UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Quarterly Period Ended:
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| ||
(Address of principal executive offices) | (Zip code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12B-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The registrant had shares of its common stock, $0.0001 par value per share, outstanding as of August 21, 2023.
THERALINK TECHNOLOGIES, INC.
FORM 10-Q
JUNE 30, 2023
TABLE OF CONTENTS
2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment about the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “should,” “plan,” “potential,” “project,” “will,” “would” and other words of similar meaning, or the negatives of such terms or other variations. These include, but are not limited to, statements relating to the following:
● | projected operating or financial results, including anticipated cash flows used in operations; |
● | expectations regarding capital expenditures, research and development expenses and other payments; |
● | our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing; and |
● | our beliefs, assumptions and expectations about the regulatory approval for our technology including, but not limited to our ability to obtain regulatory approval in a timely manner or at all. |
Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors including, among others:
● | our ability to continue as a going concern; |
● | our ability to remain current in filing all reports required to be filed by us under Section 13 or 15(d) of the Securities Exchange Act of 1934; |
● | our ability to maintain pricing; |
● | our ability to employ skilled and qualified workers; |
● | the fact that we have incurred significant losses since inception, expect to incur net losses for at least the next several years and may never achieve or sustain profitability; |
● | the loss of key management personnel upon whom we depend; |
● | our ability to fund our operations; |
● | inadequate insurance coverage for certain losses or liabilities; |
● | our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals on a timely basis; |
● | commercial development of technologies that compete with our technology; |
● | the actual and perceived effectiveness of our technology, and how the technology compares to competitive technologies; |
● | the rate and degree of market acceptance and clinical utility of our technology; |
● | 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; |
● | impacts from the announcement that we have entered into a merger agreement with IMAC Holdings, Inc. and IMAC Merger Sub, Inc. (the “Merger”); and |
● | our expectations with respect to future licensing, partnering or acquisition activity. |
In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed on December 29, 2022 with the Securities and Exchange Commission (“SEC”), particularly in the ‘Risk Factors” section of such reports, that could cause results or events to differ materially from the forward-looking statements that we make herein. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement should be relied upon. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. Forward-looking statements apply only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as otherwise required by applicable law.
This Quarterly Report on Form 10-Q includes trademarks for Theralink, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.
3 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THERALINK TECHNOLOGIES, INC.
BALANCE SHEETS
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | $ | ||||||
Accounts receivable, net | ||||||||
Prepaid expenses and other current assets | ||||||||
Marketable securities | ||||||||
Total Current Assets | ||||||||
OTHER ASSETS: | ||||||||
Property and equipment, net | ||||||||
Financing right-of-use assets, net | ||||||||
Operating right-of-use asset, net | ||||||||
Deferred offering costs | ||||||||
Security deposits | ||||||||
Total Assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | $ | ||||||
Accounts payable - related parties | ||||||||
Accrued liabilities | ||||||||
Accrued liabilities - related parties | ||||||||
Accrued compensation | ||||||||
Accrued director compensation | ||||||||
Contract liabilities | ||||||||
Convertible notes, net of discount | ||||||||
Convertible notes - related parties, net of discount | ||||||||
Notes payable - related party, net of discount | ||||||||
Notes payable - current | ||||||||
Financing lease liability - current | ||||||||
Operating lease liability - current | ||||||||
Insurance payable | ||||||||
Derivative liabilities | ||||||||
Contingent liabilities | ||||||||
Total Current Liabilities | ||||||||
LONG-TERM LIABILITIES: | ||||||||
Financing lease liability | ||||||||
Operating lease liability | ||||||||
Convertible notes - related parties net of discount, net of current portion | ||||||||
Convertible notes, net of discount | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies (Note 10) | ||||||||
Series E preferred stock; $ |
par value;
shares designated;
and
issued and outstanding at June 30, 2023 and September 30, 2022, respectively; liquidation value of $||||||||
Series F preferred stock; $ | par value; shares designated; and issued and outstanding at June 30, 2023 and September 30, 2022; liquidation value of $||||||||
STOCKHOLDERS’ DEFICIT: | ||||||||
Preferred stock: $ | par value; authorized;||||||||
Series A Preferred stock: $ | par value; shares designated; issued and outstanding at June 30, 2023 and September 30, 2022||||||||
Series C-1 Preferred stock: $ | par value; shares designated; and issued and outstanding at June 30, 2023 and September 30, 2022, respectively||||||||
Series C-2 Preferred stock: $ | par value; shares designated; and issued and outstanding at June 30, 2023 and September 30, 2022, respectively||||||||
Series D-1 Preferred stock: $ | par value; shares designated; issued and outstanding at June 30, 2023 and September 30, 2022||||||||
Series D-2 Preferred stock: $ | par value; shares designated; issued and outstanding at June 30, 2023 and September 30, 2022||||||||
Common stock: $ | par value, shares authorized; and issued and outstanding at June 30, 2023 and September 30, 2022, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | $ |
See accompanying condensed notes to unaudited financial statements.
4 |
THERALINK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
REVENUES, NET | $ | $ | $ | $ | ||||||||||||
COST OF REVENUE | ||||||||||||||||
GROSS PROFIT | ||||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Professional fees | ||||||||||||||||
Compensation expense | ||||||||||||||||
Licensing fees | ||||||||||||||||
General and administrative expenses | ||||||||||||||||
Impairment loss | ||||||||||||||||
Total Operating Expenses | ||||||||||||||||
LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
OTHER INCOME (EXPENSES): | ||||||||||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Loss on debt extinguishment, net | ( | ) | ||||||||||||||
Unrealized loss on marketable securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Settlement expense | ( | ) | ||||||||||||||
Derivative income (expense) | ( | ) | ||||||||||||||
Total Other Income (Expenses), net | ( | ) | ( | ) | ( | ) | ||||||||||
NET INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
Series E preferred stock dividend | ( | ) | ( | ) | ( | ) | ||||||||||
Series F preferred stock dividend | ( | ) | ( | ) | ( | ) | ||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS: | ||||||||||||||||
Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
Basic | ||||||||||||||||
Diluted |
See accompanying condensed notes to unaudited financial statements.
5 |
THERALINK TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||
Series A # of Shares | Series C-1 # of Shares | Series C-2 # of Shares | Amount | # of Shares | Amount | Paid-in Capital | Accumulated Deficit |
Stockholders’ | ||||||||||||||||||||||||||||
Balance on September 30, 2022 | | | | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
Accretion of stock option expense | - | - | - | - | ||||||||||||||||||||||||||||||||
Exchange of preferred stock to convertible debt | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Series E preferred stock dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Series F preferred stock dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance on December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
Accretion of stock option expense | - | - | - | - | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance on March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
Accretion of stock option expense | - | - | - | - | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ||||||||||||||||||||||||||||||||
Balance on June 30, 2023 | $ | $ | | $ | | $ | ( | ) | $ | ( | ) |
Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||
Series A # of Shares | Series C-1 # of Shares | Series C-2 # of Shares | Amount | # of Shares | Amount | Paid-in Capital | Accumulated Deficit |
Stockholders’ | ||||||||||||||||||||||||||||
Balance at September 30, 2021 | | | | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
Relative fair value of warrant issued in connection with convertible notes - related party recorded as debt discount | - | - | - | - | ||||||||||||||||||||||||||||||||
Relative fair value of warrant issued in connection with convertible notes recorded as debt discount | - | - | - | - | ||||||||||||||||||||||||||||||||
Series E preferred stock dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Series F preferred stock dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Correction for rounding error | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance on December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
Issuance of common stock in connection with conversion of Series C-1 preferred stock | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
Issuance of common stock in connection with conversion of Series C-2 preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Issuance of common stock in connection with settlement of accounts payable | - | - | - | |||||||||||||||||||||||||||||||||
Issuance of common stock in connection with subscriptions payable | - | - | - | |||||||||||||||||||||||||||||||||
Relative fair value of warrants issued in connection with convertible notes - related party recorded as debt discount | - | - | - | - | ||||||||||||||||||||||||||||||||
Relative fair value of warrants issued in connection with convertible notes recorded as debt discount | - | - | - | - | ||||||||||||||||||||||||||||||||
Relative fair value of additional warrants issued in connection with modification of convertible notes - related party recorded as debt discount | - | - | - | - | ||||||||||||||||||||||||||||||||
Relative fair value of additional warrants issued in connection with modification of convertible notes recorded as debt discount | - | - | - | - | ||||||||||||||||||||||||||||||||
Series E preferred stock dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Series F preferred stock dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
Issuance of common stock in connection with conversion of Series C-1 preferred stock | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
Relative fair value of warrants issued in connection with convertible notes - related party recorded as debt discount | - | - | - | - | ||||||||||||||||||||||||||||||||
Relative fair value of warrants issued in connection with convertible notes recorded as debt discount | - | - | - | - | ||||||||||||||||||||||||||||||||
Series E preferred stock dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Series F preferred stock dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | | $ | | $ | ( | ) | $ | ( | ) |
See accompanying condensed notes to unaudited financial statements.
6 |
THERALINK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended | ||||||||
June 30, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation on property and equipment and financing ROU assets | ||||||||
Non-cash lease cost | ||||||||
Accretion of stock option expense | ||||||||
Amortization of debt discount | ||||||||
Loss on debt extinguishment | ||||||||
Bad debt expense | ||||||||
Unrealized loss (gain) on marketable securities | ||||||||
Non-cash settlement expense | ||||||||
Derivative expense | ||||||||
Gain on modification of operating lease | ( | ) | ||||||
Impairment loss | ||||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ||||||
Prepaid expenses and other current assets | ||||||||
Laboratory supplies | ||||||||
Accounts payable | ( | ) | ||||||
Accrued liabilities and other liabilities | ||||||||
Contract liabilities | ||||||||
NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from convertible debt - related parties, net | ||||||||
Proceeds from convertible debt, net | ||||||||
Proceeds of notes payable - related parties | ||||||||
Repayment of convertible notes payable | ( | ) | ||||||
Repayment of convertible notes payable - related parties | ( | ) | ||||||
Repayment of financed lease | ( | ) | ( | ) | ||||
Payments for preferred stock dividends | ( | ) | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
NET (DECREASE) INCREASE IN CASH | ( | ) | ( | ) | ||||
CASH, beginning of the period | ||||||||
CASH, end of the period | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | $ | ||||||
Income taxes | $ | $ | ||||||
Non-cash investing and financing activities: | ||||||||
Series E preferred stock dividend | $ | $ | ||||||
Series F preferred stock dividend | $ | $ | ||||||
Initial amount of operating ROU asset and related liability | $ | $ | ||||||
Relative fair value of warrant issued in connection with convertible notes - related party recorded as debt discount | $ | $ | ||||||
Relative fair value of warrant issued in connection with convertible notes recorded as debt discount | $ | $ | ||||||
Relative fair value of additional warrants issued in connection with modification of convertible notes - related party recorded as debt discount | $ | $ | ||||||
Relative fair value of additional warrants issued in connection with modification of convertible notes recorded as debt discount | $ | $ | ||||||
Initial fair value of derivative liabilities recorded as debt discount - related parties | $ | $ | ||||||
Initial fair value of derivative liabilities recorded as debt discount | $ | $ | ||||||
Exchange of preferred stock and accrued dividends for convertible debt - related parties | $ | $ | ||||||
Exchange of preferred stock for convertible debt | $ | $ | ||||||
Exchange of accrued interest payable for convertible debt - related parties | $ | $ | ||||||
Exchange of accrued interest payable for convertible debt | $ | $ |
See accompanying condensed notes to unaudited financial statements.
7 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Theralink Technologies, Inc., formerly OncBioMune Pharmaceuticals, Inc. (the “Company”), was a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology. On June 5, 2020, the Company acquired the assets (the “Asset Sale Transaction”) of Avant Diagnostics, Inc., a Nevada corporation established in 2009 (“Avant”) pursuant to the Asset Purchase Agreement dated May 12, 2020, between the Company and Avant (the “Asset Purchase Agreement”). Avant was a commercial-stage precision medicine and molecular data-generating company that focuses on the development and commercialization of a series of patented, proprietary data-generating assays that may provide important actionable information for physicians and patients, as well as biopharmaceutical companies, in the area of oncology.
Pursuant
to the Asset Purchase Agreement, the Company acquired substantially all the assets of Avant and assumed certain of its liabilities. Upon
the terms and subject to the conditions of the Asset Purchase Agreement, Avant sold to the Company, all of Avant’s title and interest
in all the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including
goodwill), wherever located and whether existing or hereafter acquired, except for the specific excluded assets, which relate to, or
are used or held for use in connection with, Avant’s business. The Company also hired Avant’s employees upon consummation
of the Asset Sale Transaction. As consideration for the Asset Sale Transaction, the Company issued to Avant
On July 11, 2021, the Company’s wholly-owned subsidiary, OncBioMune, LLC, was administratively dissolved by the Louisiana Secretary of State for failing to meet its filing requirements and pay the associated fees.
In
connection with the Asset Sale Transaction, the Company entered into an Exchange Agreement, effective June 5, 2020, by and among OncBioMune
Pharmaceuticals, Inc. and the investors named therein, whereby the Company agreed to exchange certain convertible promissory notes and
warrants outstanding for shares of Series C-1 Convertible Preferred Stock of the Company and options to purchase shares of the Company’s
wholly-owned subsidiary, OncBioMune Sub Inc. OncBioMune Sub Inc. holds the patents used in the prior business of OncBioMune Pharmaceuticals,
Inc. In July 2021, certain of those investors exercised their options to purchase the shares of OncBioMune Sub Inc. On July 26, 2021,
the Company transferred all
On February 25, 2022, FINRA recognized the Company’s name change to Theralink Technologies, Inc. and the related ticker symbol change from “OBMP” to “THER” went into effect.
On May 23, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with IMAC Holdings, Inc. (“IMAC”) and IMAC Merger Sub, Inc., a newly formed, wholly owned subsidiary of IMAC (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Theralink (the “Merger”), with Theralink continuing as a wholly owned subsidiary of IMAC. The board of directors of IMAC, and the Company’s Board of Directors unanimously approved the Merger Agreement. Under the terms of the Merger Agreement, upon completion of the Merger, each share of our common stock and each share of our preferred stock issued and outstanding as of immediately prior to completion of the Merger will be converted into and will thereafter represent the right to receive a portion of a share of common stock of IMAC, par value $IMAC Shares”) such that the total number of IMAC Shares issued to the holders of our common and preferred stock shall equal % of the total number of IMAC Shares outstanding as of the completion of the Merger. The completion of the Merger is subject to the satisfaction of customary closing conditions, including: (i) adoption of the Merger Agreement by holders of a majority of the outstanding shares of voting stock of Theralink, and (ii) approval of the issuance of IMAC Shares in connection with the Merger by a majority of the votes cast at the shareholder meeting of IMAC. IMAC and we have each made customary representations and warranties in the Merger Agreement. The Merger Agreement also contains customary covenants and agreements, including covenants and agreements relating to the conduct of each of IMAC’s and our business between the date of the signing of the Merger Agreement and the closing date of the Merger. (See Note 10). (the “
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information, which present the unaudited financial statements of the Company as of June 30, 2023. The interim unaudited financial statements do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the September 30, 2022 audited financial statements on Form 10-K filed on December 29, 2022. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments and non-recurring adjustments) have been made for the fair presentation of the unaudited financial statements. The results for the interim period are not necessarily indicative of the results to be expected for the year ending September 30, 2023.
Going Concern
These
unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited financial statements, the
Company had net loss and net cash used in operations of $
8 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
The Company cannot provide assurance that it will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future.
Although the Company has historically raised capital from sales of equity and the issuance of promissory notes, convertible notes and convertible debentures, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the periods ended June 30, 2023 and 2022 include, but are not necessarily limited to, estimates of contingent liabilities, valuation of marketable securities, useful life of property and equipment, valuation of right-of-use ROU assets and lease liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of derivative liabilities, and the fair value of non-cash equity transactions.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on June 30, 2023. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on the disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The carrying amounts reported in the balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, contract liabilities, and accrued compensation approximate their fair market value based on the short-term maturity of these instruments.
Assets or liabilities measured at fair value on a recurring basis included embedded conversion options in convertible debt (see Note 6) and were as follows on June 30, 2023 and September 30, 2022:
June 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Derivative liabilities | $ | $ | $ | $ | $ | $ |
A roll forward of the level 3 valuation financial instruments is as follows:
For the Nine Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Balance at beginning of period | $ | $ | ||||||
Initial valuation of derivative liabilities included in debt discount | ||||||||
Initial valuation of derivative liabilities included in derivative expense | ||||||||
Change in fair value included in derivative expense | ( | ) | ||||||
Balance at end of period | $ | $ |
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets 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. The Company did not elect to apply the fair value option to any outstanding equity instruments.
9 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s investment policy is to preserve principal and maintain liquidity. The Company periodically monitors its positions with, and the credit quality of, the financial institutions with which it invests.
Prepaid Assets
Prepaid assets are carried at amortized cost. Significant prepaid assets as of June 30, 2023 and September 30, 2022 include, but are not necessarily limited to, prepaid insurance, prepaid consulting fees, prepaid equipment maintenance fees and retainers for professional services.
Laboratory Supplies
Laboratory supplies are normally consumed within a year from purchase and any unused laboratory supplies are classified as current assets and reflected in the accompanying balance sheets as laboratory supplies.
Property and Equipment
Fixed
assets are stated at cost and depreciated using the straight-line method over their estimated useful lives, which range from to
Impairment of Long-Lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee 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, director, and non-employee services received in exchange for an award to be based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under the FASB’s Accounting Standards Update (“ASU”) 2016-09 Improvements to Employee Share-Based Payment.
Revenue Recognition and Contract Assets and Liabilities
In accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead to deferred revenue for services not completed at the end of a period which is reflected as contract liabilities on the accompanying balance sheet. The Company may include, in accounts receivable, amounts billed to customers in advance of services being initiated or completed. If the Company has a right to such consideration that is unconditional such as for contractually allowed billings under non-cancellable contracts, such amounts billed in advance would be offset by contract liability. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The Company offers these services to biopharmaceutical companies and to private individuals. The Company uses various output methods to recognize revenues. During the nine months ended June 30, 2023 and 2022, revenues by category is as follows:
Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||
Biopharma services | $ | $ | ||||||
Patient testing service | ||||||||
Total revenues | $ | $ |
10 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
The revenue recognized from services provided to private individuals during the three and nine months ended June 30, 2023 and 2022 were minimal and therefore were not disaggregated for disclosure purposes.
Contract Liabilities
Contract liabilities are cash deposits received from customers and advance billing included in accounts receivable on uncompleted contracts for which revenues have not been recognized as of the balance sheet date.
For the nine months ended June 30, 2023 and 2022, contract liabilities activity is as follows:
Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||
Contract liabilities beginning balance | $ | $ | ||||||
Billings and cash receipts on uncompleted contracts | ||||||||
Less: revenues recognized during the period | ( | ) | ( | ) | ||||
Total contract liabilities | $ | $ |
During
the nine months ended June 30, 2023, the Company recognized $
Cost of Revenue
The cost of revenue consists of the cost of labor, supplies and materials.
Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis and does not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition.
Any charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired.
Research and Development
In
fiscal 2022, the Company joined and made an investment in an investigator-initiated study. As part of that investment, the Company obtained
rights/access to various retrospective biobank clinical samples for research and product development purposes. In addition, the Company
received active patient clinical samples for the following disease sites: ovarian, endometrial, and head & neck cancers. These samples
were tested to provide RUO (Research Use Only) results reports for research and product validation efforts.
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 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.
Concentrations
Concentration of Credit Risk
The
Company maintains its cash in banks and financial institutions that at times may exceed the federally insured limit of $
Concentration of Revenues
For
the nine months ended June 30, 2023, the Company generated total revenue of $
11 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Concentration of Accounts Receivable
As
of June 30, 2023, the Company had net accounts receivable of $
Concentration of Contract Liabilities
As
of June 30, 2023, the Company had deferred revenue reflected as contract liabilities of $
Concentration of Vendors
Historically, the Company relied on one vendor to perform the Company’s patient reporting and contract research (formerly called sample analysis) which is an integral part of the Company’s operation and revenue stream. Any disruption in this service could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company discontinued using this vendor in June 2022 as the patient reporting function has been moved in-house.
During
the nine months ended June 30, 2023 and 2022, the Company incurred $
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes, conversion of preferred stock, and common stock issuable. These common stock equivalents may be dilutive in the future.
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income (loss) per common share - basic: | ||||||||||||||||
Net income (loss) attributable to common shareholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Weighted average common shares outstanding – basic | ||||||||||||||||
Net income (loss) per common share – basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Net income (loss) per common share - diluted: | ||||||||||||||||
Net income (loss) attributable to common shareholders - basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Add: interest on convertible debt | ||||||||||||||||
Less: derivative gain | ( | ) | ||||||||||||||
Numerator for loss per common share – diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted average common shares outstanding – basic | ||||||||||||||||
Add: dilutive shares related to: | ||||||||||||||||
Stock options | ||||||||||||||||
Warrants | ||||||||||||||||
Convertible debt | ||||||||||||||||
Weighted average common shares outstanding – diluted | ||||||||||||||||
Net loss per common share – diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
June 30, | ||||||||
2023 | 2022 | |||||||
Stock warrants | ||||||||
Stock options | ||||||||
Series C-1 preferred stock | ||||||||
Series C-2 preferred stock | ||||||||
Series E preferred stock | ||||||||
Series F preferred stock | ||||||||
Convertible notes | ||||||||
12 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Income Taxes
The Company accounts for income tax using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position
will be sustained upon examination by the tax authorities. As of June 30, 2023 and 2022, the Company had
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Leases
The Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether a contract is, or contains, a lease at the inception of the contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represent the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the unaudited statements of operations.
Recent Accounting Pronouncements
On October 1, 2022, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326). The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. While the adoption of ASC 326 could result in a higher allowance recorded in the future for credit losses on receivables within the scope of the standard due to the prescribed measurement principles, the impact of the adoption on the Company’s consolidated financial statements was not material.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s financial statements.
NOTE 3 – MARKETABLE SECURITIES
During
the fiscal year ended 2017, the Company acquired
13 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
NOTE 4 – ACCOUNTS RECEIVABLE
On June 30, 2023 and September 30, 2022, accounts receivable consisted of the following:
June 30, 2023 | September 30, 2022 | |||||||
Accounts receivable | $ | $ | ||||||
Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
Accounts receivable, net | $ | $ |
For
the nine months ended June 30, 2023 and 2022, bad debt expense amounted to $
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Once placed in service, they are depreciated on the straight-line method over their estimated useful lives. Leasehold improvements are accreted over the shorter of the estimated economic life or related lease terms. Property and equipment consist of the following:
Estimated Useful Life in Years | June 30, 2023 | September 30, 2022 | |||||||||
Laboratory equipment | $ | $ | |||||||||
Furniture | |||||||||||
Leasehold improvements | |||||||||||
Computer equipment | |||||||||||
Less accumulated depreciation | ( | ) | ( | ) | |||||||
Property and equipment, net | $ | $ |
For
the three months ended June 30, 2023 and 2022, depreciation expense related to property and equipment amounted to $
For
the nine months ended June 30, 2023 and 2022, depreciation expense related to property and equipment amounted to $
During
the three and nine months ended June 30, 2023, the Company recorded an impairment loss of $
Leased equipment was not included in the table above as it was accounted for in accordance with ASU 842 – Leases. These leases are discussed in Note 7 under financing lease right-of-use (“ROU”) assets and financing lease liabilities.
NOTE 6 – DEBT
On June 30, 2023 and September 30, 2022, convertible notes payable (third parties and related parties) consisted of the following:
June 30, 2023 | September 30, 2022 | |||||||
Principal amount | $ | $ | ||||||
Less: debt discount | ( | ) | ( | ) | ||||
Convertible notes payable, net | ||||||||
Less: current portion of convertible notes payable - related parties | ( | ) | ||||||
Convertible notes payable, net – long-term | $ | $ | ||||||
Principal amount – related parties | $ | $ | ||||||
Less: debt discount – related parties | ( | ) | ( | ) | ||||
Convertible notes payable - related parties, net | ||||||||
Less: current portion of convertible notes payable - related parties | ( | ) | ( | ) | ||||
Convertible notes payable - related parties, net – long-term | $ | $ | ||||||
Total convertible notes payable, net | $ | $ |
14 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Convertible Debt – Related Parties
On
May 12, 2021, the Company entered into a Securities Purchase Agreement (“May 2021 SPA”) with a related party, who is an affiliate
stockholder (“May 2021 Investor”) to purchase a convertible note (“May 2021 Note”) and accompanying
On
November 1, 2021, the Company entered into a Securities Purchase Agreement (“First November 2021 SPA”) with a related party,
who is an affiliate stockholder (“First November 2021 Investor”), to purchase three convertible notes (collectively as “First
November 2021 Notes”) and three accompanying warrants (collectively as “First November 2021 Warrants”), for an aggregate
investment amount of $
On
April 5, 2022, the Company entered into a Securities Purchase Agreement (“First April 2022 SPA”) with a related party,
Matthew Schwartz, who is a member of the Board of Directors (“Investor”), to purchase a convertible note with a
principal balance of $
15 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
May 9, 2022, the Company entered into a Securities Purchase Agreement (“May 2022 SPA”) with a related party, who is an affiliate
stockholder (“May 2022 Investor”), to purchase four convertible notes for an aggregate investment amount of $
On
June 15, 2022, the Company entered into a Securities Purchase Agreement (“June 2022 SPA”) with a related party, Danica Holley,
who is a member of the Board of Directors (“Investor”), to purchase a convertible note with principal of $
On
July 29, 2022, the Company entered into a Demand Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of
Directors and a related party, for a principal balance of $
On
August 11, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder, for
a principal balance of $
On
September 2, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder,
for a principal balance of $
On
November 1, 2022, the Company entered into a Demand Promissory Note Agreements with two related parties, who are affiliate stockholders,
for a principal balance of $
On
November 29, 2022, in connection with the Securities Exchange Agreements and New Convertible Debt discussed below, the May 2021 Warrants,
First November 2021 Warrants, First April 2022 Warrants, May 2022 Warrants, and June 2022 Warrants, aggregating
16 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Securities Exchange Agreements and New Related Party Convertible Debentures and Warrants dated November 29, 2022
On
November 29, 2022, the Company consummated the initial closing (the “Initial Closing”) of a private placement offering (the
“Offering”) pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of November 29,
2022 (the “Purchase Agreement”), by and among the Company, certain related party accredited investors (the “Related
Party Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its capacity as collateral agent
(the “Collateral Agent”). At the Initial Closing, the Company sold the related party Purchasers (i)
On
November 29, 2022, the Company entered into Securities Exchange Agreements with the above related party investors, whereby the May 2021
Note, the First November 2021 Notes, the First April 2022 Note, the May 2022 Notes, the June 2022 Note, the Busch Notes, the August 11,
2022 Demand Promissory Note, and the September 2, 2022 Demand Promissory Note with an aggregate principal amount of $
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of
On
April 11, 2023, the Company consummated a third closing (the “Third Closing”) of the Offering pursuant to the terms and conditions
of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company and Jeffrey Busch (the “Third Closing
Related Party Purchaser”). At the Third Closing, the Company sold the Purchaser (i) a New Debenture with a principal amount of
$
The
November 29, 2022 New Related Party Debentures and April 2023 Related Party Debenture mature on
The Company’s obligations under the New Related Party Debentures and April 2023 Related Party Debenture are secured by a first priority lien on all the assets of the Company pursuant to that certain Security Agreement, dated November 29, 2022 (the “Security Agreement”) by and among the Company, the Debenture holders and the Collateral Agent.
The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.
If
the Company or any Subsidiary shall default on any of its obligations under any mortgage credit agreement or other facility indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater
than $
17 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
In
connection with the Securities Exchange Agreements with related parties for the exchange of the convertible notes and preferred shares
for the New Related Party Debentures and for the April 2023 Related party Debenture discussed above, the Company issued an aggregate
of
As
discussed above, on November 29, 2022, in order to induce the related party investors to exchange their respective convertible notes
and preferred stock into the New Related Party Debentures, the aggregate principal amount and accrued interest payable of the exchanged
convertible notes, and the stated value and accrued dividends of exchanged preferred stock was increased by
Convertible Debt
On
November 1, 2021, the Company entered into a Securities Purchase Agreement (“Second November 2021 SPA”) with an investor
(“Second November 2021 Investor”) to purchase two convertible notes (collectively as “Second November 2021 Notes”)
and two accompanying warrants (collectively as “Second November 2021 Warrants”), for an aggregate investment amount of $
On
November 1, 2021, the Company entered into a Securities Purchase Agreement (“Third November 2021 SPA”) with an investor (“Third
November 2021 Investor”) to purchase two convertible notes (collectively as “Third November 2021 Notes”) and two accompanying
warrants (collectively as “Third November 2021 Warrants”), for an aggregate investment amount of $
18 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
January 27, 2022, the Company entered into a Securities Purchase Agreement (“First January 2022 SPA”) with an investor (“First
January 2022 Investor”) to purchase a convertible note with a principal balance of $
On
January 31, 2022, the Company entered into a Securities Purchase Agreement (“Second January 2022 SPA”) with an investor (“Second
January 2022 Investor”) to purchase a convertible note with principal balance of $
During
April 2022, the Company entered into a Securities Purchase Agreement (“Second April 2022 SPA”) with various investors (“Investors”),
to purchase convertible notes for an aggregate investment amount of $
On
July 1, 2022, the Company entered into a Securities Purchase Agreement with an investor (“July 2022 Investor”), to purchase
a convertible note for a principal amount of $
19 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
October 22, 2022, the Company issued a new convertible note for $
On
November 29, 2022, in connection with the Securities Exchange Agreements and New Convertible Debentures discussed below, the Second November
2021 Warrants, Third November 2021 Warrants, January 2022 Warrants, Second January 2022 Warrants, Second April 2022 Warrants, and the
July 2022 Warrants, aggregating
Securities Exchange Agreements and New Convertible Debentures and Warrants dated November 29, 2022
On
November 29, 2022, the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase
Agreement, by and among the Company, certain accredited investors (the “Purchasers”) and Cavalry Fund I Management LLC,
a Delaware limited liability company, in its capacity as collateral agent (the “Collateral Agent”). At the Initial
Closing, the Company sold to the Purchasers (i)
The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.
On
November 29, 2022, the Company entered into Securities Exchange Agreements with the above investors, whereby the Second November 2021
Notes, the Third November 2021 Notes, the First January 2022 Note, the Second January 2022 Note, the Second April 2022 Notes, the July
2022 Note, and the Settlement Note, with an aggregate principal amount of $
On
November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of
On
January 27, 2023, the Company consummated the second closing (the “Second Closing”) of the Offering pursuant to the terms
and conditions of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company, certain accredited investors
(the “Second Closing Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its capacity
as Collateral Agent. At the Second Closing, the Company sold the Purchasers (i) New Debentures in an aggregate principal amount of $
The
New Debentures mature on
20 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.
The Company’s obligations under the Purchase Agreement and the New Debentures are secured by a first priority lien on all the assets of the Company pursuant to that certain Security Agreement, dated November 29, 2022 (the “Security Agreement”) by and among the Company, the Purchasers and the Collateral Agent.
In connection with the issuance of the Underlying Securities discussed above, the Company determined that the terms of the Debentures and Warrants contain an embedded conversion option to be accounted for as derivative liabilities due to the holder having the potential to gain value upon conversion and provisions which includes events not within the control of the Company. In accordance with ASC 815-40 -Derivatives and Hedging - Contracts in an Entity’s Own Stock, the embedded conversion option contained in the Debentures and the Warrants shall be 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 options will be determined using the Binomial Lattice valuation model. At the end of each period and on Debenture conversion date or repayment, the Company revalues the derivative liabilities resulting from the embedded option.
If
the Company or any Subsidiary shall default on any of its obligations under any mortgage credit agreement or other facility indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater
than $
In
connection with the Securities Exchange Agreements with investors for the exchange of the convertible notes and preferred shares for
the New Debentures discussed above, the Company issued an aggregate of
As
discussed above, on November 29, 2022, in order to induce the investors to exchange their respective convertible notes and preferred
stock into the New Debentures, the aggregate principal amount and accrued interest payable of the exchanged convertible notes, and the
stated value of exchanged preferred stock was increased by
Analysis of Exchange Agreements, Related Party Debenture, April 2023 Related Party Debenture, and New Debentures, and Related Warrants
In
accordance with ASC 470-50, Debt Modifications and Extinguishments, the Company performed an assessment of whether the Exchange Agreement
transactions with related parties and investors was deemed to be new debt, a modification of existing debt, or an extinguishment of existing
debt. The Company evaluated the November 29, 2022 Exchange Agreements for debt modification and concluded that the debt exchanges qualified
for debt extinguishment. The Company determined the transactions were considered a debt extinguishment because the change in debt, the
inducement premiums (related parties and third parties) discussed previously totaling $
21 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Derivative Liabilities Pursuant to Related Party Debentures and New Debentures and Related Warrants
Pursuant to the provisions of ASC 815-40 – Derivatives and Hedging – Contracts in an Entity’s Own Stock, the New Related Party Debentures, , the New Debenture, and the New Warrants issued in connection with the Exchange Agreements were analyzed and it was determined that the terms of the New Related Party Debentures, the April 2023 Related Party Debenture, the New Debentures and the related warrants contained terms that were considered derivatives due to the variable conversion of the Debentures and exercise price of the warrants, and other provisions which includes events not within the control of the Company. In accordance with ASC 815-40, the embedded conversion option contained in the debentures 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 options and warrants was determined using the Binomial Lattice valuation model. At the end of each period and on the date notes convert or are repaid, the Company revalues the derivative liabilities resulting from the embedded options and warrants.
In
connection with the issuance of the New Related Party Debentures and the New Debentures, and related warrants, on November 29, 2022,
the initial measurement date, the aggregate fair values of the embedded conversion option derivatives and warrant derivatives of $
The Company uses the Binomial Valuation Model to determine the fair value of its conversion options and new stock warrants which requires the Company to make several key judgments including:
● | the value of the Company’s common stock; | |
● | the expected life of issued stock warrants; | |
● | the expected volatility of the Company’s stock price; | |
● | the expected dividend yield to be realized over the life of the stock warrants; and | |
● | the risk-free interest rate over the expected life of the stock warrants. |
During the nine months ended June 30, 2023, the fair value of the embedded options and stock warrants were estimated at issuance using the Binomial Valuation Model with the following assumptions:
2023 | ||||
Dividend rate | % | |||
Term (in years) | ||||
Volatility | % | |||
Risk—free interest rate | % |
The Company’s computation of the expected life of issued stock warrants was based 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 volatility of the Company’s common stock.
During
the nine months ended June 30, 2023 and 2022, amortization of debt discounts related to the convertible notes payable and exchanged Debentures
amounted to $
Notes Payable - Related Parties
On June 30, 2023 and September 30, 2022, notes payable - related parties consisted of the following:
June 30, 2023 | September 30, 2022 | |||||||
Principal amount | $ | $ | ||||||
Less: debt discount | ( | ) | ||||||
Notes payable – related parties, net | ||||||||
Less: current portion of notes payable - related parties | ( | ) | ( | ) | ||||
Notes payable – related parties, net – long-term | $ | $ |
22 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
October 21, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and a related party, for a principal amount of $
On
April 26, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and a related party, for a principal amount of $
On
April 28, 2023, the Company entered into a Promissory Note Agreement with Douglas Mergenthaler who is a related party, for a principal
amount of $
In
May and June 2023, the Company entered into Promissory Note Agreements with Jeffrey Busch who serves as a member of the Board of Directors
and a related party, for an aggregate principal amount of $
During
the nine months ended June 30, 2023, amortization of debt discount related to notes payable – related parties amounted to $
Note Payable
In
September 2017, the Company entered into a note agreement with a third-party investor. Pursuant to the note, the Company borrowed a principal
amount of $
NOTE 7 –LEASE LIABILITIES
Financing Lease Right-of-Use (“ROU”) Assets and Financing Lease Liabilities
Effective
November 2018, the Company entered into a financing agreement with the first lessor to finance the purchase of equipment. Pursuant to
the financing agreement, the Company shall make a monthly payment of $
Effective
November 2018, the Company entered into a financing agreement with a second lessor to finance the purchase of equipment. Pursuant to
the financing agreement, the Company shall make a monthly payment of $
Effective
March 2019, the Company entered into a financing agreement with a third lessor to finance the purchase of equipment. Pursuant to the
financing agreement, the Company shall make a monthly payment of $
Effective
August 2019, the Company entered into a financing agreement with a fourth lessor to finance the purchase of equipment. Pursuant to the
financing agreement, the Company shall make a monthly payment of $
23 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Effective
January 2020, the Company entered into a financing agreement with a fifth lessor to finance the purchase of equipment. Pursuant to the
financing agreement, the Company shall make a monthly payment of $
The
significant assumption used to determine the present value of the financing lease payables was the discount rate which ranged from
Financing lease right-of-use assets (“Financing ROU”) is summarized below:
June 30, 2023 | September 30, 2022 | |||||||
Financing ROU assets | $ | $ | ||||||
Less accumulated depreciation | ( | ) | ( | ) | ||||
Balance of Financing ROU assets | $ | $ |
For
the three months ended June 30, 2023 and 2022, depreciation expense related to Financing ROU assets amounted to $
Financing lease liability related to the Financing ROU assets is summarized below:
June 30, 2023 | September 30, 2022 | |||||||
Financing lease payables for equipment | $ | $ | ||||||
Total financing lease payables | ||||||||
Payments of financing lease liabilities | ( | ) | ( | ) | ||||
Total | ||||||||
Less: short term portion | ( | ) | ( | ) | ||||
Long term portion | $ | $ |
Future minimum lease payments under the financing lease agreements on June 30, 2023 are as follows:
Years ending June 30, | Amount | |||
2024 | $ | |||
2025 | ||||
Total minimum financing lease payments | ||||
Less: discount to fair value | ( | ) | ||
Total financing lease payable on June 30, 2023 | $ |
Operating Lease Right-of-Use (“ROU”) Asset and Operating Lease Liabilities
In
December 2019, the Company entered into a lease agreement for its corporate and laboratory facility in Golden, Colorado.
In
February 2020, pursuant to ASC 842 – Leases, the Company calculated the present value of the total lease payments using
a discount rate of
On
June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (the “Lease Amendment”), effective October
3, 2021, for its laboratory facility in Golden, CO (see Note 10). The Lease Amendment provided for: (i) an extension to the term of the
original lease to five years following the completion of the Company’s improvements to the Expansion Premises (defined below);
(ii) an expansion of the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden, Colorado 80401,
consisting of approximately
Pursuant
to the Lease Amendment,
24 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
In
October 2021, pursuant to ASC 842 – Leases, the Company wrote off the balances of the operating asset of $
For
the nine months ended June 30, 2023, lease costs related to operating lease ROU asset and operating lease liabilities amounted to $
Operating Right-of-use asset (“ROU”) is summarized below:
June 30, 2023 | September 30, 2022 | |||||||
Operating office lease | $ | $ | ||||||
Less accumulated reduction | ( | ) | ( | ) | ||||
Balance of Operating ROU asset | $ | $ |
Operating lease liability related to the ROU asset is summarized below:
June 30, 2023 | September 30, 2022 | |||||||
Operating office lease | $ | $ | ||||||
Total operating lease liability | ||||||||
Reduction of operating lease liability | ( | ) | ( | ) | ||||
Total | ||||||||
Less: short term portion | ( | ) | ( | ) | ||||
Long term portion | $ | $ |
Future base lease payments under the non-cancellable operating lease on June 30, 2023 are as follows:
Years ending June 30, | Amount | |||
2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total minimum non-cancellable operating lease payments | ||||
Less: discount to fair value | ( | ) | ||
Total operating lease liability on June 30, 2023 | $ |
NOTE 8 – RELATED-PARTY TRANSACTIONS
Effective
January 1, 2021, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as
a strategic advisor. The agreement was effective for a period of twelve months, commencing on January 1, 2021 and was renewed on a month-to-month
basis, subject to the right of the Company and Mr. Kucharchuk to terminate the agreement in accordance with the agreement. Pursuant to
the agreement, Mr. Kucharchuk shall be paid $
On
April 26, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors,
for a principal amount of $
25 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
May 12, 2021, the Company and the May 2021 Investor entered into a May 2021 SPA to purchase a convertible May 2021 Note with principal
value of $
On
October 21, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and a related party, for a principal balance of $
On
November 1, 2021, pursuant to the First November 2021 SPA, the First November 2021 Investor purchased three notes with aggregate principal
of $
On
January 26, 2022, a notice and request for consent regarding a change in offering terms was sent by the Company to the First November
2021 Investor. Upon the approval of the First November 2021 Investor,
On
April 5, 2022, pursuant to the First April 2022 SPA, Matthew Schwartz, a member of the Board of Directors and a related party, purchased
a convertible note with principal amount of $
On
May 9, 2022, pursuant to the May 2022 SPA the May 2022 Investor purchased four convertible notes for an aggregate investment amount of
$
On
June 15, 2022, pursuant to the June 2022 SPA, Danica Holley, a member of the Board of Directors and a related party, purchased a convertible
note with principal of $
On
July 29, 2022, the Company entered into a Demand Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of
Directors and a related party, for a principal balance of $
On
August 11, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder, for
a principal balance of $
On
September 2, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder,
for a principal balance of $
During
the year ended September 30, 2022, the Company advanced a total of $
On
November 1, 2022, the Company entered into Demand Promissory Note Agreements with two related parties, who are affiliate stockholders,
for a principal balance of $
26 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
November 29, 2022, in connection with the Securities Exchange Agreements and New Related Party Convertible Debentures discussed in Note 6,
the May 2021 Warrants, First November 2021 Warrants, First April 2022 Warrants, May 2022 Warrants, and June 2022 Warrants, aggregating
On
November 29, 2022, the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase Agreement,
by and among the Company the Related Party Purchasers and the Collateral Agent. At the Initial Closing, the Company sold the related
party Purchasers (i) the New Related Party Debentures in an aggregate principal amount of $
On
November 29, 2022, the Company entered into Securities Exchange Agreements with the Exchanged Related Party Note Holders and accrued
interest payable of $
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of
On
April 11, 2023, the Company consummated a third closing (the “Third Closing”) of the Offering pursuant to the terms and conditions
of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company and Jeffrey Busch (the “Third Closing
Related Party Purchaser”). At the Third Closing, the Company sold the Purchaser (i) a New Debenture with a principal amount of
$
On
May 4, 2023, the Company entered into a Promissory Note Agreement with Douglas Mergenthaler who is a related party, for a principal amount
of $
In
May and June 2023, the Company entered into Promissory Note Agreements with Jeffrey Busch who serves as a member of the Board of Directors
and a related party, for an aggregate principal amount of $
As
of June 30, 2023 and September 30, 2022, the Company owed several executives and directors for expense reimbursements and consulting
fees in the aggregate amount of $
On June 30, 2023 and September 30, 2022, net amount due to related parties consisted of the following:
June 30, 2023 | September 30, 2022 | |||||||
Convertible notes principal – related parties | $ | $ | ||||||
Discount on convertible notes - related parties | ( | ) | ( | ) | ||||
Note payable principal – related parties | ||||||||
Discount on notes - related parties | ( | ) | ||||||
Accrued liabilities - related parties | ||||||||
Accounts payable – related parties | ||||||||
Total | $ | $ |
27 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
NOTE 9 – STOCKHOLDERS’ DEFICIT
Shares Authorized
On September 22, 2020, the Company filed with the Nevada Secretary of State, an amendment to its Articles of Incorporation to change its name from “OncBioMune Pharmaceutical, Inc.” to “Theralink Technologies, Inc.” and increase its authorized shares of common stock from shares of common stock at $ per share par value to shares of common stock at $ per share par value, effective September 24, 2020.
On July 1, 2022, the Company filed with the Nevada Secretary of State, an amendment to its Articles of Incorporation to increase its authorized shares of common stock from shares to shares of common stock at $ per share par value.
Series A Preferred Stock
On
August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating
As of June 30, 2023 and September 30, 2022, there were shares of the Company’s Series A Preferred Stock issued and outstanding held by a former member of the Board of Directors.
Series C-1 Preferred Stock
On
May 18, 2020, the Company filed a Certificate of Designation, Preferences and Rights of Series C-1 Preferred Stock (the “Series
C-1 Certificate of Designation”), as amended on June 9, 2021, with the Nevada Secretary of State to designate
On June 9, 2021, the Company filed an Amendment (the “CoD Amendment”) to the Series C-1 Certificate of Designation with the Nevada Secretary of State. The filing of the CoD Amendment was approved by the Board on June 8, 2021, and by the holders of the majority of the outstanding shares of Series C-1 Preferred Stock on June 8, 2021.
The
CoD Amendment sets the triggering price for the anti-dilution price protection at $
● | Holders of shares of Series C-1 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 C-1 Preferred Stock is convertible into shares of common stock any time after the Initial Issuance Date at a conversion
price of $ | |
● | 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 C-1 Certificate of Designation), at a price of or with an exercise price or conversion price of less than
$ | |
● | In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Company, the holders of the Series C-1 Preferred Stock shall be entitled to receive, in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (“Liquidation Funds”) before any amount shall be paid to the holders of any shares of Junior Stock, but pari passu with any Parity Stock (as defined in the Series C-1 Certificate of Designation) then outstanding, an amount per shares of the Series C-1 Preferred Stock equal to the greater of (A) the conversion amount thereof on the date of such payment or (B) the amount per share such holder of Series C-1 Preferred Stock would receive if such holder converted such Series C-1 into common stock immediately prior to the date of the payment, provided that if the Liquidation Funds are insufficient to pay the full amount due to the holders of Series C-1 Preferred Stock and holders of the shares of Parity Stock, then each holder of Series C-1 Preferred Stock and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full amount of the Liquidation Funds payable to such holder of Series C-1 Preferred Stock and such holder of the Parity Stock as a liquidation preference, in accordance with their respective certificate of designation (or equivalent), as a percentage of the full amount of Liquidation Funds payable to all holders of Series C-1 Preferred Stock and all holders of Parity Stock. |
28 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
During the year ended September 30, 2022, various holders of the Series C-1 Preferred Stock converted an aggregate of shares of Series C-1 Preferred Stock into shares of the Company’s common stock (see below – Common Stock Issued Upon Conversion of Series C-1 Preferred Stock).
On
November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of
As of June 30, 2023 and September 30, 2022, the Company had and shares of Series C-1 Preferred Stock issued and outstanding, respectively.
Series C-2 Preferred Stock
On
May 18, 2020, the Company filed a Certificate of Designation, Preferences and Rights of Series C-2 Preferred Stock (the “Series
C-2 Certificate of Designation”) with the Nevada Secretary of State to designate
● | Holders of shares of Series C-2 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 C-2 Preferred Stock is convertible into shares of common stock any time after the initial issuance date at a conversion
price of $ | |
● | 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 C-2 Certificate of Designation), at a price of or with an exercise price or conversion price of less than the conversion price, then upon such issuance or sale, the Series C-2 Preferred Stock conversion price shall be reduced to the sale price, the exercise price or conversion price of the securities sold. In addition, these preferred stockholders have the right to participate in future equity offerings from the company for twenty-four months from the effective date. | |
● | In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Company, the holders of the Series C-2 Preferred Stock shall be entitled to receive, in cash out of the Liquidation Funds before any amount shall be paid to the holders of any shares of Junior Stock, but pari passu with any Parity Stock (as defined in the Series C-2 Certificate of Designation) then outstanding, an amount per shares of the Series C-2 Preferred Stock equal to the greater of (A) the conversion amount thereof on the date of such payment or (B) the amount per share such holder would receive if such holder converted such Series C-2 into common stock immediately prior to the date of the payment, provided that if the Liquidation Funds are insufficient to pay the full amount due to the holders of Series C-2 Preferred Stock and holders of the shares of Parity Stock, then each holder of Series C-2 Preferred Stock and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full amount of the Liquidation Funds payable to such holder of Series C-2 Preferred Stock and such holder of the Parity Stock as a liquidation preference, in accordance with their respective certificate of designation (or equivalent), as a percentage of the full amount of Liquidation Funds payable to all holders of Series C-2 Preferred Stock and all holders of Parity Stock. |
During the year ended September 30, 2022, a holder of the Series C-2 Preferred Stock converted shares of Series C-1 Preferred Stock into shares of the Company’s common stock (see below – Common Stock Issued Upon Conversion of Series C-2 Preferred Stock).
On
November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of
As of June 30, 2023 and September 30, 2022, the Company had and shares of Series C-2 Preferred Stock, respectively, issued and outstanding.
