| Legal Matters | Note 7 - Legal Matters Business Combination Liti ation On October 3, 2020, counsel to Stanislav Royzenshteyn
and Roman Gerashenko (together, the “Founder Stockholders”) and Onyx Enterprises Canada Inc. and its principals (collectively,
the “Investor Stockholder and Principals”) received a letter from counsel to the Founder Stockholders objecting to the Investor
Stockholder’s use of the “drag-along right” under Section 4.5 of the Stockholders Agreement, dated July 17, 2015 (the
“Stockholders Agreement”), and the proxy granted pursuant to Section 5.1 of the Stockholders Agreement to execute (i) the
stockholder written consent, dated September 18, 2020, approving the Business Combination Agreement and (ii) the Stockholder Support
Agreements, in each case on behalf of the Founder Stockholders. The letter also describes the Business Combination as unlawful and threatens
further unspecified actions by the Founder Stockholders. On October 15, 2020, the Founder Stockholders
filed an order to show cause to preliminarily enjoin the Business Combination pending final adjudication of the Shareholder Litigation.
On October 23, 2020, the Superior Court of New Jersey, Chancery Division, Monmouth County refused to grant a preliminary injunction and
set the hearing date on the order to show cause for December 4, 2020. On October 26, 2020, the Founder Stockholders filed an application
for permission to file emergent motion to request a temporary restraining order preventing the closing of the Business Combination prior
to the hearing on December 4, 2020 with the Superior Court of New Jersey, Appellate Division, which such court denied. On October 27,
2020, the Founder Stockholders appealed the Appellate Division’s ruling to the Supreme Court of New Jersey. On October 28, 2020,
the Supreme Court of New Jersey denied such appeal. On November 20, 2020, the Founder Stockholders requested another emergent motion
before the Superior Court of New Jersey, Chancery Division, Monmouth County for a temporary restraining order preventing the closing
of the Business Combination. The Superior Court of New Jersey, Chancery Division, Monmouth County denied that request by order dated
November 20, 2020. The Founder Stockholders withdrew their order to show cause after the November 20, 2020 order was entered. Since then,
the Founding Stockholders advised the court that they will no longer seek to unwind the Business Combination. Rather, they are seeking
damages from the defendants in the Shareholder Litigation (as defined below). Environmental Protection Agency (“EPA”) v. Onyx
Enterprises Int’l, Corp. d/b/a CARiD On October 22, 2018, the U.S. Environmental Protection
Agency (the “EPA”), submitted a formal information request asserting that the Company sold improper and illegal defeat devices
in violation of the Clean Air Act (the “CAA”). The Company responded in December 2018. On July 16, 2020, the EPA presented
the Company with a proposed notice of violation directed to a subset of sales performance parts that the EPA alleges were sold by the
Company in violation of the CAA. The EPA did not propose an aggregate fine but identified 267 transactions as being in violation of the
CAA. The products in question were sold by the Company in 2018 and have since been removed from its platform. On November 22 2020, the
Company provided a response to the EPA with analysis directed at the reasons the 267 transactions did not violate the CAA. On or about
September 30, 2022 the EPA proposed a fine to the Company and the parties have negotiated a final disposition of this matter that the
Company will pay $491,474 with two payments of $49,147 in October and December 2022 and the remainder to be paid in 12 monthly installments
of $32,765 plus interest at 5.0% with the last payment due on December 29, 2023. Onyx Enterprises Int’l, Corp. v. IDParts, LLC On June 30, 2020, the Company initiated a trademark
infringement action against IDParts, LLC (“IDParts”) for the unlawful use of “ID” to sell automotive products
through its e-commerce platform found at www.idparts.com. The Company first used “iD” to sell automotive products in March
of 2009 on its e-commerce platform found at www.carid.com. The Civil Action is captioned as Onyx Enterprises Int’l, Corp. v.
