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, data analytics
and media firm focused on the developing cannabis and hemp markets, and supports the cannabis industry’s best practices
for reliable testing, cannabis education and training. Our mission is to provide pharmaceutical-grade analysis and testing to
the cannabis industry, under ISO-17025:2017 guidelines, to ensure consumers and patients know exactly what is in the cannabis
they ingest and to help maximize the quality of our clients’ products through research, development, and standardization.
Digipath has been operating a cannabis-testing lab in Nevada since 2015 and 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, 2020:
|
|
Jurisdiction
of
|
|
|
Name
of Entity(1)
|
|
Incorporation
|
|
Relationship
|
Digipath,
Inc.(2)
|
|
Nevada
|
|
Parent
|
Digipath
Labs, Inc.
|
|
Nevada
|
|
Subsidiary
|
TNM
News, Inc.
|
|
Nevada
|
|
Subsidiary
|
GroSciences,
Inc.(3)
|
|
Colorado
|
|
Subsidiary
|
Digipath
Labs S.A.S.(4)
|
|
Colombia
|
|
Subsidiary
|
VSSL
Enterprises, Ltd.(5)
|
|
Canada
|
|
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.
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 $128,944 and $50,540 as of September 30, 2020 and 2019, respectively.
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:
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 have 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 $45,120 and $221,980
for the years ended September 30, 2020 and 2019, 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,
2020 and 2019, 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.
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.
Adoption
of New Accounting Standards and Recently Issued Accounting Pronouncements
In
June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which
expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option
pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern
of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2018, with early adoption permitted. The new standard did not have a
material impact.
In
February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize
the rights and obligations created by leases on the balance sheet and disclose key information about leasing arrangements. Topic
842 was subsequently amended by ASU No. 2018-11, Targeted Improvements, ASU No. 2018-10, Codification Improvements to
Topic 842, and ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842. The new standard establishes
a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases
with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern
and classification of expense recognition in the statement of operations.
The
new standard became effective for fiscal years beginning after December 15, 2019, with early adoption permitted. A modified retrospective
transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company adopted the new standard on October 1, 2019 using the modified retrospective transition approach as of the
effective date of the initial application. Consequently, financial information will not be updated and the disclosures required
under the new standard will not be provided for dates and periods before October 1, 2019. The new standard provides a number of
optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits
entities not to reassess under the new lease standard prior conclusions about lease identification, lease classification and initial
direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements.
The
most significant effects of the adoption of the new standard relate to the recognition of new ROU assets and lease labilities
on our balance sheet for office operating leases and providing significant new disclosures about our leasing activities.
The
new standard also provides practical expedients for an entity’s ongoing accounting. The Company has also elected the short-term
leases recognition exemption for all leases that qualify. This means that the Company will not recognize ROU assets or lease liabilities,
and this includes not recognizing ROU assets and lease liabilities, for existing short-term leases of those assets in transition.
The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for its leases.
The new standard did not have a material impact.
There
are no other 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 $17,265,150 and negative working capital of $345,436, and as of September 30, 2020, 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 – Related Party Transactions
Common
Stock Issued to Affiliate for Acquisition
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. Prior to the closing of the acquisition, on September 25, 2019, the Company appointed one of the principal
sellers of VSSL, Kyle Remenda, as CEO of Digipath, Inc. Mr. Remenda subsequently resigned on July 1, 2020 due to COVID-19 travel
restrictions.
Stock
Issued to Officers for Services
During
the year ended September 30, 2020, we issued an aggregate total of 1,452,884 shares of common stock to our Chief Financial Officer,
Todd Peterson, in quarterly increments for services rendered pursuant to his employment agreement. The aggregate fair value of
the common stock was $60,000 based on the closing price of the Company’s common stock on the dates of grant, and was expensed
over the requisite service periods.
Options
Issued to Officers and Directors for Services
On
March 25, 2020, we granted options to purchase 500,000 shares of common stock as compensation for services to our former Chief
Financial Officer. The options vested immediately as to 166,667 shares and the remaining shares vest in equal monthly amounts
over the next 24 months following the grant date, and are exercisable for a ten-year period at an exercise price of $0.10 per
share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call option value of
$0.0468, was $23,425. The options are being expensed over the vesting period, resulting in $11,713 of stock-based compensation
expense during the year ended September 30, 2020. As of September 30, 2020, a total of $11,712 of unamortized expenses are expected
to be expensed over the vesting period.
