THERALINK TECHNOLOGIES, INC. Special Note Regarding COVID-19
InDecember 2019 , a novel strain of coronavirus known as COVID-19 was reported to have surfaced inChina , and byMarch 2020 the spread of the virus had resulted in a world-wide pandemic. The COVID-19 pandemic has required alternative selling approaches such as through social media. We may be unable to avoid future reductions in net revenue using these alternative selling approaches that avoid direct contact with our customers. The worldwide response to the pandemic has resulted in a significant downturn in economic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. If an economic recession or depression is sustained, it could have a material adverse effect on our business as demand for our technology could decrease. The overall impact of COVID-19 continues to have an adverse impact on business activities around the world. If the COVID-19 pandemic intensifies and expands geographically, its negative impacts on our sales could be more prolonged and may become more severe. The long-term financial impact on our business cannot be reasonably estimated at this time. 27 Overview The Company is a commercial-stage, precision medicine, molecular data-generating company that focuses on the development and commercialization of a series of proprietary data-generating assays that may provide important actionable information for physicians, patients and biopharmaceutical companies, in the area of oncology. The Company's objective is to commercialize the technology originally developed byTheranostics Health, Inc. This technology is differentiated due to:
? An exclusive license agreement with
? A patent portfolio licensed from GMU and the National Institute of Health
("NIH").
? Access to GMU's well-published subject matter experts and their pioneering
work in phosphoproteomic-based biomarker diagnostics.
? Expertise in cancer biomarker and data-generating laboratory testing data.
? Development of proprietary, cutting-edge assays focused on precision
oncology care.
? Building revenue streams based on our proprietary technology.
Theralink is advancing proprietary technology in the field of phosphoproteomic
research, a sector which has emerged as one of the most exciting new components
in the high-growth field of precision molecular diagnostics. This technology is
intended to make it possible to generate an accurate and comprehensive portrait
of protein pathway activation in diseased cells from each patient, which may
enable providers to identify and match individuals with optimal targeted
molecular therapies. This technology enables the quantitative measurement of the
active protein(s) in cancer cells and their level of activation. The
technology's measurement sensitivity is many times greater than conventional
mass spectrometry and other protein immunoassays. Initially spun-out from GMU in
2006, and subsequently elevated to the federal government's Center for Medicare
& Medicaid Services' ("CMS") and Clinical Laboratory Improvement Amendments
("CLIA") standards, Theralink's assay may prove highly useful for oncology
patient management by improving (i) chemotherapy drug selection; (ii)
immunotherapy drug selection; and (iii) optimizing combination therapy
selection.
The biomarker and data-generating tests provide biopharmaceutical companies,
clinical scientists and physicians with molecular-based guidance as to which
patients may benefit from new molecular targeted therapeutics being developed
for use in treating various life-threatening oncology diseases. These tests may
also provide guidance to physicians on existing treatment standards that are
recognized as the standard of care in the oncology treatment community. This
addresses the core aspect of precision oncology treatment by identifying which
individuals are more likely to respond to specific targeted molecular therapies,
thus forming the basis for personalized medicine.
The technology is based upon the pioneering work of three noted scientists, Drs.
Lance Liotta , Emanuel Petricoin and Virginia Espina , in proteomic-based
precision medicine. Theralink benefits from a portfolio of intellectual property
derived from licensing agreements with:
? The US Public Health Service ("PHS"), the federal agency that supervises the
protection around its technology platform; and
? GMU, which provides access to additional intellectual property around
improvements to the technology platform and biomarker signatures that form the
basis for future phosphoproteomics products.
Theralink is committed to advancing the technology from GMU and theNIH as a platform for the development of new clinical biomarkers. These biomarkers and monitoring products may have the ability to provide biopharmaceutical companies and doctors with critical molecular-based knowledge to potentially make the best therapeutic decisions based on a patient's unique, individual medical needs.
