THERALINK TECHNOLOGIES, INC. This discussion should be read in conjunction with our historical financial statements. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see Part II, Item 1A of this Quarterly Report on Form 10-Q, "Risk Factors," and the risk factors included in ourSeptember 30, 2022 , Annual Report on Form 10-K. 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 withGeorge Mason University ("GMU").
? A patent portfolio licensed from GMU and the
("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. We believe 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.
46
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:
? Hiring additional lab techs and sales consultants; ? Choosing members to sit on our Clinical and Scientific Advisory Boards;
? 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 . OnDecember 5, 2022 , we appointedFaith Zaslavsky as President and Chief Operating Officer of the Company. Prior to joining the Company,Ms. Zaslavsky served as the President of Oncology of Myriad Genetics, Inc.Ms. Zaslavsky served Myriad in several roles for the past 22 years, and prior to serving as Myriad's President of Oncology,Ms. Zaslavsky served as Myriad's National Sales Director of Oncology from 2017 to 2019 and a Regional Sales Director ofWomen's Health from 2015 to 2017. Results of Operations
Comparison for the Three Months Ended
Revenue
? During the three months ended
of
decrease was primarily attributable to a decrease in services performed under
research and development contracts for pharmaceutical companies. Costs of Revenues
? During the three months ended
revenue of
The decrease in the fiscal 2023 period cost of revenue as a percentage of
revenue over the fiscal 2022 period was because in the fiscal 2022 period, the
Company was required to purchase expensive third-party samples for certain
pharmaceutical contracts. This increased cost significantly decreased the gross
profit for the fiscal 2022 period. Gross Margin
? For the three months ended
and
gross margin of 80% in the fiscal 2023 period versus 45% in the fiscal 2022
period. The increase was primarily attributable to the decrease in revenue and
decrease in cost of revenue discussed above. 47
Operating Expenses For the three months endedDecember 31, 2022 and 2021, operating expenses consisted of the following: For the Three Months Ended December 31, 2022 2021 Professional fees$ 387,438 $ 217,823 Compensation expense 1,752,699 625,855 Licensing fees 31,637 36,092 General and administrative expenses 448,493 537,656 Total$ 2,620,267 $ 1,417,426 Professional fees:
? For the three months ended
increase was primarily attributable to an increase in stock-based consulting
fees of
of stock options to consultants in
fees of $54,129 , and an increase in other professional fees of $9,305 .
Compensation expense:
? For the three months ended
by
2021. The increase was primarily attributable to an increase in stock-based
compensation of
issuance 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 three months ended
Licensing fees are 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 fluctuations in licensing fees.
General and administrative expenses:
? For the three months ended
expenses decreased by
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, an increase in travel expense of $13,979 , and
increases in other general and administrative expenses.
Loss from Operations
For the three months ended December 31, 2022 , loss from operations amounted to
$2,575,790 as compared to $1,382,016 for the three months ended December 31,
2021 , an increase of $1,193,774 , or 86%. The increase was primarily a result of
the increase in operating expenses discussed above.
Other Income (Expenses), net
For the three months ended December 31, 2022 and 2021, total other expenses, net
amounted to $33,880,557 and $130,251 , respectively, an increase of $33,750,306 .
The change was primarily due to an increase in interest expense of $1,713,534
resulting from additional debt incurred in 2023 and an increase in amortization
of debt discount, an increase in unrealized loss on market securities of $7,400 ,
an increase in loss on debt extinguishment of $5,434,447 resulting from the
exchange of convertible notes and preferred stock to new debentures on November
29, 2022 , an increase in settlement expense of $200,000 , and an increase in
derivative expense of $26,397,075 resulting from the treatment of the new
debentures and warrants as derivative liabilities.
48
Preferred Stock Dividend and Deemed Dividend
For the three months ended
For the three months ended
Net Loss Attributed to Common Stockholders
For the three months endedDecember 31, 2022 , net loss attributed to common stockholders amounted to$36,495,799 , or$(0.01) per share (basic and diluted) compared to net loss attributed to common stockholders of to$1,572,760 , or$(0.00) per share (basic and diluted), for the three months endedDecember 31, 2021 , an increase of$34,923,039 . The increase was a result of the changes in operating expenses and other expenses, net discussed above.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of$44,998,742 and$1,130,902 in cash as ofDecember 31, 2022 and a working capital deficit of$2,808,736 and$393,460 in cash as ofSeptember 30, 2022 . December 31, September 30, Percentage 2022 2022 Net Change Change Working capital (deficit): Total current assets$ 1,378,620 $ 646,984 $ 731,636 113 % Total current liabilities (46,377,362 ) (3,455,720 )
(42,921,642 ) 1,242 %
Working capital (deficit):
The decrease in working capital deficit was primarily attributable to the increase in current liabilities of$42,921,642 primarily related to an increase in derivative liabilities (non-cash) offset by an increase in current assets of$731,636 . Cash Flows
The following table sets forth a summary of changes in cash flows for the three
months ended
Three Months Ended
December 31,
2022 2021
Cash used in operating activities
(7,980 ) -
Cash provided by financing activities 2,521,771 1,595,623 Net change in cash
$ 737,442 $ 100,831
Net cash used in operating activities was$1,776,349 for the three months endedDecember 31, 2022 as compared to$1,494,792 for the three months endedDecember 31, 2021 , an increase of$281,557 , or 19%.
? Net cash used in operating activities for the three months ended
2022 primarily reflected our net loss of
of non-cash items such as depreciation expense of
of $6,514 , accretion of stock options expense of $612,173 , amortization of
debt discount of $1,602,646 , loss on debt extinguishment of $5,434,447 ,
non-cash settlement expense of $200,000 , and derivative expense of
$26,397,075 , and changes in operating assets and liabilities consisting
primarily of an increase in accounts receivable of $16,170 , a decrease in
prepaid expenses and other current assets of
payable of
of
? Net cash used in operating activities for the three months ended
2021 primarily reflected our net loss of
of non-cash items such as depreciation expense of
of
modification of
changes in operating asset and liabilities consisting primarily of an increase
in accounts receivable of
current assets of
liabilities of
by a decrease in laboratory supplies of
payable of $139,398 .
49
Net cash used in investing activities was
? Net cash used in investing activities for the three months ended
2022, resulted from the purchase of property and equipment of $7,980 .
Cash Provided by Financing Activities:
Net cash provided by financing activities was$2,521,771 for the three months endedDecember 31, 2022 as compared to$1,595,623 for the three months endedDecember 31, 2021 , an increase of$926,148 , or 58%.
? Net cash provided by financing activities for the three months ended December
31, 2022 consisted of
financed leases.
? Net cash provided by financing activities for the three months ended December
31, 2021 consisted of proceeds from convertible debt - related party of
dividends payable of
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 unaudited financial statements, the Company had net loss and net cash used in operations of$36,456,347 and$1,776,349 , respectively, for the three months endedDecember 31, 2022 . Additionally, the Company had an accumulated deficit, stockholders' deficit and working capital deficit of$99,303,616 ,$44,302,919 and$44,998,742 onDecember 31, 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. Recent Financings
Convertible Debt - Related Parties
OnNovember 1, 2021 , the Company entered into the FirstNovember 2021 SPA with the FirstNovember 2021 Investor, an affiliate stockholder, to purchase the FirstNovember 2021 Notes and the FirstNovember 2021 Warrants, for an aggregate investment amount of$1,000,000 . The Company received$1,000,000 in aggregate proceeds from the FirstNovember 2021 Notes. As ofSeptember 30, 2022 , the FirstNovember 2021 Notes had an outstanding principal of$1,000,000 and accrued interest of$20,164 . OnNovember 29, 2022 , the FirstNovember 2021 Notes were exchanged for a new convertible debenture (see below). 50