On
March 9, 2020, we granted options to purchase 750,000 shares of common stock as compensation for services to our former Chief
Executive Officer. The options vested immediately as to 250,000 shares and the remaining shares vest in equal monthly amounts
over the next 24 months following the grant date, and are exercisable for a ten-year period at an exercise price of $0.10 per
share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call option value of
$0.0499, was $37,420. The options were expensed over the vesting period, resulting in $18,710 of stock-based compensation expense
during the year ended September 30, 2020. As of September 30, 2020, the options were forfeited due to his resignation.
On
March 9, 2020, we granted options to purchase 750,000 shares of common stock as compensation for services to our former Chief
Operating Officer. The options vested immediately as to 250,000 shares and the remaining shares vest in equal monthly amounts
over the next 24 months following the grant date, and are exercisable for a ten-year period at an exercise price of $0.10 per
share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call option value of
$0.0499, was $37,420. The options are being expensed over the vesting period, resulting in $18,710 of stock-based compensation
expense during the year ended September 30, 2020. The options were forfeited on December 30, 2020 due to his resignation. As of
September 30, 2020, a total of $4,716 of unamortized expenses are expected to be expensed over the vesting period.
On
March 9, 2020, we granted options to purchase 1,000,000 shares of common stock as compensation for services to our Chairman of
the Board of Directors. The options vested immediately as to 333,333 shares and the remaining shares vest in equal monthly amounts
over the next 24 months following the grant date, and are exercisable for a ten-year period at an exercise price of $0.10 per
share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call option value of
$0.0499, was $49,894. The options are being expensed over the vesting period, resulting in $24,947 of stock-based compensation
expense during the year ended September 30, 2020. As of September 30, 2020, a total of $24,947 of unamortized expenses are expected
to be expensed over the vesting period.
On
January 31, 2020, we granted options to purchase 250,000 shares of common stock as compensation for Director services to Dennis
Hartmann. The options vested immediately as to 62,500 shares and as to an additional 62,500 shares on each of January 31, 2021,
January 31, 2022, and January 31, 2023, and are exercisable for a ten-year period at an exercise price of $0.10 per share. The
estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 238% and a call option value of $0.0683,
was $17,078. The options are being expensed over the vesting period, resulting in $4,270 of stock-based compensation expense during
the year ended September 30, 2020. As of September 30, 2020, a total of $12,808 of unamortized expenses are expected to be expensed
over the vesting period.
On
January 29, 2020, Edmond A. DeFrank was appointed to the Company’s Board of Directors, filling the vacancy resulting from
the resignation of Dr. Cindy Orser on January 20, 2020. On January 31, 2020, we granted Mr. DeFrank options to purchase 250,000
shares of common stock as compensation for Director services. The options vested immediately as to 62,500 shares and as to an
additional 62,500 shares on each of January 31, 2021, January 31, 2022, and January 31, 2023, and are exercisable for a ten-year
period at an exercise price of $0.10 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility
rate of 238% and a call option value of $0.0683, was $17,078. The options are being expensed over the vesting period, resulting
in $4,270 of stock-based compensation expense during the year ended September 30, 2020. As of September 30, 2020, a total of $12,808
of unamortized expenses are expected to be expensed over the vesting period.
Note
4 – 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:
|
|
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
|
|
|
1,585
|
|
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.
|
|
For
the Years Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues
|
|
$
|
2,588,803
|
|
|
$
|
2,666,374
|
|
Net loss
|
|
$
|
(2,343,662
|
)
|
|
$
|
(1,788,680
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
Weighted average number of common shares
outstanding - basic and fully diluted
|
|
|
56,350,657
|
|
|
|
52,678,953
|
|
Note
5 – 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 Company’s financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the measurement date.
Level
2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability
(e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market
data by correlation or other means (market corroborated inputs).
Level
3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset
or liability.
The
following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets
as of September 30, 2020 and 2019, respectively:
|
|
Fair
Value Measurements at September 30, 2020
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
82,749
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
assets
|
|
|
82,749
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term advances
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
|
Lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
561,394
|
|
Notes payable
|
|
|
-
|
|
|
|
503,336
|
|
|
|
-
|
|
Convertible notes
payable, net of discounts of $8,322
|
|
|
-
|
|
|
|
-
|
|
|
|
1,241,678
|
|
Total
liabilities
|
|
|
-
|
|
|
|
523,336
|
|
|
|
1,803,072
|
|
|
|
$
|
82,749
|
|
|
$
|
(523,336
|
)
|
|
$
|
(1,803,072
|
)
|
|
|
Fair
Value Measurements at September 30, 2019
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
323,739
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
assets
|
|
|
323,739
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of discounts
of $41,426
|
|
|
-
|
|
|
|
-
|
|
|
|
658,574
|
|
Total
liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
658,574
|
|
|
|
$
|
323,739
|
|
|
$
|
-
|
|
|
$
|
(658,574
|
)
|
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.
Level
3 liabilities consist of a total of $1,250,000 of convertible debentures, net of discounts of $8,322 and $41,426 as of September
30, 2020 and 2019, respectively.
There
were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the years ended September
30, 2020 or 2019.
Note
6 – Accounts Receivable
Accounts
receivable was $242,145 and $179,256 at September 30, 2020 and 2019, respectively, net of allowance for uncollectible accounts
of $128,944 and $50,540 at September 30, 2020 and 2019, respectively.
Note
7 – Other Current Assets
Other
current assets consist of the following:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Prepaid expenses
|
|
$
|
48,151
|
|
|
$
|
74,620
|
|
Other receivable
|
|
|
5,522
|
|
|
|
-
|
|
Total
prepaid expenses
|
|
$
|
53,673
|
|
|
$
|
74,620
|
|
Note
8 – Note Receivable
On
March 8, 2019 and February 15, 2019, we loaned Big Valley Analytical Labs, Inc. $25,000 and $20,000, respectively. The loans carried
interest at an annual rate of 15%, were evidenced by secured demand notes, and were secured by a lien on the borrower’s
assets. The principal amount of the loans was subsequently repaid in full on April 1, 2019.
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.
Note
9 – Fixed Assets
Fixed
assets consist of the following at September 30, 2020 and 2019:
|
|
For the Years Ended
|
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Software
|
|
$
|
124,697
|
|
|
$
|
123,492
|
|
Office equipment
|
|
|
74,777
|
|
|
|
55,061
|
|
Furniture and fixtures
|
|
|
29,879
|
|
|
|
29,115
|
|
Lab equipment
|
|
|
1,398,716
|
|
|
|
1,118,942
|
|
Leasehold improvements
|
|
|
494,117
|
|
|
|
494,117
|
|
Lab equipment
held under capital leases
|
|
|
99,193
|
|
|
|
-
|
|
|
|
|
2,221,379
|
|
|
|
1,820,727
|
|
Less: accumulated
depreciation
|
|
|
(1,335,974
|
)
|
|
|
(1,094,113
|
)
|
Total
|
|
$
|
885,405
|
|
|
$
|
726,614
|
|
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
various dates from July 1, 2019 through September 30, 2019, we disposed of fixed assets with an aggregate net book value of $14,956.
The fixed assets consisted of office equipment with a historical cost basis of $2,868 and lab equipment with a historical cost
basis of $28,444, and accumulated depreciation of $2,148 and $14,208, respectively. Total proceeds of $5,032 were received, resulting
in a loss on disposal of $9,924.
Depreciation
and amortization expense totaled $323,391 and $260,645 for the years ended September 30, 2020 and 2019, respectively.
Note
10 – 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:
|
|
For the
|
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
|
2020
|
|
Operating lease cost
|
|
$
|
207,772
|
|
Finance lease cost:
|
|
|
|
|
Amortization
of assets
|
|
|
20,224
|
|
Interest on lease
liabilities
|
|
|
10,696
|
|
Sublease income
|
|
|
(79,285
|
)
|
Total
net lease cost
|
|
$
|
159,407
|
|
Supplemental
balance sheet information related to leases was as follows:
|
|
September 30,
|
|
|
|
2020
|
|
Operating leases:
|
|
|
|
|
Operating
lease assets
|
|
$
|
505,706
|
|
|
|
|
|
|
Current portion
of operating lease liabilities
|
|
$
|
84,731
|
|
Noncurrent
operating lease liabilities
|
|
|
423,752
|
|
Total
operating lease liabilities
|
|
$
|
508,483
|
|
Finance lease:
|
|
|
|
|
Equipment, at
cost
|
|
$
|
99,193
|
|
Accumulated
amortization
|
|
|
(19,839
|
)
|
Equipment,
net
|
|
$
|
79,354
|
|
|
|
|
|
|
Current portion of finance lease
liabilities
|
|
$
|
32,532
|
|
Noncurrent
finance lease liabilities
|
|
|
20,379
|
|
Total
finance lease liabilities
|
|
$
|
52,911
|
|
|
|
|
|
|
Weighted average remaining lease
term:
|
|
|
|
|
Operating leases
|
|
|
4.92
years
|
|
Finance leases
|
|
|
1.55
years
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
Operating leases
|
|
|
5.75
|
%
|
Finance lease
|
|
|
18.41
|
%
|
Supplemental
cash flow and other information related to leases was as follows:
|
|
For the
|
|
|
|
Year Ended
|
|
|
|
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
|
|
$
|
177,619
|
|
Financing
cash flows used for finance leases
|
|
$
|
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, 2020:
Fiscal Year Ending
|
|
Minimum Lease
|
|
September
30,
|
|
Commitments
|
|
2021
|
|
$
|
111,782
|
|
2022
|
|
|
115,550
|
|
2023
|
|
|
119,468
|
|
2024
|
|
|
123,543
|
|
2025
|
|
|
116,891
|
|
|
|
$
|
587,234
|
|
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, 2020:
