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OBMP Theralink

Filed: 27 Sep 21, 5:30pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended: March 31, 2021

 

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: 000-52218

 

Theralink Technologies, Inc.

 

(Exact name of registrant as specified in its charter)

 

Nevada 20-2590810

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

 

15000 W. 6th Avenue, Suite 400

Golden, CO 80401

 

 

(720) 420-0074

(Address of principal executive offices, including zip code) (Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒

 

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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The registrant had 5,555,474,594 shares of its common stock, $0.0001 par value per share, outstanding as of September 22, 2021.

 

 

 

 
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

FORM 10-Q

MARCH 31, 2021

 

TABLE OF CONTENTS

 

 Page
 PART I - FINANCIAL INFORMATION 
   
Item 1.Financial Statements 
 Condensed Consolidated Balance Sheets - As of March 31, 2021 (unaudited) and September 30, 20204
 Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2021 and 2020 (unaudited)5
 Condensed Consolidated Statements of Changes in Stockholder’s Deficit for the Three and Six Months Ended March 31, 2021 and 2020 (unaudited)6
 Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2021 and 2020 (unaudited)8
 Condensed Notes to Condensed Consolidated Financial Statements9
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations26
Item 3.Quantitative and Qualitative Disclosures About Market Risk33
Item 4.Controls and Procedures33
   
 PART II - OTHER INFORMATION 
   
Item 1.Legal Proceedings34
Item 1A.Risk Factors35
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds35
Item 3.Defaults Upon Senior Securities36
Item 4.Mine Safety Disclosures36
Item 5.Other Information36
Item 6.Exhibits36
   
Signatures37

 

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 clinical trials, capital expenditures, research and development expenses and other payments;
our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing; and
our beliefs, assumptions and expectations about the regulatory approval for our technology including, but not limited to our ability to obtain regulatory approval in a timely manner. Or at all.

 

Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors including, among others:

 

our ability to continue as a going concern;
our ability to become current in filing all reports required to be filed by us under Section 13 or 15(d) of the Securities Exchange Act of 1934;
our ability to maintain pricing;
our ability to employ skilled and qualified workers;
the fact that we have incurred significant losses since inception, expect to incur net losses for at least the next several years and may never achieve or sustain profitability;
the loss of key management personnel upon whom we depend;
the progress and results of clinical trials;
our ability to fund our operations;
inadequate insurance coverage for certain losses or liabilities;
our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals on a timely basis;
commercial developments of technologies that compete with our technology;
the actual and perceived effectiveness of our technology, and how the technology compares to competitive technologies;
the rate and degree of market acceptance and clinical utility of our technology;
adverse effects of the recent and ongoing COVID-19 pandemic;
the strength of our intellectual property protection, and our success in avoiding infringement of the intellectual property rights of others;
regulations affecting the health care industry;
adverse developments in our research and development activities;
potential liability if our technology causes illness, injury or death, or adverse publicity from any such events;
our ability to operate our business efficiently, manage capital expenditures and costs (including general and administrative expenses) and obtain financing when required; and
our expectations with respect to future licensing, partnering or acquisition activity.

 

In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed on September 27, 2021 with the Securities and Exchange Commission (“SEC”), particularly in the ‘Risk Factors” section of such report, that could cause results or events to differ materially from the forward-looking statements that we make herein. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement should be relied upon. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. Forward-looking statements apply only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as otherwise required by applicable law.

 

This Quarterly Report on Form 10-Q includes trademarks for Theralink, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.

 

3
 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  March 31,  September 30 
  2021  2020 
  (Unaudited)    
ASSETS        
CURRENT ASSETS:        
Cash $249,703  $1,779,283 
Accounts receivable  56,527   - 
Other receivable  19,807   15,000 
Prepaid expenses and other current assets  153,318   191,253 
Marketable securities  11,400   11,100 
Laboratory supplies  16,422   71,335 
         
Total Current Assets  507,177   2,067,971 
         
OTHER ASSETS:        
Property and equipment, net  754,627   744,822 
Finance right-of-use assets, net  134,507   157,691 
Operating right-of-use asset, net  187,970   206,203 
Security deposits  15,408   19,464 
         
Total Assets $1,599,689  $3,196,151 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
         
CURRENT LIABILITIES:        
Accounts payable $640,224  $617,218 
Accrued liabilities  87,084   56,728 
Accrued compensation  92,997   32,791 
Accrued director compensation  102,500   72,500 
Deferred revenue  146,025   - 
Notes payable - current  1,000   1,000 
Financing lease liability - current  44,892   42,234 
Operating lease liability - current  39,071   35,943 
Insurance payable  26,226   63,675 
Subscription payable  1,250,000   - 
Contingent liabilities  67,640   64,040 
Assumed liabilities of discontinued operations  -   204,608 
         
Total Current Liabilities  2,497,659   1,190,737 
         
LONG-TERM LIABILITIES:        
Financing lease liability  112,983   136,116 
Operating lease liability  156,701   176,893 
         
Total Liabilities  2,767,343   1,503,746 
         
Series E preferred stock; $0.0001 par value; 2,000 authorized; 1,000 issued and outstanding December 31, 2020 and September 30, 2020, respectively  2,000,000   2,000,000 
         
STOCKHOLDERS’ DEFICIT:        
Preferred stock: $0.0001 par value; 26,667 authorized;        
Series A Preferred stock: $0.0001 par value; 1,333 shares authorized; 667 issued and outstanding at December 31, 2020 and September 30, 2020  -   - 
Series C-1 Preferred stock: $0.0001 par value; 3,000 shares authorized; 2,966 issued and outstanding at March 31, 2021 and September 30, 2020  -   - 
Series C-2 Preferred stock: $0.0001 par value; 6,000 shares authorized; 4,917 issued and outstanding at March 31, 2021 and September 30, 2020  -   - 
Series D-1 Preferred stock: $0.0001 par value; 1,000 shares authorized; nil issued and outstanding at March 31, 2021 and September 30, 2020  -   - 
Series D-2 Preferred stock: $0.0001 par value; 4,360 shares authorized; nil issued and outstanding at March 31, 2021 and September 30, 2020  -   - 
Common stock: $0.0001 par value, 12,000,000,000 shares authorized; 5,124,164,690 issued and outstanding at March 31, 2021 and September 30, 2020  512,416   512,416 
Additional paid-in capital  42,368,077   42,367,577 
Accumulated deficit  (46,048,147)  (43,187,588)
         
Total Stockholders’ Deficit  (3,167,654)  (307,595)
         
Total Liabilities and Stockholders’ Deficit $1,599,689  $3,196,151 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

  For the Three Months Ended  For the Six Months Ended 
  March 31,  March 31, 
  2021  2020  2021  2020 
             
REVENUES, NET $126,314  $51,010  $136,104  $51,010 
                 
COST OF REVENUE  28,442   15,999   30,045   15,999 
                 
GROSS PROFIT  97,872   35,011   106,059   35,011 
                 
OPERATING EXPENSES:                
Professional fees  213,965   29,827   411,219   147,717 
Consulting fee - related party  -   10,225   -   55,475 
Compensation expense  532,104   260,511   1,122,279   449,719 
Licensing fees  31,020   12,850   61,192   26,170 
General and administrative expenses  677,340   215,959   1,480,479   378,561 
                 
Total Operating Expenses  1,454,429   529,372   3,075,169   1,057,642 
                 
LOSS FROM OPERATIONS  (1,356,557)  (494,361)  (2,969,110)  (1,022,631)
                 
OTHER INCOME (EXPENSE):                
Interest expense  (7,956)  (7,669)  (16,686)  (15,871)
Gain on debt extinguishment, net  -   -   227,294   - 
Unrealized gain (loss) on marketable securities  3,400   (1,400)  300   (6,300)
Unrealized loss on exchange rate  -   -   (22,686)  - 
                 
Total Other Income (Expense), net  (4,556)  (9,069)  188,222   (22,171)
                 
NET LOSS  (1,361,113)  (503,430)  (2,780,888)  (1,044,802)
                 
Series E preferred stock dividend  39,452   -   79,671   - 
                 
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(1,321,661) $(503,430) $(2,701,217) $(1,044,802)
                 
NET LOSS PER COMMON SHARE:                
Basic and Diluted $(0.00)  -  $(0.00)  - 
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                
Basic and Diluted  5,244,860,396   -   5,184,179,094   - 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2021

(UNAUDITED)

 

  Preferred Stock Common Stock    
  

Series A

# of

Shares

 

Series

C-1 # of

Shares

 

Series

C-2 # of

Shares

 

Series D-1

# of

Shares

 

Series

D-2 # of

Shares

 Amount 

# of

Shares

 Amount 

Additional

Paid-in

Capital

 

Accumulated

Deficit

 

Total

Stockholders’

Deficit

 
                        
Balance at September 30, 2020            667         2,966        4,917                  -                 - $-  5,124,164,690 $512,416 $42,367,577 $(43,187,588)$        (307,595)
                                   
Adjustment related to Series A preferred prior period redemption payment  -  -  -  -  -  -  -  -  500     500 
                                   
Series E preferred stock dividend  -  -  -  -  -  -  -  -  -  (40,219) (40,219)
                                   
Net loss  -  -  -  -  -  -  -  -  -  (1,419,775) (1,419,775)
                                   
Balance at December 31, 2020  667  2,966  4,917  -  -  -  5,124,164,690  512,416  42,368,077  (44,647,582) (1,767,089)
                                   
Series E preferred stock dividend  -  -  -  -  -  -  -  -  -  (39,452) (39,452)
                                   
Net loss  -  -  -  -  -  -  -  -  -  (1,361,113) (1,361,113)
                                   
Balance at March 31, 2021  667  2,966  4,917  -  - $-  5,124,164,690 $512,416 $42,368,077 $(46,048,147)$(3,167,654)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2020

(UNAUDITED)

 

  Preferred Stock Common Stock    
  

Series A

# of

Shares

 

Series

C-1 # of

Shares

 

Series

C-2 # of

Shares

 

Series

D-1 # of

Shares

 

Series

D-2 # of

Shares

 Amount 

# of

Shares

 Amount 

Additional

Paid-in

Capital

 

Accumulated

Deficit

 

Total

Stockholders’

Deficit

 
                        
Balance at September 30, 2019               -                -               -           992               - $-  - $- $37,378,841 $(38,011,201)$(632,360)
                                   
Preferred stock issued for cash  -  -  -  6  -  -  -  -  2,200,000  -  2,200,000 
                                   
Preferred stock issued upon debt conversions  -  -  -  -  -  -  -  -  217,215  -  217,215 
                                   
