What changed in this filing

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Item 3. Legal Proceedings

2021-05-19 compared with 2020-06-12 · 132 added, 49 removed, 7 unchanged (96% of the section changed)

Legal Proceedings

In conducting our business,

we may become involved in legal proceedings.

We will accrue a liability for such matters when it is probable that a liability has

been incurred and the amount can be reasonably estimated.

When only a range of possible loss can be established, the most probable

amount in the range is accrued.

If no amount within this range is a better estimate than any other amount within the range, the

minimum amount in the range is accrued.

The accrual for a litigation loss contingency might include, for example, estimates of

potential damages, outside legal fees and other directly related costs expected to be incurred.

On April 29, 2020,

a securities class action case was filed in the United States District Court for the Southern District of New York against the

Company and its CEO.

The action is captioned Daniel Yannes, individually and on behalf of all others similarly situated, Plaintiff

conducting our business, we may become involved in legal proceedings.

We will accrue a liability for such matters when it is probable

that a liability has been incurred and the amount can be reasonably estimated.

When only a range of possible loss can be established,

the most probable amount in the range is accrued.

If no amount within this range is a better estimate than any other amount within

the range, the minimum amount in the range is accrued.

The accrual for a litigation loss contingency might include, for example,

estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.

April 29, 2020, a securities class action case was filed in the United States District Court for the Southern District of New

York against us and our CEO.

The action is captioned Daniel Yannes, individually and on behalf of all others similarly situated,

Plaintiff vs.

Schessel, Defendants.

On May 27, 2020, a

second securities class was filed in the United States District Court for the Southern District of New York against the Company

The action is captioned Caitlin Leeburn, individually and on behalf of all others similarly situated, Plaintiff v.

May 27, 2020, a second securities class was filed in the United States District Court for the Southern District of New York against

us and our CEO.

The action is captioned Caitlin Leeburn, individually and on behalf of all others similarly situated, Plaintiff

Schessel, Defendants.

Both lawsuits allege that the Company and its CEO mislead investors in connection

with the Company’s April 13, 2020 press release with respect to the sale of COVID-19 rapid test kits.

The plaintiffs in these

actions are seeking unspecified monetary damages.

The Company intends to vigorously defend against these proceedings.

In connection

with these actions, the Company may be obligated to indemnify its CEO and any of its officers or directors who incur any liability

or expense incurred as a result of serving at our company’s request in such capacity.

In addition, following the

April 13, 2020 press release and related disclosures (related to COVID-19 rapid test kits), the Securities and Exchange Commission

made an inquiry regarding the disclosures the Company made in relation to the transaction involving COVID-19 test kits.

22, 2020, the Securities and Exchange Commission ordered that trading in the securities of the Company be suspended because of

“questions and concerns regarding the adequacy and accuracy of publicly available information in the marketplace”

“SEC Trading Halt”).

June 23, 2020, a third securities class was filed in the United States District Court for the Southern District of New York against

us and our CEO.

The action is captioned Jonathan Charles Leonard, individually and on behalf of all others similarly situated,

Schessel, Defendants.

three lawsuits allege that our company and our CEO mislead investors in connection with our April 13, 2020 press release with

respect to the sale of COVID-19 rapid test kits.

The plaintiffs in these actions are seeking unspecified monetary damages.

three class actions were consolidated on September 18, 2020 and Daniel Yannes was designated lead plaintiff.

A consolidated Amended

Complaint (“CAC”) was filed on October 19, 2020.

The Defendants filed a motion to dismiss the CAC on November 18,

2020, and the briefing on that motion was complete on January 8, 2021.

We are still awaiting a ruling on the motion, and we intend

to continue vigorously defending against this lawsuit.

June 15, 2020, a shareholder derivative claim was filed in the United States District Court for the Southern District of New York

against Marc S.

Schessel, Steven Wallitt (current directors), and Robert Christie and Charles Miller (former directors) (“Director

Defendants”).