Our plan of operation over the next 12 months is to:
? Establishing laboratory Standard Operating Procedures ("SOP's") to comply with
New York CLIA standards;
? Hiring additional lab techs and sales consultants;
? Choosing members to sit on our Clinical and Scientific Advisory Boards;
28
? Continuing to validate additional
CAP/CLIA standards for a pan tumor assay to provide personalized medicine
regarding treatment options for biopharmaceutical companies, clinical
oncologists and their cancer patients;
? Continuing to partner with pharmaceutical companies to perform
oncology-related data-generating testing services which may generate
additional revenues and
? Continuing to seek financing to grow the Company.
Appointment of New Directors and Officers
OnApril 1, 2022 , the Board of Directors ("Board") of the Company, voted to appointDanica Holley andMatthew M. Schwartz , M.D. to serve as members of the Board, effectiveApril 4, 2022 .Ms. Holley andDr. Schwartz will serve as members of the Board until the next annual meeting of shareholders of the Company or until his or her resignation or removal and otherwise until his or her successor is elected. The Board determined thatMs. Holley andDr. Schwartz each meet the independence standards of the NASDAQ Stock Market Rules and the applicable rules of theSEC .
On
Results of Operations
Comparison for the Years Ended
Revenue
? During the years ended
increase was primarily attributable to services performed under research and
development contracts for pharmaceutical companies.
Costs of Revenues
? During the years ended
of
increase in 2022 cost of revenue as a percentage of revenue over 2021 was
because the Company was required to purchase expensive third-party samples for
certain pharmaceutical contracts. This increased cost significantly decreased
the gross profit for the 2022 period.
Gross Margin
? For the years ended
and
gross margin of 60% in 2022 versus 77% in 2021. The decrease was primarily
attributable to the decrease in revenue and increase in cost of revenue discussed above. Operating Expenses For the years endedSeptember 30, 2022 and 2021, operating expenses consisted of the following: For the Years Ended September 30, 2022 2021 Professional fees$ 2,311,098 $ 903,932 Compensation expense 7,373,037 2,259,273 Licensing fees 138,440 131,469 General and administrative expenses 2,160,450 2,659,453 Total$ 11,983,025 $ 5,954,127 29 Professional fees:
? For the year ended
increase was primarily attributable to an increase in stock-based consulting
fees of
issuance of stock options to consultants in
Compensation expense:
? For the year ended
increase was primarily attributable to an increase in stock-based compensation
of
of stock options to employees in
administrative compensation and related employee benefits and expenses
resulting from additional employees being hired and a bonus paid to our CFO.
Licensing fees:
? For the year ended
5%, as compared to the year ended
mainly for the lab software, the GMU license and state licenses. During 2022,
the company obtained licenses from numerous states to conduct business as a
certified lab. The expanded national footprint is the driving force behind the
increase in licensing fees.
General and administrative expenses:
? For the year ended
decreased by
2021. The decrease was primarily due to a decrease in laboratory and
biological supplies expense of approximately
breast cancer research and development, and a decrease in sample analysis
services expense of approximately
relationship with our service provider and bringing this function in-house.
These decreases were offset by an increase in samples expense of
research and development that was
approximately
the year, an increase in travel expense of
insurance of approximately
an increase in business development cost of approximately
Company attending more trade shows, an increase in repairs and maintenance
costs of approximately
in other general and administrative expenses.
Loss from Operations
For the year ended
Other Income (Expenses), net
For the year endedSeptember 30, 2022 and 2021, total other income (expenses), net amounted to$(1,101,956) and$94,330 , respectively, a change of$1,196,286 or 1,268%. The change was primarily due to an increase in interest expense of$973,562 resulting from additional debt incurred in 2022, an increase in unrealized loss on market securities of$7,200 , a decrease in gain on debt extinguishment of$227,294 as there was no debt extinguishment in 2022, a decrease in gain on disposal and dissolution of subsidiaries of$10,916 which occurred in 2021, offset by a decrease in unrealized loss on exchange rate of$22,686 as there was no unrealized loss on exchange rate in 2022.
