Commitments and Contingencies

12 Months Ended

Dec. 31, 2023

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 6: COMMITMENTS AND CONTINGENCIES

Leases

The Company entered into a lease for office space at 8669 Research Drive, in Irvine, California, as its corporate headquarters. The lease commenced on December 1, 2019 for a term of 5 years, with no rent due and payable until April 1, 2020. From April 1, 2020 through March 31, 2025, base rent due on the first day of each month amounted to $25,200, escalating annually on December 1 of each year thereafter, to $29,480 beginning December 1, 2023. The Company paid an initial amount of $68,128 comprising the rent for April 2020, a security deposit and the amount due for property taxes, insurance and association fees.

The Company entered into a lease agreement on April 19, 2022 with Aviva Life and Pensions UK Limited for office space for a five-year term. The lease commenced on April 18, 2023 and matures on January 17, 2027. The quarterly base rent for the lease is $38,759. The Company recorded the initial value of lease liability of $790,378 and recorded rent expense of $153,901 for the year ended December 31, 2023.

In addition, the Company entered into two leases for additional spaces in Irvine, California. The leases commenced on March 1, 2022 and June 1, 2022. Base rent at the inception of the lease was $16,250 and $48,379 per month, with escalations contained in the lease through February 28, 2027 and May 31, 2027.

The Company entered into a lease for office space in North Carolina on May 1, 2023 for a five year term. The Company paid a security deposit of $24,000 and the monthly base rent was $24,246 with an annual escalation of rent increase at 2%. The landlord completed the improvements to the office space and the lease commenced on December 1, 2023.

The Company entered into a lease for office space in Columbia on August 15, 2023 for a two year term. The Company paid a security deposit totaling $24,511 at the inception of the lease. The monthly base rent was $3,500 with no annual escalation of rent increases.

Supplemental balance sheet information related to leases is as follows as of December 31, 2023 and 2022:

	As of December 31,
Operating Leases	2023			2022
Right-of-use assets, net	$	2,833,268		$	4,415,859
Current liabilities		1,512,503			959,630
Non-current liabilities		1,387,578			3,477,380
Total operating lease liabilities	$	2,900,081		$	4,437,010
Weighted Average Remaining Lease Term		2.91 Years			4.01 Years
Weighted Average Discount Rate		12	%		4	%

As the leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments, which is reflective of the specific term of the leases and economic environment of each geographic region.  

Anticipated future operating lease costs are as follows:

For the years ending December 31,	Building leases
2024	$	1,098,703
2025		791,431
2026		723,188
2027		426,830
2028		262,446
Total lease payments		3,302,598
Less: imputed interest		(402,517	)
Present value of lease liabilities	$	2,900,081

The Company recorded the operating lease costs of $1,240,368 and $1,120,081 for the years ended December 31, 2023 and 2022, respectively. The Company paid cash payments of $1,301,300 and $681,914 for rent for the years ended December 31, 2023 and 2022, respectively.

Employment Agreements with Officers

Michael Panosian Employment Agreement

The Company entered into the Employment Agreement dated as of December 29, 2022 with Michael Panosian (the “Panosian Employment Agreement”). The Panosian Employment Agreement provides that Mr. Panosian will serve as our Chief Executive Officer, President, and Chair of the Board for a term beginning on December 29, 2022 and ending on December 29, 2025 (the “Initial Term”), with automatic one (1) year extensions unless notice not to renew is given by either party at least 90 days prior to the relevant end date.

Pursuant to the Panosian Employment Agreement, Mr. Panosian will be entitled to: (i) an annual base salary of $650,000, which may be increased annually at the sole discretion of the Board; (ii) a potential annual target bonus of up to $350,000 payable in cash, which may be granted at the discretion of, and in an amount determined by the Compensation Committee and approved by the Board; (iii) a grant of 8,308 incentive stock options, pursuant to the 2022 Plan and also be eligible to receive annual long-term incentive awards from time to time under the 2022 Plan; (iv) participate in the Company’s health insurance plan offered to its employees; (v) participate in the Company’s 401(k) Plan; and (vi) reimbursement for all reasonable business expenses, including a $1,000 monthly automobile allowance. Any incentive-based compensation or award that Mr. Panosian receives will be subject to clawback by the Company as may be required by applicable law or, if applicable, any stock exchange listing requirement and on such basis as we determine.

