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 ~~March~~December 31, 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 ~~May 16, 2022~~February 14, 2023 was ~~75,146,820~~86,696,820.

TABLE OF CONTENTS

		Page
		No.
PART I - FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	3
	~~Condensed~~ Consolidated Balance Sheets as of ~~March~~December 31, 2022 (Unaudited) and September 30, ~~2021~~2022	3
	~~Condensed~~ Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~March~~December 31, 2022 and 2021 (Unaudited)	4
	~~Condensed~~ Consolidated Statements of Stockholders’ Deficit for the Three ~~and Six~~ Months Ended ~~March~~December 31, 2022 and 2021 (Unaudited)	5
	~~Condensed~~ Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~March 31,~~December, 2022 and 2021 (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	1819
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2232
ITEM 4.	CONTROLS AND PROCEDURES	23
PART II –- OTHER INFORMATION		24
ITEM 1.	Legal Proceedings	24
ITEM 1A.	RISK FACTORS	24
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	24
ITEM 4.	MINE SAFETY DISCLOSURES	24
ITEM 5.	OTHER INFORMATION	24
ITEM 6.	EXHIBITS	25
	SIGNATURES	26

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DIGIPATH, INC. AND SUBSIDIARIES

~~CONDENSED~~ CONSOLIDATED BALANCE SHEETS

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

Current assets:
Cash	$	82,769		$	295,932		$	155,832		$	56,168
Accounts receivable, net		259,268			214,900			301,870			335,085
Deposits								20,700			25,141
Note receivable		1,029,227			230,959			-			100,000
Other current assets		27,241			24,751			29,852			45,710
Deposits		71,093			60,353
Total current assets		1,469,598			826,865			508,254			562,104

Right-of-use asset		366,089			413,884			291,869			316,961
Fixed assets, net		534,435			647,252			378,806			460,823
Total non-current assets		900,524			1,061,136			670,675			777,784

Total Assets	$	2,370,122		$	1,888,001		$	1,178,929		$	1,339,888

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable	$	419,500		$	370,977		$	571,121		$	550,467
Accrued expenses		359,274			220,002			420,030			378,368
Current portion of operating lease liabilities		98,281			93,601			105,649			100,685
Current portion of finance lease liabilities		3,822			20,379
Current maturities of convertible notes payable		1,700,650			1,050,000
Current maturities of notes payable		486,458			259,425			726,800			725,920
Current maturities of convertible notes payable, net of discounts								150,000			1,198,469
Total current liabilities		3,067,985			2,014,384			1,973,600			2,953,909

Non-current liabilities:
Operating lease liabilities		279,981			330,151			199,597			229,825
Notes payable		474,166			339,516			64,644			80,428
Convertible notes payable, net of discounts of $-0- and $8,322 at March 31, 2022 and September 30, 2021, respectively		-			257,282
Convertible notes payable related parties, net of discounts								317,597			310,272
Convertible notes payable, net of discounts and current maturities								1,170,849			174,726
Total non-current liabilities		754,147			926,949			1,752,687			795,251

Total Liabilities		3,822,132			2,941,333			3,726,287			3,749,160

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

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
Stockholders’ Deficit:
Series A convertible preferred stock, $0.001 par value, 6,000,000 shares authorized; 1,047,942 shares issued and outstanding as of December 31, 2022 and September 30, 2022								1,048			1,048
Series C convertible preferred stock, $0.001 par value, 1,000 shares authorized; 1,000 shares issued and outstanding as of December 31, 2022 and September 30, 2022								1			1
Preferred stock
Common stock, $0.001 par value, 250,000,000 shares authorized; 82,296,820 and 75,146,820 shares issued and outstanding at December 31, 2022 and September 30, 2022, respectively								82,297			75,147
Common stock payable								-			71,745
Additional paid-in capital		16,753,769			16,825,765			17,284,797			17,117,958
Accumulated deficit		(18,615,574	)		(17,951,653	)		(20,249,101	)		(20,008,771	)

Total Stockholders’ Deficit		(1,785,610	)		(1,053,332	)		(2,880,958	)		(2,742,872	)

Total Liabilities and Stockholders’ Deficit	$	2,370,122		$	1,888,001		$	1,178,929		$	1,339,888

See accompanying notes to unaudited consolidated financial statements.

DIGIPATH, INC. AND SUBSIDIARIES

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

Revenues	$	604,735		$	633,160		$	1,304,320		$	1,133,545		$	726,755		$	699,585
Cost of sales		396,032			416,915			818,633			837,800			422,835			422,601
Gross profit		208,703			216,245			485,687			295,745			303,920			276,984

Operating expenses:
General and administrative		235,470			211,961			476,434			437,011			306,483			240,964
Professional fees		286,390			107,819			554,861			222,363			69,969			255,749
Change in allowance for doubtful accounts		16			(106,155	)		(2,123	)		(17,985	)		13,685			(2,139	)
Total operating expenses		521,876			213,625			1,029,172			641,389			390,137			494,574

Operating loss		(313,173	)		2,620			(543,485	)		(345,644	)		(86,217	)		(217,590	)

Other income (expense):
Other Expense														(55,000	)		-
Interest income		15,295			47,918			24,675			47,918			-			9,380
Interest expense		(75,718	)		(32,337	)		(145,111	)		(74,710	)		(99,113	)		(69,393	)
Total other income (expense)		(60,423	)		15,581			(120,436	)		(26,792	)		(154,113	)		(60,013	)

Net income (loss)	$	(373,596	)	$	18,201		$	(663,921	)	$	(372,436	)
Net loss														(240,330	)		(277,603	)
Preferred deemed dividend														-			(192,154	)
Net loss to common shareholders													$	(240,330	)	$	(469,757	)

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
Weighted average number of common shares outstanding - basic and fully diluted														82,219,103			72,387,762

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

See accompanying notes to unaudited consolidated financial statements.

DIGIPATH, INC. AND SUBSIDIARIES

C~~ONDENSED~~ CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

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

Purchase of Series B Preferred shares 55,600 55,600 - - - - - - -

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

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

Net loss - - - - - - - (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 )

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
Preferred Stock

Series A Convertible
Preferred Stock

Series C
Preferred Stock
Common Stock Stock
Additional
Paid-in
Accumulated
Total
Stockholders’

Shares Amount Shares Amount Shares Amount Shares Amount Payable Capital Deficit Deficit

Balance, September 30, 2022 333,600 $ 333,600 1,047,942 $ 1,048 1,000 $ 1 75,146,820 $ 75,147 $ 71,745 $ 17,117,958 $ (20,008,771 ) $ (2,742,872 )

Issuance of common shares to settle stock payable - - - - - - 7,150,000 7,150 (71,745 ) 64,595 - -

Warrants issued as debt financing costs - - - - - - - - - 93,938 - 93,938

Stock-based compensation - - - - - - - - - 8,306 - 8,306

Net loss - - - - - - - - - - (240,330 ) (240,330 )

Balance, December 31, 2022 333,600 $ 333,600 1,047,942 $ 1,048 1,000 $ 1 82,296,820 $ 82,297 $ - $ 17,284,797 $ (20,249,101 ) $ (2,880,958 )

Series B Convertible Series A Convertible Additional Total
Preferred Stock Preferred Stock Common Stock Paid-in Accumulated Stockholders’
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 )

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

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

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

Net loss - - - - - - - (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 )

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 )

Series B
Convertible
Preferred Stock

Series A
Convertible
Preferred Stock

Series C
Preferred
Stock

Common
Stock
Stock
Additional
Paid-in
Accumulated
Total
Stockholders’

Shares Amount Shares Amount Shares Amount Shares Amount Payable 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 )

Series B Preferred shares sold for cash 55,600 55,600 - - - - - - - - - -

Conversion of Series A Preferred Shares into Series B Preferred 278,000 278,000 (278,000 ) (278 ) - - - - - (85,568 ) - (85,846 )

Common stock issued for services - - - - - - 1,500,000 1,500 - 51,000 - 52,500

Stock-based compensation - - - - - - - - - 33,457 - 33,457

Deemed dividend on preferred exchange - - - - - - - - - (192,154 ) - (192,154 )

Net loss - - - - - - - - - - (277,603 ) (277,603 )

Balance, December 31, 2021 333,600 $ 333,600 1,047,942 $ 1,048 - $ - 72,730,153 $ 72,730 $ - $ 16,632,500 $ (18,229,256 ) $ (1,522,978 )

See accompanying notes to unaudited consolidated financial statements.
5
DIGIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

2022 2021
For the Six Months Ended For the Three Months Ended
March 31, December 31,
2022 2021 2022 2021
Cash flows from operating activities
Net loss $ (663,921 ) $ (372,436 ) $ (240,330 ) $ (277,603 )
Adjustments to reconcile net loss to net cash used in operating activities:
Change in allowance for doubtful accounts (2,123 ) (17,985 ) 13,685 (2,139 )
Depreciation and amortization expense 117,063 159,209 35,759 58,469
Loss on disposal of fixed assets - 2,227
Gain on early extinguishment of debt - (40,338 )
Stock-based compensation 202,143 130,981 8,306 85,957
Amortization of debt discounts 39,103 8,322 48,916 19,766
Impairment of fixed assets 55,000 -
Decrease (increase) in assets:
Accounts receivable (42,245 ) 49,400 19,530 (113,359 )
Other current assets (35,416 ) 12,677 15,858 6,984
Deposits (2,490 ) - (1,635 ) (390 )
Right-of-use assets 47,795 45,308 25,092 23,734
Increase (decrease) in liabilities:
Accounts payable 56,023 (58,639 ) 20,655 (2,951 )
Accrued expenses 139,272 27,814 41,662 46,956
Lease liabilities (45,490 ) (41,143 ) (25,264 ) (22,582 )
Net cash (used) in operating activities (190,286 ) (94,603 )
Net cash provided by (used in) operating activities 17,234 (177,158 )

Cash flows from investing activities
Purchase of fixed assets (4,246 ) (1,206 ) (2,666 ) (2,482 )
Advance of note receivable (773,622 ) - - (406,000 )
Net cash (used) in investing activities (777,868 ) (1,206 )
Proceeds from sale of collateralized assets 100,000 -
Net cash provided by (used in) investing activities 97,334 (408,482 )

Cash flows from financing activities
Principal payments on finance lease (16,557 ) (16,715 ) - (8,467 )
Principal payments on note payable, equipment financing (28,317 ) (26,769 ) (14,904 ) (14,142 )
Proceeds from short term advances - 40,000
Proceeds from notes payable 390,000 - - 400,000
Proceeds from convertible notes 394,265 110,000 - -
Payments on convertible notes (40,000 ) - (52,978 )
Proceeds from sale of common stock - 20,250 - -
Proceeds from sale of preferred stock 55,600 - - 55,600
Net cash provided by financing activities 754,991 126,766
Net cash provided by (used in) financing activities (14,904 ) 380,013

Net increase (decrease) in cash (213,163 ) 30,957 99,664 (205,627 )
Cash - beginning 295,932 82,749 56,168 295,932
Cash - ending $ 82,769 $ 113,706 $ 155,832 $ 90,305

Supplemental disclosures:
Interest paid $ 42,809 $ 32,294 $ 26,166 $ 27,601
Income taxes paid - - - -

Non-cash investing and financing activities:
Common stock issued for debt conversion $ - $ 110,000
Fixed assets acquired with note payable, equipment financing $ - $ 200,000
Common stock issued for settlement of accounts payables $ 7,500 $ -
Common stock issued for settlement of stock payable $ 71,745 $ -
Warrants issued for debt financing $ 93,938 $ -
Transfer of completed assets $ 6,076 $ -
Conversion of Series A preferred into Series B preferred $ 278,000 $ - $ - $ 85,846
Deemed dividend on preferred exchange $ - $ 192,154

See accompanying notes to unaudited consolidated financial statements.
6

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.~~2022. 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 ~~March~~December 31, 2022:
Schedule of Entities Under Common Control and Ownership
Jurisdiction of
Name of Entity⁽¹⁾ Incorporation Relationship
Digipath, ~~Inc~~Inc..⁽²⁾⁽¹⁾ Nevada Parent
Digipath Labs, ~~Inc~~Inc.. Nevada Subsidiary
Digipath Labs CA, Inc.⁽³⁾⁽²⁾ California Subsidiary
Digipath Labs ~~S.A.S~~S.A.S..⁽⁴⁾⁽³⁾ Colombia Subsidiary
VSSL Enterprises, ~~Ltd~~Ltd..⁽⁵⁾⁽⁴⁾ 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⁾⁽²⁾ Formed during the second fiscal quarter of 2021, but has not yet commenced significant operations.
⁽⁴⁾⁽³⁾ Formed during the first fiscal quarter of 2019, but has not yet commenced significant operations.
⁽⁵⁾⁽⁴⁾ Acquired on March 11, 2020.
⁽⁶⁾ ~~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.

7
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.

7
Fair Value of Financial Instruments

~~Under FASB~~The Company adopted ASC ~~820-10-05, the Financial Accounting Standards Board~~820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a ~~framework~~three-level valuation hierarchy for ~~measuring~~disclosures of fair value ~~in generally accepted accounting principles~~measurement and ~~expands disclosures about~~enhances disclosure requirements for fair value ~~measurements. This Statement reaffirms that fair value is the relevant measurement attribute.~~measures. The ~~adoption of this standard did not have a material effect on the Company’s financial statements~~three levels are defined as ~~reflected herein.~~ follows:
- Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
- Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
- Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying ~~amounts~~value of cash, accounts receivable, accounts ~~payable~~payables 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. 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.

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.

Basic and Diluted Loss Per Share
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the three months ended December 31, 2022 and 2021, potential dilutive securities of 91,161,317 and 50,368,696 shares issuable upon conversion of convertible notes payable, 6,020,000 and 6,020,000 shares issuable upon exercise of options, 15,387,050 and 2,535,001 shares issuable upon exercise of warrants, and 13,579,710 and 13,579,710 shares issuable upon conversion of Preferred A and Preferred B shares, respectively, had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
8
Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in ~~Entity's~~Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an ~~Entity's~~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~~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~~years, with early adoption ~~is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.~~permitted. The Company is evaluating the impact that this ASU may have on its consolidated financial statements.

Note 2 – Going Concern

As shown in the accompanying condensed consolidated financial statements, as of ~~March~~December 31, 2022, the Company had negative working capital of $~~1,598,387~~1,465,347, accumulated recurring losses of $~~18,615,574~~20,249,101, and only $~~82,769~~155,832 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.
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.

8
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 ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, respectively:
Summary of Financial Instruments at Fair Value on Recurring Basis
Fair Value Measurements at March 31, 2022
Level 1 Level 2 Level 3
Assets
Cash $ 82,769 $ - $ -

Liabilities
Lease liabilities - - 382,084
Notes payable - 960,624 -
Convertible notes payable - - 1,700,650
Level 1 Level 2 Level 3
Fair Value Measurements at December 31, 2022
Level 1 Level 2 Level 3
Assets
Cash $ 155,832 $ - $ -

Liabilities
Lease liabilities - - 305,246
Notes payable - 791,444 -
Convertible notes payable, net of discounts of $97,387 - - 1,320,849
Convertible notes payable – related parties, net of discounts of $32,403 - - 317,597

Level 1 Level 2 Level 3
Fair Value Measurements at September 30, 2021 Fair Value Measurements at September 30, 2022
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash $ 295,932 $ - $ - $ 56,168 $ - $ -

Liabilities
Lease liabilities - - 444,131 - - 330,510
Notes payable - 598,941 - - 806,348 -
Convertible notes payable, net of discounts of $98,188 - - 1,307,282
Convertible notes payable, net of discounts of $45,039 - - 1,373,195
Convertible notes payable – related parties, net of discounts of $39,728 - - 310,272
Convertible notes payable, net - - 1,373,195
Convertible notes payable – related parties, net - - 310,272

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 ~~six~~three months ended ~~March~~December 31, 2022.
9
Note 4 – Related Party Transactions
During the three months ended December 31, 2022 or the ~~year~~Company incurred fees of $15,000 for services from its CFO. As of December 31, 2022 the Company has accrued a total of $30,000 in fees related to past services to its CFO.
During the three months ended ~~September 30, 2021.~~December 31, 2022 the Company incurred fees of $21,000 for services from its Board of directors. As of December 31, 2022 the Company has accrued a total of $147,000 in fees related to past services to the Board of Directors.

Note 45 – 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 ~~March 31,~~September 30, 2022, we loaned C3 Labs, Inc. (“C3 Labs”) a total of $~~1,003,622~~1,047,649. The loans ~~bear~~bore interest at an annual rate of 8%. These loans ~~are~~were evidenced by secured demand notes, and ~~are~~were secured by a lien on the borrower’s assets and have a maturity date of August 23, 2022. The Company ~~has~~had recorded ~~interest income of $15,120~~ ~~during the six months ended March 31, 2022 with~~ total accrued interest of $~~25,605~~64,017 as of ~~March 31,~~September 30, 2022.

The loans were made in connection with a potential acquisition of a controlling interest in C3 ~~Labs.~~Labs pursuant to a letter of intent. On March 11, 2022, the Company notified the current owners of C3 Labs of its termination of the letter of ~~intent. The Company is currently in~~intent and took possession of the equipment of C3 Labs (“C3 Equipment”), 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.~~being liquidated.

On December 8, 2022, the Company entered into an Asset Purchase Agreement with Invictus Wealth Group (“Invictus”), whereby the Company agreed to sell the C3 Equipment to Invictus for a total purchase price of $900,000. The purchase price consisted of an upfront payment of $275,000, and a Note Receivable (“Invictus Note”) in the amount of $625,000. The Invictus Note has a maturity date of December 31, 2023, accrues interest at a rate of 10% per annum, and provides for principal payments of $100,000 each due on June 30, 2023 and September 30, 2023, with the final payment of $425,000 due on December 31, 2023. The Company has recorded a full allowance against the Invictus Note as collectability cannot be assured as of the date of this filing. As of December 31, 2022 and through the date of this filing, the Company has received $100,000 of the initial $275,000, and as a result the Company will continue to maintain possession of the C3 Equipment until the remainder of the upfront payment has been received.
9
Note 56 – Fixed Assets

Fixed assets consist of the following at ~~March~~December 31, 2022 and September 30, ~~2021:~~2022:
Schedule of Fixed Assets
March 31, September 30,
2022 2021
Software $ 125,903 $ 125,903
Office equipment 71,601 71,601
Furniture and fixtures 29,879 29,879
Lab equipment 1,455,479 1,453,716
Leasehold improvements 496,600 494,117
Lab equipment held under capital leases 99,193 99,193
Fixed assets,gross 2,278,655 2,274,409
Less: accumulated depreciation (1,744,220 ) (1,627,157 )
Total $ 534,435 $ 647,252
December, September 30,
2022 2022
Software $ 125,903 $ 125,903
Office equipment 80,343 71,601
Furniture and fixtures 29,879 29,879
Lab equipment 1,400,479 1,455,479
Leasehold improvements 510,076 510,076
Lab equipment held under capital leases 99,193 99,193
Fixed assets, gross 2,245,873 2,292,131
Less: accumulated depreciation (1,867,067 ) (1,831,308 )
Total $ 378,806 $ 460,823

Depreciation and amortization expense ~~totalled~~totaled $~~117,063~~ 35,759and $~~159,209~~ 58,469for the ~~six~~three months ended ~~March~~December 31, 2022 and 2021, respectively.

