CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
NOTE
1 - ORGANIZATION AND NATURE OF OPERATIONS
Theralink
Technologies, Inc., formerly OncBioMune Pharmaceuticals, Inc. (the “Company”), was a clinical-stage biopharmaceutical company
engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology. On June 5, 2020, the Company
acquired the assets (the “Asset Sale Transaction”) of Avant Diagnostics, Inc., a Nevada corporation established in 2009 (“Avant”)
pursuant to the Asset Purchase Agreement dated May 12, 2020, between the Company and Avant (the “Asset Purchase Agreement”).
Avant 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 area of oncology.
Pursuant
to the Asset Purchase Agreement, the Company acquired substantially all the assets of Avant and assumed certain of its liabilities. Upon
the terms and subject to the conditions of the Asset Purchase Agreement, Avant sold to the Company, all of Avant’s title and interest
in all the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including
goodwill), wherever located and whether existing or hereafter acquired, except for the specific excluded assets, which relate to, or
are used or held for use in connection with, Avant’s business. The Company also hired Avant’s employees upon consummation
of the Asset Sale Transaction. As consideration for the Asset Sale Transaction, the Company issued to Avant 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 5,081,549,184 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. All share and per share data in the accompanying financial statements and footnotes
has been retrospectively adjusted for the recapitalization.
On
July 11, 2021, the Company’s wholly-owned subsidiary, OncBioMune, LLC, was administratively dissolved by the Louisiana Secretary
of State for failing to meet its filing requirements and pay the associated fees.
In
connection with the Asset Sale Transaction, the Company entered into an Exchange Agreement, effective June 5, 2020, by and among OncBioMune
Pharmaceuticals, Inc. and the investors named therein, whereby the Company agreed to exchange certain convertible promissory notes and
warrants outstanding for shares of Series C-1 Convertible Preferred Stock of the Company and options to purchase shares of the Company’s
wholly-owned subsidiary, OncBioMune Sub Inc. OncBioMune Sub Inc. holds the patents used in the prior business of OncBioMune Pharmaceuticals,
Inc. In July 2021, certain of those investors exercised their options to purchase the shares of OncBioMune Sub Inc. On July 26, 2021,
the Company transferred all 10,000 shares of OncBioMune Sub Inc. held by the Company to the various investors for gross proceeds of $1,000
(see Note 3).
On
February 25, 2022, FINRA recognized the Company’s name change to Theralink Technologies, Inc. and the related ticker symbol change
from “OBMP” to “THER” went into effect.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America and the rules and regulations of the United States Securities and Exchange Commission (“SEC”)
for interim financial information, which present the unaudited financial statements of the Company as of March 31, 2023. The interim
unaudited financial statements do not include all the information and notes necessary for a comprehensive presentation of financial position
and results of operations and should be read in conjunction with the September 30, 2022 audited financial statements on Form 10-K filed
on December 29, 2022. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments and
non-recurring adjustments) have been made for the fair presentation of the unaudited financial statements. The results for the interim
period are not necessarily indicative of the results to be expected for the year ending September 30, 2023.
Going
Concern
These
unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited financial statements, the
Company had net loss and net cash used in operations of $45,022,729 and $3,517,969, respectively, for the six months ended March 31,
2023. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $107,869,998,
$52,332,236 and $52,978,316, and cash on hand of $207,922 on March 31, 2023. Management believes that these matters raise substantial
doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.
The
Company cannot provide assurance that it will ultimately achieve profitable operations or become cash flow positive or raise additional
debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business
strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional
debt and equity financings to fund its operations in the future.
Although
the Company has historically raised capital from sales of equity and the issuance of promissory notes, convertible notes and convertible
debentures, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or
secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These financial
statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that
affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management
bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable
under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources.
Significant estimates during the periods ended March 31, 2023 and 2022 include, but are not necessarily limited to, estimates of contingent
liabilities, valuation of marketable securities, useful life of property and equipment, valuation of right-of-use ROU assets and lease
liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current
and deferred income taxes and deferred tax valuation allowances, the fair value of derivative liabilities, and the fair value of non-cash
equity transactions.
Fair
Value of Financial Instruments and Fair Value Measurements
FASB
ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures
about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the
fair value of financial instruments are based on pertinent information available to the Company on March 31, 2023. Accordingly, the estimates
presented in these financial statements are not necessarily indicative of the amounts that could be realized on the disposition of the
financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques
are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect
market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy
are as follows:
| |
Level
1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
| |
Level
2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or
similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data. |
| |
|
| |
Level
3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market
participants would use in pricing the asset or liability based on the best available information. |
The
carrying amounts reported in the balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable,
accrued liabilities, contract liabilities, and accrued compensation approximate their fair market value based on the short-term maturity
of these instruments.
Assets
or liabilities measured at fair value or a recurring basis included embedded conversion options in convertible debt (see Note 6) and
were as follows on March 31, 2023 and September 30, 2022:
SCHEDULE
OF FAIR VALUE MEASURED ON RECURRING BASIS
| | |
March 31, 2023 | | |
September 30, 2022 | |
| Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | 44,825,486 | | |
$ | — | | |
$ | — | | |
$ | — | |
A
roll forward of the level 3 valuation financial instruments is as follows:
SCHEDULE
OF VALUATION ON DERIVATIVE INSTRUMENTS
| | |
2023 | | |
2022 | |
| | |
For
the Six Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| Balance at beginning of period | |
$ | - | | |
$ | - | |
| Initial valuation of derivative liabilities included in debt discount | |
| 16,901,100 | | |
| - | |
| Initial valuation of derivative liabilities included in derivative expense | |
| 27,252,483 | | |
| - | |
| Change in fair value included in derivative expense | |
| 671,903 | | |
| - | |
| Balance at end of period | |
$ | 44,825,486 | | |
$ | - | |
ASC
825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless
a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should
be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding
equity instruments.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The
Company’s investment policy is to preserve principal and maintain liquidity. The Company periodically monitors its positions with,
and the credit quality of, the financial institutions with which it invests.
Prepaid
Assets
Prepaid
assets are carried at amortized cost. Significant prepaid assets as of March 31, 2023 and September 30, 2022 include, but are not necessarily
limited to, prepaid insurance, prepaid consulting fees, prepaid equipment maintenance fees and retainers for professional services.
Laboratory
Supplies
Laboratory
supplies are normally consumed within a year from purchase and any unused laboratory supplies are classified as current assets and reflected
in the accompanying balance sheets as laboratory supplies.
Property
and Equipment
Fixed
assets are stated at cost and depreciated using the straight-line method over their estimated useful lives, which range from three to
five years. Leasehold improvements are depreciated over the shorter of their useful life or the 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 ASC 718 – “Compensation –Stock Compensation”,
which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange
for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange
for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee
services received in exchange for an award to be based on the grant-date fair value of the award. The Company has elected to recognize
forfeitures as they occur as permitted under the FASB’s Accounting Standards Update (“ASU”) 2016-09 Improvements
to Employee Share-Based Payment.
Revenue
Recognition and Contract Assets and Liabilities
In
accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that
core principle by applying the following steps:
Step
1: Identify the contract(s) with a customer.
Step
2: Identify the performance obligations in the contract.
Step
3: Determine the transaction price.
Step
4: Allocate the transaction price to the performance obligations in the contract.
Step
5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The
Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In
January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services
provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead
to deferred revenue for services not completed at the end of a period which is reflected as contract liabilities on the accompanying
balance sheet. The Company may include, in accounts receivable, amounts billed to customers in advance of services being initiated
or completed. If the Company has a right to such consideration that is unconditional such as for contractually allowed billings
under non-cancellable contracts, such amounts billed in advance would be offset by contract liability. Management reviews the
completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The Company offers these services
to biopharmaceutical companies and to private individuals. The Company uses various output methods to recognize revenues. During
the six months ended March 31, 2023 and 2022, revenues by category is as follows:
SCHEDULE OF REVENUES BY CATEGORY
| | |
Six
Months Ended
March 31, 2023 | | |
Six
Months Ended
March 31, 2022 | |
| Biopharma services | |
$ | 156,555 | | |
$ | 87,975 | |
| Patient testing service | |
| 68,527 | | |
| 10,500 | |
| Total
revenues | |
$ | 225,082 | | |
$ | 98,475 | |
The revenue recognized from services provided to private individuals during
the three and six months ended March 31, 2023 and 2022 were minimal and therefore were not disaggregated for disclosure purposes.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Contract
Liabilities
Contract
liabilities are cash deposits received from customers and advance billing included in accounts receivable on uncompleted contracts for
which revenues have not been recognized as of the balance sheet date.
For
the six months ended March 31, 2023 and 2022, contract liabilities activity is as follows:
SCHEDULE
OF CONTRACT LIABILITIES
| | |
March 31, 2023 | | |
March 31, 2022 | |
| Contract liabilities beginning balance | |
$ | 156,550 | | |
$ | 135,150 | |
| Billings and cash receipts on uncompleted contracts | |
| 159,465 | | |
| 220,813 | |
| Less: revenues recognized during the period | |
| (41,500 | ) | |
| (22,250 | ) |
| Total contract liabilities | |
$ | 274,515 | | |
$ | 333,713 | |
During
the six months ended March 31, 2023, the Company recognized $3,500 of the contract liabilities into revenue, of which $3,500 was related
to the uncompleted contracts from the prior period.
Cost
of Revenue
The
cost of revenue consists of the cost of labor, supplies and materials.
Accounts
Receivable and Allowance for Doubtful Accounts
Trade
receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis and does not
bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and
their current financial condition.
Any
charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the
allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the
adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable
are charged off against the allowance when collectability is determined to be permanently impaired.
Research
and Development
In
fiscal 2022, the Company joined and made an investment in an investigator-initiated study. As part of that investment, the Company obtained
rights/access to various retrospective biobank clinical samples for research and product development purposes. In addition, the Company
received active patient clinical samples for the following disease sites: ovarian, endometrial, and head & neck cancers. These samples
were tested to provide RUO (Research Use Only) results reports for research and product validation efforts. The transaction term is for
5-years, starting in September 2021. During the six months ended March 31, 2023, and 2022, the Company had spent $50,000 and $50,000
on this research and development project, which is included in general and administrative expenses on the accompanying unaudited statements
of operations.
Derivative
Liabilities
The
Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all its
financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives
to be separately accounted for in accordance with ASC 815-10 - Derivative and Hedging - Contract in Entity’s Own Equity.
This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market
at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change
in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective
derivative liability is marked to fair value at the conversion, repayment, or exercise date and then the related fair value amount is
reclassified to other income or expense as part of gain or loss on debt extinguishment.
Concentrations
Concentration
of Credit Risk
The
Company maintains its cash in banks and financial institutions that at times may exceed the federally insured limit of $250,000. As of
March 31, 2023 and September 30, 2022, the cash balances were in excess of the FDIC insured limit by $0 and $186,466, respectively. The
Company has not experienced any losses in such accounts through March 31, 2023.
Concentration
of Revenues
For
the six months ended March 31, 2023, the Company generated total revenue of $225,082 of which 36.7%, 14.3% and 32.8% were from three
of the Company’s customers, respectively. For the six months ended March 31, 2022, the Company generated total revenue of $98,475
of which 45% and 44% were from two of the Company’s customers, respectively.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Concentration
of Accounts Receivable
As
of March 31, 2023, the Company had net accounts receivable of $40,610 of which 84% was from one of the Company’s customers. As
of September 30, 2022, the Company had net accounts receivable of $32,125 of which 59% and 41% were from two of the Company’s customers,
respectively.
Concentration
of Contract Liabilities
As
of March 31, 2023, the Company had deferred revenue reflected as contract liabilities of $274,515 of which 81% and 11% were from two
of the Company’s customers. As of September 30, 2022, the Company had deferred revenue reflected as contract liabilities of $156,550
of which 65% and 24% were from two of the Company’s customers.
Concentration
of Vendors
Historically,
the Company relied on one vendor to perform the Company’s patient reporting and contract research (formerly called sample analysis)
which is an integral part of the Company’s operation and revenue stream. Any disruption in this service could have a material adverse
effect on the Company’s business, financial condition and results of operations. The Company discontinued using this vendor in
June 2022 as the patient reporting function has been moved in-house.
During
the six months ended March 31, 2023 and 2022, the Company incurred $0 and $198,866, respectively, or 100%, of its patient reporting and
contract research (formerly called sample analysis) expense from one vendor.
Basic
and Diluted Loss Per Share
Pursuant
to ASC 260-10-45, basic loss per common share is computed by dividing the net loss by the weighted average number of shares of common
stock outstanding for the periods presented. Diluted loss per share is computed by dividing the net loss by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive
common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes, conversion
of preferred stock, and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially
dilutive equity securities outstanding as of March 31, 2023 and 2022 were not included in the computation of dilutive loss per common
share because the effect would have been anti-dilutive:
SCHEDULE
OF ANTI-DILUTIVE SHARES OUTSTANDING
| | |
2023 | | |
2022 | |
| | |
March 31, | |
| | |
2023 | | |
2022 | |
| Stock warrants | |
| 7,200,020,533 | | |
| 1,820,535,692 | |
| Stock options | |
| 1,901,410,519 | | |
| - | |
| Series C-1 preferred stock | |
| 21,167,535 | | |
| 281,626,175 | |
| Series C-2 preferred stock | |
| - | | |
| 453,067,129 | |
| Series E preferred stock | |
| - | | |
| 638,977,636 | |
| Series F preferred stock | |
| - | | |
| 319,488,818 | |
| Convertible notes | |
| 18,235,327,665 | | |
| 1,139,160,949 | |
| Total antidilutive securities
excluded from computation of earnings | |
| 27,357,926,252 | | |
| 4,652,856,399 | |
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, 2023 and 2022, 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 expenses. However, no such interest and penalties were recorded as of March 31, 2023 and 2022.
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.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Leases
The
Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether a
contract is, or contains, a lease at the inception of the contract which is based on (i) whether the contract involves the use of a distinct
identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout
the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the
contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not
to recognize ROU assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating
and financing lease ROU assets represent the right to use the leased asset for the lease term. Operating and financing lease liabilities
are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most
leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption
date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis
over the lease term and is included in general and administrative expenses in the unaudited statements of operations.
Recent
Accounting Pronouncements
On
January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
(ASC 326). The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with
a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the
FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. While the adoption of ASC 326 could
result in a higher allowance recorded in the future for credit losses on receivables within the scope of the standard due to the prescribed
measurement principles, the impact of the adoption on the Company’s consolidated financial statements was not material.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect
on the Company’s financial statements.
NOTE
3 – MARKETABLE SECURITIES
During
the fiscal year ended 2017, the Company acquired 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 balance sheets. Its fair
value is adjusted every reporting period and the change in fair value is recorded in the statements of operations as unrealized gain
or loss on marketable securities. During the six months ended March 31, 2023 and 2022, the Company recorded $2,800 and $3,100 of unrealized
loss on marketable securities, respectively. As of March 31, 2023 and September 30, 2022, the fair value of these shares was $900 and
$3,700, respectively.
NOTE
4 – ACCOUNTS RECEIVABLE
On
March 31, 2023 and September 30, 2022, accounts receivable consisted of the following:
SCHEDULE
OF ACCOUNTS RECEIVABLE
| | |
March 31, 2023 | | |
September 30, 2022 | |
| Accounts receivable | |
$ | 48,110 | | |
$ | 35,957 | |
| Less: allowance for doubtful accounts | |
| (7,500 | ) | |
| (3,832 | ) |
| Accounts receivable, net | |
$ | 40,610 | | |
$ | 32,125 | |
For
the six months ended March 31, 2023 and 2022, bad debt expense amounted to $3,672 and $0, respectively. In February 2023, the Company
received $3,832 of accounts receivable previously written off.
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment are recorded at cost. Once placed in service, they are depreciated on the straight-line method over their estimated useful
lives. Leasehold improvements are accreted over the shorter of the estimated economic life or related lease terms. Property and equipment
consist of the following:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| | |
Estimated Useful Life in Years | | |
March 31, 2023 | | |
September 30, 2022 | |
| Laboratory equipment | |
5 | | |
$ | 597,059 | | |
$ | 597,059 | |
| Furniture | |
5 | | |
| 24,567 | | |
| 24,567 | |
| Leasehold improvements | |
5 | | |
| 353,826 | | |
| 353,826 | |
| Computer equipment | |
3 | | |
| 76,470 | | |
| 68,490 | |
| Property and equipment gross | |
| | |
| 1,051,922 | | |
| 1,043,942 | |
| Less accumulated depreciation | |
| | |
| (439,327 | ) | |
| (357,815 | ) |
| Property and equipment, net | |
| | |
$ | 612,595 | | |
$ | 686,127 | |
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
For
the three months ended March 31, 2023 and 2022, depreciation expense related to property and equipment amounted to $42,625 and $35,974,
respectively.
For
the six months ended March 31, 2023 and 2022, depreciation expense related to property and equipment amounted to $81,512 and
$71,929, respectively.
Leased
equipment was not included in the table above as it was accounted for in accordance with ASU 842 – Leases. These leases
are discussed in Note 7 under financing lease right-of-use (“ROU”) assets and financing lease liabilities.
