UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For Quarterly Period Ended December 31, ~~2017~~2019

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

For the transition period from __________ to __________

Commission File Number 000-54239

Digipath, Inc.

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

Nevada		27-3601979
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

(702) 527-2060

(Registrant’s telephone number, including area code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

N/A

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

Yes [X]

~~[X]~~

[ ]

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes

[X]

[ ]

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

Large accelerated filer	[ ]		Accelerated filer	[ ]
Non-accelerated filer (Do not check if a smaller reporting company)	[ ]		Smaller reporting company	[ ]X]
		Emerging growth company	[X]

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

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

Yes

[ ]

~~[X]~~ [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

The number of shares of registrant’s common stock outstanding as of February ~~9, 2018~~12, 2020 was ~~39,268,133.~~49,657,666.

TABLE OF CONTENTS

			Page
	No.
PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	21
	Condensed Consolidated Balance Sheets as of December 31, ~~2017~~2019 (Unaudited) and September 30, ~~2017~~2019	21
	Condensed Consolidated Statements of Operations ~~and Comprehensive Loss~~ for the Three Months Ended December 31, ~~2017~~2019 and ~~2016~~2018 (Unaudited)	2
	Consolidated Statement of Stockholders’ Equity for the Three Months Ended December 31, 2019 and 2018 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, ~~2017~~2019 and ~~2016~~2018 (Unaudited)	4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1215
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	1619
ITEM 4.	CONTROLS AND PROCEDURES	1619
PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	1720
ITEM 1A.	RISK FACTORS	1720
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	1720
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	1720
ITEM 4.	MINE SAFETY DISCLOSURES	1720
ITEM 5.	OTHER INFORMATION	1720
ITEM 6.	EXHIBITS	1821
	SIGNATURES	1922

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DIGIPATH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, September 30,
2019 2019
(Unaudited)
Assets
Current assets: ��
Cash $ 68,657 $ 323,739
Accounts receivable, net 282,068 179,256
Other current assets 54,957 74,620
Inventory 37,900 -
Deposits 25,647 51,704
Total current assets 469,229 629,319

Right-of-use asset 289,867 -
Fixed assets, net 1,137,179 726,614

Total Assets $ 1,896,275 $ 1,355,933

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable $ 214,454 $ 136,612
Accrued expenses 85,934 134,881
Short term advances 25,000 -
Current portion of operating lease liabilities 196,069 -
Current portion of finance lease liabilities

29,771
-
Current maturities of note payable 52,030 -
Convertible notes payable, net of discounts of $33,105 and $-0- at December 31, 2019 and September 30, 2019, respectively 666,895 200,000
Total current liabilities 1,270,153 471,493

Operating lease liabilities

94,777
-
Finance lease liabilities 43,578 -
Note payable, equipment financing 239,901 -
Convertible notes payable, net of discounts of $-0- and $41,426 at December 31, 2019 and September 30, 2019, respectively - 458,574

Total Liabilities 1,648,409 930,067

Stockholders’ Equity:
Series A convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; 1,325,942 shares issued and outstanding 1,326 1,326
Common stock, $0.001 par value, 250,000,000 shares authorized; 48,532,666 and 48,361,433 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively 48,533 48,361
Additional paid-in capital 15,374,094 15,331,839
Accumulated (deficit) (15,176,087 ) (14,955,660 )

Total Stockholders’ Equity 247,866 425,866

Total Liabilities and Stockholders’ Equity $ 1,896,275 $ 1,355,933
See accompanying notes to financial statements.
DIGIPATH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

December 31, September 30,
2017 2017
Assets (Unaudited)

Current assets:
Cash $ 360,827 $ 178,177
Accounts receivable 454,471 266,613
Prepaid expenses 52,975 73,750
Deposits 25,647 25,647
Total current assets 893,920 544,187

Fixed assets, net 1,100,472 1,027,049

Total Assets $ 1,994,392 $ 1,571,236

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable $ 105,810 $ 121,994
Accrued expenses 70,914 42,004
Total current liabilities 176,724 163,998

Total Liabilities 176,724 163,998

Stockholders’ Equity:
Series A convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; 1,747,942 and 1,897,942 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively 1,748 1,898
Common stock, $0.001 par value, 90,000,000 shares authorized; 37,285,676 and 35,027,118 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively 37,286 35,027
Additional paid-in capital 13,454,322 12,866,984
Accumulated (deficit) (11,675,688 ) (11,496,671 )

Total Stockholders’ Equity 1,817,668 1,407,238

Total Liabilities and Stockholders’ Equity $ 1,994,392 $ 1,571,236
For the Three Months Ended
December 31,
2019 2018

Revenues $ 808,930 $ 642,115
Cost of sales 405,481 482,320
Gross profit 403,449 159,795

Operating expenses:
General and administrative 388,432 390,471
Professional fees 183,633 246,580
Bad debts expense 43,250 24,565
Total operating expenses 615,315 661,616

Operating loss (211,866 ) (501,821 )

Other income (expense):
Other income 21,000 50,400
Interest expense (29,561 ) (10,753 )
Total other income (expense) (8,561 ) 39,647

Net loss $ (220,427 ) $ (462,174 )

Weighted average number of common shares outstanding - basic and fully diluted 48,372,600 42,708,641

Net loss per share - basic and fully diluted $ (0.00 ) $ (0.01 )
See accompanying notes to financial statements.
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three Months Ended December 31, 2018
Series A Convertible Additional Total
Preferred Stock Common Stock Paid-in Accumulated Stockholders’
Shares Amount Shares Amount Capital (Deficit) Equity

Balance, September 30, 2018 1,425,942 $ 1,426 42,245,364 $ 42,245 $ 14,121,236 $ (13,150,328 ) $ 1,014,579

Common stock issued for services - - 1,011,913 1,012 148,264 - 149,276

Common stock options issued for services - - - - 6,559 - 6,559

Conversion of preferred stock to common stock (100,000 ) (100 ) 500,000 500 (400 ) - -

Beneficial conversion feature of convertible debts - - - - 70,964 - 70,964

Net loss for the three months ended December 31, 2018 - - - - - (462,174 ) (462,174 )

Balance, December 31, 2018 1,325,942 $ 1,326 43,757,277 $ 43,757 $ 14,346,623 $ (13,612,502 ) $ 779,204
For the Three Months Ended December 31, 2019
Series A Convertible Additional Total
Preferred Stock Common Stock Paid-in Accumulated Stockholders’
Shares Amount Shares Amount Capital (Deficit) Equity

Balance, September 30, 2019 1,325,942 $ 1,326 48,361,433 $ 48,361 $ 15,331,839 $ (14,955,660 ) $ 425,866

Common stock issued for services - - 171,233 172 24,578 - 24,750

Common stock options issued for services - - - - 17,677 - 17,677

Net loss for the three months ended December 31, 2019 - - - - - (220,427 ) (220,427 )

Balance, December 31, 2019 1,325,942 $ 1,326 48,532,666 $ 48,533 $ 15,374,094 $ (15,176,087 ) $ 247,866

See accompanying notes to financial statements.

2 3

DIGIPATH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS AND COMPREHENSIVE LOSS~~CASH FLOWS
(Unaudited)

For the Three Months Ended
December 31,
2017 2016

Revenues $ 1,118,785 $ 409,751
Cost of sales 376,772
204,132

Gross profit 742,013
205,619

Operating expenses:
General and administrative 399,114
279,686

Professional fees 486,676 191,643
Bad debts expense 55,940 14,450
Total operating expenses 941,730
485,779

Operating loss (199,717 ) (280,160 )

Other income:
Other income 20,700 154,000
Total other income 20,700 154,000

Net loss $ (179,017 ) $ (126,160 )
Other comprehensive loss
Available-for-sale investments:
Change in net unrealized loss (net of tax effect) - 6,800

Comprehensive loss $ (179,017 ) $ (119,360 )

Weighted average number of common shares outstanding - basic and fully diluted 35,413,602 23,947,563

