Hypha Labs, Inc 10-Q for FY2023 Q3
Hypha Labs, Inc. (FUNI)
About this 10-Q
Hypha Labs, Inc filed this 10-Q on August 18, 2023, covering the quarter ended June 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $293.53K
- compared with a net loss of $576.73K a year earlier
- Diluted EPS
- $0.00
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
Quarterly Period Ended
or
For the transition period from __________ to __________
Commission
File Number
(Exact name of registrant issuer as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (zip code) |
(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.
| ☒ | 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).
| ☒ | 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 | ☐ |
| ☒ | 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 | ☐ | ☒ |
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 18, 2023 was .
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| June 30, 2023 | September 30, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Note receivable | ||||||||
| Other current assets | ||||||||
| Assets held for sale - current | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Assets held for sale – long term | ||||||||
| Total non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued expenses – related party | ||||||||
| Current maturities of notes payable | ||||||||
| Current maturities of convertible notes payable, net of discounts | ||||||||
| Current maturities of convertible notes payable related parties, net of discounts | ||||||||
| Liabilities held for sale - current | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Convertible notes payable related parties, net of discounts | ||||||||
| Convertible notes payable, net of discounts and current maturities | ||||||||
| Liabilities held for sale – long term | ||||||||
| Total non-current liabilities | ||||||||
| Total Liabilities | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; shares issued and outstanding as of June 30, 2023 and September 30, 2022 | ||||||||
| Stockholders’ Deficit: | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; shares issued and outstanding as of June 30, 2023 and September 30, 2022 | ||||||||
| Series C convertible preferred stock, $ par value, shares authorized; and shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively | ||||||||
| Preferred stock value | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at June 30, 2023 and September 30, 2022, respectively | ||||||||
| Common stock payable | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 3 |
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| 2023 | 2022 | 2023 | 2022 revised | |||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 revised | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other Expense | ( | ) | ||||||||||||||
| Recovery of previously written off receivables | ||||||||||||||||
| Credit Loss | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) from discontinued operations | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Preferred deemed dividend | ( | ) | ||||||||||||||
| Net income (loss) to common shareholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of common shares outstanding – basic | ||||||||||||||||
| Weighted average number of common shares outstanding – fully diluted | ||||||||||||||||
| Net loss per share from continuing operations – basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) per share from discontinued operations – basic | $ | $ | ( | ) | $ | $ | ||||||||||
| Net loss per share – basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net loss per share from continuing operations – diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) per share from discontinued operations – diluted | $ | $ | ( | ) | $ | $ | ||||||||||
| Net loss per share – diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 4 |
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
| Series
B Convertible Preferred Stock | Series
A Convertible Preferred Stock | Series
C Preferred Stock | Common Stock | Stock | Additional
Paid-in | Accumulated | Total
Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Payable | Capital | Deficit | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of common shares to settle stock payable | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Warrants issued as debt financing costs | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchased of preferred C stock | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common shares to be issued for compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares to settle stock payable | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for services | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Forgiveness of accrued compensation by members of the Board of Directors | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Series
B Convertible Preferred Stock | Series
A Convertible Preferred Stock | Series
C Preferred Stock | Common
Stock | Stock | Additional Paid-in Capital | Accumulated Deficit | Total
Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Payable | Revised | Revised | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Series B Preferred shares sold for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred Shares into Series B Preferred | ( | ) | ( | ) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend on preferred exchange | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Common Shares issued for settlement of accounts payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| 5 |
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2023 | 2022 Revised | |||||||
| For the Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 Revised | |||||||
| Cash flows from operating activities | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Recovery of previously written off receivables | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Amortization of debt discounts | ||||||||
| Impairment of fixed assets | ||||||||
| Credit loss | ||||||||
| Decrease (increase) in assets: | ||||||||
| Other current assets | ( | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Accrued expenses – related parties | ( | ) | ||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities from discontinued operations | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| Advance of note receivable | ( | ) | ||||||
| Proceeds from sale of collateralized assets | ||||||||
| Net cash provided by (used in) investing activities from continuing operations | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from notes payable | ||||||||
| Proceeds from convertible notes | ||||||||
| Payments on convertible notes | ( | ) | ||||||
| Proceeds from sale of preferred stock | ||||||||
| Repurchase of preferred C stock | ( | ) | ||||||
| Net cash provided by (used in) financing activities from continuing operations | ( | ) | ||||||
| Net cash used in financing activities from discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash – beginning | ||||||||
| Cash – ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Common stock issued for settlement of stock payable | $ | $ | ||||||
| Warrants issued for debt financing | $ | $ | ||||||
| Receipt of assets on deposit | $ | $ | ||||||
| Forgiveness of related party accrued compensation | $ | $ | ||||||
| Common stock issued for settlement of accounts payable | $ | $ | ||||||
| Conversion of Series A preferred into Series B preferred | $ | $ | ||||||
| Deemed dividend on preferred exchange | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 6 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Nature of Business and Significant Accounting Policies
Nature of Business
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.