Preferred stock issued upon conversion of accounts payable and accrued liabilities  -  -  -  1  -  -  -  -  299,154  -  299,154 
                                   
Net loss  -  -  -  -  -  -  -  -  -  (541,372) (541,372)
                                   
Balance at December 31, 2019  -  -  -  999  -  -  -  -  40,095,210  (38,552,573) 1,542,637 
                                   
Preferred stock issued for cash  -  -  -  1  -  -  -  -  390,000  -  390,000 
                                   
Preferred stock issued upon conversion of accrued liabilities - related party  -  -  -  -  -  -  -  -  160,000  -  160,000 
                                   
Net loss  -  -  -  -  -  -  -  -  -  (503,430) (503,430)
                                   
Balance at March 31, 2020  -  -  -  1,000  - $-  - $- $40,645,210 $(39,056,003)$1,589,207 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

7
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

  For the Six Months Ended 
  March 31, 
  2021  2020 
CASH FLOWS USED IN OPERATING ACTIVITIES        
Net loss $(2,780,888) $(1,044,802)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation  92,009   35,597 
Lease cost  1,169   5,317 
Gain on debt extinguishment, net  (227,294)  - 
Unrealized loss on exchange rate  22,686   - 
Unrealized (gain) loss on marketable securities  (300)  6,300 
Change in operating assets and liabilities:        
Accounts receivable  (56,527)  (13,454)
Prepaid expenses and other current assets  37,184   (151,560)
Laboratory supplies  54,913   - 
Accounts payable  23,006   (267,241)
Accrued liabilities and other liabilities  7,042   (72,144)
Deferred revenue  146,025   - 
         
NET CASH USED IN OPERATING ACTIVITIES  (2,680,975)  (1,501,987)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Adjustment related to Series A preferred prior period redemption payment  500   - 
Purchase of property and equipment  (99,105)  (400,267)
         
NET CASH USED IN INVESTING ACTIVITIES  (98,605)  (400,267)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from sale of preferred stock  -   2,590,000 
Proceeds from deposits from sale of common stock  1,250,000   - 
Repayment of related party advances, net  -   (20,000)
Repayment of convertible debt  -   (19,500)
         
NET CASH PROVIDED BY FINANCING ACTIVITIES  1,250,000   2,550,500 
         
NET CHANGE IN CASH  (1,529,580)  648,246 
         
CASH, beginning of the period  1,779,283   560,407 
         
CASH, end of the period $249,703  $1,208,653 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for:        
Interest $-  $- 
Income taxes $-  $- 
         
Non-cash investing and financing activities:        
Issuance of preferred stock for convertible debt and interest $-  $217,215 
Issuance of preferred stock for settlement of accounts payable and accrued liabilities $-  $299,154 
Preferred stock issued upon conversion of accrued liabilities - related party $-  $160,000 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

8
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

 

Theralink Technologies, Inc., formerly OncBioMune Pharmaceuticals, Inc. (the “Company”), was a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology. On June 5, 2020, the Company acquired the assets (the “Asset Sale Transaction”) of Avant Diagnostics, Inc., a Nevada corporation established in 2009 (“Avant”) pursuant to the Asset Purchase Agreement dated May 12, 2020, between the Company and Avant (the “Asset Purchase Agreement”). Avant is a commercial-stage precision medicine and molecular data-generating company that focuses on the development and commercialization of a series of patented, proprietary data-generating assays that may provide important actionable information for physicians and patients, as well as biopharmaceutical companies, in the areas of oncology.

 

Pursuant to the Asset Purchase Agreement, the Company acquired substantially all of the assets of Avant and assumed certain of its liabilities. Upon the terms and subject to the conditions of the Asset Purchase Agreement, Avant sold to the Company, all of Avant’s title and interest in all the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether existing or hereafter acquired, except for the specific excluded assets, which relate to, or are used or held for use in connection with, Avant’s business. The Company also hired Avant’s employees upon consummation of the Asset Sale Transaction. As consideration for the Asset Sale Transaction, the Company issued to Avant 1,000 shares of a newly created Series D-1 Preferred Stock which held 54.55% of all voting rights on an as-converted basis with the common stock. Upon the effectiveness of an increase of the Company’s authorized shares of common stock from 6,666,667 shares to 12,000,000,000 shares, all such shares of Series D-1 Preferred Stock issued to Avant automatically converted into 5,081,550,620 shares of the Company’s common stock. Avant possessed majority voting control of the Company immediately following the Asset Sale Transaction and controlled the Company’s Board of Directors after the termination of the ten-day waiting period required by Rule 14f-1 under the Exchange Act. Accordingly, the Asset Sale Transaction was accounted for, in substance, as an asset acquisition of the Company’s net asset by Avant and a recapitalization of Avant. Avant is considered the historical registrant and the historical operations presented are those of Avant since Avant obtained 54.55% majority voting control of the Company (see Note 3). All share and per share data in the accompanying consolidated financial statements and footnotes has been retrospectively adjusted for the recapitalization.

 

On July 30, 2021, the Company filed a certificate of designation, preferences and rights of Series F Preferred Stock (the “Series F Certificate of Designation”), with the Nevada Secretary of State to designate 1,000 shares of its previously authorized preferred stock as Series F Preferred Stock, par value $0.0001 per share and a stated value of $2,000 per share. The Series F Certificate of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law (see Note 11).

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The accompanying interim condensed consolidated 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 consolidated financial statements of the Company and its wholly-owned inactive subsidiaries, OncBioMune, Inc. and OncBioMune Sub, Inc. as of March 31, 2021. All intercompany transactions and balances have been eliminated. The interim condensed consolidated financial statements do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the audited financial statements of the Form 10-K filed on September 27, 2021. 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 financial statement. The results for the interim period are not necessarily indicative of the results to be expected for the year ending September 30, 2021.

 

Going Concern

 

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company had net loss and net cash used in operations of $2,780,888 and $2,680,975, respectively, for the six months ended March 31, 2021. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $46,048,147, $3,167,654 and $1,990,482 at March 31, 2021. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.

 

9
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

The Company cannot provide assurance that it will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future.

 

Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The global pandemic COVID-19, otherwise referred to as the Coronavirus, could impair our ability to raise additional funding or make such funding more costly. The ongoing global pandemic has caused cessation of normal business operations and initially caused capital markets to decline sharply. This could make it more difficult for the Company to access capital. It is currently difficult to estimate with any certainty how long the pandemic and resulting curtailment of business will continue, and its effect on capital markets and the Company’s ability to raise funds is, accordingly, difficult to quantify. In addition, to the extent that any of the Company’s personnel or consultants are affected by the virus, this could cause delays or disruption in our planned research and development activities.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the six months ended March 31, 2021 and year ended September 30, 2020 include, but are not necessarily limited to, the valuation of assets and liabilities of discontinued operations, estimates of contingent liabilities, valuation of marketable securities, useful life of property and equipment, valuation of right-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current and deferred income taxes and deferred tax valuation allowances and the fair value of non-cash equity transactions.

 

Fair Value of Financial Instruments and Fair Value Measurements

 

FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on March 31, 2021. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

 

 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.

 

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 during the quarter ended March 31, 2020 and its adoption did not have any material impact on the Company’s consolidated financial statements.

 

10
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s investment policy is to preserve principal and maintain liquidity. The Company periodically monitors its positions with, and the credit quality of, the financial institutions with which it invests.

 

The Company maintains its cash in banks and financial institutions that at times may exceed federally insured limits. There were cash balances in excess of FDIC insured levels of $163,963 and $1,538,951 as of March 31, 2021 and September 30, 2020. The Company has not experienced any losses in such accounts through March 31, 2021.

 

Prepaid Assets

 

Prepaid assets are carried at amortized cost. Significant prepaid assets as of March 31, 2021 and September 30, 2020 include, but are not necessarily limited to, prepaid insurance, prepaid consulting fees, prepaid equipment maintenance fees and retainers for professional services.

 

Laboratory Supplies

 

Laboratory supplies are normally consumed within a year from purchase and any unused laboratory supplies are classified as current asset and reflected in the accompanying condensed consolidated balance sheet as laboratory supplies.

 

Property and Equipment

 

Fixed assets are stated at cost and depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

 

Impairment of Long-Lived Assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

 

Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 during the period September 30, 2018, and the adoption did not have any impact on its consolidated financial statements.

 

11
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

Revenue Recognition

 

In May 2014, FASB issued an Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard during the fiscal year ended September 30, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.

 

The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead to deferred revenue for services not completed at the end of a period. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The revenue from the tumor profiling services was not significant and management had not identified any disaggregation of revenue.

 

Cost of Revenue

 

The cost of revenue consists of cost of labor, supplies and materials.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis and do not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition.

 

Any charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired.

 

Concentrations

 

Concentration of Revenues

 

For the three months ended March 31, 2021, the Company generated total revenue of $126,314 of which 35%, 33% and 19% were from three of the Company’s customers. For the three months ended March 31, 2020, the Company generated total revenue of $51,010 from one customer.

 

For the six months ended March 31, 2021, the Company generated total revenue of $136,104 of which 40%, 30% and 18% were from three of the Company’s customers. For the six months ended March 31, 2020, the Company generated total revenue of $51,010 from one customer.

 

Concentration of Accounts Receivable

 

As of March 31, 2021, the Company had accounts receivable of $56,527 of which 47%, 43% and 10% were from three of the Company’s customers. As of September 30, 2020, the Company did not have any accounts receivable.

 

Concentration of Deferred Revenue

 

As of March 31, 2021, the Company had deferred revenue of $146,025 of which 49%, 22% and 29% were from three of the Company’s customers. As of September 30, 2020, the Company did not have any deferred revenue.

 

12
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

Basic and Diluted Loss Per Share

 

Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive equity securities outstanding as of March 31, 2021 and 2020 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:

 

  March 31, 
  2021  2020 
Stock warrants  856,674,588    
Series C-1 preferred stock  445,301,289    
Series C-2 preferred stock  733,542,619    
Series D-1 preferred stock     5,081,550,620 
Series E preferred stock  533,333,333    
   2,568,851,829   5,081,550,620 

 

Income Taxes

 

The Company accounts for income tax using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of March 31, 2021, and September 30, 2020, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of March 31, 2021.

 

Related Parties

 

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.

 

On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.

 

Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.

 

13
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:

 

1.Add a disclosure objective
2.Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed
3.Add information on which party controls the conversion rights
4.Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments
5.Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate.

 

Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.

 

The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s consolidated financial statements.