In the event the Company terminates Mr. Panosian without “Cause” (as defined below) at any time with 90 days prior written notice, or Mr. Panosian resigns for “Good Reason” (as defined below), Mr. Panosian will be entitled to the following, provided that he executes a general waiver and release of claims: (i) an amount equal to 1.5 times the average of his base salary if terminated during the Initial Term, or an amount equal to 1 times the average of his then base salary; (ii) monthly payments for up to 12 months (and 18 months, if terminated during the Initial Term) of COBRA premiums for continued group health, dental and vision coverage; and (iii) the immediate vesting of all long-term incentive awards, that utilize time-based vesting.

In the event the Company terminates Mr. Panosian’s employment for Cause or Mr. Panosian’s resignation without “Good Reason, Mr. Panosian will only be entitled to receive accrued and unpaid compensation and wages accrued prior to such date.

If, within one year following a Change of Control of the Company, Mr. Panosian’s employment is terminated involuntarily by us other than for Cause, death, or disability or by Mr. Panosian pursuant to a voluntary termination for Good Reason, and Mr. Panosian executes and does not revoke a general release of claims against us and our affiliates in a form acceptable to us, then we shall, in addition to any other earned but unpaid base salary and vacation pay due through the date of such termination, provide Mr. Panosian (i) an amount equal to two times his then prevailing annual base salary; (ii) immediate vesting of all incentive awards; and (iii) monthly payments for up to 18 months of COBRA premiums for continued group health, dental and vision coverage.

The Panosian Employment Agreement contains restrictive covenants prohibiting Mr. Panosian from disclosing our confidential information at any time, and has executed a Proprietary Information, Inventions Assignment and Nondisclosure Agreement.

Martin Galstyan Employment Agreement

The Company entered into the Employment Agreement dated as of December 29, 2022 with Martin Galstyan (the “Galstyan Employment Agreement”). The Galstyan Employment Agreement provides that Mr. Galstyan will serve as our Chief Financial Officer for a term beginning on December 29, 2022 and ending on December 29, 2025, with automatic one (1) year extensions unless notice not to renew is given by either party at least 90 days prior to the relevant end date.

Pursuant to the Galstyan Employment Agreement, Mr. Galstyan will be entitled to: (i) an annual base salary of $300,000, which may be increased annually at the sole discretion of the Board; (ii) a potential annual target bonus of up to $150,000 payable in cash, which may be granted in the discretion of, and in an amount determined by the Compensation Committee and approved by the Board; (iii) a grant of 1,731 incentive stock options, pursuant to the 2022 Plan, and also be eligible to receive annual long-term incentive awards from time to time under the 2022 Plan; (iv) participate in the Company’s health insurance plan offered to its employees; (v) participate in the Company’s 401(k) Plan; and (vi) reimbursement for all reasonable business expenses, including a $500 monthly automobile allowance. Any incentive-based compensation or award that Mr. Galstyan receives will be subject to clawback by the Company as may be required by applicable law or, if applicable, any stock exchange listing requirement and on such basis as we determine.

In the event the Company terminates Mr. Galstyan without “Cause” (as defined below), or Mr. Galstyan resigns for “Good Reason” (as defined below), Mr. Galstyan will be entitled to the following, provided that he executes a general waiver and release of claim and does not revoke the release: (i) an amount equal to 6 months of his then base salary; (ii) monthly payments for up to 6 months of COBRA premiums for continued group health, dental and vision coverage, unless Mr. Galstyan starts receiving coverage under his subsequent employment; and (iii) continuation of his vesting schedule per the 2022 Plan, with three months for exercise of any vested option(s). If Mr. Galstyan’s employment is terminated by the Company following a Change of Control of the Company, Mr. Galstyan will be entitled to: (i) an amount equal to 1 time his then prevailing base salary; (ii) immediate vesting of all incentive awards; and (iii) monthly payments for up to 12 months of COBRA premiums for continued group health, dental and vision coverage.

In the event the Company terminates Mr. Galstyan employment for Cause or Mr. Galstyan’s resignation without Good Reason, Mr. Galstyan shall only be entitled to receive accrued and unpaid compensation and wages accrued prior to such date.

