NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 and data analytics company
focused on the developing cannabis and hemp markets, and supports the cannabis industry’s best practices for reliable testing.
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 and countries that have legalized the sale of cannabis, beginning with California.
Basis
of Accounting
The
accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission (“SEC”). Intercompany accounts and transactions
have been eliminated. All references to Generally Accepted Accounting Principles (“GAAP”) are in accordance with The FASB
Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles.
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 September 30, 2022:
Schedule of Entities Under Common Control and Ownership
|
|
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) |
Acquired on March 11, 2020. |
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.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Segment
Reporting
ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management
approach model is based on the way a company’s management organizes segments within the company for making operating decisions
and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it
expands its operations.
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.
Accounts
Receivable
Accounts
receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability
based on past credit history with customers and their current financial condition. The Company had an allowance for doubtful accounts
of $139,279 and $87,795 as of September 30, 2022 and 2021, respectively.
The
Company had two customers representing 27% of the outstanding accounts receivable balance and had one customer representing more than
10% of gross revenue, for a total of 23% of revenue for the year ended September 30, 2022. The Company had one customer representing
27% of the outstanding accounts receivable balance and had two customers representing more than 10% of gross revenue, for a total of
29% of revenue for the year ended September 30, 2021.
Notes
Receivable
Notes
receivable are reported in our consolidated balance sheets at the outstanding principal balance, plus costs incurred to originate the
loans, net of any unamortized premiums or discounts on purchased loans. We use the effective interest rate method to recognize finance
income, which produces a constant periodic rate of return on the investment. Unearned income, discounts and premiums are amortized to
finance income in our consolidated statements of operations using the effective interest rate method. Interest receivable related to
the unpaid principal is recorded together with the outstanding balance in our consolidated balance sheets. Upon the prepayment of a note
receivable, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of finance income
in our consolidated statements of operations.
Fixed
Assets
Fixed
assets are stated at the lower of cost or estimated net recoverable amount. The cost of property, plant and equipment is depreciated
using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following
life expectancy:
Schedule
of Estimated Useful Lives of Property, Plant and Equipment
Software |
|
3 years |
Office equipment |
|
5 years |
Furniture and fixtures |
|
5 years |
Lab equipment |
|
7 years |
Leasehold improvements |
|
Term of lease |
Repairs
and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which extend the useful life
of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold,
the cost and related accumulated depreciation and amortization are eliminated and any resulting gain or loss is reflected in operations.
Impairment
of Long-Lived Assets
Long-lived
assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount
of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results
and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating
results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that
carrying value exceeds discounted cash flows of future operations.
Our
intellectual property is comprised of indefinite-lived brand names acquired and have been assigned an indefinite life as we currently
anticipate that these brand names will contribute cash flows to the Company perpetually. We evaluate the recoverability of intangible
assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate
the asset may be impaired.
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., 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.
Advertising
Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $58,739 and $28,050 for the
years ended September 30, 2022 and 2021, respectively.
Basic
and Diluted Loss Per Share
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 years ended September 30, 2022 and
2021, potential dilutive securities of 58,941,155
and 46,848,988
shares issuable upon conversion of convertible notes payable, 6,020,000
and 5,620,000
shares issuable upon exercise of options, 1,500,000
and 2,535,001
shares issuable upon exercise of warrants, and 13,579,710 and 6,629,710 upon conversion of Preferred A and Preferred B shares,
respectively, had an anti-dilutive effect and were not
included in the calculation of diluted net loss per common share.
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.
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.
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.
Recently
Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt
- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity
(Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity). ASU 2020-06 reduces
the number of accounting models for convertible debt instruments and convertible preferred stock, which results in fewer embedded conversion
features being separately recognized from the host contract as compared with current GAAP. Additionally, ASU 2020-06 affects the diluted
earnings per share calculation for instruments that may be settled in cash or shares and for convertible instruments and requires enhanced
disclosures about the terms of convertible instruments and contracts in an entity’s own equity. ASU 2020-06 allows entities to use a modified
or full retrospective transition method and is effective for smaller reporting companies for fiscal years beginning after December 15,
2023, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the impact that this
ASU may have on its consolidated financial statements.
Note
2 – Going Concern
As
shown in the accompanying consolidated financial statements, the Company has incurred recurring losses from operations resulting in an
accumulated deficit of $20,008,771 and as of September 30, 2022, the Company’s cash on hand may not be sufficient to sustain operations.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing
new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short-term operations.
