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Form 10-Q Digipath, Inc. For: Jun 30

August 15, 2022 5:59 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For Quarterly Period Ended June 30, 2022

 

or

 

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

 

For the transition period from __________ to __________

 

Commission File Number 000-54239

 

 

Digipath, Inc.

(Exact name of registrant issuer as specified in its charter)

 

Nevada   27-3601979

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     
6450 Cameron St Suite 113 Las Vegas, NV   89118
(Address of principal executive offices)   (zip code)

 

(702) 527-2060

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Trading
Symbol(s)
  Name of each exchange on which registered
    N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes No

 

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

 

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

 

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

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

The number of shares of registrant’s common stock outstanding as of August 15, 2022 was 75,146,820.

 

 

 

 
 

 

TABLE OF CONTENTS

 

  Page
  No.
PART I - FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS (Unaudited) 3
  Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and September 30, 2021 3
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2022 and 2021 (Unaudited) 4
  Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended June 30, 2022 and 2021 (Unaudited) 5
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2022 and 2021 (Unaudited) 6
  Notes to the Condensed Consolidated Financial Statements (Unaudited) 7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
ITEM 4. CONTROLS AND PROCEDURES 22
PART II – OTHER INFORMATION 23
ITEM 1. Legal Proceedings 23
ITEM 1A. RISK FACTORS 23
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4. MINE SAFETY DISCLOSURES 23
ITEM 5. OTHER INFORMATION 23
ITEM 6. EXHIBITS 23
  SIGNATURES 25

 

2
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

DIGIPATH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

           
   June 30, 2022   September 30, 2021 
  (Unaudited)     
Assets          
Current assets:          
Cash  $225,233   $295,932 
Accounts receivable, net   245,095    214,900 
Note receivable   551,969    230,929 
Other current assets   64,425    60,353 
Deposits   25,141    24,751 
Total current assets   1,111,863    826,865 
           
Right-of-use asset   341,734    413,884 
Fixed assets, net   481,539    647,252 
Total non-current assets   823,273    1,061,136 
           
Total Assets  $1,935,136   $1,888,001 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities:          
Accounts payable  $487,078   $370,977 
Accrued expenses   438,664    220,002 
Current portion of operating lease liabilities   100,685    93,601 
Current portion of finance lease liabilities   -    20,379 
Current maturities of convertible notes payable   1,728,702    1,050,000 
Current maturities of notes payable   545,880    259,425 
Total current liabilities   3,301,009    2,014,384 
           
Non-current liabilities:          
Operating lease liabilities   254,376    330,151 
Notes payable   400,188    339,516 
Convertible notes payable, net of discounts of $-0- and $8,322 at June 30, 2022 and September 30, 2021, respectively   -    257,282 
Total non-current liabilities   654,564    926,949 
           
Total Liabilities   3,955,573    2,941,333 
           
Series B convertible preferred stock, $0.001 par value, 1,500,000 shares authorized; 333,600 and zero shares issued and outstanding as of June 30, 2022 and September 30, 2021 respectively   333,600    - 
           
Stockholders’ Equity (Deficit):          
Series A convertible preferred stock, $0.001 par value, 6,000,000 shares authorized; 1,047,942 and 1,325,942 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively   1,048    1,326 
Common stock, $0.001 par value, 250,000,000 shares authorized; 75,146,820 and 71,230,153 shares issued and outstanding at June 30, 2022 and September 30 2021, respectively   75,147    71,230 
Additional paid-in capital   16,762,075    16,825,765 
Accumulated deficit   (19,192,307)   (17,951,653)
           
Total Stockholders’ Deficit   (2,354,037)   (1,053,332)
           
Total Liabilities and Stockholders’ Deficit  $1,935,136   $1,888,001 

 

See accompanying notes to financial statements.

 

3
 

 

DIGIPATH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

                     
   For the Three Months Ended   For the Nine Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
                 
Revenues  $682,665   $764,015   $1,986,985   $1,897,560 
Cost of sales   414,299    551,976    1,232,932    1,389,776 
Gross profit   268,366    212,039    754,053    507,784 
                     
Operating expenses:                    
General and administrative   278,765    278,082    755,199    715,093 
Professional fees   81,108    91,001    635,969    313,364 
Change in allowance for doubtful accounts   66,712    (10,960)   64,589    (28,945)
Total operating expenses   426,585    358,123    1,455,757    999,512 
                     
Operating loss   (158,219)   (146,084)   (701,704)   (491,728)
                     
Other income (expense):                    
Interest income   12,386    -    37,061    - 
Interest expense   (72,230)   (31,130)   (217,341)   (105,840)
Credit loss   (358,670)   -    (358,670)   - 
Other Income   -    -    -    47,918 
Total other income (expense)   (418,514)   (31,130)   (538,950)   (57,922)
                     
Net loss  $(576,733)  $(177,214)  $(1,240,654)  $(549,650)
                     
Weighted average number of common shares outstanding – basic   75,146,820    68,479,201    73,845,233    64,081,692 
Weighted average number of common shares outstanding – fully diluted   75,146,820    68,479,201    73,845,233    64,081,692 
                     
Net loss per share – basic and fully diluted  $(0.01)  $(0.00)  $(0.02)  $(0.01)
Net loss per share – basic and fully diluted  $(0.01)  $(0.00)  $(0.02)  $(0.01)

 

See accompanying notes to financial statements.

 

4
 

 

DIGIPATH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

                                              
   Series B Convertible Preferred Stock   Series A Convertible Preferred Stock   Common Stock   Additional Paid-in   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   (Deficit)   Deficit 
                                     
Balance, September 30, 2021   -   $-    1,325,942   $1,326    71,230,153   $71,230   $16,825,765   $(17,951,653)  $(1,053,332)
                                              
Purchase of Series B Preferred shares   55,600    55,600    -    -    -    -    -    -    - 
                                              
Conversion of Series A Preferred into Series B Preferred   278,000    278,000    (278,000)   (278)   -    -    (277,722)   -    (278,000)
                                              
Stock-based compensation   -    -    -    -    1,500,000    1,500    97,179    -    98,679 
                                              
Net loss   -    -    -    -    -    -    -    (290,325)   (290,325)
                                              
Balance, December 31, 2021   333,600    333,600    1,047,942    1,048    72,730,153    72,730    16,645,222    (18,241,978)   (1,522,978)
                                              
Common Shares issued for settlement of AP   -    -    -    -    250,000    250    7,250    -    7,500 
                                              
Stock-based compensation   -    -    -    -    2,166,667    2,167    101,297    -    103,464 
                                              
Net loss   -    -    -    -    -    -    -    (373,596)   (373,596)
                                              
 Balance, March 31, 2022   333,600   $333,600    1,047,942   $1,048    75,146,820   $75,147   $16,753,769   $(18,615,574)  $(1,785,610)
                                              
Stock-based compensation   -    -    -    -    -    -    8,306    -    8,306 
                                              
Net loss   -    -    -    -    -    -    -    (576,733)   (576,733)
                                              
 Balance, June 30, 2022   333,600   $333,600    1,047,942   $1,048    75,146,820   $75,147   $16,762,075   $(19,192,307)  $(2,354,037)

 

   Series B Convertible Preferred Stock   Series A Convertible Preferred Stock   Common Stock   Additional Paid-in   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   (Deficit)   Deficit 
                                     
Balance, September 30, 2020   -   $-    1,325,942   $1,326    58,270,567   $58,271   $16,116,400   $(17,265,150)  $(1,089,153)
                                              
Common stock sold for cash   -    -    -    -    900,000    900    19,350    -    20,250 
                                              
Common stock issued for debt conversion   -    -    -    -    3,666,668    3,666    106,334    -    110,000 
                                              
Stock-based compensation   -    -    -    -    1,228,155    1,228    42,832    -    44,060 
                                              
Net loss   -    -    -    -    -    -    -    (390,637)   (390,637)
                                              
Balance, December 31, 2020   -    -    1,325,942    1,326    64,065,390    64,065    16,284,916    (17,655,787)  (1,305,480)
                                              
Common stock issued for debt conversion   -    -    -    -    3,000,000    3,000    87,000    -    90,000 
                                              
Stock-based compensation - related parties   -    -    -    -    866,430    867    56,157    -    57,024 
                                              
Stock-based compensation   -    -    -    -    250,000    250    29,647    -    29,897 
                                              
Net income   -    -    -    -    -    -    -    18,201    18,201 
                                              
Balance, March 31, 2021   -   $-    1,325,942   $1,326    68,181,820   $68,182   $16,457,720   $(17,637,586)  $(1,110,358)
                                              
Stock-based compensation - related parties   -    -    -    -    83,333    83    27,559    -    27,642 
                                              
Stock-based compensation   -    -    -    -    1,465,000    1,465    78,035    -    79,500 
                                              
Net loss   -    -    -    -    -    -    -    (177,214)   (177,214)
                                              
Balance, June 30, 2021  -   $-    1,325,942   $1,326    69,730,153   $69,730   $16,563,314   $(17,814,800)  $(1,180,430)

 

See accompanying notes to financial statements.

 

5
 

 

DIGIPATH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

                 
    For the Nine Months Ended  
    June 30,  
    2022     2021  
Cash flows from operating activities                
Net loss   $ (1,240,654 )   $ (549,650 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Change in allowance for doubtful accounts     64,589       (28,945 )
Credit loss     358,670       -  
Depreciation and amortization expense     169,959       233,663  
Loss on disposal of fixed assets     -       2,227  
Gain on early extinguishment of debt     -       (40,338 )
Stock-based compensation     210,449       238,123  
Amortization of debt discounts     58,654       8,322  
Decrease (increase) in assets:                
Accounts receivable     (94,784 )     77,280  
Other current assets     (41,133 )      (15,277 )
Deposits     (390 )     (55,000 )
Right-of-use assets     72,150       68,408  
Increase (decrease) in liabilities:                
Accounts payable     123,602       (47,454 )
Accrued expenses     218,662       32,016  
Lease liabilities     (68,691 )     (62,471 )
Net cash (used) in operating activities     (168,917 )     (139,096 )
                 
Cash flows from investing activities                
Purchase of fixed assets     (4,246 )     (1,206 )
Advance of note receivable     (817,649 )     -  
Proceeds from sale of collateralized assets     175,000       -  
Net cash (used) in investing activities     (646,895 )     (1,206 )
                 
Cash flows from financing activities                
Principal payments on finance lease     (20,379 )     (24,443 )
Principal payments on note payable, equipment financing     (42,873 )     (40,445 )
Proceeds from short term advances     -       65,000  
Proceeds from notes payable     390,000       -  
Proceeds from convertible notes     402,765       110,000  
Payments on convertible notes     (40,000 )        
Proceeds from sale of common stock     -       20,250  
Proceeds from sale of preferred stock     55,600       -  
Net cash provided by financing activities     745,113       130,362  
                 
Net increase (decrease) in cash     (70,699 )     (9,940 )
Cash - beginning     295,932       82,749  
Cash - ending   $ 225,233     $ 72,809  
                 
Supplemental disclosures:                
Interest paid   $ 57,439     $ 49,508  
Income taxes paid     -       -  
                 
Non-cash investing and financing activities:                
Common stock issued for debt conversion   $ -     $ 200,000  
Common stock issued for settlement of accounts payables   $ 7,500     $ -  
Conversion of Series A preferred into Series B preferred   $ 278,000     $ -  

 

See accompanying notes to financial statements.

 

6
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization, Basis of Presentation and Significant Accounting Policies

 

Organization

 

Digipath, Inc. was incorporated in Nevada on October 5, 2010. Digipath, Inc. and its subsidiaries (“Digipath,” the “Company,” “we,” “our” or “us”) is a service-oriented independent testing laboratory, data analytics and media firm focused on the developing cannabis and hemp markets, and supports the cannabis industry’s best practices for reliable testing, cannabis education and training. Our mission is to provide pharmaceutical-grade analysis and testing to the cannabis industry, under ISO-17025:2017 guidelines, to ensure consumers and patients know exactly what is in the cannabis they ingest and to help maximize the quality of our clients’ products through research, development, and standardization. Digipath has been operating a cannabis-testing lab in Nevada since 2015 and hopes to open labs in other states that have legalized the sale of cannabis, beginning with California or Arizona.

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated.

 

The unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021. The interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at June 30, 2022:

 

    Jurisdiction of    
Name of Entity(1)   Incorporation   Relationship
Digipath, Inc.(2)   Nevada   Parent
Digipath Labs, Inc.   Nevada   Subsidiary
Digipath Labs CA, Inc.(3)   California   Subsidiary
Digipath Labs S.A.S.(4)   Colombia   Subsidiary
VSSL Enterprises, Ltd.(5)   Canada   Subsidiary
TNM News Corp.(6)   Nevada   Subsidiary

 

(1) All entities are in the form of a corporation.
(2) Holding company, which owns each of the wholly-owned subsidiaries. All subsidiaries shown above are wholly-owned by Digipath, Inc., the parent company.
(3) Formed during the second fiscal quarter of 2021, but has not yet commenced significant operations.
(4) Formed during the first fiscal quarter of 2019, but has not yet commenced significant operations.
(5) Acquired on March 11, 2020.
(6) Minimal activity, dissolved on July 28, 2021.

 

The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company and subsidiaries will be collectively referred to herein as the “Company”, “Digipath” or “DIGP”. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its customers are within the United States.

 

7
 

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.

 

Fair Value of Financial Instruments

 

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

Revenue is primarily generated through our subsidiary, Digipath Labs, Inc., which recognizes revenue from the analytical testing of cannabis products for licensed producers and cultivators within the state of Nevada on a determinable fixed fee per test, or panel of tests basis. Revenue from the performance of those services is recognized upon completion of the tests, at which time test results are delivered to the customer, provided collectability of the fee is reasonably assured. We typically require payment within thirty days of the delivery of results. Management estimates an allowance for doubtful accounts based on the aging of its receivables.

 

Stock-Based Compensation

 

The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.

 

Recently Issued Accounting Pronouncements

 

There are no recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.

 

Note 2 – Going Concern

 

As shown in the accompanying condensed consolidated financial statements, as of June 30, 2022, the Company had negative working capital of $2,189,146, accumulated recurring losses of $19,192,307, and only $225,233 of cash on hand, which is not sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. Management believes these factors will contribute toward achieving profitability.

 

The consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 3 – Fair Value of Financial Instruments

 

The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement (“ASC 820”). Under FASB ASC 820-10-5, fair value is defined 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 (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

 

8
 

 

The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2022 and September 30, 2021, respectively:

 

   Fair Value Measurements at June 30, 2022 
   Level 1   Level 2   Level 3 
Assets               
Cash  $225,233   $-   $- 
                
Liabilities               
Lease liabilities   -    -    355,061 
Notes payable   -    946,068    - 
Convertible notes payable   -    -    1,728,701 

 

   Fair Value Measurements at September 30, 2021 
   Level 1   Level 2   Level 3 
Assets               
Cash  $295,932   $-   $- 
                
Liabilities               
Lease liabilities   -    -    444,131 
Notes payable   -    598,941    - 
Convertible notes payable, net of discounts of $98,188   -    -    1,307,282 

 

The fair value of our intellectual properties are deemed to approximate book value, and are considered Level 3 inputs as defined by ASC Topic 820-10-35.

 

There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the nine months ended June 30, 2022 or the year ended September 30, 2021.

 

Note 4 – Note Receivable

 

On various dates between December 28, 2018 and June 13, 2019, we loaned Northwest Analytical Labs, Inc. a total of $95,000. The loans bear interest at an annual rate of 10%, are evidenced by secured demand notes, and are secured by a lien on the borrower’s assets. An allowance for doubtful accounts for the full value of the notes has been recorded due to the uncertainty of collectability.

 

On various dates between August 23, 2021 and June 30, 2021, we loaned C3 Labs, Inc. (“C3 Labs”) a total of $1,047,649. The loans bear interest at an annual rate of 8%. These loans are evidenced by secured demand notes, and are secured by a lien on the borrower’s assets and have a maturity date of August 23, 2022. The Company has recorded interest income of $37,061 during the nine months ended June 30, 2022, with total accrued interest of $37,991 as of June 30, 2022.

 

9
 

 

The loans were made in connection with a potential acquisition of a controlling interest in C3 Labs pursuant to a letter of intent. On March 11, 2022, the Company notified the current owners of C3 Labs of its termination of the letter of intent. The Company is currently in possession of equipment of C3 Labs, which it is in the process of liquidating. The Company anticipates that the proceeds of such liquidation will be insufficient to repay the Company in full all amounts owed to it by C3 Labs, and as such has recorded an allowance of 358,670. As of June 30, 2022, the company has sold equipment of C3 Labs for proceeds of $175,000, which it has applied to the outstanding balance owed to it by C3 Labs.

 

Note 5 – Fixed Assets

 

Fixed assets consist of the following at June 30, 2022 and September 30, 2021:

 

           
   June 30, 2022   September 30, 2021 
Software  $125,903   $125,903 
Office equipment   71,601    71,601 
Furniture and fixtures   29,879    29,879 
Lab equipment   1,455,479    1,453,716 
Leasehold improvements   496,600    494,117 
Lab equipment held under capital leases   99,193    99,193 
Fixed assets, gross   2,278,655    2,274,409 
Less: accumulated depreciation   (1,797,116)   (1,627,157)
Total  $481,539   $647,252 

 

Depreciation and amortization expense totaled $169,959 and $233,663 for the nine months ended June 30, 2022 and 2021, respectively.

 

Note 6 – Leases

 

The Company leases its operating and office facility under a non-cancelable real property lease agreement that expires on August 31, 2025. The Company also has a financing lease for lab equipment subject to the recently adopted ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The real property lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

 

The components of lease expense were as follows:

 

           
   For the Nine   For the Nine 
   Months Ended   Months Ended 
   June 30, 2022   June 30, 2021 
Operating lease cost  $89,155   $6,477 
Finance lease cost:          
Amortization of assets   72,187    68,408 
Interest on lease liabilities   1,266    20,747 
Total net lease cost  $162,608   $95,632 

 

Supplemental balance sheet information related to leases was as follows:

 

           
   June 30, 2022   September 30, 2021 
Operating leases:          
Operating lease assets  $341,734   $

413,884

 
           
Current portion of operating lease liabilities   100,685   $93,601 
Noncurrent operating lease liabilities   254,376    330,151 
Total operating lease liabilities  $355,061   $423,752 
Finance lease:          
Equipment, at cost  $99,193   $99,193 
Accumulated amortization   (54,556)   (39,677)
Equipment, net  $44,637   $59,516 
           
Current portion of finance lease liabilities  $-   $20,379 
Noncurrent finance lease liabilities   -    - 
Total finance lease liabilities  $-   $20,379 
           
Weighted average remaining lease term:          
Operating leases   3.17 years    3.92 years 
Finance leases   0.00 years    .55 years 
           
Weighted average discount rate:          
Operating leases   5.75%   5.75%
Finance lease   18.41%   18.41%

 

10
 

 

Supplemental cash flow and other information related to leases was as follows:

 