Series E Preferred Stock
On September 15, 2020, the Company filed a Certificate of Designation, Preferences and Rights of Series E Preferred Stock (the “Series E Certificate of Designation”) with the Nevada Secretary of the State to designate shares of its previously authorized preferred stock as Series E Preferred Stock, par value $ per share and a stated value of $ per share. The Series E Certificate of Designation and its filing were approved by the Company’s Board of Directors without stockholder approval as provided for in the Company’s Articles of Incorporation and under Nevada law. The holders of shares of Series E Preferred Stock have the following preferences and rights:
● | From
the initial issuance date, cumulative dividends on each share of Series E shall accrue, on a quarterly basis in arrears (with any
partial quarter calculated on a pro-rata basis), at the rate of |
29 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(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. | |
● | ||
● | ||
● | In the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance (as defined in the Series E Certificate of Designation), at a price, an exercise price or conversion price of less than the conversion price, then upon such issuance or sale, the Series E Preferred Stock conversion price shall be reduced to the sale price or the exercise price or conversion price of the securities sold. | |
● | Holders of Series E Preferred Stock have no voting rights. |
On
September 16, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who
is a beneficial stockholder, to purchase an aggregate amount of
Pursuant to the Series E Certificate of Designation, Series E Preferred Stock is redeemable at the option of the holder in the event that the Company is prohibited from issuing shares of common stock to a holder upon any conversion due to insufficient shares of common stock available (“Authorized Failure Shares”) and therefore meets the criteria of a contingently redeemable instrument in accordance with ASC 480-10-25-7 – Distinguishing Liabilities from Equity. The Series E Preferred Stock is contingently redeemable upon the occurrence of an event that is outside of the issuer’s control and is classified as temporary equity pursuant to ASC 480-10-S99.
Further the Series E Preferred Stock is an equity host instrument since it has more features that align with an equity instrument than a debt instrument pursuant to ASC 815-15-25-17A – Derivatives and Hedging, which states in part that “the nature of the host contract depends on the economic characteristics and risks of the entire hybrid financial instrument.” All of the contractual and implied terms of the preferred share, such as the existence of a redemption feature or conversion option, should be considered when determining the nature of the host instrument as debt or equity. The Series E Preferred Stock embedded conversion feature (call option) is considered clearly and closely related to the equity host. Accordingly, further analysis under ASC 815-40-15 is not necessary and the embedded conversion feature should not be bifurcated from the host instrument. The Series E Preferred Stock redemption feature (put option) does not meet all the criteria under ASC 815-10-15-83, therefore it does not qualify as a derivative.
To
determine whether the Series E Preferred Stock contains a BCF, we compared the effective conversion price and the Company’s stock
price on the commitment date. The effective conversion price was calculated by dividing the proceeds from Series E Preferred Stock by
the number of common shares issuable upon conversion of the Series E Preferred Stock. The BCF is measured as the difference between the
commitment date stock price and the effective conversion price multiplied by the number of common stock issuable upon conversion of Series
E. The BCF is limited to the total cash proceeds received if the amount of the BCF exceeds the cash proceeds received. In connection
with the issuance of Series E Preferred Stock, during the year ended September 30, 2020, the Company recognized a beneficial conversion
feature in the amount of $
During
the year ended September 30, 2021, the issuance of Series F Preferred Stock triggered the price protection clause in the Series E Preferred
Stock. Thus, the conversion price of the Series E Preferred Stock was reduced from $
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of
During
the nine months ended June 30, 2023 and 2022, the Company incurred $
As of June 30, 2023 and September 30, 2022, the Company had and shares of Series E Preferred Stock issued and outstanding classified as temporary equity in the accompanying unaudited balance sheets, respectively.
30 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Series F Preferred Stock
On July 30, 2021, the Company filed a Certificate of Designation, Preferences and Rights of Series F Preferred Stock (the “Series F Certificate of Designation”), with the Nevada Secretary of State to designate shares of its previously authorized preferred stock as Series F Preferred Stock, par value $ per share and a stated value of $ per share. The Series F Certificate of Designation and its filing were approved by the Company’s Board of Directors without stockholder approval as provided for in the Company’s Articles of Incorporation and under Nevada law. The holders of shares of Series F Preferred Stock have the following preferences and rights:
● | From
the Initial Issuance Date, cumulative dividends on each share of Series F shall accrue, on a monthly basis in arrears (with any partial
month being made on a pro-rata basis), at the rate of | |
● | Holders of shares of Series F Preferred Stock are entitled to dividends or distributions on each share on an “as converted” into common stock basis, if, as and when declared from time to time by the Board of Directors. | |
● | ||
● | ||
● | In the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance (as defined in the Series F Certificate of Designation), at a price, an exercise price or conversion price of less than the conversion price, then upon such issuance or sale, the Series F Preferred Stock conversion price shall be reduced to the sale price, or the exercise price or conversion price of the securities sold. | |
● | Series F Preferred Stock shall rank pari passu with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company with the Series C-1 Preferred Stock of the Company, the Series C-2 Preferred Stock of the Company, and the Series E Preferred Stock of the Corporation (the “Parity Stock”), and all other shares of capital stock of the Company shall be junior in rank to all Series F shares with respect to the preferences as to dividends (except for the common stock, which shall be pari passu as provided in the Series F Certificate of Designation), distributions and payments upon the liquidation, dissolution and winding up of the Company (such junior stock is referred to herein collectively as “Junior Stock”). The rights of all such Junior Stock shall be subject to the rights, powers, preferences and privileges of the Series F Preferred Stock. Without limiting any other provision of the Series F Certificate of Designation, without the prior express consent of the Required Holder, the Company shall not hereafter authorize or issue any additional or other shares of capital stock that is (i) of senior rank to the Series F Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company (collectively, the “Senior Preferred Stock”), or (ii) Parity Stock. Except as provided for in the Certificate of Designation, in the event of the merger or consolidation of the Company into another corporation, the Series F Preferred Stock shall maintain their relative rights, powers, designations, privileges and preferences provided for in the Certificate of Designation for a period of at least two years following such merger or consolidation and no such merger or consolidation shall cause result inconsistent therewith. |
On
July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a
beneficial stockholder, to purchase an aggregate amount of
In
accordance with ASC 470 – Debt, the proceeds of $
Pursuant to the Series F Certificate of Designation, Series F Preferred Stock is redeemable at the option of the holder in the event that the Company is prohibited from issuing shares of common stock to a holder upon any conversion due to insufficient shares of common stock available (“Authorized Failure Shares”) and therefore meets the criteria of a contingently redeemable instrument in accordance with ASC 480-10-25-7 – Distinguishing Liabilities from Equity. The Series F Preferred Stock is contingently redeemable upon the occurrence of an event that is outside of the issuer’s control and should be classified as temporary equity pursuant to ASC 480-10-S99. Further the Series F Preferred Stock is an equity host instrument since it has more features that align with an equity instrument than a debt instrument pursuant to ASC 815-15-25-17A – Derivatives and Hedging, which states in part that “the nature of the host contract depends on the economic characteristics and risks of the entire hybrid financial instrument.” All of the contractual and implied terms of the preferred share, such as the existence of a redemption feature or conversion option, should be considered when determining the nature of the host instrument as debt or equity. The Series F Preferred Stock embedded conversion feature (call option) is considered clearly and closely related to the equity host. Accordingly, further analysis under ASC 815-40-15 is not necessary and the embedded conversion feature should not be bifurcated from the host instrument. The Series F Preferred Stock redemption feature (put option) does not meet all the criteria under ASC 815-10-15-83, therefore it does not qualify as a derivative.
31 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
To
determine whether the Series F Preferred Stock contains a BCF, we compared the effective conversion price and the Company’s stock
price on the commitment date. The effective conversion price was calculated by dividing the proceeds from Series F Preferred Stock by
the number of common shares issuable upon conversion of the Series F Preferred Stock. The BCF is measured as the difference between the
commitment date stock price and the effective conversion price multiplied by the number of common stock issuable upon conversion of Series
F. The BCF is limited to the total cash proceeds received if the amount of the BCF exceeds the cash proceeds received. In connection
with the issuance of Series F Preferred Stock, during the year ended September 30, 2021, the Company recognized a BCF in the amount of
$
The
relative fair value of the warrant of $
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of
During
the nine months ended June 30, 2023 and 2022, the Company also recorded dividends related to the Series F Preferred Stock in the amount
of $
As of June 30, 2023 and September 30, 2022, the Company had and shares of Series F Preferred Stock issued and outstanding classified as temporary equity in the accompanying unaudited balance sheets, respectively.
Stock Options
On April 28, 2020, the Board approved the 2020 Equity Incentive Plan (“2020 Plan”), as amended on May 29, 2020. On April 18, 2022, the Board terminated the 2020 Plan and any shares reserved thereunder are no longer subject to reservation and the Company had no options issued and outstanding under the 2020 Plan.
On April 18, 2022, the Company’s Board and the stockholders approved the 2022 Equity Incentive Plan (“2022 Plan”) at which time the plan became effective. Upon the effective date of the 2022 Plan, shares of the Company’s common stock were reserved for issuance under the 2022 Plan (“Reserved Share Amount”), subject to the adjustments described in the 2022 Plan, and such Reserved Share Amount, when issued in accordance with the 2022 Plan, shall be validly issued, fully paid, and non-assessable. Pursuant to the 2022 Plan, the option price of each incentive stock option (except those that constitute substitute awards) shall be at least the fair market value of a share on the grant date; provided, however, that in the event that a grantee is a ten percent stockholder as of the grant date, the option price of an incentive stock option shall be not less than of the fair market value of a share on the grant date, in no case shall the option price of any option be less than the par value of a share.
On May 26, 2022, the Company’s Board of Directors (“Board”) approved the future granting of stock options under the 2022 Equity Incentive Plan, to various employees and consultants. On August 16, 2022, the Company granted stock options to purchase common shares of the Company to various employees and consultants with an exercise price of $ per share. The options expire on August 15, 2032 and vest over varying vesting terms through August 2026. 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 ; expected volatility of ; risk-free interest rate of ; and an estimated holding period of 10 years. The Company valued these stock options at a fair value of $ and will record stock-based compensation expense over the vesting periods.
During the three and nine months ended June 30, 2023, in connection with the accretion of stock-based option expense over the vesting period, the Company recorded stock option expense of $ and $ , respectively. As of June 30, 2023, there were options outstanding and options vested, subject to the filing of a registration on Form S-8 for the registration of the shares underlying such options. As of June 30, 2023, there was $ of unvested stock-based compensation expense to be recognized through August 2026. The aggregate intrinsic value on June 30, 2023 was $ and was calculated based on the difference between the quoted share price on June 30, 2023 of $ and the exercise price of the underlying options.
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Balance Outstanding September 30, 2022 | $ | $ | ||||||||||||||
Granted | - | |||||||||||||||
Balance Outstanding June 30, 2023 | $ | $ | ||||||||||||||
Exercisable, June 30, 2023 | (a) | $ | $ | |||||||||||||
Balance Non-vested on September 30, 2022 | $ | $ | ||||||||||||||
Granted | - | - | ||||||||||||||
Vested during the period | ( | ) | - | - | ||||||||||||
Balance Non-vested on June 30, 2023 | $ | $ |
(a) |
32 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Warrants
Legacy Warrants
On
November 1, 2021, the Company issued the First November 2021 Warrants to purchase an aggregate of
On
November 1, 2021, the Company issued the Second November 2021 Warrants to purchase an aggregate of
On
November 1, 2021, the Company issued the Third November 2021 Warrants to purchase an aggregate of
On
January 26, 2022, the Company, upon the approval of the First November 2021 Investor, amended the First November 2021 SPA whereby the
Company issued additional cashless-exercisable warrants to purchase
On
January 26, 2022, the Company, upon the approval of the Second November 2021 Investor, amended the Second November 2021 SPA whereby the
Company issued additional cashless-exercisable warrants to purchase
On
January 26, 2022, the Company, upon the approval of the Third November 2021 Investor, amended the Third November 2021 SPA whereby the
Company issued additional cashless-exercisable warrants to purchase
On
January 27, 2022, the Company issued the First January 2022 Warrants to purchase an aggregate of
On
January 31, 2022, the Company issued the Second January 2022 Warrants to purchase an aggregate of
On
January 31, 2022, the Company issued to two consultants an aggregate of
On
April 5, 2022, the Company issued the First April 2022 Warrants to purchase
During
April 2022, the Company issued the Second April 2022 Warrants to purchase an aggregate of
33 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
May 9, 2022, the Company issued the May 2022 Warrants to purchase an aggregate of
On
June 15, 2022, the Company issued the June 2022 Warrants to purchase
On
July 1, 2022, the Company issued the July 2022 Warrants to purchase an aggregate of
On
November 29, 2022, in connection with the Securities Exchange Agreements and New Convertible Debt discussed below, the May 2021 Warrants,
First November 2021 Warrants, First April 2022 Warrants, May 2022 Warrants, and June 2022 Warrants, aggregating
On
November 29, 2022, in connection with the Securities Exchange Agreements and New Convertible Debentures discussed in Note 6, the Second November
2021 Warrants, Third November 2021 Warrants, January 2022 Warrants, Second January 2022 Warrants, Second April 2022 Warrants, and the
July 2022 Warrants, aggregating
New Warrants
In
connection with the Securities Exchange Agreements with related parties for the exchange of the convertible notes and preferred shares
for the New Related Party Debentures, as discussed in Note 6, the Company issued an aggregate of
In
connection with the Securities Exchange Agreements with investors for the exchange of the convertible notes and preferred shares for
the New Debentures, as discussed in Note 6, the Company issued an aggregate of
In
connection with the Initial Closing of the private placement, the Company and Gunnar entered into the Placement Agency Agreement, pursuant
to which Gunnar agreed to act as the Placement Agent. Pursuant to the terms of the Placement Agency Agreement, Gunner received
On
January 27, 2023, the Company consummated the second closing (the “Second Closing”) of the Offering pursuant to the terms
and conditions of that certain Purchase Agreement, dated as of November 29, 2022 as discussed in Note 6. The Company issued an aggregate
of
34 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
April 22, 2023, the Company consummated the closing of the Offering pursuant to the terms and conditions of that certain Purchase Agreement,
dated as of November 29, 2022 as discussed in Note 6. The Company issued
Warrants activities for the nine months ended June 30, 2023 is summarized as follows:
Weighted | Weighted Average Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Number of | Exercise | Term | Intrinsic | |||||||||||||
Warrants | Price | (Years) | Value | |||||||||||||
Balance Outstanding on September 30, 2022 | $ | $ | ||||||||||||||
Issued in connection with a New Related Party Convertible Debentures (see Note 6) | ||||||||||||||||
Issued in connection with a New Convertible Debentures (see Note 6) | ||||||||||||||||
Issued to placement agent and consultant in connection with New Related Party and New Convertible Debentures (see Note 6) | ||||||||||||||||
Balance Outstanding on June 30, 2023 | $ | $ | ||||||||||||||
Exercisable on June 30, 2023 | $ | $ |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Employment Agreements
Michael Ruxin, M.D.
On June 5, 2020, the Company and Dr. Michael Ruxin entered into an employment agreement (the “Ruxin Employment Agreement”) for Dr. Ruxin to serve as the Company’s Chief Executive Officer, President and a director.
The
Ruxin Employment Agreement provided that Dr. Ruxin will be employed for a five-year term commencing on June 5, 2020.Dr. Ruxin was entitled
to receive an annual base salary of $
The Ruxin Employment 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.
In July 2023, the Ruxin Employment Agreement was terminated and Dr. Ruxin has transitioned to become the Company’s Chief Medical Officer (See Note 11 -Subsequent Events).
Jeffrey Busch
On June 5, 2020, the Company and Jeffrey Busch entered into an employment agreement (the “Busch Employment Agreement”) for Mr. Busch to serve as the Company’s Chairman of the Company and in such other positions as may be assigned from time to time by the Board of Directors.
The
Busch Employment Agreement stipulates that Mr. Busch will be employed for a five-year term commencing on June 5, 2020. The term will
be automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless
either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment
period will not be extended. Mr. Busch will be entitled to receive an annual base salary of $
35 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
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 Employment Agreement), with Good Reason (as defined in the Busch Employment Agreement) or as a result of a non-renewal of the term of employment under the Busch Employment Agreement, Mr. Busch shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Mr. Busch prior to the date of termination.
The Busch Employment Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.
