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.
Schedule of Entities Under Common Control and Ownership
|
|
Jurisdiction of
|
|
|
Name of Entity(1)
|
|
Incorporation
|
|
Relationship
|
Digipath, Inc.(2)
|
(2)
|
Nevada
|
|
Parent
|
Digipath Labs, Inc.
|
|
Nevada
|
|
Subsidiary
|
TNM News, Inc. (6)
|
(6)
|
Nevada
|
|
Subsidiary
|
GroSciences, Inc.(3)
|
(3)
|
Colorado
|
|
Subsidiary
|
Digipath Labs S.A.S.(4)
|
(4)
|
Colombia
|
|
Subsidiary
|
VSSL Enterprises, Ltd.(5)
|
(5)
|
Canada
|
|
Subsidiary
|
Digipath Labs CA, Inc. (7)
|
(7)
|
Nevada
|
|
Subsidiary
|
(1)
|
All entities are in the form of a corporation.
|
(2)
|
Holding company, which owns each of the wholly-owned subsidiaries.
All subsidiaries shown above are wholly-owned by Digipath, Inc., the parent company.
|
(3)
|
Commenced operations during the first fiscal quarter of 2019,
and had minimal operations until being dissolved on September 30, 2020.
|
(4)
|
Formed during the first fiscal quarter of 2019, but has not
yet commenced significant operations.
|
(5)
|
Acquired on March 11, 2020.
|
(6)
|
Dissolved on July 28, 2021, trivial operating expenses during
fiscal years September 30 2021 and 2020.
|
(7)
|
Formed during the fourth fiscal quarter of 2021, but has not
yet commenced significant operations.
|
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 $96,285 and $128,944 as of September 30, 2021 and 2020, respectively.
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. The Company had one customer representing
25% of the outstanding accounts receivable balance and had one customer representing more than 10% of gross revenue, for a total of 24%
of revenue for the year ended September 30, 2020.
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 $28,050 and $45,120 for the
years ended September 30, 2021 and 2020, 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, 2021 and 2020, potential dilutive
securities 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
There
are no recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its
financial position, results of operations, or cash flows.
Note
2 – Going Concern
As
shown in the accompanying consolidated financial statements, the Company has incurred recurring losses from operations resulting in an
accumulated deficit of $17,951,653 and as of September 30, 2021, 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 – Acquisition from Affiliate
On
March 9, 2020, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with VSSL Enterprises Ltd (“VSSL”),
Kyle Joseph Remenda (“Remenda”), Philippe Olivier Henry, PhD (“Henry”), Audim Ventures Ltd. (“Audim”),
and Britt Ash Enterprises Ltd. (“Britt Ash” and, together with Remenda, Henry and Audim, the “VSSL Stockholders”),
pursuant to which the Company acquired all of VSSL’s outstanding shares of capital stock from the VSSL Stockholders for consideration
consisting of 6,500,000 shares of Digipath’s common stock and a cash payment of $200,000. The closing of the acquisition occurred
on March 11, 2020. The aggregate fair value of the common stock was $373,750 based on the closing price of the Company’s common
stock on the date of closing.
Mr.
Remenda, who held 45% of the VSSL’s shares prior to its acquisition by the Company, is the CEO of VSSL and was appointed as Digipath’s
Chief Executive Officer in September 2019 in connection with the execution of the binding letter of intent with respect to the Company’s
acquisition of VSSL. In addition, Mr. Henry, who also held 45% of VSSL’s shares prior to its acquisition by the Company, was engaged
as a consultant by Digipath in September 2019. Messrs. Remenda and Henry resigned July 1, 2020 and June 12, 2020, respectively.
This
acquisition was accounted for as a business combination under the purchase method of accounting. The purchase resulted in the recognition
of $592,621 of goodwill, which was determined to be impaired and expensed on September 30, 2020. According to the purchase method of
accounting, the Company recognized the identifiable assets acquired and liabilities assumed as follows:
Schedule of Recognized Identifiable Assets Acquired and Liabilities Assumed
|
|
March 11, 2020
|
|
Consideration:
|
|
|
|
|
Cash
|
|
$
|
200,000
|
|
Fair value of 6,500,000 shares of common stock
|
|
|
373,750
|
|
Liabilities assumed
|
|
|
20,600
|
|
Total consideration
|
|
$
|
594,350
|
|
|
|
|
|
|
Fair value of identifiable assets acquired assumed:
|
|
|
|
|
Cash
|
|
$
|
143
|
|
Accounts receivable
|
|
|
1,586
|
|
Total fair value of assets assumed
|
|
|
1,729
|
|
Consideration paid in excess of fair value (Impaired Goodwill)(1)
|
|
$
|
592,621
|
|
(1)
|
The consideration paid in excess of the net fair value of assets acquired and liabilities assumed was recognized as goodwill and determined to be impaired on September 30, 2020 due to the lack of significant revenues, and our inability to fund the necessary research and development to develop its assets.