 

NOTE 3 – ASSET SALE AND RECAPITALIZATION TRANSACTION

 

Avant provided personalized medical data through its Theralink assays, initially for breast cancer, to assist the treating physicians in a data-driven process for treatment decision support and to help enable predictive biomarker-based patient therapy selection. Avant was a developer of phosphoproteomic technologies for measuring the activation state of therapeutic targets and signaling pathways, a key metric for biopharmaceuticals, with applications across multiple cancer types, including breast, non-small cell lung, gastrointestinal (“GI”), gynecologic and pancreatic, among others.

 

14
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

On June 5, 2020, the Company closed the Asset Purchase Agreement entered into with Avant on May 12, 2020. Pursuant to the Asset Purchase Agreement, the Company acquired substantially all of the assets and business of Avant and assumed certain of its liabilities in the Asset Sale Transaction. Upon the terms and subject to the conditions of the Asset Purchase Agreement, Avant sold to the Company, all of Avant’s title and interest in, all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether existing or hereafter acquired, except for the specific excluded assets, which relate to, or are used or held for use in connection with, Avant’s business. The Company also hired Avant’s employees upon consummation of the Asset Sale Transaction. As consideration for the Asset Sale Transaction, Avant was issued 1,000 shares of a newly created Series D-1 Preferred Stock which held 54.55% of all voting rights on an as-converted basis with the common stock. Upon the increase of the Company’s authorized shares of common stock from 6,666,667 shares to 12,000,000,000 shares effective September 24, 2020, all such shares of Series D-1 Preferred Stock issued to Avant automatically converted into 5,081,550,620 shares of the Company’s common stock. Avant possessed majority voting control of the Company immediately following the Asset Sale Transaction and controlled the Company’s Board of Directors after the termination of the ten-day waiting period required by Rule 14f-1 under the Exchange Act. Accordingly, the Asset Sale Transaction was accounted for, in substance, as an asset acquisition of the Company’s net assets by Avant and a recapitalization of Avant as discussed in detail below under “Accounting for the Asset Sale Transaction”. Avant is considered the historical registrant and the historical operations presented are those of Avant since Avant obtained 54.55% majority voting control of the Company.

 

On June 5, 2020, pursuant to the Asset Purchase Agreement, the Company; (i) entered into an employment agreement with Dr. Michael Ruxin to serve as the Company’s Chief Executive Officer, President and a director (see Note 10); (ii) entered into an employment agreement with Jeffery Busch to serve as the Company’s Chairman of the Board of Directors (see Note 10) and (iii) appointed Yvonne Fors to its Board of Directors.

 

Accounting for the Asset Sale Transaction

 

The Asset Sale Transaction was accounted for, in substance, as an asset acquisition of the Company’s net assets by Avant and a recapitalization of Avant as the Company did not meet the definition of a business under the framework provided under ASC 805-10-55-5D through 55-6 - Business Combination. Avant is considered the historical registrant and the historical operations presented are those of Avant since Avant obtained 54.55% majority voting control of the Company where, in effect, the Company is the legal acquirer (accounting acquiree) and Avant is the accounting acquirer (legal acquiree).

 

The cost of the Asset Sale Transaction was determined in accordance with ASC 805-50-30-1 through 30-2 Business Combinations, which states in part that assets are recognized based on their cost to the acquiring entity, which generally includes the transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. If the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued), measurement is based on either the cost which shall be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable.

 

In accordance with ASC 805-50-30-1, the fair value of the 1,000 shares of Series D-1 Preferred Stock, issued as consideration, was determined to be $246,656 which was the fair value of the Company’s net assets that were acquired by Avant as of the closing date of the transaction. The cost of the Asset Sale Transaction was allocated to the acquired assets and assumed liabilities based on their estimated fair values.

 

The following assets and liabilities were assumed in the transaction:

 

Cash $675,928 
Prepaid expense and other current assets  17,539 
Total assets acquired  693,467 
     
Accounts payable and other liabilities  (40,149)
Liabilities of discontinued operations  (406,662)
Total liabilities assumed  (446,811)
     
Net assets acquired $246,656 

 

The functional currency of the former subsidiaries which operated in Mexico is the Mexican Peso (“Peso”). The assumed liabilities of discontinued operations were translated to U.S. dollars using period end rates of exchange for liabilities. Net gains and losses resulting from foreign exchange transactions are reflected as unrealized gain (loss) on exchange rate in the consolidated statements of operations and is a non-cash loss. As a result of foreign currency translations, which are a non-cash adjustment, the Company reported unrealized (loss) on exchange rate of $0 and $(22,686) during the three and six months ended March 31, 2021, respectively.

 

15
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

During the three and six months ended March 31, 2021, $0 and $227,294 of the assumed liabilities of discontinued operations were written-off, in accordance with ASC 405-20-40-1b, and were recorded as a gain on debt extinguishment on the accompanying condensed consolidated statement of operations.

 

NOTE 4 – MARKETABLE SECURITIES

 

During the fiscal year ended 2017, the Company acquired 1,000,000 shares of common stock of Amarantus BioScience Holdings, Inc. (“AMBS”) with a fair value of $40,980. The AMBS common stock is recorded as marketable securities in the accompanying condensed consolidated balance sheets and its fair value is adjusted every reporting period and the change in fair value is recorded in the condensed consolidated statements of operations as unrealized gain or (loss) on marketable securities. During the three and six months ended March 31, 2021, the Company recorded $3,400 and $300 of unrealized gain on marketable securities, respectively. As of March 31, 2021 and September 30, 2020, the fair value of these shares were $11,400 and $11,100, respectively.

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

Property and equipment are recorded at cost and once placed in service, are depreciated on the straight-line method over their estimated useful lives. Leasehold improvements are accreted over the shorter of the estimated economic life or related lease terms. Fixed assets consist of the following:

 

  Estimated
Useful Life in Years
 

March 31,

2021

  September 30, 2020 
    (Unaudited)    
Laboratory equipment 5 $470,158  $404,628 
Furniture 5  24,567   13,367 
Leasehold improvements 5  347,809   347,809 
Computer equipment 3  54,960   53,060 
     897,494   818,864 
Less accumulated depreciation    (142,867)  (74,042)
Property and equipment, net   $754,627  $744,822 

 

For the three and six months ended March 31, 2021, depreciation expense related to property and equipment amounted to $34,772 and $ 68,825, respectively.

 

NOTE 6 – NOTES PAYABLE

 

In September 2017, the Company entered into a loan agreement with a third-party investor (the “Loan”). Pursuant to the loan agreement, the Company borrowed the principal amount of $1,000. The Loan bears an annual interest rate of 33.3%, is unsecured and in default due to non-payment of the balance pursuant to the repayment terms. As of March 31, 2021, the loan had principal and accrued interest balances of $1,000 and $1,188, respectively.

 

NOTE 7 – LEASE LIABILITIES AND RIGHT OF USE ASSETS

 

Financing Lease Right-of-Use (“ROU”) Assets and Financing Lease Liabilities

 

Effective November 2018, the Company entered into a financing agreement with the first lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $379 for a period of 60 months commencing in November 2018 through October 2023. At the effective date of the financing agreement, the Company recorded a financing lease payable of $16,064.

 

Effective November 2018, the Company entered into a financing agreement with the second lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,439 for a period of 60 months commencing in November 2018 through October 2023. At the effective date of the financing agreement, the Company recorded a financing lease payable of $62,394.

 

Effective March 2019, the Company entered into a financing agreement with the third lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,496 for a period of 60 months commencing in March 2019 through April 2024. At the effective date of the financing agreement, the Company recorded a financing lease payable of $64,940.

 

Effective August 2019, the Company entered into a financing agreement with the fourth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $397 for a period of 60 months commencing in August 2019 through August 2024. At the effective date of the financing agreement, the Company recorded a financing lease payable of $19,622.

 

16
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

Effective January 2020, the Company entered into a financing agreement with the fifth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,395 for a period of 60 months commencing in January 2020 through December 2024. At the effective date of the financing agreement, the Company recorded a financing lease payable of $68,821.

 

The significant assumption used to determine the present value of the financing lease payables with a discount rate which ranged from between 8% and 15% based on the Company’s estimated effective rate pursuant to the financing agreements.

 

Financing lease right-of-use assets (“Financing ROU”) is summarized below:

 

  

March 31,

2021

  

September 30,

2020

 
  (Unaudited)    
Financing ROU assets $231,841  $231,841 
Less accumulated depreciation  (97,334)  (74,150)
Balance of Financing ROU assets $134,507  $157,691 

 

For the three and six months ended March 31, 2021, depreciation expense related to Financing ROU assets amounted to $11,592 and $23,184, respectively.

 

Financing lease liability related to the Financing ROU assets is summarized below:

 

  

March 31,

2021

  

September 30,

2020

 
  (Unaudited)    
Financing lease payables for equipment $231,841  $231,841 
Total financing lease payables  231,841   231,841 
Payments of financing lease liabilities  (73,966)  (53,491)
Total  157,875   178,350 
Less: short term portion  (44,892)  (42,234)
Long term portion $112,983  $136,116 

 

Future minimum lease payments under the financing lease agreements at March 31, 2021 are as follows:

 

Years ending September 30, Amount 
2021 $30,363 
2022  61,266 
2023  53,787 
2024  40,875 
2025  4,185 
Total minimum financing lease payments  190,476 
Less: discount to fair value  (32,601)
Total financing lease payable at March 31, 2021 $157,875 

 

Operating Lease Right-of-Use (“ROU”) Asset and Operating Lease Liabilities

 

In December 2019, the Company entered into a lease agreement for its corporate and laboratory facility in Golden, Colorado. The lease is for a period of 60 months, with an option to extend, commencing in February 2020 and expiring in February 2025. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of; (i) $4,878 in the first year; (ii) $5,026 in the second year; (iii) $5,179 in the third year; (iv) $5,335 in the fourth year and; (v) $5,495 in the fifth year, plus a pro rata share of operating expenses beginning February 2020.

 

In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs (see Note 2). In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. At the effective date of the lease, the Company recorded right-of-use assets and lease liabilities of $231,337.

 

17
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

For the six months ended March 31, 2021, lease costs amounted to $29,417 which included base lease costs of $17,065 and other expenses of $12,352, all of which were expensed during the period and included in general and administrative expenses on the accompanying condensed consolidated statements of operations.

 

The significant assumption used to determine the present value of the lease liability was a discount rate of 12% which was based on the Company’s estimated incremental borrowing rate.

 

Operating right-of-use (“Operating ROU”) asset is summarized below:

 

  

March 31,

2021

  

September 30,

2020

 
  (Unaudited)    
Operating office lease $231,337  $231,337 
Less accumulated reduction  (43,367)  (25,134)
Balance of Operating ROU asset $187,970  $206,203 

 

Operating lease liability related to the Operating ROU asset is summarized below:

 

  

December 31,

2020

  

September 30,

2020

 
  (Unaudited)    
Operating office lease $231,337  $231,337 
Total operating lease liability  231,337   231,337 
Reduction of operating lease liability  (35,565)  (18,501)
Total  195,772   212,836 
Less: short term portion  (39,071)  (35,943)
Long term portion $156,701  $176,893 

 

Future base lease payments under the non-cancellable operating lease at March 31, 2021 are as follows:

 

Years ending September 30, Amount 
2021 $30,159 
2022  61,382 
2023  63,236 
2024  65,137 
2025  27,474 
Total minimum non-cancellable operating lease payments  247,388 
Less: discount to fair value  (51,616)
Total operating lease liability at March 31, 2021 $195,772 

 

NOTE 8 – RELATED-PARTY TRANSACTIONS

During the six months ended March 31, 2020, $160,000 owed for consulting fee – related party was converted into 0.24 shares of Series D-1 Preferred (see Note 9).

 

During the six months ended March 31, 2020, the Company repaid $20,000 of outstanding advances to a related party.

 

NOTE 9 – STOCKHOLDERS’ DEFICIT

 

Shares Authorized

 

On September 22, 2020, the Company filed with the Nevada Secretary of State an amendment to its Certificate of Incorporation to change its name from “OncBioMune Pharmaceutical, Inc.” to “Theralink Technologies, Inc.” and increase its authorized shares of common stock from 6,666,667 shares of common stock at $0.0001 per share par value to 12,000,000,000 shares of common stock at $0.0001 per share par value, effective September 24, 2020.

 

18
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

Series D-1 Preferred Stock

 

On May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series D-1 Preferred Stock (the “Series D-1 Certificate of Designation”) with the Nevada Secretary of State to designate 1,000 shares of its previously authorized preferred stock as Series D-1 Preferred Stock, par value $0.0001 per share and a stated value of $9,104.89 per share. The Series D-1 Certificate of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law.

 

For the six months ended March 31, 2020, the Company issued 1 share of D-1 Preferred Stock in exchange for the settlement of certain accrued compensation valued at $459,154 of which $160,000 was for a related party (see Note 8).
  
For the six months ended March 31, 2020, the Company was deemed to have issued 7 shares of D-1 Preferred Stock for net proceeds of $2,590,000.

 

As of March 31, 2021 and September 30, 2020, the Company had no shares of Series D-1 Preferred Stock issued and outstanding.

 

Series E Preferred Stock

 

On September 15, 2020, the Company filed a certificate of designation, preferences and rights of Series E Preferred Stock (the “Series E Certificate of Designation”) with the Nevada Secretary of the State to designate 2,000 shares of its previously authorized preferred stock as Series E Preferred Stock, par value $0.0001 per share and a stated value of $2,000 per share. The Series E Certificate of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law (see Note 1). 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 8% per annum on the Stated Value, plus any additional amount thereon. Dividends shall be paid within 15 days after the end of each fiscal quarter (“Dividend Payment Date”), at the option of the Holder in cash or through the issuance of shares of common stock. In the event that the Holder elects to receive its dividends in shares of common stock the number of shares of common stock to be issued to each applicable Holder shall be determined by dividing the total dividend outstanding to such Holder by the average closing price of the common stock during the five trading days on the principal market prior to the Dividend Payment Date.
   
 Holders of shares of Series E Preferred Stock are entitled to dividends or distributions on each share on an “as converted” into common stock basis, if, as and when declared from time to time by the Board of Directors.

 

 Each share of Series E Preferred Stock is convertible into shares of common stock any time after the initial issuance date at the Conversion Price which is the lesser of: (i) $0.00375 or (ii) 75% of the average closing price of the common stock during the prior five trading days on the principal market, subject to adjustment as provided in the Series E Certificate of Designation including a price protection provision for offerings below the conversion price. Provided, however, the Conversion Price shall never be less than $0.0021. The number of shares of common stock issuable upon conversion shall be determined by multiplying the number of outstanding shares by the stated value per share of $2,000 plus accrued dividends and dividing that number by the Conversion Price.

 

 In connection with, (i) a Change of Control of the Corporation or (ii) on the closing of, a Qualified Public Offering by the Corporation, all of the outstanding shares of Series E (including any fraction of a share) shall automatically convert into an aggregate number of shares of Common Stock (including any fraction of a share) by multiplying the number of outstanding shares by the stated value per share of $2,000 plus accrued dividends and dividing that number (including any fraction of a share) by the lesser of: (i) $0.00375 or (ii) 75% of the average closing price of the common stock during the prior five trading days on the principle market. However, the conversion price shall never be less than $0.0021. If a closing of a Change of Control transaction or a Qualified Public Offering occurs, such automatic conversion of all of the outstanding shares of Series E shall be deemed to have been converted into shares of Common Stock immediately prior to the closing of such transaction or Qualified Public Offering.
   
 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, the exercise price or the conversion price of the securities sold.
   
 Holders of Series E Preferred Stock have no voting rights.
   
 Shares of Series E Preferred Stock are redeemable, at the option of the holder, in the event that the Company is prohibited from issuing shares of common stock to a holder upon any conversion due to insufficient shares of common stock available (“Authorized Failure Shares”).

 

19
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

During the three and six months ended March 31, 2021, the Company also recorded dividends related to the Series E Preferred Stock in the amount of $39,452 and $79,671, respectively As of March 31, 2021 and September 30, 2020, the dividend payable balances were $39,452 and $6,120, respectively. These balances are reflected in the accompanying condensed consolidated balance sheet in accrued liabilities

 

As of March 31, 2021 and September 30, 2020, the Company had 1,000 shares of Series E Preferred Stock issued and outstanding with stated value of $2,000,000, classified as temporary equity in the accompanying condensed consolidated balance sheets.

 

Common Stock

 

During the three months ended March 31, 2021, the Company, entered into Subscription Agreements with several accredited investors to sell, in a private placement, an aggregate of 399,361,022 shares of its common stock, par value $0.0001 per share, at a purchase price of $0.00313 per share for an aggregate purchase price of $1,250,000. These shares of common stock were sold by the Company in reliance upon an exemption from the registration requirements of the Act afforded by Section 4(a)(2) of the Act and/or Rule 506 of Regulation D thereunder. The private placements were made directly by the Company and no underwriter or placement agent was engaged by the Company. The Company did not engage in general solicitation or advertising and did not offer securities to the public in connection with this offering. As of March 31, 2021, this common stock has not been issued as the Company is unable to issue shares of common stock until it is current with all its SEC reporting requirements. Accordingly, the $1,250,000 is reflected in the accompanying condensed consolidated balance sheet in subscription payable.

 

On September 24, 2020, the Company converted 1,000 shares of Series D-1 Preferred Stock into 5,081,550,620 shares of common stock.

 

On September 24, 2020, the Company converted 4,121.64 shares of Series D-2 Preferred Stock into 41,216,000 shares of common stock.

 

As of March 31, 2021 and September 30, 2020, the Company had 5,124,164,690 shares of common stock outstanding.

 

Stock options

 

Effective February 18, 2011, the Company’s Board of Directors (“Board”) adopted and approved the 2011 stock option plan. A total of 57 options to acquire shares of the Company’s common stock were authorized under the 2011 stock option plan. During each twelve-month period thereafter, our board of directors is authorized to increase the number of options authorized under this plan by up to 14 shares. No options were granted under the 2011 stock option plan as of March 31, 2021.

 

On April 28, 2020, the Board approved the 2020 Equity Incentive Plan (the “Plan”), as amended on May 29, 2020. The Plan shall be effective upon approval by the Stockholders which shall be within twelve (12) months after the approval of the Board. No Incentive Stock Option shall be exercised unless and until the Plan has been approved by the Stockholders. Upon the effective date of the Plan and the effectiveness of the authorized share increase, which occurred on September 24, 2020, 3,043,638,781 shares of the Company’s common stock were being reserved for issuance under the Plan (the “Reserved Share Amount”), subject to the adjustments described in the Plan, and such Reserved Share Amount, when issued in accordance with the Plan, shall be validly issued, fully paid, and non-assessable. Pursuant to the Plan, the option price of each incentive stock option (except those that constitute substitute awards under the Plan) shall be at least the fair market value of a share of common stock on the respective grant date; provided, however, that in the event that a grantee is a ten-percent stockholder as of the grant date, the option price of an incentive stock option shall be not less than 110% of the fair market value of a share on the grant date. As of March 31, 2021, the 2020 Equity Incentive Plan has not yet been approved by the shareholders and the Company had no options issued and outstanding (see Note 10).

 

Warrants

 

As of March 31, 2021, the Company had 856,674,588 warrants issued and outstanding.

 

Warrants activities for the six months ended March 31, 2021 is summarized as follows:

 

      Weighted   
    Weighted Average   
    Average Remaining Aggregate 
  Number of Exercise Contractual Intrinsic 
  Warrants Price Term (Years) Value 
Balance Outstanding at September 30, 2020  856,674,588 $0.002  4.59 $ 
Granted         
Balance Outstanding at March 31, 2021  856,674,588 $0.002  3.84 $ 
              
Exercisable at March 31, 2021  656,674,588 $0.002  3.84 $ 

 

20
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

NOTE 10 – COMMITMENT AND CONTINGENCIES

 

Employment Agreements

 

Michael Ruxin, M.D.

 

On June 5, 2020, the Company and Dr. Michael Ruxin. entered into an employment agreement (the “Ruxin Employment Agreement”) for Dr. Ruxin to serve as the Company’s Chief Executive Officer, President and a director (see Note 3).

 

The Ruxin Employment Agreement provides that Dr. Ruxin will be employed for a five-year term commencing on June 5, 2020. The term will be automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment period will not be extended. Dr. Ruxin will be entitled to receive an annual base salary of $300,000 and will be eligible for an annual discretionary bonus of 150% of such base salary. In the Ruxin Employment Agreement, Dr. Ruxin is also promised, subject to the approval of the Board or a committee thereof, and under the 2020 Equity Incentive Plan (i) a one-time grant of 49,047,059 Restricted Stock Units (“RSUs”) and (ii) a one-time grant of options to purchase 420,691,653 shares of Common Stock, both of which will be subject to the terms and conditions of the applicable award agreements when executed. Dr. Ruxin is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time. As of March 31, 2021, the RSUs and options have not yet been granted or issued since the Board has not yet approved the grants and the 2020 Equity Incentive Plan has not been approved by the shareholders. Further, the board and Dr. Ruxin have not yet agreed on the terms of the options.