Thomas E. Chilcott, III
On
September 24, 2020, the Company appointed Thomas E. Chilcott, III, to serve as the Chief Financial Officer. The Company entered into
an offer letter with Mr. Chilcott which provides that his base salary will be $
On
December 31, 2021, the Company’s Board approved an increase in the base salary of Thomas E. Chilcott, III, the Company’s
Chief Financial Officer, from $
Faith Zaslavsky
On
December 5, 2022, the Company appointed Faith Zaslavsky, age 48, as President and Chief Operating Officer of the Company, effective December
5, 2022 (the “Effective Date”). In connection with her appointment, on December 5, 2022, the Company and Ms. Zaslavsky entered
into an offer letter (the “Offer Letter”) which provides that Ms. Zaslavsky’s base salary will be $
Andrew Kucharchuk
On
May 5, 2023, the Company appointed Andrew Kucharchuk, a member of the Board of Directors of the Company, as its Chief Financial Officer,
effective May 8, 2023. Mr. Kucharchuk was previously the Chief Executive Officer and Chief Financial Officer of OncBioMune Pharmaceuticals,
Inc., the Company’s predecessor. The Company and Mr. Kucharchuk agreed that Mr. Kucharchuk’s base salary will be $
Consulting Agreements
On
July 5, 2020, the Company and a consultant entered into a Scientific Advisory Board Service Agreement (“Scientific Advisory Agreement”)
which provides for; (i) $
36 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
On
July 5, 2020, the Company and a consultant entered into a Pathology Advisory Board Service Agreement (the “Pathology Advisory Agreement”)
which provides for; (i) $
Effective
January 1, 2021, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as
a strategic advisor. The agreement was effective for a period of twelve months, commencing on January 1, 2021 and shall be renewed on
a month-to-month basis, subject to the right of the Company and Mr. Kucharchuk to terminate the agreement pursuant to the agreement.
Pursuant to the agreement, Mr. Kucharchuk shall be paid $
License Agreements
GMU License
In
September 2006, the Company entered into an exclusive license agreement with George Mason Intellectual Properties (“GMU License
Agreement”), a non-profit corporation formed for the benefit of George Mason University (“GMU”) which: (1) grants an
exclusive worldwide license, with the right to grant sublicenses, under the licensed inventions to make, have made, import, use, market,
offer for sale and sell products designed, manufactured, used and/or marketed for all fields and for all uses, subject to the exclusions
as defined in the GMU License Agreement; (2) grants an exclusive option to license past, existing, or future inventions in the Company’s
field, from inventors that are obligated to assign to GMU and who have signed a memorandum of understanding acknowledging that developed
intellectual property will be offered, subject to the exclusions as defined in the GMU License Agreement; (3) the license and option
granted specifically excludes biomarkers for lung, ovarian, and breast cancers in a diagnostic field of use and GMU inventions developed
using materials obtained from third parties under agreements granting rights to inventions made using said materials and; (4) grants
right to assign or otherwise transfer the license so long as such assignment or transfer is accompanied by a change of control transaction
and GMU is given 14 days’ prior notice. In addition, the Company is required to make an annual payment of $
NIH License Agreement
In
March 2018, the Company entered into two license agreements (“NIH License Agreements”) with the National Institutes of Health
(“NIH”) which grants the Company an exclusive and a nonexclusive United States license for certain patents. Pursuant to the
NIH License Agreements, the Company is required to make an annual payment of $
Vanderbilt License Agreement
In
March 2023, the Company entered into a license agreement (“Vanderbilt License Agreement”) with the Vanderbilt University
(“Vanderbilt”) which grants the Company an exclusive license for certain patents. Pursuant to Vanderbilt License Agreement,
the Company is required to make an annual payment of $
Lease
On
June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (“Lease Amendment”), effective October
3, 2021, for its laboratory facility in Golden, CO (see Note 7). The Lease Amendment provided for: (i) an extension to the term of the
original lease to five years following the completion of the Company’s improvements to the Expansion Premises (defined below);
(ii) an expansion of the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden,
Colorado 80401, consisting of approximately
Pursuant
to the Lease Amendment,
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 June 30, 2023 and September 30, 2022, the Company has recorded a contingent liability of $
37 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
Legal Action
On
December 10, 2021, YPH LLC filed a complaint against the Company in the District Court for the Southern District of New York alleging
that Theralink breached its Certificate of Designation for Series C-1 Convertible Preferred Stock by failing to honor a conversion notice
submitted to it by YPH. Based on these and other allegations, Plaintiff asserted a breach of contract claim claiming that it has damages
in excess of $
On August 16, 2022, Erika Singleton filed a complaint against the Company in the Eighth Judicial District Court, Clark County, Nevada, Case No. A-22-857038-C. Plaintiff alleges that the Company did not provide her with physical stock certificates for shares of common stock Plaintiff purchased for $ in 2017. Based on these and other allegations, Plaintiff asserts claims against the Company for breach of contract, violation of Florida securities law, fraud, and unjust enrichment. The Company filed a motion to dismiss the fraud claim, which the Court granted on April 20, 2023. The Company is currently preparing to file its answer to Plaintiff’s remaining claims.
Agreement and Plan of Merger
On May 23, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with IMAC Holdings, Inc., a Delaware corporation (Nasdaq: BACK) (“IMAC”), and IMAC Merger Sub, Inc., a Delaware corporation and a newly formed, wholly owned subsidiary of IMAC (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity (the “Surviving Entity”) and a wholly owned subsidiary of IMAC. On May 22, 2023, the board of directors of IMAC, and the Board of Directors of Theralink unanimously approved the Merger Agreement.
At
the effective time of the Merger (the “Effective Time”), each share of common stock (“Theralink Common Stock”)
and each share of preferred stock of Theralink (together with the Theralink Common Stock, “Theralink Shares”) issued
and outstanding immediately prior to the Effective Time will be converted into and will thereafter represent the right to receive
a portion of a share of common stock of IMAC, par value $ (the “IMAC Shares”) such that the total number of IMAC
Shares issued to the holders of Theralink Shares shall equal
At the Effective Time, each award of stock options (each, a “Theralink Stock Option”), whether or not then vested or exercisable, that is outstanding immediately prior to the Effective Time, will be assumed by IMAC and converted into a stock option relating to a number of IMAC Shares equal to the product of: (i) the number of shares of Theralink Common Stock subject to such Theralink Stock Option; and (ii) ratio which results from dividing one share of Theralink Common Stock by the portion of a IMAC Share issuable for such share as finally determined at the Effective Time (the “Exchange Ratio”), at an exercise price per IMAC Share (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (A) the exercise price per share of Theralink Common Stock of such Theralink Stock Option by (B) the Exchange Ratio.
Each of IMAC and Theralink has agreed, subject to certain exceptions with respect to unsolicited proposals, not to directly or indirectly solicit competing acquisition proposals or to enter into discussions concerning, or provide confidential information in connection with, any unsolicited alternative acquisition proposals. However, if such party receives an unsolicited, bona fide acquisition proposal that did not result from a material breach of the non-solicitation provisions of the Merger Agreement and IMAC’s or Theralink’s Board of Directors, or any committee thereof, as applicable, concludes, after consultation with its financial advisors and outside legal counsel, that such unsolicited, bona fide acquisition proposal constitutes, or could reasonably be expected to result in, a superior offer, such party may furnish non-public information regarding it or any of its subsidiaries and engage in discussions and negotiations with such third party in response to such unsolicited, bona fide acquisition proposal; provided that each party provides notice and furnishes any non-public information provided to the maker of the acquisition proposal to each party substantially concurrently with providing such non-public information to the maker of the acquisition proposal.
The completion of the Merger is subject to the satisfaction or waiver of customary closing conditions, including: (i) adoption of the Merger Agreement by holders of a majority of the outstanding Theralink Shares, (ii) approval of the issuance of IMAC Shares in connection with the Merger by a majority of the outstanding IMAC Shares, (iii) absence of any court order or regulatory injunction prohibiting completion of the Merger, (iv) expiration or termination of (a) all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and (b) any agreement with any governmental entity not to consummate the transactions contemplated by the Merger Agreement, (v) effectiveness of IMAC’s registration statement on Form S-4 to register the IMAC Shares to be issued in the Merger, (vi) subject to specified materiality standards, the accuracy of the representations and warranties of the other party, (vii) the authorization for listing of IMAC Shares to be issued in the Merger on Nasdaq, (viii) compliance by the other party in all material respects with its covenants, and (ix) the completion of satisfactory due diligence by both parties.
IMAC and Theralink have each made customary representations and warranties in the Merger Agreement. The Merger Agreement also contains customary covenants and agreements, including covenants and agreements relating to (i) the conduct of each of IMAC’s and Theralink’s business between the date of the signing of the Merger Agreement and the closing date of the Merger and (ii) the efforts of the parties to cause the Merger to be completed, including actions which may be necessary to cause the expiration or termination of any waiting periods under the HSR Act.
Upon completion of the Merger, it is anticipated that the transaction with be accounted for as a reverse acquisition and recapitalization of the Company.
38 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
NOTE 11 – SUBSEQUENT EVENTS
Chief Medical Officer Consulting Agreement
On July 14, 2023, the Company entered into a Chief Medical Officer Consulting
Agreement with Dr. Michael Ruxin, the Company’s former Chief Executive Officer, to serve as the Company’s Chief Medical Officer.
For compensation for services provided by Dr, Ruxin as a Chief Medical Officer Consultant
Note Payable
On
July 28, 2023, the Company issued a Promissory Note Agreement with IMAC Holdings, Inc. (“IMAC”) for a principal amount of
$
The IMAC Convertible Secured Note
On
August 16, 2023, the Company and IMAC entered into a Convertible Secured Promissory Note (the “IMAC Note”) pursuant to which
IMAC has loaned to the Company $
The
IMAC Note will mature on August 16, 2024 and bears interest at
Amended and Restated Security Agreement
Previously,
on November 29, 2022, January 27, 2023 and April 11, 2023, the Company issued an aggregate of $
39 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with our historical financial statements. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see Part II, Item 1A of this Quarterly Report on Form 10-Q, “Risk Factors,” and the risk factors included in our September 30, 2022, Annual Report on Form 10-K.
Overview
Theralink Technologies is a precision medicine company with a nationally CLIA-certified and CAP-accredited laboratory in Golden, Colorado. Theralink’s unique and patented Reverse Phase Protein Array (RPPA) technology platform can quantify protein signaling to support oncology clinical treatment decisions and biopharmaceutical drug development. Since protein signaling is responsible for the development and progression of cancer, nearly all FDA-approved cancer therapeutics target proteins, not genes. The Theralink® RPPA technology can reveal the protein drug target(s) that are essentially turned “on” in a patient’s cancer and may suggest the most effective treatment plan to turn those proteins “off”. Therefore, the Theralink® RPPA technology is a critical tool that may empower oncologists with actionable information to effectively treat a cancer patient, which is often missed by standard proteomic and genomic testing.
Our commercially available Lab Developed Test (LDT), the Theralink® Assay for Breast Cancer, is currently being utilized by oncologists across the United States to assist in making the most targeted treatment plan for their patients with advanced breast cancer. In 2023, Theralink began receiving reimbursement for this test by Medicare and certain third-party payors. The Theralink® test determines which drug target(s) are present and/or activated and may reveal to the oncologist which patients are predicted to be responders versus non-responders to a particular therapeutic. The test may provide therapeutic recommendations to support oncologist treatment selection of the best therapy option – which may improve patient response and consequently save the healthcare system substantial dollars.
The currently available Theralink® Assay for Breast Cancer will be followed by the Theralink® Pan-Tumor Assay 1.0, expected to launch in 2023 to include ovarian, endometrial, and head & neck cancers. The test is expected to expand further in 2024 to the Theralink® Pan-Tumor Assay 2.0 to support the treatment of colorectal, prostate, pancreatic, lung, and other solid tumor cancer indications.
Theralink Tumor Biomarker Platform
The Theralink test uses Reverse Phase Protein Array (RPPA) technology to measure the abundance and activation of cell surface proteins and their downstream signaling pathways. These proteins are considered biomarkers in the medical field. Biomarkers are part of a relatively new clinical toolset categorized by their clinical applications. The four main classes are molecular, physiologic, histologic, and radiographic biomarkers. All four types of biomarkers have a clinical role in narrowing or guiding treatment decisions and follow a sub-categorization of either predictive, prognostic, or diagnostic. Biomarkers serve as the drug targets for most FDA-approved and investigational therapies for cancer. Theralink may aid in determining the ideal prescribed medication for patients based on the unique protein characteristics of their cancer.
Our highly sensitive analyses of identified biomarkers have the potential to empower physicians to improve treatment decisions through better prediction of treatment outcomes. The biomarker information might prevent the patient from being exposed to toxic treatments that may be unlikely to deliver clinically meaningful benefits while potentially guiding physicians in prescribing treatments likely to yield maximum results.
The Theralink platform can be used for multiple applications in therapeutic clinical trials, including:
● | Patient selection to enroll clinical trials with the patients best suited for the therapeutic | |
● | Studies to explore the mechanisms by which a therapeutic benefits patients | |
● | Identification of how a patient becomes resistant to a therapeutic | |
● | Identification of what the therapeutic does to the body and what the body does to the therapeutic to support clinical application decisions (i.e., dose-response, endpoint measurements) |
Theralink measures active (also referred to as phosphorylated) proteins in tumor tissues. Active (phosphorylated) proteins are targets for oncology therapeutics. Examples of tumor indications for application development include, but are not limited to:
● | Breast Cancer | |
● | Pancreatic Cancer | |
● | Colorectal Cancer | |
● | Non-Small Cell Lung Cancer |
Theralink is advancing proprietary technology in proteomics research. This sector has emerged in the high-growth field of precision medicine. This technology is intended to generate an accurate and comprehensive portrait of protein pathway activation in diseased cells from each patient, which may enable physicians to identify and match individuals with optimal targeted therapies. Also, our technology allows a superior quantitative measurement of the level of activation. Theralink’s RPPA technology surpasses conventional measurement methods in both quantitative capacity and sensitivity. Our lab developed tests may prove highly useful for oncology patient management by improving targeted therapy drug selection, chemotherapy drug selection, immunotherapy drug selection, and optimizing combination therapy selection.
The biomarker and data-generating tests provide biopharmaceutical companies, clinical scientists, and physicians with molecular-based guidance as to which patients may benefit from newly developed or repurposed molecular targeted therapeutics for treating various life-threatening oncology diseases. This addresses the core aspect of precision oncology treatment by identifying which individuals are more likely to respond to specific targeted molecular therapies, thus forming the basis for personalized medicine.
We benefit from a portfolio of ten (unless one expired) patents derived from licensing agreements with the US Public Health Service, the federal agency that supervises the National Institutes of Health (NIH), which provides us with broad protection around its technology platform, George Mason University (GMU), which provides access to additional intellectual property around improvements to the technology platform and biomarker signatures that form the basis for future proteomic’s products and Vanderbilt University (Vanderbilt), which provides a predictor of response to immunotherapy in cancer. The current assay consists of a panel of 32 protein drug targets/biomarkers, nearly all of which are specifically covered by a suite of issued patents licensed exclusively to the Company. These patents are critical to the Company’s business because the intellectual property covers the use of these specific protein biomarkers on the Theralink test for the identification and optimization of which drug and which specific combination of drugs is most likely to work for each specific patient: the hallmark of patient-tailored therapy. The intellectual property covers the use of these specific markers as well as the analysis of protein drug target activation mapping in general for patient-tailored therapeutic drug selection for breast cancer, lung cancer, colorectal cancer, as well as many other solid tumors. Moreover, our issued patent portfolio covers the use of these markers for patient-tailored therapeutic selection of a broad number and type of FDA approved and experimental therapeutics.
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Theralink is committed to advancing the technology from GMU, the NIH and Vanderbilt as a platform for developing new clinical biomarkers. These biomarkers and monitoring products may have the ability to provide biopharmaceutical companies and doctors with critical molecular-based knowledge to potentially make the best therapeutic decisions based on a patient’s unique, individual medical needs.
Our Business Strategy
Our strategy is to use the RPPA technology licensed from GMU, the NIH and Vanderbilt to take advantage of the new opportunities that are evolving in the precision medicine industry, both for oncologists and their patients and biopharma companies. We offer specialized protein testing through RPPA that may guide treatment decisions. These novel data-generating technologies are based on patented and proprietary technology that is well-suited to be run in a central or regional laboratory utilizing samples that are collected by healthcare providers and sent to our authorized CLIA certified testing facility for processing. We provide comprehensive and actionable insights that may improve patient outcomes in advanced stage breast cancer today and eventually across gynecological cancers, head and neck cancers, gastrointestinal cancers, lung, pancreatic and other solid tumors.