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 . As ofSeptember 30, 2022 , the FirstApril 2022 Note had an outstanding principal balance of$100,000 and accrued interest of$3,901 . OnNovember 29, 2022 , the FirstApril 2022 Note was exchanged for a new convertible debenture (see below). OnMay 9, 2022 , the Company entered into theMay 2022 SPA with theMay 2022 Investor, an affiliate stockholder, to purchase theMay 2022 Notes and theMay 2022 Warrants. The Company received$1,000,000 in aggregate proceeds from theMay 2022 Notes. As ofSeptember 30, 2022 , theMay 2022 Notes had an aggregate outstanding principal balance of$1,000,000 and accrued interest of$20,110 . OnNovember 29, 2022 , theMay 2022 Note was exchanged for a new convertible debenture (see below). OnJune 15, 2022 , pursuant to theJune 2022 SPA,Danica Holley , a member of the Board of Directors and a related party, purchased theJune 2022 Note with a principal balance of$50,000 and accompanyingJune 2022 Warrants to purchase 2,100,840 shares of common stock. The Company received net proceeds of$50,000 onJune 15, 2022 . As ofSeptember 30, 2022 , theJune 2022 Note had an outstanding principal balance of$50,000 and accrued interest of$1,173 . OnNovember 29, 2022 , theJune 2022 Note was exchanged for a new convertible debenture (see below). 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"). 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. OnNovember 29, 2022 , the Busch Notes were exchanged for a new convertible debenture (see below). 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 . 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. OnNovember 29, 2022 , this note was exchanged for a new convertible debenture (see below). 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 . 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. OnNovember 29, 2022 , this note was exchanged for a new convertible debenture (see below). OnNovember 29, 2022 , the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase Agreement, by and among, the Company, the , by and among the Company, the Related Party Purchasers and the Collateral Agent. At the Initial Closing, the Company sold the related party Purchasers (i) the New Related Party Debentures and (ii) the New Related Party Warrants to purchase up to 157,142,857 shares of Common Stock, subject to adjustments provided by the Warrants, which represents 100% warrant coverage. The Company received a total of$412,092 in net proceeds at the Initial Offering from the Related Party Purchasers, net of the Original Issue Discount of$50,000 , commissions of$58,200 and other offering costs of$29,708 . 51 OnNovember 29, 2022 , the Company entered into Securities Exchange Agreements, with the above related party investors, whereby theExchanged Related Party Notes and accrued interest payable of$120,750 were exchanged for New Related Party Debentures. Additionally, onNovember 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% (10% for theAugust 11, 2022 andSeptember 2, 2022 Demand Promissory Notes), or$589,505 , for new Related Party Debentures with an aggregate principal amount of$4,860,255 . OnNovember 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, onNovember 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 . TheNovember 29, 2022 New Related Party Debentures mature onNovember 29, 2023 , subject to a three-month extension at the sole discretion of the Company. The Related Party Debentures bear interest at 10% per annum payable upon conversion or maturity. The New Related Party Debentures are convertible into shares of the Company's common stock at any time after the maturity date and prior to Mandatory Conversion (as defined below) at the conversion price equal to the lesser of: (i)$0.003 per share and (ii) 70% of the average of the VWAP (as defined in the Debentures) (or 50% of the average of such VWAP if an event of default has occurred and has not been cured) of the Common Stock during the ten Trading Day (as defined in the Debentures) period immediately prior to the applicable conversion date. The New Related Party Debentures are subject to Mandatory Conversion 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 Debentures may elect to exchange their Debentures for newly issued convertible preferred securities at a price per share equal to the Qualified Offering Price or the five-day VWAP of the Common Stock prior to the date that is 181 days after the closing of the Qualified Offering. Notwithstanding the preceding, holders of New Related Party Debentures shall have the right to require satisfaction of up to 40% of all amounts outstanding under the Debentures, in cash, at the time of a Qualified Financing. The New Related Party Debentures also contain certain price protection provisions providing for adjustment of the number of shares of Common Stock issuable upon conversion of the Debentures in case of certain future dilutive events or stock-splits and dividends.
The Company's obligations under the New Related Party Debentures are secured by a first priority lien on all of the assets of the Company pursuant to the Security Agreement.
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. Convertible Debt OnJanuary 27, 2022 , the Company entered into the FirstJanuary 2022 SPA with the FirstJanuary 2022 Investor to purchase the FirstJanuary 2022 Note in the principal amount of$500,000 with the Company receiving$500,000 in proceeds and FirstJanuary 2022 Warrants to purchase up to 136,612,022 shares of common stock. As ofSeptember 30, 2022 , the FirstJanuary 2022 Note had an outstanding principal balance of$500,000 and accrued interest of$26,959 . OnNovember 29, 2022 , the FirstJanuary 2022 Note was exchanged for a new convertible debenture (see below). OnJanuary 31, 2022 , the Company entered into the SecondJanuary 2022 SPA with the SecondJanuary 2022 Investor to purchase the SecondJanuary 2022 Note with principal balance of$500,000 with the Company receiving$500,000 in proceeds and the SecondJanuary 2022 Warrants to purchase up to 136,612,022 shares of common stock. As ofSeptember 30, 2022 , the SecondJanuary 2022 Note had an outstanding principal balance of$500,000 and accrued interest of$26,520 . OnNovember 29, 2022 , the SecondJanuary 2022 Note was exchanged for a new convertible debenture (see below). 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. As ofSeptember 30, 2022 , the SecondApril 2022 Notes had an aggregate outstanding principal balance of$425,000 and accrued interest of$15,710 . OnNovember 29, 2022 , the SecondApril 2022 Notes were exchanged for a new convertible debenture (see below). OnJuly 1, 2022 , the Company entered into a Securities Purchase Agreement with theJuly 2022 Investor, to purchase theJuly 2022 Note for a principal amount of$50,000 with the Company receiving$50,000 of proceeds and theJuly 2022 Warrants to purchase 2,100,840 shares of common stock. As ofSeptember 30, 2022 , theJuly 2022 Note had an outstanding principal balance of$50,000 and accrued interest of$953 . OnNovember 29, 2022 , theJuly 2022 Note was exchanged for a new convertible debenture (see below). 52
On
OnNovember 29, 2022 , the Company consummated the Initial Closing of the Offering pursuant to the terms and conditions of the Purchase Agreement, by and among the Company, the Purchasers and the Collateral Agent. At the Initial Closing, the Company sold the Purchasers theUnderlying Securities . 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. OnNovember 29, 2022 , the Company entered into Securities Exchange Agreements with the above investors, whereby the Exchanged Convertible Notes with an aggregate principal amount of$2,675,000 and accrued interest payable of$173,375 were exchanged for New Debentures. Additionally, onNovember 29, 2022 , in order to induce the investors to exchange their respective convertible notes into the New Debentures, the aggregate principal amount and accrued interest payable was increased by 15%, or$427,256 , for the New Debentures with an aggregate principal amount of$3,275,631 . OnNovember 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, onNovember 29, 2022 , in order to induce the preferred stockholders to exchange their respective preferred shares into the New Debentures, the aggregate stated value of the preferred shares was increased by 15%, or$242,736 , for New Debentures with an aggregate principal amount
of$1,860,974 . The New Debentures mature onNovember 29, 2023 , subject to a three-month extension at the sole discretion of the Company. The New Debentures bear interest at 10% per annum payable upon conversion or maturity. The New 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 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. 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 Company's obligations under the New Debentures are secured by a first priority lien on all of the assets of the Company pursuant to the Security Agreement.
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. The Company may hold one or more subsequent closings at any time prior toDecember 31, 2022 , unless otherwise extended, to sell additionalUnderlying Securities in an aggregate principal amount up to$6,600,000 , which may be adjusted upward to mean an aggregate principal amount of$8,000,000 upon written consent of the Company and the Placement Agent. The subsequent closing deadline was extended, and a subsequent raise was consummated onJanuary 27, 2023 (See Note 11 in unaudited notes to financial statements). 53
Note Payable -
OnMay 5, 2022 , the Company andJeffrey Busch amended the 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 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 ofDecember 31, 2022 , the New Note had an outstanding principal balance of$350,000 , reflected as notes payable - related party in the accompanying unaudited balance sheet since the conditions for its contingent conversion has not yet been met, and accrued interest of$3,356 . 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. 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 periods endedDecember 31, 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 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 derivatives 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. 54
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 onDecember 31, 2022 . 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.
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 three months endedDecember 31, 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 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. 55 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.
Recent Accounting Pronouncements
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.
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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