If, within one year following a Change of Control of the Company, Mr. Galstyan’s employment is terminated involuntarily by us other than for Cause, death, or disability or by Mr. Galstyan pursuant to a voluntary termination for Good Reason, and Mr. Galstyan executes and does not revoke a general release of claims against us and our affiliates in a form acceptable to us, then we shall, in addition to any other earned but unpaid base salary and vacation pay due through the date of such termination, provide Mr. Galstyan (i) an amount equal to two times his then prevailing base salary; (ii) immediate vesting of all incentive awards; and (iii) monthly payments for up to 12 months of COBRA premiums for continued group health, dental and vision coverage.

The Galstyan Employment Agreement contains restrictive covenants prohibiting Mr. Galstyan from disclosing our confidential information at any time, and has executed a Proprietary Information, Inventions Assignment and Nondisclosure Agreement.

Joshua Keeler Employment Agreement

The Company entered into the Employment Agreement dated as of December 29, 2022 with Joshua Keeler (the “Keeler Employment Agreement”). The Keeler Employment Agreement provides that Mr. Keeler will serve as our Chief Design Officer for a term beginning on December 29, 2022 and ending on December 29, 2025, with automatic one (1) year extensions unless notice not to renew is given by either party at least 90 days prior to the relevant end date.

Pursuant to the Keeler Employment Agreement, Mr. Keeler will be entitled to: (i) an annual base salary of $475,000, which may be increased annually at the sole discretion of the Board; (ii) a potential annual target bonus of up to $150,000 payable in cash, which may be granted in the discretion of, and in an amount determined by the Compensation Committee and approved by the Board; (iii) a grant of 5,539 incentive stock options, pursuant to the 2022 Plan, and also be eligible to receive annual long-term incentive awards from time to time under the 2022 Plan; (iv) participate in the Company’s health insurance plan offered to its employees; (v) participate in the Company’s 401(k) Plan; and (vi) reimbursement for all reasonable business expenses, including a $750 monthly automobile allowance. Any incentive-based compensation or award that Mr. Keeler receives will be subject to clawback by the Company as may be required by applicable law or, if applicable, any stock exchange listing requirement and on such basis as we determine.

In the event the Company terminates Mr. Keeler without “Cause” (as defined below) with 90 days prior written notice, or Mr. Keeler resigns for “Good Reason” (as defined below), Mr. Keeler will be entitled to the following, provided that he executes a general waiver and release of claims: (i) an amount equal to 1.5 times the average of his base salary if terminated during the Initial Term, or an amount equal to 1 times the average of his then base salary; (ii) monthly payments for up to 12 months (and 18 months, if terminated during the Initial Term) of COBRA premiums for continued group health, dental and vision coverage; and (iii) the immediate vesting of all incentive awards, that utilize time-based vesting. If Mr. Keeler’s employment is terminated by the Company following a Change of Control of the Company, Mr. Keeler will be entitled to: (i) an amount equal to 2 times his then prevailing base salary; (i) immediate vesting of all incentive awards; and (iii) monthly payments for up to 18 months of COBRA premiums for continued group health, dental and vision coverage.

In the event the Company terminate Mr. Keeler’s employment for Cause or Mr. Keeler’s resignation without Good Reason, Mr. Keeler shall only be entitled to receive accrued and unpaid compensation and wages accrued prior to such date.

If, within one year following a Change of Control, Mr. Keeler’s employment is terminated involuntarily by us other than for Cause, death, or disability or by Mr. Keeler pursuant to a voluntary termination for Good Reason, and Mr. Keeler executes and does not revoke a general release of claims against us and our affiliates in a form acceptable to us, then we shall, in addition to any other earned but unpaid base salary and vacation pay due through the date of such termination, provide Mr. Keeler (i) an amount equal to two times his then prevailing base salary; (ii) immediate vesting of all incentive awards; and (iii) monthly payments for up to 18 months of COBRA premiums for continued group health, dental and vision coverage.

The Keeler Employment Agreement contains restrictive covenants prohibiting Mr. Keeler from disclosing our confidential information at any time, and has executed a Proprietary Information, Inventions Assignment and Nondisclosure Agreement.

Zareh Khachatoorian Employment Agreement

The Company entered into the Employment Agreement dated as of December 29, 2022 with Zareh Khachatoorian (the “Khachatoorian Employment Agreement” and, together with the Panosian Employment Agreement, the Galstyan Employment Agreement and the Khachatoorian Employment Agreement, the “Employment Agreements”). The Khachatoorian Employment Agreement provides that Mr. Khachatoorian will serve as our Chief Operating Officer and Secretary for a term beginning on December 29, 2022 and ending on December 29, 2025, with automatic one (1) year extensions unless notice not to renew is given by either party at least 90 days prior to the relevant end date.

