| Commitments and Contingencies | NOTE
7—COMMITMENTS AND CONTINGENCIES Litigation
and Claims Various vendors, service providers,
and others have asserted legal claims in previous years. These creditors generally are not actively seeking collection of amounts
due them, and we have determined that the probability of realizing any loss on these claims is remote and will seek to compromise
and settle at a deep discount any of such claims that are asserted for collection. These amounts are included in our current liabilities.
We have not accrued any liability for claims or judgments that we have determined to be barred by the applicable statute of limitations,
which generally is eight years for judgments in Utah. Noble Gate In September 2015, we obtained a judgment
in the amount of $287,000 against Noble Gate Industrial, a former authorized distributor of the Playboy-branded energy drink. We
believe the judgment is uncollectible and have not undertaken collection efforts in view of our analysis of the costs of collection
as compared to any likely recovery. No gain has been recorded for the periods presented. Playboy
Enterprises, Inc. Our wholly-owned subsidiary, Play Beverages,
LLC, whose operations have now been discontinued, filed suit against Playboy Enterprises, Inc., in Cook County, Illinois, Circuit
Court in October 2012 asserting numerous claims, including breach of contract and tortious interference. Playboy responded with
a counterclaim of breach of contract and trademark infringement. After proceedings in October 2016, the court awarded a judgment
to Playboy of $6.6 million against Play Beverages and us. The court denied our motion for a new trial and awarded Playboy treble
patent infringement damages and attorney’s fees. We filed a notice of appeal in July 2017 and again in March 2018. Playboy
has initiated collection efforts but has recovered no funds. We have accrued $17,205,599 as of June 30, 2018, and December 31,
2017, related to this judgment, which is included in liabilities from discontinued operations (see Note 12–Discontinued Operations). Redi FZE During the year ended December 31, 2011,
Redi FZE sued us claiming alleged breach of contract, and we counterclaimed against it. On November 2, 2011, the court issued an
injunction against Redi FZE prohibiting it from selling and distributing Playboy-branded products in conjunction with its distribution
agreement with us. On August 16, 2012, Redi FZE withdrew the suit, and on October 30, 2012, we were awarded a default judgment
against Redi in the amount of $1,225,155. We have not collected on this judgment and are weighing the cost of collection against
the likelihood of success. No gain or receivable has been recorded in the financial statements for the periods presented in connection
with this case. Old Dominion Freight Line In December 2009, Old Dominion Freight
Line filed suit against us for unpaid freight services in the amount of $30,464 and was awarded a default judgment of $33,187 in
March 2010. The amount due is included in accounts payable as of June 30, 2018, and December 31, 2017, respectively. RDS Touring
In September 2011, RDS Touring and Promotions,
Inc. was awarded a default judgment of $118,426 against us. In September 2012, RDS domesticated the default judgment in the state
of Utah and sought to enforce the judgment against us. We have and will continue to resist the collection efforts by RDS. We had
recorded a loss equal to the judgment of $118,426, of which $18,491 was previously paid leaving $99,935 included in liabilities
from discontinued operations as of June 30, 2018, and December 31, 2017. Esebag In July 2010, Jimmy Esebag was awarded
a judgment against us for breach of contract. A judgment debtor examination of an affiliate took place in October 2013, and there
have been no further recovery efforts to date. We will continue to resist the collection efforts from this judgment. We had recorded
a loss equal to the judgment of $100,000, of which $40,881 was previously paid leaving $59,119 included in liabilities from discontinued
operations as of June 30, 2018, and December 31, 2017, respectively. General
Distributors, Inc. In February 2012, General Distributors,
Inc. (“General”) and was awarded a default judgment of $93,856 against us. In January 2013, General domesticated the
default judgment in the state of Utah and sought to enforce the judgment against the Company. We have and will continue to resist
the collection efforts by General. We had recorded a loss equal to the judgment of $93,856, which is included in liabilities from
discontinued operations as of June 30, 2018, and December 31, 2017. Advanced
Beauty Solutions In connection
with prior litigation with Advanced Beauty Solutions (“ABS”), it claimed nonperformance by us and filed an adversary
proceeding in its bankruptcy case in the United States Bankruptcy Court. On March 17, 2009, the bankruptcy court entered judgment
in favor of ABS and against us in the amount of $1,811,667, plus interest. On September 11, 2009, the bankruptcy court denied our
motion to set aside the judgment. On September
8, 2010, we executed an Assignment of Copyrights, thereby assigning our Copyright Registration No. TX-6-064-955, Copyright Registration
No. TX-6-064-956, and Copyright to the True Ceramic Pro-Live Ops (TCPS) infomercial and related master tapes (collectively the
“Copyrights”) to ABS, without reservation or exclusion, making ABS the owner of the Copyrights. Despite motions,
hearings, appeals, and mediation in 2011, both parties were unable to resolve their outstanding issues. On March 22,
