Hypha Labs, Inc 10-Q for FY2022 Q1
Hypha Labs, Inc. (FUNI)
About this 10-Q
Hypha Labs, Inc filed this 10-Q on February 14, 2022, covering the quarter ended December 31, 2021 (FY2022 Q1).
Headline figures
Quarter ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $699.59K
- up 39.8% from $500.39K a year earlier
- Net loss
- $290.33K
- compared with a net loss of $390.64K 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 February 10, 2022 was .
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, 2021 | September 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Deposits | ||||||||
| Note receivable | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Right-of-use asset | ||||||||
| Fixed assets, net | ||||||||
| Total non -current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current maturities of notes payable | ||||||||
| Current maturities of convertible notes payable | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Operating lease liabilities | ||||||||
| Notes payable | ||||||||
| Convertible notes payable, net of discounts and current maturities | - | |||||||
| Total non-current liabilities | ||||||||
| Total Liabilities | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; and shares issued and outstanding as of December 31, 2021 and September 30, 2021 respectively | - | |||||||
| Stockholders’ Deficit: | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; and shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at December 31, 2021 and September 30 2021, respectively | ||||||||
| 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)
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Change in allowance for doubtful accounts | ( | ) | ||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | - | |||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic and fully diluted | ||||||||
| Net loss per share - basic and fully diluted | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to unaudited consolidated financial statements.
| 4 |
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | Deficit | ||||||||||||||||||||||||||||
| Series B | Series A | |||||||||||||||||||||||||||||||||||
| Convertible | Convertible | Additional | Total | |||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock |
Paid-in | Accumulated |
Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | Deficit | ||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Common stock sold for cash | ||||||||||||||||||||||||||||||||||||
| Common stock sold for cash, shares | ||||||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion | ||||||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion, shares | ||||||||||||||||||||||||||||||||||||
| Purchase of Series B Preferred shares | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Conversion of Series A Preferred into Series B Preferred | ( | ) | ( | ) | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Series B Convertible | Series A Convertible | Additional | Total | |||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock |
Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | Deficit | ||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Common stock sold for cash | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for debt conversion | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| 5 |
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2021 | 2020 | |||||||
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in allowance for doubtful accounts | ( | ) | ||||||
| Depreciation and amortization expense | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt discounts | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other current assets | ||||||||
| Deposits | ( | ) | - | |||||
| Right-of-use assets | ||||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash (used) in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | ( | ) | - | |||||
| Advance of note receivable | ( | ) | - | |||||
| Net cash (used) in investing activities | ( | ) | - | |||||
| Cash flows from financing activities | ||||||||
| Principal payments on finance lease | ( | ) | ( | ) | ||||
| Principal payments on note payable, equipment financing | ( | ) | ( | ) | ||||
| Proceeds from notes payable | - | |||||||
| Proceeds from convertible notes | - | |||||||
| Payments on convertible notes | ( | ) | ||||||
| Proceeds from sale of common stock | - | |||||||
| Proceeds from sale of preferred stock | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) in cash | ( | ) | ( | ) | ||||
| Cash - beginning | ||||||||
| Cash - ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | - | - | ||||||
| Non-cash investing and financing activities: | ||||||||
| Common stock issued for debt conversion | $ | $ | ||||||
| Conversion of Series A preferred into Series B preferred | $ | $ | ||||||
See accompanying notes to unaudited consolidated 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 December 31, 2021:
Schedule of Entities Under Common Control and Ownership
| Jurisdiction of | ||||||||
| Name of Entity(1) | Incorporation | Relationship | ||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
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.
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.
| 7 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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.
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 December 31, 2021, 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.
