4 — EQUITY METHOD INVESTMENTS

On June 30, 2023, Adovate issued to the Company a 19.9% equity stake in Adovate as part of consideration owed upon the exercise of Adovate’s option to purchase the business and assets of the Company’s wholly owned subsidiary, Purnovate, Inc. Under the terms of the final asset purchase agreement, Adovate was obligated to protect the Company against dilution by issuing additional equity to the Company in Adovate as Adovate equity was sold to maintain the Company’s 15% equity stake until such time as Adovate had raised $4 million through equity sales, at which time the Company’s equity stake would be adjusted to equal to 15%. The Company determined the fair value of this equity to be $1,727,897 at time of issue, based on the price of cash sales by Adovate of the same class of equity to third parties around the same time as the date of issue.

On January 30, 2024, the Company acknowledged that Adovate had raised $4 million and the Company’s equity in Adovate was reduced to equal 15% of Adovate’s equity then outstanding. As a result, the Company recorded a reduction on the value of its equity stake of $283,268.

In accordance with ASC 810, the Company determined that Adovate does not qualify as a variable interest entity, nor does the Company have a controlling financial interest in Adovate. The Company has influence over, but does not control Adovate through its equity interest in Adovate. The Company has determined that the equity it owns is in-substance common stock. The Company is not the primary beneficiary as it does not have the power to direct the activities of Adovate that most significantly impact Adovate’s economic performance. Accordingly, the Company does not consolidate the financial statements of Adovate with those of the Company.  

The Company recorded the initial investment in Adovate of $1,727,897 in “Equity method investments” on its consolidated balance sheet. Due to the timing and availability of Adovate’s financial information, the Company is recording its proportionate share of losses from Adovate on a one quarter lag basis. Adovate’s summary balance sheet information as of March 31, 2025 and September 30, 2024 is below:

Results for Adovate’s operations in the three and six months ended March 31, 2025 and 2024 are summarized below:

The Company held a weighted average of 11.2% of Adovate’s equity during the six months ended March 31, 2025. The Company recognized an expense of $261,820, classified as other income (expense), against the carrying amount of the equity method investment, representing the Company’s portion of Adovate operating loss for the six months ended March 31, 2025 and $98,730 for the three months ended March 31, 2025. At June 30, 2025, the Company held 11.2% of Adovate’s outstanding equity.

Activity recorded for the Company’s equity method investment in Adovate during the six months ended June 30, 2025 is summarized in the following table:

At June 30, 2025, the Company’s maximum exposure to loss through its equity method investment is limited to the value of its equity.

Consideration for the sale of the assets of Purnovate, Inc. to Adovate also included contingent payments based on the occurrence of certain milestone events and a contingent royalty on future sales. The Company recognized $150,000 in other income for a milestone achieved and payment received during the three months ended March 31, 2025.