000 | $ | — | ||||
| Note payable principal – related party | 100,000 | — | ||||||
| Consulting fee – related party | 18,000 | — | ||||||
| Accounts payable – related party | 3,714 | |||||||
| Total | $ | 1,121,714 | $ | — | ||||
NOTE 9 – STOCKHOLDERS’ DEFICIT
Shares Authorized
On September 22, 2020, the Company filed with the Nevada Secretary of State an amendment to its Certificate 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.
Series A Preferred Stock
On August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating 1,333 shares of the authorized Preferred Stock as Series A Preferred Stock. Each holder of Series A Preferred Stock is entitled to 500 votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Company. The holders of Series A Preferred Stock shall have no special voting rights and their consent is not required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action.
On June 5, 2020, pursuant to the asset sale transaction and recapitalization (see Note 3), shares of Series A were deemed to have been issued.
As of September 30, 2021 and 2020, 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 B Preferred Stock
On March 7, 2017, the Company filed a Certificate of Designation, Preferences and Rights of Series B Preferred Stock (the “Series B Certificate of Designation”) with the Nevada Secretary of State to designate 10,523 shares of its previously authorized preferred stock as Series B Preferred Stock, par value $per share and a stated value of $per share. The Series B Certificate of Designation and its filing was approved by the Company’s Board of Directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series B Preferred Stock were entitled to dividends or distributions share for share with the holders of the common stock, if, as and when declared from time to time by the Board of Directors.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On June 11, 2020, the Company filed a Certificate of Withdrawal of Designation with the Nevada Secretary of State terminating the designation, amount thereof, voting powers, preferences and relative participating, optional and other special rights of the shares of the preferred stock of the Company designated as Series B Preferred Stock.
As of September 30, 2020, there were shares of the Company’s Series B Preferred Stock issued and outstanding.
Series C-1 Preferred Stock
On May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series C-1 Preferred Stock (the “Series C-1 Certificate of Designation”), as amended on June 9, 2021, with the Nevada Secretary of State to designate 3,000 shares of its previously authorized preferred stock as Series C-1 Preferred Stock, par value $per share and a stated value of $per share. The Series C-1 Certificate of Designation and its filing was approved by the Company’s Board of Directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series C-1 Preferred Stock have the following preferences and rights:
On June 9, 2021, the Company filed an Amendment (the “CoD Amendment”) to the Series C-1 Certificate of Designation with the Nevada Secretary of State. The filing of the CoD Amendment was approved by the Board on June 8, 2021, and by the holders of the majority of the outstanding shares of Series C-1 Preferred Stock on June 8, 2021.
The CoD Amendment sets the triggering price for the anti-dilution price protection at $0.00275 per share, the same price as the Series C-2 Certificate of Designation. All other terms of the Series C-1 Certificate of Designation remain unchanged and in full force and effect.
| ||
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On June 5, 2020, pursuant to the asset sale and recapitalization transaction (see Note 3), shares of Series C-1 Preferred Stock was deemed to have been issued.
As of September 30, 2021 and 2020, the Company had shares of Series C-1 Preferred Stock issued and outstanding.
Series C-2 Preferred Stock
On May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series C-2 Preferred Stock (the “Series C-2 Certificate of Designation”) with the Nevada Secretary of State to designate 6,000 shares of its previously authorized preferred stock as Series C-2 Preferred Stock, par value $per share and a stated value of $per share. The Series C-2 Certificate of Designation and its filing was approved by the Company’s Board of Directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series C-2 Preferred Stock have the following preferences and rights:
On June 5, 2020, pursuant to the asset sale and recapitalization transaction (see Note 3), shares of Series C-2 Preferred Stock was deemed to have been issued.
As of September 30, 2021 and 2020, the Company had shares of Series C-2 Preferred Stock issued and outstanding.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
Series D-1 Preferred Stock
On May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series D-1 Preferred Stock (the “Series D-1 Certificate of Designation”) with the Nevada Secretary of State to designate 1,000 shares of its previously authorized preferred stock as Series D-1 Preferred Stock, par value $per share and a stated value of $per share. The Series D-1 Certificate of Designation and its filing was approved by the Company’s Board of Directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series D-1 Preferred Stock had the following preferences and rights:
During the year ended September 30, 2020, the Company issued an aggregate of 1 share of D-1 Preferred Stock in exchange for the settlement of certain accrued compensation valued at $459,153 of which $160,000 was for a related party (see Note 8).
During the year ended September 30, 2020, the Company sold 7 shares of D-1 Preferred Stock and warrants to purchase shares of common stock, for net proceeds of $2,590,000.
