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Item 3. Legal Proceedings

2025-05-02 compared with 2024-04-01 · 76 added, 23 removed, 16 unchanged (86% of the section changed)

Legal Proceedings.

time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us.

13 unchanged sentences

progress over time.

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.

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.

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.

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.

there can be no assurances as to the outcome of the dispute.

Safety Disclosures.

(“Culp McAuley”) and four individuals (Brandon

Culp, Campbell McAuley, Mark Depew and Larry Roberts, collectively the “defendants”) in the United States District Court

for the District of Kansas, seeking monetary damages and injunctive relief based on certain conduct by the defendants.

2022, Culp McAuley 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.

December 20, 2022, the Company filed a motion for leave to file a second amended complaint to add additional claims against the defendants

to avoid fraudulent transfers, to pierce the corporate veil of Culp McAuley, and for remedies related to the claims for fraudulent transfers

and piercing the corporate veil.

On December 22, 2022, the Court issued an Order granting the Company’s motion for leave to file

a second amended complaint, which was filed with the Court on December 27, 2022.

Because Culp McAuley’s original counsel withdrew,

Culp McAuley was ordered to obtain new counsel on or before December 2, 2022.

On December 5, 2022, the Court ordered that Culp McAuley

show cause in writing by December 21, 2022, why the Court should not direct the Clerk to enter default against it.

On December 22, 2022,

the Court directed the Clerk to enter default against Culp McAuley.

On February 21, 2023, the Clerk entered default against Culp McAuley.

February and March, 2023, defendants Larry Roberts and Mark Depew filed separate motions to dismiss, respectively.

The Company opposed

both motions.

On July 7, 2023, the Court issued an Order granting Roberts’ motion to dismiss and denying Depew’s motion to

On December 7, 2023, the Company filed an application for the Clerk’s entry of default against defendant Brandon Culp.

On December 13, 2023, the Clerk entered default against Brandon Culp.

January 5, 2024, the Company filed a motion for summary judgment against defendants Campbell McAuley and Mark Depew.

On the same date,

the Company also filed separate motions for default judgment against Culp McAuley and Brandon Culp, respectively.

On January 5, 2024,

defendant Mark Depew filed a motion for summary judgment against the Company.

On May 17, 2024, the Court issued Orders which, respectively,

(i) granted defendant Mark Depew’s motion for summary judgment against the Company;

(ii) denied the Company’s motion for

summary judgment against Depew;

(iii) granted the Company’s motion for summary judgment against defendant Campbell McAuley;

(iv) granted the Company’s motions for default judgment against defendants Culp McAuley and Brandon Culp.

Finding that defendants

Brandon Culp and Campbell McAuley were each the alter ego of Culp McAuley, on June 4, 2024, the Court entered judgment in favor of the

Company in the amount of $3,999,984 against Culp McAuley, Brandon Culp, and Campbell McAuley, jointly and severally (the “judgment”).

The Company is currently uncertain as to what amount, if any, of the judgment amount it will ultimately be able to recover.

June 14, 2024, the Company filed a Notice of Appeal to the United States Court of Appeals for the Tenth Circuit from the Court’s

May 17, 2024 Order that granted summary judgment in favor of Mark Depew.

On December 10, 2024, the Company and Depew filed a Stipulation

of Dismissal in the Tenth Circuit that ended the appeal after the Company and Depew reached a settlement.

March 2024, the Company filed a complaint against Larry Roberts (“defendant”) in the Superior Court of the State of California,

County of Orange.

The lawsuit arises from the defendant’s multiple breaches of his obligations to the Company.

The Company seeks

monetary damages based on certain conduct by the defendant.

On May 28, 2024, the defendant filed a motion to strike portions of the complaint

and a motion for demurrer.

On October 4, 2024, the Court sustained in part and overruled in part defendant’s motion for demurrer.

The Court further denied the defendant’s motion to strike in its entirety.

A jury trial has been scheduled for October 19, 2026.

of December 31, 2024, while we are able to estimate a range of reasonably possible loss related to the Culp McCauley case (when

taking into account, among other things, the uncertainty of recovering the judgment amount owed to the Company by Culp McAuley,

Brandon Culp and Campbell McAuley, jointly and severally), our estimate of the aggregate reasonably possible could be the entire

balance of the judgment.

The Company has recorded an additional loss of $1,959,396 on this matter as of December 31, 2024 which

together with the previously recorded losses in prior years, reduces the Company’s net exposure to zero at

December 31, 2024.

Our estimate with respect to the aggregate reasonably possible loss is based upon currently available information

and is subject to significant judgment and a variety of assumptions and known and unknown uncertainties, which may change quickly

and significantly from time to time, particularly if and as we engage with applicable governmental agencies or plaintiffs in

connection with a proceeding.

Also, the matters underlying the reasonably possible loss will change from time to time.

actual results may vary significantly from the current estimate.

the ultimate resolution is unknown, based on the information currently available, we do not expect that the pending lawsuit or the enforcement

of the judgment will have a material adverse effect on our 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 the pending lawsuit or enforcement of the judgment 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.

Mine Safety Disclosures.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings