SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
the fiscal year ended:
For the transition period from _________ to ________
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Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
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by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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|Large accelerated filer||Accelerated filer||Smaller reporting company||Emerging growth company|
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
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by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $
The registrant had shares of its common stock, par value $0.0001, issued and outstanding as of January 13, 2022.
TABLE OF CONTENTS
|Item 1A.||Risk Factors||13|
|Item 1B.||Unresolved Staff Comments||22|
|Item 3||Legal Proceedings||23|
|Item 4.||Mine Safety Disclosures||23|
|Item 5.||Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities||23|
|Item 6.||Selected Financial Data||24|
|Item 7.||Management’s Discussion and Analysis of Financial Condition and Results of Operations||24|
|Item 7A.||Quantitative and Qualitative Disclosures About Market Risk||33|
|Item 8.||Financial Statements and Supplementary Data||33|
|Item 9.||Changes in and Disagreements with Accountants on Accounting and Financial Disclosure||33|
|Item 9A.||Controls and Procedures||33|
|Item 9B.||Other Information||34|
|Item 10.||Directors, Executive Officers and Corporate Governance||34|
|Item 11.||Executive Compensation||37|
|Item 12.||Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters||41|
|Item 13.||Certain Relationships and Related Transactions, and Director Independence||42|
|Item 14.||Principal Accounting Fees and Services||43|
|Item 15.||Exhibits and Financial Statement Schedules||45|
|Item 16||Form 10-K Summary||46|
This Report on Form 10-K refers to trademarks, such as Theralink, which are protected under applicable intellectual property laws and are our property. This Form 10-K also contains trademarks, service marks, copyrights and trade names of other companies which are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this Form 10-K may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.
This Annual Report on Form 10-K contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment about the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “should,” “plan,” “potential,” “project,” “will,” “would” and other words of similar meaning, or the negatives of such terms or other variations. These include, but are not limited to, statements relating to the following:
|●||projected operating or financial results, including anticipated cash flows used in operations;|
|●||expectations regarding capital expenditures, research and development expenses and other payments;|
|●||our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing; and|
|●||our beliefs, assumptions and expectations about the regulatory approval for our technology including, but not limited to our ability to obtain regulatory approval in a timely manner or at all.|
Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors including, among others:
|●||our ability to continue as a going concern;|
|●||our ability to become current in filing all reports required to be filed by us under Section 13 or 15(d) of the Securities Exchange Act of 1934;|
|●||our ability to maintain pricing;|
|●||our ability to employ skilled and qualified workers;|
|●||the fact that we have incurred significant losses since inception, expect to incur net losses for at least the next several years and may never achieve or sustain profitability;|
|●||the loss of key management personnel upon whom we depend;|
|●||our ability to fund our operations;|
|●||inadequate insurance coverage for certain losses or liabilities;|
|●||our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals on a timely basis;|
|●||commercial development of technologies that compete with our technology;|
|●||the actual and perceived effectiveness of our technology, and how the technology compares to competitive technologies;|
|●||the rate and degree of market acceptance and clinical utility of our technology;|
|●||adverse effects of the recent and ongoing COVID-19 pandemic;|
|●||the strength of our intellectual property protection, and our success in avoiding infringement of the intellectual property rights of others;|
|●||regulations affecting the health care industry;|
|●||adverse developments in our research and development activities;|
|●||potential liability if our technology causes illness, injury or death, or adverse publicity from any such events;|
|●||our ability to operate our business efficiently, manage capital expenditures and costs (including general and administrative expenses) and obtain financing when required; and|
|●||our expectations with respect to future licensing, partnering or acquisition activity.|
In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have included important factors in the cautionary statements included in this Annual Report on Form 10-K. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement should be relied upon. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as otherwise required by applicable law.
We urge you to read this entire Annual Report on Form 10-K, including the “Risk Factors” section and the financial statements and related notes included herein. As used in this Annual Report, unless context otherwise requires, the words “we,” “us”, “our,” “the Company,” “Theralink” and “Registrant” refer to Theralink Technologies Inc. including subsidiaries and predecessors. Also, any reference to “common shares,” or “common stock,” refers to our common stock, par value $0.0001 per share.
ITEM 1. BUSINESS
Corporate History and Structure
Theralink Technologies, Inc., formerly OncBioMune Pharmaceuticals, Inc. (the “Company”), was a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary vaccine technology. On June 5, 2020, the Company acquired the assets (the “Asset Sale Transaction”) of Avant Diagnostics, Inc., a Nevada corporation established in 2009 (“Avant”), pursuant to the Asset Purchase Agreement dated May 12, 2020 between the Company and Avant (the “Asset Purchase Agreement”). Avant is a commercial-stage precision medicine and molecular data-generating company that focuses on the development and commercialization of a series of patented, proprietary data-generating assays that may provide important actionable information for physicians and patients, as well as biopharmaceutical companies, in the areas of oncology.
Pursuant to the Asset Purchase Agreement, the Company acquired substantially all of the assets of Avant and assumed certain of its liabilities. Upon the terms and subject to the conditions of the Asset Purchase Agreement, Avant sold to the Company, all of Avant’s title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether existing or hereafter acquired, except for the specific excluded assets, which relate to, or are used or held for use in connection with, Avant’s business. The Company also hired Avant’s employees upon consummation of the Asset Sale Transaction. As consideration for the Asset Sale Transaction, the Company issued to Avant 1,000 shares of a newly created Series D-1 Preferred Stock which held 54.55% of all voting rights on an as-converted basis with the common stock. Upon the effectiveness of an increase of the Company’s authorized shares of common stock from 6,666,667 shares to 12,000,000,000 shares, all such shares of Series D-1 Preferred Stock issued to Avant automatically converted into 5,081,550,620 shares of the Company’s common stock. Avant possessed majority voting control of the Company immediately following the Asset Sale Transaction and controlled the Company’s Board of Directors after the termination of the ten-day waiting period required by Rule 14f-1 under the Exchange Act. Accordingly, the Asset Sale Transaction was accounted for, in substance, as an asset acquisition of the Company’s net assets 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 consolidated financial statements and footnotes has been retrospectively adjusted for the recapitalization.
On June 5, 2020, pursuant to the Asset Purchase Agreement, the Company; (i) entered into an employment agreement with Dr. Michael Ruxin to serve as the Company’s Chief Executive Officer, President and a director; (ii) entered into an employment agreement with Jeffery Busch to serve as the Company’s Chairman of the Board of Directors and; (iii) appointed Yvonne Fors to its Board of Directors.
On August 14, 2020, the Board appointed Mr. Andrew Kucharchuk as Acting Chief Financial Officer of the Company.
On August 14, 2020, the Board approved a change in the Company’s fiscal year end from December 31 to September 30, effective immediately for the current fiscal year, and for all subsequent years until such time as the Board resolves to amend such fiscal year end. The fiscal year has been changed to conform to the September 30 fiscal year end of Avant which is the historical registrant as a result of the Asset Sale Transaction consummated on June 5, 2020 and therefore, no transition report is required.
On September 24, 2020, Andrew Kucharchuk resigned from his position as Acting Chief Financial Officer. Mr. Kucharchuk continues to serve as a director on the Company’s Board of Directors. On the same day, the Company appointed Thomas E. Chilcott, III, to serve as the Chief Financial Officer.
The Company is a commercial-stage, precision medicine, molecular data-generating company that focuses on the development and commercialization of a series of proprietary data-generating assays that may provide important actionable information for physicians, patients and biopharmaceutical companies, in the area of oncology. The Company’s near-term goal is to continue to commercialize the technology originally developed by Theranostics Health, Inc. This technology is differentiated due to:
|●||An exclusive license agreement with George Mason University (“GMU”).|
|●||Having a patent portfolio licensed from GMU and the National Institute of Health (“NIH”).|
|●||Having access to the Ph.D.’s at GMU who have done pioneering work in phosphoproteomic-based biomarker diagnostics and are well-published in this area.|
|●||Expertise in cancer biomarker and data-generating laboratory testing data.|
|●||Development of proprietary, cutting-edge assays focused on precision oncology care.|
|●||Building revenue streams based on our proprietary technology Theralink.|
Theralink is advancing proprietary technology in the field of phosphoproteomic research, a sector which has emerged as one of the most exciting new components in the high-growth field of precision molecular diagnostics. The Theralink platform makes it possible to generate an accurate and comprehensive portrait of protein pathway activation in diseased cells from each patient, and thereby determine which individuals may be better responders to certain targeted molecular therapies. The platform enables the quantitative measurement of the level of activation. Moreover, the sensitivity is many times greater than conventional mass spectrometry and other protein immunoassays. Initially spun-out of GMU in 2006, and subsequently elevated to the federal government’s Center for Medicare & Medicaid Services’ (“CMS”) Clinical Laboratory Improvement Amendments (“CLIA”) standards, the diagnostics suite is highly relevant for oncology patient management today by helping to improve (i) chemotherapy drug selection; (ii) immunotherapy drug selection; and (iii) optimization of combination therapy selection.
The biomarker and data-generating tests provide biopharmaceutical companies, clinical scientists and physicians with molecular-based guidance as to which patients may benefit from new molecular targeted therapeutics being developed and used to treat various life-threatening oncology diseases. These tests may also provide guidance to physicians on existing treatment standards that are recognized as the standard of care in the oncology treatment community. This addresses the core aspect of precision treatment by identifying which individuals are more likely to respond to specific targeted molecular therapies, thus forming the basis for personalized medicine.
The technology is based upon the pioneering work of three noted scientists, Drs. Lance Liotta, Emanuel Petricoin and Virginia Espina, in proteomic-based diagnostics. Theralink benefits from a portfolio of intellectual property derived from licensing agreements with:
|●||The US Public Health Service (“PHS”), the federal agency that supervises the National Institutes of Health (“NIH”), which provides the Company with broad protection around its technology platform; and|
|●||GMU which provides access to additional intellectual property around improvements to the technology platform and biomarker signatures that form the basis for future diagnostic products.|
Theralink is committed to advancing the technology from GMU and the NIH as a platform for the development of new clinical biomarkers and diagnostics. These diagnostic and monitoring products have the potential to provide biopharmaceutical companies and doctors with critical molecular-based knowledge to potentially make the best therapeutic decisions based on a patient’s unique, individual medical needs.
In the next 12 months, the Company intends to focus on completing key milestones to create value for both investors and the healthcare industry. These milestones include:
|●||Establishing laboratory Standard Operating Procedures (“SOP’s”) to comply with New York, Washington, D.C., and Maryland CLIA, and the College of American Pathologists (“CAP”) standards;|
|●||Hire an Assistant Laboratory Director and additional lab techs and sales consultants;|
|●||Choose members to sit on our Medical and Scientific Advisory Boards;|
|●||Continue to validate additional Theralink cancer biomarker technology under CAP/CLIA standards to provide personalized medicine regarding treatment options for biopharmaceutical companies, clinical oncologists and their cancer patients;|
|●||Continue to partner with pharmaceutical companies to perform oncology-related data-generating testing services which generates additional revenues and|
|●||Continue to seek financing to grow the Company.|
The Theralink technology focuses on the oncology discipline of molecular pathology. Within oncology, Theralink intends to initially focus on breast cancer, gynecologic cancer, gastrointestinal (“GI”) cancer, non-small cell lung cancer and pancreatic cancer. Within the clinical diagnostics space, Theralink aims to be a leading companion diagnostics provider by delivering assays that are intended to assist physicians when making pharmaceutical treatment decisions for a given patient.
For therapy selection, companion diagnostic results are intended to elucidate the efficacy of a specific drug or drug class for specific cohorts of patients within which a given patient is placed. Companion diagnostic companies are of particular interest to both drug development companies and physicians. Drug development companies benefit from the results of companion diagnostic assays by improving their accuracy in selecting patients for clinical trials who are most likely to benefit from the therapeutic they are developing. Physicians may benefit from improved decision-making information by allowing them to match a specific patient with the most effective treatment option. The basis of the effectiveness of companion diagnostic assays is built upon surrogate biomarkers, which are intended to measure the effect of a specific pharmaceutical treatment and its correlation to a biomarker, or endpoint. To aid in therapy selection, Theralink believes the most effective method is by taking a phosphoproteomic approach to tumor analysis.
Asset Description and Intellectual Property
Theranostics Health was a privately held company founded in 2006. Its core technologies were focused on the quantitative measurement of proteins contained in the key signaling pathways of a disease.These measurements include pre-analytical processing of preclinical and clinical samples, Laser Capture Microdissection (“LCM”), and Reverse Phase Protein Array (“RPPA”). The application of the technology enables Theralink to work with both freshly frozen and formalin-preserved research and clinical samples.
LCM is used to isolate specific cell populations from the many different types of cells usually present in a clinical biopsy tissue sample. Therefore, information derived from subsequent molecular assays is specific to that targeted cell population. RPPA enables sensitive, quantitative, calibrated, multiplexed analysis of cellular proteins from a limited amount of starting materials, such as clinical specimens. Theranostics Health had an exclusive license from the NIH to commercialize LCM isolation of cells for the proteomic analysis used for cancer diagnostics and companion diagnostics of which Theralink now is the licensee.
We have exclusively licensed 7 granted U.S. patents. The term of individual patents depends upon the legal term for patents in the countries in which they were obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application.
GMU License Agreement
Our exclusive license agreement with GMU: (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 discussed below; (2) Grants an exclusive option to license past, existing, or future inventions in the field of theranostics, 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 discussed below; (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 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 (i) a quarterly royalty equal to the net revenue multiplied by one and one-half percent (1.5%), due on a quarterly basis or (i) a quarterly sublicense royalty equal to the net revenue multiplied by fifteen percent (15%). In addition, Theralink has the right of first refusal for all technology associated with RPPA technology from GMU.
NIH License Agreement
Our license agreement with the NIH grants an exclusive United States license. Under this agreement, the Company is required to make an annual payment of $6,000 to the NIH as well as a royalty equal to the net sales multiplied by three percent (3.0%) every June 30th and December 31st. In addition, a sublicense royalty equal to the net revenue multiplied by ten percent (10%) will be payable upon sublicensing.
Regulatory Approvals – CAP/CLIA and FDA
Initially, the Company can provide data-generating services to certain counterparties such as biopharmaceutical companies for research use only (“RUO”). These counterparties will provide service revenues to the Company in the early years of its development.
The Company may expand its data-generating services to address a broader range of clients, specifically, either as a direct provider of diagnostic services to hospitals and chronic care providers for precision health screening by oncologists, or indirectly as a reference laboratory, thereby increasing potential diagnostic services revenues. The oncologists would eventually be using our data-generating services to optimize potential treatment protocols for breast cancer, gynecologic cancer, pancreatic cancer, GI cancer and non-small cell lung cancer patients, among others.
The CLIA are federal regulations for United States based clinical laboratories to provide industry standards for testing human samples for diagnostic purposes. These amendments were added to the laboratory requirements outlined in the Code of Federal Regulations, 42 CFR 493. Three federal agencies are responsible for ensuring laboratories comply with CLIA standards: Food and Drug Administration (“FDA”), the CMS, and the Center for Disease Control.
