Item 3. Legal Proceedings
ITEM 3. LEGAL PROCEEDINGS
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. The Court has scheduled a trial in June
2022.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable
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PART II
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