The action is captioned Javier Lozano, derivatively on behalf of SCWorx Corp., Plaintiff, v.

Miller, Steven Wallitt, Defendants, and SCWorx Corp., Nominal Defendant.

This lawsuit alleges that the Director Defendants

breached their fiduciary duties to the Company, including by misleading investors in connection with our April 13, 2020 press

release with respect to the sale of COVID-19 rapid test kits, failing to correct false and misleading statements and failing to

implement proper disclosure and internal controls.

The Plaintiff, on our behalf, is seeking an award of monetary damages, improvements

in our disclosure and internal controls, and legal fees.

The Director Defendants intend to vigorously defend against these proceedings.

This derivative action is also still pending, and the plaintiff in such action has agreed to voluntarily stay the case until a

ruling on a motion to dismiss, which we intend to file in the securities class action case.

August 21, 2020, a shareholder derivative claim was filed in the United States District Court for the Southern District of New

York against Marc S.

Schessel, Steven Wallitt (current directors), and Robert Christie and Charles Miller (former directors) (“Director

Defendants”).

The action is captioned Josstyn Richter, derivatively on behalf of SCWorx Corp., Plaintiff, v.

Miller, Steven Wallitt, Defendants, and SCWorx Corp., Nominal Defendant.

This lawsuit alleges that the Director Defendants

breached their fiduciary duties to the Company, including by misleading investors in connection with our April 13, 2020 press

release with respect to the sale of COVID-19 rapid test kits, failing to correct false and misleading statements and failing to

implement proper disclosure and internal controls.

The Plaintiff, on our behalf, is seeking an award of monetary damages, improvements

in our disclosure and internal controls, and legal fees.

The Director Defendants intend to vigorously defend against these proceedings.

August 27, 2020, the Lozano and Richter derivative actions were consolidated and jointly stayed until a ruling on a motion to

dismiss which we filed in the securities class action case.

September 30, 2020, a shareholder derivative action was filed in the Supreme Court State of New York, New York County against

Schessel and Steven Wallitt (current directors) and Charles Miller (a former director).

The action is captioned Hemrita

Zarins, derivatively on behalf of SCWorx Corp.

Schessel, Charles Miller, Steven Wallitt and SCWorx, Nominal Defendant.

This lawsuit alleges that the Director Defendants breached their fiduciary duties to the Company, including by misleading investors

in connection with the Company’s April 13, 2020 press release with respect to the sale of COVID-19 rapid test kits, failing

to correct false and misleading statements and failing to implement proper disclosure and internal controls.

The Plaintiff, on

our behalf, is seeking an award of monetary damages, improvements in our disclosure and internal controls, and legal fees.

October 28,2020, Zarins withdrew this action and refiled an action in the Chancery Court in the State of Delaware on October

Zarins named as Defendants Marc S.

Schessel, Robert Christie (a former director), Steven Wallitt and SCWorx, Nominal

The allegations, as well as the relief sought, in the Delaware Chancery Court proceeding are substantially the

same as that filed in the New York State Action.

This action has been stayed pending the ruling on the motion to dismiss in the

aforementioned securities class action.

The Director Defendants intend to vigorously defend against these proceedings.

addition, following the April 13, 2020 press release and related disclosures (related to COVID-19 rapid test kits), the Securities

and Exchange Commission made an inquiry regarding the disclosures we made in relation to the transaction involving COVID-19 test

On April 22, 2020, the Securities and Exchange Commission ordered that trading in the securities of our company be suspended

because of “questions and concerns regarding the adequacy and accuracy of publicly available information in the marketplace”

(the “SEC Trading Halt”).

The SEC Trading Halt expired May 5, 2020, at 11:59 PM EDT.

The Company is fully cooperating

with the SEC’s investigation and is providing documents and other requested information.

In April 2020,

the Company received related inquiries from The Nasdaq Stock Market and the Financial Industry Regulatory Authority (FINRA).

