What changed in this filing

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Item 1. Legal Proceedings

2023-05-22 compared with 2022-11-14 · 43 added, 109 removed, 12 unchanged (93% of the section changed)

LEGAL PROCEEDINGS.

As of September 30, 2022,

there were no material pending legal proceedings to which the Company is a party or as to which any of its property is subject other

than described below.

As previously disclosed,

the Company, its Chief Executive Officer Andy Heyward, and its Chief Financial Officer Robert Denton were named as defendants in a putative

class action lawsuit filed in the U.S.

District Court for the Central District of California and styled In re Genius Brands International,

As of March 31, 2023, there were no material pending legal proceedings to which the Company is a party or as to which any of its property is subject other than described below.

As previously disclosed, the Company, its Chief Executive Officer Andy Heyward, and its Chief Financial Officer Robert Denton were named as defendants in a putative class action lawsuit filed in the U.S.

District Court for the Central District of California and styled In re Genius Brands International, Inc.

Securities Litigation , Master File No.

2:20-cv-07457 DSF (RAOx).

Lead plaintiffs alleged generally that the defendants violated

Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by issuing allegedly false or misleading

statements about the Company, initially over an alleged class period running from March into early July 2020.

Plaintiffs sought unspecified

damages on behalf of the alleged class of persons who invested in the Company’s common stock during the alleged class period.

moved to dismiss lead plaintiffs’ amended complaint;

and in a decision issued on August 30, 2021, the Court dismissed the amended

complaint but granted lead plaintiffs a further opportunity to plead a claim.

On September 27, 2021,

lead plaintiffs filed a second amended complaint, naming the same defendants.

The new complaint alleged again that the Company made numerous

false or misleading statements about the Company’s business and business prospects, this time over an expanded alleged class period

that extended into March 2021;

they again alleged that these misstatements violated Section 10(b) and 20(a) of the Exchange Act.

plaintiffs again sought unspecified damages on behalf of an alleged class of persons who invested in the Company’s common stock

during the expanded alleged class period.

In November 2021, defendants filed a motion to dismiss the second amended complaint.

15, 2022, the Court issued a decision dismissing the second amended complaint in its entirety and with prejudice.

On August 12, 2022,

lead plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit.

Briefing of the appeal is expected

to be extended into early 2023.

The Company cannot predict the outcome of that appeal or the timing of a decision on it.

Related to the

securities class action, the Company’s directors (other than Dr.

Lead plaintiffs alleged generally that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by issuing allegedly false or misleading statements about the Company, initially over an alleged class period running from March into early July 2020, and, in their second amended complaint, over a class period alleged to extend into March 2021.

Plaintiffs sought unspecified damages on behalf of the alleged class of persons who invested in the Company’s common stock during the alleged class period.

Defendants filed motions to dismiss the different versions of lead plaintiffs’ pleading.

Most recently, on July 15, 2022, the Court granted defendants’ motion directed to lead plaintiffs’ second amended complaint, ordering that the complaint and the action be dismissed in their entirety and with prejudice.

On August 12, 2022, lead plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit.

Briefing of the appeal concluded earlier this year.

The Company cannot predict whether the Court will entertain oral argument of the appeal, when a hearing might be scheduled, the outcome of the appeal or the timing of a decision on the appeal.

In the meantime, there is no other activity in the case.

Related to the securities class action, the Company’s directors (other than Dr.

Cynthia Turner-Graham), together with Messrs.

Denton and former director Michael Klein, have been named as defendants in several putative stockholder derivative lawsuits.

previously disclosed, these include a consolidated proceeding pending in the U.S.

District Court for the Central District of

California and styled In re Genius Brands Stockholder Derivative Litigation , Case No.

Heyward and Denton and former director Michael Klein, have been named as defendants in several punitive stockholder derivative lawsuits.

As previously disclosed, these include a consolidated proceeding pending in the U.S.

