Item 3. Legal Proceedings
Item 3.
Legal Proceedings
As of December 31, 2021, 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.
On June 16, 2021, the Company
was named as a defendant in a lawsuit filed in the U.S. District Court for the Central District of California styled A Parent Media Co.
Inc. v. Genius Brands International, Inc., Case No. 2:21-CV-04897, alleging that the Company has infringed the plaintiff’s federally
registered trademarks KIDOODLE.TV, KIDOODLE and KIDOODLETV by sponsoring Google Ads in which the plaintiff’s trademarks appeared.
The parties entered into a confidential settlement agreement in November 2021, and the lawsuit was then dismissed with prejudice along
with the entry of a permanent injunction by the Court.
As previously disclosed, the
Company, its Chief Executive Officer, Andy Heyward, and its Chief Financial Officer, Robert Denton, are 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). Initially, the 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 making materially false or
misleading statements regarding the Company’s business and business prospects, artificially inflating the Company’s stock
price during an alleged class period running from March 11, 2020, through July 5, 2020. Plaintiffs sought unspecified damages on behalf
of the alleged class of persons who invested in our common stock during the alleged class period. The defendants 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.
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On September 27, 2021, the
lead plaintiffs filed a second amended complaint, naming the same defendants. The new complaint alleges that the Company made numerous
false or misleading statements about the Company’s business and business prospects over an alleged class period running from March
11, 2020, through March 30, 2021, which they say violated Section 10(b) and 20(a) of the Exchange Act. Lead plaintiffs also allege a “scheme
to defraud” during 2020 that involved several private placements of Company stock with an allegedly “insider” group
of investors that purportedly then issued press releases that inflated the stock price, after which these investors purportedly sold their
shares at higher prices. None of these investors (save Mr. Heyward, who is not alleged to have sold his shares) is named as a defendant
in the securities action. The lead plaintiffs again seek unspecified damages on behalf of the alleged class—persons who invested
in the Company’s common stock during the newly alleged class period. In November 2021, defendants filed a motion to dismiss the
second amended complaint, and the motion is fully briefed. Argument on the motion was scheduled for March 21, 2022, on March 18, 2022,
the judge cancelled the hearing and will rule based on the parties’ written submissions. The Company cannot predict the outcome
of the motion or the timing of a decision from the Court. Pending resolution of the motion to dismiss, neither discovery nor other substantive
proceedings are occurring nor expected.
Related to the securities
class action, the Company’s directors, Chief Executive Officer and its Chief Financial Officer have been named as defendants in
several putative shareholder 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); an action filed in the Los Angeles County Superior Court captioned Ly, etc. v. Heyward, et al., Case No.
20STCV44611; and an additional case pending in the U.S. District Court for the District of Nevada, styled Miceli, etc. v. 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 by, among other things, causing the Company to issue
the supposedly false and misleading statements that underlie the securities lawsuit, purportedly exposing the Company to liability and
damaging the Company in an unspecified amount. By these derivative lawsuits, the plaintiffs seek no recovery from the Company. Instead,
as a shareholder derivative action, the Company is named as a nominal defendant. The plaintiffs, all alleged stockholders of the Company,
purport to sue on behalf and for the benefit of the Company. Pursuant to agreements among the parties, the courts in all of the derivative
lawsuits have stayed proceedings pending the outcome of the motion to dismiss in the securities action.
The Company is also a nominal
defendant in an action filed January 11, 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 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 the Company’s March 11, 2020 offering of convertible debt
securities and warrants. 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 in late December
2021, 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 action is currently in its very early stages, with the parties currently negotiating a date for defendants’ initial responses
to the complaint. The Company cannot predict the outcome of the lawsuit, but again notes that plaintiff seeks no relief against the Company.
On July 7, 2020, the Company
received a letter from a law firm alleging that rights that Genius Brands had licensed from POW! LLC, through its joint venture, Stan
Lee Universe, LLC, had already been sold to another company, Proxima, represented by that law firm. The law firm alleged that the Company
is, inter alia, interfering with Proxima’s contractual rights. On or about November 4, 2021, POW! and Proxima entered a binding
settlement agreement resolving all the claims made by Proxima.
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 their Amended Complaint on March 17, 2022. The case remains at the pleading stage and no trial date has been
set.
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.
Item 4.
Mine Safety Disclosures
Not applicable.
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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.