|
|
Finance
|
|
|
|
Leases
|
|
|
|
|
|
2021
|
|
$
|
40,197
|
|
2022
|
|
|
21,644
|
|
Total minimum
lease payments
|
|
|
61,841
|
|
Less interest
|
|
|
8,930
|
|
Present value
of lease liabilities
|
|
|
52,911
|
|
Less current
portion
|
|
|
32,532
|
|
Long-term
lease liabilities
|
|
$
|
20,379
|
|
Note
11 – Short Term Advances
Short
term advances consist of the following at September 30, 2020 and 2019, respectively:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
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.
|
|
$
|
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.
|
|
|
20,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On December
26, 2019, we received $25,000 as a short-term loan from one of our convertible noteholders. The advance was subsequently repaid
on February 6, 2020. No interest expense was recognized.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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 $61 for the year
ended September 30, 2020.
Note
12 –Notes Payable
Notes
payable consists of the following at September 30, 2020 and 2019, respectively:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
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. The Digipath, Inc. PPP Note
and interest was forgiven by the Small Business Administration (“SBA”) on January 12, 2021.
Under
the Payroll Protection Program, the Company will be eligible for loan forgiveness up to the full amount of the Company PPP
Note and any accrued interest. The forgiveness amount will be equal to the amount that the Company spends during the 24-week
period beginning June 22, 2020 on payroll costs, payment of rent on any leases in force prior to February 15, 2020 and payment
on any utility for which service began before February 15, 2020. The maximum amount of loan forgiveness for non-payroll expenses
is 40% of the amount of the Company PPP Note. No assurance is provided that the Company will obtain forgiveness under the
Company PPP Note in whole or in part.
|
|
$
|
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 is due on May
13, 2022. The Labs PPP Note may be repaid at any time without penalty.
Under the Payroll Protection Program,
Labs will be eligible for loan forgiveness up to the full amount of the Labs PPP Note and any accrued interest. The forgiveness
amount will be equal to the amount that Labs spends during the 8-week period beginning May 13, 2020 on payroll costs, payment
of rent on any leases in force prior to February 15, 2020 and payment on any utility for which service began before February
15, 2020. The maximum amount of loan forgiveness for non-payroll expenses is 25% of the amount of the Labs PPP Note. No assurance
is provided that Labs will obtain forgiveness under the Labs PPP Note in whole or in part.
|
|
|
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.
|
|
|
253,190
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
473,224
|
|
|
|
-
|
|
Less: current
maturities
|
|
|
(54,317
|
)
|
|
|
-
|
|
Notes payable
|
|
$
|
418,907
|
|
|
$
|
-
|
|
The
Company recorded interest expense pursuant to the stated interest rate and closing costs on the notes payable in the amount of
$16,473 during the year ended September 30, 2020.
Note
13 – Convertible Notes Payable
Convertible
notes payable consist of the following at September 30, 2020 and 2019, respectively:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
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.
|
|
$
|
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.
|
|
|
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.
|
|
|
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.
|
|
|
200,000
|
|
|
|
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. A total of $4,066 of interest was
repaid during the nine months ended June 30, 2019.
|
|
|
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
|
|
|
1,250,000
|
|
|
|
700,000
|
|
Less: unamortized
debt discounts
|
|
|
(8,322
|
)
|
|
|
(41,426
|
)
|
|
|
|
1,241,678
|
|
|
|
658,574
|
|
Less: current
maturities
|
|
|
-
|
|
|
|
(200,000
|
)
|
Convertible
notes payable
|
|
$
|
1,241,678
|
|
|
$
|
458,574
|
|
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 $70,964 during the year ended September 30, 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 $33,104 and $29,538, during the years ended September 30, 2020 and 2019, respectively.
