UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of
1934
Date
of Report (Date of Earliest Event Reported): October 6,
2020
Transportation
and Logistics Systems, Inc.
(Exact
name of registrant as specified in its charter)
|
Nevada |
|
001-34970 |
|
26-3106763 |
|
(State
or other jurisdiction
of
incorporation)
|
|
(Commission
File
Number)
|
|
(IRS
Employer
Identification
No.)
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5500
Military Trail, Suite 22-357
Jupiter,
Florida 33458
(Address
of Principal Executive Offices)
(833)
764-1443
(Issuer’s
telephone number)
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation to the registrant
under any of the following provisions:
|
[ ] |
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425) |
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[ ] |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12) |
| |
|
|
[ ] |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b)) |
| |
|
|
[ ] |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c)) |
Securities
registered pursuant to Section 12(b) of the Act:
None.
Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405 of
this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934
(§240.12b-2 of this chapter).
Emerging
growth company [ ]
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
[ ]
Forward
Looking Statements
Statements
in this report regarding Transportation and Logistics Systems, Inc.
(the “Company”) and/or its subsidiaries Prime EFS LLC
(“Prime EFS”) and Shypdirect LLC (“Shypdirect”) that
are not historical facts are forward-looking statements and are
subject to risks and uncertainties that could cause actual future
events or results to differ materially from such statements. Any
such forward-looking statements, including, but not limited to,
financial guidance, are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements that do not
directly or exclusively relate to historical facts. In some cases,
you can identify forward-looking statements by terms such as “may,”
“will,” “should,” “could,” “would,” “expects,” “plans,”
“anticipates,” “intend,” “goal,” “seek,” “strategy,” “future,”
“likely,” “believes,” “estimates,” “projects,” “forecasts,”
“predicts,” “potential,” or the negative of those terms, and
similar expressions and comparable terminology. These include, but
are not limited to, statements relating to future events or our
future financial and operating results, plans, objectives,
expectations and intentions. Although we believe that the
expectations reflected in these forward-looking statements are
reasonable, these expectations may not be achieved. Forward-looking
statements are neither historical facts nor assurances of future
performance. Instead, they represent our intentions, plans,
expectations, assumptions and beliefs about future events and are
subject to known and unknown risks, uncertainties and other factors
outside of our control that could cause our actual results,
performance or achievement to differ materially from those
expressed or implied by these forward-looking statements. In
addition to the risks described above, these risks and
uncertainties include: our ability to successfully execute our
business strategies, including integration of acquisitions and the
future acquisition of other businesses to grow our Company;
customers’ cancellation on short notice of master service
agreements from which we derive a significant portion of our
revenue or our failure to renew such master service agreements on
favorable terms or at all; our ability to attract and retain key
personnel and skilled labor to meet the requirements of our
labor-intensive business or labor difficulties which could have an
effect on our ability to bid for and successfully complete
contracts; the ultimate geographic spread, duration and severity of
the coronavirus outbreak and the effectiveness of actions taken, or
actions that may be taken, by governmental authorities to contain
the outbreak or ameliorate its effects; our failure to compete
effectively in our highly competitive industry could reduce the
number of new contracts awarded to us or adversely affect our
market share and harm our financial performance; our ability to
adopt and master new technologies and adjust certain fixed costs
and expenses to adapt to our industry’s and customers’ evolving
demands; our history of losses, deficiency in working capital and a
stockholders’ deficit and our ability to achieve sustained
profitability; material weaknesses in our internal control over
financial reporting and our ability to maintain effective controls
over financial reporting in the future; our substantial
indebtedness could adversely affect our business, financial
condition and results of operations and our ability to meet our
payment obligations; the impact of new or changed laws, regulations
or other industry standards that could adversely affect our ability
to conduct our business; and changes in general market, economic,
social and political conditions in the United States and global
economies or financial markets, including those resulting from
natural or man-made disasters.
