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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the Quarterly Period Ended: December 31, 2023

 

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

 

For the transition period from ______________ to ______________

 

Commission File Number: 000-52218

 

Theralink Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   20-2590810

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

15000 W. 6th Avenue, Suite 400

Golden, CO

 

 

80401

(Address of principal executive offices)   (Zip code)

 

Registrant’s telephone number, including area code: (720) 420-0074

 

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

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12B-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non accelerated filer Smaller reporting company
    Emerging growth company

 

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

 

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

 

The registrant had 6,151,499,919 shares of its common stock, $0.0001 par value per share, outstanding as of February 20, 2024.

 

 

 

 
 

 

THERALINK TECHNOLOGIES, INC.

FORM 10-Q

DECEMBER 31, 2023

 

TABLE OF CONTENTS

 

    Page
  PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements 4
  Balance Sheets - As of December 31, 2023 (unaudited) and September 30, 2023 4
  Statements of Operations for the Three Months Ended December 31, 2023 and 2022 (unaudited) 5
  Statements of Changes in Stockholder’s Deficit for the Three Months Ended December 31, 2023 and 2022 (unaudited) 6
  Statements of Cash Flows for the Three Months Ended December 31, 2023 and 2022 (unaudited) 7
  Condensed Notes to Unaudited Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures About Market Risk 43
Item 4. Controls and Procedures 43
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 44
Item 1A. Risk Factors 44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 44
Item 3. Defaults Upon Senior Securities 44
Item 4. Mine Safety Disclosures 44
Item 5. Other Information 44
Item 6. Exhibits 45
     
Signatures 46

 

2
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment about the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “should,” “plan,” “potential,” “project,” “will,” “would” and other words of similar meaning, or the negatives of such terms or other variations. These include, but are not limited to, statements relating to the following:

 

projected operating or financial results, including anticipated cash flows used in operations;
expectations regarding capital expenditures, research and development expenses and other payments;
our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing; and
our beliefs, assumptions and expectations about the regulatory approval for our technology including, but not limited to our ability to obtain regulatory approval in a timely manner or at all.

 

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

 

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

 

In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed on January 5, 2023 with the Securities and Exchange Commission (“SEC”), particularly in the ‘Risk Factors” section of such reports, that could cause results or events to differ materially from the forward-looking statements that we make herein. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement should be relied upon. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. Forward-looking statements apply only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as otherwise required by applicable law.

 

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

 

3
 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

THERALINK TECHNOLOGIES, INC.

BALANCE SHEETS

 

   December 31,   September 30, 
   2023   2023 
    (Unaudited)      
ASSETS          
CURRENT ASSETS:          
Cash  $23,770   $997,484 
Accounts receivable, net   45,780    23,910 
Prepaid expenses and other current assets   186,621    240,494 
Marketable securities   500    800 
           
Total Current Assets   256,671    1,262,688 
           
OTHER ASSETS:          
Property and equipment, net   409,805    448,515 
Financing right-of-use assets, net   11,382    18,988 
Operating right-of-use asset, net   1,091,384    1,104,346 
Security deposits   15,257    15,257 
           
Total Assets  $1,784,499   $2,849,794 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable  $1,384,870   $1,219,147 
Accounts payable - related parties   44,282    10,000 
Accrued liabilities   1,387,342    963,851 
Accrued liabilities - related parties   2,142,464    1,886,051 
Accrued compensation   233,625    93,845 
Accrued director compensation   267,500    252,500 
Contract liabilities   141,290    144,890 
Convertible notes, net of discount   9,480,024    7,488,217 
Convertible notes - related parties, net of discount   11,942,653    9,930,817 
Notes payable - related party, net of discount   1,158,172    1,149,442 
Notes payable - current   1,000    1,000 
Financing lease liability - current   23,469    30,262 
Operating lease liability - current   32,939    31,388 
Insurance payable   86,553    121,500 
Derivative liabilities   29,371,380    16,426,304 
Contingent liabilities   87,440    85,640 
           
Total Current Liabilities   57,785,003    39,834,854 
           
LONG-TERM LIABILITIES:          
Financing lease liability   -    4,128 
Operating lease liability   1,117,485    1,126,373 
           
Total Liabilities   58,902,488    40,965,355 
           
Commitments and Contingencies (Note 10)   -    - 
           
STOCKHOLDERS’ DEFICIT:          
Preferred stock: $0.0001 par value; 26,667 authorized;   -    - 
Series A Preferred stock: $0.0001 par value; 1,333 shares designated; 667 issued and outstanding at December 31, 2023 and September 30, 2023   -    - 
Series C-1 Preferred stock: $0.0001 par value; 3,000 shares designated; 141 issued and outstanding at December 31, 2023 and September 30, 2023   -    - 
Series C-2 Preferred stock: $0.0001 par value; 6,000 shares designated; nil issued and outstanding at December 31, 2023 and September 30, 2023   -    - 
Series D-1 Preferred stock: $0.0001 par value; 1,000 shares designated; nil issued and outstanding at December 31, 2023 and September 30, 2023   -    - 
Series D-2 Preferred stock: $0.0001 par value; 4,360 shares designated; nil issued and outstanding at December 31, 2023 and September 30, 2023   -    - 
Common stock: $0.0001 par value, 100,000,000,000 shares authorized; 6,151,499,919 shares issued and outstanding at December 31, 2023 and September 30, 2023   615,150    615,150 
Additional paid-in capital   55,068,273    55,024,063 
Accumulated deficit   (112,801,412)   (93,754,774)
           
Total Stockholders’ Deficit   (57,117,989)   (38,115,561)
           
Total Liabilities and Stockholders’ Deficit  $1,784,499   $2,849,794 

 

See accompanying notes to unaudited financial statements.

 

4
 

 

THERALINK TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

 

   2023   2022 
   For the Three Months Ended 
   December 31, 
   2023   2022 
         
REVENUES, NET  $83,949   $55,295 
           
COST OF REVENUES   52,947    10,818 
           
GROSS PROFIT   31,002    44,477 
           
OPERATING EXPENSES:          
Professional fees   511,277    387,438 
Compensation expense   752,974    1,752,699 
Licensing fees   32,710    31,637 
General and administrative expenses   281,100    448,493 
           
Total Operating Expenses   1,578,061    2,620,267 
           
LOSS FROM OPERATIONS   (1,547,059)   (2,575,790)
           
OTHER INCOME (EXPENSES):          
Interest expense, net   (4,554,203)   (1,847,035)
Loss on debt extinguishment, net   -    (5,434,447)
Unrealized loss on marketable securities   (300)   (2,000)
Settlement expense   -    (200,000)
Derivative expense   (12,945,076)   (26,397,075)
           
Total Other Expenses, net   (17,499,579)   (33,880,557)
           
NET LOSS   (19,046,638)   (36,456,347)
           
Series E preferred stock dividend   -    (26,301)
Series F preferred stock dividend   -    (13,151)
           
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS  $(19,046,638)  $(36,495,799)
           
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:          
Basic and diluted  $(0.00)  $(0.01)
           
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:          
Basic and diluted   6,151,499,919    6,151,499,846 

 

See accompanying notes to unaudited financial statements.

 

5
 

 

THERALINK TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022

(Unaudited)

 

   Series A # of Shares   Series C-1 # of Shares   Series C-2 # of Shares   Amount   # of Shares   Amount   Additional Paid-in Capital   Accumulated Deficit   Stockholders’ Deficit 
   Preferred Stock   Common Stock           Total 
   Series A # of Shares   Series C-1 # of Shares   Series C-2 # of Shares   Amount   # of Shares   Amount   Additional Paid-in Capital   Accumulated Deficit   Stockholders’ Deficit 
                                     
Balance at September 30, 2023   667    141    -   $-    6,151,499,919   $615,150   $55,024,063   $(93,754,774)  $(38,115,561)
                                              
Accretion of stock option expense   -    -    -    -    -    -    44,210    -    44,210 
                                              
Net loss   -    -    -         -    -    -    -    (19,046,638)   (19,046,638)
                                              
Balance on December 31, 2023   667    141    -   $-    6,151,499,919   $615,150   $55,068,273   $(112,801,412)  $(57,117,989)

 

   Preferred Stock   Common Stock           Total 
   Series A # of Shares   Series C-1 # of Shares   Series C-2 # of Shares   Amount   # of Shares   Amount   Additional Paid-in Capital   Accumulated Deficit   Stockholders’ Deficit 
                                     
Balance at September 30, 2022   667    1,043    3,037   $-    6,151,499,919   $615,150   $55,391,612   $(62,807,817)  $(6,801,055)
                                              
Accretion of stock option expense   -    -    -    -    -    -    612,173    -    612,173 
                                              
Exchange of preferred stock to convertible debt   -    (902)   (3,037)   -    -    -    (1,618,238)   -    (1,618,238)
                                              
Series E preferred stock dividend   -    -    -    -    -    -    -    (26,301)   (26,301)
                                              
Series F preferred stock dividend   -    -    -    -    -    -    -    (13,151)   (13,151)
                                              
Net loss   -    -    -          -    -    -    -    (36,456,347)   (36,456,347)
                                              
Balance on December 31, 2022   667    141    -   $-    6,151,499,919   $615,150   $54,385,547   $(99,303,616)  $(44,302,919)

 

See accompanying notes to unaudited financial statements.

 

6
 

 

THERALINK TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2023   2022 
   For the Three Months Ended 
   December 31, 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(19,046,638)  $(36,456,347)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation on property and equipment and finance ROU assets   46,316    50,479 
Non-cash lease cost   5,625    6,514 
Accretion of stock option expense   44,210    612,173 
Amortization of debt discount   3,017,093    1,602,646 
Loss on debt extinguishment   -    5,434,447 
Bad debt expense   31,500    - 
Unrealized loss on marketable securities   300    2,000 
Non-cash debt extension fee included in interest expense   995,280    - 
Non-cash settlement expense   -    200,000 
Derivative expense   12,945,076    26,397,075 
Change in operating assets and liabilities:          
Accounts receivable   (53,370)   (16,170)
Prepaid expenses and other current assets   53,873    19,976 
Accounts payable   200,005    (65,788)
Accrued liabilities and other liabilities   801,537    416,146 
Contract liabilities   (3,600)   20,500 
           
NET CASH USED IN OPERATING ACTIVITIES   (962,793)   (1,776,349)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   -    (7,980)
           
NET CASH USED IN INVESTING ACTIVITIES   -    (7,980)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from convertible debt - related parties, net   -    536,562 
Proceeds from convertible debt, net   -    2,118,088 
Repayment of convertible notes payable - related parties   -    (120,000)
Repayment of financed lease   (10,921)   (12,879)
           
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES   (10,921)   2,521,771 
           
NET (DECREASE) INCREASE IN CASH   (973,714)   737,442 
           
CASH, beginning of period   997,484    393,460 
           
CASH, end of period  $23,770   $1,130,902 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid during the period for:          
Interest  $22,697   $3,574 
Income taxes  $-   $- 
           
Non-cash investing and financing activities:          
Series E preferred stock dividend  $-   $26,301 
Series F preferred stock dividend  $-   $13,151 
Initial fair value of derivative liabilities recorded as debt discount - related parties  $-   $8,837,284 
Initial fair value of derivative liabilities recorded as debt discount  $-   $7,231,893 
Exchange of preferred stock and accrued dividends for convertible debt - related parties  $-   $3,099,945 
Exchange of preferred stock for convertible debt  $-   $1,615,238 
Exchange of accrued interest payable for convertible debt - related parties  $-   $129,079 
Exchange of accrued interest payable for convertible debt  $-   $173,375 

 

See accompanying notes to unaudited financial statements.

 

7
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED
)

 

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

 

Theralink Technologies, Inc. (“Theralink or the Company), is a Nevada corporation, that operates as a precision medicine company with a nationally CLIA-certified and CAP-accredited laboratory in Golden, Colorado. Theralink’s unique and patented Reverse Phase Protein Array (RPPA) technology platform can quantify protein signaling to support oncology clinical treatment decisions and biopharmaceutical drug development. Since protein signaling is responsible for the development and progression of cancer, nearly all FDA-approved cancer therapeutics target proteins, not genes. The Theralink® RPPA technology can reveal the protein drug target(s) that are essentially turned “on” in a patient’s cancer and may suggest the most effective treatment plan to turn those proteins “off”. Therefore, the Theralink® RPPA technology is a critical tool that may empower oncologists with actionable information to effectively treat a cancer patient, which is often missed by standard proteomic and genomic testing.

 

Our commercially available Lab Developed Test (LDT), the Theralink® Assay for Breast Cancer, is currently being utilized by oncologists across the United States to assist in making the most targeted treatment plan for their patients with advanced breast cancer. In 2023, Theralink began receiving reimbursement for this test by Medicare and certain third-party payors. The Theralink® test determines which drug target(s) are present and/or activated and may reveal to the oncologist which patients are predicted to be responders versus non-responders to a particular therapeutic. The test may provide therapeutic recommendations to support oncologist treatment selection of the best therapy option – which may improve patient response and consequently save the healthcare system substantial dollars.

 

On May 23, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with IMAC Holdings, Inc. (“IMAC”) and IMAC Merger Sub, Inc., a newly formed, wholly owned subsidiary of IMAC (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Theralink (the “Merger”), with Theralink continuing as a wholly owned subsidiary of IMAC. The board of directors of IMAC, and the Company’s Board of Directors unanimously approved the Merger Agreement. Under the terms of the Merger Agreement, upon completion of the Merger, each share of our common stock and each share of our preferred stock issued and outstanding as of immediately prior to completion of the Merger will be converted into and will thereafter represent the right to receive a portion of a share of common stock of IMAC, par value $0.001 (the “IMAC Shares”) such that the total number of IMAC Shares issued to the holders of our common and preferred stock shall equal 85% of the total number of IMAC Shares outstanding as of the completion of the Merger. The completion of the Merger is subject to the satisfaction of customary closing conditions, including: (i) adoption of the Merger Agreement by holders of a majority of the outstanding shares of voting stock of Theralink, and (ii) approval of the issuance of IMAC Shares in connection with the Merger by a majority of the votes cast at the shareholder meeting of IMAC. IMAC and we have each made customary representations and warranties in the Merger Agreement. The Merger Agreement also contains customary covenants and agreements, including covenants and agreements relating to the conduct of each of IMAC’s and our business between the date of the signing of the Merger Agreement and the closing date of the Merger. The Company is currently working with IMAC to facilitate the completion of the merger in early 2024.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.

 

The accompanying interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information, which present the unaudited financial statements of the Company as of December 31, 2023. The interim unaudited financial statements do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the September 30, 2023 audited financial statements on Form 10-K filed on January 5, 2024. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments and non-recurring adjustments) have been made for the fair presentation of the unaudited financial statements. The results for the interim period are not necessarily indicative of the results to be expected for the year ending September 30, 2024.

 

Going Concern

 

These unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited financial statements, the Company had a net loss and net cash used in operations of $19,046,638 and $962,793, respectively, for the three months ended December 31, 2023. Additionally, the Company had an accumulated deficit of approximately $112.8 million, and a stockholders’ deficit and working capital deficit of approximately $57.1 million and $57.5 million, respectively, on December 31, 2023. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.

 

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

 

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

 

8
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the three months ended December 31, 2023 and 2022 include, but are not necessarily limited to, estimates of contingent liabilities, valuation of marketable securities, useful life of property and equipment, valuation of right-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-lived assets, allowances for accounts receivable, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of derivative liabilities, and the fair value of non-cash equity transactions.

 

Fair Value of Financial Instruments and Fair Value Measurements

 

FASB ASC 820 – Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on December 31, 2023. Accordingly, the estimates presented in these unaudited financial statements are not necessarily indicative of the amounts that could be realized on the disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

 

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the unaudited balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, contract liabilities, and accrued compensation approximate their fair market value based on the short-term maturity of these instruments.

 

Assets or liabilities measured at fair value on a recurring basis included embedded conversion options in convertible debt (See Note 6) and were as follows on December 31, 2023 and September 30, 2023.

  

   December 31, 2023   September 30, 2023 
Description  Level 1   Level 2   Level 3   Level 1   Level 2   Level 3 
Derivative liabilities  $   $   $29,371,380   $   $   $16,426,304 

 

A roll forward of the level 3 valuation financial instruments is as follows:

  

   2023   2022 
   For the Three Months Ended December 31, 
   2023   2022 
Balance at beginning of period  $16,426,304   $- 
Initial valuation of derivative liabilities included in debt discount   -    16,069,178 
Initial valuation of derivative liabilities included in derivative expense   -    25,891,917 
Change in fair value included in derivative expense, net   12,945,076    505,158 
Balance at end of period  $29,371,380   $42,466,252 

 

ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding equity instruments.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. As of December 31, 2023, the Company had no cash equivalents.

 

The Company deposits its cash with major financial institutions and may at times exceed the federally insured limit. On December 31, 2023, the Company’s cash balance did not exceed the federal deposit insurance limit of $250,000. At September 30, 2023, the Company’s cash balance exceed the federal deposit insurance limit of $250,000 by $747,601.

 

9
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

Prepaid Assets

 

Prepaid assets are carried at amortized cost. Prepaid assets as of December 31, 2023 and September 30, 2023 include, but are not necessarily limited to, prepaid insurance, prepaid consulting fees, prepaid equipment maintenance fees and retainers for professional services.