On September 24, 2020, the Company converted shares of Series D-1 Preferred Stock into shares of common stock (see below Common Stock).
As of September 30, 2020, there was Series D-1 Preferred Stock issued and outstanding.
Series D-2 Preferred Stock
On May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series D-2 Preferred Stock (the “Series D-2 Certificate of Designation”) with the Secretary of State of Nevada to designate shares of its previously authorized preferred stock as Series D-2 Preferred Stock, par value $per share and a stated value of $per share. The Series D-2 Certificate of Designation and its filing was approved by the Company’s Board of Directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series D-2 Preferred Stock have the following preferences and rights:
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On June 5, 2020, the Company is deemed to have issued shares of Series D-2 Preferred Stock pursuant to the Asset Sale Transaction and recapitalization.
On September 24, 2020, the Company converted shares of Series D-2 Preferred Stock into shares of common stock (see below Common Stock).
As of September 30, 2020, there was Series D-2 Preferred Stock 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 shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law (see Note 1). The holders of shares of Series E Preferred Stock have the following preferences and rights:
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On September 16, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder, to purchase an aggregate amount of shares of the newly created Series E Convertible Preferred Stock of the Company (the “Series E Preferred”) for an aggregate investment amount of $2,000,000 (see Note 8). The Company’s Series E Preferred Stock has a stated value of $2,000 per share and shall accrue, on a quarterly basis in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid quarterly at the option of the holder of the Series E Preferred in either cash or shares of common stock of the Company. The Series E Preferred is convertible two days after the increase in the Company’s authorized common stock which became effective on September 24, 2020. The number of shares of common stock issuable on the conversion of the Series E Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00375 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0021. For eighteen months from the anniversary of the closing, the Company needs to obtain consent from several investors prior to engaging in any future capital raises.
Pursuant to the Series E Certificate of Designation, Series E Preferred Stock is redeemable at the option of the holder in the event that the Company is prohibited from issuing shares of common stock to a holder upon any conversion due to insufficient shares of common stock available (“Authorized Failure Shares”) and therefore meets the criteria of a contingently redeemable instrument in accordance with ASC 480-10-25-7 – Distinguishing Liabilities from Equity. The Series E Preferred Stock is contingently redeemable upon the occurrence of an event that is outside of the issuer’s control and should be classified as temporary equity pursuant to ASC 480-10-S99.
Further the Series E Preferred Stock is an equity host instrument since it has more features that align with an equity instrument than a debt instrument pursuant to ASC 815-15-25-17A – Derivatives and Hedging, which states in part that “the nature of the host contract depends on the economic characteristics and risks of the entire hybrid financial instrument.” All of the contractual and implied terms of the preferred share, such as the existence of a redemption feature or conversion option, should be considered when determining the nature of the host instrument as debt or equity. The Series E Preferred Stock embedded conversion feature (call option) is considered clearly and closely related to the equity host. Accordingly, further analysis under ASC 815-40-15 is not necessary and the embedded conversion feature should not be bifurcated from the host instrument. The Series E Preferred Stock redemption feature (put option) does not meet all the criteria under ASC 815-10-15-83, therefore it does not qualify as a derivative.
To determine whether the Series E Preferred Stock contains a BCF, we compared the effective conversion price and the Company’s stock price on the commitment date. The effective conversion price was calculated by dividing the proceeds from Series E Preferred Stock by the number of common shares issuable upon conversion of the Series E Preferred Stock. The BCF is measured as the difference between the commitment date stock price and the effective conversion price multiplied by the number of common stock issuable upon conversion of Series E. The BCF is limited to the total cash proceeds received if the amount of the BCF exceeds the cash proceeds received. In connection with the issuance of Series E Preferred Stock, during the year ended September 30, 2020, the Company recognized a beneficial conversion feature in the amount of $2,000,000 which was accounted for as a deemed dividend.
During the year ended September 30, 2021, the Company incurred $152,890 of Series E dividends. As of September 30, 2021 and 2020, dividend payable balances were $13,151 and $6,120, respectively, reflected in the accompanying consolidated balance sheet as accrued liabilities instead of temporary equity.
During the year ended September 30, 2021, the issuance 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 $0.00375 to $0.00313 on that date.