These
forward-looking statements represent our estimates and assumptions
only as of the date of this report and, except as required by law,
we undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise after the date of this report. Given
these uncertainties, you should not place undue reliance on these
forward-looking statements and should consider various factors,
including the risks described, among other places, in our most
recent Annual Report on Form 10-K and in our Quarterly Reports on
Form 10-Q, as well as any amendments thereto, filed with the
Securities and Exchange Commission.
Item
2.04 Triggering Events That Accelerate or Increase a Direct
Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement.
To
the
knowledge of the executive officers of the Company, the Company and
its subsidiaries, Prime EFS LLC (“Prime EFS”) and Shypdirect
LLC (“Shypdirect” and together with Prime EFS, the
“Subsidiaries”), have not filed or paid corporate or entity
taxes since March 30, 2017. The Company has requested a transcript
from the Internal Revenue Service so that it can assess what
returns are overdue, file the required tax returns and pay the
amounts owed.
Shypdirect’s
PPP Loan
The
failure by Shypdirect to pay taxes owed as described above
constituted an event of default pursuant to the promissory note
dated as of April 28, 2020, by and between M&T Bank and
Shypdirect with respect to the loan received by Shypdirect under
the Small Business Administration Paycheck Protection Program of
the Coronavirus Aid, Relief and Economic Security Act of 2020 (the
“Paycheck Protection Program”). Shypdirect has not notified
M&T Bank of this potential default and such failure to notify
is a separate event of default.
As a
result of the default, M&T Bank may (A) require immediate
payment of all amounts owing under the promissory note; (B) collect
all amounts owing from any borrower under the promissory note; or
(C) file suit and obtain judgment. Subject to the restrictions and
requirements of the Paycheck Protection Program, M&T Bank may,
in its sole discretion, increase the rate of interest by the lesser
of (i) 5% above the rate otherwise applicable or (ii) such amount
as permitted under the Paycheck Protection Program or otherwise
under applicable law.
The
amount outstanding as of September 30, 2020 was $507,042.76 without
regard to the impact of any applicable default interest rate. The
Company and Shypdirect are currently assessing to what extent, if
any, default interest is permitted under the Paycheck Protection
Program.
The Company and Shypdirect believe any taxes owed are de minimis
and such taxes will be paid shortly.
Prime
EFS PPP Loan
The
failure by Prime EFS to pay taxes owed as described above
constituted an event of default pursuant to the promissory note
dated as of April 16, 2020, by and between M&T Bank and Prime
EFS with respect to the loan received by Prime EFS under the Small
Business Administration Paycheck Protection Program of the
Coronavirus Aid, Relief and Economic Security Act of 2020. Prime
EFS has not notified M&T Bank of this potential default and
such failure to notify is a separate event of default.
As a
result of the default, M&T Bank may (A) require immediate
payment of all amounts owing under the promissory note; (B) collect
all amounts owing from any borrower under the promissory note; or
(C) file suit and obtain judgment. Subject to the restrictions and
requirements of the Paycheck Protection Program, M&T Bank may
increase the rate of interest by the lesser of (i) 5% above the
rate otherwise applicable or (ii) such amount as permitted under
the Paycheck Protection Program or otherwise under applicable
law.
The
amount outstanding as of September 30, 2020 was $2,954,750.14
without regard to the impact of any applicable default interest
rate. The Company and Prime EFS are currently assessing to what
extent, if any, default interest is permitted under the Paycheck
Protection Program.
The Company and Prime EFS believe any taxes owed are de minimis and
such taxes will be paid shortly.
Item
3.02 Unregistered Sales of Equity Securities.
Issuance
of Series E Convertible Preferred Stock
On
October 8, 2020, Transportation and Logistics Systems, Inc. (the
“Company”) entered into a Securities Purchase Agreement with
the investors party thereto (collectively the “Investors”)
pursuant to which the Investors agreed to purchase, severally and
not jointly, an aggregate of (i) 47,977 shares of Series E
Convertible Preferred Stock (the “Series E”) and (ii)
warrants (the “Warrants”) to purchase 23,988,500 shares of
common stock, $0.001 par value per share (the “Common
Stock”) which are equal to 50% of the shares of common stock
issuable upon conversion of the Series E if the Series E were
converted on October 8, 2020 (the “Series E Offering”). The
gross proceeds to the Company are $640,000.