 

Dr. Ruxin is an “at-will” employee and his employment may be terminated by the Company at any time, with or without cause. In the event Dr. Ruxin’s employment is terminated by the Company without Cause (as defined in the Ruxin Agreement), with Good Reason (as defined in the Ruxin Agreement) or as a result of a non-renewal of the term of employment under the Ruxin Agreement, Dr. Ruxin shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Dr. Ruxin prior to the date of termination. Dr. Ruxin shall be entitled to reimbursement of any COBRA payment made during the 18-month period following the date of termination.

 

The Ruxin Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.

 

Jeffrey Busch

 

On June 5, 2020, the Company and Jeffrey Busch entered into an employment agreement (the “Busch Employment Agreement”) for Mr. Busch to serve as the Company’s Chairman of the Board of Directors (see Note 3).

 

The Busch Employment Agreement provides that Mr. Busch will be employed for a five-year term commencing on June 5, 2020. The term will be automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment period will not be extended. Mr. Busch will be entitled to receive an annual base salary of $60,000 and will be eligible for an annual discretionary bonus. In the Busch Employment Agreement, Mr. Busch is also promised, subject to the approval of the Board or committee thereof, and under the 2020 Equity Incentive Plan (i) a one-time grant of 49,047,059 Restricted Stock (“RSUs”) and (ii) a one-time grant of options to purchase 420,691,653 shares of Common Stock, both of which will be subject to the terms and conditions of the applicable award agreement when executed. Mr. Busch is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time. As of March 31, 2021, the RSUs and options have not yet been granted or issued since the Board has not yet approved the grants and the 2020 Equity Incentive Plan has not been approved by the shareholders. Further, the board and Mr. Busch have not yet agreed on the terms of the options. As of March 31, 2021 and September 30, 2020, the Company has accrued director compensation of $102,500 and $72,500, respectively.

 

21
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(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 Agreement), with Good Reason (as defined in the Busch Agreement) or as a result of a non-renewal of the term of employment under the Busch Agreement, Mr. Busch shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Mr. Busch prior to the date of termination.

 

The Busch Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.

 

Thomas E. Chilcott, III

 

On September 24, 2020, the Company appointed Thomas E. Chilcott, III, to serve as the Chief Financial Officer. The Company entered into an offer letter with Mr. Chilcott which provides that his base salary will be $225,000 per year and that he will be eligible to receive the following bonuses: $5,000 if the Company’s next Annual Report on Form 10-K is filed on or prior to December 12, 2020; $5,000 if the Company files a registration statement on Form S-1 on or prior to January 15, 2021; $5,000 if the Company completes a capital raise of at least $3,000,000 on or prior to Apri1 15, 2021; $20,000 if the Company completes a capital raise of at least $10,000,000 on or prior to September 30, 2021; and $15,000 if the Company successfully lists on the Nasdaq stock market on or before December 31, 2021. Mr. Chilcott is entitled to participate in all medical and other benefits that the Company has established for its employees. The offer letter also provides that Mr. Chilcott will be granted an option to purchase up to 94,545,096 shares of the Company’s common stock subject to terms including exercise price to be set by the Board of Directors of the Company. As of March 31, 2021, no bonus was due and no options have been granted to Mr. Chilcott.

 

Consulting Agreements

 

On July 5, 2020, the Company and a consultant entered into a Scientific Advisory Board Service Agreement (the “Advisory Agreement”) which provides for; (i) $2,000 monthly compensation; (ii) 88,786,943 stock options under the 2020 Equity Incentive Plan and; (iii) $1,500 per day for any special project requiring more than six hours of advisory service in a single day performed upon a written request from the Company. Either party may terminate the Advisory Agreement at any time upon ten days written notice to the other party unless either party neglects or fails to perform its obligations under the Advisory Agreement then the termination notice shall be effective upon receipt of the same. As of March 31, 2021, the Company and the consultants have not agreed on the terms of the 88,786,943 stock options and therefore these stock options are not considered granted by the Company. Further, as of March 31, 2021, the 2020 Equity Incentive Plan has not yet been approved by the shareholders.

 

On July 5, 2020, the Company and a consultant entered into a Pathology Advisory Board Service Agreement (the “Advisory Agreement”) which provides for; (i) $272 monthly compensation; (ii) 77,972,192 stock options under the 2020 Equity Incentive Plan and; (iii) $1,500 per day for any special project requiring more than six hours of advisory service in a single day performed upon a written request from the Company. Either party may terminate the Advisory Agreement at any time upon ten days written notice to the other party unless either party neglects or fails to perform its obligations under the Advisory Agreement then the termination notice shall be effective upon receipt of the same. As of March 31, 2021, the Company and the consultants have not agreed on the terms of the 77,972,192 stock options and therefore these stock options are not considered granted by the Company. Further, as of March 31, 2021, the 2020 Equity Incentive Plan has not yet been approved by the shareholders.

  

22
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

License Agreements

 

GMU License Agreement

 

In September 2006, the Company entered into an exclusive license agreement (“License Agreement”) with George Mason Intellectual Properties, a non-profit corporation formed for the benefit of George Mason University (“GMU”) which: (1) grants an exclusive worldwide license, with the right to grant sublicenses, under the licensed inventions to make, have made, import, use, market, offer for sale and sell products designed, manufactured, used and/or marketed for all fields and for all uses, subject to the exclusions as defined in the License Agreement; (2) grants an exclusive option to license past, existing, or future inventions in the Company’s field, from inventors that are obligated to assign to GMU and who have signed a memorandum of understanding acknowledging that developed intellectual property will be offered, subject to the exclusions as defined in the License Agreement; (3) the license and option granted specifically excludes biomarkers for lung, ovarian, and breast cancers in a diagnostic field of use and GMU inventions developed using materials obtained from third parties under agreements granting rights to inventions made using said materials and; (4) grants right to assign or otherwise transfer the license so long as such assignment or transfer is accompanied by a change of control transaction and GMU is given 14 days prior notice. In addition, the Company is required to make an annual payment of $50,000 to GMU as well as pay GMU a quarterly royalty equal to the net revenue multiplied by one and one-half percent (1.5%), due on a quarterly basis or a quarterly sublicense royalty equal to the net revenue multiplied by fifteen percent (15%). Further, the Company has the right of first refusal for all technology associated with RPPA technology from GMU. As of March 31, 2021 and September 30, 2020, the Company has accrued royalty fees of $1,037 and $832, respectively, included in the accrued expenses in the accompanying condensed consolidated balance sheets.

 

NIH License Agreement

 

In March 2018, the Company entered into two license agreements (“License Agreements”) with the National Institutes of Health (“NIH”) which grants the Company an exclusive and a nonexclusive United States license for certain patents. Pursuant to the License Agreements, the Company is required to make an annual payment of $6,000 to the NIH as well as pay the NIH a royalty equal to the net sales multiplied by three percent (3.0%) every June 30th and December 31st. Commencing on January 1st of the year following the year of the first commercial sale, the Company is subject to a non-refundable minimum annual royalty of $5,000. In addition, a sublicense royalty equal to the net revenue multiplied by ten percent (10%) will be payable upon sublicensing. As of March 31, 2021 and September 30, 2020, the Company has accrued royalty fees of $22,330 and $19,834, respectively, included in the accrued expenses in the accompanying condensed consolidated balance sheets.

 

Employee Incentive Stock Options

 

In June 2020, in connection with the asset sale transaction (see Note 3), the Company planned to issue approximately 1.8 billion stock options to employees, which include options in the employment agreements discussed above. As of March 31, 2021, these stock options had not yet been granted by the Company.

 

Lease

 

In December 2019, the Company entered into a lease agreement its corporate and laboratory facility in Golden, Colorado. The lease is for a period of 60 months, with an option to extend, commencing in February 2020 and expiring in February 2025 (see Note 7).

 

Other Contingencies

 

Pursuant to ASC 450-20 - Loss Contingencies, liabilities for contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. As of March 31, 2021 and September 30, 2020, the Company recorded a contingent liability of $67,640 and $64,040, respectively, resulting from certain liabilities of Avant prior to the asset sale and recapitalization transaction (see Note 3). The contingent liabilities consisted of two notes payables with a total outstanding principal balance of $40,000 as of March 31, 2021 and September 30, 2020 and accrued interest payable of $27,640 and $24,040 as of March 31, 2021 and September 30, 2020, respectively.

 

NOTE 11 – SUBSEQUENT EVENTS

 

Sale of Common Stock

 

In April 2021, the Company, entered into Subscription Agreements with several accredited investors to sell, in a private placement, an aggregate of 31,948,882 shares of its common stock, par value $0.0001 per share, at a purchase price of $0.00313 per share for an aggregate purchase price of $100,000. The Shares sold by the Company under these Subscription Agreements were in reliance upon an exemption from the registration requirements of the Act afforded by Section 4(a)(2) of the Act and/or Rule 506 of Regulation D thereunder. The private placements were made directly by the Company and no underwriter or placement agent was engaged by the Company. The Company did not engage in general solicitation or advertising and did not offer securities to the public in connection with this offering. As of March 31, 2021, this common stock has not been issued as the Company is unable to issue shares of common stock until it is current with all its SEC reporting requirements.

 

23
 

 

THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

Note Agreements

 

On April 26, 2021, the Company entered into a Promissory Note Agreement (the “Note”) with Jeffrey Busch who serves as a member of the Board of Directors (“Lender”) for a principal amount of $100,000. The Company received proceeds of $100,000. The Note bears an annual interest rate of 1%, matures on April 1, 2022 and can be prepaid in whole or in part without penalty. Pursuant to the Note, the Company has 90-day grace period following the maturity date after which the Lender shall charge a late payment fee equal to 1% of the outstanding principal balance and cost of collection, including legal fees.