Theralink is helping answer critical clinical questions faced by physicians, researchers, and biopharmaceutical companies. To achieve this, we intend to:
● | Drive increased awareness, adoption, and create access to Theralink for patients facing a diagnosis of advanced stage breast cancer. | |
● | Attain reimbursement for our Proprietary Laboratory Analyses (“PLA”) code for our pan-tumor Theralink test, commence mass marketing: explore international partnerships and start to review potential opportunities in Canada, Asia and Europe. | |
● | Expand our network in Research and Development and Research Use Only (RUO) testing with strategic partners to broaden access, and further enhance the capabilities of our proprietary technology for all patients with solid tumors. | |
● | Deepen our relationships with current biopharmaceutical clients and establish new client opportunities. | |
● | Build out our commercial infrastructure across marketing, sales, strategic accounts, medical affairs and client services. | |
● | Advance the managed market strategy to expand coverage and reimbursement while working to continually improve the visibility of the cost effectiveness of our testing and improved downstream outcomes among payers. | |
● | Work closely with biopharmaceutical companies to have the Theralink test named as a Companion Diagnostic. |
Theralink has a new and significant market opportunity due to the emergence of novel therapeutics that target a well-understood breast cancer biomarker known as human epidermal receptor 2 (HER2). HER2 is critical to normal mechanisms of healthy cells; however, the over-expression of HER2 in breast cancer triggers the cancer to progress and metastasize. Historically, therapeutics that target HER2 (e.g., trastuzumab) have been effective in treating patients with high HER2 expression detected with standard clinical tests. However, new HER2-targeted therapeutics (e.g., trastuzumab deruxtecan) are effective in treating patients with low amounts of HER2, which standard methods cannot detect. Therefore, there is a critical unmet need for a sensitive and non-subjective test to measure HER2 to empower oncologists to select the most effective HER2-targeted therapy. Traditional genomic, transcriptomic, and proteomic tests are limited in identifying and selecting patients that would effectively respond to these therapeutics and those that would not. Theralink intends to exploit this unique market opportunity.
Competitive Strengths
We believe that we have a number of competitive advantages including:
● | Our RPPA technology addresses current limitations in predicting response to targeted therapeutics. Most targeted therapeutics are designed to “turn off” activated protein signaling that drives cancer progression and metastasis. The RPPA technology was designed to measure the activated of (phosphorylated) proteins and their activity in a patient’s cancer. Other clinical technologies fail to measure activated proteins due to various factors. Immunohistochemistry requires harsh chemicals that strip the protein of the markers that deem it “active”. Mass spectrometry does not have the sensitivity required to measure activated proteins with the minimal amount of clinical sample available from a patient biopsy. Genomic testing and transcriptomic testing (ex. RNA sequencing) do not directly measure the amount of active protein. Due to the limitations of our rival technologies, we are uniquely positioned to offer the most direct evaluation of activated protein abundance in clinical specimens, and we predict that this ability will be an essential advantage in predicting therapeutic response to targeted protein inhibitors. | |
● | Our technology platform is built to directly achieve clinical utility. Our clinical test and future tests are designed to directly measure the abundance and activation of the targets of marketed therapeutics and those in development. Guidance and advisement from key opinion leaders on impactful biomarkers is also considered in selecting biomarkers for evaluation. This will yield results that demonstrate immediate clinical utility, as the biomarker data can be directly linked to a method of therapeutic intervention. Additionally, the platform can be tailored to the specific needs of biopharma clients by selecting targets that can investigate the efficacy of their therapeutics in development and identify mechanisms of potential resistance and feedback. The platform requires no significant modification from the preclinical setting to clinical trials, to companion diagnostic, making it ideal for long term partnerships in drug development. | |
● | Our RPPA platform can be tailored and scaled for Companion Diagnostic (CDx) development. CDx results are intended to facilitate therapy selection by elucidating the efficacy of a specific drug or drug class for specific cohorts of patients within which a given patient is placed. Companion diagnostic companies are of particular interest to both drug development companies and physicians. Drug development companies benefit from the results of CDx tests by improving their accuracy in selecting patients for clinical trials who are most likely to benefit from the therapeutic they are developing. Physicians may benefit from improved decision-making information by allowing them to match a specific patient with the most effective treatment option. The basis of the effectiveness of companion diagnostic tests is built upon surrogate biomarkers, which are intended to measure the effect of a specific pharmaceutical treatment and its correlation to a biomarker, or endpoint. Theralink believes the most effective method to aid in therapy selection is by taking a specialized proteomic approach to tumor analysis. The platform can be used to identify biomarkers of response in model systems or clinical trials and then the selected biomarker(s) can be developed to a clinical grade companion diagnostic. |
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● | Our RPPA platform is easily implemented into clinical practice and does not require any deviations from routine procedure for tissue/tumor sample preparation in the clinic. The platform was designed to work with the same biopsy tissue blocks and sections used in routine immunohistochemistry and genetics testing, with similar sample requirements. We will not face challenges or hesitance of adoption based on challenges to accommodating impractical requirements for tissue/tumor sample assessment. | |
● | Our RPPA technology can be applied to any solid tissue disease. Currently, the platform is employed to identify targets for therapeutic intervention in breast cancer. The platform can easily be used to concurrently identify activated targets in other solid tissue cancers such as lung, prostate, ovarian, colorectal, bladder, head and neck, endometrial and any other cancer where a solid tissue biopsy is available. Long term, the platform can be used to expand beyond cancer to biomarker discovery in significant ailments such as nonalcoholic fatty liver disease, diabetic foot ulcer, and dysfunctions of the central nervous system. The technology has also been previously applied to other sample inputs of interest including exosomes, peripheral blood mononuclear cells, and hair. | |
● | The Theralink leadership team has broad expertise in the oncology market. The team has many years of professional experience in clinical proteomics, demonstrated research, scientific expertise, commercialization of novel products which is paired with the Company’s novel intellectual property. |
Results of Operations
Comparison for the Three and Nine months ended June 30, 2023 and 2022
Revenues
● | During the three months ended June 30, 2023 and 2022, we generated revenues of $202,447 and $164,213, respectively, an increase of $38,234, or 23.3%. The increase was primarily attributable to an increase in patient direct services of $42,697, offset by a decrease in services performed under research and development contracts for pharmaceutical companies of $4,463. During the three months ended June 30, 2023 and 2022, revenues by category is as follows: |
Three Months Ended | Three Months Ended | |||||||
June 30, 2023 | June 30, 2022 | |||||||
Biopharma services | $ | 149,405 | $ | 153,868 | ||||
Patient testing service | 53,042 | 10,345 | ||||||
Total revenues | $ | 202,447 | $ | 164,213 |
● | During the nine months ended June 30, 2023 and 2022, we generated revenues of $427,529 and $262,688, respectively, an increase of $164,841, or 62.7%. The increase was primarily attributable to an increase in patient direct services of $100,724 and an increase in services performed under research and development contracts for pharmaceutical companies of $64,117. During the nine months ended June 30, 2023 and 2022, revenues by category is as follows: |
Nine Months Ended | Nine Months Ended | |||||||
June 30, 2023 | June 30, 2022 | |||||||
Biopharma services | $ | 305,960 | $ | 241,843 | ||||
Patient testing service | 121,569 | 20,845 | ||||||
Total revenues | $ | 427,529 | $ | 262,688 |
Costs of Revenues
● | During the three months ended June 30, 2023 and 2022, we incurred cost of revenue of $50,084 and $99,484, respectively, a decrease of $49,400, or 49.7%. The decrease in cost of revenues was due to a decrease in Biopharma services activities. The decrease in the fiscal 2023 period cost of revenue as a percentage of revenue over the fiscal 2022 period was because in the fiscal 2022 period, the Company was required to purchase expensive third-party samples for certain pharmaceutical contracts. This increased costs significantly and decreased the gross profit for the fiscal 2022 period. |
● | During the nine months ended June 30, 2023 and 2022, we incurred cost of revenue of $86,328 and $160,229, respectively, a decrease of $73,901, or 46.1%. The decrease in the fiscal 2023 period cost of revenue as a percentage of revenue over the fiscal 2022 period was because in the fiscal 2022 period, the Company was required to purchase expensive third-party samples for certain pharmaceutical contracts. This increased costs significantly and decreased the gross profit for the fiscal 2022 period. |
Gross Margin
● | For the three months ended June 30, 2023 and 2022, gross profit was $152,363 and $64,729, respectively, an increase of $87,634, or 135.4%, which represents a gross margin of 75.3% compared to 39.4% in the same period in 2022. The increase was primarily attributable to the increase in revenue and decrease in cost of revenue, as discussed above. |
● | For the nine months ended June 30, 2023 and 2022, gross profit was $341,201 and $102,459, respectively, an increase of $238,742, or 233.0% which represents a gross margin of 79.8% in the fiscal 2023 period compared to 39.0% in the fiscal 2022 period. The increase was primarily attributable to the increase in revenue and decrease in cost of revenue, as discussed above. |
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Operating Expenses
For the three and nine months ended June 30, 2023 and 2022, operating expenses consisted of the following:
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Professional fees | $ | 461,431 | $ | 162,164 | $ | 1,310,780 | $ | 677,740 | ||||||||
Compensation expense | 1,012,488 | 703,267 | 4,165,682 | 2,031,755 | ||||||||||||
Licensing fees | 19,024 | 30,377 | 55,883 | 105,432 | ||||||||||||
General and administrative expenses | 342,473 | 545,254 | 1,213,953 | 1,606,174 | ||||||||||||
Impairment loss | 238,671 | - | 238,671 | - | ||||||||||||
Total | $ | 2,074,087 | $ | 1,441,062 | $ | 6,984,969 | $ | 4,421,101 |
Professional fees:
● | For the three months ended June 30, 2023, professional fees increased by $299,267, or 184.6%, as compared to the three months ended June 30, 2022. The increase was primarily attributable to an increase in stock-based consulting fees of $64,201 related to accretion of stock option expense from the issuance of stock options to consultants in August 2022, an increase in legal fees of $204,461, an increase in consulting fees of $49,931, offset by a decrease in other professional fees of $19,326. | |
● | For the nine months ended June 30, 2023, professional fees increased by $633,040, or 93.4%, as compared to the nine months ended June 30, 2022. The increase was primarily attributable to an increase in stock-based consulting fees of $192,643 related to accretion of stock option expense from the issuance of stock options to consultants in August 2022, an increase in legal fees of $257,895, and an increase in consulting fees of $167,213, and an increase in other professional fees of $15,289. |
Compensation expense:
● | For the three months ended June 30, 2023, compensation expense increased by $309,221, or 44.0%, as compared to the three months ended June 30, 2022. The increase was primarily attributable to an increase in stock-based compensation of $269,047 related to accretion of stock option expense from the issuance of stock options to employees in August 2022, and an increase in administrative compensation and related employee benefits. | |
● | For the nine months ended June 30, 2023, compensation expense increased by $2,133,927, or 105.0%, as compared to the nine months ended June 30, 2022. The increase was primarily attributable to an increase in stock-based compensation of $1,289,843 related to accretion of stock option expense from the issuance of stock options to employees in August 2022, and an increase in executive and administrative compensation and related employee benefits and expenses resulting from additional employees being hired, and a bonus paid to our former CFO. |
Licensing fees:
Licensing fees are mainly for the lab software, the GMU license, Vanderbilt license and state licenses. During 2023 and 2022, we obtained licenses from numerous states to conduct business as a certified lab. The expanded national footprint is the driving force behind the fluctuations in licensing fees.
● | For the three months ended June 30, 2023, licensing fees decreased by $11,353, or 37.4%, as compared to the three months ended June 30, 2022. | |
● | For the nine months ended June 30, 2023, licensing fees decreased by $49,549, or 24.8%, as compared to the nine months ended June 30, 2022. |
General and administrative expenses:
● | For the three months ended June 30, 2023, general and administrative expenses decreased by $202,781, or 37.2%, as compared to the three months ended June 30, 2022. The decrease was primarily due to a decrease in laboratory and biological supplies expense of approximately $26,031 due to a decrease in breast cancer research and development, a decrease in sample analysis services expense of approximately $76,506 due to the termination of our relationship with our service provider and bringing this function in-house, a decrease in samples expense of $50,000 for research and development, a decrease in travel expenses of $20,022 and a decrease in business development fees of $32,515. | |
● | For the nine months ended June 30, 2023, general and administrative expenses decreased by $392,221, or 24.4%, as compared to the nine months ended June 30, 2022. The decrease was primarily due to a decrease in laboratory and biological supplies expense of approximately $101,870 due to a decrease in breast cancer research and development, a decrease in sample analysis services expense of approximately $275,372 due to the termination of our relationship with our service provider and bringing this function in-house, a decrease in samples expense of $50,000 for research and development, and a decrease in business development fees of $47,941. These decreases were offset by an increase in royalty fees of $65,178 and increases in other general and administrative expenses. |
Impairment loss
During the three and nine months ended June 30, 2023, we recorded an impairment loss of $238,671 in connection with the impairment of certain laboratory equipment that was not in use and will likely not be used. We did not record any impairment loss during the 2022 period.
Loss from Operations
● | For the three months ended June 30, 2023, loss from operations amounted to $1,921,724 as compared to $1,376,333 for the three months ended June 30, 2022, an increase of $545,391, or 39.6%. The increase was primarily a result of the increase in operating expenses offset by an increase in gross profit, as discussed above. | |
● | For the nine months ended June 30, 2023, loss from operations amounted to $6,643,768 as compared to $4,318,642 for the nine months ended June 30, 2022, an increase of $2,325,126, or 53.8%. The increase was primarily a result of the increase in operating expenses offset by an increase in gross profit, as discussed above. |
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Other Income (Expenses), net
● | For the three months ended June 30, 2023 and 2022, total other income (expenses), net amounted to $6,421,773 and $(332,461), respectively, a change of $6,754,234. The positive change was primarily due to an increase in gain of derivatives of $11,482,036 resulting from the change in fair value of derivative liabilities, offset by an increase in interest expense of $4,733,202 resulting from an increase in amortization of debt discount and an increase in interest bearing debt. | |
● | For the nine months ended June 30, 2023 and 2022, total other expenses, net amounted to $33,878,912 and $738,414, respectively, an increase of $33,140,498. The change was primarily due to an increase in interest expense of $11,069,401 resulting from an increase in amortization of debt discount and an increase in interest bearing debt, and an increase in loss on debt extinguishment of $5,434,447 resulting from the exchange of convertible notes and preferred stock to new debentures on November 29, 2022, an increase in settlement expense of $200,000, and an increase in derivative expense of $16,442,350 resulting from the treatment of the new debentures and warrants as derivative liabilities. |
Preferred Stock Dividend and Deemed Dividend
● | For the three months ended June 30, 2023, we recorded $0 dividends for the Series E Preferred stock and Series F Preferred stock dividends. | |
● | For the nine months ended June 30, 2023, we recorded dividends for the Series E Preferred stock and Series F Preferred stock in the amount of $26,301 and $13,151, respectively, for a total of $39,452 of preferred stock dividends. |
On November 29, 2022 Series E Preferred stock and Series F Preferred stock were exchanged for New Related Party Debentures as discussed in the Recent Financings section below.
Net Income (Loss) and Net Income (Loss) Attributed to Common Stockholders
● | For the three months ended June 30, 2023, net income amounted to $4,500,049 as compared to a net loss of $(1,708,794) for the three months ended June 30, 2022, a positive change of $6,208,843. For the three months ended June 30, 2023, net income attributed to common stockholders amounted to $4,500,049, or $0.00 per share (basic and diluted) compared to net loss attributed to common stockholders of to $(1,768,629), or $(0.00) per share (basic and diluted), for the three months ended June 30, 2022, a positive change of $6,268,678. The increase was a result of the changes in gross profit, operating expenses and other expenses, as discussed above. | |
● | For the nine months ended June 30, 2023, net loss amounted to $(40,522,680) as compared to a net loss of $(5,057,056) for the nine months ended June 30, 2022, an increase of $35,465,624. For the nine months ended June 30, 2023, net loss attributed to common stockholders amounted to $(40,562,132), or $(0.01) per share (basic and diluted) compared to net loss attributed to common stockholders of to $(5,236,563), or $(0.00) per share (basic and diluted), for the nine months ended June 30, 2022, an increase of $35,325,569. The increase was a result of the changes in gross profit, operating expenses and other expenses, as discussed above. |
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $47,848,223 and $25,089 in cash as of June 30, 2023 and a working capital deficit of $2,808,736 and $393,460 in cash as of September 30, 2022.