District Court for the Central District of California and styled In re Genius Brands Stockholder Derivative Litigation , Case No.

2:20-cv-08277 DSF (RAOx);

action filed in the Los Angeles County Superior Court captioned Ly, etc.

an action filed in the Los Angeles County Superior Court captioned Ly, etc.

Heyward, et al ., Case No.

additional case pending in the U.S.

and an additional case pending in the U.S.

District Court for the District of Nevada, styled Miceli, etc.

al ., Case No.

Heyward, et al ., Case No.

3:21-cv-00132-MMD-WGC.

While the allegations and legal claims vary somewhat among the derivative actions,

they all generally allege that the defendants breached fiduciary duties owed to the Company.

The plaintiffs, all alleged

stockholders of the Company, purport to sue on behalf and for the benefit of the Company.

Accordingly, the derivative plaintiffs

seek no recovery from the Company.

While the allegations and legal claims vary somewhat among the derivative actions, they all generally allege that the defendants breached fiduciary duties owed to the Company.

The plaintiffs, all alleged stockholders of the Company, purport to sue on behalf and for the benefit of the Company.

Accordingly, the derivative plaintiffs seek no recovery from the Company.

Instead, as a stockholder derivative action, the Company is named as a nominal defendant.

Pursuant to agreements among the parties, the courts in all of the derivative lawsuits have stayed proceedings pending the outcome

of the securities class action.

The Company cannot predict the impact of the securities class action’s dismissal on the

shareholder derivative lawsuits.

The Company is also a

nominal defendant in an action filed in January 2022 in the U.S.

District Court for the Southern District of New York and styled Todd

Pursuant to agreements among the parties, the courts in all of the derivative lawsuits have stayed proceedings pending the outcome of the securities class action.

The Company cannot predict the impact of the securities class action’s outcome on appeal on the shareholder derivative lawsuits.

Finally, the Company is also a nominal defendant in an action filed in January 2022 in the U.S.

District Court for the Southern District of New York and styled Todd Augenbaum v.

Anson Investments Master Fund LP, et al ., Case No.

1:22-cv-00249-VM.

The action, which again purports to be brought

on behalf and for the benefit of the Company, seeks the recovery under Section 16(b) of the Exchange Act of supposed short-swing

profits allegedly realized by roughly a dozen persons and entities that participated as investors in certain of the Company’s

private placements of securities in 2020.

Plaintiff Augenbaum, who purports to be a Company stockholder, filed his lawsuit after

issuing a demand to the Company’s Board of Directors asking that the Company sue the investor defendants.

The Company rejected

the demand, and Mr.

Augenbaum sued a few weeks later, as Section 16(b) permits him to do.

No Company officer or director is among

the defendants.

The defendant investors in the action requested and received court permission to file a motion to dismiss the

The motion was filed in July 2022, and the plaintiff has opposed it.

Thereafter, the Court ordered additional briefing on

the motion, which is currently scheduled to conclude in mid-November 2022.

The action, which purports to be brought on behalf and for the benefit of the Company, seeks recovery under Section 16(b) of the Exchange Act of supposed short-swing profits allegedly realized by roughly a dozen persons and entities that participated as investors in certain of the Company’s private placements of securities in 2020.

No Company officer or director is among the defendants.

The defendant investors filed a motion to dismiss, which the Court took under submission in mid-November 2022 after the completion of full briefing.

By decision issued March 30, 2023, the Court granted defendants’ motion to dismiss with leave to amend.

On May 1, 2023, plaintiff filed an amended complaint.

The Company anticipates that defendants will renew their motions to dismiss, but no schedule for doing so has yet been set.

There is otherwise no current activity in the case.

Company cannot predict the outcome of the motion to dismiss, the timing of court action on the requests, or the outcome of the

lawsuit more generally.