NOTE
6 – DEBT
On
March 31, 2023 and September 30, 2022, convertible notes payable (third parties and related parties) consisted of the following:
SCHEDULE
OF CONVERTIBLE NOTES PAYABLE
| | |
March 31, 2023 | | |
September 30, 2022 | |
| Principal amount | |
$ | 8,986,605 | | |
$ | 2,475,000 | |
| Less: debt discount | |
| (6,100,154 | ) | |
| (2,028,719 | ) |
| Convertible notes payable, net | |
| 2,886,451 | | |
| 446,281 | |
| Less: current portion of convertible notes payable - related parties | |
| (2,886,451 | ) | |
| - | |
| Convertible notes payable, net – long-term | |
$ | - | | |
$ | 446,281 | |
| | |
| | | |
| | |
| Principal amount – related parties | |
$ | 8,975,192 | | |
$ | 4,150,000 | |
| Less: debt discount – related parties | |
| (5,959,565 | ) | |
| (1,844,186 | ) |
| Convertible notes payable - related parties, net | |
| 3,015,627 | | |
| 2,305,814 | |
| Less: current portion of convertible notes payable - related parties | |
| (3,015,627 | ) | |
| (1,000,000 | ) |
| Convertible notes payable - related parties, net – long-term | |
$ | - | | |
$ | 1,305,814 | |
| | |
| | | |
| | |
| Total convertible notes payable, net | |
$ | 5,902,078 | | |
$ | 2,752,095 | |
Convertible
Debt – Related Parties
On
May 12, 2021, the Company entered into a Securities Purchase Agreement (“May 2021 SPA”) with a related party, who is an affiliate
stockholder (“May 2021 Investor”) to purchase a convertible note (“May 2021 Note”) and accompanying 63,897,764
warrants (“May 2021 Warrants”) for an aggregate investment amount of $1,000,000 (see Note 8). The May 2021 Note had a principal
value of $1,000,000 and bore an interest rate of 8% per annum and was to mature on May 12, 2026. 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 May 2021 Note was 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). The May 2021 Note and May 2021 Warrants included a down-round provision under which the conversion price and exercise
price are reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt
issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the
May 2021 Note and May 2021 Warrants. As of September 30, 2022, the May 2021 Note had an outstanding principal balance of $1,000,000 and
accrued interest of $20,164 and is included in the accompanying balance sheet at $267,521 as a long-term convertible note payable –
related party, net of discount in the amount of $732,479 (see Note 8). The May 2021 Warrants had an exercise price of $0.00313 per share
(subject to adjustment) until May 12, 2026 and was exercisable for cash at any time. The May 2021 Warrants were valued at $984,200 using
the relative fair value method which was recorded as a debt discount which was being amortized over the life of the May 2021 Note. In
addition, the May 2021 Note had a beneficial conversion feature (“BCF”) in the amount of $15,800 which was recorded as a
debt discount which was being amortized over the life of the May 2021 Note. The debt discount totaled $1,000,000 which was being amortized
over the life of the May 2021 Notes. On November 29, 2022, the May 2021 Note was exchanged for a new convertible debenture (see below).
On
November 1, 2021, the Company entered into a Securities Purchase Agreement (“First November 2021 SPA”) with a related party,
who is an affiliate stockholder (“First November 2021 Investor”), to purchase three convertible notes (collectively as “First
November 2021 Notes”) and three accompanying warrants (collectively as “First November 2021 Warrants”), for an aggregate
investment amount of $1,000,000. The first note issued on November 1, 2021, had a principal balance of $334,000 and accompanying warrants
to purchase up to 18,251,367 shares of common stock. The second note issued on December 1, 2021, had a principal balance of $333,000
and accompanying warrants to purchase up to 18,196,722 shares of common stock. The third note issued on January 1, 2022, had a principal
balance of $333,000 and accompanying warrants to purchase up to 18,196,722 shares of common stock. The Company received $1,000,000 in
aggregate proceeds from the First November 2021 Notes. The First November 2021 Notes bore interest rate of 8% per annum and was to mature
on November 1, 2026. The First November 2021 Warrants are exercisable at any time and expire on November 1, 2026. The First November
2021 Warrants were initially valued at $990,048 using the relative fair value method and were recorded as debt discount which is being
amortized over the life of the First November 2021 Notes. The First November 2021 Notes and First November 2021 Warrants are convertible
and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00366 per share (subject to adjustment).
The First November 2021 Notes and First November 2021 Warrants included a down-round provision under which the conversion price and exercise
price were reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt
issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the
First November 2021 Notes and First November 2021 Warrants. On January 26, 2022, a notice and request for consent regarding a change
in offering terms was sent by the Company to the First November 2021 Investor. Upon the approval of the First November 2021 Investor,
the Company modified the terms of the First November 2021 SPA which increased the warrants issuable from 20% to 100% of the common stock
issuable upon conversion of the notes purchased. As a result, the First November 2021 Investor received additional cashless-exercisable
warrants equal to 80% of the common stock issuable upon conversion of the First November 2021 Notes. The Company issued additional warrants
to purchase up to 218,579,234 shares of common stock to the First November 2021 Investor which increased the total relative fair value
of all warrants in total by $34,620 recorded as debt discount which is being amortized over the life of the First November 2021 Notes
(see Note 8 and 9). The modification of the First November 2021 SPA did not meet the requirements of a debt extinguishment under ASC
470-50 - Debt Modifications and Exchanges; however it represented a substantial modification whereby the First November 2021 Investor
received a substantial amount of additional warrants for the same principal amount of investment hence it was accounted for, in substance,
as a debt modification ASC 470-50 and no gain or losses was recognized. As of September 30, 2022, the First November 2021 Notes had an
outstanding principal of $1,000,000 and accrued interest of $20,164 and are included in the accompanying balance sheet at $140,093 as
a long-term convertible note payable – related party, net of discount in the amount of $859,907 (see Note 8) as of September 30,
2022. On November 29, 2022, the First November 2021 Notes were exchanged for a new convertible debenture (see below).
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
April 5, 2022, the Company entered into a Securities Purchase Agreement (“First April 2022 SPA”) with a related party, Matthew
Schwartz, who is a member of the board of directors (“Investor”), to purchase a convertible note with a principal balance
of $100,000 (“First April 2022 Note”) with accompanying warrants to purchase 4,201,681 shares of common stock (“First
April 2022 Warrants”). The Company received net proceeds of $100,000 on March 24, 2022. The First April 2022 Warrants were valued
at $89,815 using the relative fair value method and were recorded as debt discount which is being amortized over the life of the First
April 2022 Note. The First April 2022 Warrants are exercisable at any time and expire on April 1, 2027. The First April 2022 Note bore
interest rate of 8% per annum and was to mature on April 1, 2027. The First April 2022 Note and First April 2022 Warrants were convertible
and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00476 per share (subject to adjustment).
The First April 2022 Note and First April 2022 Warrants included a down-round provision under which the conversion price and exercise
price are reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt
issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the
First April 2022 Note and First April 2022 Warrants. For so long as the First April 2022 Warrants remains outstanding and until the listing
by the Company or the trading of the common stock on a Qualified National Exchange (as defined in the agreement); (i) if the Company
issues warrants to investors in an offering of common stock or of any equity linked security (each a “Subsequent Offering”),
and such warrants equal more than 20% warrant coverage, then a number of additional shares will be added to the First April 2022 Warrants
such that the First April 2022 Warrants shall equal the same percentage of the warrant coverage offered to the investors in the Subsequent
Offering and; (ii) if the Company issues warrants in a Subsequent Offering which may be exercised by means of a cashless exercises, then
the First April 2022 Warrants shall be exercisable by the same cashless exercise feature of the warrants issued in the Subsequent Offering.
As of September 30, 2022, the First April 2022 Note had an outstanding principal balance of $100,000 and accrued interest of $3,901 and
is reflected in the accompanying balance sheet at $18,959 as a long-term convertible note payable – related party, net of discount
in the amount of $81,041 (see Note 8) as of September 30, 2022. On November 29, 2022, the First April 2022 Note was exchanged for a new
convertible debenture (see below).
On
May 9, 2022, the Company entered into a Securities Purchase Agreement (“May 2022 SPA”) with a related party, who is an affiliate
stockholder (“May 2022 Investor”), to purchase four convertible notes for an aggregate investment amount of $1,000,000 (collectively
as “May 2022 Notes”) and accompanying warrants to purchase shares of common stock equal to 20% of the number of the total
shares of common stock issuable upon the conversion of the May 2022 Notes (collectively as “May 2022 Warrants”). The first
note issued on May 9, 2022, had a principal balance of $250,000 and accompanying warrants to purchase up to 10,504,202 shares of common
stock. The second note issued on May 24, 2022, had a principal balance of $250,000 and accompanying warrants to purchase up to 10,504,202
shares of common stock. The third note issued on June 10, 2022, had a principal balance of $250,000 and accompanying warrants to purchase
up to 10,504,202 shares of common stock. The fourth note issued on July 1, 2022, had a principal balance of $250,000 and accompanying
warrants to purchase up to 10,504,202 shares of common stock. The Company received $1,000,000 in aggregate proceeds from the May 2022
Notes. The May 2022 Notes bore an interest rate of 8% per annum and were to mature on April 1, 2027. The May 2022 Warrants are exercisable
at any time and expire on April 1, 2027. The May 2022 Warrants were valued at $178,449 using the relative fair value method and were
recorded as debt discount which is being amortized over the life of the May 2022 Notes. The May 2022 Notes and May 2022 Warrants were
convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00476 per share (subject
to adjustment). The May 2022 Notes and May 2022 Warrants included a down-round provision under which the conversion price and exercise
price are reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt
issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the
May 2022 Notes and May 2022 Warrants. For so long as the May 2022 Warrants remains outstanding and until the listing by the Company or
the trading of the common stock on a Qualified National Exchange (as defined in the agreement); (i) if the Company issues warrants to
investors in a Subsequent Offering, and such warrants equal more than 20% warrant coverage, then a number of additional shares will be
added to the May 2022 Warrants such that the May 2022 Warrants shall equal the same percentage of the warrant coverage offered to the
investors in the Subsequent Offering and; (ii) if the Company issues warrants in a Subsequent Offering which may be exercised by means
of a cashless exercises, then the May 2022 Warrants shall be exercisable by the same cashless exercise feature of the warrants issued
in the Subsequent Offering. As of September 30, 2022, the May 2022 Notes had an aggregate outstanding principal balance of $1,000,000
and accrued interest of $20,110 and are included in the accompanying balance sheet at $834,803 as a long-term convertible note payable
– related party, net of discount in the amount of $165,197 (see Note 8) as of September 30, 2022. On November 29, 2022, the May
2022 Note was exchanged for a new convertible debenture (see below).
On
June 15, 2022, the Company entered into a Securities Purchase Agreement (“June 2022 SPA”) with a related party, Danica Holley,
who is a member of the board of directors (“Investor”), to purchase a convertible note with principal of $50,000 (“June
2022 Note”) with accompanying warrants to purchase 2,100,840 shares of common stock (“June 2022 Warrants”). The Company
received net proceeds of $50,000 on June 15, 2022. The June 2022 Warrants were valued at $5,924 using the relative fair value method
and were recorded as debt discount which is being amortized over the life of the June 2022 Note. The June 2022 Warrants are exercisable
at any time and expire on April 1, 2027. The June 2022 Note bore interest rate of 8% per annum and was to mature on April 1, 2027. The
June 2022 Note and June 2022 Warrants were convertible and exercisable, respectively, into shares of the Company’s common stock
at a price equal to $0.00476 per share (subject to adjustment). The June 2022 Note and June 2022 Warrants include a down-round provision
under which the conversion price and exercise price are reduced if the Company sells or issues any securities including options, convertible
securities, with the exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion
or exercise price than that of the June 2022 Note and June 2022 Warrants. For so long as the June 2022 Warrants remains outstanding and
until the listing by the Company or the trading of the common stock on a Qualified National Exchange (as defined in the agreement); (i)
if the Company issues warrants to investors in a Subsequent Offering, and such warrants equal more than 20% warrant coverage, then a
number of additional shares will be added to the June 2022 Warrants such that the June 2022 Warrants shall equal the same percentage
of the warrant coverage offered to the investors in the Subsequent Offering and; (ii) if the Company issues warrants in a Subsequent
Offering which may be exercised by means of a cashless exercises, then the June 2022 Warrants shall be exercisable by the same cashless
exercise feature of the warrants issued in the Subsequent Offering. As of September 30, 2022, the June 2022 Note had an outstanding principal
balance of $50,000 and accrued interest of $1,173. The June 2022 Note are included in the accompanying balance sheet at $44,438 as a
long-term convertible note payable – related party, net of discount in the amount of $5,562 (see Note 8) as of September 30, 2022.
On November 29, 2022, the June 2022 Note was exchanged for a new convertible debenture (see below).
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
July 29, 2022, the Company entered into a Demand Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of
Directors and a related party, for a principal balance of $125,000, and on September 2, 2022, the Company entered into a second Demand
Promissory Note Agreement with Jeffrey Busch for a principal balance of $150,000 (collectively referred to as the “Busch Notes”).
The Busch Notes bore an annual interest rate of 8% and were payable on demand. The outstanding principal and accrued interest on the
Busch Notes were contingently convertible, in full, at the option of the lender, into the same security issued by the Company in its
next private placement of equity or equity backed securities at any time after the inception date. As of September 30, 2022, the Busch
Notes had an outstanding principal balance of $275,000 and accrued interest of $2,683 and are included in the accompanying balance sheet
as a short-term convertible note payable – related party. On November 29, 2022, the Busch Notes were exchanged for a new convertible
debenture (see below).
On
August 11, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder, for
a principal balance of $375,000. The note bore an annual interest rate of 8% and was payable on demand. The outstanding principal and
accrued interest of the note was contingently convertible, in full, at the option of the lender, into the same security issued by the
Company in its next private placement of equity or equity backed securities at any time after the inception date. As of September 30,
2022, this note had an outstanding principal balance of $375,000 and accrued interest of $4,110 and is included in the accompanying balance
sheet as a short-term convertible note payable – related party. On November 29, 2022, this note was exchanged for a new convertible
debenture (see below).
On
September 2, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder,
for a principal balance of $350,000. The note bore an annual interest rate of 8% and was payable on demand. The outstanding principal
and accrued interest of the note was contingently convertible, in full, at the option of the lender, into the same security issued by
the Company in its next private placement of equity or equity backed securities at any time after the inception date. As of September
30, 2022, this note had an outstanding principal balance of $350,000 and accrued interest of $2,148 and is included in the accompanying
balance sheet as a short-term convertible note payable – related party. On November 29, 2022, this note was exchanged for a new
convertible debenture (see below).
On
November 1, 2022, the Company entered into a Demand Promissory Note Agreements with two related parties, who are affiliate stockholders,
for a principal balance of $120,000. The notes bore an annual interest rate of 8% and were payable on demand. The outstanding principal
and accrued interest of the notes was contingently convertible, in full, at the option of the lender, into the same security issued by
the Company in its next private placement of equity or equity backed securities at any time after the inception date. In December 2022,
these short-term loans were repaid.
On
November 29, 2022, in connection with the Share Exchange Agreements and New Convertible Debt discussed below, the May 2021 Warrants,
First November 2021 Warrants, First April 2022 Warrants, May 2022 Warrants, and June 2022 Warrants, aggregating 385,441,138 warrants,
were amended to reduce the exercise price to $0.003 per share. Additionally, 63,897,764 warrants issued in connection with Series F preferred
stock were amended to reduce the exercise price to $0.003 per share. In conjunction with the price reduction, the price protection feature
for all these warrants was eliminated. All other terms of the warrants remained the same. As a result of the November 29, 2022 amendment
to the exercise price, the Company calculated the difference between the warrants fair values on November 29, 2022, the date of the amendment,
using the then current exercise price ranging from $0.00366 to $0.00476 and the new exercise price of $0.003 and determined that the
difference was insignificant.
Share
Exchange Agreements and New Related Party Convertible Debentures and Warrants dated November 29, 2022
On
November 29, 2022, the Company consummated the initial closing (the “Initial Closing”) of a private placement offering (the
“Offering”) pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of November 29,
2022 (the “Purchase Agreement”), by and among the Company, certain related party accredited investors (the “Related
Party Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its capacity as collateral agent
(the “Collateral Agent”). At the Initial Closing, the Company sold the related party Purchasers (i) 10% Original Issue Discount
Senior Secured Convertible Debentures (the “New Related Party Debentures”) in an aggregate principal amount of $550,000 and
(ii) warrants (the “New Related Party Warrants”) to purchase up to 157,142,857 shares of common stock of the Company (the
“Common Stock”), subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received
a total of $412,092 in net proceeds at the Initial Offering from the Related Party Purchasers, net of the Original Issue Discount of
$50,000, commissions of $58,200 and other offering costs of $29,708.
On
November 29, 2022, the Company entered into Securities Exchange Agreements with the above related party investors, whereby the May 2021
Note, the First November 2021 Notes, the First April 2022 Note, the May 2022 Notes, the June 2022 Note, the Busch Notes, the August 11,
2022 Demand Promissory Note, and the September 2, 2022 Demand Promissory Note with an aggregate principal amount of $4,150,000 (the “Exchanged
Related Party Notes”) and accrued interest payable of $120,750 were exchanged for New Related Party Debentures. Additionally, on
November 29, 2022, in order to induce the related party investors to exchange the respective convertible notes into the Related Party
Debentures, the aggregate principal amount of the Exchanged Related Party Notes and accrued interest payable was increased by 15% (and
the August 11, 2022 and September 2, 2022 Demand Promissory Notes were issued with 10% OID), or $589,505, for new Related Party Debentures
with an aggregate principal amount of $4,860,255.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of 1,000 shares of Series E preferred stock with a stated value of $2,000,000 and accrued dividends payable of $66,630,
and related party holders of 500 shares of Series F preferred stock with a stated value of $1,000,000 and accrued dividends payable of
$33,315 were exchanged for the New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related party
preferred stockholders to exchange their respective preferred shares into the New Related Party Debentures, the aggregate stated value
and accrued dividends payable were increased by 15%, or $464,992, for new Related Party Debentures with an aggregate principal amount
of $3,564,937.
The
November 29, 2022 New Related Party Debentures mature on November 29, 2023, subject to a three-month extension at the sole discretion
of the Company. The New Related Party Debentures bear interest at 10% per annum payable upon conversion or maturity. The New Related
Party Debentures are convertible into shares of the Company’s common stock at any time after the maturity date and prior to Mandatory
Conversion (as defined below) at the conversion price equal to the lesser of: (i) $0.003 per share and (ii) 70% of the average of the
VWAP (as defined in the Debentures) (or 50% of the average of such VWAP if an event of default has occurred and has not been cured) of
the Common Stock during the ten Trading Day (as defined in the Debentures) period immediately prior to the applicable conversion date.
The New Related Party Debentures are subject to mandatory conversion (“Mandatory Conversion”) in the event the Company closes
a registered public offering of its Common Stock and receives gross proceeds of not less than $5,000,000, with such offering resulting
in the listing for trading of the Common Stock on a national exchange (“Qualified Offering”). The conversion price per share
of Common Stock in the case of a Mandatory Conversion shall be the lesser of (i) $0.003 per share and (ii) 70% of the offering price
per share in the Qualified Offering (the “Qualified Offering Price”). Alternatively, upon a Mandatory Conversion, the holders
of the Debentures may elect to exchange their Debentures for newly issued convertible preferred securities at a price per share equal
to the Qualified Offering Price or the five-day VWAP of the Common Stock prior to the date that is 181 days after the closing of the
Qualified Offering.
Notwithstanding
the preceding, holders of New Related Party Debentures shall have the right to require satisfaction of up to 40% of all amounts outstanding
under the Debentures, in cash, at the time of a Qualified Financing. Investors that are exchanging securityholders shall have the right
to require satisfaction of up to 10% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing.
The New Related Party Debentures also contain certain price protection provisions providing for adjustment of the number of shares of
Common Stock issuable upon conversion of the Debentures in case of certain future dilutive events or stock-splits and dividends.
The
Company’s obligations under the New Related Party Debentures are secured by a first priority lien on all the assets of the Company
pursuant to that certain Security Agreement, dated November 29, 2022 (the “Security Agreement”) by and among the Company,
the Debenture holders and the Collateral Agent.
The
Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject
to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders,
to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle
outstanding litigation, or enter into transactions with affiliates.
If
the Company or any Subsidiary shall default on any of its obligations under any mortgage credit agreement or other facility indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater
than $250,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become due and payable, the New Related Party Debenture shall
be deemed in default and the default provisions shall apply.
In
connection with the Securities Exchange Agreements with related parties for the exchange of the convertible notes and preferred shares
for the New Related Party Debentures discussed above, the Company issued an aggregate of 2,564,340,702 warrants. The New Related Party
Warrants are exercisable for five years and six months from the earlier of the maturity date of the New Related Party Debentures and
the closing of the Qualified Financing, at an exercise price equal to (i) in the event that a Qualified Offering is consummated prior
to the exercise of the New Related Party Warrant, the price per share at which the Qualified Offering is made (“Qualified Offering
Price”), or (ii) in the event that no Qualified Offering has been consummated, the lower of: (A) $0.003 per share and (B) an amount
equal to 70% of the average of the VWAP (or 50% of the average of the VWAP if an event of default has occurred and has not been cured)
for the Common Stock over the ten Trading Days preceding the date of the delivery of the applicable exercise notice. If there is no effective
registration statement covering the resale of the shares underlying the New Related Party Warrants within 180 days following the closing
of the Qualified Offering: (i) exercise may be via cashless exercise, and (ii) 5% additional Warrants will be issued by the Company to
the holders for any portion of each month without such effective registration statement, up to a maximum of 25%. The New Related Party
Warrants contain certain price protection provisions providing for adjustment of the amount of securities issuable upon exercise of the
New Related Party Warrants in case of certain future dilutive events or stock-splits and dividends.
As
discussed above, on November 29, 2022, in order to induce the related party investors to exchange their respective convertible notes
and preferred stock into the New Related Party Debentures, the aggregate principal amount and accrued interest payable of the exchanged
convertible notes, and the stated value and accrued dividends of exchanged preferred stock was increased by 15% (the August 11, 2022
and September 2, 2022 Demand Promissory Notes were issued with 10% OID), or an aggregate amount of $1,046,167. This inducement fee was
included in loss from debt extinguishment on the accompanying unaudited statement of operations during the six months ended March 31,
2023. Additionally, the remaining debt discount on exchanged related party notes of $1,768,379 was written off and included in loss from
debt extinguishment on the accompanying unaudited statement of operations during the six months ended March 31, 2023.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Convertible
Debt
On
November 1, 2021, the Company entered into a Securities Purchase Agreement (“Second November 2021 SPA”) with an investor
(“Second November 2021 Investor”) to purchase two convertible notes (collectively as “Second November 2021
Notes”) and two accompanying warrants (collectively as “Second November 2021 Warrants”), for an aggregate
investment amount of $500,000.
The first note, issued on November 1, 2021, had a principal balance of $250,000
and accompanying warrants to purchase up to 13,661,203
shares of common stock. The second note issued on December 1, 2021, had a principal balance of $250,000
and accompanying warrants to purchase up to 13,661,203
shares of common stock. The Company received $500,000
in aggregate proceeds from the Second November 2021 Notes. The Second November 2021 Notes bore an interest rate of 8%
per annum and was to mature on November 1, 2026. The Second November 2021 Warrants are exercisable at any time and expire on
November 1, 2026. The Second November 2021 Warrants to purchase up to 27,322,406
shares of common stock were valued at $495,560
using the relative fair value method and were recorded as a debt discount which was being amortized over the life of the Second
November 2021 Notes. The Second November 2021 Notes and Second November 2021 Warrants are convertible and exercisable, respectively,
into shares of the Company’s common stock at a price equal to $0.00366
per share (subject to adjustment). The Second November 2021 Notes and Second November 2021 Warrants included a down-round provision
under which the conversion price and exercise price are reduced if the Company sells or issues any securities including options,
convertible securities, with the exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at
a lower conversion or exercise price than that of the Second November 2021 Notes and Second November 2021 Warrants. The conversion
and exercise price of the Second November 2021 Notes and Second November 2021 Warrants are reduced equal to the lower conversion and
exercise price of the new issuance or amended securities. At the election of the Second November 2021 Investor, the Second November
2021 Notes was convertible in whole or in part at any time and from time to time. On January 26, 2022, a notice and request for
consent regarding a change in offering terms was sent by the Company to the Second November 2021 Investor. Upon the approval of the
Second November 2021 Investor, the
Company modified the terms of the Second November 2021 SPA which increased the warrants issuable from 20% to 100% of the common
stock issuable upon conversion of the notes purchased. As a result, the Second November 2021 Investor received additional
cashless-exercisable warrants equal to 80% of the common stock issuable upon conversion of the Second November 2021 Notes.
The Company issued additional warrants to purchase up to 109,289,616
shares of common stock to the Second November 2021 Investor which increased the total relative fair value of all warrants in total
by $22,429.
This was recorded as debt discount which is being amortized over the life of the Second November 2021 Notes (see Note 9). The
modification of the Second November 2021 SPA did not meet the requirements of a debt extinguishment under ASC 470-50 - Debt
Modifications and Exchanges; however it represented a substantial modification whereby the Second November 2021 Investor
received a substantial amount of additional warrants for the same principal amount of investment hence it was accounted for, in
substance, as a debt modification ASC 470-50 and no gain or losses was recognized. As of September 30, 2022, the Second November
2021 Notes had an outstanding principal balance of $500,000
and accrued interest of $34,520.
The Second November 2021 Notes are included in the accompanying balance sheet at $69,417
as a long-term convertible note payable, net of discount in the amount of $430,583 as of September 30, 2022. On November 29, 2022, the Second November 2021 Notes were exchanged for a new convertible
debenture (see below).
On
November 1, 2021, the Company entered into a Securities Purchase Agreement (“Third November 2021 SPA”) with an investor (“Third
November 2021 Investor”) to purchase two convertible notes (collectively as “Third November 2021 Notes”) and two accompanying
warrants (collectively as “Third November 2021 Warrants”), for an aggregate investment amount of $500,000. The first note
issued on November 1, 2021, had a principal balance of $250,000 and accompanying warrants to purchase up to 13,661,203 shares of common
stock. The second note issued on December 1, 2021, had a principal balance of $250,000 and accompanying warrants to purchase up to 13,661,203
shares of common stock. The Company received $500,000 in aggregate proceeds from the Third November 2021 Notes. The Third November 2021
Notes bore an interest rate of 8% per annum and was to mature on November 1, 2026. The Third November 2021 Warrants are exercisable at
any time and expire on November 1, 2026. The Third November 2021 Warrants to purchase up to 27,322,406 shares of common stock were valued
at $495,560 using the relative fair value method and were recorded as a debt discount which was being amortized over the life of the
Third November 2021 Notes. The Third November 2021 Notes and Third November 2021 Warrants were convertible and exercisable, respectively,
into shares of the Company’s common stock at a price equal to $0.00366 per share (subject to adjustment). The Third November 2021
Notes and Third November 2021 Warrants included a down-round provision under which the conversion price and exercise price are reduced
if the Company sells or issues any securities including options, convertible securities, with the exception of exempt issuance (as defined
in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the Third November 2021 Notes
and Third November 2021 Warrants. The conversion and exercise price of the Third November 2021 Notes and Third November 2021 Warrants
are reduced equal to the lower conversion and exercise price of the new issuance or amended securities. At the election of the Third
November 2021 Investor, the Third November 2021 Notes were convertible in whole or in part at any time and from time to time. On January
26, 2022, a notice and request for consent regarding a change in offering terms was sent by the Company to the Third November 2021 Investor.
Upon the approval of the Third November 2021 Investor, the Company modified the terms of the Third November 2021 SPA which increased
the warrants issuable from 20% to 100% of the common stock issuable upon conversion of the notes purchased. As a result, the Third November
2021 Investor received additional cashless-exercisable warrants equal to 80% of the common stock issuable upon conversion of the Third
November 2021 Notes. The Company issued additional warrants to purchase up to 109,289,616 shares of common stock to the Third November
2021 Investor which increased the total relative fair value of all warrants in total by $22,429. This was recorded as debt discount which
is being amortized over the life of the Third November 2021 Notes (see Note 9). The modification of the Third November 2021 SPA did not
meet the requirements of a debt extinguishment under ASC 470-50 - Debt Modifications and Exchanges; however it represented a substantial
modification whereby the Third November 2021 Investor received a substantial amount of additional warrants for the same principal amount
of investment, hence it was accounted for, in substance, as a debt modification ASC 470-50 and no gain or losses was recognized. As of
September 30, 2022, the Third November 2021 Notes had an outstanding principal balance of $500,000 and accrued interest of $34,411 and
are included in the accompanying balance sheet at $69,417 as a long-term convertible note payable, net of discount in the amount of $430,583
as of September 30, 2022. On November 29, 2022, the Third November 2021 Notes were exchanged for a new convertible debenture (see below).
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
January 27, 2022, the Company entered into a Securities Purchase Agreement (“First January 2022 SPA”) with an investor (“First
January 2022 Investor”) to purchase a convertible note with a principal balance of $500,000 (“First January 2022 Note”)
with the Company receiving $500,000 in proceeds and accompanying warrants to purchase up to 136,612,022 shares of common stock (“First
January 2022 Warrants”). The First January 2022 Note bore an interest rate of 8% per annum and was to mature on November 1, 2026.
The First January 2022 Warrants are exercisable at any time and expire on November 1, 2026. The First January 2022 Warrants to purchase
up to 136,612,022 shares of common stock were valued at $498,428 using the relative fair value method and were recorded as a debt discount
which was being amortized over the life of the First January 2022 Note. The First January 2022 Note and First January 2022 Warrants were
convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00366 per share (subject
to adjustment). The First January 2022 Note and First January 2022 Warrants included a down-round provision under which the conversion
price and exercise price are reduced if the Company sells or issues any securities including options, convertible securities, with the
exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price
than that of the First January 2022 Note and First January 2022 Warrants include. The conversion and exercise price of the First January
2022 Note and First January 2022 Warrants are reduced equal to the lower conversion and exercise price of the new issuance or amended
securities. At the election of the First January 2022 Investor, the First January 2022 Note was convertible in whole or in part at any
time and from time to time. As of September 30, 2022, the First January 2022 Note had an outstanding principal balance of $500,000 and
accrued interest of $26,959 and is included in the accompanying balance sheet at $72,081 as a long-term convertible note payable, net
of discount in the amount of $427,919 as of September 30, 2022. On November 29, 2022, the First January 2022 Note was exchanged for a
new convertible debenture (see below).
On
January 31, 2022, the Company entered into a Securities Purchase Agreement (“Second January 2022 SPA”) with an investor (“Second
January 2022 Investor”) to purchase a convertible note with principal balance of $500,000 (“Second January 2022 Note”)
with the Company receiving $500,000 in proceeds and accompanying warrants to purchase up to 136,612,022 shares of common stock (“Second
January 2022 Warrants”). The Second January 2022 Note bore an interest rate of 8% per annum and was to mature on November 1, 2026.
The Second January 2022 Warrants are exercisable at any time and expire on November 1, 2026. The Second January 2022 Warrants to purchase
up to 136,612,022 shares of common stock were valued at $498,428 using the relative fair value method and recorded as a debt discount
which was being amortized over the life of the Second January 2022 Note. The Second January 2022 Note and Second January 2022 Warrants
were convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00366 per share
(subject to adjustment). The Second January 2022 Note and Second January 2022 Warrants included a down-round provision under which the
conversion price and exercise price are reduced if the Company sells or issues any securities including options, convertible securities,
with the exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise
price than that of the Second January 2022 Note and Second January 2022 Warrants. The conversion and exercise price of the Second January
2022 Note and Second January 2022 Warrants are reduced equal to the lower conversion and exercise price of the new issuance or amended
securities. At the election of the Second January 2022 Investor, the Second January 2022 Note was convertible in whole or in part at
any time and from time to time. As of September 30, 2022, the Second January 2022 Note had an outstanding principal balance of $500,000
and accrued interest of $26,520 and is included in the accompanying balance sheet at $71,221 as a long-term convertible note payable,
net of discount in the amount of $428,779. On November 29, 2022, the Second January 2022 Note was exchanged for a new convertible debenture
(see below).
During
April 2022, the Company entered into a Securities Purchase Agreement (“Second April 2022 SPA”) with various investors (“Investors”),
to purchase convertible notes for an aggregate investment amount of $425,000 (collectively as “Second April 2022 Notes”)
with the Company receiving $425,000 of proceeds and accompanying warrants to purchase up to an aggregate of 17,857,144 shares of common
stock (collectively as “Second April 2022 Warrants”). The Second April 2022 Warrants were valued at $335,593 using the relative
fair value method and were recorded as debt discount which was being amortized over the life of the Second April 2022 Notes. The Second
April 2022 Notes bore an interest rate of 8% per annum and was to matures on April 1, 2027. The Second April 2022 Warrants are exercisable
at any time and expire on April 1, 2027. The Second April 2022 Notes and Second April 2022 Warrants were convertible and exercisable,
respectively, into shares of the Company’s common stock at a price equal to $0.00476 per share (subject to adjustment). The Second
April 2022 Notes and Second April 2022 Warrants included a down-round provision under which the conversion price and exercise price are
reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt issuance
(as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the Second April
2022 Notes and Second April 2022 Warrants. The conversion and exercise price of the Second April 2022 Notes and Second April 2022 Warrants
are reduced equal to the lower conversion and exercise price of the new issuance or amended securities. For so long as the Second April
2022 Warrants remains outstanding and until the listing by the Company or the trading of the common stock on a Qualified National Exchange
(as defined in the agreement); (i) if the Company issues warrants to investors in a Subsequent Offering, and such warrants equal more
than 20% warrant coverage, then a number of additional shares will be added to the Second April 2022 Warrants such that the Second April
2022 Warrants shall equal the same percentage of the warrant coverage offered to the investors in the Subsequent Offering and; (ii) if
the Company issues warrants in a Subsequent Offering which may be exercised by means of a cashless exercises, then the Second April 2022
Warrants shall be exercisable by the same cashless exercise feature of the warrants issued in the Subsequent Offering. At the election
of the Investors, the Second April 2022 Notes was convertible in whole or in part at any time and from time to time. As of September
30, 2022, the Second April 2022 Notes had an aggregate outstanding principal balance of $425,000 and accrued interest of $15,710 and
are included in the accompanying balance sheet at $120,808 as a long-term convertible note payable, net of discount in the amount of
$304,192 as of September 30, 2022. On November 29, 2022, the Second April 2022 Notes were exchanged for a new convertible debenture (see
below).
On
July 1, 2022, the Company entered into a Securities Purchase Agreement with an investor (“July 2022 Investor”), to purchase
a convertible note for a principal amount of $50,000 (“July 2022 Note”) with the Company receiving $50,000 of proceeds and
accompanying warrants to purchase 2,100,840 shares of common stock (“July 2022 Warrants”). The July 2022 Note bore an interest
rate of 8% per annum and was to mature on April 1, 2027. The July 2022 Warrants are exercisable at any time and expire on April 1, 2027.