Further, a laboratory can pursue a higher level of designation by becoming accredited by a recognized accreditation agency. The CAP is such an agency. The CAP releases its own requirements building upon CLIA’s regulations. Compliance is assessed by a peer group site inspection every two years. Meeting these criteria ensures that industry specific standards for laboratory operations are upheld in the lab. These requirements can point out areas for improvement to reach the highest level of quality.
Subsequently, if Theralink receives FDA approval as a companion diagnostic, the Company would consider expanding its data-generating services by opening additional laboratory sites to assist oncologists using precision therapy selection in hospitals and chronic care provider groups. These oncologists would be using the data-generating services to optimize potential treatment protocols for breast cancer, gynecologic cancer, pancreatic cancer, GI cancer and non-small cell lung cancer patients once the Theralink assays are fully developed for these applications.
The attainment and timing of key regulatory approvals are critical and required to commence marketing and subsequent realization of revenues.
Goals for 2022 and Beyond
|●||To attain reimbursement for our proprietary laboratory analyses (“PLA”) code for our Theralink assay, commence mass marketing: explore international partnerships and start to review potential opportunities in Canada, Asia and Europe;|
|●||Increase mass marketing and market share in all approved jurisdictions in 2022 and beyond|
|●||Work closely with biopharmaceutical companies to have the Theralink® assay named as a companion diagnostic.|
Theralink is a micro-volume multi-marker tumor analysis platform that has been developed to improve upon the limitations of current techniques (such as western blot, immunohistochemistry (IHC), fluorescent in situ hybridization (FISH) and next generation sequencing (NGS)) that produce low resolution information with modest gains in predictive power on which to base treatment plans. Theralink’s Next Generation Proteomics (NGP) may improve decision-making for biopharmaceutical companies, oncologists and patients because it recommends therapeutic options that may be optimal for a patient’s specific tumor. The Theralink proprietary micro-volume protein expression platform can potentially improve the management of over 800,000 cancer patients in the US alone based on figures provided by the American Cancer Society. It is anticipated that Theralink will be brought to CAP standards for breast cancer, gynecologic cancer, pancreatic cancer, GI cancer and non-small cell lung cancer in the future, and eventually for most solid tumor cancers, including possibly glioblastoma multiforme (GBM).
Theralink is applicable along the entire continuum of drug development: from discovery, to pre-clinical through to drug commercialization.
Research Use Only (“RUO”) Segment
For our RUO segment, the target customers fall into two main groups: those requiring discovery and early-stage drug development, and those requiring later stage drug development.
|A.||For customers in the early-stage drug development, Theralink provides target identification and validation, model system validation (cells, xenografts), and optimization of compounds in specific absorption rate (SAR) studies. Because Theralink is able to directly measure the drug target, this allows customers to make smarter decisions regarding the efficacy of their drug, and whether to move forward or not, thus allowing them to reduce cost.|
|Theralink’s advantages over its potential competitors on the pre-clinical side include:|
|●||The ability to measure multiple endpoints simultaneously (over 300)|
|●||Flexibility in choice of endpoints (post-translational modifications)|
|●||The ability to process different samples (cells, CSF, tissues, etc.)|
|●||Sensitivity: nL sample, representing <2,000 cells|
|●||Robust assays, reproducible, sensitivity, and specificity|
|●||Calibration across experiments, direct comparison|
|B.||For customers requiring later stage drug development, Theralink identifies markers for the customers to use in clinical validation, identifies pathway/marker sets with potential utility in the clinical setting, validates selected efficacy markers in Phase I and Phase II clinical trials, identifies markers for patient stratification, and validates markers for future companion diagnostics. The value that Theralink provides these clients is to identify the appropriate individuals for the customer’s drug trials, i.e., those individuals that have the relevant activated pathways that make them most likely to be responsive to the drug. This will allow the customers to potentially reduce the size of their Phase III trials, allowing for a substantial cost and time savings.|
|Theralink’s advantages over its potential competitors on the clinical side include:|
|●||First in class profiling of activated proteins in signaling pathways|
|●||One stop shop: from sample handling to LCM to data generation and final report|
|●||Sensitivity allows use of small clinical biopsy (less than 30,000 cells).|
|●||LCM allows purification of relevant cell populations|
|●||Focusing directly on relevant drug targets (marketed molecular therapeutics) and potential drug targets (those in development)|
|●||Identifying specific pathway signatures with focus on relevant nodes|
|●||An advantage for combination therapy, high specificity on targeted pathway, monitor compensatory pathways, and activation through feedback signal|
CAP/CLIA Certified Laboratory Segment
Sample processing is via a single certified laboratory. Strategically, the data-generating services can be delivered at two distinct channels and are not mutually exclusive (i.e. can execute at one or both levels). The “direct sales” channel typically refers to marketing, sales and execution of sample processing and specific diagnostic services to the end-user as the hospital and chronic care provider for precision health screening by oncologists. The “reference laboratory” channel typically refers to providing a subcontract service to one or more counterparties (who have CAP/CLIA certification), so we are not direct to the end-user in this channel.
CLIA Approved Laboratory Segment
Sample processing may be through the certified laboratory that the Company manages. There is the “direct sales” channel (same as above). In addition, there is the “companion diagnostic” aspect to the end-user as the hospital and chronic care provider for precision health screening by oncologists that is specifically related to a drug’s indication and efficacy for the patient’s specific cancer biomarkers. Theralink’s involvement with biopharmaceutical companies in various stages of drug development and RUO projects could lead to the Company becoming a successful companion diagnostic for those treatments.
Our initial objective was to capitalize on successful pilots with biopharmaceutical companies and leading medical institutions in a clinical trial environment. Management accomplished this objective with the successful commercial launch of Theralink during Q1 2021. Now we plan to gain rapid adoption as a differentiated technology in the personalized healthcare marketplace by leveraging the strong support of the many key opinion leaders and users of the pilot platform.
Theralink, our flagship product for our commercial strategy, will focus on precision health screening for oncologists.
The key ingredients to our commercial success will be:
|1)||A proprietary technology that provides a credible point of entry to a well-defined medical market;|
|2)||Comprehensive protocols for cancer biomarkers positioned for seamless integration to established standards of care for oncologist treatment regimens;|
|3)||Eventually, a data friendly format and HIPPA compliance for ease of integration to monitoring systems and artificial intelligence (AI) modalities for oncologist teams to track precision diagnostics and monitor patient treatment outcomes.|
|A.||Proprietary Technology for credible commercial point of entry|
Theralink’s focused technologies are of particular value to oncologist teams developing molecular targeted and/or combination therapies because of our ability to make very small and precise measurements in the cellular microenvironment. The platforms are based on assessing protein activation status (via post-translational modifications such as phosphorylation, methylation, cleavage, etc.) of drug targets and receptors, their downstream signal transduction pathways, and potential compensatory or adaptive mechanisms within targeted cell populations. These commercial collaborations are critically important as they may establish our Company’s platform as a “must have” in specific cancers (e.g., breast cancer management), where precise and targeted chemotherapy, and immunotherapies can make a dramatic difference in patient outcomes. We intend to collaborate with top industry and medical institution oncology experts, and key opinion leaders (“KOL’s”), who are focused on developing precision oncology therapeutics.
|B.||Strong pipeline of potential commercial partners|
Theralink intends to deliver a comprehensive precision cancer biomarker platform by seamlessly integrating its technology into the workflow of oncologists in various healthcare networked systems. Currently, the oncology precision tumor analysis market is dominated by genomic diagnostic companies such as Genomic Health and Foundation Medicine. Theralink’s technologies provide a unique, complementary and actionable knowledge base to existing market players, seeking to improve outcomes for oncologists and their patients. Our targeted commercial partners are seeking technologies that help differentiate their approach to oncology care, by using patient-centric solutions to help enable better chronic patient management during and after treatment to help maximize patient outcomes and prevent recurrences. Theralink sees this as a major commercial opportunity to serve both hospitals and primary care providers in the US. These same hospitals and primary care providers may have connections to cancer treatment programs abroad (i.e. Europe and Asia).
Operations During the Year ended September 30, 2021
During the fiscal year ended September 30, 2021, the Company focused on executing its business plan by building out its new lab in Golden, CO and validating the equipment in order to meet CLIA and CAP standards. In addition, the Company’s management team has been actively marketing its Theralink assay to KOLs, channel partners, and cancer centers throughout the US. The new lab has a LCM area, with two new LCM machines, which will help the Company commercialize its proprietary data-generating technology for biopharmaceutical companies. The Company has also installed a tissue culture lab in addition to the main lab, which has two RPPA instruments and three auto-stainers which will help the Company commercialize its proprietary data-generating technology for new pharmaceutical clients. Management believes the Company’s new lab now has all of the instruments necessary to service biopharma clients with oncology-focused preclinical and clinical drug development programs. Arrangements have been made to obtain the necessary population data (additional cancer tumor samples) to help the Company continue to build Lab Developed Tests (“LDT”) for other cancers for clinical clients.
In addition to the build out of the new lab, the Company has hired an experienced staff to be able to service potential customers. It has done this by hiring (i) two Ph.D’s from the GMU Proteomics Lab (ii) a histologist who is an expert in CLIA/CAP regulations (iii) an experienced Senior Director of Business Development who has been instrumental in developing oncology and channel partner networks that the Company believes will be important in developing a strong cancer patient referral base, (iv) a board-certified Medical Director and two Associate Medical Directors (v) a knowledgeable Director of Oncology Commercial Markets, who will initially be responsible for reimbursement, coding and overseeing patient reporting (vi) a Director of Bioinformatics and (vii) a Senior Director of Commercial Biopharma markets.
Marketing and Pricing
To date, the Company had derived its revenues primarily from biopharma research and development contracts. These contracts require the Company to provide services directed towards specific objectives and include developmental milestones and deliverables. Up-front payments are recorded as deferred revenue and recognized when milestones are achieved.
There are a number of key trends that are having a significant impact on the clinical testing business and represent opportunities for companies that can develop novel diagnostic tests. Clinical laboratory testing is an essential healthcare service and is being favorably impacted by the following:
|●||Demographics: The growing and aging population is increasing the demand for clinical testing;|
|●||Increased testing: Physicians are increasingly relying on diagnostic testing to help identify disease risk, detect the symptoms of disease earlier, aid in the choice of therapeutic regimen, monitor patient compliance and evaluate treatment results;|
|●||Advances in science and technology: Recent medical advances have allowed earlier diagnosis and treatment of diseases and continuing research and development in the area of genomics is expected to yield new, more sophisticated and specialized diagnostic tests. These advances also are spurring interest in, and demand for, personalized or tailored medicine;|
|●||Prevention and wellness: There is an increased awareness of the benefits of preventative medicine and wellness. Consumers, employers, health plans, and government agencies are increasingly focusing on detecting diseases earlier and providing preventative care that helps avoid disease.|
As a result of these significant changes in the laboratory testing market, it is evident that there is a significant commercial opportunity for companies that provide products or services that address the new needs of the evolving diagnostics marketplace. This is the market opportunity that the Company is addressing through its introduction of data-generating assays that use patented and proprietary technology to help improve patient health and help reduce the overall cost of healthcare through early detection, prevention, and treatment.
The Company’s solution is to utilize the technology that it has exclusively licensed from GMU and the NIH to exploit the new opportunities that are evolving in the diagnostics industry, both for biopharmas and for oncologists and their patients. The Company was created to specifically commercialize reverse phase protein array (RPPA) assays and services that are focused on determining the right drug, for the right patient, at the right time. These novel data-generating technologies are based on patented and proprietary technology that is well-suited to be run in a central or regional laboratory utilizing samples that are collected by healthcare providers and sent to the authorized CLIA certified testing facility for processing. This approach is similar to the business model that Foundation Medicine® has utilized (which was recently purchased by Roche for $5.3 billion) with its genomic assays. The Company will market data-generating assays that may be over 50% actionable for intended use by oncologists and may be used to potentially determine which FDA-approved or investigational drug may be most efficacious in each cancer. To achieve this goal of commercializing new data-generating opportunities, the Company is leveraging off the strategic relationships that have been established with organizations such as GMU and others to develop unique and high value-added data-generating assays.
The services that we provide are regulated by federal, state and foreign governmental authorities. Failure to comply with the applicable laws and regulations can subject us to repayment of amounts previously paid to us, significant civil and criminal penalties, loss of licensure, certification, or accreditation, or exclusion from government health care programs. The significant areas of regulation are summarized below.
Clinical Laboratory Improvement Amendments of 1988 and State Regulation
Our clinical laboratory must hold certain federal, state and local licenses, certifications and permits to conduct our business. Laboratories in the United States that perform testing on human specimens for the purpose of providing information for the diagnosis, prevention, or treatment of disease are subject to the Clinical Laboratory Improvement Amendments of 1988, or (“CLIA”). CLIA requires such laboratories to be certified by the federal government and mandates compliance with various operational, personnel, facilities administration, quality and proficiency testing requirements intended to ensure that testing services are accurate, reliable and timely. CLIA certification also is a prerequisite to be eligible to bill state and federal health care programs, as well as many private insurers, for laboratory testing services. We received CLIA certification on August 28, 2020 for all states except California, New York, Rhode Island, Pennsylvania, Oregon and Maryland. Those state’s CLIA certifications must be applied for separately.
In addition, CLIA requires certified laboratories to enroll in an approved proficiency testing program if it performs testing in any category for which proficiency testing is required. Our laboratory will periodically test specimens received from an outside proficiency testing organization and then submit the results back to that organization for evaluation. If our laboratory would fail to achieve a passing score on a proficiency test, it could lose its right to perform testing. Further, failure to comply with other proficiency testing regulations, such as the prohibition on referral of a proficiency testing specimen to another laboratory for analysis, can result in revocation of our laboratories’ CLIA certification.
As a condition of CLIA certification, our laboratory is subject to survey and inspection every other year, in addition to being subject to additional random inspections. The biennial survey is conducted by the Centers for Medicare & Medicaid Services (“CMS”), a CMS agent (typically a state agency), or a CMS-approved accreditation organization. Our laboratory will also apply for accreditation by the College of American Pathologists (“CAP”), which is a CMS-approved accreditation organization.
CLIA provides that a state may adopt laboratory regulations that are more stringent than those under federal law. Our laboratory will be licensed by the appropriate state agency in Colorado. If a laboratory is out of compliance with state laws or regulations governing licensed laboratories, penalties for violation vary from state to state but may include suspension, limitation, revocation or annulment of the license, assessment of financial penalties or fines, or imprisonment. We believe that we will be in material compliance with all applicable licensing laws and regulations when we become operational.
Food and Drug Administration
Although the FDA has consistently claimed that it has the authority to regulate laboratory-developed tests that are developed, validated and performed only by a CLIA certified laboratory, it has historically exercised enforcement discretion by not otherwise regulating most LDTs. Nevertheless, the FDA recently indicated that it is promulgating draft guidance for FDA regulation of most LDTs in the future.
