Item 1. Legal Proceedings
ITEM 1.
LEGAL PROCEEDINGS
On August 10, 2018, we, our chief executive officer and our chief financial
officer received a Wells notice from the enforcement division staff of the Miami Regional Office of the SEC in connection with an investigation
into the accuracy of certain statements in our Form 10 registration statement filed June 2, 2016, as amended, and our Form 10-K annual
report filed May 8, 2017. The staff’s inquiry was focused on our disclosure language in those filings relating to the FDA requirements
for our consumer transdermal patch products in that our filings did not accurately reflect the FDA’s jurisdiction over our consumer
products and did not disclose that we could not legally market these products in the United States. On September 7, 2018, we and the officers
filed a Wells submission in response. After engaging in settlement discussions with the staff about the matters under investigation, we
and the officers submitted an offer of settlement to resolve the investigation without admitting or denying any violations of the federal
securities laws.
On December 26, 2018, the SEC announced that it has accepted the settlement
offer and instituted settled administrative cease-and-desist proceedings against us and the named officers. The SEC’s administrative
order, dated December 26, 2018, finds that we and the officers consented – without admitting or denying any findings by the SEC–
to cease-and-desist orders against them for violations by us of Sections 12(g) and 13(a) of the Exchange Act 1934 and Rules 12b-20 and
13a-1 thereunder, which require issuers to file accurate registration statements and annual reports with the SEC; violations by the officers
for causing our violations of the above issuer reporting provisions; and violations by the officers of Rule 13a-14 of the Exchange Act,
which requires each principal executive and principal financial officer of issuers to attest that annual reports filed with the SEC do
not contain any untrue statements of material fact. In addition to consenting to the cease-and-desist orders, the officers have each agreed
to pay a $25,000 civil penalty to resolve the investigation. The administrative order does not impose a civil penalty or any other monetary
relief against us.
On July 27, 2018, we commenced an action in the Circuit Court of the
Ninth Judicial Circuit in and for Orange County, Florida, against Advanced Health Brands, Inc., Raymond Kalmar, Paul Murphy, Michelle
Polly-Murphy, Laura Fillman and John Baker, together with a Motion for Temporary Injunction Without Notice and a Motion for Prejudgment
Writ of Replevin arising from our decision to seek to rescind for misrepresentation the agreement by which we acquired advanced Health
Brands, Inc. for 1,250,000 shares of common stock valued at $2,500,000 and seek return of the shares. On August 2, 2018, the court entered
a Temporary Injunction Without Notice and an Order to Show Cause against the defendants. Defendants Kalmar, Murphy, Polly-Murphy, and
Baker filed a Motion to Dismiss our Verified Complaint, Motion to Dissolve Temporary Injunction Without Notice and Response to Order to
Show Cause, and Motion to Compel Arbitration. On January 4, 2019, the court dismissed our complaint with prejudice, and directed the defendants
to assign to us within 30 days, the six patents never duly transferred to us. On February 1, 2019, we appealed the court’s order.
Pursuant to a settlement agreement with one of the defendants, that defendant returned the 50,000 shares which had been issued to her,
and the shares were cancelled as of January 31, 2019. On June 7, 2019, the individual defendants (other than the defendant whom we have
a settlement agreement), filed a motion for sanctions and civil contempt against us, which generally claimed that we failed to comply
with the Court’s January 4, 2019 order by refusing to issue the Ruling 144 letters that would allow the defendants to transfer their
shares of common stock. On October 29, 2019, the Court denied the defendants’ motion. On March 20, 2020, the Florida district court
of appeal reversed the lower court ruling in the Florida state court action that dismissed our complaint with prejudice, and gave us leave
to file an amended complaint/
On August 22, 2018, four of the defendants in the Florida action described
in the previous paragraph filed a complaint against us in the Franklin County, Ohio Court of Common Pleas seeking a declaratory judgment
permitting them to sell the shares of common stock they received pursuant to the acquisition agreement. The parties have agreed to a stay
pending the outcome of the Florida litigation.
On April 29, 2019, we filed a securities fraud action in the U.S. District
Court for the Eastern District of New York against Raymond Kalmar, Paul Murphy, Michelle Polly-Murphy, Advanced Health Brands and TD Therapeutic,
Inc. In the complaint we allege that in 2017, the defendants fraudulently and deceitfully obtained 1,250,000 shares of common stock by
orchestrating a months-long scheme to defraud us. We are seeking the return of the 1,200,000 shares of common stock and monetary damages
resulting from the defendants’ fraudulent conduct. The defendants filed a motion to dismiss on August 23, 2019, and we filed our
response on September 13, 2019. On July 20, 2020, the Court denied the defendant’s motion to dismiss the complaint, and the parties
have recently commenced the discovery phase of the litigation. No trial date has been scheduled by the Court.
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