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 $87,690 and
$36,132 for the years ended September 30, 2020 and 2019, respectively.
The
Company recognized interest expense for the years ended September 30, 2020 and 2019, respectively, as follows:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Interest on short term
loans
|
|
$
|
61
|
|
|
$
|
-
|
|
Interest on capital leases
|
|
|
10,696
|
|
|
|
-
|
|
Interest on notes payable
|
|
|
16,473
|
|
|
|
-
|
|
Amortization of beneficial conversion
features
|
|
|
33,104
|
|
|
|
29,538
|
|
Interest on
convertible notes
|
|
|
87,690
|
|
|
|
36,132
|
|
Total
interest expense
|
|
$
|
148,024
|
|
|
$
|
65,670
|
|
Note
14 – 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, 2020, 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.
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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.
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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.
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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.
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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.
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Preferred
Stock Conversions for the Year Ended September 30, 2019
On
December 31, 2018, a total of 100,000 shares of Series A Preferred were converted into 500,000 shares of common stock. The stock
was converted in accordance with the conversion terms; therefore, no gain or loss has been recognized.
Common
Stock
Common
stock consists of $0.001 par value, 250,000,000 shares authorized, of which 58,270,567 shares were issued and outstanding as of
September 30, 2020.
Common
Stock Sales for the Year Ended September 30, 2020
On
February 10, 2020, the Company sold 81,250 shares of its common stock in exchange for proceeds of $6,500.
On
January 16, 2020, the Company sold a total of 625,000 shares of its common stock in exchange for proceeds of $50,000.
Common
Stock Sales for the Year Ended September 30, 2019
On
February 7, 2019, the Company sold 1,000,000 shares of its common stock in exchange for proceeds of $200,000.
On
February 1, 2019, the Company sold 250,000 shares of its common stock in exchange for proceeds of $50,000.
On
January 31, 2019, the Company sold 625,000 shares of its common stock in exchange for proceeds of $125,000.
On
January 24, 2019, the Company sold 1,250,000 shares of its common stock in exchange for proceeds of $250,000.
Common
Stock Issued to Affiliate for Acquisition
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.
Additional
Common Stock Issuances for the Year Ended September 30, 2020
On
September 25, 2020, the Company issued 657,895 shares of common stock to its CFO for services rendered pursuant to his employment
agreement. The aggregate fair value of the common stock was $15,000 based on the closing price of the Company’s common stock
on the date of grant, and was expensed over the requisite service period.
On
June 25, 2020, the Company issued 375,000 shares of common stock to its CFO for services rendered pursuant to his employment agreement.
The aggregate fair value of the common stock was $15,000 based on the closing price of the Company’s common stock on the
date of grant, and was expensed over the requisite service period.
On
March 25, 2020, the Company issued 248,756 shares of common stock to its CFO for services rendered pursuant to his employment
agreement. The aggregate fair value of the common stock was $15,000 based on the closing price of the Company’s common stock
on the date of grant, and was expensed over the requisite service period.
On
March 25, 2020, the Company issued 750,000 shares of common stock to a consultant for investor relations services to be performed
from March 25, 2020 through August 25, 2020. The fair value of the common stock was $45,300 based on the closing price of the
Company’s common stock on the date of grant, and is being expensed over the requisite service period.
On
January 27, 2020, the Company issued 500,000 shares of common stock to a consultant for investor relations services to be performed
from February 1, 2020 through July 31, 2020. The fair value of the common stock was $37,500 based on the closing price of the
Company’s common stock on the date of grant, and is being expensed over the requisite service period. The shares were subsequently
issued on April 6, 2020.
On
December 25, 2019, the Company issued 171,233 shares of common stock to its CFO for services rendered pursuant to his employment
agreement. The aggregate fair value of the common stock was $15,000 based on the closing price of the Company’s common stock
on the date of grant, and was expensed over the requisite service period.
Additional
Common Stock Issuances for the Year Ended September 30, 2019
On
September 25, 2019, the Company issued 58,824 shares of common stock to its President and CEO for services rendered pursuant to
his employment agreement. The aggregate fair value of the common stock was $6,000 based on the closing price of the Company’s
common stock on the date of grant, and was expensed over the requisite service period.
On
September 25, 2019, the Company issued 147,059 shares of common stock to its CFO for services rendered pursuant to his employment
agreement. The aggregate fair value of the common stock was $15,000 based on the closing price of the Company’s common stock
on the date of grant, and was expensed over the requisite service period.
