What changed in this filing

/stocks — the workspaceLOADING

Item 3. Legal Proceedings

2023-04-17 compared with 2022-03-31 · 78 added, 92 removed, 29 unchanged (85% of the section changed)

17 unchanged sentences

Subsequently, two additional class actions were filed in the same court (Leeburn v.

SCWorx, et ano.

and Leonard v.

6 unchanged sentences

finding of any fault, liability or wrongdoing by the Company or any defendant.

Under the terms of

this agreement, (i) the insurers for the Company and Marc Schessel (former CEO) will make a cash payment to the class plaintiffs (ii)

the former CEO will transfer 100,000 shares of company common stock to the class plaintiffs, and (iii) the Company will issue $600,000 worth

of common stock to the class plaintiffs, in exchange for which all parties will be released from all claims related to the securities

class action litigation.

After giving effect to the share issuance by the Company, the Company believes that it will have satisfied the

accrued retention liability of $700,000.

Settlement of Consolidated

Derivative Action

As previously disclosed, on

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

Steven Wallitt (current director), Marc S.

Schessel, Robert Christie and Charles Miller (former directors) (“Director Defendants”).

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

Schessel, Charles K.

Miller, Steven Wallitt, Defendants,

and SCWorx Corp., Nominal Defendant.

The Lozano lawsuit was consolidated with another shareholder derivative lawsuit, Richter, v.

Schessel, Charles K.

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

(the “Consolidated Derivative Action”).

The Consolidated Derivative

Action alleged 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.

In addition, on October 29,

2020, Hemrita Zarins filed a shareholder derivative action in the Chancery Court in the State of Delaware against Steven Wallitt (current

director) and Marc S.

Schessel and Charles Miller (former directors).

The action is captioned Hemrita Zarins, v.

Schessel, Robert

Christie, Steven Wallitt and SCWorx, Nominal Defendant.

The Zarins action contains substantially similar allegations as in the Consolidated

Derivative Action.

On February 15, 2022, the

Company and the Director Defendants (Marc Schessel, Steven Wallitt, Charles Miller and Robert Christie) entered into a stipulation of

settlement (subject to Court approval) with the shareholder derivative plaintiffs to settle the Consolidated Derivative Action as well

as the Zarins action.

Under the terms of the settlement, (i) the insurers for the Director Defendants will make a cash payment to legal

counsel for the shareholder derivative Plaintiffs to cover their legal fees and (ii) the Company will adopt certain corporate governance

reforms within 60 days of court approval of the settlement, in exchange for which all parties will be released from all claims related

to the derivative class action litigation.

The settlement resolves all claims asserted against the defendants without any admission, concession

or finding of any fault, liability or wrongdoing by the Company or any defendant.

Under the terms of this agreement, (i) the insurers for

the Company and Marc Schessel (former CEO) will make a cash payment to the class plaintiffs (ii) the former CEO will transfer 100,000

shares of company common stock to the class plaintiffs, and (iii) the Company will issue $600,000 worth of common stock to the class plaintiffs,

in exchange for which all parties will be released from all claims related to the securities class action litigation.

After giving effect

to the share issuance by the Company, the Company believes that it will have satisfied the accrued retention liability of $700,000.

order dated March 22, 2022, the Court granted preliminary approval of the class action.

After a fairness hearing held on June 29, 2022,

the Court approved the Stipulation of Settlement.

CorProminence d/b/a Core IR v.

AAA Arbitration Case 01-22-0001-5709

As previously disclosed, on April 25, 2022, the

Company received a Demand for Arbitration along with a Statement of Claim filed by Core IR with the American Arbitration Association seeking

damages in the amount of approximately $190,000.00 arising out of a marketing and consulting agreement.

The Company filed its answer,

affirmative defenses and counterclaims on May 16, 2022.

By order of the arbitrator dated November 1, 2022, Core IR received permission

to amend its Statement of Claim to increase its request for damages to $257,545.63.

The arbitration hearing commences on March 20, 2023

and will continue through March 24, 2023.

Hadrian Equities Partners, LLC et ano.

22-cv-07096 (JLR) (S.D.N.Y)

On August 19, 2022, Hadrian Equities Partners,

LLC and the Phillip W.

2007 Irrevocable Trust filed a complaint in the United States District Court for the Southern District

of New York alleging that SCWorx was dilatory and did not comply with its alleged contractual duties to remove the restrictions from Plaintiffs’

converted AMMA stock to SCWorx stock until August 10 and August 11, 2020.

Plaintiffs allege that as a result, they were unable to sell

their SCWorx stock when SCWorx was trading at its highest price on April 13, 2020.

The Complaint seeks $500,000 in damages.

Complaint has not been served.

Upon review of the Complaint, SCWorx counsel provided Plaintiffs’ counsel with a “safe harbor”

Notice of Motion for sanctions pursuant to Fed.