Preferred Stock Dividend and Deemed Dividend
For the year ended
For the year endedSeptember 30, 2021 , related to the Series F Preferred stock, we recorded a beneficial conversion feature of$42,808 and the relative fair value of the issued warrant of$957,192 for a total of$1,000,000 , accounted for as deemed dividend. For the year endedSeptember 30, 2021 , we also recorded dividends for the Series E Preferred stock and Series F Preferred stock in the amount of$159,890 and$6,728 , respectively, for a total of$166,618 of preferred stock dividends.
Net Loss Attributed to Common Stockholders
For the year endedSeptember 30, 2022 , net loss attributed to common stockholders amounted to$12,981,962 , or$(0.00) per share (basic and diluted) compared to net loss attributed to common stockholders of to$6,638,267 , or$(0.00) per share (basic and diluted), for the year endedSeptember 30, 2021 , an increase of$6,343,695 , or 96%. The increase was a result of the changes in operating expenses and other expenses, net discussed above. 30
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of$2,808,736 and$393,460 in cash as ofSeptember 30, 2022 and a working capital deficit of$2,657,337 and$314,151 in cash as ofSeptember 30, 2021 . September 30, September 30, Percentage 2022 2021 Net Change Change Working capital (deficit): Total current assets$ 646,984 $ 638,753 $ 8,231 1 % Total current liabilities (3,455,720 ) (3,296,090 ) (159,630 ) 5 % Working capital (deficit):$ (2,808,736 ) $ (2,657,337 ) $ (151,399 ) 6 %
The increase in working capital deficit was primarily attributable to the
increase in current assets of
Cash Flows
The following table sets forth a summary of changes in cash flows for the years
ended
Years Ended
September 30,
2022 2021
Cash used in operating activities
(131,611 ) (134,702 )
Cash provided by financing activities 5,600,615 3,450,000 Net change in cash
$ 79,309 $ (1,465,132 )
Net cash used in operating activities was
? Net cash used in operating activities for the year ended
primarily reflected our net loss of
non-cash items such as depreciation expense of
of
debt discount of
unrealized loss on marketable securities of
of an increase in accounts receivable of
expenses and other current assets of
payable of
an increase in accrued liabilities and other liabilities of
increase in contract liabilities of
? Net cash used in operating activities for the year ended
primarily reflected our net loss of
non-cash items such as depreciation expense of
amortization of debt discount of $64,981 , gain on debt extinguishment of
$227,294 , unrealized loss on exchange rate of $22,686 , unrealized loss on
marketable securities of
gain on disposal of a subsidiary of
liabilities consisting primarily of an increase in prepaid expenses and other
current assets of
increase in accrued liabilities and other liabilities of
in deferred revenue of
$273 .
Net cash used in investing activities was$131,611 for the year endedSeptember 30, 2022 as compared to net cash used in investing activities of$134,202 for the year endedSeptember 30, 2021 , a decrease of$2,591 , or 2%.
? Net cash used in investing activities for the year ended
resulted from the purchase of property and equipment of
? Net cash used in investing activities for the year ended
resulted from the purchase of property and equipment of
an adjustment related to a prior period redemption payment of $500 and
proceeds from disposal of a subsidiary of $1,000 .
31
Cash Provided by Financing Activities:
Net cash provided by financing activities was
? Net cash provided by financing activities for the year ended
2022 consisted of
debt,
proceeds from related party notes payable, offset by repayment of
a related party convertible note, repayment of
payments of
offering costs of
? Net cash provided by financing activities for the year ended
2021, consisted of
common stock which are accounted for as liabilities until we are able to issue
the shares, $1,000,000 proceeds from convertible debt - related party,
$100,000 proceeds from a note payable - related party and $1,000,000 of
proceeds from the sale of Series F Preferred stock.
Cash Requirements
Our management does not believe that our current capital resources will be
adequate to continue operating our Company and maintaining our business strategy
for more than 12 months from the date of this report. Accordingly, we will have
to raise additional capital in the near future to meet our working capital
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, if and when it is needed, we will be forced to
scale down or perhaps even cease the operation of our business.