| 8 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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 December 31, 2021 and September 30, 2021, respectively:
Summary of Financial Instruments at Fair Value on Recurring Basis
| Fair Value Measurements at December 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Lease liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Convertible notes payable, net of discounts of $ | ||||||||||||
| Fair Value Measurements at September 30, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Lease liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Convertible notes payable, net of discounts of $ | ||||||||||||
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 three months ended December 31, 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 $
On
various dates between August 23, 2021 and December 31, 2021, we loaned C3 Labs, Inc. a total of $
| 9 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 – Fixed Assets
Fixed assets consist of the following at December 31, 2021 and September 30, 2021:
Schedule of Fixed Assets
| 2021 | 2020 | |||||||
| December, | September 30, | |||||||
| 2021 | 2021 | |||||||
| Software | $ | $ | ||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| Lab equipment | ||||||||
| Leasehold improvements | ||||||||
| Lab equipment held under capital leases | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
and amortization expense totaled $
Note 6 – Leases
The
Company leases its operating and office facility under
a non-cancelable real property lease agreement that expires on
The components of lease expense were as follows:
Schedule of Components of Lease Expense
| For the Three | For the Three | |||||||
| Months Ended | Months Ended | |||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Operating lease cost | $ | $ | ||||||
| Finance lease cost: | ||||||||
| Amortization of assets | ||||||||
| Interest on lease liabilities | ||||||||
| Total net lease cost | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
| December 31, | September 30, | |||||||
| 2021 | 2021 | |||||||
| Operating leases: | ||||||||
| Operating lease assets | $ | $ | ||||||
| Current portion of operating lease liabilities | $ | |||||||
| Noncurrent operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Finance lease: | ||||||||
| Equipment, at cost | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Equipment, net | $ | $ | ||||||
| Current portion of finance lease liabilities | $ | $ | ||||||
| Noncurrent finance lease liabilities | - | - | ||||||
| Total finance lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term: | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
| Finance lease | % | % | ||||||
| 10 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Supplemental cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow and Other Information
| For the Three | For the Three | |||||||
| Months Ended | Months Ended | |||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
| Financing cash flows used for finance leases | $ | $ | ||||||
| Leased assets obtained in exchange for lease liabilities: | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Total finance lease liabilities | $ | $ | ||||||
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 December 31, 2021:
Schedule of Future Minimum Annual Lease Commitments Under Operating Leases
| Fiscal Year Ending | Minimum Lease | |||
| September 30, | Commitments | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | - | |||
| Total future undiscounted lease payments | ||||
| Less interest | ||||
| Present value of lease payments | ||||
| Less current portion | ||||
| Long-term operating lease liabilities | $ | |||
Future minimum annual lease payments required under the finance lease and the present value of the net minimum lease payments are as follows at December 31, 2021:
Schedule of Future Minimum Annual Lease Payments Under Finance Lease
| Finance | ||||
| Leases | ||||
| 2022 | $ | |||
| 2023 | - | |||
| Total minimum lease payments | ||||
| Less interest | ||||
| Present value of lease liabilities | ||||
| Less current portion | ||||
| Long-term finance lease liabilities | $ | |||
| 11 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7 –Notes Payable
Notes payable consists of the following at December 31, 2021 and September 30, 2021, respectively:
Schedule of Notes Payable
| December 31, | September 30, | |||||||
| 2021 | 2021 | |||||||
| On September 10, 2021, the Company, entered into a Secured Promissory note for $ | $ | $ | ||||||
| On December 26, 2019, the Company financed the purchase 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 $
| 12 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 – Convertible Notes Payable
Convertible notes payable consists of the following at December, 2021 and September 30, 2021, respectively:
Schedule of Convertible Notes Payable
| December 31, | September 30, | |||||||
| 2021 | 2021 | |||||||
| On February 11, 2020, the Company completed the sale to an accredited investor of a | $ | $ | ||||||
| On February 11, 2020, the Company completed the sale to an accredited investor of a | ||||||||
| On February 10, 2020, the Company completed the sale to an accredited investor of a | ||||||||
| On September 23, 2019, the Company received proceeds of $ | ||||||||
| On November 8, 2018, the Company received proceeds of $ | ||||||||
| On November 5, 2018, the Company received proceeds of $ | ||||||||
| Total convertible notes payable | ||||||||
| Less: unamortized debt discounts | ( | ) | ( | ) | ||||
| Less: current maturities | ||||||||
| Convertible notes payable | $ | $ | ||||||
| 13 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 $
The Company recognized interest expense for the three months ended December 31, 2021 and 2020, respectively, as follows:
Schedule of Interest Expense
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Interest on short term loans | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Interest on notes payable | ||||||||
| Amortization of beneficial conversion features | ||||||||
| Interest on convertible notes | ||||||||
| Total interest expense | $ | $ | ||||||
Note 9 - Changes in Stockholders’ Deficit
Convertible 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”) and have been designated as Series B Convertible Preferred Stock (“Series B Preferred”), with the remaining shares available for designation from time to time by the Board as set forth below. As of December 31, 2021, there were shares of Series A Preferred issued and outstanding and 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 shares of Series A Preferred outstanding
at December 31, 2021 are convertible into 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
| 14 |
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. |
During
the three months ended December 31, 2021,
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. |
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DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 shares of the Series A Preferred for shares of the Series B Preferred. In addition, on December 30, 2021, the Investor purchased shares of Series B Preferred Stock at a price of $ per share, resulting in gross proceeds to the Company of $.