Net (loss) per share - basic and fully diluted $ (0.01 ) $ (0.01 )
For the Three Months Ended
December 31,
2019 2018
Cash flows from operating activities
Net loss $ (220,427 ) $ (462,174 )
Adjustments to reconcile net loss to net cash used in operating activities:
Change in allowance for doubtful accounts 43,250 24,565
Depreciation and amortization expense 70,874 64,381
Stock issued for services 24,750 149,276
Options and warrants granted for services 17,677 6,559
Amortization of debt discounts 8,321 4,846
Decrease (increase) in assets:
Accounts receivable (146,062 ) (107,576 )
Other current assets 19,663 15,432
Inventory (37,900 ) -
Deposits 26,057 -
Right-of-use assets 47,376 -
Increase (decrease) in liabilities:
Accounts payable 77,842 (47,455 )
Accrued expenses (48,947 ) (15,316 )
Lease liabilities (46,398 ) -
Deferred revenues - 1,225
Net cash used in operating activities (163,924 ) (366,237 )

Cash flows from investing activities
Purchase of fixed assets (90,315 ) -
Advance of note receivable - (50,000 )
Net cash used in investing activities (90,315 ) (50,000 )

Cash flows from financing activities
Proceeds from short term advances 25,000 -
Principal payments on finance lease (25,843 ) -
Proceeds from convertible notes - 500,000
Net cash provided by (used in) financing activities (843 ) 500,000

Net increase (decrease) in cash (255,082 ) 83,763
Cash - beginning 323,739 176,027
Cash - ending $ 68,657 $ 259,790

Supplemental disclosures:
Interest paid $ 7,125 $ -
Income taxes paid $ - $ -

Non-cash investing and financing activities:
Fixed assets acquired with capitalized finance lease $ 99,193 $ -
Fixed assets acquired with note payable, equipment financing $ 291,931 $ -
Value of preferred stock converted to common stock $ - $ 100,000
Beneficial conversion feature of convertible notes payable $ - $ 70,964

See accompanying notes to financial statements.

3 4
~~DIGIPATH, INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~(Unaudited)~~
For the Three Months Ended
December 31,
2017 2016
Cash flows from operating activities
Net loss $ (179,017 ) $ (126,160 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Bad debts expense 55,940 14,450
Depreciation and amortization expense 69,091 61,653
Stock issued for services 187,704 17,500
Options and warrants granted for services 258,735 99,920
Decrease (increase) in assets:
Accounts receivable (243,798 ) (23,343 )
Prepaid expenses 20,775 8,357
Increase (decrease) in liabilities:
Accounts payable (16,184 ) (13,139 )
Accrued expenses 28,910 (9,201 )
Net cash provided by operating activities 182,156 30,037

Cash flows from investing activities
Purchase of fixed assets (142,514 ) (2,089 )
Net cash used in investing activities (142,514 ) (2,089 )

Cash flows from financing activities
Proceeds from sale of common stock 143,008 -
Net cash provided by financing activities 143,008 -

Net increase in cash 182,650 27,948
Cash - beginning 178,177 135,390
Cash - ending $ 360,827 $ 163,338

Supplemental disclosures:
Interest paid $ - $ -
Income taxes paid $ - $ -

Non-cash investing and financing activities:
Value of preferred stock converted to common stock $ 150,000 $ 500,000
~~See accompanying notes to financial statements.~~

4
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Organization, Basis of Presentation and Significant Accounting Policies

Organization

Digipath, Inc. was incorporated in Nevada on October 5, 2010. Digipath, Inc. and its subsidiaries (“Digipath,” the “Company,” “we,” “our” or “us”) is a service-oriented independent testing laboratory, data analytics and media firm focused on the developing cannabis and hemp markets, andsupports the cannabis industry’s best practices for reliable testing, cannabis education and training ~~and brings unbiased cannabis news coverage to the cannabis industry.~~. Our business units are described below.

●Ø Digipath Labs, Inc. Digipath Labs’ 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. ~~We have~~Digipath has been operating a ~~cannabis testing~~cannabis-testing lab in Nevada since 2015 and ~~have~~has plans to open labs in other states and countries that have legalized the sale of cannabis, beginning with California.

●Ø ~~The National Marijuana News Corp~~GroSciences, Inc. ~~provides a balanced and unbiased approach~~Launched during the first fiscal quarter of 2019 to ~~cannabis news, interviews and education with a news/talk radio show, app, national marijuana news website and social media presence focusing~~capitalize on the ~~political, economic, medicinal, scientific,~~extensive data we have collected from cannabis through the testing process. GroSciences plans to develop and ~~cultural dimensions of~~license specific formulations to other producers and product makers in the ~~rapidly evolving—~~industry, and ~~profoundly controversial—medicinal~~to market and ~~recreational marijuana industry.~~sell its “Tru-Hemp ID” Kit which distinguishes industrial hemp from drug-type cannabis.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated.

The unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2019. The interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at ~~September 30, 2017:~~December 31, 2019:

~~State~~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
⁽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⁾~~Entity formed for prospective purposes,~~Commenced operations during the first fiscal quarter of 2019, but has not incurred ~~any~~ income ~~or expenses~~ to date.
⁽⁴⁾Formed during the first fiscal quarter of 2019, 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.
~~Reclassifications~~
Prior period interest income in the amount of $2,500 has been reclassified to net against the related $2,500 of bad debt expense to conform to the current period presentation, along with the reclassification of $37,877 of equipment service contract expenses and $61,653 of depreciation expense from operating expenses to cost of sales. These reclassifications had no impact on net earnings, financial position or cash flows.
5
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 Companyoperates as a single segment and will evaluate additional segment disclosure requirements as it expands its ~~operations.~~operations.

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the ~~short term~~short-term nature of the ~~instruments.~~instruments.

Revenue Recognition

The ~~Company adoptedAccounting Standards Update No. 2014-09,~~~~Revenue from Contracts with Customers (Topic 606)~~ ~~on October 1, 2017. This update~~provides guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue from contracts with customers to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new update does not affect how the Company recognizes revenue in accordance with ASC ~~605,~~606 — Revenue ~~Recognition.~~from Contracts with Customers. Under ASC ~~605 requires that four basic criteria must be met before~~606, the Company recognizes revenue ~~can be recognized: (1) persuasive evidence~~from the sale of an arrangement exists; (2) delivery of product has met the criteria established in the arrangement or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. With respect to our cannabis lab testing ~~revenues, we sell~~services through our ~~services~~ subsidiary Digipath Labs, Inc.
Revenue is primarily generated through our subsidiary, Digipath Labs, Inc., which recognizes revenue from the analytical testing of cannabis products for licensed producers and cultivators within the state of Nevadaon a determinable fixed fee per test, or panel of tests basis ~~and offer a discounted price for customers that agree~~. Revenue from the performance of those services is recognized upon completion of the tests, at which time test results are delivered to ~~exclusive or predetermined quantities~~the customer, provided collectability of ~~tests. We~~the fee is reasonably assured.We typically require payment within thirty days of the delivery of results. ~~Revenues~~Management estimates an allowance for doubtful accounts based on the aging of its receivables.
Inventory
Inventories are ~~recognized upon~~stated at the ~~substantial completion~~lower of cost or market. Cost is determined on a standard cost basis that approximates the ~~tests when collectability~~first-in, first-out (FIFO) method. Market is ~~reasonably assured, which~~determined based on net realizable value. Appropriate consideration is ~~usually upon delivery~~given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our products consist of ~~results~~handheld devices used to ~~the customer.~~test cannabis for THC, CBD and CBG levels under our GroSciences, Inc. subsidiary. We have not yet commenced sales of this product.

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 505-50 (ASC 505-50). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.

