NOTE 7 - COMMITMENTS AND CONTINGENCIES

Office Cost Sharing Agreement

On September 22, 2020, the Company executed an Office Cost Sharing Agreement with The OZ Corporation.  The agreement provides for the Company’s payments to The OZ Corporation of $34,000 per month for the shared use of office space located in Long Beach California for so long as The OZ Corporation provides the Company with shared use of the premises.  For the years ended July 31, 2024 and 2023, the space sharing fees were $408,000 and $408,000, respectively.  As of July 31, 2024, accounts payable and accrued liabilities included $1,409,000 due to The OZ Corporation for unpaid space sharing fees.  

Patent and Technology license Agreements

Under the April 2020 strategic alliance agreement and related sublicense between the Company’s subsidiary, CBD Biotech, Inc., and Integrity Cannabis Solutions, Inc. (“ICS”), the Company is obligated to issue to ICS that number of shares of Bakhu common stock equal to 0.5% of the number of shares outstanding as of the date that the production facility of ICS is completed and commences production. Further, if the sublicense is terminated, CBD Biotech will be obligated to repay to ICS its initial $250,000 license fee and reimburse ICS for the cost of the laboratory operational equipment used in its production facility, which thereafter will be owned and managed jointly by ICS and CBD Biotech.

NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)

As a result of successfully completing the efficacy demonstration of our licensed technology in July 2021, we became obligated to issue to Cell Science, the licensor, a one-year note for an agreed one-time payment of $3.5 million, less certain credits. The amount of the credits to the note were determined and on January 31, 2022, the Company and Cell Science entered into the Third Amendment to the December 20, 2018 Patent and Technology License Agreement, as subsequently amended, in which the Company and Cell Science agreed as follows:

·There would be no reduction or offset against the $3.5 million One-time Payment for costs paid by the Company or on its behalf.  Therefore, the Company issued a $3.5 million promissory note, bearing interest at the applicable federal short-term rate of 0.44% under IRC Section 1274(d), originally payable on January 31, 2023, as extended by successive amendments to December 31, 2027.     

·In lieu of any offset or reduction against the One-Time Payment Note, Cell Science agreed to convey to the Company the lease on the California laboratory in which the efficacy demonstration was conducted, including all related equipment, improvements, supplies, and related tangible and intangible assets.    

·Cell Science and The OZ Corporation would execute and deliver to the Company a similar conveyance of all rights to the California laboratory.  

·The Integrated License Agreement was clarified to provide that all improvements to the licensed technology made by the Company would be owned by Cell Science and included in the license.   

The lease on the California laboratory space located in Sherman Oaks, California, as amended March 12, 2020 and assumed by the Company on January 31, 2022, provided for a monthly space sharing fee of $10,000 and had a term of thirty-six (36) months from March 12, 2020 to March 12, 2023 with an option to extend for an additional period not to exceed three (3) months.  In addition, the agreement provided for a monthly cannabis activities fee equal to the greater of (i) $11,640 or (ii) ten percent (10%) of the gross sales of the products, if any, manufactured through lessee’s operations.  From March 12, 2023 through August 2023, the agreement continued on a month-to-month basis.  For the years ended July 31, 2024 and 2023, the space sharing fees were $10,000 and $120,000, respectively, and the cannabis activities fees were $11,640 and $139,680, respectively.  

In 2023 a minority stockholder of Mentone has advised us of his claim that he was unlawfully removed from the board of directors of Mentone and that it was unauthorized to enter into certain agreements with Cell Science that led to its license of the subject cell replication technology to us.  The Mentone minority stockholder has threatened litigation seeking equitable remedies and money damages against Mentone and its other stockholders. In 2023 we received by commercial courier a copy of a purported complaint for a lawsuit filed in Cyprus by the minority stockholder of Mentone, purportedly on behalf of Mentone, which names the Company, one of our prior directors and vice president, and one of our former directors and executive officers, as defendants in said complaint.  We were subsequently advised verbally that the complaint had been or was dismissed as to our company and our former officers and directors named in the complaint but have not received any written confirmation of such dismissal.  This action by Mentone is further in contravention of and violates the terms of the Agreement, Assignment Waiver and Estoppel (the “Estoppel Agreement”) entered into by Mentone with Cell Science, the Licensor, our company, and others on September 22, 2020, that provides us with the potential remedy to seek cancellation of any of our shares received by Mentone and its owners. We believe the complaint is without merit, and if necessary, we intend to challenge its claimed jurisdiction over us, defend ourselves vigorously on the merits, assert all defenses and counterclaims, assert cross-claims against other parties to the Estoppel Agreement, and seek remedies provided under the Estoppel Agreement against all other parties to that agreement as warranted.

NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)

On July 7, 2026, we receive an email from legal counsel for Cell Science Holding Ltd. (“Cell Science”) and Inter-M Traders FZ LLE, forwarding an email alleged to have been sent to Bakhu and certain related parties on June 8, 2026.  Said purported June 8, 2026 email is stated to be a Formal Notice of Breach, Misrepresentation, Demand for Preservation of Evidence, and Reservation of Rights. In said June 8, 2026 notice, Cell Science as owner of the intellectual property and Licensor under the Integrated License Agreement make various claims against Bakhu and Peter Whitton, the inventor of the licensed technology, including without limitation that Bakhu failed in the development, validation, commercialization, operational implementation, and proof of concept of the licensed technology within Bakhu’s operations and intended commercial markets; that Peter Whitton and/or unnamed related parties failed to provide adequate manuals, validation documentation, technical support materials, scientific substantiation, and sufficient operational proof necessary for independent verification and validation of the technology in the manner contemplated under the Integrated License Agreement; that Cell Science disputes the sufficiency, reliability, completeness, and commercial significance of such purported validation and efficacy demonstrations; that Cell Science further disputes whether the technology was independently validated, commercially substantiated, or operationally proven to the extent represented to investors, shareholders, directors, counterparties, or third parties; that Mr. Whitton and/or other unnamed related parties misrepresented to Bakhu shareholders, investors, directors, and third parties that the technology had been validated, proven effective, commercially viable, and operationally confirmed. Based upon information presently available to Cell Science, such representations may have been inaccurate, incomplete, misleading, unsupported, or made without adequate scientific, technical, or operational substantiation.

The claims by Cell Science and/or Inter-M Traders FZ, LLC are in contravention of and violates the terms of the Agreement, Assignment Waiver and Estoppel (the “Estoppel Agreement”) entered into by Cell Science, Bakhu and others, on September 22, 2020 that provides us with the potential remedy to seek cancellation of any of our shares received by Cell Science and its owners, and assigns. We believe the claims are without merit, and if necessary, we intend to defend against any complaint vigorously on the merits, assert all defenses and counterclaims, assert cross-claims against other parties to the Estoppel Agreement, and seek remedies provided under the Estoppel Agreement against all other parties to that agreement as warranted.