 

Research and Development Expenses

 

Research and development expenses are recognized as general and administrative expense as incurred including the purchase of laboratory supplies.

 

Property and Equipment

 

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

 

Impairment of Long-Lived Assets

 

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

 

Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under the FASB’s Accounting Standards Update (“ASU”) 2016-09 Improvements to Employee Share-Based Payment.

 

Revenue Recognition and Contract Assets and Liabilities

 

In accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that core principle by applying the following steps:

 

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. In January 2021, the Company began performing tumor profiling to support clinical patient therapeutic intervention. The services provided by the Company are performance obligations under services contracts. These contracts are completed over time and may lead to deferred revenue for services not completed at the end of a period which is reflected as contract liabilities on the accompanying balance sheet. The Company may include, in accounts receivable, amounts billed to customers in advance of services being initiated or completed. If the Company has a right to such consideration that is unconditional such as for contractually allowed billings under non-cancellable contracts, such amounts billed in advance would be offset by a contract liability. Management reviews the completion status of all jobs monthly to determine the appropriate amount of revenue to recognize. The Company offers these services to biopharmaceutical companies and to private individuals. The Company uses various output methods to recognize revenues. During the three months ended December 31, 2023 and 2022, revenues by category are as follows:

 

   Three Months Ended
December 31, 2023
   Three Months Ended
December 31, 2022
 
Biopharma services  $14,970   $39,795 
Patient testing service   68,979    15,500 
Total revenues  $83,949   $55,295 

 

Contract Liabilities – Deferred Revenue

 

Contract liabilities are cash deposits received from customers and advance billing included in accounts receivable on uncompleted contracts for which revenues have not been recognized as of the balance sheet date.

 

For the three months ended December 31, 2023 and 2022, contract liabilities activity is as follows:

  

   Three Months Ended
December 31, 2023
   Three Months Ended
December 31, 2022
 
Contract liabilities - beginning of period  $144,890   $156,550 
Billings and cash receipts on uncompleted contracts   -    24,000 
Less: revenues recognized during the period   (3,600)   (3,500)
Contract liabilities – end of period  $141,290   $177,050 

 

10
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

During the three months ended December 31, 2023, the Company recognized $3,600 of contract liabilities into revenue, of which $3,600 was related to the uncompleted contracts from the prior period.

 

Cost of Revenues

 

The cost of revenue includes the cost of labor, supplies and materials.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis and does not bear interest. The Company recognizes an allowance for losses on accounts receivable and other receivables in an amount equal to the estimated probable losses net of recoveries under the current expected credit loss method. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts or other accounts considered at risk or uncollectible. The bad debt expense associated with the allowance for doubtful accounts related to accounts receivable and other receivables is recognized in general and administrative expenses.

 

Research and Development - Contract

 

The Company executed an investigator-initiated study agreement in 2022. The contract agreement expires on December 31, 2027, and may be canceled by either party upon 30-days written notice. As part of the agreement, the Company is required to make quarterly payments to the investigator for the rights/access to various retrospective biobank clinical samples for research and product development purposes. In addition, the Company received active patient clinical samples for various cancer indications including: ovarian, endometrial, and head & neck cancers. These samples were tested to provide RUO (Research Use Only) results reports for research and product validation efforts. For the three months ended December 31, 2023 and 2022, the Company did not incur any research and development expenses.

 

Derivative Liabilities

 

The Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 - Derivative and Hedging - Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment, or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.

 

Concentrations

 

Concentration of Revenues

 

For the three months ended December 31, 2023, the Company generated total revenue of $83,949 of which 13.5% were from one of the Company’s customers. For the three months ended December 31, 2022, the Company generated total revenue of $55,295 of which 72% was from one of the Company’s customers.

 

Concentration of Accounts Receivable

 

As of December 31, 2023, the Company had net accounts receivable of $45,780 of which 57.9% were from one of the Company’s customers and 42.1% was from the Company’s self-pay customers. As of September 30, 2023, the Company had net accounts receivable of $23,910 of which 63% was from one of the Company’s customers and 37% was from the Company’s self-pay customers.

 

Concentration of Contract Liabilities

 

As of December 31, 2023, the Company had deferred revenue reflected as contract liabilities of $141,290 of which 100% was from one of the Company’s customers. As of September 30, 2023, the Company had deferred revenue reflected as contract liabilities of $144,890 of which 100% was from one of the Company’s customers.

 

Basic and Diluted Loss Per Share

 

Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes, conversion of preferred stock, and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive equity securities outstanding as of December 31, 2023 and 2022 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:

  

   2023   2022 
   December 31, 
   2023   2022 
Stock warrants   7,244,334,819    6,862,673,594 
Stock options   1,660,670,920    1,901,410,519 
Series C-1 preferred stock   21,167,535    212,431 
Convertible notes   24,440,123,504    8,765,180,181 
Total antidilutive securities excluded from computation of earnings   33,366,296,778    17,529,476,725 

 

11
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

Income Taxes

 

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

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of December 31, 2023 and September 30, 2023, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of December 31, 2023 and September 30, 2023.

 

Related Parties

 

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

 

Leases

 

The Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.

 

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

 

Recent Accounting Pronouncements

 

On October 1, 2022, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326). The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. While the adoption of ASC 326 could result in a higher allowance recorded in the future for credit losses on receivables within the scope of the standard due to the prescribed measurement principles, the impact of the adoption on the Company’s financial statements was not material.

 

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

 

NOTE 3 – MARKETABLE SECURITIES

 

During the fiscal year ended 2017, the Company acquired 1,000,000 shares of common stock of Amarantus BioScience Holdings, Inc. (“AMBS”) with a fair value of $40,980. The AMBS common stock is recorded as marketable securities in the accompanying balance sheets. The Company adjusts the fair value of the security at every reporting period and the change in fair value is recorded in the statements of operations as unrealized gain or (loss) on marketable securities. During the three months ended December 31, 2023 and 2022, the Company recorded $300 and $2,000 of unrealized loss on marketable securities, respectively. As of December 31, 2023 and September 30, 2023, the fair value of these shares was $500 and $800, respectively.

 

NOTE 4 – ACCOUNTS RECEIVABLE

 

On December 31, 2023 and September 30, 2023, accounts receivable consisted of the following:

 

  

December 31,

2023

  

September 30,

2023

 
Accounts receivable  $89,530   $46,660 
Less: allowance for doubtful accounts   (43,750)   (22,750)
Accounts receivable, net  $45,780   $23,910 

 

For the three months ended December 31, 2023 and 2022, bad debt expense amounted to $31,500 and $0, respectively.

 

12
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

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

  

  

Estimated

Useful Life in

Years

  

December 31,

2023

  

September 30,

2023

 
Laboratory equipment   5   $513,788   $513,788 
Furniture   5    24,567    24,567 
Leasehold improvements   5    353,826    353,826 
Computer equipment   3    76,469    76,469 
Property and equipment gross        968,650    968,650 
Less: accumulated depreciation        (558,845)   (520,135)
Property and equipment, net       $409,805   $448,515 

 

For the three months ended December 31, 2023 and 2022, depreciation expense related to property and equipment was $38,710 and $38,887, respectively.

 

Leased equipment was not included in the table above as it was accounted for in accordance with ASU 842 – Leases. These leases are discussed in Note 8 under financing lease right-of-use (“ROU”) assets and financing lease liabilities.

 

NOTE 6 – DEBT

 

On December 31, 2023 and September 30, 2023, convertible notes payable (third parties and related parties) consisted of the following:

 

  

December 31,

2023

  

September 30,

2023

 
Principal amount  $9,480,024   $8,986,605 
Less: debt discount   -    (1,498,388)
Convertible notes payable, net   9,480,024    7,488,217 
Less: current portion of convertible notes payable   (9,480,024)   (7,488,217)
Convertible notes payable, net – long-term  $-   $- 
           
Principal amount – related parties  $11,942,653   $11,440,792 
Less: debt discount – related parties   -    (1,509,975)
Convertible notes payable – related parties, net   11,942,653    9,930,817 
Less: current portion convertible notes payable - related parties   (11,942,653)   (9,930,817)
Convertible notes payable – related parties, net – long-term  $-   $- 
           
Total convertible notes payable, net  $21,422,677   $17,419,034 

 

Convertible Debt – Related Parties

 

On May 12, 2021, the Company entered into a Securities Purchase Agreement (“May 2021 SPA”) with a related party, who is an affiliate stockholder (“May 2021 Investor”) to purchase a convertible note (“May 2021 Note”) and accompanying 63,897,764 warrants (“May 2021 Warrants”) for an aggregate investment amount of $1,000,000 (see Note 8). The May 2021 Note had a principal value of $1,000,000, bore an interest rate of 8% per annum and was to mature on May 12, 2026. On November 29, 2022, the May 2021 Note was exchanged for a new convertible debenture (see below).