~~Recent~~Adoption of New Accounting Standards and Recently Issued Accounting Pronouncements

In ~~May 2017,~~June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2017-09,~~2018-07,Compensation-Stock Compensation (Topic 718): ~~Scope of Modification~~Improvements to Nonemployee Share-Based Payment Accounting, which ~~clarifies when a change~~expands the scope of Topic 718 to ~~the terms or conditions of a~~include share-based payment ~~award must be accounted~~transactions for ~~as a modification. The new~~acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance ~~requires modification accounting if~~on inputs to an option pricing model and the ~~fair value, vesting condition or~~attribution of cost (that is, the ~~classification~~period of time over which share-based payment awards vest and the ~~award is not the same immediately before and after a change to the terms and conditions~~pattern of ~~the award.~~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, ~~2017,~~2018, with early adoption permitted.There was no impact on the Company’s financial statements as a result of adopting this ASU for the three-month period ending December 31, 2019 or the year ended September 30, 2019.
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. 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 ~~this ASU to have a material impact on its consolidated financial statements and does not plan to early adopt the ASU.~~
~~In May 2014 the FASB issued ASU No. 2014-09,~~~~Revenue from Contracts with Customers~~. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted the new standard relate to ~~be effective with~~the recognition of new ROU assets and lease labilities on our ~~first interim reporting period~~balance sheet for ~~the three months ended December 31, 2017. We use the modified retrospective method of adoption. We have completed an initial evaluation of the potential impact from adopting the~~office operating leases and providing significant new disclosures about our leasing activities.
The new standard ~~including a detailed review of performance obligations~~also provides practical expedients for an entity’s ongoing accounting. The Company has also elected the short-term leases recognition exemption for all ~~material revenue streams. Based on~~leases that qualify. This means that the Company will not recognize ROU assets or lease liabilities, and this ~~initial evaluation, adoption does~~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 on our financial position, results of operations, or cash flows. Related disclosures have been expanded in line with the requirements of the standard.~~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.

6
~~DIGIPATH, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
Note 2 – Going Concern

As shown in the accompanying condensed consolidated financial statements, the Company has incurred recurring losses from operations resulting in an accumulated deficit of ~~($11,675,688),~~$15,176,087, and as of December 31, ~~2017,~~2019, 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~~
~~Stock Based Compensation for Services~~
On December 22, 2017, the Company issued 300,000 shares of common stock to its CFO as a bonus for services rendered. The aggregate fair value of the common stock was $78,828 based on the closing price of the Company’s common stock on the date of grant, and was expensed in full.
On December 22, 2017, the Company issued 100,000 shares of common stock to Dr. Alfredo Axtmayer for his service on our Board of Directors. The aggregate fair value of the common stock was $26,276 based on the closing price of the Company’s common stock on the date of grant, and was expensed in full.
On December 22, 2017, we granted fully vested options to purchase 500,000 shares of common stock as compensation for services to our President and COO. The options are exercisable over a ten year period at an exercise price of $0.27 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 112% and a call option value of $0.2094, was $104,698. The options were expensed over the vesting period, resulting in $104,698 of stock based compensation expense during the three months ended December 31, 2017.

Note 43 – 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.
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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.

7
~~DIGIPATH, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of December 31, ~~2017~~2019 and September 30, ~~2017,~~2019, respectively:

Fair Value Measurements at December 31, 2017 Fair Value Measurements at December 31, 2019
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash $ 360,827 $ - $ - $ 68,657 $ - $ -
Total assets 360,827 - - 68,657 - -
Liabilities
Short term advances - 25,000 -
Lease liabilities - - 364,195
Note payable, equipment financing - 291,931 -
Convertible notes payable, net of discounts of $33,105 - - 666,895
Total liabilities - - - - 316,931 1,031,090
$ 360,827 $ - $ - $ 68,657 $ (316,931 ) $ (1,031,090 )

Fair Value Measurements at September 30, 2017 Fair Value Measurements at September 30, 2019
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash $ 178,177 $ - $ - $ 323,739 $ - $ -
Total assets 178,177 - - 323,739 - -
Liabilities
Convertible notes payable, net of discounts of $41,426 - - 658,574
Total liabilities - - - - - 658,574
$ 178,177 $ - $ - $ 323,739 $ - $ (658,574 )

The fair value of our intellectual properties are deemed to approximate book value, and are considered Level 3 inputs as defined by ASC Topic 820-10-35.

Level 3 liabilities consist of a total of $700,000 of convertible debentures, net of discounts of $33,105 and $41,426 as of December 31, 2019 and September 30, 2019, respectively.
There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the three months ended December 31, ~~2017~~2019 or the year ended September 30, ~~2017.~~2019.

Note 54 – Accounts Receivable

Accounts receivable was ~~$454,471~~$282,068 and ~~$266,613~~$179,256 at December 31, ~~2017~~2019 and September 30, ~~2017,~~2019, respectively, net of allowance for ~~doubtful~~uncollectible accounts of ~~$88,120~~$93,790 and ~~$32,180~~$50,540 at December 31, ~~2017~~2019 and September 30, ~~2017,~~2019, respectively.
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 65 – Fixed Assets

Fixed assets consist of the following at December 31, ~~2017~~2019 and September 30, ~~2017:~~2019:

December 31, September 30, December 31, September 30,
2017 2017 2019 2019
Software $ 123,492 $ 121,617 $ 123,492 $ 123,492
Office equipment 41,603 36,080 57,460 55,061
Furniture and fixtures 14,285 14,285 29,115 29,115
Lab equipment 1,073,566 938,450 1,498,789 1,118,942
Leasehold improvements 489,147 489,147 494,117 494,117
Lab equipment held under capital leases 99,193 -
1,742,093 1,599,579 2,302,166 1,820,727
Less: accumulated depreciation (641,621 ) (572,530 ) (1,164,987 ) (1,094,113 )
Total $ 1,100,472 $ 1,027,049 $ 1,137,179 $ 726,614

Depreciation and amortization expense totaled ~~$69,091~~$70,874 and ~~$61,653~~$64,381 for the three months ended December 31, ~~2017~~2019 and ~~2016,~~2018, respectively.

8
Note 6 – Leases

The Company’s leases its operating and office facilities, and sub-leases one of the units, under non-cancelable real property lease agreements that expire on May 31, 2021 and June 30, 2021. 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 leases contain 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 Three
Months Ended
December 31,
2019
Operating lease cost $ 52,002
Finance lease cost:
Amortization of assets 4,960
Interest on lease liabilities 3,306
Sublease income (21,000 )
Total net lease cost $ 39,268
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Supplemental balance sheet information related to leases was as follows:
December 31,
2019
Operating leases:
Operating lease assets $ 289,867

Current portion of operating lease liabilities $ 196,069
Noncurrent operating lease liabilities 94,777
Total operating lease liabilities $ 290,846
Finance lease:
Equipment, at cost $ 99,193
Accumulated amortization (4,960 )
Equipment, net $ 94,233

Current portion of finance lease liability $ 29,771
Noncurrentfinance lease liability 43,578
Total finance lease liability $ 73,349

Weighted average remaining lease term:
Operating leases 1.5 years
Finance leases 2.3 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 Three
Months Ended
December 31,
2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows provided by sublet operating leases $ 21,000
Operating cash flows used for operating leases $ 51,024
Operating cash flows used for finance leases $ 3,306
Financing cash flows used for finance leases $ 25,843

Leased assets obtained in exchange for lease liabilities:
Total operating lease liabilities $ -
Total finance lease liabilities $ 99,193
Future minimum annual lease commitments under non-cancelable operating leases are as follows at December 31, 2019:
Fiscal Year Ending Minimum Lease Sublease Net Lease
September 30, Commitments Income Commitments
2020* $ 155,032 $ 42,000 $ 113,032
2021 148,957 - 148,957
$ 303,989 $ 42,000 $ 261,989
* Liability pertains to the remaining nine month period from January 1, 2020 through September 30, 2020.
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Future minimum annual lease payments required under the finance lease and the present value of the net minimum lease payments are as follows at December 31, 2019:
Finance
Leases

2020* $ 30,921
2021 37,105
2022 21,644
Total minimum lease payments 89,670
Less interest 16,321
Present value of lease liabilities 73,349
Less current portion 29,771
Long-term lease liabilities $ 43,578
* Liability pertains to the remaining nine month period from January 1, 2020 through September 30, 2020.
Note 7 – Short Term Advances
On December 26, 2019, a total of $25,000 was received 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.
Note 8 –Note Payable, Equipment Financing
Note payable consists of the following at December 31, 2019 and September 30, 2019, respectively:
December 31, September 30,
2019 2019

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. $ 291,931 $ -
Less: current maturities (52,030 ) -
Note payable $ 239,901 $ -
The Company recorded interest expense pursuant to the stated interest rate and closing costs on the equipment loan in the amount of $3,819 during the three months ended December 31, 2019.
Note 9 – Convertible Notes Payable
Convertible notes payable consists of the following at December 31, 2019 and September 30, 2019, respectively:
December 31, September 30,
2019 2019

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 September 23, 2020. The principal and interest are convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.11 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 December 31, 2020. The principal and interest are convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 per share. The Company’s obligations under this Note is 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 three 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 December 31, 2020. The principal and interest are convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 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 700,000 700,000
Less: unamortized debt discounts (33,105 ) (41,426 )
666,895 658,574
Less: current maturities (666,895 ) (200,000 )
Convertible notes payable $ - $ 458,574
DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible notes by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible notes. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt.
The aforementioned accounting treatment resulted in a total debt discount equal to $70,964 during the three months ended December 31, 2018. The discount is amortized on a straight-line basis from the dates of issuance until the earlier of the stated redemption date of the debts, as noted above or the actual settlement date. The Company recorded debt amortization expense on the aforementioned debt discount in the amount of $8,321 and $4,846 during the three months ended December 31, 2019 and 2018, 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 $14,115 and $5,907 for the three months ended December 31, 2019 and 2018, respectively.
The Company recognized interest expense for the three months ended December 31, 2019 and 2018, respectively, as follows:
December 31, December 31,
2019 2018

Interest on capital leases $ 3,306 $ -
Interest on notes payable 3,819 -
Amortization of beneficial conversion features 8,321 4,846
Interest on convertible notes 14,115 5,907
Total interest expense $ 29,561 $ 10,753

Note 710 -Changes in 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 December 31, ~~2017,~~2019, there were ~~1,747,942~~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. ~~Shares~~Each share of Series A Preferred ~~are~~is currently convertible into five shares of common ~~stock at a fixed conversion rate of $0.20 per share.~~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 ~~1,747,942~~1,325,942 shares of Series A Preferred outstanding at December 31, ~~2017~~2019 are convertible into ~~8,739,710~~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.
DIGIPATH, INC. AND SUBSIDIARIES
~~Preferred Stock Conversions~~Notes to Condensed Consolidated Financial Statements
During the three months ended December 31, 2017, a total of 150,000 Series A Preferred shares were converted into 750,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.(Unaudited)

Common Stock

Common stock consists of $0.001 par value, ~~90,000,000~~250,000,000 shares authorized, of which ~~37,285,676~~48,532,666 shares were issued and outstanding as of December 31, ~~2017.~~
~~Common Stock Sales~~
On December 20, 2017, the Company sold 10 units, consisting of 100,000 shares of its common stock and warrants to purchase 50,000 shares of common stock, exercisable at $0.26 per share over a thirty six month period, in exchange for total proceeds of $18,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On December 14, 2017, the Company sold 13.89 units, consisting of 138,889 shares of its common stock and warrants to purchase 69,445 shares of common stock, exercisable at $0.26 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On December 14, 2017, the Company sold 55.56 units, consisting of 555,600 shares of its common stock and warrants to purchase 277,800 shares of common stock, exercisable at $0.26 per share over a thirty six month period, in exchange for total proceeds of $100,008. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.2019.

Common Stock Issued for Services

On December ~~22, 2017,~~25, 2019, the Company issued ~~300,000~~171,233 shares of common stock to its CFO ~~as a bonus~~ for services ~~rendered.~~rendered pursuant to his employment agreement. The aggregate fair value of the common stock was ~~$78,828 based on the closing price of the Company’s common stock on the date of grant, and was expensed in full.~~
On December 22, 2017, the Company issued 100,000 shares of common stock to Dr. Alfredo Axtmayer for his service on our Board of Directors. The aggregate fair value of the common stock was $26,276 based on the closing price of the Company’s common stock on the date of grant, and was expensed in full.
On November 29, 2017, a total of 314,069 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 $82,600$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 that ended on December 31, 2017.~~period.

Amortization of ~~Stock Options~~Stock-Based Compensation

A total of ~~$258,735~~$22,110 of stock-based compensation expense was recognized during the three months ended December 31, 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. As of December 31, 2019, a total of $7,452 of unamortized expenses are expected to be expensed during the remaining fiscal year ended September 30, 2019.
A total of $9,750 of stock-based compensation expense was recognized during the three months ended December 31, 2019 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. No further unamortized expenses are to be expensed during the remaining requisite service period.
A total of $17,677 of stock-based compensation expense was recognized from the amortization of options over their vesting period during the three months ended December 31, ~~2017.~~2019.
9
~~DIGIPATH, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~

Note 811 – 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.

A total of ~~8,985,000~~3,085,000 options were outstanding as of December 31, 2017. On December 31, 2017, options to purchase a total of 1,010,000 shares of common stock at $0.40 per share expired, and on November 7, 2017, options to purchase 100,000 shares of common stock at $0.85 per share expired.
On December 22, 2017, we granted fully vested options to purchase 500,000 shares of common stock as compensation for services to our President and COO. The options are exercisable over a ten year period at an exercise price of $0.27 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 112% and a call option value of $0.2094, was $104,698. The options were expensed over the vesting period, resulting in $104,698 of stock based compensation expense during2019. During the three months ended December 31, ~~2017.~~
~~On November 29, 2017, we granted fully vested~~2019, options to purchase ~~100,000~~an aggregate total of 3,000,000 shares of common stock ~~as compensation for services to our Chief Scientist. The options are exercisable over~~at a ~~ten year period at an~~weighted average exercise price of ~~$0.27~~$0.13 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 112% and a call option value of $0.21, was $21,004. The options were expensed over the vesting period, resulting in $21,004 of stock based compensation expense during the three months ended December 31, 2017.share expired.
On November 29, 2017, we granted fully vested options to purchase 205,000 shares of common stock as compensation for services to a total of ten of our employees. The options are exercisable over a ten year period at an exercise price of $0.27 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 112% and a call option value of $0.21, was $43,057. The options were expensed over the vesting period, resulting in $43,057 of stock based compensation expense during the three months ended December 31, 2017.

Note 912 – Common Stock Warrants

Warrants to purchase a total of ~~5,839,667~~3,417,126 shares of common stock were outstanding as of December 31, 2017. No warrants were exercised during the three months ended December 31, 2017. On December 31, 2017, warrants to purchase 200,000 shares of common stock at $0.30 per share expired, and on December 30, 2017, warrants to purchase 300,000 shares of common stock at $0.45 per share expired.
Warrants to purchase 50,000 shares of common stock at $0.26 per share over a 36 month period were issued on December 20, 2017 pursuant to a unit offering for the sale of 100,000 shares of common stock in exchange for proceeds of $18,000, and warrants to purchase a total of 347,245 shares of common stock at $0.26 per share over a 36 month period were issued on December 14, 2017 pursuant to two unit offerings for the sale of an aggregate 694,489 shares of common stock in exchange for total proceeds of $125,008.2019.

Note 1013 – Other Income (Expense)

Other income (expense) for the three months ended December 31, ~~2017~~2019 and ~~2016~~2018 consisted of the following:

December 31,
2017 2016
Settlement income on license agreement $ - $ 150,000
Rental income on subleases 19,200 -
Restitution income 1,500 4,000
$ 20,700 $ 154,000
December 31,
2019 2018
Settlement income on note receivable $ - $ 30,000
Rental income on subleases 21,000 20,400
Interest expense (29,561 ) (10,753 )
$ (8,561 ) $ 39,647
On December 1, 2018, we received $30,000 as full settlement of a Note dated December 17, 2014, consisting of $250,000 of principal and approximately $58,125 of unpaid interest that was previously written off as uncollectible.

10 13

DIGIPATH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1114 - 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 three months ended December 31, ~~2017~~2019 and the year ended September 30, ~~2017,~~2019, 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 December 31, ~~2017,~~2019, the Company had approximately ~~$7,025,500~~$9,200,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2031.

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 December 31, ~~2017~~2019 and September 30, ~~2017,~~2019, respectively.

In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.

Note 1215 – Subsequent Events

~~Preferred~~Common Stock ~~Conversions~~Issuances for Services

On January ~~22, 2018, a shareholder converted 50,000 shares of Series A Preferred into 250,000 shares of common stock. The stock was converted in accordance with~~27, 2020, the ~~conversion terms; therefore no gain or loss has been recognized.~~
On January 17, 2018, a shareholder converted 272,000 shares of Series A Preferred into 1,360,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.
~~Exercise of Options~~
~~On January 3, 2018, two option holders exercised options to purchase a total of~~Company issued 500,000 shares of common stock ~~at $0.181 per share~~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 ~~a cashless basis, resulting in~~ the ~~issuance~~closing price of ~~317,172 shares~~the Company’s common stock on the date of ~~common stock.~~grant, and is being expensed over the requisite service period.

