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 February 20, 2024.
THERALINK TECHNOLOGIES, INC.
FORM 10-Q
DECEMBER 31, 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 January 5, 2023 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
December 31, | September 30, | |||||||
2023 | 2023 | |||||||
(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 | ||||||||
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 | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies (Note 10) | ||||||||
STOCKHOLDERS’ DEFICIT: | ||||||||
Preferred stock: $ | par value; authorized;||||||||
Series A Preferred stock: $ | par value; shares designated; issued and outstanding at December 31, 2023 and September 30, 2023||||||||
Series C-1 Preferred stock: $ | par value; shares designated; issued and outstanding at December 31, 2023 and September 30, 2023||||||||
Series C-2 Preferred stock: $ | par value; shares designated; issued and outstanding at December 31, 2023 and September 30, 2023||||||||
Series D-1 Preferred stock: $ | par value; shares designated; issued and outstanding at December 31, 2023 and September 30, 2023||||||||
Series D-2 Preferred stock: $ | par value; shares designated; issued and outstanding at December 31, 2023 and September 30, 2023||||||||
Common stock: $ | par value, shares authorized; shares issued and outstanding at December 31, 2023 and September 30, 2023||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | $ |
See accompanying notes to unaudited financial statements.
4 |
THERALINK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended | ||||||||
December 31, | ||||||||
2023 | 2022 | |||||||
REVENUES, NET | $ | $ | ||||||
COST OF REVENUES | ||||||||
GROSS PROFIT | ||||||||
OPERATING EXPENSES: | ||||||||
Professional fees | ||||||||
Compensation expense | ||||||||
Licensing fees | ||||||||
General and administrative expenses | ||||||||
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 expense | ( | ) | ( | ) | ||||
Total Other Expenses, net | ( | ) | ( | ) | ||||
NET LOSS | ( | ) | ( | ) | ||||
Series E preferred stock dividend | ( | ) | ||||||
Series F preferred stock dividend | ( | ) | ||||||
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS: | ||||||||
Basic and diluted | $ | ) | $ | ) | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
Basic and diluted |
See accompanying notes to unaudited financial statements.
5 |
THERALINK TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
(Unaudited)
Preferred Stock | Common Stock | Total | ||||||||||||||||||||||||||||||||||
Series A # of Shares | Series C-1 # of Shares | Series C-2 # of Shares | Amount | # of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||||||||
Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
Accretion of stock option expense | - | - | - | - | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance on December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
Preferred Stock | Common Stock | Total | ||||||||||||||||||||||||||||||||||
Series A # of Shares | Series C-1 # of Shares | Series C-2 # of Shares | Amount | # of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||||||||
Balance at 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
See accompanying notes to unaudited financial statements.
6 |
THERALINK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended | ||||||||
December 31, | ||||||||
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 finance ROU assets | ||||||||
Non-cash lease cost | ||||||||
Accretion of stock option expense | ||||||||
Amortization of debt discount | ||||||||
Loss on debt extinguishment | ||||||||
Bad debt expense | ||||||||
Unrealized loss on marketable securities | ||||||||
Non-cash debt extension fee included in interest expense | ||||||||
Non-cash settlement expense | ||||||||
Derivative expense | ||||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Prepaid expenses and other current assets | ||||||||
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 | ||||||||
Repayment of convertible notes payable - related parties | ( | ) | ||||||
Repayment of financed lease | ( | ) | ( | ) | ||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | ( | ) | ||||||
NET (DECREASE) INCREASE IN CASH | ( | ) | ||||||
CASH, beginning of period | ||||||||
CASH, end of 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 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 notes to unaudited financial statements.
7 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Theralink Technologies, Inc. (“Theralink or the Company), is a Nevada corporation, that operates as 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.
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. The Company is currently working with IMAC to facilitate the completion of the merger in early 2024. (the “
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.
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 December 31, 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, 2023 audited financial statements on Form 10-K filed on January 5, 2024. 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, 2024.
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 a net loss and net cash used in operations of $
The Company cannot provide assurance that it will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future and continue to try to grow its business.
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.
8 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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 unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the three months ended December 31, 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 December 31, 2023. Accordingly, the estimates presented in these unaudited 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 unaudited 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 December 31, 2023 and September 30, 2023.
December 31, 2023 | September 30, 2023 | |||||||||||||||||||||||
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 Three Months Ended December 31, | ||||||||
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, net | ||||||||
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.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
As of December 31, 2023, the Company had
The
Company deposits its cash with major financial institutions and may at times exceed the federally insured limit. On December 31, 2023,
the Company’s cash balance did not exceed the federal deposit insurance limit of $
9 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
Prepaid Assets
Prepaid assets are carried at amortized cost. Prepaid assets as of December 31, 2023 and September 30, 2023 include, but are not necessarily limited to, prepaid insurance, prepaid consulting fees, prepaid equipment maintenance fees and retainers for professional services.
