Item 3. Legal Proceedings
Item 3. Legal Proceedings.
As of December 31, 2020, there were no
material pending legal proceedings to which we are a party or as to which any of its property is subject other than described below.
As previously disclosed, on August 18, 2020, the Company and its Chief Executive Officer
Andy Heyward 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 Salvador Verdin v. Genius Brands International, Inc. and Andy Heyward, Case No. 2:20-cv-07457-DDP-PJW. We were
later served with a similar lawsuit Sumit Garg v. Genius Brands International, Inc. and Andy Heyward, Case No. 2:20-cv-07764. Both suits
allege generally that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false
or misleading statement regarding the Company’s business and business prospects, artificially inflating the Company’s stock
price. Plaintiff seeks unspecified damages on behalf of the alleged class. The two above-referenced securities suits have been consolidated
into a single proceeding before Judge Fischer in the U.S. District Court for the Central District of California. The proceeding will
now be known as In re Genius Brands International, Inc. Securities Litigation. The amended complaint in this action was filed on February
1, 2021. On March 17, 2021, the defendants filed a motion to dismiss the amended complaint. Briefing that motion is, by court-ordered
schedule, expected to extend into June 2021, with a hearing currently scheduled for July 5, 2021. Pending resolution of the motion to
dismiss, neither discovery nor other substantive proceedings are expected.
Related to the securities class action,
the Company’s directors, Chief Executive Officer and Chief Financial Officer have been named as defendants in a putative
shareholder derivative lawsuit filed in September 2020 in the U.S. District Court for the Central District of California and styled
Eduardo Correa, etc., v. Andy Heyward, et. al., Case No. 2:20-cv-08277-DSF (RAOx). On November 20, 2020 a second case, Son
Ly, on behalf of Genius Brands International, Inc. v. Andy Heyward; 11/20/2020 CNS Temporary No. E167721482 , was filed in
a different court – specifically the Los Angeles County Superior Court. The suits make similar allegations, generally stating
that the defendants breached fiduciary duties owed to the Company by, among other things, causing the Company to issue the supposedly
false and misleading statements that underlie the Verdin securities litigation and thereby purportedly exposing the Company
to liability and damaging the Company in an unspecified amount. No recovery is sought from the Company. Instead, as a shareholder
derivative action, the Company is named as Nominal Defendant; and plaintiff, an alleged stockholder of the Company, purports to
sue on behalf and for the benefit of the Company. Pursuant to an agreement among the parties, the court has stayed proceedings
in the derivative litigations pending the outcome of anticipated motions to dismiss in the securities class action.
14
In all of the above-mentioned proceedings,
defendants have denied and continue to deny any wrongdoing and intend to defend the claims vigorously.
On July 7, 2020, we received a letter from a law firm alleging
that rights Genius Brands had licensed from POW!, LLC, through its the Stan Lee Universe, LLC joint venture, had already been sold
to another company, represented by that law firm. The law firm alleged that the Company is, inter alia, interfering with their
contractual rights. This matter was referred to our outside litigation counsel. We have been informed that the matter is being
adjudicated in an arbitration and that the arbitrator issued a gag order preventing further communications from Plaintiff to 3 rd
parties.
As a result of COVID 19, the majority of
our employees started working remotely and we stopped paying rent in April of 2020. On November 30, 2020, the landlord filed a
lawsuit demanding that the Company pay all past due rent. On February 18, 2021 we entered into a settlement agreement with the
landlord whereby we agreed to pay $237,500 in full settlement of all claims and promised to resume paying the contractually agreed
rent in full starting March 1, 2021.
Item 4. Mine Safety Disclosures.
Not applicable.
15
PART II
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.