Options Issued to Directors for Services
On January ~~2, 2018, an option holder exercised~~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 ~~37,500~~250,000 shares of common stock as compensation for Director services. The options vestimmediately 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 ~~$0.22~~an exercise price of $0.10 per ~~share~~share. The estimated value using the Black-Scholes Pricing Model, based on a ~~cashless basis, resulting in~~volatility rate of 106% and a call option value of $0.0683, was $17,078. The options are being expensed over the ~~issuance of 21,000 shares of common stock.~~vesting period.

~~Exercise of Warrants~~
On January ~~3, 2018, a warrant holder exercised warrants~~31, 2020, we granted options to purchase ~~71,428~~250,000 shares of common stock as compensation for Director services to Dennis Hartmann. The options vestimmediately 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 ~~$0.26~~an exercise price of $0.10 per ~~share~~share. The estimated value using the Black-Scholes Pricing Model, based on a ~~cashless basis, resulting~~volatility rate of 106% and a call option value of $0.0683, was $17,078. The options are being expensed over the vesting period.
Convertible Note Financing
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the ~~issuance~~principal amount of ~~34,285~~$150,000. The transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and is convertible into shares of the Company’s common ~~stock.~~stock at a conversion price of $0.15 per share. 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 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 transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder. The Note matures on August 10, 2022, bears interest at a rate of 9% per annum, and is convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. 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.

11 14

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended September 30, ~~2017~~2019 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended September 30, ~~2017~~2019 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.

Overview

Digipath, Inc. was incorporated in Nevada on October 5, 2010. Digipath, Inc. and its subsidiaries (“Digipath,” the “Company,” “we,” “our” or “us”)is a service-oriented independent testing laboratory, data analytics and media firm focused on the developing cannabis and hemp markets, andsupports the cannabis industry’s best practices for reliable testing, cannabis education and ~~training, and brings unbiased cannabis news coverage to the cannabis industry.~~training. Our business units as of December 31, ~~2017~~2019 are described below.

●Ø Digipath Labs, ~~Inc~~Inc.. Digipath Labs’ 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. ~~We have~~Digipath has been operating a cannabis testing lab in Nevada since 2015 and ~~have~~has plans to open labs in other states and countries that have legalized the sale of cannabis, beginning with California.

●Ø ~~The National Marijuana News Corp~~GroSciences, Inc. ~~provides a balanced and unbiased approach~~Launched during the first fiscal quarter of 2019 to ~~cannabis news, interviews and education with a news/talk radio show, app, national marijuana news website and social media presence focusing~~capitalize on the ~~political, economic, medicinal, scientific,~~extensive data we have collected from cannabis through the testing process. GroSciences plans to develop and ~~cultural dimensions of~~license specific formulations to other producers and product makers in the ~~rapidly evolving—~~industry, and ~~profoundly controversial—medicinal~~to market and ~~recreational marijuana industry.~~sell its “Tru-Hemp ID” Kit which distinguishes industrial hemp from drug-type cannabis.

Our cannabis testing and business licenses were briefly suspended by Nevada regulators for an eight business day period subsequent to the end of the quarter ended December 31, 2017, commencing at the end of business on Friday, January 19, 2018 and reinstated on January 31, 2018. This had no impact on our financial results for the periods presented in this report, but will be reflected in our results for our quarter ending March 31, 2018.
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Results of Operations for the Three Months Ended December 31, ~~2017~~2019 and ~~2016:~~2018:

The following table summarizes selected items from the statement of operations for the three months ended December 31, ~~2017~~2019 and ~~2016.~~2018.

Three Months Ended December 31, Increase / Three Months Ended December 31, Increase /
2017 2016 (Decrease) 2019 2018 (Decrease)
Revenues $ 1,118,785 $ 409,751 $ 709,034 $ 808,930 $ 642,115 $ 166,815
Cost of sales 376,772
204,132

172,640
405,481 482,320 (76,839 )
Gross profit 742,013
205,619
536,394
Gross profit (loss) 403,449 159,795 243,654

Operating expenses:
General and administrative 399,114
279,686

119,428
388,432 390,471 (2,039 )
Professional fees 486,676 191,643 295,033 183633 246,580 (62,947 )
Bad debts expense 55,940 14,450 41,490 43,250 24,565 18,685
Total operating expenses: 941,730
485,779

455,951
615,315 661,616 (46,301 )

Operating loss (199,717 ) (280,160 ) (80,443 ) (211,866 ) (501,821 ) (289,955 )

Total other income 20,700 154,000 (133,300 )
Total other income (expense) (8,561 ) 39,647 (48,208 )

Net loss $ (179,017 ) $ (126,160 ) $ 52,857 $ (220,427 ) $ (462,174 ) $ (241,747 )

Revenues

~~Revenues were generated by our cannabis testing lab and to a de minimis extent, from advertising on TNM News’ media outlets.~~ Aggregate revenues for the three months ended December 31, ~~2017~~2019 were ~~$1,118,785,~~$808,930, compared to revenues of ~~$409,751~~$642,115 during the three months ended December 31, ~~2016,~~2018, an increase of ~~$709,034,~~$166,815, or ~~173%~~26%. The increase in revenue was due to industry growth and increased market share attainedduring the continued growth of our testing lab operations in Nevada as our customer base, consisting of production and cultivation facilities, increased their operations, particularly following the implementation of the Nevada law permitting the recreational use of marijuana, which went into effect on July 1, 2017.current period.

Cost of Sales

Cost of sales for the three months ended December 31, ~~2017~~2019 were ~~$376,772,~~$405,481, compared to ~~$204,132~~$482,320 during the three months ended December 31, ~~2016, an increase~~2018, a decrease of ~~$172,640,~~$76,839, or ~~85%~~16%. Cost of sales consists primarily of labor, depreciation, maintenance on lab equipment, and supplies consumed in our testing operations. The ~~increased~~decreased cost of sales in the current period was primarily due to ~~the increase in revenues over the comparative period.~~better pricing on our consumable supplies, and improved efficiencies with respect to our labor. Our gross margins of approximately ~~66%~~50%, increased during the three months ended December 31, ~~2017,~~2019, compared to gross margins of approximately ~~50%~~25% during the three months ended December 31, ~~2016, as~~2018, which translated to $243,654 of increased gross profit. We intend to continue to automate processes through equipment enhancements to improve our margins, and acquired a new triple quad machine on December 26, 2019 that we ~~realized efficiencies~~expect will help increase our testing volume and ~~economies of scale from~~considerably decrease our increased revenues. We expect cost of sales to increase and gross margins to decrease as we implement ISO/IEC 17025 standards for the competence of testing and calibration laboratories, which is now being required by the State of Nevada for all licensed cannabis laboratories.variable costs.

General and Administrative Expenses

General and administrative expenses for the three months ended December 31, ~~2017~~2019 were ~~$399,114,~~$388,432, compared to ~~$279,686~~$390,471 during the three months ended December 31, ~~2016, an increase~~2018, a decrease of ~~$119,428,~~$2,039, or ~~43%~~1%. The expenses consisted primarily of marketing, rent, salaries and wages, and travel expenses. General and administrative expenses included non-cash, stock-based compensation of $18,400 and $21,000 during the three months ended December 31, 2019 and December 31, 2018, respectively.

Professional Fees

Professional fees for the three months ended December 31, ~~2017~~2019 were ~~$486,676,~~$183,633, compared to ~~$191,643~~$246,580 during the three months ended December 31, ~~2016, an increase~~2018, a decrease of ~~$295,033,~~$62,947, or ~~154%~~26%. Professional fees ~~increased~~included non-cash, stock-based compensation of $24,027 and $134,835 during the three months ended December 31, 2019 and December 31, 2018, respectively. Professional fees decreased primarily due to ~~increased~~decreased stock-based compensation, ~~paid to employees and consultants~~as partially diminished by increased cash-based professional fees, during the current period.
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Bad Debts Expense

Bad debts expense for the three months ended December 31, ~~2017~~2019 was ~~$55,940,~~$43,250, compared to ~~$14,450~~$24,565 during the three months ended December 31, ~~2016,~~2018, an increase of ~~$41,490,~~$18,685, or ~~287%~~76%. Bad debts expense increased during the current period as our allowance for doubtful accounts increased ~~with~~to $93,790 during the ~~growth in sales and accounts receivables.~~quarter.

