0001493152-16-012508.txt : 20160815 0001493152-16-012508.hdr.sgml : 20160815 20160815172348 ACCESSION NUMBER: 0001493152-16-012508 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 65 CONFORMED PERIOD OF REPORT: 20160630 FILED AS OF DATE: 20160815 DATE AS OF CHANGE: 20160815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DigiPath,Inc. CENTRAL INDEX KEY: 0001502966 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 273601979 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54239 FILM NUMBER: 161834044 BUSINESS ADDRESS: STREET 1: 2360 CORPORATE CIR STREET 2: SUITE 400 CITY: HENDERSON STATE: NV ZIP: 89074 BUSINESS PHONE: 702-527-2060 MAIL ADDRESS: STREET 1: 2360 CORPORATE CIR STREET 2: SUITE 400 CITY: HENDERSON STATE: NV ZIP: 89074 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For Quarterly Period Ended June 30, 2016

 

or

 

[  ] 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)

 

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

Yes  [X] No  [  ]

 

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

Yes  [X] No  [  ]

 

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

 

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

 

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

Yes  [  ] No   [X]

 

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

 

The number of shares of registrant’s common stock outstanding as of August 12, 2016 was 22,071,041.

 

 

 

 
 

 

TABLE OF CONTENTS

 

  Page
  No.
PART I - FINANCIAL INFORMATION  
   
ITEM 1.   FINANCIAL STATEMENTS (Unaudited) 3
       
    Condensed Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and September 30, 2015 3
       
    Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended June 30, 2016 and 2015 (Unaudited) 4
       
    Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2016 and 2015 (Unaudited) 5
       
    Notes to the Condensed Consolidated Financial Statements (Unaudited) 6
       
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
       
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
       
ITEM 4.   CONTROLS AND PROCEDURES 26
       
PART II - OTHER INFORMATION  
   
ITEM 1.   Legal Proceedings 27
       
ITEM 1A.   RISK FACTORS 27
       
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 27
       
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES 27
       
ITEM 4.   MINE SAFETY DISCLOSURES 27
       
ITEM 5.   OTHER INFORMATION 27
       
ITEM 6.   EXHIBITS 28
       
    SIGNATURES 29

 

2
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

DIGIPATH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30, 2016   September 30, 2015 
   (Unaudited)     
Assets          
           
Current assets:          
Cash  $73,498   $481,095 
Accounts receivable, net   103,179    6,146 
Inventory   -    192,561 
Prepaid expenses   34,323    60,447 
Deposits   39,850    44,949 
Total current assets   250,850    785,198 
           
Available-for-sale securities   13,640    14,000 
Investment in DigiPath, Corp.   -    - 
Fixed assets, net   1,198,369    1,373,691 
           
Total Assets  $1,462,859   $2,172,889 
           
Liabilities and Stockholders’ Equity          
           
Current liabilities:          
Accounts payable  $105,862   $62,383 
Accrued expenses   -    21,671 
Deferred revenues   -    73,121 
Total current liabilities   105,862    157,175 
           
Total Liabilities   105,862    157,175 
           
Stockholders’ Equity:          
Series A convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; 3,621,442 and 4,351,442 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively   3,621    4,351 
Common stock, $0.001 par value, 90,000,000 shares authorized; 20,986,041 and 13,762,705 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively   20,986    13,763 
Additional paid-in capital   11,376,328    10,224,551 
Accumulated other comprehensive loss   (36,360)   (36,000)
Accumulated deficit   (10,007,578)   (7,847,418)
    1,356,997    2,359,247 
Noncontrolling interest   -    (343,533)
Total Stockholders’ Equity   1,356,997    2,015,714 
           
Total Liabilities and Stockholders’ Equity  $1,462,859   $2,172,889 

 

See accompanying notes to financial statements.

 

3
 

 

DIGIPATH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

   For the Three Months Ended   For the Nine Months Ended 
   June 30,   June 30, 
   2016   2015   2016   2015 
                 
Revenues  $264,178   $6,915   $507,430   $317,125 
Cost of sales   102,724    19,304    258,083    227,973 
Gross profit   161,454    (12,389)   249,347    89,152 
                     
Operating expenses:                    
General and administrative   241,221    589,522    726,684    1,719,054 
Professional fees   1,004,225    170,940    1,414,913    1,554,230 
Bad debts expense (recoveries)   (30,646)   -    272,375    5,799 
Depreciation and amortization   61,162    10,774    183,392    16,134 
Total operating expenses   1,275,962    771,236    2,597,364    3,295,217 
                     
Operating loss   (1,114,508)   (783,625)   (2,348,017)   (3,206,065)
                     
Other income (expense):                    
Other income   16,000    12,000    46,000    24,000 
Interest income   2,500    95    7,500    295 
Interest expense   -    -    -    (916)
Gain on early extinguishment of debt   -    -    12,133    - 
Equity in losses of unconsolidated entity   -    -    (992,682)   - 
Total other income (expense)   18,500    12,095    (927,049)   23,379 
                     
Net loss  $(1,096,008)  $(771,530)  $(3,275,066)  $(3,182,686)
                     
Weighted average number of common shares outstanding - basic and fully diluted   20,342,817    10,984,239    17,225,893    9,015,005 
                     
Net loss per share - basic and fully diluted  $(0.05)  $(0.07)  $(0.19)  $(0.35)
                     
                     
Net loss attributable to DigiPath, Inc.  $(1,096,008)  $(771,530)  $(3,275,066)  $(3,182,686)
Other comprehensive loss                    
Available-for-sale investments:                    
Change in net unrealized loss (net of tax effect)   5,760    (72,000)   (360)   (30,000)
                     
Comprehensive loss  $(1,090,248)  $(843,530)  $(3,275,426)  $(3,212,686)

 

See accompanying notes to financial statements.

 

4
 

 

DIGIPATH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the Nine Months Ended 
   June 30, 
   2016   2015 
Cash flows from operating activities          
Net loss  $(3,275,066)  $(3,182,686)
Adjustments to reconcile net loss to net cash used in operating activities:          
Bad debts   272,375    5,799 
Depreciation and amortization expense   183,392    16,135 
Impairment of development costs   -    28,336 
Stock issued for services   88,720    868,603 
Options and warrants granted for services   1,018,491    - 
Gain on early extinguishment of debt   (12,133)   - 
Equity in losses of unconsolidated entity   992,682    - 
Decrease (increase) in assets:          
Accounts receivable   (106,283)   32,256 
Inventory   -    79,116 
Prepaid expenses   (11,056)   32,786 
Deposits   (675)   (310,745)
Increase (decrease) in liabilities:          
Accounts payable   76,862    (48,133)
Accrued expenses   (21,671)   8,292 
Deferred revenues   (4,167)   135,785 
Net cash used in operating activities   (798,529)   (2,334,456)
           
Cash flows from investing activities          
Cash disposed in divestiture of unconsolidated entity   (57,876)   - 
Investment in available-for-sale securities   -    (50,000)
Purchase of fixed assets   (11,192)   (1,439,691)
Net cash used in investing activities   (69,068)   (1,489,691)
           
Cash flows from financing activities          
Proceeds from exercised options   -    9,506 
Proceeds from sale of common stock   460,000    - 
Net cash provided by financing activities   460,000    9,506 
           
Net decrease in cash   (407,597)   (3,814,641)
Cash - beginning   481,095    5,102,620 
Cash - ending  $73,498   $1,287,979 
           
Supplemental disclosures:          
Interest paid  $-   $916 
Income taxes paid  $-   $- 
           
Non-cash investing and financing activities:          
Value of preferred stock converted to common stock  $730,000   $1,223,989 

 

See accompanying notes to financial statements.

 

5
 

 

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”) supports the cannabis industry’s best practices for reliable testing, cannabis education and training, and brings unbiased cannabis news coverage to the cannabis industry. Our business units are described below.

 

  DigiPath Labs, Inc. plans to set the industry standard for testing all forms of cannabis-based products using FDA-compliant laboratory equipment and processes to report product safety and efficacy. In May of 2015, we opened our first testing lab in Nevada and have plans to open labs in other legal states. Our customers were not fully operational when we opened our lab. As a result, we had minimal revenues for the first four months of operations and our customers have subsequently been steadily opening their businesses.
     
  TNM News Corp. provides a balanced and unbiased approach to cannabis news with a news/talk radio show and national marijuana news website focusing on the political, economic, medicinal, scientific, and cultural dimensions of the rapidly evolving—and profoundly controversial—medicinal and recreational marijuana industry.
     
  DigiPath Corp. develops digital pathology systems to create, store, manage, analyze and correlate data collected through virtual microscopy for plant and cell based industries. We divested two-thirds of this entity on October 1, 2015, and now own a minority interest of approximately 33.34%.

 

Stock Split

 

All share and per share amounts herein have been given retroactive effect to the 1-for-10 reverse stock split of the Company’s common stock effected May 27, 2015 (See Note 10).

 

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 generally accepted accounting principles in the United States (“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, 2015. 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 June 30, 2016:

 

    State of    
Name of Entity(1)   Incorporation   Relationship
DigiPath, Inc.(2)   Nevada   Parent
DigiPath Labs, Inc.   Nevada   Subsidiary
TNM News, Inc.   Nevada   Subsidiary
GroSciences, Inc.(3)   Colorado   Subsidiary

 

(1)All entities are in the form of a corporation.

 

(2)Holding company, which owns each of the wholly-owned subsidiaries. As of June 30, 2016, all subsidiaries shown above were wholly-owned by DigiPath, Inc., the parent company.

 

(3)Entity formed for prospective purposes, but has not incurred any income or expenses to date.

 

6
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company and subsidiaries will be collectively referred to herein as the “Company”, “DigiPath” or “DIGP”. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its customers are within the United States.

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.

 

Equity Method

 

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in losses of unconsolidated entity” in the Consolidated Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in DigiPath Corp.” in the Company’s Consolidated Balance Sheets.

 

U.S. GAAP considers a change in reporting entity to include “changing specific subsidiaries that make up the group of entities for which consolidated financial statements are presented.” Circumstances may arise where a parent’s controlling financial interest (e.g., generally an ownership interest in excess of 50 percent of the outstanding voting stock) is reduced to a noncontrolling investment that still enables it to exercise significant influence over the operating and financial policies of the investee. A change that results from changed facts and circumstances (such as a partial sale of a subsidiary), where there was only one acceptable method of accounting prior to the change in circumstances (consolidation) and only one acceptable method of accounting after the change (equity method accounting), is not a change in reporting entity and is not be accounted for retrospectively. Accordingly, a change from a controlling interest to a noncontrolling investment accounted for under the equity method is accounted for prospectively from the date of change in control. When the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the Investee company or has committed additional funding. When the Investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings, financial position or cash flows.

 

Segment Reporting

 

Under FASB ASC 280-10-50, the Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

 

Fair Value of Financial Instruments

 

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

 

7
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery of product has met the criteria established in the arrangement or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. This occurs when the products or services are completed in accordance with the contracts we have with clients. In connection with our products and services arrangements, when we are paid in advance, these amounts are classified as deferred revenue and amortized over the term of the agreement. With respect to our cannabis lab testing revenues, we sell our services on a determinable fixed fee per test, or panel of tests basis, and offer a discounted price for customers that agree to enter into exclusive, long term contracts. We typically require payment prior to the delivery of results. As such, revenues are recognized upon the delivery of results, which coincide with the completion of the tests.

 

Stock-Based Compensation

 

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

 

Recent Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718) (“ASU 2016-09”). The provisions of the update amend ASC Topic 718, Compensation – Stock Compensation, and includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements, including accounting for the income tax consequences, estimates of forfeitures and classification of excess tax benefits on the statement of cash flows. For public business entities, this update is effective for fiscal years beginning after December 15, 2016, including interim periods. The Company is evaluating the impact of this ASU on the Company’s financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Balance Sheet Classification of Deferred Taxes (“ASU 2016-02”). ASU 2016-02 amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. This ASU must be adopted using a modified retrospective approach. The Company is evaluating the impact of this ASU on the Company’s financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment. The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities, and eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet. ASU No. 2016-16 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update requires separate presentation of financial assets and financial liabilities by category and form on the balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in the update are effective for fiscal years beginning after December 15, 2017, including interim periods. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

 

8
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated financial statements instead of separating deferred taxes into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, and early adoption is permitted. The adoption of ASU 2015-17 is not expected to have a material effect on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company will adopt ASU 2015-02 on October 1, 2016, and it is not expected to have a material impact on the Company’s consolidated financial statements and disclosures.

 

In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement—Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 is intended to reduce complexity and cost of compliance with GAAP by eliminating the concept of extraordinary items in the statement of operations. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is permitted. The Company adopted ASU 2015-01 as of October 1, 2015. The adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360:)Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (collectively “ASU 2014-08”). ASU 2014-08 changes the reporting requirements for reporting discontinued operations in Subtopic 205-20. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs:

 

  1. The component of an entity or group of components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale.
     
  2. The component of an entity or group of components of an entity is disposed of by sale.
     
  3. The component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).

 

ASU 2014-08 is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company adopted ASU 2014-08 for the fiscal year ended September 30, 2015.

 

There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.

 

Note 2 – Going Concern

 

As shown in the accompanying condensed consolidated financial statements, the Company has incurred recurring losses from operations resulting in an accumulated deficit of ($10,007,578), and as of June 30, 2016, the Company’s cash on hand may not be sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. Management believes these factors will contribute toward achieving profitability. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

The consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

9
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – Investment, Equity Method

 

On October 1, 2015, as more fully described in Note 4 below, we divested two-thirds of DigiPath Corp. when warrant holders in DigiPath Corp. acquired one-third interest through the exercise of warrants held by Steven D. Barbee, our former Director, and the other warrant holder acquired another one-third interest through the sale of new issuances, commensurate with the cancellation of previously issued warrants. We now own a minority interest of approximately 33.34%. As a result, the comparative statement of operations for the nine months ended June 30, 2015, which included the accounts of the digital pathology business segment, on a consolidated basis, has been restated to reflect adjustments of line items for revenue and costs applicable to the digital pathology business segment and to reflect the losses of this business on the equity basis of accounting. The original investment was adjusted to fair value on October 1, 2015, resulting in a carrying value of $106,675 and an “Equity in losses of unconsolidated entity” of $992,682 was recognized during the nine months ended June 30, 2016, consisting of an impairment of $893,325 on the adjustment to from the carrying value to the fair value and $99,357 of the Company’s pro-rata share of the net loss. As of March 31, 2016, DigiPath Corp’s losses have exceeded our investment and we are no longer recognizing any loss on our investment. Our pro rata share of subsequent gains will be recognized when they have exceeded our pro rata share of unrecognized losses. The operating results of the Digital Corp. pathology business are summarized below.