Pursuant to the Khachatoorian Employment Agreement, Mr. Khachatoorian will be entitled to: (i) an annual base salary of $300,000, which may be increased annually at the sole discretion of the Board; (ii) a potential annual target bonus of up to $150,000 payable in cash, which may be granted in the discretion of, and in an amount determined by the Compensation Committee and approved by the Board; (iii) a grant of 1,731 incentive stock options, pursuant to the 2022 Plan, and also be eligible to receive annual long-term incentive awards from time to time under the 2022 Plan; (iv) participate in the Company’s health insurance plan offered to its employees; (v) participate in the Company’s 401(k) Plan; and (vi) reimbursement for all reasonable business expenses, including a $500 monthly automobile allowance. Any incentive-based compensation or award that Mr. Khachatoorian receives will be subject to clawback by the Company as may be required by applicable law or, if applicable, any stock exchange listing requirement and on such basis as we determine.

In the event the Company terminate Mr. Khachatoorian without Cause, or Mr. Khachatoorian resigns for Good Reason (each as defined in the Khachatoorian Employment Agreement), Mr. Khachatoorian will be entitled to the following, provided that he executes a general waiver and release of claim and does not revoke the release: (i) an amount equal to 6 months of his then base salary; (ii) monthly payments for up to 6 months of COBRA premiums for continued group health, dental and vision coverage, unless Mr. Khachatoorian starts receiving coverage under his subsequent employment; and (iii) continuation of his vesting schedule per the 2022 Plan, with three months for exercise of any vested option(s). If Mr. Khachatoorian’s employment is terminated by the Company following a Change of Control of the Company, Mr. Khachatoorian will be entitled to: (i) an amount equal to 1 time his then prevailing base salary; (ii) immediate vesting of all incentive awards; and (iii) monthly payments for up to 12 months of COBRA premiums for continued group health, dental and vision coverage.

In the event the Company terminates Mr. Khachatoorian’s employment for Cause or Mr. Khachatoorian’s resignation without Good Cause, Mr. Khachatoorian shall only be entitled to accrued and unpaid compensation and wages accrued prior to such date.

If, within one year following a Change of Control of the Company, Mr. Khachatoorian’s employment is terminated involuntarily by us other than for Cause, death, or disability or by Mr. Khachatoorian pursuant to a voluntary termination for Good Reason, and Mr. Khachatoorian executes and does not revoke a general release of claims against us and our affiliates in a form acceptable to us, then we shall, in addition to any other earned but unpaid base salary and vacation pay due through the date of such termination, provide the Mr. Khachatoorian (i) an amount equal to two times his then prevailing base salary; (ii) immediate vesting of all incentive awards; and (iii) monthly payments for up to 12 months of COBRA premiums for continued group health, dental and vision coverage.

The Khachatoorian Employment Agreement contains restrictive covenants prohibiting Mr. Khachatoorian from disclosing our confidential information at any time, and has executed a Proprietary Information, Inventions Assignment and Nondisclosure Agreement.

Litigation Costs and Contingencies

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Other than as set forth below, management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.

In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered and the amount can be reasonably estimated, the Company recognizes an expense for the estimated loss.