|
Pro
Forma Results
The
following table sets forth the unaudited pro forma results of the Company as if the acquisition of VSSL was effective on the first day
of each of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had
the companies always been combined.
Schedule of Business Acquisition Pro Forma Information
|
|
For the year ended September 30, 2020
|
|
|
|
(Unaudited)
|
|
Revenues
|
|
$
|
2,588,803
|
|
Net loss
|
|
$
|
(2,343,662
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.04
|
)
|
Weighted average number of common shares outstanding - basic and fully diluted
|
|
|
56,350,657
|
|
Note
4 – 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, 2021 and 2020, respectively:
Summary of Financial Instruments at Fair Value on Recurring Basis
|
|
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
|
|
|
|
Fair Value Measurements at September 30, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
82,749
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term advances
|
|
|
-
|
|
|
|
50,112
|
|
|
|
-
|
|
Lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
561,394
|
|
Notes payable
|
|
|
-
|
|
|
|
473,224
|
|
|
|
-
|
|
Convertible notes payable, net of discounts of $8,322
|
|
|
-
|
|
|
|
-
|
|
|
|
1,241,678
|
|
Convertible notes payable, net of discounts
of $98,188 and $8,322
|
|
|
-
|
|
|
|
-
|
|
|
|
1,241,678
|
|
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, 2021
or 2020.
Note
5 – 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 20, 2021, we loaned C3 Labs, Inc. a total of $230,000.
The loans bear interest at an annual rate of 8%,
are evidenced by secured demand notes, are secured by a lien on the borrower’s assets, and have a maturity date of August 23,
2022. The loans were made in connection with a potential acquisition of a controlling interest in C3 Labs, Inc., although no assurance
can be made that the Company will consummate the acquisition. The Company has recorded interest income of $929
during the year ended September 30, 2021 with
total accrued interest of $929
as of September 30, 2021.
Note
6 – Fixed Assets
Fixed
assets consist of the following at September 30, 2021 and 2020:
Schedule of Fixed Assets
|
|
2021
|
|
|
2020
|
|
|
|
As of
|
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Software
|
|
$
|
125,903
|
|
|
$
|
124,697
|
|
Office equipment
|
|
|
71,601
|
|
|
|
74,777
|
|
Furniture and fixtures
|
|
|
29,879
|
|
|
|
29,879
|
|
Lab equipment
|
|
|
1,453,716
|
|
|
|
1,398,716
|
|
Leasehold improvements
|
|
|
494,117
|
|
|
|
494,117
|
|
Lab equipment held under capital leases
|
|
|
99,193
|
|
|
|
99,193
|
|
Fixed assets, gross
|
|
|
2,274,409
|
|
|
|
2,221,379
|
|
Less: accumulated depreciation
|
|
|
(1,627,157
|
)
|
|
|
(1,335,974
|
)
|
Total
|
|
$
|
647,252
|
|
|
$
|
885,405
|
|
On
various dates from June 30, 2020 through September 30, 2020, the Company disposed of lab equipment no longer in service. No proceeds
were received on the disposal of the equipment, resulting in a loss on disposal of fixed assets of $50,093, which represented the net
book value at the time of disposal.
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 $292,133 and $323,391 for the years ended September 30, 2021 and 2020, respectively.
Note
7 – 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, 2021
|
|
|
September 30, 2020
|
|
Operating lease cost
|
|
$
|
118,873
|
|
|
$
|
207,772
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of assets
|
|
|
19,839
|
|
|
|
20,224
|
|
Interest on lease liabilities
|
|
|
7,310
|
|
|
|
10,696
|
|
Sublease income
|
|
|
-
|
|
|
|
(79,285
|
)
|
Total net lease cost
|
|
$
|
146,022
|
|
|
$
|
159,407
|
|
Supplemental
balance sheet information related to leases was as follows:
Schedule
of Supplemental Balance Sheet Information
|
|
September 30, 2021
|
|
|
September 30, 2021
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
$
|
413,884
|
|
|
$
|
505,706
|
|
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
|
93,601
|
|
|
$
|
84,731
|
|
Noncurrent operating lease liabilities
|
|
|
330,151
|
|
|
|
423,752
|
|
Total operating lease liabilities
|
|
$
|
423,752
|
|
|
$
|
508,483
|
|
Finance lease:
|
|
|
|
|
|
|
|
|
Equipment, at cost
|
|
$
|
99,193
|
|
|
$
|
99,193
|
|
Accumulated amortization
|
|
|
(39,677
|
)
|
|
|
(19,839
|
)
|
Equipment, net
|
|
$
|
59,516
|
|
|
$
|
79,354
|
|
|
|
|
|
|
|
|
|
|
Current portion of finance lease liabilities
|
|
$
|
20,379
|
|
|
$
|
32,532
|
|
Noncurrent finance lease liabilities
|
|
|
-
|
|
|
|
20,379
|
|
Total finance lease liabilities
|
|
$
|
20,379
|
|
|
$
|
52,911
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
3.92 years
|
|
|
|
4.92 years
|
|
Finance leases
|
|
|
0.55 years
|
|
|
|
1.55 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, 2021
|
|
|
September 30, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows provided by sublet operating leases
|
|
$
|
-
|
|
|
$
|
79,285
|
|
Operating cash flows used for operating leases
|
|
$
|
84,731
|
|
|
$
|
177,619
|
|
Financing cash flows used for finance leases
|
|
$
|
32,532
|
|
|
$
|
46,282
|
|
|
|
|
|
|
|
|
|
|
Leased assets obtained in exchange for lease liabilities:
|
|
|
|
|
|
|
|
|
Total operating lease liabilities
|
|
$
|
-
|
|
|
$
|
528,616
|
|
Total finance lease liabilities
|
|
$
|
-
|
|
|
$
|
99,193
|
|
The
following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities on a fiscal year basis, including
common area maintenance fees, under non-cancelable operating leases as of September 30, 2021:
Schedule of Future Minimum Annual Lease Commitments Under Operating Leases
Fiscal Year Ending
|
|
Minimum Lease
|
|
September 30,
|
|
Commitments
|
|
2022
|
|
$
|
115,550
|
|
2023
|
|
|
119,468
|
|
2024
|
|
|
123,543
|
|
2025
|
|
|
116,891
|
|
2026
|
|
|
-
|
|
Total future undiscounted lease payments
|
|
|
475,452
|
|
Less interest
|
|
|
51,701
|
|
Present value of lease payments
|
|
|
423,752
|
|
Less current portion
|
|
|
93,601
|
|
Long-term operating lease liabilities
|
|
$
|
330,151
|
|
Future
minimum annual lease payments required under the finance lease and the present value of the net minimum lease payments are as follows
at September 30, 2021:
Schedule of Future Minimum Annual Lease Payments Under Finance Lease
|
|
Finance
|
|
|
|
Leases
|
|
|
|
|
|
2022
|
|
$
|
21,645
|
|
2023
|
|
|
-
|
|
Total minimum lease payments
|
|
|
21,645
|
|
Less interest
|
|
|
1,266
|
|
Present value of lease liabilities
|
|
|
20,379
|
|
Less current portion
|
|
|
20,379
|
|
Long-term finance lease liabilities
|
|
$
|
-
|
|
Note
8 – Short Term Advances
Short
term advances consist of the following at September 30, 2021 and 2020, respectively:
Schedule of Short Term Advances
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
On July 20, 2020, we received $30,112 as a short-term loan from one of our convertible noteholders. The loan bears interest at the rate of 8.0% per annum. The advance was subsequently repaid on July 20, 2021
|
|
$
|
-
|
|
|
$
|
30,112
|
|
|
|
|
|
|
|
|
|
|
On January 21, 2020, we received $20,000 as a short-term loan from one of our convertible noteholders. No interest expense was recognized. The note was subsequently transferred to the principal balance of a convertible note.
|
|
|
-
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Total short term advances
|
|
$
|
-
|
|
|
$
|
50,112
|
|
The
Company recorded interest expense pursuant to the stated interest rates on the short term loans in the amount of $2,356 for the year
ended September 30, 2021.
