Item 3. Legal Proceedings
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become
involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.
On August 6, 2020, the Company,
Messrs. John and Miller and certain affiliated entities filed a lawsuit in the United States District Court, Southern District of New
York against Robert Koch, Bedford Investment Partners, LLC, Kaizen Advisors, LLC and certain other unnamed defendants. The lawsuit alleges
that Mr. Koch and the other defendants are attempting to extort the Company and Messrs. John and Miller to issue the defendants shares
of the Company’s common stock which they claim are owed to them. The Company asserts that they have no oral or written agreement
with Mr. Koch or any of his affiliates that entitle him to shares of the Company’s common stock. The Company’s complaint seeks
actual damages in the amount of $5,000,000 and punitive damages in the amount of $5,000,000. In response, the defendants filed their answer
and asserted a counter claim repeating the same claims that caused the Company to file their suit. Subsequently, the Company moved for
judgement on the pleadings to dismiss the defendant’s counterclaim in its entirety. That motion has been fully briefed and is pending
adjudication. The Company intends to vigorously contest the claims.
On July 6, 2020, Brian Menke (the
“ Plaintiff ”) brought an action in Nevada District court seeking to enforce a judgement that he had obtained in 2012
against Krista Whitley, the former owner and manager of Magical Beasts LLC., in the amount of $250,000. In July 2020, the Plaintiff brought
a claim in Nevada State Court to impute such judgement to the Company’s wholly owned subsidiary, Magical Beasts, LLC. On August
6, 2020, the court imputed the judgement to Magical Beasts and advised the Company that before paying any funds to Ms. Whitley, they must
first satisfy the judgement to the Plaintiff. On October 12, 2020, the Company, Ms. Whitley and the Plaintiff reached an agreement whereby
the Company and Ms. Whitley agreed that of the $1,000,000 payable by the Company to Ms. Whitley in connection with its acquisition of
Magical Beasts, the first $336,450 would be paid to the Plaintiff. In November, the Company made a cash payment of $300,000 to the Plaintiff
and issued 8,500 shares of its common stock valued at $36,450. Plaintiff agreed to withdraw the case against Magical Beasts without prejudice
and the matter is now settled.
On January 25, 2021, the Company entered into an Omnibus
Amendment to: (1) the Confidential Membership Interest Purchase Agreement, dated February 21, 2020; (2) the Sales Distributor Agreement,
dated February 21, 2020; and (3) the Executive Employment Agreement, dated March 31, 2020 (the “ Agreements ”). Pursuant
to the Omnibus Amendment, the parties (i) acknowledge that the Company has fully satisfied its obligation of $334,000 to the Plaintiff
as Ms. Whitley’s judgment creditors; (ii) agree that in satisfaction of the remaining balance due to Ms. Whitley under the Agreements,
she is to be paid $150,000 in cash instead of $650,000 and, starting April 1, 2020, shall be entitled to individually market and sell
the Bella line of products remaining in the Company’s inventory, as identified in the Omnibus Amendment, and the Company will relinquish
its rights to the Bella brand; (iii) agree that the number of shares issuable upon exercise of the common stock purchase options granted
to Ms. Whitley under the Agreements shall be reduced from 250,000 to 185,000, Ms. Whitely may utilize a cashless exercise feature to exercise
such options, subject to a six (6) month holding period on the shares, and Ms. Whitley shall not be permitted to sell an amount of shares
in any week which exceeds 10% of the Company’s total weekly trading volume in the prior week; (iv) agree that Ms. Whitley’s
Employment Agreement shall terminate on March 31, 2021 and shall not renew; and (v) acknowledge that Ms. Whitley has been paid $5,541.50
for unreimbursed expenses on or about December 30, 2020. There will be no adverse impact to the financial statements or financial position
of the company related to this matter given the offset of the balance of the $1,000,000 note payable already recorded.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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Table of Contents
PART II
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