Research and Development Expenses
Research and development expenses are recognized as general and administrative expense as incurred including the purchase of 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
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 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 a contract liability. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The Company offers these services to biopharmaceutical companies and to private individuals. The Company uses various output methods to recognize revenues. During the three months ended December 31, 2023 and 2022, revenues by category are as follows:
Three Months Ended December 31, 2023 | Three Months Ended December 31, 2022 | |||||||
Biopharma services | $ | $ | ||||||
Patient testing service | ||||||||
Total revenues | $ | $ |
Contract Liabilities – Deferred Revenue
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 three months ended December 31, 2023 and 2022, contract liabilities activity is as follows:
Three Months Ended December 31, 2023 | Three Months Ended December 31, 2022 | |||||||
Contract liabilities - beginning of period | $ | $ | ||||||
Billings and cash receipts on uncompleted contracts | ||||||||
Less: revenues recognized during the period | ( | ) | ( | ) | ||||
Contract liabilities – end of period | $ | $ |
10 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
During
the three months ended December 31, 2023, the Company recognized $
Cost of Revenues
The cost of revenue includes 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. The Company recognizes an allowance for losses on accounts receivable and other receivables in an amount equal to the estimated probable losses net of recoveries under the current expected credit loss method. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts or other accounts considered at risk or uncollectible. The bad debt expense associated with the allowance for doubtful accounts related to accounts receivable and other receivables is recognized in general and administrative expenses.
Research and Development - Contract
The
Company executed an investigator-initiated study agreement in 2022. The contract agreement expires on December 31, 2027, and may be canceled
by either party upon 30-days written notice. As part of the agreement, the Company is required to make quarterly payments to the investigator
for the rights/access to various retrospective biobank clinical samples for research and product development purposes. In addition, the
Company received active patient clinical samples for various cancer indications including: ovarian, endometrial, and head & neck
cancers. These samples were tested to provide RUO (Research Use Only) results reports for research and product validation efforts. For
the three months ended December 31, 2023 and 2022, the Company did
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 Revenues
For
the three months ended December 31, 2023, the Company generated total revenue of $
Concentration of Accounts Receivable
As
of December 31, 2023, the Company had net accounts receivable of $
Concentration of Contract Liabilities
As
of December 31, 2023, the Company had deferred revenue reflected as contract liabilities of $
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. The following potentially dilutive equity securities outstanding as of December 31, 2023 and 2022 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:
December 31, | ||||||||
2023 | 2022 | |||||||
Stock warrants | ||||||||
Stock options | ||||||||
Series C-1 preferred stock | ||||||||
Convertible notes | ||||||||
11 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 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 December 31, 2023 and September 30, 2023, 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 the contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the 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 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
NOTE 4 – ACCOUNTS RECEIVABLE
On December 31, 2023 and September 30, 2023, accounts receivable consisted of the following:
December 31, 2023 | September 30, 2023 | |||||||
Accounts receivable | $ | $ | ||||||
Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
Accounts receivable, net | $ | $ |
For
the three months ended December 31, 2023 and 2022, bad debt expense amounted to $
12 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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 | December 31, 2023 | September 30, 2023 | ||||||||||
Laboratory equipment | $ | $ | ||||||||||
Furniture | ||||||||||||
Leasehold improvements | ||||||||||||
Computer equipment | ||||||||||||
Less: accumulated depreciation | ( | ) | ( | ) | ||||||||
Property and equipment, net | $ | $ |
For
the three months ended December 31, 2023 and 2022, depreciation expense related to property and equipment was $
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 8 under financing lease right-of-use (“ROU”) assets and financing lease liabilities.
NOTE 6 – DEBT
On December 31, 2023 and September 30, 2023, convertible notes payable (third parties and related parties) consisted of the following:
December 31, 2023 | September 30, 2023 | |||||||
Principal amount | $ | $ | ||||||
Less: debt discount | ( | ) | ||||||
Convertible notes payable, net | ||||||||
Less: current portion of convertible notes payable | ( | ) | ( | ) | ||||
Convertible notes payable, net – long-term | $ | $ | ||||||
Principal amount – related parties | $ | $ | ||||||
Less: debt discount – related parties | ( | ) | ||||||
Convertible notes payable – related parties, net | ||||||||
Less: current portion convertible notes payable - related parties | ( | ) | ( | ) | ||||
Convertible notes payable – related parties, net – long-term | $ | $ | ||||||
Total convertible notes payable, net | $ | $ |
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 $
13 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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 $
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
Securities Exchange Agreements and New Related Party Convertible Debentures and Warrants dated November 29, 2022
On
November 29, 2022, the Company consummated the initial closing of a private placement offering pursuant to the terms and conditions of
that certain Securities Purchase Agreement, dated as of November 29, 2022, by and among the Company, certain related party accredited
investors (the “Related Party Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its
capacity as collateral agent. At the initial closing, the Company sold the related party Purchasers (i)
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
14 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
On
April 11, 2023, the Company consummated a third closing of the Offering pursuant to the terms and conditions of that certain Purchase
Agreement, dated as of November 29, 2022, by and among the Company and Jeffrey Busch (the “Third Closing Related Party Purchaser”).
