XML 35 R25.htm IDEA: XBRL DOCUMENT v3.23.2
COMMITMENTS AND CONTINGENCIES
 6 Months Ended
Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES COMMITMENTS AND CONTINGENCIES
Legal
On January 8, 2021, the Company received a letter from the SEC Division of Enforcement seeking the production of documents in connection with a non-public fact-finding inquiry by the SEC to determine whether violations of the federal securities laws had occurred. The Company has subsequently, received subpoenas for the production of documents in connection with this matter. The investigation and requests from the SEC do not represent that the SEC has concluded that the Company or anyone else has violated the federal securities laws. The Company has cooperated and will continue to cooperate with the SEC staff in its investigation and requests. At this time, however, the Company cannot predict the length, scope, or results of the investigation or the impact, if any, of the investigation on the Company's results of operations.

On March 16, 2022, a class action lawsuit was filed against the Company in the United States District Court for the Southern District of Florida. Plaintiffs asserted the Company's delay in filing its Annual Report on Form 10-K for the year ended December 31, 2021, caused a decline in the market value of the Company’s securities and as a result, class members suffered significant losses and damages. On June 6, 2022, Judge Middlebrooks appointed a lead class plaintiff and the Company filed its motion to dismiss on August 5, 2022. On March 22, 2023, the motion to dismiss was granted in part and denied in part, and discovery has commenced with anticipated summary judgment motions later this year. As the Company has previously disclosed in its periodic reports filed with the SEC, prior to filing an application for an automatic 15 day extension of the
original filing date, the Company experienced staffing limitations, unanticipated delays and identified material errors in previous filings. The Company does not believe it has committed any federal securities violations or made false and/or misleading statements and/or material omissions as alleged in the complaint and had strong defenses. However, to avoid the uncertainty of litigation, the Company decided to settle the lawsuit and reached a nationwide class settlement in principle with the plaintiffs on July 17, 2023 for $7.9 million. The full amount of the settlement has been accrued as of June 30, 2023, within accounts payable and accrued expenses, in the consolidated balance sheets.

On January 11, 2023, Doreen R. Lampert filed a derivative stockholder complaint against certain of the Company’s directors and a former officer and, nominally, against the Company, in the United States District Court of the District of Nevada. Plaintiff Lampert asserts that the same allegations giving rise to the class action lawsuit discussed in the preceding paragraph also supported claims for breach of fiduciary duty against the directors and former officer, among other claims. The deadline to respond to the complaint was to be April 20, 2023. The parties agreed to stay this action pending the close of discovery in the class action lawsuit. On May 19, 2023, a similar derivative stockholder complaint was filed in the United States District Court for the District of Florida, with substantially similar allegations to the derivative action filed in Nevada. The parties agreed to stay this action pending the close of discovery in the class action lawsuit. On July 10, 2023, another similar derivative stockholder complaint was filed in the Clark County District Court, State of Nevada, with substantially similar allegations to the derivative action filed in Nevada, and on July 12, 2023, a fourth similar derivative stockholder complaint was filed in the United States District Court for the District of Florida, with substantially similar allegations to the derivative action filed in Nevada. On July 17, 2023, the Company, along with the plaintiffs of the case being held in the United States District Court for the Southern District of Florida, informed the court that they had reached a tentative agreement to resolve the action on a class-wide basis. The preliminary agreement entails a one-time cash payment of $7.9 million in return for dismissing all allegations leveled against the defendants. However, this agreement is still contingent on final documentation, judicial endorsement, and the fulfillment of other conditions.

On May 4, 2021, Plaintiffs Strong Arm Productions USA, Inc., Tramar Dillard p/k/a Flo Rida, and D3M Licensing Group, LLC filed a lawsuit against the Company in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. Plaintiffs asserted that the Company breached two endorsement and licensing agreements that were entered into, between Plaintiffs and the Company in 2014 and 2016. Plaintiffs alleged the Company had reached certain revenue and sales benchmarks set forth in the 2014 agreement that entitled them to receive 750,000 shares of the Company's common stock. In addition, Plaintiffs claimed they were entitled to receive unspecified royalties under the 2016 agreement.

A jury trial commenced on this matter on January 10, 2023. On January 18, 2023, the jury rendered a verdict against the Company for $82.6 million in compensatory damages. On April 27, 2023, the court denied the Company’s post-trial motions which sought (i) judgment in favor of the Company dismissing the case notwithstanding the verdict based on the plain language of the contracts at issue; (ii) in the alternative, granting a new trial due to the numerous errors at trial; or (iii) in the alternative, reducing the award of damages to $2.1 million, which reflects the Company’s stock price on the date that the jury found the relevant revenue and sales benchmarks at issue were met. The judgment will accrue post-judgement interest at 5.52% per year commencing February 13, 2023.

The Company believes that the jury verdict is not supported by the facts of the case or applicable law, is the result of significant trial error, and there are strong grounds for appeal. The Company filed a notice of appeal to the Fourth District Court of Appeal for the State of Florida on February 21, 2023, which is currently proceeding. The Company intends to vigorously challenge the judgment through the appeal processes.

As a result, the Company believes that the likelihood that the amount of the judgment will be affirmed is not probable. The Company has taken into consideration the events that have occurred after the reporting period and before the financial statements were issued. The Company currently estimates a range of possible outcomes between $2.1 million and $82.6 million plus interest, and the Company has accrued a liability as of June 30, 2023 and December 31, 2022, reflected in accounts payable and accrued expenses in the consolidated balance sheets, at the low end of the range. The ultimate loss to the Company of the litigation matter could be materially different from the amount the Company has accrued. The Company cannot predict or estimate the duration or ultimate outcome of this matter.

In addition to the foregoing, from time to time, the Company may become party to litigation or other legal proceedings that is considered to be a part of the ordinary course of business.
Commitments
The Company has entered into distribution agreements with liquidated damages in case the Company cancels the distribution agreements without cause. Cause has been defined in various ways. If management makes the decision to terminate an agreement without cause, an estimate of expected damages is accrued, and an expense is recorded within selling, general and administrative expenses in the consolidated statements of operations and comprehensive income during the period in which termination was initiated.
As of June 30, 2023 and December 31, 2022, the Company had contingent commitments to third parties of $75.4 million and $30.7 million, respectively. The Company's guarantees are primarily related to third party suppliers and have arisen through the normal course of business. The contingent commitments may have various terms, and none are individually significant.
The Company had contractual obligations aggregating approximately $3.9 million at June 30, 2023, which related primarily to sponsorships and other marketing activities.