UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Mark One)
For the Quarterly Period Ended: December 31, 2020
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________________________ to __________________ ______________
Commission file number File Number: 000-52218
ONCBIOMUNE PHARMACEUTICALS, INC.Theralink Technologies, Inc.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
| Nevada | 20-2590810 | |
(State or
| ( Identification No.) |
|
| |
| (Address of | ( |
Registrant’s Telephone Number, Including Area Code:(225) 227-2384
(Former name, former address and former fiscal year, if changed since last report)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]☐ No [ ]☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X]☐ No [ ]☒
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitionsdefinition of “accelerated filer”, “large accelerated filer,” “accelerated filer,”filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-212B-2 of the Exchange Act:Act.
| Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]☐ No [X]☒
Securities Registered Pursuant to Section 12(b)The registrant had 5,555,474,594 shares of the Act:its common stock, $0.0001 par value per share, outstanding as of September 22, 2021.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 665,899 shares as of November 11, 2019.
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
FormFORM 10-Q
September 30, 2019DECEMBER 31, 2020
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment about the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “should,” “plan,” “potential,” “project,” “will,” “would” and other words of similar meaning, or the negatives of such terms or other variations. These include, but are not limited to, statements relating to the following:
| ● | projected operating or financial results, including anticipated cash flows used in operations; |
| ● | expectations regarding capital expenditures, research and development expenses and other payments; |
| ● | our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing; and |
| ● | our beliefs, assumptions and expectations about the regulatory approval for our technology including, but not limited to our ability to obtain regulatory approval in a timely manner. Or at all. |
Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors including, among others:
| ● | our ability to continue as a going concern; |
| ● | our ability to become current in filing all reports required to be filed by us under Section 13 or 15(d) of the Securities Exchange Act of 1934; |
| ● | our ability to maintain pricing; |
| ● | our ability to employ skilled and qualified workers; |
| ● | the fact that we have incurred significant losses since inception, expect to incur net losses for at least the next several years and may never achieve or sustain profitability; |
| ● | the loss of key management personnel upon whom we depend; |
| ● | our ability to fund our operations; |
| ● | inadequate insurance coverage for certain losses or liabilities; |
| ● | our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals on a timely basis; |
| ● | commercial developments of technologies that compete with our technology; |
| ● | the actual and perceived effectiveness of our technology, and how the technology compares to competitive technologies; |
| ● | the rate and degree of market acceptance and clinical utility of our technology; |
| ● | adverse effects of the recent and ongoing COVID-19 pandemic; |
| ● | the strength of our intellectual property protection, and our success in avoiding infringement of the intellectual property rights of others; |
| ● | regulations affecting the health care industry; |
| ● | adverse developments in our research and development activities; |
| ● | potential liability if our technology causes illness, injury or death, or adverse publicity from any such events; |
| ● | our ability to operate our business efficiently, manage capital expenditures and costs (including general and administrative expenses) and obtain financing when required; and |
| ● | our expectations with respect to future licensing, partnering or acquisition activity. |
In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-, in our Annual Report on Form 10-K filed on September 27, 2021 with the Securities and Exchange Commission (“SEC”), particularly in the ‘Risk Factors” section of such report, that could cause results or events to differ materially from the forward-looking statements that we make herein. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement should be relied upon. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. Forward-looking statements apply only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as otherwise required by applicable law.
This Quarterly Report on Form 10-Q includes trademarks for Theralink, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.
| 3 |
PART I - FINANCIAL INFORMATION
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | December 31, | September 30 | |||||||||||||
| 2019 | 2018 | 2020 | 2020 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
| Cash | $ | 136,087 | $ | 201 | $ | 544,098 | $ | 1,779,283 | ||||||||
| Other receivable | 27,913 | 15,000 | ||||||||||||||
| Prepaid expenses and other current assets | 235,292 | 215,681 | 219,512 | 191,253 | ||||||||||||
| Marketable securities | 8,000 | 11,100 | ||||||||||||||
| Laboratory supplies | - | 71,335 | ||||||||||||||
| Total Current Assets | 371,379 | 215,882 | 799,523 | 2,067,971 | ||||||||||||
| OTHER ASSETS: | ||||||||||||||||
| Property and equipment, net | 2,550 | 4,304 | 789,399 | 744,822 | ||||||||||||
| Right-of-use asset, net | 32,569 | - | ||||||||||||||
| Security deposit | 6,400 | 6,400 | ||||||||||||||
| Finance right-of-use assets, net | 146,099 | 157,691 | ||||||||||||||
| Operating right-of-use asset, net | 197,213 | 206,203 | ||||||||||||||
| Security deposits | 13,214 | 19,464 | ||||||||||||||
| Total Assets | $ | 412,898 | $ | 226,586 | $ | 1,945,448 | $ | 3,196,151 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||
| Convertible debt, net | $ | 2,763,346 | $ | 1,434,252 | ||||||||||||
| Notes payable | 538,875 | 538,875 | ||||||||||||||
| Accounts payable | 857,807 | 550,296 | $ | 850,210 | $ | 617,218 | ||||||||||
| Accrued liabilities | 1,385,940 | 884,035 | 97,583 | 56,728 | ||||||||||||
| Lease payable - current | 32,569 | - | ||||||||||||||
| Derivative liabilities | 7,477,494 | 3,364,032 | ||||||||||||||
| Due to related parties | 347,436 | 315,466 | ||||||||||||||
| Liabilities of discontinued operations | 686,547 | 686,547 | ||||||||||||||
| Accrued compensation | 61,017 | 32,791 | ||||||||||||||
| Accrued director compensation | 87,500 | 72,500 | ||||||||||||||
| Deferred revenue | 131,387 | - | ||||||||||||||
| Notes payable - current | 1,000 | 1,000 | ||||||||||||||
| Financing lease liability - current | 43,542 | 42,234 | ||||||||||||||
| Operating lease liability - current | 37,482 | 35,943 | ||||||||||||||
| Insurance payable | 45,228 | 63,675 | ||||||||||||||
| Contingent liabilities | 65,840 | 64,040 | ||||||||||||||
| Assumed liabilities of discontinued operations | - | 204,608 | ||||||||||||||
| Total Current Liabilities | 14,090,014 | 7,773,503 | 1,420,789 | 1,190,737 | ||||||||||||
| LONG-TERM LIABILITIES: | ||||||||||||||||
| Financing lease liability | 124,726 | 136,116 | ||||||||||||||
| Operating lease liability | 167,022 | 176,893 | ||||||||||||||
| Total Liabilities | 14,090,014 | 7,773,503 | 1,712,537 | 1,503,746 | ||||||||||||
| Commitments and contingencies (Note 9) | ||||||||||||||||
| Series E preferred stock; $0.0001 par value; 2,000 authorized; 1,000 issued and outstanding at December 31, 2020 and September 30, 2020 | 2,000,000 | 2,000,000 | ||||||||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||||||||||
| Preferred stock: $0.0001 par value; 26,667 authorized; | ||||||||||||||||
| Series A Preferred stock: $0.0001 par value; 1,333 shares authorized; 1,333 issued and outstanding at September 30, 2019 and December 31, 2018 | - | - | ||||||||||||||
| Series B Preferred stock: $0.0001 par value; 10,523 shares authorized; 3,856 and 10,523 issued and outstanding at September 30, 2019 and December 31, 2018, respectively | - | 1 | ||||||||||||||
| Common stock: $0.0001 par value, 6,666,667 shares authorized; 479,050 and 330,216 issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 48 | 33 | ||||||||||||||
| Common stock issuable: 22,828 commons stock issuable as of September 30, 2019 and December 31, 2018 | 2 | 2 | ||||||||||||||
| Preferred stock: $0.0001 par value; 26,667 authorized; Series A Preferred stock: $0.0001 par value; 1,333 shares authorized; 667 issued and outstanding at December 31, 2020 and September 30, 2020 | - | - | ||||||||||||||
| Series C-1 Preferred stock: $0.0001 par value; 3,000 shares authorized; 2,966 issued and outstanding at December 31, 2020 and September 30, 2020 | - | - | ||||||||||||||
| Series C-2 Preferred stock: $0.0001 par value; 6,000 shares authorized; 4,917 issued and outstanding at December 31, 2020 and September 30, 2020 | - | - | ||||||||||||||
| Series D-1 Preferred stock: $0.0001 par value; 1,000 shares authorized; nil issued and outstanding at December 31, 2020 and September 30, 2020 | - | - | ||||||||||||||
| Series D-2 Preferred stock: $0.0001 par value; 4,360 shares authorized; nil issued and outstanding at December 31, 2020 and September 30, 2020 | - | - | ||||||||||||||
| Common stock: $0.0001 par value, 12,000,000,000 shares authorized; 5,124,164,690 issued and outstanding at December 31, 2020 and September 30, 2020 | 512,416 | 512,416 | ||||||||||||||
| Additional paid-in capital | 10,558,859 | 9,640,711 | 42,368,077 | 42,367,577 | ||||||||||||
| Accumulated deficit | (24,236,025 | ) | (17,187,664 | ) | (44,647,582 | ) | (43,187,588 | ) | ||||||||
| Total Stockholders’ Deficit | (13,677,116 | ) | (7,546,917 | ) | (1,767,089 | ) | (307,595 | ) | ||||||||
| Total Liabilities and Stockholders’ Deficit | $ | 412,898 | $ | 226,586 | $ | 1,945,448 | $ | 3,196,151 | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statementsstatements.
| 4 |
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)(UNAUDITED)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| REVENUES | $ | - | $ | - | $ | - | $ | - | ||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Professional fees | 140,680 | 207,876 | 479,860 | 523,669 | ||||||||||||
| Compensation expense | 214,387 | 233,072 | 705,803 | 539,927 | ||||||||||||
| Research and development expense | 8,825 | 16,316 | 161,453 | 101,097 | ||||||||||||
| General and administrative expenses | 45,988 | 36,221 | 140,404 | 118,576 | ||||||||||||
| Total Operating Expenses | 409,880 | 493,485 | 1,487,520 | 1,283,269 | ||||||||||||
| LOSS FROM OPERATIONS | (409,880 | ) | (493,485 | ) | (1,487,520 | ) | (1,283,269 | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest expense | (54,257 | ) | (650,092 | ) | (1,431,253 | ) | (1,391,270 | ) | ||||||||
| Derivative income (expense) | (523,595 | ) | (860,084 | ) | (4,053,257 | ) | 4,495,597 | |||||||||
| (Loss) gain on debt extinguishment | (46 | ) | 1,359,128 | (76,331 | ) | 2,109,621 | ||||||||||
| Gain (loss) on foreign currency transactions | - | - | - | 33,633 | ||||||||||||
| Total Other Income (Expense) | (577,898 | ) | (151,048 | ) | (5,560,841 | ) | 5,247,581 | |||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS | (987,778 | ) | (644,533 | ) | (7,048,361 | ) | 3,964,312 | |||||||||
| NET INCOME (LOSS) | $ | (987,778 | ) | $ | (644,533 | ) | $ | (7,048,361 | ) | $ | 3,964,312 | |||||
| COMPREHENSIVE INCOME (LOSS:) | ||||||||||||||||
| Net income (loss) | $ | (987,778 | ) | $ | (644,533 | ) | $ | (7,048,361 | ) | $ | 3,964,312 | |||||
| Other comprehensive loss: | ||||||||||||||||
| Unrealized foreign currency translation gain (loss) | - | - | - | (25,184 | ) | |||||||||||
| Comprehensive income (loss) | $ | (987,778 | ) | $ | (644,533 | ) | $ | (7,048,361 | ) | $ | 3,969,128 | |||||
| NET INCOME (LOSS) PER COMMON SHARE - Basic | ||||||||||||||||
| Continuing operations - basic | $ | (2.31 | ) | $ | (1.97 | ) | $ | (14.71 | ) | $ | 13.26 | |||||
| Continuing operations - diluted | $ | (2.31 | ) | $ | (1.97 | ) | $ | (14.71 | ) | $ | 13.26 | |||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic | 426,807 | 327,793 | 479,309 | 299,029 | ||||||||||||
| Diluted | 426,807 | 327,793 | 479,309 | 299,029 | ||||||||||||
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| REVENUES, NET | $ | 9,790 | $ | - | ||||
| COST OF REVENUE | 1,603 | - | ||||||
| GROSS PROFIT | 8,187 | - | ||||||
| OPERATING EXPENSES: | ||||||||
| Professional fees | 197,254 | 91,333 | ||||||
| Consulting fee - related party | - | 45,250 | ||||||
| Compensation expense | 590,175 | 215,766 | ||||||
| Licensing fees | 30,172 | 13,320 | ||||||
| General and administrative expenses | 803,139 | 162,600 | ||||||
| Total Operating Expenses | 1,620,740 | 528,269 | ||||||
| LOSS FROM OPERATIONS | (1,612,553 | ) | (528,269 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest expense | (8,730 | ) | (8,203 | ) | ||||
| Gain on debt extinguishment, net | 227,294 | - | ||||||
| Unrealized loss on marketable securities | (3,100 | ) | (4,900 | ) | ||||
| Unrealized loss on exchange rate | (22,686 | ) | - | |||||
| Total Other Income (Expense), net | 192,778 | (13,103 | ) | |||||
| NET LOSS | (1,419,775 | ) | (541,372 | ) | ||||
| Series E preferred stock dividend | (40,219 | ) | - | |||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (1,459,994 | ) | $ | (541,372 | ) | ||
| NET LOSS PER COMMON SHARE: | ||||||||
| Basic and Diluted | $ | (0.00 | ) | $ | - | |||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and Diluted | 5,124,164,620 | - | ||||||
See accompanying notes to the unaudited condensed consolidated financial statementsstatements.
| 5 |
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Common Stock Issuable | Additional | Accumulated other | Total | ||||||||||||||||||||||||||||||||||||||||||
| # of Shares | Amount | # of Shares | Amount | # of Shares | Amount | # of Shares | Amount | Paid-in Capital | Accumulated Deficit | comprehensive gain | Stockholders’ (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 1,333 | $ | - | 10,523 | $ | 1 | 330,216 | $ | 33 | 22,828 | $ | 2 | $ | 9,640,711 | $ | (17,187,664 | ) | $ | - | $ | (7,546,917 | ) | ||||||||||||||||||||||||||
| Redemption of Series B Preferred | - | - | (6,667 | ) | (1 | ) | - | - | - | - | (499 | ) | - | - | (500 | ) | ||||||||||||||||||||||||||||||||
| Accretion of stock options | - | - | - | - | - | - | - | - | 68,383 | - | - | 68,383 | ||||||||||||||||||||||||||||||||||||
| Common stock issued, at fair value, upon conversion of convertible debt and interest | - | - | - | - | 57,242 | 6 | - | - | 439,352 | - | - | 439,358 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (4,448,618 | ) | - | (4,448,618 | ) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2019 | 1,333 | $ | - | 3,856 | $ | - | 387,458 | $ | 39 | 22,828 | $ | 2 | $ | 10,147,947 | $ | (21,636,282 | ) | $ | - | $ | (11,488,294 | ) | ||||||||||||||||||||||||||
| Accretion of stock options | - | - | - | - | - | - | - | - | 49,533 | - | - | 49,533 | ||||||||||||||||||||||||||||||||||||
| Common stock issued, at fair value, upon conversion of convertible debt and interest | - | - | - | - | 34,980 | 3 | - | - | 181,753 | - | - | 181,756 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (1,611,965 | ) | - | (1,611,965 | ) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | 1,333 | $ | - | 3,856 | $ | - | 422,438 | $ | 42 | 22,828 | $ | 2 | $ | 10,379,233 | $ | (23,248,247 | ) | $ | - | $ | (12,868,970 | ) | ||||||||||||||||||||||||||
| Accretion of stock options | - | - | - | - | - | - | - | - | 30,137 | - | - | 30,137 | ||||||||||||||||||||||||||||||||||||
| Common stock issued, at fair value, upon conversion of convertible debt and interest | - | - | - | - | 56,612 | 6 | - | - | 149,489 | - | - | 149,495 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (987,778 | ) | - | (987,778 | ) | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | 1,333 | $ | - | 3,856 | $ | - | 479,050 | $ | 48 | 22,828 | $ | 2 | $ | 10,558,859 | $ | (24,236,025 | ) | $ | - | $ | (13,677,116 | ) | ||||||||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Common Stock Issuable | Additional | Accumulated other | Total | ||||||||||||||||||||||||||||||||||||||||||
| # of Shares | Amount | # of Shares | Amount | # of Shares | Amount | # of Shares | Amount | Paid-in Capital | Accumulated Deficit | comprehensive gain | Stockholders’ (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2017 | 1,333 | $ | - | 10,523 | $ | 1 | 227,115 | $ | 33 | - | $ | - | $ | 8,821,793 | $ | (23,655,989 | ) | $ | 25,184 | $ | (14,808,978 | ) | ||||||||||||||||||||||||||
| Accretion of stock options | - | - | - | - | - | - | - | - | 32,621 | - | - | 32,621 | ||||||||||||||||||||||||||||||||||||
| Shares issued for cash and subscription receivable pursuant to subscription agreements | - | - | - | - | 800 | - | - | - | 6,000 | - | - | 6,000 | ||||||||||||||||||||||||||||||||||||
| Shares issued upon conversion of convertible debt and interest | - | - | - | - | 37,933 | 4 | - | - | 335,685 | - | - | 335,689 | ||||||||||||||||||||||||||||||||||||
| Shares issued upon cashless warrant exercise | - | - | - | - | 24,572 | 2 | - | - | (2 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | 9,317,940 | - | 9,317,940 | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | - | (55,262 | ) | (55,262 | ) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2018 | 1,333 | $ | - | 10,523 | $ | 1 | 290,420 | $ | 39 | - | $ | - | $ | 9,196,097 | $ | (14,338,049 | ) | $ | (30,078 | ) | $ | (5,171,990 | ) | |||||||||||||||||||||||||
| Accretion of stock options | - | - | - | - | - | - | - | - | 12,233 | - | - | 12,233 | ||||||||||||||||||||||||||||||||||||
| Shares issued upon conversion of convertible debt and interest | - | - | - | - | 13,260 | 1 | - | - | 35,576 | - | - | 35,577 | ||||||||||||||||||||||||||||||||||||
| Shares issued upon cashless warrant exercise | - | - | - | - | 5,746 | 1 | - | - | (1 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (4,709,095 | ) | - | (4,709,095 | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | - | 30,078 | 30,078 | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2018 | 1,333 | $ | - | 10,523 | $ | 1 | 309,426 | $ | 41 | - | $ | - | $ | 9,243,905 | $ | (19,047,144 | ) | $ | - | $ | (9,803,197 | ) | ||||||||||||||||||||||||||
| Accretion of stock options | - | - | - | - | - | - | - | - | 109,214 | - | - | 109,214 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | 3,333 | - | - | - | 52,500 | - | - | 52,500 | ||||||||||||||||||||||||||||||||||||
| Shares issued upon conversion of convertible debt and interest | - | - | - | - | 10,700 | 1 | - | - | 43,146 | - | - | 43,147 | ||||||||||||||||||||||||||||||||||||
| Shares issued upon cashless warrant exercise | - | - | - | - | 13,302 | 1 | - | - | (1 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (644,533 | ) | - | (644,533 | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2018 | 1,333 | $ | - | 10,523 | $ | 1 | 336,761 | $ | 43 | - | $ | - | $ | 9,448,764 | $ | (19,691,677 | ) | $ | - | $ | (10,242,869 | ) | ||||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||
| Series A # of Shares | Series C-1 # of Shares | Series C-2 # of Shares | Series D-1 # of Shares | Series D-2 # of Shares | Amount | # of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||
| Series E preferred stock dividend | - | - | - | - | - | - | - | - | - | (40,219 | ) | (40,219 | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (1,419,775 | ) | (1,419,775 | ) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 667 | 2,966 | 4,917 | - | - | $ | - | 5,124,164,690 | $ | 512,416 | $ | 42,368,077 | $ | (44,647,582 | ) | $ | (1,767,089 | ) | ||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statementsstatements.
