Exhibit 99.1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors of Avant Diagnostics, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Avant Diagnostics, Inc. (“the Company”) as of September 30, 2019 and 2018 and the related statements of operations, changes in stockholders’ deficit and cash flows, for each of the periods ended September 30, 2019 and 2018, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018, and the results of its operations and its cash flows for each of the periods ended September 30, 2019 and 2018, in conformity with generally accepted accounting principles in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As more fully described in Note 3, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Changes in accounting principle

 

As discussed in Note 2 to the financial statements, the company has elected to change its method of accounting for Derivatives and Hedging in the year ended September 30, 2018 and 2019.

 

Restatement

 

As discussed in Note 15 to the financial statements, the 2018 and 2019 financial statements have been restated to correct a misstatement.

 

/s/ Weinstein International C.P.A. (Isr)
Jerusalem, Israel
April 20, 2021

 

We have served as the Company’s auditor since 2019.

 

 

AVANT DIAGNOSTICS, INC.

BALANCE SHEETS

 

		September 30,
		2019				2018
ASSETS
CURRENT ASSETS:
Cash		$	560,407			$	20,896
Accounts receivable			4,000				-
Prepaid expenses and other current assets			9,054				-
Total Current Assets			573,461				20,896
OTHER ASSETS:
Property and equipment, net			298,910				280,838
Finance right-of-use asset, net			204,059				15,663
Marketable securities			18,000				33,800
Security deposit			7,790				4,332
Total Assets		$	1,102,220			$	355,529
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable			668,246				490,797
Accrued liabilities			118,241				152,252
Accrued compensation			297,056				161,126
Convertible debt, net			217,591				249,091
Notes payable - current			40,000				40,000
Financing right-of-use liability - current			35,096				-
Due to related parties			180,000				58,743
Total Current Liabilities			1,556,230				1,152,009
LONG-TERM LIABILITIES:
Financing right-of-use liability			178,350				16,065
Total Liabilities			1,734,580				1,168,074
Commitments and contingencies (Note 11)
STOCKHOLDERS’ DEFICIT:
Preferred stock: $0.001 par value; 50,000,000 authorized; 29,174,469 and 27,396,519 issued and outstanding at September 30, 2019 and 2018, respectively			29,174				27,397
Common stock: $0.00001 par value, 450,000,000 shares authorized; 173,479 and 168,479 issued and outstanding at September 30, 2019 and 2018, respectively			2				2
Additional paid-in capital			37,349,665				35,573,423
Accumulated deficit			(38,011,201	)			(36,413,367	)
Total Stockholders’ Deficit			(632,360	)			(812,545	)
Total Liabilities and Stockholders’ Deficit		$	1,102,220			$	355,529

 

See accompanying notes to the financial statements.

 

 

AVANT DIAGNOSTICS, INC.

STATEMENTS OF OPERATIONS

 

		For the Years Ended
		September 30,
		2019				2018
REVENUES, NET		$	-			$	-
OPERATING EXPENSES:
Professional fees			455,893				565,572
Consulting fee - related party			235,392				179,255
Compensation expense			375,712				73,915
Licensing fees			51,546				97,103
General and administrative expenses			366,592				790,024
Impairment loss			-				3,093,902
Total Operating Expenses			1,485,135				4,799,771
LOSS FROM OPERATIONS			(1,485,135	)			(4,799,771	)
OTHER INCOME (EXPENSE):
Interest income (expense)			(66,799	)			10,445
Legal settlement			(30,100	)			(243,531	)
Gain on debt extinguishment			-				9,978
Unrealized gain (loss) on marketable securities			(15,800	)			33,800
Other expense			-				(15,000	)
Total Other (Income) Expense, net			(112,699	)			(204,308	)
NET LOSS		$	(1,597,834	)		$	(5,004,079	)
NET INCOME (LOSS) PER COMMON SHARE:
Basic		$	(9.38	)		$	(31.11	)
Diluted		$	(9.38	)		$	(31.11	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic			170,287				160,839
Diluted			170,287				160,839

 

See accompanying notes to the financial statements.

 

 

AVANT DIAGNOSTICS, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED SPETEMBER 2019 AND 2018

 

																										Total
		Preferred Stock								Common Stock								Additional				Accumulated				Stockholders’
		# of Shares				Amount				# of Shares				Amount				Paid-in Capital				Deficit				(Deficit)
Balance at September 30, 2017			-			$	-				151,964			$	2			$	32,135,781			$	(31,409,288	)		$	629,720
Preferred stock issued for cash			1,255,000				1,255				-				-				1,253,705				-				1,254,960
Warrants issued for services			-				-				-				-				100,000				-				100,000
Common stock issued for legal settlements			-				-				1,469				-				59,170				-				59,170
Common stock issued pursuant to Asset Purchase Agreement			-				-				15,046				-				373,440				-				373,440
Preferred stock issued upon debt conversions			26,131,024				26,131				-				-				1,640,843				-				1,666,974
Preferred stock issued upon conversion of related party advances			10,495				11				-				-				10,484				-				10,495
Net loss			-				-				-				-				-				(5,004,079	)			(5,004,079	)
Balance at September 30, 2018			27,396,519				27,397				168,479				2				35,573,423				(36,413,367	)			(812,545	)
Common stock issued for services			-				-				5,000				-				100				-				100
Preferred stock issued for cash			1,599,500				1,599				-				-				1,597,870				-				1,599,469
Preferred stock issued upon debt conversions			125,000				125				-				-				124,875				-				125,000
Preferred stock issued upon conversion of related party advances			53,450				53				-				-				53,397				-				53,450
Net loss			-				-				-				-				-				(1,597,834	)			(1,597,834	)
Balance at September 30, 2019			29,174,469			$	29,174				173,479			$	2				37,349,665				(38,011,201	)			(632,360	)

 

See accompanying notes to the financial statements.

 

 

AVANT DIAGNOSTICS, INC.

STATEMENTS OF CASH FLOWS

 

		For the Years Ended
		September 30,
		2019				2018
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss		$	(1,597,834	)		$	(5,004,079	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			47,540				450,485
Stock issued for legal settlements			-				59,170
Stock issued for services			100				-
Warrants issued for services			-				100,000
Amortization of debt discount			25,000				-
Gain on debt extinguishment			-				(9,977	)
Impairment of intellectual assets			-				3,093,898
Unrealized gain (loss) on marketable securities			15,800				(33,800	)
Change in operating assets and liabilities:
Accounts receivable			(4,000	)			-
Prepaid expenses and other current assets			(12,512	)			(4,332	)
Accounts payable			177,449				254,026
Due to related parties			126,657				46,576
Accrued liabilities and other liabilities			101,919				60,598
NET CASH USED IN OPERATING ACTIVITIES			(1,119,881	)			(987,435	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment			(38,232	)			(283,328	)
Proceeds from sale of marketable securities			-				20,000
NET CASH PROVIDED BY INVESTING ACTIVITIES			(38,232	)			(263,328	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of preferred stock			1,599,469				1,254,960
Proceeds from convertible debt, net of debt discount			100,000				20,000
Proceeds from related party advances, net			115,050				86,156
Repayment of convertible debt			(31,500	)			(16,000	)
Repayment of related party advances			(67,000	)			(74,805	)
Repayment of financing right-of-use liabilities			(18,395	)			-
NET CASH PROVIDED BY FINANCING ACTIVITIES			1,697,624				1,270,311
NET INCREASE IN CASH			539,511				19,548
CASH, beginning of the year			20,896				1,348
CASH, end of the year		$	560,407			$	20,896
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	-			$	-
Income taxes		$	-			$	-
Non-cash investing and financing activities:
Issuance of common stock for convertible debt and interest		$	125,000			$	1,666,974
Issuance of common stock for settlement of related party advances		$	53,450			$	10,495
Acquisition of assets by lease agreement		$	215,776			$	16,065
Cumulative effect adjustment of derivative liability related to adoption of ASU 2017-11		$	-			$	96,775

 

See accompanying notes to the financial statements.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

NOTE 1 –BASIS OF PRESENTATION

 

The accompanying financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”). Avant Diagnostics, Inc. (“Avant” or the “Company”) is a precision medicine, commercial stage 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 and patients in the areas of oncology.

 

The Company’s activities have been primarily related to the commercialization of Theralink® and raising capital. The Company has not generated revenue to date.

 

On June 22, 2020, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s issued and outstanding shares of common at a ratio of 1-for-2,000 (the “Reverse Stock Split”), which became effective on June 22, 2020. The Reverse Stock Split did not have any effect on the stated par value of the common and preferred stock.

 

All share and per share amounts in the accompanying historical financial statements have been retroactively adjusted to reflect the Reverse Stock Split (see Note 11 and Note 14). 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s investment policy is to preserve principal and maintain liquidity. The Company periodically monitors its positions with, and the credit quality of, the financial institutions with which it invests. During the years ended September 30, 2019 and 2018, the Company has maintained balances in excess of federally insured limits. The Company has not experienced any losses in such accounts through September 30, 2019.

 

Property and Equipment

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts of assets and liabilities including the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates during the years ended September 30, 2019 and 2018 include, but are not necessarily limited to, useful life of property and equipment, valuation of right-of-use (“ROU”) assets and lease liabilities, assumptions used in assessing impairment of long-term assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions and the valuation of derivative liabilities.

 

Income Taxes

 

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

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.

 

Basic and Diluted Loss Per Share

 

Basic net income or loss per share is computed by dividing the net income or loss available to common stockholders by the weighted-average number of shares outstanding during the period. Diluted income or loss per share is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding if the potential common shares had been issued. The Company’s potential dilutive shares include warrants for shares of common stock. All potentially dilutive shares of common stock have been excluded from the computation of the dilutive net loss per share as of September 30, 2019 and 2018, as they would have been anti-dilutive. The potential dilutive shares of common stock consist of the following:

 

		September 30,
			2019				2018
Stock warrants		$	6,666,667			$	6,666,667
Total		$	6,666,667			$	6,666,667

 

Research and Development

 

Research and development costs are expensed as incurred in the respective periods.

 

Impairment of Long-Lived Assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the years ended September 30, 2019 and 2018, the Company recorded impairment losses of $0 and $3,093,902, respectively. The impairment loss is related to the Intellectual Property acquired by the company in 2016. The company has not been able to generate any cash flow from this asset. In additional, the asset will not produce positive cash flow in the foreseeable future.

 

Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption did not have any impact on its financial statements.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

Revenue Recognition

 

In May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard on January 1, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment. The Company does not have significant revenues from operations during the years ended September 30, 2019 and 2018.

 

Fair Value of Financial Instruments and Fair Value Measurements

 

FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on September 30, 2019. 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.

 

The carrying amounts reported in the balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.

 

In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted during the period ended June 30, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the balance sheet as of September 30, 2018, the period which was affected by the cumulative-effect adjustment. The Company adopted ASU No. 2017-11 in the period ended June 30, 2019, and the adoption resulted in a cumulative-effect adjustment of $96,775 on its financial statements which was reflected in the accompanying balance sheet for the year ended September 30, 2018. As of September 30, 2018, there was no derivative liability recorded.

 

Assets or liabilities measured at fair value on a recurring basis included conversion options in convertible notes with their exercise price containing a down-round provision and were as follows at September 30, 2019 and 2018:

 

At September 30, 2019

At September 30, 2018

Description

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Derivative liabilities

—

—

$

—

—

—

$

—

 

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

 

		Derivative Liabilities
Balance at September 30, 2017		$	96,775
Cumulative effect adjustment of derivative liability related to adoption of ASU 2017-11			(96,775	)
Balance at September 30, 2018		$	—

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

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

 

Related Parties

 

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

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.

 

On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.

 

Operating lease ROU assets represents the right to use the leased asset for the lease term and operating 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 condensed consolidated statements of operations.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Lessees are required to use a modified retrospective transition approach for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” to clarify how to apply certain aspects of the new lease standard. In July 2018, the FASB also issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” to give entities another option for transition. The additional option for transition allows an entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption or apply a practical expedient. The new standards are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

 

In June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. The amendment expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Companies should apply the requirements of Topic 718 to nonemployee awards except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. Early adoption is permitted, but no earlier than the Company’s adoption date of ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)”. The Company does not expect the adoption of this ASU will have a significant impact on its financial statements.

 

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements”, which facilitates amendments to a variety of topics to clarify, correct errors in, or make minor improvements to the accounting standards codification. The effective date of the standard is dependent on the facts and circumstances of each amendment. Some amendments do not require transition guidance and will be effective upon the issuance of this standard. A majority of the amendments in ASU 2018-09 will be effective for fiscal years beginning after December 15, 2018. The Company does not expect the adoption of this ASU will have a significant impact on its financial statements.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement - Disclosure Framework (Topic 820)”. The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years beginning after December 15, 2019, including interim reporting periods within those fiscal years. Early adoption is permitted for any removed or modified disclosures. The Company does not expect the adoption of this ASU will have a significant impact on its financial statements.

 

The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

NOTE 3 – 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) from operations of $1,597,834 and $5,004,079 for the years ended September 30, 2019 and 2018, respectively. The net cash used in operations were $1,119,881 and $987,435 for the years ended September 30, 2019 and 2018, respectively. Additionally, the Company had an accumulated deficit of $38,011,201 and $36,413,367 at September 30, 2019 and 2018, respectively, had no revenues from operations since inception, and is currently in default on certain convertible debt instruments. 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 we will ultimately achieve profitable operations or become cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and equity financings to fund its operations in the future.

 

Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These 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.

 

NOTE 4 – MARKETABLE SECURITIES

 

During the fiscal year ended 2017, the Company acquired 1,000,000 shares of common stock of Amarantus BioScience Holdings, Inc. (“AMBS”) with a fair value of $40,980. The AMBS common stock is recorded as marketable securities in the accompanying balance sheets and its fair value is adjusted every reporting period and the change in fair value is recorded in the statements of operations as unrealized gain or (loss) on marketable securities. As of September 30, 2019 and 2018, the fair value of these shares were $18,000 and $33,800, respectively.

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

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

 

		Estimated Useful Life in Years		September 30, 2019				September 30, 2018
Laboratory equipment		5		$	103,247			$	99,631
Leasehold improvements		5			216,984				183,697
Computer equipment		3			1,329				—
					321,560				283,328
Less accumulated depreciation and amortization					(22,650	)			(2,490	)
Property and equipment, net				$	298,910			$	280,838

 

For the years ended September 30, 2020 and 2019, depreciation expense related to property and equipment amounted to $20,160 and $2,490, respectively.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

NOTE 6 – ACCURED LAIBILITIES

 

At September 30, 2019 and 2018, accrued liabilities consisted of the following:

 

		September 30,
		2019				2018
Accrued interest		$	46,158			$	17,711
Accrued director compensation			70,000				10,000
Accrued legal settlement			—				122,500
Accrued other liabilities			2,083				2,041
Total		$	118,241			$	152,252

 

NOTE 7 – CONVERTIBLE DEBT

 

On May 25, 2018, the Company entered into an exchange Agreement (the “Coastal Exchange Agreement”) with Coastal Investment Partners, LLC (“Coastal”). Pursuant to the terms of the Coastal Exchange Agreement, the Company agreed to exchange the principal amount due under the convertible promissory note dated July 6, 2016 plus accrued but unpaid interest, default penalties and other amounts due and payable under such notes, which was $305,664 as of the Effective Date (the “Coastal Notes”) in exchange for (i) 192,832 shares of Series A Preferred Stock having an aggregate value of $192,832 and (ii) the issuance of a new convertible promissory note due eighteen (18) months from the Effective Date in the aggregate principal amount of $192,832 (the “New Coastal Note”). The New Coastal Note shall bear interest at 8% per annum and is convertible into shares of the Company’s common stock at $0.015 per share, subject to adjustment. Coastal has contractually agreed to restrict their ability to convert the New Coastal Note such that the number of shares of the Company common stock held by them and their affiliates after such conversion does not exceed 9.99% of the Company’s then issued and outstanding shares of common stock. In connection with the Coastal Exchange Agreement, Coastal agreed to waive the defaults and breaches that have resulted on or prior to the Effective Date as well as any penalties, interest or other amounts that may have accrued under the Coastal Notes after March 31, 2018. In addition, Coastal entered into a termination agreement with the Company pursuant to which as of the Effective Date, (i) the securities purchase agreements and pledge agreements entered into with Coastal (the “Coastal Prior Agreements”) were terminated in their entirety and shall have no further force or effect, (ii) the security interests granted by the pledge agreement were terminated and shall have no further force or effect and (iii) neither party shall have any further rights or obligations under the Coastal Prior Agreements. Coastal also authorized the Company or its representatives to take all actions as they determine in their sole discretion to discharge and release any and all security interests, pledges, liens, and other encumbrances held by it on the Company’s assets. As of September 30, 2018, the New Coastal Note had outstanding principal of $192,832 and accrued interest payable of $5,356 which is recorded as accrued liabilities in the accompanying balance sheets. As of September 30, 2019, the New Coastal Note had outstanding principal of $192,832 and accrued interest payable of $20,783 which is recorded as accrued liabilities in the accompanying balance sheets.

 

On May 25, 2018, the Company entered into an exchange agreement (the “Black Mountain Exchange Agreement”) with Black Mountain Equity Partners LLC (“Black Mountain”). Pursuant to the terms of the Black Mountain Exchange Agreement, the Company agreed to exchange the principal amount due under the convertible promissory note dated November 11, 2016 (the “Black Mountain Note”) in exchange for the issuance of a new promissory note due twelve (12) months from the Effective Date in the aggregate principal amount of $25,000 (which includes a prepayment amount of $5,000 made on the Effective Date) (the “New Black Mountain Note”). The New Black Mountain Note shall bear interest at 12% per annum and has mandatory payments of $5,000 every 90 days until paid in full. In connection with the Black Mountain Exchange Agreement, Black Mountain agreed to waive the defaults and breaches that have resulted on or prior to the Effective Date as well as any penalties, interest or other amounts that may have accrued under the Black Mountain Note after March 31, 2018. During the fiscal year ended 2018, the Company paid $10,000 of the principal balance. As of September 30, 2018, the Black Mountain Note had outstanding principal of $15,000 and accrued interest payable of $887 which is recorded as accrued liabilities in the accompanying balance sheets. During the fiscal year ended 2019, the Company paid $7,500 of the principal. As of September 30, 2019, the Black Mountain Note had outstanding principal of $7,500 and accrued interest payable of $2,554 which is recorded as accrued liabilities in the accompanying balance sheets.

 

On May 25, 2018, the Company entered into an exchange agreement with a certain investor for the issuance of new promissory note due twenty-four (24) months from the Effective Date in the aggregate principal amount of $47,259 (the “New 2016 Investor Note”). The New 2016 Investor Note shall bear interest at 12% per annum and has mandatory payments of $2,000 every 30 days until paid in full starting June 25, 2018. In connection with the 2018 Investor Exchange Agreement, the 2016 Investor has agreed to waive the defaults and breaches that have resulted on or prior to the Effective Date as well as any penalties, interest or other amounts that may have accrued under the 2016 Note after March 31, 2018. During the fiscal year ended 2018, the Company paid $6,000 of the principal balance. As of September 30, 2018, the New 2016 Investor Note had outstanding principal of $41,259 and accrued interest payable of $1,828 which is recorded as accrued liabilities in the accompanying balance sheets. During the fiscal year ended 2019, the Company paid $24,000 of the principal. As of September 30, 2019, the New 2016 Investor Note had outstanding principal of $17,259 and accrued interest payable of $5,981 which is recorded as accrued liabilities in the accompanying balance sheets.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

Derivative Liabilities Pursuant to Notes and Warrants

 

In connection with the issuance of the Notes, the Company determined that the language in the Notes contained terms that included a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contained terms that are not fixed monetary amounts at inception and included various other terms such as default provisions that caused derivative treatment. Accordingly, under the provisions of ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion options contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives was determined using the Binomial Valuation Model.

 

In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted during the period ended June 30, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the balance sheet as of September 30, 2018, the period which was affected by the cumulative-effect adjustment. The Company adopted ASU No. 2017-11 in the period ended June 30, 2019, and the adoption resulted in a cumulative-effect adjustment of $96,775 on its financial statements which was reflected in the accompanying balance sheet for the year ended September 30, 2018. As of September 30, 2018 there was no derivative liability recorded.

 

NOTE 8 – NOTES PAYABLE

 

On October 28, 2016, the Company entered into a note agreement (the “Note I”) for the sale of the Company’s convertible note with a principal amount of $20,000. The Company received $20,000 in proceeds from the sale. Note I bears an interest rate of 12% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in Note I)), matured on April 28, 2017 and the principal and interest are convertible at any time at a conversion price equal to the lower of $0.25 or closing price on the date of the conversion, provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the Note I shall be convertible at 65% of the lowest VWAP , as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the Note to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 4.99% of the Company’s issued and outstanding common stock. Note I may be prepaid, in whole or in part, at any time upon five-days written notice to the holder at an amount equal to (i) 110% of the outstanding principal prepayment amount during the first 30 days after the execution of Note I; (ii) 115% of the outstanding principal prepayment amount if paid between the 31^st to 60^th day after the execution of Note I; (iii) 120% of the outstanding principal prepayment amount if paid between the 61^st to 90^th day after the execution of Note I and; (iv) 125% of the outstanding principal prepayment amount if paid after the 91^st day after the execution of Note I.