Common Stock
Common stock consists of $ par value, shares authorized, of which shares were issued and outstanding as of December 31, 2021.
During
the three months ended December 31, 2021, the Company issued shares of its common stock in exchange for services rendered to
the Company with a total fair value $
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 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 shares of common stock were outstanding as of December 31, 2021.
During
the three months ended December 31, 2021, the Company issued to an unrelated third party, 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 $
Summary of Common Stock Options Outstanding
| 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 | |||||||||||||||
| $ | – $ | years | $ | $ | ||||||||||||||||
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DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following is a summary of activity of outstanding common stock options:
Schedule of Activity of Outstanding Common Stock Options
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Price | |||||||
| Balance, September 30, 2021 | $ | |||||||
| Options issued | $ | |||||||
| Options forfeited | ( | ) | $ | |||||
| Balance, December 31, 2021 | $ | |||||||
| Exercisable, December 31, 2021 | $ | |||||||
As of December 31, 2021, these options in the aggregate had no intrinsic value as the per share market price of $ of the Company’s common stock as of such date was less than the weighted-average exercise price of these options of $.
Note 11 – 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 December 31, 2021.
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 | $ | $ | ||||||||||||||||
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, 2021 | $ | |||||||
| Warrants granted | ||||||||
| Warrants expired | ||||||||
| Balance, December 31, 2021 | $ | |||||||
| Exercisable, December 31, 2021 | $ | |||||||
As of December 31, 2021, these warrants in the aggregate had no intrinsic value as the per share market price of $ of the Company’s common stock as of such date was less than the weighted-average exercise price of these options of $.
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.
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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 December 31, 2021 and 2020:
The following table summarizes selected items from the statement of operations for the three months ended December 31, 2021 and 2020.
| Three Months Ended December 31, | Increase / | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Revenues | $ | 699,585 | $ | 500,385 | $ | 199,200 | ||||||
| Cost of sales | 422,601 | 420,885 | 1,716 | |||||||||
| Gross profit | 276,984 | 79,500 | 197,484 | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 240,964 | 225,050 | 15,914 | |||||||||
| Professional fees | 268,471 | 114,544 | 153,927 | |||||||||
| Change in allowance for doubtful accounts | (2,139 | ) | 88,170 | (90,309 | ) | |||||||
| Total operating expenses: | 507,296 | 427,764 | 79,532 | |||||||||
| Operating income (loss) | (230,312 | ) | (348,264 | ) | 117,952 | |||||||
| Total other income (expense) | (60,013 | ) | (42,373 | ) | (17,640 | ) | ||||||
| Net loss | $ | (290,325 | ) | $ | (390,637 | ) | $ | 100,312 | ||||
Revenues
Aggregate revenues for the three months ended December 31, 2021 were $699,585, compared to revenues of $500,385 during the three months ended December 31, 2020, an increase of $199,200 or 40%. The increase in revenue was due to the increase in tourism in Nevada during the current period, in comparison to the prior year period in which Nevada tourism was significantly depressed because of the COVID-19 coronavirus pandemic.
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Cost of Sales
Cost of sales for the three months ended December 31, 2021 were $422,601, compared to $420,885 during the three months ended December 31, 2020, an increase of $1,716, or less than 1%. Cost of sales consists primarily of labor, depreciation, maintenance on lab equipment, and supplies consumed in our testing operations. The increased cost of sales in the current period was primarily due to our increased labor and outsourced testing fees incurred during the current period. Our gross margins were approximately 40% during the three months ended December 31, 2021, compared to 16% during the three months ended December 31, 2020, which translated to $197,484 of increased gross profit from our $199,200 of increased revenues received in the current period. Our margins increased in the current period due to the increase in revenues, which increased at a greater rate than our labor costs and equipment servicing costs, in addition to reduced costs resulting from a decrease in outsourcing our testing services in the current period.
General and Administrative Expenses
General and administrative expenses for the three months ended December 31, 2021 were $240,964, compared to $225,050 during the three months ended December 31, 2020, an increase of $15,914, or 7%. 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 December 31, 2021 and 2020, respectively. General and administrative expenses increased primarily due to increased corporate overhead activities.