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED DECEMBER 31, 2019
(UNAUDITED)
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||
| Series A # of Shares | Series C-1 # of Shares | Series C-2 # of Shares | Series D-1 # of Shares | Series D-2 # of Shares | Amount | # of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | - | - | - | 992 | - | $ | - | - | $ | - | $ | 37,378,841 | $ | (38,011,201 | ) | $ | (632,360 | ) | ||||||||||||||||||||||||||
| Preferred stock issued for cash | - | - | - | 6 | - | - | - | - | 2,200,000 | - | 2,200,000 | |||||||||||||||||||||||||||||||||
| Preferred stock issued upon debt conversions | - | - | - | - | - | - | - | - | 217,215 | - | 217,215 | |||||||||||||||||||||||||||||||||
| Preferred stock issued upon conversion of accounts payable and accrued liabilities | - | - | - | 1 | - | - | - | - | 299,154 | - | 299,154 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (541,372 | ) | (541,372 | ) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | - | - | - | 999 | - | $ | - | - | $ | - | $ | 40,095,210 | $ | (38,552,573 | ) | $ | 1,542,637 | |||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(UNAUDITED)
| For The Nine Months Ended | ||||||||
| September 30 | ||||||||
| 2019 | 2018 | |||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (7,048,361 | ) | $ | 3,964,312 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | 1,754 | 1,753 | ||||||
| Stock-based compensation | 148,053 | 154,068 | ||||||
| Stock issued for services | - | 52,500 | ||||||
| Amortization of debt discount | 1,248,031 | 848,280 | ||||||
| Derivative expense (income) | 4,053,257 | (4,495,598 | ) | |||||
| Loss (gain) on debt extinguishment | 76,331 | (2,355,431 | ) | |||||
| Non-cash default interest on debt | (179,989 | ) | - | |||||
| Gain on foreign currency transactions | - | (25,184 | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (19,611 | ) | (213,559 | ) | ||||
| Accounts payable | 307,511 | 79,292 | ||||||
| Liabilities of discontinued operations | - | (8,449 | ) | |||||
| Accrued liabilities and other liabilities | 581,740 | 701,227 | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (831,284 | ) | (1,296,789 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from related party advances, net | 31,970 | 72,239 | ||||||
| Proceeds from convertible debt, net of cost | 935,700 | 1,921,643 | ||||||
| Repayment of convertible debt | - | (654,191 | ) | |||||
| Redemption of Series B Preferred | (500 | ) | - | |||||
| Proceeds from sale of common stock and subscription receivable | - | 6,000 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 967,170 | 1,345,691 | ||||||
| NET INCREASE IN CASH | 135,886 | 48,902 | ||||||
| CASH, beginning of the period | 201 | 1,431 | ||||||
| CASH, end of the period | $ | 136,087 | $ | 50,333 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 3,345 | $ | 484,151 | ||||
| Income taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Issuance of common stock for convertible debt and interest | $ | 402,011 | $ | 414,413 | ||||
| Issuance of common stock for casheless exercise of warrants | $ | - | $ | 3,271 | ||||
| Increase in debt discount and derivative liabilities | $ | 352,472 | $ | 4,160,959 | ||||
| Debt issue cost | $ | 117,890 | $ | - | ||||
| Initial amount of ROU asset and related liability | $ | 59,216 | $ | - | ||||
| Reduction of the ROU asset and related liability | $ | 26,647 | $ | - | ||||
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (1,419,775 | ) | $ | (541,372 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 45,645 | 17,657 | ||||||
| Lease cost | 658 | - | ||||||
| Gain on debt extinguishment, net | (227,294 | ) | - | |||||
| Unrealized loss on exchange rate | 22,686 | - | ||||||
| Unrealized loss on marketable securities | 3,100 | 4,900 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (34,922 | ) | (44,820 | ) | ||||
| Laboratory supplies | 71,335 | - | ||||||
| Accounts payable | 232,992 | (66,623 | ) | |||||
| Accrued liabilities and other liabilities | 27,215 | (50,431 | ) | |||||
| Deferred revenue | 131,387 | - | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (1,146,973 | ) | (680,689 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Adjustment related to Series A preferred prior period redemption payment | 500 | - | ||||||
| Purchase of property and equipment | (88,712 | ) | (323,717 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (88,212 | ) | (323,717 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of preferred stock | - | 2,200,000 | ||||||
| Repayment of related party advances, net | - | (20,000 | ) | |||||
| Repayment of convertible debt | - | (24,759 | ) | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | - | 2,155,241 | ||||||
| NET CHANGE IN CASH | (1,235,185 | ) | 1,150,835 | |||||
| CASH, beginning of the period | 1,779,283 | 560,407 | ||||||
| CASH, end of the period | $ | 544,098 | $ | 1,711,242 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Preferred stock issued upon debt conversions | $ | - | $ | 217,215 | ||||
| Preferred stock issued upon conversion of accounts payable and accrued liabilities | $ | - | $ | 299,154 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
NOTE 1 -ORGANIZATION AND NATURE OF OPERATIONS
Theralink Technologies, Inc., formerly OncBioMune Pharmaceuticals, Inc. (the “Company”) is, was a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology that is designed to stimulate the immune system to attack its own cancer while not attacking the patient’s healthy cells. The Company has proprietary rights to an immunotherapy platform with an initial focus on prostate and breast cancers but that may be used to fight any solid tumor. The Company is also developing targeted therapies. Our mission is to improve overall patient condition through innovative bio-immunotherapy with proven treatment protocols, to lower deaths associated with cancer and to reduce the cost of cancer treatment. We believe our technology is safe, and utilizes clinically proven research methods of treatment to provide optimal likelihood of patient recovery.
technology. On March 10, 2017 (the “Closing Date”),June 5, 2020, the Company completedacquired the acquisitionassets (the “Asset Sale Transaction”) of 100% of the issued and outstanding capital stock of Vitel Laboratorios, S.A. de C.V.Avant Diagnostics, Inc., a Mexican variable stockNevada corporation established in 2009 (“Vitel”) from its shareholders Manuel Cosme Odabachian and Carlos Fernando Alaman Volnie (collectively, the “Vitel Stockholders”Avant”) pursuant to the terms and conditions of a ContributionAsset Purchase Agreement to the Property of Trust F/2868 entered into amongdated May 12, 2020, between the Company and the Vitel StockholdersAvant (the “Asset Purchase Agreement”). Avant is a commercial-stage precision medicine and molecular data-generating company that focuses on the Closing Date (the “Contribution Agreement”). Thedevelopment 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 Vitel for the purpose of commercializing the Company’s ProscaVax™ vaccine technology and cancer technologies in Mexico, Central and Latin America and to utilize Vitel’s distribution network and customer and industry relationships.
On December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel and OncBioMune México due to disputes with the original Vitel Stockholders and resulting loss of operational controlsubstantially all of the assets of Avant and operationsassumed certain of Vitelits liabilities. Upon the terms and OncBioMune Mexico. Accordingly, Vitelsubject to the conditions of the Asset Purchase Agreement, Avant sold to the Company, all of Avant’s title and OncBioMune México were treated as a discontinued operation through December 31, 2017interest in all the assets, properties and were deconsolidated effective January 1, 2018 (see Note 3).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 expects to terminatealso hired Avant’s employees upon consummation of the Contribution Agreement, Stockholders Agreement and Trust Agreement during 2019.
On April 3, 2019,Asset Sale Transaction. As consideration for the Asset Sale Transaction, the Company filedissued to Avant 1,000 shares of a newly created Series D-1 Preferred Stock which held 54.55% of all voting rights on an amendment to its Articlesas-converted basis with the common stock. Upon the effectiveness of Incorporation toan increase itsauthorized common stock from 500,000,000 shares to 1,500,000,000 shares (see Note 8). Theof the Company’s 1,520,000,000 authorized shares consisted of 1,500,000,000 shares of common stock par value $0.0001 per share, and 20,000,000from 6,666,667 shares to 12,000,000,000 shares, all such shares of preferred stock, par value $0.0001 per share.
On August 6, 2019, the Company filed an amendmentSeries D-1 Preferred Stock issued to its Articles of Incorporation to increase itsauthorized common stock from 1,500,000,000Avant automatically converted into 5,081,550,620 shares to 5,000,000,000 shares (see Note 8). The Company’s 5,020,000,000 authorized shares consist of 5,000,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.
On August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s issued and outstanding sharescommon stock. Avant possessed majority voting control of common and preferred stock at a ratio of 1-for-750 (the “Reverse Stock Split”),which became effective onSeptember 12, 2019. In addition, the Company amendedimmediately following the articles to reduceAsset Sale Transaction and controlled the Company’s authorized shares to; (i) 6,666,667 sharesBoard of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A Preferred and 10,523 shares of Series B Preferred. The Reverse Stock Split did not have any effect onDirectors after the stated par valuetermination of the commonten-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 preferred stock.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 amountsdata in the accompanying historical condensed consolidated financial statements haveand footnotes has been retroactivelyretrospectively adjusted to reflectfor theReverseStock Split (see Note 8). recapitalization.
NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentationPresentation and principlesPrinciples of consolidationConsolidation
The Company’s consolidated financial statements include the financial statements of OncBioMune Pharmaceuticals, Inc. and its wholly-owned subsidiaries, OncBioMune, Inc. (for all periods presented) and, Vitel and OncBioMune México, S.A. De C.V. (from March 10, 2017 to December 31, 2017) were treated as a discontinued operation through December 31, 2017 and were deconsolidated effective January 1, 2018 (see Note 3). All significant intercompany accounts and transactions have been eliminated in consolidation.
Management acknowledges its responsibility for the preparation of the accompanying unauditedinterim condensed consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information, and withwhich present the instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. Certain information and note disclosure normally included inconsolidated financial statements preparedof the Company and its wholly-owned inactive subsidiaries, OncBioMune, Inc. and OncBioMune Sub, Inc. as of December 31, 2020. All intercompany accounts and transactions have been eliminated in accordance with U.S. GAAP has beenconsolidation. The interim condensed or omitted from theseconsolidated financial statements pursuant to such accounting principles and, accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial statements. These unaudited condensed consolidated financial statementsposition and results of operations and should be read in conjunction with the summaryaudited financial statements of significant accounting policiesthe Form 10-K filed on September 27, 2021. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments and notesnon-recurring adjustments) have been made for the fair presentation of the financial statement. The results for the interim period are not necessarily indicative of the results to the consolidated financial statementsbe expected for the year ended December 31, 2018 of the Company which were included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on April 1, 2019.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ending September 30, 20192021.
(Unaudited)
Going concernConcern
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 unaudited condensed consolidated financial statements, the Company had net (loss) from continuing operations of $(7,048,361) for the nine months ended September 30, 2019. Theloss and net cash used in operations was $831,284of $1,419,775 and $1,146,973, respectively, for the ninethree months ended September 30, 2019.December 31, 2020. Additionally, the Company had an accumulated deficit, of $24,236,025 at September 30, 2019stockholders’ deficit and had a working capital deficit of $13,718,635$44,647,582, $1,767,089 and $621,266 at September 30, 2019, had no revenues from continuing operations since inception, and is currently in default on certain convertible debt instruments.December 31, 2020. 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.
Management
| 8 |
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(UNAUDITED)
The Company cannot provide assurance that weit will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management believes that ourAdditionally, the current capital resources are not currently adequate to continue operating and maintaining itsthe 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/orand 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 condensed 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 estimatesEstimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimatesjudgments, assumptions, and assumptionsestimates that affect the reported 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 ninethree months ended December 31, 2020 and year ended September 30, 2019 and year ended December 31, 20182020 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 operating lease right-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-termlong-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 and the valuation of derivative liabilities.
Concentrations
Generally, the Company relies on one vendor as a single source of raw materials to produce certain components of its cancer treatment products. Any production shortfall that impairs the supply of the antigen in ProscaVax™ to the Company could have a material adverse effect on the Company’s business, financial condition and results of operations. If the Company is unable to obtain a sufficient quantity of antigen, there could be a substantial delay in successfully developing a second source supplier.transactions.
Fair valueValue of financial instrumentsFinancial Instruments and fair value measurementsFair 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, 2019.December 31, 2020. 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:
| Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
| 9 |
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
The carrying amounts reportedIn 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 the consolidated balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their fair market valueTopic 820, Fair Value Measurement, based on the short-term maturityconcepts in the Concepts Statement, including the consideration of these instruments.
| At September 30, 2019 | At December 31, 2018 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Derivative liabilities | — | — | $ | 7,477,494 | — | — | $ | 3,364,032 | ||||||||||||||||
A roll forward of the level 3 valuation financial instruments is as follows:
| Derivative Liabilities | ||||
| Balance at December 31, 2018 | $ | 3,364,032 | ||
| Initial valuation of derivative liabilities included in debt discount | 352,472 | |||
| Initial valuation of derivative liabilities included in derivative income (expense) | — | |||
| Reclassification of derivative liabilities to gain (loss) on debt extinguishment | (292,267 | ) | ||
| Change in fair value included in derivative income (expense) | 4,053,257 | |||
| Balance at September 30, 2019 | $ | 7,477,494 | ||
ASC 825-10 “Financial Instruments”, allowscosts and benefits. The amendments in this Update are effective for all entities to voluntarily choose to measure certain financial assetsfor fiscal years, and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date.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 elect to applyhave any material impact on the fair value option to any outstanding instruments.
Cash and cash equivalentsCompany’s consolidated financial statements.
For purposes of the consolidated statements of cash flows, theCash and Cash Equivalents
The Company considers all highly liquid instruments purchased with aan original maturity of three months or less at the purchase date and money market accounts to be cash equivalents. At September 30, 2019The Company’s investment policy is to preserve principal and December 31, 2018,maintain liquidity. The Company periodically monitors its positions with, and the Company did not have any cash equivalents.credit quality of, the financial institutions with which it invests.
The Company maintains its cash in bankbanks and financial institution depositsinstitutions that at times may exceed federally insured limits. There were nocash balances in excess of FDIC insured levels of $294,098 and $1,538,951 as of December 31, 2020 and September 30, 2019 and December 31, 2018.2020, respectively. The Company has not experienced any losses in such accounts through December 31, 2020.
Prepaid Assets
Prepaid assets are carried at amortized cost. Significant prepaid assets as of December 31, 2020, and September 30, 2019.2020 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 condensed consolidated balance sheet as laboratory supplies.
Property and equipmentEquipment
PropertyFixed assets are stated at cost and are 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 assetsLong-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. For the three and nine months ended September 30, 2019 and 2018, the Company did not record any impairment loss.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
Derivative liabilities
The Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10– Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.
In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the condensed consolidated balance sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. ASU No. 2017-11 in the first quarter of 2019, and the adoption did not have any impact on its consolidated financial statement and there was no cumulative effect adjustment.
Revenue recognition
In May 2014, FASB issued an update 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 on January 1, 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 does not have revenues from continuing operations in 2019 and 2018.
Stock-based compensationStock-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.
Through March 31, 2018, pursuantPursuant 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 induring the second quarter ofperiod 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. 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.
| 10 |
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(UNAUDITED)
Cost of Revenue
The cost of revenue consists of 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 Revenues
For the three months ended December 31, 2020, the Company generated total revenue of $9,790 from one customer. For the three months ended December 31, 2019, the Company did not have any revenue.
Concentration of Deferred Revenue
As of December 31, 2020, the Company had deferred revenue of $131,387 of which 89% and 11% were from two of the Company’s customers. As of September 30, 2019
(Unaudited)2020, the Company did not have any deferred revenue.
Basic and diluted loss per shareDiluted Loss Per Share
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,December 31, 2020 and 2019 and 2018 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:
| September 30, | ||||||||
| 2019 | 2018 | |||||||
| Stock warrants | 15,964,516 | 275,514 | ||||||
| Convertible debt | 12,333,669 | 234,282 | ||||||
| Stock options | 52,730 | 28,667 | ||||||
| Series A preferred stock | 1,333 | — | ||||||
| Series B preferred stock | 3,856 | — | ||||||
| 28,356,104 | 538,463 | |||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Stock warrants | 856,674,588 | — | ||||||
| Series C-1 preferred stock | 445,301,289 | — | ||||||
| Series C-2 preferred stock | 733,542,619 | — | ||||||
| Series D-1 preferred stock | — | 378,764,177 | ||||||
Series E preferred stock | 533,333,333 | — | ||||||
| 2,568,851,829 | 378,764,177 | |||||||
Income taxesTaxes
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 December 31, 2020, and September 30, 2019, and December 31, 2018,2020, the Company had no 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, no such interest and penalties were recorded as of September 30, 2019.December 31, 2020.
| 11 |
Research and development
Research and development costs incurred in the development of the Company’s products are expensed as incurred. For the nine months ended September 30, 2019 and 2018, research and development costs were $161,453 and $101,097, respectively, and are included in operating expenses on the accompanying consolidated statements of operations.THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(UNAUDITED)
Related partiesParties
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.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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 wethe Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether itthe 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 assetsrepresents the right to use the leased asset for the lease termterm. Operating and operatingfinancing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, the Company useuses 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 condensed consolidated statements of operations.
Recent accounting pronouncementsAccounting Pronouncements
In August 2018,2020, the FASB issued ASU 2018-132020-06——Fair Value Measurement (Topic 820)Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging—Contracts in Entity’s Own Equity (Subtopic 815-40): Disclosure Framework ChangesAccounting 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 Disclosure Requirements for Fair Value Measurement, to modifycoupon interest rate when applying the disclosure requirements on fair value measurementsguidance in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits.835, Interest. The amendments in this Update are effectiveASU 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 all entitiesconvertible 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 fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe this will have any material impact on the Company’s consolidated financial statements.
Removals. The following disclosure requirements were removed from Topic 820:convertible instruments:
| 1. | ||
| 2. | Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed | |
| 3. | ||
Modifications. The following disclosure requirements were modified in Topic 820:
Additions. The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities:
| 12 |
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
| 4. | Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments |
| 5. | Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate. |
In addition,
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 eliminateare 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 a minimum from the phrasedate of adoption. If an entity shall disclose at a minimumelects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to promote the appropriate exerciseopening balance of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements.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.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unauditedCompany’s consolidated financial statements.
NOTE 3 –DISCONTINUED OPERATIONS OF VITELASSET SALE AND ONCBIOMUNE MEXICORECAPITALIZATION TRANSACTION
Avant provided personalized medical data through its Theralink assays, initially for breast cancer, to assist the treating physicians 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 December 29, 2017, the Board of Directors ofJune 5, 2020, the Company determinedclosed the Asset Purchase Agreement entered into with Avant on May 12, 2020. Pursuant to sell or otherwise dispose of its interest in Vitel and OncBioMune Mexico due to disputes with the original Vitel Stockholders and resulting loss of operational controlAsset Purchase Agreement, the Company acquired substantially all of the assets and operationsbusiness of VitelAvant and OncBioMune Mexico. Accordingly, Vitelassumed certain of its liabilities in the Asset Sale Transaction. Upon the terms and OncBioMune Mexico are now treated as a discontinued operation for all periods presented in accordance with ASC 205-20. At December 31, 2018 and after deconsolidation,subject to the conditions of the Asset Purchase Agreement, Avant sold to the Company, has recorded the liabilitiesall of these subsidiaries that existed at December 31, 2017 as a contingent liabilityAvant’s title and therefore reflected liabilities of discontinued operation of $686,547 on the accompanying consolidated balance sheet, which consist of accounts payable balances incurred through December 31, 2017. This decision will enable the Company to focus more of its efforts and resources on the Phase 2 clinical trial of ProscaVax™interest in the United States.
Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the businessall of the OncBioMune Mexicoassets, properties and Vitel are now considered discontinued operations becauserights of management’s decision of December 29, 2017.
The assetsevery kind and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of September 30, 2019nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and December 31, 2018 are set forth below.
| September 30, 2019 | December 31, 2018 | |||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | — | — | |||||
| Total current assets | — | — | ||||||
| Total assets | $ | — | $ | — | ||||
| Liabilities: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 686,547 | $ | 686,547 | ||||
| Due to related parties | — | — | ||||||
| Payroll liabilities | — | — | ||||||
| Total current liabilities | 686,547 | 686,547 | ||||||
| Total liabilities | $ | 686,547 | $ | 686,547 | ||||
NOTE 4 –CONVERTIBLE DEBT
November 2016 Financing
On November 23, 2016, the Company entered into Amended and Restated Securities Purchase Agreements (the “Amended and Restated Securities Purchase Agreements”) with three institutional investors (the “Purchasers”)whether existing or hereafter acquired, except for the salespecific 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 1,000 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 convertible notes and warrants. Pursuantauthorized shares of common stock from 6,666,667 shares to the Amended and Restated Securities Purchase Agreements, the Company12,000,000,000 shares effective September 24, 2020, all such shares of Series D-1 Preferred Stock issued upon closing to the Purchasers for an aggregate subscription amount of $350,000, (i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “November 2016 Notes”) and (ii) warrants (the “Warrants”) to purchase aggregate of 3,111Avant automatically converted into 5,081,550,620 shares of the Company’s common stock at an initial exercise price of $131.25 (subject to adjustments under certain conditions as defined in the Warrants) (see below for reduction of warrant exercise price) which are exercisable for a period of five years from November 23, 2016. The aggregate principal amountstock. Avant possessed majority voting control of the November 2016 Notes was $350,000Company immediately following the Asset Sale Transaction and controlled the Company received $300,000 after giving effect to the original issue discountCompany’s Board of $50,000. The November 2016 Notes bore interest at a rate equal to 10% per annum (which interest rate increased to 24% per annum upon the occurrence of an Event of Default (as defined in the November 2016 Notes)), had a maturity date of July 23, 2017 and were convertible (principal, and interest) at any timeDirectors after the issuance date into sharestermination 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 common stock at an initial conversion price equal to $112.50 per share (subject to adjustmentnet assets by Avant and a recapitalization of Avant as provideddiscussed in detail below under “Accounting for the Note) (see below for reduction for reduction of conversion price), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing,Asset Sale Transaction”. Avant is considered the November 2016 Notes were convertiblehistorical registrant and the November 2016 Warrants shall be exercisable at 60%historical operations presented are those of Avant since Avant obtained 54.55% majority voting control of the lowest closing price duringCompany.
On June 5, 2020, pursuant to the prior twenty trading daysAsset 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 common stockBoard of Directors (see Note 10): and (iii) appointed Yvonne Fors to its Board of Directors.
Accounting for the Asset Sale Transaction
The Asset Sale Transaction was accounted for, in substance, as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). Due to non-paymentan asset acquisition of the November 2016 Notes, an eventCompany’s net assets by Avant and a recapitalization of default occurredAvant 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 accordingly, the November 2016 Noteshistorical 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 Warrants are convertible and exercisable based onAvant is the default terms.accounting acquirer (legal acquiree).
| 13 |
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
On May 23, 2017, in connection with the November 2016 Notes, the Company entered into forbearance agreements (the “Forbearance Agreements”) with the Purchases whereby the Purchasers waived any event of default, as defined in the November 2016 Notes. The Company failed to make a payment on May 23, 2017 to eachcost of the Holders as required pursuant to the November 2016 Notes which resulted in an event of default under such Notes. As of result of the event of default, the aggregate amount owing under the November 2016 Notes as of May 23, 2017Asset Sale Transaction was increased to $509,135 with such amount including a mandatory default amount of $141,299 and accrued interest of $17,836 resulting in debt settlement expense of $141,299 which was recorded in May 2017. The Forbearance Agreements also provide for the Holders to forbear their right to demand an immediate cash payment of the principal amount due plus accrued interest as a result of the Company’s failure to satisfy its payment obligations to the Holder on May 23, 2017 so long as the Company complies with its other obligations under the November 2016 Notes and the other transaction documents. The Forbearance Agreements did not waive the default interest rate of 24%. In consideration therefore, and as currently set forth in the November 2016 Notes, the Holders shall be entitled to convert such notes from time to time at their discretiondetermined 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 termsacquiring entity, which generally includes the transaction costs of the November 2016 Notesasset acquisition, and no gain or loss is recognized unless the November 2016 Notesfair 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 not be subject to repayment unless agreed to bymeasured based on the Holder of such Note. In connection with the Forbearance Agreements, in May 2017, the Company increased the principal balancefair value of the November 2016 Notes by $159,135, reduced accrued interest payable by $17,836,consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, recorded debt settlement expense of $141,299. In 2017, the Company also increased the principal amount of these notes by $42,327 and charged this to interest expense for other default charges and other expenses.thus, more reliably measurable.
In accordance with ASC 805-50-30-1, the fair value of the 1,000 shares of Series D-1 Preferred Stock, issued as consideration, was determined to be $246,656 which was the book 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.
The following assets and liabilities were assumed in the transaction:
| 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 an unrealized (loss) on exchange rate of $(22,686) during the three months ended December 31, 2020.
During the three months ended December 31, 2020, $227,294 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 condensed consolidated statement of operations.
NOTE 4 – MARKETABLE SECURITIES
During the fiscal year ended 2017, the Purchasers converted $369,423 and $32,878 of outstanding principal and interest, respectively, of the November 2016 Notes into 11,150Company acquired 1,000,000 shares of common stock.
In 2018,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 Purchasers fully convertedaccompanying condensed consolidated balance sheets and its fair value is adjusted every reporting period and the remaining outstanding principal and interestchange in fair value is recorded in the condensed consolidated statements of $139,712 and $21,869, respectively,operations as unrealized gain or (loss) on marketable securities. During the three months ended December 31, 2020, the Company recorded $3,100 of the November 2016 Notes into 17,372 shares of common stock.unrealized loss on marketable securities. As of December 31, 2018, there were no November 2016 Notes outstanding.
The November 2016 Notes2020 and related Warrants includes; (i) down-round provision under whichSeptember 30, 2020, the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the November 2016 Notes shall be convertible and the November 2016 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). Subsequent to the datefair value of these November 2016 Notes, the Company sold stock at a share price of $56.25 per share then $37.50 per shareshares were $8,000 and then $7.50 per share. Accordingly, pursuant to these ratchet provisions, the conversion price on the November 2016 Notes were lowered to $37.50 per share then to $22.50 per share and then to $4.50 per share and the exercise price of the November 2016 Warrants was lowered to $4.50. Additionally, the total number of November 2016 Warrants were increased on a full ratchet basis from 3,111 warrants to 42,346 warrants, an increase of 39,235 warrants (see Note 8). In September 2017, the Company issued 12,729 shares of its common stock upon the cashless exercise of 12,099 of these warrants (see Note 8). As of September 30, 2019, there were 30,247 warrants outstanding under the November 2016 Warrants.$11,100, respectively.
NOTE 5 – June 2017 FinancingPROPERTY AND EQUIPMENT
On June 2, 2017,Property and equipment are recorded at cost and once placed in service, are depreciated on the Company entered into a Securities Purchase Agreement (the “Second Securities Purchase Agreement”) withstraight-line method over their estimated useful lives. Leasehold improvements are accreted over the Purchasers for the saleshorter of the Company’s convertible notes and warrants. Pursuant to the terms provided for in the Second Securities Purchase Agreement, the Company issued the Purchasers for an aggregate subscription amount of $233,345: (i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “June 2017 Notes”); and (ii) warrants (the “June 2017 Warrants”) to purchase an aggregate of 2,074 sharesestimated economic life or related lease terms. Fixed assets consist of the Company’s common stock at an initial exercise price of $131.25 (subjectfollowing:
| Estimated Useful Life in Years |
December 31, 2020 | September 30, 2020 | ||||||||||
| (Unaudited) | ||||||||||||
| Laboratory equipment | 5 | $ | 470,158 | $ | 404,628 | |||||||
| Furniture | 5 | 24,567 | 13,367 | |||||||||
| Leasehold improvements | 5 | 347,809 | 347,809 | |||||||||
| Computer equipment | 3 | 54,960 | 53,060 | |||||||||
| 897,494 | 818,864 | |||||||||||
| Less accumulated depreciation | (108,095 | ) | (74,042 | ) | ||||||||
| Property and equipment, net | $ | 789,399 | $ | 744,822 | ||||||||
For the three months ended December 31, 2020, depreciation expense related to adjustments under certain conditions as defined in the June 2017 Warrants)property and exercisable for five years after the issuance date.equipment amounted to $34,053.
| 14 |
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
The aggregate principal amount of the June 2017 Notes was $233,345 and the Company received $190,000 after giving effect to the original issue discount of $33,345 and $10,000 of offering costs. The June 2017 Notes bear interest at a rate equal to 10% per annum (which interest rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the June 2017 Notes)), have a maturity date of February 2, 2018 and are convertible (principal and interest) at any time after the issuance date, into shares of the Company’s common stock at an initial conversion price equal to $112.50 per share (subject to adjustment as provided in the June 2017 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the June 2017 Notes shall be convertible and the June 2017 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The June 2017 Notes are currently in default. The June 2017 Notes provide for two amortization payments on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash then the payment is an amount equal to 120% of the applicable amortization payment and if the seven-month or the eight-month amortization payments are made in cash then the payment is an amount equal to 125% of the applicable amortization payment. The June 2017 Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the June 2017 Notes and accrued and unpaid interest during months four through six following the Original Issue Date. In order to prepay the June 2017 Notes, the Company shall provide 20 Trading Days prior written notice to the Holder, during which time the Holder may convert the June 2017 Notes in whole or in part at the Conversion Price. During the nine months ended June 30, 2018, the Company also increased the principal amount of these notes by $2,268 for other default charges and other expenses. In 2018, the Purchasers converted $118,786 and $7,036 outstanding principal and interest, respectively, of the June 2017 Notes into 19,819 shares of common stock. In addition, pursuant a securities purchase agreement dated September 24, 2018, the Company purchased back from one Purchaser, a June 2017 Note with $37,814 and $4,534 of outstanding principal and interest, respectively, (see-Puritan Settlement Agreementbelow). During the three months ended March 31, 2019, the Purchasers converted $77,782, $13,593 and $36,134 outstanding principal, interest and default interest, respectively, of the June 2017 Notes into 32,180 shares of common stock. As of September 30, 2019, the June 2017 Notes had outstanding principal and accrued interest of $1,495 and $0, respectively.NOTE 6 – NOTES PAYABLE
The June 2017 Notes and related June 2017 Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the June 2017 Notes shall be convertible and the June 2017 Warrants shall be exercisable at Default Conversion Price as defined above. Subsequent to the date of these June 2017 Notes, the Company sold stock at a share price of $37.50 per share and then $7.50 per share. Accordingly, pursuant to these ratchet provisions, the conversion price of the notes were lowered to $4.50 per shares and the exercise price of the June 2017 Warrants were lowered to $4.50 per share and the total number of June 2017 Warrants were increased on a full ratchet basis from 2,074 warrants to 60,497 warrants, an increase of 58,423 warrants (see Note 8). In 2018, the Company issued 11,332 shares of its common stock upon the cashless exercise of 20,166 of the June 2017 Warrants. As of September 30, 2019, there were 40,331 warrants outstanding under the June 2017 Warrants.
July 2017 Financing
On July 26, 2017, the Company entered into a Securities Purchase Agreementloan agreement with a third-party investor (the “Third Securities Purchase Agreement”“Loan”) with the Purchasers for the sale of the Company’s convertible notes and warrants.. Pursuant to the terms provided for in the Third Securities Purchase Agreement,loan agreement, the Company issued toborrowed the Purchasers for an aggregate subscription amount of $300,000: (i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,883 (the “July 2017 Notes”);$1,000. The Loan bears an annual interest rate of 33.3%, is unsecured and (ii) warrants (the “July 2017 Warrants”)in default due to purchase an aggregate of 6,359 sharesnon-payment of the Company’s common stock at an exercise price of $75.00 per share (subject to adjustments under certain conditions as defined in the Warrants). The July 2017 Notes were issued on July 26, 2017. The July 2017 Notes bear interest at a rate equal to 5% per annum (which interest rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the July 2017 Notes)), have a maturity date of March 25, 2018 and are convertible (principal, and interest) at any time after the issuance date into shares of the Company’s common stock at a conversion price equal to $52.50 per share (subject to adjustment as provided in the July 2017 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the July 2017 Notes shall be convertible and the July 2017 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The July 2017 Notes are currently in default. The July 2017 Notes provide for three amortization payments on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash then the payment is an amount equal to 110% of the applicable amortization payment and if the seven-month or the eight-month amortization payments are made in cash then the payment is an amount equal to 115% of the applicable amortization payment. The July 2017 Notes may be prepaid at any time until the 210th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the July 2017 Notes and accrued and unpaid interest during months four through seven following the Original Issue Date. In order to prepay the July 2017 Notes, the Company shall provide 20 Trading Days prior written noticepursuant to the Purchaser, during which time the Purchaser may convert the July 2017 Notes in whole or in part at the Conversion Price. During the year endedrepayment terms. As of December 31, 2018,2020, the Purchasers converted $111,295 and $11,414 outstanding principal and interest, respectively, of the July 2017 Notes into 31,053 shares of common stock. In addition, pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, a July 2017 Note with $155,812 and $38,395 of outstanding principal and interest, respectively (see-Puritan Settlement Agreement below). As of September 30, 2019, the July 2017 Notesloan had outstanding principal and accrued interest balances of $44,518$1,000 and $24,174,$1,106, respectively.
NOTE 7 – LEASE LIABILITIES AND RIGHT OF USE ASSETS
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 60 months commencing in November 2018 through October 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 60 months 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 60 months 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 60 months 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 60 months 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 (“Financing ROU”) assets is summarized below:
| December 31, 2020 | September 30, 2020 | |||||||
| (Unaudited) | ||||||||
| Financing ROU assets | $ | 231,841 | $ | 231,841 | ||||
| Less accumulated depreciation | (85,742 | ) | (74,150 | ) | ||||
| Balance of Financing ROU assets | $ | 146,099 | $ | 157,691 | ||||
For the three months ended December 31, 2020, depreciation expense related to Financing ROU assets amounted to $11,592.
Financing lease liability related to the Financing ROU assets is summarized below:
| December 31, 2020 | September 30, 2020 | |||||||
| (Unaudited) | ||||||||
| Financing lease payables for equipment | $ | 231,841 | $ | 231,841 | ||||
| Total financing lease payables | 231,841 | 231,841 | ||||||
| Payments of financing lease liabilities | (63,573 | ) | (53,491 | ) | ||||
| Total | 168,268 | 178,350 | ||||||
| Less: short term portion | (43,542 | ) | (42,234 | ) | ||||
| Long term portion | $ | 124,726 | $ | 136,116 | ||||
| 15 |
ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
On June 5, 2018,Future minimum lease payments under the original purchaser of the July 2017 Notes entered into an Assignment Agreement (“First Note Assignment”) with the assignee (“First Assignee”) for the sale of a portion of the July 2017 Notes (“First Assigned Note”) with outstanding principal of $111,295 and accrued interest of $29,180. In connection with the First Note Assignment, a default interest in the amount of $53,733 was charged, which was included in the sale price and updated principal of the First Assigned Note totaling $194,208.financing lease agreements at December 31, 2020 are as follows:
On October 16, 2018, the First Assignee, in turn entered into an Assignment Agreement (“Second Note Assignment”) with a another assignee (“Second Assignee”) for the sale of the First Assigned Note with outstanding principal of $194,208 and accrued interest of $3,204. In connection with the Second Note Assignment, a prepayment premium of $49,353 was charged which was included in the sale price and updated principal of $246,765. In 2018, the Purchasers converted $17,500 of the outstanding principal of the new Note (“Second Assigned Note”), into 3,613,688 shares of common stock. During the six months ended June 30, 2019, the Purchasers converted $55,000 of the outstanding principal of the Second Assigned Note, into 10,966,166 shares of common stock. As of June 30, 2019, the Second Assigned Note had an outstanding principal balance of $174,264 and accrued interest of $0.
During the quarter ended September 30, 2019, the default interest charged on June 2018 of $53,733 and prepayment premium charged on October 2018 of $49,535, an aggregate penalties of $103,268, was contested by the Company and the penalties related to these note assignments were removed from the outstanding principal balance of the July 2017 Notes. In addition, certain amounts of the accrued liabilities had been previously included in the principal balance of $32,384 was reversed and a new accrued interest based in the agreed upon principal balance was accrued which totaled $30,612. As of September 30, 2019, the July 2017 Notes had an outstanding principal balance of $38,794 and accrued interest of $30,612.
The July 2017 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the July 2017 Notes shall be convertible and the July 2017 Warrants shall be exercisable at the Default Conversion Price as define above. Subsequent to the date of these July 2017 Notes, the Company sold stock at a share price of $37.50 per share and then at $7.50 per share. Accordingly, pursuant to these ratchet provisions, the conversion price of the July 2017 Notes was lowered to $4.50 per share and the exercise price of the July 2017 Warrants was lowered to $4.50 per share and the total number of July 2017 Warrants was increased on a full ratchet basis from 6,359 warrants to 105,994 warrants, an increase of 99,635 warrants (see Note 8). In 2018, the Company issued 32,289 shares of its common stock upon the cashless exercise of 35,332 of these warrants. As of September 30, 2019, there were 70,662 warrants outstanding under the July 2017 Warrants.
| Years ending September 30, | Amount | |||
| 2021 | $ | 45,951 | ||
| 2022 | 61,266 | |||
| 2023 | 53,787 | |||
| 2024 | 40,875 | |||
| 2025 | 4,185 | |||
| Total minimum financing lease payments | 206,064 | |||
| Less: discount to fair value | (37,796 | ) | ||
| Total financing lease liability at December 31, 2020 | $ | 168,268 | ||
January 2018 Financing
On January 29, 2018, the Company entered into a Securities Purchase Agreement (the “Fourth Securities Purchase Agreement”Operating Lease Right-of-Use (“ROU”) with the Purchasers for the sale of the Company’s convertible notesAsset and warrants. Pursuant to the terms provided for in the Fourth Securities Purchase Agreement, the Company issued to the Purchasers for an aggregate subscription amount of $333,333: (i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333 (the “January 2018 Notes”); and (ii) 5 year warrants (the “January 2018 Warrants”) to purchase an aggregate of 11,111 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the Warrants). The closing under the Fourth Securities Purchase Agreement occurred on January 29, 2018. The aggregate principal amount of the January 2018 Notes is $333,333 and the Company received $295,000 after giving effect to the original issue discount of $33,333 and offering costs of $5,000. These January 2018 Notes bear interest at a rate equal to 5% per annum (which interest rate is increased to 18% per annum upon the occurrence of an Event of Default (as defined in the January 2018 Notes)), have a maturity date of September 29, 2018 and are convertible (principal, and interest) at any time after the issuance date into shares of the Company’s common stock at a conversion price equal to $22.50 per share (subject to adjustment as provided in the January 2018 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the January 2018 Notes shall be convertible and the January 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The January 2018 Notes are currently in default. The January 2018 Notes provide for three amortization payments on the six-month, seven-month and eight-month anniversary of the original issue date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash, then the payment is an amount equal to 110% of the applicable amortization payment and if the seven-month or the eight-month amortization payments are made in cash then the payment is an amount equal to 115% of the applicable amortization payment. The January 2018 Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the five months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the January 2018 Notes and accrued and unpaid interest during the six month following the Original Issue Date. In order to prepay the January 2018 Notes, the Company shall provide 20 Trading Days prior written notice to the Purchaser, during which time the Purchaser may convert the January 2018 Notes in whole or in part at the Conversion Price. Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, a January 2018 Note with $111,111 and $98,031 outstanding principal and interest, respectively (see-Puritan Settlement Agreement below). As of September 30, 2019, the January 2018 Notes had outstanding principal and accrued interest of $222,222 and $57,321, respectively.
The January 2018 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the January 2018 Notes shall be convertible and the January 2018 Warrants shall be exercisable at the Default Conversion Price as defined above. The total number of January 2018 Warrants were increased on a full ratchet basis from 11,111 warrants to 963,822, an aggregate increase of 952,711 warrants (see Note 8). Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, warrants to purchase 10,078 (post anti-dilution) of the Company’s common stock (see-Puritan Settlement Agreement below). As of September 30, 2019, there were 953,744 warrants outstanding under the January 2018 Warrants.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
March 2018 Financing
On March 13, 2018, the Company entered into a Securities Purchase Agreement (the “Fifth Securities Purchase Agreement”) securities with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in the Fifth Purchase Agreement, the Company issued for an aggregate subscription amount of $333,333: (i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333 (the “March 2018 Notes”) and (ii) warrants (the “March 2018 Warrants”) to purchase an aggregate of 16,667 shares of the Company’s common stock at an exercise price of $30.00 per share. The aggregate principal amount of the March 2018 Notes is $333,333 and as of the date the Company received $61,000 after giving effect to the original issue discount of $33,333 and offering costs of $10,000 which are treated as a debt discount, the payment of legal and accounting fees of $29,000 not related to March 2018 Notes and the funding of an escrow account held by an escrow agent of $200,000. The March 2018 Notes bear interest at a rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2018 Notes)), have a maturity date of November 13, 2018 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the March 2018 Notes); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the March 2018 Notes shall be convertible and the March 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The March 2018 Notes are currently in default. The March 2018 Notes provide for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions. The March 2018 Notes may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120% of outstanding principal balance of the Notes and accrued and unpaid interest from the fifth month anniversary of the issue date through the six month anniversary of the issue date. In order to prepay the March 2018 Notes, the Company shall provide 20 trading days prior written notice to the holders, during which time a holder may convert its March 2018 Notes in whole or in part at the conversion price. Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, a convertible note with $111,111 and $97,383 outstanding principal and accrued interest, respectively (see-Puritan Settlement Agreement below). During the nine months ended September 30, 2019, the Purchasers converted $69,444 and $612 outstanding principal and accrued interest, respectively, of the March 2017 Notes into 21,779 shares of common stock. As September 30, 2019, the March 2018 Notes had outstanding principal and accrued interest of $152,778 and $39,431, respectively.
The March 2018 Notes and related March 2018 Warrants includes; (i) down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception; and (ii) default conversion and exercise price provisions where, the March 2018 Notes shall be convertible and shall be exercisable at the Default Conversion Price as defined above. Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, warrants to purchase 15,117 (post anti-dilution) of the Company’s common stock (see-Puritan Settlement Agreementbelow). The total number of March 2018 Warrants was increased, during the nine months ended September 30, 2019, on a full ratchet basis from 16,667 warrants to 1,445,734, an aggregate increase of 1,429,067 warrants. As of September 30, 2019, there were 1,430,616 warrants outstanding under the March 2018 Warrants (see Note 8).
July 2018 Financing
On July 25, 2018, the Company entered into a securities purchase agreement (the “Sixth Securities Purchase Agreement”) with an institutional investor for the sale of a convertible note in the aggregate principal amount of $150,000 (the “July 2018 Note”). The July 2018 Note bears interest at 8% per year and matures on July 24, 2019. The July 2018 Note is convertible into common stock at a 25% discount to the average of the closing prices of the common stock for the prior five trading days including the date upon which a notice of conversion is received by the Company or its transfer agent. The holder will not have the right to convert any portion of its note if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to its conversion. The July 2018 Note may be prepaid at the Company’s option at a 105% premium between 30 days and 180 days after issuance, and at a 110% premium between 180 days after issuance and the maturity date. Upon certain events defined in the note as “sale events”, the holder may demand repayment of the note for 125% of the principal plus accrued but unpaid interest. The note also includes certain penalties upon the occurrence of an event of default, including an increase in the principal and reduction in the conversion rate, as further described in the July 2018 Note. The Company agreed to use its best efforts to file a proxy statement and take all necessary corporate actions in order to obtain shareholder approval to increase its authorized shares of common stock or effect a reverse split to allow for reserving sufficient shares of common stock to allow for full conversion of the July 2018 Note. The July 2018 Note is currently in default. As of September 30, 2019, the July 2018 Note had outstanding principal and accrued interest of $150,000 and $19,537, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
September 2018 Financing
On September 24, 2018, the Company entered into a securities purchase agreement (the “Seventh Purchase Agreement” and together with the Amended and Restated Purchase Agreements and the Second, Third, Fourth, Fifth and Sixth Purchase Agreement, the “Securities Purchase Agreements”) with four accredited investors (the “Seventh Round Purchasers” and together with the Purchasers, the “Note Purchasers”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Seventh Purchase Agreement, the Company issued to the Seventh Round Purchasers for an aggregate subscription amount of $1,361,111; (i) 10% Original Issue Discount 5% Senior Convertible Notes in the aggregate principal amount of $1,361,111 (the “September 2018 Notes”) and (ii) 5 year warrants (the “September 2018 Warrants”) to purchase an aggregate of 68,056 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the September 2018 Warrants). The Company received $1,181,643 in aggregate net proceeds from the sale, net of $136,111 original issue discount and $43,357 in legal fees. The September 2018 Notes bear interest at a rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the September 2018 Notes)), had a maturity date of May 24, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the September 2018 Notes); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the September 2018 Notes shall be convertible and the September 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days (the “Default Conversion Price”). The September 2018 Notes are currently in default. The September 2018 Notes provide for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions. The Notes may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the note and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120% of outstanding principal balance of the notes and accrued and unpaid interest during month six following the original issuance date of the notes. In order to prepay the notes, the Company shall provide 20 trading days prior written notice to the holders, during which time a holder may convert its note in whole or in part at the conversion price. During the nine months ended September 30, 2019, the Purchasers converted $58,073 and $28,234 outstanding principal and accrued interest, respectively, of the September 2018 Notes into 39,934 shares of common stock. As of September 30, 2019, the September 2018 Notes had outstanding principal and accrued interest of $1,303,038 and $90,165, respectively.
The initial exercise price of the September 2018 Warrants is $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The September 2018 Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants. Accordingly, pursuant to the default provisions, the September 2018 Notes shall be convertible and the September 2018 Warrants shall be exercisable at the Default Conversion Price as defined above. The total number of September 2018 Warrants was increased, during the nine months ended September 30, 2019, on a full ratchet basis from 68,056 warrants to 8,762,518, an aggregate increase of 8,694,462 warrants (see Note 8). As of September 30, 2019, there were 8,762,518 warrants outstanding under the September 2018 Warrants.
November 2018 Financing
On November 13, 2018, the Company entered into a securities purchase agreement (the “Eighth Purchase Agreement”) with an institutional accredited investor (the “Eighth Round Purchaser”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Eighth Purchase Agreement, the Company issued to the Eighth Round Purchasers for an aggregate subscription amount of $127,778: (i) 10% Original Issue Discount 5% Senior Convertible Note in the aggregate principal amount of $127,778 (the “November 2018 Note”) and (ii) 5 year warrants (the “November 2018 Warrants”) to purchase an aggregate of 6,389 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the November 2018 Warrants). The Company received $112,500 in aggregate net proceeds from the sale, net of $12,778 Original Issue Discount and $2,500 of legal fees. The November 2018 Note bears interest at a rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the November 2018 Note)), has a maturity date of July 13, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the November 2018 Note); provided, however, that if an Event of Default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the November 2018 Note shall be convertible and the November 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days (the “Default Conversion Price”). The November 2018 Note provides for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions. The Note may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120% of outstanding principal balance of the Note and accrued and unpaid interest during month six following the original issuance date of the notes. In order to prepay the notes, the Company shall provide 20 trading days prior written notice to the holders, during which time a holder may convert its note in whole or in part at the conversion price. As of September 30, 2019, the November 2018 Note is currently in default and had outstanding principal and accrued interest of $127,778 and $11,490, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
The initial exercise price of the November 2018 Warrants was $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The November 2018 Warrants are exercisable for cash at any time and is exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrant in the two years after the issue date of the Warrants (“Dilutive Issuances”). Accordingly, pursuant to the default provisions, the November 2018 Warrant shall be exercisable at the Default Conversion Price as defined above. The total number of November 2018 Warrants was increased on a full ratchet basis from 6,389 warrants to 822,604, an aggregate increase of 816,215 warrants. As of September 30, 2019, there were 822,604 warrants outstanding under the November 2018 Warrants (see Note 8).
January 2019 Financing
On January 18, 2019, the Company entered into a securities purchase agreement (the “Ninth Securities Purchase Agreement”) with an institutional investor for the sale of a convertible note in the aggregate principal amount of $146,875 (the “January 2019 Note I”). The closing occurred on January 22, 2019, with the Company receiving net proceeds of $125,000, net of 12,500 OID and $9,375 of legal fees. The January 2019 Note I had an interest rate of 5% per annum and matures on January 18, 2020. During the first six months the January 2019 Note I may be converted, all or a portion, of the outstanding principal into shares of the Company’s common stock at a fixed conversion price of $15.00 per share. Starting on the six-month anniversary, the conversion price shall be equal to 60% of the lowest trading price of the common stock during the 20 prior trading days (including the day upon which a notice of conversion is received). The January 2019 Note I may not be converted to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates to exceed more than 9.9% of the Company’s issued and outstanding common stock. If the Company prepays the January 2019 Note I within 150 days of its issuance, the Company must pay the principal at a cash redemption premium of 115%, in addition to accrued interest; if such prepayment is made from the151st day to the 180th day after issuance, then such redemption premium is 120%, in addition to accrued interest. After the 180th day following the issuance of the January 2019 Note I, there shall be no further right of prepayment. During the nine months ended September 30, 2019, the Purchaser converted $46,875 and $1,246 of outstanding principal and accrued interest, respectively, into 35,216 shares of the Company’s common stock. As of September 30, 2019, the January 2019 Note I was in default and had outstanding principal and accrued interest of $100,000 and $4,325, respectively.
On January 18, 2019, the Company entered into a securities purchase agreement (the “Tenth Securities Purchase Agreement”) with an institutional investor for the sale of a convertible note in the aggregate principal amount of $88,125 (the “January 2019 Note II”). The closing occurred on January 29, 2019, with the Company receiving net proceeds of $75,000, net of $7,500 OID and $5,625 of legal fees. The January 2019 Note II had an interest rate of 5% per annum and matures on January 18, 2020. During the first six months the January 2019 Note II is in effect, the purchaser may convert all or a portion of the outstanding principal of the January 2019 Note II into shares of the Company’s common stock at a fixed conversion price of $15.00 per share. Starting on the six-month anniversary, the conversion price shall be equal to 60% of the lowest trading price of the common stock during the 20 prior trading days (including the day upon which a notice of conversion is received). The purchaser may not convert the January 2019 Note II to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. If the Company prepays the January 2019 Note II within 150 days of its issuance, the Company must pay the principal at a cash redemption premium of 115%, in addition to accrued interest; if such prepayment is made from the151st day to the 180th day after issuance, then such redemption premium is 120%, in addition to accrued interest. After the 180th day following the issuance of the January 2019 Note II, there shall be no further right of prepayment. During the nine months ended September 30, 2019, the Purchasers converted $15,000 and $16 outstanding principal and accrued interest, respectively, into 3,708 shares of the Company’s common stock. As of September 30, 2019, the January 2019 Note II was in default and had outstanding principal and accrued interest of $73,125 and $7,128, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
March 2019 Financing
On March 25, 2019, the Company entered into a securities purchase agreement (the “Eleventh Purchase Agreement”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Eleventh Purchase Agreement, the Company issued to the Eleventh Round Purchaser for an aggregate subscription amount of $50,000: (i) 10% Original Issue Discount and 5% Senior Convertible Notes in the aggregate principal amount of $55,556 (the “March 2019 Note”) and (ii) 5 year warrants (the “March 2019 Warrants”) to purchase an aggregate of 2,778 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the March 2019 Warrants). The Company received $50,000 in net proceeds from the sale, net of $5,556 OID. The March 2019 Note bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2019 Note)), shall mature on November 25, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the March 2019 Note); provided, however, that if an Event of Default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the March 2019 Note shall be convertible and the March 2019 Warrants shall be exercisable at 60% of the lowest closing price, 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 March 2019 Note to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The March 2019 Note may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the March 2019 Note and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the March 2019 Note and accrued and unpaid interest during month six following the original issue date. In order to prepay the March 2019 Note, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the March 2019 Note in whole or in part at the conversion price. As of September 30, 2019, the March 2019 Note was in default (under provision Section 7(a)(i) of the note) and had outstanding principal and accrued interest of $55,556 and $3,991, respectively.
The initial exercise price of the March 2019 Warrants was $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The March 2019 Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). Accordingly, pursuant to the default provisions, the March 2019 Warrants shall be convertible shall be exercisable at the Default Conversion Price as defined above. The total number of March 2019 Warrants was increased, during the nine months ended September 30, 2019, on a full ratchet basis from 2,778 warrants to 357,645, an aggregate increase of 354,867 warrants. As of September 30, 2019, there were 357,645 warrants outstanding under the March 2019 Warrants (see Note 8).
April 2019 Financings
On April 1, 2019, the Company entered into a securities purchase agreement (the “Twelfth Purchase Agreement”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Twelfth Purchase Agreement, the Company issued to the Twelfth Round Purchaser a Note (“April 2019 Note I”) for a principal amount of $27,778 with 10% OID and 5 year warrants (the “April 2019 Warrants I”) to purchase an aggregate of 1,389 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the April 2019 Warrants I). The Company received net proceeds of $25,000, net of $2,778 OID. The April 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the April 2019 Note I)), shall mature on December 2, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the April 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the April 2019 Note I shall be convertible and the April 2019 Warrants I shall be exercisable at 60% of the lowest closing price, 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 April 2019 Note I to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The April 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the April 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the April 2019 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the April 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the April 2019 Note I in whole or in part at the conversion price. As of September 30, 2019, the April 2019 Note I was in default (under provision Section 7(a)(i) of the note) and had outstanding principal and accrued interest of $27,778 and $1,965, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
The initial exercise price of the April 2019 Warrants I was $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The April 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the April 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of April 2019 Warrants I was increased on a full ratchet basis, during the nine months ended September 30, 2019, from 1,389 warrants to 178,827, an aggregate increase of 177,438 warrants. As of September 30, 2019, there were 178,827 warrants outstanding under the April 2019 Warrants I (see Note 8).
On April 29, 2019, the Company entered into a securities purchase agreement (the “Thirteenth Purchase Agreements”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Thirteenth Purchase Agreements, the Company issued to the Thirteenth Round Purchasers a note (the “April 2019 Notes II”) for an aggregate principal amount of $205,279 with 10% Original Issue Discount and five-year warrants (the “April 2019 Warrants II”) to purchase an aggregate of 10,264 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the April 2019 Warrants II). The Company received $185,450 in aggregate net proceeds from the sale, net of $19,829 OID. The April 2019 Notes II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the April 2019 Notes II)), shall mature on December 29, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the April 2019 Notes II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the April 2019 Notes II shall be convertible and the April 2019 Warrants II shall be exercisable at 60% of the lowest closing price, 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 April 2019 Notes II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The April 2019 Notes II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the April 2019 Notes II and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the April 2019 Notes II and accrued and unpaid interest during month six following the original issue date. In order to prepay the April 2019 Notes II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the April 2019 Notes II in whole or in part at the conversion price. As of September 30, 2019, the April 2019 Notes II were in default and had outstanding principal and accrued interest of $205,279 and $13,763, respectively.
The initial exercise price of the April 2019 Warrants II is $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The April 2019 Warrants II are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the April 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of April 2019 Warrants II was increased on a full ratchet basis, during the nine months ended September 30, 2019, from 10,264 warrants to 1,321,531, an aggregate increase of 1,311,267 warrants. As of September 30, 2019, there were 1,321,531 warrants outstanding under the April 2019 Warrants II (see Note 8).
May 2019 Financing
On May 29, 2019, the Company entered into a securities purchase agreement (the “Fourteenth Purchase Agreement”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Fourteenth Purchase Agreement, the Company issued to the Fourteenth Round Purchasers a note (the “May 2019 Notes”) for an aggregate principal of $10,000 with 10% OID and five-year warrants (the “May 2019 Warrants”) to purchase an aggregate of 500 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the May 2019 Warrants). The Company received $9,000 in aggregate net proceeds from the sale, net of $1,000 OID. The May 2019 Notes bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the May 2019 Notes)), shall mature on January 29, 2020 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the May 2019 Notes); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the May 2019 Notes shall be convertible and the May 2019 Warrants shall be exercisable at 60% of the lowest closing price, 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 May 2019 Notes to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The May 2019 Notes may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the May 2019 Notes and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the May 2019 Notes and accrued and unpaid interest during month six following the original issue date. In order to prepay the May 2019 Notes, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the May 2019 Notes in whole or in part at the conversion price. As of September 30, 2019, the May 2019 Notes were in default and had outstanding principal and accrued interest of $10,000 and $451, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
The initial exercise price of the May 2019 Warrants is $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The May 2019 Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the May 2019 Warrants shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of May 2019 Warrants was increased on a full ratchet basis, during the nine months ended September 30, 2019, from 500 warrants to 64,378, an aggregate increase of 63,878 warrants. As of September 30, 2019, there were 64,378 warrants outstanding under the May 2019 Warrants (see Note 8).
June 2019 Financing
On June 3, 2019, the Company entered into a securities purchase agreement (the “Fifteenth Purchase Agreement”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Fifteenth Purchase Agreement, the Company issued to the Fifteenth Round Purchasers a note (the “June 2019 Note I”) with an aggregate principal of $129,167 with 10% OID and five- year warrants (the “June 2019 Warrants I”) to purchase an aggregate of 6,458 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the June 2019 Warrants I). The Company received $116,250 in aggregate net proceeds from the sale, net of $12,917 OID. The June 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the June 2019 Note I)), shall mature on February 3, 2020 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the June 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the June 2019 Note I shall be convertible and the June 2019 Warrants I shall be exercisable at 60% of the lowest closing price, 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 June 2019 Note I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The June 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance and accrued and unpaid interest during month six following the original issue date. In order to prepay the June 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the June 2019 Note I in whole or in part at the conversion price. As of September 30, 2019, the June 2019 Note I was in default and had outstanding principal and accrued interest of $129,167 and $5,740, respectively.
The initial exercise price of the June 2019 Warrants I is $30.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The June 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the June 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of June 2019 Warrants I was increased, during the nine months ended September 30, 2019, on a full ratchet basis from 6,458 warrants to 831,545, an aggregate increase of 825,087 warrants. As of September 30, 2019, there were 831,545 warrants outstanding under the June 2019 Warrants I (see Note 8).
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
On June 26, 2019, the Company entered into a securities purchase agreement (the “Sixteenth Purchase Agreement”) for the sale of the Company’s convertible note and warrants. Pursuant to the Sixteenth Purchase Agreement, the Company issued to the Sixteenth Round Purchaser a note (the “June 2019 Note II”) with a principal amount of $55,556 with 10% OID and five- year warrants (the “June 2019 Warrants II”) to purchase an aggregate of 5,556 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the June 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue discount. The June 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the June 2019 Note II)), shall mature on February 26, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the June 2019 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the June 2019 Note II shall be convertible and the June 2019 Warrants II shall be exercisable at 60% of the lowest closing price, 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 June 2019 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The June 2019 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the June 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the June 2019 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the June 2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the June 2019 Note II in whole or in part at the conversion price. As of September 30, 2019, the June 2019 Note II was in default and had outstanding principal and accrued interest of $55,556 and $2,294, respectively.
The initial exercise price of the June 2019 Warrants II is $15.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The June 2019 Warrants II are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the June 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of June 2019 Warrants II was increased, during the nine months ended September 30, 2019, on a full ratchet basis from 5,556 warrants to 357,654, an aggregate increase of 352,098 warrants. As of September 30, 2019, there were 357,654 warrants outstanding under the June 2019 Warrants II (see Note 8).
July 2019 Financing
On July 2, 2019, the Company closed a securities purchase agreement (the “Seventeenth Purchase Agreement”), dated June 26, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Seventeenth Purchase Agreement, the Company issued to the Seventeenth Round Purchaser a note (the “July 2019 Note I”) for a principal amount of $55,556 with 10% OID and five- year warrants (the “July 2019 Warrants I”) to purchase an aggregate of 5,556 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the July 2019 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue discount. The July 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the July 2019 Note I)), shall mature on February 26, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the July 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the July 2019 Note I shall be convertible and the July 2019 Warrants I shall be exercisable at 60% of the lowest closing price, 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 July 2019 Note I to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The July 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the July 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the July 2019 Note I in whole or in part at the conversion price. As of September 30, 2019, the July 2019 Note I was in default and had outstanding principal and accrued interest of $55,556 and $2,248, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
The initial exercise price of the July 2019 Warrants I is $15.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The July 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the July 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of July 2019 Warrants I was increased, during the three months ended September 30, 2019, on a full ratchet basis from 5,556 warrants to 357,654, an aggregate increase of 352,098 warrants. As of September 30, 2019, there were 357,654 warrants outstanding under the July 2019 Warrants I (see Note 8).
On July 8, 2019, the Company closed a securities purchase agreement (the “Eighteenth Purchase Agreement”), dated June 26, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Eighteenth Purchase Agreement, the Company issued to the Eighteenth Round Purchaser a note (the “July 2019 Note II”) for principal amount of $55,556 with 10% OID and five-year warrants (the “July 2019 Warrants II”) to purchase an aggregate of 5,556 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the July 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue discount. The July 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the July 2019 Note II)), shall mature on February 26, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the July 2019 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the July 2019 Note II shall be convertible and the July 2019 Warrants II shall be exercisable at 60% of the lowest closing price, 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 July 2019 Note II to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The July 2019 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the July 2019 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the July 2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the July 2019 Note II in whole or in part at the conversion price. As of September 30, 2019, the July 2019 Note II was in default and had outstanding principal and accrued interest of $55,556 and $2,202, respectively.
The initial exercise price of the July 2019 Warrants II is $15.00 per share, subject to adjustment as described below and are exercisable for five years after the issuance date. The July 2019 Warrants II are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the July 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total number of July 2019 Warrants II was increased, during the three months ended September 30, 2019, on a full ratchet basis from 5,556 warrants to 357,654, an aggregate increase of 352,098 warrants. As of September 30, 2019, there were 357,654 warrants outstanding under the July 2019 Warrants II (see Note 8).
August 2019 Financing
On August 19, 2019, the Company closed a securities purchase agreement (the “Nineteenth Purchase Agreement”), dated July 30, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Nineteenth Purchase Agreement, the Company issued to the Nineteenth Round Purchaser a note (the “August 2019 Note I”) for principal amount of $27,778 with 10% OID and five-year warrants (the “August 2019 Warrants I”) to purchase an aggregate of 2,778 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the August 2019 Warrants I). The Company received $25,000 in aggregate net proceeds from the sale, net of $2,778 original issue discount. The August 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the August 2019 Note I)), shall mature on March 30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the August 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the August 2019 Note I shall be convertible and the August 2019 Warrants I shall be exercisable at 60% of the lowest closing price, 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 August 2019 Note I to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The August 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the August 2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the August 2019 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the August 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the August 2019 Note I in whole or in part at the conversion price. As of September 30, 2019, the August 2019 Note I had outstanding principal and accrued interest of $27,778 and $160, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
The initial exercise price of the August 2019 Warrants I is $15.00 per share, subject to adjustment as described below, and are exercisable for five years after the issuance date. The August 2019 Warrants I are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the August 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants. As of September 30, 2019, there were 2,778 warrants outstanding under the August 2019 Warrants I (see Note 8).
On August 28, 2019, the Company entered into a securities purchase agreement (the “Twentieth Securities Purchase Agreement”) with an institutional investor for the sale of a convertible note in the aggregate principal amount of $29,700 (the “August 2019 Notes II”). The Company received net proceeds of $25,000, net of OID and legal fees of $4,700. The August 2019 Note II has an interest rate of 5% per annum and matures on August 27, 2020. During the first six months the August 2019 Note II may be converted, all or a portion, of the outstanding principal into shares of the Company’s common stock at a fixed conversion price of $7.50 per share. Starting on the six-month anniversary, the conversion price shall be equal to 60% of the lowest closing bid price of the common stock during the 20 prior trading days (including the day upon which a notice of conversion is received). The August 2019 Note II may not be converted to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates to exceed more than 9.9% of the Company’s issued and outstanding common stock. The August 2019 Note II can be prepaid during the first 180 days for a redemption price equal to 140% of the sum of the outstanding principal and accrued interest and shall forfeit the right of prepayment after the 180th day following the issuance date. As of September 30, 2019, the August 2019 Note II had outstanding principal and accrued interest of $29,700 and $134, respectively.
September 2019 Financing
On September 27, 2019, the Company closed a securities purchase agreement dated September 25, 2019 (the “Twenty-first Purchase Agreement”), for the sale of the Company’s convertible notes and warrants. Pursuant to the Twenty-first Purchase Agreement, the Company issued to the Twenty-first Round Purchaser a note (the “September 2019 Note”) for principal amount of $166,667 with 10% OID and five-year warrants (the “September 2019 Warrants”) to purchase an aggregate of 16,667 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the September 2019 Warrants). The Company received $150,000 in net proceeds, net of $16,667 OID. The September 2019 Note bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the September 2019 Note)), shall mature on May 27, 2020 and the principal and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the September 2019 Note); provided, however, that if an Event of Default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the September 2019 Note shall be convertible and the September 2019 Warrants shall be exercisable at 60% of the lowest closing price, 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 September 2019 Note to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The September 2019 Note may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance and accrued and unpaid interest during the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance and accrued and unpaid interest during month six following the original issue date. The Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the September 2019 Note in whole or in part at the conversion price. As of September 30, 2019, the September 2019 Note had outstanding principal and accrued interest of $166,667 and $0, respectively.
The initial exercise price of the September 2019 Warrants is $15.00 per share, subject to adjustment as described below, and is exercisable for five years after the issuance date. The September 2019 Warrants is exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two years after the issue date of the Warrants. In an Event of Default, pursuant to the default provision, the September 2019 Warrants shall be exercisable at the Default Conversion Price as defined above. As of September 30, 2019, there were 16,667 warrants outstanding under the September 2019 Warrants (see Note 8).
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
The June 2017, July 2017, January 2018, March 2018, July 2018, September 2018, November 2018, January 2019, March 2019, April 2019, May 2019, June 2019, July 2019, August 2019 and September 2019 Notes (collectively, the “Notes”) contain certain covenants such as default provisions, restrictions on the incurrence of indebtedness, creation of liens, payment of restricted payments, redemptions, payment of cash dividends and the transfer of assets. The Notes also contains certain adjustment provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions. The conversion price is also subject to adjustment if the Company issues or sells shares of its common stock for a consideration per share less than the conversion price then in effect, or issue options, warrants or other securities convertible or exchange for shares of its common stock at a conversion or exercise price less than the conversion price of these Notes then in effect. If either of these events should occur, the conversion price is reduced to the lowest price at which these securities were issued or are exercisable. The Company granted the Note Purchasers certain rights of first refusal on future offerings by the Company for as long as the Note Purchasers hold the Notes. In addition, subject to limited exceptions, the Note Purchasers will not have the right to convert any portion of the Notes if the Note Purchaser, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion. The Note Purchaser may increase or decrease this ownership limitation to any percentage not exceeding 9.99% upon 61 days prior written notice to the Company.
The November 2016, June 2017, July 2017, January 2018, March 2018, September 2018, November 2018 and March 2019, April 2019, May 2019, June 2019, July 2019, August 2019 and September 2019 Warrants (collectively, the “Warrants”) are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price and they are also exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the Warrants. The exercise price of the Warrants are subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants are also subject to full ratchet price adjustment if the Company sells or grants any option to purchase, sells or re-prices any common stock or common stock equivalents, as defined, at an exercise price lower than the then-current exercise price of the Warrants with the exception for certain exempted issuances and subject to certain limitations on the reduction of the exercise price as provided in the Warrants in the two years after the issue date of the Warrants. In the event of a fundamental transaction, as described in these warrants and generally including any reorganization, recapitalization or reclassification of the common stock, the sale, transfer or other disposition of all or substantially all of the Company’s properties or assets, the Company’s consolidation or merger with or into another person, the acquisition of more than 50% of the outstanding common stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by the outstanding common stock, the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction; provided that upon the occurrence of certain fundamental transactions, the holder can require the Company to purchase the Warrants for cash at a price equal to the higher of the Black Scholes Value of the unexercised portion of the Warrants or difference between the cash per share paid in the fundamental transaction and the exercise price per share. The holders of the Warrants will not have the right to exercise any portion of the Warrants if the holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants.
To secure the Company’s obligations under each of the June 2017, July 2017, January 2018, March 2018, September 2018 and November 2018 Notes, the Company entered into Security Agreements, Pledge Agreements and Subsidiary Guaranty’s with Calvary Fund I LP, as agent, pursuant to which the Company granted a lien on all assets of the Company (the “Collateral”) excluding permitted indebtedness which included a first lien held by Regions Bank in connection with the $100,000 revolving promissory note entered into with Regions Bank in October 2014, for the benefit of the Note Purchasers. Upon an Event of Default (as defined in the related Notes), the Note Purchasers 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 nine months ended September 30, 2019, the Company issued an aggregate of 148,834 shares of its common stock upon conversion of $322,174 and $79,836 of outstanding principal and accrued interest, respectively, of convertible debt (see Note 8).These shares of common stock had an aggregate fair value $770,609 and the difference between the aggregate fair value and the aggregate converted amount of $368,599 was recorded as loss on debt extinguishment.
Puritan Settlement Agreement
On September 24, 2018, the Company and Puritan Partners LLC (“Puritan”) entered into a securities purchase agreement (the “Puritan Purchase Agreement”), pursuant to which the Company purchased (using proceeds from the September 2018 Notes) back from Puritan, June 2017, July 2017, January 2018, March 2018 and July 2018 Notes having an aggregate outstanding principal and accrued but unpaid interest amount of $654,191 and June 2017, January 2018 and March 2018 Puritan Warrants to purchase up to 33,262 shares of common stock as well as the securities and certain rights associated thereunder for an aggregate purchase price of $900,000, which was paid on September 26, 2018. In connection with the purchase and extinguishment of the above-mentioned notes and warrants, the Company paid $245,809 for additional penalties and interest which is reflected in loss on debt extinguishment. Additionally, the Company revalued the derivative liabilities associated with these notes and warrants and recorded a gain on debt extinguishment of $1,323,111, during the nine months ended September 30, 2018.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
DerivativeOperating Lease Liabilities Pursuant to Notes and Warrants
In connection with the issuance of the Notes and Warrants, the Company determined that the terms of the Notes and Warrants contain terms that included a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception and included various other terms such as default provisions that caused derivative treatment. Accordingly, under the provisions of ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion option contained in the convertible instruments and the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives and Warrants were determined using the Binomial valuation model. At the end of each period, on the date that debt was converted into common shares, and on the date of a cashless exercise of warrants, the Company revalued the embedded conversion option and warrants derivative liabilities.
In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of January 1,December 2019, and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the condensed consolidated balance sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in the first quarter of 2019, and the adoption did not have any impact on its consolidated financial statements and there were no cumulative effect adjustments as there were other notes and warrants provisions that caused derivative treatment.
In connection with the issuance of the January 2019 and March 2019, April 2019, May 2019, June 2019, July 2019, August 2019 and September 2019 Notes and related Warrants, during nine months ended September 30, 2019, on the initial measurement date, the fair values of the embedded conversion option derivative and warrants derivative of $352,472 was recorded as derivative liabilities and was allocated as a debt discount up to the net proceeds of the January 2019 and March 2019, April 2019, May 2019, June 2019, July 2019, August 2019 and September 2019 Notes.
At the end of the period, the Company revalued the embedded conversion option and warrants derivative liabilities. In connection with these revaluations and the initial derivative expense, the Company recorded derivative expense (income) of $4,053,257 and $(4,495,597) for the nine months ended September 30, 2019 and 2018, respectively.
During the nine months ended September 30, 2019, the fair value of the derivative liabilities was estimated using the Binomial valuation model with the following assumptions:
At September 30, 2019 and December 31, 2018, the convertible debt consisted of the following:
| September 30, 2019 | December 31, 2018 | |||||||
| Principal amount | $ | 2,987,822 | $ | 2,436,394 | ||||
| Less: unamortized debt discount | (224,476 | ) | (1,002,142 | ) | ||||
| Convertible note payable, net | $ | 2,763,346 | $ | 1,434,252 | ||||
For the nine months ended September 30, 2019 and 2018, amortization of debt discounts related to the Notes amounted to $1,248,031 and $848,280, respectively, which has been included in interest expense on the accompanying consolidated statements of operations.
NOTE 5 –LOANS PAYABLE
From June 2017 to September 2017, the Company entered into loan agreements with several third parties (the “Loans”). Pursuant to the loan agreements, the Company borrowed an aggregate principal amount of $538,875. The Loans bear interest at an annual rate of 33.3%, are unsecured and are in default. As of September 30, 2019, and December 31, 2018, loan principal due to these third parties amounted to $538,875 for both periods. At September 30, 2019 and December 31, 2018, accrued interest payable related to these Loans amounted to $384,993 and $250,777, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
NOTE 6 –OPERATING LEASE RIGHT-OF-USE (“ROU”) ASSETS AND OPERATING LEASE LIABILITIES
In September 2015, the Company entered into a lease agreement for its corporate and laboratory facility in Baton Rouge, Louisiana.Golden, Colorado. The lease is for a period of 60 months, with an option to extend, commencing in September 2015February 2020 and expiring in August 2020.February 2025. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of $3,067of; (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 September 2015 and of monthly base rent $3,200 beginning plus a pro rata share of operating expenses beginning September 2018.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. On January 1, 2019, upon adoptionAt the effective date of ASC Topic 842,the lease, the Company recorded right-of-use assets and lease liabilities of $59,216.$231,337.
For the ninethree months ended September 30, 2019,December 31, 2020, lease costs amounted to $36,852$14,634 which included base lease costs of $28,800 and common area$8,332 and other expenses of $8,052,$6,302, all of which were expensed during the period and included in general and administrative expenses on the accompanying condensed consolidated statements of operations.
The significant assumption used to determine the present value of the lease liability was a discount rate of 10%12% which was based on the Company’s estimated incremental borrowing rate.
Right-of-useOperating right-of-use (“Operating ROU”) asset (“ROU”) is summarized below:
| September 30, 2019 | ||||
| Operating office lease | $ | 59,216 | ||
| Less accumulated reduction | (26,647 | ) | ||
| Balance of ROU asset as of September 30, 2019 | $ | 32,569 | ||
| December 31, 2020 | September 30, 2020 | |||||||
| (Unaudited) | ||||||||
| Operating office lease | $ | 231,337 | $ | 231,337 | ||||
| Less accumulated reduction | (34,124 | ) | (25,134 | ) | ||||
| Balance of Operating ROU asset | $ | 197,213 | $ | 206,203 | ||||
Operating lease liability related to the Operating ROU asset is summarized below:
| September 30, 2019 | ||||
| Operating office lease | $ | 59,216 | ||
| Total lease liabilities | 59,216 | |||
| Reduction of lease liability | (26,647 | ) | ||
| Total as of September 30, 2019 | 32,569 | |||
| December 31, 2020 | September 30, 2020 | |||||||
| (Unaudited) | ||||||||
| Operating office lease | $ | 231,337 | $ | 231,337 | ||||
| Total operating lease liability | 231,337 | 231,337 | ||||||
| Reduction of operating lease liability | (26,833 | ) | (18,501 | ) | ||||
| Total | 204,504 | 212,836 | ||||||
| Less: short term portion | (37,482 | ) | (35,943 | ) | ||||
| Long term portion | $ | 167,022 | $ | 176,893 | ||||
Future base lease payments under the non-cancelablenon-cancellable operating lease at September 30, 2019December 31, 2020 are as follows:
| Years ending | Amount | |||
| December 31, 2019 | $ | 9,600 | ||
| December 31, 2020 | 25,600 | |||
| Total minimum non-cancelable operating lease payments | 35,200 | |||
| Less: discount to fair value | (2,631 | ) | ||
| Total lease liability at September 30, 2019 | $ | 32,569 | ||
| Years ending September 30, | Amount | |||
| 2021 | $ | 44,942 | ||
| 2022 | 61,382 | |||
| 2023 | 63,236 | |||
| 2024 | 65,137 | |||
| 2025 | 27,474 | |||
| Total minimum non-cancellable operating lease payments | 262,171 | |||
| Less: discount to fair value | (57,667 | ) | ||
| Total operating lease liability at December 31, 2020 | $ | 204,504 | ||
| 16 |
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(UNAUDITED)
NOTE 78 –RELATED-PARTY TRANSACTIONS
Due to related parties
From time to time,During the three months ended December 31, 2019, the Company receives advances from and repays suchrepaid $20,000 of outstanding advances to the Company’s former chief executive officer for working capital purposes and to repay indebtedness.Dr. Ruxin.
For the nine months ended September 30, 2019, due to related party activity consisted of the following:
| Total | ||||
| Balance due to related parties at December 31, 2018 | $ | (315,466 | ) | |
| Working capital advances received | (31,970 | ) | ||
| Repayments made | — | |||
| Balance due to related parties at September 30, 2019 | $ | (347,436 | ) | |
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
NOTE 89 –STOCKHOLDERS’ DEFICIT
Shares Authorized
On April 3, 2019,September 22, 2020, the Company filed with the Nevada Secretary of State an amendment to its ArticlesCertificate of Incorporation to change its name from “OncBioMune Pharmaceutical, Inc.” to “Theralink Technologies, Inc.” and increase its authorized shares of common stock from 500,000,000 shares to 1,500,000,000 shares (see Note 1). The Company’s 1,520,000,000 authorized shares consisted of 1,500,000,0006,666,667 shares of common stock at $0.0001 per share par value and 20,000,000 shares of preferred stock at $0.0001 per share par value.
On August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 1,500,000,000 shares to 5,000,000,000 shares (see Note 1). The Company’s 5,020,000,000 authorized shares consist of 5,000,000,00012,000,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.effective September 24, 2020.
On August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the “Reverse Stock Split”),which became effective onSeptember 12, 2019. In addition, the Company amended the articles to reduce the Company’s authorized shares to; (i) 6,666,667 shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A Preferred and 10,523 shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of the common and preferred stock.All share and per share amounts in the accompanying historical condensed consolidated financial statements have been retroactively adjusted to reflect theReverseStock Split (see Note 1).
Series AD-1 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 26,667 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. As of September 30, 2019, and December 31, 2018, there were 1,333 shares of the Company’s Series A Preferred Stock issued and outstanding. Of these shares, 667 are held by a former Chief Executive Officer and a current member of our Board of Directors and 666 shares are held by a former member of our Board of Directors.
Series B Preferred Stock
On March 7, 2017,May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series B preferred stockD-1 Preferred Stock (the “Certificate“Series D-1 Certificate of Designation”) with the Nevada Secretary of State of the State of Nevada to designate 10,5231,000 shares of its previously authorized preferred stock as Series B preferred stock,D-1 Preferred Stock, par value $0.0001 per share and a stated value of $0.0001$9,104.89 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.
| ● | During the three months ended December 31, 2019, the Company issued an aggregate of 1 share of D-1 Preferred Stock in exchange for the settlement of certain accrued compensation and the conversion of debt valued at $299,154. |
| ● | During the three months ended December 31, 2019, the Company sold 6 shares of D-1 Preferred Stock for net proceeds of $2,200,000. |
As of December 31, 2020 and September 30, 2020, the Company had no shares of Series D-1 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 2,000 shares of its previously authorized preferred stock as Series E Preferred Stock, par value $0.0001 per share and a stated value of $2,000 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. The holders of shares of Series B preferred stock are entitled to dividends or distributions share for share with the holders of the CommonE Preferred Stock if, as and when declared from time to time by the Board of Directors. The holders of shares of Series B preferred stock have the following votingpreferences and rights:
| ● | From the initial issuance date, cumulative dividends on each share of Series E shall accrue, on a quarterly basis in arrears (with any partial quarter calculated on a pro-rata basis), at the rate of 8% per annum on the Stated Value, plus any additional amount thereon. Dividends shall be paid within 15 days after the end of each fiscal quarter (“Dividend Payment Date”), at the option of the Holder in cash or through the issuance of shares of common stock. In the event that the Holder elects to receive its dividends in shares of common stock the number of shares of common stock to be issued to each applicable Holder shall be determined by dividing the total dividend outstanding to such Holder by the average closing price of the common stock during the five trading days on the principal market prior to the Dividend Payment Date. |
| 17 |
THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(UNAUDITED)
| ● | Holders of shares of Series E Preferred Stock are entitled to dividends or distributions on each share on an “as converted” into common stock basis, if, as and when declared from time to time by the Board of Directors. |
| ● | Each share of Series |
| ● | In connection with, (i) a Change of Control of the Corporation or (ii) on the closing of, a Qualified Public Offering by the Corporation, all of the outstanding shares of Series E (including any fraction of a share) shall automatically convert into an aggregate number of shares of Common Stock (including any fraction of a share) by multiplying the number of outstanding shares by the stated value per share of $2,000 plus accrued dividends and dividing that number (including any fraction of a share) by the lesser of: (i) $0.00375 or (ii) 75% of the average closing price of the common stock during the prior five trading days on the principle market. However, the conversion price shall never be less than $0.0021. If a closing of a Change of Control transaction or a Qualified Public Offering occurs, such automatic conversion of all of the outstanding shares of Series E shall be deemed to have been converted into shares of Common Stock immediately prior to the closing of such transaction or Qualified Public Offering. | |
| ● | ||
| ● |
| Shares of Series E Preferred Stock are 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”). |
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the three months ended December 31, 2020, the Company also recorded dividends related to the Series E Preferred Stock in the amount of $40,219. As of December 31, 2020 and September 30, 20192020, the dividend payable balances were $46,339 and $6,120, respectively. These balances are reflected in the accompanying condensed
(Unaudited)consolidated balance sheet in accrued liabilities
In the eventAs of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the holders of the Series B Preferred Stock shall be entitled to receive, share for share with the holders of shares of Common StockDecember 31, 2020 and Series A Preferred Stock, all the assets of the Corporation of whatever kind available for distribution to stockholders, after the rights of the holders of the Series A Preferred Stock have been satisfied.
In March 2017,September 30, 2020, the Company issued 3,856had 1,000 shares of Series BE Preferred to Jonathan F. Head, Ph. D, the Company’s Chief Executive Officer and a member of the Board of Directors of the Company as provided for in the Contribution Agreement and was recorded as compensation expense. In addition, in March 2017 the Company issued 6,667 shares of Series B Preferred to Banco Actinver for the benefit of the Vitel Stockholders as partial consideration in the exchange for 100% of theStock issued and outstanding capital stockwith stated value of Vitel. (see Note 3).
On February 20, 2019, pursuant to $2,000,000, classified as temporary equity in the Certificate of Designation, the Company exercised its right to redeem 6,667 shares of the Series B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of the Trust Agreement for the benefit of Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 or $0.075 per share of Series B Preferred. As of September 30, 2019, and December 31, 2018, there were 3,856 and 10,523 shares of Series B Preferred issued and outstanding, respectively.accompanying condensed consolidated balance sheets.
Common Stock
Shares issued for cash
Common stock issued for debt conversion
|
Shares issued for cashless exercise of warrants
WarrantsSeries D-1 Preferred Stock into 5,081,550,620 shares of common stock.
Warrants issued pursuant to equity subscription agreementsOn September 24, 2020, the Company converted 4,121.64 shares of Series D-2 Preferred Stock into 41,216,000 shares of common stock.
In 2016, in connection withAs of December 31, 2020 and September 30, 2020, the saleCompany had 5,124,164,690 shares of common stock the Company issued an aggregate of 1,295 five-year warrants to purchase common shares for an exercise price of $225 per common share to investors pursuant to unit subscription agreements. As of September 30, 2019, and December 31, 2018, 1,292 and 1,295 of these warrants were issued and outstanding, respectively.
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
In 2017, in connection with the sale of common stock, the Company issued an aggregate of 6,169 five-year warrants to purchase common shares for an exercise price of $225 per common share to investors pursuant to unit subscription agreements. As of September 30, 2019, and December 31, 2018, 6,169 of these warrants were issued and outstanding.