On
June 25, 2019, the Company issued 300,000 shares of common stock to a consultant for business development services to be performed
from May 1, 2019 through October 31, 2019. The fair value of the common stock was $58,500 based on the closing price of the Company’s
common stock on the date of grant, and is being expensed over the requisite service period.
On
June 25, 2019, the Company issued 41,667 shares of common stock to its President and CEO for services rendered pursuant to his
employment agreement. The aggregate fair value of the common stock was $6,000 based on the closing price of the Company’s
common stock on the date of grant, and was expensed over the requisite service period.
On
June 25, 2019, the Company issued 104,167 shares of common stock to its CFO for services rendered pursuant to his employment agreement.
The aggregate fair value of the common stock was $15,000 based on the closing price of the Company’s common stock on the
date of grant, and was expensed over the requisite service period.
On
May 25, 2019, a total of 50,000 shares of common stock were issued to a consultant that was engaged to assist the Company with
acquisition activities. The fair value of the common stock was $8,030 based on the closing price of the Company’s common
stock on the date of grant, and was expensed over the requisite service period.
On
April 25, 2019, a total of 50,000 shares of common stock were issued to a consultant that was engaged to assist the Company with
acquisition activities. The fair value of the common stock was $9,500 based on the closing price of the Company’s common
stock on the date of grant, and was expensed over the requisite service period.
On
March 29, 2019, the Company issued 475,000 shares of common stock to the estate of our former CEO in exchange for the cancellation
of 4,750,000 common stock options. The aggregate fair value of the options exceeded the fair value of the common stock at issuance,
therefore there was no additional expense as a result of the modification of the equity awards.
On
March 25, 2019, the Company issued 29,268 shares of common stock to its President and CEO for services rendered pursuant to his
employment agreement. The aggregate fair value of the common stock was $6,000 based on the closing price of the Company’s
common stock on the date of grant, and was expensed over the requisite service period.
On
March 25, 2019, the Company issued 73,171 shares of common stock to its CFO for services rendered pursuant to his employment agreement.
The aggregate fair value of the common stock was $15,000 based on the closing price of the Company’s common stock on the
date of grant, and was expensed over the requisite service period.
On
March 25, 2019, a total of 50,000 shares of common stock were issued to a consultant that was engaged to assist the Company with
acquisition activities. The fair value of the common stock was $10,250 based on the closing price of the Company’s common
stock on the date of grant, and was expensed over the requisite service period.
On
February 25, 2019, a total of 50,000 shares of common stock were issued to a consultant that was engaged to assist the Company
with acquisition activities. The fair value of the common stock was $12,300 based on the closing price of the Company’s
common stock on the date of grant, and was expensed over the requisite service period.
On
January 25, 2019, a total of 50,000 shares of common stock were issued to a consultant that was engaged to assist the Company
with acquisition activities. The fair value of the common stock was $10,500 based on the closing price of the Company’s
common stock on the date of grant, and was expensed over the requisite service period.
On
December 25, 2018, the Company issued 46,261 shares of common stock to its President and CEO for services rendered pursuant to
his employment agreement. The aggregate fair value of the common stock was $6,000 based on the closing price of the Company’s
common stock on the date of grant, and was expensed over the requisite service period.
On
December 25, 2018, the Company issued 115,652 shares of common stock to its CFO for services rendered pursuant to his employment
agreement. The aggregate fair value of the common stock was $15,000 based on the closing price of the Company’s common stock
on the date of grant, and was expensed over the requisite service period.
On
December 25, 2018, a total of 150,000 shares of common stock were issued to three consultants that were engaged to assist the
Company with acquisition activities. The aggregate fair value of the common stock was $19,455 based on the closing price of the
Company’s common stock on the date of grant, and was expensed over the requisite service period.
On
November 25, 2018, a total of 150,000 shares of common stock were issued to three consultants that were engaged to assist the
Company with acquisition activities. The aggregate fair value of the common stock was $24,000 based on the closing price of the
Company’s common stock on the date of grant, and was expensed over the requisite service period.
On
October 30, 2018, the Company issued 400,000 shares of common stock to another consultant for business development services to
be performed from November 1, 2018 through April 30, 2019. The fair value of the common stock was $54,120 based on the closing
price of the Company’s common stock on the date of grant, and is being expensed over the requisite service period.
On
October 25, 2018, a total of 150,000 shares of common stock were issued to three consultants that were engaged to assist the Company
with acquisition activities. The aggregate fair value of the common stock was $23,250 based on the closing price of the Company’s
common stock on the date of grant, and was expensed over the requisite service period.