 

On May 12, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor (the “Investor”) to purchase a convertible note (the “Note”) and accompanying warrant (the “Warrant”) for an aggregate investment amount of $1,000,000. The Note has a principal value of $1,000,000 and bears an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default” (as defined in the Note)) and shall mature on May 12, 2026 (the “Maturity Date”). The Company received the proceeds in three tranches with the first tranche of $333,334 received in May 2021, the second tranche of $333,333 received in June 2021 and the third tranche of $333,333 received in July 2021. The Note is convertible at any time into shares of the Company’s common stock at a conversion price equal to $0.00313 per share for any amount of principal and accrued interest remaining outstanding (subject to adjustment as provided therein). The Note had a beneficial conversion feature in the amount of $15,800 which was recorded as debt discount to be amortized over the life of the Note. The Company may prepay the Note at any time in an amount equal to 110% of the outstanding principal balance and accrued interest. In connection with the Note, the Investor was issued a Warrant to purchase up to 63,897,764 shares of common stock at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until May 12, 2026. The Warrants are exercisable for cash at any time. The 63,897,764 stock warrants were valued at $984,200 using the relative fair value method which was recorded as a debt discount to be amortized over the life of the Note. In connection with the Company’s obligations under the Note, the Company entered into a security agreement (the “Security Agreement”) with Ashton Capital Corporation as agent, pursuant to which the Company granted a lien on certain pieces of laboratory equipment of the Company (the “Collateral”), for the benefit of the Investor, to secure the Company’s obligations under the Note. Upon an Event of Default (as defined in the Notes), the Investor may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.

 

Amendment to Lease

 

On June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (the “Lease Amendment”) for its laboratory facility in Golden, CO. The amendment was entered into in order to: (i) extend the term of the lease to five years following completion of the Company’s improvements to the Expansion Premises (defined below);(ii) expand the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden, Colorado 80401, consisting of approximately 4,734 rentable square feet (the “Expansion Premises”); (iii) modify the annual basic rent; (iv) increase the security deposit; (v) provide for a tenant improvement allowance; (vi) provide for additional parking; (vii) provide for renewal options; and (viii) make certain other modifications as more particularly set forth below.

 

Pursuant to the Lease Amendment, the Company must pay a monthly base rent of; (i) $5,660 for the year from 3/1/25 to 2/28/26 and (ii) $5,829 for each year thereafter. In addition, the Company must pay a monthly base rent for the Expanded Premises of; (i) $4,537 in the first year; (ii) $4,673 in the second year; (iii) $4,813 in the third year; (iv) $4,957 in the fourth year and; (v) $5,106 in the fifth year.

 

Certificate of Designation of Series F Preferred Stock

 

On July 30, 2021, the Company filed a certificate of designation, preferences and rights of Series F Preferred Stock (the “Series F Certificate of Designation”), with the Nevada Secretary of State to designate 1,000 shares of its previously authorized preferred stock as Series F Preferred Stock, par value $0.0001 per share and a stated value of $2,000 per share. The Series F Certificate of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law (see Note 1). The holders of shares of Series F Preferred Stock have the following preferences and rights:

 

 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 8% per annum on the Stated Value, plus the Additional Amount thereon. Dividends shall be paid within 15 days after the end of each month (“Dividend Payment Date”), at the option of the Holder in cash or through the issuance of shares of Common Stock. In the event that the Holder elects to receive its dividends in shares of Common Stock the number of shares of Common Stock to be issued to each applicable Holder shall be calculated by dividing the total dividend due to such Holder by the average closing price of the Common Stock during the five trading days on the Principal Market prior to the Dividend Payment Date.
   
 Holders of shares of Series F Preferred Stock are entitled to dividends or distributions on each share on an “as converted” into common stock basis, if, as and when declared from time to time by the Board of Directors.

 

 Each share of Series F Preferred Stock is convertible into shares of common stock any time after the initial issuance date at the Conversion Price which is the lesser of: (i) $0.00313 or (ii) 75% of the average closing price of the common stock during the prior five trading days on the principal market, subject to adjustment as provided in the Series F Certificate of Designation including a price protection provision for offerings below the conversion price. Provided, however, the Conversion Price shall never be less than $0.0016. The number of shares of common stock issuable upon conversion shall be determined by multiplying the number of outstanding shares by the stated value per share of $2,000 plus any additional amount and dividing the total by the Conversion Price.

 

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THERALINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(UNAUDITED)

 

 In connection with, (i) a Change of Control of the Corporation or (ii) on the closing of, a Qualified Public Offering by the Corporation, all of the outstanding shares of Series F Preferred Stock (including any fraction of a share) shall automatically convert along with any additional amount into an aggregate number of shares of Common Stock (including any fraction of a share) as is determined by dividing the number of shares of Series F Preferred Stock (including any fraction of a share) by the Automatic Conversion Price then in effect. If a closing of a Change of Control transaction or a Qualified Public Offering occurs, such automatic conversion of all of the outstanding shares of Series F Preferred Stock shall be deemed to have been converted into shares of Common Stock immediately prior to the closing of such transaction or Qualified Public Offering.
   
 In the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance (as defined in the Series F Certificate of Designation), at a price, an exercise price or conversion price of less than the conversion price, then upon such issuance or sale, the Series F Preferred Stock conversion price shall be reduced to the sale price, or the exercise price or conversion price of the securities sold.
   
 Series F Preferred Stock shall rank pari passu with respect to preferences to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Corporation with the Series C-1 Preferred Stock of the Corporation, the Series C-2 Preferred Stock of the Corporation, and the Series E Preferred Stock of the Corporation (the “Parity Stock”), and all other shares of capital stock of the Corporation shall be junior in rank to all Series F with respect to the preferences as to dividends (except for the Common Stock, which shall be pari passu as provided in the Series F Certificate of Designation), distributions and payments upon the liquidation, dissolution and winding up of the Corporation (such junior stock is referred to herein collectively as “Junior Stock”). The rights of all such Junior Stock shall be subject to the rights, powers, preferences and privileges of the Series F Preferred Stock. Without limiting any other provision of the Series F Certificate of Designation, without the prior express consent of the Required Holder, the Corporation shall not hereafter authorize or issue any additional or other shares of capital stock that is (i) of senior rank to the Series F Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Corporation (collectively, the “Senior Preferred Stock”), or (ii) Parity Stock. Except as provided for herein, in the event of the merger or consolidation of the Corporation into another corporation, the Series F Preferred Stock shall maintain its relative rights, powers, designations, privileges and preferences provided for herein for a period of at least two years following such merger or consolidation and no such merger or consolidation shall cause result inconsistent therewith.

 

Sale of Series F Preferred Stock

 

On July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an investor to purchase an aggregate amount of 500 shares of a newly created Series F Convertible Preferred Stock of the Company (the “Series F Preferred”) and accompanying warrant (the “Warrant”) for an aggregate investment amount of $1,000,000. The Series F Preferred Stock has a stated value of $2,000 per share and shall accrue monthly in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid monthly at the option of the holder of the Series F Preferred in either cash or shares of common stock of the Company. The number of shares of common stock issuable upon conversion of the Series F Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00313 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0016. In addition, the investor was issued a Warrant to purchase an amount of common stock equal to 20% of the shares of common stock issuable upon conversion of the Series F Preferred at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until July 30, 2026. The Warrants are exercisable for cash at any time. The Warrants shall be valued using the relative fair value method.

 

Series E Price Reduction

 

The Series F Preferred Stock, that was issued on July 30, 2021, triggered the price protection clause in the Series E Preferred Stock. Thus, the conversion price of the Series E Preferred Stock was reduced from $0.00375 to $0.00313 on that date.

 

Legal Action

 

On July 1, 2021, numerous purported plaintiffs brought an action against Avant and their previous executive team in the District Court of Harris County Texas. The action alleges the plaintiffs were engaged by Avant to perform services prior to 2018. The plaintiffs are seeking a $1 million award. The Company and Dr. Ruxin were named it the lawsuit. The Company believes these claims are without merit and intends to defend these lawsuits vigorously. The Company currently believes the likelihood of a loss contingency related to these matters is remote and, therefore, no provision for a loss contingency is required.

 

Exercise of Options to Purchase Shares of OncBioMune Sub Inc.

 

In connection with the Asset Sale Transaction, the Company entered into an Exchange Agreement, effective June 5, 2020, by and among OncBioMune Pharmaceuticals, Inc. and the investors named therein, whereby the Company agreed to exchange certain convertible promissory notes and warrants outstanding for shares of Series C-1 Convertible Preferred Stock of the Company and options to purchase shares of the Company’s wholly-owned subsidiary, OncBioMune Sub Inc. OncBioMune Sub Inc. holds the patents used in the prior business of OncBioMune Pharmaceuticals, Inc. In July of 2021, certain of those investors exercised their options to purchase the shares of OncBioMune Sub Inc. On July 26, 2021, the Company transferred all 10,000 shares of OncBioMune Sub Inc. held by the Company to the investors.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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, 2020, Annual Report on Form 10-K.

 

Special Note Regarding COVID-19

 

In December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread of the virus had resulted in a world-wide pandemic. The U.S. economy was largely shut down by mass quarantines and government mandated stay-at-home orders (the “Orders”) to halt the spread of the virus. These Orders have required some of our employees to work from home when possible, and other employees have been entirely prevented from performing their job duties until the Orders are relaxed or lifted. The COVID-19 pandemic has required alternative selling approaches such as through social media. We may be unable to avoid future reductions in net revenue using these alternative selling approaches that avoid direct contact with our customers. The world-wide response to the pandemic has resulted in a significant downturn in economic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. If an economic recession or depression is sustained, it could have a material adverse effect on our business as demand for our technology could decrease.

 

While some of these Orders were relaxed or lifted in different jurisdictions at various times during the six months ended March 31, 2021, the overall impact of COVID-19 continues to have an adverse impact on business activities around the world. There is no assurance that Orders that were previously relaxed or lifted will not be reinstated as the spread of COVID-19 continues. For example, many jurisdictions have recently reinstated masking orders after test results have showed a resurgence of the pandemic. Resurgence of the pandemic in some markets has slowed the reopening process of businesses in those areas, including Europe where additional lockdowns have been recently reinstated. If COVID-19 infection trends continue to reverse and the pandemic intensifies and expands geographically, its negative impacts on our sales could be more prolonged and may become more severe. The long-term financial impact on our business cannot be reasonably estimated at this time.

 

Overview

 

Theralink is a commercial-stage precision medicine and molecular data-generating company that focuses on the development and commercialization of a series of patented, proprietary data-generating assays that may provide important actionable information for physicians and patients, as well as biopharmaceutical companies, in the areas of oncology. Our near-term goal is to commercialize the technology originally developed by Theranostics, a company whose assets we acquired in May 2016. The company differentiates itself by:

 

 An exclusive license agreement with George Mason University (“GMU”), that has well-published scientists in our area of expertise.
 Having access to the Ph.D.’s at GMU who have completed pioneering work in phosphoproteomic-based biomarkers diagnostics.
 Domain expertise in cancer biomarker and data-generating laboratory testing data.
 Development of proprietary, cutting edge assays focused on precision oncology care.
 Building revenue streams based on our proprietary technology Theralink.
 Having a patent portfolio licensed from GMU and the NIH.

 

Theralink is advancing its patented, proprietary technology in the field of phosphoproteomic research, a sector which has emerged as one of the most exciting new components in the high-growth field of precision molecular diagnostics. The Theralink platform makes it possible to generate an accurate and comprehensive portrait of protein pathway activation in diseased cells from each patient, and thereby determining which individuals may be better responders to certain targeted molecular therapies. The platform enables the quantitative measurement of the level of activation. Moreover, the sensitivity is many times greater than conventional mass spectrometry and other protein immunoassays. Initially spun-out of GMU in 2006, and subsequently brought to the federal government’s Center for Medicare & Medicaid Services’ (“CMS”) Clinical Laboratory Improvement Amendments (“CLIA”) standards, the diagnostics suite is highly relevant for oncology patient management today that may improve (i) chemotherapy drug selection; (ii) immunotherapy drug selection; and (iii) optimization of combination therapy selection.

 

The biomarker and data-generating tests may provide biopharmaceutical companies, clinical scientists and physicians with molecular-based guidance as to which patients may benefit from the new, molecular targeted therapeutics being developed and used to treat various life-threatening oncology diseases, as well as existing treatment standards that are recognized as the standard of care in the oncology treatment community. This addresses the core aspect of precision treatment today – identifying which individuals are more likely to respond to specific targeted molecular therapies, thus forming the basis for personalized medicine.

 

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The technology is based upon the pioneering work of three noted scientists, Drs. Lance Liotta, Emanuel Petricoin and Virginia Espina in proteomic-based diagnostics. Avant benefits from a portfolio of intellectual property derived from licensing agreements with:

 

 The US Public Health Service (“PHS”), the federal agency that supervises the National Institutes of Health (“NIH”), which provides us with broad protection around its technology platform; and
   
 GMU which provides access to additional intellectual property around improvements to the technology platform and biomarker signatures that form the basis for future diagnostic products.

 

Theralink is committed to advancing the technologies from GMU and the NIH as a platform for the development of new clinical biomarkers and diagnostics. These diagnostic and monitoring products have the potential to provide biopharmaceutical companies and doctors with critical molecular-based knowledge to make the best therapeutic decisions based on a patient’s unique, individual medical needs.

 

Our plan of operation over the next 12 months is to:

 

 Continue to validate the Theralink cancer biomarker technology under CAP/CLIA standards to provide personalized medicine regarding treatment options for biopharmaceutical companies, clinical oncologists and their cancer patients;
 Grow revenue generated from pharmaceutical companies.
 Complete partnerships with pharmaceutical companies to perform oncology-related data-generating testing services to create revenue; and
 Continue to seek financing to grow the company.

 

Results of Operations

 

Comparison for Three and Six Months Ended March 31, 2021 and 2020

 

Revenue

 

 For the three months ended March 31, 2021 and 2020, total revenue was $126,314 and $51,010, respectively, an increase of $75,304 or 148%. The increase was primarily attributable to services performed under research and development contracts for pharmaceutical companies during the three months ended March 31, 2021.
   
 For the six months ended March 31, 2021 and 2020, total revenue was $136,104 and $51,010, respectively, an increase of $85,094 or 167%. The increase was primarily attributable to services performed under research and development contracts for pharmaceutical companies during the six months ended March 31, 2021.

 

Costs of Revenues

 

 For the three months ended March 31, 2021 and 2020, cost of revenue was $28,442 and $15,999, respectively, an increase of $12,443 or 78%. The increase was primarily attributable to the increase in revenue discussed above.
   
 For the six months ended March 31, 2021 and 2020, cost of revenue was $30,045 and $15,999, respectively, an increase of $14,046 or 88%. The increase was primarily attributable to the increase in revenue discussed above.

 

Gross Profit

 

 For the three months ended March 31, 2021 and 2020, gross margin was $97,872 and $35,011, respectively, an increase of $62,861 or 180%. The increase was primarily attributable to the increase in revenue and cost of revenue discussed above.
   
 For the six months ended March 31, 2021 and 2020, gross margin was $106,059 and $35,011, respectively, an increase of $17,464 or 203%. The increase was primarily attributable to the increase in revenue and cost of revenue discussed above.

 

Operating Expenses

 

For the three months ended March 31, 2021, expenses from operations amounted to $1,454,428 as compared to $529,372 for the three months ended March 31, 2020, an increase of $925,057, or 175%.

 

For the six months ended March 31, 2021, expenses from operations amounted to $3,075,169 as compared to $1,057,642 for the three months ended March 31, 2020, an increase of $2,017,527, or 191%.

 

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For the three and six months ended March 31, 2021 and 2020, operating expenses consisted of the following:

 

  

Three Months Ended

March 31,

  

Six Months Ended

March 31,

 
  2021  2020  2021  2020 
Professional fees $213,965  $29,827  $411,219  $147,717 
Consulting fee - related party     10,225      55,475 
Compensation expense  532,104   260,511   1,122,279   449,719 
Licensing fees  31,020   12,850   61,192   26,170 
General and administrative expenses  677,340   215,959   1,480,479   378,561 
Total $1,454,429  $529,372  $3,075,169  $1,057,642 

 

Professional fees

 

 For the three months ended March 31, 2021, professional fees increased by $184,138 or 671%, compared to the three months ended March 31, 2020. The increase was primarily attributable to an increase in accounting fees of $24,407, an increase in consulting fees of $89,783, an increase in IT services of $1,720 and an increase in legal fees of $68,228.
   
 For the six months ended March 31, 2021, professional fees increased by $263,502 or 178%, compared to the six months ended March 31, 2020. The increase was primarily attributable to an increase in accounting fees of $54,466, an increase in consulting fees of $142,331, an increase in IT services of $24,534 and an increase in legal fees of $69,171 offset by a decrease in talent search fee of $27,000.

 

Consulting fees - related party

 

 For the three months ended March 31, 2021, consulting fees - related party decreased by $10,225 or 100%, compared to the three months ended March 31, 2020. The decrease was the result of the Company terminating the consulting agreements with AVDX Investors Group, whose partner is on our board of directors, in May 2019 and International Infusion whose principal owner served as an officer of the Company in December 2019.
   
 For the six months ended March 31, 2021, consulting fees - related party decreased by $55,475 or 100%, compared to the six months ended March 31, 2020. The decrease was the result of the Company terminating the consulting agreements with AVDX Investors Group, whose partner is on our board of directors, in May 2019 and International Infusion whose principal owner served as an officer of the Company in December 2019.

 

Compensation expense

 

 For the three months ended March 31, 2021, compensation expense increased by $271,593 or 104%, as compared the three months ended March 31, 2020. The increase was attributable to an increase in administrative compensation and related expenses of $257,342 and an increase in employee benefits of $14,251 resulting from an increase of employees in 2021.
   
 For the six months ended March 31, 2021, compensation expense increased by $672,560 or 150%, as compared the six months ended March 31, 2020. The increase was attributable to an increase in administrative compensation and related expenses of $643,661 and an increase in employee benefits of $28,899 resulting from an increase of employees in 2021.

 

Licensing fees

 

 For the three months ended March 31, 2021, licensing fees increased by $18,170 or 141%, as compared the three months ended March 31, 2020.
   
 For the six months ended March 31, 2021, licensing fees increased by $35,022 or 134%, as compared the six months ended March 31, 2020.

 

General and administrative expenses

 

 For the three months ended March 31, 2021, general and administrative expenses increased by $461,381 or 214%, as compared to the three months ended March 31, 2020. The increase was primarily due to an increase in sample analysis of $249,416, an increase in depreciation expense of $28,424, an increase in laboratory supplies of $154,314 and an increase in insurance expense of $30,280 offset by a decrease in biological expense of $1,966. The increase was a result of an increase in revenue producing activities in 2021.
   
 For the six months ended March 31, 2021, general and administrative expenses increased by $1,101,918 or 291%, as compared to the six months ended March 31, 2020. The increase was primarily due to an increase in sample analysis of $524,416, an increase in depreciation expense of $56,412, an increase in laboratory supplies of $327,271, an increase in biological expense of $107,488, an increase in insurance expense of $59,219 and an increase in repairs and maintenance expense of $24,115. The increase was a result of an increase in revenue producing activities in 2021.

 

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Loss from Operations

 

 For the three months ended March 31, 2021, the loss from operations amounted to $1,356,557 as compared to $494,361 for the three months ended March 31, 2020, an increase of $862,196 or 174%. The increase was primarily a result of greater operating expenses as discussed above.
   
 For the six months ended March 31, 2021, the loss from operations amounted to $2,969,110 as compared to $1,022,631 for the six months ended March 31, 2020, an increase of $1,946,479, or 190%. The increase was primarily a result of greater operating expenses as discussed above.

 

Other Income (Expense)

 

 For the three months ended March 31, 2021, we had total other expense, net of $4,556 as compared to total other expense, net of $9,069 for the three months ended March 31, 2020, a decrease of $4,513 or 50%. This change was primarily due to an increase in interest expense of $287 offset by an increase in unrealized gain on market securities of $4,800.
   
 For the six months ended March 31, 2021, we had total other income, net of $188,222 as compared to total other (expense), net of $(22,171) for the six months ended March 31, 2020, a positive change of $210,393 or 949%. This change was primarily due to an increase on unrealized gain on market securities of $6,600, an increase in gain on debt extinguishment of $227,294 offset by an increase in interest expense of $815 and an increase in unrealized loss on exchange rate of $(22,686).

 

Net Loss

 

 For the three months ended March 31, 2021, net loss attributable to common stockholders amounted to $1,361,113, or $(0.00) per share (basic and diluted), compared to $503,430 or $(0.00) per share (basic and diluted) for the three months ended March 31, 2020, an increase of $857,683 or 170%.
   
 For six three months ended March 31, 2021, net loss attributable to common stockholders amounted to $2,780,888, or $(0.00) per share (basic and diluted), compared to $1,044,802 or $(0.00) per share (basic and diluted) for the six months ended March 31, 2020, an increase of $1,736,086 or 166%.

 

Preferred Stock Dividend

 

 For the three months ended March 31, 2021, the Company recorded dividend on the Series E Preferred stock of $39,452.
   
 For the six three months ended March 31, 2021, the Company recorded dividend on the Series E Preferred stock of $79,671.

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital (deficit) of $(1,990,842) and cash of $249,703 as of March 31, 2021 and working capital of $877,234 and $1,779,283 of cash as of September 30, 2020.

