10-K/A: Theralink Technologies Files Amended Annual Report, Details Executive Changes and Related Party Transactions

Theralink Technologies has filed an amendment to its annual report on Form 10-K, primarily to include information omitted from Part III of the original filing, along with updated certifications.

Summary

• Theralink Technologies filed an amendment to its annual report on Form 10-K for the fiscal year ended September 30, 2023.
• The amendment includes information required in Part III of the 10-K, which was not included in the original filing, as the company did not intend to file its definitive proxy statement within 120 days of the fiscal year end.
• The document details changes in executive leadership, including the appointment of Faith Zaslavsky as CEO on June 26, 2023, and Andrew Kucharchuk as CFO on May 5, 2023.
• Mick Ruxin, the former CEO, transitioned to Chief Medical Officer on July 14, 2023, and received a severance package of $900,000.
• The company engaged in several related-party transactions, including the issuance of convertible debentures and warrants.
• The aggregate market value of voting and non-voting common equity held by non-affiliates was approximately $2.5 million as of March 31, 2023.
• As of January 28, 2024, the company had 6,151,499,919 shares of common stock issued and outstanding.

Sentiment

Score: 3

Explanation: The document reveals significant governance weaknesses, high related-party activity, and debt-related losses, which are concerning from an investment perspective. The late filings and lack of key committees further contribute to a negative sentiment.

Positives

• The company has appointed experienced professionals to key leadership positions.
• The company has secured funding through convertible debentures and warrants.
• The company has a clear policy for related party transactions requiring board approval.

Negatives

• The company has a history of late filings of Section 16(a) reports by directors and executive officers.
• The company does not have a code of ethics, citing its small size.
• The company does not have a standing audit committee or a board member that qualifies as an audit committee financial expert.
• The company has engaged in significant related party transactions, including the exchange of notes and preferred stock for new debentures.
• The company incurred a loss from debt extinguishment of $1,046,167 due to inducement fees for the exchange of convertible notes and preferred stock.
• The company wrote off $1,768,379 in debt discount related to exchanged related party notes.

Risks

• The company's reliance on related-party financing could pose a risk if these relationships change.
• The lack of a code of ethics and an audit committee could lead to governance issues.
• The company's significant debt and related party transactions could impact its financial stability.
• The company's financial statements may be subject to increased scrutiny due to the related party transactions and lack of an audit committee.
• The company's share price could be volatile due to the large number of outstanding shares and warrants.

Future Outlook

The company has extended the maturity date of its debentures to February 29, 2024, and is working towards a stock-for-stock reverse merger transaction with IMAC Holdings, Inc.

Management Comments

• The Board believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics.
• Our Board intends to adopt a code of ethics when circumstances warrant.
• Our Board does not believe that it is necessary to have such committees because the functions of such committees can be adequately performed by our Board.
• We believe that our Board is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.
• The Board does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the Board.
• We believe that retaining an independent director who would qualify as an audit committee financial expert would be overly costly and burdensome and is not warranted in our circumstance given the early stages of our development.

Industry Context

The document reflects the challenges faced by small, developing companies in balancing growth with financial and regulatory compliance. The related party transactions and reliance on debt financing are common in early-stage companies, but also highlight potential risks.

Comparison to Industry Standards

• The lack of a formal audit committee and code of ethics is unusual for a public company, even a smaller one, and would be considered below industry standards.
• The level of related party transactions is high compared to industry norms, raising concerns about potential conflicts of interest.
• The company's reliance on convertible debt is not uncommon for early-stage companies, but the terms and conditions, including the 15% inducement fee, are less favorable than typical market rates.
• The company's executive compensation structure is relatively standard, but the severance package for the former CEO is significant.
• The company's financial reporting practices, while certified by the CEO and CFO, may be subject to increased scrutiny due to the lack of an audit committee and the high volume of related party transactions.
• Compared to companies like Global Medical REIT (NYSE:GMRE), where Jeffrey Busch is also Chairman and CEO, Theralink's governance structure is less robust.

Management Changes

Corporate Governance

Related Party Transactions

• The company entered into a Promissory Note Agreement with Jeffrey Busch for $150,000, which was fully paid during the year ended September 30, 2022.
• The company entered into a Securities Purchase Agreement with an affiliated investor for a convertible note and warrant for $1,000,000.
• Matthew Schwartz purchased a convertible note with accompanying warrants for $100,000.
• The May 2022 Investor purchased four convertible notes for $1,000,000.
• Danica Holley purchased a convertible note with accompanying warrants for $50,000.
• The company entered into Demand Promissory Note Agreements with Jeffrey Busch for $275,000.
• The company entered into Demand Notes with affiliated investors for $725,000.
• The company entered into Demand Promissory Note Agreements with two related parties for $120,000, which were repaid in December 2022.
• The company amended the exercise price of warrants held by related parties to $0.003 per share.
• The company issued 10% Original Issue Discount Senior Secured Convertible Debentures and warrants to related parties for $550,000.
• The company exchanged existing convertible notes and preferred stock for new debentures with an aggregate principal amount of $8,425,192.
• The company sold a New Debenture and Warrants to Jeffrey Busch for $155,100.
• The company entered into a Convertible Secured Promissory Note with IMAC Holdings, Inc. for $2,560,500.

Stakeholder Impact

• Shareholders may be concerned about the company's governance structure and related party transactions.
• Employees may be affected by the changes in executive leadership and the company's financial situation.
• Creditors may be concerned about the company's debt obligations and ability to repay.
• Customers and suppliers may be indirectly affected by the company's financial stability and operational changes.

Next Steps

• The company is working towards a stock-for-stock reverse merger transaction with IMAC Holdings, Inc.
• The company needs to address the issues related to late filings of Section 16(a) reports.
• The company should consider establishing a code of ethics and an audit committee to improve corporate governance.
• The company needs to manage its debt obligations and related party transactions carefully.

Key Dates

Keywords

Theralink Technologies, Form 10-K/A, executive compensation, related party transactions, convertible debentures, warrants, corporate governance, financial reporting, securities, directors