Management believes these factors will contribute toward achieving profitability. The accompanying consolidated financial statements
do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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 September 30, 2022 and 2021,
respectively:
Summary
of Financial Instruments at Fair Value on Recurring Basis
| |
Fair Value Measurements at September 30, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
Assets | |
| | |
| | |
| |
Cash | |
$ | 56,138 | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | |
Liabilities | |
| | | |
| | | |
| | |
Lease liabilities | |
| - | | |
| - | | |
| 330,510 | |
Notes payable | |
| - | | |
| 806,348 | | |
| - | |
Convertible notes payable, net of discounts of $84,767 | |
| - | | |
| - | | |
| 1,683,467 | |
| |
Fair Value Measurements at September 30, 2021 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
Assets | |
| | |
| | |
| |
Cash | |
$ | 295,957 | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | |
Liabilities | |
| | | |
| | | |
| | |
Lease liabilities | |
| - | | |
| - | | |
| 444,131 | |
Notes payable | |
| - | | |
| 598,941 | | |
| - | |
Convertible notes payable, net of discounts of $98,188 | |
| - | | |
| - | | |
| 1,307,282 | |
The
fair value of our intellectual properties is 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 years ended September 30, 2022
or 2021.
Note
4 – Note Receivable
On
various dates between December 28, 2018 and June 13, 2019, we loaned Northwest Analytical Labs, Inc. a total of $95,000. The loans bear
interest at an annual rate of 10%, are evidenced by secured demand notes, and are secured by a lien on the borrower’s assets. An
allowance for doubtful accounts for the full value of the notes has been recorded due to the uncertainty of collectability.
On
various dates between August 23, 2021 and September 30, 2022, we loaned C3 Labs, Inc. (“C3 Labs”) a total of $1,056,570.
The loans bear interest at an annual rate of 8%.
These loans are evidenced by secured demand notes, and are secured by a lien on the borrower’s assets and have a maturity date
of August
23, 2022. The Company has recorded interest income
of $63,087 and $930
during the years ended September 30, 2022 and 2021, with total interest receivable of $64,017 as of September 30, 2022. The interest income is combined with the credit loss discussed below.
The
loans were made in connection with a potential acquisition of a controlling interest in C3 Labs pursuant to a letter of intent. On March
11, 2022, the Company notified the current owners of C3 Labs of its termination of the letter of intent. The Company is currently in
possession of equipment of C3 Labs, which it is in the process of liquidating. As of September 30, 2022, the Company had sold a portion
of C3 Labs’ equipment for proceeds of $175,000, which it has applied to the outstanding balance owed to it by C3 Labs. The Company
anticipates that the proceeds of such liquidation of the remaining equipment will be insufficient to repay the Company in full all amounts
owed to it by C3 Labs, and as such has recorded an allowance of $845,587
against the note receivable and related interest receivable.
As of September 30, 2022, the net receivable balance is $100,000.
Note
5 – Fixed Assets
Fixed
assets consist of the following at September 30, 2022 and 2021:
Schedule of Fixed Assets
| |
| | | |
| | |
| |
As of | |
| |
September 30, | |
| |
2022 | | |
2021 | |
Software | |
$ | 125,903 | | |
$ | 125,903 | |
Office equipment | |
| 71,601 | | |
| 71,601 | |
Furniture and fixtures | |
| 29,879 | | |
| 29,879 | |
Lab equipment | |
| 1,455,479 | | |
| 1,453,716 | |
Leasehold improvements | |
| 510,076 | | |
| 494,117 | |
Lab equipment held under capital leases | |
| 99,193 | | |
| 99,193 | |
Fixed assets, gross | |
| 2,292,131 | | |
| 2,274,409 | |
Less: accumulated depreciation | |
| (1,831,308 | ) | |
| (1,627,157 | ) |
Total | |
$ | 460,823 | | |
$ | 647,252 | |
On
March 31, 2021, we distributed fixed assets with an aggregate net book value of $2,227 to our former CEO in satisfaction of accrued payroll
that was owed. The fixed assets consisted of office equipment with a historical cost basis of $3,176 and accumulated depreciation of
$949, resulting in a loss of $2,227 that was settled against the amount of unpaid compensation that was owed.
Depreciation
and amortization expense totaled $204,151 and $292,133 for the years ended September 30, 2022 and 2021, respectively.
Note
6 – Leases
The
Company leases its operating and office facility under a non-cancelable real property lease agreement that expires on August 31, 2025.
The Company also has a financing lease for lab equipment subject to the recently adopted ASU 2016-02. In the locations in which it is
economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The operating and office
facility lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable
to the leased premise. As the Company’s leases do not provide implicit discount rates, the Company uses an incremental borrowing
rate based on the information available at the commencement date in determining the present value of lease payments.