Amortization
of Stock-Based Compensation
A
total of $45,300 of stock-based compensation expense was recognized during the year ended September 30, 2020 as a result of the
issuance of 750,000 shares of common stock to a consultant on March 25, 2020, as amortized over the requisite service period.
A
total of $37,500 of stock-based compensation expense was recognized during the year ended September 30, 2020 as a result of the
issuance of 500,000 shares of common stock to a consultant on January 27, 2020, as amortized over the requisite service period.
A
total of $29,562 of stock-based compensation expense was recognized during the year ended September 30, 2019, as a result of the
issuance of 200,000 shares of common stock to one of our directors, Bruce Raben, on September 12, 2018, as amortized over the
requisite service period.
A
total of $9,750 and $48,750 of stock-based compensation expense was recognized during the years ended September 30, 2020 and 2019,
respectively, as a result of the issuance of 300,000 shares of common stock to a consultant on June 25, 2019, as amortized over
the requisite service period.
A
total of $211,671 and $186,938 of stock-based compensation expense was recognized from the amortization of options and warrants
over their vesting period during the years ended September 30, 2020 and 2019, respectively.
Note
15 – 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 3,570,000 shares of common stock were outstanding
as of September 30, 2020.
Common
Stock Option Issuances for the Year Ended September 30, 2020
On
March 25, 2020, we granted options to purchase 500,000 shares of common stock as compensation for services to our Chief Financial
Officer. The options vested immediately as to 166,667 shares and the remaining shares vest in equal monthly amounts over the next
24 months following the grant date, and are exercisable for a ten-year period at an exercise price of $0.10 per share. The estimated
value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call option value of $0.0468, was $23,425.
The options are being expensed over the vesting period, resulting in $11,713 of stock-based compensation expense during the year
ended September 30, 2020. As of September 30, 2020, a total of $11,712 of unamortized expenses are expected to be expensed over
the vesting period.
On
March 9, 2020, we granted options to purchase 750,000 shares of common stock as compensation for services to our former Chief
Executive Officer. The options vested immediately as to 250,000 shares and the remaining shares vest in equal monthly amounts
over the next 24 months following the grant date, and are exercisable for a ten-year period at an exercise price of $0.10 per
share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call option value of
$0.0499, was $37,420. The options were expensed over the vesting period, resulting in $18,710 of stock-based compensation expense
during the year ended September 30, 2020. As of September 30, 2020, the options were forfeited due to his resignation.
On
March 9, 2020, we granted options to purchase 750,000 shares of common stock as compensation for services to our former Chief
Operating Officer. The options vested immediately as to 250,000 shares and the remaining shares vest in equal monthly amounts
over the next 24 months following the grant date, and are exercisable for a ten-year period at an exercise price of $0.10 per
share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call option value of
$0.0499, was $37,420. The options are being expensed over the vesting period, resulting in $18,710 of stock-based compensation
expense during the year ended September 30, 2020. The options were forfeited on December 30, 2020 due to his resignation. As of
September 30, 2020, a total of $4,716 of unamortized expenses are expected to be expensed over the vesting period.
On
March 9, 2020, we granted options to purchase 1,000,000 shares of common stock as compensation for services to our Chairman of
the Board of Directors. The options vested immediately as to 333,333 shares and the remaining shares vest in equal monthly amounts
over the next 24 months following the grant date, and are exercisable for a ten-year period at an exercise price of $0.10 per
share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 110% and a call option value of
$0.0499, was $49,894. The options are being expensed over the vesting period, resulting in $24,947 of stock-based compensation
expense during the year ended September 30, 2020. As of September 30, 2020, a total of $24,947 of unamortized expenses are expected
to be expensed over the vesting period.
On
February 18, 2020, we granted options to purchase 100,000 shares of common stock as compensation for services to a consultant.
The options vested immediately, and are exercisable for a five-year period at an exercise price of $0.10 per share. The estimated
value using the Black-Scholes Pricing Model, based on a volatility rate of 108% and a call option value of $0.0403, was $4,031.
On
February 18, 2020, we granted options to purchase 100,000 shares of common stock as compensation for services to another consultant.
The options vested immediately, and are exercisable for a five-year period at an exercise price of $0.10 per share. The estimated
value using the Black-Scholes Pricing Model, based on a volatility rate of 108% and a call option value of $0.0403, was $4,031.