HIPAA and Other Privacy Laws
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), established comprehensive federal protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations: health plans, healthcare clearing houses, and healthcare providers which conduct certain healthcare transactions electronically (“Covered Entities”). Title II of HIPAA, the Administrative Simplification Act, contains provisions that address the privacy of health data, the security of health data, the standardization of identifying numbers used in the healthcare system and the standardization of certain healthcare transactions. The privacy regulations protect medical records and other protected health information by limiting their use and release, giving patients the right to access their medical records and limiting most disclosures of health information to the minimum amount necessary to accomplish an intended purpose. The HIPAA security standards require the adoption of administrative, physical, and technical safeguards and the adoption of written security policies and procedures.
On February 17, 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical Health Act, or HITECH, provisions of the American Recovery and Reinvestment Act of 2009. HITECH amends HIPAA and, among other things, expands and strengthens HIPAA, creates new targets for enforcement, imposes new penalties for noncompliance and establishes new breach notification requirements for Covered Entities. Regulations implementing major provisions of HITECH were finalized on January 25, 2013, through publication of the HIPAA Omnibus Rule (the “Omnibus Rule”).
Under HITECH’s new breach notification requirements, Covered Entities must report breaches of protected health information that has not been encrypted or otherwise secured in accordance with guidance from the Secretary of the U.S. Department of Health and Human Services (the “Secretary”). Required breach notices must be made as soon as is reasonably practicable, but no later than 60 days following discovery of the breach. Reports must be made to affected individuals and to the Secretary and in some cases, they must be reported through local and national media, depending on the size of the breach. Breach reports can lead to investigation and enforcement.
We are currently subject to the HIPAA regulations, and we will maintain an active compliance program that is designed to identify security incidents and other issues in a timely fashion and enable us to remediate, mitigate harm or report if required by law. We are subject to prosecution and/or administrative enforcement and increased civil and criminal penalties for non-compliance, including a new, four-tiered system of monetary penalties adopted under HITECH. We are also subject to enforcement by state attorney generals who were given authority to enforce HIPAA under HITECH. To avoid penalties under the HITECH breach notification provisions, we must ensure that breaches of protected health information are promptly detected and reported within the Company, so that we can make all required notifications on a timely basis. However, even if we make required reports on a timely basis, we may still be subject to penalties for the underlying breach.
In addition to the federal privacy regulations, there are a number of state laws regarding the privacy and security of health information and personal data that are applicable to our clinical laboratories. Many states have also implemented genetic testing and privacy laws imposing specific patient consent requirements and protecting test results by strictly limiting the disclosure of those results. State requirements are particularly stringent regarding predictive genetic tests, due to the risk of genetic discrimination against healthy patients identified through testing as being at a high risk for disease. We believe that we have taken the steps required of us to comply with health information privacy and security statutes and regulations, including genetic testing and genetic information privacy laws in all state and federal jurisdictions.
We are subject to laws and regulations related to the protection of the environment, the health and safety of employees and the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials. For example, the U.S. Occupational Safety and Health Administration (“OSHA”), has established extensive requirements relating specifically to workplace safety for healthcare employers in the U.S. This includes requirements to develop and implement multi-faceted programs to protect workers from exposure to blood-borne pathogens, including preventing or minimizing any exposure through needle stick injuries. For purposes of transportation, some biological materials and laboratory supplies are classified as hazardous materials and are subject to regulation by one or more of the following agencies: the U.S. Department of Transportation, the U.S. Public Health Service, the United States Postal Service and the International Air Transport Association. We will use third-party vendors to dispose of regulated medical waste, hazardous waste and radioactive materials and contractually require them to comply with applicable laws and regulations.
We may market our assays outside of the United States and will be subject to foreign regulatory requirements governing laboratory licensure, human clinical testing, use of tissue, privacy and data security, and marketing approval for our tests. These requirements vary by jurisdiction, differ from those in the United States and may require us to implement additional compliance measures or perform additional pre-clinical or clinical testing. On September 26, 2012, the European Commission released the first drafts of the new European Union (“EU”) regulations for medical devices and In Vitro Diagnostic Devices (“IVD”) that if finalized will impose additional regulatory requirements on IVDs used in the EU. In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required. We are also required to maintain accurate information and control over sales and distributors’ activities that may fall within the purview of the Foreign Corrupt Practices Act, its books and records provisions and its anti-bribery provisions.
Reimbursement and Billing
Reimbursement and billing for diagnostic services are generally highly complex. Laboratories must bill various payors, such as private third-party payors, including Managed Care Organizations (“MCO”) and state and federal health care programs, such as Medicare and Medicaid, and each may have different billing requirements. Additionally, the audit requirements we must meet to ensure compliance with applicable laws and regulations, as well as our internal compliance policies and procedures, add further complexity to the billing process. Other factors that complicate billing include:
|●||variability in coverage and information requirements among various payors;|
|●||missing, incomplete or inaccurate billing information provided by ordering physicians;|
|●||billings to payors with whom we do not have contracts;|
|●||disputes with payors as to which party is responsible for payment; and|
|●||disputes with payors as to the appropriate level of reimbursement.|
Depending on the reimbursement arrangement and applicable law, the party that reimburses us for our services may be:
|●||a third party who provides coverage to the patient, such as an insurance company or MCO;|
|●||a governmental payor; or|
Federal and State Fraud and Abuse Laws
A variety of federal laws prohibit fraud and abuse involving state and federal health care programs, such as Medicare and Medicaid. These laws are interpreted broadly and enforced aggressively by various state and federal agencies, including CMS, the Department of Justice, the Office of Inspector General for the Department of Health and Human Services (“OIG”), and various state agencies. In addition, the Medicare and Medicaid programs increasingly use a variety of contractors to review claims data and to identify improper payments as well as fraud and abuse. Any overpayments identified must be repaid to the Medicare program unless a favorable decision is obtained on appeal. In some cases, these overpayments can be used as the basis for an extrapolation, by which the error rate is applied to a larger universe of claims, and which can result in even higher repayments.
The Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program. “Remuneration” is broadly defined to include anything of value, such as, for example, cash payments, gifts or gift certificates, discounts, or the furnishing of services, supplies or equipment. The Anti-Kickback Statue is broad and prohibits many arrangements and practices that are lawful in businesses outside of the health care industry.
Recognizing the breadth of the Anti-Kickback Statute and the fact that it may technically prohibit many innocuous or beneficial arrangements within the health care industry, the OIG has issued a series of regulations, or safe harbors. Compliance with all requirements of a safe harbor immunizes the parties to the business arrangement from prosecution under the Anti-Kickback Statute. The failure of a business arrangement to fit within a safe harbor does not necessarily mean that the arrangement is illegal or that the OIG will pursue prosecution. Still, in the absence of an applicable safe harbor, a violation of the Anti-Kickback Statute may occur even if only one purpose of an arrangement is to induce referrals. The penalties for violating the Anti-Kickback Statute can be severe. These sanctions include criminal and civil penalties, imprisonment and possible exclusion from the federal health care programs. Many states have adopted laws similar to the Anti-Kickback Statute, and some apply to items and services reimbursable by any payor, including private third-party payors.
Physician Self-Referral Bans
The federal ban on physician self-referrals, commonly known as the Stark Law, prohibits, subject to certain exceptions, physician referrals of Medicare patients to an entity providing certain designated health services, which include laboratory services, if the physician or an immediate family member of the physician has any financial relationship with the entity. Several Stark Law exceptions are relevant to arrangements involving clinical laboratories, including: (1) fair market value compensation for the provision of items or services; (2) payments by physicians to a laboratory for clinical laboratory services; (3) certain space and equipment rental arrangements that satisfy certain requirements; and (4) personal services arrangements. Penalties for violating the Stark Law include the return of funds received for all prohibited referrals, fines, civil monetary penalties and possible exclusion from the federal health care programs. In addition to the Stark Law, many states have their own self-referral bans, which may extend to all self-referrals, regardless of the payor.
State and Federal Prohibitions on False Claims
The federal False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government. Under the False Claims Act, a person acts knowingly if he has actual knowledge of the information or acts in deliberate ignorance or in reckless disregard of the truth or falsity of the information. Specific intent to defraud is not required. The qui tam provisions of the False Claims Act allow a private individual to bring an action on behalf of the federal government and to share in any amounts paid by the defendant to the government in connection with the action. Penalties include payment of up to three times the actual damages sustained by the government, plus civil penalties of between $5,500 and $11,000 for each false claim, as well as possible exclusion from the federal health care programs. In addition, various states have enacted similar laws modeled after the False Claims Act that apply to items and services reimbursed under Medicaid and other state health care programs, and, in several states, such laws apply to claims submitted to any payor.
Civil Monetary Penalties Law
The federal Civil Monetary Penalties Law, or the CMP Law, prohibits, among other things (1) the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies; (2) employing or contracting with an individual or entity that the provider knows or should know is excluded from participation in a federal health care program; (3) billing for services requested by an unlicensed physician or an excluded provider; and (4) billing for medically unnecessary services. The penalties for violating the CMP Law include exclusion, substantial fines, and payment of up to three times the amount billed, depending on the nature of the offense.
During the fiscal year ended September 30, 2021, the Company had sixteen active employees including the President and Chief Executive Officer and the Executive Chairman. The Company has not experienced any work disruptions or stoppages and it considers relations with its employees to be good. No employee of the Company is covered by a collective-bargaining agreement.
ITEM 1A. RISK FACTORS
Risks Relating to Our Financial Position and Operations
We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. To date we have generated little revenue or profit from our technology. We may never realize revenue or profitability. There is substantial doubt in our ability to continue as a going concern.
We had net losses of $5,471,649 and $3,170,267 for the years ended September 30, 2021 and 2020, respectively. The loss from operations were $5,565,979 and $3,356,790 for the years ended September 30, 2021 and 2020, respectively. The net cash used in operations were $4,780,930 and $3,470,755 for the years ended September 30, 2021 and 2020, respectively. Additionally, the Company had an accumulated deficit of $49,825,855 and $43,187,588, at September 30, 2021 and 20120 respectively, had a stockholders’ deficit of $4,945,362 at September 30, 2021, and had a working capital deficit of $2,657,337 at September 30, 2021. The Company had revenues of $505,604 and $181,229, for the years ended September 30, 2021 and 2020, respectively. 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.
Our losses have resulted principally from general and administrative expenses incurred while building our business infrastructure. We expect to continue to incur losses for the near future. Furthermore, we expect these losses to increase as we continue our research and development of and seek regulatory approval for Theralink and any other services we may develop, prepare for and begin to commercialize by adding infrastructure and personnel to support the development of our technology and operations as a public company. The net losses and negative cash flows from operations incurred to date, together with expected future losses, have had and likely will continue to have, an adverse effect on our stockholders’ equity and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.
Management cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining our 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/or equity financings to fund its operations in the future.
Although management believes there is substantial doubt about our ability to continue as a going concern our consolidated financial statements do not reflect any adjustments that might result if we are unable to continue our business. Our consolidated financial statements contain additional disclosures in the notes to the financial statements describing our current circumstances. Even if we are able to successfully realize our commercialization goals for Theralink, because of the numerous risks and uncertainties associated with commercialization of our technology, we may still require additional funding. We are unable to predict when we will become profitable, if at all. Even if we do produce revenues and achieve profitability, we may not be able to maintain or increase profitability.
We will need additional funding to achieve our goals and may be unable to raise additional capital when needed, which would force us to delay, reduce or eliminate our product development and commercialization efforts. Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies.
We expect to expend substantial resources for the foreseeable future to continue the development and commercialization of our technology. We may not be able to generate significant revenues for several years, if at all. Until such time as we can generate substantial service revenues, we may attempt to finance our cash needs through equity offerings, debt financings, government and/or other third-party grants or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our investors’ ownership interest will be diluted. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more research or development programs, which would adversely impact potential revenues, results of operations and financial condition. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research and development activities.
The recent COVID-19 pandemic has negatively affected and will continue to negatively affect our business, financial condition and results of operations.
The public health crisis caused by the COVID-19 pandemic and the measures that have been taken or that may be taken in the future by governments, businesses, including us, and the public at large to limit COVID-19’s spread have had, and we expect will continue to have, a materially negative effect on our business, financial condition, and results of operation. The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict and which will vary by market, including the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.
COVID-19 has spread across the globe. Authorities in many markets have implemented numerous measures to stall the spread of COVID-19, including travel bans and restrictions, quarantines, curfews, shelter in place orders, and business shutdowns. These measures have impacted and will further impact us, our customers, consumers, employees, contract manufacturers, distributors, suppliers and other third parties with whom we do business.
Stay-at-home and social distancing orders have required some of our employees to work from home when possible, and other employees have been entirely prevented from performing their job duties until the orders are relaxed or lifted. The worldwide response to the pandemic has resulted in a significant downturn in economic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. If an economic recession or depression is sustained, it would likely have a material adverse effect on our business.
In certain jurisdictions, the stay-at-home orders have been relaxed but considerable uncertainty remains about the ultimate impact on our business. Even if the orders are lifted, there is no assurance that they will not be reinstated if the spread of COVID-19 continues. For example, many jurisdictions have recently reinstated orders requiring people to wear masks in public after test results have showed a resurgence of the pandemic. Resurgence of the pandemic in some markets has slowed the reopening process of businesses in those areas, including certain markets where additional lockdowns have been recently reinstated. If COVID-19 infection trends continue to reverse and the pandemic intensifies and expands geographically, its negative impacts on our sales could be more prolonged and may become more severe. The long-term financial impact on our business cannot be reasonably estimated at this time.
The COVID-19 pandemic has required alternative selling approaches that are less effective, such as through social media. We may continue to experience reductions in revenue using these alternative selling approaches that avoid direct contact with our customers.
There is considerable uncertainty regarding how these measures and future measures in response to the pandemic will impact our business, including whether they will result in further changes in demand for our technology, further increases in operating costs whether as a result of increases in employee costs or otherwise. Compliance with governmental measures imposed in response to COVID-19 has caused and may continue to cause us to incur additional costs, and any inability to comply with such measures can subject us to restrictions on our business activities, fines, and other penalties, any of which can adversely affect our business. In addition, the increase in certain of our employees working remotely has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attacks, such as laptops and mobile devices (both of which are now being used in increased numbers). Any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business.
In addition, economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.
There can be no assurance that we will be successful in our efforts to mitigate the negative impact of COVID-19, and as a result, our business, financial condition and results of operations and the prices of our publicly traded securities may be adversely affected.
Risks Relating to our Product Commercialization Pursuits
If we fail to achieve and sustain commercial success for our services, our business will suffer, our future prospects may be harmed, and our stock price would likely decline.