During the three months ended December 31, 2022, the Company recorded impairment expense in the amount of $55,000 related to equipment acquired with the anticipation of the C3 Labs acquisition. Upon the Company’s decision to terminate the acquisition, the equipment was deemed to be impaired.
10
Note 67 – Leases

The Company leases its operating and office facility under a ~~non-cancellable~~non-cancelable real property lease agreement that expires on August 31, 2025. The Company also has a financing lease for lab equipment subject to the recently adopted ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The 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 Six For the Six For the For the
Months Ended Months Ended Three Months Ended Three Months Ended
March 31, March 31, December 31, December 31,
2022 2021 2022 2021
Operating lease cost $ 59,436 $ 21,644 $ 29,718 $ 29,718
Finance lease cost:
Amortization of assets 17,329 45,308 - 8,467
Interest on lease liabilities 1,223 14,129 - 809
Total net lease cost $ 18,552 $ 59,437 $ 29,718 $ 38,994

Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
March 31, September 30,
2022 2021
Operating leases:
Operating lease assets $ 366,089 $ 413,884

Current portion of operating lease liabilities 98,281 $ 93,601
Noncurrent operating lease liabilities 279,981 330,151
Total operating lease liabilities $ 378,262 $ 423,752
Finance lease:
Equipment, at cost $ 99,193 $ 99,193
Accumulated amortization (49,596 ) (36,677 )
Equipment, net $ 49,597 $ 74,395

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

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

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

10

December 31, September 30,
2022 2022
Operating leases:
Operating lease assets $ 291,869 $ 316,961

Current portion of operating lease liabilities 105,649 $ 100,685
Noncurrent operating lease liabilities 199,597 229,825
Total operating lease liabilities $ 305,246 $ 330,510
Finance lease:
Equipment, at cost $ 99,193 $ 99,193
Accumulated amortization (64,475 ) (59,516 )
Equipment, net $ 34,718 $ 39,677

Weighted average remaining lease term:
Operating leases 2.67 years 2.92 years

Weighted average discount rate:
Operating leases 5.75 % 5.75 %

Supplemental cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow and Other Information

For the Six For the Six For the Three For the Three
Months Ended Months Ended Months Ended Months Ended
March 31, March 31, December 31, December 31,
2022 2021 2022 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases $ 45,490 $ 41,143 $ 29,532 $ 22,582
Financing cash flows used for finance leases $ 16,557 $ 16,715 $ - $ 8,467

Leased assets obtained in exchange for lease liabilities:
Total operating lease liabilities $ - $ 528,616 $ - $ -
Total finance lease liabilities $ - $ 99,193 $ - $ -
11

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-cancellable~~non-cancelable operating leases as of ~~March~~December 31, 2022:
Schedule of Future Minimum Annual Lease Commitments Under Operating Leases
Fiscal Year Ending Minimum Lease
September 30, Commitments
2022 (for the six months remaining) $ 58,419
2023 119,468
2024 123,543
2025 116,892
2026 -
Total future undiscounted lease payments 418,322
Less interest 40,060
Present value of lease payments 378,262
Less current portion 98,281
Long-term operating lease liabilities $ 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 March 31, 2022:~~
~~Schedule of Future Minimum Annual Lease Payments Under Finance Lease~~
Finance
Leases

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

Fiscal Year Ending Minimum Lease
September 30, Commitments
2023 $ 89,936
2024 123,543
2025 116,891
2026 -
2027 -
Total future undiscounted lease payments 330,370
Less interest 25,124
Present value of lease payments 305,246
Less current portion 105,649
Long-term operating lease liabilities $ 199,597
11

Note 78 –Notes Payable

Notes payable consists of the following at ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, respectively:
Schedule of Notes Payable
March 31, September 30, December 31, 2022 September 30, 2022
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 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 September 10, 2021, the Company issued a Secured Promissory note in the principal amount of $675,000 to US Canna Lab I, LLC (the “Canna Lab Note”). The Canna Lab Note carries interest at 12% per annum and is due on September 10, 2024, with monthly principal and interest payments of $22,419.66 beginning on October 1, 2021. In addition, the Company was advanced an additional $115,000 of funds during the year ended September 30, 2022 under the same terms as the original note. During the year ended September 30, 2022, the Company repaid $125,000 of the principal balance on the note. As a result of the Company not meeting the monthly payment obligations, the CannaLab Note is in technical default, however, no default notice has been provided by CannaLab as of the date of this filing. There are no additional obligations of the Company under default with the exception of being due on demand. $ 665,000 $ 665,000

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. 170,624 198,941 126,444 141,348

Total notes payable 960,624 598,941 791,444 806,348
Less: current maturities (486,458 ) (259,425 ) (726,800 ) (725,920 )
Notes payable $ 474,166 $ 339,516 $ 64,644 $ 80,428

The Company recorded interest expense pursuant to the stated interest rate and closing costs on the notes payable in the amount of $~~41,277~~13,961 and $~~7,970~~11,836 during the ~~six~~three months ended ~~March~~December 31, 2022 and ~~2021, respectively.~~2021.

12

Note 89 – Convertible Notes Payable
Related Party Convertible notes payable consist of the following at December 31, 2022 and September 30, 2022, respectively:
Schedule of Related Party Convertible Notes Payable
December 31, September 30,
2022 2022
On February 10, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $350,000. The Note matures on August 10, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $400,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share. On August 8, 2022, the note holder agreed to extend the maturity date of the note to February 11, 2024. In exchange for the extension the Company agreed to issue 4,550,000 common shares, which were recorded as debt discount with a relative fair value of $43,788. As a result of the shares issued upon the extension agreement, the lender now holds more the 5% of the total outstanding common shares, and is therefore considered a related party. $ 350,000 $ 350,000

Total convertible notes payable 350,000 350,000
Less: unamortized debt discounts (32,403 ) (39,728 )
Total convertible debt 317,597 310,272
Less: current maturities - -
Convertible notes payable $ 317,597 $ 310,272
13

Convertible notes payable ~~consists~~consist of the following at ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, respectively:
Schedule of Convertible Notes Payable
March 31, September 30, December 31, September 30,
2022 2021 2022 2022
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $50,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $10,000 of proceeds and the promissory note was increased to $60,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $10,000 of principal into 333,334 shares of common stock at a conversion price of $0.03 per share. $ 50,000 $ 50,000
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $50,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $10,000 of proceeds and the promissory note was increased to $60,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $10,000 of principal into 333,334 shares of common stock at a conversion price of $0.03 per share. On August 8, 2022, the note holder agreed to extend the maturity date of the note to February 11, 2024. In exchange for the extension, the Company agreed to issue 650,000 common shares, which were recorded as debt discount, with a relative fair value of $6,989. $ 50,000 $ 50,000