At the third closing, the Company sold the Purchaser (i) a New Debenture with a principal amount of $
The
November 29, 2022, New Related Party Debentures and April 2023 Related Party Debenture were to mature on
The
New Related Party Debentures and April 2023 Related Party Debenture bear interest at
The Company’s obligations under the New Related Party Debentures and April 2023 Related Party Debenture are secured by a first priority lien on all the assets of the Company pursuant to that certain Security Agreement, dated November 29, 2022 (the “Security Agreement”) by and among the Company, the Debenture holders and the Collateral Agent. In connection with the issuance of the IMAC Note, the Company, Collateral Agent and the holders of a majority of the outstanding New Related Party Debentures agreed to amend and restate the Original Security Agreement to include the IMAC Note, pursuant to the Amended and Restated Security Agreement dated as of August 16, 2023 by and between the Company, IMAC and the Collateral Agent.
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 $
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
15 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
IMAC Convertible Secured Note
On
August 16, 2023, the Company entered into a Convertible Secured Promissory Note with IMAC Holdings, Inc. for a total principal amount
of $
Upon
the closing of the stock-for-stock reverse merger transaction contemplated in that certain Agreement and Plan of Merger, dated May 23,
2023, by and between the Company and the Holder, pursuant to which the Company will merge with a newly-formed wholly-owned subsidiary
of the Holder and in which the Company will survive as a wholly-owned subsidiary of the Holder, the Conversion Amount shall automatically
be converted into fully-paid and non-assessable shares of Common Stock at a price per share of $
From
and after the Issue Date, the Conversion Amount, in whole or in part at any time and from time to time may be converted into shares of
Company Stock at the election of the Holder, in its sole discretion. The number of shares of Company Stock to be issued upon the optional
conversion of the Holder will be the conversion amount at a price per share of $
If
the Company (a) fails to pay when due any principal or interest payment on the due date hereunder, and such payment shall not have been
made within thirty days of the Company’s receipt of the Holder’s written notice to the Company of such failure to pay; (b)
materially breaches any other covenant contained in this Note or the Security Agreement and such failure continues for forty-five days
after the Company receives written notice of such material breach from the Holder; (c) voluntarily files for bankruptcy protection or
makes a general assignment for the benefit of creditors; or (d) is the subject of an involuntary bankruptcy petition and such petition
is not dismissed within ninety (90) days, then in any such case then the Holder may declare the Note in default and immediately due and
payable in full. From that date forward, this Note shall bear interest at a rate of the lower of ten percent (
This
Note is secured by all of the assets of the Company pursuant to that certain Amended and Restated Security Agreement (as amended, restated
or otherwise modified from time to time, the “Security Agreement”) dated as of the Issue Date, between the
Company and the Holder and each of the other parties thereto from time to time as specified in such Security Agreement. This Note shall
rank pari passu as to the payment of principal and interest to those certain
On
August 28, 2023, the Company repaid $
As
of December 31, 2023 and September 30, 2023, the note has an outstanding principal balance of $
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 $
16 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 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 $
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 $
17 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
The
New Debentures matured on
The
New Debentures bear interest at
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.
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
18 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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 $
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 Debentures, and the aggregate of
In
connection with the issuance of the New Related Party Debentures and the New Debentures, and the related
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 and convertible debt; | |
● | the expected volatility of the Company’s stock price; | |
● | the expected dividend yield to be realized over the life of the convertible debt and stock warrants; and | |
● | the risk-free interest rate over the expected life of the convertible debt and stock warrants. |
During the three months ended December 31, 2023 and 2022, the fair value of the embedded options and stock warrants were estimated at issuance using the Binomial Valuation Model with the following assumptions:
Three Months Ended December 31, 2023 | Three Months Ended December 31, 2022 | |||||||
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 three months ended December 31, 2023 and 2022, amortization of debt discounts related to the convertible notes payable and exchanged
Debentures was $
19 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
Notes Payable - Related Parties
On December 31, 2023 and September 30, 2023, notes payable - related parties consisted of the following:
December 31, 2023 | September 30, 2023 | |||||||
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 | $ | $ |
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 $
2023 Promissory Notes
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 $
From
May 2023 to July 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 $
IMAC Promissory Note
On
July 28, 2023, the Company issued a Promissory Note Agreement with IMAC Holdings, Inc. (“IMAC”) for a principal amount of
$
During
the three months ended December 31, 2023 and 2022, amortization of debt discount related to notes payable – related parties was
to $
Notes Payable - Other
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 $
20 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
NOTE 7 –LEASE LIABILITIES
Financing Lease Right-of-Use (“ROU”) Assets and Financing Lease Liabilities
Effective
November 2018, the Company entered into a financing agreement with the first lessor to finance the purchase of equipment. Pursuant to
the financing agreement, the Company shall make a monthly payment of $
Effective
November 2018, the Company entered into a financing agreement with a second lessor to finance the purchase of equipment. Pursuant to
the financing agreement, the Company shall make a monthly payment of $
Effective
March 2019, the Company entered into a financing agreement with a third lessor to finance the purchase of equipment. Pursuant to the
