Replies to post #18326 on ScripsAmerica Inc. (SCRCQ)

[Sandan]

Do you have a link to the complaint? TKS

[coolerheadsprevail]

Fortunately for Scrips, the company does have evidence to support their allegations of deceptive and fraudulent conduct. They attached some of to their Complaint. So, while it is sad to see yet another small company get steamrolled by IR, the lawsuit between SCRC and IR will be determined on its own unique set of facts, which SCRC's attorney so eloquently expressed in the Complaint.

It certainly is not good to see any company in a position where it has no leverage with financiers. And I think it is fair to say that the devil is in the details, especially when it comes to litigation, where it is the norm for there to be much more information than what is available in the public space. The pre-trial motions will be telling and an interesting read. The actual case-in-chief will also be interesting, so hopefully it won’t take too long for the transcripts to be made public once this portion of the trial begins (assuming it gets this far).

That being said, on the surface, here are the portions of SCRC’s complaint which you previously provided that raised red flags for me:

(1)

In para #11 of the Complaint, Scrips presents a set of discussions between it and IR between August 28, 2013 and October 2, 2013 about the details of an arrangement whereby IR would pay off about $700K in SCRC payables in exchange for common shares that never had to be registered.

Para #13 introduces the "Term Sheet", which IR presented to Scrips on September 27, 2013 to generally outline IR's proposed transaction. (Term Sheet was attached as Ex. 1.)

Para #15 describes a conversation with Kirkland and O'Neill (K&0) on October 4, 2013 in which Scrips appeared to have voiced specific concerns over the potential negative effects that IR's sale of delivered shares could have on the sp. K&O apparently assured Scrips that IR would take no action to manipulate the sp and that any sale required to pay certain "receivables would be made in such a way that they would never be more than ten percent of the volume of sales on any given day."

Per para #16 Scrips agreed to the arrangement based on all of the above-alleged "deceptive representations and fraudulent omissions." Thus, the parties agreed to a Stipulation signed by all the parties in early November covering the arrangement, which a state court judge in Las Angeles, CA approved on November 8, 2013. On the same day, Scrips issued 8,690,000 shares to IR.

Para #17 alleges IR's scheme to defraud and manipulate included a "bait and switch". "While the Term Sheet contemplated only one potential "final adjustment" that may have provided additional shares to [IR], the Stipulation included language (at para #s 7, 8, and 10) which [IR] would later contend allowed IR multiple opportunities to seek additional shares of [SCRC's] stock."

As I’ve opined previously, one critical factor which SCRC does not address is quite simply: Did SCRC ensure that the points which SCRC believed was verbally agreed upon made its way into the Stipulation, which they ultimately signed? If not, then SCRC’s case may be significantly weakened. As we all know, anything can be said, requested, and verbally agreed upon during a negotiation, but it’s all hearsay and moot until the rubber meets the road and it finds its way into the written agreement, in this case the “Stipulation”.

In many respects, this should be a fairly straight-forward case for the Court to wade through, and much of the Court’s ruling will be based upon the written Stipulation that SCRC agreed to. If the Stipulation contained the terms/clauses SCRC is claiming, then that will help SCRC immensely; however, based on the language of the Complaint (i.e. SCRC’s allegation of a “bait and switch”), it would appear that the Stipulation did NOT include the language SCRC believed it did. In that event, the first question I would ask Bob is this: Why did you sign the Stipulation if it did not include the terms/clauses that you believed IR agreed to as reflected in the “Term Sheet”?

At the end of the day, in the absence of extraneous circumstances that warrant otherwise, a contract is a contract and Courts will typically rule based upon what has been agreed upon in writing.

(2)

Para #23: "[IR] successfully reduced the market price of [Scrips], which had been in the range of $.15 on the day of delivery of the stock to the range of $.10 and below in April 2014. "There was no economic basis for this reduction...Absent illegal manipulation, [SCRC's] stock price should have risen given myriad positive business developments for [Scrips]."

“Myriad” of positive business developments? The only positive has been Main Ave, which was surrounded by numerous negative business developments.

In addition, as I have stated several times previously, the sp is an indicator that only an amateur would look at in a vacuum, which the Court will easily see thru as not being a completely accurate barometer of what has occurred with SCRC vis-à-vis the market. Why, you ask? Simple. Because it ignores two much more relevant and equally important metrics: Market Capitalization and Capital Structure.

