UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For Quarterly Period Ended ~~December~~March 31, ~~2021~~2022

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

For the transition period from __________ to __________

Commission File Number 000-54239

Digipath, Inc.

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

Nevada

27-3601979

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


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

(702) 527-2060

(Registrant’s telephone number, including area code)

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

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

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

Yes

☒

☐

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

Yes

☒

☐

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

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

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

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

Yes

☐

☒

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

The number of shares of registrant’s common stock outstanding as of ~~February 10,~~May 16, 2022 was 75,146,820~~72,730,153~~.

TABLE OF CONTENTS

		Page
		No.
PART I - FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	3
	~~Consolidated Balance Sheets as of December 31, 2021 (Unaudited) and September 30, 2021~~	3
	Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and September 30, 2021	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~December~~March 31, 2022 and 2021 ~~and 2020 (Unaudited~~(Unaudited))	4
	Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Six Months Ended ~~December~~March 31, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~December,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)	6
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2123
ITEM 4.	CONTROLS AND PROCEDURES	2223
PART II -– OTHER INFORMATION		2324
ITEM 1.	Legal Proceedings	2324
ITEM 1A.	RISK FACTORS	2324
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	2423
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	2423
ITEM 4.	MINE SAFETY DISCLOSURES	2324
ITEM 5.	OTHER INFORMATION	2324
ITEM 6.	EXHIBITS	2425
	SIGNATURES	2526

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DIGIPATH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

							March 31,			September 30,
	December 31, 2021			September 30, 2021			2022			2021
	(Unaudited)						(Unaudited)
Assets

Current assets:
Cash	$	90,305		$	295,932		$	82,769		$	295,932
Accounts receivable, net		330,398			214,900			259,268			214,900
Deposits		25,141			24,751
Note receivable		648,809			230,929			1,029,227			230,959
Other current assets		41,489			60,353			27,241			24,751
Deposits								71,093			60,353
Total current assets		1,136,142			826,865			1,469,598			826,865

Right-of-use asset		390,150			413,884			366,089			413,884
Fixed assets, net		591,265			647,252			534,435			647,252
Total non -current assets		981,415			1,061,136
Total non-current assets								900,524			1,061,136

Total Assets	$	2,117,557		$	1,888,001		$	2,370,122		$	1,888,001

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable	$	368,026		$	370,977		$	419,500		$	370,977
Accrued expenses		266,958			220,002			359,274			220,002
Current portion of operating lease liabilities		95,924			93,601			98,281			93,601
Current portion of finance lease liabilities		11,912			20,379			3,822			20,379
Current maturities of convertible notes payable								1,700,650			1,050,000
Current maturities of notes payable		439,612			259,425			486,458			259,425
Current maturities of convertible notes payable		1,274,070			1,050,000
Total current liabilities		2,456,502			2,014,384			3,067,985			2,014,384

Non-current liabilities:
Operating lease liabilities		305,246			330,151			279,981			330,151
Notes payable		545,187			339,516			474,166			339,516
Convertible notes payable, net of discounts and current maturities		-			257,282
Convertible notes payable, net of discounts of $-0- and $8,322 at March 31, 2022 and September 30, 2021, respectively								-			257,282
Total non-current liabilities		850,433			926,949			754,147			926,949

Total Liabilities		3,306,935			2,941,333			3,822,132			2,941,333

Series B convertible preferred stock, $0.001 par value, 1,500,000 shares authorized; 333,600 and 0 shares issued and outstanding as of December 31, 2021 and September 30, 2021 respectively		333,600			-
Series B convertible preferred stock, $0.001 par value, 1,500,000 shares authorized; 333,600 and zero shares issued and outstanding as of March 31, 2022 and September 30, 2021 respectively								333,600			-

Stockholders’ Deficit:
Series A convertible preferred stock, $0.001 par value, 6,000,000 shares authorized; 1,047,942 and 1,325,942 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively		1,048			1,326
Common stock, $0.001 par value, 250,000,000 shares authorized; 72,730,153 and 71,230,153 shares issued and outstanding at December 31, 2021 and September 30 2021, respectively		72,730			71,230
Stockholders’ Equity (Deficit):
Series A convertible preferred stock, $0.001 par value, 6,000,000 shares authorized; 1,047,942 and 1,325,942 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively								1,048			1,326
Common stock, $0.001 par value, 250,000,000 shares authorized; 75,146,820 and 71,230,153 shares issued and outstanding at March 31, 2022 and September 30 2021, respectively								75,147			71,230
Additional paid-in capital		16,645,222			16,825,765			16,753,769			16,825,765
Accumulated deficit		(18,241,978	)		(17,951,653	)		(18,615,574	)		(17,951,653	)

Total Stockholders’ Deficit		(1,522,978	)		(1,053,332	)		(1,785,610	)		(1,053,332	)

Total Liabilities and Stockholders’ Deficit	$	2,117,557		$	1,888,001		$	2,370,122		$	1,888,001

See accompanying notes to ~~unaudited consolidated~~ financial statements.

DIGIPATH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

							2022			2021			2022			2021
	For the Three Months Ended						For the Three Months Ended						For the Six Months Ended
	December 31,						March 31,						March 31,
	2021			2020			2022			2021			2022			2021

Revenues	$	699,585		$	500,385		$	604,735		$	633,160		$	1,304,320		$	1,133,545
Cost of sales		422,601			420,885			396,032			416,915			818,633			837,800
Gross profit		276,984			79,500			208,703			216,245			485,687			295,745

Operating expenses:
General and administrative		240,964			225,050			235,470			211,961			476,434			437,011
Professional fees		268,471			114,544			286,390			107,819			554,861			222,363
Change in allowance for doubtful accounts		(2,139	)		88,170			16			(106,155	)		(2,123	)		(17,985	)
Total operating expenses		507,296			427,764			521,876			213,625			1,029,172			641,389

Operating loss		(230,312	)		(348,264	)		(313,173	)		2,620			(543,485	)		(345,644	)

Other income (expense):
Interest income		9,380			-			15,295			47,918			24,675			47,918
Interest expense		(69,393	)		(42,373	)		(75,718	)		(32,337	)		(145,111	)		(74,710	)
Total other income (expense)		(60,013	)		(42,373	)		(60,423	)		15,581			(120,436	)		(26,792	)

Net loss	$	(290,325	)	$	(390,637	)
Net income (loss)							$	(373,596	)	$	18,201		$	(663,921	)	$	(372,436	)

Weighted average number of common shares outstanding - basic and fully diluted		72,387,762			58,423,853
Weighted average number of common shares outstanding – basic								74,019,042			65,418,890			73,194,439			61,882,937
Weighted average number of common shares outstanding – fully diluted								74,019,042			114,702,490			73,194,439			61,882,937

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

See accompanying notes to ~~unaudited consolidated~~ financial statements.

DIGIPATH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Shares		Amount		Shares			Amount			Shares		Amount		Capital			(Deficit)			Deficit			Shares		Amount		Shares			Amount			Shares		Amount		Capital			(Deficit)			Deficit
	Series B				Series A																			Series B				Series A
	Convertible				Convertible										Additional						Total			Convertible				Convertible										Additional						Total
	Preferred Stock				Preferred Stock						Common Stock				Paid-in			Accumulated			Stockholders’			Preferred Stock				Preferred Stock						Common Stock				Paid-in			Accumulated			Stockholders’
	Shares		Amount		Shares			Amount			Shares		Amount		Capital			(Deficit)			Deficit			Shares		Amount		Shares			Amount			Shares		Amount		Capital			(Deficit)			Deficit

Balance, September 30, 2021		-	$	-		1,325,942		$	1,326			71,230,153	$	71,230	$	16,825,765		$	(17,951,653	)	$	(1,053,332	)		-	$	-		1,325,942		$	1,326			71,230,153	$	71,230	$	16,825,765		$	(17,951,653	)	$	(1,053,332	)

Common stock sold for cash
Common stock sold for cash, shares
Common stock issued for debt conversion
Common stock issued for debt conversion, shares
Purchase of Series B Preferred shares		55,600		55,600		-			-			-		-		-			-			-			55,600		55,600		-			-			-		-		-			-			-