financing agreement, the Company shall make a monthly payment of $
Effective
August 2019, the Company entered into a financing agreement with a fourth lessor to finance the purchase of equipment. Pursuant to the
financing agreement, the Company shall make a monthly payment of $
Effective
January 2020, the Company entered into a financing agreement with a fifth lessor to finance the purchase of equipment. Pursuant to the
financing agreement, the Company shall make a monthly payment of $
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:
December 31, 2023 | September 30, 2023 | |||||||
Financing ROU assets | $ | $ | ||||||
Less accumulated amortization | ( | ) | ( | ) | ||||
Balance of Financing ROU assets | $ | $ |
For
the three months ended December 31, 2023 and 2022, amortization expense related to Financing ROU assets was $
Financing lease liability related to the Financing ROU assets is summarized below:
December 31, 2023 | September 30, 2023 | |||||||
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 December 31, 2023 are as follows:
Year ending December 31, | Amount | |||
2024 | $ | |||
Total minimum financing lease payments | ||||
Less: discount to fair value | ( | ) | ||
Total financing lease payable on December 31, 2023 | $ |
21 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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 11). 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,
In
October 2021, pursuant to ASC 842 – Leases, the Company wrote off the balances of the operating asset of $
For
the three months ended December 31, 2023 and 2022, lease costs related to operating lease ROU asset and operating lease liabilities was
$
Operating Right-of-use asset (“ROU”) is summarized below:
December 31, 2023 | September 30, 2023 | |||||||
Operating office lease | $ | $ | ||||||
Less accumulated reduction | ( | ) | ( | ) | ||||
Balance of Operating ROU asset | $ | $ |
Operating lease liability related to the ROU asset is summarized below:
December 31, 2023 | September 30, 2023 | |||||||
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 December 31, 2023 are as follows:
Year ending December 31, | Amount | |||
2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
2029 and thereafter | ||||
Total minimum non-cancellable operating lease payments | ||||
Less: discount to fair value | ( | ) | ||
Total operating lease liability on December 31, 2023 | $ |
22 |
THERALINK
TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
NOTE 8 – RELATED-PARTY TRANSACTIONS
Convertible notes payable – related parties
See Note 6 - Convertible Debt – Related Parties and IMAC Convertible Secured Note
Notes payable – related parties
See Note 6 – Notes Payable – Related Parties
Other
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 $
In
July 2023, the Ruxin Employment Agreement was terminated and Dr. Ruxin became the Company’s Chief Medical Officer (see consulting
agreement below). In connection with the termination of the Ruxin Employment Agreement, the Company accrued a severance payment due of
$
As
of December 31, 2023 and September 30, 2023, the Company owed Dr. Ruxin for expense reimbursements and consulting fees in the amount
of $
On December 31, 2023 and September 30, 2023 net amounts due to related parties consisted of the following:
December 31, 2023 | September 30, 2023 | |||||||
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 | $ | $ |
NOTE 9 – STOCKHOLDERS’ DEFICIT
Common Stock
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 December 31, 2023 and September 30, 2023, 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.
23 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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. |
On
November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of
As of December 31, 2023 and September 30, 2023, the Company had shares of Series C-1 Preferred Stock issued and outstanding.
Series C-2 Preferred Stock
On
May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series C-2 Preferred Stock (the “Series
C-2 Certificate of Designation”) with the Nevada Secretary of State to designate
● | 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 $ |
24 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
● | In the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance (as defined in the Series 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 shareholders 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. |
On
November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of
As of December 31, 2023 and September 30, 2023, the Company had shares of Series C-2 Preferred Stock issued and outstanding.
Series E Preferred Stock
On September 15, 2020, the Company filed a Certificate of Designation, Preferences and Rights of Series E Preferred Stock (the “Series E Certificate of Designation”) with the Nevada Secretary of the State to designate shares of its previously authorized preferred stock as Series E Preferred Stock, par value $ per share and a stated value of $ per share. The Series E Certificate of Designation and its filing 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 | |
● | 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. |
25 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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 was 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.
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of
During
the three months ended December 31, 2023 and 2022, the Company incurred $
As of December 31, 2023 and September 30, 2023, the Company had shares of Series E Preferred Stock issued and outstanding.
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 |
26 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
● | 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. |
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.
27 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of
During
the three months ended December 31, 2023 and 2022, the Company recorded dividends related to the Series F Preferred Stock in the amount
of $
As of December 31, 2023 and September 30, 2023, the Company had shares of Series F Preferred Stock issued and outstanding.
Stock Options
On April 18, 2022, the Company’s Board and the shareholders approved the 2022 Equity Incentive Plan (“2022 Plan”) at which time the plan became effective. A total of 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.
During the three months ended December 31, 2023 and 2022, 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 December 31, 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 December 31, 2023, there was $ of unvested stock-based compensation expense to be recognized through August 2026.
The aggregate intrinsic value of vested options on December 31, 2023, was $ and was calculated based on the difference between the quoted share price on December 31, 2023, of $ and the exercise price of the underlying options.
Number of Options | Weighted Average Exercise Price | |||||||
Balance Outstanding September 30, 2023 | ||||||||
Granted | ||||||||
Forfeited/Expired | ( | ) | ||||||
Balance Outstanding December 31, 2023 | ||||||||
Exercisable, December 31, 2023 (a) |
The following table summarizes additional information on the Company’s stock options outstanding on December 31, 2023:
Options Outstanding | Options Exercisable (a) | ||||||||||||||||||
Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Term (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | ||||||||||||||
(a) |
Warrants
Legacy Warrants
On
November 1, 2021, the Company issued the First November 2021 Warrants to purchase an aggregate of
28 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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
29 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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
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 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, 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
30 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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 discussed in Note 6, 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
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 7. The Company issued
Warrants activities for the three months ended December 31, 2023 are summarized as follows:
Weighted | Weighted Average Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Number of | Exercise | Term | Intrinsic | |||||||||||||
Warrants | Price | (Years) | Value | |||||||||||||
Balance Outstanding on September 30, 2023 | $ | $ | ||||||||||||||
Granted | - | |||||||||||||||
Balance Outstanding on December 31, 2023 | $ | $ | ||||||||||||||
Exercisable on December 31, 2023 | $ | $ |
31 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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.
Pursuant to the Ruxin Employment Agreement, if Dr. Ruxin’s employment is terminated by the Company without Cause, the Company shall make a severance payment to Dr. Ruxin in an amount equal to the sum of Mr. Ruxin’s Base Salary immediately prior to such termination multiplied by three (the “Severance Payment”), which due in 12 monthly equal installments beginning is sixty (60) days after the date on which Employee’s employment terminates (the “Termination Date”).
In July 2023, the Ruxin Employment Agreement was terminated and Dr. Ruxin became the Company’s Chief Medical Officer (see consulting agreement below).
In
connection with the termination of the Ruxin Employment Agreement, the Company accrued a severance payment due of $
As
of December 31, 2023 and September 30, 2023, the Company had aggregate accrued payroll related to Dr. Ruxin’s salary deferment
and accrued severance payment of $
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 provides that Mr. Busch will be employed for a five-year term commencing on June 5, 2020. The term will be
automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless
either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment
period will not be extended. Mr. Busch will be entitled to receive an annual base salary of $
32 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 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.
As
of December 31, 2023 and September 30, 2023, the Company had accrued director compensation of $
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 provided 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 $
On May 5, 2023, Mr. Chilcott’s employment with the Company was terminated. On Mr. Chilcott’s employment termination date of employment of the granted and unvested options were forfeited and the remaining were forfeited 90 days after termination date.
33 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
Faith Zaslavsky
On
December 5, 2022, the Company appointed Faith Zaslavsky 48, as President and Chief Operating Officer of the Company, effective December
5, 2022. In connection with her appointment, on December 5, 2022, the Company and Ms. Zaslavsky entered into an offer letter which provides
that Ms. Zaslavsky’s base salary will be $
On June 28, 2023 the Company appointed Ms. Zaslavsky as the Company’s Chief Executive Officer.
Consulting Agreements
On
July 5, 2020, the Company and a consultant entered into a Scientific Advisory Board Service Agreement (“Scientific Advisory Agreement”)
which provides for; (i) $
On
July 5, 2020, the Company and a consultant entered into a Pathology Advisory Board Service Agreement (the “Pathology Advisory Agreement”)
which provides for; (i) $
Effective
January 1, 2021, the Company entered into a consulting agreement with Andrew 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 would renew on
a month-to month basis, subject to the right of the Company and Mr. Kucharchuk to terminate the agreement in accordance with the terms
of the agreement. Pursuant to the agreement, Mr. Kucharchuk was $
On
July 14, 2023, the Company terminated the employment agreement and 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
34 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
License Agreements
GMU License Agreement
In
September 2006, the Company entered into an exclusive license agreement with George Mason Intellectual Properties (“GMU License
Agreement”), a non-profit corporation formed for the benefit of George Mason University (“GMU”) which: (1) grants an
exclusive worldwide license, with the right to grant sublicenses, under the licensed inventions to make, have made, import, use, market,
offer for sale and sell products designed, manufactured, used and/or marketed for all fields and for all uses, subject to the exclusions
as defined in the GMU License Agreement; (2) grants an exclusive option to license past, existing, or future inventions in the Company’s
field, from inventors that are obligated to assign to GMU and who have signed a memorandum of understanding acknowledging that developed
intellectual property will be offered, subject to the exclusions as defined in the GMU License Agreement; (3) the license and option
granted specifically excludes biomarkers for lung, ovarian, and breast cancers in a diagnostic field of use and GMU inventions developed
using materials obtained from third parties under agreements granting rights to inventions made using said materials and; (4) grants
right to assign or otherwise transfer the license so long as such assignment or transfer is accompanied by a change of control transaction
and GMU is given 14 days’ prior notice. In addition, the Company is required to make an annual payment of $
NIH License Agreement
In
March 2018, the Company entered into two license agreement (“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. The two patents
licensed under the exclusive agreement expire on March 10, 2024. Pursuant to the NIH License Agreement, 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 pay patent fees incurred by Vanderbilt prior to the effective date of the agreement 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
35 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
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. On June 5, 2020, the Company acquired the assets of Avant Diagnostics, Inc., pursuant to the Asset Purchase
Agreement dated May 12, 2020, between the Company and Avant. As of December 31, 2023 and September 30, 2023, the Company has recorded
a contingent liability of $
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. On December 4, 2023, the court granted the plaintiff a motion of leave to amend the complaint. The Company plans to file a motion to dismiss the amended claims.
36 |
THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)
NOTE 11 - AGREEMENT AND PLAN OF MERGER
On May 23, 2023, the Company entered into an Agreement and Plan of Merger 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, with the Company continuing as 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 , each share of the Company’s common stock and each share of preferred stock of Theralink 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 $
At the effective time of the merger, each award of the Company’s stock options , whether or not then vested or exercisable, that is outstanding immediately prior to the eEffective 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. The Company is expecting to close the merger transaction in early 2024.
NOTE 12 – SUBSEQUENT EVENTS
Related party advances
Subsequent
to December 31, 2023, two officers advanced an aggregate of $
Subsequent
to December 31, 2023, a director advanced $
Subordinated promissory note payable
On
January 25, 2024, the Company entered into a subordinated promissory note agreement with an individual for $
37 |
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, 2023, Annual Report on Form 10-K.
Overview
The Company 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 2024 to include ovarian, endometrial, and head & neck cancers. The test is also 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.
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 $0.001 (the “IMAC Shares”) such that the total number of IMAC Shares issued to the holders of our common and preferred stock shall equal 85% 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. The Company is currently expected to the completion of the merger in the second quarter of 2024.
Results of Operations
Comparison for the Three Months Ended December 31, 2023 and 2022
Revenue
During the three months ended December 31, 2023, and 2022, revenues were $83,949 and $55,295, respectively, an increase of $28,654, or 51.8%. The increase was primarily due to an increase in patient direct services offset by a decrease in services performed under research and development contracts. During the three months ended December 31, 2023 and 2022, revenues by category were as follows: |
Three Months Ended | Three Months Ended | |||||||
December 31, 2023 | December 31, 2022 | |||||||
Biopharma services | $ | 14,970 | $ | 39,795 | ||||
Patient testing service | 68,979 | 15,500 | ||||||
Total revenues | $ | 83,949 | $ | 55,295 |
Costs of Revenues
● | During the three months ended December 31, 2023, and 2022, we incurred cost of revenue of $52,947 and $10,818, respectively, an increase of $42,129, or 389.4%. The increase in cost of revenues was due to an increase in lab supplies and direct labor needed to perform patient testing services. |
38 |
Gross Margin
● | For the three months ended December 31, 2023, and 2022, gross profit was $31,002 and $44,477, respectively, a decrease of $13,475, or 30.3%, which represents a gross margin of 36.9% for the three months ended December 31, 2023 versus 80.4% for the three months ended December 31, 2022. The decrease was primarily attributable to the increase in costs of revenue discussed above. Patient testing services results in a lower gross margin than biopharma services. |
Operating Expenses
For the three months ended December 31, 2023, and 2022, operating expenses consisted of the following:
For the Three Months Ended December 31, | ||||||||
2023 | 2022 | |||||||
Professional fees | $ | 511,277 | $ | 387,438 | ||||
Compensation expense | 752,974 | 1,752,699 | ||||||
Licensing fees | 32,710 | 31,637 | ||||||
General and administrative expenses | 281,100 | 448,493 | ||||||
Total | $ | 1,578,061 | $ | 2,620,267 |
Professional fees:
● | For the three months ended December 31, 2023, professional fees increased by $123,839, or 32%, as compared to the three months ended December 31, 2022. The increase was primarily due to an increase in legal, accounting and other professional fees related to the Company’s fund-raising activities and the contemplated merger transaction of $185,218, offset by a decrease in stock-based consulting fees of $61,379 |
Compensation expense:
● | For the three months ended December 31, 2023, compensation expense decreased by $999,725, or 57%, as compared to the three months ended December 31, 2022. The decrease was primarily due to a decrease in stock-based compensation of $506,584 related to accretion of stock option expense from the issuance of stock options to employees in August 2022 and an increase in employee compensation due to employee hiring during the period. |
.
Licensing fees:
● | For the three months ended December 31, 2023, licensing fees increased by $1,073, or 3.4%, as compared to the three months ended December 31, 2022. Licensing fees include fees incurred for licensed software, patent licensing fees and other fees related to state licenses. During 2022, the company obtained licenses from numerous states to conduct business as a certified lab. |
General and administrative expenses:
● | For the three months ended December 31, 2023, general and administrative expenses decreased by $167,393, or 37.3%, as compared to the three months ended December 31, 2022. The decrease was primarily due to a decrease in laboratory supplies expense of approximately $137,780 due to a decrease in breast cancer research and development and a decrease in samples expense of $25,000 for research and development. |
Loss from Operations
For the three months ended December 31, 2023, loss from operations was $1,547,059 as compared to $2,575,790 for the three months ended December 31, 2022, a decrease of $1,028,731, or 40%. The decrease was primarily a result of a decrease in operating expenses as discussed above.