While the Company again notes that plaintiff seeks no relief against the Company, several of the defendant

investors have made demands on the Company that it indemnify their costs of defending the action, invoking provisions in the

agreements by which the investors acquired Company securities.

On January 18, 2022, the Company

was named as a defendant in a lawsuit filed in the Supreme Court of the State of New York, County of New York styled Harold Chizick

and Jennifer Chizick v.

Genius Brands International, Inc., ChizComm Ltd ., Index No.

650278/2022, alleging:

(1) breach of employment

agreement, (2) breach of duty of good faith, (3) constructive dismissal, (4) indemnification, (5) violation of the Employment Standards

Act 2000 of Ontario, and (6) defamation.

On February 25, 2022, the Company filed a motion to dismiss on the ground that venue is improper.

In response, plaintiffs’ counsel has advised that they will be amending their complaint to address the arguments in the Company’s

venue motion.

Plaintiffs filed an amended complaint on March 17, 2022, adding a claim for reformation of the plaintiffs’ employment

agreements to address the Company’s lack of venue argument and a claim for breach of escrow agreement regarding alleged release

of shares held in escrow pursuant to the parties’ Purchase and Sale Agreement (the “PSA”).

On April 25, 2022, the Company

filed a motion for partial dismissal of the plaintiffs’ amended complaint seeking (1) dismissal of the plaintiffs’ claims

for indemnification and defamation and (2) a stay of plaintiffs’ claim for breach of escrow agreement pending the required arbitration

of this claim.

At the hearing on this motion to dismiss on June 14, 2022, the Company was successful in having (1) the indemnification

claim dismissed with prejudice and (2) the claim for breach of escrow agreement stayed pending arbitration of this claim before the American

Arbitration Association (“AAA”).

On June 3, 2022, plaintiffs commenced their AAA arbitration proceeding regarding their claim

for breach of escrow agreement by filing an arbitration demand.

On June 6, 2022, plaintiffs

filed a request for emergency relief in the AAA proceeding seeking a mandatory injunction to release the Company shares held in escrow

pending indemnification claims under the terms of the PSA.

The Company opposed this emergency relief request on multiple grounds (including,

without limitation, the lack of any irreparable harm, the adequacy of money damages and the Company’s indemnification claim applicable

to the escrowed shares) and the hearing on this emergency relief request occurred at the AAA offices in New York on June 24, 2022.

On October 3, 2022,

the parties reached a full and complete settlement of the New York state action and the AAA arbitration proceeding and both proceedings

have been dismissed with prejudice.

In all of the above-mentioned

active proceedings, the Company has denied and continues to deny any wrongdoing and intends to defend the claims vigorously.

maintains a program of directors’ and officers’ liability insurance that, subject to the insurers’ reservations of rights,

has offset a portion of the costs of defending the securities class action litigation, and that the Company expects will afford coverage

for some costs of the other shareholder litigation should any of those cases proceed.

The Company cannot predict the outcome of the anticipated motion to dismiss the amended complaint, the timing of court action on the requests, or the outcome of the lawsuit more generally.

While the Company again notes that plaintiff seeks no relief against the Company, several defendant investors have made demands on the Company that it indemnify their costs of defending the action, invoking provisions in the agreements by which the investors acquired Company securities.

The Company disagrees that it has indemnity obligations applicable to this action;

however, the Company cannot predict the outcome of the indemnification issue.

In all of the above-mentioned active proceedings, the Company has denied and continues to deny any wrongdoing and intends to defend the claims vigorously.

The Company maintains a program of directors’ and officers’ liability insurance that, subject to the insurers’ reservations of rights, has offset a portion of the costs of defending the securities class action litigation, and that the Company expects will afford coverage for some costs of the other shareholder litigation should any of those cases proceed.

RISK FACTORS.

There have been no material changes to the Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

DEFAULTS UPON SENIOR SECURITIES.

MINE SAFETY DISCLOSURES.

Not applicable.

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-Q

Item 1. Legal Proceedings