Professional Fees
Professional fees for the three months ended December 31, 2021 were $268,471, compared to $114,544 during the three months ended December 31, 2020, an increase of $153,927, or 134%. Professional fees included non-cash, stock-based compensation of $98,679 and $27,108 during the three months ended December 31, 2021 and 2020, respectively. Professional fees increased primarily due to increased corporate consulting services during the current period as we increased our focus on expansion efforts.
Change in Allowance for Doubtful Accounts
Our change in allowance for doubtful accounts for the three months ended December 31, 2021 resulted in $2,139 of income, compared to $88,170 of expense during the three months ended December 31, 2020, an improvement of $90,309, or 102%. Our change in allowance for doubtful accounts improved during the current period primarily as our allowance for doubtful accounts decreased from $96,285 to $88,600 during the quarter, as the Nevada tourism market began to open up again and our customers’ cash flows improved. The improvement was offset by the write-off of a loan we made in the amount of $5,361 that was not previously reserved for.
Operating Loss
Our operating loss for the three months ended December 31, 2021 was $230,312, compared to an operating loss of $348,264 during the three months ended December 31, 2020, a decrease of $117,952, or 34%. Our operating loss decreased primarily due to our increased gross profit, as tourism returned in Nevada after we navigated through the height of the effects of the COVID-19 coronavirus pandemic during the comparative period, as we continued to pare our general and administrative and professional fee costs, and decreased our allowance for doubtful accounts and overhead cost saving measures we implemented in response to Covid-19.
Other Income (Expense)
Other expense, on a net basis, for the three months ended December 31, 2021 was $60,013, compared to other expense, on a net basis, of $42,373 during the three months ended December 31, 2020, a net increase of $17,640. Other expense consisted of interest expense of $69,393 for the three months ended December 31, 2021, partially offset by $9,380 of interest income.
Net Loss
Net loss for the three months ended December 31, 2021 was $290,325, compared to a net loss of $390,637 during the three months ended December 31, 2020, a decrease of $100,312, or 26%. The decreased net loss was primarily due to our increased revenues, as the returning tourism in Nevada improved, and an increase in our gross margins.
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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 December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Operating Activities | $ | (177,158 | ) | $ | (63,694 | ) | ||
| Investing Activities | (408,482 | ) | - | |||||
| Financing Activities | 380,013 | 30,015 | ||||||
| Net Decrease in Cash | $ | (205,627 | ) | $ | (3,679 | ) | ||
Net Cash Used in Operating Activities
During the three months ended December 31, 2021, net cash used in operating activities was $177,158, compared to net cash used in operating activities of $63,694 for the same period ended December 31, 2020. The increase in cash used in operating activities was primarily attributable to our increase in accounts receivable.
Net Cash Used in Investing Activities
During the three months ended December 31, 2021, net cash used in investing activities was $408,482, compared to $0 for the same period ended December 31, 2020. The cash used in investing activities was a result of loans we made in connection with a potential acquisition.
Net Cash Provided by Financing Activities
During the three months ended December 31, 2021, net cash provided by financing activities was $380,013, compared to net cash provided by financing activities of $60,015 for the same period ended December 31, 2021. The current period consisted primarily of $400,000 of proceeds received on debt financing, proceeds of $55,600 from the sale of preferred stock, as offset by $8,467 of principal payments on an equipment lease and $14,142 of principal payments on an equipment loan and $52,978 of principal payments made on convertible notes, compared to $60,000 of net proceeds received on debt financing and proceeds of $20,250 from the sale of stock, as offset by $6,946 of principal payments on an equipment lease and $13,289 of principal payments on an equipment loan in the comparative period.
Ability to Continue as a Going Concern
As of December 31, 2021, our balance of cash on hand was $90,305, and we had negative working capital of $1,320,360 and an accumulated recurring losses of $18,241,978. 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.
| 20 |
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 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
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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 December 31, 2021. 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 December 31, 2021, 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.
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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 December 31, 2021:
On December 30, 2021, we entered into an Exchange Agreement with one of our institutional investors (the “Investor”), pursuant to which the Investor exchanged 278,000 shares of our Series A Preferred Stock for 278,000 shares of our newly designated Series B Preferred Stock (“Series B Preferred Stock”). The transaction was effected pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
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. The transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
During the three months ended December 31, 2021, we issued 1,500,000 shares of common stock in exchange for services rendered to the Company by the chairman of the board of directors. The transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
* 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: February 14, 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 |