Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect certain reported amounts and disclosures in the financial statements and accompanying notes.  While management believes current estimates are reasonable and appropriate, actual results may differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all liquid investment instruments purchased with a maturity of three months or less to be cash equivalents.  

Accounts Receivable

Accounts receivable are stated at the amount billed to the customers net of any allowance for doubtful accounts.  Accounts receivable are ordinarily due 30 days after the issuance of the invoice.  The allowance for doubtful accounts is estimated based on the Company’s historical losses, the existing economic conditions in the medical and other industries and the financial stability of its customers.  Management reviews accounts and those deemed uncollectible are applied against the allowance for doubtful accounts.   At June 30, 2012 and 2011, an allowance for doubtful accounts was not necessary.

Advertising

The Company’s policy is to expense advertising costs as incurred.  The Company has not incurred advertising costs since inception.

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DIGIPATH SOLUTIONS, LLC

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Sales

The Company primarily generates sales through the delivery of diagnostic reports to its referring physician clients. Once a physician obtains a specimen from surgery it is transported by courier to the client’s pathology laboratory. That specimen is then processed into a glass slide, which is digitized utilizing digital pathology imaging technology. The slide is diagnosed by the Company’s partner pathology group and a diagnostic report is sent back to the referring physician. The Company manages the entire process.

Property and Equipment

Property and equipment are stated at cost.  Maintenance and repair costs are charged to expense as incurred; costs of major additions and improvements are capitalized.  Depreciation is determined on a straight-line basis using estimated useful lives.  Depreciation expense totaled $43,562 and $18,346 for the year ended June 30, 2012, and the period of August 20, 2010 (inception) through June 30, 2011, respectively.  Estimated useful lives are as follows:

Income Taxes

The Company follows the provisions of the ASC 740-10-05, Accounting for Uncertainty in Income Taxes.  The Company also follows the provisions of Accounting Standards Update (“ASU”) No. 2009-06, Implementation Guidance on Accounting for Uncertain Tax Provisions by Pass-Through Entities.  The Company is a pass-through entity and is not considered a taxing entity for federal income tax purposes and thus no provision for federal income taxes has been recorded in the accompanying financial statements.  The member is taxed individually on his share of the Company’s earnings.  The Company’s net income or loss is allocated to the member in accordance with the limited liability company agreement.  The Company did not have uncertain tax positions for which ASC 740-10-05 requires that the Company recognize the financial statement benefit of a tax position only after determining the relevant tax authority would more likely than not sustain the tax position following an audit.  

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

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DIGIPATH SOLUTIONS, LLC

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

NOTE 4 – NOTES PAYABLE

Notes payable consisted of the following at June 30, 2012:

Maturities for notes payable are as follows:

NOTE 5 – CAPTIAL LEASES

The Company is the lessee of equipment under a capital lease expiring September 2015.  The asset and liability are recorded at the lower of the present value of the minimum lease payments or fair value of the asset.  The asset is depreciated over the lower of the lease term or the estimated productive life.  Amortization of the asset under the capital lease is included in depreciation and amortization expense for the year ended June 30, 2012, and the period of August 20, 2010 (inception) through June 30, 2011.

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DIGIPATH SOLUTIONS, LLC

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

NOTE 5 – CAPTIAL LEASES (Continued)

Following is a summary of the Company’s property held under capital lease:

Minimum future lease payments for the Company under the capital lease for each of the next four years and in the aggregate are:

Interest on the capital lease is 6.25 percent and is imputed based on the lower of the Company’s incremental borrowing rate at the inception of the lease or the lessor’s implicit rate of return.

NOTE 6 – CONCENTRATION

The Company concentrates its operation with primarily one customer.  The customer’s account receivable balance was $210,530 or 94 percent of total accounts receivable as of June 30, 2012 and $114,527 or 95 percent of total accounts receivable as of June 30, 2011.  The customer accounted for $983,179 or 89 percent of sales for the year ended June 30, 2012 and $523,705 or 97 percent of sales for the period of August 20, 2010 (inception) through June 30, 2011.

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DIGIPATH SOLUTIONS, LLC

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

NOTE 7 – COMMITMENT AND CONTINGENCIES

Operating Leases

The Company leases office space under a non-cancelable operating lease agreement which expires October 2012.  Future minimum rental payments under the operating lease total $7,950, due in the year ending June 30, 2013.

Rent expense included in the statements of income and member’s equity totaled $30,563 and $11,169 for the year ended June 30, 2012, and the period of August 20, 2010 (inception) through June 30, 2011, respectively.

NOTE 8 – SUBSEQUENT EVENTS

On July 12, 2012, the Company received a Letter of Intent from another entity to purchase the assets of the Company.  There can be no assurance that this transaction will close.

The Company has evaluated subsequent events through September 6, 2012 the date on which the financial statements presented herein were available to be issued for the period ended June 30, 2012.

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