IDParts, LLC, Civil Action Number 1:20-cv-11253-RMZ Onyx Enterprises Int’l Corp v. Volkswagen Group of America,
Inc. On August 4, 2020, Onyx initiated a trademark
infringement action against Volkswagen Group of America, Inc. (“Volkswagen”) for the unlawful use of “ID” to
brand its new line of electric vehicles due to be imported into the United States in 2021 and manufactured in Tennessee in 2022. The
United States Patent and Trademark Office rejected Volkswagen’s application to register “ID” multiple times due to
the Company’s priority over the mark in the automotive space. In 2019, Volkswagen approached the Company for a license to use ID
for a royalty. When Volkswagen announced in July of 2020 that it would proceed with the launch using this branding, the Company filed
suit. The Civil Action is captioned as Onyx Enterprises Int’l, Corp v. Volkswagen Group of America, Inc., Civil Action Number
3:20-cv-09976-BRM-ZNQ Volkswagen has obtained a stay of this matter
pending the outcome in the ID Parts matter. The Company is seeking monetary damages for use of its trademark as well as an order precluding
Volkswagen from continuing to use ID as part of its branding. As discovery has not commenced, the case value and exposure are undetermined
at this time. The parties have engaged in settlement discussions but remain far apart in their evaluation of the merits of the case. Shareholder Liti ation Royzenshteyn, et. al. v. Pathak, et al. v. Onyx
Enterprises Int’l Corp, Superior Court of New Jersey, Monmouth County, Chancery Division, Docket No. MON-C-45. This is a pending litigation matter that involves
a shareholder dispute that arises from a stock purchase and warrant purchase agreement between Onyx Enterprises Int’l Corp. (“Onyx”)
and Onyx Enterprises Canada, Inc. (“OEC”) (the “Transaction”). The litigation was instituted by the plaintiffs
Stanislav Royzenshteyn and Roman Gerashenko, who were the founding stockholders of Onyx, in the Superior Court of New Jersey, Chancery
Division, Monmouth County in February 2018 (the “Shareholder Litigation”). Onyx was named by the Plaintiffs as a nominal
defendant based upon the plaintiffs’ shareholder derivative claims. The Defendants Carey Curtin and Prashant Pathak asserted third
party claims against Onyx seeking indemnification from the Onyx to the extent that the claims were asserted by the Plaintiffs against
the Defendants in their capacity as Directors of Onyx. On August 31, 2021, the Judge issued a decision
on the Defendants’ Motion for Summary Judgement, in which he granted the motion in part and denied it in part. The fraud related claims
asserted by the Plaintiffs against OEC, and the other defendants were not dismissed as well as certain other claims, including claims
under the New Jersey Oppressed Minority Shareholder statute. The shareholder derivative claims were dismissed leaving the Third-Party
Complaint for indemnification as the only remaining claim that involves the Company. The Company has not received a specific demand
for any monetary damages from the Defendants regarding their indemnification claims, nor does the Company have any concrete information
regarding the scope of any such potential damages. Given the amount of time that the Defendants attorneys have devoted to defending the
claims against their clients in the Shareholder Litigation, the potential damages arising from the indemnification claims could be significant.
If the Defendants prevail on their indemnification claims, the Company will assert that that any damages sought should be allocated based
on the time and effort spent in defending against the breach of fiduciary claims, as opposed to defending against the Plaintiffs’
fraud claims, which are the predominant claims in the litigation. Given that the breach of fiduciary claims against the Defendants have
been dismissed, any claim for indemnification will only include fees and costs incurred prior to the decision on the Summary Judgment
Motion. No trial date has been scheduled. Onyx was named by the Plaintiffs as a nominal
defendant based upon the plaintiffs’ shareholder derivative claims. The Defendants, Carey Curtin and Prashant Pathak, asserted
third party claims against Onyx seeking indemnification from the Onyx to the extent that the claims were asserted by the Plaintiffs against
the Defendants in their capacity as Directors of Onyx. On August 31, 2021, the Judge issued a decision
on the Defendants’ Motion for Summary Judgement, in which he granted the motion in part and denied it in part. The fraud related
claims asserted by the Plaintiffs against OEC, and the other defendants were not dismissed as well as certain other claims, including
claims under the New Jersey Oppressed Minority Shareholder statute. The shareholder derivative claims were dismissed leaving the Third-Party
Complaint for indemnification as the only remaining claim that involves the Company. The Company has not received a specific demand
for any monetary damages from the Defendants regarding their indemnification claims, nor does the Company have any concrete information
regarding the scope of any such potential damages. Given the amount of time that the Defendants attorneys have devoted to defending the
claims against their clients in the Shareholder Litigation, the potential damages arising from the indemnification claims could be significant.