As of September 30, 2021 and 2020, the Company had shares of Series E Preferred Stock issued and outstanding classified as temporary equity in the accompanying consolidated balance sheet.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
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 1,000 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 shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law (see Note 1). The holders of shares of Series F Preferred Stock have the following preferences and rights:
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder, to purchase an aggregate amount of shares of Series F Convertible Preferred Stock (the “Series F Preferred”) with accompanying warrant for of common stock (the “Warrant”), for total proceeds of $1,000,000 (see Note 8). The Series F Preferred Stock has a stated value of $2,000 per share and shall accrue monthly in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid monthly at the option of the holder of the Series F Preferred in either cash or shares of common stock of the Company. The number of shares of common stock issuable upon conversion of the Series F Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00313 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0016. In addition, the investor was issued a Warrant to purchase an amount of common stock equal to 20% of the shares of common stock issuable upon conversion of the Series F Preferred at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until July 30, 2026. The Warrants are exercisable for cash at any time. The 63,897,764 Warrant was valued using the relative fair value method at $957,192 and the Series F Preferred stock had a grant date fair value $42,808 which was recorded as a BCF.
In accordance to ASC 470 – Debt, the proceeds of $1,000,000 was allocated based on the relative fair values of the Series F preferred stock and the Warrant of $42,808 and $957,192, respectively. Although ASC 470 is for debt instruments issued with warrants, preferred shares issued with warrants should be accounted for in a similar manner.
Pursuant to the Series F Certificate of Designation, Series F Preferred Stock is redeemable at the option of the holder in the event that the Company is prohibited from issuing shares of common stock to a holder upon any conversion due to insufficient shares of common stock available (“Authorized Failure Shares”) and therefore meets the criteria of a contingently redeemable instrument in accordance with ASC 480-10-25-7 – Distinguishing Liabilities from Equity. The Series F Preferred Stock is contingently redeemable upon the occurrence of an event that is outside of the issuer’s control and should be classified as temporary equity pursuant to ASC 480-10-S99. Further the Series F Preferred Stock is an equity host instrument since it has more features that align with an equity instrument than a debt instrument pursuant to ASC 815-15-25-17A – Derivatives and Hedging, which states in part that “the nature of the host contract depends on the economic characteristics and risks of the entire hybrid financial instrument.” All of the contractual and implied terms of the preferred share, such as the existence of a redemption feature or conversion option, should be considered when determining the nature of the host instrument as debt or equity. The Series F Preferred Stock embedded conversion feature (call option) is considered clearly and closely related to the equity host. Accordingly, further analysis under ASC 815-40-15 is not necessary and the embedded conversion feature should not be bifurcated from the host instrument. The Series F Preferred Stock redemption feature (put option) does not meet all the criteria under ASC 815-10-15-83, therefore it does not qualify as a derivative.
To determine whether the Series F Preferred Stock contains a BCF, we compared the effective conversion price and the Company’s stock price on the commitment date. The effective conversion price was calculated by dividing the proceeds from Series F Preferred Stock by the number of common shares issuable upon conversion of the Series F Preferred Stock. The BCF is measured as the difference between the commitment date stock price and the effective conversion price multiplied by the number of common stock issuable upon conversion of Series F. The BCF is limited to the total cash proceeds received if the amount of the BCF exceeds the cash proceeds received. In connection with the issuance of Series F Preferred Stock, during the year ended September 30, 2021, the Company recognized a BCF in the amount of $42,808 which was accounted for as a deemed dividend.
The relative fair value of the warrant of $957,192 was recorded as a discount associated with the Series F preferred stock and was fully amortized immediately because the Series F preferred stock was convertible on the date of issuance. The Company recorded the $957,192 as deemed dividend.
During the year ended September 30, 2021, the Company also recorded dividends related to the Series F Preferred Stock in the amount of $6,728 which was reflected in the accompanying consolidated balance sheet as accrued liabilities instead of temporary equity.
As of September 30, 2021, the Company had shares of Series F Preferred Stock issued and outstanding classified as temporary equity in the accompanying consolidated balance sheet.
Common Stock
On June 5, 2020, the Company is deemed to have issued shares of common stock pursuant to the Asset Sale Transaction and recapitalization.
On September 24, 2020, the Company converted shares of Series D-1 Preferred Stock into shares of common stock (see above Series D-1 Preferred Stock).
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On September 24, 2020, the Company converted shares of Series D-2 Preferred Stock into shares of common stock (see below Series D-2 Preferred Stock).
