COMMITMENTS AND CONTINGENCIES
|9 Months Ended|
Sep. 30, 2022
|Commitments and Contingencies Disclosure [Abstract]|
|COMMITMENTS AND CONTINGENCIES||
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Litigation Costs and Contingencies
On October 7, 2022, a stockholder of the Company (the “Plaintiff”), filed a shareholder derivative action against the Company, Michael Panosian, Joshua Keeler, Zareh Khachatoorian, Martin Galstyan, et. al. (collectively, the “Defendants”) in the Eighth Judicial District Court of Nevada, Case No. A-22-859580-B.
In the complaint, the Plaintiff alleged a breach of the applicable Defendants’ fiduciary duties of loyalty, good faith, and due care owed to the Company and the shareholders of the Company, by negligently, willfully, recklessly and/or intentionally failing to perform their fiduciary duties primarily in connection with the Company’s registered direct offering of 2,500 shares of Series F preferred stock and 2,500 shares of Series G preferred stock in February 2022 and subsequent 1-for-150 reverse stock split effected in April 2022.The Plaintiff claimed that the Plaintiff has suffered (i) monetary damages in excess of $10,000, and (ii) attorney fees and costs, and is entitled to reimbursement. The Plaintiff asked for the following relief (i) issuance of a preliminary injunction enjoining the Company and the board of directors from continued of their fiduciary duties; (ii) damages incurred by the plaintiff; (iii) for an accounting of the Company’s books and records; (iv) equity relief; (v) reimbursements of attorney and courts fees and other related costs. The Company believes that the claims put forth by the Plaintiff are without merit and the Company intends to vigorously defend itself and the offices named in the complaint.
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Other than as set forth below, management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered and the amount can be reasonably
estimated, the Company recognizes an expense for the estimated loss.
On August 16, 2016, a plaintiff filed a complaint against Defendants ToughBuilt Industries, Inc. (the “Company”) and Michael Panosian in the Superior Court of California, County of Los Angeles, Case No. EC065533.The complaint alleges breach of oral contracts to pay the plaintiff for consulting and finder’s fees and to hire him as an employee. The complaint further alleged claims of fraud and misrepresentation relating to an alleged payment in exchange for stock in the Company. The complaint seeks unspecified monetary damages, declaratory relief, stock in the Company, and other relief according to proof.
On April 12, 2018, the Court entered judgments of default against the Company and Mr. Panosian in the amounts of $7,080 and $235,542, plus awarding the plaintiff a 7% ownership interest in the Company (the “Judgments”). The plaintiff served notice of entry of the judgments on April 17, 2018 and the Company and Mr. Panosian received notice of the entry of the default judgments on April 19, 2018.
The Company and Panosian satisfied the judgments on September 14, 2018 by payment of $252,949 to the plaintiff and by issuing the plaintiff 2,509 shares of common stock of the Company. On October 18, 2018, the Company and Panosian filed a Notice of Appeal from the Order denying their motion for relief from the above-referenced default judgment.
On October 1, 2019, the Second Appellate District of the California Court of Appeal issued its opinion reversing the trial court’s order denying ToughBuilt’s motion for relief from the default judgment and directing the trial court to grant ToughBuilt’s motion for relief, including allowing Toughbuilt to file an Answer and contest the plaintiff’s claims.
The plaintiff was seeking damages and stock based on a breach of an alleged oral agreement. This case concluded in April
2022. The plaintiff was awarded $160,000 which was offset by a prior judgment against the plaintiff.
The entire disclosure for commitments and contingencies.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef