COMMITMENTS & CONTINGENCIES

3 Months Ended

Dec. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

NOTE 6 – COMMITMENTS & CONTINGENCIES

Indemnifications

During the normal course of business, we make certain indemnities and commitments under which we may be required to make payments in relation to certain transactions. These may include (i) indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct; and (ii) indemnities involving the representations and warranties in certain contracts. In addition, under our bylaws we are committed to our directors and officers for providing for payments upon the occurrence of certain prescribed events. The majority of these indemnities and commitments do not provide for any limitation on the maximum potential for future payments that we could be obligated to make. We have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we had no liabilities recorded for these agreements as of December 31, 2023 and September 30, 2023.

Contingent Consideration

The Company’s contingent consideration liabilities related to certain lenders compliance guidelines are included as a current liability on the Balance Sheet at December 31, 2023 and included herein.

Leases

As the Company’s leases generally do not provide an implicit discount rate, the Company uses the estimated collateralized incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the operating lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest and requires estimates and assumptions including credit rating, credit spread, and adjustments for the impact of collateral. The Company believes that this is the rate it would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. The Company does not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or less, and accounts for lease and non-lease components as a single lease component. The Company's lease portfolio is comprised of operating leases with the lease cost recorded on a straight-line basis over the lease term.

We are obligated under a triple-net operating lease for our 6,475 square foot manufacturing facility located in Greenville, South Carolina, which is classified as an operating lease. The terms of the lease require a payment of approximately $10,000 per month, which includes an estimate for utilities, taxes, and repairs. This lease expires in August 2028.

Our business plan will require additional space, and we will be making plans to expand our building footprint at possible new or additional locations to accommodate additional manufacturing equipment. As part of the initial expansion discussed above, we have entered into a lease for 23,485 square feet of additional manufacturing space in Greenville, South Carolina, expiring in July 2036. In addition, we have a lease for 3,414 square feet of office space in Scottsdale, Arizona, expiring in September 2024. The office is to facilitate the administration and marketing of expanding the manufacturing aspect of our company as well as to administer increased management anticipated in areas of human resources, finance, accounting, and financial analysis as well as sales and marketing to manage the growth in the production output as a result of the second facility in Greenville, South Carolina. We intend to pay for these improvements using a combination of working capital, new debt financing, and equity offerings.

The weighted average remaining lease term and weighted average discount rate for operating leases were 4.9 years and 80%, respectively. The operating lease cost for the three months ended December 31, 2023 was approximately $91,000.

The future minimum lease payment required under our leases as of December 31, 2023 are as follows:


2024	$	285,732
2025		296,032
2026		299,323
2027		302,696
2028		295,988
Thereafter		789,939
Total undiscounted cash flows		2,268,288
Less: present value discount (8% per annum)		672,233
Total lease liabilities	$	1,596,055

Employment Agreements

We have entered into five separate employment agreements that provide for stock to be issued annually in varying amounts through fiscal 2025. The price per share to be included in employee stock compensation expense will be based upon the fair market value of the stock on the date of grant. The grants are fully vested, pending the service requirement of continued employment.

Additional Compensation

In addition to the above stock commitments, we have agreed to provide certain executive officers with compensation paid in diamonds. These commitments amount to issuing 9.5 carats of diamonds per month through September 2024 and 2.5 carats of diamonds per month through October 2025. For the three months ended December 31, 2023 and 2022 this obligation has been accrued at a valuation of $1,000 per carat, which is based on management’s estimate of the market value of the diamonds.

Litigation

During December 2022, we became a party to a class action filing previously between Scio and a class action investor. We have retained outside counsel specifically for this matter and are working with other defendants named in this matter to increase our chance of prevailing. On February 17, 2022 the Company filed a motion to dismiss the class action in concert with Scio which filed a separate motion to dismiss this class action. Our approach will continue to seek a dismissal on all items related to this legal action. We believe the case is without merit and will defend our position vigorously. Based on the Company’s assessment of a favorable decision by the court no liability has been recorded on our balance sheet at December 31, 2023.

The Company retained outside counsel and filed a motion to dismiss and joined in Scio’s motion to dismiss on February 17, 2023. Specifically, the Company believes it was mis-joined to the lawsuit and that no claims are adequately pled against it. The Company further contended the court lacked subject matter jurisdiction. The case was re-assigned to Hon. Cristina D. Silva. Judge Silva’s on July 5, 2023. On June 14, 2024, the court ordered additional briefing based on the Company’s motion to dismiss for lack of subject matter jurisdiction. The briefing was to commence on June 28, 2024, however, as a result of the court’s inclination to grant the Company’s motion to dismiss, the Plaintiff stipulated to dismiss the claims against the Company, Mr. Grdina, and Scio’s management and filed a voluntary dismissal of all of the claims as of June 28, 2024.

Adamas One Corp. 10-Q/A