Conversion of Series A Preferred into Series B Preferred		278,000		278,000		(278,000	)		(278	)		-		-		(277,722	)		-			(278,000	)		278,000		278,000		(278,000	)		(278	)		-		-		(277,722	)		-			(278,000	)

Stock-based compensation		-		-		-			-			1,500,000		1,500		97,179			-			98,679			-		-		-			-			1,500,000		1,500		97,179			-			98,679

Net loss		-		-		-			-			-		-		-			(290,325	)		(290,325	)		-		-		-			-			-		-		-			(290,325	)		(290,325	)

Balance, December 31, 2021		333,600	$	333,600		1,047,942		$	1,048			72,730,153	$	72,730	$	16,645,222		$	(18,241,978	)	$	(1,522,978	)		333,600		333,600		1,047,942			1,048			72,730,153		72,730		16,645,222			(18,241,978	)		(1,522,978	)

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

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

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

Balance, March 31, 2022																									333,600	$	333,600		1,047,942		$	1,048			75,146,820	$	75,147	$	16,753,769		$	(18,615,574	)	$	(1,785,610	)

	Series B Convertible				Series A Convertible								Additional					Total			Series B Convertible				Series A Convertible								Additional					Total
	Preferred Stock				Preferred Stock				Common Stock				Paid-in		Accumulated			Stockholders’			Preferred Stock				Preferred Stock				Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		(Deficit)			Deficit			Shares		Amount		Shares		Amount		Shares		Amount		Capital		(Deficit)			Deficit

Balance, September 30, 2020		-	$	-		1,325,942	$	1,326		58,270,567	$	58,271	$	16,116,400	$	(17,265,150	)	$	(1,089,153	)		-	$	-		1,325,942	$	1,326		58,270,567	$	58,271	$	16,116,400	$	(17,265,150	)	$	(1,089,153	)

Common stock sold for cash		-		-		-		-		900,000		900		19,350		-			20,250			-		-		-		-		900,000		900		19,350		-			20,250

Common stock issued for debt conversion		-		-		-		-		3,666,668		3,666		106,334		-			110,000			-		-		-		-		3,666,668		3,666		106,334		-			110,000

Stock-based compensation		-		-		-		-		1,228,155		1,228		42,832		-			44,060			-		-		-		-		1,228,155		1,228		42,832		-			44,060

Net loss		-		-		-		-		-		-		-		(390,637	)		(390,637	)		-		-		-		-		-		-		-		(390,637	)		(390,637	)

Balance, December 31, 2020		-	$	-		1,325,942	$	1,326		64,065,390	$	64,065	$	16,284,916	$	(17,655,787	)	$	(1,305,480	)		-		-		1,325,942		1,326		64,065,390		64,065		16,284,916		(17,655,787	)		(1,305,480	)

Common stock issued for debt conversion																						-		-		-		-		3,000,000		3,000		87,000		-			90,000

Stock-based compensation - related parties																						-		-		-		-		866,430		867		56,157		-			57,024

Stock-based compensation																						-		-		-		-		250,000		250		29,647		-			29,897

Net income																						-		-		-		-		-		-		-		18,201			18,201

Net income (loss)																						-		-		-		-		-		-		-		18,201			18,201
Balance, March 31, 2021																						-	$	-		1,325,942	$	1,326		68,181,820	$	68,182	$	16,457,720	$	(17,637,586	)	$	(1,110,358	)

~~See accompanying notes to unaudited consolidated financial statements.~~

DIGIPATH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2021			2020			2022			2021
	For the Three Months Ended						For the Six Months Ended
	December 31,						March 31,
	2021			2020			2022			2021
Cash flows from operating activities
Net loss	$	(290,325	)	$	(390,637	)	$	(663,921	)	$	(372,436	)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in allowance for doubtful accounts		(2,139	)		88,170			(2,123	)		(17,985	)
Depreciation and amortization expense		58,469			83,265			117,063			159,209
Loss on disposal of fixed assets								-			2,227
Gain on early extinguishment of debt								-			(40,338	)
Stock-based compensation		98,679			44,060			202,143			130,981
Amortization of debt discounts		19,766			8,322			39,103			8,322
Decrease (increase) in assets:
Accounts receivable		(113,359	)		23,716			(42,245	)		49,400
Other current assets		6,984			8,451			(35,416	)		12,677
Deposits		(390	)		-			(2,490	)		-
Right-of-use assets		23,734			22,506			47,795			45,308
Increase (decrease) in liabilities:
Accounts payable		(2,952	)		72,142			56,023			(58,639	)
Accrued expenses		46,956			(3,265	)		139,272			27,814
Lease liabilities		(22,582	)		(20,424	)		(45,490	)		(41,143	)
Net cash (used) in operating activities		(177,158	)		(63,694	)		(190,286	)		(94,603	)

Cash flows from investing activities
Purchase of fixed assets		(2,482	)		-			(4,246	)		(1,206	)
Advance of note receivable		(406,000	)		-			(773,622	)		-
Net cash (used) in investing activities		(408,482	)		-			(777,868	)		(1,206	)

Cash flows from financing activities
Principal payments on finance lease		(8,467	)		(6,946	)		(16,557	)		(16,715	)
Principal payments on note payable, equipment financing		(14,142	)		(13,289	)		(28,317	)		(26,769	)
Proceeds from short term advances								-			40,000
Proceeds from notes payable		400,000			-			390,000			-
Proceeds from convertible notes		-			60,000			394,265			110,000
Payments on convertible notes		(57,978	)					(40,000	)
Proceeds from sale of common stock		-			20,250			-			20,250
Proceeds from sale of preferred stock		55,600			-			55,600			-
Net cash provided by financing activities		380,013			60,015			754,991			126,766

Net (decrease) in cash		(205,627	)		(3,679	)
Net increase (decrease) in cash								(213,163	)		30,957
Cash - beginning		295,932			82,749			295,932			82,749
Cash - ending	$	90,305		$	79,070		$	82,769		$	113,706

Supplemental disclosures:
Interest paid	$	27,601		$	14,179		$	42,809		$	32,294
Income taxes paid		-			-			-			-

Non-cash investing and financing activities:
Common stock issued for debt conversion	$	-		$	110,000		$	-		$	110,000
Fixed assets acquired with note payable, equipment financing							$	-		$	200,000
Common stock issued for settlement of accounts payables							$	7,500		$	-
Conversion of Series A preferred into Series B preferred	$	278,000		$	-		$	278,000		$	-

~~See accompanying notes to unaudited consolidated financial statements.~~

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, and supports the cannabis industry’s best practices for reliable testing, cannabis education and training. Our mission is to provide pharmaceutical-grade analysis and testing to the cannabis industry, under ISO-17025:2017 guidelines, to ensure consumers and patients know exactly what is in the cannabis they ingest and to help maximize the quality of our clients’ products through research, development, and standardization. Digipath has been operating a cannabis-testing lab in Nevada since 2015 and hopes to open labs in other states that have legalized the sale of cannabis, beginning with California or Arizona.

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, 2021. 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 ~~December~~March 31, ~~2021:~~ 2022:

Schedule of Entities Under Common Control and Ownership

	Jurisdiction of
Name of Entity⁽¹⁾	Incorporation	Relationship
Digipath, Inc.⁽²⁾	Nevada	Parent
~~Digipath Labs, Inc~~.	~~Nevada~~	~~Subsidiary~~
Digipath Labs, ~~S.A.S~~Inc.⁽³⁾	~~Colombia~~Nevada	Subsidiary
~~VSSL Enterprises, Ltd~~.⁽⁴⁾	~~Canada~~	~~Subsidiary~~
Digipath Labs CA, Inc.⁽⁵⁾⁽³⁾	California	Subsidiary
Digipath Labs S.A.S.⁽⁴⁾	Colombia	Subsidiary
VSSL Enterprises, Ltd.⁽⁵⁾	Canada	Subsidiary
TNM News Corp.⁽⁶⁾	Nevada	Subsidiary

⁽¹⁾

All entities are in the form of a corporation.

⁽²⁾

Holding company, which owns each of the wholly-owned subsidiaries. All subsidiaries shown above are wholly-owned by Digipath, Inc., the parent company.

⁽³⁾	Formed during the second fiscal quarter of 2021, but has not yet commenced significant operations.

⁽⁴⁾	Formed during the first fiscal quarter of 2019, but has not yet commenced significant operations.