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, 2022. 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, 2023:
Schedule of Entities Under Common Control and Ownership
| Jurisdiction of | ||||
| Name of Entity | Incorporation | Relationship | ||
| (1) | |
| (2) | |
| (3) | |
| (4) |
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.
Correction of an Error
Stock-based compensation expenses were reported in the nine months ended June 30, 2022 as $210,449 in error. The error was corrected in the annual 2022 10-K as a component of professional fees. In addition, the Company reported the exchange of Series A Preferred Stock for Series B Stock as an exchange with equal value in error. The effect of the error corrections on the prior periods has been determined to be immaterial, however, the Company has labeled the column headings for the prior periods as “revised.” For the nine months ended June 30, 2022, the financial statements of the line items affected by the revision are as follows:
Schedule of Correction of an Error
Consolidated Statement of Operations
| Line items for Q3-2022 effected by the restatement | Previously Reported | Correction of Error | Effect of Discontinued operations | Revised | ||||||||||||
| Professional Fees | $ | $ | ( | ) | $ | $ | ||||||||||
| Total operating expenses | ( | ) | ( | ) | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||
| Deemed Dividend | ( | ) | ( | ) | ||||||||||||
| Net Income (loss) to common shareholders | ( | ) | ( | ) | ( | ) | ||||||||||
Consolidated Statement of Cash Flows
| Line items for Q3-2022 effected by the restatement | Previously Reported | Correction of Error | Effect of Discontinued operations | Revised | ||||||||||||
| Net Loss | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Stock-based compensation | ( | ) | ||||||||||||||
| Non-cash Investing and Financing Activities | ||||||||||||||||
| Conversion of Series A preferred into Series B preferred | ( | ) | ||||||||||||||
| Deemed dividend on preferred exchange | ||||||||||||||||
Fair Value of Financial Instruments
The Company adopted ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
| - | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| - | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| - | Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The carrying value of cash, accounts receivable, accounts payables and accrued expenses are estimated by management to approximate fair value primarily due to the short term nature of the instruments.
| 8 |
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.
Our revenue is primarily generated through our subsidiary, Digipath Labs, Inc. (“Digipath Labs”), 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.
Discontinued Operations
On
April 20, 2023, the Company and Digipath Labs entered into an Asset Purchase Agreement (the “Purchase Agreement”) with DPL
NV, LLC (“Buyer”), pursuant to which Digipath Labs has agreed to sell substantially all of its assets to Buyer for a cash
purchase price of $
Assets and liabilities of the discontinued operations are aggregated and reported separately as assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of June 30, 2023 and September 30, 2022. The results of discontinued operations are aggregated and presented separately in the Consolidated Statements of Operations as net income from discontinued operations for the periods ended June 30, 2023 and 2022. The cash flows of the discontinued operations are reflected as cash flows of discontinued operations within the Company’s Consolidated Statements of Cash Flows for the periods ended June 30, 2023 and 2022.
Amounts presented in discontinued operations have been derived from our consolidated financial statements and accounting records using the historical basis of assets, liabilities, results of operations, and cash flows of Digipath Labs. The discontinued operations exclude general corporate allocations.
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.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Uncertain Tax Positions
In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
| 9 |
Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the three and nine months ended June 30, 2023 and 2022, potential dilutive securities of and , respectively, had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Reclassifications
Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.
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 consolidated financial statements, As of June 30, 2023, the Company had negative working capital of $
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
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.
The Company has certain financial instruments that must be measured under the new fair value standard. The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2023 and September 30, 2022, respectively:
Summary of Financial Instruments at Fair Value on Recurring Basis
| Level 1 | Level 2 | Level 3 | ||||||||||
| Fair Value Measurements at June 30, 2023 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Convertible notes payable, net of discounts of $ | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Fair Value Measurements at September 30, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Convertible notes payable, net of discounts of $ | ||||||||||||
| 10 |
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, 2023.
Note 4 – Related Party Transactions
During
the nine months ended June 30, 2023 the Company incurred compensation expense of $
During
the nine months ended June 30, 2023 the Company incurred fees of $
As of June 30, 2023, the Company has accrued a total of $
During
the nine months ended June 30, 2023, the Company granted
Note 5 – Note Receivable
On
various dates between December 28, 2018 and June 13, 2019, we loaned Northwest Analytical Labs, Inc. a total of $
On
various dates between August 23, 2021 and September 30, 2022, we loaned C3 Labs, Inc. (“C3 Labs”) a total of $
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 and took possession of the equipment of C3 Labs (“C3 Equipment”).
On
December 8, 2022, the Company entered into an Asset Purchase Agreement with Invictus Wealth Group (“Invictus”), whereby the
Company agreed to sell the C3 Equipment to Invictus for a total purchase price of $
| 11 |
Note 6 – Fixed Assets
Fixed assets consist of the following at June 30, 2023 and September 30, 2022:
Schedule of Fixed Assets
| June 30, | September 30, | |||||||
| As of | ||||||||
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Lab equipment | ||||||||
| Less: accumulated depreciation | ||||||||
| Total | $ | $ | ||||||
During
the nine months ended June 30, 2023, the Company recorded impairment expense in the amount of $
Note 7 –Notes Payable
Notes payable consists of the following at June 30, 2023 and September 30, 2022, respectively:
Schedule of Notes Payable
| June 30, 2023 | September 30, 2022 | |||||||
| Notes payable | ||||||||
| On September 10, 2021, the Company issued a Secured Promissory note in the principal amount of $ | $ | $ | ||||||
| Total notes payable | ||||||||
| Less: current maturities | ( | ) | ( | ) | ||||
| Notes payable | $ | $ | ||||||
The
Company recorded interest expense pursuant to the stated interest rate and closing costs on the notes payable in the amount of
$
Notes payable – discontinued operations
| On December 26, 2019, the Company financed the purchase of $ |
Note 8 – Convertible Notes Payable
Related Party Convertible notes payable consist of the following at June 30, 2023 and September 30, 2022, respectively:
Schedule of Related Party Convertible Notes Payable
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Related party convertible notes payable | $ | $ | ||||||
| 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 $ | $ | $ | ||||||
| Total related party convertible notes payable | ||||||||
| Less: unamortized debt discounts | ( | ) | ( | ) | ||||
| Total convertible debt | ||||||||
| Less: current maturities | ( | ) | ||||||
| Related party convertible notes payable | $ | $ | ||||||
| 12 |
Convertible notes payable consist of the following at June 30, 2023 and September 30, 2022, respectively:
Schedule of Convertible Notes Payable
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| 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 $ | $ | $ | ||||||
| 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 $ | ||||||||
| On September 23, 2019, the Company received proceeds of $ | ||||||||
| On November 8, 2018, the Company received proceeds of $ | ||||||||
| On
October 1, 2022, The Company entered into a senior secured convertible note that carries an |
||||||||
| On
November 5, 2018, the Company received proceeds of $ |
||||||||
| Total convertible notes payable | ||||||||
| Less: unamortized debt discounts | ( |
) | ( |
) | ||||
| Total convertible debt | ||||||||
| Less: current maturities | ( |
) | ( |
) | ||||
| Convertible notes payable | $ | $ |
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.
The
aforementioned accounting treatment resulted in a total debt discount equal to $
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 % 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 $
| 13 |
The Company recognized interest expense for the nine months ended June 30, 2023 and 2022, respectively, as follows:
Schedule of Interest Expense
| June 30, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Interest on notes payable | ||||||||
| Amortization of beneficial conversion features | ||||||||
| Interest on convertible notes | ||||||||
| Total interest expense | $ | $ | ||||||
Note 9 – Stockholders’ Equity
Preferred Stock
The Company is authorized to issue shares of preferred stock with a par value of $ per share, of which have been designated as Series A Convertible Preferred Stock (“Series A Preferred”), have been designated as Series B Convertible Preferred Stock (“Series B Preferred”), and shares have been designated as Series C Preferred Stock (“Series C Preferred”) with the remaining shares available for designation from time to time by the Board as set forth below. As of June 30, 2023, there were shares of Series A Preferred issued and outstanding, shares of Series B Preferred issued and outstanding and shares of Series C 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 shares of Series A Preferred outstanding
at June 30, 2023 are convertible into shares of the common stock of the Company.