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 431,309,904 shares of its common stock, par value $ per share, at a purchase price of $ per share for an aggregate purchase price of $1,350,000. These shares of common stock were sold by the Company in reliance upon an exemption from the registration requirements of the Act afforded by Section 4(a)(2) of the Act and/or Rule 506 of Regulation D thereunder. The private placements were made directly by the Company and no underwriter or placement agent was engaged by the Company. The Company did not engage in general solicitation or advertising and did not offer securities to the public in connection with this offering. As of September 30, 2021, this common stock has not been issued as the Company is unable to issue shares of common stock until FINRA approves its name to “Theralink Technologies, Inc” and new CUSIP number. Accordingly, the $1,350,000 is reflected in the accompanying consolidated balance sheet as subscription payable.
As of September 30, 2021, the Company had shares of common stock outstanding of which have not been issued yet. As of September 30, 2021, the Company was still in the process of updating its name of “Theralink Technologies, Inc” and its new CUSIP number with FINRA and therefore is unable to issue these shares of common stock until it receives FINRA’s approval for the same.
Stock Options
Effective February 18, 2011, the Company’s Board of Directors (“Board”) 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. During each twelve-month period thereafter, our Board of Directors is authorized to increase the number of options authorized under this plan by up to shares. options were granted under the 2011 stock option plan as of September 30, 2021.
On April 28, 2020, the Board approved the 2020 Equity Incentive Plan (the “Plan”), as amended on May 29, 2020. The 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 Plan has been approved by the Stockholders. Upon the effective date of the 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 Plan, and such Reserved Share Amount, when issued in accordance with the Plan, shall be validly issued, fully paid, and non-assessable. Pursuant to the Plan, the option price of each incentive stock option (except those that constitute substitute awards under the 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. As of September 30, 2021, the 2020 Equity Incentive Plan has not yet been approved by the shareholders and the Company had options issued and outstanding (see Note 10).
Warrants
In November 2019, in connection with the sale of series D-1 preferred stock, the Company issued certain warrants to a subscriber. On June 5, 2020, in connection with the Asset Sale Transaction and recapitalization, the Company issued new warrants to the same subscriber in exchange for the previously issued warrants. The new warrants are exercisable immediately at an exercise price of $0.00214 and expire on November 27, 2024.
On June 5, 2020 in connection with the Asset Sale Transaction and the recapitalization transaction, the Company issued 200,000,000 warrants to two investors. The warrants are not exercisable until sixty (60) days after the Company effectuates a reverse stock split and the Company achieves and maintains a Market Capitalization of $50,000,000 for thirty (30) consecutive days at an exercise price of $0.0025 and expire on September 5, 2025.
On May 12, 2021, in connection with the convertible note, the Company issued a Warrant to purchase up to 63,897,764 shares of common stock at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until May 12, 2026 (see Note 6). The Warrants are exercisable for cash at any time. The Warrant was valued at $984,200 using the relative fair value method was recorded as debt discount which is being amortized over the life of the convertible note.
On July 30, 2021, the Company, in connection with the issuance of shares of Series F preferred stock, issued a Warrant to purchase up to 63,897,764 shares of common stock at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until July 30, 2026. The Warrants are exercisable for cash at any time. The Warrant was valued at $957,192 using the relative fair value method and was recorded as deemed dividend.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
Warrants activities for the year ended September 30, 2021 is summarized as follows:
SCHEDULE OF WARRANT ACTIVITIES
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Warrants | Price | Term (Years) | Value | |||||||||||||
| Balance Outstanding at September 30, 2019 | — | $ | — | $ | — | |||||||||||
| Warrants issued in connection with the sale of 7 shares of Series D-1 Preferred Stock | 656,674,588 | $ | 0.002 | $ | — | |||||||||||
| Deemed issuance in connection with the asset sale and recapitalization transaction (see Note 3) | 200,000,000 | $ | 0.003 | $ | — | |||||||||||
| Balance Outstanding at September 30, 2020 | 856,674,588 | $ | 0.0020 | $ | — | |||||||||||
| Issued in connection with a convertible debt – related party (see Note 6 and Note 8) | 63,897,764 | 0.0031 | — | |||||||||||||
| Issued in connection with a Series F preferred stock – related party | 63,897,764 | |||||||||||||||
| Balance Outstanding at September 30, 2021 | 984,470,116 | $ | 0.0023 | $ | — | |||||||||||
| Exercisable at September 30, 2021 | 784,470,116 | $ | 0.0023 | $ | — | |||||||||||
NOTE 10 – COMMITMENT 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 (see Note 3).
The Ruxin Employment Agreement provides that Dr. Ruxin will be employed for a fiveyear 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 $300,000 and will be eligible for an annual discretionary bonus of 150% of such base salary. In the Ruxin Employment Agreement, Dr. Ruxin is also promised, subject to the approval of the Board or a committee thereof, and under the 2020 Equity Incentive Plan (i) a one-time grant of Restricted Stock Units (“RSUs”) and (ii) a one-time grant of options to purchase shares of Common Stock, both of which will be subject to the terms and conditions of the applicable award agreement when executed. Dr. Ruxin is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time. As of September 30, 2021, the RSUs and options have not yet been granted or issued since the Board has not yet approved the grants and the 2020 Equity Incentive Plan has not been approved by the shareholders. Further, the Board and Dr. Ruxin have not yet agreed on the terms of the options.
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.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
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 (see Note 3).
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 $60,000 and will be eligible for an annual discretionary bonus. In the Busch Employment Agreement, Mr. Busch is also promised, subject to the approval of the Board or committee thereof, and under the 2020 Equity Incentive Plan (i) a one-time grant of Restricted Stock (“RSUs”) and (ii) a one-time grant of options to purchase shares of Common Stock, both of which will be subject to the terms and conditions of the applicable award agreement when executed. Mr. Busch is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time. As of September 30, 2021, the RSUs and options have not yet been granted or issued since the Board has not yet approved the grants and the 2020 Equity Incentive Plan has not been approved by the shareholders. Further, the Board and Mr. Busch have not yet agreed on the terms of the options. As of September 30, 2021 and 2020, the Company has accrued director compensation of $132,500 and $72,500, respectively.
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.
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 $225,000 per year and that he will be eligible to receive the following bonuses: $5,000 if the Company’s next Annual Report on Form 10-K is filed on or prior to December 12, 2020; $5,000 if the Company files a registration statement on Form S-1 on or prior to January 15, 2021; $5,000 if the Company completes a capital raise of at least $3,000,000 on or prior to Apri1 15, 2021; $20,000 if the Company completes a capital raise of at least $10,000,000 on or prior to September 30, 2021; and $15,000 if the Company successfully lists on the Nasdaq stock market on or before December 31, 2021. Mr. Chilcott is entitled to participate in all medical and other benefits that the Company has established for its employees. The offer letter also provides that Mr. Chilcott will be granted an option to purchase up to shares of the Company’s common stock subject to terms including exercise price to be set by the Board of Directors of the Company. As of September 30, 2021, no bonus was due and no options have been granted to Mr. Chilcott.
Consulting Agreements
On July 5, 2020, the Company and a consultant entered into a Scientific Advisory Board Service Agreement (the “Advisory Agreement”) which provides for; (i) $2,000 monthly compensation; (ii) stock options under the 2020 Equity Incentive Plan and; (iii) $1,500 per day for any special project requiring more than six hours of advisory service in a single day performed upon a written request from the Company. Either party may terminate the Advisory Agreement at any time upon ten days written notice to the other party unless either party neglects or fails to perform its obligations under the Advisory Agreement, then the termination notice shall be effective upon receipt of the same. As of September 30, 2021, the Company and the consultants have not agreed on the terms of the stock options and therefore these stock options are not considered granted by the Company. Further, as of September 30, 2021, the 2020 Equity Incentive Plan has not yet been approved by the shareholders.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On July 5, 2020, the Company and a consultant entered into a Pathology Advisory Board Service Agreement (the “Advisory Agreement”) which provides for; (i) $272 monthly compensation; (ii) stock options under the 2020 Equity Incentive Plan and; (iii) $1,500 per day for any special project requiring more than six hours of advisory service in a single day performed upon a written request from the Company. Either party may terminate the Advisory Agreement at any time upon ten days written notice to the other party unless either party neglects or fails to perform its obligations under the Advisory Agreement, then the termination notice shall be effective upon receipt of the same. As of September 30, 2021, the Company and the consultants have not agreed on the terms of the stock options and therefore these stock options are not considered granted by the Company. Further, as of September 30, 2021, the 2020 Equity Incentive Plan has not yet been approved by the shareholders.
On 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. In addition, Mr. Kucharchuk shall be paid $2,000 per month. As of September 30, 2021, the Company recorded accrued consulting fees in the amount of $18,000 reflected under accrued liabilities – related party in the accompanying consolidated balance sheets (see Note 8).
License Agreements
GMU License Agreement
In September 2006, the Company entered into an exclusive license agreement (“License Agreement”) with George Mason Intellectual Properties, 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 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 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 $50,000 to GMU as well as pay GMU a quarterly royalty equal to the net revenue multiplied by one and one-half percent (1.5%), due on a quarterly basis or a quarterly sublicense royalty equal to the net revenue multiplied by fifteen percent (15%). Further, the Company has the right of first refusal for all technology associated with RPPA technology from GMU. As of September 30, 2021 and 2020, the Company has accrued royalty fees of $1,591 and $832, respectively, reflected in the accompanying consolidated balance sheet in accrued liabilities.
