Item 3. Legal Proceedings
Item
3.
Legal
Proceedings.
From
time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose
the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing
the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend
any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed
reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of
possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration
factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood
of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters
progress over time.
While
the ultimate resolution is unknown, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse
effect to our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain
and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters
will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a
material adverse effect on our operating results, financial condition or cash flows.
Culp
McCauley
On
May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc. (“defendant”) in the United States District Court for
the District of Kansas. The lawsuit arises from the defendant’s multiple breaches of its obligations to the Company. The Company
seeks monetary damages and injunctive relief based on certain conduct by the defendant. On July 18, 2022, the defendant filed its Answer
to the Company’s Verified Complaint and included Counterclaims alleging breach of contract and seeking monetary damages. On August
8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and
any and all liability. During the second quarter of 2023, we concluded that a $1.8 million loss related to the allegations is probable,
with no conclusion on the remaining $2.2 million being a probable loss related to these claims. Although we believe a further loss could
be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably
possible loss with respect to the potential damages given that the dispute is yet to enter the discovery process. We will continue to
vigorously pursue these claims, and we continue to believe that we have valid grounds for recovery of the disputed deliverables. However,
there can be no assurances as to the outcome of the dispute.
12
Item
4.
Mine
Safety Disclosures.
Not
applicable.
PART
II