If the Defendants prevail on their indemnification claims, the Company will assert that that any damages sought should be allocated based
on the time and effort spent in defending against the breach of fiduciary claims, as opposed to defending against the Plaintiffs’
fraud claims, which are the predominant claims in the litigation. Given that the breach of fiduciary claims against the Defendants have
been dismissed, any claim for indemnification will only include fees and costs incurred prior to the decision on the Summary Judgment
Motion. Potential Claim by Former CEO On August 12, 2020, the former CEO of the Company,
Mr. Royzenshteyn, a plaintiff in the Stockholder Litigation, filed a motion to amend the complaint in the Stockholder Litigation matter
first listed above, to assert claims arising from the Board’s acceptance of his resignation as CEO. Mr. Royzenshteyn has asserted
that he did not resign but was terminated by the Board in breach of his employment agreement. His proposed complaint seeks payment of
his severance and damages from the Company associated with his alleged termination. Mr. Royzenshteyn’s motion to amend the complaint
has been denied by the Special Discovery Master, but his proposed claims are preserved for any potential future action brought by him
against the Company. Management believes that Mr. Royzenshteyn’s claims are without merit, but at this early stage without any
litigation actually having been commenced is not possible to determine the likelihood of success of any such claims and the potential
amount of liability, if any, of any award that may be made against the Company. Any amount awarded as a result will be recorded in the
period it occurs. Potential Indemnification Claims by Former
Directors of Onyx Former Onyx Directors Royzenshteyn and Gerashenko
(the “Plaintiff Directors”) tendered a demand for indemnification from the Company pursuant to their Director Indemnification
agreements with Onyx. The Company’s Board denied the request for indemnification. The Plaintiff Directors then filed a motion in
the Stockholder litigation to reserve their indemnification claims for future litigation. That motion was heard by the Special Discovery
Master, who denied motion on the grounds that the Plaintiffs had not filed a proposed amended pleading asserting these alleged claims
with their motion. Subsequently, the Plaintiffs attempted to file an amended pleading with respect to the indemnification claims, which
pleading was rejected by the court because it was not accompanied by an order. Thereafter, the Plaintiff Directors submitted the proposed
pleading to the Special Master, which pleading was opposed by the Company and the Defendants on the grounds that it was time barred based
on the statute of limitations contained in the indemnification agreements. The Special Master has issued a report and recommendation
in which he held that the Plaintiffs indemnification claims are not time- barred and are preserved for a future litigation. The Company
filed a motion objecting to that Report and Recommendation, which motion was denied by the Court. To date, the Plaintiffs have not filed
any action seeking indemnification from the Company. Misappropriation Action The Company commenced an action on November 24,
2020 against Stanislav Royzenshteyn, the Company’s former CEO, captioned Parts iD, LLC v. Stanislav Royzenshteyn KSI Auto Parts v. Parts iD, Inc This is a pending litigation matter that was
filed on November 28, 2022. The Plaintiff is an auto body parts supplier. Plaintiff alleges in its complaint that it supplied auto body
parts to Parts iD and Onyx for which it has not been paid. Plaintiff alleges that the outstanding balance due from Parts iD is $257,090.75,
exclusive of interest and costs. Default was entered against Parts iD for failing to timely answer the Plaintiff’s complaint. Parts
iD has filed a motion to vacate the entry of default, which motion is still pending as of the date of this letter. Competition Specialties, Inc. v. Onyx Enterprises
Int’l Corp., et. Al This is a pending litigation matter that was filed
on February 9, 2023. Plaintiff sells automotive parts and products. Plaintiff alleges in its complaint that it sold automotive parts and
products to Onyx and Parts iD for which it has not been paid. Plaintiff alleges that the total balance due from Parts iD is $275,051.30,
exclusive of interest and costs. Parts iD has not yet filed a responsive pleading to the Plaintiff’s complaint. Hasson v Parts iD, Inc On September 9, 2022, Kenneth Hasson filed a
Complaint in the United States District Court for the Western District of Pennsylvania at No. 22-cv-1291. Hasson purports to bring
claims on behalf of a putative class. Hasson alleges that the website, www.carid.com, allegedly operated by Parts ID, Inc., violated
the Pennsylvania Wiretapping and Electronic Surveillance Control Act, 18 Pa. Cons. Stat. § 5701, et seq Potential Indemnification Claim by Canaccord On January 13, 2023, the Company received a notice from Cannacord for
potential indemnification claims in connection with a Compliant that was filed in the United States District Court for the District of
New Jersey by Former Onyx Directors Messrs. Royzenshteyn and Gerashenko, under the caption Royzenshteyn et al. v. Onyx Enterprises Canada
Inc., et al. and related to the Business Combination. Canaccord was named as a Defendant in this pending litigation matter and the Company
was not directly named as a party to this proceeding. The Company has accepted the indemnification notice from Canaccord and has agreed
to indemnify Canaccord for legal and other expenses incurred in connection with this litigation, as applicable. Other Matters The Company is subject to certain legal proceedings
and claims which are common to, and arise in the ordinary course of, its business. Historically, the Company has been involved in legal
proceedings or has received a variety of communications alleging that certain products marketed through its e-commerce distribution platform
violate a) third-party intellectual property rights, including but not limited to copyrights, designs, marks, patents and trade names,
b) governmental regulation, including emission control regulations or c) defective products or employee disputes. With regard to intellectual
property rights, brand and content owners and others have actively asserted their alleged intellectual property rights against many online
companies, including the Company. With regard to governmental regulation, the Company receives inquiries from governmental agencies that
regulate the automobile industry to monitor compliance with emissions and other standards. With regard to defective products, the Company
is covered by the vendor or manufacturer’s warranty. The Company has not incurred any material losses to date with respect to these
types of matters nor does management believe that the final disposition of any such pending matters will have a material adverse effect
on the Company’s financial position or results of operations. The Company accrued $614,983 and $620,000 as of December 31, 2022 and
2021, respectively, in aggregate for the above potential loss contingencies. |