 

On July 28, 2017, the Company entered into an Exchange Agreement, with the holder to exchange Note I dated October 28, 2016, with a principal balance of $20,000 and a maturity date of April 28, 2017, with a new note (“Exchange Note I”). Note I defaulted on the maturity date for non-payment. The Exchange Note I had a purchase price of $20,000, net of $5,600 Original Issue Discount for an aggregate principal amount of $25,600. The Exchange Note I bears an interest rate of 10% per year (which shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in Exchange Note I)), maturity date of July 28, 2019 and convertible at any time at a fix conversion price equal to $0.06 per share. During the fiscal year ended September 30, 2018, the Company failed to meet the requirements set forth in the Exchange Agreement which resulted in the Exchange Agreement being considered null and void by both parties whereas the original Note I remains in full force and effect. As of September 30, 2018, Note I is in default and had outstanding principal of $20,000 and accrued interest payable of $4,820 which is recorded as accrued liabilities in the accompanying balance sheets. As of September 30, 2019, the Note I is in default and had outstanding principal of $20,000 and accrued interest payable of $8,420 which is recorded as accrued liabilities in the accompanying balance sheets.

 

On October 28, 2016, the Company entered into a note agreement (the “Note II”) for the sale of the Company’s convertible note for a principal amount of $20,000. The Company received $20,000 in proceeds from the sale. Note II bears an interest rate of 12% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in Note II)), matured on April 28, 2017 and the principal and interest are convertible at any time at a conversion price equal to the lower of $0.25 or closing price on the date of the conversion, provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, Note II shall be convertible at 65% of the lowest VWAP, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 4.99% of the Company’s issued and outstanding common stock. Note II may be prepaid, in whole or in part, at any time upon five-days written notice to the holder at an amount equal to (i) 110% of the outstanding principal prepayment amount during the first 30 days after the execution of Note II; (ii) 115% of the outstanding principal prepayment amount if paid between the 31^st to 60^th day after the execution of Note II; (iii) 120% of the outstanding principal prepayment amount if paid between the 61^st to 90^th day after the execution of Note II and; (iv) 125% of the outstanding principal prepayment amount if paid after the 91^st day after the execution of Note II.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

On July 28, 2017, the Company entered into an Exchange Agreement, with the holder to exchange Note II dated October 28, 2016, with a principal balance of $20,000 and a maturity date of April 28, 2017, with a new note (“Exchange Note II”). Note II defaulted on the maturity date for non-payment. The Exchange Note II had a purchase price of $20,000, net of $5,600 Original Issue Discount for an aggregate principal amount of $25,600. The Exchange Note II bears an interest rate of 10% per year (which shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in Exchange Note II)), maturity date of July 28, 2019 and convertible at any time at a fix conversion price equal to $0.06 per share. During the fiscal year ended September 30, 2018, the Company failed to meet the requirements set forth in the Exchange Agreement which resulted in the Exchange Agreement being considered null and void by both parties whereas the original Note II remains in full force and effect. As of September 30, 2018, Note II is in default and had outstanding principal of $20,000 and accrued interest payable of $4,820 which is recorded as accrued liabilities in the accompanying balance sheets. As of September 30, 2019, the Note II is in default and had outstanding principal of $20,000 and accrued interest payable of $8,420 which is recorded as accrued liabilities in the accompanying balance sheets.

 

NOTE 9 –LEASE LIABILITIES

 

Financing Lease Payable

 

Effective November 2018, the Company entered into a financing agreement to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $379 for a period of 60 months from November 2018 through October 2023. At the effective date of the financing agreement, the Company recorded financing lease payable of $16,064.

 

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

 

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

 

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

 

Effective January 2020, the Company entered into a financing agreement to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,395 for a period of 60 months from January 2020 through December 2024. At the effective date of the financing agreement, the Company recorded financing lease payable of $68,821.

 

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

 

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

 

		September 30, 2019
Financing ROU asset		$	231,841
Less accumulated depreciation			(27,782	)
Balance of Financing ROU asset as of September 30, 2019		$	204,059

 

For the years ended September 30, 2019 and 2018, depreciation expense related to Financing ROU asset amounted to $27,380 and $402, respectively.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

Financing lease liability related to the Financing ROU asset is summarized below:

 

		September 30, 2019
Financing lease payables for equipment		$	231,841
Total financing lease payables			231,841
Payments of financing lease liabilities			(18,395	)
Total			213,446
Less: short term portion as of September 30, 2019			(35,096	)
Long term portion as of September 30, 2019		$	178,350

 

Future minimum lease payments under the financing lease agreements at September 30, 2019 are as follows:

 

Years ending September 30,		Amount
2020		$	57,081
2021			61,266
2022			61,266
2023			53,787
2024			40,875
2025			4,185
Total minimum financing lease payments			278,460
Less: discount to fair value			(65,014	)
Total financing lease payable at September 30, 2019		$	213,446

 

NOTE 10 - RELATED-PARTY TRANSACTIONS

 

Sale of Preferred Stock to Related Parties

 

On May 25, 2018 (the “Effective Date”), the Company entered into securities purchase agreements (collectively, the “Purchase Agreement”) with accredited investor (the “Investor”) pursuant to which the Company sold an aggregate of 180,000 shares of its Series A Preferred Stock for aggregate gross proceeds of $180,000.

 

On July 1, 2018, the Company entered into a securities purchase agreement with Jeffrey Busch, the Company’s Executive Chairman, pursuant to which the Company sold an aggregate of 10,500 shares of its Series A Preferred Stock for aggregate gross proceeds of $10,500.

 

On October 17, 2018, the Company entered into a securities purchase agreement with Jeffrey Busch, the Company’s executive chairman, pursuant to which the Company sold an aggregate of 2,500 shares of its Series A Preferred Stock for aggregate gross proceeds of $2,500.

 

On November 27, 2018, the Company entered into a securities purchase agreement with Jeffrey Busch, the Company’s Executive Chairman, pursuant to which the Company sold an aggregate of 12,000 shares of its Series A Preferred Stock for aggregate gross proceeds of $12,000.

 

On December 19, 2018, the Company entered into a securities purchase agreement with Jeffrey Busch, the Company’s Executive Chairman, pursuant to which the Company sold an aggregate of 25,000 shares of its Series A Preferred Stock for aggregate gross proceeds of $25,000.

 

On August 12, 2019, the Company entered into a securities purchase agreement with Jeffrey Busch, the Company’s Executive Chairman, pursuant to which the Company exchanged Mr. Busch $53,450 loan to the Company and sold an aggregate of 53,450 shares of its Series D Preferred Stock for aggregate gross proceeds of $53,450.

 

On August 23, 2018, the Company entered into a securities purchase agreement with Dr. Mick Ruxin, the Company’s chief executive officer, pursuant to which the Company sold an aggregate of 25,000 shares of its Series A Preferred Stock for aggregate gross proceeds of $25,000.

 

On October 17, 2018, the Company entered into a securities purchase agreement with Henry Cole, a director of the Company, pursuant to which the Company sold an aggregate of 20,000 shares of its Series A Preferred Stock for aggregate gross proceeds of $20,000.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

On October 26, 2018, the Company entered into a securities purchase agreement with Dr. Rajesh Shrotriya, a director of the Company, pursuant to which the Company sold an aggregate of 100,000 shares of its Series A Preferred Stock for aggregate gross proceeds of $100,000.

 

On December 31, 2018, the Company entered into a securities purchase agreement with Dr. Rajesh Shrotriya, a director of the Company, pursuant to which the Company sold an aggregate of 50,000 shares of its Series A Preferred Stock for aggregate gross proceeds of $50,000.

 

On July 3, 2019, the Company entered into a securities purchase agreement with Matthew Schwartz, a director of the Company, pursuant to which the Company sold an aggregate of 250,000 shares of its Series D Preferred Stock for aggregate gross proceeds of $250,000.

 

Infusion 51a LP - Related Party

 

On May 25, 2018 (the “Effective Date”), the Company entered into securities purchase agreements (collectively, the “Purchase Agreement”) with an accredited investor (the “Investor”) pursuant to which the Company sold an aggregate of two hundred and fifty thousand (250,000) shares of its Series A convertible preferred stock for aggregate gross proceeds of $250,000 (the “Series A Preferred Stock”). In addition, this existing debtholder of the Company exchanged an aggregate of $94,215 in debt (currently due and payable under existing indebtedness) for an aggregate of 94,215 shares of Series A Preferred Stock pursuant to the exchange agreements described below.

 

On May 25, 2018 the Company entered into exchange agreements (collectively, the “2017 Investors Exchange Agreement”) with the investors who purchased convertible promissory notes between June 2017 and October 2017 (the “2017 Notes”) for an aggregate principal amount of $395,000 (the “2017 Investors”). Pursuant to the terms of the 2018 Investor Exchange Agreements, the Company agreed to exchange (i) the principal amount due under the 2017 Notes (ii) warrants to purchase 13,166,667 shares of common stock and (iii) purchase rights to acquire an aggregate of 52,666,667 shares of common stock, in exchange for 17,347,619 shares of series B convertible preferred stock having an aggregate value of $395,000 (the “Series B Preferred Stock”). The 2017 Investors have agreed to waive the defaults and breaches that have resulted on or prior to the Effective Date as well as any penalties, interest or other amounts that may have accrued under the 2017 Notes after March 31, 2018. The terms of the Series B Preferred Stock are set forth under Item 3.02 below. In addition, each 2017 Investor entered into a termination agreement with the Company (collectively, the “2017 Investors Termination Agreement”) pursuant to which as of the Effective Date, (i) the securities purchase agreements and pledge agreements entered into with the 2017 Investors (the “2017 Investors Prior Agreements”) were terminated in their entirety and shall have no further force or effect, (ii) the security interests granted by the pledge agreements were terminated and shall have no further force or effect and (iii) neither party shall have any further rights or obligations under the Prior Agreements. The 2017 Investors also authorized the Company or its representatives to take all actions deemed necessary in their sole discretion to discharge and release any and all security interests, pledges, liens, and other encumbrances held by such 2017 Investor on the Company’s assets.

 

On February 8, 2019, the Company entered into a securities purchase agreement with Infusion 51a, LP, represented by Jeffrey Stephens, a director of the Company, pursuant to which the Company sold an aggregate of thirty-five thousand (35,000) shares of its Series A Preferred Stock for aggregate gross proceeds of $35,000.

 

International Infusion LP – Related Party

 

On the May 25, 2018, the Company entered into an exchange with an existing debtholder of the Company and exchanged an aggregate of $89,256 (currently due and payable under existing indebtedness) for an aggregate of 89,256 shares of Series A Preferred Stock pursuant to the exchange agreements described below.

On May 25, 2018 the Company entered into an exchange agreement (collectively, the “2017 Investors Exchange Agreement”) with the investors who purchased convertible promissory notes between June 2017 and October 2017 (the “2017 Notes”) for an aggregate principal amount of $168,806 (the “2017 Investors”). Pursuant to the terms of the 2018 Investors Exchange Agreement, the Company agreed to exchange 1,125,376 shares of series B convertible preferred stock having an aggregate value of $168,806 (the “Series B Preferred Stock”). The 2017 Investors have agreed to waive the defaults and breaches that have resulted on or prior to the Effective Date as well as any penalties, interest or other amounts that may have accrued under the 2017 Notes after March 31, 2018. The terms of the Series B Preferred Stock are set forth under Item 3.02 below. In addition, each 2017 Investor entered into a termination agreement with the Company (collectively, the “2017 Investors Termination Agreement”) pursuant to which as of the Effective Date, (i) the securities purchase agreements and pledge agreements entered into with the 2017 Investors (the “2017 Investors Prior Agreements”) were terminated in their entirety and shall have no further force or effect, (ii) the security interests granted by the pledge agreements were terminated and shall have no further force or effect and (iii) neither party shall have any further rights or obligations under the Prior Agreements. The 2017 Investors also authorized the Company or its representatives to take all actions deemed necessary in their sole discretion to discharge and release any and all security interests, pledges, liens, and other encumbrances held by such 2017 Investor on the Company’s assets.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

AVDX Investors Group LLC – Related Party

 

On May 25, 2018, the Company entered into a Consulting Agreement (the “Agreement”) with AVDX Investor Group LLC (the “Investor Representative”) (see Note 11). Under the Agreement, the Investor Representative shall perform such consulting and advisory services, within Investor Representative’s area of expertise, as the Company or any of its subsidiaries may reasonably require from time to time. During the six-month term of the Agreement, Jeff Busch shall perform the services on behalf of Investor Representative (“Designated Person”). The Agreement has an initial term of six months from the date of execution and shall automatically renew on a monthly basis unless either party gives notice of non-renewal to the other party at least fifteen days prior to the date of renewal, provided this agreement shall not extend beyond 12 months from the date of the Agreement. Pursuant to the Agreement, the Company shall pay Investor Representative an annual amount of $160,000, payable either in cash or Series A Preferred Stock (or Common Stock upon filing of the Charter Amendment and consummation of the Reverse Split) during the term of the Agreement (the “Base Compensation”). The Company shall promptly reimburse Investor Representative for all travel, meals, entertainment and other ordinary and necessary expenses incurred by Investor Representative in the performance of his duties to the Company. Investor Representative’s and Designated Person’s position with the Company may be terminated at any time, with or without cause or good reason, upon at least 30 days prior written notice. During the term of the Agreement and for a period of twelve months thereafter, Investor Representative and Designated Person will be subject to non-competition and non-solicitation provisions, subject to standard exceptions.

 

At September 30, 2019 and 2018, amounts due to related parties consisted of the following:

 

		September 30,
		2019				2018
Consulting fee – related party		$	160,000			$	53,333
Advances from related parties			20,000				5,410
Total		$	180,000			$	58,743

 

Consulting fees – related party consisted of consulting fees for management related services provided by an affiliate entity and advances from Dr. Ruxin to fund the Company’s working capital. 

 

NOTE 11 – STOCKHOLDERS’ DEFICIT

 

Shares Authorized

 

As of September 30, 2019, the Company had 500,000,000 authorized shares which consisted of 450,000,000 shares of common stock at $0.00001 per share par value, and 50,000,000 shares of preferred stock at $0.001 per share par value.

 

Preferred Stock

 

Effective January 27, 2015, the Company adopted an amendment to the articles of incorporation to authorize the issuance of preferred stock with preferences, limitations, and relative rights designated by our board of directors (the “Preferred Shares”). The amendment to our articles of incorporation will authorize the issuance of up to 50,000,000 Preferred Shares, with different series under the discretion of our board of directors, without any action on the part of the stockholders. As of September 2019 and 2018, there were an aggregate of 29,174,469 and 27,396,519 Preferred Shares issued and outstanding.

 

Series A Preferred Stock

 

On May 25, 2018, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock with the Nevada Secretary of State (the “Series A Certificate of Designation”) to designate 4,000,000 shares of its previously authorized preferred stock as Series A preferred stock, par value $0.001 per share and a stated value of $1.00 per share.

 

The holders of shares of Series A preferred stock have the following voting rights:

 

●

Except as otherwise required by law, no dividend shall be declared or paid on the Series A Preferred Stock.

 

●

Except as otherwise expressly required by law, the holder of Series A Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Company and shall have the number of votes equal all other outstanding shares of capital stock of the Company outstanding at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, such that the holders of outstanding shares of Series A Preferred Stock shall always constitute 50.1% of the voting power of the Company until the Series A converts into common stock. The shares of Series A Preferred Stock are not redeemable by the Company. The shares of Series A Preferred Stock are not entitled to any preemptive or subscription rights in respect of any securities of the Company. In an event of a reverse stock split of the Company’s common stock, the Board shall decide as to the terms of the reverse split ratio (the “Reverse Split”), the holders shall take all necessary steps with the Company to exchange all outstanding shares of Series A Preferred Stock into shares of the Company’s common stock at a rate to be agreed upon by the parties.

 

●

In the event of any merger, sale (of substantially all of the Corporation’s stock or assets) or liquidation of the Corporation, whether voluntary or involuntary (a “Liquidation Event”), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Common Stock, the holders of Preferred Stock shall be entitled to receive in preference to the holders of Common Stock an amount per share (the “Liquidation Preference”) equal to the sum of 100% of the Stated Value with respect to each share of Preferred Stock. If, upon the occurrence of any Liquidation Event, the assets of the Corporation, or proceeds thereof, distributable shall be insufficient to pay in full the preferential amount aforesaid to the holders of the shares of Series A Preferred Stock, then the assets of the Corporation, or the proceeds thereof, shall be distributed among the holders of shares of Preferred Stock in accordance with the respective amounts that would be payable on such shares of Preferred Stock if all amounts payable thereon were paid in full.

 

●

The shares of Preferred Stock are not redeemable by the Corporation and are not entitled to any preemptive or subscription rights in respect of any securities of the Corporation.

 

●

Upon a consummation of a reverse stock split of the Company’s common stock on or after the Original Issue Date, such that after consummation of such reverse stock split there are approximately 15,000,000 shares of the Company’s common stock outstanding (the “Reverse Split”), the Holders shall take all necessary steps with the Company to exchange all outstanding shares of Preferred Stock into shares of the Company’s Common Stock at a rate to be agreed upon by the Parties after. the Original Issue Date.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

Series A Preferred Stock issued for cash:

 

	●	During the year ended September 30, 2019, the Company issued an aggregate of 294,500 shares of its Series A Preferred Stock for total proceeds of $294,470.
	●	During the year ended September 30, 2018, the Company issued an aggregate of 1,105,000 shares of its Series A Preferred Stock for total proceeds of $1,104,960.

 

Series A Preferred Stock issued for debt conversion:

 

	●	During the year ended September 30, 2019, the Company issued an aggregate of 125,000 shares its Series A Preferred Stock upon debt conversion in the amount of $125,000.
	●	During the year ended September 30, 2018, the Company issued an aggregate of 526,650 shares its Series A Preferred Stock upon debt conversion in the amount of $635,891.

 

As of September 30, 2019 and 2018, there were 2,051,150 and 1,631,650 shares of the Company’s Series A Preferred Stock issued and outstanding, respectively.

 

Series B Preferred Stock

 

On May 25, 2018, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series B Preferred Stock with the Nevada Secretary of State (the “Series B Certificate of Designation”) to designate 27,000,000 shares of its previously authorized preferred stock as Series B preferred stock, par value $0.001 per share and a stated value of $1.00 per share.

 

The holders of shares of Series B preferred stock have the following voting rights:

 

●

Except as otherwise required by law, no dividend shall be declared or paid on the Series B Preferred Stock.

 

●

Except as otherwise expressly required by law, each holder of Series B Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Corporation and shall be entitled to vote on an as-converted basis for each share of Series B Preferred Stock owned at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited. Except as otherwise required by law, the holders of shares of Series B Preferred Stock shall vote together with the holders of common stock on all matters and shall not vote as a separate class.

 

●

Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.

 

●

The shares of Preferred Stock are not redeemable by the Corporation. The shares of Preferred Stock are not entitled to any preemptive or subscription rights in respect of any securities of the Corporation.

 

●

Upon filing an amendment to the Company’s articles of incorporation to increase the number of shares of authorized common stock so that there is an adequate amount of shares of authorized common stock for issuance upon conversion of the Series B Preferred Stock (the “Amendment”), the shares of Series B Preferred Stock will be automatically converted into common stock and such conversion will require no action on behalf of the Company or the holder of the Series B Preferred Stock. Each share of Series B Preferred Stock shall convert into ten (10) shares of common stock of the Company, subject to adjustment.

 

●

If the Corporation, at any time while the Series B Preferred Stock is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to the Series B Preferred Stock), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Corporation, each share of Series B Preferred Stock shall receive such consideration and/or adjust as if such number of shares of Series B Preferred Stock if it had been, immediately prior to such foregoing dividend, distribution, subdivision, combination or reclassification, the holder of one share of Common Stock. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

 

Series B Preferred Stock issued for debt conversion:

 

●

During the year ended September 30, 2018, the Company issued an aggregate of 25,614,869 shares of its Series B Preferred Stock upon debt conversion in the amount of $1,041,577.

 

As of September 30, 2019 and 2018, there were 25,614,869 shares of the Company’s Series B Preferred Stock issued and outstanding.

 

Series C Preferred Stock

 

On August 24, 2018, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series C Preferred Stock with the Nevada Secretary of State (the “Series C Certificate of Designation”) to designate 1,000,000 shares of its previously authorized preferred stock as Series C preferred stock, par value $0.001 per share and a stated value of $1.00 per share.

 

The holders of shares of Series C preferred stock have the following voting rights:

 

●

Except as otherwise required by law, no dividend shall be declared or paid on the Preferred Stock.