June 30, 2023 | September 30, 2022 | Net Change | Percentage Change | |||||||||||||
Working capital deficit: | ||||||||||||||||
Total current assets | $ | 226,063 | $ | 646,984 | $ | (420,921 | ) | (65 | )% | |||||||
Total current liabilities | (48,080,786 | ) | (3,455,720 | ) | (44,625,066 | ) | (1,291 | )% | ||||||||
Working capital deficit: | $ | (47,854,723 | ) | $ | (2,808,736 | ) | $ | (45,045,987 | ) | (1,604 | )% |
The increase in working capital deficit was primarily attributable to the increase in current liabilities of $44,625,066 primarily related to an increase in derivative liabilities (non-cash) of $33,484,450, and a decrease in current assets of $420,921 due to reduction in cash of $368,371.
Cash Flows
The following table sets forth a summary of changes in cash flows for the nine months ended June 30, 2023 and 2022:
Nine Months ended June 30 | ||||||||
2023 | 2022 | |||||||
Cash used in operating activities | $ | (4,270,783 | ) | $ | (4,460,633 | ) | ||
Cash used in investing activities | (7,980 | ) | (88,199 | ) | ||||
Cash provided by financing activities | 3,910,392 | 4,360,098 | ||||||
Net decrease in cash | $ | (368,371 | ) | $ | (188,734 | ) |
Net Cash Used in Operating Activities:
Net cash used in operating activities was $4,270,783 for the nine months ended June 30, 2023 as compared to $4,460,633 for the nine months ended June 30, 2022, a decrease of $189,850, or 4.3%.
● | Net cash used in operating activities for the nine months ended June 30, 2023 primarily reflected our net loss of $40,522,680 adjusted for the add-back of non-cash items such as depreciation expense of $156,874, bad debt expense of $14,000, non-cash lease cost of $18,918, accretion of stock options expense of $1,482,486, amortization of debt discount of $10,656,131, loss on debt extinguishment of $5,434,447, non-cash settlement expense of $200,000, impairment loss of $238,671, and derivative expense of $16,442,350, and changes in operating assets and liabilities consisting primarily of a decrease in accounts receivable of $3,125, a decrease in prepaid expenses and other current assets of $32,525, an increase in accounts payable of $384,200, an increase in accrued liabilities and other liabilities of $1,081,380, and an increase in contract liabilities of $103,890. |
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● | Net cash used in operating activities for the nine months ended June 30, 2022 primarily reflected our net loss of $5,057,056 adjusted for the add-back of non-cash items such as depreciation expense of $143,531, non-cash lease cost of $21,528, amortization of debt discount of $501,432, gain on operating lease modification of $8,229, unrealized loss on marketable securities of $8,600 and changes in operating assets and liabilities consisting primarily of an increase in accounts receivable of $109,380, an increase in accounts payable of $385,860, offset by a decrease in prepaid expenses and other current assets of $27,882, a decrease in laboratory supplies of $71,062, a decrease in accrued liabilities and other liabilities of $158,335 and a decrease in contract liabilities of $167,522. |
Net Cash Used in Investing Activities
Net cash used in investing activities was $7,980 for the nine months ended June 30, 2023 as compared to net cash used in investing activities of $88,199 for the nine months ended June 30, 2022, an increase of $80,219, or 91%. Net cash used in investing activities for the nine months ended June 30, 2023 and 2022 resulted from purchase of additional laboratory equipment.
Cash Provided by Financing Activities:
Net cash provided by financing activities was $3,910,392 for the nine months ended June 30, 2023 as compared to $4,360,098 for the nine months ended June 30, 2022, a decrease of $449,706, or 10.3%.
● | Net cash provided by financing activities for the nine months ended June 30, 2023 consisted of $677,562 of net proceeds from related party debentures, $2,950,011 of net proceeds from debentures, and proceeds from related party notes payable of $442,681, offset by the repayment of $120,000 of convertible notes payable – related parties, and the repayment of $39,862 of financed leases. | |
● | Net cash provided by financing activities for the nine months ended June 30, 2022, consisted of $1,900,000 of net proceeds from related party convertible debt, $2,425,000 of net proceeds from convertible debt, $400,000 of net proceeds from related party notes payable, offset by repayment of $150,000 of related party convertible note, repayment of $35,242 of financed leases and payments of $179,660 in preferred stock dividends. |
Cash Requirements
Our management does not believe that our current capital resources will be adequate to continue operating our Company and maintaining our business strategy for more than 12 months from the date of this report. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.
Going Concern
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited financial statements, for the nine months ended June 30, 2023, the Company had net loss and net cash used in operations of $40,522,680 and $4,270,783, respectively. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $103,369,949, $47,498,939, and $47,854,723, and had cash on hand of $25,089 on June 30, 2023. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.
The Company cannot provide assurance that it will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future.
Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, convertible notes and convertible debentures, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Recent Financings
Convertible Debt – Related Parties
On November 29, 2022, the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase Agreement, by and among, the Company, the Related Party Purchasers and the Collateral Agent. At the Initial Closing, the Company sold the related party Purchasers (i) the New Related Party Debentures and (ii) the New Related Party Warrants to purchase up to 157,142,857 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $412,092 in net proceeds at the Initial Offering from the Related Party Purchasers, net of the Original Issue Discount of $50,000, commissions of $58,200 and other offering costs of $29,708.
On November 29, 2022, the Company entered into Securities Exchange Agreements with certain related party investors, whereby the Exchanged Related Party Notes and accrued interest payable of $120,750 were exchanged for New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related party investors to exchange the respective convertible notes into the Related Party Debentures, the aggregate principal amount of the Exchanged Related Party Notes and accrued interest payable was increased by 15% (10% for the August 11, 2022 and September 2, 2022 Demand Promissory Notes), or $589,505, for new Related Party Debentures with an aggregate principal amount of $4,860,255.
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On November 29, 2022, the Company entered into Securities Exchange Agreements, with related party preferred stockholders, whereby related party holders of 1,000 shares of Series E preferred stock with a stated value of $2,000,000 and accrued dividends payable of $66,630, and related party holders of 500 shares of Series F preferred stock with a stated value of $1,000,000 and accrued dividends payable of $33,315 were exchanged for the New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related party preferred stockholders to exchange their respective preferred shares into the New Related Party Debentures, the aggregate stated value and accrued dividends payable were increased by 15%, or $464,992, for new Related Party Debentures with an aggregate principal amount of $3,564,937.
The November 29, 2022 New Related Party Debentures mature on November 29, 2023, subject to a three-month extension at the sole discretion of the Company. The Related Party Debentures bear interest at 10% per annum payable upon conversion or maturity. The New Related Party Debentures are convertible into shares of the Company’s common stock at any time after the maturity date and prior to Mandatory Conversion (as defined below) at the conversion price equal to the lesser of: (i) $0.003 per share and (ii) 70% of the average of the VWAP (as defined in the Debentures) (or 50% of the average of such VWAP if an event of default has occurred and has not been cured) of the Common Stock during the ten Trading Day (as defined in the Debentures) period immediately prior to the applicable conversion date. The New Related Party Debentures are subject to Mandatory Conversion in the event the Company closes a Qualified Offering. The conversion price per share of Common Stock in the case of a Mandatory Conversion shall be the Qualified Offering Price. Alternatively, upon a Mandatory Conversion, the holders of the Debentures may elect to exchange their Debentures for newly issued convertible preferred securities at a price per share equal to the Qualified Offering Price or the five-day VWAP of the Common Stock prior to the date that is 181 days after the closing of the Qualified Offering.
On April 11, 2023, the Company consummated a third closing (the “Third Closing”) of the Offering pursuant to the terms and conditions of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company and Jeffrey Busch (the “Third Closing Related Party Purchaser”). At the Third Closing, the Company sold the Purchaser (i) a New Debenture with a principal amount of $155,100 (the “April 2023 Related Party Debenture”) and (ii) Warrants to purchase up to 44,314,286 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $141,000 in net proceeds at the Third Offering, net of a 10% original issue discount of $14,100.
Notwithstanding the preceding, holders of New Related Party Debentures shall have the right to require satisfaction of up to 40% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing. The New Related Party Debentures also contain certain price protection provisions providing for adjustment of the number of shares of Common Stock issuable upon conversion of the Debentures in case of certain future dilutive events or stock-splits and dividends.
The Company’s obligations under the New Related Party Debentures are secured by a first priority lien on all the assets of the Company pursuant to the Security Agreement.
The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.
If the Company or any Subsidiary shall default on any of its obligations under any mortgage credit agreement or other facility indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $250,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, the New Related Party Debenture shall be deemed in default and the default provisions shall apply.
Convertible Debt
On November 29, 2022, the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase Agreement, by and among the Company, the Purchasers and the Collateral Agent. At the Initial Closing, the Company sold the Purchasers the Underlying Securities. The Company received a total of $2,095,288 in net proceeds at the Initial Offering, net of the Original Issue Discount of $255,000, commissions of $296,800 and other offering costs of $157,912.
The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.
On November 29, 2022, the Company entered into Securities Exchange Agreements with the above investors, whereby the Exchanged Convertible Notes with an aggregate principal amount of $2,675,000 and accrued interest payable of $173,375 were exchanged for New Debentures. Additionally, on November 29, 2022, in order to induce the investors to exchange their respective convertible notes into the New Debentures, the aggregate principal amount and accrued interest payable was increased by 15%, or $427,256, for the New Debentures with an aggregate principal amount of $3,275,631.
On November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of 902 shares of Series C-1 preferred stock with a stated value of $372,303, and holders of 3,037 shares of Series C-2 preferred stock with a stated value of $1,245,935 were exchanged for the New Debentures. Additionally, on November 29, 2022, in order to induce the preferred stockholders to exchange their respective preferred shares into the New Debentures, the aggregate stated value of the preferred shares was increased by 15%, or $242,736, for New Debentures with an aggregate principal amount of $1,860,974.
The New Debentures mature on November 29, 2023, subject to a three-month extension at the sole discretion of the Company. The New Debentures bear interest at 10% per annum payable upon conversion or maturity. The New Debentures are convertible into shares of Common Stock at any time after the maturity date and prior to Mandatory Conversion (as defined below) at the conversion price equal to the lesser of: (i) $0.003 per share and (ii) 70% of the average of the VWAP (as defined in the Debentures) (or 50% of the average of such VWAP if an event of default has occurred and has not been cured) of the Common Stock during the ten Trading Day (as defined in the Debentures) period immediately prior to the applicable conversion date. The New Debentures are subject to Mandatory Conversion in the event the Company closes a Qualified Offering. The conversion price per share of Common Stock in the case of a Mandatory Conversion shall be the Qualified Offering Price. Alternatively, upon a Mandatory Conversion, the holders of the New Debentures may elect to exchange their Debentures for newly issued convertible preferred securities at a price per share equal to the Qualified Offering Price or the five-day VWAP of the Common Stock prior to the date that is 181 days after the closing of the Qualified Offering.
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Notwithstanding the preceding, holders of New Debentures shall have the right to require satisfaction of up to 40% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing. The New Debentures also contain certain price protection provisions providing for adjustment of the number of shares of Common Stock issuable upon conversion of the New Debentures in case of certain future dilutive events or stock-splits and dividends.
The Company’s obligations under the New Debentures are secured by a first priority lien on all of the assets of the Company pursuant to the Security Agreement.
If the Company or any Subsidiary shall default on any of its obligations under any mortgage credit agreement or other facility indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $250,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, the New Debenture shall be deemed in default and the default provisions shall apply.
The Warrants are exercisable for five years and six months from the earlier of the maturity date of the Debentures and the closing of the Qualified Financing, at an exercise price equal to (i) in the event that a Qualified Offering is consummated prior to the exercise of the Warrant, the price per share at which the Qualified Offering is made (“Qualified Offering Price”), or (ii) in the event that no Qualified Offering has been consummated, the lower of: (A) $0.003 per share and (B) an amount equal to 70% of the average of the VWAP (or 50% of the average of the VWAP if an event of default has occurred and has not been cured) for the Common Stock over the ten Trading Days preceding the date of the delivery of the applicable exercise notice. If there is no effective registration statement covering the resale of the shares underlying the Warrants within 180 days following the closing of the Qualified Offering: (i) exercise may be via cashless exercise, and (ii) 5% additional Warrants will be issued by the Company to the holders for any portion of each month without such effective registration statement.
The Warrants contain certain price protection provisions providing for adjustment of the amount of securities issuable upon exercise of the Warrants in case of certain future dilutive events or stock-splits and dividends.
On January 27, 2023, the Company consummated the second closing (the “Second Closing”) of the Offering pursuant to the terms and conditions of the Purchase Agreement. At the Second Closing, the Company sold the Purchasers (i) Debentures in an aggregate principal amount of $1,045,000 and (ii) Warrants to purchase up to 298,571,429 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $950,000 in gross proceeds at the Second Offering, taking into account the 10% original issue discount, before deducting offering expenses and commissions.
The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.
In connection with the Initial Closing of the private placement, the Company and Joseph Gunnar & Co. LLC, a U.S. registered broker-dealer (“Gunnar”), entered into a placement agency agreement (the “Placement Agency Agreement”), pursuant to which Gunnar agreed to act as the placement agent for the Offering (the “Placement Agent”). Pursuant to the terms of the Placement Agency Agreement, the Company agreed to (i) pay Gunnar a cash placement fee of 10% of the gross cash proceeds raised in the Offering, and (ii) issue to Gunnar warrants (the “PA Warrants”) on the terms identical to the Warrants sold in the Offering in an amount equal to 10% of the Underlying Securities sold to investors. As a result of the foregoing, in connection with the Initial Closing, the Company paid Gunnar an aggregate commission of $305,000 in connection with the Initial Closing. The Company also paid $50,000 in fees to Gunnar’s legal counsel and paid Gunnar a financial advisory fee of $50,000. In addition, Gunner received 124,489,795 warrants. Additionally, the Company issued 16,000,000 warrants to a consultant in connection with the private placement offering. Additionally, in connection with the Second Closing, the Company paid Gunnar an aggregate commission of $95,000, paid $7,500 in fees to Gunnar’s legal counsel, and Gunnar received 38,775,510 additional warrants.
On May 5, 2023, with an effective date of April 22, 2023, the requisite holders of the New Debentures and Exchange Debentures consented to the Company issuing up to an additional $3.1 million in principal amount of New Debentures.
Notes Payable - Related Party
On May 5, 2022, the Company and Jeffrey Busch amended the Original Note pursuant to which the principal amount was increased to $350,000 (“New Note”) with the Company receiving additional $250,000 of proceeds and added a conversion feature. The New Note bears an annual interest rate of 1% (which shall increase to 2% in the event of a default) and matures on May 5, 2024. The New Note may not be prepaid and is only convertible upon an occurrence of a public offering. The Conversion Amount of the New Note is convertible into shares of common stock at the price for which the common stock was sold in the public offering. Pursuant to ASC 470-50 - Debt Modifications and Exchanges; the amendment was accounted for as a debt extinguishment because the contingent conversion feature added to the New Note resulted in a substantial modification of the Original Note. No gain or loss was recognized in connection with the debt extinguishment. As of June 30, 2023, the New Note had an outstanding principal balance of $350,000, reflected as notes payable – related party in the accompanying unaudited balance sheet since the conditions for its contingent conversion has not yet been met, and accrued interest of $4,219.
On April 28, 2023, the Company entered into a Promissory Note Agreement with Douglas Mergenthaler who is a related party, for a principal amount of $110,000. The Company received proceeds of $100,000, net of original issue discount of $10,000. The note bears an annual interest rate of 10%, matures on April 28, 2024 and can be prepaid in whole or in part without penalty. If the Company raises at least $1,000,000 in a securities offering subsequent to the date of this note (a “Subsequent Offering”), Mr. Mergenthaler shall have the right, but not the obligation, to convert all amounts outstanding under this loan into the same security offered in the Subsequent Offering at the price per security being paid by the investors in such offering.
In May and June 2023, the Company entered into Promissory Note Agreements with Jeffrey Busch who serves as a member of the Board of Directors and a related party, for an aggregate principal amount of $376,966. The Company received proceeds of $342,681, net of original issue discount of $34,285. The notes bear an annual interest rate of 10%, mature in May and June 2024 and can be prepaid in whole or in part without penalty. If the Company raises at least $1,000,000 in a securities offering subsequent to the date of this note (a “Subsequent Offering”), Mr. Busch shall have the right, but not the obligation, to convert all amounts outstanding under this loan into the same security offered in the Subsequent Offering at the price per security being paid by the investors in such offering.