           
   For the Nine   For the Nine 
   Months Ended   Months Ended 
   June 30, 2022   June 30, 2021 
Cash paid for amounts included in the measurement of lease liabilities:          
Operating cash flows used for operating leases  $45,490   $62,471 
Financing cash flows used for finance leases  $20,379   $24,443 
           
Leased assets obtained in exchange for lease liabilities:          
Total operating lease liabilities  $-   $528,616 
Total finance lease liabilities  $-   $99,193 

 

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities on a fiscal year basis, including common area maintenance fees, under non-cancelable operating leases as of June 30, 2022:

 

      
Fiscal Year Ending  Minimum Lease 
September 30,  Commitments 
2022 (for the three months remaining)  $29,532 
2023   119,468 
2024   123,543 
2025   116,891 
2026   - 
Total future undiscounted lease payments   389,434 
Less interest   34,373 
Present value of lease payments   355,061 
Less current portion   100,685 
Long-term operating lease liabilities  $254,376 

 

There Company does not have any obligations under finance leases as of June 30, 2022:

 

Note 7 –Notes Payable

 

Notes payable consists of the following at June 30, 2022 and September 30, 2021, respectively:

 

           
   June 30, 2022   September 30, 2021 
On September 10, 2021, the Company, entered into a Secured Promissory note for $675,000 from US Canna Lab I, LLC, (the “Company Canna Lab Note”). The Company Canna Lab Note carries interest at 12% per annum, and is due on September 10, 2024 with monthly principal and interest payments of $22,419.66 beginning on October 1, 2021. As of June 30, 2022, a total $675,000 of the funds have been advanced to the Company. In addition, the Company was advanced an additional $115,000 of funds under the same terms as the original note.  $790,000   $400,000 
           
On December 26, 2019, the Company financed the purchase of $377,124 of lab equipment, in part, with the proceeds of a bank loan in the amount of $291,931. The loan bears interest at the rate of 5.75% per annum and requires monthly payments of $5,622 over the five-year term of the loan ending on December 26, 2024. The Company’s obligations under this loan are secured by a lien on the purchased equipment.   156,068    198,941 
           
Total notes payable   946,068    598,941 
Less: current maturities   (545,880)   (259,425)
Notes payable  $400,188   $339,516 

 

The Company recorded interest expense pursuant to the stated interest rate and closing costs on the notes payable in the amount of $65,061 and $11,609 during the nine months ended June 30, 2022 and 2021, respectively.

 

11
 

 

Note 8 – Convertible Notes Payable

 

Convertible notes payable consists of the following at June 30, 2022 and September 30, 2021, respectively:

 

           
   June 30, 2022   September 30, 2021 
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $50,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $10,000 of proceeds and the promissory note was increased to $60,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $10,000 of principal into 333,334 shares of common stock at a conversion price of $0.03 per share.  $50,000   $50,000 
           
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Subordinated Convertible Promissory Note in the principal amount of $150,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $200,000. The Company’s obligations under the Note are secured by subordinated lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share.   150,000    150,000 
           
On February 10, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $350,000. The Note matures on August 10, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $400,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share.   350,000    350,000 
           
On September 23, 2019, the Company received proceeds of $200,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.11 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc. On February 22, 2021, the noteholder converted $90,000 of principal into 3,000,000 shares of common stock at a conversion price of $0.03 per share. On September 30, 2021 the note was amended to add outstanding short term notes and accrued interest into the principal balance, making the outstanding balance 355,470, as amended. As a result of the modification, the Company recorded an additional debt discount of $98,188 as a result of the beneficial conversion feature of the additional principal. During the nine months ended June 30, 2022, the Company repaid $40,000 of the balance of this note. In addition, during the nine months ended June, 2022, the Company was advanced additional loans of $362,765 from the lender under the same terms.   718,235    355,470 
           
On November 8, 2018, the Company received proceeds of $350,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc.   350,000    350,000 
           
On November 5, 2018, the Company received proceeds of $150,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc.   150,000    150,000 
           
Total convertible notes payable   1,768,235    1,405,470 
Less: unamortized debt discounts   (39,533)   (98,188)
Total convertible debt   1,728,702    1,307,282 
Less: current maturities   1,728,702    1,050,000 
Convertible notes payable  $-   $257,282 

 

In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible notes by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible notes. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt.

 

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The aforementioned accounting treatment resulted in a total debt discount equal to $98,188. The discount is amortized on a straight-line basis from the dates of issuance until the earlier of the stated redemption date of the debts, as noted above or the actual settlement date. The Company recorded debt amortization expense on the aforementioned debt discount in the amount of $58,654 for the nine months ended June 30, 2022. Unamortized discount as of June 30, 2022 is $39,533

 

All of the convertible notes limit the maximum number of shares that can be owned by each note holder as a result of the conversions to common stock to 4.99% of the Company’s issued and outstanding shares.

 

The Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $79,795 and $61,099 for the nine months ended June 30, 2022 and 2021, respectively.

 

The Company recognized interest expense for the nine months ended June 30, 2022 and 2021, respectively, as follows:

 

           
   June 30, 2022   June 30, 2021 
         
Interest on short term loans  $-   $3,123 
Interest on lease liabilities   13,106    6,477 
Interest on notes payable   65,785    11,609 
Amortization of beneficial conversion features   58,654    8,322 
Interest on convertible notes   79,796    76,309 
Total interest expense  $217,341   $105,840 

 

Note 9 - Changes in Stockholders’ Deficit

 

Convertible Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share, of which 6,000,000 have been designated as Series A Convertible Preferred Stock (“Series A Preferred”) and 1,500,000 have been designated as Series B Convertible Preferred Stock (“Series B Preferred”), with the remaining 2,500,000 shares available for designation from time to time by the Board as set forth below. As of June 30, 2022, there were 1,047,942 shares of Series A Preferred issued and outstanding and 333,600 shares of Series B Preferred issued and outstanding. The Board of Directors is authorized to determine any number of series into which the undesignated shares of preferred stock may be divided and to determine the rights, preferences, privileges and restrictions granted to any series of the preferred stock. Each share of Series A Preferred is currently convertible into five shares of common stock and each share of Series B Preferred is currently convertible into twenty-five shares of common stock.

 

Series A

 

The conversion price is adjustable in the event of stock splits and other adjustments in the Company’s capitalization, and in the event of certain negative actions undertaken by the Company. At the current conversion price, the 1,047,942 shares of Series A Preferred outstanding at June 30, 2022 are convertible into 5,239,710 shares of the common stock of the Company. No holder is permitted to convert its shares of Series A Preferred if such conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding common stock of the Company immediately after such conversion, unless waived by such holder by providing at least sixty-five days’ notice.

 

Additional terms of the Series A Preferred and include the following:

 

The shares of Series A Preferred are entitled to dividends when, as and if declared by the Board as to the shares of the common stock of the Company into which such Series A Preferred may then be converted, subject to the 4.99% beneficial ownership limitation described above.
   
Upon the liquidation or dissolution of the Company, or any merger or sale of all or substantially all of the assets, the shares of Series A Preferred are entitled to receive, prior to any distribution to the holders of common stock, 100% of the purchase price per share of Series A Preferred plus all accrued but unpaid dividends.
   
The Series A Preferred plus all declared but unpaid dividends thereon automatically will be converted into common stock, at the then applicable conversion rate, upon the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred.

 

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Each share of Series A Preferred will carry a number of votes equal to the number of shares of common stock into which such Series A Preferred may then be converted, subject to the 4.99% beneficial ownership limitation described above. The Series A Preferred generally will vote together with the common stock and not as a separate class, except as provided below.
   
Consent of the holders of the outstanding Series A Preferred is required in order for the Company to: (i) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred; (ii) authorize, create or issue shares of any class of stock having rights, preferences, privileges or powers superior to the Series A Preferred; (iii) reclassify any outstanding shares into shares having rights, preferences, privileges or powers superior to the Series A Preferred; or (iv) amend the Company’s Articles of Incorporation or Bylaws in a manner that adversely affects the rights of the Series A Preferred.
   
Pursuant to the Securities Purchase Agreements, holders of Series A Preferred are entitled to unlimited “piggyback” registration rights on registrations by the Company, subject to pro rata cutback at any underwriter’s discretion.

 

During the nine months ended June 30, 2022, the Company offered to the Series A Preferred shareholders the ability to convert their Preferred A shares into Preferred B shares for an additional investment of 20% of their initial Series A investment. One Series A shareholder invested additional cash proceeds of $55,600 for 55,600 Series B shares and converted 278,000 of its Series A into Series B.

 

Series B

 

The Series B Preferred were designated on December 29, 2021. Each share of Series B Preferred has a Stated Value of $1.00 and is currently convertible into common stock at a conversion price equal to $0.04. The conversion price of the Series B Preferred is subject to equitable adjustment in the event of a stock split, stock dividend or similar event with respect to the common stock, and in the event of the issuance of common stock by the Company below the conversion price, subject to customary exceptions. At the current conversion price, the 333,600 shares of Series B Preferred outstanding at June 30, 2022 are convertible into 8,340,000 shares of the common stock of the Company. No holder is permitted to convert its shares of Series B Preferred if such conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding common stock of the Company immediately after such conversion, unless waived by such holder by providing at least sixty-five days’ notice.

 

Additional terms of the Series B Preferred and include the following:

 

The shares of Series B Preferred are not entitled to dividends, provided that if dividends are paid on the shares of common stock of the Company, the Series B Preferred will be entitled to dividends based on the number shares of common stock which the Series B Preferred may then be converted.
   
Upon the liquidation or dissolution of the Company, or any merger or sale of all or substantially all of the assets, or upon a change in control whereby a stockholder gains control of 50% or more of the outstanding shares of common stock, the shares of Series B Preferred are entitled to receive, prior to any distribution to the holders of common stock, 100% of the purchase price per share of Series B Preferred plus all accrued but unpaid dividends.
   
Each share of Series B Preferred carries a number of votes equal to the number of shares of common stock into which such Series B Preferred may then be converted.

 

Due to the change in control provision of the Series B Preferred, the Series B Preferred is classified as temporary equity on the balance sheet.

 

On December 30, 2021, the Company entered into an Exchange Agreement with one of the Company’s institutional investors (the “Investor”), pursuant to which the Investor exchanged 278,000 shares of the Series A Preferred for 278,000 shares of the Series B Preferred. In addition, on December 30, 2021, the Investor purchased 55,600 shares of Series B Preferred Stock at a price of $1.00 per share, resulting in gross proceeds to the Company of $55,600.

 

Common Stock

 

Common stock consists of $0.001 par value, 250,000,000 shares authorized, of which 75,146,820 shares were issued and outstanding as of June 30, 2022.

 

During the nine months ended June 30, 2022, the Company issued 1,500,000 shares of its common stock in exchange for services rendered to the Company, by the chairman of the board of directors, with a total fair value $52,500 based on the closing price of the Company’s common stock on the dates of grant.

 

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During the nine months ended June 30, 2022, the Company issued 2,166,667 shares of its common stock in exchange for services rendered to the Company, by third party consultants, with a total fair value $91,000 based on the closing price of the Company’s common stock on the dates of grant.

 

During the nine months ended June 30, 2022, the Company issued 250,000 shares of its common stock to settle outstanding payables in the amount of $7,500.

 

Note 10 – Common Stock Options

 

Stock Incentive Plan

 

On June 21, 2016, we amended and restated our 2012 Stock Incentive Plan (the “2012 Plan”), which was originally adopted on March 5, 2012 and previously amended on May 20, 2014. As amended, the 2012 Plan provides for the issuance of up to 11,500,000 shares of common stock pursuant to the grant of options or other awards, including stock grants, to employees, officers or directors of, and consultants to, the Company and its subsidiaries. Options granted under the 2012 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant. Options to purchase a total of 6,020,000 shares of common stock were outstanding as of June 30, 2022.

 

During the nine months ended June 30, 2022, the Company issued to an unrelated third party, options to purchase 1,000,000 shares of its common stock in exchange for services rendered to the Company with a total fair value $33,716. The Company estimated the fair value using the Black-Scholes Pricing Model, based on a volatility rate of 186% and call option values of $0.0337 and exercise prices of $0.035.

 

Amortization of Stock-Based Compensation

 

A total of $66,949 and $63,768 of stock-based compensation expense was recognized during the nine months ended June 30, 2022 and 2021, respectively, as a result of the vesting of common stock options issued. As of June 30, 2022 a total of $23,488 of unamortized expense remains to amortized over the vesting period.

 

The following is a summary of information about the stock options outstanding at June 30, 2022.

 

      Shares Underlying  
Shares Underlying Options Outstanding     Options Exercisable  
            Weighted                  
      Shares     Average   Weighted     Shares     Weighted  
Range of     Underlying     Remaining   Average     Underlying     Average  
Exercise     Options     Contractual   Exercise     Options     Exercise  
Prices     Outstanding     Life   Price     Exercisable     Price  
                               
$ 0.05 – $0.13       6,020,000     6.26 years   $ 0.07       5,466,428     $ 0.07  

 

The following is a summary of activity of outstanding common stock options:

 

       Weighted 
       Average 
   Number   Exercise 
    of Shares    Price 
Balance, September 30, 2021   5,620,000   $0.08 
Options issued   1,000,000   $0.04 
Options forfeited   (600,000)  $0.11 
           
Balance, June 30, 2022   6,020,000   $0.07 
           
Exercisable, June 30, 2022   5,466,428   $0.07 

 

As of June 30, 2022, these options in the aggregate had no intrinsic value as the per share market price of $0.0125 of the Company’s common stock as of such date was less than the weighted-average exercise price of these options of $0.07.

 

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Note 11 – Common Stock Warrants

 

Warrants to purchase a total of 2,368,334 shares of common stock were outstanding as of June 30, 2022.

 

The following is a summary of information about our warrants to purchase common stock outstanding at June 30, 2022.

 

      Shares Underlying  
Shares Underlying Warrants Outstanding     Warrants Exercisable  
            Weighted                  
      Shares     Average   Weighted     Shares     Weighted  
Range of     Underlying     Remaining   Average     Underlying     Average  
Exercise     Warrants     Contractual   Exercise     Warrants     Exercise  
Prices     Outstanding     Life   Price     Exercisable     Price  
                               
$ 0.10 - 0.26       2,368,334     4.91 years   $ 0.16       2,368,334     $ 0.16  

 

The following is a summary of activity of outstanding common stock warrants:

 

       Weighted 
       Average 
   Number   Exercise 
   of Shares   Price 
Balance, September 30, 2021   2,535,001   $0.17 
Warrants granted   -    - 
Warrants expired   (166,667)   0.26 
           
Balance, June 30, 2022   2,368,334   $0.16 
           
Exercisable, June 30, 2022   2,368,334   $0.16 

 

As of June 30, 2022, these warrants in the aggregate had no intrinsic value as the per share market price of $0.0125 of the Company’s common stock as of such date was less than the weighted-average exercise price of these warrants of $0.16.

 

Note 12 – Commitments and Contingencies

 

Legal Contingencies

 

There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

Note 13 – Subsequent Events

 

On July 25, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Todd Denkin, the Company’s President, pursuant to which Mr. Denkin purchased 1,000 shares of the Company’s newly designated Series C Preferred Stock (“Series C Preferred Stock”) for a purchase price of $0.10 per share of Series C Preferred Stock.

 

The principal feature of the Series C Preferred Stock is that it provides the holder thereof, so long as he or she is an executive officer of the Company, with the ability to vote with the holders of the Company’s common stock on all matters presented to the holders of common stock, whether at a special or annual meeting, by written action in lieu of a meeting or otherwise, on the basis of 200,000 votes for each share of Series C Preferred Stock. The shares of Series C Preferred Stock are not convertible into common stock, are not entitled to dividends, are not subject to redemption, and have a stated value of $0.10 per share payable on any liquidation of the Company in preference to any payment payable to the holders of common stock.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended September 30, 2021 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

 

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended September 30, 2021 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.

 

Overview

 

Digipath, Inc. was incorporated in Nevada on October 5, 2010. Digipath, Inc. and its subsidiaries (“Digipath,” the “Company,” “we,” “our” or “us”) supports the cannabis industry’s best practices for reliable testing, cannabis education and training. Our mission is to provide pharmaceutical-grade analysis and testing to the cannabis industry, under ISO-17025:2017 guidelines, to ensure consumers and patients know exactly what is in the cannabis they ingest and to help maximize the quality of our clients’ products through research, development, and standardization. Digipath has been operating a cannabis-testing lab in Nevada since 2015 and has plans to open labs in other states that have legalized the sale of cannabis, beginning with California.

 

Results of Operations for the Three Months Ended June 30, 2022 and 2021:

 

The following table summarizes selected items from the statement of operations for the three months ended June 30, 2022 and 2021.

 

   Three Months Ended June 30,   Increase / 
   2022   2021   (Decrease) 
Revenues  $682,665   $764,015   $(81,350)
Cost of sales   414,299    551,976    (137,677)
Gross profit   268,366    212,039    56,327 
                
Operating expenses:               
General and administrative   278,765    278,082    683 
Professional fees   81,108    91,001    (9,893)
Change in allowance for doubtful accounts   66,712    (10,960)   77,672 
Total operating expenses:   426,585    358,123    68,462 
                
Operating income (loss)   (158,219)   (146,084)   (12,135)
                
Total other income (expense)   (418,514)   (31,130)   (387,384)
                
Net loss  $(576,733)  $(177,214)  $(399,519)

 

Revenues

 

Aggregate revenues for the three months ended June 30, 2022 were $682,665, compared to revenues of $764,015 during the three months ended June 30, 2021, an decrease of $81,350 or 11%. The decrease in revenue was due to a decrease in cannabis production resulting from excess supply in the markets during the current period as opposed to the same period in 2021.

 

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Cost of Sales

 

Cost of sales for the three months ended June 30, 2022 were $414,299, compared to $551,976 during the three months ended June 30, 2021, a decrease of $137,677, or 25%. Cost of sales consists primarily of labor, depreciation, maintenance on lab equipment, and supplies consumed in our testing operations. The decreased cost of sales in the current period was primarily due to our sales decrease of 11% as well as reducing our outsourced testing fees incurred during the current period. Our gross margins were approximately 39% during the three months ended June 30, 2022, compared to 28% during the three months ended June 30, 2021, which translated to $56,327 of increased gross profit in the current period.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended June 30, 2022 were $278,765 compared to $278,082 during the three months ended June 30, 2021, an increase of $683, or 0%. The expenses consisted primarily of marketing, rent, salaries and wages, and travel expenses. General and administrative expenses included non-cash, stock-based compensation of $0 and $16,952 during the three months ended June 30, 2022 and 2021, respectively.

 

Professional Fees

 

Professional fees for the three months ended June 30, 2022 were $81,108, compared to $91,001 during the three months ended June 30, 2021, a decrease of $9,893, or 11%. Professional fees included non-cash, stock-based compensation of $8,306 and $90,190 during the three months ended June 30, 2022 and 2021, respectively. Professional fees decreased primarily due to decreased corporate consulting services during the current period as we focused primarily on the lab operations during the current period.