Going Concern
These financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. As reflected in the accompanying
financial statements, the Company had net loss and net cash used in operations
of $12,741,962 and $5,416,965 , respectively, for the year ended September 30,
2022 . Additionally, the Company had an accumulated deficit, stockholders'
deficit and working capital deficit of $62,807,817 , $6,801,055 and $2,808,736 on
September 30, 2022 . Management believes that these matters raise substantial
doubt about the Company's ability to continue as a going concern for twelve
months from the issuance date of this report.
The Company cannot provide assurance that it will ultimately achieve profitable
operations or become cash flow positive or raise additional debt or equity
capital. Additionally, the current capital resources are not adequate to
continue operating and maintaining the business strategy for a period of twelve
months from the issuance date of this report. The Company will seek to raise
capital through additional debt and equity financings to fund its operations in
the future.
Although the Company has historically raised capital from sales of equity and
from the issuance of promissory notes, 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.
32
Financings During Fiscal 2022
Convertible Debt - Related Parties
OnNovember 1, 2021 , the Company entered into a Securities Purchase Agreement ("FirstNovember 2021 SPA") with a related party, who is an affiliate stockholder ("FirstNovember 2021 Investor"), to purchase three convertible notes (collectively as "FirstNovember 2021 Notes") and three accompanying warrants (collectively as "FirstNovember 2021 Warrants"), for an aggregate investment amount of$1,000,000 . The first note issued onNovember 1, 2021 , had a principal balance of$334,000 and accompanying warrants to purchase up to 18,251,367 shares of common stock. The second note issued onDecember 1, 2021 , had a principal balance of$333,000 and accompanying warrants to purchase up to 18,196,722 shares of common stock. The third note issued onJanuary 1, 2022 , had a principal balance of$333,000 and accompanying warrants to purchase up to 18,196,722 shares of common stock. The Company received$1,000,000 in aggregate proceeds from the FirstNovember 2021 Notes. The FirstNovember 2021 Notes bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an "Event of Default" (as defined in the FirstNovember 2021 Notes) and mature onNovember 1, 2026 . The FirstNovember 2021 Warrants are exercisable at any time and expire onNovember 1, 2026 . The FirstNovember 2021 Warrants were initially valued at$990,048 using the relative fair value method and were recorded as debt discount which is being amortized over the life of the FirstNovember 2021 Notes. The FirstNovember 2021 Notes and FirstNovember 2021 Warrants are convertible and exercisable, respectively, into shares of the Company's common stock at a price equal to$0.00366 per share (subject to adjustment). The FirstNovember 2021 Notes and FirstNovember 2021 Warrants include a down-round provision under which the conversion price and exercise price are reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the FirstNovember 2021 Notes and FirstNovember 2021 Warrants. The conversion and exercise price of the FirstNovember 2021 Notes and FirstNovember 2021 Warrants are reduced equal to the lower conversion and exercise price of the new issuance or amended securities. The Company may prepay the FirstNovember 2021 Notes at any time in an amount equal to 110% of the outstanding principal balance and accrued interest. At the election of the FirstNovember 2021 Investor, the FirstNovember 2021 Notes can be converted in whole or in part at any time and from time to time. Further, upon maturity the Company may pay the outstanding balance of the FirstNovember 2021 Notes in cash or convert it into shares of common stock. Upon the listing by the Company or the trading of the common stock on a Qualified National Exchange (as defined in the FirstNovember 2021 Notes), the Conversion Amount shall automatically be converted into fully-paid and non-assessable shares of common stock. OnJanuary 26, 2022 , a notice and request for consent regarding a change in offering terms was sent by the Company to the FirstNovember 2021 Investor. Upon the approval of the FirstNovember 2021 Investor, the Company modified the terms of the FirstNovember 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 FirstNovember 2021 Investor received additional cashless-exercisable warrants equal to 80% of the common stock issuable upon conversion of the FirstNovember 2021 Notes. The Company issued additional warrants to purchase up to 218,579,234 shares of common stock to the FirstNovember 2021 Investor which increased the total relative fair value of all warrants in total by$34,620 recorded as debt discount which is being amortized over the life of the FirstNovember 2021 Notes (see Note 9 and 10). The modification of the FirstNovember 2021 SPA did not meet the requirements of a debt extinguishment under ASC 470-50 - Debt Modifications and Exchanges; however it represented a substantial modification whereby the FirstNovember 2021 Investor received a substantial amount of additional warrants for the same principal amount of investment hence it was accounted for, in substance, as a debt modification ASC 470-50 and no gain or losses was recognized. As ofSeptember 30, 2022 , the FirstNovember 2021 Notes had an outstanding principal of$1,000,000 and accrued interest of$20,164 . The FirstNovember 2021 Notes are included in the accompanying balance sheet at$140,093 as a long-term convertible note payable - related party, net of discount in the amount of$859,907 (see Note 9) as ofSeptember 30, 2022 . OnApril 5, 2022 , pursuant to the FirstApril 2022 SPA,Matthew Schwartz , a member of the Board of Directors and a related party, purchased a convertible note with principal of$100,000 with accompanying FirstApril 2022 Warrants to purchase 4,201,681 shares of common stock. The Company received net proceeds of$100,000 onMarch 24, 2022 . The FirstApril 2022 Warrants were valued at$89,815 using the relative fair value method and were recorded as debt discount which is being amortized over the life of the FirstApril 2022 Note. The FirstApril 2022 Warrants are exercisable at any time and expire onApril 1, 2027 . The FirstApril 2022 Note bears an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an "Event of Default" (as defined in the FirstApril 2022 Note)) and matures onApril 1, 2027 . The FirstApril 2022 Note and FirstApril 2022 Warrants are convertible and exercisable, respectively, into shares of the Company's common stock at a price equal to$0.00476 per share (subject to adjustment as provided in the agreements). Upon maturity the Company may pay the outstanding balance of the FirstApril 2022 Note in cash or convert it into shares of common stock. Upon the listing by the Company or the trading of the common stock on a Qualified National Exchange, the conversion amount (as defined in the FirstApril 2022 Note) shall automatically be converted into fully-paid and non-assessable shares of common stock. As ofSeptember 30, 2022 , the FirstApril 2022 Note had an outstanding principal balance of$100,000 and accrued interest of$3,901 . OnMay 9, 2022 , the Company entered into a Securities Purchase Agreement ("May 2022 SPA") with a related party, who is an affiliate stockholder ("May 2022 Investor"), to purchase four convertible notes for an aggregate investment amount of$1,000,000 (collectively as "May 2022 Notes") and accompanying warrants to purchase shares of common stock equal to 20% of the number of the total shares of common stock issuable upon the conversion of theMay 2022 Notes (collectively as "May 2022 Warrants"). The first note issued onMay 9, 2022 , had a principal balance of$250,000 and accompanying warrants to purchase up to 10,504,202 shares of common stock. The second note issued onMay 24, 2022 , had a principal balance of$250,000 and accompanying warrants to purchase up to 10,504,202 shares of common stock. The third note issued onJune 10, 2022 , had a principal balance of$250,000 and accompanying warrants to purchase up to 10,504,202 shares of common stock. The fourth note issued onJuly 1, 2022 , had a principal balance of$250,000 and accompanying warrants to purchase up to 10,504,202 shares of common stock. The Company received$1,000,000 in aggregate proceeds from theMay 2022 Notes. TheMay 2022 Notes bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an "Event of Default" (as defined in theMay 2022 Notes)) and mature onApril 1, 2027 . TheMay 2022 Warrants are exercisable at any time and expire onApril 1, 2027 . TheMay 2022 Warrants were valued at$178,449 using the relative fair value method and were recorded as debt discount which is being amortized over the life of theMay 2022 Notes. TheMay 2022 Notes andMay 2022 Warrants are convertible and exercisable, respectively, into shares of the Company's common stock at a price equal to$0.00476 per share (subject to adjustment). TheMay 2022 Notes andMay 2022 Warrants include a down-round provision under which the conversion price and exercise price are reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of theMay 2022 Notes andMay 2022 Warrants. As ofSeptember 30, 2022 , theMay 2022 Notes had an aggregate outstanding principal balance of$1,000,000 and accrued interest of$20,110 . OnJune 15, 2022 , pursuant to theJune 2022 SPA,Danica Holley , a member of the Board of Directors and a related party, purchased a convertible note with principal of$50,000 (the "June 