The July 2022 Warrants were valued at $7,037 using the relative fair value method and were recorded as debt discount to be amortized
over the life of the July 2022 Note. The July 2022 Note and July 2022 Warrants were convertible and exercisable, respectively, into shares
of the Company’s common stock at a price equal to $0.00476 per share (subject to adjustment). The July 2022 Note and July 2022
Warrants included a down-round provision under which the conversion price and exercise price are reduced if the Company sells or issues
any securities including options, convertible securities, with the exception of exempt issuance (as defined in the agreements), or amended
outstanding securities, at a lower conversion or exercise price than that of the July 2022 Note and July 2022 Warrants. The conversion
and exercise price of the July 2022 Note and July 2022 Warrants are reduced equal to the lower conversion and exercise price of the new
issuance or amended securities. For so long as the July 2022 Warrants remains outstanding and until the listing by the Company or the
trading of the common stock on a Qualified National Exchange (as defined in the agreement); (i) if the Company issues warrants to investors
in a Subsequent Offering, and such warrants equal more than 20% warrant coverage, then a number of additional shares will be added to
the July 2022 Warrants such that the July 2022 Warrants shall equal the same percentage of the warrant coverage offered to the investors
in the Subsequent Offering and; (ii) if the Company issues warrants in a Subsequent Offering which may be exercised by means of a cashless
exercises, then the July 2022 Warrants shall be exercisable by the same cashless exercise feature of the warrants issued in the Subsequent
Offering. As of September 30, 2022, the July 2022 Note had an outstanding principal balance of $50,000 and accrued interest of $953 and
is included in the accompanying balance sheet at $43,337 as a long-term convertible note payable, net of discount in the amount of $6,663.
On November 29, 2022, the July 2022 Note was exchanged for a new convertible debenture (see below).
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
October 22, 2022, the Company issued a new convertible note for $200,000
to an existing investor for the settlement of claims (the “Settlement Note”). In connection with the issuance of the
Settlement Note, the Company recorded a settlement expense of $200,000.
On November 29, 2022, the Settlement Note was exchanged for a new convertible debenture (see below).
On
November 29, 2022, in connection with the Share Exchange Agreements and New Convertible Debentures discussed below, the Second November
2021 Warrants, Third November 2021 Warrants, January 2022 Warrants, Second January 2022 Warrants, Second April 2022 Warrants, and the
July 2022 Warrants, aggregating 566,406,072 warrants, were amended to reduce the exercise price to $0.003 per share. Additionally, 16,393,443
warrants issued to a placement agent in January 2022 were amended to reduce the exercise price to $0.003 per share. In conjunction with
the price reduction, the price protection feature for all these warrants was eliminated. All other terms of the warrants remained the
same. As a result of the November 29, 2022 amendment to the exercise price, the Company calculated the difference between the warrants
fair values on November 29, 2022, the date of the amendment, using the then current exercise price ranging from $0.00366 to $0.00476
and the new exercise price of $0.003 and determined that the difference was insignificant.
Share
Exchange Agreements and New Convertible Debentures and Warrants dated November 29, 2022
On
November 29, 2022, the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase Agreement,
by and among the Company, certain accredited investors (the “Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited
liability company, in its capacity as collateral agent (the “Collateral Agent”). At the Initial Closing, the Company sold
the Purchasers (i) 10% Original Issue Discount Senior Secured Convertible Debentures (the “New Debentures”) in an aggregate
principal amount of $2,805,000 and (ii) warrants (the “Warrants” and together with the New Debentures, the “Underlying
Securities”) to purchase up to 801,428,569 shares of common stock of the Company (the “Common Stock”), subject to adjustments
provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $2,095,288 in net proceeds at the Initial
Offering, net of the Original Issue Discount of $255,000, commissions of $296,800 and other offering costs of $157,912.
The
Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject
to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders,
to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle
outstanding litigation, or enter into transactions with affiliates.
On
November 29, 2022, the Company entered into Securities Exchange Agreements with the above investors, whereby the Second November 2021
Notes, the Third November 2021 Notes, the First January 2022 Note, the Second January 2022 Note, the Second April 2022 Notes, the July
2022 Note, and the Settlement Note, with an aggregate principal amount of $2,675,000 (the “Exchanged Convertible Notes”)
and accrued interest payable of $173,375 were exchanged for New Debentures. Additionally, on November 29, 2022, in order to induce the
investors to exchange their respective convertible notes into the New Debentures, the aggregate principal amount and accrued interest
payable was increased by 15%, or $427,256, for the New Debentures with an aggregate principal amount of $3,275,631.
On
November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of 902 shares
of Series C-1 preferred stock with a stated value of $372,303, and holders of 3,037 shares of Series C-2 preferred stock with a stated
value of $1,245,935 were exchanged for the New Debentures. Additionally, on November 29, 2022, in order to induce the preferred stockholders
to exchange their respective preferred shares into the New Debentures, the aggregate stated value of the preferred shares was increased
by 15%, or $242,736, for New Debentures with an aggregate principal amount of $1,860,974.
On
January 27, 2023, the Company consummated the second closing (the “Second Closing”) of the Offering pursuant to the terms
and conditions of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company, certain accredited investors
(the “Second Closing Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its capacity
as Collateral Agent. At the Second Closing, the Company sold the Purchasers (i) New Debentures in an aggregate principal amount of $1,045,000
and (ii) Warrants to purchase up to 298,571,429 shares of Common Stock, subject to adjustments provided by the Warrants, which represents
100% warrant coverage. The Company received a total of $950,000 in gross proceeds at the Second Offering, net of a 10% original issue
discount, before deducting offering expenses and commissions. Pursuant to the terms of the Placement Agency Agreement, the Company agreed
to (i) pay Gunnar a cash placement fee of 10% of the gross cash proceeds raised in the Second Offering, and (ii) issue to Gunnar additional
PA Warrants on the terms identical to the Warrants sold in the Second Offering in an amount equal to 10% of the New Debentures sold to
Second Closing Purchasers. As a result of the foregoing, the Company paid Gunnar an aggregate commission of $95,000 in connection with
the Second Closing. The Company also paid $7,500 in fees to Gunnar’s legal counsel.
The
New Debentures mature on November 29, 2023, subject to a three-month extension at the sole discretion of the Company. The New Debentures
bear interest at 10% per annum payable upon conversion or maturity. The Debentures are convertible into shares of Common Stock at any
time after the maturity date and prior to Mandatory Conversion (as defined below) at the conversion price equal to the lesser of: (i)
$ per share and (ii) 70% of the average of the VWAP (as defined in the Debentures) (or 50% of the average of such VWAP if an event
of default has occurred and has not been cured) of the Common Stock during the ten Trading Day (as defined in the New Debentures) period
immediately prior to the applicable conversion date. The New Debentures are subject to Mandatory Conversion in the event the Company
closes a Qualified Offering. The conversion price per share of Common Stock in the case of a Mandatory Conversion shall be the Qualified
Offering Price. Alternatively, upon a Mandatory Conversion, the holders of the New Debentures may elect to exchange their Debentures
for newly issued convertible preferred securities at a price per share equal to the Qualified Offering Price or the five-day VWAP of
the Common Stock prior to the date that is 181 days after the closing of the Qualified Offering.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Notwithstanding
the preceding, holders of New Debentures shall have the right to require satisfaction of up to 40% of all amounts outstanding under the
Debentures, in cash, at the time of a Qualified Financing. Investors that are exchanging securityholders shall have the right to require
satisfaction of up to 10% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing. The New Debentures
also contain certain price protection provisions providing for adjustment of the number of shares of Common Stock issuable upon conversion
of the New Debentures in case of certain future dilutive events or stock-splits and dividends.
The
Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject
to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders,
to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle
outstanding litigation, or enter into transactions with affiliates.
The
Company’s obligations under the Purchase Agreement and the New Debentures are secured by a first priority lien on all the assets
of the Company pursuant to that certain Security Agreement, dated November 29, 2022 (the “Security Agreement”) by and among
the Company, the Purchasers and the Collateral Agent.
In
connection with the issuance of the Underlying Securities discussed above, the Company determined that the terms of the Debentures and
Warrants contain an embedded conversion option to be accounted for as derivative liabilities due to the holder having the potential to
gain value upon conversion and provisions which includes events not within the control of the Company. In accordance with ASC 815-40
-Derivatives and Hedging - Contracts in an Entity’s Own Stock, the embedded conversion option contained in the Debentures
and the Warrants shall be accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through
earnings at each reporting date. The fair value of the embedded conversion options will be determined using the Binomial Lattice valuation
model. At the end of each period and on Debenture conversion date or repayment, the Company revalues the derivative liabilities resulting
from the embedded option.
If
the Company or any Subsidiary shall default on any of its obligations under any mortgage credit agreement or other facility indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater
than $250,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become due and payable, the New Debenture shall be deemed in default
and the default provisions shall apply.
In
connection with the Securities Exchange Agreements with investors for the exchange of the convertible notes and preferred shares for
the New Debentures discussed above, the Company issued an aggregate of 2,567,601,521 warrants to investors. The Warrants are exercisable
for five years and six months from the earlier of the maturity date of the New Debentures and the closing of the Qualified Financing,
at an exercise price equal to (i) in the event that a Qualified Offering is consummated prior to the exercise of the Warrant, the Qualified
Offering Price, or (ii) in the event that no Qualified Offering has been consummated, the lower of: (A) $0.003 per share and (B) an amount
equal to 70% of the average of the VWAP (or 50% of the average of the VWAP if an event of default has occurred and has not been cured)
for the Common Stock over the ten Trading Days preceding the date of the delivery of the applicable exercise notice. If there is no effective
registration statement covering the resale of the shares underlying the Warrants within 180 days following the closing of the Qualified
Offering: (i) exercise may be via cashless exercise, and (ii) 5% additional Warrants will be issued by the Company to the holders for
any portion of each month without such effective registration statement, up to a maximum of 25%. The Warrants contain certain price protection
provisions providing for adjustment of the number of securities issuable upon exercise of the Warrants in case of certain future dilutive
events or stock-splits and dividends.
As
discussed above, on November 29, 2022, in order to induce the investors to exchange their respective convertible notes and preferred
stock into the New Debentures, the aggregate principal amount and accrued interest payable of the exchanged convertible notes, and the
stated value of exchanged preferred stock was increased by 15%, or an aggregate amount of $669,992. This inducement fee was included
in loss from debt extinguishment on the accompanying unaudited statement of operations during the six months ended March 31, 2023. Additionally,
the remaining debt discount on Exchanged Convertible Notes of $1,949,909 was written off and included in loss from debt extinguishment
on the accompanying unaudited statement of operations during the six months ended March 31, 2023.
In
connection with the Initial Closing of the private placement, the Company and Joseph Gunnar & Co. LLC, a U.S. registered broker-dealer
(“Gunnar”), entered into a placement agency agreement (the “Placement Agency Agreement”), pursuant to which Gunnar
agreed to act as the placement agent for the Offering (the “Placement Agent”). Pursuant to the terms of the Placement Agency
Agreement, the Company agreed to (i) pay Gunnar a cash placement fee of 10% of the gross cash proceeds raised in the Offering, and (ii)
issue to Gunnar warrants (the “PA Warrants”) on the terms identical to the Warrants sold in the Offering in an amount equal
to 10% of the Underlying Securities sold to investors. As a result of the foregoing, in connection with the Initial Closing, the Company
paid Gunnar an aggregate commission of $305,000 in connection with the Initial Closing. The Company also paid $50,000 in fees to Gunnar’s
legal counsel and paid Gunnar a financial advisory fee of $50,000. In addition, Gunner received 124,489,795 warrants. Additionally, the
Company issued 16,000,000 warrants to a consultant in connection with the private placement offering. Additionally, in connection with
the Second Closing, the Company paid Gunnar an aggregate commission of $95,000, paid $7,500 in fees to Gunnar’s legal counsel,
and Gunnar received 38,775,510 additional warrants.
Analysis
of Exchange Agreements, Related Party Debenture and New Debentures, and Related Warrants
In
accordance with ASC 470-50, Debt Modifications and Extinguishments, the Company performed an assessment of whether the Exchange Agreement
transactions with related parties and investors was deemed to be new debt, a modification of existing debt, or an extinguishment of existing
debt. The Company evaluated the November 29, 2022 Exchange Agreements for debt modification and concluded that the debt exchanges qualified
for debt extinguishment. The Company determined the transactions were considered a debt extinguishment because the change in debt, the
inducement premiums (related parties and third parties) discussed previously totaling $1,724,489, and the issuance of new warrants was
substantial. Upon extinguishment, the Company had an aggregate of $3,718,288 of unamortized initial debt discount recorded which was
written off and included in loss on debt extinguishment on the accompanying unaudited statement of operations during the six months ended
March 31, 2023.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Derivative
Liabilities Pursuant to Related Party Debentures and New Debentures and Related Warrants
Pursuant
to the provisions of ASC 815-40 – Derivatives and Hedging – Contracts in an Entity’s Own Stock, the New Related
Party Debentures, the New Debenture, and the New warrants issued in connection with the Exchange Agreements were analyzed and it was
determined that the terms of the New Related Party Debentures, New Debentures and the related warrants contained terms that were considered
derivatives due to the variable conversion of the Debentures and exercise price of the warrants, and other provisions which includes
events not within the control of the Company. In accordance with ASC 815-40, the embedded conversion option contained in the Notes and
the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings
at each reporting date. The fair value of the embedded conversion options and warrants was determined using the Binomial Lattice valuation
model. At the end of each period and on the date notes convert or are repaid, the Company revalues the derivative liabilities resulting
from the embedded options and warrants.
In
connection with the issuance of the New Related Party Debentures and the New Debentures and related warrants, on November 29, 2022, the
initial measurement date, the aggregate fair values of the embedded conversion option derivatives and warrant derivatives of $41,961,095
was recorded as derivative liabilities and was attributable to the following: 1) $21,986,653 of derivative liabilities was attributable
to the New Related Party Debentures and related warrants which was allocated to debt discount up to the net principal amount of the New
Related Party Debentures of $8,837,284, with the remainder of $13,149,369 charged to current period operations as initial derivative
expense, and 2) $19,974,442 of derivative liabilities was attributable to the New Debentures and related warrants which was allocated
to debt discount up to the net principal amount of the New Debentures of $7,231,894, with the remainder of $12,742,548 charged to current
period operations as initial derivative expense. In connection with the issuance of the New Debentures and related warrants, on January
27, 2023, the initial measurement date of the Second Closing, the aggregate fair values of the embedded conversion option derivatives
and warrant derivatives of $2,192,488 was recorded as derivative liabilities and was attributable to the following: 1) $2,192,488 of
derivative liabilities was attributable to the New Debentures and related warrants which was allocated to debt discount up to the net
principal amount of the New Debentures of $831,922, with the remainder of $1,360,566 charged to current period operations as initial
derivative expense. At the end of the periods, the Company revalued the embedded conversion option derivative liabilities and warrant
derivative liabilities and recorded derivative expense of $671,903. In connection with the revaluation and the initial derivative expense,
the Company recorded an aggregate derivative expense of $1,527,311 and $27,924,386 during the three and six months ended March 31, 2023,
respectively.
The
Company uses the Binomial Valuation Model to determine the fair value of its conversion options and new stock warrants which requires
the Company to make several key judgments including:
| |
● |
the
value of the Company’s common stock; |
| |
● |
the
expected life of issued stock warrants; |
| |
● |
the
expected volatility of the Company’s stock price; |
| |
● |
the
expected dividend yield to be realized over the life of the stock warrants; and |
| |
● |
the
risk-free interest rate over the expected life of the stock warrants. |
During
the six months ended March 31, 2023, the fair value of the embedded options and stock warrants were estimated at issuance using the Binomial
Valuation Model with the following assumptions:
SCHEDULE
OF FAIR VALUE OF EMBEDDED OPTION AND STOCK WARRANTS
| | |
| 2023 | |
| Dividend rate | |
| — | % |
| Term (in years) | |
| 0.66 to 6.5 years | |
| Volatility | |
| 236.39% to 396.53 | % |
| Risk—free interest rate | |
| 3.60% to 4.78 | % |
The
Company’s computation of the expected life of issued stock warrants was based on the simplified method as the Company does not
have adequate exercise experience to determine the expected term. The interest rate was based on the U.S. Treasury yield curve in effect
at the time of grant. The computation of volatility was based on the historical volatility of the Company’s common stock.
During
the six months ended March 31, 2023 and 2022, amortization of debt discounts related to the convertible notes payable and Debentures
amounted to $6,056,696 and $276,170, respectively, which has been included in interest expense on the accompanying unaudited statements
of operations.
Notes
Payable - Related Party
On
October 21, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and a related party, for a principal amount of $150,000. The Company received proceeds of $150,000. The note bore an annual interest
rate of 1%, matured on December 1, 2021 and could have been prepaid in whole or in part without penalty. Pursuant to the note, the Company
has a 90-day grace period following the maturity date after which the lender was permitted to charge a late payment fee equal to 1% of
the outstanding principal balance and cost of collection, including legal fees. During the year ended September 30, 2022, the Company
fully paid the outstanding balance on the note. As of September 30, 2022, the note had no outstanding balance (see Note 8).
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
April 26, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and a related party, for a principal amount of $100,000. The Company received proceeds of $100,000. The note bears an annual interest
rate of 1%, matures on April 1, 2022 and can be prepaid in whole or in part without penalty. Pursuant to the note, the Company has a
90-day grace period following the maturity date after which the lender was permitted to charge a late payment fee equal to 1% of the
outstanding principal balance and cost of collection, including legal fees. On May 5, 2022, the Company and Jeffrey Busch (collectively
as “Parties”) amended the April 26, 2021 note with principal amount of $100,000 (“Original Note”) pursuant to
which the Parties increased the principal amount to $350,000 (“New Note”) with the Company receiving an additional $250,000
of proceeds and added a contingent conversion feature. The New Note bears an annual interest rate of 1% (which shall increase to 2% in
the event of a default) and matures on May 5, 2024. The New Note may not be prepaid and is only convertible upon an occurrence of a public
offering. The outstanding principal plus any unpaid accrued interest (“Conversion Amount”) of the New Note is convertible
into shares of common stock at the price for which the common stock was sold in the public offering. Pursuant to ASC 470-50 - Debt
Modifications and Exchanges, the amendment was accounted for as a debt extinguishment because the contingent conversion feature added
to the New Note resulted in a substantial modification of the Original Note. No gain or loss was recognized in connection with the debt
extinguishment. As of March 31, 2023, the New Note had an outstanding principal balance of $350,000, reflected as notes payable –
related party in the accompanying unaudited balance sheet since the conditions for its contingent conversion has not yet been met,
and accrued interest of $4,219 (see Note 8). As of September 30, 2022, the New Note had an outstanding principal balance of $350,000,
reflected as notes payable – related party in the accompanying balance sheet since the conditions for its contingent conversion
has not yet been met, and accrued interest of $2,474 (see Note 8).