 

●

Except as otherwise required by law, the Preferred Stock shall have no voting rights. However, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that materially adversely affects any rights of the Holders, ( c) increase the number of authorized shares of Preferred Stock, or ( d) enter into any agreement with respect to any of the foregoing.

 

●

In the event of any merger, sale ( of substantially all of the Corporation’s stock or assets) or liquidation of the Corporation, whether voluntary or involuntary (a “Liquidation Event”), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Common Stock, the holders of Preferred Stock shall be entitled to receive in preference to the holders of Common Stock an amount per share (the “Liquidation Preference”) equal to the sum of 100% of the Stated Value with respect to each share of Preferred Stock. If, upon the occurrence of any Liquidation Event, the assets of the Corporation, or proceeds thereof, distributable shall be insufficient to pay in full the preferential amount aforesaid to the holders of the shares of Series C Preferred Stock, then the assets of the Corporation, or the proceeds thereof, shall be distributed among the holders of shares of Preferred Stock in accordance with the respective amounts that would be payable on such shares of Preferred Stock if all amounts payable thereon were paid in full.

 

●

The shares of Preferred Stock are not redeemable by the Corporation and are not entitled to any preemptive or subscription rights in respect of any securities of the Corporation.

 

●

Upon a consummation of a reverse stock split of the Company’s common stock on or after the Original Issue Date, such that after consummation of such reverse stock split there are approximately 15,000,000 shares of the Company’s common stock outstanding (the “Reverse Split”), the Holders shall take all necessary steps with the Company to exchange all outstanding shares of Preferred Stock into shares of the Company’s Common Stock at a rate to be agreed upon by the Parties after the Original Issue Date, subject to the Beneficial Ownership Limitation as set forth in the Series C Certificate of Designation.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

Series C Preferred Stock issued for cash:

 

●

During the year ended September 30, 2018, the Company issued an aggregate of 150,000 shares of its Series C Preferred Stock for total proceeds of $150,000.

 

As of September 30, 2019 and 2018, there were 150,000 shares of the Company’s Series B Preferred Stock issued and outstanding.

 

Series D Preferred Stock

 

On March 14, 2019, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series D Preferred Stock with the Nevada Secretary of State (the “Series D Certificate of Designation”) to designate 2,000,000 shares of its previously authorized preferred stock as Series D preferred stock, par value $0.001 per share and a stated value of $1.00 per share.

 

The holders of shares of Series D preferred stock have the following voting rights:

 

●

Except as otherwise required by law, no dividend shall be declared or paid on the Series D Preferred Stock.

 

●

Except as otherwise required by law, the Preferred Stock shall have no voting rights. However, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that materially adversely affects any rights of the Holders, (c) increase the number of authorized shares of Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

 

●

In the event of any merger, sale (of substantially all of the Corporation’s stock or assets) or liquidation of the Corporation, whether voluntary or involuntary (a “Liquidation Event”), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Common Stock, the holders of Preferred Stock shall be entitled to receive in preference to the holders of Common Stock an amount per share (the “Liquidation Preference”) equal to the sum of 100% of the Stated Value with respect to each share of Preferred Stock. If, upon the occurrence of any Liquidation Event, the assets of the Corporation, or proceeds thereof, distributable shall be insufficient to pay in full the preferential amount aforesaid to the holders of the shares of Series D Preferred Stock, then the assets of the Corporation, or the proceeds thereof, shall be distributed among the holders of shares of Preferred Stock in accordance with the respective amounts that would be payable on such shares of Preferred Stock if all amounts payable thereon were paid in full.

 

●

The shares of Preferred Stock are not redeemable by the Corporation and are not entitled to any preemptive or subscription rights in respect of any securities of the Corporation.

 

●

Upon a consummation of a reverse stock split of the Company’s common stock on or after the Original Issue Date, such that after consummation of such reverse stock split there are approximately 1,500,000 shares of the Company’s common stock outstanding (the “Reverse Split”), the Holders shall take all necessary steps with the Company to exchange all outstanding shares of Preferred Stock into shares of the Company’s Common Stock at a rate to be agreed upon by the Parties after the Original Issue Date.

 

Series D Preferred Stock issued for cash:

 

●

During the year ended September 30, 2019, the Company issued an aggregate of 1,305,000 shares its Series D Preferred Stock for total proceeds of $1,305,000.

 

Series D Preferred Stock issued for conversion of related party advances:

 

●

During the year ended September 30, 2019, the Company issued an aggregate of 53,450 shares its Series D Preferred Stock for conversion of related party advances in the amount of $53,450.

 

As of September 30, 2019, there were 1,358,450 shares of the Company’s Series D Preferred Stock issued and outstanding.

 

Common Stock

 

On January 27, 2015, the Company filed an amendment to its Articles of Incorporation and effected a 17-for-1 reverse stock split of its issued and outstanding shares of common stock, whereby 109,939,000 outstanding shares of the Company’s common stock were converted into 6,467,000 shares of the Company’s common stock. The reverse stock split was effective in the market commencing on January 27, 2015.

 

On June 22, 2020, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s issued and outstanding shares of common stock at a ratio of 1-for-2,000 (the “Reverse Stock Split”), which became effective on June 22, 2020 (see Note 1 and Note 14). The Reverse Stock Split did not have any effect on the stated par value of the common and preferred stock.

 

All share and per share amounts in the accompanying historical financial statements have been retroactively adjusted to reflect the Reverse Stock Split.

 

Common stock issued for legal settlements:

 

●

During the year ended September 30, 2018, the Company issued an aggregate of 1,469 shares its common stock in connection with legal settlements in the amount of $59,170.

 

Common stock issued related an Asset Purchase Agreement:

 

●

During the year ended September 30, 2018, the Company issued 15,046 shares of its common stock with a fair value of $373,440 in connection with an Asset Purchase Agreement.

 

Common stock issued for services:

 

●

During the year ended September 30, 2019, the Company issued 5,000 shares of its common stock at par value of $100 for services.

 

As of September 30, 2019 and 2018, there were 173,479 and 168,479 shares of common stock issued and outstanding, respectively.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

Warrants

 

The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.

 

Warrants activities for the years ended September 30, 2019 and 2018 is summarized as follows:

 

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Balance Outstanding at September 30, 2017			—			$	—				—			$	—
Granted			6,666,667				0.15				5.0				—
Balance Outstanding at September 30, 2018			6,666,667			$	0.15				4.0			$	—
Granted			—
Balance Outstanding at September 30, 2019			6,666,667			$	0.15				3.0			$	—
Exercisable at September 30, 2019			6,666,667			$	0.15				3.0			$	—

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

Legal

 

In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There are no such matters that are deemed material to the financial statements as of September 30, 2019, except as discussed below.

 

On January 13, 2014, Plaintiff Tamarin Lindenberg (“Lindenberg”) sued Arrayit Corporation, the Company, John Howell, Steven Scott and Gregg Linn in Civil Action No. L7698-13. Plaintiff alleged violations of the New Jersey Conscientious Employee Protection Act NJSA 34:19-1 to NJSA 34:19-8 (“CEPA”), breach of contract, breach of covenant of good faith and fair dealing, economic duress and intentional infliction of emotional distress. On August 6, 2014, the court dismissed Lindenberg’s complaint against Arrayit Corporation for failure to state a claim upon which relief may be granted and against John Howell for lack of jurisdiction. The Company and its former officers have remained as defendants in the action. On or about April 15, 2019, the Company and its former officers entered into a settlement agreement with Lindenberg pursuant to which the Company agreed to pay Lindenberg an aggregate of $30,000, $5,000 of which was paid on or about May 9, 2019 and $25,000 of which is due six months after the date of the first payment. In addition, the Company issued Lindenberg 750 shares of the Company’s common stock. On or about May 2, 2019, Lindenberg filed a stipulation of dismissal with prejudice related to this action with the court. The Company satisfied its obligations under the settlement agreement on or about October 14, 2019.

 

On or about September 16, 2017, Memory DX, LLC (“MDX”) filed a lawsuit against Amarantus Biosciences Holdings, Inc. (“AMBS”), Amarantus Bioscience Holdings, Inc., Amarantus Diagnostics, Inc., the Company and Avant Diagnostics Acquisition Corporation, et al (collectively the “Defendants”) in the Superior Court of the State of Arizona, County of Maricopa (Case Number CV2017-015026) (the “AZ Court”). On or about December 14, 2017, a default judgment (the “Default Judgment”) was rendered in the Court against the Defendants. On or about February 15, 2017, MDX and the Defendants entered into a settlement agreement related to the satisfaction of the Default Judgment. On May 25, 2017, the parties entered into an amended and restated settlement agreement pursuant to which in consideration for fully satisfying the Default Judgment, the Company paid MDX $30,000, (the “Initial Cash Amount”). In addition, the Company agreed to pay MDX an aggregate of $175,000 by July 30, 2017 (the “Additional Cash Amount” and together with the Initial Cash Amount, the “Cash Consideration”). If the Additional Cash Amount was not paid by July 30, 2017, the Company agreed to pay MDX $20,000 per month beginning August 30, 2017 in full satisfaction of the Additional Cash Amount. On September 19, 2017, the parties entered into a second amended and restated settlement agreement pursuant to which in consideration for fully satisfying the Default Judgment, the Company agreed to provide MDX the following: (i) an aggregate of $250,000 (the “Cash Consideration”) payable as follows: (i) $35,000 which has been previously paid, (ii) $3,500 which was paid upon execution of the agreement (iii) $2,000 which will be payable on the last calendar day of each month for October and November 2017, (iv) $5,000 which will be payable on the last calendar day for December 2017 and each of January and February 2018 and (v) $10,000 which will be payable on the last calendar day of each month until the full consideration is paid. Notwithstanding the foregoing, upon the sale by the Company of its equity securities in a single offering for aggregate gross proceeds of at least $7,500,000 (the “Qualified Offering”) after the date of the agreement, the Company will pay any remaining amount of the Cash Consideration then outstanding upon the final closing of such Qualified Offering. The Company previously issued to MDX 2,500 restricted shares of common stock (the “Initial Shares”) on or prior to the date of the amended agreement as partial consideration for the Default Judgment. In addition, the Company agreed to issue MDX an additional 2,500 restricted shares of common stock (the “Additional Shares”). Within three (3) business days of the issuance of the Additional Shares, MDX shall take all necessary action to withdraw the recorded Default Judgment. The Default Judgment shall be set aside without prejudice. Upon a default of the obligations to timely pay the Cash Consideration, after written notice and five (5) business days to cure, MDX will be entitled to reinstate the Default Judgment. MDX shall assign the License Agreement between MDX and University of Leipzig dated May 22, 2013, as amended, to the Company, as well as assign the Asset Purchase Agreement between MDX and AMBS to the Company upon final settlement of this matter. The Company satisfied all of its obligations under the settlement agreement on or about October 1, 2019.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

On or about April 24, 2017, John G. Hartwell (“Hartwell”) and Corrine Ramos (“Ramos” and collectively with Hartwell, the “Plaintiffs”) filed a lawsuit against the Company, Avant Diagnostics Acquisition Corp. and Gregg Linn (collectively the “Defendants”) in the Circuit Court for Montgomery County, Maryland (Case Number 432180-V) (the “MD Court”), On or about June 8, 2017, the parties entered into a settlement agreement pursuant to which the Company agreed to pay Defendants an aggregate of approximately $154,000 in installments as set forth in the agreement (the “Initial Settlement Agreement”). The first payment of $29,819.99 was made by the Defendants to Plaintiffs on or about July 10, 2017. As a result of the first payment being made pursuant to the Initial Settlement Agreement, Plaintiffs dismissed the action against the Defendants without prejudice on or about July 13, 2017. The Company subsequently defaulted on the terms of the Initial Settlement Agreement. On or about April 2, 2018, John G. Hartwell (“Hartwell”) and Corrine Ramos (“Ramos” and collectively with Hartwell, the “Plaintiffs”) refiled a lawsuit against the Company, Avant Diagnostics Acquisition Corp. and Gregg Linn (collectively the “Defendants”) in the Circuit Court for Montgomery County, Maryland (Case Number 445068-V) (the “MD Court”) On or about February 15, 2019, the parties entered into a new settlement agreement pursuant to which the Company agreed to pay Defendants an aggregate of approximately $132,280 in installments as set forth in the agreement. The first payment of $10,000 was made by the Defendants to Plaintiffs on or about February 15, 2019. The Company continues to satisfy the settlement agreement with making monthly $5,000 payments to each plaintiff and as of November 14, 2019, Hartwell has $24,064 remaining and Ramos has $18,216 remaining in the settlement amount. As of the date of this report, the remaining balances had been repaid in full and there were no outstanding balances owed to Hartwell and Ramos.

 

On or about June 27, 2017, Sichenzia Ross Ference Kesner LLP (“SRFK”) filed a complaint (the “SRFK Complaint”) in the Court, Case No. 654465/2017, alleging, among other things, breach of contract, account stated, quantum meruit and unjust enrichment against the Company, in connection with a retainer agreement, dated March 8, 2016, by and between the Company and SRFK (the “Agreement”). SRFK is seeking, among other things, compensatory damages in excess of $120,110, legal fees, interest and such other relief as the Court deems just and proper. On July 23, 2018, a default judgment was entered against the Company in the amount of $120,110 plus costs and disbursements. The Company does not believe it was ever properly served by SRFK. The Company denies the material allegations of the SRFK Complaint and intends to vigorously defend itself in this action. The results of any litigation are inherently uncertain and there can be no assurance that we will prevail in the litigation matter stated above or otherwise.

 

On or about August 7, 2017, Clear Financial Solutions, Inc. (“CFS”) and Steven Plumb (collectively with CFS, the “Texas Plaintiffs”) filed a complaint (the “Texas Complaint”) in the 129th Judicial District Court of Harris County, Texas (the “Texas Court”), Case No. 2017-52184, against the Company, Gregg Linn, the Company’s former CEO, Signature Stock Transfer, Inc., the Company’s former transfer agent, and Jason Bogutski, the CEO of the Company’s former transfer agent (collectively, the “Texas Defendants”), alleging, among other things, breach of contract, promissory estoppel, quantum meruit, tortious interference and violations of Nevada law against the Texas Defendants, in connection with the failure to remove the legend on restricted stock held by CFS. The Texas Plaintiffs are seeking, among other things, damages in legal fees, interest and such other and further relief to which the Texas Plaintiffs may be entitled at law or in equity. The Company denies the material allegations of the Texas Complaint and is vigorously defending itself in this action. The results of any litigation are inherently uncertain and there can be no assurance that we will prevail in the litigation matter stated above or otherwise. The Company is currently in settlement conversation with the Plaintiffs to settle for 5,000 shares of common stock, but there is no guarantee the Company will be successful.

 

On September 18, 2018, the Company was named as a respondent in an Order Instituting Administrative Proceedings and Notice of Hearing brought by the SEC pursuant to Section 12(j) of the Exchange Act, File No. 3-18784 (the “Hearing”). The purpose of the Hearing before an Administrative Law Judge was to determine whether it is necessary and appropriate for the protection of investors to suspend for a period not exceeding twelve months or revoke the registration, of each class of securities of the Company registered pursuant to Section 12 of the Exchange Act. The Hearing was scheduled because the Company was delinquent in its periodic filings with the SEC. Subsequent to September 18, 2018, the Company filed Form 10-Qs for each of the quarters ended December 31, 2016, March 31, 2017 and June 30, 2017, its Form 10-K for its fiscal year ended September 30, 2017, Form 10-Qs for each of the quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and its Form 10-K for the fiscal year ended September 30, 2018. Upon the filing of the Form 10-Q for the quarter ended December 31, 2018, which occurred on March 13, 2019, the Company became current in its reports with the SEC. After conversations with the SEC, on May 7, 2019, the Company signed an order that would provide that the registration of the Company’s common stock and any other class of its securities registered pursuant to Section 12 of the Exchange Act will be revoked, subject to approval of the SEC (the “Order”). The Order became effective on May 10, 2019. The Order will not permanently bar the Company from registering its common stock or other securities under the Securities Act and/or Section 12 of the Exchange Act in the future.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

On or about February 26, 2019, Michael Linn filed a lawsuit against the Company in the Superior Court of the State of Arizona, County of Maricopa (Case Number CC2019042166RC) alleging breach of contract for the failure to pay for services rendered in April and May 2017. On May 10, 2019, a default judgment was entered against the Company in the amount of $3,573 because the Company did not appear at a hearing that was scheduled on such date related to this matter. The Company did not receive any notice of the hearing from the court and the court records seem to have spelt the Company’s name incorrectly on the record. As a result, on May 20, 2019, the Company filed a motion to vacate the judgment with the court because of its failure to receive notice of the hearing because of the court’s mistake. On July 2, 2019, the court denied the Company’s motion to vacate. On August 5, 2019 the Company paid Mr. Linn $3,620.09 in full satisfaction of the judgment related to this matter.

 

On or about July 16, 2019, Ronald S. Hencin (“Hencin”) and Glenn D. Hoke (“Hoke” and collectively with Hencin, the “2019 MD Plaintiffs”) filed a lawsuit against the Company, in the Circuit Court for Montgomery County, Maryland (Case Number 469500-V) (the “MD Court”), alleging, among other things, breach of contract and violation of the Maryland wage payment and collection law. The 2019 MD Plaintiffs are seeking a judgment that (i) in the case of Hencin, is an amount of $131,681.76, plus pre-judgment interest of $22,966.72 through and including July 16, 2019, plus prejudgment interest from July 17, 2019, through and including the date of the judgment at the rate of $21.6463 per diem, plus post-judgment interest and costs, $395,045.28 in treble damages, reasonable attorney’s fees and costs and such other amounts as deemed appropriate by the MD Court and (ii) in the case of Hoke, is an amount of $149,624.59 for unpaid wages, plus $30,716.67 for unreimbursed out-of-pocket expenses, plus pre-judgment interest of $30,593.74 through and including July 16, 2019, plus prejudgment interest from July 17, 2019, through and including the date of the judgment at the rate of $29.6451 per diem, plus post-judgment interest and costs, $448,873.77 in treble damages, reasonable attorney’s fees and costs and such other amounts as deemed appropriate by the MD Court. The Company denies the material allegations of this complaint and intends to vigorously defend itself in this action. The results of any litigation are inherently uncertain and there can be no assurance that we will prevail in the litigation matter stated above or otherwise. The Company is currently in settlement conversation with the Plaintiffs, but there is no guarantee the Company will be successful in any settlement negotiations.

 

Employment Agreements

 

Michael Ruxin, M.D.

 

On May 25, 2018, the Company entered into an employment agreement (the “Ruxin Agreement”) with Dr. Ruxin under which he will serve as Chief Executive Officer of the Company. The term of the Ruxin Agreement was effective as of May 25, 2018, continues until May 25, 2023 and automatically renews for successive one-year periods at the end of each term until either party delivers written notice of their intent not to renew at least 60 days prior to the expiration of the then effective term. Under the terms of the Ruxin Agreement, Dr. Ruxin will receive an annual salary of $250,000. He is eligible to receive a cash bonus of up to 100% of his base salary. The bonus shall be earned upon the Company’s achievement of performance targets for a fiscal year to be mutually agreed upon by Dr. Ruxin and the board or a committee thereof. Additionally, following the adoption by the Company of an equity compensation plan and subject to approval of the board or a committee thereof, Dr. Ruxin shall receive (i) a one-time restricted stock unit award having a fair value of approximately $100,000 and which shall vest over a five year period following the date of grant and (ii) an option to purchase ten percent (10%) of the outstanding shares of the Company (calculated on the date of grant), which shall vest over a five-year period following the date of grant and expire on the tenth anniversary of the date of grant. Dr. Ruxin is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time.

 

Dr. Ruxin is an “at-will” employee and his employment may be terminated by the Company at any time, with or without cause. In the event Dr. Ruxin’s termination of employment is the result of termination by the Company without Cause (as defined in the Ruxin Agreement) with Good Reason (as defined in the Ruxin Agreement) or as a result of a non-renewal of the term of employment under the Ruxin Agreement, Dr. Ruxin shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 2.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control (as defined in the Ruxin Agreement), the Severance Multiple shall mean 3.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Dr. Ruxin prior to the date of termination and he shall be entitled to reimbursement of any COBRA payment made during the 18-month period following the date of termination.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

The Ruxin Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding us, and (c) soliciting our employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.

 

Jeffrey Busch

 

On May 25, 2018, the Company entered into an employment agreement (the “Busch Agreement”) with Mr. Busch under which he will serve as Executive Chairman of the Company. The term of the Busch Agreement was effective as of May 25, 2018, continues until May 25, 2023 and automatically renews for successive one-year periods at the end of each term until either party delivers written notice of their intent not to renew at least 60 days prior to the expiration of the then effective term. Under the terms of the Busch Agreement, Mr. Busch will receive an annual salary of $30,000, which amount shall be automatically increased to $120,000 on the first anniversary of the date of the Busch Agreement. He is eligible to receive a discretionary cash bonus at the option of the board based on their evaluation of his performance of duties and responsibility. Additionally, following the adoption by the Company of an equity compensation plan and subject to approval of the board or a committee thereof, Mr. Busch shall receive (i) a one-time restricted stock unit award having a fair value of approximately $100,000 and which shall vest over a five year period following the date of grant and (ii) an option to purchase ten percent (10%) of the outstanding shares of the Company (calculated on the date of grant), which shall vest over a five-year period following the date of grant and expire on the tenth anniversary of the date of grant. Mr. Busch is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time.