2022 Note") with accompanying warrants (the "June 2022 Warrants") to purchase 2,100,840 shares of common stock. The Company received net proceeds of$50,000 onJune 15, 2022 . TheJune 2022 Warrants were valued at$5,924 using the relative fair value method and were recorded as debt discount which is being amortized over the life of theJune 2022 Note. TheJune 2022 Warrants are exercisable at any time and expire onApril 1, 2027 . TheJune 2022 Note bears an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an "Event of Default" (as defined in theJune 2022 Note)) and matures onApril 1, 2027 . TheJune 2022 Note andJune 2022 Warrants are convertible and exercisable, respectively, into shares of the Company's common stock at a price equal to$0.00476 per share (subject to adjustment as provided in the agreements). As ofSeptember 30, 2022 , theJune 2022 Note had an outstanding principal balance of$50,000 and accrued interest of$1,173 . OnJuly 29, 2022 , the Company entered into a Demand Promissory Note Agreement withJeffrey Busch who serves as a member of the Board of Directors and a related party, for a principal balance of$125,000 , and onSeptember 2, 2022 , the Company entered into a second Demand Promissory Note Agreement withJeffrey Busch for a principal balance of$150,000 (collectively referred to as called the "Busch Notes"). The Busch Notes bear an annual interest rate of 8% and are payable on demand. The outstanding principal and accrued interest on the Busch Notes is contingently convertible, in full, at the option of the lender, into the same security issued by the Company in its next private placement of equity or equity backed securities at any time after the inception date. As ofSeptember 30, 2022 , the Busch Notes had an outstanding principal balance of$275,000 and accrued interest of$2,683 and are included in the accompanying balance sheet as a short-term convertible note payable - related party. OnAugust 11, 2022 , the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder, for a principal balance of$375,000 . The note bears an annual interest rate of 8% and is payable on demand. The outstanding principal and accrued interest of the note is contingently convertible, in full, at the option of the lender, into the same security issued by the Company in its next private placement of equity or equity backed securities at any time after the inception date. As ofSeptember 30, 2022 , this note had an outstanding principal balance of$375,000 and accrued interest of$4,110 and is included in the accompanying balance sheet as a short-term convertible note payable - related party. OnSeptember 2, 2022 , the Company entered into a Demand Promissory Note Agreement with a related party, who is an affiliate stockholder, for a principal balance of$350,000 . The note bears an annual interest rate of 8% and is payable on demand. The outstanding principal and accrued interest of the note is contingently convertible, in full, at the option of the lender, into the same security issued by the Company in its next private placement of equity or equity backed securities at any time after the inception date. As ofSeptember 30, 2022 , this note had an outstanding principal balance of$350,000 and accrued interest of$2,148 and is included in the accompanying balance sheet as a short-term convertible note payable - related party. 33 Convertible Debt OnJanuary 27, 2022 , the Company entered into a Securities Purchase Agreement ("FirstJanuary 2022 SPA") with an investor ("FirstJanuary 2022 Investor") to purchase a convertible note with a principal balance of$500,000 ("FirstJanuary 2022 Note") with the Company receiving$500,000 in proceeds and accompanying warrants to purchase up to 136,612,022 shares of common stock ("FirstJanuary 2022 Warrants"). The FirstJanuary 2022 Note bears an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an "Event of Default" (as defined in the FirstJanuary 2022 Note)) and mature onNovember 1, 2026 . The FirstJanuary 2022 Warrants are exercisable at any time and expire onNovember 1, 2026 . The FirstJanuary 2022 Warrants to purchase up to 136,612,022 shares of common stock were valued at$498,428 using the relative fair value method and were recorded as a debt discount which is being amortized over the life of the FirstJanuary 2022 Note. The FirstJanuary 2022 Note and FirstJanuary 2022 Warrants are convertible and exercisable, respectively, into shares of the Company's common stock at a price equal to$0.00366 per share (subject to adjustment). The FirstJanuary 2022 Note and FirstJanuary 2022 Warrants include a down-round provision under which the conversion price and exercise price are reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the FirstJanuary 2022 Note and FirstJanuary 2022 Warrants include. The conversion and exercise price of the FirstJanuary 2022 Note and FirstJanuary 2022 Warrants include are reduced equal to the lower conversion and exercise price of the new issuance or amended securities. As ofSeptember 30, 2022 , the FirstJanuary 2022 Note had an outstanding principal balance of$500,000 and accrued interest of$26,959 . OnJanuary 31, 2022 , the Company entered into a Securities Purchase Agreement ("SecondJanuary 2022 SPA") with an investor ("SecondJanuary 2022 Investor") to purchase a convertible note with principal balance of$500,000 ("SecondJanuary 2022 Note") with the Company receiving$500,000 in proceeds and accompanying warrants to purchase up to 136,612,022 shares of common stock ("SecondJanuary 2022 Warrants"). The SecondJanuary 2022 Note bears an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an "Event of Default" (as defined in the SecondJanuary 2022 Note)) and mature onNovember 1, 2026 . The SecondJanuary 2022 Warrants are exercisable at any time and expire onNovember 1, 2026 . The SecondJanuary 2022 Note and SecondJanuary 2022 Warrants are convertible and exercisable, respectively, into shares of the Company's common stock at a price equal to$0.00366 per share (subject to adjustment). The SecondJanuary 2022 Note and SecondJanuary 2022 Warrants include a down-round provision under which the conversion price and exercise price are reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of the SecondJanuary 2022 Note and SecondJanuary 2022 Warrants. The conversion and exercise price of the SecondJanuary 2022 Note and SecondJanuary 2022 Warrants are reduced equal to the lower conversion and exercise price of the new issuance or amended securities. As ofSeptember 30, 2022 , the SecondJanuary 2022 Note had an outstanding principal balance of$500,000 and accrued interest of$26,520 . DuringApril 2022 , pursuant to the SecondApril 2022 SPA various investors purchased convertible notes for an aggregate investment amount of$425,000 with the Company receiving$425,000 of proceeds with accompanying SecondApril 2022 Warrants to purchase up to an aggregate of 17,857,144 shares of common stock. The SecondApril 2022 Warrants were valued at$335,593 using the relative fair value method and were recorded as debt discount which is being amortized over the life of the SecondApril 2022 Notes. The SecondApril 2022 Notes bear an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an "Event of Default" (as defined in the SecondApril 2022 Notes)) and mature onApril 1, 2027 . The SecondApril 2022 Warrants are exercisable at any time and expire onApril 1, 2027 . The SecondApril 2022 Notes and SecondApril 2022 Warrants are convertible and exercisable, respectively, into shares of the Company's common stock at a price equal to$0.00476 per share (subject to adjustment as provided in the agreements). As ofSeptember 30, 2022 , the SecondApril 2022 Notes had an aggregate outstanding principal balance of$425,000
and accrued interest of$15,710 . OnJuly 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"). TheJuly 2022 Note bears an interest rate of 8% per annum (which shall increase to 10% per year upon the occurrence of an "Event of Default" (as defined in theJuly 2022 Note)) and matures onApril 1, 2027 . TheJuly 2022 Warrants are exercisable at any time and expire onApril 1, 2027 . TheJuly 2022 Warrants were valued at$7,037 using the relative fair value method and shall be recorded as debt discount to be amortized over the life of theJuly 2022 Note. TheJuly 2022 Note andJuly 2022 Warrants are convertible and exercisable, respectively, into shares of the Company's common stock at a price equal to$0.00476 per share (subject to adjustment). TheJuly 2022 Note andJuly 2022 Warrants include a down-round provision under which the conversion price and exercise price are reduced if the Company sells or issues any securities including options, convertible securities, with the exception of exempt issuance (as defined in the agreements), or amended outstanding securities, at a lower conversion or exercise price than that of theJuly 2022 Note andJuly 2022 Warrants. The conversion and exercise price of theJuly 2022 Note andJuly 2022 Warrants are reduced equal to the lower conversion and exercise price of the new issuance or amended securities. For so long as theJuly 2022 Warrants remains outstanding and until the listing by the Company or the trading of the common stock on a Qualified National Exchange (as defined in the agreement); (i) if the Company issues warrants to investors in an offering of common stock or of any equity linked security (each a "Subsequent Offering"), and such warrants equal more than 20% warrant coverage, then a number of additional shares will be added to theJuly 2022 Warrants such that theJuly 2022 Warrants shall equal the same percentage of the warrant coverage offered to the investors in the Subsequent Offering and; (ii) if the Company issues warrants in a Subsequent Offering which may be exercised by means of cashless exercises, then theJuly 2022 Warrants shall be exercisable by the same cashless exercise feature of the warrants issued in the Subsequent Offering. As ofSeptember 30, 2022 , theJuly 2022 Note had an outstanding principal balance of$50,000 and accrued interest of$953 . 