⁽⁴⁾⁽⁵⁾

Acquired on March 11, 2020.

⁽⁵⁾⁽⁶⁾

~~Formed during the third fiscal quarter of 2021, but has not yet commenced significant operations.~~Minimal activity, dissolved on July 28, 2021.

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.

~~DIGIPATH, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Fair Value of Financial Instruments

~~The Company adopted~~Under FASB ASC ~~820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines~~820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value ~~establishes a three-level valuation hierarchy for~~in generally accepted accounting principles and expands disclosures ofabout fair value ~~measurement and enhances disclosure requirements for~~measurements. This Statement reaffirms that fair value ~~measures.~~is the relevant measurement attribute. The ~~three levels are defined~~adoption of this standard did not have a material effect on the Company’s financial statements as ~~follows:~~

	-	~~Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.~~
	-	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	-	~~Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.~~

reflected herein. The carrying ~~value~~amounts of cash, accounts receivable, accounts ~~payables~~payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

Revenue is primarily generated through our subsidiary, Digipath Labs, Inc., which recognizes revenue from the analytical testing of cannabis products for licensed producers and cultivators within the state of Nevada on a determinable fixed fee per test, or panel of tests ~~basis~~.basis. Revenue from the performance of those services is recognized upon completion of the tests, at which time test results are delivered to the customer, provided collectability of the fee is reasonably assured. WeWe typically require payment within thirty days of the delivery of results. Management estimates an allowance for doubtful accounts based on the aging of its receivables.

Stock-Based Compensation

The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which 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.

Recently Issued Accounting Pronouncements

~~There are~~In August 2020, the FASB issued ASU 2020-06, Debt -Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):Accounting for Convertible Instruments and Contracts in an Entity's Own Equity). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, which results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Additionally, ASU 2020-06 affects the diluted earnings per share calculation for instruments that may be settled in cash or shares and for convertible instruments and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity's own equity. ASU 2020-06 allows entities to use a modified or full retrospective transition method and is effective for smaller reporting companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no ~~recently issued accounting pronouncements~~earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact that ~~the Company has yet to adopt that are expected to~~this ASU may have ~~a material effect~~ on its consolidated financial ~~position, results of operations, or cash flows.~~statements.

Note 2 –Going Concern

As shown in the accompanying condensed consolidated financial statements, as of ~~December~~March 31, ~~2021,~~2022, the Company had negative working capital of $~~1,320,360~~1,598,387, accumulated recurring losses of $~~18,241,978~~18,615,574, and only $~~90,305~~82,769 of cash on hand, which 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. Management believes these factors will contribute toward achieving profitability.

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.

~~DIGIPATH, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Note 3 –Fair Value of Financial Instruments

The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement (“ASC 820”). Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of ~~December~~March 31, ~~2021~~2022 and September 30, 2021, respectively:

Summary of Financial Instruments at Fair Value on Recurring Basis

	Fair Value Measurements at December 31, 2021						Fair Value Measurements at March 31, 2022
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash	$	90,305	$	-	$	-	$	82,769	$	-	$	-

Liabilities
Lease liabilities		-		-		413,082		-		-		382,084
Notes payable		-		984,799		-		-		960,624		-
Convertible notes payable, net of discounts of $78,421		-		-		1,274,070
Convertible notes payable								-		-		1,700,650

	Fair Value Measurements at September 30, 2021
	Level 1		Level 2		Level 3
Assets
Cash	$	295,932	$	-	$	-

Liabilities
Lease liabilities		-		-		444,131
Notes payable		-		598,941		-
Convertible notes payable, net of discounts of $98,188		-		-		1,307,282

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

There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the ~~three~~six months ended ~~December~~March 31, 2022 or the year ended September 30, 2021.

Note 4 –Note Receivable

On various dates between December 28, 2018 and June 13, 2019, we loaned Northwest Analytical Labs, Inc. a total of $95,000. The loans bear interest at an annual rate of 10%, are evidenced by secured demand notes, and are secured by a lien on the borrower’s assets. An allowance for doubtful accounts for the full value of the notes has been recorded due to the uncertainty of collectability.

On various dates between August 23, 2021 and ~~December~~March 31, ~~2021,~~2022, we loaned C3 Labs, Inc. (“C3 Labs”) a total of $~~638,500~~1,003,622. The loans bear interest at an annual rate of 8%. $~~350,000~~ ~~of these~~These loans are evidenced by secured demand notes, and are secured by a lien on the borrower’s assets and have a maturity date of August 23, 2022. The Company has recorded interest income of $15,120 during the six months ended March 31, 2022 with total accrued interest of $25,605 as of March 31, 2022.

The loans were made in connection with a potential acquisition of a controlling interest in C3 Labs. On March 11, 2022, the Company notified C3 Labs ~~Inc., although no assurance can be made~~of its termination of the letter of intent. The Company is currently in possession of equipment of C3 Labs, which it is in the process of liquidating. The Company anticipates that the proceeds of such liquidation will be sufficient to repay the Company ~~will consummate~~in full all amounts owed to it by C3 Labs under the ~~acquisition. The Company has recorded interest income of $9,380~~ ~~during the three months ended December 31, 2021 with total accrued interest of $10,309~~ ~~as of December 31, 2021~~secured loans.

~~DIGIPATH, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Note 5 –Fixed Assets

Fixed assets consist of the following at ~~December~~March 31, ~~2021~~2022 and September 30, 2021:

Schedule of Fixed Assets

	2021			2020
	December,			September 30,			March 31,			September 30,
	2021			2021			2022			2021
Software	$	125,903		$	125,903		$	125,903		$	125,903
Office equipment		71,601			71,601			71,601			71,601
Furniture and fixtures		29,879			29,879			29,879			29,879
Lab equipment		1,453,715			1,453,716			1,455,479			1,453,716
Leasehold improvements		496,600			494,117			496,600			494,117
Lab equipment held under capital leases		99,193			99,193			99,193			99,193
Fixed assets, gross		2,276,891			2,274,409
Fixed assets,gross								2,278,655			2,274,409
Less: accumulated depreciation		(1,685,626	)		(1,627,157	)		(1,744,220	)		(1,627,157	)
Total	$	591,265		$	647,252		$	534,435		$	647,252

Depreciation and amortization expense ~~totaled~~totalled $~~58,469~~117,063 and $~~83,265~~159,209 for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

Note 6 – Leases

The Company leases its operating and office facility under a ~~non-cancelable~~non-cancellable real property lease agreement that expires on August 31, 2025. The Company also has a financing lease for lab equipment subject to the recently adopted ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The real property lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

The components of lease expense were as follows:

Schedule of Components of Lease Expense

	For the Three		For the Three		For the Six		For the Six
	Months Ended		Months Ended		Months Ended		Months Ended
	December 31,		December 31,		March 31,		March 31,
	2021		2020		2022		2021
Operating lease cost	$	29,718	$	29,718	$	59,436	$	21,644
Finance lease cost:
Amortization of assets		8,467		6,946		17,329		45,308
Interest on lease liabilities		809		2,330		1,223		14,129
Total net lease cost	$	38,994	$	38,994	$	18,552	$	59,437

Supplemental balance sheet information related to leases was as follows:

Schedule of Supplemental Balance Sheet Information

	December 31,			September 30,			March 31,			September 30,
	2021			2021			2022			2021
Operating leases:
Operating lease assets	$	390,150		$	413,884		$	366,089		$	413,884

Current portion of operating lease liabilities		95,924		$	93,601			98,281		$	93,601
Noncurrent operating lease liabilities		305,246			330,151			279,981			330,151
Total operating lease liabilities	$	401,170		$	423,752		$	378,262		$	423,752
Finance lease:
Equipment, at cost	$	99,193		$	99,193		$	99,193		$	99,193
Accumulated amortization		(44,637	)		(39,677	)		(49,596	)		(36,677	)
Equipment, net	$	54,556		$	59,516		$	49,597		$	74,395

Current portion of finance lease liabilities	$	11,912		$	20,379		$	3,822		$	20,379
Noncurrent finance lease liabilities		-			-			-			-
Total finance lease liabilities	$	11,912		$	20,379		$	3,822		$	20,379