Operating Loss

Our operating loss for the three months ended December 31, ~~2017~~2019 was ~~$199,717~~$211,866, compared to ~~$280,160~~$501,821 during the three months ended December 31, ~~2016,~~2018, a decrease of ~~$80,443,~~$289,955, or ~~29%~~58%. Our operating loss decreased primarily due to ~~our~~ increased ~~revenues,~~margins, decreased professional fees, as offset in part by increased ~~operating expenses, including stock-based compensation,~~bad debts expense, during the three months ended December 31, ~~2017,~~2019, compared to the three months ended December 31, ~~2016.~~2018.

Other Income (Expense)

Other expense, on a net basis, for the three months ended December 31, 2019 was $8,561, compared to other income, on a net basis, of $39,647 during the three months ended December 31, 2018, a net decrease of $48,208. Other expense consisted of $29,561 of interest expense, as partially offset by other income, consisting of $21,000 of subleased rental income for the three months ended December 31, 2017 was $20,700, compared to other income of $154,000 during the three months ended December 31, 2016, a decrease of $133,300. Other income consisted of $19,200 of subleased storage space and $1,500 related to restitution payments received from a former employee for the three months ended December 31, 2017.2019. Other income during the three months ended December 31, ~~2016~~2018 consisted of ~~$150,000 received pursuant to the~~$20,400 of subleased rents and a $30,000 gain on settlement ~~under~~of a ~~license agreement with GB Sciences, Inc. and $4,000~~previously written off note receivable, as offset by $10,753 of ~~restitution payments received from a former employee.~~interest expense.

Net Loss

Net loss for the three months ended December 31, ~~2017~~2019 was ~~$179,017,~~$220,427, compared to ~~$126,160~~$462,174 during the three months ended December 31, ~~2016, an increase~~2018, a decrease of ~~$52,857,~~$241,747, or ~~42%~~52%. The ~~increased~~decreased net loss was due primarily to increased ~~non-cash, stock-based compensation of $329,019 over the comparative three month period.~~
gross profits as described above, as offset in part by increased bad debts expense, and interest on debt financing.

Liquidity and Capital Resources

The following is a summary of the Company’s cash flows provided by (used in) operating, investing, and financing activities for the ~~three month~~three-month periods ended December 31, ~~2017~~2019 and ~~2016:~~2018:

2017 2016 2019 2018
Operating Activities $ 182,156 $ 30,037 $ (163,924 ) $ (366,237 )
Investing Activities (142,514 ) (2,089 ) (90,315 ) (50,000 )
Financing Activities 143,008 - (843 ) 500,000
Net Increase in Cash $ 182,650 $ 27,948
Net Increase (Decrease) in Cash $ (255,082 ) $ 83,763

Net Cash ~~Provided~~Used in Operating Activities

During the three months ended December 31, ~~2017,~~2019, net cash ~~provided~~used in operating activities was ~~$182,156,~~$163,924, compared to net cash ~~provided~~used in operating activities of ~~$30,037~~$366,237 for the same period ended December 31, ~~2016.~~2018. The ~~increase~~decrease in cash ~~provided by~~used in operating activities iswas primarily attributable to our ~~$498,517, or 205% increase in gross profit as we continued to develop our cannabis testing lab operations.~~decreased net loss.

Net Cash Used in Investing Activities

During the three months ended December 31, ~~2017,~~2019, net cash used in investing activities was ~~$142,514,~~$90,315, compared to ~~$2,089~~$50,000 for the same period ended December 31, ~~2016.~~2018. The increase is attributable to ~~greater~~ investments made for cannabis testing equipment in the current period ~~than~~that was not necessary in the ~~comparative~~prior period, as partially diminished by an advancement of short-term loans during the prior period.

Net Cash Provided by Financing Activities

During the three months ended December 31, ~~2017,~~2019, net cash used in financing activities was $843, compared to net cash provided by financing activities ~~was $143,008, compared to $-0-~~of $500,000 for the same period ended December 31, ~~2016.~~2018. The current period consisted of $25,843 of principal finance lease payments on equipment, as offset by, $25,000 of proceeds received on a short term advance that were subsequently repaid on February 6, 2020, compared to $500,000 of proceeds received on fixed convertible debt financing at $0.14 per share in the comparative period.

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Ability to Continue as a Going Concern

As of December 31, ~~2017,~~2019, our balance of cash on hand was ~~$360,827.~~$68,657. We currently may not have sufficient funds to sustain our operations for the next twelve months and we may need to raise additional cash to fund our operations and expand our lab testing business. As we continue to develop our lab testing business and attempt to expand operational activities, we expect to experience net negative cash flows from operations in amounts not now determinable, and will be required to obtain additional financing to fund operations through common stock offerings to the extent necessary to provide working capital. We have and expect to continue to have substantial capital expenditure and working capital needs.

The Company has incurred recurring losses from operations resulting in an accumulated deficit, and, as set forth above, the Company’s cash on hand is not sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives, becoming profitable or continuing our business without either a temporary interruption or a permanent cessation. In addition, additional financing may result in substantial dilution to existing stockholders.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Off-Balance Sheet Arrangements

We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.

While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.

Revenue Recognition

~~The Company adoptedAccounting Standards Update No. 2014-09,~~~~Revenue from Contracts with Customers (Topic 606)~~ ~~on October 1, 2017. This update~~provides guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue from contracts with customers to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new update does not affect howUnder 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 ~~accordance with~~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. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, ~~requires that four basic~~revenue was recognized when the following criteria ~~must be met before revenue can be recognized:~~had been met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery ~~of product~~ has ~~met the criteria established in the arrangement or services rendered;~~occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. ~~With respect to~~
Our revenue is primarily generated through our subsidiary, Digipath Labs, Inc., which recognizes revenue from the analytical testing of cannabis ~~lab testing revenues, we sell our services~~products for licensed producers and cultivators within the state of Nevada on a determinable fixed fee per test, or panel of tests ~~basis, and offer a discounted price for customers that agree~~basis. Revenue from the performance of those services is recognized upon completion of the tests, at which time test results are delivered to ~~exclusive or predetermined quantities~~the customer, provided collectability of ~~tests.~~the fee is reasonably assured. We typically require payment within thirty days of the delivery of results. ~~Revenues are recognized upon~~Management estimates an allowance for doubtful accounts based on the ~~substantial completion~~aging of ~~the tests when collectability is reasonably assured, which is usually upon delivery of results to the customer.~~
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its receivables.

Stock-Based Compensation

The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 505-50 (ASC 505-50). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, ~~2017.~~2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, ~~2017,~~2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation or subsequent to the date we carried out our evaluation which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system of controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following issuances of equity securities by the Company were exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) of the Securities Act of 1933 during the three month period ended December 31, ~~2017:~~2019:

On December ~~22, 2017,~~25, 2019, we issued ~~300,000~~171,233 shares of common stock, restricted in accordance with Rule 144, to ~~Todd Peterson as a bonus~~our CFO for ~~his~~ services rendered ~~as our CFO.~~
~~On December 22, 2017, we issued 100,000 shares of common stock, restricted in accordance with Rule 144, to Dr. Alfredo Axtmayer for his services on our Board of Directors.~~
The following shares of common stock and warrants are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933 during the three month period ended December 31, 2017. The issuances were exempt from the registration requirements of the Securities Act of 1933 pursuant to ~~Section 4(a)(2) thereof and/or Rule 506 of Regulation D promulgated thereunder. The purchasers were accredited investors, familiar with our operations, and there was no general solicitation.~~his employment agreement.
On December 20, 2017, we sold 10 units, consisting of 100,000 shares of its common stock and warrants to purchase 50,000 shares of common stock, exercisable at $0.26 per share over a thirty six month period, in exchange for total proceeds of $18,000.
On December 14, 2017, we sold 13.89 units, consisting of 138,889 shares of its common stock and warrants to purchase 69,445 shares of common stock, exercisable at $0.26 per share over a thirty six month period, in exchange for total proceeds of $25,000.
On December 14, 2017, we sold 55.56 units, consisting of 555,600 shares of its common stock and 277,800 warrants to purchase 277,800 shares of common stock, exercisable at $0.26 per share over a thirty six month period, in exchange for total proceeds of $100,008.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

~~None.~~
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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 $150,000. The transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and is convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. The Company’s obligations under the Note are secured by a 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. The information set forth in this Item 5 is qualified in its entirety by reference to the actual terms of the Secured Convertible Promissory Note and Security Agreement described above, which have been filed as Exhibits 4.4 and 10.2, respectively, and which are incorporated herein by reference.