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 |
| ● | 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, |
| ● | 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. |
| ● | 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 |
| ● | 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. |
| 14 |
Series C
The
Series C Preferred were designated on July 20, 2022. 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
Additional terms of the Series C Preferred and include the following:
| ● | The shares of Series C Preferred are not entitled to dividends. |
| ● | |
| ● | The shares of Series C Preferred are not entitled to conversion rights. |
On
March 2, 2023, the Company entered into a Preferred Stock Repurchase Agreement with Todd Denkin, the Company’s president, pursuant
to which Mr. Denkin surrendered his Series C Preferred back to the Company for the purchase price of $
Common Stock
Common stock consists of $ par value, shares authorized, of which shares were issued and outstanding as of June 30, 2023.
During
the nine months ended June 30, 2023, the Company issued shares of its common stock in settlement of the common stock payable
in the amount of $
During
the nine months ended June 30, 2023, the Company granted
| 15 |
Note 10 – Mezzanine Equity
Series B
The
Series B Preferred were designated on December 29, 2021. Each share of Series B Preferred has a Stated Value of $ and is currently
convertible into common stock at a conversion price equal to $
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. |
| ● | |
| ● | 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.
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 terminated on March 5, 2022. As amended, the 2012 Plan provides for the issuance of up to 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.
During
the nine months ended June 30, 2023, the Company issued to certain employees, options to purchase shares of its common stock
in exchange for services rendered to the Company with a total fair value $
Amortization of Stock-Based Compensation
A total of $ and $ of stock-based compensation expense was recognized during the nine months ended June 30, 2023 and 2022, respectively, as a result of the vesting of common stock options issued. As of June 30, 2023 a total of $ of unamortized expense remains to be amortized over the vesting period.
Summary of Common Stock Options Outstanding
| Shares Underlying Options Outstanding | Shares Underlying 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 | |||||||||||||||||
| $ | – $ | years | $ | $ | ||||||||||||||||||
Schedule of Weighted-Average Assumptions Used for Grants
| June 30, | ||||
| 2023 | ||||
| Average risk-free interest rates | % | |||
| Average expected life (in years) | ||||
| Volatility | % | |||
| 16 |
The Black-Scholes option pricing model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because the Company’s common stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its common stock options. During the nine months ended June 30, 2023, there were no options granted with an exercise price below the fair value of the underlying stock at the grant date.
The weighted average fair value of options granted with exercise prices at the current fair value of the underlying stock during the nine months ended June 30, 2023, was approximately $ per option.
Schedule of Activity of Outstanding Common Stock Options
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Price | |||||||
| Balance, September 30, 2022 | $ | |||||||
| Options issued | ||||||||
| Options forfeited | ||||||||
| Balance, June 30, 2023 | $ | |||||||
| Exercisable, June 30, 2023 | $ | |||||||
As of June 30, 2023, these options in the aggregate had $ and $ of intrinsic value for the outstanding and exercisable options, respectively, based on the per share market price of $ of the Company’s common stock as of such date.
Note 12 – Common Stock Warrants
Warrants
to purchase a total of
The following is a summary of information about our warrants to purchase common stock outstanding at June 30, 2023 (including those issued to both investors and service providers).
Summary of Common Stock Warrants Outstanding
| 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 | |||||||||||||||||
| $ | - | years | $ | $ | ||||||||||||||||||
| 17 |
The following is a summary of activity of outstanding common stock warrants:
Schedule of Outstanding Common Stock Warrants Activity
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Price | |||||||
| Balance, September 30, 2022 | $ | |||||||
| Warrants granted | $ | |||||||
| Warrants expired | ||||||||
| Balance, June 30, 2023 | $ | |||||||
| Exercisable, June 30, 2023 | $ | |||||||
As of June 30, 2023, these warrants in the aggregate had $ of intrinsic value as the per share market price of $ of the Company’s common stock as of such date was greater than the exercise price of certain warrants.
