Digipath, Inc. [DIGP] Filings

10-Q 1 form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For Quarterly Period Ended June 30, 2023

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

For the transition period from __________ to __________

Commission File Number 000-54239

Digipath, Inc.

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

Nevada

27-3601979

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(702) 527-2060

(Registrant’s telephone number, including area code)

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

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

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

Yes

☒

☐

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

Yes

☒

☐

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

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

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

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

Yes

☐

☒

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 87,096,820.

TABLE OF CONTENTS

		Page
		No.
PART I - FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	3
	Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and September 30, 2022	3
	Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2023 and 2022 (Unaudited)	4
	Consolidated Statements of Stockholders’ Deficit for the Nine Months Ended June 30, 2023 and 2022 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2023 and 2022 (Unaudited)	6
	Notes to the Consolidated Financial Statements (Unaudited)	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
ITEM 4.	CONTROLS AND PROCEDURES	24
PART II - OTHER INFORMATION		25
ITEM 1.	Legal Proceedings	25
ITEM 1A.	RISK FACTORS	25
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	25
ITEM 4.	MINE SAFETY DISCLOSURES	25
ITEM 5.	OTHER INFORMATION	25
ITEM 6.	EXHIBITS	26
	SIGNATURES	27

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	$	325,587		$	56,168
Note receivable		-			100,000
Other current assets		10,010			12,739
Assets held for sale - current		353,375			393,197
Total current assets		688,972			562,104

Fixed assets, net		-			55,000
Assets held for sale – long term		606,588			722,784
Total non-current assets		606,588			777,784

Total Assets	$	1,295,560		$	1,339,888

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable	$	202,685		$	215,558
Accrued expenses		209,520			152,986
Accrued expenses – related party		7,813			192,811
Current maturities of notes payable		665,000			665,000
Current maturities of convertible notes payable, net of discounts		1,364,158			1,198,469
Current maturities of convertible notes payable related parties, net of discounts		332,007			-
Liabilities held for sale - current		474,800			529,085
Total current liabilities		3,255,983			2,953,909

Non-current liabilities:
Convertible notes payable related parties, net of discounts		-			310,272
Convertible notes payable, net of discounts and current maturities		-			174,726
Liabilities held for sale – long term		175,634			310,253
Total non-current liabilities		175,634			795,251

Total Liabilities		3,431,617			3,749,160

Series B convertible preferred stock, $0.001 par value, 1,500,000 shares authorized; 333,600 shares issued and outstanding as of June 30, 2023 and September 30, 2022		333,600			333,600

Stockholders’ Deficit:
Series A convertible preferred stock, $0.001 par value, 6,000,000 shares authorized; 1,047,942 shares issued and outstanding as of June 30, 2023 and September 30, 2022		1,048			1,048
Series C convertible preferred stock, $0.001 par value, 1,000 shares authorized; 0 and 1,000 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively		-			1
Preferred stock value
Common stock, $0.001 par value, 250,000,000 shares authorized; 87,096,820 and 75,146,820 shares issued and outstanding at June 30, 2023 and September 30, 2022, respectively		87,097			75,147
Common stock payable		-			71,745
Additional paid-in capital		17,465,264			17,117,958
Accumulated deficit		(20,023,066	)		(20,008,771	)

Total Stockholders’ Deficit		(2,469,657	)		(2,742,872	)

Total Liabilities and Stockholders’ Deficit	$	1,295,560		$	1,339,888

See accompanying notes to unaudited consolidated financial statements.

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		8,815			35,711			94,013			117,846
Professional fees		86,435			74,201			262,072			624,423
Total operating expenses		95,250			109,912			356,085			742,269

Operating loss		(95,250	)		(109,912	)		(356,085	)		(742,269	)

Other income (expense):
Other Expense		-			-			(55,000	)		-
Recovery of previously written off receivables		40,000			-			175,000			-
Credit Loss		-			(358,670	)		-			(358,670	)
Interest income		-			12,386			-			37,061
Interest expense		(97,748	)		(67,560	)		(277,607	)		(204,235	)
Total other expense		(57,748	)		(413,844	)		(157,607	)		(525,844	)

Net loss from continuing operations		(152,998	)		(523,756	)		(513,692	)		(1,268,113	)
Net income (loss) from discontinued operations		446,531			(52,977	)		499,397			40,181
Net income (loss)		293,533			(576,733	)		(14,295	)		(1,227,932	)
Preferred deemed dividend		-			-			-			(192,154	)
Net income (loss) to common shareholders	$	293,533		$	(576,733	)	$	(14,295	)	$	(1,420,086	)

Weighted average number of common shares outstanding – basic		84,055,062			75,146,820			82,856,710			73,845,233
Weighted average number of common shares outstanding – fully diluted		84,055,062			75,146,820			82,856,710			73,845,233

Net loss per share from continuing operations – basic	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)
Net income (loss) per share from discontinued operations – basic	$	0.01		$	(0.00	)	$	0.01		$	0.00
Net loss per share – basic	$	0.00		$	(0.01	)	$	(0.00	)	$	(0.02	)

Net loss per share from continuing operations – diluted	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)
Net income (loss) per share from discontinued operations – diluted	$	0.01		$	(0.00	)	$	0.01		$	0.00
Net loss per share – diluted	$	0.00		$	(0.01	)	$	(0.00	)	$	(0.02	)

See accompanying notes to unaudited consolidated financial statements.

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		333,600	$	333,600		1,047,942	$	1,048		1,000		$	1			75,146,820	$	75,147	$	71,745		$	17,117,958		$	(20,008,771	)	$	(2,742,872	)

Issuance of common shares to settle stock payable		-		-		-		-		-			-			7,150,000		7,150		(71,745	)		64,595			-			-

Warrants issued as debt financing costs		-		-		-		-		-			-			-		-		-			93,938			-			93,938

Stock-based compensation		-		-		-		-		-			-			-		-		-			8,306			-			8,306

Net loss		-		-		-		-		-			-			-		-		-			-			(240,330	)		(240,330	)

Balance, December 31, 2022		333,600		333,600		1,047,942		1,048		1,000			1			82,296,820		82,297		-			17,284,797			(20,249,101	)		(2,880,958	)

Repurchased of preferred C stock		-		-		-		-		(1,000	)		(1	)		0		0		0			(99	)		-			(100	)

Common shares to be issued for compensation		-		-		-		-		-			-			-		-		32,120			-			-			32,120

Stock-based compensation		-		-		-		-		-			-			-		-		-			9,204			-			9,204

Net loss		-		-		-		-		-			-			-		-		-			-			(67,498	)		(67,498	)

Balance, March 31, 2023		333,600		333,600		1,047,942		1,048		-			-			82,296,820		82,297		32,120			17,293,902			(20,316,599	)		(2,907,232	)

Issuance of common shares to settle stock payable		-		-		-		-								4,400,000		4,400		(32,120	)		27,720			-			-

Issuance of common shares for services		-		-		-		-								400,000		400					2,160			-			2,560

Forgiveness of accrued compensation by members of the Board of Directors		-		-		-		-		-			-			-		-		-			138,000			-			138,000

Stock-based compensation		-		-		-		-		-			-			-		-		-			3,482			-			3,482

Net income		-		-		-		-		-			-			-		-		-			-			293,533			293,533

Balance, June 30, 2023		333,600	$	333,600		1,047,942	$	1,048		-		$	-			87,096,820	$	87,097	$	-		$	17,465,264		$	(20,023,066	)	$	(2,469,657	)

	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		-		-		1,325,942			1,326			-		-		71,230,153		71,230		-		16,825,765			(17,951,653	)		(1,053,332	)

Series B Preferred shares sold for cash		55,600		55,600		-			-			-		-		-		-		-		-			-			-

Conversion of Series A Preferred Shares into Series B Preferred		278,000		278,000		(278,000	)		(278	)		-		-		-		-		-		(85,568	)		-			(85,846	)

Common stock issued for services		-		-		-			-			-		-		1,500,000		1,500		-		51,000			-			52,500

Stock-based compensation		-		-		-			-			-		-		-		-		-		33,457			-			33,457

Deemed dividend on preferred exchange		-		-		-			-			-		-		-		-		-		(192,154	)		-			(192,154	)

Net loss		-		-		-			-			-		-		-		-		-		-			(277,603	)		(277,603	)

Balance, December 31, 2021		333,600	$	333,600		1,047,942		$	1,048			-	$	-		72,730,153	$	72,730	$	-	$	16,632,500		$	(18,229,256	)	$	(1,522,978	)

Common Shares issued for settlement of accounts payable		-		-		-			-			-		-		250,000		250		-		7,250			-			7,500

Stock-based compensation		-		-		-			-			-		-		2,166,667		2,167		-		101,297			-			103,464

Net loss		-		-		-			-			-		-		-		-		-		-			(373,596	)		(373,596	)

Balance, March 31, 2022		333,600		333,600		1,047,942			1,048			-		-		75,146,820		75,147		-		16,741,047			(18,602,852	)		(1,785,610	)
Stock-based compensation		-		-		-			-			-		-		-		-		-		8,306			-			8,306

Net loss		-		-		-			-			-		-		-		-		-		-			(576,733	)		(576,733	)

Balance, June 30, 2022		333,600	$	333,600		1,047,942		$	1,048			-	$	-		75,146,820	$	75,147	$	-	$	16,749,353		$	(19,179,585	)	$	(2,354,037	)

See accompanying notes to unaudited consolidated financial statements.

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	$	(513,692	)	$	(1,268,113	)
Adjustments to reconcile net loss to net cash used in operating activities:
Recovery of previously written off receivables		(175,000	)		-
Stock-based compensation		55,672			197,727
Amortization of debt discounts		106,636			58,654
Impairment of fixed assets		55,000			-
Credit loss		-			358,670
Decrease (increase) in assets:
Other current assets		2,729			(33,666	)
Increase (decrease) in liabilities:
Accounts payable		(12,873	)		49,867
Accrued expenses		56,534			192,253
Accrued expenses – related parties		(46,998	)		-
Net cash used in operating activities from continuing operations		(471,992	)		(444,608	)
Net cash provided by operating activities from discontinued operations		520,843			275,691
Net cash provided by (used in) operating activities		48,851			(168,917	)

Cash flows from investing activities
Advance of note receivable		-			(817,649	)
Proceeds from sale of collateralized assets		275,000			175,000
Net cash provided by (used in) investing activities from continuing operations		275,000			(642,649	)
Net cash used in investing activities from discontinued operations		(8,971	)		(4,246	)
Net cash provided by (used in) investing activities		266,029			(646,895	)

Cash flows from financing activities
Proceeds from notes payable		-			390,000
Proceeds from convertible notes		-			402,765
Payments on convertible notes		-			(40,000	)
Proceeds from sale of preferred stock		-			55,600
Repurchase of preferred C stock		(100	)		-
Net cash provided by (used in) financing activities from continuing operations		(100	)		808,365
Net cash used in financing activities from discontinued operations		(45,361	)		(63,252	)
Net cash provided by (used in) financing activities		(45,461	)		745,113

Net increase (decrease) in cash		269,419			(70,699	)
Cash – beginning		56,168			295,932
Cash – ending	$	325,587		$	225,233

Supplemental disclosures:
Interest paid	$	187,449		$	57,439
Income taxes paid		-			-

Non-cash investing and financing activities:
Common stock issued for settlement of stock payable	$	71,745		$	-
Warrants issued for debt financing	$	93,938		$	-
Receipt of assets on deposit	$	6,076		$	-
Forgiveness of related party accrued compensation	$	138,000		$	-
Common stock issued for settlement of accounts payable	$	-		$	7,500
Conversion of Series A preferred into Series B preferred	$	-		$	85,846
Deemed dividend on preferred exchange	$	-		$	192,154

See accompanying notes to unaudited consolidated financial statements.

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:

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

⁽¹⁾	Holding company, which owns each of the wholly-owned subsidiaries. All subsidiaries shown above are wholly-owned by Digipath, Inc., the parent company.
⁽²⁾	Formed during the second fiscal quarter of 2021, but has not yet commenced significant operations.
⁽³⁾	Formed during the first fiscal quarter of 2019, but has not yet commenced significant operations.
⁽⁴⁾