The
components of lease expense were as follows:
Schedule of Components of Lease Expense
| |
| | | |
| | |
| |
For the | | |
For the | |
| |
Year Ended | | |
Year Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | |
Operating lease cost | |
$ | 118,873 | | |
$ | 118,873 | |
Finance lease cost: | |
| | | |
| | |
Amortization of assets | |
| 19,839 | | |
| 19,839 | |
Interest on lease liabilities | |
| 1,620 | | |
| 7,310 | |
Total net lease cost | |
$ | 140,332 | | |
$ | 146,022 | |
Total net lease cost | |
| | | |
| | |
Supplemental
balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
| |
| | | |
| | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | |
Operating leases: | |
| | | |
| | |
Operating lease assets | |
$ | 316,961 | | |
$ | 413,884 | |
| |
| | | |
| | |
Current portion of operating lease liabilities | |
| 100,685 | | |
$ | 93,601 | |
Noncurrent operating lease liabilities | |
| 229,825 | | |
| 330,151 | |
Total operating lease liabilities | |
$ | 330,510 | | |
$ | 423,752 | |
Finance lease: | |
| | | |
| | |
Equipment, at cost | |
$ | 99,193 | | |
$ | 99,193 | |
Accumulated amortization | |
| (59,516 | ) | |
| (39,677 | ) |
Equipment, net | |
$ | 39,677 | | |
$ | 59,516 | |
| |
| | | |
| | |
Current portion of finance lease liabilities | |
$ | - | | |
$ | 20,379 | |
Total finance lease liabilities | |
$ | - | | |
$ | 20,379 | |
| |
| | | |
| | |
Weighted average remaining lease term: | |
| | | |
| | |
Operating leases | |
| 2.92 years | | |
| 3.92 years | |
Finance leases | |
| 0 years | | |
| 0.55 years | |
| |
| | | |
| | |
Weighted average discount rate: | |
| | | |
| | |
Operating leases | |
| 5.75 | % | |
| 5.75 | % |
Finance lease | |
| 18.41 | % | |
| 18.41 | % |
Supplemental
cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow and Other Information
| |
| | | |
| | |
| |
For the | | |
For the | |
| |
Year Ended | | |
Year Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | |
Operating cash flows provided by sublet operating leases | |
$ | - | | |
$ | - | |
Operating cash flows used for operating leases | |
$ | 93,601 | | |
$ | 84,731 | |
Financing cash flows used for finance leases | |
$ | 20,379 | | |
$ | 32,532 | |
| |
| | | |
| | |
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 September 30, 2021:
Schedule of Future Minimum Annual Lease Commitments Under Operating Leases
Fiscal Year Ending | |
Minimum Lease | |
September 30, | |
Commitments | |
2023 | |
$ | 119,468 | |
2024 | |
| 123,543 | |
2025 | |
| 116,891 | |
2026 | |
| - | |
2027 | |
| - | |
Total future undiscounted lease payments | |
| 359,902 | |
Less interest | |
| 29,392 | |
Present value of lease payments | |
| 330,510 | |
Less current portion | |
| 100,685 | |
Long-term operating lease liabilities | |
$ | 229,825 | |
Note
7 –Notes Payable
Notes
payable consists of the following at September 30, 2022 and 2021, respectively:
Schedule of Notes Payable
| |
September 30, 2022 | | |
September 30, 2021 | |
| |
| | |
| |
On September 10, 2021, the Company issued a Secured Promissory note in the principal
amount of $675,000
to US Canna Lab I, LLC (the “Canna Lab Note”). The Canna Lab Note carries interest at 12%
per annum and is due on September
10, 2024, with monthly principal and interest payments of $22,419.66
beginning on October 1, 2021. In addition, the Company was advanced an additional $115,000
of funds during the year ended September 30, 2022 under the same terms as the original note. During the year ended September 30,
2022, the Company repaid $125,000
of the principal balance on the note. As a result of the Company not meeting the monthly payment obligations, the CannaLab Note is in technical default, however, no default notice has been provided by CannaLab as of the date of this filing. There are no additional obligations of the Company under default with the exception of being due on demand. | |
$ | 665,000 | | |
$ | 400,000 | |
| |
| | | |
| | |
On December 26, 2019, the Company financed the purchase of $377,124 of lab equipment, in part, with the proceeds of a bank loan in the amount of $291,931. The loan bears interest at the rate of 5.75% per annum and requires monthly payments of $5,622 over the five-year term of the loan ending on December 26, 2024. The Company’s obligations under this loan are secured by a lien on the purchased equipment. | |
| 141,348 | | |
| 198,941 | |
| |
| | | |
| | |
Total notes payable | |
| 806,348 | | |
| 598,941 | |
Less: current maturities | |
| (725,920 | ) | |
| (259,425 | ) |
Notes payable | |
$ | 80,428 | | |
$ | 339,516 | |
The
Company recorded interest expense pursuant to the stated interest rate and closing costs on the notes payable in the amount of $49,560
and $14,700
during the years ended September 30, 2022 and 2021.