Note 13 – Discontinued Operations
On
April 20, 2023, the Company, and Digipath Labs entered into the Purchase Agreement with DPL NV, LLC (“Buyer”), pursuant to
which Digipath Labs has agreed to sell substantially all of its assets to Buyer for a cash purchase price of $
The Purchase Agreement includes a number of representations, warrantees, covenants and conditions to closing customary for this type of transaction. In addition, the closing of the transaction is subject to the approval of the Nevada Cannabis Compliance Board (the “CCB”). In the event CCB approval is not obtained by June 30, 2024, or any other condition to closing has not been satisfied by such date, either party may terminate the Purchase Agreement.
Pursuant
to the Purchase Agreement, the Buyer deposited $
The balance sheets of Digipath Labs are summarized below:
Schedule of Discontinued Operations Income Statement Balance Sheet and Additional Disclosures
| June 30, 2023 | September 30, 2022 | |||||||
| Current assets: | ||||||||
| Accounts receivable, net | $ | $ | ||||||
| Deposits | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Right-of-use asset | ||||||||
| Fixed assets, net | ||||||||
| Total long term assets | ||||||||
| Total Assets | $ | $ | ||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current maturities of notes payable | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Notes payable | ||||||||
| Total long term liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
| 18 |
The statements of operations of Digipath Labs combined are summarized below:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income(loss) | ( | ) | ||||||||||||||
| Other income (expense): | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ||||||||||
Note 14 – 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.
| 19 |
| 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, 2022 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, 2022 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, 2023 and 2022:
The following table summarizes selected items from the statement of operations for the three months ended June 30, 2023 and 2022.
| Three Months Ended June 30, | Increase / | |||||||||||
| 2023 | 2022 | (Decrease) | ||||||||||
| Revenues | $ | - | $ | - | $ | - | ||||||
| Cost of sales | - | - | - | |||||||||
| Gross profit | - | - | - | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 8,815 | 35,711 | (26,896 | ) | ||||||||
| Professional fees | 86,435 | 74,201 | 12,234 | |||||||||
| Total operating expenses: | 95,250 | 109,912 | (14,662 | ) | ||||||||
| Operating loss | (95,250 | ) | (109,912 | ) | 14,662 | |||||||
| Total other income (expense) | (57,748 | ) | (413,844 | ) | 356,096 | |||||||
| Net loss from continuing operations | (152,998 | ) | (523,756 | ) | 370,758 | |||||||
| Net income (loss) from discontinued operations | 446,531 | (52,977 | ) | 499,508 | ||||||||
| Net income (loss) | $ | 293,533 | $ | (576,733 | ) | $ | 870,266 | |||||
| 20 |
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2023 were $8,815, compared to $35,711 during the three months ended June 30, 2022, a decrease of $26,896, or 75%. The expenses consisted primarily of salaries and wages and included $3,482 and $6,171 of non-cash stock-based compensation, respectively. General and administrative expenses decreased primarily due to decreased corporate overhead activities.
Professional Fees
Professional fees for the three months ended June 30, 2023 were $86,435, compared to $74,201 during the three months ended June 30, 2022, an increase of $12,234, or 16%. Professional fees included non-cash, stock-based compensation of $2,160 and $2,135 during the three months ended June 30, 2023 and 2022, respectively. Professional fees increased primarily due to increased corporate consulting services during the current period as work to close on the sale of substantially all of the assets of Digipath Labs, LLC through the Purchase Agreement with DPL NV, LLC.
Operating Loss
Our operating loss for the three months ended June 30, 2023 was $95,250, compared to an operating loss of $109,912 during the three months ended June 30, 2022, a decrease of $14,662, or 13%. Our operating loss decreased primarily due to our decreased general and administrative expenses.
Other Income (Expense)
Other expense, on a net basis, for the three months ended June 30, 2023 was $57,748, compared to other expense, on a net basis, of $413,844 during the three months ended June 30, 2022, a net decrease of $356,096. Other expense consisted of interest expense of $97,748 and recovery of previously written off receivables of $40,000 for the three months ended June 30, 2023.