NIH License Agreement
In March 2018, the Company entered into two license agreements (“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 License Agreements, the Company is required to make an annual payment of $6,000 to the NIH as well as pay the NIH a royalty equal to the net sales multiplied by three percent (3.0%) every June 30th and December 31st. Commencing on January 1st of the year following the year of the first commercial sale, the Company is subject to a non-refundable minimum annual royalty of $5,000. In addition, a sublicense royalty equal to the net revenue multiplied by ten percent (10%) will be payable upon sublicensing. As of September 30, 2021 and 2020, the Company has accrued royalty fees of $24,830 and $19,834, respectively, reflected in the accompanying consolidated balance sheet in accrued liabilities.
Employee Incentive Stock Options
In June 2020, in connection with the Asset Sale Transaction (see Note 3), the Company planned to issue approximately billion stock options to employees, which include options in the employment agreements discussed above. As of September 30, 2021, these stock options had not yet been granted by the Company.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
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 60 months, with an option to extend, commencing in February 2020 and expiring in February 2025 (see Note 7).
On June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (the “Lease Amendment”) for its laboratory facility in Golden, CO (see Note 7). The amendment was entered into in order to: (i) extend the term of the lease to five years following completion of the Company’s improvements to the Expansion Premises (defined below);(ii) expand the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden, Colorado 80401, consisting of approximately 4,734 rentable square feet (the “Expansion Premises”); (iii) modify the annual basic rent; (iv) increase the security deposit; (v) provide for a tenant improvement allowance; (vi) provide for additional parking; (vii) provide for renewal options; and (viii) make certain other modifications as more particularly set forth below in the Lease Amendment. As of September 30, 2021, the improvements to the Expansion Premises had not yet been completed therefore the Lease Amendment is not yet in effect.
Pursuant to the Lease Amendment, the Company must pay a monthly base rent of; (i) $5,660 for the year from 3/1/25 to 2/28/26 and (ii) $5,829 for each year thereafter. In addition, the Company must pay a monthly base rent for the Expanded Premises of; (i) $4,537 in the first year; (ii) $4,673 in the second year; (iii) $4,813 in the third year; (iv) $4,957 in the fourth year and; (v) $5,106 in the fifth year.
Legal Action
In August 2017, numerous purported plaintiffs brought an action against Avant 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 and were issued certain restricted shares of Avant as payment of those services and Avant did not remove the restrictive legend off of said shares. On July 1, 2021 the plaintiffs are seeking a $1,000,000 award. The Company and Dr. Ruxin were added as defendants in the lawsuit. 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.
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 asserts a breach of contract claim claiming that it has been damages in excess of $100 million (see Note 12). Plaintiff also seeks a decree of specific performance directing Theralink to deliver all shares due under the Conversion Notice. Theralink’s response to the complaint is due on February 4, 2022. The Company intends to vigorously defend this lawsuit.
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 September 30, 2021 and 2020, the Company recorded a contingent liability of $71,240 and $64,040, respectively, resulting from certain liabilities of Avant prior to the asset sale and recapitalization transaction (see Note 3). The contingent liabilities consisted of two notes payables with a total outstanding principal balance of $40,000 as of September 30, 2021 and 2020 and accrued interest payable of $31,240 and $24,040 as of September 30, 2021 and 2020, respectively.
NOTE 11 – INCOME TAXES
The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets on September 30, 2021 and 2020 consist of net operating loss carry-forwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income.