Note
9 –Notes Payable
Notes
payable consists of the following at September 30, 2021 and 2020, respectively:
Schedule of Notes Payable
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
On September 10, 2021, the Company issued a Secured Promissory note in the principal amount of $6,750,000 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. As of September 30, 2021, a total $400,000 had been advanced to the Company under the Canna Lab Note.
|
|
$
|
400,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
On March 23, 2021; April 29, 2021; July 12, 2021; July 22, 2021 and August 23, 2021, we received proceeds of $40,000, $25,000, $7,000, $100,000 and $50,000 as short-term loans from one of our convertible noteholders. The loans bore interest at the rate of 8% per annum and were due on demand. These loans were subsequently transferred to the principal balance of a convertible note.
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
On June 22, 2020, the Company, borrowed $40,114 from Cross River Bank, pursuant to a Promissory Note issued by the Company to Cross River Bank (the “Company PPP Note”). The loan was made pursuant to the Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “Payroll Protection Program”). The Company PPP Note carried interest at 1.00% per annum, payable monthly beginning December 22, 2020, and was due on June 22, 2025. On January 12, 2021, the Company PPP Note and interest was forgiven, resulting in a gain on early extinguishment of debt in the amount of $40,338.
|
|
$
|
-
|
|
|
$
|
40,114
|
|
|
|
|
|
|
|
|
|
|
On May 13, 2020, the Company, through its wholly-owned subsidiary Digipath Labs, Inc. (“Labs”), borrowed $179,920 from WebBank Corp, pursuant to a Promissory Note issued by Labs to WebBank Corp (the “Labs PPP Note”). The loan was made pursuant to the Payroll Protection Program. The Labs PPP Note bears interest at 1.00% per annum, payable monthly beginning December 13, 2020, and was due on May 13, 2022. On July 20, 2021, the Labs PPP Note and interest was forgiven, resulting in a gain on early extinguishment of debt in the amount of $182,054.
|
|
|
-
|
|
|
|
179,920
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
198,941
|
|
|
|
253,190
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
598,941
|
|
|
|
473,224
|
|
Less: current maturities
|
|
|
(259,425
|
)
|
|
|
(54,317
|
)
|
Notes payable
|
|
$
|
339,516
|
|
|
$
|
418,907
|
|
The
Company recorded interest expense pursuant to the stated interest rate and closing costs on the notes payable in the amount of $14,700
during the year ended September 30, 2021.
Note
10 – Convertible Notes Payable
Convertible
notes payable consist of the following at September 30, 2021 and 2020, respectively:
Schedule of Convertible Notes Payable
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $50,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $10,000 of proceeds and the promissory note was increased to $60,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $10,000 of principal into 333,334 shares of common stock at a conversion price of $0.03 per share.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Subordinated Convertible Promissory Note in the principal amount of $150,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $200,000. The Company’s obligations under the Note are secured by subordinated lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share.
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
On February 10, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $350,000. The Note matures on August 10, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $400,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share.
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
On September 23, 2019, the Company received proceeds of $200,000
on a senior secured convertible note that carries an 8%
interest rate, which matures on August
10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note
holder at a fixed conversion price of $0.11
per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned
subsidiary Digipath Labs, Inc. On February 22, 2021, the noteholder converted $90,000
of principal into 3,000,000
shares of common stock at a conversion price of $0.03
per share. On September 30, 2021 the note was amended to add the outstanding short term notes and accrued interest into the
principal balance, increasing the outstanding balance to $355,470
and further extended the maturity date to December 31, 2022. As a result of the modification, the Company recorded
an additional debt discount of$ 98,188
as a result of the beneficial conversion feature of the additional principal.
|
|
|
355,470
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
On November 8, 2018, the Company received proceeds of $350,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc.
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
On November 5, 2018, the Company received proceeds of $150,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc.
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable
|
|
|
1,405,470
|
|
|
|
1,250,000
|
|
Less: unamortized debt discounts
|
|
|
(98,188
|
)
|
|
|
(8,322
|
)
|
Total convertible debt
|
|
|
1,307,282
|
|
|
|
1,241,678
|
|
Less: current maturities
|
|
|
1,050,000
|
|
|
|
-
|
|
Convertible notes payable
|
|
$
|
257,282
|
|
|
$
|
1,241,678
|
|
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 $98,188 and $70,964 during the year ended September 30,
2021 and 2020. The discount is amortized on a straight-line basis 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 $8,322 and $33,104, during the years ended September 30, 2021 and 2020, respectively. Unamortized discount
as of September 30, 2021 is $98,188
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 $102,901 and $87,690
for the years ended September 30, 2021 and 2020, respectively.