 

Change in Allowance for Doubtful Accounts

 

Our change in allowance for doubtful accounts for the three months ended June 30, 2022 resulted in $66,712 of bad debt expense, compared to $10,960 of bad debt recovery during the three months ended June 30, 2021, a decrease of $77,672, or 709%. Our change in allowance for doubtful accounts was a result of collection issues from various customers.

 

Operating Loss

 

Our operating loss for the three months ended June 30, 2022 was $158,219, compared to operating loss of $146,084 during the three months ended June 30, 2021, an increase of $12,135, or 8%. Our operating loss increased primarily due to our increased allowance for doubtful accounts.

 

Other Income (Expense)

 

Other expense, on a net basis, for the three months ended June 30, 2022 was $418,514, compared to other expense, on a net basis, of $31,130 during the three months ended June 30, 2021, a net increase of $387,384. Other expense consisted of interest expense of $72,230 and credit losses of $358,670 for the three months ended June 30, 2022, partially offset by other income, consisting of $12,386 of interest income.

 

Net Loss

 

Net loss for the three months ended June 30, 2022 was $576,733, compared to net loss of $177,214 during the three months ended June 30, 2021, an increase of $399,519 or 225%. The net loss was primarily due to our decreased revenues, increased interest expense, and the increase in our doubtful accounts from the June 30, 2021 period.

 

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Results of Operations for the Nine Months Ended June, 2022 and 2021:

 

The following table summarizes selected items from the statement of operations for the nine months ended June 30, 2022 and 2021.

 

   Nine Months Ended June 30,   Increase / 
    2022    2021    (Decrease) 
Revenues  $1,986,985   $1,897,560   $89,425 
Cost of sales   1,232,932    1,389,776    (156,844)
Gross profit   754,053    507,784    246,269 
                
Operating expenses:               
General and administrative   755,199    715,093    40,106 
Professional fees   635,969    313,364    322,605 
Change in allowance for doubtful accounts   64,589    (28,945)   93,534 
Total operating expenses:   1,455,757    999,512    456,245 
                
Operating loss   (701,704)   (491,728)   (209,976)
                
Total other income (expense)   (538,950)   (57,922)   (481,028)
                
Net loss  $(1,240,654)  $(549,650)  $(691,004)

 

Revenues

 

Aggregate revenues for the nine months ended June 30, 2022 were $1,986,985, compared to revenues of $1,897,560 during the nine months ended June 30, 2021, an increase of $89,425, or 5%. The increase in revenue was due to the Nevada tourism market beginning to open up again and our customers’ cash flows improved during the current period.

 

Cost of Sales

 

Cost of sales for the nine months ended June 30, 2022 were $1,232,932, compared to $1,389,776 during the nine months ended June 30, 2021, a decrease of $156,844, or 11%. Cost of sales consists primarily of labor, depreciation, maintenance on lab equipment, and supplies consumed in our testing operations. The decreased cost of sales in the current period was primarily due to our decrease in outsourcing to other labs. Our gross margins of approximately 38% and 27% during the nine months ended June 30, 2022 and 2021, respectively, translated to $246,269 of increased gross profit in the current period.

 

General and Administrative Expenses

 

General and administrative expenses for the nine months ended June 30, 2022 were $755,199, compared to $715,093 during the nine months ended June 30, 2021, an increase of $40,106, or 6%. The expenses consisted primarily of marketing, rent, salaries and wages, and travel expenses. General and administrative expenses included non-cash, stock-based compensation of $0 and $50,856 during the nine months ended June 30, 2022 and 2021, respectively. General and administrative expenses increased due primarily to increased corporate overhead activities offset by the discontinuation of rents on warehouse space that we were previously subleasing.

 

Professional Fees

 

Professional fees for the nine months ended June 30, 2022 were $635,969, compared to $313,364 during the nine months ended June 30, 2021, an increase of $322,605, or 103%. Professional fees included non-cash, stock-based compensation of $210,449 and $238,123 during the nine months ended June 30, 2022 and 2021, respectively. Professional fees increased primarily due to increased use of corporate consulting services during the current period.

 

Change in Allowance for Doubtful Accounts

 

Our change in allowance for doubtful accounts resulted in $64,589 of expense for the nine months ended June 30, 2022, compared to income of $28,945 during the nine months ended June 30, 2021, an increase of $93,534, or 323%. Our change in allowance for doubtful accounts was a result of collection issues from various customers.

 

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Operating Loss

 

Our operating loss for the nine months ended June 30, 2022 was $701,704, compared to $491,728 during the nine months ended June, 2021, an increase of $209,976, or 43%. Our operating loss increased primarily due to a large increase in professional fees.

 

Other Expense

 

Other expense, on a net basis, for the nine months ended June 30, 2022 was $538,950, compared to other expense, on a net basis, of $57,922 during the nine months ended June 30, 2021, a net increase of $481,028. Other expense consisted of $217,341 of interest expense and credit losses of $383,345, as offset by interest income of $37,061, compared to $105,840 of interest expense, as offset by a gain on early extinguishment of debt in the amount of $40,338 and a gain on the distribution of $7,580 of previously impaired inventory to our former CEO, during the six months ended June 30, 2021.

 

Net Loss

 

Net loss for the nine months ended June 30, 2022 was $1,240,654, compared to $549,650 during the nine months ended June 30, 2021, an increase of $691,004, or 126%. The increased net loss was due primarily to larger professional fees and an increase in other expenses.

 

Liquidity and Capital Resources

 

The following is a summary of the Company’s cash flows provided by (used in) operating, investing, and financing activities for the nine-month periods ended June 30, 2022 and 2021:

 

   2022   2021 
Operating Activities  $(168,917)  $(139,096)
Investing Activities   (646,895)   (1,206)
Financing Activities   745,113    130,362 
Net Decrease in Cash  $(70,699)  $9,940 

 

Net Cash Used in Operating Activities

 

During the nine months ended June 30, 2022, net cash used in operating activities was $168,917, compared to net cash used in operating activities of $139,096 for the same period ended June 30, 2021. The decrease in cash used in operating activities was primarily attributable to our increased net loss, offset by the change in allowance for doubtful accounts and credit losses.

 

Net Cash Used in Investing Activities

 

During the nine months ended June 30, 2022, net cash used in investing activities was $646,895, compared to $1,206 for the same period ended June 30, 2022. The increase in cash used in investing was a result of loans we made in connection with a potential acquisition, offset by proceeds received from the sale of equipment held as collateral securing the loan.

 

Net Cash Provided by Financing Activities

 

During the nine months ended June 30, 2022, net cash provided by financing activities was $745,113, compared to net cash provided by financing activities of $130,362 for the same period ended June 30, 2021. The current period consisted primarily of $390,000 of proceeds received on debt financing, $402,765 proceeds from convertible debt financing, proceeds of $55,600 from the sale of preferred stock, as offset by $42,873 of principal payments on an equipment lease and $20,379 of principal payments on an equipment loan, compared to $110,000 of net proceeds received on convertible debt financing, $65,000 of proceeds from short term advances and proceeds of $20,250 from the sale of common stock, as offset by $40,445 of principal payments on an equipment lease and $24,443 of principal payments on an equipment loan in the comparative period.

 

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Ability to Continue as a Going Concern

 

As of June 30, 2022, our balance of cash on hand was $225,233, and we had negative working capital of $2,189,146 and an accumulated deficit of $19,192,307 resulting from recurring losses. We currently may not have sufficient funds to sustain our operations for the next twelve months and we may need to raise additional cash to fund our operations and expand our lab testing business. As we continue to develop our lab testing business and attempt to expand operational activities, we expect to experience net negative cash flows from operations in amounts not now determinable, and will be required to obtain additional financing to fund operations through common stock offerings to the extent necessary to provide working capital. We have and expect to continue to have substantial capital expenditure and working capital needs.

 

The Company has incurred recurring losses from operations resulting in an accumulated deficit, and, as set forth above, the Company’s cash on hand is not sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives, becoming profitable or continuing our business without either a temporary interruption or a permanent cessation. In addition, additional financing may result in substantial dilution to existing stockholders.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.

 

While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

Revenue is primarily generated through our subsidiary, Digipath Labs, Inc., which recognizes revenue from the analytical testing of cannabis products for licensed producers and cultivators within the state of Nevada on a determinable fixed fee per test, or panel of tests basis. Revenue from the performance of those services is recognized upon completion of the tests, at which time test results are delivered to the customer, provided collectability of the fee is reasonably assured. We typically require payment within thirty days of the delivery of results. Management estimates an allowance for doubtful accounts based on the aging of its receivables.

 

21
 

 

Stock-Based Compensation

 

The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which the consideration provided in exchange for the purchase of goods or services consists of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation or subsequent to the date we carried out our evaluation which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system of controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

22
 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

 

ITEM 1A. RISK FACTORS.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

The following issuances of equity securities by the Company were exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) of the Securities Act of 1933 during the nine-month period ended June 30, 2022:

 

Common Stock Issued for Services

 

On February 11, 2022, the Company issued 2,166,667 shares of its common stock in exchange for services rendered to the Company by third party consultants, with a total fair value $65,000 based on the closing price of the Company’s common stock on the dates of grant.

 

On February 11, 2022, the Company issued 250,000 shares of its common stock to settle outstanding payables in the amount of $7,500.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

Exhibit   Description
2.1   Stock Purchase Agreement between Digipath, Inc., VSSL Enterprises Ltd., Kyle Joseph Remenda, Philippe Olivier Henry, PhD, Audim Ventures Ltd. and Britt Ash Enterprises Ltd., dated March 9, 2020 (incorporated by reference to Exhibit 2.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on March 16, 2020)
3.1   Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 10 filed with the Securities and Exchange Commission by Digipath, Inc. on July 15, 2011)
3.2   Bylaws (incorporated by reference to Exhibit 3.2 of the Form 10 filed with the Securities and Exchange Commission by Digipath, Inc. on July 15, 2011)
3.3   Certificate of Amendment to Articles of Incorporation dated April 4, 2014 (incorporated by reference to Exhibit 3.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on April 10, 2014)
3.4   Certificate of Designations, Preferences, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock dated April 9, 2014 (incorporated by reference to Exhibit 3.2 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on April 10, 2014)
3.5  

Certificate of Amendment to Articles of Incorporation dated May 22, 2015 (incorporated by reference to Exhibit 3.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on May 26, 2015)

 

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3.6   Certificate of Amendment to Articles of Incorporation dated May 14, 2019 (incorporated by reference to Exhibit 3.6 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on August 13, 2019)
3.7   Certificate of Designations of the Series B Preferred Stock dated December 29, 2021 (incorporated by reference to Exhibit 3.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on January 6, 2022)
4.1   Form of 8% Senior Secured Convertible Notes due December 31, 2020 (incorporated by reference to Exhibit 4.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on November 21, 2018)
4.2   Form of 8% Senior Secured Convertible Notes due September 23, 2020 (incorporated by reference to Exhibit 4.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on September 26, 2019)
4.3   9% Secured Convertible Note, between Digipath, Inc. and holder, due August 10, 2022 (incorporated by reference to Exhibit 4.3 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on February 14, 2020)
4.4   9% Secured Subordinated Convertible Note, between Digipath, Inc. and holder, due August 11, 2022 (incorporated by reference to Exhibit 4.4 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on February 14, 2020)
4.5   9% Secured Subordinated Convertible Note, between Digipath, Inc. and holder, due August 11, 2022 (incorporated by reference to Exhibit 4.5 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on May 15, 2020)
4.6   Form of Amendment to 9% Secured Convertible Note, between Digipath, Inc. and holder, due August 10, 2022 (incorporated by reference to Exhibit 4.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on January 6, 2021)
31.1*   Section 302 Certification of Principal Executive Officer
31.2*   Section 302 Certification of Principal Financial Officer
32.1*   Section 906 Certification of Principal Executive Officer
32.2*   Section 906 Certification of Principal Financial Officer
101.INS*   Inline XBRL Instance Document
101.SCH*   Inline XBRL Schema Document
101.CAL*   Inline XBRL Calculation Linkbase Document
101.DEF*   Inline XBRL Definition Linkbase Document
101.LAB*   Inline XBRL Labels Linkbase Document
101.PRE*   Inline XBRL Presentation Linkbase Document
104   Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit)

* Filed herewith.

 

24
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: August 15, 2022

 

DIGIPATH, INC.  
     
By: /s/ Todd Denkin  
Name: Todd Denkin  
Title: Chief Executive Officer  
     
By: /s/ A. Stone Douglass  
Name: A. Stone Douglass  
Title: Chief Financial Officer  

 

25

 

 

EXHIBIT 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Todd Denkin, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2022 of Digipath, Inc.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: August 15, 2022

 

  /s/ Todd Denkin
  Todd Denkin, Principal Executive Officer
  (Principal Executive Officer)

 

 

 

EXHIBIT 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, A. Stone Douglass, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2022 of Digipath, Inc.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most