On
January 31, 2020, we granted options to purchase 250,000 shares of common stock as compensation for Director services to Dennis
Hartmann. The options vested immediately as to 62,500 shares and as to an additional 62,500 shares on each of January 31, 2021,
January 31, 2022, and January 31, 2023, and are exercisable for a ten-year period at an exercise price of $0.10 per share. The
estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 238% and a call option value of $0.0683,
was $17,078. The options are being expensed over the vesting period, resulting in $4,270 of stock-based compensation expense during
the year ended September 30, 2020. As of September 30, 2020, a total of $12,808 of unamortized expenses are expected to be expensed
over the vesting period.
On
January 29, 2020, Edmond A. DeFrank was appointed to the Company’s Board of Directors, filling the vacancy resulting from
the resignation of Dr. Cindy Orser on January 20, 2020. On January 31, 2020, we granted Mr. DeFrank options to purchase 250,000
shares of common stock as compensation for Director services. The options vested immediately as to 62,500 shares and as to an
additional 62,500 shares on each of January 31, 2021, January 31, 2022, and January 31, 2023, and are exercisable for a ten-year
period at an exercise price of $0.10 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility
rate of 238% and a call option value of $0.0683, was $17,078. The options are being expensed over the vesting period, resulting
in $4,270 of stock-based compensation expense during the year ended September 30, 2020. As of September 30, 2020, a total of $12,808
of unamortized expenses are expected to be expensed over the vesting period.
Common
Stock Option Issuances for the Year Ended September 30, 2019
On
September 25, 2019, we granted options to purchase 500,000 shares of common stock as compensation for services to our former Chief
Executive Officer. The options vested immediately as to 125,000 shares and as to an additional 125,000 shares on each of September
25, 2020, September 25, 2021, and September 25, 2022, and are exercisable for a ten-year period at an exercise price of $0.102
per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 111% and a call option value
of $0.1017, was $40,470. The options were expensed over the vesting period, resulting in $20,050 and $185 of stock-based compensation
expense during the years ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the options were forfeited
due to his resignation.
On
September 25, 2019, we granted options to purchase 500,000 shares of common stock as compensation for services to a consultant.
The options vested immediately as to 125,000 shares and as to an additional 125,000 shares on each of September 25, 2020, September
25, 2021, and September 25, 2022, and are exercisable for a ten-year period at an exercise price of $0.102 per share. The estimated
value using the Black-Scholes Pricing Model, based on a volatility rate of 111% and a call option value of $0.1017, was $40,470.
The options were expensed over the vesting period, resulting in $$20,050 and $185 of stock-based compensation expense during the
years ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the options were forfeited due to his resignation.
On
January 7, 2019, we granted options to purchase 500,000 shares of common stock as compensation for services to our former Chief
Science Officer. The options vested immediately as to 125,000 shares and as to an additional 125,000 shares on each of April 7,
2019, July 7, 2019, and October 7, 2019, and are exercisable for a ten-year period at an exercise price of $0.13 per share. The
estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 107% and a call option value of $0.1019,
was $50,934. The options were expensed over the vesting period, resulting in $1,306 and $49,628 of stock-based compensation expense
during the years ended September 30, 2020 and 2019, respectively.
On
January 7, 2019, we granted options to purchase 500,000 shares of common stock as compensation for services to Bruce Raben, one
of our directors. The options vested immediately as to 125,000 shares and as to an additional 125,000 shares on each of April
7, 2019, July 7, 2019, and October 7, 2019, and are exercisable for a ten-year period at an exercise price of $0.13 per share.
The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 107% and a call option value of $0.1019,
was $50,934. The options were expensed over the vesting period, resulting in $1,306 and $49,628 of stock-based compensation expense
during the years ended September 30, 2020 and 2019, respectively.
On
December 25, 2018, we granted fully vested options to purchase an aggregate of 345,000 shares of common stock as compensation
for services to a total of fourteen of our employees. The options are exercisable over a ten-year period at an exercise price
of $0.13 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 107% and a call option
value of $0.1017, was $35,078. The options were expensed over the vesting period, resulting in $8,265 and $26,813 of stock-based
compensation expense during the years ended September 30, 2020 and 2019, respectively.
Common
Stock Options Exchanged for Shares of Common Stock
On
March 29, 2019, the Company issued 475,000 shares of common stock to the estate of our former CEO in exchange for the cancellation
of 4,750,000 common stock options. The aggregate fair value of the options exceeded the fair value of the common stock at issuance,
therefore there was no additional expense as a result of the modification of the equity awards.
Re-Priced
Options Issued to Officers and Directors for Services
On
January 7, 2019, the board amended the following options to reduce their exercise price to $0.13 per share. All other terms were
unchanged. The modification of these equity awards resulted in an additional expense of $36,764.