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the fiscal years ended September 30, 2021 and 2020 are as follow:
SCHEDULE OF EFFECTIVE INCOME TAX RATE
| 2021 | 2020 | |||||||
Years Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Income tax benefit at U.S. statutory rate of 21% | $ | (1,149,047 | ) | $ | (665,756 | ) | ||
| Income tax benefit – state | (253,337 | ) | (146,783 | ) | ||||
| Non-deductible expenses | (52,467 | ) | (53,244 | ) | ||||
| Change in valuation allowance | 1,454,851 | 865,783 | ||||||
| Total provision for income tax | $ | — | $ | — | ||||
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
The Company’s approximate net deferred tax asset as of September 30, 2021 and 2020 was as follow:
SCHEDULE OF DEFERRED TAX ASSETS
| 2021 | 2020 | |||||||
Years Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net operating loss carry-forwards | $ | 11,245,046 | $ | 9,790,195 | ||||
| Total deferred tax asset | 11,245,046 | 9,790,195 | ||||||
| Less: valuation allowance | (11,245,046 | ) | (9,790,195 | ) | ||||
| Net deferred tax asset | $ | — | $ | — | ||||
The gross operating loss carry forward available to the Company was $43,874,545 at September 30, 2021. The Company provided a full valuation allowance equal to the net deferred income tax asset as of September 30, 2021 and 2020 because it was not known whether future taxable income will be sufficient to utilize the loss carry-forwards. Additionally, the future utilization of the net operating loss carry-forwards to offset future taxable income is subject to annual limitations as a result of ownership or business changes that occurred prior to fiscal year 2021 and may occur in the future. The Company has not conducted a study to determine the limitations on the utilization of these net operating loss carry-forwards.
The increase in the valuation allowance was $1,454,851 in fiscal year 2021 and total net tax effected loss carry-forwards on September 30, 2021 was $11,245,046. The potential tax benefit arising from the loss carry-forward of approximately $8,050,201 accumulated through September 30, 2017, will expire in 2037. The potential tax benefit arising from the net operating loss carry-forward of $3,194,845 occurred after the effective date of the current tax act and can be carried forward indefinitely within the annual usage limitations.
NOTE 12 – SUBSEQUENT EVENTS
On October 18, 2021, the Company entered into separate agreements with two consultants (collectively as “Parties”) to settle an aggregate of $of accounts payable balance into shares of common stock.
On October 21, 2021, the Company entered into a Promissory Note Agreement (the “Note”) with Jeffrey Busch who serves as a member of the Board of Directors (“Lender”) for a principal amount of $150,000. The Company received proceeds of $150,000. The Note bears an annual interest rate of 1%, matures on December 1, 2021 and can be prepaid in whole or in part without penalty. Pursuant to the Note, the Company has 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.
On November 1, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an investor (“Investor#1”) to purchase two convertible notes (the “Notes”) and two accompanying warrants each for 13,661,203 shares of common stock (“Warrant”), for an aggregate investment amount of $500,000. The Notes, issued on November 1 and December 1, 2021, have a principal value of $250,000 each with the Company receiving $250,000 of proceeds from each. The 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 Notes)) and mature on November 1, 2026(“Maturity Date”). The Warrants are exercisable at any time after the issue date and upon CUSIP eligibility of the common stock. The Warrants expire on November 1, 2026. The Notes and Warrants are convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $per share (subject to adjustment as provided in the Notes). The Company may prepay the Notes at any time in an amount equal to 110% of the outstanding principal balance and accrued interest during the period between issue date until Maturity Date. At the election of the Investor, the Notes can be converted in whole or in part at any time and from time to time, after FINRA Approval (as defined below). Further, upon maturity the Company may pay the outstanding balance of the Note in cash or convert it shares of common stock. Upon the listing by the Company or the trading of the common stock on The Nasdaq Capital Market or any other Qualified National Exchange (as defined in the Notes), the Conversion Amount shall automatically be converted into fully-paid and non-assessable shares of common stock. The Company shall not effect the conversion of any of the Note held by the Investor, and the Investor shall not have the right to convert any of the Note held by such Investor pursuant to the terms of this Note and any such conversion shall be null and void and treated as if never made, to the extent that after giving effect to such conversion, such Restricted Holder would beneficially own in excess of 4.99% of the shares of common stock outstanding immediately after giving effect to such conversion (which provision may be increased to a maximum of 9.9% by such Investor by written notice from the Investor to the Company, which notice shall be effective 61 calendar days after the date of such notice). If the Financial Industry Regulatory Authority, Inc. (“FINRA”) fails to approve the Company’s name change to Theralink Technologies, Inc. and ticker symbol change (“FINRA Approval”) prior to November 1, 2022, then on such date the Company will pay a penalty fee equal to ten percent of the outstanding principal. If FINRA Approval is not received prior to May 1, 2023, then on such date the Company will pay a penalty fee equal to eight percent of the outstanding principal. Such fees will be added to the outstanding principal on their respective payment dates. If FINRA Approval is not received prior to June 1, 2023, then the Investor may, upon five (5) business days written notice to the Company, the Note in default and immediately due and payable in full. The Note and the Warrant shall be valued using the relative fair value method.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