Note
Payable
In
September 2017, the Company entered into a note agreement with a third-party investor. Pursuant to the note, the Company borrowed a principal
amount of $1,000. The note 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, 2023, the note had principal and accrued interest balances of $1,000 and $1,855, respectively.
As of September 30, 2022, the note had principal and accrued interest balances of $1,000 and $1,689, respectively.
NOTE
7 –LEASE LIABILITIES
Financing
Lease Right-of-Use (“ROU”) Assets and Financing Lease Liabilities
Effective
November 2018, the Company entered into a financing agreement with the first lessor to finance the purchase of equipment. Pursuant to
the financing agreement, the Company shall make a monthly payment of $379 for a period of 60 months commencing in November 2018 through
October 2023. On the effective date of the financing agreement, the Company recorded a financing lease payable of $16,065.
Effective
November 2018, the Company entered into a financing agreement with a second lessor to finance the purchase of equipment. Pursuant to
the financing agreement, the Company shall make a monthly payment of $1,439 for a period of 60 months commencing in November 2018 through
October 2023. On 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 a 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 February
2024. On 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 a 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 July
2024. On the effective date of the financing agreement, the Company recorded a financing lease payable of $19,622.
Effective
January 2020, the Company entered into a financing agreement with a 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 2025. On 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 was the discount rate which ranged from 8%
and 15% based on the Company’s estimated effective rate pursuant to the financing agreements.
Financing
lease right-of-use assets (“Financing ROU”) is summarized below:
SCHEDULE
OF FINANCIAL LEASE RIGHT-OF-USE ASSETS
| | |
March 31, 2023 | | |
September 30,
2022 | |
| | |
| | |
| |
| Financing ROU assets | |
$ | 231,841 | | |
$ | 231,841 | |
| Less accumulated depreciation | |
| (190,071 | ) | |
| (166,887 | ) |
| Balance of Financing ROU assets | |
$ | 41,770 | | |
$ | 64,954 | |
For
the three months ended March 31, 2023 and 2022, depreciation expense related to Financing ROU assets amounted to $11,592 for both periods.
For the six months ended March 31, 2023. and 2022, depreciation expense related to Financing ROU assets amounted to $23,184 for both
periods.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Financing
lease liability related to the Financing ROU assets is summarized below:
SCHEDULE
OF FINANCING LEASE LIABILITY RELATED TO FINANCING RIGHT-OF-USE ASSETS
| | |
March 31, 2023 | | |
September 30,
2022 | |
| | |
| | |
| |
| Financing lease payables for equipment | |
$ | 231,841 | | |
$ | 231,841 | |
| Total financing lease payables | |
| 231,841 | | |
| 231,841 | |
| Payments of financing lease liabilities | |
| (169,618 | ) | |
| (143,456 | ) |
| Total | |
| 62,223 | | |
| 88,385 | |
| Less: short term portion | |
| (48,145 | ) | |
| (53,995 | ) |
| Long term portion | |
$ | 14,078 | | |
$ | 34,390 | |
Future
minimum lease payments under the financing lease agreements on March 31, 2023 are as follows:
SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENTS UNDER FINANCING LEASE
| Years ending March 31, | |
Amount | |
| 2024 | |
$ | 52,178 | |
| 2025 | |
| 14,540 | |
| Total minimum financing lease payments | |
| 66,718 | |
| Less: discount to fair value | |
| (4,495 | ) |
| Total financing lease payable on March 31, 2023 | |
$ | 62,223 | |
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 61 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
February 2020, pursuant to ASC 842 – Leases, the Company calculated the present value of the total lease payments using
a discount rate of 12% which was based on the Company’s estimated incremental borrowing rate. The Company recorded an operating
right-of-use asset and lease liability of $231,337 in connection with the lease.
On
June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (the “Lease Amendment”), effective October
3, 2021, for its laboratory facility in Golden, CO (see Note 10). The Lease Amendment provided for: (i) an extension to the term of the
original lease to five years following the completion of the Company’s improvements to the Expansion Premises (defined below);
(ii) an expansion of the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden, Colorado 80401,
consisting of approximately 4,734 rentable square feet (the “Expansion Premises”); (iii) an annual base rent modification;
(iv) an increase to the security deposit; (v) tenant improvement allowance; (vi) additional parking and; (vii) two renewal options, each
for five year terms, for a total of ten years.
Pursuant
to the Lease Amendment, the Company must pay a total annual base rent of; (1) $115,823 for year one; (2) $119,310 for year two; (3) $122,893
for year three; (4) $126,580 for year four; (5) $130,377 for year five; (6) $135,163 for year six; (7) $139,218 for year seven; (8) $143,394
for year eight; (9) $147,696 for year nine; (10) $152,127 for year ten; (11) $156,331 for year eleven; (12) $161,391 for year twelve;
(13) $166,233 for year thirteen; (14) $171,220 for year fourteen and; (15) $176,357 for year fifteen.
In
October 2021, pursuant to ASC 842 – Leases, the Company wrote off the balances of the operating asset of $168,664 and operating
liability of $176,893 related to the original lease and recognized a gain on lease modification in the amount of $8,229, which was included
in general and administrative expense in the accompanying statement of operation. The Company calculated the present value of the total
lease payments in the Lease Amendment using a discount rate of 8% which was based on the Company’s incremental borrowing rate at
the effective date and recorded an operating right-of-use asset and an operating lease liability of $1,212,708.
For
the six months ended March 31, 2023, lease costs related to operating lease ROU asset and operating lease liabilities amounted to $106,424
which included base lease costs of $72,137 and other expenses such as common area maintenance and taxes of $34,287, all of which were
expensed during the period and included in general and administrative expenses on the accompanying unaudited statements of operations
For the six months ended March 31, 2022, lease costs amounted to $96,438 which included base lease
costs of $57,531 and other expenses of $38,907, all of which were expensed during the period and included in general and administrative
expenses on the accompanying unaudited statements of operations.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Operating
Right-of-use asset (“ROU”) is summarized below:
SCHEDULE
OF OPERATING RIGHT-OF-USE ASSETS
| | |
March 31, 2023 | | |
September 30, 2022 | |
| | |
| | |
| |
| Operating office lease | |
$ | 1,212,708 | | |
$ | 1,212,708 | |
| Less accumulated reduction | |
| (82,850 | ) | |
| (57,847 | ) |
| Balance of Operating ROU asset | |
$ | 1,129,858 | | |
$ | 1,154,861 | |
Operating
lease liability related to the ROU asset is summarized below:
SCHEDULE
OF OPERATING LEASE LIABILITY RELATED TO RIGHT-OF-USE ASSETS
| | |
March 31, 2023 | | |
September 30,
2022 | |
| | |
| | |
| |
| Operating office lease | |
$ | 1,212,708 | | |
$ | 1,212,708 | |
| Total operating lease liability | |
| 1,212,708 | | |
| 1,212,708 | |
| Reduction of operating lease liability | |
| (41,527 | ) | |
| (29,396 | ) |
| Total | |
| 1,171,181 | | |
| 1,183,312 | |
| Less: short term portion | |
| (28,401 | ) | |
| (25,551 | ) |
| Long term portion | |
$ | 1,142,780 | | |
$ | 1,157,761 | |
Future
base lease payments under the non-cancellable operating lease on March 31, 2023 are as follows:
SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENTS OF OPERATING LEASE
| Years ending March 31, | |
Amount | |
| 2024 | |
$ | 121,092 | |
| 2025 | |
| 124,724 | |
| 2026 | |
| 128,466 | |
| 2027 | |
| 133,194 | |
| 2028 | |
| 137,190 | |
| Thereafter | |
| 1,344,359 | |
| Total minimum non-cancellable operating lease payments | |
| 1,989,025 | |
| Less: discount to fair value | |
| (817,844 | ) |
| Total operating lease liability on March 31, 2023 | |
$ | 1,171,181 | |
NOTE
8 – RELATED-PARTY TRANSACTIONS
Effective
January 1, 2021, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as
a strategic advisor. The agreement was effective for a period of twelve months, commencing on January 1, 2021 and shall be renewed on
a month-to-month basis, subject to the right of the Company and Mr. Kucharchuk to terminate the agreement in accordance with the agreement.
Pursuant to the agreement, Mr. Kucharchuk shall be paid $2,000 per month. As of March 31, 2023 and September 30, 2022, the Company had
an accounts payable – related party balance of $6,000 and $12,000 related to this consulting agreement, respectively.
On
April 26, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors,
for a principal amount of $100,000 (see Note 6). On May 5, 2022, the parties amended the April 26, 2021 note into the New Note with the
Company receiving an additional $250,000 of proceeds and added a conversion feature. The New Note bears an annual interest rate of 1%
(which shall increase to 2% in the event of a default) and matures on May 5, 2024. As of March 31, 2023, the New Note had an outstanding
principal balance of $350,000, reflected as notes payable – related party in the accompanying unaudited balance sheet since
the conditions for its contingent conversion has not yet been met, and accrued interest of $4,219 (see Note 6). As of September 30, 2022,
the New Note had an outstanding principal balance of $350,000, reflected as notes payable – related party in the accompanying
balance sheet since the conditions for its contingent conversion has not yet been met, and accrued interest of $2,474 (see Note 6).
On
May 12, 2021, the Company and the May 2021 Investor entered into a May 2021 SPA to purchase a convertible May 2021 Note with principal
value of $1,000,000 and accompanying May 2021 Warrants (see Note 6). In connection with the Company’s obligations under the May
2021 Note, the Company entered into a security agreement with the May 2021 Investor as agent, pursuant to which the Company granted a
lien on the laboratory equipment of the Company, for the benefit of the related party. As of September 30, 2022, the May 2021 Note had
an outstanding principal balance of $1,000,000 and accrued interest of $20,164. On November 29, 2022, the May 2021 Note was exchanged
for a new convertible debenture (see Note 6).
On
October 21, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors
and a related party, for a principal balance of $150,000. During the year ended September 30, 2022, the Company fully paid the outstanding
balance on the note. As of September 30, 2022, the note had no outstanding balance (see Note 6).
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
November 1, 2021, pursuant to the First November 2021 SPA the First November 2021 Investor purchased three notes with aggregate principal
of $1,000,000 with accompanying First November 2021 Warrants to purchase up to an aggregate of 54,644,811 shares of common stock. As
of September 30, 2022, the First November 2021 Notes had an outstanding principal balance of $1,000,000 and accrued interest of $20,164.
On November 29, 2022, the First November 2021 Notes were exchanged for a new convertible debenture (see Note 6).
On
January 26, 2022, a notice and request for consent regarding a change in offering terms was sent by the Company to the First November
2021 Investor. Upon the approval of the First November 2021 Investor, the Company modified the terms of the First November 2021 SPA which
increased the warrants issuable from 20% to 100% of the common stock issuable upon conversion of the notes purchased. As a result, the
First November 2021 Investor received additional cashless-exercisable warrants equal to 80% of the common stock issuable upon conversion
of the First November 2021 Notes. The Company issued additional warrants to purchase up to 218,579,234 shares of common stock to the
First November 2021 Investor which increased the total relative fair value of all warrants in total by $34,630 recorded as debt discount
which is being amortized over the life of the First November 2021 Notes (see Note 6 and 9).
On
April 5, 2022, pursuant to the First April 2022 SPA, Matthew Schwartz, a member of the Board of Directors and a related party, purchased
a convertible note with principal amount of $100,000 with accompanying First April 2022 Warrants to purchase 4,201,681 shares of common
stock. The Company received net proceeds of $100,000 on March 24, 2022. As of September 30, 2022, the First April 2022 Note had an outstanding
principal balance of $100,000 and accrued interest of $3,901. On November 29, 2022, the First April 2022 Note was exchanged for a new
convertible debenture (see Note 6).
On
May 9, 2022, pursuant to the May 2022 SPA the May 2022 Investor purchased four convertible notes for an aggregate investment amount of
$1,000,000 with accompanying May 2022 Warrants to purchase shares of common stock equal to 20% of the number of the total shares of common
stock issuable upon the conversion of the May 2022 Notes. During the year ended September 30, 2022, the Company received an aggregate
of $1,000,000 of proceeds and issued an aggregate of 42,016,808 of the May 2022 Warrants. As of September 30, 2022, the May 2022 Notes
had an aggregate outstanding principal balance of $1,000,000 and accrued interest of $20,110. On November 29, 2022, the May 2022 Note
was exchanged for a new convertible debenture (see Note 6).
On
June 15, 2022, pursuant to the June 2022 SPA, Danica Holley, a member of the Board of Directors and a related party, purchased a convertible
note with principal of $50,000 with accompanying June 2022 Warrants to purchase 2,100,840 shares of common stock. As of September 30,
2022, the June 2022 Note had an outstanding principal balance of $50,000 and accrued interest of $1,173. On November 29, 2022, the June
2022 Note was exchanged for a new convertible debenture (see Note 6).
On
July 29, 2022, the Company entered into a Demand Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of
Directors and a related party, for a principal balance of $125,000, and on September 2, 2022, the Company entered into a second Demand
Promissory Note Agreement with Jeffrey Busch for a principal balance of $150,000 (collectively referred to as called the “Busch
Notes”). The Busch Notes bear an annual interest rate of 8% and are payable on demand. The outstanding principal and accrued interest
on the Busch Note is contingently convertible, in full, at the option of the lender, into the same security which is being issued by
the Company in its next private placement of equity or equity backed securities at any time after the inception date. As of September
30, 2022, the Busch Notes had an outstanding principal balance of $275,000 and accrued interest of $2,683 and are reflected in the accompanying
balance sheet as a short-term convertible note payable – related party. On November 29, 2022, the Busch Notes were exchanged for
a new convertible debenture (see Note 6).
On
August 11, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder, for
a principal balance of $375,000. The note bears an annual interest rate of 8% and is payable on demand. The outstanding principal and
accrued interest of the note is contingently convertible, in full, at the option of the lender, into the same security which is being
issued by the Company in its next private placement of equity or equity backed securities at any time after the inception date. As of
September 30, 2022, this note had an outstanding principal balance of $375,000 and accrued interest of $4,110 and is reflected in the
accompanying balance sheet as a short-term convertible note payable – related party. On November 29, 2022, this note was exchanged
for a new convertible debenture (see Note 6).
On
September 2, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder,
for a principal balance of $350,000. The note bears an annual interest rate of 8% and is payable on demand. The outstanding principal
and accrued interest of the note is contingently convertible, in full, at the option of the lender, into the same security which is being
issued by the Company in its next private placement of equity or equity backed securities at any time after the inception date. As of
September 30, 2022, this note had an outstanding principal balance of $350,000 and accrued interest of $2,148 and is reflected in the
accompanying balance sheet as a short-term convertible note payable – related party. On November 29, 2022, this note was exchanged
for a new convertible debenture (see Note 6).
During
the year ended September 30, 2022, the Company advanced a total of $13,883 to a related party, which is an affiliate entity and a majority
shareholder of the Company. During the year ended September 30, 2022, the Company recorded bad debt expense of $35,594 related to the
write off of related party advances. As of March 31, 2023 and September 30, 2022, the Company had related party receivable balances of
$0.
On
November 1, 2022, the Company entered into a Demand Promissory Note Agreements with two related parties, who are affiliate stockholders,
for a principal balance of $120,000. The notes bore an annual interest rate of 8% and were payable on demand. The outstanding principal
and accrued interest of the notes was contingently convertible, in full, at the option of the lender, into the same security issued by
the Company in its next private placement of equity or equity backed securities at any time after the inception date. In December 2022,
these short-term loans were repaid.
On
November 29, 2022, in connection with the Share Exchange Agreements and New Related Party Convertible Debentures discussed in Note 6,
the May 2021 Warrants, First November 2021 Warrants, First April 2022 Warrants, May 2022 Warrants, and June 2022 Warrants, aggregating
385,441,138 warrants, were amended to reduce the exercise price to $0.003 per share. Additionally, 63,897,764 warrants issued in connection
with Series F preferred stock were amended to reduce the exercise price to $0.003 per share. In conjunction with the price reduction,
the price protection feature for all these warrants was eliminated. All other terms of the warrants remained the same. (See Note 6).
On
November 29, 2022, the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase Agreement,
by and among the Company the Related Party Purchasers and the Collateral Agent. At the Initial Closing, the Company sold the related
party Purchasers (i) the New Related Party Debentures in an aggregate principal amount of $550,000 and (ii) the New Related Party Warrants
to purchase up to 157,142,857 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant
coverage. The Company received a total of $412,092 in net proceeds at the Initial Offering from the Related Party Purchasers, net of
the Original Issue Discount of $50,000, commissions of $58,200 and other offering costs of $29,708. (See Note 6).
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
November 29, 2022, the Company entered into Securities Exchange Agreements with the Exchanged Related Party Notes and accrued interest
payable of $120,750 were exchanged for New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related
party investors to exchange the respective convertible notes into the Related Party Debentures, the aggregate principal amount of the
Exchanged Related Party Notes and accrued interest payable was increased by 15% (those issued for the August 11, 2022 and September 2,
2022 Demand Promissory Notes were issued with 10% OID), or $589,505, for new Related Party Debentures with an aggregate principal amount
of $4,860,255. (See Note 6).
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of 1,000 shares of Series E preferred stock with a stated value of $2,000,000 and accrued dividends payable of $66,630,
and related party holders of 500 shares of Series F preferred stock with a stated value of $1,000,000 and accrued dividends payable of
$33,315 were exchanged for the New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related party
preferred stockholders to exchange their respective preferred shares into the New Related Party Debentures, the aggregate stated value
and accrued dividends payable were increased by 15%, or $464,992, for new Related Party Debentures with an aggregate principal amount
of $3,564,937. (See Note 6).
As
of March 31, 2023 and September 30, 2022, the Company owed several executives and directors for expense reimbursements and consulting
fees in the aggregate amount of $12,933 and $16,223, respectively, which is reflected on the accompanying balance sheet as accounts payable
– related parties.
On
March 31, 2023 and September 30, 2022, net amount due to related parties consisted of the following:
SCHEDULE
OF RELATED PARTIES TRANSACTION
| | |
March 31, 2023 | | |
September 30, 2022 | |
| | |
| | |
| |
| Convertible notes principal – related parties | |
$ | 8,975,192 | | |
$ | 4,150,000 | |
| Discount on convertible notes - related parties | |
| (5,959,565 | ) | |
| (1,844,186 | ) |
| Note payable principal – related parties | |
| 350,000 | | |
| 350,000 | |
| Accrued liabilities - related parties | |
| 304,212 | | |
| 76,927 | |
| Accounts payable – related parties | |
| 12,933 | | |
| 16,223 | |
| Total | |
$ | 3,682,772 | | |
$ | 2,748,964 | |
NOTE
9 – STOCKHOLDERS’ DEFICIT
Shares
Authorized
On
September 22, 2020, the Company filed with the Nevada Secretary of State, an amendment to its Articles of Incorporation to change its
name from “OncBioMune Pharmaceutical, Inc.” to “Theralink Technologies, Inc.” and increase its authorized shares
of common stock from 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.
On
July 1, 2022, the Company filed with the Nevada Secretary of State, an amendment to its Articles of Incorporation to increase its authorized
shares of common stock from 12,000,000,000 shares to 100,000,000,000 shares of common stock at $0.0001 per share par value.
Series
A Preferred Stock
On
August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating 1,333 shares of the
authorized 26,667 Preferred Stock as Series A Preferred Stock. Each holder of Series A Preferred Stock is entitled to 500 votes for each
share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the
stockholders of the Company. The holders of Series A Preferred Stock shall have no special voting rights and their consent is not required
(except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action.
As
of March 31, 2023 and September 30, 2022, there were 667 shares of the Company’s Series A Preferred Stock issued and outstanding
held by a former member of the Board of Directors.
Series
C-1 Preferred Stock
On
May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series C-1 Preferred Stock (the “Series
C-1 Certificate of Designation”), as amended on June 9, 2021, with the Nevada Secretary of State to designate 3,000 shares of its
previously authorized preferred stock as Series C-1 Preferred Stock, par value $0.0001 per share and a stated value of $4,128.42 per
share. The Series C-1 Certificate of Designation and its filing was approved by the Company’s Board of Directors without shareholder
approval as provided for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series C-1 Preferred
Stock have the following preferences and rights:
On
June 9, 2021, the Company filed an Amendment (the “CoD Amendment”) to the Series C-1 Certificate of Designation with the
Nevada Secretary of State. The filing of the CoD Amendment was approved by the Board on June 8, 2021, and by the holders of the majority
of the outstanding shares of Series C-1 Preferred Stock on June 8, 2021.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
The
CoD Amendment sets the triggering price for the anti-dilution price protection at $0.00275 per share, the same price as the Series C-2
Certificate of Designation. All other terms of the Series C-1 Certificate of Designation remain unchanged and in full force and effect.
| |
● |
Holders
of shares of Series C-1 Preferred Stock are entitled to dividends or distributions on each share on an “as converted”
into common stock basis, if, as and when declared from time to time by the Board of Directors. |
| |
● |
Each
share of Series C-1 Preferred Stock is convertible into shares of common stock any time after the Initial Issuance Date at a conversion
price of $0.0275 per share. The number of shares of common stock issuable upon conversion shall be determined by dividing (x) the
conversion amount (determined by the sum of the stated value thereof plus any additional amount thereon which consist of all dividends,
whether declared or not) of such share of Series C-1 by (y) the conversion price of $0.0275 per share (subject to temporary adjustment
upon a triggering event as defined by the Series C-1 Certificate of Designation, to 80% of the conversion price). The adjusted conversion
price is only in effect until the triggering event is cured. The convertibility of shares of Series C-1 Preferred Stock is limited such
that a holder of Series C-1 Preferred Stock may not convert Series C-1 Preferred Stock to common stock to the extent that the number
of shares of common stock to be issued pursuant to such conversion, when aggregated with all other shares of common stock owned by the
holder at such time, would result in the holder beneficially owning (as determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934) more than 4.99% of all of the Company’s common stock outstanding. |
| |
|
|
| |
● |
In
the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance
(as defined in the Series C-1 Certificate of Designation), at a price of or with an exercise price or conversion price of less than
$0.0275 per share (see amendment discussed above), then upon such issuance or sale, the Series C-1 Preferred Stock conversion price
shall be reduced to the sale price, the exercise price or conversion price of the securities sold. In addition, these preferred shareholders
have the right to participate in future equity offerings from the company for twenty-four months from the effective date. |
| |
|
|
| |
● |
In
the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Company, the holders
of the Series C-1 Preferred Stock shall be entitled to receive, in cash out of the assets of the Company, whether from capital or
from earnings available for distribution to its stockholders (“Liquidation Funds”) before any amount shall be paid to
the holders of any shares of Junior Stock, but pari passu with any Parity Stock (as defined in the Series C-1 Certificate of Designation)
then outstanding, an amount per shares of the Series C-1 Preferred Stock equal to the greater of (A) the conversion amount thereof
on the date of such payment or (B) the amount per share such holder of Series C-1 Preferred Stock would receive if such holder converted
such Series C-1 into common stock immediately prior to the date of the payment, provided that if the Liquidation Funds are insufficient
to pay the full amount due to the holders of Series C-1 Preferred Stock and holders of the shares of Parity Stock, then each holder
of Series C-1 Preferred Stock and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full
amount of the Liquidation Funds payable to such holder of Series C-1 Preferred Stock and such holder of the Parity Stock as a liquidation
preference, in accordance with their respective certificate of designation (or equivalent), as a percentage of the full amount of
Liquidation Funds payable to all holders of Series C-1 Preferred Stock and all holders of Parity Stock. |
During
the year ended September 30, 2022, various holders of the Series C-1 Preferred Stock converted an aggregate of 1,923 shares of Series
C-1 Preferred Stock into 288,637,529 shares of the Company’s common stock (see below – Common Stock Issued Upon Conversion
of Series C-1 Preferred Stock).
On
November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of 902 shares
of Series C-1 preferred stock with a stated value of $372,303 were exchanged for the New Debentures (See Note 6).
As
of March 31, 2023 and September 30, 2022, the Company had 141 and 1,043 shares of Series C-1 Preferred Stock issued and outstanding,
respectively.
Series
C-2 Preferred Stock
On
May 18, 2020, the Company filed a certificate of designation, preferences and rights of Series C-2 Preferred Stock (the “Series
C-2 Certificate of Designation”) with the Nevada Secretary of State to designate 6,000 shares of its previously authorized preferred
stock as Series C-2 Preferred Stock, par value $0.0001 per share and a stated value of $410.27 per share. The Series C-2 Certificate
of Designation and its filing was approved by the Company’s Board of Directors without shareholder approval as provided for in
the Company’s articles of incorporation and under Nevada law. The holders of shares of Series C-2 Preferred Stock have the following
preferences and rights:
| |
● |
Holders
of shares of Series C-2 Preferred Stock are entitled to dividends or distributions on each share on an “as converted”
into common stock basis, if, as and when declared from time to time by the Board of Directors. |
| |
● |
Each
share of Series C-2 Preferred Stock is convertible into shares of common stock any time after the initial issuance date at a conversion
price of $0.00275 per share. The number of shares of common stock issuable upon conversion shall be determined by dividing (x)
the conversion amount (determined by the sum of the stated value thereof plus any additional amount thereon) of such share of
Series C-2 by (y) the conversion price of $0.00275 per share (subject to temporary adjustment upon a triggering event as defined
by the Series C-2 Certificate of Designation to 80% of the conversion price). The adjusted conversion price is only in effect until
the triggering event is cured. The convertibility of shares of Series C-2 Preferred Stock is limited such that a holder of Series
C-2 Preferred Stock may not convert Series C-2 Preferred Stock to common stock to the extent that the number of shares of common
stock to be issued pursuant to such conversion, when aggregated with all other shares of common stock owned by the holder at such
time, would result in the holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act
of 1934) more than 4.99% of all of the Company’s common stock outstanding. |
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
| |
● |
In
the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance
(as defined in the Series C-2 Certificate of Designation), at a price of or with an exercise price or conversion price of less than
the conversion price, then upon such issuance or sale, the Series C-2 Preferred Stock conversion price shall be reduced to the sale
price, the exercise price or conversion price of the securities sold. In addition, these preferred shareholders have the right to
participate in future equity offerings from the company for twenty-four months from the effective date. |
| |
|
|
| |
● |
In
the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Company, the holders
of the Series C-2 Preferred Stock shall be entitled to receive, in cash out of the Liquidation Funds before any amount shall be paid
to the holders of any shares of Junior Stock, but pari passu with any Parity Stock (as defined in the Series C-2 Certificate of Designation)
then outstanding, an amount per shares of the Series C-2 Preferred Stock equal to the greater of (A) the conversion amount thereof
on the date of such payment or (B) the amount per share such holder would receive if such holder converted such Series C-2 into common
stock immediately prior to the date of the payment, provided that if the Liquidation Funds are insufficient to pay the full amount
due to the holders of Series C-2 Preferred Stock and holders of the shares of Parity Stock, then each holder of Series C-2 Preferred
Stock and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full amount of the Liquidation
Funds payable to such holder of Series C-2 Preferred Stock and such holder of the Parity Stock as a liquidation preference, in accordance
with their respective certificate of designation (or equivalent), as a percentage of the full amount of Liquidation Funds payable
to all holders of Series C-2 Preferred Stock and all holders of Parity Stock. |
During
the year ended September 30, 2022, a holder of the Series C-2 Preferred Stock converted 1,880 shares of Series C-1 Preferred Stock into
280,475,491 shares of the Company’s common stock (see below – Common Stock Issued Upon Conversion of Series C-2 Preferred
Stock).
On
November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of 3,037 shares
of Series C-2 preferred stock with a stated value of $1,245,935 were exchanged for the New Debentures (See Note 6).
As
of March 31, 2023 and September 30, 2022, the Company had 0 and 3,037 shares of Series C-2 Preferred Stock, respectively, issued and
outstanding.
Series
E Preferred Stock
On
September 15, 2020, the Company filed a Certificate of Designation, Preferences and Rights of Series E Preferred Stock (the “Series
E Certificate of Designation”) with the Nevada Secretary of the State to designate 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 were approved by the Company’s Board of Directors without stockholder approval as provided for in the Company’s
Articles of Incorporation and under Nevada law. The holders of shares of Series E Preferred Stock have the following preferences and
rights:
| |
● |
From
the initial issuance date, cumulative dividends on each share of Series E shall accrue, on a quarterly basis in arrears (with any
partial quarter calculated on a pro-rata basis), at the rate of 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. |
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
| |
● |
In
connection with, (i) a Change of Control of the Company or (ii) on the closing of, a Qualified Public Offering by the Company, 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 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. 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 or the exercise
price or conversion price of the securities sold. |
| |
|
|
| |
● |
Holders
of Series E Preferred Stock have no voting rights. |
On
September 16, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who
is a beneficial shareholder, to purchase an aggregate amount of 1,000 shares of the newly created Series E Convertible Preferred Stock
of the Company (the “Series E Preferred”) for an aggregate investment amount of $2,000,000.
Pursuant
to the Series E Certificate of Designation, Series E Preferred Stock is redeemable at the option of the holder in the event that the
Company is prohibited from issuing shares of common stock to a holder upon any conversion due to insufficient shares of common stock
available (“Authorized Failure Shares”) and therefore meets the criteria of a contingently redeemable instrument in accordance
with ASC 480-10-25-7 – Distinguishing Liabilities from Equity. The Series E Preferred Stock is contingently redeemable upon
the occurrence of an event that is outside of the issuer’s control and is classified as temporary equity pursuant to ASC 480-10-S99.
Further
the Series E Preferred Stock is an equity host instrument since it has more features that align with an equity instrument than a debt
instrument pursuant to ASC 815-15-25-17A – Derivatives and Hedging, which states in part that “the nature of the
host contract depends on the economic characteristics and risks of the entire hybrid financial instrument.” All of the contractual
and implied terms of the preferred share, such as the existence of a redemption feature or conversion option, should be considered when
determining the nature of the host instrument as debt or equity. The Series E Preferred Stock embedded conversion feature (call option)
is considered clearly and closely related to the equity host. Accordingly, further analysis under ASC 815-40-15 is not necessary and
the embedded conversion feature should not be bifurcated from the host instrument. The Series E Preferred Stock redemption feature (put
option) does not meet all the criteria under ASC 815-10-15-83, therefore it does not qualify as a derivative.
To
determine whether the Series E Preferred Stock contains a BCF, we compared the effective conversion price and the Company’s stock
price on the commitment date. The effective conversion price was calculated by dividing the proceeds from Series E Preferred Stock by
the number of common shares issuable upon conversion of the Series E Preferred Stock. The BCF is measured as the difference between the
commitment date stock price and the effective conversion price multiplied by the number of common stock issuable upon conversion of Series
E. The BCF is limited to the total cash proceeds received if the amount of the BCF exceeds the cash proceeds received. In connection
with the issuance of Series E Preferred Stock, during the year ended September 30, 2020, the Company recognized a beneficial conversion
feature in the amount of $2,000,000 which was accounted for as a deemed dividend.
During
the year ended September 30, 2021, the issuance of Series F Preferred Stock triggered the price protection clause in the Series E Preferred
Stock. Thus, the conversion price of the Series E Preferred Stock was reduced from $0.00375 to $0.00313 on that date.
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of 1,000 shares of Series E preferred stock with a stated value of $2,000,000 and accrued dividends payable of $66,630
were exchanged for the New Related Party Debentures. (See Note 6).
During
the six months ended March 31, 2023 and 2022, the Company incurred $26,301 and $79,781 of Series E dividends. As of March 31, 2023 and
September 30, 2022, dividend payable balances were $0 and $40,329, respectively, reflected in the accompanying unaudited balance sheets
as accrued liabilities instead of temporary equity.
As
of March 31, 2023 and September 30, 2022, the Company had 0 and 1,000 shares of Series E Preferred Stock issued and outstanding classified
as temporary equity in the accompanying unaudited balance sheets, respectively.
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 were approved by the Company’s Board of Directors without stockholder approval as provided for in the Company’s
Articles of Incorporation and under Nevada law. The holders of shares of Series F Preferred Stock have the following preferences and
rights:
| |
● |
From
the Initial Issuance Date, cumulative dividends on each share of Series F shall accrue, on a monthly basis in arrears (with any partial
month being made on a pro-rata basis), at the rate of 8% per annum on the stated value, plus any 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 determined by dividing the total dividend
payable 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 additional amount by the conversion price. |
| |
|
|
| |
● |
In
connection with, (i) a Change of Control of the Company or (ii) on the closing of, a Qualified Public Offering by the Company, all
of the outstanding shares of Series F Preferred Stock (including any fraction of a share) shall automatically convert along with
the 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. |
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
| |
● |
In
the event the Company issues or sells any securities including options or convertible securities, except for any Exempt Issuance
(as defined in the Series F Certificate of Designation), at a price, an exercise price or conversion price of less than the conversion
price, then upon such issuance or sale, the Series F Preferred Stock conversion price shall be reduced to the sale price, or the
exercise price or conversion price of the securities sold. |
| |
|
|
| |
● |
Series
F Preferred Stock shall rank pari passu with respect to the preferences as to dividends, distributions and payments upon the liquidation,
dissolution and winding up of the Company with the Series C-1 Preferred Stock of the Company, the Series C-2 Preferred Stock of the
Company, and the Series E Preferred Stock of the Corporation (the “Parity Stock”), and all other shares of capital stock
of the Company shall be junior in rank to all Series F shares with respect to the preferences as to dividends (except for the common
stock, which shall be pari passu as provided in the Series F Certificate of Designation), distributions and payments upon the liquidation,
dissolution and winding up of the Company (such junior stock is referred to herein collectively as “Junior Stock”). The
rights of all such Junior Stock shall be subject to the rights, powers, preferences and privileges of the Series F Preferred Stock.
Without limiting any other provision of the Series F Certificate of Designation, without the prior express consent of the Required
Holder, the Company shall not hereafter authorize or issue any additional or other shares of capital stock that is (i) of senior
rank to the Series F Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation,
dissolution and winding up of the Company (collectively, the “Senior Preferred Stock”), or (ii) Parity Stock. Except
as provided for in the Certificate of Designation, in the event of the merger or consolidation of the Company into another corporation,
the Series F Preferred Stock shall maintain their relative rights, powers, designations, privileges and preferences provided for
in the Certificate of Designation for a period of at least two years following such merger or consolidation and no such merger or
consolidation shall cause result inconsistent therewith. |
On
July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a
beneficial shareholder, to purchase an aggregate amount of 500 shares of Series F Convertible Preferred Stock (the “Series F Preferred”)
with accompanying warrant for 63,897,764 of common stock (the “Warrant”), for total proceeds of $1,000,000 (see Note 9).
The Series F Preferred Stock has a stated value of $2,000 per share and shall accrue monthly in arrears, dividends at the rate of 8%
per annum on the stated value. The dividends shall be paid monthly at the option of the holder of the Series F Preferred in either cash
or shares of common stock of the Company. The number of shares of common stock issuable upon conversion of the Series F Preferred is
determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser
of: (i) $0.00313 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided,
however, the conversion price shall never be less than $0.0016. In addition, the investor was issued a Warrant to purchase an amount
of common stock equal to 20% of the shares of common stock issuable upon conversion of the Series F Preferred at an exercise price of
$0.00313 per share (subject to adjustment as provided therein) until July 30, 2026. The Warrants are exercisable for cash at any time.
The 63,897,764 Warrant was valued using the relative fair value method at $957,192 and the Series F Preferred stock had a grant date
fair value $42,808 which was recorded as a BCF.
In
accordance with ASC 470 – Debt, the proceeds of $1,000,000 were allocated based on the relative fair values of the Series F preferred
stock and the Warrant of $42,808 and $957,192, respectively. Although ASC 470 is for debt instruments issued with warrants, preferred
shares issued with warrants should be accounted for in a similar manner.
Pursuant
to the Series F Certificate of Designation, Series F Preferred Stock is redeemable at the option of the holder in the event that the
Company is prohibited from issuing shares of common stock to a holder upon any conversion due to insufficient shares of common stock
available (“Authorized Failure Shares”) and therefore meets the criteria of a contingently redeemable instrument in accordance
with ASC 480-10-25-7 – Distinguishing Liabilities from Equity. The Series F Preferred Stock is contingently redeemable upon
the occurrence of an event that is outside of the issuer’s control and should be classified as temporary equity pursuant to ASC
480-10-S99. Further the Series F Preferred Stock is an equity host instrument since it has more features that align with an equity instrument
than a debt instrument pursuant to ASC 815-15-25-17A – Derivatives and Hedging, which states in part that “the
nature of the host contract depends on the economic characteristics and risks of the entire hybrid financial instrument.” All
of the contractual and implied terms of the preferred share, such as the existence of a redemption feature or conversion option, should
be considered when determining the nature of the host instrument as debt or equity. The Series F Preferred Stock embedded conversion
feature (call option) is considered clearly and closely related to the equity host. Accordingly, further analysis under ASC 815-40-15
is not necessary and the embedded conversion feature should not be bifurcated from the host instrument. The Series F Preferred Stock
redemption feature (put option) does not meet all the criteria under ASC 815-10-15-83, therefore it does not qualify as a derivative.
To
determine whether the Series F Preferred Stock contains a BCF, we compared the effective conversion price and the Company’s stock
price on the commitment date. The effective conversion price was calculated by dividing the proceeds from Series F Preferred Stock by
the number of common shares issuable upon conversion of the Series F Preferred Stock. The BCF is measured as the difference between the
commitment date stock price and the effective conversion price multiplied by the number of common stock issuable upon conversion of Series
F. The BCF is limited to the total cash proceeds received if the amount of the BCF exceeds the cash proceeds received. In connection
with the issuance of Series F Preferred Stock, during the year ended September 30, 2021, the Company recognized a BCF in the amount of
$42,808 which was accounted for as a deemed dividend.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
The
relative fair value of the warrant of $957,192 was recorded as a discount associated with the Series F preferred stock and was fully
amortized immediately because the Series F preferred stock was convertible on the date of issuance. The Company recorded the $957,192
as deemed dividend.
On
November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related
party holders of 500 shares of Series F preferred stock with a stated value of $1,000,000 and accrued dividends payable of $33,315 were
exchanged for the New Related Party Debentures (See Note 6).
During
the six months ended March 31, 2023 and 2022, the Company also recorded dividends related to the Series F Preferred Stock in the amount
of $13,151 and $39,891. As of March 31, 2023 and September 30, 2022, dividend payable balances were $0 and $20,164, respectively, reflected
in the accompanying unaudited balance sheets as accrued liabilities instead of temporary equity.
As
of March 31, 2023 and September 30, 2022, the Company had 0 and 500 shares of Series F Preferred Stock issued and outstanding classified
as temporary equity in the accompanying unaudited balance sheets, respectively.
Stock
Options
On
April 28, 2020, the Board approved the 2020 Equity Incentive Plan (“2020 Plan”), as amended on May 29, 2020. On April 18,
2022, the Board terminated the 2020 Plan and any shares reserved thereunder are no longer subject to reservation and the Company had
no options issued and outstanding under the 2020 Plan.
On
April 18, 2022, the Company’s Board and the shareholders approved the 2022 Equity Incentive Plan (“2022 Plan”) at which
time the plan became effective. Upon the effective date of the 2022 Plan, 1,915,000,000 shares of the Company’s common stock were
reserved for issuance under the 2022 Plan (“Reserved Share Amount”), subject to the adjustments described in the 2022 Plan,
and such Reserved Share Amount, when issued in accordance with the 2022 Plan, shall be validly issued, fully paid, and non-assessable.
Pursuant to the 2022 Plan, the option price of each incentive stock option (except those that constitute substitute awards) shall be
at least the fair market value of a share on the grant date; provided, however, that in the event that a grantee is a ten percent stockholder
as of the grant date, the option price of an incentive stock option shall be not less than 110% of the fair market value of a share on
the grant date, in no case shall the option price of any option be less than the par value of a share.
On
May 26, 2022, the Company’s Board of Directors (“Board”) approved the future granting of stock options under the 2022
Equity Incentive Plan, to various employees and consultants. On August 16, 2022, the Company granted stock options to purchase 1,901,410,519
common shares of the Company to various employees and consultants with an exercise price of $0.0036 per share. The options expire on
August 15, 2032 and vest over varying vesting terms through August 2026. The fair value of these option grants was estimated on the date
of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0%; expected
volatility of 365.1%; risk-free interest rate of 2.82%; and an estimated holding period of 10 years. The Company valued these stock options
at a fair value of $7,985,924 and will record stock-based compensation expense over the vesting periods.
During
the three and six months ended March 31, 2023, in connection with the accretion of stock-based option expense over the vesting period,
the Company recorded stock option expense of $537,065 and $1,149,238, respectively. As of March 31, 2023, there were 1,901,410,519 options
outstanding and 1,400,180,967 options vested, subject to the filing of a registration on Form S-8 for the registration of the shares
underlying such options. As of March 31, 2023, there was $821,064 of unvested stock-based compensation expense to be recognized through
August 2026. The aggregate intrinsic value on March 31, 2022 was $0 and was calculated based on the difference between the quoted share
price on March 31, 2023 of $0.0023 and the exercise price of the underlying options.
Stock
option activities for the six months ended March 31, 2023 are summarized as follows:
SCHEDULE OF STOCK OPTION ACTIVITY
| | |
Number of
Options | | |
Weighted
Average
Exercise Price | | |
Weighted Average
Remaining
Contractual
Term (Years) | | |
Aggregate
Intrinsic
Value | |
| Balance Outstanding September 30, 2022 | |
| 1,901,410,519 | | |
$ | 0.0036 | | |
| 9.88 | | |
$ | - | |
| Granted | |
| - | | |
| - | | |
| | | |
| - | |
| Balance Outstanding March 31, 2023 | |
| 1,901,410,519 | | |
$ | 0.0036 | | |
| 9.38 | | |
$ | 0 | |
| Exercisable, March 31, 2023 | |
| 1,400,180,967 | (a) | |
$ | 0.0036 | | |
| 9.38 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | |
| Balance Non-vested on September 30, 2022 | |
| 547,666,344 | | |
$ | 0.0036 | | |
| 9.88 | | |
$ | - | |
| Granted | |
| - | | |
| - | | |
| - | | |
| - | |
| Vested during the period | |
| (46,436,792 | ) | |
| 0.0036 | | |
| - | | |
| - | |
| Balance Non-vested on March 31, 2023 | |
| 501,229,552 | | |
$ | 0.0036 | | |
| 9.86 | | |
$ | 0 | |
| |
(a) |
These
vested options are only exercisable upon the company filing an S-8 to register the underlying shares. |
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Warrants
Legacy
Warrants
On
November 1, 2021, the Company issued the First November 2021 Warrants to purchase an aggregate of 54,644,811 shares of common stock.
The First November 2021 Warrants are exercisable at any time at a price equal to $0.00366 per share (subject to adjustment) until November
1, 2026. The First November 2021 Warrants were valued at $990,048 using the relative fair value method and were recorded as a debt discount
which was being amortized over the life of the First November 2021 Notes (see Note 6 and Note 8).
On
November 1, 2021, the Company issued the Second November 2021 Warrants to purchase an aggregate of 27,322,406 shares of common stock.
The Second November 2021 Warrants are exercisable at any time at a price equal to $0.00366 per share (subject to adjustment) until November
1, 2026. The Second November 2021 Warrants were valued at $495,560 using the relative fair value method and were recorded as a debt discount
which was being amortized over the life of the Second November 2021 Notes (see Note 6).
On
November 1, 2021, the Company issued the Third November 2021 Warrants to purchase an aggregate of 27,322,406 shares of common stock.
The Third November 2021 Warrants are exercisable at any time at a price equal to $0.00366 per share (subject to adjustment) until November
1, 2026. The Third November 2021 Warrants were valued at $495,560 using the relative fair value method and were recorded as a debt discount
which was being amortized over the life of the Third November 2021 Notes (see Note 6).
On
January 26, 2022, the Company, upon the approval of the First November 2021 Investor, amended the First November 2021 SPA whereby the
Company issued additional cashless-exercisable warrants to purchase 218,579,234 shares of common stock. As a result, the total relative
fair value of all warrants in total increased by $34,630, recorded as debt discount, which was being amortized over the life of the First
November 2021 Notes (see Note 6). These warrants were exercisable at a price equal to $0.00366 per share (subject to adjustment) until
November 1, 2026.
On
January 26, 2022, the Company, upon the approval of the Second November 2021 Investor, amended the Second November 2021 SPA whereby the
Company issued additional cashless-exercisable warrants to purchase 109,289,616 shares of common stock. As a result, the total relative
fair value of all warrants in total increased by $22,429, recorded as debt discount, which was being amortized over the life of the Second
November 2021 Notes (see Note 6). These warrants were exercisable at a price equal to $0.00366 per share (subject to adjustment) until
November 1, 2026.
On
January 26, 2022, the Company, upon the approval of the Third November 2021 Investor, amended the Third November 2021 SPA whereby the
Company issued additional cashless-exercisable warrants to purchase 109,289,616 shares of common stock. As a result, the total relative
fair value of all warrants in total increased by $22,429, recorded as debt discount, which was being amortized over the life of the Third
November 2021 Notes (see Note 6). These warrants were exercisable at a price equal to $0.00366 per share (subject to adjustment) until
November 1, 2026.
On
January 27, 2022, the Company issued the First January 2022 Warrants to purchase an aggregate of 136,612,022 shares of common stock.
The First January 2022 Warrants are exercisable at any time at a price equal to $0.00366 per share (subject to adjustment) until November
1, 2026. The First January 2022 Warrants were valued at $472,403 using the relative fair value method and were recorded as a debt discount
which was being amortized over the life of the First January 2022 Note (see Note 6).
On
January 31, 2022, the Company issued the Second January 2022 Warrants to purchase an aggregate of 136,612,022 shares of common stock.
The Second January 2022 Warrants are exercisable at any time at a price equal to $0.00366 per share (subject to adjustment) until November
1, 2026. The Second January 2022 Warrants were valued at $469,810 using the relative fair value method and were recorded as a debt discount
which was being amortized over the life of the Second January 2022 Note (see Note 6).
On
January 31, 2022, the Company issued to two consultants an aggregate of 16,393,443 warrants as a placement fee in connection with the
First January 2022 Note and Second January 2022 Note (collectively as “January 2022 Notes”) (see Note 6). These warrants
are exercisable at a price equal to $0.00366 per share until November 1, 2024. These warrants were valued at $54,595 using the relative
fair value method and were recorded as a debt discount which was being amortized over the life of the January 2022 Note.
On
April 5, 2022, the Company issued the First April 2022 Warrants to purchase 4,201,681 shares of common stock. The First April 2022 Warrants
are exercisable at any time at a price equal to $0.00476 per share (subject to adjustment) until April 1, 2027. The First April 2022
Warrants were valued at $89,815 using the relative fair value method and were recorded as debt discount which was being amortized over
the life of the First April 2022 Note (see Note 6 and Note 8).
During
April 2022, the Company issued the Second April 2022 Warrants to purchase an aggregate of 17,857,144 shares of common stock. The Second
April 2022 Warrants are exercisable at any time at price equal to $0.00476 per share (subject to adjustment) until April 1, 2027. The
Second April 2022 Warrants were valued at $335,593 using the relative fair value method and were recorded as debt discount which was
being amortized over the life of the Second April 2022 Notes (see Note 6).
On
May 9, 2022, the Company issued the May 2022 Warrants to purchase an aggregate of 42,016,808 shares of common stock. The May 2022 Warrants
are exercisable at any time at a price equal to $0.00476 per share (subject to adjustment) until April 1, 2027. The May 2022 Warrants
were valued at $178,449 using the relative fair value method and were recorded as debt discount which was being amortized over the life
of the May 2022 Notes (see Note 6 and Note 8).
On
June 15, 2022, the Company issued the June 2022 Warrants to purchase 2,100,840 shares of common stock. The June 2022 Warrants are exercisable
at any time at a price equal to $0.00476 per share (subject to adjustment) until April 1, 2027. The June 2022 Warrants were valued at
$5,924 using the relative fair value method and were recorded as debt discount which is being amortized over the life of the June 2022
Note (see Note 6 and Note 8).
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
On
July 1, 2022, the Company issued the July 2022 Warrants to purchase an aggregate of 2,100,840 shares of common stock. The July 2022 Warrants
are exercisable at any time at a price equal to $0.00476 per share (subject to adjustment) until April 1, 2027. The July 2022 Warrants
were valued at $8,190 using the relative fair value method and were recorded as debt discount which was being amortized over the life
of the July 2022 Notes (see Note 6).
On
November 29, 2022, in connection with the Share Exchange Agreements and New Convertible Debt discussed below, the May 2021 Warrants,
First November 2021 Warrants, First April 2022 Warrants, May 2022 Warrants, and June 2022 Warrants, aggregating 385,441,138 warrants,
were amended to reduce the exercise price to $0.003 per share. Additionally, 63,897,764 warrants issued in connection with Series F preferred
stock were amended to reduce the exercise price to $0.003 per share. All other terms of the warrants remained the same. As a result of
the November 29, 2022 amendment to the exercise price, the Company calculated the difference between the warrants fair values on November
29, 2022, the date of the amendment, using the then current exercise price ranging from $0.00366 to $0.00476 and the new exercise price
of $0.003 and determined that the difference was insignificant. (See Note 6).
On
November 29, 2022, in connection with the Share Exchange Agreements and New Convertible Debentures discussed in Note 6, the Second November
2021 Warrants, Third November 2021 Warrants, January 2022 Warrants, Second January 2022 Warrants, Second April 2022 Warrants, and the
July 2022 Warrants, aggregating 566,406,072 warrants, were amended to reduce the exercise price to $0.003 per share. Additionally, 16,393,443
warrants issued to a placement agent in January 2022 were amended to reduce the exercise price to $0.003 per share. In conjunction with
the price reduction, the price protection feature for all these warrants was eliminated. All other terms of the warrants remained the
same. As a result of the November 29, 2022 amendment to the exercise price, the Company calculated the difference between the warrants
fair values on November 29, 2022, the date of the amendment, using the then current exercise price ranging from $0.00366 to $0.00476
and the new exercise price of $0.003 and determined that the difference was insignificant. (See Note 6).
New
Warrants
In
connection with the Securities Exchange Agreements with related parties for the exchange of the convertible notes and preferred shares
for the New Related Party Debentures, as discussed in Note 6, the Company issued an aggregate of 2,564,340,702 warrants. The Warrants
are exercisable for five years and six months from the earlier of the maturity date of the New Related Party Debentures and the closing
of the Qualified Financing, at an exercise price equal to (i) in the event that a Qualified Offering is consummated prior to the exercise
of the Warrant, the Qualified Offering Price, or (ii) in the event that no Qualified Offering has been consummated, the lower of: (A)
$0.003 per share and (B) an amount equal to 70% of the average of the VWAP (or 50% of the average of the VWAP if an event of default
has occurred and has not been cured) for the Common Stock over the ten Trading Days preceding the date of the delivery of the applicable
exercise notice. If there is no effective registration statement covering the resale of the shares underlying the Warrants within 180
days following the closing of the Qualified Offering: (i) exercise may be via cashless exercise, and (ii) 5% additional Warrants will
be issued by the Company to the holders for any portion of each month without such effective registration statement, up to a maximum
of 25%. The Warrants contain certain price protection provisions providing for adjustment of the amount of securities issuable upon exercise
of the Warrants in case of certain future dilutive events or stock-splits and dividends.
In
connection with the Securities Exchange Agreements with investors for the exchange of the convertible notes and preferred shares for
the New Debentures, as discussed in Note 6, the Company issued an aggregate of 2,269,030,092 warrants to investors. The Warrants are
exercisable for five years and six months from the earlier of the maturity date of the New Debentures and the closing of the Qualified
Financing, at an exercise price equal to (i) in the event that a Qualified Offering is consummated prior to the exercise of the Warrant,
the Qualified Offering Price, or (ii) in the event that no Qualified Offering has been consummated, the lower of: (A) $0.003 per share
and (B) an amount equal to 70% of the average of the VWAP (or 50% of the average of the VWAP if an event of default has occurred and
has not been cured) for the Common Stock over the ten Trading Days preceding the date of the delivery of the applicable exercise notice.
If there is no effective registration statement covering the resale of the shares underlying the Warrants within 180 days following the
closing of the Qualified Offering: (i) exercise may be via cashless exercise, and (ii) 5% additional Warrants will be issued by the Company
to the holders for any portion of each month without such effective registration statement, up to a maximum of 25%. The Warrants contain
certain price protection provisions providing for adjustment of the amount of securities issuable upon exercise of the Warrants in case
of certain future dilutive events or stock-splits and dividends.
In
connection with the Initial Closing of the private placement, the Company and Gunnar entered into the Placement Agency Agreement, pursuant
to which Gunnar agreed to act as the Placement Agent. Pursuant to the terms of the Placement Agency Agreement, Gunner received 124,489,795
warrants. Additionally, the Company issued 16,000,000 warrants to a consultant in connection with the private placement offering.
Warrants
activities for the six months ended March 31, 2023 is summarized as follows:
SCHEDULE OF WARRANTS
| | |
| | |
Weighted | | |
Weighted Average Remaining | | |
| |
| | |
| | |
Average | | |
Contractual | | |
Aggregate | |
| | |
Number of | | |
Exercise | | |
Term | | |
Intrinsic | |
| | |
Warrants | | |
Price | | |
(Years) | | |
Value | |
| Balance Outstanding on September 30, 2022 | |
| 1,888,813,005 | | |
$ | 0.003 | | |
| 3.26 | | |
$ | 1,140,362 | |
| | |
| | | |
| | | |
| | | |
| | |
| Issued in connection with a New Related Party Debentures (see Note 6) | |
| 2,564,340,702 | | |
| 0.003 | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Issued in connection with a New Debentures (see Note 6) | |
| 2,567,601,521 | | |
| 0.003 | | |
| | | |
| | |
| Issued to placement agent and consultant in connection with New Related Party and New Debentures (see Note 6) | |
| 179,265,305 | | |
| 0.000985 | | |
| | | |
| | |
| Balance Outstanding on March 31, 2023 | |
| 7,200,020,533 | | |
$ | 0.00149 | | |
| 5.36 | | |
$ | 7,089,251 | |
| Exercisable on March 31, 2023 | |
| 7,200,020,533 | | |
$ | 0.00149 | | |
| 5.36 | | |
$ | 7,089,251 | |
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
NOTE
10 – COMMITMENTS AND CONTINGENCIES
Employment
Agreements
Michael
Ruxin, M.D.
On
June 5, 2020, the Company and Dr. Michael Ruxin entered into an employment agreement (the “Ruxin Employment Agreement”) for
Dr. Ruxin to serve as the Company’s Chief Executive Officer, President and a director.
The
Ruxin Employment Agreement 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 entitled to, subject to the approval
of the Board or a committee thereof, and under the 2022 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, In lieu of 49,047,059 RSU’s, on August 16,
2022, the Company granted 49,047,059 stock option plus the one-time grant of 420,691,653 stock options for an aggregate amount of 469,738,712
stock options with an exercise price of $0.0036 and an expiration date of August 15, 2032 and subject to vesting terms. 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. For the period of May 2021 through November
2021 and from August 15, 2022 to September 30, 2022, Dr. Ruxin deferred 50% of his salary. As of March 31, 2023 and September 30, 2022,
the Company had accrued payroll related to Dr. Ruxin’s salary deferment of $251,464 and $112,500, respectively.
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 Employment Agreement), with
Good Reason (as defined in the Ruxin Employment Agreement) or as a result of a non-renewal of the term of employment under the Ruxin
Employment 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 Employment Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business
during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the
executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers
during the term of the employment agreement and for a period of one year thereafter.
Jeffrey
Busch
On
June 5, 2020, the Company and Jeffrey Busch entered into an employment agreement (the “Busch Employment Agreement”) for Mr.
Busch to serve as the Company’s Chairman of the Company and in such other positions as may be assigned from time to time by the
board of directors.
The
Busch Employment Agreement stipulates that Mr. Busch will be employed for a five-year term commencing on June 5, 2020. The term will
be automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless
either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment
period will not be extended. Mr. Busch will be entitled to receive an annual base salary of $60,000 and will be eligible for an annual
discretionary bonus. In the Busch Employment Agreement, Mr. Busch is entitled to, subject to the approval of the Board or committee thereof,
and under the 2020 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. In lieu of 49,047,059 RSU’s, on August 16, 2022, the Company granted 49,047,059
stock option plus the one-time grant of 420,691,653 stock options for an aggregate amount of 469,738,712 stock options with an exercise
price of $0.0036 and an expiration date of August 15, 2032 and subject to vesting terms. 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, 2023 and September 30, 2022, the Company had
accrued director compensation of $222,500 and $192,500, respectively.
Mr.
Busch is an “at-will” employee and his employment may be terminated by the Company at any time, with or without cause. In
the event Mr. Busch’s employment is terminated by the Company without Cause (as defined in the Busch Employment Agreement), with
Good Reason (as defined in the Busch Employment Agreement) or as a result of a non-renewal of the term of employment under the Busch
Employment Agreement, Mr. Busch shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied
by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination
occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator
of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator
of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however,
that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance
Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to
Mr. Busch prior to the date of termination.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
The
Busch Employment Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business
during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the
executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers
during the term of the employment agreement and for a period of one year thereafter.
Thomas
E. Chilcott, III
On
September 24, 2020, the Company appointed Thomas E. Chilcott, III, to serve as the Chief Financial Officer. The Company entered into
an offer letter with Mr. Chilcott which provides that his base salary will be $225,000 per year. 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 which were granted on August 16, 2022
with an exercise price of $0.0036 and an expiration date of August 15, 2032 and subject to vesting terms.
On
December 31, 2021, the Company’s Board approved an increase in the base salary of Thomas E. Chilcott, III, the Company’s
Chief Financial Officer, from $225,000 to $300,000 per year. The increase was effective January 1, 2022. The Board also approved two
new bonuses for which Mr. Chilcott was eligible: (i) a $37,500 bonus payable upon the Company’s completion of a capital raise of
at least $1,000,000; and (ii) a $37,500 bonus payable upon the Company’s completion of a capital raise of at least $2,000,000 in
the aggregate. On December 6, 2022, the Board approved a bonus compensation plan pursuant to which Thomas E. Chilcott, III, the Company’s
Chief Financial Officer, was eligible for: (i) a $150,000 bonus payable upon the successful filing of the Company’s report on Form
10-K for the annual period ended September 30, 2022 (the “ Annual Report “) on or before December 29, 2022; or (ii) a $100,000
bonus payable upon the successful filing of the Company’s Annual Report on or before January 13, 2023 (collectively, the “Bonus”).
During the six months ended March 31, 2023, an aggregate bonus of $150,000 was paid to Mr. Chilcott. Mr. Chilcott’s employment
with the Company was terminated on May 5, 2023.
Faith
Zaslavsky
On
December 5, 2022, the Company appointed Faith Zaslavsky, age 48, as President and Chief Operating Officer of the Company, effective December
5, 2022 (the “Effective Date”). In connection with her appointment, on December 5, 2022, the Company and Ms. Zaslavsky entered
into an offer letter (the “Offer Letter”) which provides that Ms. Zaslavsky’s base salary will be $400,000 per year,
and that beginning in calendar year 2023 she will be eligible to receive an annual incentive cash bonus of up to 35% of base salary at
the discretion of the Board for the achievement of certain milestones to be agreed upon by Ms. Zaslavsky and the Company within 90 days
of the Effective Date. Upon the Company’s creation of a new equity incentive plan or an increase in the number of shares available
under the Company’s existing equity incentive plan, Ms. Zaslavsky will be granted 150,000,000 employee stock options vesting at
20% annually, beginning on the Effective Date. The employee stock options will have a strike price equal to the closing price of the
Company’s common stock on the day that the Board approves Ms. Zaslavsky’s stock option package. Ms. Zaslavsky is eligible
to participate in the benefit plans and programs generally available to the Company’s employees. Ms. Zaslavsky will also be entitled
to reimbursement of reasonable business expenses incurred or paid by her in the performance of her duties and responsibilities for the
Company, subject to any restrictions set by the Company from time to time and to such reasonable substantiation and documentation as
may be specified by the Company from time to time. Ms. Zaslavsky’s employment with the Company is “at-will”, and either
party can terminate the employment relationship at any time, for or without cause, with or without notice. The Offer Letter also contains
standard restrictive covenants prohibiting Ms. Zaslavsky from engaging in competition with the Company within the United States during
her employment and for a period of 24 months following the termination of her employment with the Company.
Consulting
Agreements
On
July 5, 2020, the Company and a consultant entered into a Scientific Advisory Board Service Agreement (“Scientific Advisory Agreement”)
which provides for; (i) $2,000 monthly compensation; (ii) 88,786,943 stock options under the 2022 Plan, which were granted on August
16, 2022 with an exercise price of $0.0036 and an expiration date of August 15, 2032 and subject to vesting terms 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 Scientific 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 Scientific Advisory Agreement; then the termination notice
shall be effective upon receipt of the same.
On
July 5, 2020, the Company and a consultant entered into a Pathology Advisory Board Service Agreement (the “Pathology Advisory Agreement”)
which provides for; (i) $272 monthly compensation; (ii) 77,972,192 stock options under the 2022 Plan, which were granted on August 16,
2022 with an exercise price of $0.0036 and an expiration date of August 15, 2032 and subject to vesting terms 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 Pathology 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 Pathology Advisory Agreement; then the termination notice shall be
effective upon receipt of the same.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Effective
January 1, 2021, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as
a strategic advisor. The agreement was effective for a period of twelve months, commencing on January 1, 2021 and shall be renewed on
a month-to-month basis, subject to the right of the Company and Mr. Kucharchuk to terminate the agreement pursuant to the agreement.
Pursuant to the agreement, Mr. Kucharchuk shall be paid $2,000 per month. In March 2023, this agreement was terminated. As of March 31,
2023 and September 30, 2022, the Company had an accounts payable – related payable balance of $6,000 and $12,000 related to this
consulting agreement, respectively (See Note 8).
License
Agreements
GMU
License
In
September 2006, the Company entered into an exclusive license agreement with George Mason Intellectual Properties (“GMU License
Agreement”), a non-profit corporation formed for the benefit of George Mason University (“GMU”) which: (1) grants an
exclusive worldwide license, with the right to grant sublicenses, under the licensed inventions to make, have made, import, use, market,
offer for sale and sell products designed, manufactured, used and/or marketed for all fields and for all uses, subject to the exclusions
as defined in the GMU License Agreement; (2) grants an exclusive option to license past, existing, or future inventions in the Company’s
field, from inventors that are obligated to assign to GMU and who have signed a memorandum of understanding acknowledging that developed
intellectual property will be offered, subject to the exclusions as defined in the GMU License Agreement; (3) the license and option
granted specifically excludes biomarkers for lung, ovarian, and breast cancers in a diagnostic field of use and GMU inventions developed
using materials obtained from third parties under agreements granting rights to inventions made using said materials and; (4) grants
right to assign or otherwise transfer the license so long as such assignment or transfer is accompanied by a change of control transaction
and GMU is given 14 days’ prior notice. In addition, the Company is required to make an annual payment of $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, 2023 and September 30, 2022, the Company has accrued
royalty fees of $2,781 and $2,443, respectively, reflected in the accompanying unaudited balance sheet in accrued liabilities.
NIH
License Agreement
In
March 2018, the Company entered into two license agreements (“NIH License Agreements”) with the National Institutes of Health
(“NIH”) which grants the Company an exclusive and a nonexclusive United States license for certain patents. Pursuant to the
NIH License Agreements, the Company is required to make an annual payment of $1,000 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, 2023 and September 30, 2022, the Company has accrued royalty fees of $0.
Vanderbilt
License Agreement
In
March 2023, the Company entered into a license agreement (“Vanderbilt License Agreement”) with the Vanderbilt University
(“Vanderbilt”) which grants the Company an exclusive license for certain patents. Pursuant to Vanderbilt License Agreement,
the Company is required to make an annual payment of $5,556 to Vanderbilt. Additionally, Vanderbilt is entitled to receive a royalty
semi-annually equal to the gross sales based upon tiered structure subject to the level of patent utilization ranging from 0.25% to 2.0%.
As of March 31, 2023, the Company has accrued royalty fees of $0.
Lease
In
December 2019, the Company entered into a lease agreement for its corporate and laboratory facility in Golden, Colorado. The lease is
for a period of 61 months, with an option to extend, commencing in February 2020 and expiring in February 2025 (see Note 7).
On
June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (“Lease Amendment”), effective October
3, 2021, for its laboratory facility in Golden, CO (see Note 7). The Lease Amendment provided for: (i) an extension to the term of the
original lease to five years following the completion of the Company’s improvements to the Expansion Premises (defined below);
(ii) an expansion of the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden,
Colorado 80401, consisting of approximately 4,734 rentable square feet (the “Expansion Premises”); (iii) an annual base rent
modification; (iv) an increase to the security deposit; (v) tenant improvement allowance; (vi) additional parking and; (vii) two renewal
options, each for five year terms, for a total of ten years.
Pursuant
to the Lease Amendment, the Company must pay a total annual base rent of; (1) $115,823 for year one; (2) $119,310 for year two; (3) $122,893
for year three; (4) $126,580 for year four; (5) $130,377 for year five; (6) $135,163 for year six; (7) $139,218 for year seven; (8) $143,394
for year eight; (9) $147,696 for year nine; (10) $152,127 for year ten; (11) $156,331 for year eleven; (12) $161,391 for year twelve;
(13) $166,233 for year thirteen; (14) $171,220 for year fourteen and; (15) $176,357 for year fifteen.
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, 2023 and September 30, 2022, the Company has recorded a contingent liability of $82,040 and
$78,440, respectively, resulting from certain liabilities of Avant prior to the asset sale and recapitalization transaction (see Note
1). The contingent liabilities consisted of two notes payables with a total outstanding principal balance of $40,000 as of March 31,
2023 and September 30, 2022 and accrued interest payable of $42,040 and $38,440 as of March 31, 2023 and September 30, 2022, respectively.
THERALINK
TECHNOLOGIES, INC.
CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
Legal
Action
On
December 10, 2021, YPH LLC filed a complaint against the Company in the District Court for the Southern District of New York alleging
that Theralink breached its Certificate of Designation for Series C-1 Convertible Preferred Stock by failing to honor a conversion notice
submitted to it by YPH. Based on these and other allegations, Plaintiff asserted a breach of contract claim claiming that it has damages
in excess of $100 million. The case continues to be in the pleadings stage with Theralink filing its last response on March 30, 2022.
The Company believes these claims are without merit and intends to defend plaintiffs’ lawsuits vigorously. The Company currently
believes the likelihood of a loss contingency related to these matters is remote and, therefore, no provision for a loss contingency
is required.
On
August 16, 2022, Erika Singleton filed a complaint against the Company in the Eighth Judicial District Court, Clark County, Nevada,
Case No. A-22-857038-C. Plaintiff alleges that the Company did not provide her with physical stock certificates for 200,000
shares of common stock Plaintiff purchased for $2,000
in 2017. Based on these and other allegations, Plaintiff asserts claims against the Company for breach of contract, violation of
Florida securities law, fraud, and unjust enrichment. The Company filed a motion to dismiss the fraud claim, which the Court granted
on April 20, 2023. The Company is currently preparing to file its answer to Plaintiff’s remaining claims.
NOTE
11 – SUBSEQUENT EVENTS
On
April 11, 2023, the Company consummated a third closing (the “Third Closing”) of the Offering pursuant to the terms and conditions
of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company and Jeffrey Busch (the “Third Closing
Purchaser”). At the Third Closing, the Company sold the Purchaser (i) a New Debenture with a principal amount of $155,100 and (ii)
Warrants to purchase up to 44,314,286 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant
coverage. The Company received a total of $141,000 in net proceeds at the Third Offering, net of a 10% original issue discount, before
deducting offering expenses and commissions.
Pursuant
to a promissory note dated April 28, 2023, Douglass T. Mergenthaler advanced $110,000
to the Company. The promissory note bears interest
at 10% per annum, and the outstanding principal balance and all unpaid interest is due on April 28, 2024. The Company shall have the
right at any time to prepay the principal amount of this note in whole or in part, without prepayment penalty.
Appointment
of Chief Financial Officer
On
May 5, 2023, the Company appointed Andrew Kucharchuk, a member of the Board of Directors of the Company, as its Chief Financial Officer,
effective May 8, 2023. Mr. Kucharchuk was previously the Chief Executive Officer and Chief Financial Officer of OncBioMune Pharmaceuticals,
Inc., the Company’s predecessor. The Company and Mr. Kucharchuk agreed that Mr. Kucharchuk’s base salary will be $180,000
per year, and he will be eligible to participate in the benefit plans and programs generally available to the Company’s employees.
Mr. Kucharchuk will also be entitled to reimbursement of all reasonable business expenses incurred or paid by him in the performance
of his duties and responsibilities for the Company, subject to receipt of evidence of such expenses reasonably satisfactory to the Company.
Termination
of Chief Financial Officer
On
May 5, 2023, the Company terminated the employment of Thomas Chilcott, effective immediately. Mr. Chilcott previously served as the Company’s
Chief Financial Officer, Treasurer and Secretary.