Company has been fully cooperating with these agencies and providing information and documents, as requested.

We are fully cooperating

with the SEC’s investigation and are providing documents and other requested information.

April 2020, we received related inquiries from The Nasdaq Stock Market and the Financial Industry Regulatory Authority (FINRA).

We have been fully cooperating with these agencies and providing information and documents, as requested.

On May 5, 2020, the

Nasdaq Stock Market informed the Company that it has initiated a “T12 trading halt,”

which means the halt will remain

in place until the Company has fully satisfied Nasdaq's request for additional information.

The Company continues to fully cooperate

with Nasdaq and respond to Nasdaq’s information requests as they are issued.

The T12 trading halt remains in effect as of

the filing of this Form 10-K.

Also in April 2020, the

Company was contacted by the U.S.

Attorney’s Office for the District of New Jersey, which is seeking information and documents

from the Company’s officers and directors relating primarily to the April 13, 2020 press release concerning COVID-19 rapid

The Company is fully cooperating with the U.S.

Nasdaq Stock Market informed us that it had initiated a “T12 trading halt,”

which means the halt will remain in place

until we have fully satisfied Nasdaq’s request for additional information.

We fully cooperated with Nasdaq and responded

to all of Nasdaq’s information requests as they were issued.

The T12 trading halt was lifted on August 10, 2020.

in April 2020, we were contacted by the U.S.

Attorney’s Office for the District of New Jersey, which is seeking information

and documents from our officers and directors relating primarily to the April 13, 2020 press release concerning COVID-19 rapid

We are fully cooperating with the U.S.

Attorney’s Office in its investigation.

connection with these actions and investigations, the Company is obligated to indemnify its officers and directors for costs incurred

in defending against these claims and investigations.

Because the Company currently does not have the resources to pay for these

costs, its directors and officers liability insurance carrier has agreed to indemnify these persons even though the $750,000 retention

under such policy has not yet been met.

The Company estimates it is currently obligated to pay approximately $700,000 of the retention,

which payments could have a material adverse effect on the Company.

f/k/a Alliance MMA, Inc.,

619536/2019 (N.Y.

Ct., Suffolk County)

On October 3, 2019, David Klarman, a former employee of Alliance, served

a complaint against SCWorx seeking $400,000.00 for a breach of his employment agreement with Alliance.

Klarman claims

that Alliance ceased paying him his salary in March 2018 as well as other alleged contractual benefits.

does not believe that it owes the amount demanded and intends to vigorously defend against these claims.

On March 6, 2020,

SCWorx filed an answer and counterclaims against Mr.

On September 18, 2020, the Court granted Klarman's counsel's motion

to withdraw as counsel due to "irreconcilable differences."

The Court stayed the case for 45 days after service of

the Court's order.

Klarman's wife, Marie Klarman, Esq., filed a Notice of Appearance on November 6, 2020 and filed a motion

on November 9, 2020 seeking various forms of relief -- in violation of the Court's Individual Rules and the Commercial Division Rules.

We opposed Klarman’s motion on December 31, 2020 and the case was marked fully submitted on January 21, 2021.

and Order dated March 26, 2021, the Court granted Klarman’s motion to dismiss four (4) of fourteen (14) defenses, denied Klarman’s

motion to dismiss SCWorx’s counterclaims against him;

denied Klarman’s motion for summary judgment and denied Klarman’s

motion to strike allegations contained in the Affirmative Defenses and Counterclaims based on his contention that such allegations were

“scandalous”

or prejudicial.

On April 7, 2021, Klarman filed a Reply to the Counterclaims, denying the material allegations

and interposed numerous affirmative defenses.

The Court has issued a preliminary conference order, setting a discovery cut-off of

October 2022.

this time, we are unable to predict the duration, scope, or possible outcome of these investigations and lawsuits.

Mine Safety Disclosures

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings