SkyAI, Inc. 10-Q

ITEM 1. LEGAL PROCEEDINGS On July 10, 2024, Barry Berler (“Berler”), a co-founder and former Chief Technology Officer of the Company, commenced a lawsuit in the United States District Court for the Eastern District of New York, Barry Berler v. Sharps Technology, Inc. and Alan Blackman, Case No. 2:24-cv-04787. In this case, Berler asserts (i) claims for damages of an aggregate of $456,000 for defendants’ alleged (1) breach of a consulting agreement with the Company (the “Consulting Agreement”) in the amount of $52,500, (2) failure to pay a bonus with a target of $216,000 under the Consulting Agreement, (3) $187,500, representing 50% of the severance payment paid by the Company to Mr. Blackman, the Company’s co-founder and former Chief Operating Officer and Co-Chairman (ii) a declaration that Berler is the rightful owner of 50% of the Company’s Series A Preferred Stock (which preferred stock is no longer outstanding) and (iii) an injunction barring Blackman from voting the Preferred Stock and from transferring the Preferred Stock to the Company. The Company has assumed Blackman’s defense pursuant to indemnification obligations. The Company has accrued for the claim for unpaid monthly consulting fees. No amounts have been accrued for the bonus and severance claims. The Company believes that Berler’s claims are without merit and intends to defend itself vigorously. On September 17, 2024, the Company filed an answer and counterclaims with respect thereto, including for recoupment of certain compensation the Company previously paid to Berler. On February 27, 2025 the Company filed an amended answer, counterclaims and third-party claims against Berler, Plastomold Industries Ltd. (“Plastomold”), Plasto Design Ltd and Plasto Design Solutions. This case is in the discovery stage. On June l7, 2024, Berler filed a demand for arbitration and statement of claim under the commercial arbitration rules of the American Arbitration Association (“AAA”) against the Company asserting claims for payment of $500,000 plus interest, under the Company’s royalty agreement with Berler, as amended, rescission thereof and reversion to Berler of the intellectual property rights subject thereto. The Company believes that Berler’s claims are without merit and intends to defend itself vigorously in connection with these claims. The Company filed an answer with counterclaims. This proceeding is in the discovery stage. On April 3, 2024, Plastomold commenced a lawsuit against the Company in the United States District Court for the Eastern District of New York, Plastomold Industries Ltd v. Sharps Technology, Inc., Case No. 2:24-CV-02580, asserting claims for damages in the amount of $1.762 million for alleged (1) failure to pay invoices, of which approximately $1 million would relate to a maintenance agreement for units allegedly manufactured and sold using machinery that was defective and has never successfully produced any saleable products, (2) breach of the implied covenant of good faith and fair dealing, (3) unjust enrichment, and (4) conversion. Plastomold asserts it provided certain products and services to the Company for which its invoices were not fully paid. The Company believes that Plastomold’s claims are without merit and intends to defend itself vigorously and no amounts have been reserved at this point. On June 3, 2024, the Company filed an answer and affirmative defenses and counterclaim, which counterclaim is for damages that the Company believes would exceed the claims asserted by Plastomold, based on the insufficiency of Plastomold’s services and the results thereof, including the failure to provide machinery capable of reliably manufacturing the designated products in compliance with design specifications and functionality requirements, and with respect to which test results failed. This proceeding is in the discovery stage.