Weighted average remaining lease term:
Operating leases		3.67 years			3.92 years			3.42 years			3.92 years
Finance leases		0.30 years			0.55 years			0.05 years			1.55 years

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

~~DIGIPATH, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Supplemental cash flow and other information related to leases was as follows:

Schedule of Supplemental Cash Flow and Other Information

	For the Three		For the Three		For the Six		For the Six
	Months Ended		Months Ended		Months Ended		Months Ended
	December 31,		December 31,		March 31,		March 31,
	2021		2020		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	22,582	$	20,424	$	45,490	$	41,143
Financing cash flows used for finance leases	$	8,467	$	6,946	$	16,557	$	16,715

Leased assets obtained in exchange for lease liabilities:
Total operating lease liabilities	$	-	$	528,616	$	-	$	528,616
Total finance lease liabilities	$	-	$	99,193	$	-	$	99,193

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities on a fiscal year basis, including common area maintenance fees, under ~~non-cancelable~~non-cancellable operating leases as of ~~December~~March 31, ~~2021:~~2022:

Schedule of Future Minimum Annual Lease Commitments Under Operating Leases

Fiscal Year Ending	Minimum Lease		Minimum Lease
September 30,	Commitments		Commitments
2022	$	86,985
2022 (for the six months remaining)			$	58,419
2023		119,468		119,468
2024		123,543		123,543
2025		116,891		116,892
2026		-		-
Total future undiscounted lease payments		446,888		418,322
Less interest		45,718		40,060
Present value of lease payments		401,170		378,262
Less current portion		95,924		98,281
Long-term operating lease liabilities	$	305,246	$	279,981

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~~March 31, ~~2021:~~2022:

Schedule of Future Minimum Annual Lease Payments Under Finance Lease

	Finance		Finance
	Leases		Leases

2022	$	12,368	$	3,865
2023		-		-
Total minimum lease payments		12,368		3,865
Less interest		456		43
Present value of lease liabilities		11,912		3,822
Less current portion		11,912		3,822
Long-term finance lease liabilities	$	-	$	-

~~DIGIPATH, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Note 7 –Notes Payable

Notes payable consists of the following at ~~December~~March 31, ~~2021~~2022 and September 30, 2021, respectively:

Schedule of Notes Payable

	December 31,			September 30,			March 31,			September 30,
	2021			2021			2022			2021

On September 10, 2021, the Company, entered into a Secured Promissory note for $675,000 from US Canna Lab I, LLC, (the “Company Canna Lab Note”). The Company Canna Lab Note carries interest at 12% per annum, and is due on September 10, 2024 with monthly principal and interest payments of $22,419.66 beginning on October 1, 2021. As of December 31, 2021, a total $675,000 of the funds have been advanced to the Company. In addition, the Company was advanced an additional $125,000 of funds under the same terms as the original note.	$	800,000		$	400,000
On September 10, 2021, the Company, entered into a Secured Promissory note for $675,000 from US Canna Lab I, LLC, (the “Company Canna Lab Note”). The Company Canna Lab Note carries interest at 12% per annum, and is due on September 10, 2024 with monthly principal and interest payments of $22,419.66 beginning on October 1, 2021. As of March 31, 2022, a total $675,000 of the funds have been advanced to the Company. In addition, the Company was advanced an additional $115,000 of funds under the same terms as the original note.							$	790,000		$	400,000

On December 26, 2019, the Company financed the purchase of $377,124 of lab equipment, in part, with the proceeds of a bank loan in the amount of $291,931. The loan bears interest at the rate of 5.75% per annum and requires monthly payments of $5,622 over the five-year term of the loan ending on December 26, 2024. The Company’s obligations under this loan are secured by a lien on the purchased equipment.		184,799			198,941			170,624			198,941

Total notes payable		984,799			598,941			960,624			598,941
Less: current maturities		(439,612	)		(259,425	)		(486,458	)		(259,425	)
Notes payable	$	545,187		$	339,516		$	474,166		$	339,516

The Company recorded interest expense pursuant to the stated interest rate and closing costs on the notes payable in the amount of $~~11,836~~41,277 and $~~4,131~~7,970 during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

~~DIGIPATH, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Note 8 – Convertible Notes Payable

Convertible notes payable consists of the following at ~~December, 2021~~March 31, 2022 and September 30, 2021, respectively:

Schedule of Convertible Notes Payable

	December 31,			September 30,			March 31,			September 30,
	2021			2021			2022			2021
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $50,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $10,000 of proceeds and the promissory note was increased to $60,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $10,000 of principal into 333,334 shares of common stock at a conversion price of $0.03 per share.	$	50,000		$	50,000		$	50,000		$	50,000

On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Subordinated Convertible Promissory Note in the principal amount of $150,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $200,000. The Company’s obligations under the Note are secured by subordinated lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share.		150,000			150,000			150,000			150,000

On February 10, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $350,000. The Note matures on August 10, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $400,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share.		350,000			350,000			350,000			350,000

On September 23, 2019, the Company received proceeds of $200,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.11 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc. On February 22, 2021, the noteholder converted $90,000 of principal into 3,000,000 shares of common stock at a conversion price of $0.03 per share. On September 30, 2021 the note was amended to add outstanding short term notes and accrued interest into the principal balance, making the outstanding balance 355,470, as amended. As a result of the modification, the Company recorded an additional debt discount of $98,188 as a result of the beneficial conversion feature of the additional principal. During the three months ended December 31, 2021, the Company repaid $52,978 of the balance of this note.		302,492			355,470
On September 23, 2019, the Company received proceeds of $200,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.11 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc. On February 22, 2021, the noteholder converted $90,000 of principal into 3,000,000 shares of common stock at a conversion price of $0.03 per share. On September 30, 2021 the note was amended to add outstanding short term notes and accrued interest into the principal balance, making the outstanding balance 355,470, as amended. As a result of the modification, the Company recorded an additional debt discount of $98,188 as a result of the beneficial conversion feature of the additional principal. During the six months ended March 31, 2022, the Company repaid $40,000 of the balance of this note. In addition, during the six months ended March 31, 2022, the Company was advanced additional loans of $394,265 from the lender under the same terms.								709,735			355,470

On November 8, 2018, the Company received proceeds of $350,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc.		350,000			350,000			350,000			350,000

On November 5, 2018, the Company received proceeds of $150,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc.		150,000			150,000			150,000			150,000

Total convertible notes payable		1,352,492			1,405,470			1,759,735			1,407,470
Less: unamortized debt discounts		(78,421	)		(98,188	)		(59,085	)		(98,188	)
Total convertible debt		1,274,070			1,307,282			1,700,650			1,307,282
Less: current maturities		1,274,070			1,050,000			1,700,650			1,050,000
Convertible notes payable	$	-		$	257,282		$	-		$	257,282

~~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 $~~98,188~~98,188.. 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 $~~19,766~~39,103. for the six months ended March 31, 2022. Unamortized discount as of ~~December~~March 31, ~~2021~~2022 is $~~78,421~~59,085.

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 $~~28,273~~46,380 and $~~26,567~~51,802 for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

The Company recognized interest expense for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, as follows:

Schedule of Interest Expense

	December 31,		December 31,		March 31,		March 31,
	2021		2020		2022		2021

Interest on short term loans	$	-	$	1,023	$	-	$	1,687
Interest on lease liabilities		3,601		2,330
Interest on capital leases						6,603		4,929
Interest on notes payable		17,753		4,131		41,277		7,970
Amortization of beneficial conversion features		19,766		8,322		39,103		8,322
Interest on convertible notes		28,273		26,567		58,128		51,802
Total interest expense	$	69,393	$	42,373	$	145,111	$	74,710

Note 9 - Changes in Stockholders’ ~~Deficit~~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”) and 1,500,000 have been designated as Series B Convertible Preferred Stock (“Series B Preferred”), with the remaining 2,500,000 shares available for designation from time to time by the Board as set forth below. As of ~~December~~March 31, ~~2021,~~2022, there were 1,047,942 shares of Series A Preferred issued and outstanding and 333,600 shares of Series B Preferred issued and outstanding. The Board of Directors is authorized to determine any number of series into which the undesignated shares of preferred stock may be divided and to determine the rights, preferences, privileges and restrictions granted to any series of the preferred stock. Each share of Series A Preferred is currently convertible into five shares of common stock and each share of Series B Preferred is currently convertible into twenty-five shares of common stock.