Results of Operations for the Nine Months Ended June 30, 2023 and 2022:
The following table summarizes selected items from the statement of operations for the nine months ended June 30, 2023 and 2022.
| Nine Months Ended June 30, | Increase / | |||||||||||
| 2023 | 2022 revised | (Decrease) | ||||||||||
| Revenues | $ | - | $ | - | $ | - | ||||||
| Cost of sales | - | - | - | |||||||||
| Gross profit | - | - | - | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 94,013 | 117,846 | (23,833 | ) | ||||||||
| Professional fees | 262,072 | 624,423 | (362,351 | ) | ||||||||
| Total operating expenses: | 356,085 | 742,269 | (386,184 | ) | ||||||||
| Operating loss | (356,085 | ) | (742,269 | ) | 386,184 | |||||||
| Total other expense | (157,607 | ) | (525,844 | ) | 368,237 | |||||||
| Net loss from continuing operations | $ | (513,692 | ) | $ | (1,268,113 | ) | $ | 754,421 | ||||
| Net income (loss) from discontinued operations | 499,397 | 40,181 | 459,216 | |||||||||
| Net income (loss) | (14,295 | ) | (1,227,932 | ) | 1,213,637 | |||||||
| 21 |
General and Administrative Expenses
General and administrative expenses for the nine months ended June 30, 2023 were $94,013, compared to $117,846 during the nine months ended June 30, 2022, a decrease of $23,833, or 20%. The expenses consisted primarily of salaries and wages and included $37,162 and $157,013 of non-cash stock-based compensation, respectively. General and administrative expenses decreased due primarily to decreased corporate overhead activities.
Professional Fees
Professional fees for the nine months ended June 30, 2023 were $262,072, compared to $624,423 during the nine months ended June 30, 2022, a decrease of $362,351, or 58%. Professional fees included non-cash, stock-based compensation of $18,510 and $124,579 during the nine months ended June 30, 2023 and 2022, respectively. Professional fees decreased primarily due to decreased stock-based compensation and corporate consulting services during the current period as we decreased our focus on expansion efforts.
Operating Loss
Our operating loss for the nine months ended June 30, 2023 was $356,085, compared to $742,269 during the nine months ended June 30, 2022, a decrease of $386,184, or 52%. Our operating loss decreased primarily due to a decrease in professional fees.
Other Expense
Other expense, on a net basis, for the nine months ended June 30, 2023 was $157,607, compared to other expense, on a net basis, of $525,844 during the nine months ended June 30, 2022, a net decrease of $368,237. Other expense consisted of interest expense of $277,607 and an impairment on equipment of $55,000, offset by the recovery of previously written off receivables of $175,000 for the nine months ended June 30, 2023.
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, 2023 and 2022:
| 2023 | 2022 | |||||||
| Operating Activities | $ | 48,851 | $ | (168,917 | ) | |||
| Investing Activities | 266,029 | (646,895 | ) | |||||
| Financing Activities | (45,461 | ) | 745,113 | |||||
| Net increase (Decrease) in Cash | $ | 269,419 | $ | (70,699 | ) | |||
Net Cash Provided by (Used in) Operating Activities
During the nine months ended June 30, 2023, net cash provided by operating activities was $48,851, compared to net cash used in operating activities of $168,917 for the same period ended June 30, 2022, including cash provided by operating activities from discontinued operations of $520,843 for the nine months ended June 30, 2023 compared to cash provided by operating activities from discontinued operations of $275,691 for the nine months ended June 30, 2022. The decrease in cash used in operating activities was primarily attributable to our decrease in net loss and accounts receivable, along with increases in accounts payable and accrued expenses.
| 22 |
Net Cash Provided by (Used in) Investing Activities
During the nine months ended June 30, 2023, net cash provided by investing activities was $266,029, compared to $646,895 used in investing activities for the same period ended June 30, 2022, including cash used in investing activities from discontinued operations of $8,971 for the nine months ended June 30, 2023 compared to cash used in investing activities from discontinued operations of $4,246 for the nine months ended June 30, 2022. The cash provided by investing activities in the current period was a result of the sale of the collateralized assets from the note receivable compared to cash used in investing activities for the prior period which was a result of loans we made in connection with a potential acquisition.
