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Praxsyn Corporation (PXYN)--Sued by Former Director Garbino; Serious Allegations.

Interesting allegations in the TPS lawsuit filed in Orange County, California Superior Court on April 6, 2015, case number 30-2015-00781113-CU-BC-CJC . Here is the amended complaint filed in October 2015. John Shebanow is alleged to be the largest shareholder of Praxsyn and the one in control of the company. The lawsuit has an attachment to it which is Garbino's resignation letter to Praxsyn. In his letter, Garbino lays out a host of issues related to his resignation. Praxsyn was required under law to file that letter with the 8-K announcing his resignation. Praxsyn did not. Instead, Praxsyn lied and said that Garbino resigned due to a conflict of interest. (Paragraph 44 of the Complaint) Total damages sought "in excess of $75 million." Furthermore, it is contended that TPS's Series D Preferred was not cancelled and is still owned by TPS. We see from the register of actions in the case that Praxsyn filed an anti-slapp motion scheduled for August but it has been taken off calendar. Seems to be completely meritless defense. The demurrer filed, that the action is precluded by the suit against TPS, is kind of silly. The cases are going to be consolidated. The TPS lawsuit also claims that John Shebanow is the real control person at Praxsyn. Very, very serious allegations and look credible. In an Arizona District Court case, on October 15, 2015, John Shebanow admitted that he owns a substantial number of shares of Series B Convertible Preferred but that until April 17, 2016 he has agreed to limit conversions to 4.9% of the outstanding. This is a common scheme used by promoters to convert to common, sell, convert more, sell, etc ad infinitum. So, we know where all the stock sales are coming from.


is the affidavit.

Praxsyn Corporation (PXYN)--Serious Problem with the November 3, 2014 actions and Rule 144 Problem

We have identified several serious problems with respect to the Company's common stock and the purported redomestication. In short, the Company has apparently issued tens of millions of shares without proper corporate authorization, the redomestication has not legally been effected, and the Company may have removed restrictive legends without complying with Rule 144. These issues have been brought to the attention of Praxsyn and its transfer agent Broadridge and we are awaiting a response.

According to the Company's Current Report on Form 8-K dated November 3, 2014 (the "8-K"), a "majority" of the shareholders entitled to vote resolved to elect Edward Kurtz, John Garbino, Evon Midei, Jonathan Renkas, M.D. and Kelly Reynolds to serve as the board of directors; apparently removed Alysa Binder and Daniel Wiesel as members of the Board; and approved a change of domicile from Illinois to Wyoming. As of November 3, 2014, the Company was an Illinois corporation and therefore was subject to the Illinois Business Corporation Act of 1983 (the "Act"). The redomicle was purportedly effected by filing articles of domestication with the Nevada Secretary of State, followed by a dissolution of the Illinois corporation.

The Election of Directors was Invalid.

:Let us look at Section 7.10 of the Act, which states as follows:

Sec. 7.10. Informal action by shareholders. (a) Unless otherwise provided in the articles of incorporation or Section 12.10 of this Act, any action required by this Act to be taken at any annual or special meeting of the shareholders of a corporation, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting and without a vote, if a consent in writing, setting forth the action so taken, shall be signed (i) by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting or (ii) by all of the shareholders entitled to vote with respect to the subject matter thereof. If such consent is signed by less than all of the shareholders entitled to vote, then such consent shall become effective only if at least 5 days prior to the execution of the consent a notice in writing is delivered to all the shareholders entitled to vote with respect to the subject matter thereof and, after the effective date of the consent, prompt notice of the taking of the corporation action without a meeting by less than unanimous written consent shall be delivered in writing to those shareholders who have not consented in writing. (emphasis added)

Since, according to the 8-K, the election of the directors and the redomestication was approved by only a majority of the shareholders, and not 100% of the shareholders, notice of the consent had to be delivered to all shareholders at least 5 days prior to November 3, 2014 and then, a second notice had to be promptly mailed to all non-consenting shareholders.

It is our understanding that only one notice was sent to shareholders, which was received on or about November 7, 2014. Since Section 7.10 requires that two separate notices be given for the action by majority shareholders to be valid, it is clear that the corporate actions (the election of the five new directors, removal of the two prior directors, and the dissolution/redomicle) were not approved and therefore are invalid.

We have asked the transfer agent for proof of mailing of these notices.

The consequences are stunning. Since November 3, 2014, the Company has not had a validly acting board of directors. Shares of common stock can only be issued by resolution of the board of directors. The Company has purportedly issued a large quantity of shares of common stock. According to the cover page of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, there were 421,189,263 common shares issued and outstanding as of November 19, 2014. According to the 10-K filed yesterday (April 15, 2015), there were 577,107,157 common shares outstanding as of April 10, 2015. Therefore, certificates representing at least 155,917,894 shares of common stock have been invalidly issued.

The Deficient Share Issuance Cannot be Cured.

There is no Nevada case law that we are aware of concerning the effect issuing shares without board approval. The key question is whether an illegal issuance is voidable-could it be cured by ratification-or is it void-all shares must be cancelled and reissued.

Delaware case law is clear. The seminal case on this issue is Starr Surgical Company v. Waggoner (Waggoner II), 588 A.2d 1130 (1991). In Starr, the company issued preferred shares to its founder, Tom Waggoner, without approval of the board of directors. Waggoner subsequently converted some of the preferred into 2 million shares of common stock ,and voted his remaining preferred shares to remove the other board members. Waggoner sought an injunction to hold a shareholder meeting to ratify the issuance of his shares. Starr firmly holds that unless all corporate formalities are observed, shares issued without proper approval are void and cannot be ratified.

The other leading case in Delaware, Triplex Shoe Co. v. Rich & Hutchins, Inc., 152 A 342 (Del. 1930), is also notable. In that case, shares were issued in excess of the authorized after the increase was approved but before the amendment was filed with the Secretary of State. The court held that the overissuance was not cured by the subsequent filing of the amendment.

As a result, the legal conclusion is that these 155,917,894 shares of common stock must be recalled and a shareholder meeting be properly held to elect a valid board of directors, after which the shares could potentially be reissued. Due to the problems set forth below, I do not think that the current majority shareholders could elect a board under Nevada law.

Serious issues could arise in the event any of these shares found their way into the public markets. Based on the trading volume of the Company's common stock, I believe that this has already occurred, and the shares must be retrieved from the DTC system.

The Dissolution and Redomestication was not Duly Authorized and is Invalid

The Act does not contain a specific provision allowing redomestication of an Illinois profit corporation into another jurisdiction. The Company has chosen to use a non-standard method in order to reincorporate in Nevada. However, it did so incorrectly, as pointed out above. In addition, even if both the require notices had been given, the process may have been flawed.

Section 12.15 (c) of the Act states as follows with respect to shareholder approval of a dissolution:

At such meeting a vote of the shareholders entitled to vote on dissolution shall be taken on the resolution to dissolve voluntarily the corporation, which shall require for its adoption the affirmative votes of at least two-thirds of the votes of the shares entitled to vote on dissolution, unless any class of shares is entitled to vote as a class in respect thereof, in which event the resolution shall require for its adoption the affirmative votes of at least two-thirds of the votes of the shares of each class of shares entitled to vote as a class in respect thereof and of the votes of the total shares entitled to vote on dissolution. (emphasis added)

As you can see, a simple majority vote is insufficient to effect a voluntary dissolution. A two-thirds majority is required. There is no indication that the November 3, 2014 shareholder consent was signed by two-thirds of the shareholders.

Significant Error in the Nevada Articles.

Now lets look at the the Nevada Articles of Incorporation filed with the Current Report on Form 8-K dated January 21, 2015 (the "Articles"). You will note that the Articles provides for the issuance of 1.4 million shares of common stock and 10 million shares of preferred stock. You will also notice that no specific series of preferred stock is set forth in the Articles. You will also notice that the Articles do not state, with respect to the 10 million authorized shares of preferred, that the board of directors may issue such preferred stock pursuant to a resolution of the board of directors.

Section 78.1955 of the Nevada General Corporation Law provides as follows:

If the voting powers, designations, preferences, limitations, restrictions and relative rights of any class or series of stock have been established by a resolution of the board of directors pursuant to a provision in the articles of incorporation, a certificate of designation setting forth the resolution and stating the number of shares for each designation must be signed by an officer of the corporation and filed with the Secretary of State. A certificate of designation signed and filed pursuant to this section must become effective before the issuance of any shares of the class or series.

The Illinois corporation apparently had Series B, C and D preferred authorized. Because the Articles did not set forth the designation of the Series B, C and D, none of these classes of shares continue to be authorized. Therefore, none of these preferred shares may legally be converted into common stock. Yes, the Preferred Stock was authorized in the Illinois corporation, but since they are not included in the Nevada ones, they do not exist, and no common shares may be issued on their purported conversion nor may any purported holders of Series D Preferred Stock vote their shares.

Potential Violation of Rule 144.

Directing our gaze to the Annual Report on Form 10-K filed yesterday, and the Statement of Changes in Stockholders' Equity therein, that page states that the Company issued 1 million shares of common stock in 2014 upon conversion of 1,000 shares of Series D Preferred Stock. Footnote 15, Subsequent Events, to the financial statements in the 10-K indicates that 106,256,106 shares of common stock were issued upon conversion of 106,256 shares of Series D Preferred Stock after December 31, 2014 but prior to April 15, 2015. If any of these shares were issued free of restrictive legend, the issuance without legend did not comply with Rule 144. Specifically, Rule 144 mandates a one year holding period for securities of non-reporting companies.

The Company is a "voluntary filer" in that its common stock is not registered under Section 12 of the Securities Exchange Act of 1934. The Company ceased to have any reporting obligation under Section 15(d) of the Exchange Act following the filing of its Annual Report for the year ended December 31, 2012. For purposes of Rule 144, the Company is a "non-reporting" company. See Question 132.09 of the SEC's interpretive guidance on Rule 144: (or our page on this website with respect to "voluntary filers")

Question: Does the one-year holding period requirement in Rule 144(d)(1)(ii) apply to the restricted securities of an issuer that submits Exchange Act reports on a voluntary basis?

Answer: Yes. The six-month holding period requirement in Rule 144(d)(1)(i) is applicable only to the restricted securities of an issuer that is, and has been for at least 90 days immediately before the sale, "subject to" the reporting requirements of Exchange Act Section 13 or 15(d). A voluntary filer is not "subject to" Exchange Act Section 13 or 15(d) because it is not obligated to file Exchange Act reports pursuant to either of those provisions. Consequently, the one-year holding period requirement in Rule 144(d)(1)(ii) applies to the restricted securities of a voluntary filer. [Jan. 26, 2009]

Since the Series D Preferred was issued on closing of the Mesa Pharmacy acquisition on March 31, 2014 (See Report on Form 8-K filed on April 3, 2014) no shares without legend may be issued on their conversion prior to March 31, 2015. So, it appears to be a distinct possibility that over 150 million shares were issued without legend and illegally resold on the public market.

Praxsyn Corporation (PXYN)--An Introduction

Let's start with an overview. The only operating segment of this company is the wholly-owned subsidiary Mesa Pharmacy, and related, newly formed subsidiaries. Mesa is a pharmacy and specifically a compounding pharmacy. Its business is not mainly dispensing factory made medications, but custom blended topical pain preparations, primarily to the workers' compensation industry. The business is characterized by high gross margins but not very good collectability, so that historically the company has paid a lot to factor its receivables. They claim this issue is over in 2015, but we shall see.

PXYN is the product of a reverse merger with PAWS, which ostensibly was going to operate an airline for pets. The merger was first announced in October 2013, but after various delays and modifications, closed in April 2014 and the audited financial statements of Mesa were finally filed with the SEC on July 14, 2014. They showed sales of almost $7 million in 2013 and net income of $230,000. Looking at the view from 35,000 feet, this company does not make sense. There is something we are not being told, because smart people are supposed to act rationally.

When Pharmacy Development, the shareholder of Mesa, entered into the reverse merger, PAWS was not a very attractive shell candidate. As of December 31, 2013, according to the 10-K it had no revenues, no real assets and a lot of debt. $2.2 million. This debt included nearly $600,000 shares of convertible debentures which were convertible into hundreds of millions of shares. There were also outstanding:

--Almost 257 million shares of common stock

79,615 shares of Series B Preferred (issued in 2013 for what appears to be a non-operating company with no assets) convertible into 796,150,000 common shares

1,645 shares of Series C Preferred, convertible into 4,825,331 shars of common

The total outstanding pre-merger on a fully diluted basis was about 1,278,000,000 shares. The PDC shareholders received 500,000 shares of Series D Preferred, convertible into 500 million shares of common stock (some of those shares were cancelled in early 2015 in connection with cancellation of a business relationship, leaving 333,336 Series D)

In other words, a company with $7 million in sales, profitable, merged into a shell company, with no assets or operations, with over $2 million in debt, in exchange for 500 million out of the total 1.778 billion shares--or about 28% percent of the outstanding. Does that make sense to anyone? No. It does not make sense. Something is going on, which we have not been told about.

In my opinion, is has to do with the ownership of the Series B Preferred. PDC likely secretly owns the Series B and plans to sell the common issuable upon conversion and pocket the proceeds. According to the September 30, 2014 10-Q, for the nine months ended that date, PXYN had issued 56 million shares of common stock from the Series B, probably free trading. And looking at the volume and the constant selling pressure, it seems likely that is where the selling is coming. There is no other rational explanation for PDC to enter into the reverse merger. Certainly, there is no sign the proceeds are making their way into PXYN.