Note 14 – Discontinued Operations

On April 20, 2023, the Company, and Digipath Labs entered into the Purchase Agreement with DPL NV, LLC (“Buyer”), pursuant to which Digipath Labs agreed to sell substantially all of its assets to Buyer for a cash purchase price of $2,300,000 (the “Purchase Price”) as described in Note 1 above. The Purchase Price was subject to adjustments at closing based on, among other things, the amount by which the working capital of Digipath Labs at the closing is greater or less than $150,000.

The Purchase Agreement includes a number of representations, warrantees, covenants and conditions to closing customary for this type of transaction. In addition, the closing of the transaction was subject to the approval of the Nevada Cannabis Compliance Board (the “CCB”). In the event CCB approval was not obtained by June 30, 2024, or any other condition to closing had not been satisfied by such date, either party could terminate the Purchase Agreement.

Pursuant to the Purchase Agreement, the Buyer deposited $230,000 into an escrow account upon the execution of the Purchase Agreement, and such amount will continue to be held in escrow for a 12-month period following closing to satisfy any indemnification claims Buyer may have against Digipath Labs.

In connection with the transactions contemplated by the Purchase Agreement, Digipath, Digipath Labs and Buyer entered into a Management Services Agreement (the “Management Services Agreement”), dated as of April 30, 2023, pursuant to which Buyer was engaged to manage the operation of Digipath Labs’ cannabis testing laboratory (the “Lab”). The effectiveness of the Management Services Agreement was subject to the approval of the CCB, which was obtained on October 17, 2023. Pursuant to the Management Services Agreement, after the payment of expenses to third parties and a payment of 15% of cash collections to Digipath (but not less than $15,000) in each month, Buyer is entitled to a management fee of $10,000 per month. Any remaining cash generated from the operation of the Lab in any month is payable 45% to the Buyer and 55% to the Company.

On February 20, 2024, we completed the sale of the net assets of our subsidiary Digipath Labs to Buyer. On June 24, 2024, the Company and the Buyer settled the final amount owed on the working capital adjustment for an additional payment of $42,835. As a result of the closing, the Company recognized a gain on the sale of the assets in the amount of $1,581,981 which includes the excess value of the Purchase Price above the net assets as well as the working capital adjustment. On November 27, 2024, the Company entered into an amendment to the Asset Purchase Agreement with Buyer. Pursuant to the amendment, the Company and Buyer agreed to an early release of the escrow deposit, whereby the escrow deposit was reduced to $200,000 and released immediately to the Company. The Company received the escrow deposit amount on December 3, 2024. The settlement is recorded in other expenses in the accompanying statement of operations

The statements of operations of Digipath Labs combined are summarized below:

Schedule of Discontinued Operations of Income Statement and Balance Sheet Disclosures