Series A

The conversion price is adjustable in the event of stock splits and other adjustments in the Company’s capitalization, and in the event of certain negative actions undertaken by the Company. At the current conversion price, the 1,047,942 shares of Series A Preferred outstanding at ~~December~~March 31, ~~2021~~2022 are convertible into 5,239,710 shares of the common stock of the Company. No holder is permitted to convert its shares of Series A Preferred if such conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding common stock of the Company immediately after such conversion, unless waived by such holder by providing at least sixty-five days’ notice.

~~DIGIPATH, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Additional terms of the Series A Preferred and include the following:

●	The shares of Series A Preferred are entitled to dividends when, as and if declared by the Board as to the shares of the common stock of the Company into which such Series A Preferred may then be converted, subject to the 4.99% beneficial ownership limitation described above.

●	Upon the liquidation or dissolution of the Company, or any merger or sale of all or substantially all of the assets, the shares of Series A Preferred are entitled to receive, prior to any distribution to the holders of common stock, 100% of the purchase price per share of Series A Preferred plus all accrued but unpaid dividends.

●	The Series A Preferred plus all declared but unpaid dividends thereon automatically will be converted into common stock, at the then applicable conversion rate, upon the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred.

●	Each share of Series A Preferred will carry a number of votes equal to the number of shares of common stock into which such Series A Preferred may then be converted, subject to the 4.99% beneficial ownership limitation described above. The Series A Preferred generally will vote together with the common stock and not as a separate class, except as provided below.

●	Consent of the holders of the outstanding Series A Preferred is required in order for the Company to: (i) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred; (ii) authorize, create or issue shares of any class of stock having rights, preferences, privileges or powers superior to the Series A Preferred; (iii) reclassify any outstanding shares into shares having rights, preferences, privileges or powers superior to the Series A Preferred; or (iv) amend the Company’s Articles of Incorporation or Bylaws in a manner that adversely affects the rights of the Series A Preferred.

●	Pursuant to the Securities Purchase Agreements, holders of Series A Preferred are entitled to unlimited “piggyback” registration rights on registrations by the Company, subject to pro rata cutback at any underwriter’s discretion.

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, the Company offered to the Series A Preferred shareholders the ability to convert their Preferred A shares into Preferred B shares for an additional investment of 20% of their initial Series A ~~investment.~~investment. One Series A shareholder ~~has~~ agreed to invest additional cash proceeds of $55,600 for 55,600 Series B shares and converted 278,000 of their Series A into Series B.

Series B

The Series B Preferred were designated on December 29, 2021. Each share of Series B Preferred has a Stated Value of $1.00 and is currently convertible into common stock at a conversion price equal to $0.04. The conversion price of the Series B Preferred is subject to equitable adjustment in the event of a stock split, stock dividend or similar event with respect to the common stock, and in the event of the issuance of common stock by the Company below the conversion price, subject to customary exceptions. At the current conversion price, the 333,600 shares of Series B Preferred outstanding at ~~December~~March 31, ~~2021~~2022 are convertible into 8,340,000 shares of the common stock of the Company. No holder is permitted to convert its shares of Series B Preferred if such conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding common stock of the Company immediately after such conversion, unless waived by such holder by providing at least sixty-five days’ notice.

Additional terms of the Series B Preferred and include the following:

●	The shares of Series B Preferred are not entitled to dividends, provided that if dividends are paid on the shares of common stock of the Company, the Series B Preferred will be entitled to dividends based on the number shares of common stock which the Series B Preferred may then be converted.

●	Upon the liquidation or dissolution of the Company, or any merger or sale of all or substantially all of the assets, or upon a change in control whereby a stockholder gains control of 50% or more of the outstanding shares of common stock, the shares of Series B Preferred are entitled to receive, prior to any distribution to the holders of common stock, 100% of the purchase price per share of Series B Preferred plus all accrued but unpaid dividends.

●	Each share of Series B Preferred carries a number of votes equal to the number of shares of common stock into which such Series B Preferred may then be converted.

~~DIGIPATH, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Due to the change in control provision of the Series B Preferred, the Series B Preferred is classified as temporary equity on the balance sheet.

On December 30, 2021, the Company entered into an Exchange Agreement with one of the Company’s institutional investors (the “Investor”), pursuant to which the Investor exchanged 278,000shares of the Series A Preferred for 278,000 shares of the Series B Preferred. In addition, on December 30, 2021, the Investor purchased 55,600 shares of Series B Preferred Stock at a price of $1.00 per share, resulting in gross proceeds to the Company of $55,600.

Common Stock

Common stock consists of $0.001 par value, 250,000,000 shares authorized, of which ~~72,730,153~~75,146,820 shares were issued and outstanding as of ~~December~~March 31, ~~2021.~~2022.

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, the Company issued 1,500,000shares of its common stock in exchange for services rendered to the Company, by the chairman of the board of directors, with a total fair value $~~52,500~~98,679 based on the closing price of the Company’s common stock on the dates of grant. ~~The~~

During the six months ended March 31, 2022, the Company issued 2,166,667 shares ~~were issued~~of its common stock in exchange for services rendered to the ~~chairman~~Company by third party consultants, with a total fair value $103,464 based on the closing price of the ~~board~~Company’s common stock on the dates of ~~directors.~~grant.

During the six months ended March 31, 2022, the Company issued 250,000 shares of its common stock to settle outstanding payables in the amount of $7,500.

Note 10 – Common Stock Options

Stock Incentive Plan

On June 21, 2016, we amended and restated our 2012 Stock Incentive Plan (the “2012 Plan”), which was originally adopted on March 5, 2012 and previously amended on May 20, 2014. As amended, the 2012 Plan provides for the issuance of up to 11,500,000 shares of common stock pursuant to the grant of options or other awards, including stock grants, to employees, officers or directors of, and consultants to, the Company and its subsidiaries. Options granted under the 2012 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant. Options to purchase a total of 6,020,000shares of common stock were outstanding as of ~~December~~March 31, ~~2021.~~2022.

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, the Company issued to an unrelated third party, options to purchase 1,000,000 shares of its common stock in exchange for services rendered to the Company with a total fair value $33,716. The Company estimated the fair value using the Black-Scholes Pricing Model, based on a volatility rate of 186% and call option values of $0.0337 and exercise prices of $0.035.

Amortization of Stock-Based Compensation

A total of $~~46,179~~53,739 and $~~17,060~~41,126 of stock-based compensation expense was recognized during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, as a result of the vesting of common stock options issued. As of ~~December~~March 31, ~~2021~~2022 a total of $~~44,213~~31,798 of unamortized expense remains to amortized over the vesting period.

The following is a summary of information about the stock options outstanding at ~~December~~March 31, ~~2021.~~2022.

Summary of Common Stock Options Outstanding

Shares Underlying
Shares Underlying Options Outstanding Options Exercisable

Weighted
Shares Average Weighted Shares Weighted
Range of Underlying Remaining Average Underlying Average
Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price

$ 0.05 – $0.13 5,020,000 7.12 years $ 0.08 4,043,809 $ 0.08
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~~DIGIPATH, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
Shares Underlying
Shares Underlying Options Outstanding Options Exercisable

Weighted
Shares Average Weighted Shares Weighted
Range of Underlying Remaining Average Underlying Average
Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price

$ 0.05 – $0.13 6,020,000 6.51 years $ 0.07 5,359,285 $ 0.07

The following is a summary of activity of outstanding common stock options:
Schedule of Activity of Outstanding Common Stock Options
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
Balance, September 30, 2021 5,620,000 $ 0.08 5,620,000 $ 0.08
Options issued 1,000,000 $ 0.04 1,000,000 $ 0.04
Options forfeited (600,000 ) $ 0.11 (600,000 ) $ 0.11

Balance, December 31, 2021 6,020,000 $ 0.07
Balance, March 31, 2022 6,020,000 $ 0.07

Exercisable, December 31, 2021 5,043,809 $ 0.07
Exercisable, March 31, 2022 5,359,285 $ 0.07

As of ~~December~~March 31, ~~2021,~~2022, these options in the aggregate had no intrinsic value as the per share market price of $~~0.028~~0.023 of the Company’s common stock as of such date was less than the weighted-average exercise price of these options of $~~0.08~~0.07.
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Note 11 – Common Stock Warrants

Warrants to purchase a total of 2,535,001 shares of common stock were outstanding as of ~~December~~March 31, ~~2021.~~2022.

The following is a summary of information about our warrants to purchase common stock outstanding at ~~December~~March 31, ~~2021.~~2022.
Summary of Common Stock Warrants Outstanding
Shares Underlying Shares Underlying
Shares Underlying Warrants Outstanding Shares Underlying Warrants Outstanding Warrants Exercisable Shares Underlying Warrants Outstanding Warrants Exercisable

Weighted Weighted
Shares Average Weighted Shares Weighted Shares Average Weighted Shares Weighted
Range of Range of Underlying Remaining Average Underlying Average Range of Underlying Remaining Average Underlying Average
Exercise Exercise Warrants Contractual Exercise Warrants Exercise Exercise Warrants Contractual Exercise Warrants Exercise
Prices Prices Outstanding Life Price Exercisable Price Prices Outstanding Life Price Exercisable Price

$ 0.10 - 0.26 2,535,001 5.08 years $ 0.17 2,535,001 $ 0.17 0.10 - 0.26 2,535,001 4.84 years $ 0.17 2,535,001 $ 0.17

The following is a summary of activity of outstanding common stock warrants:

Schedule of Outstanding Common Stock Warrants Activity
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
Balance, September 30, 2021 2,535,001 $ 0.17 2,535,001 $ 0.17
Warrants granted - - - -
Warrants expired - - - -

Balance, December 31, 2021 2,535,001 $ 0.17
Balance, March 31, 2022 2,535,001 $ 0.17

Exercisable, December 31, 2021 2,535,001 $ 0.17
Exercisable, March 31, 2022 2,535,001 $ 0.17

As of ~~December~~March 31, ~~2021,~~2022, these warrants in the aggregate had no intrinsic value as the per share market price of $~~0.028~~0.023 of the Company’s common stock as of such date was less than the weighted-average exercise price of these ~~options~~warrants of $~~0.08~~0.17.
Note 12 – Commitments and Contingencies

Legal Contingencies

There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

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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, 2021 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, 2021 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”) supports the cannabis industry’s best practices for reliable testing, cannabis education and training. Our mission is to provide pharmaceutical-grade analysis and testing to the cannabis industry, under ISO-17025:2017 guidelines, to ensure consumers and patients know exactly what is in the cannabis they ingest and to help maximize the quality of our clients’ products through research, development, and standardization. Digipath has been operating a cannabis-testing lab in Nevada since 2015 and has plans to open labs in other states that have legalized the sale of cannabis, beginning with California.

Results of Operations for the Three Months Ended ~~December~~March 31, ~~2021~~2022 and ~~2020:~~2021:

The following table summarizes selected items from the statement of operations for the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020.~~2021.

Three Months Ended December 31, Increase /
2021 2020 (Decrease)
Revenues $ 699,585 $ 500,385 $ 199,200
Cost of sales 422,601 420,885 1,716
Gross profit 276,984 79,500 197,484

Operating expenses:
General and administrative 240,964 225,050 15,914
Professional fees 268,471 114,544 153,927
Change in allowance for doubtful accounts (2,139 ) 88,170 (90,309 )
Total operating expenses: 507,296 427,764 79,532

Operating income (loss) (230,312 ) (348,264 ) 117,952

Total other income (expense) (60,013 ) (42,373 ) (17,640 )

Net loss $ (290,325 ) $ (390,637 ) $ 100,312
Three Months Ended March 31, Increase /
2022 2021 (Decrease)
Revenues $ 604,735 $ 633,160 $ (28,425 )
Cost of sales 396,032 416,915 (20,883 )
Gross profit 208,703 216,245 (7,542 )

Operating expenses:
General and administrative 235,470 211,961 23,509
Professional fees 286,390 107,819 178,571
Change in allowance for doubtful accounts 16 (106,155 ) 106,171
Total operating expenses: 521,876 213,625 308,251

Operating income (loss) (313,173 ) 2,620 (315,793 )

Total other income (expense) (60,423 ) 15,581 (76,004 )

Net loss $ (373,596 ) $ 18,201 $ (391,797 )

Revenues

Aggregate revenues for the three months ended ~~December~~March 31, ~~2021~~2022 were ~~$699,585,~~$604,735, compared to revenues of ~~$500,385~~$633,160 during the three months ended ~~December~~March 31, ~~2020, an increase~~2021, a decrease of ~~$199,200~~$28,425 or ~~40%~~4%. The ~~increase~~decrease in revenue was due to ~~the increase~~a slight decrease in tourism in Nevada during the current period ~~in comparison~~as opposed to the ~~prior year~~same period in ~~which Nevada tourism was significantly depressed because of the COVID-19 coronavirus pandemic.~~2021.

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Cost of Sales

Cost of sales for the three months ended ~~December~~March 31, ~~2021~~2022 were ~~$422,601,~~$396,032, compared to ~~$420,885~~$416,915 during the three months ended ~~December~~March 31, ~~2020, an increase~~2021, a decrease of ~~$1,716,~~$20,883, or ~~less than 1%~~5%. 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 our ~~increased labor and~~sales decrease of 4% as well as reducing our outsourced testing fees incurred during the current period. Our gross margins were approximately ~~40%~~35% during the three months ended ~~December~~March 31, ~~2021,~~2022, compared to ~~16%~~34% during the three months ended ~~December~~March 31, ~~2020,~~2021, which translated to ~~$197,484~~$20,883 of ~~increased~~decreased gross profit from our ~~$199,200~~$28,425 of ~~increased~~decreased revenues received in the current period. Our margins increased in the current period due to the increase in revenues, which increased at a greater rate than our labor costs and equipment servicing costs, in addition to reduced costs resulting from a decrease in outsourcing our testing services in the current period.

General and Administrative Expenses

General and administrative expenses for the three months ended ~~December~~March 31, ~~2021~~2022 were ~~$240,964,~~$235,470 compared to ~~$225,050~~$211,961 during the three months ended ~~December~~March 31, ~~2020,~~2021, an increase of ~~$15,914,~~$23,509, or 7%11%. The expenses consisted primarily of marketing, rent, salaries and wages, and travel expenses. General and administrative expenses included non-cash, stock-based compensation of $0 and $16,952 during the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. General and administrative expenses ~~increased~~decreased primarily due to ~~increased~~decreased corporate overhead activities.

Professional Fees

Professional fees for the three months ended ~~December~~March 31, ~~2021~~2022 were ~~$268,471,~~$286,390, compared to ~~$114,544~~$107,819 during the three months ended ~~December~~March 31, ~~2020,~~2021, an increase of ~~$153,927,~~$178,571, or ~~134%~~166%. Professional fees included non-cash, stock-based compensation of ~~$98,679~~$103,464 and ~~$27,108~~$44,147 during the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Professional fees increased primarily due to increased corporate consulting services during the current period as we ~~increased our focus~~focused primarily on ~~expansion efforts.~~the lab operations during the current period.

Change in Allowance for Doubtful Accounts

Our change in allowance for doubtful accounts for the three months ended ~~December~~March 31, ~~2021~~2022 resulted in ~~$2,139~~$16 of income, compared to ~~$88,170~~$106,155 of expense during the three months ended ~~December~~March 31, ~~2020,~~2021, an improvement of ~~$90,309,~~$106,171, or ~~102%~~100%. Our change in allowance for doubtful accounts improved during the current period as the Nevada tourism market began to open up again and our customers’ cash flows improved.
Operating Loss
Our operating loss for the three months ended March 31, 2022 was $313,173, compared to operating income of $2,620 during the three months ended March 31, 2021, a decrease of $315,793, or 12,053%. Our operating loss increased primarily due to our decreased gross profit and not having a reversal of our allowance for doubtful accounts.
Other Income (Expense)
Other expense, on a net basis, for the three months ended March 31, 2022 was $60,423, compared to other income, on a net basis, of $15,581 during the three months ended March 31, 2021, a net decrease of $76,004. Other expense consisted of interest expense of $75,718 for the three months ended March 31, 2022. partially offset by other income, consisting of $15,295 of interest income.
Net Loss
Net loss for the three months ended March 31, 2022 was $373,596, compared to net income of $18,201 during the three months ended March 31, 2021, a decrease of $391,797, or 2,153%. The net loss was primarily due to our decreased revenues, increase interest expense, and not having a reversal in our doubtful accounts from the March 31, 2021 period.
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Results of Operations for the Six Months Ended March 31, 2022 and 2021:
The following table summarizes selected items from the statement of operations for the six months ended March 31, 2022 and 2021.
Six Months Ended March 31, Increase /
2022 2021 (Decrease)
Revenues $ 1,304,320 $ 1,133,545 $ 170,775
Cost of sales 818,633 837,800 (19,167 )
Gross profit 485,687 295,745 189,942

Operating expenses:
General and administrative 476,434 437,011 39,423
Professional fees 554,861 222,363 332,498
Change in allowance for doubtful accounts (2,123 ) (17,985 ) 15,862
Total operating expenses: 1,029,172 641,389 387,783

Operating loss (543,485 ) (345,644 ) (197,841 )

Total other income (expense) (120,436 ) (26,792 ) (93,644 )

Net loss $ (663,921 ) $ (372,436 ) $ (291,485 )
Revenues
Aggregate revenues for the six months ended March 31, 2022 were $1,304,320, compared to revenues of $1,133,545 during the six months ended March 31, 2021, an increase of $170,775, or 15%. The increase in revenue was due to the Nevada tourism market beginning to open up again and our customers’ cash flows improved during the current period.
Cost of Sales
Cost of sales for the six months ended March 31, 2022 were $818,633, compared to $837,800 during the six months ended March 31, 2021, a decrease of $19,167, or 2%. Cost of sales consists primarily of labor, depreciation, maintenance on lab equipment, and supplies consumed in our testing operations. The decreased cost of sales in the current period was primarily due to our decrease in outsourcing to other labs. Our gross margins of approximately 37% and 26% during the six months ended March 31, 2022 and 2021, respectively, translated to $189,942 of increased gross profit in the current period.
General and Administrative Expenses
General and administrative expenses for the six months ended March 31, 2022 were $476,434, compared to $437,011 during the six months ended March 31, 2021, an increase of $39,423, or 9%. The expenses consisted primarily of marketing, rent, salaries and wages, and travel expenses. General and administrative expenses included non-cash, stock-based compensation of $0 and $33,904 during the six months ended March 31, 2022 and 2021, respectively. General and administrative expenses increased due primarily to increased corporate overhead activities offset by the discontinuation of rents on warehouse space that we were previously subleasing.
Professional Fees
Professional fees for the six months ended March 31, 2022 were $554,861, compared to $222,363 during the six months ended March 31, 2021, an increase of $332,498, or 150%. Professional fees included non-cash, stock-based compensation of $202,143 and $97,077 during the six months ended March 31, 2022 and March 31, 2021, respectively. Professional fees increased primarily due to increased use of corporate consulting services during the current period.
Change in Allowance for Doubtful Accounts
Our change in allowance for doubtful accounts resulted in $2,123 of income for the six months ended March 31, 2022, compared to $17,985 during the six months ended March 31, 2021, a decrease of $15,862, or 88%. Our change in allowance for doubtful accounts improved during the current period primarily as our allowance for doubtful accounts decreased from $96,285 to ~~$88,600~~$88,711 during the ~~quarter,~~period, as the Nevada tourism market began to open up again and our customers’ cash flows improved. ~~The improvement was offset by the write-off of a loan we made in the amount of $5,361 that was not previously reserved for.~~
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Operating Loss

Our operating loss for the ~~three~~six months ended ~~December~~March 31, 2022 was $543,485, compared to $345,644 during the six months ended March 31, 2021, ~~was $230,312, compared to~~ an ~~operating loss~~increase of ~~$348,264 during the three months ended December 31, 2020, a decrease of $117,952,~~$197,841, or ~~34%~~57%. Our operating loss ~~decreased~~increased primarily due to ~~our increased gross profit, as tourism returned~~a large increase in ~~Nevada after we navigated through the height of the effects of the COVID-19 coronavirus pandemic during the comparative period, as we continued to pare our general and administrative and~~ professional ~~fee costs, and decreased our allowance for doubtful accounts and overhead cost saving measures we implemented in response to Covid-19.~~fees.

Other ~~Income (Expense)~~Expense

Other expense, on a net basis, for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 was ~~$60,013,~~$120,436, compared to other expense, on a net basis, of ~~$42,373~~$26,792 during the ~~three~~six months ended ~~December~~March 31, ~~2020,~~2021, a net increase of ~~$17,640.~~$93,644. Other expense consisted of $145,111 of interest expense, as offset by interest income of ~~$69,393 for~~$15,295, compared to $65,434 of interest expense, as offset by a gain on early extinguishment of debt in the ~~three~~amount of $40,338 and a gain on the distribution of $7,580 of previously impaired inventory to our former CEO, during the six months ended ~~December~~March 31, ~~2021, partially offset by $9,380 of interest income.~~2021.

Net Loss

Net loss for the ~~three~~six months ended ~~December~~March 31, 2022 was $663,921, compared to $372,436 during the six months ended March 31, 2021, ~~was $290,325, compared to a net loss~~an increase of ~~$390,637 during the three months ended December 31, 2020, a decrease of $100,312,~~$291,485, or ~~26%~~78%. The ~~decreased~~increased net loss was due primarily ~~due~~ to ~~our increased revenues, as the returning tourism in Nevada improved,~~larger professional fees and an increase in ~~our gross margins.~~other expenses.
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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 ~~nine-month~~six-month periods ended ~~December~~March 31, ~~2021~~2022 and ~~2020:~~2021:

2021 2020 2022 2021
Operating Activities $ (177,158 ) $ (63,694 ) $ (190,286 ) $ (94,603 )
Investing Activities (408,482 ) - (777,868 ) (1,206 )
Financing Activities 380,013 30,015 754,991 126,766
Net Decrease in Cash $ (205,627 ) $ (3,679 ) $ (213,163 ) $ 30,957

Net Cash Used in Operating Activities

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, net cash used in operating activities was ~~$177,158,~~$190,286, compared to net cash used in operating activities of ~~$63,694~~$94,603 for the same period ended ~~December~~March 31, ~~2020.~~2021. The increase in cash used in operating activities was primarily attributable to our ~~increase in accounts receivable.~~increased net loss.

Net Cash Used in Investing Activities

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, net cash used in investing activities was ~~$408,482,~~$777,868, compared to $0$1,206 for the same period ended ~~December~~March 31, ~~2020.~~2022. The increase in cash used in investing ~~activities~~ was a result of secured loans we made to C3 Labs, Inc. in connection with a potential acquisition. On March 11, 2022, the Company notified C3 Labs of its termination of the letter of intent. The Company is currently in possession of equipment of C3 Labs, which it is in the process of liquidating. The Company anticipates that the proceeds of such liquidation will be sufficient to repay the Company in full all amounts owed to it by C3 Labs under the secured loans.

Net Cash Provided by Financing Activities

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, net cash provided by financing activities was ~~$380,013,~~$754,991, compared to net cash provided by financing activities of ~~$60,015~~$126,766 for the same period ended ~~December~~March 31, 2021. The current period consisted primarily of ~~$400,000~~$390,000 of proceeds received on debt financing, $407,243 proceeds from convertible debt financing, proceeds of $55,600 from the sale of preferred stock, as offset by ~~$8,467~~$28,317 of principal payments on an equipment lease and ~~$14,142~~$16,557 of principal payments on an equipment loan, ~~and $52,978 of principal payments made on convertible notes,~~ compared to ~~$60,000~~$110,000 of net proceeds received on convertible debt financing, $40,000 of proceeds from short term advances and proceeds of $20,250 from the sale of stock, as offset by ~~$6,946~~$26,769 of principal payments on an equipment lease and ~~$13,289~~$16,715 of principal payments on an equipment loan in the comparative period.
21

Ability to Continue as a Going Concern

As of ~~December~~March 31, ~~2021,~~2022, our balance of cash on hand was ~~$90,305,~~$82,769, and we had negative working capital of ~~$1,320,360~~$1,598,387 and an accumulated deficit of $18,615,574 resulting from recurring ~~losses of $18,241,978.~~losses. 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.

20
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 recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the ~~sale~~commercial sales of ~~lab testing services through our subsidiary Digipath Labs, Inc.~~products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

Revenue is primarily generated through our subsidiary, Digipath Labs, Inc., which recognizes revenue from the analytical testing of cannabis products for licensed producers and cultivators within the state of Nevada on a determinable fixed fee per test, or panel of tests basis. Revenue from the performance of those services is recognized upon completion of the tests, at which time test results are delivered to the customer, provided collectability of the fee is reasonably assured. We typically require payment within thirty days of the delivery of results. Management estimates an allowance for doubtful accounts based on the aging of its receivables.
22

Stock-Based Compensation

The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which the consideration provided in exchange for the purchase of goods or services consists of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.

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
21

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~~March 31, ~~2021.~~2022. 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~~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~~March 31, ~~2021,~~2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not 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.

22 23

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~~six-month period ended ~~December~~March 31, ~~2021:~~2022:
Common Stock Issued for Services

On ~~December 30, 2021, we entered into an Exchange Agreement with one of our institutional investors (the “Investor”), pursuant to which~~February 11, 2022, the ~~Investor exchanged 278,000~~Company issued 2,166,667 shares of our Series A Preferred Stock for 278,000 shares of our newly designated Series B Preferred Stock (“Series B Preferred Stock”). The transaction was effected pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
In addition, on December 30, 2021, the Investor purchased 55,600 shares of Series B Preferred Stock at a price of $1.00 per share, resulting in gross proceeds to the Company of $55,600. The transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
~~During the three months ended December 31, 2021, we issued 1,500,000 shares of~~its common stock in exchange for services rendered to the Company by third party consultants, with a total fair value $65,000 based on the ~~chairman~~closing price of the ~~board~~Company’s common stock on the dates of ~~directors. The transaction was effected pursuant~~grant.
On February 11, 2022, the Company issued 250,000 shares of its common stock to ~~Section 4(a)(2)~~settle outstanding payables in the amount of ~~the Securities Act of 1933, as amended.~~$7,500.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

23 24

ITEM 6. EXHIBITS.

Exhibit Description
2.1 Stock Purchase Agreement between Digipath, Inc., VSSL Enterprises Ltd., Kyle Joseph Remenda, Philippe Olivier Henry, PhD, Audim Ventures Ltd. and Britt Ash Enterprises Ltd., dated March 9, 2020 (incorporated by reference to Exhibit 2.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on March 16, 2020)
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 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)
3.7 Certificate of Designations of the Series B Preferred Stock dated December 29, 2021 (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 January 6, 2022)
4.1 Form of 8% Senior Secured Convertible Notes due December 31, 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 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 (incorporated by reference to Exhibit 4.3 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on February 14, 2020)
4.4 9% Secured Subordinated Convertible Note, between Digipath, Inc. and holder, due August 11, 2022 (incorporated by reference to Exhibit 4.4 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on February 14, 2020)
4.5 9% Secured Subordinated Convertible Note, between Digipath, Inc. and holder, due August 11, 2022 (incorporated by reference to Exhibit 4.5 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on May 15, 2020)
4.6 Form of Amendment to 9% Secured Convertible Note, between Digipath, Inc. and holder, due August 10, 2022 (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 January 6, 2021)
31.1* Section 302 Certification of Principal Executive Officer
31.2* Section 302 Certification of Principal Financial Officer
32.1* Section 906 Certification of Principal Executive Officer
32.2* Section 906 Certification of Principal 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
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.

24 25

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 14,~~May 16, 2022

DIGIPATH, INC.

By: /s/ Todd Denkin
Name: Todd Denkin
Title: Chief Executive Officer

By: /s/ A. Stone Douglass
Name: A. Stone Douglass
Title: Chief Financial Officer

25 26

				Weighted					Weighted
				Average					Average
	Number			Exercise		Number			Exercise
	of Shares			Price		of Shares			Price
Balance, September 30, 2021		5,620,000		$	0.08		5,620,000		$	0.08
Options issued		1,000,000		$	0.04		1,000,000		$	0.04
Options forfeited		(600,000	)	$	0.11		(600,000	)	$	0.11

Balance, December 31, 2021		6,020,000		$	0.07
Balance, March 31, 2022							6,020,000		$	0.07

Exercisable, December 31, 2021		5,043,809		$	0.07
Exercisable, March 31, 2022							5,359,285		$	0.07

	Three Months Ended December 31,						Increase /
	2021			2020			(Decrease)
Revenues	$	699,585		$	500,385		$	199,200
Cost of sales		422,601			420,885			1,716
Gross profit		276,984			79,500			197,484

Operating expenses:
General and administrative		240,964			225,050			15,914
Professional fees		268,471			114,544			153,927
Change in allowance for doubtful accounts		(2,139	)		88,170			(90,309	)
Total operating expenses:		507,296			427,764			79,532

Operating income (loss)		(230,312	)		(348,264	)		117,952

Total other income (expense)		(60,013	)		(42,373	)		(17,640	)

Net loss	$	(290,325	)	$	(390,637	)	$	100,312

	Three Months Ended March 31,						Increase /
	2022			2021			(Decrease)
Revenues	$	604,735		$	633,160		$	(28,425	)
Cost of sales		396,032			416,915			(20,883	)
Gross profit		208,703			216,245			(7,542	)

Operating expenses:
General and administrative		235,470			211,961			23,509
Professional fees		286,390			107,819			178,571
Change in allowance for doubtful accounts		16			(106,155	)		106,171
Total operating expenses:		521,876			213,625			308,251

Operating income (loss)		(313,173	)		2,620			(315,793	)

Total other income (expense)		(60,423	)		15,581			(76,004	)

Net loss	$	(373,596	)	$	18,201		$	(391,797	)

	Six Months Ended March 31,						Increase /
	2022			2021			(Decrease)
Revenues	$	1,304,320		$	1,133,545		$	170,775
Cost of sales		818,633			837,800			(19,167	)
Gross profit		485,687			295,745			189,942

Operating expenses:
General and administrative		476,434			437,011			39,423
Professional fees		554,861			222,363			332,498
Change in allowance for doubtful accounts		(2,123	)		(17,985	)		15,862
Total operating expenses:		1,029,172			641,389			387,783

Operating loss		(543,485	)		(345,644	)		(197,841	)

Total other income (expense)		(120,436	)		(26,792	)		(93,644	)

Net loss	$	(663,921	)	$	(372,436	)	$	(291,485	)

Exhibit		Description
2.1		Stock Purchase Agreement between Digipath, Inc., VSSL Enterprises Ltd., Kyle Joseph Remenda, Philippe Olivier Henry, PhD, Audim Ventures Ltd. and Britt Ash Enterprises Ltd., dated March 9, 2020 (incorporated by reference to Exhibit 2.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Digipath, Inc. on March 16, 2020)
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 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)
3.7		Certificate of Designations of the Series B Preferred Stock dated December 29, 2021 (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 January 6, 2022)
4.1		Form of 8% Senior Secured Convertible Notes due December 31, 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 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 (incorporated by reference to Exhibit 4.3 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on February 14, 2020)
4.4		9% Secured Subordinated Convertible Note, between Digipath, Inc. and holder, due August 11, 2022 (incorporated by reference to Exhibit 4.4 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on February 14, 2020)
4.5		9% Secured Subordinated Convertible Note, between Digipath, Inc. and holder, due August 11, 2022 (incorporated by reference to Exhibit 4.5 of the Current Report on Form 10-Q filed with the Securities and Exchange Commission by Digipath, Inc. on May 15, 2020)
4.6		Form of Amendment to 9% Secured Convertible Note, between Digipath, Inc. and holder, due August 10, 2022 (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 January 6, 2021)
31.1*		Section 302 Certification of Principal Executive Officer
31.2*		Section 302 Certification of Principal Financial Officer
32.1*		Section 906 Certification of Principal Executive Officer
32.2*		Section 906 Certification of Principal 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
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

DIGIPATH, INC.

By:	/s/ Todd Denkin
Name:	Todd Denkin
Title:	Chief Executive Officer

By:	/s/ A. Stone Douglass
Name:	A. Stone Douglass
Title:	Chief Financial Officer