 

On November 1, 2021, the Company entered into a Securities Purchase Agreement (“First November 2021 SPA”) with a related party, who is an affiliate stockholder (“First November 2021 Investor”), to purchase three convertible notes (collectively as “First November 2021 Notes”) and three accompanying warrants (collectively as “First November 2021 Warrants”), for an aggregate investment amount of $1,000,000 and an aggregate of 54,644,811 warrants to purchase shares of common stock. The Company received $1,000,000 in aggregate proceeds from the First November 2021 Notes. On January 26, 2022, a notice and request for consent regarding a change in offering terms was sent by the Company to the First November 2021 Investor. Upon the approval of the First November 2021 Investor, the Company modified the terms of the First November 2021 SPA which increased the warrants issuable from 20% to 100% of the common stock issuable upon conversion of the notes purchased. As a result, the First November 2021 Investor received additional cashless-exercisable warrants equal to 80% of the common stock issuable upon conversion of the First November 2021 Notes. The Company issued additional warrants to purchase up to 218,579,234 shares of common stock to the First November 2021 Investor which increased the total relative fair value of all warrants in total by $34,620 recorded as debt discount which was being amortized over the life of the First November 2021 Notes (see Note 8 and 9). On November 29, 2022, the First November 2021 Notes were exchanged for a new convertible debenture (see below).

 

13
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

On April 5, 2022, the Company entered into a Securities Purchase Agreement (“First April 2022 SPA”) with a related party, Matthew Schwartz, who is a member of the Board of Directors (“Investor”), to purchase a convertible note with a principal balance of $100,000 (“First April 2022 Note”) with accompanying warrants to purchase 4,201,681 shares of common stock (“First April 2022 Warrants”). The Company received net proceeds of $100,000 on March 24, 2022. On November 29, 2022, the First April 2022 Note was exchanged for a new convertible debenture (see below).

 

On May 9, 2022, the Company entered into a Securities Purchase Agreement (“May 2022 SPA”) with a related party, who is an affiliate stockholder (“May 2022 Investor”), to purchase four convertible notes for an aggregate investment amount of $1,000,000 (collectively, the “May 2022 Notes”) and accompanying warrants to purchase an aggregate of 42,016,808 shares of common stock equal to 20% of the number of the total shares of common stock issuable upon the conversion of the May 2022 Notes (collectively, the “May 2022 Warrants”). The Company received $1,000,000 in aggregate proceeds from the May 2022 Notes. The May 2022 Warrants are exercisable at any time and expire on April 1, 2027. On November 29, 2022, the May 2022 Note was exchanged for a new convertible debenture (see below).

 

On June 15, 2022, the Company entered into a Securities Purchase Agreement (“June 2022 SPA”) with a related party, Danica Holley, who is a member of the Board of Directors (“Investor”), to purchase a convertible note with principal of $50,000 (“June 2022 Note”) with accompanying warrants to purchase 2,100,840 shares of common stock (“June 2022 Warrants”). The Company received net proceeds of $50,000 on June 15, 2022. The June 2022 Warrants are exercisable at any time and expire on April 1, 2027. On November 29, 2022, the June 2022 Note was exchanged for a new convertible debenture (see below).

 

On July 29, 2022, the Company entered into a Demand Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors and a related party, for a principal balance of $125,000, and on September 2, 2022, the Company entered into a second Demand Promissory Note Agreement with Jeffrey Busch for a principal balance of $150,000 (collectively referred to as the “Busch Notes”). On November 29, 2022, the Busch Notes were exchanged for a new convertible debenture (see below).

 

On August 11, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder, for a principal balance of $375,000. On November 29, 2022, this note was exchanged for a new convertible debenture (see below).

 

On September 2, 2022, the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder, for a principal balance of $350,000. On November 29, 2022, this note was exchanged for a new convertible debenture (see below).

 

On November 1, 2022, the Company entered into a Demand Promissory Note Agreements with two related parties, who are affiliate stockholders, for a principal balance of $120,000. The notes bore an annual interest rate of 8% and were payable on demand. The outstanding principal and accrued interest of the notes was contingently convertible, in full, at the option of the lender, into the same security issued by the Company in its next private placement of equity or equity backed securities at any time after the inception date. In December 2022, these short-term loans were repaid.

 

On November 29, 2022, in connection with the Securities Exchange Agreements and New Convertible Debt discussed below, the May 2021 Warrants, First November 2021 Warrants, First April 2022 Warrants, May 2022 Warrants, and June 2022 Warrants, aggregating 385,441,138 warrants, were amended to reduce the exercise price to $0.003 per share. Additionally, 63,897,764 warrants issued in connection with Series F preferred stock were amended to reduce the exercise price to $0.003 per share. In conjunction with the price reduction, the price protection feature for all these warrants was eliminated. All other terms of the warrants remained the same. As a result of the November 29, 2022, amendment to the exercise price, the Company calculated the difference between the warrants’ fair values on November 29, 2022, the date of the amendment, using the then current exercise price ranging from $0.00366 to $0.00476 and the new exercise price of $0.003 and determined that the difference was insignificant.

 

Securities Exchange Agreements and New Related Party Convertible Debentures and Warrants dated November 29, 2022

 

On November 29, 2022, the Company consummated the initial closing of a private placement offering pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of November 29, 2022, by and among the Company, certain related party accredited investors (the “Related Party Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its capacity as collateral agent. At the initial closing, the Company sold the related party Purchasers (i) 10% Original Issue Discount Senior Secured Convertible Debentures (the “New Related Party Debentures”) in an aggregate principal amount of $550,000 and (ii) warrants (the “New Related Party Warrants”) to purchase up to 157,142,857 shares of common stock of the Company, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $412,092 in net proceeds at the Initial Offering from the Related Party Purchasers, net of the Original Issue Discount of $50,000, commissions of $58,200 and other offering costs of $29,708.

 

On November 29, 2022, the Company entered into Securities Exchange Agreements with the above related party investors, whereby the May 2021 Note, the First November 2021 Notes, the First April 2022 Note, the May 2022 Notes, the June 2022 Note, the Busch Notes, the August 11, 2022 Demand Promissory Note, and the September 2, 2022 Demand Promissory Note with an aggregate principal amount of $4,150,000 (the “Exchanged Related Party Notes”) and accrued interest payable of $120,750 were exchanged for New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related party investors to exchange the respective convertible notes into the Related Party Debentures, the aggregate principal amount of the Exchanged Related Party Notes and accrued interest payable was increased by 15% (and the August 11, 2022 and September 2, 2022 Demand Promissory Notes were issued with 10% OID), or $589,505, for New Related Party Debentures with an aggregate principal amount of $4,860,255.

 

On November 29, 2022, the Company entered into Securities Exchange Agreements with related party preferred stockholders, whereby related party holders of 1,000 shares of Series E preferred stock with a stated value of $2,000,000 and accrued dividends payable of $66,630, and related party holders of 500 shares of Series F preferred stock with a stated value of $1,000,000 and accrued dividends payable of $33,315 were exchanged for the New Related Party Debentures. Additionally, on November 29, 2022, in order to induce the related party preferred stockholders to exchange their respective preferred shares into the New Related Party Debentures, the aggregate stated value and accrued dividends payable were increased by 15%, or $464,992, for new Related Party Debentures with an aggregate principal amount of $3,564,937. During the three months ended December 31, 2022, this increase in stated value and accrued dividends payable of $464,992 was included in loss of debt extinguishment on the accompanying statements of operations.

 

14
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

On April 11, 2023, the Company consummated a third closing of the Offering pursuant to the terms and conditions of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company and Jeffrey Busch (the “Third Closing Related Party Purchaser”). At the third closing, the Company sold the Purchaser (i) a New Debenture with a principal amount of $155,100 (the “April 2023 Related Party Debenture”) and (ii) Warrants to purchase up to 44,314,286 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $141,000 in net proceeds at the Third Offering, net of a 10% original issue discount of $14,100.

 

The November 29, 2022, New Related Party Debentures and April 2023 Related Party Debenture were to mature on November 29, 2023, subject to a three-month extension at the sole discretion of the Company. On November 27, 2023, the Company announced its intention to automatically extend the Maturity Date of the Debentures for an additional three-month period such that the Debentures shall be due and payable on February 29, 2024. In connection with this extension, at the expiration of the original Maturity Date of the New Related Party Debentures and April 2023 Related Party Debenture, the sum of (a) the outstanding principal amount of the Debentures, plus (b) accrued and unpaid interest thereon at the expiration of the original Maturity Date, plus (c) all other amounts, costs, expenses and liquidated was increased by 5%, or an aggregate of $501,861, which increased the principal balance of the notes and is included in interest expense on the accompanying statements of operations.

 

The New Related Party Debentures and April 2023 Related Party Debenture bear interest at 10% per annum payable upon conversion or maturity. The New Related Party Debentures and April 2023 Related Party Debenture are convertible into shares of the Company’s common stock at any time after the maturity date and prior to Mandatory Conversion (as defined below) at the conversion price equal to the lesser of: (i) $0.003 per share and (ii) 70% of the average of the VWAP (as defined in the Debentures) (or 50% of the average of such VWAP if an event of default has occurred and has not been cured) of the Common Stock during the ten Trading Day (as defined in the Debentures) period immediately prior to the applicable conversion date. The New Related Party Debentures are subject to mandatory conversion (“Mandatory Conversion”) in the event the Company closes a registered public offering of its Common Stock and receives gross proceeds of not less than $5,000,000, with such offering resulting in the listing for trading of the Common Stock on a national exchange (“Qualified Offering”). The conversion price per share of Common Stock in the case of a Mandatory Conversion shall be the lesser of (i) $0.003 per share and (ii) 70% of the offering price per share in the Qualified Offering (the “Qualified Offering Price”). Alternatively, upon a Mandatory Conversion, the holders of the Debentures may elect to exchange their Debentures for newly issued convertible preferred securities at a price per share equal to the Qualified Offering Price or the five-day VWAP of the Common Stock prior to the date that is 181 days after the closing of the Qualified Offering.

 

Notwithstanding the preceding, holders of New Related Party Debentures and April 2023 Related Party Debenture shall have the right to require satisfaction of up to 40% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing. Investors that are exchanging securityholders shall have the right to require satisfaction of up to 10% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing. The New Related Party Debentures and April 2023 Related Party Debenture also contain certain price protection provisions providing for adjustment of the number of shares of Common Stock issuable upon conversion of the Debentures in case of certain future dilutive events or stock-splits and dividends.

 

The Company’s obligations under the New Related Party Debentures and April 2023 Related Party Debenture are secured by a first priority lien on all the assets of the Company pursuant to that certain Security Agreement, dated November 29, 2022 (the “Security Agreement”) by and among the Company, the Debenture holders and the Collateral Agent. In connection with the issuance of the IMAC Note, the Company, Collateral Agent and the holders of a majority of the outstanding New Related Party Debentures agreed to amend and restate the Original Security Agreement to include the IMAC Note, pursuant to the Amended and Restated Security Agreement dated as of August 16, 2023 by and between the Company, IMAC and the Collateral Agent.

 

The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.

 

If the Company or any Subsidiary shall default on any of its obligations under any mortgage credit agreement or other facility indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $250,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, the New Related Party Debenture shall be deemed in default and the default provisions shall apply.

 

In connection with the Securities Exchange Agreements with related parties for the exchange of the convertible notes and preferred shares for the New Related Party Debentures and for the April 2023 Related party Debenture discussed above, the Company issued an aggregate of 2,608,654,988 warrants. The New Related Party Warrants and April 2023 Related Party Warrant are exercisable for five years and six months from the earlier of the maturity date of the New Related Party Debentures and the closing of the Qualified Financing, at an exercise price equal to (i) in the event that a Qualified Offering is consummated prior to the exercise of the New Related Party Warrant and April 2023 Related Party Warrant, the price per share at which the Qualified Offering is made (“Qualified Offering Price”), or (ii) in the event that no Qualified Offering has been consummated, the lower of: (A) $0.003 per share and (B) an amount equal to 70% of the average of the VWAP (or 50% of the average of the VWAP if an event of default has occurred and has not been cured) for the Common Stock over the ten Trading Days preceding the date of the delivery of the applicable exercise notice. If there is no effective registration statement covering the resale of the shares underlying the New Related Party Warrants and April 2023 Related Party Warrant within 180 days following the closing of the Qualified Offering: (i) exercise may be via cashless exercise, and (ii) 5% additional Warrants will be issued by the Company to the holders for any portion of each month without such effective registration statement, up to a maximum of 25%. The New Related Party Warrants and April 2023 Related Party Warrant contain certain price protection provisions providing for adjustment in the amount of securities issuable upon exercise of the New Related Party Warrants and April 2023 Related Party Warrant in case of certain future dilutive events or stock-splits and dividends.

 

As discussed above, on November 29, 2022, in order to induce the related party investors to exchange their respective convertible notes and preferred stock into the New Related Party Debentures, the aggregate principal amount and accrued interest payable of the exchanged convertible notes, and the stated value and accrued dividends of exchanged preferred stock was increased by 15% (the August 11, 2022 and September 2, 2022 Demand Promissory Notes were issued with 10% OID), or an aggregate amount of $1,046,167. This inducement fee was included in loss from debt extinguishment on the accompanying statement of operations during the three months ended December 31, 2022. Additionally, the remaining debt discount on exchanged related party notes of $1,768,379 was written off and included in loss from debt extinguishment on the accompanying statement of operations for the three months ended December 31, 2022.

 

15
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

IMAC Convertible Secured Note

 

On August 16, 2023, the Company entered into a Convertible Secured Promissory Note with IMAC Holdings, Inc. for a total principal amount of $2,560,500. The note bears interest at 6% per annum and matures on August 16, 2024. Accrued interest is payable at the option of the holder on a quarterly basis. Upon maturity, in lieu of payment or as partial payment, the Company may, upon notice to the Holder, elect to convert some or all of the outstanding principal amount plus accrued and unpaid interest under this Note into a number of shares of the Company’s common stock at a price per share of $0.00313.

 

Upon the closing of the stock-for-stock reverse merger transaction contemplated in that certain Agreement and Plan of Merger, dated May 23, 2023, by and between the Company and the Holder, pursuant to which the Company will merge with a newly-formed wholly-owned subsidiary of the Holder and in which the Company will survive as a wholly-owned subsidiary of the Holder, the Conversion Amount shall automatically be converted into fully-paid and non-assessable shares of Common Stock at a price per share of $.00313.

 

From and after the Issue Date, the Conversion Amount, in whole or in part at any time and from time to time may be converted into shares of Company Stock at the election of the Holder, in its sole discretion. The number of shares of Company Stock to be issued upon the optional conversion of the Holder will be the conversion amount at a price per share of $.00313.

 

If the Company (a) fails to pay when due any principal or interest payment on the due date hereunder, and such payment shall not have been made within thirty days of the Company’s receipt of the Holder’s written notice to the Company of such failure to pay; (b) materially breaches any other covenant contained in this Note or the Security Agreement and such failure continues for forty-five days after the Company receives written notice of such material breach from the Holder; (c) voluntarily files for bankruptcy protection or makes a general assignment for the benefit of creditors; or (d) is the subject of an involuntary bankruptcy petition and such petition is not dismissed within ninety (90) days, then in any such case then the Holder may declare the Note in default and immediately due and payable in full. From that date forward, this Note shall bear interest at a rate of the lower of ten percent (10%) per annum or the highest rate allowed by applicable law, until paid in full or converted.

 

This Note is secured by all of the assets of the Company pursuant to that certain Amended and Restated Security Agreement (as amended, restated or otherwise modified from time to time, the “Security Agreement”) dated as of the Issue Date, between the Company and the Holder and each of the other parties thereto from time to time as specified in such Security Agreement. This Note shall rank pari passu as to the payment of principal and interest to those certain 10.0% Original Issue Discount Senior Secured Convertible Debentures of the Company issued pursuant to that certain Securities Purchase Agreement, dated as of November 29, 2022, as amended, and that certain Securities Exchange Agreement, dated as of November 29, 2022. This Note shall rank senior to any unsecured debt of the Company.

 

On August 28, 2023, the Company repaid $250,000 of the note.

 

As of December 31, 2023 and September 30, 2023, the note has an outstanding principal balance of $2,310,500, which is included in convertible notes – related parties in the accompanying balance sheets, and as of December 31, 2023 and September 30, 2023, the Company had accrued interest payable of $34,563 and $0, respectively.

 

Convertible Debt

 

On November 1, 2021, the Company entered into a Securities Purchase Agreement (“Second November 2021 SPA”) with an investor (“Second November 2021 Investor”) to purchase two convertible notes (collectively as “Second November 2021 Notes”) and two accompanying warrants (collectively as “Second November 2021 Warrants”), for an aggregate investment amount of $500,000 and warrants to purchase an aggregate of up to 27,322,406 shares of common stock. The Company received $500,000 in aggregate proceeds from the Second November 2021 Notes. On January 26, 2022, a notice and request for consent regarding a change in offering terms was sent by the Company to the Second November 2021 Investor. Upon the approval of the Second November 2021 Investor, the Company modified the terms of the Second November 2021 SPA which increased the warrants issuable from 20% to 100% of the common stock issuable upon conversion of the notes purchased. As a result, the Second November 2021 Investor received additional cashless-exercisable warrants equal to 80% of the common stock issuable upon conversion of the Second November 2021 Notes. The Company issued additional warrants to purchase up to 109,289,616 shares of common stock to the Second November 2021 Investor which increased the total relative fair value of all warrants in total by $22,429. This was recorded as debt discount which is being amortized over the life of the Second November 2021 Notes (see Note 9). On November 29, 2022, the Second November 2021 Notes were exchanged for a new convertible debenture (see below).