Net Cash Provided by (Used in) Financing Activities
During the nine months ended June 30, 2023, net cash used in financing activities was $45,461, compared to net cash provided by financing activities of $745,113 for the same period ended June 30, 2022, including cash used in financing activities from discontinued operations of $45,361 for the nine months ended June 30, 2023 compared to cash used financing activities from discontinued operations of $63,252 for the nine months ended June 30, 2022. The current period consisted of $45,361 of principal payments on an equipment loan and repurchase of the Preferred C stock, compared to $390,000 of proceeds received on debt financing, proceeds of $402,765 received on convertible debt financing proceeds of $55,600 from the sale of preferred stock, as offset by $20,379 of principal payments on an equipment lease and $42,873 of principal payments on an equipment loan and $40,000 of principal payments made on convertible notes in the comparative period in the prior year.
Ability to Continue as a Going Concern
As of June 30, 2023, our balance of cash on hand was $325,587, and we had negative working capital of $2,567,011 and an accumulated deficit of $20,023,066 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.
| 23 |
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 sale of lab testing services through our subsidiary Digipath Labs, Inc.
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 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, 2023. 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, 2023, 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.
| 24 |
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.
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 three-month period ended June 30, 2023:
On May 25, 2023, the Company issued an aggregate of 4,400,000 shares of its common stock to its officers and directors as compensation for services performed.
On May 26, 2023, the Company issued 400,000 shares of its common stock to a former director as compensation for services performed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
| 25 |
ITEM 6. EXHIBITS.
* Filed herewith.
| 26 |
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 18, 2023
| 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 | |
| 27 |
Exhibit 10.2
AMENDED AND RESTATED SECURED PROMISSORY NOTE
| $625,000.00 | April 11, 2023 |
FOR VALUE RECEIVED, INVICTUS WEALTH GROUP, LLC, a Mississippi limited liability company (“Maker”), hereby promises to pay to the order of DIGIPATH, INC., a Nevada corporation (“Payee”), with an address at 6450 Cameron Street #113, Las Vegas, NV 89118, the principal sum of SIX HUNDRED TWENTY FIVE THOUSAND DOLLARS ($625,000.00), together with all interest that has accrued thereon in accordance with the terms of this Secured Promissory Note (this “Note”).
The principal sum of this Note shall be payable as follows: (i) payments in the amount of $100,000.00 each, shall be due and payable on each of September 30, 2023 and December 31, 2023; and (ii) a final payment in the amount of $425,000 shall be due and payable on March 31, 2024 (the “Maturity Date”).
The outstanding principal amount of this Note shall bear interest from the date hereof at the rate of ten (10%) percent per annum, based on a year of 360 days comprised of twelve 30-day months, for actual days elapsed, until the date on which the last payment of principal under this Note shall have been paid. Interest on this Note shall be due and payable monthly in arrears on the first day of each month, and on the Maturity Date, provided that the first such payment shall not be due until June 1, 2023.
This Note has been issued and delivered to Payee under that certain Asset Purchase Agreement (the “Purchase Agreement”), dated as of December 5, 2022, among Maker and Payee, under which Maker purchased the Purchased Assets (as defined in the Purchase Agreement) from Payee. The original SECURED PROMISSORY NOTE was signed on December 5, 2022. The Amended and Restated Secured Promissory Note is signed as of: May 8, 2023 .
Payee shall have a continuing lien on, and is hereby granted a security interest in, all of Maker’s right, title and interest in and to the Purchased Assets and all proceeds thereof, whether now owned or hereafter arising (collectively, the “Collateral”) for the express purpose of serving as collateral security for the payment of all amounts payable under this Note. By its execution of this Note, Maker authorizes Payee to file one or more financing statements describing the Collateral. Prior to the payment in full of this Note, Maker shall not sell or transfer any of the Collateral without Payee’s consent. Upon an Event of Default (as defined below), Payee shall be permitted to exercise all of its rights as a secured party under the Uniform Commercial Code as in effect in the State of Nevada in respect of the Collateral.
This Note may be prepaid, in whole or in part, at any time or from time to time, without premium or penalty. All payments made on this Note shall be applied first to interest accrued to the date of the payment and then to the outstanding principal payments due under this Note. All prepayments of the principal due under this Note shall be applied to such maturities as shall be designated by Maker.
All payments or prepayments of principal and interest and other sums due pursuant to this Note shall be made by check to Payee at its address set forth above, or in immediately available funds by wire transfer to Payee’s account at such bank as Payee shall have previously designated to Maker.
Whenever any payment to be made hereunder shall be due on a Saturday, Sunday or legal holiday under the laws of the State of Nevada, such payment may be made on the next succeeding business day, and such extension of time shall be included in the computation of payment of interest hereunder.