 

Mr. Busch is an “at-will” employee and his employment may be terminated by the Company at any time, with or without cause. In the event Mr. Busch’s termination of employment is the result of termination by the Company without Cause (as defined in the Busch Agreement) with Good Reason (as defined in the Busch Agreement) or as a result of a non-renewal of the term of employment under the Busch Agreement, Mr. Busch shall be entitled to receive the sum of (I) the Severance Multiple (as defined below), multiplied by his base salary immediately prior to such termination and (II) a pro-rata portion of his bonus for the year in which such termination occurs equal to (a) his bonus for the most recently completed calendar year (if any), multiplied by (b) a fraction, the numerator of which is the number of days that have elapsed from the beginning of such calendar year through the date of termination and the denominator of which is the total number of days in such calendar year. “Severance Multiple” shall mean 2.0; provided, however, that if the date of termination occurs on or at any time during the twelve (12)-month period following a Change in Control (as defined in the Busch Agreement), the Severance Multiple shall mean 3.0. In addition, the Company shall accelerate the vesting of any outstanding, unvested equity awards granted to Mr. Busch prior to the date of termination and he shall be entitled to reimbursement of any COBRA payment made during the 18-month period following the date of termination.

 

The Busch Agreement also contains covenants (a) restricting the executive from engaging in any activity competitive with our business during the term of the employment agreement and in the event of termination, for a period of one year thereafter, (b) prohibiting the executive from disclosing confidential information regarding us, and (c) soliciting our employees, customers and prospective customers during the term of the employment agreement and for a period of one year thereafter.

 

Scott Vandermeer

 

On December 11, 2017, the Company entered into a consulting agreement (the “VanderMeer Agreements”) with Scott VanderMeer under International Infusion Inc. Under the agreement, Scott will serve as Interim Chief Financial Officer of the Company. The term of the VanderMeer Agreements was effective on December 11, 2017 and continues until June 1, 2018. The Company renewed the VanderMeer Agreement on June 1, 2018 on a month-to-month basis until a full time Chief Financial Officer is retained. Under the terms of the VanderMeer Agreements, Mr. VanderMeer will receive $50 per hour and will be paid a minimum of $5,000 per month up to $7,500 if funds are available. Any amount over $7,500 will be deferred and paid at a later date when the Company raises a significant amount of money. He is eligible to receive a cash bonus at any time throughout or after his contract has expired.

 

NOTE 13 – INCOME TAXES

 

The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets at September 30, 2019 and 2018 consist of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income.

 

On December 22, 2017, the United States signed into law the Tax Cuts and Jobs Act (the “Act”), a tax reform bill which, among other items, reduces the current federal income tax rate to 21% from 34%. The rate reduction is effective January 1, 2018 and is permanent.

 

The Act has caused the Company’s deferred income taxes to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of September 30, 2018, the Company recognized the provisional effects of the enactment of the Act for which measurement could be reasonably estimated. Since the Company has provided a full valuation allowance against its deferred tax assets, the revaluation of the deferred tax assets did not have a material impact on any period presented. The ultimate impact of the Act may differ from these estimates due to the Company’s continued analysis or further regulatory guidance that may be issued as a result of the Act.

 

 

AVANT DIAGNOSTICS, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 and 2018

 

The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the years ended September 30, 2019 and 2018 were as follows:

 

		Years Ended September 30,
		2019				2018
Income tax deduction (benefit) at U.S. statutory rate of 21%		$	(335,545	)		$	(1,050,857	)
Non-deductible expenses			1,953				688,148
Change in valuation allowance			333,592				362,709
Total provision for income tax		$	—			$	—

 

The Company’s approximate net deferred tax asset as of September 30, 2019 and 2018 was as follows:

 

		Years Ended September 30,
		2019				2018
Net operating loss carryforward		$	2,622,167			$	2,288,575
Total deferred tax asset			2,622,167				2,288,575
Less: valuation allowance			(2,622,167	)			(2,288,575	)
Net deferred tax asset		$	—			$	—

 

The gross operating loss carryforward was approximately $12,486,511 at September 30, 2019. The Company provided a valuation allowance equal to the net deferred income tax asset as of September 30, 2019 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the valuation allowance was $333,592 in 2019. The potential tax benefit arising from the net operating loss carryforward of $1,925,866 from the period prior to Act’s effective date will expire in 2038. The potential tax benefit arising from the net operating loss carryforward of $696,301 from the period following to the Act’s effective date can be carried forward indefinitely within the annual usage limitations.

 

Additionally, the future utilization of the net operating loss carryforward to offset future taxable income is subject to an annual limitation as a result of ownership or business changes that occurred in 2019 and may occur in the future. The Company has not conducted a study to determine the limitations on the utilization of these net operating loss carryforwards. If necessary, the deferred tax assets will be reduced by any carryforward that may not be utilized or expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

 

The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company anticipates filing income tax returns in the U.S. Federal and Colorado jurisdictions. Such returns will be subject to examination by the taxing authorities when filed. The Company has not filed any income taxes to date.

 

NOTE 14 – SUBSEQUENT EVENTS

 

Certificate of Designation - Series E Preferred Stock

 

On December 27, 2019, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series E Preferred Stock with the Nevada Secretary of State of (the “Series E Certificate of Designation”) to designate 2,100,000 shares of its previously authorized preferred stock as Series E preferred stock, par value $0.001 per share and a stated value of $1.00 per share.

 

On April 28, 2020, the Company filed an Amended Series E Certificate of Designation with the Nevada Secretary of State to increase the designated shares the Series E preferred stock from 2,100,000 shares to 2,490,000 shares.

 

The holders of shares of Series E preferred stock have the following voting rights:

 

●

Except as otherwise required by law, no dividend shall be declared or paid on the Series E Preferred Stock.

 

●

Except as otherwise expressly required by law, the holder of Series E Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Company and shall have the number of votes equal all other outstanding shares of capital stock of the Company outstanding at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, such that the holders of outstanding shares of Series E Preferred Stock shall always constitute 50.1% of the voting power of the Company until the Series E is converted into common stock.

 

●

The shares of Series E Preferred Stock are not redeemable by the Company.

 

●

In the event of any merger, sale (of substantially all of the Corporation’s stock or assets) or liquidation of the Corporation, whether voluntary or involuntary (a “Liquidation Event”), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Common Stock, the holders of Preferred Stock shall be entitled to receive in preference to the holders of Common Stock an amount per share (the “Liquidation Preference”) equal to the sum of 100% of the Stated Value with respect to each share of Preferred Stock. If, upon the occurrence of any Liquidation Event, the assets of the Corporation, or proceeds thereof, distributable shall be insufficient to pay in full the preferential amount aforesaid to the holders of the shares of Preferred Stock, then the assets of the Corporation, or the proceeds thereof, shall be distributed among the holders of shares of Preferred Stock in accordance with the respective amounts that would be payable on such shares of Preferred Stock if all amounts payable thereon were paid in full.

 

	●	The shares of Series E Preferred Stock are not entitled to any preemptive or subscription rights in respect of any securities of the Company. In an event of a reverse stock split of the Company’s common stock, the Board shall decide as to the terms of the reverse split ratio (the “Reverse Split”).
	●	Upon a consummation of a reverse stock split of the Company’s common stock on or after the Original Issue Date (the “Reverse Split”), the holders shall take all necessary steps with the Company to exchange all outstanding shares of Series E Preferred Stock into shares of the Company’s Common Stock at a rate to be agreed upon by the Parties after the Original Issue Date.

 

Issuance of Preferred Stock

 

On November 27, 2019, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold an aggregate of 2,000,000 shares of its Series E Preferred Stock for aggregate gross proceeds of $2,000,000. The investor will also receive 275,500 warrants at three various prices determined after the board votes on a reverse stock split.

 

On December 20, 2019, the Company converted the New Coastal Note (see Note 7) with principal of $192,832 and accrued interest payable of $24,383 for a total outstanding balance of $217,215 and $60,000 of accrued legal fees related to the financing into 192,832 shares of Preferred Series D. As of the date of this report, the New Coastal Note has been fully converted and has no outstanding balance.

 

Subsequent to September 30, 2019, the Company:

 

·	issued an aggregate of 100,000 shares of Series D preferred stock for total cash proceeds of $100,000.

 

·	issued an aggregate of 490,000 shares of Series E preferred stock for total cash proceeds of $490,000.

 

·	issued an aggregate of 160,000 shares of Series A preferred stock as payment for accrued consulting fees – related party in the amount of $160,000.

 

·	issued an aggregate of 239,154 shares of Series D preferred stock as payment for accrued salaries in the amount of $168,384.

 

Asset Purchase Agreement

 

On June 5, 2020, the Company closed the Asset Purchase Agreement entered into with Theralink Technologies, Inc (“Theralink”) (fka OncBioMune Pharmaceuticals, Inc.) on March 12, 2020. Pursuant to the Asset Purchase Agreement, Theralink acquired substantially all of the assets of Avant and assumed certain of its liabilities in the Asset Sale Transaction. Upon the terms and subject to the conditions of the Asset Purchase Agreement, Avant sold to Theralink, all of Avant’s title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether existing or hereafter acquired, except for the specific excluded assets, which relate to, or are used or held for use in connection with, Avant’s business. Theralink also hired Avant’s employees upon consummation of the Asset Sale Transaction. As consideration for the Asset Sale Transaction, Theralink issued to Avant 1,000 shares of a newly created Series D-1 Preferred Stock which held 54.55% of all voting rights on an as-converted basis with the common stock. Upon the effectiveness increase of Theralink’s authorized shares of common stock from 6,666,667 shares to 12,000,000,000 shares, all such shares of Series D-1 Preferred Stock issued to Avant shall automatically convert into 5,081,549,184 shares of Theralink’s common stock. Avant possessed majority voting control of Theralink immediately following the Asset Sale Transaction and controlled Theralink’s Board of Directors after the termination of the ten-day waiting period required by Rule 14f-1 under the Exchange Act. Accordingly, the Asset Sale Transaction was accounted for, in substance, as an asset acquisition of Theralink’s net asset by Avant. Avant is considered the historical registrant and the historical operations presented are those of Avant since Avant obtained 54.55% majority voting control of Theralink.