October 7, 2022 Litigation

On October 7, 2022, one of our stockholders (the “2022 Plaintiff”), filed a shareholder derivative action against the Company, Michael Panosian, Joshua Keeler, Zareh Khachatoorian, Martin Galstyan, et. al. (collectively, the “2022 Defendants”) in the Eighth Judicial District Court of Nevada, Case No. A-22-859580-B. In the complaint, the 2022 Plaintiff alleged a breach of the applicable 2022 Defendants’ fiduciary duties of loyalty, good faith, and due care owed to us and our shareholders, by negligently, willfully, recklessly and/or intentionally failing to perform their fiduciary duties primarily in connection with our registered direct offering of 2,500 shares of Series F preferred stock and 2,500 shares of Series G preferred stock in February 2022 and subsequent 1-for-150 reverse stock split effected in April 2022. The 2022 Plaintiff claimed that the 2022 Plaintiff has suffered (i) monetary damages in excess of $10,000, and (ii) attorney fees and costs, and is entitled to reimbursement. The 2022 Plaintiff asked for the following relief (i) issuance of a preliminary injunction enjoining us and the Board from continued of their fiduciary duties; (ii) damages incurred by the plaintiff; (iii) for an accounting of our books and records; (iv) equity relief; and (v) reimbursement of attorney and courts fees and other related costs. On October 12, 2023, the 2022 Defendants filed a motion to dismiss the case, and after a hearing on February 14, 2024, the court dismissed the case on March 18, 2024. The 2022 Plaintiff subsequently appealed to the Nevada Supreme Court on April 9, 2024. Currently, the appeal deadlines are on hold while the parties complete the Supreme Court’s mandatory settlement program. Following Plaintiff’s appeal of the District Court’s Order dismissing the derivative claims to the Nevada Supreme Court, Plaintiff filed a Motion for Reconsideration under Rule 60 of the Nevada Rules of Civil Procedure based upon the argument that new evidence demonstrated that at least one member of the SLC was not independent. Following full briefing and oral argument on Plaintiff’s motion, the District Court issued a Minute Order on October 17, 2024, denying the motion. As the Court recognized, there can be no question that at least two members of the SLC were independent, which is a more than sufficient number under Nevada law. The District Court instructed counsel for the SLC to submit a formal draft order for the District Court’s review and signature. Plaintiff’s appeal of the dismissal of the derivative claims is still pending and remains in the Nevada Supreme Court settlement program.

We believe that the claims put forth by the 2022 Plaintiff are without merit and we intend to vigorously defend ourselves and the officers named in the complaint.

June 22, 2023 Litigation

On June 22, 2023, PCS Properties 2, LLC (the “Plaintiff”) filed a first amended complaint in the Superior Court, State of California, County of Orange, Central Justice Center (Case No. 30-2023-01326779-CU-UD-CJC) against the Company. In the complaint, the Plaintiff is suing the Company for Breach of the Company’s lease agreement, dated December 10, 2021 (the “Lease”), for the real property located at 8687 Research Drive, Suites 100, 150, 250, Irvine, CA 92618 (collectively, the “Premises”). The Plaintiff alleges that the Company owes the Plaintiff rent in the estimated sum of $124,800 for the Premises, representing due rent through May 31, 2023 and is suing the following damages: (i) the unpaid rent, (ii) the rent for the balance of the term of the Lease (June 1, 2023 to May 31, 2027) in the minimum sum of $2,374,278, less any sums that the Company proves could be reasonably avoided and (iii) all other amounts necessary to compensate Plaintiff for all the detriment proximately caused by the Company’s failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Plaintiff in connection with the Lease applicable to the unexpired term of the Lease, in an amount to be proved at trial or earlier hearing in this matter (iv) prejudgment interest at the maximum legal rate (v) reasonable attorney’s fees and court fees. The Company is reviewing this matter with its real estate attorney and available legal options and strategies to resolve this matter with the Plaintiff. As of December 31, 2023, the range of loss is estimated to be between $250,000 and $500,000, and the Company has accrued $375,000 for any potential loss. On May 29, 2024, the Company settled its litigation with the plaintiff – see Note 13).

June 6, 2024 Litigation

On May 1, 2023, the Company entered into a lease agreement for office space with Concord Property Development, LLC (“Concord”) in North Carolina for a five-year term. On June 6, 2024, the Company entered into a Settlement Agreement with Concord Property Development, LLC (“Landlord”) to resolve a dispute arising from nonpayment of rent. Under the terms of the Settlement Agreement, the Company agreed to pay the Landlord a total settlement amount of Six Hundred Sixty-Six Thousand Three Hundred Eighty-Eight Dollars $666,388, in four scheduled payments: (i) paid $100,000 on June 30, 2024; (ii) paid $200,000 on July 31, 2024; (iii) paid $183,194 on August 31, 2024; and (iv) paid $183,194 on September 30, 2024 pursuant to the terms of the Settlement Agreement.  The Settlement Agreement stipulates that upon the Company’s timely payment of the full settlement amount, the Landlord will release and forever discharge the Company from any claims, demands, damages, liabilities, or causes of action related to the lease and the dispute. Additionally, the Settlement Agreement provides that in the event of the Company’s default on its payment obligations, the Landlord is entitled to record a Confession of Judgment against the Company, creditable with any payments made. The Agreement also specifies that it is not to be considered an admission of liability by any party. The Company has settled its litigation with Concord on September 30, 2024.