On November 1, 2021, the Company entered into a Securities Purchase Agreement with an investor (“Investor #2”) to purchase two convertible notes (the “Notes”) and two accompanying warrants each for 13,661,203 shares of common stock (“Warrant”), for an aggregate investment amount of $500,000. The Notes, issued on November 1 and December 1, 2021, have a principal value of $250,000 each with the Company receiving $250,000 of proceeds from each. The Notes bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default”) and mature on November 1, 2026 (“Maturity Date”). The Warrants are exercisable at any time after the issue date and upon CUSIP eligibility of the common stock. The Warrants expire on November 1, 2026. The Notes and Warrants are convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $ per share (subject to adjustment as provided in the Notes). The Company may prepay the Notes at any time in an amount equal to 110% of the outstanding principal balance and accrued interest during the period between issue date until Maturity Date. At the election of the Investor, the Notes can be converted in whole or in part at any time and from time to time, after FINRA Approval. Further, upon maturity the Company may pay the outstanding balance of the Note in cash or convert it shares of common stock. Upon the listing by the Company or the trading of the common stock on a Qualified National Exchange, the Conversion Amount shall automatically be converted into fully-paid and non-assessable shares of common stock. The Company shall not effect the conversion of any of the Note held by the Investor, and the Investor shall not have the right to convert any of the Note held by the Investor pursuant to the terms of this Note and any such conversion shall be null and void and treated as if never made, to the extent that after giving effect to such conversion, the Investor would beneficially own in excess of 4.99% of the shares of common stock outstanding immediately after giving effect to such conversion (which provision may be increased to a maximum of 9.9% by the Investor by written notice from the Investor to the Company, which notice shall be effective 61 calendar days after the date of such notice). If the Company does not have FINRA Approval prior to November 1, 2022, then on such date the Company will pay a penalty fee equal to ten percent of the outstanding principal. If FINRA Approval is not received prior to May 1, 2023, then on such date the Company will pay a penalty fee equal to eight percent of the outstanding principal. Such fees will be added to the outstanding principal on their respective payment dates. If FINRA Approval is not received prior to June 1, 2023, then the Investor may, upon five (5) business days written notice to the Company, the Note in default and immediately due and payable in full. The Note and the Warrant shall be valued using the relative fair value method.
On November 1, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is an affiliate shareholder ( “Investor #3”), to purchase three convertible notes (the “Notes”) and three accompanying warrants for 18,251,367 shares of common stock each (“Warrants”), for an aggregate investment amount of $1,000,000. The Notes, issued on November 1, 2021, December 1, 2021 and January 1, 2022, have a principal value of $334,000, $333,000 and $333,000 with the Company receiving $1,000,000 in aggregate proceeds. The 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 Notes)) and mature on November 1, 2026(“Maturity Date”). The Warrant is exercisable at any time after the issue date and upon CUSIP eligibility of the common stock. The Warrants expire on November 1, 2026. The Notes and Warrants are convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $per share (subject to adjustment as provided in the Notes). The Company may prepay the Note at any time in an amount equal to 110% of the outstanding principal balance and accrued interest during the period between issue date until Maturity Date. At the election of the Investor, the Note can be converted in whole or in part at any time and from time to time, after FINRA Approval). Further, upon maturity the Company may pay the outstanding balance of the Note in cash or convert it shares of common stock. Upon the listing by the Company or the trading of the common stock on a Qualified National Exchange, the Conversion Amount shall automatically be converted into fully-paid and non-assessable shares of common stock. If FINRA Approval is not received prior to November 1, 2022, then on such date the Company will pay a penalty fee equal to ten percent of the outstanding principal. If FINRA Approval is not received prior to May 1, 2023, then on such date the Company will pay a penalty fee equal to eight percent of the outstanding principal. Such fees will be added to the outstanding principal on their respective payment dates. If FINRA Approval is not received prior to June 1, 2023, then the Investor may, upon five (5) business days written notice to the Company, the Note in default and immediately due and payable in full. The Note and the Warrant shall be valued using the relative fair value method.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
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 asserts a breach of contract claim claiming that it has been damages in excess of $100 million (see Note 10). Plaintiff also seeks a decree of specific performance directing Theralink to deliver all shares due under the Conversion Notice. Theralink’s response to the complaint is due on February 4, 2022. The Company intends to vigorously defend this lawsuit.
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 $225,000 to $300,000 per year. The increase was effective January 1, 2022. The Board also approved two new bonuses for which Mr. Chilcott will be eligible: (i) a $37,500 bonus payable upon the Company’s completion of a capital raise of at least $1,000,000; and (ii) a $37,500 bonus payable upon the Company’s completion of a capital raise of at least $2,000,000 in the aggregate.