 

On November 1, 2021, the Company entered into a Securities Purchase Agreement (“Third November 2021 SPA”) with an investor (“Third November 2021 Investor”) to purchase two convertible notes (collectively as “Third November 2021 Notes”) and two accompanying warrants (collectively as “Third November 2021 Warrants”), for an aggregate investment amount of $500,000 and warrants to purchase an aggregate of an aggregate of 27,322,406 shares of common stock. The Company received $500,000 in aggregate proceeds from the Third November 2021 Notes. On January 26, 2022, a notice and request for consent regarding a change in offering terms was sent by the Company to the Third November 2021 Investor. Upon the approval of the Third November 2021 Investor, the Company modified the terms of the Third November 2021 SPA which increased the warrants issuable from 20% to 100% of the common stock issuable upon conversion of the notes purchased. As a result, the Third November 2021 Investor received additional cashless-exercisable warrants equal to 80% of the common stock issuable upon conversion of the Third November 2021 Notes. The Company issued additional warrants to purchase up to 109,289,616 shares of common stock to the Third November 2021 Investor which increased the total relative fair value of all warrants in total by $22,429. This was recorded as debt discount which is being amortized over the life of the Third November 2021 Notes (see Note 9). On November 29, 2022, the Third November 2021 Notes were exchanged for a new convertible debenture (see below).

 

16
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

On January 27, 2022, the Company entered into a Securities Purchase Agreement (“First January 2022 SPA”) with an investor (“First January 2022 Investor”) to purchase a convertible note with a principal balance of $500,000 (“First January 2022 Note”) with the Company receiving $500,000 in proceeds and accompanying warrants to purchase up to 136,612,022 shares of common stock (“First January 2022 Warrants”). The First January 2022 Warrants are exercisable at any time and expire on November 1, 2026. On November 29, 2022, the First January 2022 Note was exchanged for a new convertible debenture (see below).

 

On January 31, 2022, the Company entered into a Securities Purchase Agreement (“Second January 2022 SPA”) with an investor (“Second January 2022 Investor”) to purchase a convertible note with principal balance of $500,000 (“Second January 2022 Note”) with the Company receiving $500,000 in proceeds and accompanying warrants to purchase up to 136,612,022 shares of common stock (“Second January 2022 Warrants”). The Second January 2022 Warrants are exercisable at any time and expire on November 1, 2026. On November 29, 2022, the Second January 2022 Note was exchanged for a new convertible debenture (see below).

 

During April 2022, the Company entered into a Securities Purchase Agreement (“Second April 2022 SPA”) with various investors (“Investors”), to purchase convertible notes for an aggregate investment amount of $425,000 (collectively as “Second April 2022 Notes”) with the Company receiving $425,000 of proceeds and accompanying warrants to purchase up to an aggregate of 17,857,144 shares of common stock (collectively as “Second April 2022 Warrants”). The Second April 2022 Warrants are exercisable at any time and expire on April 1, 2027. The Second April 2022 Notes and Second April 2022 Warrants were convertible and exercisable, respectively, into shares of the Company’s common stock at a price equal to $0.00476 per share (subject to adjustment). On November 29, 2022, the Second April 2022 Notes were exchanged for a new convertible debenture (see below).

 

On July 1, 2022, the Company entered into a Securities Purchase Agreement with an investor (“July 2022 Investor”), to purchase a convertible note for a principal amount of $50,000 (“July 2022 Note”) with the Company receiving $50,000 of proceeds and accompanying warrants to purchase 2,100,840 shares of common stock (“July 2022 Warrants”). The July 2022 Warrants are exercisable at any time and expire on April 1, 2027. On November 29, 2022, the July 2022 Note was exchanged for a new convertible debenture (see below).

 

On October 22, 2022, the Company issued a new convertible note for $200,000 to an existing investor for the settlement of claims (the “Settlement Note”). In connection with the issuance of the Settlement Note, the Company recorded a settlement expense of $200,000. On November 29, 2022, the Settlement Note was exchanged for a new convertible debenture (see below).

 

On November 29, 2022, in connection with the Securities Exchange Agreements and New Convertible Debentures discussed below, the Second November 2021 Warrants, Third November 2021 Warrants, January 2022 Warrants, Second January 2022 Warrants, Second April 2022 Warrants, and the July 2022 Warrants, aggregating 566,406,072 warrants, were amended to reduce the exercise price to $0.003 per share. Additionally, 16,393,443 warrants issued to a placement agent in January 2022 were amended to reduce the exercise price to $0.003 per share. In conjunction with the price reduction, the price protection feature for all these warrants was eliminated. All other terms of the warrants remained the same. As a result of the November 29, 2022, amendment to the exercise price, the Company calculated the difference between the warrants fair values on November 29, 2022, the date of the amendment, using the then current exercise price ranging from $0.00366 to $0.00476 and the new exercise price of $0.003 and determined that the difference was insignificant.

 

Securities Exchange Agreements and New Convertible Debentures and Warrants dated November 29, 2022

 

On November 29, 2022, the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase Agreement, by and among the Company, certain accredited investors (the “Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its capacity as collateral agent (the “Collateral Agent”). At the Initial Closing, the Company sold to the Purchasers (i) 10% Original Issue Discount Senior Secured Convertible Debentures (the “New Debentures”) in an aggregate principal amount of $2,805,000 and (ii) warrants (the “Warrants” and together with the New Debentures, the “Underlying Securities”) to purchase up to 801,428,569 shares of common stock of the Company (the “Common Stock”), subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $2,095,288 in net proceeds at the Initial Offering, net of the Original Issue Discount of $255,000, commissions of $296,800 and other offering costs of $157,912.

 

The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.

 

On November 29, 2022, the Company entered into Securities Exchange Agreements with the above investors, whereby the Second November 2021 Notes, the Third November 2021 Notes, the First January 2022 Note, the Second January 2022 Note, the Second April 2022 Notes, the July 2022 Note, and the Settlement Note, with an aggregate principal amount of $2,675,000 (the “Exchanged Convertible Notes”) and accrued interest payable of $173,375 were exchanged for New Debentures. Additionally, on November 29, 2022, in order to induce the investors to exchange their respective convertible notes into the New Debentures, the aggregate principal amount and accrued interest payable was increased by 15%, or $427,256, which is included in loss of debt extinguishment on the accompanying statements of operations, for the New Debentures with an aggregate principal amount of $3,275,631.

 

On November 29, 2022, the Company entered into Securities Exchange Agreements with preferred stockholders, whereby holders of 902 shares of Series C-1 preferred stock with a stated value of $372,303, and holders of 3,037 shares of Series C-2 preferred stock with a stated value of $1,245,935 were exchanged for the New Debentures. Additionally, on November 29, 2022, in order to induce the preferred stockholders to exchange their respective preferred shares into the New Debentures, the aggregate stated value of the preferred shares was increased by 15%, or $242,736, which is included in loss of debt extinguishment on the accompanying statements of operations, for New Debentures with an aggregate principal amount of $1,860,974.

 

On January 27, 2023, the Company consummated the second closing (the “Second Closing”) of the Offering pursuant to the terms and conditions of that certain Purchase Agreement, dated as of November 29, 2022, by and among the Company, certain accredited investors (the “Second Closing Purchasers”) and Cavalry Fund I Management LLC, a Delaware limited liability company, in its capacity as Collateral Agent. At the Second Closing, the Company sold the Purchasers (i) New Debentures in an aggregate principal amount of $1,045,000 and (ii) Warrants to purchase up to 298,571,429 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of $950,000 in gross proceeds at the Second Offering, net of a 10% original issue discount, before deducting offering expenses and commissions. Pursuant to the terms of the Placement Agency Agreement, the Company agreed to (i) pay Gunnar a cash placement fee of 10% of the gross cash proceeds raised in the Second Offering, and (ii) issue to Gunnar additional PA Warrants on the terms identical to the Warrants sold in the Second Offering in an amount equal to 10% of the New Debentures sold to Second Closing Purchasers. As a result of the foregoing, the Company paid Gunnar an aggregate commission of $95,000 in connection with the Second Closing. The Company also paid $7,500 in fees to Gunnar’s legal counsel.

 

17
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

The New Debentures matured on November 29, 2023, subject to a three-month extension at the sole discretion of the Company. On November 27, 2023, the Company announced its intention to automatically extend the Maturity Date of the Debentures for an additional three-month period such that the Debentures shall be due and payable on February 29, 2024. In connection with this extension, at the expiration of the original Maturity Date of the New Debentures, the sum of (a) the outstanding principal amount of the Debentures, plus (b) accrued and unpaid interest thereon at the expiration of the original Maturity Date, plus (c) all other amounts, costs, expenses and liquidated was increased by 5%, or an aggregate of $493,418, which increased the principal balance of the notes and is included in interest expense on the accompanying statements of operations.

 

The New Debentures bear interest at 10% per annum payable upon conversion or maturity. The Debentures are convertible into shares of Common Stock at any time after the maturity date and prior to Mandatory Conversion (as defined below) at the conversion price equal to the lesser of: (i) $0.003 per share and (ii) 70% of the average of the VWAP (as defined in the Debentures) (or 50% of the average of such VWAP if an event of default has occurred and has not been cured) of the Common Stock during the ten Trading Day (as defined in the New Debentures) period immediately prior to the applicable conversion date. The New Debentures are subject to Mandatory Conversion in the event the Company closes a Qualified Offering. The conversion price per share of Common Stock in the case of a Mandatory Conversion shall be the Qualified Offering Price. Alternatively, upon a Mandatory Conversion, the holders of the New Debentures may elect to exchange their Debentures for newly issued convertible preferred securities at a price per share equal to the Qualified Offering Price or the five-day VWAP of the Common Stock prior to the date that is 181 days after the closing of the Qualified Offering.

 

Notwithstanding the preceding, holders of New Debentures shall have the right to require satisfaction of up to 40% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing. Investors that are exchanging securityholders shall have the right to require satisfaction of up to 10% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing. The New Debentures also contain certain price protection provisions providing for adjustment of the number of shares of Common Stock issuable upon conversion of the New Debentures in case of certain future dilutive events or stock-splits and dividends.

 

The Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company without the prior written consent of the Debenture holders, to incur additional indebtedness, and repay outstanding indebtedness, create or permit liens on assets, redeem its Common Stock, settle outstanding litigation, or enter into transactions with affiliates.

 

The Company’s obligations under the Purchase Agreement and the New Debentures are secured by a first priority lien on all the assets of the Company pursuant to that certain Security Agreement, dated November 29, 2022 (the “Security Agreement”) by and among the Company, the Purchasers and the Collateral Agent.

 

If the Company or any Subsidiary shall default on any of its obligations under any mortgage credit agreement or other facility indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $250,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, the New Debenture shall be deemed in default and the default provisions shall apply.

 

In connection with the Securities Exchange Agreements with investors for the exchange of the convertible notes and preferred shares for the New Debentures discussed above, the Company issued an aggregate of 2,567,601,521 warrants to investors. The Warrants are exercisable for five years and six months from the earlier of the maturity date of the New Debentures and the closing of the Qualified Financing, at an exercise price equal to (i) in the event that a Qualified Offering is consummated prior to the exercise of the Warrant, the Qualified Offering Price, or (ii) in the event that no Qualified Offering has been consummated, the lower of: (A) $0.003 per share and (B) an amount equal to 70% of the average of the VWAP (or 50% of the average of the VWAP if an event of default has occurred and has not been cured) for the Common Stock over the ten Trading Days preceding the date of the delivery of the applicable exercise notice. If there is no effective registration statement covering the resale of the shares underlying the Warrants within 180 days following the closing of the Qualified Offering: (i) exercise may be via cashless exercise, and (ii) 5% additional Warrants will be issued by the Company to the holders for any portion of each month without such effective registration statement, up to a maximum of 25%. The Warrants contain certain price protection provisions providing for adjustment of the number of securities issuable upon exercise of the Warrants in case of certain future dilutive events or stock-splits and dividends.

 

As discussed above, on November 29, 2022, in order to induce the investors to exchange their respective convertible notes and preferred stock into the New Debentures, the aggregate principal amount and accrued interest payable of the exchanged convertible notes, and the stated value of exchanged preferred stock was increased by 15%, or an aggregate amount of $669,992. This inducement fee was included in loss from debt extinguishment on the accompanying statement of operations during the three months ended December 31, 2022. Additionally, the remaining debt discount on Exchanged Convertible Notes of $1,949,909 was written off and included in loss from debt extinguishment on the accompanying statement of operations during the three months ended December 31, 2022.

 

In connection with the Initial Closing of the private placement, the Company and Joseph Gunnar & Co. LLC, a U.S. registered broker-dealer (“Gunnar”), entered into a placement agency agreement (the “Placement Agency Agreement”), pursuant to which Gunnar agreed to act as the placement agent for the Offering (the “Placement Agent”). Pursuant to the terms of the Placement Agency Agreement, the Company agreed to (i) pay Gunnar a cash placement fee of 10% of the gross cash proceeds raised in the Offering, and (ii) issue to Gunnar warrants (the “PA Warrants”) on the terms identical to the Warrants sold in the Offering in an amount equal to 10% of the Underlying Securities sold to investors. As a result of the foregoing, in connection with the Initial Closing, the Company paid Gunnar an aggregate commission of $305,000. The Company also paid $50,000 in fees to Gunnar’s legal counsel and paid Gunnar a financial advisory fee of $50,000. In addition, Gunner received 124,489,795 warrants. Additionally, the Company issued 16,000,000 warrants to a consultant in connection with the private placement offering. Additionally, in connection with the Second Closing, the Company paid Gunnar an aggregate commission of $95,000, paid $7,500 in fees to Gunnar’s legal counsel, and Gunnar received 38,775,510 additional warrants. The Placement Agent warrants have the same terms as the Investor warrants noted above.

 

18
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

Analysis of Exchange Agreements, Related Party Debenture, April 2023 Related Party Debenture, and New Debentures, and Related Warrants

 

In accordance with ASC 470-50, Debt Modifications and Extinguishments, the Company performed an assessment of whether the Exchange Agreement transactions with related parties and investors was deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. The Company evaluated the November 29, 2022 Exchange Agreements for debt modification and concluded that the debt exchanges qualified for debt extinguishment. The Company determined the transactions were considered a debt extinguishment because the change in debt, the inducement premiums (related parties and third parties) discussed previously totaling $1,724,489, and the issuance of new warrants was substantial. Upon extinguishment, the Company had an aggregate of $3,718,288 of unamortized initial debt discount recorded which was written off and included in loss on debt extinguishment on the accompanying statement of operations during the three months ended December 31, 2022.

 

Derivative Liabilities Pursuant to Related Party Debentures and New Debentures and Related Warrants

 

Pursuant to the provisions of ASC 815-40 – Derivatives and Hedging – Contracts in an Entity’s Own Stock, the New Related Party Debentures, , the New Debentures, and the aggregate of 5,355,521,814 New Warrants issued in connection with the Exchange Agreements were analyzed and it was determined that the terms of the New Related Party Debentures, the April 2023 Related Party Debenture, the New Debentures and the related warrants contained terms that were considered derivatives due to the variable conversion of the Debentures and exercise price of the warrants, and other provisions which includes events not within the control of the Company. In accordance with ASC 815-40, the embedded conversion option contained in the debentures and the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion options and warrants was determined using the Binomial Lattice valuation model. At the end of each period and the date notes convert or are repaid, the Company revalues the derivative liabilities resulting from the embedded options and warrants.

 

In connection with the issuance of the New Related Party Debentures and the New Debentures, and the related 5,355,521,814 new warrants, on November 29, 2022, the initial measurement date, the aggregate fair values of the embedded conversion option derivatives and warrant derivatives of $41,961,095 was recorded as derivative liabilities and was attributable to the following: 1) $21,986,653 of derivative liabilities was attributable to the New Related Party Debentures and related warrants which was allocated to debt discount up to the net principal amount of the New Related Party Debentures of $8,837,284, with the remainder of $13,149,369 charged to current period operations as initial derivative expense, and 2) $19,974,442 of derivative liabilities was attributable to the New Debentures and related New Warrants which was allocated to debt discount up to the net principal amount of the New Debentures of $7,231,894, with the remainder of $12,742,548 charged to current period operations as initial derivative expense. In connection with the issuance of the New Debentures and related warrants, on January 27, 2023, the initial measurement date of the Second Closing, the aggregate fair values of the embedded conversion option derivatives and warrant derivatives of $2,192,488 was recorded as derivative liabilities and was attributable to the following: 1) $2,192,488 of derivative liabilities was attributable to the New Debentures and related warrants which was allocated to debt discount up to the net principal amount of the New Debentures of $831,922, with the remainder of $1,360,566 charged to current period operations as initial derivative expense. In connection with the issuance of the April 2023 Related Party Debenture and related warrant, on April 22, 2023, the initial measurement date of this closing, the aggregate fair values of the embedded conversion option derivatives and warrant derivatives of $326,630 was recorded as derivative liabilities and was attributable to the following: 1) $141,000 of derivative liabilities was attributable to the April 2023 Related Party Debenture and related warrant which was allocated to debt discount up to the remaining net principal amount of the April 2023 Related Party Debenture of $141,000 (after original issue discount of $14,100), with the remainder of $185,630 charged to current period operations as initial derivative expense. On December 31, 2022, the end of the period, the Company revalued the embedded conversion option derivative liabilities and warrant derivative liabilities and recorded a derivative expense of $505,158. During the three months ended December 31, 2022, in connection with the revaluation and the initial derivative expense, the Company recorded an aggregate derivative expense of $26,397,075. During the three months ended December 31, 2023, in connection with the revaluation of derivative liabilities, the Company recorded an aggregate derivative expense of $12,945,076.