Outstanding warrants related to equity subscription agreements as of September 30, 2019 are summarized as follows:
| Original warrants issued | Anti-dilution adjustment | Expired, | Total warrants exercised (Cashless exercise) | Outstanding | Exercise 2019 | |||||||||||||||||||
| Warrants related to the 2016 subscription agreements | 1,295 | — | (3 | ) | — | 1,292 | $ | 225 | ||||||||||||||||
| Warrants related to the 2017 subscription agreements | 6,169 | — | — | — | 6,169 | $ | 225 | |||||||||||||||||
| 7,464 | — | (3 | ) | — | 7,461 | |||||||||||||||||||
Warrants issued pursuant to Securities Purchase Agreements
The warrants detailed below, issued pursuant to the Securities Purchase Agreements (see Note 4), have initial exercise price between $15 and $131 (subject to adjustments under certain conditions as defined in the agreements) and includes a down-round provision under which the exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception. It also includes a default provision pursuant to which, these Warrants shall be exercisable at the Default Conversion Price as defined in the related Notes (see Note 4).
Outstanding warrants related to Securities Purchase Agreements as of September 30, 2019 are summarized as follows:
| Original warrants issued | Cumulative Anti-dilutionadjustment | Warrants Agreement | Total warrants exercised (Cashless exercise) | Outstanding | Exercise | |||||||||||||||||||
| November 2016 Warrants | 3,111 | 39,235 | — | (12,099 | ) | 30,247 | $ | 4.50 | ||||||||||||||||
| June 2017 Warrants | 2,074 | 58,423 | — | (20,166 | ) | 40,331 | $ | 4.50 | ||||||||||||||||
| July 2017 Warrants | 6,359 | 99,635 | — | (35,332 | ) | 70,662 | $ | 4.50 | ||||||||||||||||
| January 2018 Warrants | 11,111 | 952,711 | (10,078 | ) | — | 953,744 | $ | 0.23 | ||||||||||||||||
| March 2018 Warrants | 16,667 | 1,429,067 | (15,117 | ) | — | 1,430,616 | $ | 0.23 | ||||||||||||||||
| September 2018 Warrants | 68,056 | 8,694,462 | — | — | 8,762,518 | $ | 0.23 | |||||||||||||||||
| November 2018 Warrants | 6,389 | 816,215 | — | — | 822,604 | $ | 0.23 | |||||||||||||||||
| March 2019 Warrants | 2,778 | 354,867 | — | — | 357,645 | $ | 0.23 | |||||||||||||||||
| April 2019 Warrants I | 1,389 | 177,438 | — | — | 178,827 | $ | 0.23 | |||||||||||||||||
| April 2019 Warrants II | 10,264 | 1,311,267 | — | — | 1,321,531 | $ | 0.23 | |||||||||||||||||
| May 2019 Warrants | 500 | 63,878 | — | — | 64,378 | $ | 0.23 | |||||||||||||||||
| June 2019 Warrants I | 6,458 | 825,087 | — | — | 831,545 | $ | 0.23 | |||||||||||||||||
| June 2019 Warrants II | 5,556 | 352,098 | — | — | 357,654 | $ | 0.23 | |||||||||||||||||
| July 2019 Warrants I | 5,556 | 352,098 | — | — | 357,654 | $ | 0.23 | |||||||||||||||||
| July 2019 Warrants II | 5,556 | 352,098 | — | — | 357,654 | $ | 0.23 | |||||||||||||||||
| August 2019 Warrants | 2,778 | — | — | — | 2,778 | $ | 15.00 | |||||||||||||||||
| September 2019 Warrants | 16,667 | — | — | — | 16,667 | $ | 15.00 | |||||||||||||||||
| 171,268 | 15,878,579 | (25,195 | ) | (67,597 | ) | 15,957,055 | ||||||||||||||||||
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
During the nine months ended September 30, 2018, the Company issued 43,620 shares of its common stock upon the cashless exercise of 47,431 of its warrants. No warrants were exercised during the nine months ended September 30, 2019.
Warrants activities for the nine months ended September 30, 2019 are summarized as follows:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding at December 31, 2018 | 339,619 | $ | 15.75 | |||||||||||||
| Issued in connection with financings | 57,502 | 5.25 | 4.71 | |||||||||||||
| Increase in warrants related to default adjustment | 15,567,398 | 0.23 | 4.10 | |||||||||||||
| Expired | (3 | ) | 225.00 | — | ||||||||||||
| Exercised | — | — | — | |||||||||||||
| Balance Outstanding at September 30, 2019 | 15,964,516 | $ | 0.39 | 4.05 | $ | — | ||||||||||
| Exercisable at September 30, 2019 | 15,964,516 | $ | 0.39 | 4.05 | $ | — | ||||||||||
Stock options
Effective February 18, 2011, our boardthe Company’s Board of directorsDirectors (“Board”) adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of our Company by offering opportunities to directors, key employees, officers, independent contractors and consultants of our Company to acquire and maintain stock ownership in our Company in order to give these persons the opportunity to participate in our Company’s growth and success, and to encourage them to remain in the service of our Company. A total of 57 options to acquire shares of ourthe Company’s common stock were authorized under the 2011 stock option plan and during the 12 month period after the first anniversary of the adoption of the 2011 stock option plan, by our board of directors and duringplan. During each 12 monthtwelve-month period thereafter, our board of directors is authorized to increase the amountnumber of options authorized under this plan by up to 14 shares. No options were granted under the 2011 stock option plan as of September 30, 2019.December 31, 2020.
Stock-option issued during the nine months ended September 30, 2018
On May 8, 2018, the Company granted an aggregate of 23,334 stock options to purchase 23,334 shares of the Company’s common stock at $10.13 per share as follows: 20,000 options were granted to officers and directors of the Company, 667 options were granted to an employee, and 2,667 option to the Company’s scientific advisory board. These options vest in one year from the grant date and expire on May 8, 2028. The fair value of these option grants was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0%; expected volatility of 243%; risk-free interest rate of 2.81%; and, an estimated term based on the simplified method of 5.5 years. In connection with these options, the Company valued these options at a fair value of approximately $233,000 and will record stock-based compensation expense over the vesting term.
Stock-option issued during the nine months ended September 30, 2019
On April 24, 2019 the board of directors of the Company granted an aggregate of 23,130 stock options, outside of the plan, to purchase shares of the Company’s common stock to Dr. Barnett and three non-employee members of the Board, Daniel S. Hoverman, Charles L. Rice and Neal Holcomb.
Pursuant to Dr. Barnett’s employment agreement dated December 26, 2018, Dr. Barnett was granted 11,130 stock options with exercise price of $9.00 per share, vest dates of; (i) 3,710 on January 9, 2020; (ii) 3,710 on January 9, 2021; and (iii) 3,710 on January 9, 2022 and expire on April 24, 2030. The stock options vest so long as the optionee remains an employee of the Company on the vesting date (except as otherwise provided for in the employment agreement between the Company and the optionee). The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model and the Company valued these options at a grant date fair value of $81,803 which will be expensed over the vesting period as stock-based compensation.
The three non-employee members of the Board were each granted 4,000 stock options for a total of 12,000 stock options with exercise price of $7.50 per share, vest date of April 24, 2020 and expires on April 24, 2030. The stock options vest so long as the optionee remains a member of the Board on the vesting date. The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model and the Company valued these options at a grant date fair value of $88,200 which will be expensed over the vesting period as stock-based compensation
During the nine months ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense of $148,053 and $154,068 related to stock options, respectively.
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ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
On April 28, 2020, the Board approved the 2020 Equity Incentive Plan (the “Plan”), as amended on May 29, 2020. The Company usesPlan shall be effective upon approval by the Black-Scholes pricing model to determineStockholders which shall be within twelve (12) months after the fair value of its stock options which requires the Company to make several key judgments including:
The Company’s computationapproval of the expected lifeBoard. No Incentive Stock Option shall be exercised unless and until the Plan has been approved by the Stockholders. Upon the effective date of issued stock options was basedthe Plan and the effectiveness of the authorized share increase, which occurred on the simplified method as the Company does not have adequate exercise experience to determine the expected term. The interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The computation of volatility was based on the historical volatilitySeptember 24, 2020, 3,043,638,781 shares of the Company’s common stock.
At September 30, 2019, therestock were 52,730reserved 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 110% of the fair market value of a share on the grant date. As of December 31, 2020, the 2020 Equity Incentive Plan has not yet been approved by the shareholders and the Company had no options issued and outstanding out of which 29,600 options were vested(see Note 10).
Warrants
On June 5, 2020, in connection with the Asset Sale Transaction and exercisable. As of September 30, 2019, there was $109,728 of unvested stock-based compensation expenserecapitalization, the company issued 656,674,588 new warrants to be recognized through April 24, 2020.the same subscriber in exchange for the previously issued warrants. The aggregate intrinsic valuenew warrants are exercisable immediately at September 30, 2019 was $0 which was calculated based on the difference between the quoted share price on September 30, 2019 and thean exercise price of the underlying options.$0.00214 and expire on November 27, 2024.
Stock optionOn June 5, 2020, in connection with the Asset Sale Transaction and the recapitalization transaction, the Company is deemed to have 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 expires on September 5, 2025.
Warrants activities for the ninethree months ended September 30, 2019 areDecember 31, 2020 is summarized as follows:
Number of | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate | |||||||||||||
| Balance Outstanding at December 31, 2018 | 29,600 | $ | 45.00 | |||||||||||||
| Granted | 23,130 | $ | 9.00 | 10.57 | ||||||||||||
| Expired | — | $ | — | — | ||||||||||||
| Balance Outstanding at September 30, 2019 | 52,730 | $ | 30.84 | 9.34 | $ | — | ||||||||||
| Exercisable at September 30, 2019 | 29,600 | $ | 47.91 | 8.37 | $ | — | ||||||||||
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Warrants | Price | Term (Years) | Value | |||||||||||||
| Balance Outstanding at September 30, 2020 | 856,674,588 | $ | 0.002 | 4.59 | $ | — | ||||||||||
| Granted | — | — | — | — | ||||||||||||
| Balance Outstanding at December 31, 2020 | 856,674,588 | $ | 0.002 | 4.09 | $ | — | ||||||||||
| Exercisable at December 31, 2020 | 656,674,588 | $ | 0.002 | 4.09 | $ | — | ||||||||||
As of December 31, 2020 and September 30, 2020, the Company had 856,674,588 warrants issued and outstanding.
NOTE 910 –COMMITMENTSCOMMITMENT AND CONTINGENCIES
Employment Agreements
Michael Ruxin, M.D.
On February 2, 2016,June 5, 2020, the Company and Dr. Michael Ruxin entered into an employment agreement with Jonathan F. Head, Ph.D. (“(the “Ruxin Employment Agreement”) for Dr. Head”)Ruxin to serve as the Company’s Chief Executive Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019)President and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days prior to the automatic renewal date. director (see Note 3).
The employment agreement with Dr. HeadRuxin Employment Agreement provides that Dr. Head’s salaryRuxin will be employed for calendara five-year term commencing on June 5, 2020. The term will be automatically extended for one additional year 2016 shall be $275,000 and for calendar year 2017 and for each calendar year thereafter duringupon the termfifth anniversary of the employmenteffective date without any affirmative action, unless either party to the agreement with Dr. Head shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Dr. Head for the immediately preceding calendar year.
On February 2, 2016, the Company entered into an employment agreement with Andrew Kucharchuk (“Mr. Kucharchuk) to serve as the Company’s President and Chief Financial Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019) and renews automatically for one year periods unless aprovides at least sixty (60) days’ advance written notice of termination is provided not less than 120 days prior to the automatic renewal date. The employment agreement with Mr. Kucharchuk providesother party that Mr. Kucharchuk’s salary for calendar year 2016 shall be $200,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment agreement with Mr. Kucharchuk shallperiod will not be extended. Dr. Ruxin will be entitled to receive an amount determined by the Boardannual base salary of Directors, which in no event shall be less than the annual salary that was payable by the Company to Mr. Kucharchuk for the immediately preceding calendar year.
The above executives shall$300,000 and will be eligible for an annual targetdiscretionary bonus payment in an amount equalof 150% of such base salary. In the Ruxin Employment Agreement, Dr. Ruxin is also promised, subject to ten percent of his base salary (“Bonus”). The Bonus is determined based on the achievement of certain performance objectivesapproval of the Company as established byBoard or a committee thereof, and under the Board2020 Equity Incentive Plan (i) a one-time grant of Directors. The Bonus may49,047,059 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 greater or less thansubject to the target Bonus, based on the level of achievementterms and conditions of the applicable performance objectives.
Effectiveaward agreements 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 December 26, 2018,31, 2020, the Company replaced Dr. Jonathan HeadRSUs and appointed Dr. Brian Barnett as the new Chief Executive Officer. Dr. Head will continue to serve the Company as the Chairman ofoptions have not yet been granted or issued since the Board of Directorshas not yet approved the grants and now as its Chief Scientific Officer effective December 26, 2018.the 2020 Equity Incentive Plan has not been approved by the shareholders. Further, the board and Dr. Head is still negotiatingRuxin have not yet agreed on the terms of his new employment agreement for his new position as the Chief Scientific Officer, with the Company, as of the date of this report.options.
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ONCBIOMUNE PHARMACEUTICALS,THERALINK TECHNOLOGIES, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019DECEMBER 31, 2020
(Unaudited)(UNAUDITED)
Dr. Ruxin is an “at-will” employee and his employment may be terminated by the Company at any time, with or without cause. In the event Dr. Ruxin’s employment is terminated by the Company without Cause (as defined in the Ruxin Agreement), with Good Reason (as defined in the Ruxin Agreement) or as a result of a non-renewal of the term of employment under the Ruxin Agreement, Dr. Ruxin shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Dr. Ruxin prior to the date of termination. Dr. Ruxin shall be entitled to reimbursement of any COBRA payment made during the 18-month period following the date of termination.
The Ruxin Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.
Jeffrey Busch
On December 26, 2018, Dr. BarnettJune 5, 2020, the Company and Jeffrey Busch entered into an employment agreement with us (“Barnett(the “Busch Employment Agreement”) for Mr. Busch to serve as the Company’s Chief Executive Officer for a termChairman of three years (from December 26, 2018 through December 26, 2021) that renews automatically for one year periods unless a written noticethe Board of termination is provided not less than 180 days prior to the automatic renewal date. Directors (see Note 3).
The BarnettBusch Employment Agreement provides that Dr. Barnett’sMr. 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 49,047,059 Restricted Stock (“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. 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 December 31, 2020, 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 December 31, 2020 and September 30, 2020, the Company has accrued director compensation of $87,500 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 2019 shall be $250,000 and for each(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 thereafterthrough 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 Barnett Employment Agreement shall be an amount determined byemployment agreement and in the Boardevent of Directors, which in no event shall be less thantermination, for a period of one year thereafter, (b) prohibiting the annual salary that was payable byexecutive from disclosing confidential information regarding the Company, to Dr. Barnettand (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for the immediately preceding calendar year.a period of one year thereafter.
Dr. Barnett is also
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 a performance-based bonus of up to $150,000 upon completion of specific metrics established bythe following bonuses: $5,000 if the Company’s Boardnext 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 Directorsat 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. Pursuant to the employment agreement, the CompanyThe offer letter also provides that Mr. Chilcott will also grant optionsbe granted an option to purchase a number ofup to 94,545,096 shares of the Company’s common stock equalsubject to $100,000 dividedterms including exercise price to be set by the volume weighted average priceBoard of Directors of the Company’s commonCompany. As of December 31, 2020, no bonus was due and no options have been granted to Mr. Chilcott.
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THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(UNAUDITED)
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) 88,786,943 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 (10) business days priorwritten 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 dateupon receipt of the employment agreement. The option grant is subject to continued employment, and will vest ratably over the first three anniversary datessame. As of the grant date. On April 24, 2019, Dr. Barnett was granted 11,130 stock options with exercise price of $9.00 per share, vest dates of; (i) 3,710 on January 9, 2020; (ii) 3,710 on January 9, 2021; and (iii) 3,710 on January 9, 2022 and expire on April 24, 2030. The stock options vest so long as the optionee remains an employee of the Company on the vesting date (except as otherwise provided for in the employment agreement betweenDecember 31, 2020, the Company and the optionee)consultants have not agreed on the terms of the 88,786,943 stock options and therefore these stock options are not considered granted by the Company. Further, as of December 31, 2020, the 2020 Equity Incentive Plan has not yet been approved by the shareholders.
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) 77,972,192 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 December 31, 2020, the Company and the consultants have not agreed on the terms of the 77,972,192 stock options and therefore these stock options are not considered granted by the Company. Further, as of December 31, 2020, the 2020 Equity Incentive Plan has not yet been approved by the shareholders.
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 December 31, 2020 and September 30, 2020, the Company has accrued royalty fees of $848 and $832, respectively, reflected in the accompanying condensed 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 December 31, 2020 and September 30, 2020, the Company has accrued royalty fees of $21,080 and $19,834, respectively, reflected in the accompanying condensed consolidated balance sheet in accrued liabilities.
Employee Incentive Stock Options
In June 2020, in connection with the Asset Sale Transaction (see Note 8)3), the Company planned to issue approximately 1.8 billion stock options to employees, which include options in the employment agreements discussed above. As of December 31, 2020, these stock options had not yet been granted by the Company.
Lease
In December 2019, the Company entered into an agreement to lease 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).
Additionally,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 December 31, 2020 and September 30, 2020, the Company recorded a contingent liability of $65,840 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 December 31, 2020 and September 30, 2020 and accrued interest payable of $25,840 and $24,040 as of December 31, 2020 and September 30, 2020, respectively.
NOTE 11 – SUBSEQUENT EVENTS
Sale of Common Stock
From February 16, 2021 through April 14, 2021, the Company, entered into Subscription Agreements with fourteen 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. The shares of commons stock sold by the Company under these Subscription Agreements were in reliance upon an exemption from the closingregistration requirements of a transaction during calendar year 2019 which resultsthe 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 salepublic in connection with this offering. The common stock has not yet been issued as of the date of this report the as the Company is unable to issue shares of common stock until it is current with all its SEC reporting requirements.
Note Agreements
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 terms acceptableApril 1, 2022 and can be prepaid in whole or in part without penalty. Pursuant to the Board that provides net proceeds toNote, 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 no less than $4,000,000 (a “Qualifying Transaction”the outstanding principal balance and cost of collection, including legal fees.
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THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(UNAUDITED)
On May 12, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”), Dr. Barnett shall be granted options with an affiliated investor (the “Investor”) to purchase a numberconvertible note (the “Note”) and accompanying warrant (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 $50,000 divided by$0.00313 per share for any amount of principal and accrued interest remaining outstanding (subject to adjustment as provided therein). The Note had a beneficial conversion feature in the transaction priceamount of $15,800 which was recorded as debt discount to be amortized over the life of the Company’s common stockNote. The Company may prepay the Note at any time in the Qualifying Transaction. The option grant is subjectan amount equal to continued employment, and will vest ratably over the first three anniversary dates110% of the date of the closing of the Qualifying Transaction.
Lease
Effective September 1, 2015, the Company leases its facilities under a non-cancelable operating lease which expires on August 31, 2020. The Company has the right to renew certain facility leases for an additional five years. Rent expense is $3,200 base rent per month plus operating expense and other fees (see Note 6).
NOTE 10 -SUBSEQUENT EVENTS
Conversion of Convertible Debt:
Subsequent to September 30, 2019, The Purchasers converted $25,875 and $313 of outstanding principal balance and interest into 186,849accrued interest. In connection with the Note, the Investor was issued a Warrant to purchase up to 63,897,764 shares of common stock.
Subsequentstock at an exercise price of $0.00313 per share (subject to September 30, 2019,adjustment as provided therein) until May 12, 2026. The Warrants are exercisable for cash at any time. The 63,897,764 stock warrants were valued at $984,200 using the relative fair value method which was recorded as a debt discount to be amortized over the life of the Note. In connection with the Company’s obligations under the Note, the Company entered into financing agreements:a security agreement (the “Security Agreement”) with Ashton Capital Corporation as agent, pursuant to which the Company granted a lien on certain pieces of 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.
Amendment to Lease
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. 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.
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.