The occurrence of any one or more of the following events shall constitute an “Event of Default” under this Note:
| (i) | Maker shall fail to pay when due any amount due under this Note and such failure shall not be cured within five days after the date such payment was due; | |
| (ii) | Maker shall commence any case, proceeding or other action under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to Maker, or seeking to adjudicate Maker a bankrupt or insolvent, or seeking reorganization, arrangement or other relief with respect to Maker or any of its debts, or seeking appointment of a receiver, trustee, custodian or other similar official for Maker or for all or any part of its assets, or Maker shall make a general assignment for the benefit of creditors, or there shall be commenced against Maker any case, proceeding or other action of a nature referred to in this clause (ii), or there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, restraint or similar process against all or any substantial part of the assets of Maker which results in the entry of an order for any such relief, or Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in this clause (ii), or Maker shall generally not, or shall be unable to, or shall admit in writing its inability to, pay his debts as they become due; or | |
| (iii) | Maker shall breach any provision of this Note or the Asset Purchase Agreement, and such breach, if capable of cure, shall continue for a period of ten days. |
Upon the occurrence and during the continuance of an Event of Default, the holder of this Note may, at its option, by notice in writing to Maker, declare this Note to be, and this Note shall forthwith become, due and payable; provided, however, that upon the occurrence of an Event of Default specified in clause (ii) above, the principal balance of and all accrued interest on this Note shall automatically become due and payable forthwith, without demand or notice of any kind. If an Event of Default occurs, Maker shall pay to the holder of this Note all expenses (including, without limitation, reasonable attorneys’ fees and expenses and court fees and court costs) incurred by the holder in connection with obtaining advice as to its rights and remedies in connection with such default and in connection with enforcing and collecting this Note.
| 2 |
Maker hereby waives presentment, demand for payment, notice of dishonor, protest and notice of protest of this Note. No waiver of any provision of this Note, or any agreement or instrument evidencing or providing security for this Note, made by agreement of Payee and any other person or party, shall constitute a waiver of any other terms hereof, or otherwise release or discharge the liability of Maker under this Note. No failure to exercise and no delay in exercising, on the part of Payee, any right, power or privilege under this Note shall operate as a waiver thereof nor shall simple or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other power, right or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law.
In case any provision contained in this Note should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby and shall remain in full force and effect.
This Note may not be amended except by an instrument in writing signed by the Maker and the holder of this Note.
This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to its doctrine of conflict of laws. Maker, by its execution hereof, and Payee by its acceptance hereof (I) AGREE THAT ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING FROM OR RELATED TO THIS NOTE MAY BE INSTITUTED ONLY IN A STATE OR FEDERAL COURT LOCATED IN THE STATE OF NEVADA; (II) WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING OR BASED ON FORUM NON CONVENIENS; (III) CONSENT TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE SUBJECT MATTER; AND (IV) WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO IT AT ITS ADDRESS SET FORTH IN THE PURCHASE AGREEMENT OR TO ANY OTHER ADDRESS FOR IT AS MAY HEREAFTER BE DESIGNATED IN ANY WRITTEN NOTICE BY IT TO THE OTHER.
This Note shall be binding upon the successors and assigns of the Maker and shall inure to the benefit of the successors and assigns of the Payee.
Any notice from the holder of this Note to the Maker shall be deemed given when delivered to the Maker by hand or when deposited in the United States mail and addressed to the Maker at the address of the Maker set forth in the first paragraph of this Note.
[Signature Page Follows]
| 3 |
| INVICTUS WEALTH GROUP, LLC | ||
| By: |  | |
| Name: | Jermaine Moore | |
| Title: | Manager, Invictus Wealth Group, LLC | |
| 4 |
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, 2023 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 18, 2023
| /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, 2023 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. |
Date: August 18, 2023
| /s/ A. Stone Douglass | |
| A. Stone Douglass, Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Digipath, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2023 (the “Report”) I, Todd Denkin, Principal Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: August 18, 2023
| /s/ Todd Denkin | |
| Todd Denkin, Principal Executive Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Digipath, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2023 (the “Report”) I, A. Stone Douglass, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: August 18, 2023
| /s/ A. Stone Douglass | |
| A. Stone Douglass, Chief Financial Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.