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 transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder. The Note matures on August 10, 2022, bears interest at a rate of 9% per annum, and is convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. 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. The information set forth in this Item 5 is qualified in its entirety by reference to the actual terms of the Secured Convertible Promissory Note and Security Agreement described above, which have been filed as Exhibits 4.3 and 10.1, respectively, and which are incorporated herein by reference.
ITEM 6. EXHIBITS.

Exhibit Description
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 10 filed with the Securities and Exchange Commission by Digipath, Inc. on July 15, 2011)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the Form 10 filed with the Securities and Exchange Commission by Digipath, Inc. on July 15, 2011)
3.3 Certificate of Amendment to Articles of Incorporation dated April 4, 2014 (incorporated by reference to Exhibit 3.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on April 10, 2014)
3.4 Certificate of Designations, Preferences, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock dated April 9, 2014 (incorporated by reference to Exhibit 3.2 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on April 10, 2014)
3.5 Certificate of Amendment to Articles of Incorporation dated May 22, 2015 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on May 26, 2015)
3.6 Certificate of Amendment to Articles of Incorporation dated May 14, 2019 (incorporated by reference to Exhibit 3.6 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on August 13, 2019)
4.1 Form of 8% Senior Secured Convertible Notes due December 31, 2020 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on November 21, 2018)
4.2 Form of 8% Senior Secured Convertible Notes due September 23, 2020 (incorporated by reference to Exhibit 4.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on September 26, 2019)
4.3* 9% Secured Convertible Note, between Digipath, Inc. and holder, due August 10, 2022
31.1*
4.4*
9% Secured Subordinated Convertible Note, between Digipath, Inc. and holder, due August 11, 2022
10.1* Security Agreement, between Digipath, Inc., Digipath Labs, Inc., and holder of the 9% Senior Secured Convertible Note due August 10, 2022
10.2*
Security Agreement, between Digipath, Inc., Digipath Labs, Inc., and holder of the 9% Senior Secured Convertible Note due August 11, 2022
31.1* Section 302 Certification of Chief Executive Officer
31.2*31.2* Section 302 Certification of Chief Financial Officer
32.1*32.1* Section 906 Certification of Chief Executive Officer
32.2*32.2* Section 906 Certification of Chief Financial Officer
101.INS* XBRL Instance Document
101.SCH* XBRL Schema Document
101.CAL* XBRL Calculation Linkbase Document
101.DEF* XBRL Definition Linkbase Document
101.LAB* XBRL Labels Linkbase Document
101.PRE* XBRL Presentation Linkbase Document

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: February ~~12, 2018~~14, 2020

DIGIPATH, INC.

By: /s/ ~~Joseph J. Bianco~~Kyle Remenda
Name: ~~Joseph J. Bianco~~Kyle Remenda
Title: Chief Executive Officer and Director

By: /s/ Todd Peterson
Name: Todd Peterson
Title: Chief Financial Officer and Secretary

19 22

	December 31,			September 30,
	2019			2019
	(Unaudited)
Assets
Current assets:					��
Cash	$	68,657		$	323,739
Accounts receivable, net		282,068			179,256
Other current assets		54,957			74,620
Inventory		37,900			-
Deposits		25,647			51,704
Total current assets		469,229			629,319

Right-of-use asset		289,867			-
Fixed assets, net		1,137,179			726,614

Total Assets	$	1,896,275		$	1,355,933

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	214,454		$	136,612
Accrued expenses		85,934			134,881
Short term advances		25,000			-
Current portion of operating lease liabilities		196,069			-
Current portion of finance lease liabilities		29,771			-
Current maturities of note payable		52,030			-
Convertible notes payable, net of discounts of $33,105 and $-0- at December 31, 2019 and September 30, 2019, respectively		666,895			200,000
Total current liabilities		1,270,153			471,493

Operating lease liabilities		94,777			-
Finance lease liabilities		43,578			-
Note payable, equipment financing		239,901			-
Convertible notes payable, net of discounts of $-0- and $41,426 at December 31, 2019 and September 30, 2019, respectively		-			458,574

Total Liabilities		1,648,409			930,067

Stockholders’ Equity:
Series A convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; 1,325,942 shares issued and outstanding		1,326			1,326
Common stock, $0.001 par value, 250,000,000 shares authorized; 48,532,666 and 48,361,433 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively		48,533			48,361
Additional paid-in capital		15,374,094			15,331,839
Accumulated (deficit)		(15,176,087	)		(14,955,660	)

Total Stockholders’ Equity		247,866			425,866

Total Liabilities and Stockholders’ Equity	$	1,896,275		$	1,355,933

	December 31,			September 30,
	2017			2017
Assets		(Unaudited)

Current assets:
Cash	$	360,827		$	178,177
Accounts receivable		454,471			266,613
Prepaid expenses		52,975			73,750
Deposits		25,647			25,647
Total current assets		893,920			544,187

Fixed assets, net		1,100,472			1,027,049

Total Assets	$	1,994,392		$	1,571,236

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	105,810		$	121,994
Accrued expenses		70,914			42,004
Total current liabilities		176,724			163,998

Total Liabilities		176,724			163,998

Stockholders’ Equity:
Series A convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; 1,747,942 and 1,897,942 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively		1,748			1,898
Common stock, $0.001 par value, 90,000,000 shares authorized; 37,285,676 and 35,027,118 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively		37,286			35,027
Additional paid-in capital		13,454,322			12,866,984
Accumulated (deficit)		(11,675,688	)		(11,496,671	)

Total Stockholders’ Equity		1,817,668			1,407,238

Total Liabilities and Stockholders’ Equity	$	1,994,392		$	1,571,236

	For the Three Months Ended
	December 31,
	2019			2018

Revenues	$	808,930		$	642,115
Cost of sales		405,481			482,320
Gross profit		403,449			159,795

Operating expenses:
General and administrative		388,432			390,471
Professional fees		183,633			246,580
Bad debts expense		43,250			24,565
Total operating expenses		615,315			661,616

Operating loss		(211,866	)		(501,821	)

Other income (expense):
Other income		21,000			50,400
Interest expense		(29,561	)		(10,753	)
Total other income (expense)		(8,561	)		39,647

Net loss	$	(220,427	)	$	(462,174	)

Weighted average number of common shares outstanding - basic and fully diluted		48,372,600			42,708,641

Net loss per share - basic and fully diluted	$	(0.00	)	$	(0.01	)

	For the Three Months Ended December 31, 2018
	Series A Convertible										Additional						Total
	Preferred Stock						Common Stock				Paid-in			Accumulated			Stockholders’
	Shares			Amount			Shares		Amount		Capital			(Deficit)			Equity

Balance, September 30, 2018		1,425,942		$	1,426			42,245,364	$	42,245	$	14,121,236		$	(13,150,328	)	$	1,014,579

Common stock issued for services		-			-			1,011,913		1,012		148,264			-			149,276

Common stock options issued for services		-			-			-		-		6,559			-			6,559

Conversion of preferred stock to common stock		(100,000	)		(100	)		500,000		500		(400	)		-			-

Beneficial conversion feature of convertible debts		-			-			-		-		70,964			-			70,964

Net loss for the three months ended December 31, 2018		-			-			-		-		-			(462,174	)		(462,174	)

Balance, December 31, 2018		1,325,942		$	1,326			43,757,277	$	43,757	$	14,346,623		$	(13,612,502	)	$	779,204

	●Ø	Digipath Labs, Inc. Digipath Labs’ 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. ~~We have~~Digipath has been operating a ~~cannabis testing~~cannabis-testing lab in Nevada since 2015 and ~~have~~has plans to open labs in other states and countries that have legalized the sale of cannabis, beginning with California.