SCRC’s market cap has increased a healthy 33% from $10.8M at the beginning of Q4’13 to $14.4M at the end of Q1’14. It will be hard-pressed for SCRC to argue to the Court that there has been much harm done to SCRC at all. And what the Court will also see is what I have also stated previously: That the near-doubling of the O/S count is what has killed the sp. If this avalanche of dilution did not occur, the sp would easily be at .20+ right now (in fact .226 based upon the most recent closing price of .13) to reflect the current increased market cap (again, this is a mathematical fact that anyone can replicate by taking the current market cap and dividing thru by the “pre-dilution” 9/30/13 O/S count, so don’t just take my word for it).

SCRC will be laughed out of the courtroom if it attempts to argue that dilution doesn’t impact sp. The market cap will tell the Court that the market values SCRC 33% more now at 3/31/14 than it did 6 months ago – which is fair considering that there has been a boatload of dilution, RapiMeds had flopped thus far, PIMD is still a big zero, WRx is stagnating, and the company as a whole is still operating in the red and has yet to turn a profit. This is a lot of bad news to be able to completely offset the one shining light which is Main Ave. But Main Ave has done a valiant job of it, by enabling SCRC – in spite of all the other failures and continued losses – to still gain 33% value as a company. That’s a lot of growth that SCRC has enjoyed.

This 33% increase in valuation will be SCRC’s biggest challenge to overcome in Court in their argument that they have been harmed on the Street. And, in fact, to even use the most current closing sp of .13, the increase in market cap jumps to over 50% today (technically, the market cap is even higher than this because I am only using the O/S count as of 3/31/14, and SCRC already disclosed in its 1st Qtr 10Q that it already issued millions more shares during the first month of Q2 already.

(3)

Para #s 41-42 contain the breach of contract allegations, which included breaches of para #14 of the Stipulation and the "No Shorting" provision contained on page 2 of the Term Sheet.

This one will be interesting to watch unfold. Again, although the Term Sheet contained a “No Shorting” provision, did this provision make it into the final version of the Stipulation that SCRC signed? If not, then this claim will be DOA. If it did make it into the Stipulation, then the question then becomes: How significantly was SCRC harmed? This question is important because this will be a primary consideration in any damages (both compensatory and/or punitive) should SCRC prevail on this claim.

And so we then look at the semi-monthly short interest reports, linked here:

http://www.otcmarkets.com/stock/SCRC/short-sales

What we see is that since IR got hold of their shares, the most that SCRC stock has been shorted has been only a whopping 83k shares in mid-DEC’13, which translated to a whopping $15k at the time and less than 1 day to cover (heck, even at today’s rate, it’ll take less than 1 hour to cover). Since then, the short interest has consistently declined to 11k shares at end-of-MAR’14 and ZERO shares at end-of-APR’14.

This light volume in short activity will make it difficult for SCRC to demonstrate not only that shorting had any meaningful impact at all on the sp, but even if it did, that SCRC suffered any material losses as a DIRECT result of such immaterial shorting.

(4)

as well-stated by Scrips's outside counsel, the tracks lead directly to Ironridge. As alleged by Scrips, for example, IR's sales of SCRC shares accounted for up to 50% of the trading volume throughout February. For a quick painful reminder of what happened to the sp during February, take a look at the chart, which depicts about a 57% drop in the sp from a high of about $.21 on or about February 1 to a dip to about $.09 on or about February 28.

OK, so now let’s all wander over to the non-fiction side of the library and begin taking a closer look at the complete chart to see the real story…

(a)
First, let’s not conveniently and selectively forget how the sp cratered from 1.05 to .08 in the immediate aftermath of the P&D that SCRC engaged JOSEPH ZAMPETTI and a small army of his fellow Section 17(b)-violating core “investor relations related consultants” to orchestrate, who spent each day last summer touting on all forms of media how the sp was going to $4 and how everyone should grab all the .90 shares they could because these “cheapies” would not last long.

I would consider a freefall from 1.05 down to .08 to be aptly described as “destruction” (but I suppose Monty Python would consider this simply a minor “flesh wound”, LOL). And this had absolutely NOTHING to do with Ironridge, but instead had EVERYTHING to do with JOSEPH ZAMPETTI and his core of fellow Section 17(b)-violating promoters.

Well, at least the promoters hired by SCRC were right on the fact that the .90 price levels most definitely did not last long…

(b)
Next, on 10/28/13, the first tranche of the FREE restricted stock that JOSEPH ZAMPETTI received as part of his 2M+ shares of compensation for his role in orchestrating the P&D last summer unlocked. Keep this in mind.

(c)
And in a stroke of cosmic (and comic) coincidence, Bob/SCRC dished out the “assist of the year” by PR’ing on THE EXACT SAME DAY (10/28/13) what we now know to be a BS fluff PR proclaiming that they currently had a team in mainland China securing imminent distribution deals to get RapiMeds into thousands of pharmacies and drugstores.