Note
8 – Convertible Notes Payable
Convertible
notes payable consist of the following at September 30, 2022 and 2021, respectively:
Schedule of Convertible Notes Payable
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | |
On February 11, 2020, the Company completed the sale to an accredited investor of a 9%
Secured Convertible Promissory Note in the principal amount of $50,000.
The Note matures on August
11, 2022, bears interest at a rate of 9%
per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15
per share. On December 28, 2020, the conversion price was amended to $0.03
per share in exchange for an additional $10,000
of proceeds and the promissory note was increased to $60,000.
The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary
Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29,
2020, the note holder converted $10,000
of principal into 333,334
shares of common stock at a conversion price of $0.03
per share. On August 8, 2022, the note holder agreed to extend the maturity date of the note to February
11, 2024. In exchange for the extension, the Company agreed to issue 650,000
common shares, which were recorded as debt discount, with a relative fair value of $6,989. These shares have not yet been issued as of September 30, 2022 and are recorded as a stock payable. | |
$ | 50,000 | | |
$ | 50,000 | |
| |
| | | |
| | |
On February 11, 2020, the Company completed the sale to an accredited investor of a 9%
Secured Subordinated Convertible Promissory Note in the principal amount of $150,000.
The Note matures on August
11, 2022, bears interest at a rate of 9%
per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per
share. On December 28, 2020, the conversion price was amended to $0.03 per
share in exchange for an additional $50,000 of
proceeds and the promissory note was increased to $200,000.
The Company’s obligations under the Note are secured by subordinated lien on the assets of the Company and its wholly-owned
subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On
December 29, 2020, the note holder converted $50,000 of
principal into 1,666,667 shares
of common stock at a conversion price of $0.03 per
share. On August 8, 2022, the note holder agreed to extend the maturity date of the note to February
11, 2024. In exchange for the extension the Company agreed to issue 1,950,000 common
shares, which were recorded as debt discount, with a relative fair value of $20,968. These shares have not yet been issued as of September 30, 2022 and are recorded as a stock payable. | |
| 150,000 | | |
| 150,000 | |
| |
| | | |
| | |
On February 10, 2020, the Company completed the sale to an accredited investor of a 9%
Secured Convertible Promissory Note in the principal amount of $350,000.
The Note matures on August
10, 2022, bears interest at a rate of 9%
per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15
per share. On December 28, 2020, the conversion price was amended to $0.03
per share in exchange for an additional $50,000
of proceeds and the promissory note was increased to $400,000.
The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary
Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29,
2020, the note holder converted $50,000
of principal into 1,666,667
shares of common stock at a conversion price of $0.03
per share. On August 8, 2022, the note holder agreed to extend the maturity date of the note to February
11, 2024. In exchange for the extension the Company agreed to issue 4,550,000
common shares, which were recorded as debt discount with a relative fair value of $43,788. These shares have not yet been issued as of September 30, 2022 and are recorded as a stock payable. | |
| 350,000 | | |
| 350,000 | |
| |
| | | |
| | |
On September 23, 2019, the Company received proceeds of $200,000
on a senior secured convertible note that carries an 8%
interest rate, which matures on August
10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note
holder at a fixed conversion price of $0.11
per share. On
September 30, 2020, the maturity date was extended to August
10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are
secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc. On February 22, 2021, the
noteholder converted $90,000
of principal into 3,000,000
shares of common stock at a conversion price of $0.03
per share. On September 30, 2021 the note was amended to add the outstanding short term notes and accrued interest into the
principal balance, making the outstanding balance $355,470,
as amended. As a result of the modification, the Company recorded an additional debt discount of $98,188,
as a result of the beneficial conversion feature of the additional principal. In addition, during the year ended September 30, 2022,
the Company was advanced additional loans of $362,765
from the lender under the same terms. Subsequent to September 30, 2022, the Company further extended the maturity date to February 11, 2024. | |
| 718,234 | | |
| 355,470 | |
| |
| | | |
| | |
On November 8, 2018, the Company received proceeds of $350,000
on a senior secured convertible note that carries an 8%
interest rate, which matures on August
10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note
holder at a fixed conversion price of $0.14
per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03
per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned
subsidiary Digipath Labs, Inc. Subsequent to September 30, 2022, the Company further extended the maturity date to February 11, 2024. | |
| 350,000 | | |
| 350,000 | |
| |
| | | |
| | |
On November 5, 2018, the Company received proceeds of $150,000
on a senior secured convertible note that carries an 8%
interest rate, which matures on August
10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note
holder at a fixed conversion price of $0.14
per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03
per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned
subsidiary Digipath Labs, Inc. As of September 30, 2022, the Note is in default, which allows the holder to call the Note immediately. | |
| 150,000 | | |
| 150,000 | |
| |
| | | |
| | |
Total convertible notes payable | |
| 1,768,234 | | |
| 1,405,470 | |
Less: unamortized debt discounts | |
| (84,767 | ) | |
| (98,188 | ) |
Total convertible debt | |
| 1,683,467 | | |
| 1,307,282 | |
Less: current maturities | |
| 1,198,469 | | |
| 1,050,000 | |
Convertible notes payable | |
$ | 484,998 | | |
$ | 257,282 | |
In
addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible notes by allocating
a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature
was calculated on the commitment date using the effective conversion price of the convertible notes. This intrinsic value is limited
to the portion of the proceeds allocated to the convertible debt.
