Main Avenue Pharmacy, Inc.
On August 31, 2016, Main Avenue Pharmacy, Inc. ceased operations and closed. Main Avenue Pharmacy will continue to collect outstanding accounts receivable and these funds will be used to pay down the Triumph Healthcare Finance loan debt, which is a first lien.
ScripsAmerica, Inc. files voluntary Petition in Chapter 11 Reorganization
Due to impending deadlines in the Ironridge litigation, and the inability of the Company to secure a timely global settlement of that litigation, the Company has filed a voluntary petition for Chapter 11 Reorganization in the United States Bankruptcy Court for Delaware.
As has been previously discussed, the Ironridge litigation stems from a court-approved stipulation between the Company and Ironridge Global IV, Ltd and Ironridge Global Partners, LLC entered into by Robert Schneiderman, the then CEO of the Company, without the authorization or approval of the Company’s Board of Directors. A prior global settlement, the terms of which were accepted by Ironridge’s counsel, was reneged upon by Ironridge and the California State Court denied without prejudice the Company’s Motion to enforce that settlement. In order to proceed, the Company would have to file a new action, such as a breach of contract action.
However, following the hearing on July 26, 2016, working with Ironridge’s counsel in the new federal lawsuit filed by Ironridge, a new settlement proposal has been under discussion. Unfortunately, there are two (2) deadlines which come due tomorrow, September 8, 2016, and in the absence of a response from Ironridge the settlement will not be timely. The Company has been ordered to file an Appeal Bond in the amount of $300,000 by September 8th, but the Company has been unable to secure such a bond. And, although Ironridge’s new counsel has previously extended the due date, an Answer or other responsive pleading is due in the new federal litigation on September 8th.
At the same time, the legal fees and costs in the already pending litigation have increased to the point where the Company’s operating subsidiaries are unable to produce sufficient cash flow to fund them. The accrued and unpaid legal fees and costs have reached the point where the Company’s various legal counsels have indicated their intent to withdraw from their representation.
Faced with these case deadlines and financial challenges, the Company’s Board of Directors determined that the only available course of action was to file a voluntary petition for reorganization in order to provide sufficient time to resolve our financial challenges and to permit the Company to file a reorganization plan and to go forward.
New Ironridge Litigation
On July 21, 2016, ScripsAmerica, Inc. was served with a complaint filed in the United States District Court for the Central District of California (“Ironridge 2016 Complaint”) by Ironridge Global IV, LTD., Ironridge Global Partners, LLC, John Kirkland and Brendan O’Neil (collectively, the “Ironridge Parties”) against ScripsAmerica, Inc., Needham Law Firm, A.P.C. and Carlos Needham (ScripsAmerica’s former law firm and attorney in California). The Ironridge 2016 Complaint alleges that the Ironridge Parties were damaged by ScripsAmerica’s filing of a complaint in May, 2014 in the United States District Court for the Central District of California against the Ironridge Parties for securities fraud, breach of contract and tortious bad faith (“ScripsAmerica 2014 Complaint”) and that such filing by ScripsAmerica was done with “malice, oppression and fraud[.]”
The ScripsAmerica 2014 Complaint was filed at the direction of its then chief executive officer, Robert Schneiderman, based upon a Stipulation signed by Mr. Schneiderman in November, 2013 without the approval of the ScripsAmerica Board of Directors. However, the Ironridge 2016 Complaint does not name Mr. Schneiderman as a defendant. The ScripsAmerica 2014 Complaint was dismissed by the Court in August, 2015 and the Court ordered ScripsAmerica to pay certain legal fees of the Ironridge Parties (adjusted by the Court), together with interest and costs, as required by the Stipulation signed by Mr. Schneiderman. ScripsAmerica complied with the order and paid the Ironridge Parties.
The Ironridge 2016 Complaint alleges that the Ironridge Parties were not fully compensated for all of their legal fees by the Court’s August, 2015 order in the ScripsAmerica 2014 Complaint case. It further alleges that, as a result of the ScripsAmerica 2014 Complaint, the CFA Institute commenced an investigation of one of the Ironridge Parties, Brendan O’Neil, as a certified financial analyst charterholder of the CFA Institute. The Ironridge 2016 Complaint seeks unspecified general, special, exemplary and punitive damages, and interest and attorneys’ fees.
ScripsAmerica believes that the Complaint is without merit and intends to vigorously defend against the action.
Ironridge Litigation Update
ScripsAmerica has previously provided, in its several Form 8-Ks filed during 2016, information regarding the Ironridge Litigation that is ongoing in the California State Court. A hearing was held by that Court on July 26, 2016 to consider (i) ScripsAmerica’s motion to enforce its global settlement with Ironridge, (ii) Ironridge’s motion to require ScripsAmerica to post a bond, and (iii) a stipulation by Ironridge and Mr. Schneiderman to release him from the Court’s earlier order prohibiting him from selling or transferring the shares he holds in ScripsAmerica. Following that hearing, the Court issued its ruling denying without prejudice ScripsAmerica’s motion to enforce its global settlement with Ironridge by means of a new, separate action. The Court also ruled that ScripsAmerica must post a bond in the amount of $300,000 in order to maintain the current stays of the Court’s previous order requiring ScripsAmerica to issue more than 87 million shares of its common stock to Ironridge and address the attorneys’ fees previously awarded by the California Superior Court. Finally, the Court denied Mr. Schneiderman’s request that he be allowed to sell or transfer his shares of ScripsAmerica stock.