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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 our activities or perhaps even cease the operations of the business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Critical Accounting Policies
We have identified the following policies as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the periods ended June 30, 2023 and 2022 include, but are not necessarily limited to, estimates of contingent liabilities, valuation of marketable securities, useful life of property and equipment, valuation of ROU assets and lease liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of derivatives and the fair value of non-cash equity transactions.
Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future results of operation will be affected.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on June 30, 2023. 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. |
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee 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, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under the FASB’s Accounting Standards Update (“ASU”) 2016-09 Improvements to Employee Share-Based Payment.
Revenue Recognition
In accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
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The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead to deferred revenue for services not completed at the end of a period which is reflected as contract liabilities on the accompanying balance sheet. The Company may include, in accounts receivable, amounts billed to customers in advance of services being initiated or completed. If the Company has a right to such consideration that is unconditional such as for contractually allowed billings under non-cancellable contracts, such amounts billed in advance would be offset by contract liability. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The Company offers these services to biopharmaceutical companies and to private individuals. For the nine months ended June 30, 2023, the Company received 72% and 28%of its revenue from biopharmaceutical companies and from patient direct services, respectively.
Contract Liabilities
Contract liabilities are cash deposits received from customers and advance billing included in accounts receivable on uncompleted contracts for which revenues have not been recognized as of the balance sheet date.
Leases
The Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represent the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the statements of operations.
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 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.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2023, our disclosure controls and procedures were not effective due to our material weaknesses in internal control over financial reporting discussed below.
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 June 30, 2023. Our management’s evaluation of our internal control over financial reporting was based on the Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of June 30, 2023, our internal control over financial reporting was not effective.
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The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal controls over financial reporting:
(1) | The lack of multiple levels of management review on complex accounting and financial reporting issues, and business transactions, | |
(2) | a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting processing and accounting functions as a result of our limited financial resources to support the hiring of the necessary personnel and the implementation of more robust accounting systems, |
A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management’s Remediation Plan
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the future:
(i) | appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and | |
(ii) | adopt sufficient written policies and procedures for accounting and financial reporting. |
The remediation efforts set out in (i) are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes.
Management believes that despite our material weaknesses set forth above, our unaudited financial statements for the quarter ended June 30, 2023 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 June 30, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 10, 2021, YPH LLC filed a complaint against the Company in the District Court for the Southern District of New York alleging that Theralink breached its Certificate of Designation for Series C-1 Convertible Preferred Stock by failing to honor a conversion notice submitted to it by YPH. Based on these and other allegations, Plaintiff asserted a breach of contract claim claiming that it has damages in excess of $100 million. The case continues to be in the pleadings stage with Theralink filing its last response on March 30, 2022. The Company believes these claims are without merit and intends to defend plaintiffs’ lawsuits vigorously. The Company currently believes the likelihood of a loss contingency related to these matters is remote and, therefore, no provision for a loss contingency is required.
On August 16, 2022, Erika Singleton filed a complaint against the Company in the Eighth Judicial District Court, Clark County, Nevada, Case No. A-22-857038-C. Plaintiff alleges that the Company did not provide her with physical stock certificates for 200,000 shares of common stock Plaintiff purchased for $2,000 in 2017. Based on these and other allegations, Plaintiff asserts claims against the Company for breach of contract, violation of Florida securities law, fraud, and unjust enrichment. The Company filed a motion to dismiss the fraud claim, which the Court granted on April 20, 2023. The Company is currently preparing to file its answer to Plaintiff’s remaining claims.
ITEM 1A. RISK FACTORS
In addition to the information set forth in this report, you should carefully consider risk factors that may affect our business and financial results are discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
We have added the following risk factors related to our Merger Agreement with IMAC, which could have a material adverse effect on our business.
Because the market price of IMAC common stock will fluctuate prior to the consummation of the Merger, Theralink stockholders cannot be sure of the market value of IMAC common stock that they will receive in the Merger.
At the effective time of the Merger (the “Effective Time”), each share of common stock (“Theralink Common Stock”) and each share of preferred stock of Theralink (together with the Theralink Common Stock, “Theralink Shares”) issued and outstanding as of immediately prior to the Effective Time will be converted into and will thereafter represent the right to receive a portion of a share of common stock of IMAC, par value $0.001 (the “IMAC Shares”) such that the total number of IMAC Shares issued to the holders of Theralink Shares shall equal 85% of the total number of IMAC Shares outstanding as of the Effective Time (the “Merger Consideration”). The Exchange Ratio is fixed (subject to adjustments in accordance with the terms of the Merger Agreement), which means that it will not change between now and the closing date, regardless of whether the market price of either IMAC common stock or Theralink common stock changes. Therefore, the value of the Merger Consideration will depend on the market price of IMAC common stock at the Effective Time. The respective market prices of both IMAC common stock and Theralink commons stock have fluctuated since the date of the announcement of the parties’ entry into the Merger Agreement and will continue to fluctuate. The market price of IMAC common stock, when received by Theralink equity holders after the Merger is completed, could be greater than, less than or the same as the market price of IMAC common stock on the date of this quarterly report.
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The Merger is subject to various closing conditions, and any delay in completing the Merger may reduce or eliminate the benefits expected and delay the payment of the Merger Consideration to Theralink equity holders.
The Merger is subject to the satisfaction of a number of conditions beyond the parties’ control that may prevent, delay or otherwise materially adversely affect the completion of the Merger. These conditions include, among other things, IMAC shareholder approval of the issuance of IMAC Common Stock in connection with the Merger. IMAC and Theralink cannot predict with certainty whether or when any of these conditions will be satisfied. Any delay in completing the Merger could cause the combined company not to realize, or delay the realization, of some or all of the benefits that the companies expect to achieve from the Merger. In such context, when or if Theralink’s equity holders will receive the Merger Consideration is also uncertain.
The Merger Agreement limits our ability to pursue alternatives to the Merger, which may discourage other companies from making a favorable alternative transaction proposal.
The Merger Agreement contains certain provisions that restrict our ability to directly or indirectly solicit competing acquisition proposals or to enter into discussions concerning, or provide confidential information in connection with, any proposal or offer that constitutes, or would reasonably be expected to lead to, an acquisition proposal, and we have agreed to certain terms and conditions relating to our ability to engage in, continue or otherwise participate in any discussions with respect to, provide a third party confidential information with respect to or enter into any acquisition agreement with respect to certain unsolicited proposals that constitute or are reasonably likely to lead to a competing proposal. These provisions could discourage a potential third-party acquirer that might have an interest in us from considering or pursuing an alternative transaction with us or proposing such a transaction, even if it were prepared to pay consideration with a higher per share value than the total value proposed to be paid or received in the merger.
The market price for IMAC common stock following the closing may be affected by factors different from those that historically have affected or currently affect IMAC common stock and Theralink common stock.
Upon completion of the Merger, Theralink equity holders who receive IMAC common stock will become shareholders of IMAC. IMAC’s financial position may differ from its financial position before the completion of the Merger, and the results of operations of the combined company may be affected by some factors that are different from those currently affecting the results of operations of IMAC and those currently affecting the results of operations of Theralink. Accordingly, the market price and performance of IMAC common stock is likely to be different from the performance of Theralink common stock or IMAC common stock in the absence of the Merger.
We are expected to incur significant transaction costs in connection with the Merger, which may be in excess of those anticipated by us.
We have incurred and are expected to continue to incur a number of non-recurring costs associated with negotiating and completing the Merger, related transactions, combining the operations of the two companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by us whether or not the Merger is completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors, employee retention and benefit costs, and filing fees. We will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Merger and the integration of the two companies’ businesses. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all.
The failure to successfully combine the businesses of IMAC and Theralink in the expected time frame may adversely affect IMAC’s future results, which may adversely affect the value of the IMAC common stock that Theralink equity holders would receive in the Merger.
The success of the Merger will depend, in part, on the ability of IMAC to realize the anticipated benefits from combining the businesses of IMAC and Theralink. To realize these anticipated benefits, IMAC’s and Theralink’s businesses must be successfully combined. If the combined company is not able to achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the merger.
IMAC and Theralink, including their respective subsidiaries, have operated and, until the completion of the Merger, will continue to operate independently. It is possible that the integration process could result in the loss of key employees, as well as the disruption of each company’s ongoing businesses or inconsistencies in their standards, controls, procedures and policies. Any or all of those occurrences could adversely affect the combined company’s ability to maintain relationships with customers and employees after the Merger or to achieve the anticipated benefits of the Merger. Integration efforts between the two companies will also divert management attention and resources.
The Merger Agreement subjects us to restrictions on our business activities prior to the closing.
The Merger Agreement subjects us to restrictions on our business activities prior to the closing. The Merger Agreement obligates Theralink to generally conduct our businesses in the ordinary course until the closing and to use our commercially reasonable efforts to preserve substantially intact our present business organization, goodwill and assets. These restrictions could prevent Theralink from pursuing certain business opportunities that arise prior to the closing and are outside the ordinary course of business.
Uncertainties associated with the Merger may cause a loss of management personnel and other key employees of IMAC and Theralink, which could adversely affect the future business and operations of the combined company following the merger.
IMAC and Theralink are dependent on the experience and industry knowledge of their respective officers and other key employees to execute their business plans. The combined company’s success after the Merger will depend in part upon its ability to retain key management personnel and other key employees of both IMAC and Theralink. Current and prospective employees of IMAC and Theralink may experience uncertainty about their roles within the combined company following the Merger or other concerns regarding the timing and completion of the Merger or the operations of the combined company following the Merger, any of which may have an adverse effect on the ability of IMAC and Theralink to retain or attract key management and other key personnel. If IMAC and Theralink are unable to retain personnel, including key management, who are critical to the future operations of the companies, IMAC and Theralink could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment and training costs. In addition, the loss of key personnel could diminish the anticipated benefits of the Merger.
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The Merger may not be completed, and the Merger Agreement may be terminated in accordance with its terms, and failure to complete the merger could negatively impact Theralink’s common stock price and have other adverse effects.
IMAC or Theralink may elect to terminate the Merger Agreement in accordance with its terms in certain circumstances. If the Merger is not completed for any reason, including if the IMAC shareholders fail to approve the applicable proposals, the ongoing business of Theralink may be materially adversely affected and, without realizing any of the benefits of having completed the Merger, we would be subject to a number of risks, including the following:
● | Theralink may experience negative reactions from the financial markets, including negative impacts on our unit price; | |
● | Theralink may experience negative reactions from our customers, suppliers, vendors, landlords, joint venture co-members and other business relationships; | |
● | We will still be required to pay certain significant costs relating to the Merger, such as legal, accounting, financial advisor and printing fees; | |
● | We may be required to pay a termination fee as required by the Merger Agreement; | |
● | The Merger Agreement places certain restrictions on the conduct of the business pursuant to the terms of the Merger Agreement, which may delay or prevent us from undertaking business opportunities that, absent the Merger Agreement, may have been pursued; | |
● | Matters relating to the Merger (including integration planning) require substantial commitments of time and resources by our management, which may have resulted in the distraction of our management from ongoing business operations and pursuing other opportunities that could have been beneficial to us; and | |
● | Litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against Theralink to perform our obligations pursuant to the Merger Agreement. |
Our directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of the Theralink equity holders generally.
In considering the recommendation of our board that Theralink equity holders vote in favor of the Merger Proposal, Theralink equity holders should be aware of and consider the fact that, aside from their interests as Theralink equity holders, certain Theralink directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of Theralink equity holders generally. These interests include, among others, rights to continuing indemnification and directors’ and officers’ liability insurance. Our board was aware of and considered these potential interests, among other matters, in evaluating and negotiating the Merger Agreement and the transactions contemplated therein, in approving the merger and in recommending that Theralink equity holders approve the Merger Proposal.
Litigation relating to the Merger could result in an injunction preventing completion of the Merger, substantial costs to IMAC and Theralink and may adversely affect the combined company’s business, financial condition or results of operations following the merger.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on IMAC’s and Theralink’s respective liquidity and financial condition.
Lawsuits that may be brought against IMAC, Theralink and their respective directors and could seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the Merger Agreement already implemented and to otherwise enjoin the parties from consummating the Merger. One of the conditions to the closing of the Merger is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case that prohibits or makes illegal the closing of the Merger. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, that injunction may delay or prevent the Merger from being completed within the expected timeframe or at all.
Theralink equity holders will not be entitled to appraisal rights in the Merger.
Under the Nevada Revised Statutes, our equity holders do not have appraisal rights in connection with the Merger.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 11, 2023, the Company consummated a third closing (the “Third Closing”) of the Offering pursuant to the terms and conditions of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company and Jeffrey Busch (the “Third Closing Related Party Purchaser”). At the Third Closing, the Company sold the Purchaser (i) a New Debenture with a principal amount of $155,100 (the “April 2023 Related Party Debenture”) and (ii) Warrants to purchase up to 44,314,286 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $141,000 in net proceeds at the Third Offering, net of a 10% original issue discount of $14,100. The issuance and sale of the Debentures, and the Warrants was made in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
On August 16, 2023, Theralink Technologies, Inc. (the “Company”) and IMAC Holdings, Inc. (“IMAC”) entered into a Convertible Secured Promissory Note (the “IMAC Note”) pursuant to which IMAC has loaned to the Company $2,560,500. The proceeds of the IMAC Note will be used by the company for working capital and general corporate purposes. The IMAC Note is in addition to the nonconvertible promissory note issued to IMAC by the Company on July 28, 2023 in the principal amount of $439,590, which matures on July 28, 2024 and bears interest at a rate of 6% per annum.
As previously announced, on May 23, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”)
with IMAC and IMAC Merger Sub, Inc., a Delaware corporation and a newly formed, wholly owned subsidiary of IMAC (“Merger Sub”).
Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the
“Merger”), with the Company continuing as the surviving entity (the “Surviving Entity”) and a wholly owned subsidiary
of IMAC.
The IMAC Note
The IMAC Note will mature on August 16, 2024 and bears interest at 6% per annum payable quarterly, in cash, or, at the option of the holder, may accrue until conversion or maturity. The IMAC Note is convertible into shares of the Company’s common stock at any time after the issuance date at the conversion price equal to $0.00313 per share (the “Conversion Price”). All amounts outstanding under the IMAC Note subject shall automatically convert into shares of common stock upon and just prior to the consummation of the Merger and shall be subject to the terms of the Merger Agreement.. Upon maturity, in lieu of payment or as partial payment, the Company may elect to convert some or all of the outstanding amounts under the IMAC Note into shares of common stock at the Conversion Price.
Security Agreement
Previously, on November 29, 2022, January 27, 2023 and April 11, 2023, the Company issued an aggregate of $17,961,798 of 10% Original Issue Discount Senior Secured Convertible Debentures that are secured by a first priority lien on all of the assets of the Company pursuant to that certain Security Agreement, dated November 29, 2022 (the “Original Security Agreement”) by and among the Company, the holders of the Debentures and the Collateral Agent. In connection with the issuance of the IMAC Note, the Company, Collateral Agent and the holders of a majority of the outstanding Debentures agreed to amend and restated the Original Security Agreement to include the IMAC Note, pursuant to the Amended and Restated Security Agreement dated as of August 16, 2023 by and between the Company, IMAC and the Collateral Agent.
The foregoing description of the terms of the IMAC Note, the Amended and Restated Security Agreement, and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the IMAC Note and Amended and Restated Security Agreement, which are included as Exhibits 4.1 and 10.1 to this Quarterly Report on Form 10-Q and are incorporated herein by reference.
Neither the IMAC Note, nor equity securities issuable upon conversion of the IMAC Note, if any, have been registered for sale under the Securities Act, and may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from the registration requirements. The issuance and sale of the IMAC Note was made in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder. Each of the IMAC Note, and equity securities resulting from its conversion, if any, contain (or will contain, where applicable) restrictive legends preventing the sale, transfer, or other disposition of such securities, unless registered under the Securities Act, or pursuant to an exemption therefrom.
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ITEM 6. EXHIBITS
* | Schedules and exhibits to this Exhibit were omitted pursuant to Regulation S-K Item 601(b)(2). Theralink will furnish a copy of any omitted schedule or exhibit to the SEC upon request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THERALINK TECHNOLOGIES, INC. | ||
Date: August 21, 2023 | By: | /s/ Faith Zaslavsky |
Faith Zaslavsky | ||
Chief Executive Officer | ||
Date: August 21, 2023 | By: | /s/ Andrew Kucharchuk |
Andrew Kucharchuk | ||
Chief Financial Officer |
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