The
aforementioned accounting treatment resulted in a total debt discount equal to $71,745
and $98,188
during the year ended September 30, 2022 and 2021. The discount is amortized based on the effective interest method from the dates
of issuance until the earlier of the stated redemption date of the debt, as noted above, or the actual settlement date. The Company
recorded debt amortization expense attributed to the aforementioned debt discount in the amounts of $85,166
and $8,322,
during the years ended September 30, 2022 and 2021, respectively. Unamortized discount as of September 30, 2022 is $84,767
All
of the convertible notes limit the maximum number of shares that can be owned by each note holder as a result of the conversions to common
stock to 4.99% of the Company’s issued and outstanding shares.
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $113,976 and $87,690
for the years ended September 30, 2022 and 2021, respectively.
The
Company recognized interest expense for the years ended September 30, 2022 and 2021, respectively, as follows:
Schedule of Interest Expense
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
| | |
| |
Interest on short term loans | |
$ | - | | |
$ | 1,558 | |
Interest on capital leases | |
| 11,572 | | |
| 20,874 | |
Interest on notes payable | |
| 49,560 | | |
| 11,302 | |
Amortization of beneficial conversion features | |
| 85,166 | | |
| 8,322 | |
Interest on convertible notes | |
| 113,976 | | |
| 102,901 | |
Total interest expense | |
$ | 260,274 | | |
$ | 144,957 | |
Note
9 – Stockholders’ Equity
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share, of which 6,000,000 have been
designated as Series A Convertible Preferred Stock (“Series A Preferred”), 1,500,000 have been designated as Series B Convertible
Preferred Stock (“Series B Preferred”), and 1,000 shares have been designated as Series C Preferred Stock (“Series
C Preferred”) with the remaining 2,499,000 shares available for designation from time to time by the Board as set forth below.
As of September 30, 2022, there were 1,047,942 shares of Series A Preferred issued and outstanding, 333,600 shares of Series B Preferred
issued and outstanding and 1,000 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. The Series C Preferred
is not convertible into common stock.
Series
A Preferred
The
conversion price is adjustable in the event of stock splits and other adjustments in the Company’s capitalization, and in the event
of certain negative actions undertaken by the Company. At the current conversion price, the 1,047,942 shares of Series A Preferred outstanding
at September 30, 2022 are convertible into 5,239,710 shares of the common stock of the Company. No holder is permitted to convert its
shares of Series A Preferred if such conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding
common stock of the Company immediately after such conversion, unless waived by such holder by providing at least sixty-five days’
notice.
Additional
terms of the Series A Preferred include the following:
● |
The shares of Series A
Preferred are entitled to dividends when, as and if declared by the Board as to the shares of the common stock of the Company into
which such Series A Preferred may then be converted, subject to the 4.99% beneficial ownership limitation described above. |
|
|
● |
Upon the liquidation or
dissolution of the Company, or any merger or sale of all or substantially all of the assets, the shares of Series A Preferred are
entitled to receive, prior to any distribution to the holders of common stock, 100% of the purchase price per share of Series A Preferred
plus all accrued but unpaid dividends. |
|
|
● |
The Series A Preferred
plus all declared but unpaid dividends thereon automatically will be converted into common stock, at the then applicable conversion
rate, upon the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred. |
● |
Each share of Series A
Preferred will carry a number of votes equal to the number of shares of common stock into which such Series A Preferred may then
be converted, subject to the 4.99% beneficial ownership limitation described above. The Series A Preferred generally will vote together
with the common stock and not as a separate class, except as provided below. |
|
|
● |
Consent of the holders
of the outstanding Series A Preferred is required in order for the Company to: (i) amend or change the rights, preferences, privileges
or powers of, or the restrictions provided for the benefit of, the Series A Preferred; (ii) authorize, create or issue shares of
any class of stock having rights, preferences, privileges or powers superior to the Series A Preferred; (iii) reclassify any outstanding
shares into shares having rights, preferences, privileges or powers superior to the Series A Preferred; or (iv) amend the Company’s
Articles of Incorporation or Bylaws in a manner that adversely affects the rights of the Series A Preferred. |
|
|
● |
Pursuant to the Securities
Purchase Agreements, holders of Series A Preferred are entitled to unlimited “piggyback” registration rights on registrations
by the Company, subject to pro rata cutback at any underwriter’s discretion. |
During
the year ended September 30, 2022, the
Company offered to the Series A Preferred shareholders the ability to convert their Preferred A shares into Preferred B shares for
an additional investment of 20% of their initial Series A investment. One Series A shareholder invested additional cash
proceeds of $55,600
for 55,600
Series B shares and converted 278,000
of its Series A into Series B. As a result of the transaction, it was determined under ASC 470-20-40 the Company had issued a deemed dividend from
the induced conversion of the Series A into Series B in the amount of $192,154.