 

Condensed Statements of Operations Information (Unaudited):

 

   For the Three Months Ended   For the Nine Months Ended 
   June 30,   June 30, 
   2016   2015   2016   2015 
Revenues  $42,824   $5,293   $79,809   $299,754 
Cost of sales   27,689    5,399    45,761    214,068 
Gross profit   15,135    (106)   34,048    85,686 
Expenses:                    
General and administrative   111,417    146,788    229,114    513,033 
Total operating expenses   111,417    146,788    229,114    513,033 
Operating loss   (96,282)   (146,894)   (195,066)   (427,347)
Other income (expense)   (2,490)   95    (8,191)   295 
Net loss  $(98,772)  $(146,799)  $(203,257)  $(427,052)

 

Note 4 – Related Party Transactions

 

Appointment of Joseph J. Bianco as Chief Executive Officer

 

On June 21, 2016, the Board appointed Joseph J. Bianco, one of our directors, to serve as the Company’s Chief Executive Officer. As described further below, Todd Denkin, the Company’s Chief Executive Officer prior to such appointment, now serves as the Company’s President and Chief Operating Officer, and as the President of DigiPath’s wholly-owned subsidiaries, DigiPath Labs, Inc. and TNM News Corp.

 

In connection with his appointment as Chief Executive Officer, Mr. Bianco entered into an Employment Agreement with the Company dated June 21, 2016 for a three year term, and providing for an initial base salary of $96,000 per annum and a car allowance of $1,250 per month. Pursuant to this Employment Agreement, Mr. Bianco was awarded a stock option to purchase 4,750,000 shares of the Company’s common stock at an exercise price of $0.20 per share. The option vests immediately as to one-half of the shares, one year from the grant date as to one-quarter of the shares, and two years following the grant date as to the remaining one-quarter of the shares. The Employment Agreement also terminated the letter agreement between Mr. Bianco’s affiliate and the Company pursuant to which Mr. Bianco had provided consulting services to the Company.

 

10
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Todd Denkin Amended and Restated Employment Agreement

 

In connection with Mr. Bianco’s appointment as the Company’s Chief Executive Officer, on June 21, 2016, the Company entered into an Amended and Restated Employment Agreement with Todd Denkin, pursuant to which Mr. Denkin continues to serve as the Company’s President, and in addition as its Chief Operating Officer, and as the President of DigiPath’s wholly-owned subsidiaries, DigiPath Labs, Inc. and TNM News Corp. In addition, the term of Mr. Denkin’s employment has been extended for a period of three years from June 21, 2016, and he will continue to be paid a base salary of $192,000 per annum, and receives a car allowance of $750 per month. Pursuant to the Amended and Restated Employment Agreement, Mr. Denkin was awarded a stock option to purchase 2,500,000 shares of the Company’s common stock at an exercise price of $0.20 per share. The option vests immediately as to one-half of the shares, one year from the grant date as to one-quarter of the shares, and two years following the grant date as to the remaining one-quarter of the shares.

 

Divestiture of Wholly-Owned Subsidiary, DigiPath Corp.

 

On October 1, 2015, DigiPath, Inc., entered into an Omnibus Agreement and Amendment (the “Agreement”) with DigiPath Corp., and our former Director, Steven D. Barbee. Pursuant to the Agreement, among other things:

 

  The exercise price of the warrant held by Mr. Barbee to purchase 3,000,000 shares of common stock of DigiPath Corp. (the “Barbee Warrant”) was reduced from $0.10 per share to $0.0333333 per share, and Mr. Barbee subsequently exercised the warrant.
     
  Mr. Barbee resigned as a director of the Company.
     
  The Consulting, Confidentiality and Proprietary Rights Agreement, dated as of May 30, 2014, between the Company and Mr. Barbee, as amended, was terminated.
     
  Indebtedness of approximately $18,201 owed by the Company to DigiPath Corp. was cancelled.
     
  DigiPath Corp. was provided with the right to require the Company to change its name so as not to include the name “DigiPath” in the event of the sale of all or substantially all of the assets or capital stock of DigiPath Corp., or a merger of DigiPath Corp. following which the Company ceases to be a shareholder of DigiPath Corp., in each case, that occurs within 12 months following the date of the Agreement.
     
  The Company, as a shareholder of DigiPath Corp, was provided with (i) rights of first-refusal and co-sale rights with respect to sales of common stock of DigiPath Corp by Barbee, and (ii) pre-emptive rights with respect to issuances of common stock by DigiPath Corp.

 

Concurrently with the execution of the Agreement, DigiPath Corp. agreed to issue 3,000,000 shares of its common stock to a third party for an aggregate purchase price of $100,000, and an affiliate of such party agreed to surrender 60,000 shares of Series A Preferred of the Company for cancellation, and terminate a previously held warrant to purchase 3,000,000 shares of common stock of DigiPath Corp. As a result of such issuance of shares of DigiPath Corp common stock, and after giving effect to the exercise of the Barbee Warrant, the Company continued to hold approximately 33.34% of the outstanding shares of common stock of DigiPath Corp. Following the execution of the Agreement, Mr. Barbee continued to serve as the President and sole director of DigiPath Corp.

 

11
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 5 – Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2016 and September 30, 2015, respectively:

 

   Fair Value Measurements at June 30, 2016 
   Level 1   Level 2   Level 3 
Assets               
Cash  $73,498   $-   $- 
Available-for-sale securities   13,640    -    - 
Note receivable   -    -    - 
Investment in DigiPath Corp.   -    -    - 
Total assets   87,138    -    - 
Liabilities               
Total liabilities   -    -    - 
   $87,138   $-   $- 

 

   Fair Value Measurements at September 30, 2015 
   Level 1   Level 2   Level 3 
Assets               
Cash  $481,095   $-   $- 
Note receivable   -    -    - 
Available-for-sale securities   14,000    -    - 
Total assets   495,095    -    - 
Liabilities               
Total liabilities   -    -    - 
   $495,095   $-   $- 

 

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 nine months ended June 30, 2016 or the year ended September 30, 2015.

 

We recognized total impairment losses of $893,325 on our ownership interest in DigiPath Corp. during the nine months ended June 30, 2016, and impairment losses of $328,336 on our intellectual properties during the year ended September 30, 2015.

 

12
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 6 – Accounts Receivable

 

Accounts receivable was $103,179 and $6,146 at June 30, 2016 and September 30, 2015, respectively, net of allowance for doubtful accounts of $1,750 and $36,715 at June 30, 2016 and September 30, 2015, respectively.

 

Note 7 – Note Receivable

 

On December 17, 2014, DigiPath, Inc. made an unsecured $250,000 loan to DigiPath Corp., a wholly-owned subsidiary at the time, bearing interest at 6% and maturing on December 17, 2015. On October 1, 2015, we amended the note to extend the maturity date to September 30, 2016. Commensurate with the change in ownership of DigiPath Corp. from 100% to approximately 33.34%, we evaluated the asset for collectability and recognized an allowance for uncollectible accounts for the full amount of the asset. The balance of the allowance for uncollectible accounts, including interest of $20,625, was $270,625 at June 30, 2016.

 

Note 8 – Available-for-Sale Securities

 

Available-for-sale securities consist of the following at June 30, 2016 and September 30, 2015:

 

   For the Nine Months Ended June 30, 2016 
       Gains in   Losses in     
       Accumulated   Accumulated     
       Other   Other   Estimated 
   Amortized   Comprehensive   Comprehensive   Fair 
   Cost   Income   Income   Value 
Common stock  $50,000    -   $(36,360)  $13,640 
                     
Total available-for-sale securities  $50,000    -   $(36,360)  $13,640 

 

   For the Year Ended September 30, 2015 
       Gains in   Losses in     
       Accumulated   Accumulated     
       Other   Other   Estimated 
   Amortized   Comprehensive   Comprehensive   Fair 
   Cost   Income   Income   Value 
Common stock  $50,000    -   $(36,000)  $14,000 
                     
Total available-for-sale securities  $50,000    -   $(36,000)  $14,000 

 

Common stock consisted of a purchase of 400,000 shares of common stock acquired in March of 2015, in the amount of $50,000 in Blue Line Protection Group, Inc., a Nevada corporation.

 

Note 9 – Fixed Assets

 

Fixed assets consist of the following at June 30, 2016 and September 30, 2015:

 

   June 30, 2016   September 30, 2015 
Software  $121,617   $131,636 
Office equipment   36,080    35,467 
Furniture and fixtures   2,357    14,607 
Lab equipment   809,056    835,006 
Leasehold improvements   487,066    487,066 
    1,456,176    1,503,782 
Less: accumulated depreciation   (257,807)   (130,091)
Total  $1,198,369   $1,373,691 

 

As a result of the deconsolidation of DigiPath Corp. on October 1, 2015, we were deemed to have disposed of furniture and fixtures and software with a net book value of $3,122, consisting of a historical cost basis of $58,798 and accumulated depreciation and amortization of $55,676. No gain or loss was recognized on the disposal.

 

Depreciation and amortization expense totaled $183,392 and $16,134 for the nine months ended June 30, 2016 and 2015, respectively.

 

13
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 10 - Changes in Stockholders’ Equity

 

Reverse Stock Split

 

Effective May 27, 2015, the Company effected the 1 for 10 Reverse Stock Split. No fractional shares were issued, and no cash or other consideration was paid in connection with the Reverse Stock Split. Instead, the Company issued one whole share of the post-Reverse Stock Split common stock to any stockholder who otherwise would have received a fractional share as a result of the Reverse Stock Split. The Company was authorized to issue 900,000,000 shares of common stock prior to the Reverse Stock Split. As a result of the Reverse Stock Split, the Company’s authorized shares decreased ratably to 90,000,000 shares of common stock. The Reverse Stock Split did not have any effect on the stated par value of the common stock, or the Company’s authorized preferred stock. Unless otherwise stated, all share and per share information in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the Reverse Stock Split.

 

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”). The Board of Directors is authorized to determine any number of series into which shares of preferred stock may be divided and to determine the rights, preferences, privileges and restrictions granted to any series of the preferred stock. Effective as of April 4, 2014, the designations, rights and preferences of the preferred shares changed to blank check preferred. As of June 30, 2016, there were 3,621,442 shares of Series A Preferred issued and outstanding. Shares of Series A Preferred are convertible into common stock at a fixed conversion rate of $0.20 per share.

 

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 3,520,442 shares of Series A Preferred outstanding at June 30, 2016 are convertible into 17,602,210 shares of the common stock of the Company. No holder is permitted to convert its shares of Series A Preferred if such conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding common stock of the Company immediately after such conversion, unless waived by such holder by providing at least sixty-five days’ notice.

 

Preferred Stock Conversions

 

On June 13, 2016, a shareholder converted 100,000 shares of Series A Preferred into 500,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On April 18, 2016, a shareholder converted 100,000 shares of Series A Preferred into 500,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On April 1, 2016, a shareholder converted 150,000 shares of Series A Preferred into 750,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On February 26, 2016, a shareholder converted 100,000 shares of Series A Preferred into 500,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On October 29, 2015, a shareholder converted 100,000 shares of Series A Preferred into 500,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On October 8, 2015, a shareholder converted 120,000 shares of Series A Preferred into 600,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

Preferred Stock Cancellation

 

On October 1, 2015, a shareholder cancelled 60,000 shares of Series A Preferred as part of the divestiture of DigiPath Corp.

 

14
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Common Stock

 

Common stock consists of $0.001 par value, 90,000,000 shares authorized, of which 20,986,041 shares were issued and outstanding as of June 30, 2016.

 

Common Stock Sales

 

On May 2, 2016, the Company sold 100,000 units, consisting of 100,000 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 29, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 14, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 12, 2016, the Company sold 83,334 units, consisting of 83,334 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $12,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 7, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On March 15, 2016, the Company sold 1,666,667 units, consisting of 1,666,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $250,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On February 17, 2016, the Company sold 83,333 units, consisting of 83,333 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $12,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 19, 2016, the Company sold 333,334 units, consisting of 333,334 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On December 21, 2015, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On November 23, 2015, the Company sold 100,000 units, consisting of 100,000 shares of its common stock and an equal number of warrants, exercisable at $0.40 per share over a thirty six month period, in exchange for total proceeds of $20,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Common Stock Issued for Services

 

On February 1, 2016, a total of 300,000 shares of common stock were awarded to three consultants that were engaged to assist with acquisition activities over for a three month period. The aggregate fair value of the common stock was $45,720 based on the closing price of the Company’s common stock on the date of grant, and is being expensed over the three month requisite service period, resulting in $30,480 of stock based compensation during the period.

 

On January 1, 2016, the Company issued 40,000 shares of restricted common stock for investor relations services provided. The total fair value of the common stock was $8,000 based on the closing price of the Company’s common stock on the date of grant and was expensed in full.

 

15
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

On January 1, 2016, an affiliate of Mr. Bianco, a director of the Company, became entitled to receive 500,000 shares of common stock for consulting services to be performed during 2016, subject to a ratable “claw back” provision the event of an early termination of the consulting agreement. The total fair value of the common stock was $70,000 based on the closing price of the Company’s common stock on the date of grant, and is being expensed over the twelve month requisite service period, resulting in $17,500 of stock based compensation during the period.

 

Amortization of Stock Options

 

A total of $779,168 of stock-based compensation expense was recognized from the amortization of options over their vesting period during the nine months ended June 30, 2016.

 

Note 11 – Common Stock Options

 

Stock Incentive Plan

 

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

 

Options Granted

 

On June 21, 2016, the Company granted 4,750,000 common stock options as compensation for services to our CEO, Mr. Bianco. The options are exercisable over a ten year period at an exercise price of $0.20 per share, and 50% vest immediately, with 25% vesting each year thereafter. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 230% and a call option value of $0.1986, was $943,193.

 

On June 21, 2016, the Company granted 2,500,000 common stock options as compensation for services to our President and COO, Mr. Denkin. The options are exercisable over a ten year period at an exercise price of $0.20 per share, and 50% vest immediately, with 25% vesting each year thereafter. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 230% and a call option value of $0.1986, was $496,417.

 

On April 7, 2016, the Company granted a total of 130,000 fully vested common stock options as compensation for services to five employees. The options are exercisable over a ten year period at an exercise price of $0.22 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 238% and a call option value of $0.2183, was $28,382.

 

On November 20, 2015, the Company granted 500,000 fully vested common stock options as compensation for services to a consultant. The options are exercisable over a three year period at an exercise price of $0.181 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 234% and a call option value of $0.1734, was $86,708.

 

Options Expired

 

No options expired during the nine months ended June 30, 2016.

 

Options Exercised

 

No options were exercised during the nine months ended June 30, 2016.

 

Note 12 – Common Stock Warrants

 

Warrants Granted

 

On June 6, 2016, the Company granted 659,800 fully vested common stock warrants as compensation for services to a consulting firm. The options are exercisable over a five year period at an exercise price of $0.1901 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 231% and a call option value of $0.1883, was $124,233, and was expensed in full on June 6, 2016.

 

On May 2, 2016, the Company sold 100,000 units, consisting of 100,000 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

16
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

On April 29, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 14, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 12, 2016, the Company sold 83,334 units, consisting of 83,334 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $12,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 7, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On March 15, 2016, the Company sold 1,666,667 units, consisting of 1,666,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $250,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On February 17, 2016, the Company sold 83,333 units, consisting of 83,333 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $12,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 19, 2016, the Company sold 333,334 units, consisting of 333,334 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On December 21, 2015, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On November 23, 2015, the Company sold 100,000 units, consisting of 100,000 shares of its common stock and an equal number of warrants, exercisable at $0.40 per share over a thirty six month period, in exchange for total proceeds of $20,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Warrants Expired

 

No warrants expired during the nine months ended June 30, 2016.

 

Warrants Exercised

 

No warrants were exercised during the nine months ended June 30, 2016.

 

Note 13 – Other Income

 

Other income consists of rental income of $30,000 and $24,000 for the nine months ended June 30, 2016 and 2015, respectively, for office space subleased to GB Sciences, Inc. at a monthly fee of $6,000. The tenant vacated the premises on February 1, 2016. In addition, we recognized $16,000 and $-0- of other income for the nine months ended June 30, 2016 and 2015, respectively, related to restitution payments received from a former employee.

 

Note 14 – Gain on Debt Settlements

 

On October 1, 2015, as part of the divestiture of DigiPath Corp., a total of $18,201 of intercompany debt owed from DigiPath, Inc. to DigiPath Corp. was forgiven by DigiPath Corp. As a related party, one third of the debt was eliminated and the remaining $12,133 was recognized as a gain on early extinguishment of debt. The Company evaluated the classification of this gain and determined that the gain does not meet the criteria for classification as an extraordinary item. As a result, the gain has been included as “Gain on early extinguishment of debt: under “Other income (expense)” within income from continuing operations in the accompanying Consolidated Statement of Operations for the nine months ended June 30, 2016.

 

17
 

 

DIGIPATH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 15 - Income Tax

 

The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.

 

For the nine months ended June 30, 2016 and the year ended September 30, 2015, the Company incurred a net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At June 30, 2016, the Company had approximately $6,697,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2031.

 

Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at June 30, 2016 and September 30, 2015, respectively.

 

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

 

Note 16 – Subsequent Events

 

Preferred Stock Conversions

 

On July 5, 2016, a shareholder converted 101,000 shares of Series A Preferred into 505,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

Common Stock Issued for Services

 

On July 1, 2016, a total of 580,000 shares of common stock were issued to six consultants that were engaged to assist the Company with acquisition activities over for a three month period. The aggregate fair value of the common stock was $104,980 based on the closing price of the Company’s common stock on the date of grant, and is being expensed over the three month requisite service period.

 

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

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended September 30, 2015 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, 2015 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, and brings unbiased cannabis news coverage to the cannabis industry. Our business units are described below.

 

  DigiPath Labs, Inc. plans to set the industry standard for testing all forms of cannabis-based products using FDA-compliant laboratory equipment and processes to report product safety and efficacy. In May of 2015, we opened our first testing lab in Nevada and have plans to open labs in other legal states. Our customers were not fully operational when we opened our lab. As a result, we had minimal revenues for the first four months of operations and our customers have subsequently been steadily opening their businesses.
     
  TNM News Corp. provides a balanced and unbiased approach to cannabis news with a news/talk radio show and national marijuana news website focusing on the political, economic, medicinal, scientific, and cultural dimensions of the rapidly evolving—and profoundly controversial—medicinal and recreational marijuana industry.
     
  DigiPath Corp. develops digital pathology systems to create, store, manage, analyze and correlate data collected through virtual microscopy for plant and cell based industries. We divested two-thirds of this entity on October 1, 2015, and now own a minority interest of 33.34%.

 

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Results of Operations for the Three Months Ended June 30, 2016 and 2015:

 

The following table summarizes selected items from the statement of operations for the three months ended June 30, 2016 and 2015. The operations of our deconsolidated subsidiary, DigiPath Corp. have been removed and summarized in a single line item as, “Equity in losses of unconsolidated entity” within “Other income (expense)”.

 

   Three Months Ended June 30,   Increase / 
   2016   2015   (Decrease) 
Revenues  $264,178   $6,915   $257,263 
Cost of sales   102,724    19,304    83,420 
Gross profit   161,454    (12,389)   173,843 
                
Operating expenses:               
General and administrative   241,221    589,522    (348,301)
Professional fees   1,004,225    170,940    833,285 
Bad debts expense (recoveries)   (30,646)   -    (30,646)
Depreciation and amortization   61,162    10,774    50,388 
Total operating expenses:   1,275,962    771,236    504,726 
                
Operating loss   (1,114,508)   (783,625)   330,883 
                
Total other income   18,500    12,095    6,405 
                
Net loss  $(1,096,008)  $(771,530)  $324,478 

 

Revenues

 

Revenues were generated by our cannabis testing lab and our advertising from our National Marijuana News Corp. division. Aggregate revenues for the three months ended June 30, 2016 were $264,178, compared to revenues of $6,915 during the three months ended June 30, 2015, an increase of $257,263, or 3,720%. The revenue in the current period was due to the commencement of our testing lab operations in Nevada and the corresponding growth in our customer base as production and cultivation facilities established their operations, while the comparative period revenues were derived from our digital pathology business that has been divested and is now being presented prospectively on the equity method of accounting. We anticipate steadily increasing lab testing revenues during the remainder of the fiscal year ending September 30, 2016.

 

Cost of Sales

 

Cost of sales for the three months ended June 30, 2016 were $102,724, compared to $19,304 during the three months ended June 30, 2015, an increase of $83,420, or 432%. The cost of sales in the current period was primarily due to the costs of labor and supplies consumed in our testing operations that were not incurred prior to the opening of our lab in May of 2015, while the comparative period cost of sales were primarily derived from our digital pathology business.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended June 30, 2016 were $241,221, compared to $589,522 during the three months ended June 30, 2015, a decrease of $348,301, or 59%. The expenses consisted primarily of marketing, rent, salaries and wages, and travel expenses. The decrease was primarily due to decreased marketing and officer compensation expenses as we aggressively instituted budget cuts in our cannabis testing lab operations to conserve resources, in addition to no longer carrying the consolidated general and administrative expenses of our digital pathology business.

 

Professional Fees

 

Professional fees for the three months ended June 30, 2016 were $1,004,225, compared to $170,940 during the three months ended June 30, 2015, an increase of $833,285, or 487%. Professional fees increased primarily due to increased stock based compensation of $770,676 during the three months ended June 30, 2016, consisting of the amortization of $737,936 of options expense and $32,740 of amortized stock based compensation on previously awarded shares of common stock issued for services.

 

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Bad Debts Expense (Recoveries)

 

Bad debts (recoveries) for the three months ended June 30, 2016 were $(30,646), compared to $-0- during the three months ended June 30, 2015, an increase of $30,646. Bad debts (recoveries) during the current period consisted of a decreased allowance for doubtful accounts of $30,646 related to the subsequent collections on past due rent receivables owed to us by our former sublet tenant.

 

Depreciation and Amortization

 

Depreciation and amortization expense for the three months ended June 30, 2016 were $61,162, compared to $10,774 during the three months ended June 30, 2015, an increase of $50,388, or 468%. Depreciation and amortization expense increased as we placed approximately $1,456,176 of property and equipment in service for our lab that were not in service during the comparative period.

 

Operating Loss

 

Our operating loss for the three months ended June 30, 2016 was $1,114,508, compared to $783,625 during the three months ended June 30, 2015, an increase of $330,883, or 42%. Our operating loss increased primarily due to the increased stock based compensation of $770,676 during the three months ended June 30, 2016, as diminished by reductions in general and administrative expenses as we aggressively instituted budget cuts in our cannabis testing lab operations to conserve resources, in addition to no longer carrying the consolidated general and administrative expenses of our digital pathology business.

 

Other Income

 

Other income for the three months ended June 30, 2016 was $18,500, compared to other income of $12,095 during the three months ended June 30, 2015, an increase of $6,405, or 53%. Other income during the three months ended June 30, 2016 consisted of sublet rent and restitution payments from a former employee. Other income during the three months ended June 30, 2015 consisted primarily of sublet rent.

 

Net Loss

 

Net loss for the three months ended June 30, 2016 was $1,096,008, compared to $771,530 during the three months ended June 30, 2015, an increase of $324,478, or 42%.

 

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Results of Operations for the Nine Months Ended June 30, 2016 and 2015:

 

The following table summarizes selected items from the statement of operations for the nine months ended June 30, 2016 and 2015. The operations of our deconsolidated subsidiary, DigiPath Corp. have been removed and summarized in a single line item as, “Equity in losses of unconsolidated entity” within “Other income (expense)”.

 

   Nine Months Ended June 30,   Increase / 
   2016   2015   (Decrease) 
Revenues  $507,430   $317,125   $190,305 
Cost of sales   258,083    227,973    30,110 
Gross profit   249,347    89,152    160,195 
                
Operating expenses:               
General and administrative   726,684    1,719,054    (992,370)
Professional fees   1,414,913    1,544,230    (139,317)
Bad debts expense   272,375    5,799    266,576 
Depreciation and amortization   183,392    16,134    167,258 
Total operating expenses:   2,597,364    3,295,217    (697,853)
                
Operating loss   (2,348,017)   (3,206,065)   (858,048)
                
Total other income (expense)   (927,049)   23,379    (950,428)
                
Net loss  $(3,275,066)  $(3,182,686)  $92,380 

 

Revenues

 

Revenues were generated by our cannabis testing lab and our advertising from our National Marijuana News Corp. division. Aggregate revenues for the nine months ended June 30, 2016 were $507,430, compared to revenues of $317,125 during the nine months ended June 30, 2015, an increase of $190,305, or 60%. The revenue in the current period was due to the commencement of our testing lab operations in Nevada and the corresponding growth in our customer base as production and cultivation facilities established their operations, while the comparative period revenues were primarily derived from our digital pathology business that has been divested and is now being presented prospectively on the equity method of accounting. We anticipate steadily increasing lab testing revenues during the remainder of the fiscal year ending September 30, 2016.

 

Cost of Sales

 

Cost of sales for the nine months ended June 30, 2016 were $258,083, compared to $227,973 during the nine months ended June 30, 2015, an increase of $30,110, or 13%. The cost of sales in the current period was primarily due to the costs of labor and supplies consumed in our testing operations that were not incurred prior to the opening of our lab in May of 2015, while the comparative period cost of sales were derived from our digital pathology business.

 

General and Administrative Expenses

 

General and administrative expenses for the nine months ended June 30, 2016 were $726,684, compared to $1,719,054 during the nine months ended June 30, 2015, a decrease of $992,370, or 58%. The expenses consisted primarily of marketing, rent, salaries and wages, and travel expenses. The decrease was primarily due to decreased marketing and officer compensation expenses as we aggressively instituted budget cuts in our cannabis testing lab operations to conserve resources, in addition to no longer carrying the consolidated general and administrative expenses of our digital pathology business.

 

Professional Fees

 

Professional fees for the nine months ended June 30, 2016 were $1,414,913, compared to $1,554,230 during the nine months ended June 30, 2015, a decrease of $139,317, or 9%. Professional fees decreased primarily due to decreased professional fees that we no longer incur from our digital pathology business, as diminished by an increase in non-cash stock based compensation. Stock based compensation was $1,107,211 during the nine months ended June 30, 2016, compared to $868,603 during the nine months ended June 30, 2015, an increase of $238,608, or 27%.

 

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Bad Debts Expense

 

Bad debts expense for the nine months ended June 30, 2016 were $272,375, compared to $5,799 during the nine months ended June 30, 2015, an increase of $266,576. Bad debts expense during the current period consisted of an allowance for bad debts of $270,625 related to a note receivable and corresponding interest on debt owed by DigiPath Corp. for which DigiPath Corp. does not currently have the ability to repay, as well as an allowance for doubtful accounts of $1,750 on outstanding receivables more than 30 days outstanding.

 

Depreciation and Amortization

 

Depreciation and amortization expense for the nine months ended June 30, 2016 were $183,392, compared to $16,134 during the nine months ended June 30, 2015, an increase of $167,258, or 1,037%. Depreciation and amortization expense increased as we placed approximately $1,456,176 of property and equipment in service for our lab that were not in service during the comparative period.

 

Operating Loss

 

Our operating loss for the nine months ended June 30, 2016 was $2,348,017, compared to $3,206,065 during the nine months ended June 30, 2015, a decrease of $858,048, or 27%. Our operating loss decreased primarily due to approximately, $160,000 of increased gross profits in our cannabis testing lab operations, a decrease of approximately $1,371,000 in general and administrative expenses and professional and marketing fees as we aggressively instituted budget cuts in our lab operations to conserve resources and no longer carry the consolidated expenses of our digital pathology business, as diminished by approximately $434,000 of non-cash increases in our allowance for doubtful accounts and depreciation and amortization expense and an approximate increase of $239,000 in stock based compensation incurred during the nine months ended June 30, 2016, compared to the nine months ended June 30, 2015.

 

Other Income (Expense)

 

Other expenses, on a net basis, for the nine months ended June 30, 2016 were $927,049, compared to other income of $23,379 during the nine months ended June 30, 2015, a net increase of $950,428. Other expenses during the nine months ended June 30, 2016, consisted of equity in losses of unconsolidated entity of $992,682, which consists of a loss on the impairment of our investment in DigiPath Corp. of $893,325 and $99,357 from our interest in the current period losses of the unconsolidated entity, as diminished by a gain on early extinguishment of debt of $12,133 owed to DigiPath Corp. and $7,500 of interest income owed by DigiPath Corp., along with $30,000 of other income from sublet rent and $16,000 of other income on restitution payments received from a former employee. Other income during the nine months ended June 30, 2015 consisted primarily of sublet rent.

 

Net Loss

 

Net loss for the nine months ended June 30, 2016 was $3,275,066, compared to $3,182,686 during the nine months ended June 30, 2015, an increase of $92,380, or 3%. Our net loss for the nine months ended June 30, 2016 included an aggregate of $2,543,527 of non-cash expenses, compared to $918,873 of non-cash expenses during the comparative nine months ended June 30, 2015, an increase of $1,624,654, or 177%.

 

Liquidity and Capital Resources

 

The following is a summary of the Company’s cash flows provided by (used in) operating, investing, and financing activities for the nine month periods ended June 30, 2016 and 2015:

 

   2016   2015 
Operating Activities  $(798,529)  $(2,334,456)
Investing Activities   (69,068)   (1,489,691)
Financing Activities   460,000    9,506 
Net decrease in Cash  $(407,597)  $(3,814,641)

 

Net Cash Used in Operating Activities

 

During the nine months ended June 30, 2016, net cash used in operating activities was $798,529, compared to $2,334,456 for the same period ended June 30, 2015. The decrease in cash used for operating activities is primarily attributable to marketing, officer compensation and office expense cost savings we implemented as we aggressively cut costs in our cannabis testing lab operations to conserve resources until our lab revenues can sustain operations.

 

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Net Cash Used in Investing Activities

 

During the nine months ended June 30, 2016, net cash used in investing activities was $69,068, compared to $1,489,691 for the same period ended June 30, 2015. The decrease is attributable to investments made for cannabis testing equipment and leasehold improvements required for our Nevada cannabis testing lab made in the previous period that were not necessary in the current period, as diminished by $57,876 of cash held and retained by our subsidiary, DigiPath Corp., at the time of divestiture.

 

Net Cash Provided by Financing Activities

 

During the nine months ended June 30, 2016, net cash provided by financing activities was $460,000, compared to $9,506 for the same period ended June 30, 2015. The increase is primarily due to the increased sale of securities during the nine months ended June 30, 2016, compared to the nine months ended June 30, 2015.

 

Ability to Continue as a Going Concern

 

As of June 30, 2016, our balance of cash on hand was $73,498. We currently do not have funds sufficient to fund our operations for the next twelve months and 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 continue to experience net negative cash flows from operations in amounts not now determinable, and will be required to obtain additional financing to fund operations through common stock offerings to the extent necessary to provide working capital. We have and expect to continue to have substantial capital expenditure and working capital needs.

 

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

 

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

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies and Estimates

 

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

 

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

 

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Equity Method

 

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in losses of unconsolidated entity” in the Consolidated Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in DigiPath Corp.” in the Company’s Consolidated Balance Sheets.

 

U.S. GAAP considers a change in reporting entity to include “changing specific subsidiaries that make up the group of entities for which consolidated financial statements are presented.” Circumstances may arise where a parent’s controlling financial interest (e.g., generally an ownership interest in excess of 50 percent of the outstanding voting stock) is reduced to a noncontrolling investment that still enables it to exercise significant influence over the operating and financial policies of the investee. A change that results from changed facts and circumstances (such as a partial sale of a subsidiary), where there was only one acceptable method of accounting prior to the change in circumstances (consolidation) and only one acceptable method of accounting after the change (equity method accounting), is not a change in reporting entity and is not be accounted for retrospectively. Accordingly, a change from a controlling interest to a noncontrolling investment accounted for under the equity method is accounted for prospectively from the date of change in control. When the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the Investee company or has committed additional funding. When the Investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

 

Stock-Based Compensation

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

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

 

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ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures: We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of June 30, 2016, that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

Changes in Internal Control over Financial Reporting: There were no changes in our internal control over financial reporting during the quarter ending June 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

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

 

ITEM 1A. RISK FACTORS.

 

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

 

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

 

The information set forth below describes our issuance of securities without registration under the Securities Act of 1933, as amended, during the three months ended June 30, 2016, that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K:

 

On May 2, 2016, the Company sold to a single accredited investor 100,000 units at a price of $0.15 per Unit, with each Unit consisting of one share of our common stock and a three (3) year warrant to purchase one share of common stock at an exercise price of $0.30 per share. Proceeds to the Company from the sale of the Units in the offering were $15,000. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

 

On April 29, 2016, the Company sold to a single accredited investor 166,667 units at a price of $0.15 per Unit, with each Unit consisting of one share of our common stock and a three (3) year warrant to purchase one share of common stock at an exercise price of $0.30 per share. Proceeds to the Company from the sale of the Units in the offering were $25,000. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

 

On April 14, 2016, the Company sold to a single accredited investor 166,667 units at a price of $0.15 per Unit, with each Unit consisting of one share of our common stock and a three (3) year warrant to purchase one share of common stock at an exercise price of $0.30 per share. Proceeds to the Company from the sale of the Units in the offering were $25,000. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

 

On April 12, 2016, the Company sold to a single accredited investor 83,334 units at a price of $0.15 per Unit, with each Unit consisting of one share of our common stock and a three (3) year warrant to purchase one share of common stock at an exercise price of $0.30 per share. Proceeds to the Company from the sale of the Units in the offering were $12,500. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

 

On April 7, 2016, the Company sold to a single accredited investor 166,667 units at a price of $0.15 per Unit, with each Unit consisting of one share of our common stock and a three (3) year warrant to purchase one share of common stock at an exercise price of $0.30 per share. Proceeds to the Company from the sale of the Units in the offering were $25,000. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

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ITEM 6. EXHIBITS.

 

Exhibit   Description
3.1   Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 10 filed with the Securities and Exchange Commission by DigiPath, Inc. on July 15, 2011)
3.2   Bylaws (incorporated by reference to Exhibit 3.2 of the Form 10 filed with the Securities and Exchange Commission by DigiPath, Inc. on July 15, 2011)
3.3   Certificate of Amendment to Articles of Incorporation dated April 4, 2014 (incorporated by reference to Exhibit 3.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by DigiPath, Inc. on April 10, 2014)
3.4   Certificate of Designations, Preferences, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock dated April 9, 2014 (incorporated by reference to Exhibit 3.2 of the Report on Form 8-K filed with the Securities and Exchange Commission by DigiPath, Inc. on April 10, 2014)
3.5   Certificate of Amendment to Articles of Incorporation dated May 22, 2015 (incorporated by reference to Exhibit 3.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by DigiPath, Inc. on May 26, 2015)
10.1   DigiPath, Inc. Amended and Restated 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by DigiPath, Inc. on June 27, 2016)
10.2   Form of Stock Option Grant Notice for grants under the Amended and Restated 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Report on Form 8-K filed with the Securities and Exchange Commission by DigiPath, Inc. on June 27, 2016)
10.3   Form of Option Agreement for grants under the Amended and Restated 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of the Report on Form 8-K filed with the Securities and Exchange Commission by DigiPath, Inc. on June 27, 2016)
10.4   Employment Agreement between DigiPath, Inc. and Joseph J. Bianco, dated as of June 21, 2016 (incorporated by reference to Exhibit 10.4 of the Report on Form 8-K filed with the Securities and Exchange Commission by DigiPath, Inc. on June 27, 2016)
10.5   Amended and Restated Employment Agreement between DigiPath, Inc. and Todd Denkin, dated as of June 21, 2016 (incorporated by reference to Exhibit 10.5 of the Report on Form 8-K filed with the Securities and Exchange Commission by DigiPath, Inc. on June 27, 2016)
31.1*   Section 302 Certification of Chief Executive Officer
31.2*   Section 302 Certification of Chief Financial Officer
32.1*   Section 906 Certification of Chief Executive Officer
32.2*   Section 906 Certification of Chief Financial Officer
101.INS*   XBRL Instance Document
101.SCH*   XBRL Schema Document
101.CAL*   XBRL Calculation Linkbase Document
101.DEF*   XBRL Definition Linkbase Document
101.LAB*   XBRL Labels Linkbase Document
101.PRE*   XBRL Presentation Linkbase Document

 

* Filed herewith.

 

28
 

 

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: August 15, 2016

 

DIGIPATH, INC.  
     
By: /s/ Joseph J. Bianco  
Name: Joseph J. Bianco  
Title: Chief Executive Officer and Director  
     
By: /s/ Todd Peterson  
Name: Todd Peterson  
Title: Chief Financial Officer and Secretary  

 

29
 

 

EX-31.1 2 ex31-1.htm

 

EXHIBIT 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Joseph J. Bianco, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2016 of DigiPath, Inc.;
     
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     
  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
     
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: August 15, 2016

 

  /s/ Joseph J. Bianco
  Joseph J. Bianco, Chief Executive Officer
  (Principal Executive Officer)

 

 
 

 

EX-31.2 3 ex31-2.htm

 

EXHIBIT 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Todd Peterson, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2016 of DigiPath, Inc.;
     
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     
  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
     
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Date: August 15, 2016

 

  /s/ Todd Peterson
  Todd Peterson, Chief Financial Officer
  (Principal Financial Officer)

 

 
 

 

EX-32.1 4 ex32-1.htm

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of DigiPath, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2016 (the “Report”) I, Joseph J. Bianco, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: August 15, 2016

 

/s/ Joseph J. Bianco  
Joseph J. Bianco, Chief Executive Officer  

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 
 

 

EX-32.2 5 ex32-2.htm

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of DigiPath, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2016 (the “Report”) I, Todd Peterson, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: August 15, 2016

 

/s/ Todd Peterson  
Todd Peterson, Chief Financial Officer  

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 
 

 

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Jun. 30, 2016
Aug. 12, 2016
Document And Entity Information    
Entity Registrant Name DigiPath,Inc.  
Entity Central Index Key 0001502966  
Document Type 10-Q  
Document Period End Date Jun. 30, 2016  
Amendment Flag false  
Current Fiscal Year End Date --09-30  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   22,071,041
Trading Symbol DIGP  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2016  
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Condensed Consolidated Balance Sheets - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Current assets:    
Cash $ 73,498 $ 481,095
Accounts receivable, net 103,179 6,146
Inventory 192,561
Prepaid expenses 34,323 60,447
Deposits 39,850 44,949
Total current assets 250,850 785,198
Available-for-sale securities 13,640 14,000
Investment in DigiPath, Corp.
Fixed assets, net 1,198,369 1,373,691
Total Assets 1,462,859 2,172,889
Current liabilities:    
Accounts payable 105,862 62,383
Accrued expenses 21,671
Deferred revenues 73,121
Total current liabilities 105,862 157,175
Total Liabilities 105,862 157,175
Stockholders’ Equity:    
Series A convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; 3,621,442 and 4,351,442 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively 3,621 4,351
Common stock, $0.001 par value, 90,000,000 shares authorized; 20,986,041 and 13,762,705 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively 20,986 13,763
Additional paid-in capital 11,376,328 10,224,551
Accumulated other comprehensive loss (36,360) (36,000)
Accumulated deficit (10,007,578) (7,847,418)
Total Digipath, Inc. Stockholders' Equity 1,356,997 2,359,247
Noncontrolling interest (343,533)
Total Stockholders’ Equity 1,356,997 2,015,714
Total Liabilities and Stockholders’ Equity $ 1,462,859 $ 2,172,889
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Jun. 30, 2016
Sep. 30, 2015
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Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 3,621,442 4,351,442
Preferred stock, shares outstanding 3,621,442 4,351,442
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 90,000,000 90,000,000
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3 Months Ended 9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Income Statement [Abstract]        
Revenues $ 264,178 $ 6,915 $ 507,430 $ 317,125
Cost of sales 102,724 19,304 258,083 227,973
Gross profit 161,454 (12,389) 249,347 89,152
Operating expenses:        
General and administrative 241,221 589,522 726,684 1,719,054
Professional fees 1,004,225 170,940 1,414,913 1,554,230
Bad debts expense (recoveries) (30,646) 272,375 5,799
Depreciation and amortization 61,162 10,774 183,392 16,134
Total operating expenses 1,275,962 771,236 2,597,364 3,295,217
Operating loss (1,114,508) (783,625) (2,348,017) (3,206,065)
Other income (expense):        
Other income 16,000 12,000 46,000 24,000
Interest income 2,500 95 7,500 295
Interest expense (916)
Gain on early extinguishment of debt 12,133
Equity in losses of unconsolidated entity (992,682)
Total other income (expense) 18,500 12,095 (927,049) 23,379
Net loss $ (1,096,008) $ (771,530) $ (3,275,066) $ (3,182,686)
Weighted average number of common shares outstanding - basic and fully diluted 20,342,817 10,984,239 17,225,893 9,015,005
Net loss per share - basic and fully diluted $ (0.05) $ (0.07) $ (0.19) $ (0.35)
Net loss attributable to DigiPath, Inc. $ (1,096,008) $ (771,530) $ (3,275,066) $ (3,182,686)
Available-for-sale investments:        
Change in net unrealized loss (net of tax effect) 5,760 (72,000) (360) (30,000)
Comprehensive loss $ (1,090,248) $ (843,530) $ (3,275,426) $ (3,212,686)
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9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Cash flows from operating activities    
Net loss $ (3,275,066) $ (3,182,686)
Adjustments to reconcile net loss to net cash used in operating activities:    
Bad debts 272,375 5,799
Depreciation and amortization expense 183,392 16,135
Impairment of development costs 28,336
Stock issued for services 88,720 868,603
Options and warrants granted for services 1,018,491
Gain on early extinguishment of debt (12,133)
Equity in losses of unconsolidated entity 992,682
Decrease (increase) in assets:    
Accounts receivable (106,283) 32,256
Inventory 79,116
Prepaid expenses (11,056) 32,786
Deposits (675) (310,745)
Increase (decrease) in liabilities:    
Accounts payable 76,862 (48,133)
Accrued expenses (21,671) 8,292
Deferred revenues (4,167) 135,785
Net cash used in operating activities (798,529) (2,334,456)
Cash flows from investing activities    
Cash disposed in divestiture of unconsolidated entity (57,876)
Investment in available-for-sale securities (50,000)
Purchase of fixed assets (11,192) (1,439,691)
Net cash used in investing activities (69,068) (1,489,691)
Cash flows from financing activities    
Proceeds from exercised options 9,506
Proceeds from sale of common stock 460,000
Net cash provided by financing activities 460,000 9,506
Net decrease in cash (407,597) (3,814,641)
Cash - beginning 481,095 5,102,620
Cash - ending 73,498 1,287,979
Supplemental disclosures:    
Interest paid 916
Income taxes paid
Non-cash investing and financing activities:    
Value of preferred stock converted to common stock $ 730,000 $ 1,223,989
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Organization, Basis of Presentation and Significant Accounting Policies
9 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Basis of Presentation and Significant Accounting Policies

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”) supports the cannabis industry’s best practices for reliable testing, cannabis education and training, and brings unbiased cannabis news coverage to the cannabis industry. Our business units are described below.

 

  DigiPath Labs, Inc. plans to set the industry standard for testing all forms of cannabis-based products using FDA-compliant laboratory equipment and processes to report product safety and efficacy. In May of 2015, we opened our first testing lab in Nevada and have plans to open labs in other legal states. Our customers were not fully operational when we opened our lab. As a result, we had minimal revenues for the first four months of operations and our customers have subsequently been steadily opening their businesses.
     
  TNM News Corp. provides a balanced and unbiased approach to cannabis news with a news/talk radio show and national marijuana news website focusing on the political, economic, medicinal, scientific, and cultural dimensions of the rapidly evolving—and profoundly controversial—medicinal and recreational marijuana industry.
     
  DigiPath Corp. develops digital pathology systems to create, store, manage, analyze and correlate data collected through virtual microscopy for plant and cell based industries. We divested two-thirds of this entity on October 1, 2015, and now own a minority interest of approximately 33.34%.

 

Stock Split

 

All share and per share amounts herein have been given retroactive effect to the 1-for-10 reverse stock split of the Company’s common stock effected May 27, 2015 (See Note 10).

 

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 generally accepted accounting principles in the United States (“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, 2015. 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 June 30, 2016:

 

    State of    
Name of Entity(1)   Incorporation   Relationship
DigiPath, Inc.(2)   Nevada   Parent
DigiPath Labs, Inc.   Nevada   Subsidiary
TNM News, Inc.   Nevada   Subsidiary
GroSciences, Inc.(3)   Colorado   Subsidiary

 

(1)All entities are in the form of a corporation.

 

(2)Holding company, which owns each of the wholly-owned subsidiaries. As of June 30, 2016, all subsidiaries shown above were wholly-owned by DigiPath, Inc., the parent company.

 

(3)Entity formed for prospective purposes, but has not incurred any income or expenses to date.

 

The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company and subsidiaries will be collectively referred to herein as the “Company”, “DigiPath” or “DIGP”. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its customers are within the United States.

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.

 

Equity Method

 

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in losses of unconsolidated entity” in the Consolidated Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in DigiPath Corp.” in the Company’s Consolidated Balance Sheets.

 

U.S. GAAP considers a change in reporting entity to include “changing specific subsidiaries that make up the group of entities for which consolidated financial statements are presented.” Circumstances may arise where a parent’s controlling financial interest (e.g., generally an ownership interest in excess of 50 percent of the outstanding voting stock) is reduced to a noncontrolling investment that still enables it to exercise significant influence over the operating and financial policies of the investee. A change that results from changed facts and circumstances (such as a partial sale of a subsidiary), where there was only one acceptable method of accounting prior to the change in circumstances (consolidation) and only one acceptable method of accounting after the change (equity method accounting), is not a change in reporting entity and is not be accounted for retrospectively. Accordingly, a change from a controlling interest to a noncontrolling investment accounted for under the equity method is accounted for prospectively from the date of change in control. When the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the Investee company or has committed additional funding. When the Investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings, financial position or cash flows.

 

Segment Reporting

 

Under FASB ASC 280-10-50, the Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

 

Fair Value of Financial Instruments

 

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

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery of product has met the criteria established in the arrangement or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. This occurs when the products or services are completed in accordance with the contracts we have with clients. In connection with our products and services arrangements, when we are paid in advance, these amounts are classified as deferred revenue and amortized over the term of the agreement. With respect to our cannabis lab testing revenues, we sell our services on a determinable fixed fee per test, or panel of tests basis, and offer a discounted price for customers that agree to enter into exclusive, long term contracts. We typically require payment prior to the delivery of results. As such, revenues are recognized upon the delivery of results, which coincide with the completion of the tests.

 

Stock-Based Compensation

 

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

 

Recent Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718) (“ASU 2016-09”). The provisions of the update amend ASC Topic 718, Compensation – Stock Compensation, and includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements, including accounting for the income tax consequences, estimates of forfeitures and classification of excess tax benefits on the statement of cash flows. For public business entities, this update is effective for fiscal years beginning after December 15, 2016, including interim periods. The Company is evaluating the impact of this ASU on the Company’s financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Balance Sheet Classification of Deferred Taxes (“ASU 2016-02”). ASU 2016-02 amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. This ASU must be adopted using a modified retrospective approach. The Company is evaluating the impact of this ASU on the Company’s financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment. The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities, and eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet. ASU No. 2016-16 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update requires separate presentation of financial assets and financial liabilities by category and form on the balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in the update are effective for fiscal years beginning after December 15, 2017, including interim periods. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated financial statements instead of separating deferred taxes into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, and early adoption is permitted. The adoption of ASU 2015-17 is not expected to have a material effect on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company will adopt ASU 2015-02 on October 1, 2016, and it is not expected to have a material impact on the Company’s consolidated financial statements and disclosures.

 

In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement—Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 is intended to reduce complexity and cost of compliance with GAAP by eliminating the concept of extraordinary items in the statement of operations. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is permitted. The Company adopted ASU 2015-01 as of October 1, 2015. The adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360:)Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (collectively “ASU 2014-08”). ASU 2014-08 changes the reporting requirements for reporting discontinued operations in Subtopic 205-20. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs:

 

  1. The component of an entity or group of components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale.
     
  2. The component of an entity or group of components of an entity is disposed of by sale.
     
  3. The component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).

 

ASU 2014-08 is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company adopted ASU 2014-08 for the fiscal year ended September 30, 2015.

 

There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.

XML 19 R7.htm IDEA: XBRL DOCUMENT v3.5.0.2
Going Concern
9 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Going Concern

Note 2 – Going Concern

 

As shown in the accompanying condensed consolidated financial statements, the Company has incurred recurring losses from operations resulting in an accumulated deficit of ($10,007,578), and as of June 30, 2016, the Company’s cash on hand may not be sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. Management believes these factors will contribute toward achieving profitability. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

The consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

XML 20 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment, Equity Method
9 Months Ended
Jun. 30, 2016
Equity Method Investments and Joint Ventures [Abstract]  
Investment, Equity Method

Note 3 – Investment, Equity Method

 

On October 1, 2015, as more fully described in Note 4 below, we divested two-thirds of DigiPath Corp. when warrant holders in DigiPath Corp. acquired one-third interest through the exercise of warrants held by Steven D. Barbee, our former Director, and the other warrant holder acquired another one-third interest through the sale of new issuances, commensurate with the cancellation of previously issued warrants. We now own a minority interest of approximately 33.34%. As a result, the comparative statement of operations for the nine months ended June 30, 2015, which included the accounts of the digital pathology business segment, on a consolidated basis, has been restated to reflect adjustments of line items for revenue and costs applicable to the digital pathology business segment and to reflect the losses of this business on the equity basis of accounting. The original investment was adjusted to fair value on October 1, 2015, resulting in a carrying value of $106,675 and an “Equity in losses of unconsolidated entity” of $992,682 was recognized during the nine months ended June 30, 2016, consisting of an impairment of $893,325 on the adjustment to from the carrying value to the fair value and $99,357 of the Company’s pro-rata share of the net loss. As of March 31, 2016, DigiPath Corp’s losses have exceeded our investment and we are no longer recognizing any loss on our investment. Our pro rata share of subsequent gains will be recognized when they have exceeded our pro rata share of unrecognized losses. The operating results of the Digital Corp. pathology business are summarized below.

 

Condensed Statements of Operations Information (Unaudited):

 

    For the Three Months Ended     For the Nine Months Ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
Revenues   $ 42,824     $ 5,293     $ 79,809     $ 299,754  
Cost of sales     27,689       5,399       45,761       214,068  
Gross profit     15,135       (106 )     34,048       85,686  
Expenses:                                
General and administrative     111,417       146,788       229,114       513,033  
Total operating expenses     111,417       146,788       229,114       513,033  
Operating loss     (96,282 )     (146,894 )     (195,066 )     (427,347 )
Other income (expense)     (2,490 )     95       (8,191 )     295  
Net loss   $ (98,772 )   $ (146,799 )   $ (203,257 )   $ (427,052 )

XML 21 R9.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions
9 Months Ended
Jun. 30, 2016
Related Party Transactions [Abstract]  
Related Party Transactions

Note 4 – Related Party Transactions

 

Appointment of Joseph J. Bianco as Chief Executive Officer

 

On June 21, 2016, the Board appointed Joseph J. Bianco, one of our directors, to serve as the Company’s Chief Executive Officer. As described further below, Todd Denkin, the Company’s Chief Executive Officer prior to such appointment, now serves as the Company’s President and Chief Operating Officer, and as the President of DigiPath’s wholly-owned subsidiaries, DigiPath Labs, Inc. and TNM News Corp.

 

In connection with his appointment as Chief Executive Officer, Mr. Bianco entered into an Employment Agreement with the Company dated June 21, 2016 for a three year term, and providing for an initial base salary of $96,000 per annum and a car allowance of $1,250 per month. Pursuant to this Employment Agreement, Mr. Bianco was awarded a stock option to purchase 4,750,000 shares of the Company’s common stock at an exercise price of $0.20 per share. The option vests immediately as to one-half of the shares, one year from the grant date as to one-quarter of the shares, and two years following the grant date as to the remaining one-quarter of the shares. The Employment Agreement also terminated the letter agreement between Mr. Bianco’s affiliate and the Company pursuant to which Mr. Bianco had provided consulting services to the Company.

 

Todd Denkin Amended and Restated Employment Agreement

 

In connection with Mr. Bianco’s appointment as the Company’s Chief Executive Officer, on June 21, 2016, the Company entered into an Amended and Restated Employment Agreement with Todd Denkin, pursuant to which Mr. Denkin continues to serve as the Company’s President, and in addition as its Chief Operating Officer, and as the President of DigiPath’s wholly-owned subsidiaries, DigiPath Labs, Inc. and TNM News Corp. In addition, the term of Mr. Denkin’s employment has been extended for a period of three years from June 21, 2016, and he will continue to be paid a base salary of $192,000 per annum, and receives a car allowance of $750 per month. Pursuant to the Amended and Restated Employment Agreement, Mr. Denkin was awarded a stock option to purchase 2,500,000 shares of the Company’s common stock at an exercise price of $0.20 per share. The option vests immediately as to one-half of the shares, one year from the grant date as to one-quarter of the shares, and two years following the grant date as to the remaining one-quarter of the shares.

 

Divestiture of Wholly-Owned Subsidiary, DigiPath Corp.

 

On October 1, 2015, DigiPath, Inc., entered into an Omnibus Agreement and Amendment (the “Agreement”) with DigiPath Corp., and our former Director, Steven D. Barbee. Pursuant to the Agreement, among other things:

 

  The exercise price of the warrant held by Mr. Barbee to purchase 3,000,000 shares of common stock of DigiPath Corp. (the “Barbee Warrant”) was reduced from $0.10 per share to $0.0333333 per share, and Mr. Barbee subsequently exercised the warrant.
     
  Mr. Barbee resigned as a director of the Company.
     
  The Consulting, Confidentiality and Proprietary Rights Agreement, dated as of May 30, 2014, between the Company and Mr. Barbee, as amended, was terminated.
     
  Indebtedness of approximately $18,201 owed by the Company to DigiPath Corp. was cancelled.
     
  DigiPath Corp. was provided with the right to require the Company to change its name so as not to include the name “DigiPath” in the event of the sale of all or substantially all of the assets or capital stock of DigiPath Corp., or a merger of DigiPath Corp. following which the Company ceases to be a shareholder of DigiPath Corp., in each case, that occurs within 12 months following the date of the Agreement.
     
  The Company, as a shareholder of DigiPath Corp, was provided with (i) rights of first-refusal and co-sale rights with respect to sales of common stock of DigiPath Corp by Barbee, and (ii) pre-emptive rights with respect to issuances of common stock by DigiPath Corp.

 

Concurrently with the execution of the Agreement, DigiPath Corp. agreed to issue 3,000,000 shares of its common stock to a third party for an aggregate purchase price of $100,000, and an affiliate of such party agreed to surrender 60,000 shares of Series A Preferred of the Company for cancellation, and terminate a previously held warrant to purchase 3,000,000 shares of common stock of DigiPath Corp. As a result of such issuance of shares of DigiPath Corp common stock, and after giving effect to the exercise of the Barbee Warrant, the Company continued to hold approximately 33.34% of the outstanding shares of common stock of DigiPath Corp. Following the execution of the Agreement, Mr. Barbee continued to serve as the President and sole director of DigiPath Corp.

XML 22 R10.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value of Financial Instruments
9 Months Ended
Jun. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Note 5 – Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2016 and September 30, 2015, respectively:

 

    Fair Value Measurements at June 30, 2016  
    Level 1     Level 2     Level 3  
Assets                        
Cash   $ 73,498     $ -     $ -  
Available-for-sale securities     13,640       -       -  
Note receivable     -       -       -  
Investment in DigiPath Corp.     -       -       -  
Total assets     87,138       -       -  
Liabilities                        
Total liabilities     -       -       -  
    $ 87,138     $ -     $ -  

 

    Fair Value Measurements at September 30, 2015  
    Level 1     Level 2     Level 3  
Assets                        
Cash   $ 481,095     $ -     $ -  
Note receivable     -       -       -  
Available-for-sale securities     14,000       -       -  
Total assets     495,095       -       -  
Liabilities                        
Total liabilities     -       -       -  
    $ 495,095     $ -     $ -  

 

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 nine months ended June 30, 2016 or the year ended September 30, 2015.

 

We recognized total impairment losses of $893,325 on our ownership interest in DigiPath Corp. during the nine months ended June 30, 2016, and impairment losses of $328,336 on our intellectual properties during the year ended September 30, 2015.

XML 23 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
Accounts Receivable
9 Months Ended
Jun. 30, 2016
Receivables [Abstract]  
Accounts Receivable

Note 6 – Accounts Receivable

 

Accounts receivable was $103,179 and $6,146 at June 30, 2016 and September 30, 2015, respectively, net of allowance for doubtful accounts of $1,750 and $36,715 at June 30, 2016 and September 30, 2015, respectively.

XML 24 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
Note Receivable
9 Months Ended
Jun. 30, 2016
Receivables [Abstract]  
Note Receivable

Note 7 – Note Receivable

 

On December 17, 2014, DigiPath, Inc. made an unsecured $250,000 loan to DigiPath Corp., a wholly-owned subsidiary at the time, bearing interest at 6% and maturing on December 17, 2015. On October 1, 2015, we amended the note to extend the maturity date to September 30, 2016. Commensurate with the change in ownership of DigiPath Corp. from 100% to approximately 33.34%, we evaluated the asset for collectability and recognized an allowance for uncollectible accounts for the full amount of the asset. The balance of the allowance for uncollectible accounts, including interest of $20,625, was $270,625 at June 30, 2016.

XML 25 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
Available-for-Sale Securities
9 Months Ended
Jun. 30, 2016
Schedule of Investments [Abstract]  
Available-for-Sale Securities

Note 8 – Available-for-Sale Securities

 

Available-for-sale securities consist of the following at June 30, 2016 and September 30, 2015:

 

    For the Nine Months Ended June 30, 2016  
          Gains in     Losses in        
          Accumulated     Accumulated        
          Other     Other     Estimated  
    Amortized     Comprehensive     Comprehensive     Fair  
    Cost     Income     Income     Value  
Common stock   $ 50,000       -     $ (36,360 )   $ 13,640  
                                 
Total available-for-sale securities   $ 50,000       -     $ (36,360 )   $ 13,640  

 

    For the Year Ended September 30, 2015  
          Gains in     Losses in        
          Accumulated     Accumulated        
          Other     Other     Estimated  
    Amortized     Comprehensive     Comprehensive     Fair  
    Cost     Income     Income     Value  
Common stock   $ 50,000       -     $ (36,000 )   $ 14,000  
                                 
Total available-for-sale securities   $ 50,000       -     $ (36,000 )   $ 14,000  

 

Common stock consisted of a purchase of 400,000 shares of common stock acquired in March of 2015, in the amount of $50,000 in Blue Line Protection Group, Inc., a Nevada corporation.

XML 26 R14.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fixed Assets
9 Months Ended
Jun. 30, 2016
Property, Plant and Equipment [Abstract]  
Fixed Assets

Note 9 – Fixed Assets

 

Fixed assets consist of the following at June 30, 2016 and September 30, 2015:

 

    June 30, 2016     September 30, 2015  
Software   $ 121,617     $ 131,636  
Office equipment     36,080       35,467  
Furniture and fixtures     2,357       14,607  
Lab equipment     809,056       835,006  
Leasehold improvements     487,066       487,066  
      1,456,176       1,503,782  
Less: accumulated depreciation     (257,807 )     (130,091 )
Total   $ 1,198,369     $ 1,373,691  

 

As a result of the deconsolidation of DigiPath Corp. on October 1, 2015, we were deemed to have disposed of furniture and fixtures and software with a net book value of $3,122, consisting of a historical cost basis of $58,798 and accumulated depreciation and amortization of $55,676. No gain or loss was recognized on the disposal.

 

Depreciation and amortization expense totaled $183,392 and $16,134 for the nine months ended June 30, 2016 and 2015, respectively.

XML 27 R15.htm IDEA: XBRL DOCUMENT v3.5.0.2
Changes in Stockholders' Equity
9 Months Ended
Jun. 30, 2016
Equity [Abstract]  
Changes in Stockholders' Equity

Note 10 - Changes in Stockholders’ Equity

 

Reverse Stock Split

 

Effective May 27, 2015, the Company effected the 1 for 10 Reverse Stock Split. No fractional shares were issued, and no cash or other consideration was paid in connection with the Reverse Stock Split. Instead, the Company issued one whole share of the post-Reverse Stock Split common stock to any stockholder who otherwise would have received a fractional share as a result of the Reverse Stock Split. The Company was authorized to issue 900,000,000 shares of common stock prior to the Reverse Stock Split. As a result of the Reverse Stock Split, the Company’s authorized shares decreased ratably to 90,000,000 shares of common stock. The Reverse Stock Split did not have any effect on the stated par value of the common stock, or the Company’s authorized preferred stock. Unless otherwise stated, all share and per share information in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the Reverse Stock Split.

 

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”). The Board of Directors is authorized to determine any number of series into which shares of preferred stock may be divided and to determine the rights, preferences, privileges and restrictions granted to any series of the preferred stock. Effective as of April 4, 2014, the designations, rights and preferences of the preferred shares changed to blank check preferred. As of June 30, 2016, there were 3,621,442 shares of Series A Preferred issued and outstanding. Shares of Series A Preferred are convertible into common stock at a fixed conversion rate of $0.20 per share.

 

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 3,520,442 shares of Series A Preferred outstanding at June 30, 2016 are convertible into 17,602,210 shares of the common stock of the Company. No holder is permitted to convert its shares of Series A Preferred if such conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding common stock of the Company immediately after such conversion, unless waived by such holder by providing at least sixty-five days’ notice.

 

Preferred Stock Conversions

 

On June 13, 2016, a shareholder converted 100,000 shares of Series A Preferred into 500,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On April 18, 2016, a shareholder converted 100,000 shares of Series A Preferred into 500,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On April 1, 2016, a shareholder converted 150,000 shares of Series A Preferred into 750,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On February 26, 2016, a shareholder converted 100,000 shares of Series A Preferred into 500,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On October 29, 2015, a shareholder converted 100,000 shares of Series A Preferred into 500,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On October 8, 2015, a shareholder converted 120,000 shares of Series A Preferred into 600,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

Preferred Stock Cancellation

 

On October 1, 2015, a shareholder cancelled 60,000 shares of Series A Preferred as part of the divestiture of DigiPath Corp.

 

Common Stock

 

Common stock consists of $0.001 par value, 90,000,000 shares authorized, of which 20,986,041 shares were issued and outstanding as of June 30, 2016.

 

Common Stock Sales

 

On May 2, 2016, the Company sold 100,000 units, consisting of 100,000 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 29, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 14, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 12, 2016, the Company sold 83,334 units, consisting of 83,334 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $12,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 7, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On March 15, 2016, the Company sold 1,666,667 units, consisting of 1,666,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $250,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On February 17, 2016, the Company sold 83,333 units, consisting of 83,333 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $12,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 19, 2016, the Company sold 333,334 units, consisting of 333,334 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On December 21, 2015, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On November 23, 2015, the Company sold 100,000 units, consisting of 100,000 shares of its common stock and an equal number of warrants, exercisable at $0.40 per share over a thirty six month period, in exchange for total proceeds of $20,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Common Stock Issued for Services

 

On February 1, 2016, a total of 300,000 shares of common stock were awarded to three consultants that were engaged to assist with acquisition activities over for a three month period. The aggregate fair value of the common stock was $45,720 based on the closing price of the Company’s common stock on the date of grant, and is being expensed over the three month requisite service period, resulting in $30,480 of stock based compensation during the period.

 

On January 1, 2016, the Company issued 40,000 shares of restricted common stock for investor relations services provided. The total fair value of the common stock was $8,000 based on the closing price of the Company’s common stock on the date of grant and was expensed in full.

 

On January 1, 2016, an affiliate of Mr. Bianco, a director of the Company, became entitled to receive 500,000 shares of common stock for consulting services to be performed during 2016, subject to a ratable “claw back” provision the event of an early termination of the consulting agreement. The total fair value of the common stock was $70,000 based on the closing price of the Company’s common stock on the date of grant, and is being expensed over the twelve month requisite service period, resulting in $17,500 of stock based compensation during the period.

 

Amortization of Stock Options

 

A total of $779,168 of stock-based compensation expense was recognized from the amortization of options over their vesting period during the nine months ended June 30, 2016.

XML 28 R16.htm IDEA: XBRL DOCUMENT v3.5.0.2
Common Stock Options
9 Months Ended
Jun. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Common Stock Options

Note 11 – Common Stock Options

 

Stock Incentive Plan

 

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

 

Options Granted

 

On June 21, 2016, the Company granted 4,750,000 common stock options as compensation for services to our CEO, Mr. Bianco. The options are exercisable over a ten year period at an exercise price of $0.20 per share, and 50% vest immediately, with 25% vesting each year thereafter. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 230% and a call option value of $0.1986, was $943,193.

 

On June 21, 2016, the Company granted 2,500,000 common stock options as compensation for services to our President and COO, Mr. Denkin. The options are exercisable over a ten year period at an exercise price of $0.20 per share, and 50% vest immediately, with 25% vesting each year thereafter. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 230% and a call option value of $0.1986, was $496,417.

 

On April 7, 2016, the Company granted a total of 130,000 fully vested common stock options as compensation for services to five employees. The options are exercisable over a ten year period at an exercise price of $0.22 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 238% and a call option value of $0.2183, was $28,382.

 

On November 20, 2015, the Company granted 500,000 fully vested common stock options as compensation for services to a consultant. The options are exercisable over a three year period at an exercise price of $0.181 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 234% and a call option value of $0.1734, was $86,708.

 

Options Expired

 

No options expired during the nine months ended June 30, 2016.

 

Options Exercised

 

No options were exercised during the nine months ended June 30, 2016.

XML 29 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
Common Stock Warrants
9 Months Ended
Jun. 30, 2016
Equity [Abstract]  
Common Stock Warrants

Note 12 – Common Stock Warrants

 

Warrants Granted

 

On June 6, 2016, the Company granted 659,800 fully vested common stock warrants as compensation for services to a consulting firm. The options are exercisable over a five year period at an exercise price of $0.1901 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 231% and a call option value of $0.1883, was $124,233, and was expensed in full on June 6, 2016.

 

On May 2, 2016, the Company sold 100,000 units, consisting of 100,000 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. 

 

On April 29, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 14, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 12, 2016, the Company sold 83,334 units, consisting of 83,334 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $12,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 7, 2016, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On March 15, 2016, the Company sold 1,666,667 units, consisting of 1,666,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $250,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On February 17, 2016, the Company sold 83,333 units, consisting of 83,333 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $12,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 19, 2016, the Company sold 333,334 units, consisting of 333,334 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On December 21, 2015, the Company sold 166,667 units, consisting of 166,667 shares of its common stock and an equal number of warrants, exercisable at $0.30 per share over a thirty six month period, in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On November 23, 2015, the Company sold 100,000 units, consisting of 100,000 shares of its common stock and an equal number of warrants, exercisable at $0.40 per share over a thirty six month period, in exchange for total proceeds of $20,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Warrants Expired

 

No warrants expired during the nine months ended June 30, 2016.

 

Warrants Exercised

 

No warrants were exercised during the nine months ended June 30, 2016.

XML 30 R18.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Income
9 Months Ended
Jun. 30, 2016
Other Income and Expenses [Abstract]  
Other Income

Note 13 – Other Income

 

Other income consists of rental income of $30,000 and $24,000 for the nine months ended June 30, 2016 and 2015, respectively, for office space subleased to GB Sciences, Inc. at a monthly fee of $6,000. The tenant vacated the premises on February 1, 2016. In addition, we recognized $16,000 and $-0- of other income for the nine months ended June 30, 2016 and 2015, respectively, related to restitution payments received from a former employee.

XML 31 R19.htm IDEA: XBRL DOCUMENT v3.5.0.2
Gain on Debt Settlements
9 Months Ended
Jun. 30, 2016
Debt Disclosure [Abstract]  
Gain on Debt Settlements

Note 14 – Gain on Debt Settlements

 

On October 1, 2015, as part of the divestiture of DigiPath Corp., a total of $18,201 of intercompany debt owed from DigiPath, Inc. to DigiPath Corp. was forgiven by DigiPath Corp. As a related party, one third of the debt was eliminated and the remaining $12,133 was recognized as a gain on early extinguishment of debt. The Company evaluated the classification of this gain and determined that the gain does not meet the criteria for classification as an extraordinary item. As a result, the gain has been included as “Gain on early extinguishment of debt: under “Other income (expense)” within income from continuing operations in the accompanying Consolidated Statement of Operations for the nine months ended June 30, 2016.

XML 32 R20.htm IDEA: XBRL DOCUMENT v3.5.0.2
Income Tax
9 Months Ended
Jun. 30, 2016
Income Tax Disclosure [Abstract]  
Income Tax

Note 15 - Income Tax

 

The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.

 

For the nine months ended June 30, 2016 and the year ended September 30, 2015, the Company incurred a net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At June 30, 2016, the Company had approximately $6,697,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2031.

 

Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at June 30, 2016 and September 30, 2015, respectively.

 

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

XML 33 R21.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events
9 Months Ended
Jun. 30, 2016
Subsequent Events [Abstract]  
Subsequent Events

Note 16 – Subsequent Events

 

Preferred Stock Conversions

 

On July 5, 2016, a shareholder converted 101,000 shares of Series A Preferred into 505,000 shares of common stock. The stock was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

Common Stock Issued for Services

 

On July 1, 2016, a total of 580,000 shares of common stock were issued to six consultants that were engaged to assist the Company with acquisition activities over for a three month period. The aggregate fair value of the common stock was $104,980 based on the closing price of the Company’s common stock on the date of grant, and is being expensed over the three month requisite service period.

XML 34 R22.htm IDEA: XBRL DOCUMENT v3.5.0.2
Organization, Basis of Presentation and Significant Accounting Policies (Policies)
9 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization

Organization

 

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, and brings unbiased cannabis news coverage to the cannabis industry. Our business units are described below.

 

  DigiPath Labs, Inc. plans to set the industry standard for testing all forms of cannabis-based products using FDA-compliant laboratory equipment and processes to report product safety and efficacy. In May of 2015, we opened our first testing lab in Nevada and have plans to open labs in other legal states. Our customers were not fully operational when we opened our lab. As a result, we had minimal revenues for the first four months of operations and our customers have subsequently been steadily opening their businesses.
     
  TNM News Corp. provides a balanced and unbiased approach to cannabis news with a news/talk radio show and national marijuana news website focusing on the political, economic, medicinal, scientific, and cultural dimensions of the rapidly evolving—and profoundly controversial—medicinal and recreational marijuana industry.
     
  DigiPath Corp. develops digital pathology systems to create, store, manage, analyze and correlate data collected through virtual microscopy for plant and cell based industries. We divested two-thirds of this entity on October 1, 2015, and now own a minority interest of approximately 33.34%.

Stock Split

Stock Split

 

All share and per share amounts herein have been given retroactive effect to the 1-for-10 reverse stock split of the Company’s common stock effected May 27, 2015 (See Note 10).

Basis of Presentation

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 generally accepted accounting principles in the United States (“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, 2015. 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

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 June 30, 2016:

 

    State of    
Name of Entity(1)   Incorporation   Relationship
DigiPath, Inc.(2)   Nevada   Parent
DigiPath Labs, Inc.   Nevada   Subsidiary
TNM News, Inc.   Nevada   Subsidiary
GroSciences, Inc.(3)   Colorado   Subsidiary

 

(1)All entities are in the form of a corporation.

 

(2)Holding company, which owns each of the wholly-owned subsidiaries. As of June 30, 2016, all subsidiaries shown above were wholly-owned by DigiPath, Inc., the parent company.

 

(3)Entity formed for prospective purposes, but has not incurred any income or expenses to date.

 

The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company and subsidiaries will be collectively referred to herein as the “Company”, “DigiPath” or “DIGP”. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its customers are within the United States.

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.

Equity Method

Equity Method

 

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in losses of unconsolidated entity” in the Consolidated Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in DigiPath Corp.” in the Company’s Consolidated Balance Sheets.

 

U.S. GAAP considers a change in reporting entity to include “changing specific subsidiaries that make up the group of entities for which consolidated financial statements are presented.” Circumstances may arise where a parent’s controlling financial interest (e.g., generally an ownership interest in excess of 50 percent of the outstanding voting stock) is reduced to a noncontrolling investment that still enables it to exercise significant influence over the operating and financial policies of the investee. A change that results from changed facts and circumstances (such as a partial sale of a subsidiary), where there was only one acceptable method of accounting prior to the change in circumstances (consolidation) and only one acceptable method of accounting after the change (equity method accounting), is not a change in reporting entity and is not be accounted for retrospectively. Accordingly, a change from a controlling interest to a noncontrolling investment accounted for under the equity method is accounted for prospectively from the date of change in control. When the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the Investee company or has committed additional funding. When the Investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Reclassifications

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings, financial position or cash flows.

Segment Reporting

Segment Reporting

 

Under FASB ASC 280-10-50, the Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

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

Revenue Recognition

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery of product has met the criteria established in the arrangement or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. This occurs when the products or services are completed in accordance with the contracts we have with clients. In connection with our products and services arrangements, when we are paid in advance, these amounts are classified as deferred revenue and amortized over the term of the agreement. With respect to our cannabis lab testing revenues, we sell our services on a determinable fixed fee per test, or panel of tests basis, and offer a discounted price for customers that agree to enter into exclusive, long term contracts. We typically require payment prior to the delivery of results. As such, revenues are recognized upon the delivery of results, which coincide with the completion of the tests.

Stock-Based Compensation

Stock-Based Compensation

 

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718) (“ASU 2016-09”). The provisions of the update amend ASC Topic 718, Compensation – Stock Compensation, and includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements, including accounting for the income tax consequences, estimates of forfeitures and classification of excess tax benefits on the statement of cash flows. For public business entities, this update is effective for fiscal years beginning after December 15, 2016, including interim periods. The Company is evaluating the impact of this ASU on the Company’s financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Balance Sheet Classification of Deferred Taxes (“ASU 2016-02”). ASU 2016-02 amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. This ASU must be adopted using a modified retrospective approach. The Company is evaluating the impact of this ASU on the Company’s financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment. The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities, and eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet. ASU No. 2016-16 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update requires separate presentation of financial assets and financial liabilities by category and form on the balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in the update are effective for fiscal years beginning after December 15, 2017, including interim periods. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated financial statements instead of separating deferred taxes into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, and early adoption is permitted. The adoption of ASU 2015-17 is not expected to have a material effect on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company will adopt ASU 2015-02 on October 1, 2016, and it is not expected to have a material impact on the Company’s consolidated financial statements and disclosures.

 

In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement—Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 is intended to reduce complexity and cost of compliance with GAAP by eliminating the concept of extraordinary items in the statement of operations. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is permitted. The Company adopted ASU 2015-01 as of October 1, 2015. The adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360:)Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (collectively “ASU 2014-08”). ASU 2014-08 changes the reporting requirements for reporting discontinued operations in Subtopic 205-20. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs:

 

  1. The component of an entity or group of components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale.
     
  2. The component of an entity or group of components of an entity is disposed of by sale.
     
  3. The component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).

 

ASU 2014-08 is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company adopted ASU 2014-08 for the fiscal year ended September 30, 2015.

 

There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.

XML 35 R23.htm IDEA: XBRL DOCUMENT v3.5.0.2
Organization, Basis of Presentation and Significant Accounting Policies (Tables)
9 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Entities Under Common Control and Ownership

The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at June 30, 2016:

 

    State of    
Name of Entity(1)   Incorporation   Relationship
DigiPath, Inc.(2)   Nevada   Parent
DigiPath Labs, Inc.   Nevada   Subsidiary
TNM News, Inc.   Nevada   Subsidiary
GroSciences, Inc.(3)   Colorado   Subsidiary

 

(1)All entities are in the form of a corporation.

 

(2)Holding company, which owns each of the wholly-owned subsidiaries. As of June 30, 2016, all subsidiaries shown above were wholly-owned by DigiPath, Inc., the parent company.

 

(3)Entity formed for prospective purposes, but has not incurred any income or expenses to date.

XML 36 R24.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment, Equity Method (Tables)
9 Months Ended
Jun. 30, 2016
Equity Method Investments and Joint Ventures [Abstract]  
Schedule of Statements of Operations of Unconsolidated Entity

Condensed Statements of Operations Information (Unaudited):

 

    For the Three Months Ended     For the Nine Months Ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
Revenues   $ 42,824     $ 5,293     $ 79,809     $ 299,754  
Cost of sales     27,689       5,399       45,761       214,068  
Gross profit     15,135       (106 )     34,048       85,686  
Expenses:                                
General and administrative     111,417       146,788       229,114       513,033  
Total operating expenses     111,417       146,788       229,114       513,033  
Operating loss     (96,282 )     (146,894 )     (195,066 )     (427,347 )
Other income (expense)     (2,490 )     95       (8,191 )     295  
Net loss   $ (98,772 )   $ (146,799 )   $ (203,257 )   $ (427,052 )

XML 37 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value of Financial Instruments (Tables)
9 Months Ended
Jun. 30, 2016
Fair Value Disclosures [Abstract]  
Summary of Financial Instruments at Fair Value on Recurring Basis

The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2016 and September 30, 2015, respectively:

 

    Fair Value Measurements at June 30, 2016  
    Level 1     Level 2     Level 3  
Assets                        
Cash   $ 73,498     $ -     $ -  
Available-for-sale securities     13,640       -       -  
Note receivable     -       -       -  
Investment in DigiPath Corp.     -       -       -  
Total assets     87,138       -       -  
Liabilities                        
Total liabilities     -       -       -  
    $ 87,138     $ -     $ -  

 

    Fair Value Measurements at September 30, 2015  
    Level 1     Level 2     Level 3  
Assets                        
Cash   $ 481,095     $ -     $ -  
Note receivable     -       -       -  
Available-for-sale securities     14,000       -       -  
Total assets     495,095       -       -  
Liabilities                        
Total liabilities     -       -       -  
    $ 495,095     $ -     $ -  

XML 38 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
Available-for-Sale Securities (Tables)
9 Months Ended
Jun. 30, 2016
Schedule of Investments [Abstract]  
Schedule of Available-for-Sale Securities

Available-for-sale securities consist of the following at June 30, 2016 and September 30, 2015:

 

    For the Nine Months Ended June 30, 2016  
          Gains in     Losses in        
          Accumulated     Accumulated        
          Other     Other     Estimated  
    Amortized     Comprehensive     Comprehensive     Fair  
    Cost     Income     Income     Value  
Common stock   $ 50,000       -     $ (36,360 )   $ 13,640  
                                 
Total available-for-sale securities   $ 50,000       -     $ (36,360 )   $ 13,640  

 

    For the Year Ended September 30, 2015  
          Gains in     Losses in        
          Accumulated     Accumulated        
          Other     Other     Estimated  
    Amortized     Comprehensive     Comprehensive     Fair  
    Cost     Income     Income     Value  
Common stock   $ 50,000       -     $ (36,000 )   $ 14,000  
                                 
Total available-for-sale securities   $ 50,000       -     $ (36,000 )   $ 14,000  

XML 39 R27.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fixed Assets (Tables)
9 Months Ended
Jun. 30, 2016
Property, Plant and Equipment [Abstract]  
Schedule of Fixed Assets

Fixed assets consist of the following at June 30, 2016 and September 30, 2015:

 

    June 30, 2016     September 30, 2015  
Software   $ 121,617     $ 131,636  
Office equipment     36,080       35,467  
Furniture and fixtures     2,357       14,607  
Lab equipment     809,056       835,006  
Leasehold improvements     487,066       487,066  
      1,456,176       1,503,782  
Less: accumulated depreciation     (257,807 )     (130,091 )
Total   $ 1,198,369     $ 1,373,691  

XML 40 R28.htm IDEA: XBRL DOCUMENT v3.5.0.2
Organization, Basis of Presentation and Significant Accounting Policies (Details Narrative)
May 27, 2015
Jun. 30, 2016
Percentage in non-controlling interest   33.34%
Reverse stock split description 1-for-10 reverse stock split  
Percentage of equity method interest   100.00%
Minimum [Member]    
Percentage of equity method interest   20.00%
Maximum [Member]    
Percentage of equity method interest   50.00%
XML 41 R29.htm IDEA: XBRL DOCUMENT v3.5.0.2
Organization, Basis of Presentation and Significant Accounting Policies - Schedule of Entities Under Common Control and Ownership (Details) - Entities Under Common Control and Ownership [Member]
9 Months Ended
Jun. 30, 2016
Name of Entity DigiPath, Inc. [1]
State of Incorporation Nevada
Relationship Parent
Name of Entity DigiPath Labs, Inc.
State of Incorporation Nevada
Relationship Subsidiary
Name of Entity TNM News, Inc.
State of Incorporation Nevada
Relationship Subsidiary
Name of Entity GroSciences, Inc. [2]
State of Incorporation Colorado
Relationship Subsidiary
[1] Holding company, which owns each of the wholly-owned subsidiaries. As of March 31, 2016, all subsidiaries shown above were wholly-owned by DigiPath, Inc., the parent company
[2] Entity formed for prospective purposes, but has not incurred any income or expenses to date.
XML 42 R30.htm IDEA: XBRL DOCUMENT v3.5.0.2
Going Concern (Details Narrative) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Accumulated deficit $ (10,007,578) $ (7,847,418)
XML 43 R31.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment, Equity Method (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Oct. 02, 2015
Equity Method Investments and Joint Ventures [Abstract]          
Percentage in non-controlling interest 33.34%   33.34%    
Equity method investment fair value         $ 106,675
Equity in losses of unconsolidated entity $ 992,682  
Impairment adjustment form the carrying value to fair value     893,325    
Pro-rate share of quarterly loss     $ 99,357    
XML 44 R32.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment, Equity Method - Schedule of Statements of Operations of Unconsolidated Entity (Details) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Equity Method Investments and Joint Ventures [Abstract]        
Revenues $ 42,824 $ 5,293 $ 79,809 $ 299,754
Cost of sales 27,689 5,399 45,761 214,068
Gross profit 15,135 (106) 34,048 85,686
General and administrative 111,417 146,788 229,114 513,033
Total operating expenses 111,417 146,788 229,114 513,033
Net operating loss (96,282) (146,894) (195,066) (427,347)
Other income (expense) (2,490) 95 (8,191) 295
Net loss $ (98,772) $ (146,799) $ (203,257) $ (427,052)
XML 45 R33.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions (Details Narrative) - USD ($)
9 Months Ended
Jun. 21, 2016
Oct. 02, 2015
Jun. 30, 2016
May 02, 2016
Apr. 29, 2016
Apr. 14, 2016
Apr. 12, 2016
Apr. 07, 2016
Mar. 15, 2016
Feb. 17, 2016
Jan. 19, 2016
Dec. 21, 2015
Nov. 23, 2015
Warrants exercise price per shares       $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.40
Chief Executive Officer [Member] | Employment Agreement [Member]                          
Number of common stock shares issued 4,750,000                        
Initial base salary per annum $ 96,000                        
Car allowance per month $ 1,250                        
Common stock exercise price $ 0.20                        
Mr. Denkin [Member] | Restated Employment Agreement [Member]                          
Number of common stock shares issued 2,500,000                        
Initial base salary per annum $ 192,000                        
Car allowance per month $ 750                        
Common stock exercise price $ 0.20                        
DigiPath Corp [Member]                          
Number of warrants to purchase of common stock shares     3,000,000                    
Indebtedness owed   $ 18,201                      
Number of common stock shares issued     3,000,000                    
Number of common stock share value     $ 100,000                    
Percentage of outstanding shares of common stock     33.34%                    
DigiPath Corp [Member] | Series A Preferred Stock [Member]                          
Number of preferred stock shares and surrender and cancellation during the period     60,000                    
DigiPath Corp [Member] | Steven D. Barbee [Member]                          
Number of warrants to purchase of common stock shares   3,000,000                      
DigiPath Corp [Member] | Steven D. Barbee [Member] | Maximum [Member]                          
Warrants exercise price per shares   $ 0.10                      
DigiPath Corp [Member] | Steven D. Barbee [Member] | Minimum [Member]                          
Warrants exercise price per shares   $ 0.0333333                      
XML 46 R34.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value of Financial Instruments (Details Narrative) - USD ($)
9 Months Ended 12 Months Ended
Jun. 30, 2016
Sep. 30, 2015
Fair Value Disclosures [Abstract]    
Loss on impairment of ownership interests in Investee company $ 893,325  
Impairment losses on intellectual properties   $ 328,336
XML 47 R35.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value of Financial Instruments - Summary of Financial Instruments at Fair Value on Recurring Basis (Details) - USD ($)
Jun. 30, 2016
Oct. 02, 2015
Sep. 30, 2015
Investment in DigiPath Corp.   $ 106,675  
Level 1 [Member]      
Cash $ 73,498   $ 481,095
Available-for-sale securities 13,640   14,000
Note receivable    
Investment in DigiPath Corp.    
Assets 87,138   495,095
Total liabilities  
Total 87,138   495,095
Level 2 [Member]      
Cash  
Available-for-sale securities  
Note receivable    
Investment in DigiPath Corp.    
Assets  
Total liabilities  
Total  
Level 3 [Member]      
Cash  
Available-for-sale securities  
Note receivable    
Investment in DigiPath Corp.    
Assets  
Total liabilities  
Total  
XML 48 R36.htm IDEA: XBRL DOCUMENT v3.5.0.2
Accounts Receivable (Details Narrative) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Receivables [Abstract]    
Accounts receivable $ 103,179 $ 6,146
Allowance for uncollectible accounts, net $ 1,750 $ 36,715
XML 49 R37.htm IDEA: XBRL DOCUMENT v3.5.0.2
Note Receivable (Details Narrative) - USD ($)
12 Months Ended
Oct. 02, 2015
Dec. 17, 2015
Jun. 30, 2016
Dec. 17, 2014
Percentage of ownership interest     100.00%  
Percentage of change in ownership interest     33.34%  
Accrued interest     $ 20,625  
Allowance for uncollectible accounts receivable     $ 270,625  
DigiPath Corp [Member]        
Unsecured loan       $ 250,000
Unsecured loan bearing interest rate       6.00%
Unsecured loan maturity date   Dec. 17, 2015    
Unsecured loan extend maturity date Sep. 30, 2016      
XML 50 R38.htm IDEA: XBRL DOCUMENT v3.5.0.2
Available-for-Sale Securities (Details Narrative) - Blue Line Protection Group, Inc [Member]
1 Months Ended
Mar. 31, 2015
USD ($)
shares
Number of common stock shares acquire during the period | shares 400,000
Number of ommon stock share value acquired during the period | $ $ 50,000
XML 51 R39.htm IDEA: XBRL DOCUMENT v3.5.0.2
Available-for-Sale Securities - Schedule of Available-for-Sale Securities (Details) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Common stock $ 13,640 $ 14,000
Total available-for-sale securities 13,640 14,000
Amortized Cost [Member]    
Common stock 50,000 50,000
Total available-for-sale securities 50,000 50,000
Gains In Accumulated Other Comprehensive Income [Member]    
Common stock
Total available-for-sale securities
Losses In Accumulated Other Comprehensive Income [Member]    
Common stock (36,360) (36,000)
Total available-for-sale securities $ (36,360) $ (36,000)
XML 52 R40.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fixed Assets (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Depreciation and amortization expense $ 61,162 $ 10,774 $ 183,392 $ 16,134
Furniture, Fixtures And Software [Member]        
Fixed assets book value 3,122   3,122  
Fixed assets historical cost basis 58,798   58,798  
Fixed assets accumulated depreciation and amortization $ 55,676   $ 55,676  
XML 53 R41.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fixed Assets - Schedule of Fixed Assets (Details) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Property, Plant and Equipment [Abstract]    
Software $ 121,617 $ 131,636
Office equipment 36,080 35,467
Furniture and fixtures 2,357 14,607
Lab equipment 809,056 835,006
Leasehold improvements 487,066 487,066
Fixed Assets, Gross 1,456,176 1,503,782
Less: accumulated depreciation (257,807) (130,091)
Total $ 1,198,369 $ 1,373,691
XML 54 R42.htm IDEA: XBRL DOCUMENT v3.5.0.2
Changes in Stockholders' Equity (Details Narrative) - USD ($)
9 Months Ended
Oct. 01, 2016
Jun. 13, 2016
May 02, 2016
Apr. 29, 2016
Apr. 18, 2016
Apr. 14, 2016
Apr. 12, 2016
Apr. 07, 2016
Apr. 02, 2016
Mar. 15, 2016
Feb. 26, 2016
Feb. 17, 2016
Feb. 02, 2016
Jan. 19, 2016
Jan. 02, 2016
Dec. 21, 2015
Nov. 23, 2015
Oct. 29, 2015
Oct. 08, 2015
May 27, 2015
Jun. 30, 2016
Sep. 30, 2015
Reverse stock split                                       1-for-10 reverse stock split    
Common stock, shares authorized                                         90,000,000 90,000,000
Number of reverse stock split authorized shares decreased ratably shares of common stock                                       90,000,000    
Preferred stock, shares authorized                                         10,000,000 10,000,000
Preferred stock, par value                                         $ 0.001 $ 0.001
Preferred stock, shares issued                                         3,621,442 4,351,442
Preferred stock, shares outstanding                                         3,621,442 4,351,442
Percentage of equity beneficial ownership                                         100.00%  
Common stock par value                                         $ 0.001 $ 0.001
Common stock authorized                                         90,000,000 90,000,000
Common stock, shares issued                                         20,986,041 13,762,705
Common Stock, shares outstanding                                         20,986,041 13,762,705
Number of common stock purchased through issuance of warrants     100,000 166,667   166,667 83,334 166,667   1,666,667   83,333   333,334   166,667 100,000          
Warrants exercise price per share     $ 0.30 $ 0.30   $ 0.30 $ 0.30 $ 0.30   $ 0.30   $ 0.30   $ 0.30   $ 0.30 $ 0.40          
Warrants period     36 years 36 years   36 years 36 years 36 years   36 months   36 months   36 months   36 months 36 months          
Proceeds from warrants exercisable     $ 15,000 $ 25,000   $ 25,000 $ 12,500 $ 25,000   $ 250,000   $ 12,500   $ 50,000   $ 25,000 $ 20,000          
Stock-based compensation expense                                         $ 779,168  
Series A Preferred Stock [Member]                                            
Number of preferred stock shares cancellation during the period 60,000                                          
Consultants [Member]                                            
Stock issued for services                         300,000   500,000              
Stock issued for services, value                         $ 45,720   $ 70,000              
Stock-based compensation expense                         $ 30,480   $ 17,500              
Investor [Member]                                            
Stock issued for services                             40,000              
Stock issued for services, value                             $ 8,000              
Series A Convertible Preferred Stock [Member]                                            
Preferred stock, shares designated                                         6,000,000  
Series A Preferred Stock [Member]                                            
Preferred stock, shares issued                                         3,520,442  
Preferred stock, shares outstanding                                         3,520,442  
Preferred stock convertible into common stock at fixed conversion price per share                                         $ 0.20  
Preferred stock convertible into common stock shares                                         17,602,210  
Percentage of equity beneficial ownership                                         4.99%  
Series A Preferred Stock [Member] | Shareholder [Member]                                            
Stock conversion, shares converted   100,000     100,000       150,000   100,000             100,000 120,000      
Stock conversion, shares issued   500,000     500,000       750,000   500,000             500,000 600,000      
XML 55 R43.htm IDEA: XBRL DOCUMENT v3.5.0.2
Common Stock Options (Details Narrative) - USD ($)
Jun. 21, 2016
Apr. 07, 2016
Nov. 20, 2015
May 20, 2014
Jun. 21, 2012
Stock options exercisable period     3 years    
Stock option exercise price per share     $ 0.181    
Volatility rate     234.00%    
Value of call option per share     $ 0.1734    
Value of option     $ 86,708    
Consultant [Member]          
Number of shares granted fully vested common stock option     500,000    
Mr.Bianco [Member]          
Stock options exercisable period 10 years        
Stock option exercise price per share $ 0.20        
Volatility rate 230.00%        
Value of call option per share $ 0.1986        
Value of option $ 943,193        
Stock issued for services $ 4,750,000        
common stock, vest 50.00%        
common stock, vesting thereafter 25.00%        
Mr. Denkin [Member]          
Stock options exercisable period 10 years        
Stock option exercise price per share $ 0.20        
Volatility rate 230.00%        
Value of call option per share $ 0.1986        
Value of option $ 496,417        
Stock issued for services $ 2,500,000        
common stock, vest 50.00%        
common stock, vesting thereafter 25.00%        
Five Employees [Member]          
Number of shares granted fully vested common stock option   130,000      
Stock option exercise price per share   $ 0.22      
Volatility rate   238.00%      
Value of call option per share   $ 0.2183      
Value of option   $ 28,382      
2012 Stock Incentive Plan [Member]          
Number of shares issued under stock plan         11,500,000
Change in number if shares issued under stock plan       3,000,000  
XML 56 R44.htm IDEA: XBRL DOCUMENT v3.5.0.2
Common Stock Warrants (Details Narrative) - USD ($)
9 Months Ended
Jun. 06, 2016
May 02, 2016
Apr. 29, 2016
Apr. 14, 2016
Apr. 12, 2016
Apr. 07, 2016
Mar. 15, 2016
Feb. 17, 2016
Jan. 19, 2016
Dec. 21, 2015
Nov. 23, 2015
Jun. 30, 2016
Jun. 30, 2015
Number of common stock purchased through issuance of warrants   100,000 166,667 166,667 83,334 166,667 1,666,667 83,333 333,334 166,667 100,000    
Warrants exercise price per share   $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.40    
Warrants period   36 years 36 years 36 years 36 years 36 years 36 months 36 months 36 months 36 months 36 months    
Proceeds from warrants exercisable   $ 15,000 $ 25,000 $ 25,000 $ 12,500 $ 25,000 $ 250,000 $ 12,500 $ 50,000 $ 25,000 $ 20,000    
Common stock warrants issued for services                       $ 1,018,491
Consulting Firm [Member]                          
Warrants exercise price per share $ 0.1901                        
Warrants period 5 years                        
Common stock warrants issued for services $ 659,800                        
Value of call option per share $ 0.1883                        
Value of option $ 124,233                        
Warrant volatility rate 231.00%                        
XML 57 R45.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Income (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Other income $ 16,000 $ 12,000 $ 46,000 $ 24,000
GB Sciences, Inc [Member]        
Monthly rent payable     6,000  
Rent income     $ 30,000 $ 24,000
XML 58 R46.htm IDEA: XBRL DOCUMENT v3.5.0.2
Gain on Debt Settlements (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Oct. 02, 2015
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Gain on early extinguishment of debt   $ 12,133
DigiPath Corp [Member]          
Forgiveness of debt owed $ 18,201        
XML 59 R47.htm IDEA: XBRL DOCUMENT v3.5.0.2
Income Tax (Details Narrative)
9 Months Ended
Jun. 30, 2016
USD ($)
Income Tax Disclosure [Abstract]  
Net operating loss carry forwards $ 6,697,000
Operating loss expiration year 2031
XML 60 R48.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events (Details Narrative) - Subsequent Event [Member] - USD ($)
Jul. 05, 2016
Jul. 02, 2016
Six Consultant [Member]    
Common stock issued for services   580,000
Common stock issued for services, value   $ 104,980
Series A Preferred Stock [Member]    
Stock conversion, shares converted 101,000  
Stock conversion, shares issued 505,000  
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