We have sold or marketed our technology on a very limited basis. Unless we can continue to successfully commercialize our services or acquire the right to market other approved products or services, our business will be materially adversely affected. Our ability to generate revenues for our services will depend on, and may be limited by, a number of factors, including the following:
|●||acceptance of and ongoing satisfaction with our services by the medical community, patients receiving therapy and third-party payors in the United States, and eventually in foreign markets if we receive marketing approvals abroad;|
|●||our ability to develop and expand market share for analyzing late-stage cancer patients, both in the United States and potentially in the rest of the world if we receive marketing approvals outside of the United States, in the midst of numerous competing technologies for late-stage cancer, many of which are already generally accepted in the medical community;|
|●||adequate coverage or reimbursement for our services by government healthcare programs and third-party payors, including private health coverage insurers and health maintenance organizations; and|
|●||the ability of patients to afford any required co-payments for our services.|
If for any reason we are unable to sell our services, our business would be seriously harmed and could fail.
If Theralink were to become the subject of concerns related to its efficacy, safety, or otherwise, our ability to generate revenues from Theralink could be seriously harmed.
With the use of any newly marketed technology by a wider patient population, serious adverse events may occur from time to time that initially do not appear to relate to the technology itself. Any safety issues could cause us to suspend or cease marketing of our approved technology, cause us to modify how we market our approved technology, subject us to substantial liabilities, and adversely affect our revenues and financial condition. In the event of a withdrawal of Theralink from the market, our revenues would decline significantly and our business would be seriously harmed and could fail.
Adoption of Theralink for the analysis of patients with either early stage or advanced cancer may be slow or limited for a variety of reasons, including competing therapies and perceived difficulties in the treatment process or delays in obtaining reimbursement. If Theralink is not broadly accepted as a treatment option for cancer, our business would be harmed.
The rate of adoption of Theralink for early stage or advanced cancer and the ultimate market size will be dependent on several factors, including the education of treating physicians on the patient treatment process with Theralink and immunotherapies generally. A significant portion of the prospective patient base for treatment with Theralink may be under the care of oncologists who may have little or no experience with our technology. Acceptance by oncologists of Theralink as a treatment option may be slow and may require us to educate physicians on the benefits of using our technology.
To achieve global success for Theralink as a technology, we will need to obtain approvals by foreign regulatory authorities. Data from our completed clinical trials of Theralink may not be sufficient to support approval for commercialization by regulatory agencies governing the sale of drugs outside of the United States. This could require us to spend substantial sums to develop sufficient clinical data for licensure by foreign authorities. Submissions for approval by foreign regulatory authorities may not result in marketing approval by these authorities for the requested indication. In addition, certain countries require pricing to be established before reimbursement for the specific indication may be obtained. We may not receive or maintain marketing approvals at favorable pricing levels or at all, which could harm our ability to market Theralink globally. Cancer is common in many regions where the healthcare support systems are limited and reimbursement for Theralink may be limited or unavailable, which will likely limit or slow adoption in these regions. If we are unable to successfully achieve the full global market potential of Theralink due to diagnostic practices or regulatory hurdles, our future prospects would be harmed, and our stock price could decline.
Risks from Competitive Factors
Our competitors may develop and market products that are less expensive, more effective, safer or reach the market sooner, which may diminish or eliminate the commercial success of any products we may commercialize.
Competition in the cancer therapeutics field is intense and accentuated by the rapid pace of advancements in product development. Further, research and discoveries by others may result in breakthroughs that render potential products obsolete before they generate revenue.
Products such as chemotherapeutics, androgen metabolism or androgen receptor antagonists, endothelin A receptor antagonists, antisense compounds, angiogenesis inhibitors and gene therapies for cancer are also under development by a number of companies and could potentially compete with Theralink. In addition, many universities and private and public research institutes may in the future become active in cancer research, which may be in direct competition with us.
Some of our competitors in the cancer therapeutics field have substantially greater research and development capabilities than we do. Their manufacturing, marketing, financial and managerial resources may be greater than ours. Acquisitions of competing companies by large pharmaceutical and biotechnology companies could enhance our competitors’ resources. In addition, our competitors may obtain patent protection or FDA approval and commercialize products more rapidly than we do, which may impact future sales of our technology. We expect that competition among treatment options approved for sale will be based, among other things, on product efficacy, price, safety, reliability, availability, patent protection, and sales, marketing and distribution capabilities. Our profitability and financial position will suffer if our products receive regulatory approval but cannot compete effectively in the marketplace.
We could face competition from other approved technologies and products that could impact our profitability.
We may face competition in Europe from other technologies and products, and we expect we may face competition from those technologies and products in the future in the United States as well. To the extent that governments adopt more permissive approval frameworks and competitors are able to obtain broader marketing approval for treatment options, our technology will become subject to increased competition. Expiration or successful challenge of applicable patent rights could trigger such competition, and we could face more litigation regarding the validity and/or scope of our patents. We cannot predict to what extent the entry of other technologies or other competing products could have on the future potential sales of our services in the E.U., where other innovative biological products are already available. Our inability to compete effectively in foreign territories would reduce global sales potential, which could have a material adverse effect on our results of operations.
Failure to retain key personnel could impede our ability to develop our technology and to obtain new collaborations or other sources of funding.
Companies like ours depend upon our scientific staff to discover new technology and product candidates and to develop and conduct pre-clinical studies of those new potential technologies and products. The quality and reputation of our scientific, clinical and regulatory staff, especially the senior staff, and their success in performing their responsibilities, may directly influence the success of our technology development program. As we pursue successful commercialization of Theralink, we will need to hire sales and marketing, and operations executive management staff in order to ensure our organizational success. In addition, we require additional executive officers to provide strategic and operational guidance. Our inability to recruit key management and scientific, clinical, regulatory, medical, operational and other personnel, may delay or prevent us from achieving our business objectives. We face intense competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations.
Risks Relating to Collaboration Arrangements and Reliance on Third Parties
We must rely on relationships with third-party suppliers to supply necessary components used in our technology. These relationships are not easy to replace.
We rely upon others for information used in the production of the Theralink assay. Problems with any of our suppliers’ facilities or processes could result in failure to produce or a delay in production of adequate information we use in the production of the Theralink assay. This could delay or reduce commercial sales and materially harm our business. Any prolonged interruption in the operations of our suppliers’ facilities could result in cancellation of orders, a shortfall in the information necessary to complete our assay.
Risks Related to Regulations
Theralink in clinical development may be limited in use if we do not maintain or gain required regulatory approvals.
Our clinical business maybe subject to extensive regulation by numerous state and federal governmental authorities in the United States and potentially by foreign regulatory authorities, with regulations differing from country to country.
Obtaining regulatory approval for marketing of a technology candidate in one country does not assure we will be able to obtain regulatory approval in other countries. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
In general, the FDA and equivalent other country authorities require labeling, advertising and promotional materials to be truthful and not misleading and marketed only for the approved indications and in accordance with the provisions of the approved label. If the FDA or other regulatory authorities were to challenge our promotional materials or activities, they may bring enforcement action.
Regulatory authorities could also add new regulations or reform existing regulations at any time, which could affect our ability to obtain or maintain approval of our products. Theralink is a novel technology. As a result, regulatory agencies lack experience with it, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of Theralink outside of the United States. We are unable to predict when and whether any changes to regulatory policy affecting our business could occur, and such changes could have a material adverse impact on our business. If regulatory authorities determine that we have not complied with regulations in the research and development of a product candidate, a new indication for an existing product or information to support a current indication, they may not approve the technology candidate or new indication or maintain approval of the current indication in its current form or at all, and we would not be able to market and sell it. If we were unable to market and sell our technology candidate internationally, our business and results of operations would be materially and adversely affected.
Failure to comply with foreign regulatory requirements governing human clinical trials and failure to obtain marketing approval for product candidates could prevent us from selling our technology in foreign markets, which may adversely affect our operating results and financial condition.
The requirements governing the conduct of clinical trials, manufacturing, testing, product approvals, pricing and reimbursement outside the United States vary greatly from country to country. We may not obtain foreign regulatory approvals on the timeframe we may desire, if at all. Failure to comply with these regulatory requirements or obtain required approvals could impair our ability to develop foreign markets for our technology and may have a material adverse effect on our business and future prospects.
Our prospective revenues will be diminished if payors do not adequately cover or reimburse our services.
There has been and will continue to be significant efforts by both federal and state agencies to reduce costs in government healthcare programs and otherwise implement government control of healthcare costs. In addition, private payors continually seek ways to reduce and control overall healthcare costs. An increasing emphasis on managed care in the United States will continue to put pressure on the pricing of healthcare services. Uncertainty exists as to the coverage and reimbursement status of new applications and services. Third-party payors, including governmental payors such as Medicare and private payors, are scrutinizing new medical products and services and may not cover or may limit coverage and the level of reimbursement for our services. Third-party insurance coverage may not be available to patients for any of our existing service candidates or for tests we discover and develop, and a substantial portion of the testing for which we bill our hospital and laboratory clients may ultimately be paid by third-party payers. Likewise, any pricing pressure exerted by these third party payers on our clients may, in turn, be exerted by our clients on us. If government and other third-party payers do not provide adequate coverage and reimbursement for our tests, it could adversely affect our operating results, cash flows and/or our financial condition.
We use hazardous materials in our business and must comply with environmental laws and regulations, which can be expensive.
Our operations produce hazardous waste products, including chemicals, radioactive and biological materials. We are subject to a variety of federal, state and local laws and regulations relating to the use, handling, storage and disposal of these materials. Although we believe that our safety procedures for handling and disposing of these materials complies with the standards prescribed by state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. We generally contract with third parties for the disposal of such hazardous waste products. We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), the Environmental Protection Agency (the “EPA”). Additionally, we must comply with the regulations under the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations. OSHA and/or the EPA may promulgate regulations that may affect our research and development programs. We may be required to incur further costs to comply with current or future environmental and safety laws and regulations. In addition, in the event of accidental contamination or injury from these materials, we could be held liable for any damages that result, including remediation, and any such liability could exceed our resources.
If we are unable to safeguard against security breaches with respect to our information systems, our business may be adversely affected.
In the course of our business, we gather, transmit and retain confidential information through our information systems. Although we endeavor to protect confidential information through the implementation of security technologies, processes and procedures, it is possible that an individual or group could defeat security measures and access sensitive information about our business and employees. Any misappropriation, loss or other unauthorized disclosure of confidential information gathered, stored or used by us could have a material impact on the operation of our business, including damaging our reputation with our employees, third parties and investors. We could also incur significant costs implementing additional security measures and organizational changes, implementing additional protective technologies, training employees or engaging consultants. In addition, we could incur increased litigation as a result of any potential cyber-security breach. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, a cyber-security breach or other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition or results of operations.
We are exposed to potential product liability claims, and insurance against these claims may not be adequate and may not be available to us at a reasonable rate in the future.
Our business exposes us to potential liability risks inherent in the research, development, manufacturing and marketing of technology candidates and products. Most, if not all, of the patients who participate in our clinical trials are already seriously ill when they enter a trial. We may also be subject to liability for errors in the test results we provide to oncologists or for a misunderstanding of, or inappropriate reliance upon, the information we provide. We have commercial product liability insurance coverage. However, this insurance coverage may not be adequate to cover all claims against us. There is also a risk that adequate insurance coverage will not be available in the future on commercially reasonable terms, if at all. The successful assertion of an uninsured product liability or other claim against us could cause us to incur significant expenses to pay such a claim, could adversely affect our product development or product sales and could cause a decline in our product revenues. Even a successfully defended product liability claim could cause us to incur significant expenses to defend such a claim, could adversely affect our product development and could cause a decline in our product revenues. In addition, product liability claims could result in an FDA or equivalent non-United States regulatory authority investigation of the safety or efficacy of our products, our manufacturing processes and facilities, or our marketing programs.
Risks in Protecting Our Intellectual Property
We have exposure to general uncertainty and complex legal matters regarding the patents we license.
The patent positions of companies such as ours are generally uncertain and involve complex legal and factual questions. No consistent policy regarding the scope of claims allowable in patents in the field of method of use patents or reformulation patents has emerged in the United States. The relevant patent laws and their interpretation outside of the United States are also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our technology or product candidates and to enforce the patent rights that we license, and could affect the value of such intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe on our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. With respect to both licensed and company-owned intellectual property, we cannot guarantee that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may file in the future, nor can we be sure that any patents that may be granted to us in the future will be commercially useful in protecting our products, the methods of use, or the manufacture of those products. Patent and other intellectual property rights in the pharmaceutical and biotechnology space are evolving and involve many risks and uncertainties. For example, third parties may have blocking patents that could be used to prevent us from commercializing our product candidates and practicing our proprietary technology, and the issued patents that we in-license and those that may be issue in the future may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or could limit the term of patent protection that otherwise may exist for our technology. In addition, the scope of the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that are outside the scope of the rights granted under any issued patents that we own or exclusively in-license. For these reasons, we may face competition with respect to our product candidates. Moreover, because of the extensive time required for development, testing, and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any patent protection for such product may expire or remain in force for only a short period following commercialization, thereby reducing the commercial advantage the patent provides.
If we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively or operate profitably.
We invent and develop technologies that are the basis for or incorporated in our potential products. We protect our technology through United States and foreign patent filings, trademarks and trade secrets.
The fact that we may file a patent application or that a patent has been issued does not ensure that we will have meaningful protection from competition with regard to the underlying technology or product. Patents, if issued, may be challenged, invalidated, declared unenforceable or circumvented or may not cover all applications we may desire. Any pending or future patent applications may not result in issued patents. Patents may not provide us with adequate proprietary protection or advantages against competitors with, or who could develop, similar or competing technologies or who could design around our patents. Patent law relating to the scope of claims in the pharmaceutical field in which we operate is continually evolving and can be the subject of some uncertainty. The laws providing patent protection may change in a way that would limit our protection.
We also rely on trade secrets and know-how that we seek to protect, in part, through confidentiality agreements. Our policy is to require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed or made known to an individual during the course of their relationship with us be kept confidential and not disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies that receive our confidential data. For employees, consultants and contractors, we require confidentiality agreements providing that all inventions conceived while rendering services to us shall be assigned to us as our exclusive property. It is possible, however, that these parties may breach those agreements, and we may not have adequate remedies for such a breach. It is also possible that our trade secrets or know-how will otherwise become known to or be independently developed by competitors.
We are also subject to the risk of claims, whether meritorious or not, that our products or immunotherapy candidates infringe or misappropriate third-party intellectual property rights. Defending against such claims can be quite expensive even if the claims lack merit. If we are found to have infringed or misappropriated a third-party’s intellectual property, we could be required to seek a license or discontinue our products or cease using certain technologies or delay commercialization of the affected product or products, and we could be required to pay substantial damages, which could materially harm our business.
We may be subject to litigation with respect to the ownership and use of intellectual property that will be costly to defend. The outcome of such a defense in uncertain.
Our business may bring us into conflict with our licensees, licensors or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against us. That litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business.