Series
B Preferred
The
Series B Preferred were designated on December 29, 2021. Each share of Series B Preferred has a
Stated Value of $1.00 and is currently convertible into common stock at a conversion price equal to $0.04. The conversion price of the
Series B Preferred is subject to equitable adjustment in the event of a stock split, stock dividend or similar event with respect to
the common stock, and in the event of the issuance of common stock by the Company below the conversion price, subject to customary
exceptions. At the current conversion price, the 333,600 shares of Series B Preferred outstanding at September 30, 2022 are convertible
into 8,340,000 shares of the common stock of the Company. No holder is permitted to convert its shares of Series B Preferred if such
conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding common stock of the Company immediately
after such conversion, unless waived by such holder by providing at least sixty-five days’ notice.
Additional
terms of the Series B Preferred include the following:
● |
The shares of Series B
Preferred are not entitled to dividends, provided that if dividends are paid on the shares of common stock of the Company, the Series
B Preferred will be entitled to dividends based on the number shares of common stock which the Series B Preferred may then be converted. |
|
|
● |
Upon the liquidation or
dissolution of the Company, or any merger or sale of all or substantially all of the assets, or upon a change in control whereby
a stockholder gains control of 50% or more of the outstanding shares of common stock, the shares of Series B Preferred are entitled
to receive, prior to any distribution to the holders of common stock, 100% of the purchase price per share of Series B Preferred
plus all accrued but unpaid dividends. |
|
|
● |
Each share of Series B
Preferred carries a number of votes equal to the number of shares of common stock into which such Series B Preferred may then be
converted. |
Due
to the change in control provision of the Series B Preferred, the Series B Preferred is classified as temporary equity on the balance
sheet.
On
December 30, 2021, the Company entered into an Exchange Agreement with one of the Company’s institutional investors (the “Investor”),
pursuant to which the Investor exchanged 278,000 shares of the Series A Preferred for 278,000 shares of the Series B Preferred. In addition,
on December 30, 2021, the Investor purchased 55,600 shares of Series B Preferred Stock at a price of $1.00 per share, resulting in gross
proceeds to the Company of $55,600.
Series
C Preferred
The
Series C Preferred were designated on July 20, 2022. The principal feature of the Series C Preferred is that it provides the holder thereof,
so long as he or she is an executive officer of the Company, with the ability to vote with the holders of the Company’s common
stock on all matters presented to the holders of common stock, whether at a special or annual meeting, by written action in lieu of a
meeting or otherwise, on the basis of 200,000 votes for each share of Series C Preferred. The shares of Series C Preferred are not convertible
into common stock, are not entitled to dividends, are not subject to redemption, and have a stated value of $0.10 per share payable on
any liquidation of the Company in preference to any payment payable to the holders of common stock.
On
July 25, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Todd Denkin, the
Company’s President, pursuant to which Mr. Denkin purchased 1,000 shares of the Series C Preferred for a purchase price of $0.10
per share. The Company determined that the shares had value in excess of the stated value in the amount of $360,200, which the Company
recorded as compensation expense to the officer
Common
Stock
Common
stock consists of $0.001 par value, 250,000,000 shares authorized, of which 75,146,820 shares were issued and outstanding as of September
30, 2022.
Common
Stock Transactions for the Year Ended September 30, 2022
During
the year ended September 30, 2022, the Company issued 1,500,000 shares of its common stock in exchange for services rendered to the Company,
by its chief financial officer, with a total fair value of $52,500 based on the closing price of the Company’s common stock on
the date of grant.
During
the year ended September 30, 2022, the Company issued 2,166,667 shares of its common stock in exchange for services rendered to the Company
by third party consultants, with a total fair value $91,000 based on the closing price of the Company’s common stock on the dates
of grant.
During
the year ended September 30, 2022, the Company issued 250,000
shares of its common stock to settle outstanding payables in the amount of $7,500 based on the closing price of the Company’s common stock on the dates of grant.
In
connection with the Convertible Note extensions as described in Note 8, the Company was to issue, 7,150,000
shares of common stock to the lenders as additional incentive. As of September 30, 2022, these shares have not yet been issued and
as such are recorded as a stock payable with a fair value of $71,745 based on the closing price of the Company’s common stock on the dates of grant.
Common
Stock Transactions for the Year Ended September 30, 2021
On
December 30, 2020, the Company sold 900,000 shares of its common stock to its Chairman of the Board in exchange for proceeds of $20,250.
During
the year ending September 30, 2021 the Company issued 5,392,918 shares of its common stock in exchange for services rendered to the Company
with a total fair value of $256,255 based on the closing price of the Company’s common stock on the date of grant. Of the total
common stock issued, 2,744,585 shares were issued to officers, 1,898,333 shares were issued to members of the Board, and 750,000 shares
were issued to a consulting firm controlled by the Company’s president.
During
the year ending September 30, 2021 the Company issued 6,666,668 shares of its common stock upon the conversion of $200,000 of debt principal.
Amortization
of Stock-Based Compensation
A
total of $143,500
of stock-based compensation expense was recognized
during the year ended September 30, 2022 as a result of the issuance of 3,666,667
shares of common stock, as amortized over the
requisite service period.
A
total of $256,255 of stock-based compensation expense was recognized during the year ended September 30, 2021 as a result of the issuance
of 5,392,918 shares of common stock, as amortized over the requisite service period.
Note
10 – Common Stock Options
Stock
Incentive Plan
On
June 21, 2016, we amended and restated our 2012 Stock Incentive Plan (the “2012 Plan”), which was originally adopted on March
5, 2012, and terminated on March 5, 2022. As amended, the 2012 Plan provides for the issuance of up to 11,500,000 shares of common stock
pursuant to the grant of options or other awards, including stock grants, to employees, officers or directors of, and consultants to,
the Company and its subsidiaries. Options granted under the 2012 Plan may either be intended to qualify as incentive stock options under
the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date
of grant.
Common
Stock Option Issuances
During
the year ended September 30, 2022, the Company issued to an unrelated third party, options to purchase 1,000,000 shares of its common
stock in exchange for services rendered to the Company with a total fair value $20,994. The Company estimated the fair value using the
Black-Scholes Pricing Model, based on a volatility rate of 143% and call option values of $0.021 and exercise prices of $0.024, and
vesting immediately.
During
the year ending September 30, 2021 the Company issued options to purchase 2,800,000 shares of its common stock in exchange for services
rendered to the Company with a total fair value $142,862 which is being amortized over the requisite vesting period of the options which
range from immediate vesting to vesting over 2 years. The Company estimated the fair value using the Black-Scholes Pricing Model, based
on a volatility rate of 167%-185% and call option values of $0.0463-$0.0576 and exercise prices of $0.0481-$0.06. Of the total common
stock options issued, 1,000,000 were issued to officers and 1,800,000 were issued to third party consultants.
Amortization
of Stock-Based Compensation
A
total of $62,533 and $147,631 of stock-based compensation expense was recognized during the year ended September 30, 2022 and 2021, respectively,
as a result of the vesting of common stock options issued. As of September 30, 2022 a total of $15,187 of unamortized expense remains
to amortized over the vesting period.
The
following is a summary of information about the stock options outstanding at September 30, 2022.
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 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
$ | 0.05
– $0.13 | | |
| 6,020,000 | | |
| 6.01
years | | |
$ | 0.07 | | |
| 5,573,571 | | |
$ | 0.07 | |
The
fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants under the fixed option plan:
Schedule of Weighted-Average Assumptions Used for Grants Under Fixed Option Plan
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Average risk-free interest rates | |
| 1.21 | % | |
| 0.88 | % |
Average expected life (in years) | |
| 5.00 | | |
| 5.00 | |
Volatility | |
| 143 | % | |
| 156 | % |
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 years ended September 30, 2022 and September 30, 2021, 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 year
ended September 30, 2022 was approximately $0.03 per option.
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, 2020 | |
| 3,570,000 | | |
$ | 0.11 | |
Options issued | |
| 2,800,000 | | |
| 0.05 | |
Options repurchased/expired | |
| (750,000 | ) | |
| (0.10 | ) |
| |
| | | |
| | |
Balance, September 30, 2021 | |
| 5,620,000 | | |
$ | 0.08 | |
Options issued | |
| 1,000,000 | | |
| 0.02 | |
Options forfeited | |
| (600,000 | ) | |
| (0.11 | ) |
| |
| | | |
| | |
Balance, September 30, 2022 | |
| 6,020,000 | | |
$ | 0.07 | |
| |
| | | |
| | |
Exercisable, September 30, 2022 | |
| 5,573,571 | | |
$ | 0.07 | |
As
of September 30, 2022, these options in the aggregate had no intrinsic value as the per share market price of $0.007 of the Company’s
common stock as of such date was less than the weighted-average exercise price of these options of $0.07.
Note
11 – Common Stock Warrants
Warrants
to purchase a total of 1,500,000 shares of common stock were outstanding as of September 30, 2022.
During
the year ended September 30, 2022, warrants to purchase an aggregate total of 1,035,001 shares of common stock at a weighted average
exercise price of $0.26 per share expired.
During
the year ended September 30, 2021, warrants to purchase an aggregate total of 1,739,268 shares of common stock at a weighted average
exercise price of $0.25 per share expired.
The
following is a summary of information about our warrants to purchase common stock outstanding at September 30, 2022 (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 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
$ | 0.10 | | |
| 1,500,000 | | |
| 7.44
years | | |
$ | 0.10 | | |
| 1,500,000 | | |
$ | 0.10 | |
The
fair value of each warrant grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants under the fixed option plan:
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, 2020 | |
| 4,274,269 | | |
$ | 0.20 | |
Warrants granted | |
| - | | |
| - | |
Warrants expired | |
| (1,739,268 | ) | |
| (0.25 | ) |
| |
| | | |
| | |
Balance, September 30, 2021 | |
| 2,535,001 | | |
$ | 0.17 | |
Warrants granted | |
| - | | |
| - | |
Warrants expired | |
| (1,035,001 | ) | |
| (0.26 | ) |
| |
| | | |
| | |
Balance, September 30, 2022 | |
| 1,500,000 | | |
$ | 0.10 | |
| |
| | | |
| | |
Exercisable, September 30, 2022 | |
| 1,500,000 | | |
$ | 0.10 | |
As
of September 30, 2022, these warrants in the aggregate had no intrinsic value as the per share market price of $0.007 of the Company’s
common stock as of such date was less than the weighted-average exercise price of these warrants of $0.10.
Note
12 – Commitments and Contingencies
Legal
Contingencies
There
are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such
proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding
adverse to our business or has a material interest adverse to our business.
Note
13 - Income Tax
The
Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that
deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes, referred to as temporary differences.
For
the years ended September 30, 2022 and 2021, the Company incurred a net operating loss and, accordingly, no provision for income taxes
has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets.
At September 30, 2022, the Company had approximately $14,908,500 of federal net operating losses. The net operating loss carry forwards,
if not utilized, will begin to expire in 2031.
The
effective income tax rate for the years ended September 30, 2022 and 2021 consisted of the following:
Schedule of Effective Income Tax Rate
| |
2022 | | |
2021 | |
| |
September 30, | |
| |
2022 | | |
2021 | |
Federal statutory income tax rate | |
| 21 | % | |
| 21 | % |
State income taxes | |
| - | % | |
| - | % |
Change in valuation allowance | |
| (21 | )% | |
| (21 | )% |
Net effective income tax rate | |
| - | | |
| - | |
The
components of the Company’s deferred tax asset are as follows:
Schedule of Deferred Tax Asset
| |
2022 | | |
2021 | |
| |
September 30, | |
| |
2022 | | |
2021 | |
Deferred tax assets: | |
| | | |
| | |
Net operating loss carry forwards | |
$ | 3,130,800 | | |
$ | 2,958,700 | |
| |
| | | |
| | |
Net deferred tax assets before valuation allowance | |
$ | 3,130,800 | | |
$ | 2,958,700 | |
Less: Valuation allowance | |
| (3,130,800 | ) | |
| (2,958,700 | ) |
Net deferred tax assets | |
$ | - | | |
$ | - | |
Based
on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not
that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against
its net deferred tax assets at September 30, 2022 and 2021, respectively.
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note
14 – Subsequent Events
On
October 1, 2022, the Company amended the outstanding convertible promissory notes dated September 30, 2021 to extend the maturity date
of December 30, 2022 to February 11, 2024. As consideration the Company issued the lender a warrant to purchase 4,621,105 shares of the
common stock with an exercise price of $0.0074.
On
October 1, 2022, the Company amended the outstanding convertible promissory notes dated November 18, 2018 to extend the maturity date
of December 30, 2022 to February 11, 2024. As consideration the Company issued the lender a warrant to purchase 4,550,000 shares of the
common stock with an exercise price of $0.0074.
On
October 1, 2022, the Company issued a convertible promissory note in exchange for various advances made to the Company in the aggregate
amount of $362,765 with a maturity date of February 11, 2024 and bearing interest at a rate of 8%. As additional consideration, the Company
issued the lender a warrant to purchase 4,715,945 shares of common stock with an exercise price of $0.0074.
On
December 5, 2022, the Company entered into an Asset Purchase Agreement in which the Company sold the remaining collateralized assets
held under the C3 Labs note receivable for a total purchase price of the $900,000. The purchase price consists of a down payment of $275,000
and the remaining portion of the purchase price will be financed by a Note Receivable (the “Note”) that is due April 1, 2024,
and accrues interest at a rate of 10%. The note receivable will require monthly interest payments from January 1, 2023, through March
2023, and then monthly principal and interest payments through the maturity of the Note.