Note 10 – Contingencies

From time to time, the Company is a party to, or otherwise involved in, legal proceedings arising in the normal course of business.  As of the date of this report, except as described below, the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business, results of operations, cash flows or financial position.

The Company was named in two legal proceedings involving Daniel Fisher.

The first proceeding was an action filed in Contra Costa County, California  by the landlord, which is an entity managed by Mr. Fisher, to evict MusclePharm as a tenant from real property the Company’s now inactive subsidiary, Biozone Laboratories, Inc. (“Biozone Labs”) previously leased.

On March 27, 2014, the landlord filed suit in the Contra Costa County Court against the Company and Biozone Labs, as well as MusclePharm, alleging an assignment of the lease to MusclePharm in January 2014 was a violation of the lease and its provision requiring the landlord’s consent for a change of control.  The landlord failed to either approve or reject the proposed assignment when requested in December 2013.  

On February 24, 2015, Mr. Fisher agreed to withdraw this lawsuit without prejudice in exchange for an agreement that all parties would be responsible for their own legal fees.

In the second proceeding, the Company has been named as a party to a lawsuit filed on April 15, 2014 in Contra Costa County, California by the same entity managed by Mr. Fisher. Also named in this action are two of the Company’s subsidiaries – BioZone Labs and Cocrystal Discovery.   The action seeks recovery on a promissory note purportedly executed by BioZone Labs in the principal amount of $295,000 in 2007, or almost seven years before the Company’s acquisition of Cocrystal Discovery.   Motions challenging the sufficiency of the allegations in the complaint were filed in the third quarter, 2014. The motions were granted and plaintiff was given an opportunity to amend the complaint, and plaintiff has filed an amended complaint. On July 2, 2015 the Company, along with its subsidiaries and other named defendants, filed a motion to bifurcate the action, and stay discovery on one of the causes of action.  This motion was granted on August 27, 2015 and the Court limited the scope of discovery in the first phase of the case.  The Court also ordered that the Company post a bond for the amount of $295,000, and the Company complied with the Order by posting the bond on September 29, 2015.  This is recorded as a short-term deposit.  On October 1, 2015 Plaintiff was granted leave to file a Second Amended Complaint, which was filed on the same day.  The parties entered into a stipulation to extend the time for the Company to respond to the Second Amended Complaint, and the deadline for a response is November 19, 2015.  On October 9, 2015 the Company filed a motion for summary adjudication seeking judgment in its favor on the first two causes of action based on the grounds that the promissory note is not valid or enforceable.  The Company intends to vigorously defend the action.

On October 13, 2013, Plaintiff Shefa LMV, LLC ("Plaintiff") filed a First Amended Complaint in Los Angeles Superior Court for civil penalties and injunctive relief against numerous retailers and manufacturers of products, and alleged violations of Cal. Health & Saftey Code § 25249.6 (part of the "Safe Drinking Water and Toxic Enforcement Act") and Cal. Bus. & Prof. Code § 17200, et seq. (California's "Unfair Competition Law").  The case is captioned Shefa LMV, LLC v. Walgreens Co., et al., LASC Case No. BC520416.  The complaint alleges that the retailers and manufacturers failed to place a clear and reasonable warning on the products which contained "Cocamide DEA" pursuant to the Safe Drinking Water and Toxic Enforcement Act, and further requested that the defendants be enjoined from manufacturing or selling products with Cocamide DEA in the State of California.  Numerous actions that had been filed alleging similar claims against defendants who manufactured and/or sold Cocamide DEA products have been coordinated, with a new Judicial Council Coordination Proceeding Case No. JCCP 4765.  On October 17, 2014, Plaintiff filed an amendment to the Complaint, adding BioZone Laboratories, Inc. a California corporation, as Doe Defendant No. 9.  The Company filed an Answer to the First Amended Complaint on October 13, 2015.  No discovery has taken place yet.

In October 2015, Cocrystal Pharma, Inc. received a subpoena from the staff of the Securities and Exchange Commission seeking the production of documents.  The Company is fully cooperating with the inquiry.  The Company cannot predict or determine whether any proceeding may be instituted in connection with the subpoena or the outcome of any proceeding that may be instituted.