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Item 3. Legal Proceedings

2024-09-24 compared with 2023-04-17 · 48 added, 90 removed, 17 unchanged (89% of the section changed)

10 unchanged sentences

legal fees and other directly related costs expected to be incurred.

Settlement of Consolidated

Securities Class Action

As previously disclosed,

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 us and our former CEO.

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

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

SCWorx, et ano.

and Leonard v.

SCWorx et ano.) and thereafter, the three class actions were consolidated (the “Consolidated Class Action”).

The Consolidated Class Action alleged that our company and our former CEO misled investors in connection with our April 13, 2020 press

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

As previously disclosed,

on February 11, 2022, the parties entered into a Stipulation of Settlement (subject to Court approval) to settle the Consolidated Class

The settlement resolves all claims asserted against SCWorx and the other named defendant 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.

As previously disclosed in the Company’s periodic reports filed

with the SEC, 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.

arising out of a marketing and consulting

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 $257,546.

The Company received

the final decision of the Arbitrator on October 16, 2023, awarding Core IR $461,856 including unpaid compensation, indemnification for

legal fees and costs, prevailing party legal fees and interest (the “Award”).

Core IR has since obtained a judgement in the

amount of approximately $502,000 (including interest) (“Judgement”).

The Company and Core IR entered into a settlement agreement

dated July 12, 2024 under which the Company agreed to issue Core IR shares of its common stock with a value of $502,000 (determined based

on sales proceeds realized by Core IR), in full and complete satisfaction of the Judgement.

The settlement agreement is filed as exhibit

10.5 to this annual report on Form 10-K.

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

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.

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 sought

$500,000 in damages.

Plaintiffs filed an Amended Complaint on November 28, 2022.

On February 6, 2023, SCWorx filed its answer to the Amended

Complaint interposing numerous defenses.

Plaintiff have since entered into a settlement agreement dated December 1, 2023 (effective as

of October 23, 2023) (as amended April 29, 2024), under which the Company agreed to pay Plaintiffs $20,000 and issue them 37,500 shares

of common stock, all in full settlement of the claims made in the lawsuit.

The cash payment was made in July 2024, and the shares were

issued in May 2024.

Bernstein, Esq.

As previously disclosed in

the Company’s Form 10-Q for the quarter ended June 30, 2023, on June 7, 2023, Carole R.

Bernstein, Esq.

filed a complaint in the

United States District Court for the Southern District of New York against the Company.

The complaint alleged that the Company breached

its engagement agreement with Ms.

Bernstein by failing to pay legal fees when due.

Bernstein sought to recover $69,164 fees

owing for services, plus interest, costs, including her attorney’s fees.

The Company and the Plaintiff have since entered into

a settlement agreement dated July 12, 2024, under which the Company agreed to pay Plaintiffs $80,000 in two equal installments of $40,000,

the first of which was paid August 9, 2024, and the second of which is payable on or about October 9, 2024.

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