34 Note Payable -Related Party OnMay 5, 2022 , the Company andJeffrey Busch amended theApril 26, 2021 note with principal amount of$100,000 ("Original Note") pursuant to which the principal amount was increased to$350,000 ("New Note") with the Company receiving additional$250,000 of proceeds and added a conversion feature. The New Note bears an annual interest rate of 1% (which shall increase to 2% in an event of a default) and matures onMay 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 ofSeptember 30, 2022 , the New Note had an outstanding principal balance of$350,000 , reflected as notes payable - related party in the accompanying balance sheet since the conditions for its contingent conversion has not yet been met, and accrued
interest of$2,474 . Future Financings We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of
the business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders' ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Critical Accounting Policies We have identified the following policies as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs. 35 Use of Estimates The preparation of financial statements in conformity withU.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the years endedSeptember 30, 2022 and 2021 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 and the fair value of non-cash equity transactions. Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are material differences between the Company's estimates and the actual results, the Company's future results of operation will be affected.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company onSeptember 30, 2021 . Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical
assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, inputs other than quoted prices
that are observable, and inputs derived from or corroborated by observable
market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity's own
assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
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
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.
36
The Company provides research and development support to biopharmaceutical companies to assist their drug development programs. InJanuary 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. The revenue recognized from services provided to private individuals during the years endedSeptember 30, 2022 and 2021 were minimal and therefore was not disaggregated for disclosure purposes. Contract Liabilities
Contract liabilities are cash deposits received from customers and advance billing included in accounts receivable on uncompleted contracts for which revenues have not been recognized as of the balance sheet date.
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
InAugust 2020 , the FASB issued ASU 2020-06-Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06") to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:
1. Add a disclosure objective 2. Add information about events or conditions that occur during the reporting
period that cause conversion contingencies to be met or conversion terms to be
significantly changed 3. Add information on which party controls the conversion rights 4. Align disclosure requirements for contingently convertible instruments with
disclosure requirements for other convertible instruments 5. Require that existing fair value disclosures in Topic 825, Financial
Instruments, be provided at the individual convertible instrument level rather
than in the aggregate. 37
Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital. The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by theSEC , for fiscal years beginning afterDecember 15, 2021 , including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning afterDecember 15, 2023 , including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning afterDecember 15, 2020 , including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its financial statements. InMay 2021 , the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40). The new ASU addresses issuer's accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning afterDecember 15, 2021 , including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant impact on
its financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company's financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
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