2012, we entered into a formal forbearance agreement with ABS, dated as of March 1, 2012 (the “ABS Forbearance Agreement”),
whereby ABS agreed to take no further judgment enforcement actions in consideration of our payment of $25,000 upon execution, satisfaction
of applicable conditions precedent, return of the trademarks and intellectual property previously conveyed by ABS to us, and our
obligation to pay $1,835,000 secured by an encumbrance on all of our assets, subject and subordinate to the prior lien and encumbrance
in favor of YA Global. In addition, we stipulated to an additional judgment for attorney’s fees incurred in negotiating the
ABS Forbearance Agreement and related post-judgment collection efforts. The ABS Forbearance Agreement also provided that our obligation
would be reduced by the greater of the amount of credit granted in the bankruptcy proceedings for the value of the intellectual
property we previously conveyed to ABS and the amount received by ABS from the sale of such intellectual property to a third party
during the term of the ABS Forbearance Agreement, plus the amount of any distribution to which we are entitled as a creditor of
ABS, subject to other limitations. In May 2013,
ABS sent us a notice of default under the ABS Forbearance Agreement. Although there were some negotiations between us and ABS following
the notice of default, this matter has not been resolved. Our appeal
of the approximately $1.8 million judgment that had been remanded in the ABS bankruptcy proceedings to conclusively determine the
amount of credit due us for the conveyance of the intellectual property has been dismissed. All litigation and disputes between
ABS and its affiliates, on the one hand, and us and our affiliates, on the other hand, have been dismissed. We have assigned
to ABS our creditor claim against the estate of ABS, to the extent of the balance due under the ABS Forbearance Agreement. Any
distribution from the ABS estate in excess of the adjusted amounts due under the ABS Forbearance Agreement will be paid to us. Because ABS’s
lien is subordinate to liens on all of our assets in favor of Y.A. Global and/or Tekfine, LLC, ABS is unable to presently take
any steps to enforce its judgment. If that changes, we would potentially face collection actions on the judgment, subject to our
offset claims for the intellectual property and creditor claim. We had accrued
the minimum liability of $90,000, of which $45,000 has been paid leaving $45,000 due, which is included in accrued liabilities
as of June 30, 2018, and December 31, 2017. Because the remaining liability is unknown and cannot be reasonably estimated, no additional
amounts have been accrued. Delinquent
Payroll Taxes, Interest, and Penalties In November
2004, the IRS accepted our amended offer in compromise (the “Offer”) to settle delinquent payroll taxes, interest,
and penalties, which requires us to pay $500,000, remain current in our payment of taxes for five years, and forego claiming anynet
operating losses for the years 2001 through 2015 or until we pay taxes on future profits in an amount equal to the taxes of $1,455,767
waived by the Offer. In June 2013, we entered into a partial installment agreement to pay $768,526 in unpaid 2009 payroll taxes,
which requires us to pay the IRS 5% of cash deposits. The monthly payments are to continue until the account balances are paid
in full or until the collection statute of limitation expires on October 6, 2020. There was $367,617 due as of June 30, 2018, and
December 31, 2017, of which $108,754 is included in liabilities from discontinued operations. Employment
Agreements We engage Iehab
Hawatmeh, our president and chief executive officer, through an employment agreement entered in August 2009 and amended in September
2017, with a salary in an amount and commencement date to be determined. In July 2017, Mr. Hawatmeh resigned all positions with
us to pursue other business activities, thereby effectively terminating the agreement. However, in September 2017, we reinstated
Mr. Hawatmeh to his previous positions and reinstated his employment agreement. Among other things, the reinstated employment agreement:
(a) grants options to purchase a minimum of 6,000,000 shares of our stock each year, with an exercise price equal to the market
price of our common stock as of the grant date, for the maximum term allowed under our stock option plan; (b) provides for
health insurance coverage, cell phone, car allowance, life insurance, and director and officer liability insurance, as well as
any other bonus approved by our board; and (c) includes additional incentive compensation as follows: (i) a quarterly
bonus equal to 5% of our earnings before interest, taxes, depreciation and amortization for the applicable quarter; (ii) bonuses
equal to 1% of the net purchase price of any acquisitions we complete that are directly generated and arranged by Mr. Hawatmeh;
and (iii) an annual bonus (payable quarterly) equal to 1% of our gross sales of all products, net of returns and allowances. In addition
to the employment agreement above, we have verbal contracts with our employees that require payment of noncash compensation in
a fixed number of shares. During the six months ended June 30, 2018 and 2017, we did not grant options to purchase shares of common
stock to employees due to the insufficient common shares available. We recorded expenses totaling $480 and $1,340 during the six
months ended June 30, 2018 and 2017, respectively, for employee options relating to the employment contracts of these employees. |