On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Subordinated Convertible Promissory Note in the principal amount of $150,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $200,000. The Company’s obligations under the Note are secured by subordinated lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share. 150,000 150,000
On February 11, 2020, the Company completed the sale to an accredited investor of a 9% Secured Subordinated Convertible Promissory Note in the principal amount of $150,000. The Note matures on August 11, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $200,000. The Company’s obligations under the Note are secured by subordinated lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share. On August 8, 2022, the note holder agreed to extend the maturity date of the note to February 11, 2024. In exchange for the extension the Company agreed to issue 1,950,000 common shares, which were recorded as debt discount, with a relative fair value of $20,968. 150,000 150,000

On February 10, 2020, the Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $350,000. The Note matures on August 10, 2022, bears interest at a rate of 9% per annum, and was convertible into shares of the Company’s common stock at a conversion price of $0.15 per share. On December 28, 2020, the conversion price was amended to $0.03 per share in exchange for an additional $50,000 of proceeds and the promissory note was increased to $400,000. The Company’s obligations under the Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc., pursuant to a Security Agreement between the Company, Digipath Labs, Inc. and the investor. On December 29, 2020, the note holder converted $50,000 of principal into 1,666,667 shares of common stock at a conversion price of $0.03 per share. 350,000 350,000
On September 23, 2019, the Company received proceeds of $200,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.11 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc. On February 22, 2021, the noteholder converted $90,000 of principal into 3,000,000 shares of common stock at a conversion price of $0.03 per share. On September 30, 2021 the note was amended to add the outstanding short term notes and accrued interest into the principal balance, 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. On October 1, 2022, the Company further extended the maturity date to February 11, 2024. In connection with the modification, the Company issued warrants to purchase 4,621,105 shares of common stock at an exercise price of $0.0074, with a fair value of $32,166 which was recorded as a debt discount. 355,470 718,234

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. On October 1, 2022, the Company further extended the maturity date to February 11, 2024. In connection with the modification, the Company issued warrants to purchase 4,550,000 shares of common stock at an exercise price of $0.0074 with a fair value of $31,671 which was recorded as a debt discount.

350,000

350,000

On November 8, 2018, the Company received proceeds of $350,000 on a senior secured convertible note that carries an 8% interest rate, which matures on August 10, 2022, as amended. The principal and interest were convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.14 per share. On September 30, 2020, the maturity date was extended to August 10, 2022 and the conversion price was amended to $0.03 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company and its wholly-owned subsidiary Digipath Labs, Inc. 350,000 350,000
On October 1, 2022, The Company entered into a senior secured convertible note that carries an 8% interest rate, which matures on February 11, 2024. The Note documented the advances made during the year ended September 30, 2022 in the amount of $362,765, which were made under the terms of the September 23, 2019 note describe above. The principal and interest on the Note are convertible into common shares at a conversion price of $0.01. In connection with the issuance of the note, the Company issued warrants to purchase 4,715,945 shares of common stock at an exercise price of $0.0074 with a relative fair value of $30,102 which was recorded as a debt discount. 362,765 -

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 1,759,735 1,407,470 1,418,235 1,418,234
Less: unamortized debt discounts (59,085 ) (98,188 ) (97,386 ) (45,039 )
Total convertible debt 1,700,650 1,307,282 1,320,849 1,373,195
Less: current maturities 1,700,650 1,050,000 150,000 1,198,469
Convertible notes payable $ - $ 257,282 $ 1,170,849 $ 174,726

1314

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 of $~~98,188.~~93,938 during the three months ended December 31, 2022. 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,~~debt, as noted above, or the actual settlement date. The Company recorded debt amortization expense onattributed to the aforementioned debt discount in the ~~amount~~amounts of $~~39,103~~48,916 ~~for~~and $19,766, during the ~~six~~three months ended ~~March~~December 31, ~~2022.~~2022 and 2021, respectively. Unamortized discount as of ~~March~~December 31, 2022 is $~~59,085~~129,790.

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 $~~46,380~~36,236 and $~~51,802~~26,567 for the ~~six~~three months ended ~~March~~December 31, 2022 and 2021, respectively.

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

Interest on short term loans $ - $ 1,687
Interest on capital leases 6,603 4,929 $ 1,961 $ 3,601
Interest on notes payable 41,277 7,970 12,000 17,753
Amortization of beneficial conversion features 39,103 8,322 48,916 19,766
Interest on convertible notes 58,128 51,802 36,236 28,273
Total interest expense $ 145,111 $ 74,710 $ 99,113 $ 69,393
Note ~~9 -~~10 – ~~Changes in~~ Stockholders’ Equity
~~Convertible~~ Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share, of which 6,000,000 have been designated as Series A Convertible Preferred Stock (“Series A Preferred”) ~~and~~, 1,500,000 have been designated as Series B Convertible Preferred Stock (“Series B Preferred”), and 1,000 shares have been designated as Series C Preferred Stock (“Series C Preferred”) with the remaining ~~2,500,000~~2,499,000 shares available for designation from time to time by the Board as set forth below. As of ~~March~~December 31, 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 and 1,000 shares of Series C Preferred issued and outstanding. The Board of Directors is authorized to determine any number of series into which the undesignated shares of preferred stock may be divided and to determine the rights, preferences, privileges and restrictions granted to any series of the preferred stock. Each share of Series A Preferred is currently convertible into five shares of common stock and each share of Series B Preferred is currently convertible into twenty-five shares of common stock.
15
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 1,047,942shares of Series A Preferred outstanding at ~~March~~December 31, 2022 are convertible into 5,239,710shares 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~~%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.
14

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 six months ended March 31, 2022,~~ ~~the Company offered the Series A Preferred shareholders the ability to convert their Preferred A shares into Preferred B shares for an additional investment of 20% of their initial Series A investment. One Series A shareholder 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 ~~March~~December 31, 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~~%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.~~notice.
16

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~~dividends..

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

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

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

The Series C Preferred were designated on July 20, 2022. The principal feature of the Series C Preferred Stock is that it provides the holder thereof, so long as he or she is an executive officer of the Company, with the ability to vote with the holders of the Company’s common stock on all matters presented to the holders of common stock, whether at a special or annual meeting, by written action in lieu of a meeting or otherwise, on the basis of 200,000 votes for each share of Series C Preferred Stock. The shares of Series C Preferred Stock are not convertible into common stock, are not entitled to dividends, are not subject to redemption, and have a stated value of $0.10 per share payable on any liquidation of the Company in preference to any payment payable to the holders of common stock.
15

Common Stock

Common stock consists of $0.001 par value, 250,000,000 shares authorized, of which ~~75,146,820~~82,296,820 shares were issued and outstanding as of ~~March~~December 31, 2022.

During the ~~six~~three months ended ~~March~~December 31, 2022, the Company issued ~~1,500,000~~ 7,150,000shares of its common stock in ~~exchange for services rendered to the Company, by the chairman~~settlement of ~~the board of directors, with~~ a ~~total fair value $98,679~~ ~~based on the closing price of the Company’s~~ common stock ~~on the dates of grant.~~
~~During the six months ended March 31, 2022, the Company issued~~ ~~2,166,667~~ ~~shares of its common stock in exchange for services rendered to the Company by third party consultants, with a total fair value $103,464~~ ~~based on the closing price of the Company’s common stock on the dates of grant.~~
~~During the six months ended March 31, 2022, the Company issued~~ ~~250,000~~ ~~shares of its common stock to settle outstanding payables~~payable in the amount of $~~7,500~~71,745.
Note 1011 – 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~~terminated on ~~May 20, 2014.~~March 5, 2022. As amended, the 2012 Plan provides for the issuance of up to 11,500,000 shares of common stock pursuant to the grant of options or other awards, including stock grants, to employees, officers or directors of, and consultants to, the Company and its subsidiaries. Options granted under the 2012 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant. ~~Options to purchase a total of~~ ~~6,020,000~~ ~~shares of common stock were outstanding as of March 31, 2022.~~
~~During the six months ended March 31, 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 $~~53,739~~8,306 and $~~41,126~~33,457 of stock-based compensation expense was recognized during the ~~six~~three months ended ~~March 31,~~December 30, 2022 and 2021, respectively, as a result of the vesting of common stock options issued. As of ~~March~~December 31, 2022 a total of $~~31,798~~6,876 of unamortized expense remains to amortized over the vesting period.
17

The following is a summary of information about the stock options outstanding at ~~March~~December 31, 2022.
Summary of Common Stock Options Outstanding
Shares Underlying Shares Underlying
Shares Underlying Options Outstanding Shares Underlying Options Outstanding Options Exercisable Shares Underlying Options Outstanding Options 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 Options Contractual Exercise Options Exercise Exercise Options Contractual Exercise Options Exercise
Prices Prices Outstanding Life Price Exercisable Price Prices Outstanding Life Price Exercisable Price

$ 0.05 – $0.13 6,020,000 6.51 years $ 0.07 5,359,285 $ 0.07 0.02 – $0.13 6,020,000 5.76 years $ 0.07 5,680,714 $ 0.07

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

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

Exercisable, March 31, 2022 5,359,285 $ 0.07
Weighted
Average
Number Exercise
of Shares Price
Balance, September 30, 2022 6,020,000 $ 0.07
Options issued - -
Options forfeited - -

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

Exercisable, December 31, 2022 5,680,714 $ 0.07

As of ~~March~~December 31, 2022, these options in the aggregate had no intrinsic value as the per share market price of $~~0.023~~0.007 of the Company’s common stock as of such date was less than the weighted-average exercise price of these options of $0.07.
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Note 1112 – Common Stock Warrants

Warrants to purchase a total of ~~2,535,001~~15,387,050 shares of common stock were outstanding as of ~~March~~December 31, 2022.

The following is a summary of information about our warrants to purchase common stock outstanding at ~~March 31, 2022.~~September 30, 2022 (including those issued to both investors and service providers).
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 4.84 years $ 0.17 2,535,001 $ 0.17 0.10-0.007 15,387,050 9.51 years $ 0.02 15,387,050 $ 0.02

The following is a summary of activity of outstanding common stock warrants:
Schedule of Outstanding Common Stock Warrants Activity
Weighted
Average
Number Exercise
of Shares Price
Balance, September 30, 2021 2,535,001 $ 0.17
Warrants granted - -
Warrants expired - -

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

Exercisable, March 31, 2022 2,535,001 $ 0.17
Weighted
Average
Number Exercise
of Shares Price
Balance, September 30, 2022 1,500,000 $ 0.10
Warrants granted 13,887,050 $ 0.01
Warrants expired - -

Balance, December 31, 2022 15,387,050 $ 0.02

Exercisable, December 31, 2022 15,387,050 $ 0.02

As of ~~March~~December 31, 2022, these warrants in the aggregate had no intrinsic value as the per share market price of $~~0.023~~0.007 of the Company’s common stock as of such date was less than the weighted-average exercise price of these warrants of $~~0.17~~0.02.

Note 1213 – Commitments and Contingencies

Legal Contingencies

There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
Note 14 – Subsequent Events
On January 18, 2023, the Company issued 4,400,000 shares of common stock to the officers and directors of the Company for services rendered with a fair value of $32,120 based on the common stock price on the date of issuance.
On January 26, 2023, the Company issued 2,100,000 options to purchase shares of common stock to certain employees of the Company for services rendered. The options have an exercise price of $0.0056, vest in nine months and have a term of 5.75 years from the date of issuance.

1718

ITEM 2.
~~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~~2022 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~~2022 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 ~~March~~December 31, 2022 and 2021:

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

Three Months Ended March 31, Increase / Three Months Ended December 31, Increase /
2022 2021 (Decrease) 2022 2021 (Decrease)
Revenues $ 604,735 $ 633,160 $ (28,425 ) $ 726,755 $ 699,585 $ 27,170
Cost of sales 396,032 416,915 (20,883 ) 422,835 422,601 234
Gross profit 208,703 216,245 (7,542 ) 303,920 276,984 26,936

Operating expenses:
General and administrative 235,470 211,961 23,509 306,483 240,964 65,519
Professional fees 286,390 107,819 178,571 69,969 255,749 (185,780 )
Change in allowance for doubtful accounts 16 (106,155 ) 106,171 13,685 (2,139 ) 15,824
Total operating expenses: 521,876 213,625 308,251 390,137 494,574 (104,437 )

Operating income (loss) (313,173 ) 2,620 (315,793 )
Operating loss (86,217 ) (217,590 ) 131,373

Total other income (expense) (60,423 ) 15,581 (76,004 ) (154,113 ) (60,013 ) (94,100 )

Net loss $ (373,596 ) $ 18,201 $ (391,797 ) $ (240,330 ) $ (277,603 ) $ 37,273
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Revenues

Aggregate revenues for the three months ended ~~March~~December 31, 2022 were ~~$604,735,~~$726,775, compared to revenues of ~~$633,160~~$699,585 during the three months ended ~~March~~December 31, 2021, ~~a decrease~~an increase of ~~$28,425~~$27,170 or 4%. The ~~decrease~~increase in revenue was due to ~~a slight decrease~~the increase in tourism in Nevada during the current period ~~as opposed~~and our customers’ improved cash flows, in comparison to the ~~same period in 2021.~~prior year period.
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Cost of Sales

Cost of sales for the three months ended ~~March~~December 31, 2022 were ~~$396,032,~~$422,835, compared to ~~$416,915~~$422,601 during the three months ended ~~March~~December 31, 2021, ~~a decrease~~an increase of ~~$20,883, or 5%.~~$234. 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 sales decrease of 4% as well as reducing our outsourced testing fees incurred during the current period.~~ Our gross margins were approximately ~~35%~~42% during the three months ended ~~March~~December 31, 2022, compared to ~~34%~~40% during the three months ended ~~March~~December 31, 2021, which translated to ~~$20,883~~$26,936 of ~~decreased~~increased gross ~~profit from our $28,425 of decreased revenues received~~profit. Our margins increased in the current ~~period.~~period due to the increase in revenues.

General and Administrative Expenses

General and administrative expenses for the three months ended ~~March~~December 31, 2022 were ~~$235,470~~$306,483, compared to ~~$211,961~~$240,964 during the three months ended ~~March~~December 31, 2021, an increase of ~~$23,509,~~$65,519, or ~~11%~~27%. 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 ~~March~~December 31, 2022 and 2021, respectively. General and administrative expenses ~~decreased~~increased primarily due to ~~decreased~~increased corporate overhead ~~activities.~~activities and increased audit fees from Nevada’s Cannabis Control Board.

Professional Fees

Professional fees for the three months ended ~~March~~December 31, 2022 were ~~$286,390,~~$69,969, compared to ~~$107,819~~$255,749 during the three months ended ~~March~~December 31, 2021, ~~an increase~~a decrease of ~~$178,571,~~$185,780, or ~~166%~~73%. Professional fees included non-cash, stock-based compensation of ~~$103,464~~$8,603 and ~~$44,147~~$33,457 during the three months ended ~~March~~December 31, 2022 and 2021, respectively. Professional fees ~~increased~~decreased primarily due to ~~increased~~decreased corporate consulting services during the current period as we ~~focused primarily~~decreased our focus on ~~the lab operations during the current period.~~expansion efforts.

Change in Allowance for Doubtful Accounts

Our change in allowance for doubtful accounts for the three months ended ~~March~~December 31, 2022 resulted in ~~$16~~$13,685 of ~~income,~~expense, compared to ~~$106,155~~$2,139 of ~~expense~~income during the three months ended ~~March~~December 31, 2021, ~~an improvement~~a decline of ~~$106,171,~~$15,824, or ~~100%~~740%. Our change in allowance for doubtful accounts ~~improved~~declined during the current period primarily as our allowance for doubtful accounts increased from $139,279 to $155,141 during the ~~Nevada tourism market began to open up again and our customers’ cash flows improved.~~quarter.

Operating Loss

Our operating loss for the three months ended ~~March~~December 31, 2022 was ~~$313,173,~~$86,217, compared to an operating ~~income~~loss of ~~$2,620~~$217,590 during the three months ended ~~March~~December 31, 2021, a decrease of ~~$315,793,~~$131,373, or ~~12,053%~~60%. Our operating loss ~~increased~~decreased primarily due to our decreased ~~gross profit and not having a reversal of our allowance for doubtful accounts.~~professional fees.

Other Income (Expense)

Other expense, on a net basis, for the three months ended ~~March~~December 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.
19
~~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 $88,711 during the period, as the Nevada tourism market began to open up again and our customers’ cash flows improved.
20
~~Operating Loss~~
Our operating loss for the six months ended March 31, 2022 was $543,485, compared to $345,644 during the six months ended March 31, 2021, an increase of $197,841, or 57%. Our operating loss increased primarily due to a large increase in professional fees.
~~Other Expense~~
~~Other expense, on a net basis, for the six months ended March 31, 2022 was $120,436,~~$154,113, compared to other expense, on a net basis, of ~~$26,792~~$60,013 during the ~~six~~three months ended ~~March~~December 31, 2021, a net increase of ~~$93,644.~~$94,100. Other expense consisted of ~~$145,111 of~~ interest expense ~~as offset by interest income~~ of ~~$15,295, compared to $65,434~~$99,113 and an impairment on equipment of ~~interest expense, as offset by a gain on early extinguishment of debt in~~$55,000 for the ~~amount of $40,338 and a gain on the distribution of $7,580 of previously impaired inventory to our former CEO, during the six~~three months ended ~~March~~December 31, ~~2021.~~2022.

~~Net Loss~~
Net loss for the six months ended March 31, 2022 was $663,921, compared to $372,436 during the six months ended March 31, 2021, an increase of $291,485, or 78%. The increased net loss was due primarily to larger professional fees and an increase in other expenses.
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 ~~six-month~~three-month periods ended ~~March~~December 31, 2022 and 2021:

2022 2021 2022 2021
Operating Activities $ (190,286 ) $ (94,603 ) $ 17,234 $ (177,158 )
Investing Activities (777,868 ) (1,206 ) 97,334 (408,482 )
Financing Activities 754,991 126,766 (14,904 ) 380,013
Net Decrease in Cash $ (213,163 ) $ 30,957 $ 99,664 $ (205,627 )
20

Net Cash ~~Used in~~Provided by (Used in) Operating Activities

During the ~~six~~three months ended ~~March~~December 31, 2022, net cash ~~used in~~provided by operating activities was ~~$190,286,~~$17,234, compared to net cash used in operating activities of ~~$94,603~~$177,158 for the same period ended ~~March~~December 31, 2021. The increase in cash ~~used in~~provided by operating activities was primarily attributable to our ~~increased~~decrease in net ~~loss.~~loss and accounts receivable, along with increases in accounts payable and accrued expenses.

Net Cash ~~Used in~~Provided by (Used in) Investing Activities

During the ~~six~~three months ended ~~March~~December 31, 2022, net cash provided by investing activities was $97,334, compared to $408,482 used in investing activities for the same period ended December 31, 2021. The cash provided by investing activities in the current period was a result of the sale of the collateralized assets from the note receivable compared to cash used in investing activities ~~was $777,868, compared to $1,206~~ for the ~~same~~prior period ~~ended March 31, 2022. The increase in cash used in investing~~which 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 (Used in) Financing Activities

During the ~~six~~three months ended ~~March~~December 31, 2022, net cash ~~provided by~~used in financing activities was ~~$754,991,~~$14,904, compared to net cash provided by financing activities of ~~$126,766~~$380,013 for the same period ended ~~March~~December 31, 2021. The current period consisted ~~primarily~~ of ~~$390,000~~$14,904 of principal payments on an equipment loan, compared to $400,000 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 ~~$28,317~~$8,467 of principal payments on an equipment lease and ~~$16,557~~$14,142 of principal payments on an equipment loan ~~compared to $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 $26,769~~$52,978 of principal payments made on ~~an equipment lease and $16,715 of principal payments on an equipment loan~~convertible notes in the comparative ~~period.~~period in the prior year.
21

Ability to Continue as a Going Concern

As of ~~March~~December 31, 2022, our balance of cash on hand was ~~$82,769,~~$155,832, and we had negative working capital of ~~$1,598,387~~$1,465,346 and an accumulated deficit of ~~$18,615,574~~$20,249,101 resulting from recurring 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.

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.

21
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 ~~commercial sales~~sale 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.lab testing services through our subsidiary Digipath Labs, Inc.

Revenue is primarily generated through our subsidiary, Digipath Labs, Inc., which recognizes revenue from the analytical testing of cannabis products for licensed producers and cultivators within the state of 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
22

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 ~~March~~December 31, 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 ~~March~~December 31, 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.

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 ~~six-month~~three-month period ended ~~March~~December 31, 2022:

~~Common Stock Issued for Services~~
On ~~February 11,~~October 1, 2022, the Company issued ~~2,166,667~~7,150,000 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 closing price~~settlement of the ~~Company’s~~ common stock onpayable in the ~~dates~~amount of ~~grant.~~$71,745. The transaction was effected pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

On ~~February 11,~~October 1, 2022, the Company entered into a senior secured convertible note that carries an 8% interest rate, which matures on February 11, 2024. The principal and interest on the Note are convertible into common shares at a conversion price of $0.03.
On October 1, 2022, the Company, in connection with the new debt issuance and extension of two additional senior secured convertible notes, issued ~~250,000~~warrants to purchase 13,887,050 shares of ~~its~~ common stock ~~to settle outstanding payables in~~at an exercise price of $0.0074 which have a term of 10 years from the ~~amount~~date of ~~$7,500.~~issuance.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

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.

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: ~~May 16, 2022~~February 14, 2023

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

26

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

Purchase of Series B Preferred shares		55,600		55,600		-			-			-		-		-			-			-

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

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

Net loss		-		-		-			-			-		-		-			(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	)

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 Preferred Stock				Series A Convertible Preferred Stock				Series C Preferred Stock				Common Stock				Stock			Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Payable			Capital		Deficit			Deficit

Balance, September 30, 2022		333,600	$	333,600		1,047,942	$	1,048		1,000	$	1		75,146,820	$	75,147	$	71,745		$	17,117,958	$	(20,008,771	)	$	(2,742,872	)

Issuance of common shares to settle stock payable		-		-		-		-		-		-		7,150,000		7,150		(71,745	)		64,595		-			-

Warrants issued as debt financing costs		-		-		-		-		-		-		-		-		-			93,938		-			93,938

Stock-based compensation		-		-		-		-		-		-		-		-		-			8,306		-			8,306

Net loss		-		-		-		-		-		-		-		-		-			-		(240,330	)		(240,330	)

Balance, December 31, 2022		333,600	$	333,600		1,047,942	$	1,048		1,000	$	1		82,296,820	$	82,297	$	-		$	17,284,797	$	(20,249,101	)	$	(2,880,958	)

	Series B Convertible				Series A Convertible								Additional					Total
	Preferred Stock				Preferred Stock				Common Stock				Paid-in		Accumulated			Stockholders’
	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	)

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

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

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

Net loss		-		-		-		-		-		-		-		(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	)

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	)

	Series B Convertible Preferred Stock				Series A Convertible Preferred Stock						Series C Preferred Stock				Common Stock				Stock		Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Shares		Amount		Shares		Amount		Payable		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	)

Series B Preferred shares sold for cash		55,600		55,600		-			-			-		-		-		-		-		-			-			-

Conversion of Series A Preferred Shares into Series B Preferred		278,000		278,000		(278,000	)		(278	)		-		-		-		-		-		(85,568	)		-			(85,846	)

Common stock issued for services		-		-		-			-			-		-		1,500,000		1,500		-		51,000			-			52,500

Stock-based compensation		-		-		-			-			-		-		-		-		-		33,457			-			33,457

Deemed dividend on preferred exchange		-		-		-			-			-		-		-		-		-		(192,154	)		-			(192,154	)

Net loss		-		-		-			-			-		-		-		-		-		-			(277,603	)		(277,603	)

Balance, December 31, 2021		333,600	$	333,600		1,047,942		$	1,048			-	$	-		72,730,153	$	72,730	$	-	$	16,632,500		$	(18,229,256	)	$	(1,522,978	)

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

	-	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.

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

Liabilities
Lease liabilities		-		-		382,084
Notes payable		-		960,624		-
Convertible notes payable		-		-		1,700,650

	December,			September 30,
	2022			2022
Software	$	125,903		$	125,903
Office equipment		80,343			71,601
Furniture and fixtures		29,879			29,879
Lab equipment		1,400,479			1,455,479
Leasehold improvements		510,076			510,076
Lab equipment held under capital leases		99,193			99,193
Fixed assets, gross		2,245,873			2,292,131
Less: accumulated depreciation		(1,867,067	)		(1,831,308	)
Total	$	378,806		$	460,823


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


	For the Six		For the Six		For the Three		For the Three
	Months Ended		Months Ended		Months Ended		Months Ended
	March 31,		March 31,		December 31,		December 31,
	2022		2021		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	45,490	$	41,143	$	29,532	$	22,582
Financing cash flows used for finance leases	$	16,557	$	16,715	$	-	$	8,467

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

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

	Finance
	Leases

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

●	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.

●	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~~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.

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

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

Exercisable, March 31, 2022		5,359,285		$	0.07

	Three Months Ended March 31,						Increase /			Three Months Ended December 31,						Increase /
	2022			2021			(Decrease)			2022			2021			(Decrease)
Revenues	$	604,735		$	633,160		$	(28,425	)	$	726,755		$	699,585		$	27,170
Cost of sales		396,032			416,915			(20,883	)		422,835			422,601			234
Gross profit		208,703			216,245			(7,542	)		303,920			276,984			26,936

Operating expenses:
General and administrative		235,470			211,961			23,509			306,483			240,964			65,519
Professional fees		286,390			107,819			178,571			69,969			255,749			(185,780	)
Change in allowance for doubtful accounts		16			(106,155	)		106,171			13,685			(2,139	)		15,824
Total operating expenses:		521,876			213,625			308,251			390,137			494,574			(104,437	)

Operating income (loss)		(313,173	)		2,620			(315,793	)
Operating loss											(86,217	)		(217,590	)		131,373

Total other income (expense)		(60,423	)		15,581			(76,004	)		(154,113	)		(60,013	)		(94,100	)

Net loss	$	(373,596	)	$	18,201		$	(391,797	)	$	(240,330	)	$	(277,603	)	$	37,273

	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