 

Reverse-Stock Split

 

On June 22, 2020, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s issued and outstanding shares of common at a ratio of 1-for-2,000 (the “Reverse Stock Split”), which became effective on June 22, 2020. The Reverse Stock Split did not have any effect on the stated par value of the common and preferred stock. All share and per share amounts in the accompanying historical financial statements have been retroactively adjusted to reflect the Reverse Stock Split (see Note 1 and Note 11). The Reverse Stock Split triggered the conversion of all outstanding preferred stocks on the date of the Reverse Stock Split.

 

  

NOTE 15 – RESTATEMENT

 

The Company restated the September 30, 2019 and 2018 financial statements to correct accounting errors from prior periods, to account for changes in accounting policy and to record impairment of the intellectual property.

 

Balance Sheet Data (Audited):

 

		September 30, 2018
		Prior Filing				Adjustment						Restated
Cash		$	30,896			$	(10,000	)		(a)		$	20,896
Intellectual Property		$	4,643,099			$	(4,643,099	)		(b)		$	—
Website development cost, net		$	3,187			$	(3,187	)		(c)		$	—
Patent costs, net		$	86,614			$	(86,614	)		(c)		$	—
Property and equipment, net		$	16,065			$	264,773			(d)		$	280,838
Finance right-of-use asset, net		$	-			$	15,663			(e)		$	15,663
Total Assets		$	4,817,993			$	(4,462,464	)				$	355,529
Accounts payable		$	1,531,383			$	(1,040,586	)		(f)		$	490,797
Accrued liabilities		$	508,131			$	(355,879	)		(g)		$	152,252
Accrued compensation		$	180,025			$	(18,899	)		(h)		$	161,126
Convertible debt, net		$	—			$	249,091			(i)		$	249,091
Notes payable - current		$	56,259			$	(16,259	)		(i)		$	40,000
Derivative liabilities		$	472,670			$	(472,670	)		(i)		$	—
Due to related parties		$	—			$	58,743			(j)		$	58,743
Financing right-of-use liability - LT		$	—			$	16,065			(e)		$	16,065
Total Liabilities		$	2,748,468			$	(1,580,394	)				$	1,168,074
Stockholders’ Deficit:
Warrants		$	67			$	(67	)		(k)		$	—
Additional paid-in capital		$	35,572,908			$	515			(l)		$	35,573,423
Accumulated deficit		$	(33,530,848	)		$	(2,882,519	)		(m)		$	(36,413,367	)
Total Stockholders’ Deficit		$	2,069,526			$	(2,882,070	)				$	(812,545	)
Total Liabilities and Stockholders’ Deficit		$	4,817,993			$	(4,462,465	)				$	355,529

 

(a)	Decrease of cash balance of $10,000 to correct overstated cash balance as of September 30, 2018.
(b)	Decrease of intellectual property of $4,643,099 due to prior period adjustment of $1,549,197 to correct the beginning balance of fiscal year end 2018 and $3,093,902 impairment loss during the year ended September 31, 2018.
(c)	Decrease of website development patent costs in total amount of $89,801 resulting from reclassification to general and administrative expenses as these should not have been capitalized.
(d)	Increase in property and equipment, net of $264,773 resulting from reclassification of $283,328 from repairs and maintenance expense to capitalized property and equipment which was expensed in error, net of accumulated depreciation of $2,490 offset by reclassification of $16,065 to finance right-of-use asset.
(e)	Increase of finance right-of-use asset, net of $15,663 resulting from reclassification from property and equipment of $16,065 net of accumulated depreciation of $402. Increase in finance right-of-use liabilities of $16,065 related to the finance right-of-use asset.
(f)	Decrease of accounts payable of $1,040,586 resulting from prior period adjustment of $447,106 and the removal of unsubstantiated invoices of $652,590 which were offset by unrecorded accounts payable of $59,110.
(g)	Decrease of accrued liabilities of $355,879 resulting from a prior period adjustment of $478,379 to correct over accrued liabilities offset by an increase of $122,500 from unrecorded liability related to a legal settlement.
(h)	Decrease of accrued compensation of $18,899 resulting from prior period adjustment of $77,642 to correct over accrued compensation offset by a reclassification of $58,743 to due to related parties.
(i)	Increase of convertible debt, net of $249,091 resulting from reclassification of $232,832 from derivative liability and reclassification of $16,259 from notes payable current which should have been reflected as convertible debt.
	Decrease of notes payable - current of $16,259 resulting from reclassification to convertible debt.
	Decrease of derivative liabilities of $472,670 resulting from reclassification of $232,832 to convertible debt and cumulative adjustment of $239,838 to reflect the cumulative effect adjustment related to adoption of ASU 2017-11 applied retrospectively.
(j)	Increase of due to related parties of $58,743 resulting from reclassification from accrued compensation.
(k)	Decrease in warrant of $67 resulting from reclassification to additional paid in capital.
(l)	Increase in additional paid in capital of $515 resulting from reclassification of warrants of $67 and an adjustment of $448 related to convertible debt conversions.
(m)	Increase in accumulated deficit of $2,882,519 resulting from the above adjustments.

 

 

		September 30, 2019
		Prior Filing				Adjustment						Restated
Cash		$	569,960			$	(9,553	)		(a)		$	560,407
Accounts receivable		$	—			$	4,000			(b)		$	4,000
Prepaid expenses and other current assets		$	—			$	9,054			(c)		$	9,054
Intellectual Property		$	3,209,602			$	(3,209,602	)		(d)		$	—
Website development cost, net		$	2,125			$	(2,125	)		(e)		$	—
Patent costs, net		$	124,668			$	(124,668	)		(e)		$	—
Property and equipment, net		$	366,359			$	(67,449	)		(f)		$	298,910
Finance right-of-use asset, net		$	—			$	204,059			(g)		$	204,059
Security deposit		$	7,805			$	(15	)		(h)		$	7,790
Total Assets		$	4,298,519			$	(3,196,299	)				$	1,102,220
Accounts payable		$	1,449,683			$	(781,437	)		(i)		$	668,246
Accrued liabilities		$	446,039			$	(327,798	)		(j)		$	118,241
Accrued compensation		$	478,333			$	(181,277	)		(k)		$	297,056
Convertible debt, net		$	—			$	217,591			(l)		$	217,591
Notes payable - current		$	24,759			$	15,241			(l)		$	40,000
Financing right-of-use liability - current		$	—			$	35,096			(g)		$	35,096
Derivative liabilities		$	277,569			$	(277,569	)		(l)		$	—
Due to related parties		$	—			$	180,000			(k)		$	180,000
Financing right-of-use liability - LT		$	—			$	178,350			(g)		$	178,350
Total Liabilities		$	2,676,383			$	(941,803	)				$	1,734,580
Stockholders’ Deficit:
Warrants		$	67			$	(67	)		(m)		$	—
Additional paid-in capital		$	37,349,150			$	515			(n)		$	37,349,665
Accumulated deficit		$	(35,756,257	)		$	(2,254,944	)		(o)		$	(38,011,201	)
Total Stockholders’ Deficit		$	1,589,492			$	(2,254,496	)				$	(665,004	)
Total Liabilities and Stockholders’ Deficit		$	4,298,519			$	(3,196,299	)				$	1,102,220

 

(a)	Decrease of cash balance of $9,553 to correct overstated cash balance as of September 30, 2019.
(b)	Increase of accounts receivable of $4,000 resulting from correction of understated balance.
(c)	Increase of prepaid and other current assets of $9,054 resulting from correction of understated balance.
(d)	Decrease of intellectual property of $3,209,602 due to prior period adjustment resulting from impairment loss and correction of prior period balance.
(e)	Decrease of website development patent costs in total amount of $126,793 resulting from reclassification to general and administrative expenses as these should not have been capitalized.
(f)	Decrease of property and equipment, net of $67,449 to reflect the correct balance resulting from prior period adjustments.
(g)	Increase of finance right-of-use asset, net of $204,059 resulting from reclassification from property and equipment of $231,841, net of accumulated depreciation of $50,432. Increase in finance right-of-use liabilities of $215,776 related to the finance right-of-use asset.
(h)	Decrease of security deposit of $15 to adjust the balance to correct amount.
(i)	Decrease of accounts payable of $781,437 resulting from prior period adjustment.
(j)	Decrease of accrued liabilities of $327,798 resulting from a prior period adjustment and correction of accounts payable balance.
(k)	Decrease of accrued compensation of $181,127 resulting from the reclassification of $180,000 to the correct classification.
(l)	Increase of convertible debt, net of $271,591 resulting from reclassification from derivative liability to correct classification.
	Increase of notes payable - current of $15,241 resulting from reclassification from derivative liability to correct classification.
	Decrease of derivative liabilities of $277,569 resulting from reclassification of $232,832 to convertible debt and notes payable - current and cumulative adjustment of $44,737 to reflect the cumulative effect adjustment related to adoption of ASU 2017-11 applied retrospectively.
(m)	Decrease in warrant of $67 resulting from reclassification to additional paid in capital.
(n)	Increase in additional paid in capital of $515 resulting from reclassification of warrants of $67 and an adjustment of $448 related to convertible debt conversions.
(o)	Increase in accumulated deficit of $2,254,944 resulting from the above adjustments and prior period adjustments.

 

 

Statement of Operations Data (Audited):

 

		For the Year Ended
		September 30, 2018
		Prior Filing				Adjustment						Restated
Loss from Operations		$	(2,311,636	)		$	(2,488,135	)		(a)		$	(4,799,771	)
Total Other Income (Expense), net		$	(60,161	)		$	(144,147	)		(b)		$	(204,308	)
Net Loss		$	(2,371,797	)		$	(2,632,282	)				$	(5,004,079	)

 

(a)	Increase of loss from operations of $2,488,135 resulting from the impairment of intellectual property offset by the capitalization of assets that were improperly expensed as period costs.

 

(b)	Increase of total other (income) expense, net of $144,147 resulting from expenses related to unrecorded legal settlements.

 

(c)	Increase of net loss of $2,632,282 resulting from the adjustments discussed above.

 

		For the Year Ended
		September 30, 2019
		Prior Filing				Adjustment						Restated
Loss from Operations		$	(2,423,996	)		$	938,861			(a)		$	(1,485,135	)
Total Other Income (Expense), net		$	198,587			$	(311,286	)		(b)		$	(112,699	)
Net Loss		$	(2,225,409	)		$	627,575					$	(1,597,834	)

 

(a)	Decrease of loss from operations of $938,861 resulting from the capitalization of assets that were improperly expensed as period costs and the elimination of unsubstantiated expenses during the period.
(b)	Increase of total other income (expense), net of $311,286 resulting from the improper recording of items during the period.
(c)	Decrease of net loss of $627,575 resulting from the adjustments discussed above.