 

  

March 31,

2021

  September 30, 2020  Change  Percentage Change 
Working capital (deficit):                
Total current assets $507,177  $2,067,971  $(1,560,794)  75%
Total current liabilities  (2,497,659)  (1,190,737)  (1,306,922)  110%
Working capital (deficit): $(1,990,482) $877,234  $(2,867,716)  327%

 

The decrease in working capital was primarily attributed to the decrease in current assets of $(1,560,794) and the increase in current liabilities of $1,306,922.

 

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Cash Flows

 

The following table sets forth a summary of changes in cash flows for the six months ended March 31, 2021 and 2021:

 

  

Six Months Ended

March 31,

 
  2021  2020 
Net cash used in operating activities $(2,680,975) $(1,501,987)
Net cash used in investing activities  (98,105)  (400,267)
Net cash provided by financing activities  1,250,000   2,550,500 
Net change in cash $(1,529,580) $648,246 

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $2,680,975 for the six months ended March 31, 2021, as compared to $1,501,987 for the six months ended March 31, 2020, an increase of $1,178,988, or 78%.

 

 Net cash used in operating activities for the six months ended March 31, 2021 primarily reflected our net loss of $2,780,888 adjusted for the add-back of non-cash items such as depreciation expense of $92,009, non-cash lease cost of $1,169, gain on debt extinguishment of $227,294, unrealized loss on exchange rate of $26,686, unrealized gain on marketable securities of $300 and changes in operating asset and liabilities consisting primarily of an increase in accounts receivable of $56,527, an increase in accounts payable of $23,006, an increase in accrued liabilities and other liabilities of $7,042, an increase in deferred revenue of $146,025 offset by a decrease in prepaid expenses and other current assets of $37,184, and a decrease in laboratory supplies of $54,913.
   
 Net cash used in operating activities for the six months ended March 31, 2020 primarily reflected our net loss of $1,044,802 adjusted for the add-back of non-cash items such as depreciation expense of $35,597, unrealized loss on marketable securities of $6,300, non-cash lease cost of $5,317 and changes in operating assets and liabilities consisting primarily of an increase in account receivable of $13,454, an increase in prepaid expenses and other current assets of $151,560 offset by a decrease in accounts payable of $267,241 and a decrease in accrued liabilities and other liabilities of $72,144.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities was $98,605 for the six months ended March 31, 2021, as compared to net cash used in investing activities $400,267 for the six months ended March 31, 2020, a decrease of $301,662, or 75%.

 

 Net cash used in investing activities for the six months ended March 31, 2021, resulted from the purchase of property and equipment of $(99,105) offset by an adjustment related to a prior period redemption payment of $500.
   
 Net cash used in investing activities for the six months ended March 31, 2020, resulted from the purchase of property and equipment of $(400,267).

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities was $1,250,000 for the six months ended March 31, 2021, as compared to $2,550,500 for the six months ended March 31, 2020, a decrease of $1,300,500, or 51%.

 

 Net cash provided by financing activities for the six months ended March 31, 2021, consisted of $1,250,000 of net proceeds from the sale of common stock.
   
 Net cash provided by financing activities for the six months ended March 31, 2020, consisted of proceeds from the sale of preferred stock of $2,590,000, offset by the repayment of related party advances of $20,000 and repayment of convertible debt of $19,500.

 

Cash Requirements

 

Management does not believe that our current capital resources will be adequate to continue operating our Company and maintaining our business strategy for more than 12 months from the date of this report. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

 

Going Concern

 

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company had net loss and net cash used in operations of $2,780,888 and $2,680,975, respectively, for the six months ended March 31, 2021. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $46,048,147, $3,167,654 and $1,990,482 at March 31, 2021. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.

 

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The Company cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future.

 

Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Future Financings

 

We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist.

 

There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.

 

Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

Critical Accounting Policies

 

We have identified the following policies as critical to the business and results of operations. Our reported results are impacted by the application of the following accounting policies which require management to make subjective or complex judgments. These judgments involve making estimates about matters that are inherently uncertain and may significantly impact the quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the six months ended March 31, 2021 and year ended September 30, 2020 include but are not necessarily limited to, the valuation of assets and liabilities of discontinued operations, estimates of contingent liabilities, valuation of marketable securities, useful life of property and equipment, valuation of right-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current and deferred income taxes and deferred tax valuation allowances and the fair value of non-cash equity transactions.

 

Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future consolidated results of operation will be affected.

 

Fair Value of Financial Instruments and Fair Value Measurements

 

FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on March 31, 2021. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

 

 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.

 

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 during the quarter ended March 31, 2020 and its adoption did not have any material impact on the Company’s consolidated financial statements.

 

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Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 during the period September 30, 2018, and the adoption did not have any impact on its consolidated financial statements.

 

Revenue Recognition

 

In May 2014, FASB issued an Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard during the fiscal year ended September 30, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.

 

The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead to deferred revenue for services not completed at the end of a period. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The revenue from the tumor profiling services was not significant and management had not identified any disaggregation of revenue.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.

 

On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.

 

Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.

 

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Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:

 

1.Add a disclosure objective
2.Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed
3.Add information on which party controls the conversion rights
4.Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments
5.Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate.

 

Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.

 

The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and is allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2021, our disclosure controls and procedures were not effective.

 

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Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2021. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of March 31, 2021, our internal control over financial reporting was not effective.

 

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal controls over financial reporting:

 

 (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 process and accounting function as a result of our limited financial resources to support the hiring of personnel and implementation of 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 condensed consolidated financial statements for the quarter ended March 31, 2021 are fairly stated, in all material respects, in accordance with US GAAP.

 

Changes in Internal Control over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On July 1, 2021, numerous purported plaintiffs brought an action against Avant and their previous executive team in the District Court of Harris County Texas. The action alleges the plaintiffs were engaged by Avant to perform services prior to 2018. The plaintiffs are seeking a $1 million award. The Company and Dr. Ruxin were named it the lawsuit. The Company believes these claims are without merit and intends to defend these lawsuits vigorously. The Company currently believes the likelihood of a loss contingency related to these matters is remote and, therefore, no provision for a loss contingency is required.

 

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ITEM 1A. RISK FACTORS

 

The recent COVID-19 pandemic has negatively affected and will continue to negatively affect our business, financial condition and results of operations.

 

The public health crisis caused by the COVID-19 pandemic and the measures that have been taken or that may be taken in the future by governments, businesses, including us, and the public at large to limit COVID-19’s spread have had, and we expect will continue to materially negatively effect on our business, financial condition, and results of operation. The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict and which will vary by market, including the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.

 

COVID-19 has spread across the globe. Authorities in many markets have implemented numerous measures to stall the spread of COVID-19, including travel bans and restrictions, quarantines, curfews, shelter in place orders, and business shutdowns. These measures have impacted and will further impact us, our customers, consumers, employees, contract manufacturers, distributors, suppliers and other third parties with whom we do business.

 

Stay-at-home and social distancing orders have required some of our employees to work from home when possible, and other employees have been entirely prevented from performing their job duties until the orders are relaxed or lifted. The world-wide response to the pandemic has resulted in a significant downturn in economic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. If an economic recession or depression is sustained, it would likely have a material adverse effect on our business.

 

In certain jurisdictions, the stay-at-home orders have been relaxed but considerable uncertainty remains about the ultimate impact on our business. Even if the orders are lifted, there is no assurance that they will not be reinstated if the spread of COVID-19 resumes. For example, many jurisdictions have recently reinstated orders requiring people to wear masks in public after test results have showed a resurgence of the pandemic. Resurgence of the pandemic in some markets has slowed the reopening process of businesses in those areas, including Europe where additional lockdowns have been recently reinstated. If COVID-19 infection trends continue to reverse and the pandemic intensifies and expands geographically, its negative impacts on our sales could be more prolonged and may become more severe. The long-term financial impact on our business cannot be reasonably estimated at this time.

 

The COVID-19 pandemic has required alternative selling approaches that are less effective, such as through social media. We may continue to experience reductions in revenue using these alternative selling approaches that avoid direct contact with our customers.

 

There is considerable uncertainty regarding how these measures and future measures in response to the pandemic will impact our business, including whether they will result in further changes in demand for our technology, further increases in operating costs whether as a result of increases in employee costs or otherwise. Compliance with governmental measures imposed in response to COVID-19 has caused and may continue to cause us to incur additional costs, and any inability to comply with such measures can subject us to restrictions on our business activities, fines, and other penalties, any of which can adversely affect our business. In addition, the increase in certain of our employees working remotely has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attacks, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured, and any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business. Further, we experienced, and will continue to experience, costs associated with continuing to pay certain employees who are limited in their ability to work due to the travel bans and restrictions, quarantines, curfews, shelter in place orders and, therefore, do not generate corresponding revenue.

 

In addition, economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.

 

There can be no assurance that we will be successful in our efforts to mitigate the negative impact of COVID-19, and as a result, our business, financial condition and results of operations and the prices of our publicly traded securities may be adversely affected.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

All unregistered sales of our securities during the three months ended March 31,2021, were previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

 

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit   Incorporated by Reference Filed or Furnished
Number Exhibit Description Form Exhibit Filing Date Herewith
           
3.1 Amended and Restated Articles of Incorporation, as amended 10-Q 3.1 06/11/2021  
           
3.2 Amended and Restated Bylaws 8-K 3.1 11/01/2013  
           
3.3 Amendment to Certificate of Designation for Series C-1 Convertible Preferred Stock 10-Q 3.3 06/11/2021  
          
3.4 Designation for Series E Convertible Preferred Stock 8-K 3.1 09/22/2020  
           
3.5 Designation for Series F Convertible Preferred Stock 8-K 3.1 08/06/2021  
           
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 Chief Financial Officer and Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.       X
           
101.INS XBRL INSTANCE DOCUMENT       X
101.SCH XBRL TAXONOMY EXTENSION SCHEMA       X
101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE       X
101.DEF XBRL TAXONOMY EXTENSION DEFINITION LINKBASE       X
101.LAB XBRL TAXONOMY EXTENSION LABEL LINKBASE       X
101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE       X

 

+ Management contract or compensatory plan or arrangement.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 THERALINK TECHNOLOGIES, INC.
   
Dated: September 27, 2021By:/s/ Mick Ruxin, MD
  Mick Ruxin, MD
  Chief Executive Officer
   
Dated: September 27, 2021By:/s/ Thomas E. Chilcott, III
  Thomas E. Chilcott, III
  Chief Financial Officer, Treasurer and Secretary

 

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