Other (Expenses), net
For the three months ended December 31, 2023, and 2022, total other expenses, net was $(17,499,579) and $(33,880,557), respectively, a decrease of $16,380,978. The change was primarily due to a decrease in loss on debt extinguishment of $5,434,447 that was recorded in 2022, a decrease of $13,451,999 in derivative expense, and a decrease in settlement expense of $200,000, offset by an increase in interest expense, net of $2,707,168.
39 |
Net Loss
For the three months ended December 31, 2023, net loss amounted to $19,046,638 as compared to $36,456,347 for the three months ended December 31, 2022, a decrease of $17,409,709, or 47.7%. The decrease was primarily attributable to a decrease in other expenses, net and a decrease in loss from operations as discussed above.
Preferred Stock Dividends
For the three months ended December 31, 2023, and 2022, we recorded dividends for the Series E Preferred stock and Series F Preferred stock of $0 and $26,301, respectively. On November 29, 2022, all Series E Preferred stock including accrued dividends, was exchanged for Debentures.
For the three months ended December 31, 2023, and 2022, we recorded dividends for the Series F Preferred stock and Series F Preferred stock of $0 and $13,151, respectively. On November 29, 2022, all Series F Preferred stock, including accrued dividends, was exchanged for Debentures.
Net Loss Attributed to Common Stockholders
For the three months ended December 31, 2023, net loss attributable to common stockholders was $19,046,638 as compared to $36,495,799 for the three months ended December 31, 2022, a decrease of $17,449,161, or 47.8%. The decrease was primarily attributable to a decrease in other expenses, net and a decrease in loss from operations as discussed above. Net loss per share for the three months ended December 31, 2023 was $(0.00), as compared to $(0.01) for the three months ended December 31. 2022.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to pay its short-term obligations or liabilities. We will need to raise additional operating capital in 2024 and in future periods in order to maintain our operations, continue our efforts to restructure the Company and pursue our business plan. Without additional sources of cash we will not have the cash resources to continue as a going concern.
We had a working capital deficit of $57,528,332 and $38,572,166 as of December 31, 2023, and September 30, 2023, respectively. Cash on hand as of December 31, 2023, totaled $23,770.
December 31, 2023 | September 30, 2023 | Net Change | Percentage Change | |||||||||||||
Working capital deficit: | ||||||||||||||||
Total current assets | $ | 256,671 | $ | 1,262,688 | $ | (1,006,017 | ) | (80 | )% | |||||||
Total current liabilities | (57,785,003 | ) | (39,834,854 | ) | (17,950,149 | ) | (45 | )% | ||||||||
Working capital deficit | $ | (57,528,332 | ) | $ | (38,572,166 | ) | $ | (18,956,166 | ) | (49 | )% |
The decrease in working capital was primarily attributable to the increases in our current liabilities related to promissory and convertible notes payable, an increase in our derivative liabilities, and other working capital changes including an increase in accounts payable and accrued expenses and a decrease in our current assets.
Cash Flows
The following table sets forth a summary of changes in cash flows for the three months ended December 31, 2023, and 2022:
Three Months Ended December 31, | ||||||||
2023 | 2022 | |||||||
Cash used in operating activities | $ | (962,793 | ) | $ | (1,776,349 | ) | ||
Cash used in investing activities | - | (7,980 | ) | |||||
Cash (used in)/provided by financing activities | (10,921 | ) | 2,521,771 | |||||
Net (decrease)/increase in cash | $ | (973,714 | ) | $ | 737,442 |
40 |
Net Cash Used in Operating Activities:
Net cash used in operating activities was $962,793 and $1,776,349 for the three months ended December 31, 2023 and 2022, respectively.
● | Net cash used in operating activities for the three months ended December 31, 2023 primarily reflected our net loss of $19,046,638 adjusted for changes in non-cash expenses of $17,085,400, including $3,017,093 related to the amortization of debt discounts, a non-cash debt extension fee included in interest expense of $995,280, and derivative expense of $12,945,076, and changes in our operating assets and liabilities of $998,445 including an increase in our accounts payable and accrued liabilities of $1,001,542. | |
● | Net cash used in operating activities for the three months ended December 31, 2022 primarily reflected our net loss of $36,456,347 adjusted for the add-back of non-cash items such as depreciation expense of $50,479, non-cash lease cost of $6,514, accretion of stock options expense of $612,173, amortization of debt discount of $1,602,646, loss on debt extinguishment of $5,434,447, non-cash settlement expense of $200,000, and derivative expense of $26,397,075, and changes in operating assets and liabilities consisting primarily of an increase in accounts receivable of $16,170, a decrease in prepaid expenses and other current assets of $19,976, a decrease in accounts payable of $65,788, an increase in accrued liabilities and other liabilities of $416,146, and an increase in contract liabilities of $20,500. |
Net Cash Used in Investing Activities
Net cash used in investing activities was for the purchase of property and equipment totaling $7,980 during the three months ended December 31, 2022. We did not have any investing activities during the three months ended December 31, 2023.
Net Cash (Used in)/Provided by Financing Activities:
Net cash (used in)/provided by financing activities was $(10,921) and $2,521,771 for the three months ended December 31, 2023 and 2022, respectively.
● | Net cash used in financing activities for the three months ended December 31, 2023 consisted of $10,921 in repayment of financed leases. | |
● | Net cash provided by financing activities for the three months ended December 31, 2022 consisted of $416,562 of net proceeds from related party debentures, $2,118,088 of net proceeds from debentures, offset by repayment of $12,879 of financed leases. |
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 financial statements, the Company had net loss and net cash used in operations of $19,046,638 and $962,793, respectively, for the three months ended December 31, 2023. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $112,801,412, $57,117,989, and $57,528,332 on December 31, 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.
41 |
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 financing 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.
Future Financings
During the year ended September 30, 2023, we raised approximately $6.5 million from net cash provided by our financing activities including the issuance of convertible notes and other promissory notes. As of December 31, 2023, we had approximately $23,700 of cash on hand. As of December 31, 2023, we had approximately $24.6 million in outstanding indebtedness, net of discounts including promissory notes and convertible notes of approximately $22.6 million and $2.0 million of accrued interest on these notes. All of the notes are classified as current liabilities on the Company’s balance sheet. For additional detail on our outstanding indebtedness, see Note 6 to our financial statements included herein for the three months ended December 31, 2023.
We will need to raise substantial additional capital in 2024 in order to satisfy our outstanding indebtedness, maintain our operations and continue our efforts to restructure the Company. If we are unable to do so we may be forced to cease operations or pursue bankruptcy protection. In order to induce our current lenders to agree to a restructuring, we may be required to issue additional debt or equity securities or submit the Company to restrictive covenants and other terms with the potential to hinder or prevent our planned operations and growth. See “Item 1A. – Risk Factors” of our Annual report on Form 10-K for the fiscal year ended September 30, 2023 as filed with the SEC.
There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.
Critical Accounting Policies
In preparing the financial statements, we make estimates and assumptions that have an impact on the assets, liabilities, revenue, and expenses reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk, and financial condition. We believe, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to GAAP, and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from the estimates, and estimates may vary as new facts and circumstances arise. Our significant accounting policies are more fully described in the notes to our financial statements included herein for the period ended December 31, 2023.
Recent Accounting Pronouncements
Any new and recently adopted accounting pronouncements are more fully described in Note 2 to our financial statements included herein for the three months ended December 31, 2023.
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.
42 |
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 December 31, 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 December 31, 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 December 31, 2023, our internal control over financial reporting was not effective.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal controls over financial reporting:
(1) | The lack of multiple levels of management review on complex accounting and financial reporting issues, and business transactions, | |
(2) | a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting processing and accounting functions as a result of our limited financial resources to support the hiring of the necessary personnel and the implementation of more robust accounting systems, |
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 December 31, 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 December 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
43 |
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. On September 28, 2023, the Company and YHP LLC entered into a settlement agreement. In consideration of the mutual releases and other terms set forth in this Settlement Agreement, the Company shall pay to YPH the total sum of $87,000 (the “Settlement Payment”) in settlement of all claims that were asserted or that could have been asserted in the Action. The Settlement Payment is payable as follows: (a) $25,000 was due and paid upon the Effective Date of the Settlement Agreement; (b) $62,000 shall be payable in three equal monthly installments as follows: (i) $20,666.67 due and paid on before October 31, 2023; (ii) $20,666.67 due on or before November 30, 2023 (iii) $20,666.67 due on or before December 31, 2023. As of December 31, 2023 and September 30, 2023, the settlement amount of $62,000 was included in accounts payable on the accompanying balance sheets.
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. On December 4, 2023, the court granted the plaintiff a motion of leave to amend the complaint. The Company plans to file a motion to dismiss the amended claims.
ITEM 1A. RISK FACTORS
Risk factors that may affect our business and financial results are discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. There have been no material changes to the disclosures relating to this item from those set forth in our 2023 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
44 |
ITEM 6. EXHIBITS
Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
Number | Exhibit Description | Form | Exhibit | Filing Date | Herewith | |||||
2.1 | Agreement and Plan of Merger, dated as of May 23, 2023, by and among IMAC Holdings, Inc., IMAC Merger Sub, LLC and Theralink Technologies, Inc.* | 8-K | 2.1 | 05/26/2023 | ||||||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002. | X | ||||||||
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002. | X | ||||||||
32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002. | X | ||||||||
101.INS | INLINE XBRL INSTANCE DOCUMENT | X | ||||||||
101.SCH | INLINE XBRL TAXONOMY EXTENSION SCHEMA | X | ||||||||
101.CAL | INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | X | ||||||||
101.DEF | INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | X | ||||||||
101.LAB | INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE | X | ||||||||
101.PRE | INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | X | ||||||||
104 | COVER PAGE INTERACTIVE DATA FILE (EMBEDDED WITHIN THE INLINE XBRL DOCUMENT) | X |
* | 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. |
45 |
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: February 20, 2024 | By: | /s/ Faith Zaslavsky |
Faith Zaslavsky | ||
Chief Executive Officer | ||
Date: February 20, 2024 | By: | /s/ Andrew Kucharchuk |
Andrew Kucharchuk | ||
Chief Financial Officer |
46 |