	●Ø	~~The National Marijuana News Corp~~GroSciences, Inc. ~~provides a balanced and unbiased approach~~Launched during the first fiscal quarter of 2019 to ~~cannabis news, interviews and education with a news/talk radio show, app, national marijuana news website and social media presence focusing~~capitalize on the ~~political, economic, medicinal, scientific,~~extensive data we have collected from cannabis through the testing process. GroSciences plans to develop and ~~cultural dimensions of~~license specific formulations to other producers and product makers in the ~~rapidly evolving—~~industry, and ~~profoundly controversial—medicinal~~to market and ~~recreational marijuana industry.~~sell its “Tru-Hemp ID” Kit which distinguishes industrial hemp from drug-type cannabis.

		~~State~~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

	Fair Value Measurements at December 31, 2017						Fair Value Measurements at December 31, 2019
	Level 1		Level 2		Level 3		Level 1		Level 2			Level 3
Assets
Cash	$	360,827	$	-	$	-	$	68,657	$	-		$	-
Total assets		360,827		-		-		68,657		-			-
Liabilities
Short term advances								-		25,000			-
Lease liabilities								-		-			364,195
Note payable, equipment financing								-		291,931			-
Convertible notes payable, net of discounts of $33,105								-		-			666,895
Total liabilities		-		-		-		-		316,931			1,031,090
	$	360,827	$	-	$	-	$	68,657	$	(316,931	)	$	(1,031,090	)

	Fair Value Measurements at September 30, 2017						Fair Value Measurements at September 30, 2019
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash	$	178,177	$	-	$	-	$	323,739	$	-	$	-
Total assets		178,177		-		-		323,739		-		-
Liabilities
Convertible notes payable, net of discounts of $41,426								-		-		658,574
Total liabilities		-		-		-		-		-		658,574
	$	178,177	$	-	$	-	$	323,739	$	-	$	(658,574	)

	For the Three Months Ended December 31, 2019
Operating lease cost	$	52,002
Finance lease cost:
Amortization of assets		4,960
Interest on lease liabilities		3,306
Sublease income		(21,000	)
Total net lease cost	$	39,268

	December 31,
	2019
Operating leases:
Operating lease assets	$	289,867

Current portion of operating lease liabilities	$	196,069
Noncurrent operating lease liabilities		94,777
Total operating lease liabilities	$	290,846
Finance lease:
Equipment, at cost	$	99,193
Accumulated amortization		(4,960	)
Equipment, net	$	94,233

Current portion of finance lease liability	$	29,771
Noncurrentfinance lease liability		43,578
Total finance lease liability	$	73,349

Weighted average remaining lease term:
Operating leases		1.5 years
Finance leases		2.3 years

Weighted average discount rate:
Operating leases		5.75	%
Finance lease		18.41	%

	For the Three
	Months Ended
	December 31,
	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows provided by sublet operating leases	$	21,000
Operating cash flows used for operating leases	$	51,024
Operating cash flows used for finance leases	$	3,306
Financing cash flows used for finance leases	$	25,843

Leased assets obtained in exchange for lease liabilities:
Total operating lease liabilities	$	-
Total finance lease liabilities	$	99,193

Fiscal Year Ending	Minimum Lease		Sublease		Net Lease
September 30,	Commitments		Income		Commitments
2020*	$	155,032	$	42,000	$	113,032
2021		148,957		-		148,957
	$	303,989	$	42,000	$	261,989

	Finance
	Leases

2020*	$	30,921
2021		37,105
2022		21,644
Total minimum lease payments		89,670
Less interest		16,321
Present value of lease liabilities		73,349
Less current portion		29,771
Long-term lease liabilities	$	43,578

	December 31,
	2017		2016
Settlement income on license agreement	$	-	$	150,000
Rental income on subleases		19,200		-
Restitution income		1,500		4,000
	$	20,700	$	154,000

	●Ø	Digipath Labs, ~~Inc~~Inc.. Digipath Labs’ 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. ~~We have~~Digipath has been operating a cannabis testing lab in Nevada since 2015 and ~~have~~has plans to open labs in other states and countries that have legalized the sale of cannabis, beginning with California.

	●Ø	~~The National Marijuana News Corp~~GroSciences, Inc. ~~provides a balanced and unbiased approach~~Launched during the first fiscal quarter of 2019 to ~~cannabis news, interviews and education with a news/talk radio show, app, national marijuana news website and social media presence focusing~~capitalize on the ~~political, economic, medicinal, scientific,~~extensive data we have collected from cannabis through the testing process. GroSciences plans to develop and ~~cultural dimensions of~~license specific formulations to other producers and product makers in the ~~rapidly evolving—~~industry, and ~~profoundly controversial—medicinal~~to market and ~~recreational marijuana industry.~~sell its “Tru-Hemp ID” Kit which distinguishes industrial hemp from drug-type cannabis.

	Three Months Ended December 31,						Increase /			Three Months Ended December 31,						Increase /
	2017			2016			(Decrease)			2019			2018			(Decrease)
Revenues	$	1,118,785		$	409,751		$	709,034		$	808,930		$	642,115		$	166,815
Cost of sales		376,772			204,132			172,640			405,481			482,320			(76,839	)
Gross profit		742,013			205,619			536,394
Gross profit (loss)											403,449			159,795			243,654

Operating expenses:
General and administrative		399,114			279,686			119,428			388,432			390,471			(2,039	)
Professional fees		486,676			191,643			295,033			183633			246,580			(62,947	)
Bad debts expense		55,940			14,450			41,490			43,250			24,565			18,685
Total operating expenses:		941,730			485,779			455,951			615,315			661,616			(46,301	)

Operating loss		(199,717	)		(280,160	)		(80,443	)		(211,866	)		(501,821	)		(289,955	)

Total other income		20,700			154,000			(133,300	)
Total other income (expense)											(8,561	)		39,647			(48,208	)

Net loss	$	(179,017	)	$	(126,160	)	$	52,857		$	(220,427	)	$	(462,174	)	$	(241,747	)

Exhibit		Description
3.1		Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 10 filed with the Securities and Exchange Commission by Digipath, Inc. on July 15, 2011)
3.2		Bylaws (incorporated by reference to Exhibit 3.2 of the Form 10 filed with the Securities and Exchange Commission by Digipath, Inc. on July 15, 2011)
3.3		Certificate of Amendment to Articles of Incorporation dated April 4, 2014 (incorporated by reference to Exhibit 3.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on April 10, 2014)
3.4		Certificate of Designations, Preferences, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock dated April 9, 2014 (incorporated by reference to Exhibit 3.2 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on April 10, 2014)
3.5		Certificate of Amendment to Articles of Incorporation dated May 22, 2015 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on May 26, 2015)
3.6		Certificate of Amendment to Articles of Incorporation dated May 14, 2019 (incorporated by reference to Exhibit 3.6 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on August 13, 2019)
4.1		Form of 8% Senior Secured Convertible Notes due December 31, 2020 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on November 21, 2018)
4.2		Form of 8% Senior Secured Convertible Notes due September 23, 2020 (incorporated by reference to Exhibit 4.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on September 26, 2019)
4.3*		9% Secured Convertible Note, between Digipath, Inc. and holder, due August 10, 2022
31.1* 4.4*		9% Secured Subordinated Convertible Note, between Digipath, Inc. and holder, due August 11, 2022
10.1*		Security Agreement, between Digipath, Inc., Digipath Labs, Inc., and holder of the 9% Senior Secured Convertible Note due August 10, 2022
10.2*		Security Agreement, between Digipath, Inc., Digipath Labs, Inc., and holder of the 9% Senior Secured Convertible Note due August 11, 2022
31.1*		Section 302 Certification of Chief Executive Officer
31.231.2		Section 302 Certification of Chief Financial Officer
32.132.1		Section 906 Certification of Chief Executive Officer
32.232.2		Section 906 Certification of Chief Financial Officer
101.INS*		XBRL Instance Document
101.SCH*		XBRL Schema Document
101.CAL*		XBRL Calculation Linkbase Document
101.DEF*		XBRL Definition Linkbase Document
101.LAB*		XBRL Labels Linkbase Document
101.PRE*		XBRL Presentation Linkbase Document

DIGIPATH, INC.

By:	/s/ ~~Joseph J. Bianco~~Kyle Remenda
Name:	~~Joseph J. Bianco~~Kyle Remenda
Title:	Chief Executive Officer and Director

By:	/s/ Todd Peterson
Name:	Todd Peterson
Title:	Chief Financial Officer and Secretary