Item 3. Legal Proceedings
ITEM 3 – LEGAL PROCEEDINGS
Legal case with FT Global Capital, Inc.
In January 2021, FT Global
Capital, Inc. (“FT Global”), a former placement agent of the Company filed a lawsuit against the Company in the Superior Court
of Fulton County, Georgia. FT Global served the complaint upon the Company in January 2021. In the complaint, FT Global alleges
claims, most of which attempt to hold the Company liable under legal theories that relate back to an alleged breach of an exclusive placement
agent agreement between FT Global and the Company in July 2020 which had a term of three months. FT Global claims that the Company
failed to compensate FT Global for securities purchase transactions between December 2020 and April 2021, pursuant to the terms of the
expired exclusive placement agent agreement. Allegedly, the exclusive placement agent agreement required the Company to pay FT Global
for capital received during the term of the agreement and for the 12-month period following the termination of the agreement involving
any investors that FT Global introduced and/or wall-crossed to the Company. However, the Company believes the securities purchase
transactions at issue did not involve the one investor which FT Global introduced or wall-crossed to the Company during the term of the
agreement. FT Global claims approximately $7,000,000 in damages and attorneys’ fees.
The Company timely removed the case to the United States District Court
for the Northern District of Georgia (the (“Court”) on February 9, 2021 based on diversity of jurisdiction. On March 9, 2021,
the Company filed a motion to dismiss based on FT Global’s failure to state a claim which is pending before the Court. On March
23, 2021, FT Global filed its response to the Company’s motion to dismiss. FT Global argues that the Court should deny the Company’s
motion to dismiss. However, if the Court is inclined to grant the Company’s motion to dismiss, FT Global requested that the Court
permit it to file an amended complaint. On April 8, 2021, the parties filed a Joint Preliminary Report and Discovery Plan. On April 12,
2021, the Court approved the Joint Preliminary Report and Discovery Plan and issued a Scheduling Order placing this case on a six-month
discovery tract. On April 30, 2021, the Company served FT Global with its Initial Disclosures. On May 6, 2021, FT Global served the Company
with its Initial Disclosures. On May 17, 2021, FT Global served the Company with its First Amended Initial Disclosures. On November 10,
2021, the Court entered an Order granting the Company’s motion to dismiss FT Global’s fraud claim and breach of contract claim
as to the disclosure of its confidential and proprietary information. The Court denied the Company’s motion to dismiss FT Global’s
i) breach of contract claim for failure to pay FT Global pursuant to the terms of the exclusive placement agent agreement; ii) claim for
breach of the covenant of good faith and fair dealing; and iii) claim for attorney’s fees, and the court concluded that additional
information can be obtained through discovery. The Company timely filed an answer and defenses to FT Global’s complaint on November
24, 2021. On January 3, 2022 the Company propounded discovery requests upon FT Global, including interrogatories and requests for production
of documents. On March 23, 2022, the Company propounded requests for admission upon FT Global. On March 24, 2022, FT Global propounded
discovery requests upon the Company, including requests for production of documents and requests for admission. On April 1, 2022, FT Global
served its response to the Company’s requests for production of documents. On May 13, 2022, FT Global served its responses to the
Company’s interrogatories and requests for admissions. On May 13, 2022, FT Global produced documents in response to the Company’s
requests for production of documents. On June 3, 2022, the Company produced documents in response to FT Global’s requests for production
of documents. On August 3, 2022, the Company took the deposition of FT Global. On August 4, 2022, FT Global took the deposition of the
Company. On August 3, 2022, the Court granted the parties’ Consent Motion to Extend Discovery Period extending the discovery period
from August 5, 2022 to September 14, 2022 and the deadline to file dispositive motions to October 12, 2022. On October 12, 2022, the Company
filed a motion for summary judgment on all claims asserted by FT Global in this lawsuit. On November 2, 2022, FT Global filed its opposition
to the Company’s motion for summary judgment. On November 16, 2022, the Company filed its reply in support of its motion for summary
judgment on all claims asserted by FT Global in this lawsuit. On August 31, 2023, the Court entered an Order denying the Company’s
motion for summary judgment. On September 20, 2023, the parties filed a joint motion to extend the deadline to file the consolidated pretrial
order pending mediation of the case by the parties. On September 21, 2023, the Court granted the parties’ joint motion to extend
the deadline to file the consolidated pretrial order to October 27, 2023. On October 16, 2023, the parties mediated the case. On October
24, 2023, the parties filed another joint motion to extend the deadline to file the consolidated pretrial order. On October 27, 2023,
the Court granted the parties’ joint motion to extend the deadline to file the consolidated pretrial order to November 17, 2023
and set the case for trial on January 8, 2024. Subsequently, the Court approved an extension of the deadline to file a pretrial order
to December 1, 2023. The Court has also rescheduled the trial to commence on April 8, 2024. The trial began on April 8, 2024
and ended on April 11, 2024, on which date the jury returned a verdict in favor of FT Global and the Court entered a judgment awarding
FT Global $8,875,265.31. On April 12, 2024, FT Global requested that the Court add $1,723,136.44 in prejudgment interest to the
judgment amount. The Company will continue to vigorously defend the action against FT Global, including by appealing the judgment
to the United States Court of Appeals for the Eleventh Circuit.
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Settlement
with SEC
On December 17, 2019,
the Company announced that it received a subpoena from the SEC’s Division of Enforcement requiring the Company to produce documents
and other information and the Company has cooperated with the SEC’s investigation and information request. On July 3, 2023, the
SEC announced a settlement of the investigation with the Company. Without admitting or denying the SEC’s findings, the Company has
consented to: (i) cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of
the Securities Act, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13 and 13a-15(a) thereunder;
(ii) pay a civil money penalty in the amount of $1,650,000 to the Securities and Exchange Commission for transfer to the general
fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3) and the payment shall be made in the following installments:
the first installment of $150,000 shall be paid within ten (10) days of July 3, 2023 (the “Order Date”); the second installment
of $375,000 shall be paid within 90 days of the Order Date; the third installment of $375,000 shall be paid within 180 days of the Order
Date; the fourth installment of $375,000 shall be made within 270 days of the Order Date; and the last installment of $375,000 shall be
made within 360 days of the Order Date; (iii) retain, within sixty (60) days of the Order Date, at Company’s own expense, a qualified
independent consultant (the “Consultant”) not unacceptable to the SEC staff, to test, assess, and review the Company’s
internal accounting controls and internal control over financial reporting (collectively, “review), and the Consultant, at the conclusion
of the review, which in no event shall be no more than 180 days after the Order Date, to submit a report of the Consultant to the Company
and the SEC staff and the report shall address the Consultant’s findings and shall include a description of the review performed,
the conclusions reached, and the Consultant’s recommendations for changes or improvements; and (iv) adopt, implement, and maintain
all policies, procedures and practices recommended in the report of the Consultant within 120 days of receiving the report from the Consultant. As
of the date of this report, the Company has made all installment payments of the penalties except for the last one which will due on 360
days of the Order Date. On July 26, 2023, the Company also has engaged an independent consultant to test, assess, and review the
Company’s internal accounting controls and internal control over financial reporting. The consultant has completed its test, assess
and review and issued a final report in December 2023.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
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PART II