Certificate of Designation of 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 $0.0001 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 1). The holders of shares of Series F Preferred Stock have the following preferences and rights:
| ● | ||
| ● | Holders of shares of Series F Preferred Stock are entitled to dividends or distributions on each share on an “as converted” into common stock basis, if, as and when declared from time to time by the Board of Directors. | |
| ● | Each share of Series F Preferred Stock is convertible into shares of common stock any time after the initial issuance date at the Conversion Price which is the lesser of: (i) $0.00313 or (ii) 75% of the average closing price of the common stock during the prior five trading days on the principal market, subject to adjustment as provided in the Series F Certificate of Designation including a price protection provision for offerings below the conversion price. Provided, however, the Conversion Price shall never be less than $0.0016. The number of shares of common stock issuable upon conversion shall be determined by multiplying the number of outstanding shares by the stated value per share of $2,000 plus any additional amount and dividing the total by the Conversion Price. | |
| ● | In connection with, (i) a |
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THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(UNAUDITED)
| ● | In the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance (as defined in the Series F Certificate of Designation), at a price, an exercise price or conversion price of less than the conversion price, then upon such issuance or sale, the Series F Preferred Stock conversion price shall be reduced to the sale price, or the exercise price or conversion price of the securities sold. |
| ● | Series F Preferred Stock shall rank pari passu with respect to preferences to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Corporation with the Series C-1 Preferred Stock of the Corporation, the Series C-2 Preferred Stock of the Corporation, and the Series E Preferred Stock of the Corporation (the “Parity Stock”), and all other shares of capital stock of the Corporation shall be junior in rank to all Series F with respect to the preferences as to dividends (except for the |
Sale of Series F Preferred Stock
On July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an 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”) and accompanying warrant (the “Warrant”) for an aggregate investment amount 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 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 Warrants shall be valued using the relative fair value method.
Series E Price Reduction
The Series F Preferred Stock, that was issued on July 30, 2021, 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.
Legal Action
On July 1, 2021, 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. The plaintiffs are seeking a $1 million award. The Company and Dr. Ruxin were named it the lawsuit. The Company believes these claims are without merit and intends to defend these 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.
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 of 2021, certain of those investors exercised their options to purchase the shares of OncBioMune Sub Inc. On July 26, 2021, the Company transferred all 10,000 shares of OncBioMune Sub Inc. held by the Company to the investors.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This quarterly report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are set forth in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC on April 1, 2019.
We caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
The following discussion should be read in conjunction with our condensed consolidatedhistorical financial statements. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see Part II, Item 1A of this Quarterly Report on Form 10-Q, “Risk Factors,” and the related notes that appear elsewhererisk factors included in this quarterly reportour September 30, 2020, Annual Report on Form 10-Q.
10-K.
Overview
Special Note Regarding COVID-19
In December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread of the virus had resulted in a world-wide pandemic. The U.S. economy was largely shut down by mass quarantines and government mandated stay-at-home orders (the “Orders”) to halt the spread of the virus. These Orders have required some of our employees to work from home when possible, and other employees have been entirely prevented from performing their job duties until the Orders are relaxed or lifted. The COVID-19 pandemic has required alternative selling approaches such as through social media. We aremay be unable to avoid future reductions in net revenue using these alternative selling approaches that avoid direct contact with our customers. The world-wide response to the pandemic has resulted in a biotechnology company specializingsignificant downturn in innovative cancer treatment therapies. Weeconomic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. If an economic recession or depression is sustained, it could have proprietary rights to an immunotherapy platform with an initial concentrationa material adverse effect on prostate and breast cancers that can also be used to fight any solid tumor. Additionally, we have targeted therapies. Our mission is to improveour business as demand for our technology could decrease.
While some of these Orders were relaxed or lifted in different jurisdictions at various times during the three months ended December 31, 2020, the overall patient condition through innovative bio-immunotherapy with proven treatment protocols,impact of COVID-19 continues to lower deaths associated with cancerhave an adverse impact on business activities around the world. There is no assurance that Orders that were previously relaxed or lifted will not be reinstated as the spread of COVID-19 continues. For example, many jurisdictions have recently reinstated masking orders after test results have showed a resurgence of the pandemic. Resurgence of the pandemic in some markets has slowed the reopening process of businesses in those areas, including Europe where additional lockdowns have been recently reinstated. If COVID-19 infection trends continue to reverse and to reduce the cost of cancer treatment. Our technology is safe,pandemic intensifies and utilizes clinically proven research methods of treatment to provide optimal success of patient recovery.
expands geographically, its negative impacts on our sales could be more prolonged and may become more severe. The long-term financial impact on our business cannot be reasonably estimated at this time.
Financial Highlights
Overview
ForTheralink is a commercial-stage precision medicine and molecular data-generating company that focuses on the nine months ended September 30, 2019,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. Our near-term goal is to commercialize the technology originally developed by Theranostics, a company whose assets we utilized $831,284acquired in May 2016. The company differentiates itself by:
| ● | An exclusive license agreement with George Mason University (“GMU”), that has well-published scientists in our area of expertise. | |
| ● | Having access to the Ph.D.’s at GMU who have completed pioneering work in phosphoproteomic-based biomarkers diagnostics. | |
| ● | Domain expertise in cancer biomarker and data-generating laboratory testing data. | |
| ● | Development of proprietary, cutting edge assays focused on precision oncology care. | |
| ● | Building revenue streams based on our proprietary technology Theralink. | |
| ● | Having a patent portfolio licensed from GMU and the NIH. |
Theralink is advancing its patented, proprietary technology in the field of phosphoproteomic research, a sector which has emerged as one of the most exciting new components in the high-growth field of precision molecular diagnostics. The Theralink platform makes it possible to fund our operations, comparedgenerate an accurate and comprehensive portrait of protein pathway activation in diseased cells from each patient, and thereby determining which individuals may be better responders to $1,296,789certain targeted molecular therapies. The platform enables the quantitative measurement of the level of activation. Moreover, the sensitivity is many times greater than conventional mass spectrometry and other protein immunoassays. Initially spun-out of GMU in 2006, and subsequently brought to the federal government’s Center for Medicare & Medicaid Services’ (“CMS”) Clinical Laboratory Improvement Amendments (“CLIA”) standards, the nine months ended September 30, 2018. For the nine months ended September 30, 2019, we received net cashdiagnostics suite is highly relevant for oncology patient management today that may improve (i) chemotherapy drug selection; (ii) immunotherapy drug selection; and (iii) optimization of $967,170 from financing activities. As a result, our net cash position increased by $135,886 during the nine months ended September 30, 2019.combination therapy selection.
Operating expenses forThe biomarker and data-generating tests may provide biopharmaceutical companies, clinical scientists and physicians with molecular-based guidance as to which patients may benefit from the nine months ended September 30, 2019 were $1,487,520, comparednew, molecular targeted therapeutics being developed and used to $1,283,269 fortreat various life-threatening oncology diseases, as well as existing treatment standards that are recognized as the nine months ended September 30, 2018. The increase in operating expenses is attributable to an increase in research and development expensesstandard of $60,356 primarily due to increase in activity in our ProscaVax™ clinical trials, an increase in compensation expense of $165,876 primarily attributed to increase in stock-based compensation. Our general and administrative expenses also increased by $21,828, primarily as a result of an increase in other general and administrative expenses offset by a decrease in professional fees of $43,809.
We expect our research and development expenses will continue to increase as our ProscaVax™ clinical trials continue to progress.
For the nine months ended September 30, 2019 we had net (loss) of $(7,048,361) or $(14.71) per share, as compared to a net income of $3,964,312, or $13.26 per sharecare in the nine months ended September 30, 2018. The change was primarily dueoncology treatment community. This addresses the changes incore aspect of precision treatment today – identifying which individuals are more likely to respond to specific targeted molecular therapies, thus forming the valuationbasis for the initial fair value and changes in fair value of derivative liabilities from a gain in 2018 of $4,995,597 to a (loss) of $(4,053,257) in 2019.personalized medicine.
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The technology is based upon the pioneering work of three noted scientists, Drs. Lance Liotta, Emanuel Petricoin and Virginia Espina in proteomic-based diagnostics. Avant benefits from a portfolio of intellectual property derived from licensing agreements with:
| The US Public Health Service (“PHS”), the federal agency that supervises the National Institutes of Health (“NIH”), which provides us with broad protection around its technology platform; and | ||
| ● | GMU which provides access to additional intellectual property around improvements to the technology platform and biomarker signatures that form the basis for future diagnostic products. |
Theralink is committed to advancing the technologies from GMU and the NIH as a platform for the development of new clinical biomarkers and diagnostics. These diagnostic and monitoring products have the potential to provide biopharmaceutical companies and doctors with critical molecular-based knowledge to make the best therapeutic decisions based on a patient’s unique, individual medical needs.
Our plan of operation over the next 12 months is to:
| ● | Continue to validate the Theralink cancer biomarker technology under CAP/CLIA standards to provide personalized medicine regarding treatment options for biopharmaceutical companies, clinical oncologists and their cancer patients; | |
| ● | Grow revenue generated from pharmaceutical companies. | |
| ● | Complete partnerships with pharmaceutical companies to perform oncology-related data-generating testing services to create revenue; and | |
| ● | Continue to seek financing to grow the company. |
Results of Operations
Comparison for Three Months Ended December 31, 2020 and 2019
Three and Nine months Ended September 30, 2019 Compared to Three and Nine months Ended September 30, 2018Revenue
| ● | For the three months ended December 31, 2020 and 2019, total revenue was $9,790 and $0, respectively, an increase of $9,790 or 100%. The increase was primarily attributable to services performed under research and development contracts for pharmaceutical companies during the three months ended December 31, 2020. |
Operating Revenue,
Costs of Revenues and Gross Margin
| ● | For the three months ended December 31, 2020 and 2019, cost of revenue was $1,603 and $0, respectively, an increase of $1,603 or 100%. The increase was primarily attributable to the increase in revenue discussed above. |
We did not generate any revenues from continuing operations for the three and nine months ended September 30, 2019 and 2018.
Gross Profit
| ● | For the three months ended December 31, 2020 and 2019, gross margin was $8,187 and $0, respectively, an increase of $8,187 or 100%. The increase was primarily attributable to the increase in revenue and cost of revenue discussed above. |
Operating Expenses
For the three months ended September 30, 2019 operatingDecember 31, 2020 expenses from operations amounted to $409,880$1,620,740 as compared to $493,485$528,269 for the three months ended September 30, 2018, a decrease of $83,605, or 17%.
For the nine months ended September 30,December 31, 2019, operating expenses from operations amounted to $1,487,520 as compared to $1,283,269 for the nine months ended September 30, 2018, an increase of $204,251,$1,092,471, or 16%207%.
For the three and nine months ended September 30,December 31, 2020 and 2019, and 2018, operating expenses consisted of the following:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended December 31, | ||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
| Professional fees | $ | 140,680 | $ | 207,876 | $ | 479,860 | $ | 523,669 | $ | 197,254 | $ | 91,333 | ||||||||||||
| Consulting fee - related party | — | 45,250 | ||||||||||||||||||||||
| Compensation expense | 214,387 | 233,072 | 705,803 | 539,927 | 590,175 | 215,766 | ||||||||||||||||||
| Research and development expense | 8,825 | 16,316 | 161,453 | 101,097 | ||||||||||||||||||||
| Licensing fees | 30,172 | 13,320 | ||||||||||||||||||||||
| General and administrative expenses | 45,988 | 36,221 | 140,404 | 118,576 | 803,139 | 162,600 | ||||||||||||||||||
| Total | $ | 409,880 | $ | 493,485 | $ | 1,487,520 | $ | 1,283,269 | $ | 1,620,470 | $ | 528,269 | ||||||||||||
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Professional fees:fees
For the three months ended September 30, 2019, professional fees decreased by $67,196 or 32%, as compared to the three months ended September 30, 2018. The decrease was primarily attributable to a decrease in accounting and audit fees of approximately $3,611, a decrease
| ● | For the three months ended December 31, 2020, professional fees increased by $105,921 or 116%, compared to the three months ended December 31, 2019. The increase was primarily attributable to an increase in accounting fees of $30,059, an increase in consulting fees of $52,547 and an increase in IT services of $22,814. |
Consulting fee and investor relations of $42,674 and a decrease in legal fees of $20,911.- related party
For the nine months ended September 30, 2019, professional fees decreased by $43,809 or 8%, as compared to the nine months ended September 30, 2018. The decrease was primarily attributable to a decrease in accounting and audit fees of approximately $35,136 and a decrease in consulting fee and investor relations of $89,208 offset by an increase in legal fees of $80,535.
| ● | For the three months ended December 31, 2020, consulting fee - related party decreased by $45,250 or 100%, compared to the three months ended December 31, 2019. The decrease was the result of the Company terminating the consulting agreements with AVDX Investors Group, whose partner is on our board of directors, in May 2019 and International Infusion whose principal owner served as an officer of the Company in December 2019. |
Compensation expense:expense
For the three months ended September 30, 2019, compensation expense decreased by $18,715 or 8%, as compared to the three months ended September 30, 2018. The decrease was attributable to a decrease in stock-based compensation of $79,076 offset by an increase in administrative compensation of $60,361 which was a result of hiring a new CEO in December 2018.
For the nine months ended September 30, 2019, compensation expense increased by $165,876 or 31%, as compared to the nine months ended September 30, 2018. The increase was attributable to an increase in administrative compensation of $171,891 which was a result of hiring a new CEO in December 2018 offset by a decrease in stock-based compensation of $6,015 and.
| ● | For the three months ended December 31, 2020, compensation expense increased by $374,409 or 174%, as compared the three months ended December 31, 2019. The increase was attributable to an increase in administrative compensation and related expenses of $359,832 and an increase in employee benefits of $14,577 resulting from an increase of employees in 2021. |
Research and development expense:Licensing fees
For the three months ended September 30, 2019, research and development expense decreased by $7,491 or 46%, as compared to the three months ended September 30, 2018 related to a decrease in research activities related to ProscaVax™ clinical trials.
For the nine months ended September 30, 2019, research and development expense increased by $60,356 or 60%, as compared to the nine months ended September 30, 2018 related to an increase in research activities related to ProscaVax™ clinical trials.
| ● | For the three months ended December 31, 2020, licensing fees increased by $16,852 or 127%, as compared the three months ended December 31, 2019. |
General and administrative expenses:expenses
For the three months ended September 30, 2019, general and administrative expenses increased by $9,767 or 27%, as compared to the three months ended September 30, 2018. The increase was primarily due an increase in in travel and entertainment, rent expense and other general and administrative expenses.
For the nine months ended September 30, 2019, general and administrative expenses increased by $21,828 or 18%, as compared to the nine months ended September 30, 2018. The increase was primarily due an increase in in travel and entertainment, rent expense and other general and administrative expenses.
| For the three months ended December 31, 2020, general and administrative expenses increased by $640,539 or 394%, as compared to the three months ended December 31, 2019. The increase was primarily due to an increase in biological expenses of $109,455, an increase in repairs and maintenance of $21,106, an increase in sample analysis of $275,000, an increase in depreciation expense of $27,988, an increase in laboratory supplies of $172,958 and an increase in insurance expense of $28,939. The increase was a result of an increase in revenue producing activities in 2020. |
Loss from Operations
| ● | For the three months ended December 31, 2020, the loss from operations amounted to $1,612,553 as compared to $528,269 for the three months ended December 31, 2019, an increase of $1,084,284, or 205%. The increase was primarily a result of greater operating expenses as discussed above. |
Loss from OperationsOther Income (Expense)
| ● | For the three months ended December 31, 2020, we had total other income, net of $192,778 as compared to total other (expense), net of $(13,103) for the three months ended December 31, 2019, a positive change of $205,881 or 1,571%. This change was primarily due to an increase in interest expense of $527, an increase in unrealized loss on exchange rate of $22,686 offset by a decrease in unrealized loss on market securities of $1,800 and an increase in gain on debt extinguishment of $227,294. |
For the three months ended September 30, 2019 operating expenses from operations amounted to $409,880 as compared to $493,485 for the three months ended September 30, 2018, a decrease of $83,605, or 17%. The decreases are primarily a result of a decrease in operating expenses discussed above.
Net Loss
| ● | For the three months ended December 31, 2020, net loss attributable to common stockholders amounted to $1,419,775, or $(0.00) per share (basic and diluted), compared to $541,372 for the three months ended December 31, 2019, an increase of $878,403 or 162%. |
For the nine months ended September 30, 2019 operating expenses from operations amounted to $1,487,520 as compared to $1,283,269 for the nine months ended September 30, 2018, an increase of $204,251, or 16%. The increases are primarily a result of an increase in operating expenses discussed above.Preferred Stock Dividend
Other Income (Expense)
For the three months ended September 30, 2019, we had total other expense of $577,898 as compared to $151,048 for the three months ended September 30, 2018, an increase of $426,850 or 283%. This change was primarily due to the recording of a loss from the fair value of derivative liabilities of $523,595 in the 2019 period as compared to $860,084 in the 2018 period, a decrease of $336,489 or 39%. Additionally, during the three months ended September 30, 2019, we recorded a (loss) on debt extinguishment of $(46) as compared to a gain of $1,359,128 for the three months ended September 30, 2018. The total other (expense) income was offset by a decrease in interest expense of $595,835 related to interest-bearing debt and default interest.
For the nine months ended September 30, 2019, we had total other (expense) of $(5,560,841) as compared to other income of $5,247,581 for the nine months ended September 30, 2018, a change of $10,808,422 or 206%. This change was primarily due to the recording of a loss from the fair value of derivative liabilities of $(4,053,257) in the 2019 period as compared to a gain from the fair value of derivative liabilities of $4,495,597 in the 2018 period, a change of $8,548,854 or 190%. Additionally, during the nine months ended September 30, 2019, we recorded a (loss) on debt extinguishment of $(76,331) as compared to a gain of $2,109,621 for the nine months ended September 30, 2018. The total other income (expense) was offset by an increase in interest expense of $39,983 related to an increase in interest-bearing debt and default interest and decrease in foreign currency translation of $33,633.
Net (loss) income
For the three months ended September 30, 2019, loss from continuing operations amounted to $987,778, or $0.00 per share (basic and diluted), compared to $644,533, or $1.97 per share (basic and diluted) for the three months ended September 30, 2018, a change of $343,245 or 53%.
For the nine months ended September 30, 2019, (loss) from continuing operations amounted to $(7,048,361), or $(0.02) per share (basic and diluted), compared to an income of $3,964,312, or $13.26 per share (basic and diluted) for the nine months ended September 30, 2018, a change of $11,012,673 or 278%.
Foreign currency translation loss
The functional currency of our former subsidiaries operating in Mexico is the Mexican Peso (“Peso”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of unrealized foreign currency translations gain (loss), which are a non-cash adjustment, we reported unrealized foreign currency translation gain (loss) of $0 for both the three and nine months ended September 30, 2019 as compared to unrealized foreign currency translation gain (loss) of $0 and $(25,184) for the three and nine months ended September 30, 2018, respectively. This non-cash loss had the effect of decreasing our reported comprehensive loss.
Comprehensive (loss) income
As a result of our unrealized foreign currency translation gain (loss), we had comprehensive loss of $987,778 for the three months ended September 30, 2019, compared to $644,553 for the three months ended September 30, 2018.
As a result of our unrealized foreign currency translation gain (loss), we had comprehensive (loss) of $(7,048,361) for the nine months ended September 30, 2019, compared to comprehensive income of $3,939,128 for the nine months ended September 30, 2018.
| ● | For the three months ended December 31, 2020, the Company recorded dividend on the Series E Preferred stock of $40,219. |
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 a working capital deficit of $13,718,635$621,266 and cash of $136,087$544,098 as of December 31, 2020 and working capital of $877,234 and $1,779,283 of cash as of September 30, 2019 and a working capital deficit of $7,557,621 and $201 of cash as of December 31, 2018.2020.
| Nine Months Ended September 30, 2019 | December 31, 2020 | September 30, 2020 | Change | Percentage Change | ||||||||||||||||||||||||||||
| September 30, 2019 | December 31, 2018 | Change | Percentage Change | |||||||||||||||||||||||||||||
| Working capital deficit: | ||||||||||||||||||||||||||||||||
| Working capital (deficit): | ||||||||||||||||||||||||||||||||
| Total current assets | $ | 371,379 | $ | 215,882 | $ | 155,497 | 72 | % | $ | 799,523 | $ | 2,067,971 | $ | (1,268,448 | ) | 61 | % | |||||||||||||||
| Total current liabilities | (14,090,014 | ) | (7,773,503 | ) | (6,316,511 | ) | 81 | % | (1,420,789 | ) | (1,190,737 | ) | (230,052 | ) | 19 | % | ||||||||||||||||
| Working capital deficit: | $ | (13,718,635 | ) | $ | (7,557,621 | ) | $ | (6,161,014 | ) | 82 | % | |||||||||||||||||||||
| Working capital (deficit): | $ | (621,266 | ) | $ | 877,234 | $ | (1,498,500 | ) | 171 | % | ||||||||||||||||||||||
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The increasedecrease in working capital deficit was primarily attributableattributed to an increasethe decrease in current assets of $155,497$(1,268,448) and anthe increase in current liabilities of $6,316,511, including an increase$230,052.
Cash Flows
The following table sets forth a summary of changes in derivative liabilities of $4,113,462.cash flows for the three months ended December 31, 2020 and 2019:
| Three Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net cash used in operating activities | $ | (1,146,973 | ) | $ | (680,689 | ) | ||
| Net cash used in investing activities | (88,212 | ) | (323,717 | ) | ||||
| Net cash provided by financing activities | — | 2,155,241 | ||||||
| Net change in cash | $ | 1,235,185 | $ | 1,150,835 | ||||
Cash Flows
Changes in our cash balance are summarized as follows:
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Cash used in operating activities | $ | (831,284 | ) | $ | (1,296,789 | ) | ||
| Cash provided by financing activities | 967,170 | 1,345,691 | ||||||
| Net increase in cash | $ | 135,886 | $ | 48,902 | ||||
Net Cash Used in Operating Activities
Net cash flow used in operating activities was $831,284$1,146,973 for the ninethree months ended September 30, 2019December 31, 2020, as compared to $1,296,789$680,689 for the ninethree months ended September 30, 2018, a decreaseDecember 31, 2019, an increase of $465,505,$466,284, or 36%69%.
| ● | Net cash | |
| ● | Net cash |
Net Cash Used in Investing Activities
Net cash used in investing activities was $88,212 for the three months ended December 31, 2020, as compared $323,717 for the three months ended December 31, 2019, a decrease of $235,505, or 73%.
| ● | Net cash used in investing activities for the three months ended December 31, 2020, resulted from the purchase of property and equipment of $88,712 offset by an adjustment related to a prior period redemption payment of $(500). | |
| ● | Net cash used in investing activities for the three months ended December 31, 2019, resulted from the purchase of property and equipment of $323,717. |
Net Cash Provided by Financing Activities
Net cash flow provided by financing activities was $967,170$0 for the ninethree months ended September 30, 2019December 31, 2020, as compared to $1,345,691$2,155,241 for the ninethree months ended September 30, 2018,December 31, 2019, a decrease of $378,521,$2,155,241, or 28%100%.
| ● | Net cash provided by financing activities for the | |
Cash Requirements
Our managementManagement 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.
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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 unaudited condensed consolidated financial statements, the Company had net (loss) from continuing operations of $(7,048,361) for the nine months ended September 30, 2019. Theloss and net cash used in operations was $831,284of $1,419,775 and $1,146,973, respectively, for the ninethree months ended September 30, 2019.December 31, 2020. Additionally, the Company had an accumulated deficit, of $24,236,025 at September 30, 2019stockholders’ deficit and had a working capital deficit of $13,718,635$44,647,582, $1,767,089 and $621,266, respectively at September 30, 2019, had no revenues from continuing operations since inception, and is currently in default on certain convertible debt instruments.December 31, 2020. 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.
ManagementThe Company cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management believes that ourAdditionally, the current capital resources are not currently adequate to continue operating and maintaining itsthe 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/orand 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 condensed 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.
Current and Future Financings
Loans Payable
From June 2017 to September 2017, we entered into loan agreements with several third parties (the “Loans”). Pursuant to the loan agreements, we borrowed an aggregate principal amount of $538,875. The Loans bear interest at an annual rate of 33.3%, are unsecured and are currently in default. As of September 30, 2019, the loan principal balance and accrued interest payable amounted to $538,875 and $384,993, respectively, with an aggregate outstanding balance of $923,868.
November 2016 Financing
On November 23, 2016, the Company entered into an Amended and Restated Securities Purchase Agreements with three institutional investors for the sale of the Company’s convertible notes and warrants which was fully converted in 2018.
As of September 30, 2019, there were 30,247 warrants outstanding under the November 2016 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
June 2017 Financing
On June 2, 2017, the Company entered into the Second Securities Purchase Agreement with the Purchasers for the sale of the Company’s June 2017 Notes and June 2017 Warrants.
As of September 30, 2019, the June 2017 Notes had outstanding principal and accrued interest of $1,495 and $0, respectively and are currently bearing interest at the default interest rate of 24% per annum.
As of September 30, 2019, there were 40,331 warrants outstanding under the June 2018 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
July 2017 Financing
On July 26, 2017, the Company entered into the Third Securities Purchase Agreement with the Purchasers for the sale of the Company’s July 2017 Notes and July 2017 Warrants.
As of September 30, 2019, the July 2017 Notes had outstanding principal and accrued interest of $38,794 and $30,612, respectively and are currently bearing interest at the default interest rate of 24% per annum.
As of September 30, 2019, there were 70,662 warrants outstanding under the July 2017 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
January 2018 Financing
On January 29, 2018, the Company entered into the Fourth Securities Purchase Agreement with the Purchasers for the sale of the Company’s January 2018 Notes and January 2018 Warrants.
As of September 30, 2019, the January 2018 Notes had outstanding principal and accrued interest of $222,222 and $57,321, respectively and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 953,744 warrants outstanding under the January 2018 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
March 2018 Financing
On March 13, 2018, the Company entered into the Fifth Securities Purchase Agreement with the Purchasers for the sale of the Company’s March 2018 Notes and March 2018 Warrants.
As of September 30, 2019, the March 2018 Notes had outstanding principal and accrued interest of $152,778 and $39,431, respectively and are currently bearing interest at the default interest rate of 18% per annum and have a maturity date of November 13, 2018.
As of September 30, 2019, there were 1,430,616 warrants outstanding under the March 2018 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
July 2018 Financing
On July 25, 2018, the Company entered into Sixth Securities Purchase Agreement with an institutional investor for the sale of the July 2018 Note. The Note bears interest at 8% per year and will mature on the one-year anniversary of the date of issue.
As of September 30, 2019, the July 2018 Note had outstanding principal and accrued interest of $150,000 and $19,537, respectively and are currently bearing interest at the default interest rate of 18% per annum (see Note 4 in the accompanying unaudited condensed consolidated financial statements for additional information).
September 2018 Financing
On September 24, 2018, the Company entered into the Seventh Purchase Agreement with the Seventh Round Purchasers for the sale of the Company’s September 2018 Notes and September 2018. The September 2018 Notes bear interest at a rate of 5% per year and shall mature on May 24, 2019.
As of September 30, 2019, the September 2018 Notes had outstanding principal and accrued interest of $1,303,038 and $90,165, respectively and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 8,762,518 warrants outstanding under the September 2018 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
November 2018 Financing
On November 13, 2018, the Company entered into the Eighth Purchase Agreement with the Eighth Round Purchaser for the sale of the Company’s November 2018 Note and November 2018 Warrant. The November 2018 Note bears interest at a rate of 5% per year and shall mature on July 29, 2019.
As of September 30, 2019, the November 2018 Note had outstanding principal and accrued interest of $127,778 and $11,490, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 822,604 warrants outstanding under the November 2018 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
January 2019 Financing
On January 18, 2019, the Company entered into the Ninth and Tenth Purchase Agreements with the Ninth and Tenth Round Purchasers for the sale of the Company’s January 2019 Notes. The January 2019 Notes bear interest at a rate of 5% per year and shall mature on January 18, 2020.
As of September 30, 2019, the January 2019 Notes had an aggregate outstanding principal and accrued interest of $173,125 and $11,453, respectively, and are currently bearing interest at the default interest rate of 18% per annum (see Note 4 in the accompanying unaudited condensed consolidated financial statements for additional information).
March 2019 Financing
On March 25, 2019, the Company entered into the Eleventh Purchase Agreement with the Eleventh Round Purchaser for the sale of the Company’s March 2019 Note and March 2019 Warrant. The March 2019 Note bears interest at a rate of 5% per year and shall mature on November 25, 2019.
As of September 30, 2019, the March 2019 Note had outstanding principal and accrued interest of $55,556 and $3,991, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 357,645 warrants outstanding under the March 2019 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
April 2019 Financings
On April 1, 2019, the Company entered into the Twelfth Purchase Agreement with the Twelfth Round Purchaser for the sale of the Company’s April 2019 Note I and April 2019 Warrant I. The April 2019 Note I bears interest at a rate of 5% per year and shall mature on December 2, 2019.
As of September 30, 2019, the April 2019 Note I had outstanding principal and accrued interest of $27,778 and $1,965, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 178,827 warrants outstanding under the April 2019 Warrants I (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
On April 29, 2019, the Company entered into the Thirteenth Purchase Agreement with the Thirteenth Round Purchasers for the sale of the Company’s April 2019 Notes II and April 2019 Warrants II. The April 2019 Note II bears interest at a rate of 5% per year and shall mature on December 29, 2019.
As of September 30, 2019, the April 2019 Notes II had an aggregate outstanding principal and accrued interest of $205,279 and $13,763, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 1,321,531 warrants outstanding under the April 2019 Warrants II (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
May 2019 Financing
On May 29, 2019, the Company entered into the Fourteenth Purchase Agreement with the Fourteenth Round Purchaser for the sale of the Company’s May 2019 Notes and May 2019 Warrants. The May 2019 Notes bears interest at a rate of 5% per year and shall mature on January 29, 2020.
As of September 30, 2019, the May 2019 Notes had an aggregate outstanding principal and accrued interest of $10,000 and $451, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 64,378 warrants outstanding under the May 2019 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
June 2019 Financings
On June 3, 2019, the Company entered into the Fifteenth Purchase Agreement with the Sixteenth Round Purchasers for the sale of the Company’s June 2019 Note I and June 2019 Warrants I. The June 2019 Note I bears interest at a rate of 5% per year and shall mature on February 3, 2020.
As of September 30, 2019, the June 2019 Notes I had an aggregate outstanding principal and accrued interest of $129,167 and $5,740, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 831,545 warrants outstanding under the June 2019 Warrants I (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
On June 26, 2019, the Company entered into the Fifteenth Purchase Agreement with the Fifteenth Round Purchasers for the sale of the Company’s June 2019 Note II and June 2019 Warrants II. The June 2019 Notes II bears interest at a rate of 5% per year and shall mature on February 26, 2020.
As of September 30, 2019, the June 2019 Note II had an aggregate outstanding principal and accrued interest of $55,556 and $2,294, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 357,654 warrants outstanding under the June 2019 Warrants II (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
July 2019 Financing
On July 2, 2019, the Company entered into the Seventeenth Purchase Agreement with the Seventeenth Round Purchasers for the sale of the Company’s July 2019 Note I and July 2019 Warrants I. The July 2019 Notes I bears interest at a rate of 5% per year and shall mature on February 26, 2020.
As of September 30, 2019, the July 2019 Note I had outstanding principal and accrued interest of $55,556 and $2,248, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 357,654 warrants outstanding under the July 2019 Warrants I (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
On July 8, 2019, the Company entered into the Eighteenth Purchase Agreement with the Eighteenth Round Purchasers for the sale of the Company’s July 2019 Note II and July 2019 Warrants II. The July 2019 Notes II bear interest at a rate of 5% per year and shall mature on February 26, 2020.
As of September 30, 2019, the July 2019 Note II had outstanding principal and accrued interest of $55,556 and $2,202, respectively, and are currently bearing interest at the default interest rate of 18% per annum.
As of September 30, 2019, there were 357,654 warrants outstanding under the July 2019 Warrants II (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
August 2019 Financings
On August 19, 2019, the Company entered into the Nineteenth Purchase Agreement with the Nineteenth Round Purchasers for the sale of the Company’s August 2019 Note I and August 2019 Warrant I. The August 2019 Note I bear interest at a rate of 5% per year and shall mature on March 30, 2020.
As of September 30, 2019, the August 2019 Note I had outstanding principal and accrued interest of $27,779 and $160, respectively.
As of September 30, 2019, there were 2,778 warrants outstanding under the August 2019 Warrant I (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
On August 28, 2019, the Company entered into the Twentieth Purchase Agreement with the Twentieth Round Purchasers for the sale of the Company’s August 2019 Note II. The August 2019 Note II bears interest at a rate of 5% per year and shall mature on August 27, 2020.
As of September 30, 2019, the August 2019 Note II had outstanding principal and accrued interest of $29,700 and $134, respectively (see Note 4 in the accompanying unaudited condensed consolidated financial statements for additional information).
September 2019 Financing
On September 27, 2019, the Company entered into the Twenty-first Purchase Agreement with the Twenty-first Round Purchasers for the sale of the Company’s September 2019 Note and September 2019 Warrants. The September 2019 Note bears interest at a rate of 5% per year and shall mature on May 27, 2020.
As of September 30, 2019, the September 2019 Note had outstanding principal and accrued interest of $166,667 and $0, respectively.
As of September 30, 2019, there were 16,667 warrants outstanding under the September 2019 Warrants (see Note 4 and Note 8-Warrantsin the accompanying unaudited condensed consolidated financial statements for additional information).
To secure the Company’s obligations under the June 2017, July 2017, January 2018, March 2018, September 2018 Notes and November 2018 Notes, the Company entered into Security Agreements, Pledge Agreements and Subsidiary Guaranty’s with Calvary Fund I LP, as agent, pursuant to which the Company granted a lien on all assets of the Company (the “Collateral”) excluding permitted indebtedness which included a first lien held by Regions Bank in connection with the $100,000 revolving promissory note entered into with Regions Bank in October 2014, for the benefit of the Note Purchasers. Upon an Event of Default (as defined in the related Notes), the Note Purchasers 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.
Additional Purchaser Rights and Company Obligations
The Securities Purchase Agreements include additional purchaser rights and Company obligations including obligations on the Company to reimburse the Purchasers for legal fees and expenses, satisfy the current public information requirements under SEC Rule 144(c), obligations on the Company with respect to the use of proceeds from the sale of securities and Purchaser rights to participate in future Company financings. Reference should be made to the full text of the Securities Purchase Agreements.
Common Stock for debt conversion
During the nine months ended September 30, 2019, the Company issued an aggregate of 148,834 shares of its common stock upon conversion of $322,174 and $79,836 of outstanding principal and accrued interest, respectively, of convertible debt.These shares of common stock had an aggregate fair value $770,609 and the difference between the aggregate fair value and the aggregate converted amount of $368,599 was recorded as loss on debt extinguishment.
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 the 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.
There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.
Critical Accounting Policies
We have identified the following policies as critical to itsthe 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 the 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.
Use of estimatesEstimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimatesjudgments, assumptions, and assumptionsestimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed 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 ninethree months ended December 31, 2020 and year ended September 30, 2019 and year ended December 31, 20182020 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 operating lease ROUright-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-termlong-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,transactions.
Additionally, the valuationfull impact of derivative liabilities,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 fair valueactual results, the Company’s future consolidated results of assets acquired and liabilities assumed in the business acquisition.operation will be affected.
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Fair valueValue of financial instrumentsFinancial Instruments and fair value measurementsFair 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, 2019.December 31, 2020. 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:
| Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
ASC 825-10 “Financial Instruments”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, allows entities to voluntarily choose to measure certain financial assets and liabilities atmodify the disclosure requirements on fair value (fair value option). The fair value option may be electedmeasurements in Topic 820, Fair Value Measurement, based on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Derivative liabilities
The Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 –Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the changeconcepts in the fair value duringConcepts Statement, including the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise dateconsideration of costs and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.
Revenue recognition
In May 2014, FASB issued an update Accounting Standardsbenefits. The amendments in this 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 isare effective for interim and annual reporting periods inall entities for fiscal years, that beginand interim periods within those fiscal years, beginning 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.2019. The Company adopted this standard on January 1, 2018 usingASU 2018-13 during the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective datequarter ended March 31, 2020 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 2014-09its adoption did not have any material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.
Company’s consolidated financial statements.
Stock-based compensation
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.
Through March 31, 2018, pursuantPursuant 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 induring the second quarter ofperiod 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. 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.
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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 wethe Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether itthe 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 assetsrepresents the right to use the leased asset for the lease termterm. Operating and operatingfinancing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, the Company useuses 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 condensed 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:
| 1. | Add a disclosure objective |
| 2. | Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed |
| 3. | Add information on which party controls the conversion rights |
| 4. | Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments |
| 5. | Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate. |
Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.
The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
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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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 reports filed under the Exchange Act isare recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2019,December 31, 2020, our disclosure controls and procedures were not effective.
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of September 30, 2019.December 31, 2020. 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, 2019,December 31, 2020, 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 controlcontrols over financial reporting:
| (1) |
| (2) | a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support the hiring of personnel and implementation of accounting systems, | |
We expect to be materially dependent upon third parties to provide us with accounting consulting services related to accounting services for the foreseeable future. We believe this will be sufficient to remediate the material weaknesses related to our accounting discussed above. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures will not result in errors in our consolidated financial statements which could lead to a restatement of those financial statements.
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.
Changes inManagement’s Remediation Plan
We plan to take steps to enhance and improve the design of our internal control over financial reportingreporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the future:
| (i) | appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and | |
| (ii) | adopt sufficient written policies and procedures for accounting and financial reporting. |
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The remediation efforts set out in (i) are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes.
Management believes that despite our material weaknesses set forth above, our condensed consolidated financial statements for the quarter ended December 31, 2020 are fairly stated, in all material respects, in accordance with US GAAP.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended September 30, 2019December 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
We knowOn July 1, 2021, 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. The plaintiffs are seeking a $1 million award. The Company and Dr. Ruxin were named it the lawsuit. The Company believes these claims are without merit and intends to defend these lawsuits vigorously. The Company currently believes the likelihood of a loss contingency related to these matters is remote and, therefore, no material, existing or pending legal proceedings against our Company, nor are we involved asprovision for a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder,loss contingency is an adverse party or has a material interest adverse to our interest.required.
Not applicableThere have been no material changes to smaller reporting companies.the risk factors discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 except for the following new risk:
The recent COVID-19 pandemic has negatively affected and will continue to negatively affect our business, financial condition and results of operations.
The public health crisis caused by the COVID-19 pandemic and the measures that have been taken or that may be taken in the future by governments, businesses, including us, and the public at large to limit COVID-19’s spread have had, and we expect will continue to materially negatively effect on our business, financial condition, and results of operation. The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict and which will vary by market, including the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.
COVID-19 has spread across the globe. Authorities in many markets have implemented numerous measures to stall the spread of COVID-19, including travel bans and restrictions, quarantines, curfews, shelter in place orders, and business shutdowns. These measures have impacted and will further impact us, our customers, consumers, employees, contract manufacturers, distributors, suppliers and other third parties with whom we do business.
Stay-at-home and social distancing orders have required some of our employees to work from home when possible, and other employees have been entirely prevented from performing their job duties until the orders are relaxed or lifted. The world-wide response to the pandemic has resulted in a significant downturn in economic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. If an economic recession or depression is sustained, it would likely have a material adverse effect on our business.
In certain jurisdictions, the stay-at-home orders have been relaxed but considerable uncertainty remains about the ultimate impact on our business. Even if the orders are lifted, there is no assurance that they will not be reinstated if the spread of COVID-19 resumes. For example, many jurisdictions have recently reinstated orders requiring people to wear masks in public after test results have showed a resurgence of the pandemic. Resurgence of the pandemic in some markets has slowed the reopening process of businesses in those areas, including Europe where additional lockdowns have been recently reinstated. If COVID-19 infection trends continue to reverse and the pandemic intensifies and expands geographically, its negative impacts on our sales could be more prolonged and may become more severe. The long-term financial impact on our business cannot be reasonably estimated at this time.
The COVID-19 pandemic has required alternative selling approaches that are less effective, such as through social media. We may continue to experience reductions in revenue using these alternative selling approaches that avoid direct contact with our customers.
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There is considerable uncertainty regarding how these measures and future measures in response to the pandemic will impact our business, including whether they will result in further changes in demand for our technology, further increases in operating costs whether as a result of increases in employee costs or otherwise. Compliance with governmental measures imposed in response to COVID-19 has caused and may continue to cause us to incur additional costs, and any inability to comply with such measures can subject us to restrictions on our business activities, fines, and other penalties, any of which can adversely affect our business. In addition, the increase in certain of our employees working remotely has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attacks, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured, and any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business. Further, we experienced, and will continue to experience, costs associated with continuing to pay certain employees who are limited in their ability to work due to the travel bans and restrictions, quarantines, curfews, shelter in place orders and, therefore, do not generate corresponding revenue.
In addition, economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.
There can be no assurance that we will be successful in our efforts to mitigate the negative impact of COVID-19, and as a result, our business, financial condition and results of operations and the prices of our publicly traded securities may be adversely affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except for provided below, all unregistered sales of our securities during the three months ended September 30, 2019, were previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.None.
The shares of common stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
From June 2017 to September 2017, we entered into loan agreements with several third parties (the “Loans”). Pursuant to the loan agreements, we borrowed an aggregate principal amount of $538,875. The Loans bear interest at an annual rate of 33.3%, are unsecured and are in default due to non-payment as of September 30, 2019.None.
As of September 30, 2019, we were in default on certain convertible debt instruments and loans caused by the non-payment of outstanding balance pursuant to the repayment terms.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Effective November 8, 2019, our Chief Executive Officer, Dr. Brian Barnett, resigned from his position with the Company. Andrew Kucharchuk, our Chief Financial Officer, was named Chief Executive Officer effective that same date.None.
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* Filed herewith.+ Management contract or compensatory plan or arrangement.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: September 27, 2021 | By: | /s/ Mick Ruxin, MD |
| Mick Ruxin, MD | ||
| Chief Executive Officer | ||
| Dated: | By: | /s/ |
| ||
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