ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section
145 of the Delaware General Corporation Law (“DGCL”) authorizes a corporation’s board of directors to
grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents.
Pursuant
to the Company’s Certificate of Incorporation:
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director of the Company shall, to the fullest extent permitted by the DGCL as it now exists or as it may hereafter be amended,
not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exception from liability is not permitted under the DGCL as the same exists or may hereafter be
amended; and
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To
the fullest extent permitted by applicable law, the Company is authorized to provide indemnification of, and advancement of
expenses to, such agents of the Company (and any other persons to which Delaware law permits the Company to provide indemnification)
through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the DGCL, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the
Company, its stockholders and others.
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Section
145 of the DGCL, provides, among other things, that a Delaware corporation may indemnify any person who was, is or is threatened
to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director,
officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable
cause to believe that his or her conduct was unlawful. A Delaware corporation may indemnify any persons who were or are a party
to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person
is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including
attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action
or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the
corporation’s best interests, provided further that no indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful on the merits
or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including
attorneys’ fees) which such officer or director has actually and reasonably incurred.
Section
145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted against such person and incurred by such person in
any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power
to indemnify such person under Section 145.
The
indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter
acquire under any statute, any provision of our amended and certificate of incorporation, our amended and restated bylaws, agreement,
vote of stockholders or disinterested directors or otherwise. Notwithstanding the foregoing, we shall not be obligated to indemnify
a director or officer in respect of a proceeding (or part thereof) instituted by such director or officer, unless such proceeding
(or part thereof) has been authorized by the board of directors pursuant to the applicable procedure outlined in the amended and
restated bylaws.
Section
174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of
dividends or an unlawful stock purchase or redemption, may be held jointly and severally liable for such actions. A director who
was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent
to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time such action
occurred or immediately after such absent director receives notice of the unlawful acts.
The
Company’s policy is to enter into separate indemnification agreements with each of its directors and officers that provide
the maximum indemnity allowed to directors and executive officers by Section 145 of the DGCL and also to provide for certain additional
procedural protections. The Company also maintains directors and officers’ insurance to insure such persons against certain
liabilities. These indemnification provisions and the indemnification agreements may be sufficiently broad to permit indemnification
of our officers and directors for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES
During
the year ended 2016
Under
a Private Offer Memorandum, 200,000 shares of common stock were sold for $300,000 cash, which included 100,000 shares in June
2016 and 100,000 shares in August 2016. The common stock was sold at $1.50 per share. In connection with this common stock offering
warrants to purchase 50,000 shares of common stock were issued at a strike price of $0.01 and an expiration date of five years.
Warrants were exercised for 25,000 shares of common stock at $.01 for $240.
In
September and October 2016, convertible promissory notes were issued in the aggregate amount of $211,725 to a related party, Nitil
Patel, the brother of Prashant Patel, our President and major stockholder. The term of the notes was one year. Simple interest
of 10% is payable at the maturity date of the notes. Prior to maturity the notes may be converted for common stock at a conversion
price of $0.62. In connection with the notes, the holders of the notes were granted warrants to purchase 52,861 shares of common
stock. These warrants were issued at a strike price of $0.62 and an expiration date of five years from date of issuance.
In
October 2016 and December 2016 additional secured convertible promissory notes totaling $300,000 were issued in connection with
similarly issued notes, first issued in October 2015. The term of the notes was three years, and these notes, together with other
similarly issued notes, were cancelled in connection with the sale of Westminster Pharmaceuticals, LLC, a Delaware limited liability
company (“Westminster”) in December 2016. The holder of the note was granted a warrant to purchase a total
of 183,335 shares of common stock at a strike price of $0.01 and an expiration date of five years from date of issuance.
On
December 31, 2016, the Company entered into and consummated the sale of 100% of its equity interests in its wholly owned subsidiary,
Westminster. The purchase price for Westminster included the cancellation of $1,500,000 of indebtedness with the buyer under the
secured promissory note and the issuance of a warrant to purchase 1,500,000 shares of the Company’s common stock. The warrants
were issued at a strike price of $0.01 per share and have an expiration date of five years from date of grant under the term and
conditions of a warrant agreement.
Stock
Options to purchase 740,000 shares of common stock were granted during 2016 to employees. These options vest in up to 5 years
and are granted with an exercise price of between $0.75 - $1.60 per share and an expiration date up to five years after the last
vesting period. The last options expire December 2026.
During
the year ended 2017
In
January 2017, pursuant to a Private Offering Memorandum, 250,000 shares of common stock were sold for $250,000 cash. The common
stock was sold at $1.00 per share. In connection with this common stock offering, warrants to purchase 87,500 shares of common
stock were issued with a strike price of $0.01 and an expiration date of five years.
