5. Asset Acquisition

On April 15, 2025, the Company completed its acquisition of specified assets of Sanzonate Europe Ltd. (“Sanzonate”). Sanzonate was a former customer of the Company that produces products similar to the Company’s products. The assets acquired included accounts receivable, inventory, and intangibles. The intangibles consisted of a license issued by the European Organization for Technical Assessment to sell ozone products in the European Union (“EOTA license”), Sanzonate’s trade name, and distribution agreements. The Company also retained one sales representative and one administrative resource. The Company entered into this transaction to expand its presence in the European Union.

The total cost of the assets consisted of the following:

The promissory note was a 10% subordinated note with a principal amount of $800,000 bearing interest at ten percent (10%) per annum, payable quarterly, and is due and payable on April 15, 2027. The promissory note was issued at market and therefore, the carrying amount represents fair value. The warrant is for the purchase up to 425,000 shares of the Company’s common stock at an exercise price of $1.25 per share. The Company obtained an external valuation of the warrant noting a fair value of $181,475.

In addition, the transaction included contingent consideration in the form of an earnout of up to $1,250,000 to the extent that Net Sales (as defined in the asset purchase agreement) achieve certain milestones during the five-year period beginning on the closing date. The Company determined that reaching such milestones was not probable as of the acquisition date and therefore, the contingent consideration was not included in the total cost of the assets acquired. If the Company determined that earnout payments would be made, the additional cost would have been allocated to the non-financial assets in the period the payments were determined to be probable.

The total cost of the assets was allocated to the acquired assets in accordance with ASC 850-50, Acquisition of Assets Rather than a Business, as follows:

The accounts receivable was assessed for collectability and recorded at fair value as of the closing date. Similarly, inventory was reviewed for obsolescence and recorded at fair value as of the closing date.

The EOTA license allowed the Company to sell ozone products in the European Union (“EU”). The EOTA license was to be amortized over an estimated useful life of five years.

Sanzonate’s trade name was continue to be used, as necessary, when customers had preexisting relationship with Sanzonate. The trade name was to be amortized over an estimated useful life of five years.

Sanzonate’s distribution agreements were agreements with distributors in the EU that sell product to end users. The Company utilized the existing distributors, but also expanded on both distributors and non-distributor customers in the EU. The distribution agreements were to be amortized over an estimated useful life of five years.

The Company engaged a third-party valuation firm to determine the fair values of the intangible assets. The intangible assets were valued using a discounted cash flow method. Key inputs and assumptions include projected cash flows and the discount rate used to calculate the present value of such cash flows. In addition, all long-lived assets were tested for impairment when events and circumstances indicated the assets might be impaired.