 

The Company uses the Binomial Valuation Model to determine the fair value of its conversion options and new stock warrants which requires the Company to make several key judgments including:

 

  the value of the Company’s common stock;
  the expected life of issued stock warrants and convertible debt;
  the expected volatility of the Company’s stock price;
  the expected dividend yield to be realized over the life of the convertible debt and stock warrants; and
  the risk-free interest rate over the expected life of the convertible debt and stock warrants.

 

During the three months ended December 31, 2023 and 2022, the fair value of the embedded options and stock warrants were estimated at issuance using the Binomial Valuation Model with the following assumptions:

 

   Three Months Ended December 31, 2023      Three Months Ended December 31, 2022 
Dividend rate    %   %
Term (in years)    0.25 to 5.4 years      1.0 to 6.5 years 
Volatility    240.47% to 364.72 %   270.0% to 364.2 %
Risk—free interest rate    3.84% to 5.40 %   3.92% to 4.78 %

 

The Company’s computation of the expected life of issued stock warrants was based on the simplified method as the Company does not have adequate exercise experience to determine the expected term. The interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The computation of volatility was based on the historical volatility of the Company’s common stock.

 

During the three months ended December 31, 2023 and 2022, amortization of debt discounts related to the convertible notes payable and exchanged Debentures was $3,008,363 and $1,602,646, respectively, which has been included in interest expense on the accompanying statements of operations.

 

19
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

Notes Payable - Related Parties

 

On December 31, 2023 and September 30, 2023, notes payable - related parties consisted of the following:

 

  

December 31,

2023

  

September 30,

2023

 
Principal amount  $1,172,466   $1,172,466 
Less: debt discount   (14,294)   (23,024)
Notes payable – related parties, net   1,158,172    1,149,442 
Less: current portion of notes payable - related parties   (1,158,172)   (1,149,442)
Notes payable – related parties, net – long-term  $-   $- 

 

On April 26, 2021, the Company entered into a Promissory Note Agreement with Jeffrey Busch who serves as a member of the Board of Directors and a related party, for a principal amount of $100,000. The Company received proceeds of $100,000. The note bears an annual interest rate of 1%, matures on April 1, 2022, and can be prepaid in whole or in part without penalty. Pursuant to the note, the Company has a 90-day grace period following the maturity date after which the lender was permitted to charge a late payment fee equal to 1% of the outstanding principal balance and cost of collection, including legal fees. On May 5, 2022, the Company and Jeffrey Busch (collectively as “Parties”) amended the April 26, 2021 note with principal amount of $100,000 (“Original Note”) pursuant to which the Parties increased the principal amount to $350,000 (“New Note”) with the Company receiving an additional $250,000 of proceeds and added a contingent conversion feature. The New Note bears an annual interest rate of 1% (which shall increase to 2% in the event of a default) and matures on May 5, 2024. The New Note may not be prepaid and is only convertible upon an occurrence of a public offering. The outstanding principal plus any unpaid accrued interest (“Conversion Amount”) of the New Note is convertible into shares of common stock at the price for which the common stock was sold in the public offering. Pursuant to ASC 470-50 - Debt Modifications and Exchanges, the amendment was accounted for as a debt extinguishment because the contingent conversion feature added to the New Note resulted in a substantial modification of the Original Note. No gain or loss was recognized in connection with the debt extinguishment. As of September 30, 2023 and 2022, the New Note had an outstanding principal balance of $350,000, reflected as notes payable – related parties in the accompanying balance sheets since the conditions for its contingent conversion has not yet been met. As of December 31, 2023 and September 30, 2023, the Company had accrued interest payable reflected as accrued liabilities – related party on the note of $6,856 and $5,974, respectively (see Note 8).

 

2023 Promissory Notes

 

On April 28, 2023, the Company entered into a Promissory Note Agreement with Douglas Mergenthaler who is a related party, for a principal amount of $110,000. The Company received proceeds of $100,000, net of original issue discount of $10,000. The note bears an annual interest rate of 10%, matures on April 28, 2024, and can be prepaid in whole or in part without penalty. If the Company raises at least $1,000,000 in a securities offering subsequent to the date of this note (a “Subsequent Offering”), Mr. Mergenthaler shall have the right, but not the obligation, to convert all amounts outstanding under this loan into the same security offered in the Subsequent Offering at the price per security being paid by the investors in such offering. On August 18, 2023, the Company repaid $108,000 of the note. As of December 31, 2023 and September 30, 2023, the Note had an outstanding principal balance of $2,000, reflected as notes payable – related parties in the accompanying balance sheets. As of December 31, 2023 and September 30, 2023, the Company had accrued interest payable reflected as accrued liabilities – related party on the note of $3,268 and $3,218, respectively (see Note 8).

 

From May 2023 to July 2023, the Company entered into Promissory Note Agreements with Jeffrey Busch who serves as a member of the Board of Directors and a related party, for an aggregate principal amount of $521,966. The Company received proceeds of $487,681, net of original issue discount of $34,285. The notes bear an annual interest rate of 10%, mature in May and June 2024 and can be prepaid in whole or in part without penalty. If the Company raises at least $1,000,000 in a securities offering subsequent to the date of this note (a “Subsequent Offering”), Mr. Busch shall have the right, but not the obligation, to convert all amounts outstanding under this loan into the same security offered in the Subsequent Offering at the price per security being paid by the investors in such offering. In August 2023, the Company repaid $114,000 of these notes. As of December 31, 2023 and September 30, 2023, these Notes had an outstanding principal balance of $380,966, reflected as notes payable – related parties in the accompanying balance sheets. As of December 31, 2023 and September 30, 2023, the Company had accrued interest payable reflected as accrued liabilities – related party on the note of $25,101 and $15,366, respectively (see Note 8).

 

IMAC Promissory Note

 

On July 28, 2023, the Company issued a Promissory Note Agreement with IMAC Holdings, Inc. (“IMAC”) for a principal amount of $439,500. The Company received proceeds of $439,500. The note bears an annual interest rate of 6%, matures on July 28, 2024 and can be prepaid in whole or in part without penalty. The indebtedness evidenced by this Note is subordinated and junior in right of payment to the prior payment in full of all of the Company’s debentures issued pursuant to that certain Securities Purchase Agreement, dated as of November 29, 2022, as amended, and that certain Securities Exchange Agreement, dated as of November 29, 2022. As of December 31, 2023 and September 30, 2023, this note had an outstanding principal balance of $439,500, reflected as notes payable – related parties in the accompanying balance sheets. As of December 31, 2023 and September 30, 2023, the Company had accrued interest payable reflected as accrued liabilities – related party on the note of $11,345 and $4,696, respectively (see Note 8).

 

During the three months ended December 31, 2023 and 2022, amortization of debt discount related to notes payable – related parties was to $8,730 and $0, respectively, which has been included in interest expense on the accompanying statements of operations.

 

Notes Payable - Other

 

In September 2017, the Company entered into a note agreement with a third-party investor. Pursuant to the note, the Company borrowed a principal amount of $1,000. The note bears an annual interest rate of 33.3%, is unsecured and in default due to non-payment of the balance pursuant to the repayment terms. As of December 31, 2023 and September 30, 2023, the note had principal $1,000. As of December 31, 2023 and September 30, 2023, the note had accrued interest balances of $2,105 and $2,021, respectively.

 

20
 

 

THERALINK TECHNOLOGIES, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
(UNAUDITED)

 

NOTE 7 –LEASE LIABILITIES

 

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

 

Effective November 2018, the Company entered into a financing agreement with the first lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $379 for a period of 60 months commencing in November 2018 through October 2023. At the effective date of the financing agreement, the Company recorded a financing lease payable of $16,065.

 

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

 

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

 

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

 

Effective January 2020, the Company entered into a financing agreement with a fifth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,395 for a period of 60 months commencing in January 2020 through December 2025. At the effective date of the financing agreement, the Company recorded a financing lease payable of $68,821.

 

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

 

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

  

  

December 31,

2023

   September 30,
2023