(d)
This PR caused the sp, which had been hovering around .30 up to 10/28/13, to shoot up to .42 on 10/28/13 due to the PR – on the very same day that JOSEPH ZAMPETTI’s shares began unlocking and becoming free-trading. What fantasmic luck for JOSEPH ZAMPETTI!!!

(e)
Keep in mind that IR still had NOT even entered into the picture yet at this point in time…

(f)
From the time JOSEPH ZAMPETTI’s restricted shares began unlocking around 10/28/13 on until 11/19/13 (the day the IR settlement was executed), the sp began tanking and lost well over 50% of its value down to an EOD print of.152 with a low print of .13 on 11/18/13, with the only material event being JOSEPH ZAMPETTI’s dilution that hit the float. Again, remember, during this time the sp was falling over 50%, IR had NOT entered into the picture yet, so SCRC cannot blame IR for this.

(g)
From the time that IR entered the picture on 11/19/13 up until around 12/6/13, the sp actually rose steadily and gained about 50% from its .13 low to around .20. READ THAT AGAIN. The sp rose following IR’s involvement. But why is 12/6/13 important, you ask? Keep reading…

(h)
On 12/6/13, another tranche of the pool of 2M+ FREE restricted shares of stock that belonged to JOSEPH ZAMPETTI and several of his “unnamed designees” unlocked and became free-trading, adding more dilution into the float.

(i)
From this 12/6/13 date onward, the sp began yet another steady decline down to the .10 and sub-.10 levels that have – with but a few momentary pockets of exceptions – plagued SCRC shareholders ever since.

(j)
So what the historical tape tells us is that the three biggest nosedives of SCRC’s sp in its entire history have JOSEPH ZAMPETTI and his core’s fingerprints all over them: The first being when the “D” part of the P&D they orchestrated inevitably played itself out, and the second and third occurrences being at the EXACT moments in time when their FREE restricted stock unlocked and diluted into the float. Coincidence? You be the judge.

(k)
As for the selective cherry picking of the .21 price on 2/1/14, go take a look back at the historical tape again. What you will see is that the sp languished in the low teens all the way up until the last week of JAN-2014 when it began rising to this .21 print on 2/3/14. So first off, it would be completely inaccurate to say that SCRC was sitting loftily all this time at prices anywhere near .21 until big bad IR came and stole our lunch money.

No. Let’s all go inside the “way back machine” and recall what was going on w/SCRC towards the end of JAN-2014. Let me give everyone a refresher course: JOSEPH ZAMPETTI, SEAN FITZGIBBONS, and the rest of their fellow Section 17(b)-violating core “investor relations related consultants” that were hired by SCRC were relentlessly touting “Tick-Tock, only xx more days until the 90-day application period for China approval is up and we launch RapiMeds in China!!! Buckle up, the rocket ride is about to take off!!!”. Heck, I’m sure most of us even remember that “Countdown Clock” that they kept religiously touting:

http://www.datecountdown.com/?&d=1%2f30%2f2014+12%3a00+AM&t=Chinese+RapiMed+Product+Approval#timer1

Ahhh, so now folks are remembering that the sp shot up over the course of approx 2 weeks because an alleged major catalyst was being heavily touted for this end-of-JAN-to-early-FEB time frame.

And as it became evident that China approval wasn’t happening as touted, the sp quickly retraced down to the mid-teens by mid-FEB, and then further down to the low-teens by end-of-FEB, and then sub-.10’s again by early-MAR.

SCRC is a penny stock that – similar to most other penny stocks -- trades primarily on rumors due to the fact that verifiable info on penny companies is difficult to come by – which is what makes non-disclosing promoters so dangerous and precisely why the SEC enacted Section 17(b) into law.

And as a penny stock that just saw a rumor of a major catalyst fail to materialize, the sp naturally cratered as shareholders raced to the exits.

The Court will easily see this sp trend in concert with both the PR’s SCRC itself issued re: the China catalyst as well as the timing of the dilution caused by the unlocking of JOSEPH ZAMPETTI’s restricted stock into the float – which will make it that much more difficult for SCRC to prove that it was IR who was responsible for the sp falling from the .21 price on 2/3/14.

Don’t get me wrong, IR obviously did not help the sp rise, but the empirical evidence strongly suggests that they certainly were not responsible for any destruction of the sp during FEB-2014, no more than they were responsible for the cratering of the sp during the P&D last summer or the cratering of the sp during Q4’13.

This lawsuit makes for good PR, but unless there is more to it that is currently not available in the public space, this will not end well for SCRC if the above arguments represent the centerpiece of their litigation strategy. Let’s hope there is more than meets the eye on this…