Litigation relating to the ownership and use of intellectual property is expensive, and our position as a relatively small company in an industry dominated by very large companies may cause us to be at a disadvantage in defending our intellectual property rights and in defending against claims that our technology infringes or misappropriate third-party intellectual property rights. Even if we are able to defend our position, the cost of doing so may adversely affect our profitability. We may in the future be subject to patent litigation and may not be able to protect our intellectual property at a reasonable cost if such litigation is initiated. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications may be due to be paid to the United States Patent and Trademark Office (“USPTO”), GMU, and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply with these requirements. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market creating a material adverse effect on our business.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our technology in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from using our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights.
Risks Relating to an Investment in Our Common Stock
Our trading price on the over-the-counter market does not reflect the value of our common stock
The trading price for our common stock has fluctuated between $0.15 and $6.28 in the last year. During this time, only approximately 1.4 million shares of our common stock were able to be traded on the over-the-counter market, while we had approximately 5.5 billion shares outstanding. The trading price of our common stock at January 11, 2022 was $1.00 per share, which would value our company at $5.5 billion, which we believe is not an accurate representation of the valuation of our company if the company were to be valued using other valuation methods unrelated to the value of the common stock. At the time when some the 5.5 billion shares become tradable in the hands of their stockholders, the trading price of our common stock will drop significantly.
Market volatility may affect our stock price, and the value of an investment in our common stock may be subject to sudden decreases.
The trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades depends on a number of factors, including the following, many of which are beyond our control:
|●||the relative success of our commercialization efforts for Theralink;|
|●||our historical and anticipated operating results, including fluctuations in our financial and operating results or failure to meet revenue projections;|
|●||changes in government regulations affecting product approvals, reimbursement or other aspects of our or our competitors’ businesses;|
|●||announcements of technological innovations or new commercial products by us or our competitors;|
|●||developments concerning our key personnel;|
|●||our ability to protect our intellectual property, including in the face of changing laws;|
|●||announcements regarding significant collaborations or strategic alliances;|
|●||publicity regarding actual or potential performance of products under development by us or our competitors;|
|●||market perception of the prospects for biotechnology companies as an industry sector; and|
|●||general market and economic conditions.|
During periods of extreme stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner not necessarily related to their individual operating performance. Furthermore, historically our common stock has experienced greater price volatility than the stock market as a whole.
We have recently issued, and may in the future issue, a significant amount of equity securities and, as a result, your ownership interest in our Company has been, and may in the future be, substantially diluted and your investment in our common stock could suffer a material decline in value.
In the Asset Sale Transaction, we issued a significant amount of equity securities, including Series D-1 and D-2 Preferred, which have subsequently converted into approximately 5.1 billion shares of common stock. We have outstanding Series C-1, C-2, E and F Preferred, which are convertible into approximately 2.159 billion shares of common stock, convertible notes which are convertible into approximately 866 million shares of common stock, and outstanding warrants of approximately 1.1 billion additional shares of common stock. We also promised approximately 1.9 billion options to our employees. These option when granted will be subject to the terms of the instrument as determined and approved by the Board. As a result of these past issuances and potential future issuances, your ownership interest in the Company has been, and may in the future be, substantially diluted. In addition, we continue to issue shares of common stock, preferred stock, warrants and common stock equivalents to finance the business when necessary.
The market price for our common stock has been volatile, and these issuances could cause the price of our common stock to continue to fluctuate substantially. We may need to raise additional capital and may seek to do so by conducting one or more private placements of equity securities, securities convertible into equity securities or debt securities, or through a combination of one or more of such financing alternatives. Such issuances of additional securities would further dilute the equity interests of our existing shareholders, perhaps substantially, and may further exacerbate any or all of the above risks.
We do not intend to pay cash dividends on our common stock in the foreseeable future.
We have never declared or paid cash dividends on our capital stock. We are not currently profitable. To the extent, we become profitable, we intend to retain any future earnings to fund the development and growth of our business and do not currently anticipate paying any cash dividends in the foreseeable future. Accordingly, our stockholders will not realize a return on their investment unless and until they sell shares if the trading price of our shares appreciates from the price at which the shareholder purchased them, of which there is no guarantee.
Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares. The market for our common stock is limited and persons who purchase our common stock may not be able to resell their shares at or above the purchase price paid by them.
Our common stock is quoted on the OTC Pink tier of the OTC Markets. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets are not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like the NASDAQ or a stock exchange like the New York Stock Exchange. The OTC Markets are not liquid markets. There is currently only a limited public market for our common stock. We cannot assure you that an active public market for our common stock will develop or be sustained in the future. If an active market for our common stock does not develop or is not sustained, the price may decline. These factors may result in investors having difficulty reselling any shares of our common stock.
We are subject to the “penny stock” rules, which means brokers cannot generally solicit the purchase of our common stock, which adversely affects its liquidity and market price.
The SEC has adopted regulations, which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the OTC has been substantially less than $5.00 per share and therefore we are currently considered a “penny stock” according to SEC rules. This designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity in the public markets for our shares.
In addition to the “penny stock” rules, FINRA has adopted FINRA Rule 2111, which requires a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer before recommending the investment. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
Our principal executive office at 15000 W. 6th Avenue, Suite 400, Golden, CO 80401 is leased from a third party. In December 2019, we entered into a lease agreement for our corporate and laboratory facility in Golden, Colorado. The lease is for a period of 60 months, with continuing rental options, 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 June of 2021, we signed a first amendment to our original lease (the “Lease Amendment”) for the unoccupied space adjacent to our current space. The commencement date for this lease starts once the Tenant Improvements (as defined in the Lease Amendment) are substantially complete. Since the Tenant Improvements have not been completed as of the date of this report, the first amendment for the additional lease space has not commenced. Pursuant to the lease amendment, the Company will be required to pay a monthly base rent for the additional space of; (i) $4,537 in the first year; (ii) $4,673 in the second year; (iii) $4,813 in the third year; (iv) $4,957 in the fourth year and (v) $5,106 in the fifth year, plus a pro rata share of operating expenses. In conjunction with this amendment, the original lease was extended for a sixth year for a base rent of $5,660 per month. All additional months beyond this will incur a base rent of $5,829 until the expiration date.
We believe our facilities are adequate for our current and future needs.
ITEM 3. LEGAL PROCEEDINGS
In August 2017, numerous purported plaintiffs brought an action against Avant and their previous executive team in the District Court of Harris County Texas. The action alleges the plaintiffs were engaged by Avant to perform services prior to 2018 and were issued certain restricted shares of Avant as payment of those services and Avant did not remove the restrictive legend off of said shares. On July 1, 2021, the Company and Dr. Ruxin were added as defendants in the lawsuit. The Company believes plaintiffs’ claims are without merit and intends to defend these lawsuits vigorously.
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 asserts a breach of contract claim claiming that it has been damages in excess of $100 million. Plaintiff also seeks a decree of specific performance directing Theralink to deliver all shares due under the Conversion Notice. Theralink’s response to the complaint is due on February 4, 2022. The Company intends to vigorously defend this lawsuit.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders of Common Stock
Our common stock is quoted on the OTC Pink, operated by the OTC Markets Group. Our symbol is “OBMP.”
As of January 13, 2022, there were approximately 186 record holders of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries and holders of unissued shares common stock.
Series E Preferred Stock Dividends
For the year ended September 30, 2021 and 2020, the Series E Preferred stockholder earned dividends in the amount of $159,890 and $6,120, respectively. During the year ended September 30, 2021, we made cash payments in total amount of $152,859 towards the outstanding dividend payable. As of September 30, 2021, we had $13,151 of Series E Preferred stock dividend payable reflected in the accompanying consolidated balance sheets as accrued liabilities instead of temporary equity.
Series F Preferred Stock Dividends
For the year ended September 30, 2021, the Series F Preferred stockholder earned dividends in the amount of $6,728. During the year ended September 30, 2021, no cash payments were made, and we had $6,728 of Series F Preferred stock dividend payable reflected in the accompanying consolidated balance sheets as accrued liabilities instead of temporary equity.
We have not paid any cash dividends on our common stock and have no intention of paying any dividends on the shares of our common stock.
Recent Sales of Unregistered Securities
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding COVID-19
In December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread of the virus had resulted in a world-wide pandemic. The U.S. economy was largely shut down by mass quarantines and government mandated stay-at-home orders (the “Orders”) to halt the spread of the virus. These Orders have required some of our employees to work from home when possible, and other employees have been entirely prevented from performing their job duties until the Orders are relaxed or lifted. The COVID-19 pandemic has required alternative selling approaches such as through social media. We may be unable to avoid future reductions in net revenue using these alternative selling approaches that avoid direct contact with our customers. The worldwide response to the pandemic has resulted in a significant downturn in economic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. If an economic recession or depression is sustained, it could have a material adverse effect on our business as demand for our technology could decrease.
While some of these Orders were relaxed or lifted in different jurisdictions at various times during the year ended September 30, 2021, the overall impact of COVID-19 continues to have an adverse impact on business activities around the world. There is no assurance that Orders that were previously relaxed or lifted will not be reinstated as the spread of COVID-19 continues. For example, many jurisdictions have recently reinstated masking orders after test results have showed a resurgence of the pandemic. If COVID-19 infection trends continue to reverse and the pandemic intensifies and expands geographically, its negative impacts on our sales could be more prolonged and may become more severe. The long-term financial impact on our business cannot be reasonably estimated at this time.
Theralink is a commercial-stage precision medicine and molecular data-generating company that focuses on the development and commercialization of a series of patented, proprietary data-generating assays that may provide important actionable information for physicians and patients, as well as biopharmaceutical companies, in the areas of oncology. Our near-term goal is to continue to commercialize the technology originally developed by Theranostics Health, a company whose assets we acquired in May 2016. The Company differentiates itself by:
|●||An exclusive license agreement with George Mason University (“GMU”), that has well-published scientists in our area of expertise.|
|●||Having access to the Ph.D.’s at GMU who have completed pioneering work in phosphoproteomic-based biomarkers diagnostics.|
|●||Domain expertise in cancer biomarker and data-generating laboratory testing data.|
|●||Development of proprietary, cutting-edge assays focused on precision oncology care.|
|●||Building revenue streams based on our proprietary technology Theralink.|
|●||Having a patent portfolio licensed from GMU and the NIH.|
Theralink is advancing its patented, proprietary technology in the field of phosphoproteomic research, a sector that has emerged as one of the most exciting new components in the high-growth field of precision molecular diagnostics. The Theralink platform makes it possible to generate an accurate and comprehensive portrait of protein pathway activation in diseased cells from each patient, and thereby determining which individuals may be better responders to certain targeted molecular therapies. The platform enables the quantitative measurement of the level of activation. Moreover, the sensitivity is many times greater than conventional mass spectrometry and other protein immunoassays. Initially spun-out of GMU in 2006, and subsequently elevated to the federal government’s Center for Medicare & Medicaid Services’ (“CMS”) Clinical Laboratory Improvement Amendments (“CLIA”) standards, the diagnostics suite may be highly relevant for oncology patient management today that may improve (i) chemotherapy drug selection; (ii) immunotherapy drug selection; and (iii) optimization of combination therapy selection.
The biomarker and data-generating tests may provide biopharmaceutical companies, clinical scientists and physicians with molecular-based guidance as to which patients may benefit from the new, molecular targeted therapeutics being developed and used to treat various life-threatening oncology diseases, as well as existing treatment standards that are recognized as the standard of care in the oncology treatment community. This addresses the core aspect of precision treatment today – identifying which individuals are more likely to respond to specific targeted molecular therapies, thus forming the basis for personalized medicine.
The technology is based upon the pioneering work of three noted scientists, Drs. Lance Liotta, Emanuel Petricoin and Virginia Espina in proteomic-based diagnostics. We benefit from a portfolio of intellectual property derived from licensing agreements with:
|●||The US Public Health Service (“PHS”), the federal agency that supervises the National Institutes of Health (“NIH”), which provides us with broad protection around its technology platform; and|
|●||GMU which provides access to additional intellectual property around improvements to the technology platform and biomarker signatures that form the basis for future diagnostic products.|
Theralink is committed to advancing the technologies from GMU and the NIH as a platform for the development of new clinical biomarkers and diagnostics. These diagnostic and monitoring products have the potential to provide biopharmaceutical companies and doctors with critical molecular-based knowledge to make the best therapeutic decisions based on a patient’s unique, individual medical needs.
Our plan of operation over the next 12 months is to:
|●||Establish laboratory Standard Operating Procedures (SOP’s) to comply with New York, Washington, D.C., and Maryland CLIA, and the College of American Pathologists (“CAP”) standards;|
|●||Hire an Assistant Laboratory Director and additional lab techs and sales consultants;|
|●||Choose members to sit on our Medical and Scientific Advisory Boards;|
|●||Continue to validate additional Theralink cancer biomarker technology under CAP/CLIA standards to provide personalized medicine regarding treatment options for biopharmaceutical companies, clinical oncologists and their cancer patients;|
|●||Continue to partner with pharmaceutical companies to perform oncology-related data-generating testing services which generate additional revenues and|
|●||Continue to seek financing to grow the Company.|
Results of Operations
Comparison for the Years Ended September 30, 2021 and 2020
|●||During the years ended September 30, 2021 and 2020, we generated revenues of $505,604 and $181,229, respectively, an increase of $324,375 or 179%. The increase was primarily attributable to services performed under research and development contracts for pharmaceutical companies.|
Costs of Revenues
|●||During the years ended September 30, 2021 and 2020, we incurred cost of revenue of $117,456 and $52,587, respectively, an increase of $64,869 or 123%. The increase was primarily attributable to the increase in revenue discussed above.|
|●||For the years ended September 30, 2021 and 2020, gross margin was $388,148 and $128,642, respectively, an increase of $259,506 or 202%. The increase was primarily attributable to the increase in revenue and cost of revenue discussed above.|
For the years ended September 30, 2021 and 2020, operating expenses consisted of the following:
For the Years Ended
|Consulting fee - related party||—||70,125|
|General and administrative expenses||2,659,453||1,152,153|
|●||For the year ended September 30, 2021, professional fees decreased by $21,694 or 2%, as compared to the year ended September 30, 2020. The decrease was primarily attributable to a decrease in consulting fees of $89,259, decrease in legal fees of $58,866, decrease in talent search fees of $90,000 offset by an increase in accounting and audit fees of $199,600 and an increase in IT services of $12,831.|
Consulting fee - related party:
|●||For the year ended September 30, 2021, consulting fee - related party decreased by $70,125 or 100%, as compared to the year ended September 30, 2020. The decrease was the result of the Company terminating the consulting agreements with AVDX Investors Group in 2020, whose partner is on our Board, in May 2019 and International Infusion whose principal owner served as an officer of the Company in December 2019.|
|●||For the year ended September 30, 2021, compensation expense increased by $973,415 or 76%, as compared to the year ended September 30, 2020. The increase was attributable to an increase in administrative compensation and related expenses of $905,274 and an increase in employee benefits of $68,141 resulting from hiring a research specialist, assistant laboratory director and other laboratory employees in fiscal year 2021.|
|●||For the year ended September 30, 2021, licensing fees increased by $79,799 or 154%, as compared to the year ended September 30, 2020. The increase was attributable to an increase in the minimum royalties payable to GMU and the NIH. This increase can be attributed to the increase in sales in 2021.|
General and administrative expenses:
|●||For the year ended September 30, 2021, general and administrative expenses increased by $1,507,300 or 131%, as compared to the year ended September 30, 2020. The increase was primarily due to an increase in laboratory supplies expense of $589,920, an increase in sample analysis expense of $835,953, an increase in business insurance expense of $103,995 an, increase in depreciation expense of $87,970 offset by a decrease in biological expense of $33,782, a decrease in computer expense of $59,929 and a decrease in filing fees of $18,505. The increase was a result of the growth of revenue producing activities in fiscal year 2021.|
Loss from Operations
For the year ended September 30, 2021, loss from operations amounted to $5,565,979 as compared to $3,356,790 for the year ended September 30, 2020, an increase of $2,209,189, or 66%. The increase was primarily a result of the increase in operating expenses discussed above.