The
Company recognized interest expense for the years ended September 30, 2021 and 2020, respectively, as follows:
Schedule of Interest Expense
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
Interest on short term loans
|
|
$
|
1,558
|
|
|
$
|
61
|
|
Interest on capital leases
|
|
|
20,874
|
|
|
|
10,696
|
|
Interest on notes payable
|
|
|
11,302
|
|
|
|
16,473
|
|
Amortization of beneficial conversion features
|
|
|
8,322
|
|
|
|
33,104
|
|
Interest on convertible notes
|
|
|
102,901
|
|
|
|
87,690
|
|
Total interest expense
|
|
$
|
144,957
|
|
|
$
|
148,024
|
|
Note
11 – Stockholders’ Equity
Convertible
Preferred Stock
The
Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share, of which 6,000,000 have been
designated as Series A Convertible Preferred Stock (“Series A Preferred”), with the remaining 4,000,000 shares available
for designation from time to time by the Board as set forth below. As of September 30, 2021, there were 1,325,942 shares of Series A
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.
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 1,325,942 shares of Series A Preferred outstanding
at September 30, 2020 are convertible into 6,629,710 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.
|
Common
Stock
Common
stock consists of $0.001 par value, 250,000,000 shares authorized, of which 71,230,153 shares were issued and outstanding as of September
30, 2021.
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 $256,255 based on the closing price of the Company’s common stock on the dates 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.
Common
Stock Transactions for the Year Ended September 30, 2020
During
the year ending September 30, 2020, the Company sold 706,250 shares of its common stock in exchange for proceeds of $56,500.
On
March 11, 2020, the Company acquired all of VSSL’s outstanding shares of capital stock from VSSL’s stockholders for consideration
consisting of 6,500,000 shares of the Company’s common stock and a cash payment of $200,000. The aggregate fair value of the Company’s
common stock was $373,750 based on the closing price of the Company’s common stock on the closing date.
During
the year ending September 30, 2020 the Company issued 2,702,884 shares of its common stock in exchange for services rendered to the Company
with a total fair value $152,550 based on the closing price of the Company’s common stock on the dates of grant. Of the total common
stock issued, 1,452,884 shares were issued to officers and 1,250,000 were issued to third party consultants.
Amortization
of Stock-Based Compensation
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.
A
total of $152,550 of stock-based compensation expense was recognized during the year ended September 30, 2020 as a result of the issuance
of 2,702,884 shares of common stock, as amortized over the requisite service period.
Note
12 – Common Stock Options
Stock
Incentive Plan
On
June 21, 2016, we amended and restated our 2012 Stock Incentive Plan (the “2012 Plan”), which was originally adopted on March
5, 2012 and previously amended on May 20, 2014. As amended, the 2012 Plan provides for the issuance of up to 11,500,000 shares of common
stock pursuant to the grant of options or other awards, including stock grants, to employees, officers or directors of, and consultants
to, the Company and its subsidiaries. Options granted under the 2012 Plan may either be intended to qualify as incentive stock options
under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from
date of grant. Options to purchase a total of 6,370,000 shares of common stock were outstanding as of September 30, 2021.
Common
Stock Option Issuances
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.
During
the year ending September 30, 2020 the Company issued options to purchase 3,700,000 shares of its common stock in exchange for services
rendered to the Company with a total fair value $166,953 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 110%-238% and call option values of $0.0403-$0.0683 and exercise prices of $0.10. Of the total options issued,
options to purchase 1,500,000 shares were issued to officers, options to purchase 2,000,000 shares were issued to members of the Board,
and options to purchase 200,000 shares issued to third party consultants.
Amortization
of Stock-Based Compensation
A
total of $147,630 and $141,659 of stock-based compensation expense was recognized during the year ended September 30, 2021 and 2020,
respectively, as a result of the vesting of common stock options issued. As of September 30, 2021 a total of $60,628 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, 2021.
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
|
|
|
|
5,620,000
|
|
|
|
7.41 years
|
|
|
$
|
0.08
|
|
|
|
4,370,000
|
|
|
$
|
0.08
|
|
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,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Average risk-free interest rates
|
|
|
0.88
|
%
|
|
|
0.92
|
%
|
Average expected life (in years)
|
|
|
5.00
|
|
|
|
5.00
|
|
Volatility
|
|
|
156
|
%
|
|
|
141
|
%
|
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, 2021 and September 30, 2020, 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, 2021 was approximately $0.05 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, 2019
|
|
|
6,085,000
|
|
|
|
0.13
|
|
Options issued
|
|
|
3,700,000
|
|
|
|
0.10
|
|
Options repurchased/expired
|
|
|
(6,215,000
|
)
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020
|
|
|
3,570,000
|
|
|
$
|
0.11
|
|
Options issued
|
|
|
2,800,000
|
|
|
|
0.05
|
|
Options forfeited
|
|
|
(750,000
|
)
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2021
|
|
|
5,620,000
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2021
|
|
|
4,370,000
|
|
|
$
|
0.08
|
|
As
of September 30, 2021, these options in the aggregate had no intrinsic value as the per share market price of $0.042 of the Company’s
common stock as of such date was less than the weighted-average exercise price of these options of $0.08.
Note
13 – Common Stock Warrants
Warrants
to purchase a total of 2,535,001 shares of common stock were outstanding as of September 30, 2021.
On
March 9, 2020, we granted a ten-year warrant to purchase 1,500,000 shares of common stock at a price of $0.10 per share to a consultant
as compensation for services. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call
option value of $0.0467, was $70,012.
On
February 21, 2020, warrants to purchase 642,857 shares of common stock at $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, 2021 (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 - 0.26
|
|
|
|
2,535,001
|
|
|
5.34 years
|
|
$
|
0.17
|
|
|
|
2,535,001
|
|
|
$
|
0.17
|
|
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:
Schedule of Fair Value of Warrant with Weighted-Average Assumptions Used for Grants
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Average risk-free interest rates
|
|
|
-
|
%
|
|
|
0.46
|
%
|
Average expected life (in years)
|
|
|
-
|
|
|
|
10.00
|
|
Volatility
|
|
|
-
|
%
|
|
|
110
|
%
|
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, 2019
|
|
|
3,417,126
|
|
|
|
0.25
|
|
Warrants granted
|
|
|
1,500,000
|
|
|
|
0.10
|
|
Warrants expired
|
|
|
(642,857
|
)
|
|
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2021
|
|
|
2,535,001
|
|
|
$
|
0.17
|
|
Note
14 – Commitments and Contingencies
Legal
Contingencies
There
are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such
proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding
adverse to our business or has a material interest adverse to our business.
Note
15 – Impairment Expense
Impairment
expense for the years ended September 30, 2021 and 2020 consisted of the following:
Schedule of Impairment Expense
|
|
2021
|
|
|
2020
|
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Inventory impairment
|
|
$
|
-
|
|
|
$
|
37,900
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
592,621
|
|
Impairment expense
|
|
$
|
-
|
|
|
$
|
630,521
|
|
On
September 30, 2020, the Company decided to no longer pursue its SabIR technology, which was intended to use MicroNIR devices to test
cannabis for THC, CBD and CBG. Accordingly, the Company wrote off its inventory, consisting of five MicroNIR devices, each costing $7,580
for a total impairment cost of $37,900.
Goodwill
consisted of the consideration paid in excess of the net fair value of assets acquired and liabilities assumed in the VSSL transaction.
On September 30, 2020, the Company performed an impairment analysis and determined the asset to be impaired due to the lack of significant
revenues, and the Company’s inability to fund the necessary research and development to develop its assets.
Note
16 - 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, 2021 and 2020, 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, 2021, the Company had approximately $14,200,000
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, 2021 and 2020 consisted of the following:
Schedule of Effective Income Tax Rate
|
|
2021
|
|
|
2020
|
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
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
|
|
2021
|
|
|
2020
|
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
2,983,700
|
|
|
$
|
2,971,500
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
$
|
2,983,700
|
|
|
$
|
2,971,500
|
|
Less: Valuation allowance
|
|
|
(2,983,700
|
)
|
|
|
(2,971,500
|
)
|
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, 2021 and 2020, respectively.
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 17 – Subsequent Events
Subsequent to September 30, 2021, the Company
received the remaining $275,000 of cash proceeds under the $675,000 “Canna Lab Note” described in Note 9.
Subsequent to September 30, 2021, the company
advanced an additional $120,000 to C3 Labs, Inc. under the same terms as the previous advances to C3 Labs, Inc. described in Note 5.
On October 21, 2021, the Company issued 1,500,000
shares of common stock to A. Stone Douglass in connection with his appointment as Chairman of the Board.