11 and letter explaining that the material allegations in the Complaint are

false inasmuch as the restrictions on Plaintiffs’ SCWorx shares were removed on April 21, 2020– after months of waiting for

Plaintiffs to supply the correct documents with accurate information so that outside counsel could provide an opinion and clear the stocks

The “safe harbor” letter and Notice of Motion gave Plaintiffs 21 days to withdraw the Complaint.

for and receiving several extensions in addition to the 21 days, Plaintiffs have not withdrawn the Complaint and thus, a Motion for Sanctions

was filed by SCWorx on November 4, 2022.

After the motion for sanctions was filed, Plaintiffs filed an Amended Complaint on November 28,

On February 6, 2023, SCWorx filed its answer to the Amended Complaint interposing numerous defenses.

SCWorx is awaiting a decision

from the Court on its Motion for Sanctions.

Other Investigations

In addition, as previously

disclosed, 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 kits.

Company is continuing to cooperate with the SEC regarding its investigation arising out of the April 13, 2020 press release and the events

The Company received a Wells notice on December 8, 2021 and an amended Wells notice on December 10, 2021.

Notice states that the staff of the Securities and Exchange Commission has made a preliminary determination to recommend that the Commission

file an enforcement action against the Company which would allege violations of Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities

Act of 1933 (the “Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”),

and Rules 10b-5(a), 10b-5(b), and 10b-5(c) thereunder.

The Wells Notice also indicates that the staff would seek fines and disgorgement,

including pre and post judgment interest in such enforcement proceeding.

The Company did not make a Wells submission to the Commission

in response to the Wells Notice.

The Company has since been actively engaged in discussions with

the Staff to settle the claims set forth in the Wells Notice.

In April 2020, we received related inquiries from The Nasdaq Stock

Market and the Financial Industry Regulatory Authority (FINRA).

We cooperated fully with these agencies, providing information and documents,

as requested.

We have not had any requests from these agencies since January 2021.

Also in April 2020, as previously

disclosed, we were contacted by the U.S.

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

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

We have cooperated

fully with the U.S.

Attorney’s Office in its investigation.

In 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.

Upon consummation of the settlement of the Consolidated Class Action,

the Company believes it will have satisfied its accrued retention obligations with respect to the insurance coverage.

David Klarman v.

f/k/a Alliance MMA, Inc., Index No.

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.

This action was settled on or about December 16, 2021 by the parties without any admission of liability or wrongdoing.

In exchange for

a release, the Company agreed to settle with Mr.

Klarman with $100,000 of SCWorx shares calculated over a period of 4 months pursuant

to an agreed upon schedule with respect to amounts, dates and a restriction on sales of SCWorx stock to no more than 4,000 shares per

To date, all shares have been issued pursuant to this agreement.

As previously disclosed, on or about April 6,

2022, the Company reached a settlement in principle with the SEC Staff which, subject to a few changes, was subsequently approved by the

Commission in which the Company agreed to resolve the SEC’s investigation regarding the April 13, 2020 press release and related

disclosures (related to Covid-19 rapid test kits) through the Company’s payment of (a) a civil monetary penalty of $125,000, payable

in 4 equal installments over 12 months and (b) disgorgement of $471,000 and prejudgment interest in the amount of $32,761.56 which payment

is to be deemed satisfied by the transfer by the Company, no later than 30 days after the entry of the Class Distribution Order in the

class action entitled Yannes v.

of shares of SCWorx’s common stock, valued at $600,000 at the time of issuance to authorized

claimants in the Yannes settlement, provided that the Class Distribution Order is entered within 365 days from the entry of the Final

Judgment in the SEC action.

In the event that the Company does not transfer shares of its common stock, valued at $600,000 at the time

of issuance to authorized claimants in the class action settlement within 365 days from the entry of a Final Judgment, the Company will

be required to remit to the SEC the full amount of disgorgement within 395 days from entry of a Final Judgment.

On May 31, 2022, the Commission

filed a complaint against Marc Schessel and the Company in the United States District Court for the District of New Jersey alleging violations

of Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933 (the “Securities Act”), Section 10(b) of the Securities

Exchange Act of 1934 (the “Exchange Act”), and Rules 10b-5(a), 10b-5(b), and 10b-5(c) thereunder relating to the April 13,

2020 press release and related disclosures we made in relation to the transaction involving COVID-19 test kits.

At the same time, on May

31, 2022, the Commission filed a motion for approval of the Consent Judgment which contained the aforementioned fine, disgorgement requirement

as well as an agreement by the Company to an injunction permanently restraining and enjoining the Company from violating Section 10(b)

of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C.

§ 78j(b)] and Rules 10b-5(a), (b), and (c) thereunder

[17 C.F.R § 240.10b ..

5(a), (b), (c)];

and Section 17(a) of the Securities Act of 1933 (“Securities Act’’) [15

On June 2, 2022, the Court granted the motion, approved the settlement and entered a final judgment.

thus far paid 3 of 4 installments on the monetary penalty of $125,000.

In 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.

Upon consummation of the settlement of the Consolidated Class Action, the Company believes it will

have satisfied its accrued retention obligations with respect to the insurance coverage.

Mine Safety Disclosures

1 unchanged sentence

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