Other Income (Expenses), net
For the year ended September 30, 2021, we had total other income of $94,330 and $186,523 for the year ended September 30, 2020, a decrease of $92,193 or 49%. The decrease was primarily due to the increase in gain on debt extinguishment of $61,855, an increase on unrealized loss on exchange rate, net of $71,888 which was related to the write-off of liabilities from discontinued operations, an increase in interest expense of $89,876, an increase in gain on disposal of a subsidiary of $1,000, increase in gain on dissolution of a subsidiary of $9,916 offset by a decrease in other income of $10,000 from the Economic Injury Disaster Loan (“EIDL”) stimulus check and a decrease in unrealized loss on marketable securities of $6,800.
Preferred Stock Dividend and Deemed Dividend
For the year ended September 30, 2021, related to the Series F Preferred stock, we recorded a beneficial conversion feature of $42,808 and the relative fair value of the issued warrant of $957,192 for a total of $1,000,000, accounted for as deemed dividend. For the year ended September 30, 2021, we also recorded dividends for the Series E Preferred stock and Series F Preferred stock in the amount of $159,890 and $6,728, respectively, for a total of $166,618 of preferred stock dividends.
For the year ended September 30, 2020, related to the Series E Preferred stock, we recorded a beneficial conversion feature of $2,000,000 accounted for as deemed dividend and Series E Preferred stock dividends of $6,120.
Net Loss Attributed to Common Stockholders
For the year ended September 30, 2021, net loss attributed to common stockholders amounted to $6,638,267, or $(0.00) per share (basic and diluted) compared to net loss attributed to common stockholders of to $5,176,387, or $(0.06) per share (basic and diluted), for the year ended September 30, 2020, an increase of $1,461,880, or 28%. The increase was a result of the changes in operating expenses and other expenses, net discussed above.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had working capital (deficit) of $(2,657,337) and $314,151 of cash as of September 30, 2021 and working capital of $877,234 and $1,779,283 of cash as of September 30, 2020.
|Working capital (deficit):|
|Total current assets||$||638,753||$||2,067,971||$||(1,429,218||)||69||%|
|Total current liabilities||(3,296,090||)||(1,190,737||)||(2,105,353||)||177||%|
|Working capital (deficit):||$||(2,657,337||)||$||877,234||$||(3,534,571||)||403||%|
The increase in working capital (deficit) was primarily attributable to the decrease in current assets of $1,429,218 and increase in current liabilities of $2,105,353.
The following table sets forth a summary of changes in cash flows for the years ended September 30 2021 and 2020:
|Cash used in operating activities||$||(4,780,930||)||$||(3,470,755||)|
|Cash provided by (used in) investing activities||(134,702||)||144,390|
|Cash provided by financing activities||3,450,000||4,545,241|
|Net change in cash||$||(1,465,132||)||$||1,218,876|
Net Cash Used in Operating Activities:
Net cash used in operating activities was $4,780,930 for the year ended September 30, 2021 as compared to $3,470,755 for the year ended September 30, 2020, an increase of $1,310,175 or 38%.
|●||Net cash used in operating activities for the year ended September 30, 2021 primarily reflected our net loss of $5,471,649 adjusted for the add-back on non-cash items such as depreciation expense of $185,730, lease cost of $1,596, amortization of debt discount of $64,981, gain on debt extinguishment of $227,294, unrealized loss on exchange rate of $22,686, unrealized loss on marketable securities of $100, gain on dissolution of a subsidiary of $9,916, gain on disposal of a subsidiary of $1,000 and changes in operating asset and liabilities consisting primarily of an increase in prepaid expenses and other current assets of $37,732, an increase in accounts payable of $415,190, an increase in accrued liabilities and other liabilities of $140,955, an increase in deferred revenue of $135,150 offset by a decrease in laboratory supplies of $273.|
|●||Net cash used in operating activities for the year ended September 30, 2020 primarily reflected our net loss of $3,170,267 adjusted for the add-back on non-cash items such as depreciation expense of $97,761, lease cost of $6,633, gain on debt extinguishment of $165,439, unrealized gain on exchange rate of $49,202, unrealized loss on marketable securities of $6,900 and changes in operating asset and liabilities consisting primarily of an increase in prepaid expenses and other current assets of $194,994, an increase in accounts payable of $46,341, offset by a decrease in accrued liabilities and other liabilities of $48,488.|
Net Cash Provided by (Used in) Investing Activities
Net cash (used in) investing activities was $(134,202) for the year ended September 30, 2021 as compared to net cash provided by investing activities $144,390 for the year ended September 30, 2020, a change of $278,592, or 193%.
|●||Net cash used in investing activities for the year ended September 30, 2021, resulted from the purchase of property and equipment of $(135,702) offset by an adjustment related to a prior period redemption payment of $500 and proceeds from disposal of a subsidiary of $1,000.|
|●||Net cash provided by investing activities for the year ended September 30, 2020, resulted from the cash acquired from the Asset Sale Transaction of $675,928 offset by the purchase of property and equipment of $531,538|
Cash Provided by Financing Activities:
Net cash provided by financing activities was $3,450,000 for the year ended September 30, 2021 as compared to $4,545,241 for the year ended September 30, 2020, an increase of $1,095,241 or 24%.
|●||Net cash provided by financing activities for the year ended September 30, 2021, consisted of $1,350,000 of net proceeds from deposits from the sale of common stock which are accounted for as liabilities until we are able to issue the shares, $1,000,000 proceeds from convertible debt – related party, $100,000 proceeds from a note payable – related party and $1,000,000 of proceeds from the sale of Series F Preferred stock.|
|●||Net cash provided by financing activities for the year ended September 30, 2020, consisted of $4,590,000 of net proceeds from the sale of preferred stock offset by the repayment of a related party advance of $20,000 and repayment of convertible debt of $24,759.|
Our management does not believe that our current capital resources will be adequate to continue operating our Company and maintaining our business strategy for more than 12 months from the date of this report. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company had net loss and net cash used in operations of $5,471,649 and $4,780,930, respectively, for the year ended September 30, 2021. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working capital deficit of $49,825,855, $4,945,362 and $2,657,337 at September 30, 2021. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.
The Company cannot provide assurance that it will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future.
Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The global pandemic COVID-19, otherwise referred to as the Coronavirus, could impair our ability to raise additional funding or make such funding more costly. The ongoing global pandemic has caused cessation of normal business operations and initially caused capital markets to decline sharply. This could make it more difficult for the Company to access capital. It is currently difficult to estimate with any certainty how long the pandemic and resulting curtailment of business will continue, and its effect on capital markets and the Company’s ability to raise funds is, accordingly, difficult to quantify. In addition, to the extent that any of the Company’s personnel or consultants are affected by the virus, this could cause delays or disruption in our planned research and development activities.
Sales of Series F Preferred Stock and Warrants Pursuant to Subscription Agreement
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 an accompanying warrant for 63,897,764 shares of common stock (“Warrant”), for total proceeds of $1,000,000. The Series F Preferred Stock has a stated value of $2,000 per share and shall accrue monthly in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid monthly at the option of the holder of the Series F Preferred in either cash or shares of common stock of the Company. The number of shares of common stock issuable upon conversion of the Series F Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00313 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0016. In addition, the investor was issued the 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 Warrant was valued using the relative fair value method and had a grant date fair value $957,192 and the Series F Preferred stock had a grant date fair value $42,808 which was recorded as a beneficial conversion feature (“BCF”).
In accordance to ASC 470 – Debt, the proceeds of $1,000,000 was 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.
Convertible Debt – Related Party
On May 12, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a beneficial shareholder (the “Investor”), to purchase a convertible note (the “Note”) and accompanying warrant for 63,897,764 of common stock, (the “Warrant”) for an aggregate investment amount of $1,000,000. The Note has a principal value of $1,000,000 and bears an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default” (as defined in the Note)) and shall mature on May 12, 2026 (the “Maturity Date”). The Company received the proceeds in three tranches with the first tranche of $333,334 received in May 2021, the second tranche of $333,333 received in June 2021 and the third tranche of $333,333 received in July 2021. The Note is convertible at any time into shares of the Company’s common stock at a conversion price equal to $0.00313 per share for any amount of principal and accrued interest remaining outstanding (subject to adjustment as provided therein). The Company may prepay the Note at any time in an amount equal to 110% of the outstanding principal balance and accrued interest. In connection with the Company’s obligations under the Note, the Company entered into a security agreement (the “Security Agreement”) with Ashton Capital Corporation as agent, pursuant to which the Company granted a lien on laboratory equipment of the Company (the “Collateral”), for the benefit of the Investor, to secure the Company’s obligations under the Note. Upon an Event of Default (as defined in the Notes), the Investor may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral. During the year ended September 30, 2021, the Company paid $19,142 of accrued interest. As of September 30, 2021, the Note has an outstanding principal of $1,000,000 and accrued interest of $6,575. It’s reflected in the accompanying consolidated balance sheet as a long-term convertible note payable – related party, net of discount in the amount of $64,981.
In connection with the Note, the Investor was issued a Warrant to purchase up to 63,897,764 shares of common stock at an exercise price of $0.00313 per share (subject to adjustment as provided therein) until May 12, 2026. The Warrants are exercisable for cash at any time. The Warrant was valued at $984,200 using the relative fair value method which was recorded as a debt discount which is being amortized over the life of the Note. In addition, the Note had a BCF in the amount of $15,800 which was recorded as a debt discount which is being amortized over the life of the Note. The debt discount totaled $1,000,000. During the year ended September 30, 2021, the Company amortized $64,981 of the debt discount which is included in interest expense in the accompanying consolidated statement of operations.
Note Payable - Related Party
On April 26, 2021, the Company entered into a Promissory Note Agreement (the “Note”) with Jeffrey Busch who serves as a member of the Board of Directors (“Lender”) for a principal amount of $100,000. The Company received proceeds of $100,000. The Note bears an annual interest rate of 1%, matures on April 1, 2022 and can be prepaid in whole or in part without penalty. Pursuant to the Note, the Company has a 90-day grace period following the maturity date after which the Lender shall charge a late payment fee equal to 1% of the outstanding principal balance and cost of collection, including legal fees. As of September 30, 2021, the Note had an outstanding principal of $100,000 and accrued interest of $427.
Sale of Common Stock
During the year ended September 30, 2021, the Company, entered into Subscription Agreements with several accredited investors to sell, in a private placement, an aggregate of 431,309,904 shares of its common stock, par value $0.0001 per share, at a purchase price of $0.00313 per share for an aggregate purchase price of $1,350,000. These shares of common stock were sold by the Company in reliance upon an exemption from the registration requirements of the Act afforded by Section 4(a)(2) of the Act and/or Rule 506 of Regulation D thereunder. The private placement was made directly by the Company and no underwriter or placement agent was engaged by the Company. The Company did not engage in general solicitation or advertising and did not offer securities to the public in connection with this offering. As of September 30, 2021, this common stock has not been issued. Accordingly, the $1,350,000 is reflected in the accompanying consolidated balance sheet as subscription payable.
We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist.
There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Critical Accounting Policies
We have identified the following policies as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the years ended September 30, 2021 and 2020 include, but are not necessarily limited to, the valuation of assets and liabilities of discontinued operations, estimates of contingent liabilities, valuation of marketable securities, useful life of property and equipment, valuation of right-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current and deferred income taxes and deferred tax valuation allowances and the fair value of non-cash equity transactions.
Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future consolidated results of operation will be affected.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on September 30, 2021. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
|Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.|
|Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.|
|Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.|
In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 during the quarter ended March 31, 2020 and its adoption did not have any material impact on the Company’s consolidated financial statements.
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, are recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 during the period September 30, 2018, and the adoption did not have any impact on its consolidated financial statements.
In May 2014, FASB issued an Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard during the fiscal year ended September 30, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.
The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead to deferred revenue for services not completed at the end of a period. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The Company offers these services to biopharmaceutical companies and to private individuals. The revenue recognized from services provided to private individuals during the year ended September 30, 2021 were minimal and therefore was not disaggregated for disclosure purposes.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:
|1.||Add a disclosure objective|
|2.||Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed|
|3.||Add information on which party controls the conversion rights|
|4.||Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments|
|5.||Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate.|
Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.
The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s consolidated financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules from page F-1 of this annual report on Form 10-K, which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our Company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2021, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses, which we identified, in our report on internal control over financial reporting.
Internal Control Over Financial Reporting
Management’s Annual report on Internal Control Over Financial Reporting
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of September 30, 2021. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of September 30, 2021, our internal control over financial reporting was not effective.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal controls over financial reporting:
|(1)||The lack of multiple levels of management review on complex accounting and financial reporting issues, and business transactions,|
|(2)||a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support the hiring of personnel and implementation of accounting systems,|
A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Limitations on Effectiveness of Controls
Our principal executive officer and principal financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to SEC rules that permit us to provide only management’s report on internal control over financial reporting in this annual report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors and Executive Officers
The following table sets forth the names, positions and ages of our directors and executive officers as of the date of this report.
|Mick Ruxin, M. D.||75||Chief Executive Officer, President and Director|
|Thomas Chilcott||54||Chief Financial Officer|
|Jeffrey Busch||64||Chairman of the Board|
|Yvonne C. Fors||49||Director|
Biographical information concerning the directors and executive officers listed above is set forth below. The information has been provided to us about all the positions they hold, their principal occupation and their business experience for the past five years. In addition to the information presented below regarding each director’s specific experience, qualifications, attributes and skills that led our Board to conclude that they should serve as a director, we also believe that all of our directors have a reputation for integrity, honesty and adherence to high ethical standards. Each has demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to our Company and our Board. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until their qualified successor is elected.
Mick Ruxin, M.D.
Dr. Ruxin has been the Chief Executive Officer, President and a director of the Company since June 2020 and was the Chief Executive Officer, President of Avant prior to the Asset Sale. Prior to his current role, he was a strategic advisor to Avant since December 2017. Previously, Dr. Ruxin was the Chairman, CEO and Founder of Global Med Technologies, Inc. (GLOB). He grew GLOB from a foundational concept to an international medical software company, specializing in FDA approved software, with specific diagnostic capabilities, and serving over 30 countries on 4 continents. Under his leadership, GLOB had its initial financing, its initial public offering and subsequent follow-on financings. Dr. Ruxin also founded PeopleMed, Inc., a validation and chronic disease management software subsidiary of GLOB. In addition, he conceived and executed the acquisition and financing of Inlog, a French software company serving the EU, becoming the Directeur General responsible for European Operations—and eDonor, a US based regulated software company serving domestic and international blood donor centers. Prior to Dr. Ruxin engineering the sale of GLOB to a NYSE company, Haemonetics Corp. (HAE), he led his team to national prominence by being awarded the #1 position in quality of product and customer service against billion-dollar software companies, rated by an industry-respected, independent software rating service. After GLOB’s acquisition by Haemonetics, Dr. Ruxin was asked to stay with the company through the transition. Dr. Ruxin was on the Executive Management Team (EMT) at Haemonetics for approximately 6 months after the merger. The EMT was responsible for diagnostic strategies and identified domestic and international software opportunities for the company. Before founding Global Med Technologies, Dr. Ruxin founded and was President and CEO of DataMed International, Inc. (DMI), a private, international drugs of abuse management company (from 1989-1997). DMI’s clients included FedEx, International Multi-Foods, Los Alamos National Laboratories, Chevron, ConAgra, Nestles and AT&T, among over 500 other companies. Dr. Ruxin was one of the first 10 certified Medical Review Officers in the country, and he participated in writing the Federal legislation for drugs of abuse testing. Dr. Ruxin received his M.D. degree from the University of Southern California and his B.A degree in Philosophy from the University of Pittsburgh.
Thomas E. Chilcott, III
Mr. Chilcott has served as our Chief Financial Officer since September 2020. Prior to taking his current role, Mr. Chilcott served as Chief Financial Officer, Secretary, Treasurer and Controller of Ampio Pharmaceuticals, Inc., or Ampio (NASDAQ: AMPE), from January 2017 until June 2019. Mr. Chilcott also served as the President and Chief Executive Officer of Chilcott Consulting Group from September 2006 to December 2016. Mr. Chilcott began his career as an auditor with KPMG Peat Marwick. He graduated from Villanova University with a BS of Administration in Accountancy and is a Certified Public Accountant in good standing. Mr. Chilcott is a member of the Colorado Society of Certified Public Accountants.
Mr. Busch has served as the Chairman of our Board since June 2020. Mr. Busch is the current Chairman and CEO of Global Medical REIT, a NYSE listed (NYSE:GMRE) and publicly traded company which acquires licensed medical facilities. Mr. Busch has been a Presidential Appointee, entrepreneur and active investor in various asset classes, including medical and pharmaceutical since 1985. Mr. Busch has had a distinguished career in public service, which included serving as a Chief of Staff to a United States Congressman and serving in senior positions in two U.S. Presidential Administrations. Mr. Busch oversaw hundreds of millions of dollars in economic development programs. Mr. Busch represented the United States before the United Nations in Geneva, Switzerland. Mr. Busch has served as a top advisor to several publicly traded medical companies and has worked in the medical, blood supply and management fields. Mr. Busch also served as President of Safe Blood International Foundation, where he oversaw the establishment of medical facilities in 35 developing nations, including China. These facilities were funded by the U.S. Centers for Disease Control and Prevention, USAID, Chinese government and corporate and private entities. Mr. Busch is a graduate of the New York University Stern School of Business, holds a Master of Public Administration specializing in health care from New York University, and a Doctor of Jurisprudence from Emory University.
Mr. Kucharchuk has served as a director of our Company since June 2020. Mr. Kucharchuk served as our Chief Financial Officer from August 2020 until September 2020 and as a member of our Board since June 2020. Mr. Kucharchuk was previously the Chief Executive Officer and Chief Financial Officer of OncBioMune, Inc. prior to the Asset Sale. Mr. Kucharchuk is currently the Chief Executive Officer and Chairman of the Board of Directors of Adhera Therapeutics, a late clinical stage biotechnology company, with assets in the Parkinson’s and Type 1 Diabetes space. Mr. Kucharchuk is a graduate of Louisiana State University and Tulane University’s Freeman School of Business, where he earned an MBA with a Finance Concentration. Mr. Kucharchuk’s role as a former executive officer of our Company gives him insights into our day-to-day operations and a practical understanding of the issues and opportunities that face us which uniquely qualify him to serve as a member of our Board.
Yvonne C. Fors
Ms. Fors has served as a director of our Company since June 2020. She has taken an active role in all areas of the business since joining the team in 2000. Ms. Fors is the current Chief Financial Officer and Vice President of Finance for Ashton Capital Corporation. Her achievements at Ashton include growing the company through acquisitions, real estate development and investments. In her role, she establishes relationships and collaborates with banks and other financial institutions to leverage the assets of the corporation to fund future growth. Ms. Fors currently serves on the Board of Directors of Ashton Capital, SaviBank, Savi Financial Corporation and GaffTech. She is also actively involved in SWAN Investments, an early-stage investment fund located in Seattle. Previously, Ms. Fors was the Controller and Manager of four medical clinics in Las Vegas, Nevada. Ms. Fors holds a Bachelor of Science degree in Accounting from the University of Nevada, Las Vegas.
There are no family relationships between any of the executive officers and directors.
Delinquent Section 16(a) Reports
Code of Ethics
We have not adopted a code of ethics because our Board believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our Board intends to adopt a code of ethics when circumstances warrant.
Involvement in Certain Legal Proceedings
No director, executive officer, promoter or person of control of our Company has, during the last ten years: (i) been convicted in or is currently subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any Federal or state securities or banking or commodities laws including, without limitation, in any way limiting involvement in any business activity, or finding of any violation with respect to such law, nor (iii) been a party to any bankruptcy petition filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy or for the two years prior thereto.
We are not engaged in, nor are we aware of any pending or threatened litigation in which any of our directors, executive officers, affiliates or owner of more than 5% of our common stock is a party adverse to us or has a material interest adverse to us.
Term of Office
Each director of our Company is to serve for a term of one year ending on the date of the subsequent annual meeting of stockholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until their successor is elected and qualified or until his or her death, resignation or removal. Our Board is to elect our officers and each officer is to serve until his successor is elected and qualified or until his death, resignation or removal.
Committees of the Board
Our Board held several formal meetings during the year ended September 30, 2021. All other proceedings of our Board were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws of the State of Nevada and our By-laws, as valid and effective as if they had been passed at a meeting of our directors duly called and held. During 2021, each incumbent director attended 75% or more of the meetings of our Board.
We currently do not have nominating or compensation committees or committees performing similar functions, nor do we have a written nominating or compensation committee charter. Our Board does not believe that it is necessary to have such committees because the functions of such committees can be adequately performed by our Board.
We do not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the election of nominees to our Board and we do not have any specific process or procedure for evaluating such nominees. Our Board assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.
A shareholder who wishes to communicate with our Board may do so by directing a written request to the address appearing on the first page of this annual report.
Audit Committee and Audit Committee Financial Expert
We do not have a standing audit committee at the present time. Our Board has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.
We believe that our Board is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The Board does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the Board. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
ITEM 11. EXECUTIVE COMPENSATION
For our fiscal year ended September 30, 2021, our Named Executive Officers were:
|(i)||Mick Ruxin, M.D., our Chief Executive Officer, who has served as our Chief Executive Officer since June 2020;|
|(ii)||Thomas E. Chilcott, our Chief Financial Officer, who has served as our Chief Financial Officer, Secretary and Treasurer since September 2020. We had no other executive officers serving during the year ended September 30, 2021.|
The following table shows compensation awarded to, paid to, or earned by our Named Executive Officers for the fiscal years ended September 30, 2021 and 2020:
SUMMARY COMPENSATION TABLE
FOR OUR NAMED EXECUTIVE OFFICERS
|Name and Principal Position||Fiscal Year||Salary ($)||Bonus ($)||Stock Awards ($)||Option Awards ($)||Non- Equity Incentive Plan Compensation ($)|
Nonqualified Deferred Compensation Earnings
|All Other Compensation ($)||Total ($)|
|Mick Ruxin, M.D,||2021||300,000||(1)||—||—||—||—||—||10,583||(2)||310,583|
|Chief Executive Officer, |
Effective June 2020
|Thomas E. Chilcott, III,||2021||225,000||(4)||—||—||—||—||—||—||225,000|
|Chief Financial Officer, |
Effective September 2020
|Former Chief Financial Officer||2020||56,654||(3)||—||—||—||—||—||—||56,654|
|(1)||On June 5, 2020, Dr. Ruxin was appointed to serve as our Chief Executive Officer with an annual salary of $300,000 pursuant to his employment agreement dated June 5, 2020. During 2021, $62,500 of Dr. Ruxin salary was accrued to be paid in the future.|
|(2)||Represents Dr. Ruxin’s health insurance allowance.|
|(3)||On August 14, 2020, Andrew Kucharchuk was appointed as the Acting Chief Financial Officer of the Company with an annual salary of $180,000. Mr. Kucharchuk resigned on September 24, 2020.|
|(4)||On September 29, 2020, Thomas Chilcott was appointed the Chief Financial Officer of the Company with an annual salary of $225,000.|
Our executive officers are reimbursed by us for any out-of-pocket expenses incurred in connection with activities conducted on our behalf.
Compensation of Management
Dr. Ruxin was appointed as Chief Executive Officer effective June 5, 2020.
Effective September 29, 2020, Mr. Chilcott was appointed our Chief Financial Officer. Concurrently, Mr. Kucharchuk resigned from his position with the Company.
A description of employment agreements follows:
Employment Agreement with Mick 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 is for a five-year term commencing on June 5, 2020. The term will be automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment period will not be extended. Dr. Ruxin will be entitled to receive an annual base salary of $300,000 and will be eligible for an annual discretionary bonus of 150% of such base salary. In the Ruxin Employment Agreement, Dr. Ruxin is also promised, subject to the approval of the Board or a committee thereof, and under the 2020 Equity Incentive Plan (i) a one-time grant of 49,047,059 Restricted Stock Units (“RSUs”) and (ii) a one-time grant of options to purchase 420,691,653 shares of Common Stock, both of which will be subject to the terms and conditions of the applicable award agreements when executed. Dr. Ruxin is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time. As of September 30, 2021, the RSUs and options have not yet been granted or issued since the Board has not yet approved the grants and the 2020 Equity Incentive Plan has not been approved by the shareholders. Further, the board and Dr. Ruxin have not yet agreed on the terms of the options.
Dr. Ruxin is an “at-will” employee and his employment may be terminated by the Company at any time, with or without cause. In the event Dr. Ruxin’s employment is terminated by the Company without Cause (as defined in the Ruxin Agreement), with Good Reason (as defined in the Ruxin Agreement) or as a result of a non-renewal of the term of employment under the Ruxin Agreement, Dr. Ruxin shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Dr. Ruxin prior to the date of termination and he shall be entitled to reimbursement of any COBRA payments made during the 18-month period following the date of termination.
The Ruxin Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.
Employment Agreement with Jeff Busch
On June 5, 2020, the Company and Jeffrey Busch entered into an employment agreement (the “Busch Employment Agreement”) for Mr. Busch to serve as the Company’s Chairman of the Board.
The Busch Employment Agreement is for a five-year term commencing on June 5, 2020. The term will be automatically extended for one additional year upon the fifth anniversary of the effective date without any affirmative action, unless either party to the agreement provides at least sixty (60) days’ advance written notice to the other party that the employment period will not be extended. Mr. Busch will be entitled to receive an annual base salary of $60,000 and will be eligible for an annual discretionary bonus. In the Busch Employment Agreement, Mr. Busch is also promised, subject to the approval of the Board or committee thereof, and under the 2020 Equity Incentive Plan (i) a one-time grant of 49,047,059 Restricted Stock (“RSUs”) and (ii) a one-time grant of options to purchase 420,691,653 shares of Common Stock, both of which will be subject to the terms and conditions of the applicable award agreements when executed. Mr. Busch is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time. As of September 30, 2021, the RSUs and options have not yet been granted or issued since the Board has not yet approved the grants and the 2020 Equity Incentive Plan has not been approved by the shareholders. Further, the Board and Mr. Busch have not yet agreed on the terms of the options.
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 termination of employment is the result of termination by the Company without Cause (as defined in the Busch Agreement), with Good Reason (as defined in the Busch Agreement) or as a result of a non-renewal of the term of employment under the Busch Agreement, Mr. Busch shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 3.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control, the Severance Multiple shall mean 4.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Mr. Busch prior to the date of termination.
The Busch Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding the Company, and (c) soliciting employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.
Outstanding Equity Awards
As of September 30, 2021, there were no outstanding equity awards.
Long-Term Incentive Plans, Retirement or Similar Benefit Plans
There are currently no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that we may reimburse our executive employees for up to 100% of their health insurance premiums under their individual policies.
Our directors, executive officers and employees may receive stock options at the discretion of our Board.
Potential Payments upon Termination or Change in Control
If the employment of Dr. Ruxin or Mr. Busch is terminated at our election at any time, for reasons other than death, disability, cause (as defined in their agreements) or a voluntary resignation, or if the officer terminates their employment for good reason, the officer in question shall be entitled to receive a lump sum severance payment equal to three times their base salary, respectively. Dr. Ruxin shall be entitled to the continued payment of premiums for continuation of his health and welfare benefits pursuant to COBRA or otherwise, for a period of eighteen months from the date of termination, subject to earlier discontinuation if he is eligible for comparable coverage from a subsequent employer. Mr. Busch is not entitled to any COBRA benefits pursuant to the terms of his employment agreement. If a termination occurs any time during the twelve-month period following a change in control the severance payment shall equal four time their base salary. All severance payments, less applicable withholding, are subject to the officer’s execution and delivery of a general release of us and our affiliates and each of their officers, directors, employees, agents, successors and assigns in a form acceptable to us, and a reaffirmation of the officer’s continuing obligation under the propriety information and inventions agreement (or an agreement without that title, but which pertains to the officer’s obligations generally, without limitation, to maintain and keep confidential all of our proprietary and confidential information, and to assign all inventions made by the officer to us, which inventions are made or conceived during the officer’s employment). If the employment is terminated for cause, no severance shall be payable by us.
“Good Reason” means:
|●||A material diminution in employee’s base salary or authority, duties and responsibilities with the Company or its subsidiaries;|
|●||A material breach by the Company of any of its obligations under the employment contract; or|
|●||The relocation of the geographic location of employee’s principal place of employment by more than twenty-five (25) miles from the location of employee’s principal place of employment as of the effective date.|
|●||Employee’s material breach of the employment agreement or any other written agreement between the employee and one or more members of the Company, including employee’s material breach of any representation, warranty or covenant made under any such agreement;|
|●||Employee’s material breach of any law applicable to the workplace or employment relationship, or Employee’s material breach of any policy or code of conduct established by a member of the Company and applicable to the employee;|
|●||Employee’s gross negligence, willful misconduct, material breach of fiduciary duty, fraud, theft or embezzlement on the part of employee;|
|●||The commission by Employee of, or conviction or indictment of employee for, or plea of nolo contendere by employee to, any felony (or state law equivalent) or any crime involving moral turpitude; or|
|●||Employee’s willful failure or refusal, other than due to disability, to perform employee’s obligations pursuant to the employment contract or to follow any lawful directive from the board, as determined by the board (sitting without employee, if applicable); provided, however, that if employee’s actions or omissions as set forth in the employment agreement are of such a nature that the board determines that they are curable by the employee, such actions or omissions must remain uncured thirty (30) days after the board first provided employee written notice of the obligation to cure such actions or omissions.|
In the event of a Change of Control, all outstanding stock options, restricted stock and other stock-based grants held by Dr. Ruxin and Mr. Busch will become fully vested and exercisable, and all such stock options remain exercisable from the date of the Change in Control until the expiration of the term of such stock options.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by the consummation of any transaction or series of integrated transactions immediately following which the record holders of our common stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of our assets immediately following such transaction or series of transactions.
The employment agreements do not provide for the payment of a “gross-up” payment under Section 280G of the Code. The following table provides estimates of the potential severance and other post-termination benefits that each of Dr. Ruxin and Mr. Busch would have been entitled to receive assuming their respective employment was terminated as of September 30, 2021, for the reason set forth in each of the columns.
|Recipient and Benefit||Cause; Without Good Reason||Without Cause; Good Reason|
|Change in Control|
|Mick Ruxin, M.D.:|
|Value of Health Benefits Provided after Termination (1)||—||31,752||—||31,752|
|Value of Health Benefits Provided after Termination (1)||—||—||—||—|
|(1)||The value of such benefits is determined based on the estimated cost of providing health benefits to the Named Executive Officer for a period of eighteen months.|
Compensation of Directors
During the year ended September 30, 2021, we did not pay compensation to any of our non-employee directors in connection with their service on our Board.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock, Series E preferred stock and Series F Preferred Stock as of January 13, 2022, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, (ii) each director and each of our Named Executive Officers and (iii) all executive officers and directors as a group.
The number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
|Name and Address of Beneficial Owner (1)|
|Other 5% Stockholders:|
|Avant Diagnostics, Inc||5,081,549,184||63.7||%|
|Named Executive Officers and Directors:|
|Mick Ruxin, M.D.||—||—|
|Thomas Chilcott, III||—||—|
|Yvonne C. Fors||—||—|
|All executive officers and directors as a group (five persons)|
* Indicates less than 1%
|(1)||Unless otherwise indicated, the business address of each person listed is in care of Theralink Technologies, Inc., 15000 W. 6th Avenue, Suite 400, Golden, CO 80401.|
|(2)||The number and percentage of shares beneficially owned are determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares over which the individual or entity has voting power or investment power and any shares of common stock that the individual has the right to acquire within 60 days of January 13, 2022, through the exercise of any stock option or other right. As of September 22, 2022, 5,555,473,158 shares of the Company’s common stock were outstanding.|
|(3)||The address for Douglas Mergenthaler is Ashton Capital Corporation, 1201 Monster Road SW, Suite 350, Renton, WA 98057. All securities held by Mr. Mergenthaler are held either directly or indirectly through Aston Capital, an investment fund that Mr. Mergenthaler controls. The amount shown includes: (1) 656,674,588 shares of common stock issuable upon the exercise of warrants that expire on November 27, 2024 with an exercise price of $.00214; (2) 319,488,818 shares of common stock currently issuable upon conversion of a convertible secured promissory note that matures on May 12, 2026; (3) 63,897,764 shares of common stock issuable upon the exercise of warrants that expire on May 12, 2026, at an exercise price of $.00313; (4) 63,897,764 shares of common stock issuable upon the exercise of warrants that expire on May 12, 2026, at an exercise price of $.00313; (5) 638,977,636 shares of common stock currently issuable upon the conversion of 1,000 shares of Series E Convertible Preferred Stock of the Company; (6) 319,488,818 shares of common stock currently issuable upon the conversion of 500 shares of Series F Convertible Preferred Stock of the Company; (7) 273,224,045 shares of common stock currently issuable upon conversion of a convertible secured promissory note that matures on November 1, 2026; and (8) 36,448,089 shares of common stock issuable upon the exercise of warrants that expire on November 1, 2026, at an exercise price of $.00366.|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
On June 5, 2020, the Company entered into a consulting agreement with Mr. Kucharchuk, a member of the Board of Directors, to serve as a strategic advisor to the Company’s Chief Executive Officer. Pursuant to the agreement, Mr. Kucharchuk was paid a monthly fee of $15,000. The agreement terminated on December 5, 2020. On August 14, 2020, Mr. Kucharchuk was appointed as the acting Chief Financial Officer. Thereafter, the agreement renewed on a month-to-month basis by mutual agreement of the parties. On September 24, 2020, Mr. Kucharchuk resigned as the acting Chief Financial Officer of the Company.
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 Series E Convertible Preferred Stock of the Company (the “Series E Preferred”) for an aggregate investment amount of $2,000,000. The Company’s Series E Preferred Stock has a stated value of $2,000 per share and shall accrue, on a quarterly basis in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid quarterly at the option of the holder of the Series E Preferred in either cash or shares of common stock of the Company. The Series E Preferred is convertible two days after the increase in the Company’s authorized common stock which became effective on September 24, 2020. The number of shares of common stock issuable on the conversion of the Series E 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) $0.00375 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 $0.0021. For eighteen months from the anniversary of the closing, the Company needs to obtain consent from several investors prior to engaging in any future capital raises.
During the year ended September 30, 2020, a $160,000 outstanding balance owed for consulting fee – related party was converted into 0.24 shares of Series D-1 Preferred.
During the year ended September 30, 2020, the Company repaid an outstanding $20,000 advance to a related party.
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 renew on a month-to month basis, subject to the right of the Company and Mr. Kucharchuk to terminate the agreement. Pursuant to the terms of the agreement, Mr. Kucharchuk shall be paid $2,000 per month. As of September 30, 2021, the Company recorded accrued consulting fees in the amount of $18,000 reflected under accrued liabilities – related party in the accompanying balance sheets.
On April 26, 2021, the Company entered into a Promissory Note Agreement (the “Note”) with Jeffrey Busch who serves as a member of the Board for a principal amount of $100,000 with the Company receiving proceeds of $100,000. As of September 30, 2021, the Note had outstanding principal of $100,000 and accrued interest of $427.
On May 12, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is a existing shareholder (“Affiliated Investor”), to purchase a convertible note (the “Note”) and accompanying warrant for 63,897,764 shares of commons stock (the “Warrant”), for an aggregate investment amount of $1,000,000. The Note has a principal value of $1,000,000 and bears an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an “Event of Default” (as defined in the Note)) and shall mature on May 12, 2026 (the “Maturity Date”). As of September 30, 2021, the Note had outstanding principal of $1,000,000 and accrued interest of $6,575. It’s reflected in the accompanying consolidated balance sheet as a long term convertible note payable – related party, net of discount in the amount of $64,981.
On July 30, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an affiliated investor, who is an existing shareholder, to purchase an aggregate amount of 500 shares of Series F Convertible Preferred Stock (the “Series F Preferred”) with accompanying warrants for 63,897,764 shares of common stock (the “Warrant”), for total proceeds of $1,000,000. The Series F Preferred Stock has a stated value of $2,000 per share and shall accrue monthly in arrears, dividends at the rate of 8% per annum on the stated value. The dividends shall be paid monthly at the option of the holder of the Series F Preferred in either cash or shares of common stock of the Company. The number of shares of common stock issuable upon conversion of the Series F Preferred is determined by dividing the stated value of the number of shares being converted, plus any accrued and unpaid dividends, by the lesser of: (i) $0.00313 and (ii) 75% of the average closing price of the Company’s common stock during the prior five trading days; provided, however, the conversion price shall never be less than $0.0016. In addition, the investor was issued the 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 Warrant is exercisable for cash at any time.
As of September 30, 2021, the Company owed an executive for expense reimbursements in the aggregate amount of $3,714 which is reflected on the accompanying balance sheet as accounts payable – related party.
Policies and Procedures for Related Party Transactions
We have adopted a policy that our executive officers, directors, nominees for election as directors, beneficial owners of more than 5% of any class of our common stock and any member of the immediate family of any of the foregoing persons, are not permitted to enter into a related party transaction with us without the prior consent of our Board. If advance approval is not feasible then the related party transaction will be considered at the next regularly scheduled Board meeting. In approving or rejecting any such proposal, our Board is to consider the relevant facts and circumstances available and deemed relevant, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.
Because the Company’s common stock is not currently listed on a national securities exchange, the Company has used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
|●||the director is, or at any time during the past three years was, an employee of the Company;|
|●||the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);|
|●||a family member of the director is, or at any time during the past three years was, an executive officer of the Company;|
|●||the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);|
|●||the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or|
|●||the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the Company’s audit.|
Based on this review, the Company has one independent director pursuant to the requirements of the NASDAQ Stock Market.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Previously, the Company engaged Weinstein International C.P.A. to serve as our independent auditors. On June 4, 2021, the Company’s Board determined that the Company’s independent registered public accounting firm prior to the acquisition of Avant, Salberg & Company, P.A., would be the independent registered public accounting firm for the Company for the fiscal year ending September 30, 2020. Accordingly, Weinstein, the independent public accounting firm of Avant, as the accounting acquirer, was dismissed and will no longer be the Company’s independent registered public accounting firm.
The following table sets forth the fees billed to our Company for the years ended September 30, 2021 and 2020 for professional services rendered by Salberg & Company, P.A., our independent registered public accounting firms:
|Audit Related Fees||—||—|
The following table sets forth the fees billed to our Company for the year ended September 30, 2020 for professional services rendered by Weinstein International C.P.A., our prior independent registered public accounting firms:
|Audit Related Fees||—||—|
Audit fees were for professional services rendered for the audits of our annual financial statements and for review of our quarterly financial statements during the 2021 and 2020 fiscal years.
This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees”.
As our independent registered public accountants did not provide any services to us for tax compliance, tax advice and tax planning during the fiscal years ended September 30, 2021 and 2020, no tax fees were billed or paid during those fiscal years.
All Other Fees
Our independent registered public accountants did not provide any products and services not disclosed in the table above during the 2021 and 2020 fiscal years. As a result, there were no other fees billed or paid during those fiscal years.
Policy on Pre-Approval of Services of Independent Registered Public Accounting Firm
Prior to the engagement, the Board pre-approves these services by category of service. The fees are budgeted, and the Board requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Board requires specific pre-approval before engaging the independent registered public accounting firm.
The Board may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Board at its next scheduled meeting.
Our Board has considered the nature and amount of fees billed by our independent registered public accounting firm and believe that the provision of services for activities unrelated to the audit is compatible with maintaining their respective independence.
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
|The financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements and Schedules” on page F-1 and included from F-2 onwards.|
|2.||Financial Statement Schedules|
|All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.|
|3.||Exhibits (including those incorporated by reference).|
|Exhibit||Incorporated by Reference||Filed or Furnished|
|Number||Exhibit Description||Form||Exhibit||Filing Date||Herewith|
|2.1||Asset Purchase Agreement, dated May 12, 2020, by and among OncBioMune Pharmaceuticals, Inc. and Avant Diagnostics, Inc.||8-K||2.1||05/13/2020|
|3.1||Amended and Restated Articles of Incorporation, as amended||X|
|3.2||Amended and Restated Bylaws||8-K||3.1||11/01/2013|
|4.1||Form of Warrant||8-K||4.1||06/11/2020|
|4.2||Exchange Warrant, dated June 5, 2020||8-K||4.2||06/11/2020|
|4.3||Convertible Secured Promissory Note, dated May 12, 2021||8-K||4.1||05/19/2021|
|4.4||Common Stock Purchase Warrant, issued May 12, 2021||8-K||4.2||05/19/2021|
|4.5||Common Stock Purchase Warrant, dated July 30, 2021||8-K||4.1||08/06/2021|
|4.6||Description of Common Stock||10-K||4.1||03/25/2020|
|10.1||Exchange Agreement, dated June 5, 2020, by and among OncBioMune Pharmaceuticals, Inc. and the Investors named therein||8-K||10.1||06/11/2020|
|10.2||Exchange Agreement, dated June 5, 2020, by and among OncBioMune Pharmaceuticals, Inc. and the Investors named therein||8-K||10.2||06/11/2020|
|10.3||Exchange Agreement, dated June 5, 2020, by and among OncBioMune Pharmaceuticals, Inc. and Jonathan F. Head, PhD||8-K||10.3||06/11/2020|
|10.4||Securities Purchase Agreement, dated June 5, 2020, by and among OncBioMune Pharmaceuticals, Inc., Cavalry Fund I LP and Lincoln Park Capital Fund, LLC||8-K||10.4||06/11/2020|
|10.5||Separation Agreement and General Release of Claims between OncBioMune Pharmaceuticals, Inc. and Andrew Kucharchuk, dated June 5, 2020||8-K||10.5||06/11/2020|
|10.6||Consulting Agreement between OncBioMune Pharmaceuticals, Inc. and Andrew Kucharchuk effective January 1, 2021*||X|
|10.7||Securities Purchase Agreement, dated September 16, 2020, by and among OncBioMune Pharmaceuticals, Inc. and the Investor||8-K||10.1||09/22/2020|
|10.8||Form of Subscription Agreement||8-K||10.1||04/20/2021|
|10.9||Form of Registration Rights Agreement||8-K||10.2||04/20/2021|
|10.10||Securities Purchase Agreement, dated May 12, 2021||8-K||10.1||05/19/2021|
|10.11||Security Agreement, dated May 12, 2021||8-K||10.2||05/19/2021|
|10.12||Securities Purchase Agreement, dated July 30, 2021||8-K||10.1||08/06/2021|
|10.13||Employment Agreement, dated June 5, 2020 by and between Dr. Michael Ruxin and OncBioMune Pharmaceuticals, Inc.*||10-K||10.13||09/27/2021|
|10.14||Employment Agreement, dated June 5, 2020 by and between Jeffrey Busch and OncBioMune Pharmaceuticals, Inc.*||10-K||10.14||09/27/2021|
|21.1||List of Subsidiaries||X|
|31.1||Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002.||X|
|31.2||Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002.||X|
|32.1||Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.||X|
|101.INS||INLINE XBRL INSTANCE DOCUMENT||X|
|101.SCH||INLINE XBRL TAXONOMY EXTENSION SCHEMA||X|
|101.CAL||INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE||X|
|101.DEF||INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE||X|
|101.LAB||INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE||X|
|101.PRE||INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE||X|
* Management contract or compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY