Discontinued Operations

6 Months Ended

Mar. 31, 2024

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Note 12 – 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 has 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 is 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”). On January 18, 2024, the Company received approval from the CCB to transfer the assets pursuant to 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 was entitled to a management fee of $10,000 per month. Any remaining cash generated from the operation of the Lab in any month was 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. As a result of the closing, the Company recognized a gain on the sale of the net assets in the amount of $1,596,505 which includes the excess value of the purchase price above the net assets as well as the working capital adjustment.

The balance sheets of Digipath Labs are summarized below:

	March 31, 2024		September 30, 2023
Current assets:
Accounts receivable, net	$	-	$	447,410
Deposits		-		18,675
Other current assets		-		20,137
Total current assets		-		486,222
Right-of-use asset		-		274,985
Fixed assets, net		-		368,681
Total long term assets		-		643,666
Total Assets	$	-	$	1,129,888
Current liabilities:
Accounts payable	$	-	$	158,869
Accrued expenses		-		61,512
Current portion of operating lease liabilities		-		83,757
Current maturities of notes payable		-		64,517
Total current liabilities		-		368,655
Operating lease liabilities		-		143,245
Notes payable		-		15,911
Total long term liabilities		-		159,156
Total Liabilities	$	-	$	527,811

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

	For the Three Months Ended						For the Six Months Ended
	March 31,						March 31
	2024			2023			2024			2023
Revenues	$	712,145		$	760,710		$	1,635,299		$	1,487,465
Cost of sales		229,013			459,608			650,524			882,443
Gross profit		483,132			301,102			984,775			605,022
Operating expenses:
General and administrative		189,983			224,346			393,168			504,990
Professional fees		-			20,688			4,750			43,460
Total operating expenses		189,983			245,034			397,918			548,450
Operating income(loss)		293,149			56,068			586,857			56,572
Other income (expense):
Interest expense		(620	)		(1,745	)		(1,701	)		(3,706	)
Total other income (expense)		(620	)		(1,745	)		(1,701	)		(3,706	)
Net income (loss)	$	292,529		$	54,323		$	585,156		$	52,866