In
February 2017, the Company issued 25,000 shares of common stock when warrants were exercised at a $0.01 strike price for a total
of $250. In March 2017, the Company issued 50,000 shares of common stock for services performed for the Company and valued at
fair value of $12,500.
Stock
options to purchase 263,846 shares of common stock were granted during 2017 to employees. These options vest over a period of
5 years, are granted with an exercise price of between $0.41 - $1.02 per share and have a term of 10 years. The last options expire
October 2027.
During
the year end 2018
In
July 2018, under a Private Offer Memorandum, 300,000 shares of common stock were sold for $300,000 cash. The common stock was
sold at $1.00 per share. In connection with this common stock offering, warrants to purchase 161,538 shares of common stock were
issued with a strike price of $0.01 and an expiration date of five years.
In
November 2018, under a Private Offer Memorandum, 1,000,000 shares of common stock were sold for $500,000 cash. The common stock
was sold at $0.50 per share.
In
2018, 161,538 warrants were issued related to common shares sold for cash, 10,000 were issued for renewal of convertible debt,
405,507 were issued related to the acquisition of Community Specialty Pharmacy, LLC.
Stock
options to purchase 560,400 shares of common stock were granted during 2018 to employees. These options vest over a period of
4 to 5 years, are granted with an exercise price of between $0.41 - $1.02 per share and have a term of 10 years. The last options
expire April 2028.
During
the Past Year
In
February 2019, convertible promissory notes issued in 2015 for $150,000 were amended to a conversion price of $0.50 and principal
and accrued interest totaling $211,983 were then converted to 423,966 common shares. In addition, 16,666 of warrants that were
issued in 2014 with an exercise price of $0.01 were converted to 16,666 of common shares.
In
April and May 2019, options to purchase 505,000 shares of common stock were approved by the Compensation Committee of the Board
of Directors and issued to employees, contractors and board members under our 2014 Equity Incentive Plan. The options were granted
with an exercise price ranging from $0.41 to $0.44 and a term of 10 years from the grant date. The options vest over a period
ranging from four to five years.
On
July 10, 2019, we entered into a securities Purchase Agreement with R.S.N., LLC with respect to the private placement of 2,000,000
shares of our common stock at a purchase price of $0.50 per share, for gross proceeds of $1,000,000. This transaction closed on
July 30, 2019.
On
September 30, 2019, we closed the sale of securities pursuant to Securities Purchase Agreements entered into with certain accredited
investors with respect to the private placement of 2,910,000 shares of our common stock at a purchase price of $0.50 per share,
for gross proceeds of $1,455,000. Subscribers included Bedford Falls Capital, which is controlled by Gary Augusta, our director
(1,000,000 shares); Nitesh Patel, who is the cousin of Prashant Patel, our director and President (40,000 shares); Shilpa Patel,
who is the spouse of Nitesh Patel, the brother of Prashant Patel our director and President (20,000 shares); and Nitil Patel,
the brother of Prashant Patel, our director and President, (200,000 shares).
Further,
on September 30, 2019, the Company converted $175,000 of principal under various outstanding promissory notes (“Promissory
Notes”) into 350,000 shares common stock of the Company at $0.50 per share under the terms of the Securities Purchase
Agreement referenced above.
The
combined total of the transactions detailed above was $2,630,000 of investment and conversion of principal under various Promissory
Notes into an aggregate total 5,260,000 shares of common stock.
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The
use of proceeds associated with the above listed sales of unregistered securities was for general working capital purposes.
The
issuances and grants described above were exempt from registration pursuant to Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving any public offering pursuant to benefit plans and contracts relating
to compensation as provided under Rule 701, or were exempt offerings under Section 4(a)(2), Rule 506 of Regulation D and/or Regulation
S of the Securities Act, since the foregoing issuances and grants did not involve a public offering, the recipients took the securities
for investment and not resale, we took take appropriate measures to restrict transfer, and the recipients were (a) “accredited
investors”; (b) had access to similar documentation and information as would be required in a Registration Statement under
the Act; (c) were non U.S. persons; and/or (d) were officers or directors of the Company. The securities are subject to transfer
restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not
been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom.
The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States
absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
ITEM
17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement
to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii)
Include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser each prospectus filed by the
registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus
was deemed part of and included in the registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed
to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided
in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed
to be a new effective date of the registration statement relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part
of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede
or modify any statement that was made in the registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such effective date.
(5)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issue.