In
connection with the Series E Offering, the Company entered into a
Registration Rights Agreement pursuant to which the Company agreed
to file a registration statement on Form S-1 to register the resale
of the shares of Common Stock issuable to the Investors upon
conversion of the Series E and exercise of the Warrants.
The
initial exercise price of the Warrants is $0.04 per share, subject
to adjustment as provided therein.
The
description of the Series E set forth under Item 5.03 is
incorporated by reference herein.
Copies
of the form of Securities Purchase Agreement, the form of Warrant,
and the form of Registration Rights Agreement in connection with
the Series E Offering are attached hereto as Exhibits 10.1, 4.1 and
10.2 respectively, and are incorporated herein by reference. Any
representations and warranties contained in the Securities Purchase
Agreement, the Warrant or the Registration Rights Agreement are not
intended for the public to obtain factual information about the
Company, its Subsidiaries or the Investors. For information about
the Company and its Subsidiaries, the public should look to
disclosures contained in the Company’s reports under the Securities
Exchange Act of 1934, as amended.
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in
Fiscal Year.
To
consummate the Series E Offering, the Board of Directors (the
“Board”) created the Series E pursuant to the authority
vested in the Board by the Company’s Amended and Restated Articles
of Incorporation to issue up to 10,000,0000 shares of preferred
stock, $0.001 par value per share, of which 7,049,999 are unissued
and undesignated. The Company’s Amended and Restated Articles of
Incorporation explicitly authorize the Board to issue any or all of
such shares of preferred stock in one (1) or more classes or series
and to fix the designations, powers, preferences and rights, the
qualifications, limitations or restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting any class or series, without
further vote or action by the stockholders.
On
October 6, 2020, the Board filed the Certificate of Designation of
Preferences, Rights and Limitations of Series E Convertible
Preferred Stock (the “Series E COD”) with the Secretary of
State of the State of Nevada designating 562,250 shares of
preferred stock as Series E. Each holder of Series E has the right
to cast the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series E held by such holder
are convertible as of the applicable record date.
The
Series E has a stated value of $13.34 per share (the “Stated
Value”). If, on or after October 8, 2021, the Company does not
have at least one class of securities listed on the NYSE American,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market or the New York Stock Exchange (subject to
extension if the Company has an application pending for such a
listing) the holders of a majority of the then-outstanding Series E
may demand that their Series E be redeemed at a price equal to the
Stated Value per share plus all declared but unpaid dividends
thereon.
On a
pari passu basis with the holders of Series D Convertible Preferred
Stock that is currently issued and outstanding, upon the
liquidation, dissolution or winding up of the business of the
Company, whether voluntary or involuntary, the Series E is entitled
to receive an amount per share equal to the Stated Value and then
receive a pro-rata portion of the remaining assets available for
distribution to the holders of Common Stock on an as-converted to
Common Stock basis. Until October 8, 2021, the holders of Series E
have the right to participate, pro rata, in each subsequent
financing in an amount up to 25% of the total proceeds of such
financing on the same terms, conditions and price otherwise
available in such subsequent financing.
Subject
to a beneficial ownership limitation and customary adjustments for
stock dividends and stock splits, each share of Series E is
initially convertible into 1,000 shares of Common Stock subject to
adjustment as provided in the Series E COD. A holder of Series E
may not convert any shares of Series E into Common Stock if the
holder (together with the holder’s affiliates and any persons
acting as a group together with the holder or any of the holder’s
affiliates) would beneficially own in excess of 4.99% of the number
of shares of Common Stock outstanding immediately after giving
effect to the conversion, as such percentage ownership is
determined in accordance with the terms of the Series E COD.
However, upon notice from the holder to the Company, the holder may
decrease or increase the beneficial ownership limitation, which may
not exceed 9.99% of the number of shares of Common Stock
outstanding immediately after giving effect to the exercise, as
such percentage ownership is determined in accordance with the
terms of the Series E COD, provided that any such increase or
decrease in the beneficial ownership limitation will not take
effect until 61 days following notice to the Company.
Upon
the occurrence of certain triggering events and until such
triggering event is cured, each share of Series E will be
convertible into 2,779.17 shares of Common Stock subject to the
limitation described in the preceding paragraph. Triggering events
include, but are not limited to, (1) failure to satisfy Rule 144
current public information requirements; (2) ceasing to be a
reporting company under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or failing to comply with the
reporting requirements of a reporting company under the Exchange
Act; (3) suspension from or termination of trading; (4) failure to
reserve sufficient shares of Common Stock (after cure periods and
subject to certain extensions); (5) various insolvency proceedings
(subject to certain carveouts); (6) material breach of the Series E
Offering transaction documents; and (7) failure to redeem the
Series E when demanded.
Approval
of at least a majority of the outstanding Series E is required to:
(a) amend or repeal any provision of, or add any provision to, the
Company’s Articles of Incorporation or bylaws, or file any
Certificate of Designation (however such document is named) or
articles of amendment to create any class or any series of
preferred stock, if such action would adversely alter or change in
any respect the preferences, rights, privileges or powers, or
restrictions provided for the benefit, of the Series E, regardless
of whether any such action shall be by means of amendment to the
Articles of Incorporation or bylaws or by merger, consolidation or
otherwise or filing any Certificate of Designation, it being
understood that the creation of a new security having rights,
preferences or privileges senior to or on parity with the Series E
in a future financing will not constitute an amendment, addition,
alteration, filing, waiver or repeal for these purposes; (b)
increase or decrease (other than by conversion) the authorized
number of Series E; (c) issue any Series D Convertible Preferred
Stock, (d) issue any Series E in excess of 562,250 or (e) without
limiting any provision hereunder, whether or not prohibited by the
terms of the Series E, circumvent a right of the Series
E.
The
description of the Series E and the Series E COD is qualified in
its entirety by reference to the full text of the Series E COD, a
copy of which is attached hereto as Exhibit 3.1 and incorporated by
reference herein.
Item
8.01 Other
Events.
Tax
Filings
To
the knowledge of the executive officers of the Company, the Company
and its Subsidiaries have not filed or paid corporate or entity
taxes since March 30, 2017. The Company has requested a transcript
from the Internal Revenue Service so that it can assess what
returns are overdue, file the required tax returns and pay the
amounts owed. The Company and its Subsidiaries have confirmed that
there are no federal tax liens on file within the last 10 years in
(1) Nevada (as of August 10, 2020), (2) Florida (as of September 7,
2020), (3) New York (as of September 25, 2020) or (4) New Jersey
(as of September 18, 2020). The Company and its Subsidiaries have
also confirmed that there are no state tax liens on file within the
last 10 years in New York (as of September 25, 2020) or New Jersey
(as of September 28, 2020).
Shypdirect’s
Qualification to Conduct Business in Florida
Shypdirect
LLC is not qualified to conduct business in Florida. To qualify to
conduct business in Florida, Shypdirect LLC needs to make an
appropriate filing, pay certain payroll taxes owed and pay a small
fine. Shypdirect is in the process of completing these requirements
and expects to be qualified to conduct business in Florida in the
near future.
Legal
Proceedings
Below
is a summary on the status of certain legal proceedings involving
the Company or its subsidiaries:
1.
Disputes Between Prime EFS, ELRAC LLC, and Enterprise Leasing
Company of Philadelphia, LLC
On or
about January 10, 2020, Prime EFS was named as sole defendant in a
civil action captioned ELRAC LLC v. Prime EFS, filed in the United
States District Court for the Eastern District of New York,
assigned Case No. 1 :20-cv-00211 (the “ELRAC Action”). The
complaint in the ELRAC Action alleged that Prime EFS failed to pay
in full for repairs allegedly required by reason of property damage
to delivery vehicles leased by Prime EFS from ELRAC LLC
(“ELRAC”) to conduct its business. The complaint sought
damages of not less than $382,000 plus $58,000 in insurance claims
that ELRAC believes were collected by the Company and not
reimbursed to ELRAC.
ELRAC
subsequently moved for a default judgment against Prime EFS. By
letter to the court dated March 9, 2020, Prime EFS opposed entry of
a default judgment and contended that all claims in the ELRAC
Action were subject to mandatory arbitration clauses found in the
individual lease agreements. On March 19, 2020, ELRAC filed a
stipulation dismissing the ELRAC Action without prejudice and
advised Prime EFS that it intends to file an arbitration at the
American Arbitration Association alleging essentially identical
claims.
During
the period it was leasing vans and trucks from ELRAC and its
affiliate, Enterprise Leasing Company of Philadelphia, LLC
(“Enterprise PA” and, with ELRAC, “Enterprise”),
Prime EFS transferred $387,392 in deposits required by Enterprise
as security for the payment of deductibles and uninsured damage to
Enterprise’s fleet. Despite due demand, Enterprise never accounted
to Prime EFS’s satisfaction regarding the application of these
deposits. On June 10, 2020, Prime EFS therefore initiated an
arbitration (the “Prime EFS Arbitration”) against Enterprise
at the American Arbitration Association seeking the return of not
less than $327,000 of these deposits. If, as expected, ELRAC and
Enterprise PA continue to claim Prime EFS owes it money, allegedly
because the deposits together with insurance recoveries were
insufficient to cover their alleged damages, Enterprise would have
to interpose that contention not in its own arbitration but rather
as a counterclaim in the Prime EFS Arbitration.
In
the event that Enterprise files such a counterclaim, Prime EFS will
contest it vigorously and pursue its own claim for the repayment of
a large portion of the escrow deposits plus interest. Nevertheless,
given the documentation which ELRAC submitted to court in the ELRAC
Action, including an affidavit from its controller, as of June 30,
2020 and December 31, 2019, the Company has reflected a liability
of $440,000, i.e., the amount originally claimed as damages by
ELRAC in the ELRAC Action, which has been included in contingency
liability on the Company’s condensed consolidated balance
sheet.
To
date, neither ELRAC nor Enterprise PA has filed a counterclaim in
this proceeding. By stipulation of the parties, ELRAC and
Enterprise were required to file their answer in the arbitration
and any counterclaims against Prime EFS on or by October 7,
2020.
2.
BMF Capital v. Prime EFS LLC et al.
In a
settlement agreement entered into as of March 6, 2020, the
Company’s wholly-owned subsidiary Prime EFS agreed to pay BMF
Capital (“BMF”) $275,000 on or by March 11, 2020, inter
alia to discharge a convertible note, to cancel certain
warrants on 40,300 shares of TLSS common stock, and to settle
certain claims made by BMF Capital under certain merchant cash
advance agreements (MCAs). Prime EFS did not pay a portion of the
agreed $275,000 settlement amount by March 11, 2020 but the Company
has subsequently paid the $275,000 in full. As more than four
months have now passed, and BMF has not again contacted Prime EFS
concerning this matter, Prime EFS believes this matter to now be
closed.
3.
Bellridge Capital, L.P. and SCS, LLC v. TLSS
On
September 11, 2020, a civil action was filed against the Company,
John Mercadante and Douglas Cerney in the United States District
Court for the Southern District of New York, captioned Bellridge
Capital, L.P. v. Transportation and Logistics Systems, Inc., John
Mercadante and Douglas Cerny. The case was assigned Case No.
20-cv-7485. The complaint alleges two separate claims (the first
and second claims for relief) for purported violations of section
10(b) of the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”), and SEC Rule 10b-5 promulgated thereunder,
against the Company, Mr. Mercadante and/or Mr. Cerny; a claim (the
third claim for relief) purportedly for control person liability
under section 20(a) of the Exchange Act against Messrs. Mercadante
and Cerny; a claim (the fourth claim for relief) purportedly for
fraudulent inducement against the Company; a claim (the fifth claim
for relief) against the Company purportedly for breach of an
exchange agreement between Bellridge Capital, L.P.
(“Bellridge”) and the Company allegedly dated April 13, 2019
(the “Purported Exchange Agreement”); a claim (the sixth
claim for relief) against the Company purportedly for specific
performance of the Purported Exchange Agreement; a claim against
the Company (the seventh claim for relief) for purported nonpayment
of a promissory note dated December 26, 2018 pursuant to which the
Company borrowed $300,000 and committed to pay Bellridge $330,000
on or by March 15, 2019 plus 10% interest per annum (the
“December 2018 Note”); a claim (the eighth claim for relief)
purportedly for a declaratory judgment that the Company allegedly
failed to comply with a condition precedent to the effectiveness of
a subordination agreement (the “Subordination Agreement”)
executed and delivered in connection with the Purported Exchange
Agreement; and a claim (the ninth claim for relief) for breach of
an assignment agreement, executed on or about July 20, 2018 (the
“Partial Assignment Agreement”) in connection with a
purchase of 50,000 shares of Company convertible preferred stock,
by Bellridge, from a third party.
The
damages sought under the first, second and third claims for relief
are not specified in the complaint. The fourth claim for relief
seeks $128,393.64 in damages exclusive of interest and costs. The
fifth claim for relief seeks $582,847.37 in damages exclusive of
interest and costs. The sixth claim for relief demands that the
Company honor allegedly outstanding stock conversions served by
Bellridge at a price of $0.00545 per share. The seventh claim for
relief seeks $267,969.68 in damages exclusive of interest and
costs. The eighth claim for relief seeks a declaration that the
Subordination Agreement is null and void. The ninth claim for
relief seeks the difference between the conversion price of the
shares at time of the originally requested conversion and the price
on the actual date of conversion, plus liquidated damages of
$57,960.
Briefly,
the complaint in this action alleges, among other things, that the
Company failed to make payments required under two promissory
notes, namely the December 2018 Note and a convertible promissory
note issued June 18, 2018 as amended by the Purported Exchange
Agreement (the “June 2018 Note”). The complaint also alleges
that the Company and its senior officer gave false assurances about
a potential PIPE transaction in order to induce Bellridge to
execute and deliver the Purported Exchange Agreement and the
Subordination Agreement. The complaint also alleges that the
Company failed to honor certain conversion notices issued by
Bellridge and/or failed to negotiate an exercise price in good
faith, allegedly as required by the Partial Assignment Agreement
and/or the Purported Exchange Agreement. The forgoing discussion
does no more than summarize certain of the major allegations of a
complaint running 25 pages. Readers wishing additional information
should review the complaint and/or discuss same with management.
The Company believes it has substantial defenses to some or all
claims in the complaint, including without limitation the defense
usury.
In an
agreement dated August 3, 2020, Bellridge and the Company resolved
many of the disputes between them. Among other things, Bellridge
and the Company agreed upon the balance of all indebtedness owed to
Bellridge as of August 3, 2020 ($2,150,000), a new maturity date on
the indebtedness (April 30, 2021), and a price of $0.02 for the
conversion of all Bellridge indebtedness into shares of Company
common stock. In the agreement, Bellridge also agrees to release
its claims against the Company and its senior management in a
definitive settlement agreement. However, the August 3 agreement
did not contain a release of claims by either party.
4.
SCS, LLC v. Transport and Logistics Systems, Inc.
On
May 26, 2020, a civil action was filed against the Company in the
Supreme Court of the State of New York, New York County, captioned
SCS, LLC v. Transportation and Logistics Systems, Inc. The case was
assigned Index No. 154433/2020.
The
plaintiff in this action, SCS, LLC (“SCS”) alleges it is a
limited liability company that entered into a renewable six-month
consulting agreement with the Company dated September 5, 2019 and
that the Company failed to make certain monthly payments due
thereunder for the months of October 2019 through March 2020,
summing to $42,000. The complaint alleges claims for breach of
contract, quantum meruit, unjust enrichment and account
stated.
On
July 22, 2020, the Company filed its answer, defenses and
counterclaims in this action. Among other things, the Company avers
in its answer that SCS’s claims are barred by its unclean hands and
other inequitable conduct, including breach of its duties (i) to
maintain the confidentiality of information provided to SCS on a
confidential basis and (ii) to work only in furtherance of the
Company’s interests, not in furtherance of SCS’s own, and
conflicting, interests. The Company also avers that SCS’s alleged
damages must be reduced by the compensation and other benefits
received by Lawrence Sands, founder of SCS, as a W-2 employee of
the Company. The Company also avers that the New York Supreme Court
lacks subject matter jurisdiction of the action because SCS
concedes it is a Florida LLC based in Florida and that the Company
is a Nevada corporation based in Florida.
On
July 31, 2020, SCS moved for summary judgment in this action. On
August 18, 2020, the Company moved to dismiss this action for lack
of subject matter jurisdiction. In its motion, among other things,
the Company asserts that the New York court lacks subject matter
jurisdiction because neither party was formed under New York law;
neither party maintains an office in the State of New York; the
consulting agreement between the parties dated September 5, 2019
was not performed in the State of New York; and, it was
anticipated, at the time of contracting, that the bulk of SCS’s
consulting services thereunder would be rendered in Florida, not
New York. If the court grants the Company’s motion to dismiss, SCS
would be free to refile this action in Florida. Wherever the case
is ultimately lodged, the Company intends to mount a vigorous
defense to it, as Company management believes the action to be
entirely bereft of merit.
5.
Shareholder Derivative Action
On
June 25, 2020, the Company was served with a putative shareholder
derivative action filed in the Circuit Court of the 15th Judicial
Circuit in and for Palm Beach County, Florida (the “Court”)
captioned SCS, LLC, derivatively on behalf of Transportation and
Logistics Systems, Inc. v. John Mercadante, Jr., Douglas Cerny,
Sebastian Giordano, Ascentaur LLC and Transportation and Logistics
Systems, Inc. The action has been assigned Case No.
2020-CA-006581.
The
plaintiff in this action, SCS, alleges it is a limited liability
company formed by a former chief executive officer and director of
the Company, Lawrence Sands. The complaint alleges that between
April 2019 and June 2020, the current chairman and chief executive
officer of the Company, the current chief development officer of
the Company and, since February 2020, the Company’s restructuring
consultant, breached fiduciary duties owed to the Company. The
Company’s restructuring consultant, defendant Sebastian Giordano,
renders his services through another defendant in the action,
Ascentaur LLC.
Briefly,
the complaint alleges that the Company’s chief executive officer
breached duties to the Company by, among other things, requesting,
in mid-2019, that certain preferred equity holders, including SCS,
convert their preferred shares into Company common stock in order
to facilitate an equity offering by the Company and then not
consummating an equity offering. The complaint also alleges that
current management caused the Company to engage in purportedly
wasteful and unnecessary transactions such as taking merchant cash
advances (MCA) on disadvantageous terms. The complaint further
alleges that current management “issued themselves over two million
shares of common stock without consideration.” The complaint seeks
unspecified compensatory and punitive damages on behalf of the
Company for breach of fiduciary duty, negligent breach of fiduciary
duty, constructive fraud, and civil conspiracy and the appointment
of a receiver or custodian for the Company.
The
Company’s current management has tendered the complaint to its
directors’ and officers’ liability carrier for defense and
indemnity purposes. Company management, Mr. Giordano and Ascentaur
LLC each advise that they deny each and every allegation of
wrongdoing alleged in the complaint. Among other things, current
management asserts that it made every effort to consummate an
equity offering in late 2019 and early 2020 and could not do so
solely because of the Company’s precarious financial condition.
Current management also asserts it made clear to SCS and other
preferred equity holders, before they converted their shares into
common stock, that there was no guarantee the Company would be able
to consummate an equity offering in late 2019 or early 2020. In
addition, current management asserts that it received equity in the
Company on terms that were entirely fair to the Company and entered
into MCA transactions solely because there was no other financing
available to the Company.
On
August 5, 2020, all defendants in this action moved to dismiss the
complaint for failure to state a claim upon which relief can be
granted. Among other things, all defendants allege in their motion
that, through this lawsuit, SCS is improperly attempting to
second-guess business decisions made by the Company’s Board of
Directors, based solely on hindsight (as opposed to any
well-pleaded facts demonstrating a lack of care or good faith). All
defendants also assert that the majority of the claims are governed
by Nevada law because they concern the internal affairs of the
Company. Defendants further assert that, under Nevada law, each of
the business decisions challenged by SCS is protected by the
business judgment rule. Defendants further assert that, even if SCS
could rebut the presumption that the business judgment rule applies
to all such transactions, SCS has failed to allege facts
demonstrating that intentional misconduct, fraud, or a knowing
violation of the law occurred—a requirement under Nevada law in
order for director or officer liability to arise. Defendants
further assert that, because SCS’s constructive fraud claim simply
repackages Plaintiff’s claims for breach of fiduciary duty, it too
must fail. In the absence of an adequately-alleged independent
cause of action—let alone an unlawful agreement between the
defendants entered into for the purpose of harming the Company,
SCS’s claim for civil conspiracy must also be dismissed. Finally,
defendants contend that SCS’s extraordinary request that a receiver
or custodian be appointed to manage and supervise the Company’s
activities and affairs throughout the duration of this unfounded
action is without merit because SCS does not allege the Company is
subject to loss so serious and significant that the appointment of
a receiver or custodian is “absolutely necessary to do complete
justice.”
SCS
has a right to file court papers opposing the above motion and
thereafter the defendants have a right to file reply papers in
further support of the motion. To date, the court has not entered
an order scheduling these filings or a hearing on the motion. While
they hope to prevail on the motion, win or lose, current Company
management, Mr. Giordano and Ascentaur LLC intend to mount a
vigorous defense to this action, as they believe the action to be
entirely bereft of merit.
6.
Frank Mazzola v. Prime EFS, et al.
On
July 24, 2020, Prime EFS terminated the employment of Frank Mazzola
effective that day. On July 27, 2020, Mr. Mazzola filed a Complaint
and Jury Demand in the United States District Court for the
Southern District of New York in which he named as defendants Prime
EFS, the Company, John Mercadante and Douglas Cerny. The case was
assigned # 1:20-CV-5788-VM. In this action, Mr. Mazzola alleges
that he had an employment agreement with Prime EFS and that Prime
EFS breached the alleged employment agreement through two alleged
pay reductions and by terminating his employment. The Complaint
contains eight counts: (1) breach of contract against Prime EFS;
(2) breach of the covenant of good faith and fair dealing against
Prime EFS; (3) intentional misrepresentation against Prime EFS, the
Company and Mr. Mercadante; (4) negligent misrepresentation against
Prime EFS, the Company and Mr. Mercadante; (5) tortious
interference with contract against the Company, Mr. Mercadante and
Mr. Cerny; (6) tortious interference with prospective economic
advantage against the Company, Mr. Mercadante and Mr. Cerny; (7)
conversion against all defendants; and (8) unjust enrichment
against all defendants. Mr. Mazzola seeks specific performance of
the alleged employment agreement and damages of not less than $3
million.
Without
Answering the Complaint, on August 14, 2020, the defendants
objected to the Complaint on the grounds of lack of personal
jurisdiction, improper venue and because the Complaint failed to
state a claim upon which relief could be granted. On August 25,
2020, the Court ordered Mr. Mazzola to respond to the defendants
objections within three days. On August 28, 2020, Mr. Mazzola
voluntarily withdrew the action.
On
September 1, 2020, Mr. Mazzola served the defendants with a
Complaint and Jury Demand that Mr. Mazzola filed in the Superior
Court of New Jersey, Law Division, Bergen County, docket number
BER-L-004967-20. The Complaint alleged the same claims as those set
forth in the Complaint that Mr. Mazzola had filed in the now
withdrawn New York federal lawsuit. On September 28, 2020, the
defendants removed the New Jersey state court lawsuit to the United
States District Court for the District of New Jersey, which has
been assigned civil action number 2:20-cv-13387-BRM-ESK. All
defendants intend to mount a vigorous defense to the
action.
7.
Rosemary Mazzola v. TLSS and Douglas Cerny
On
September 19, 2020, attorneys for Frank Mazzola’s mother, Rosemary
Mazzola, filed an action in the United States District Court for
the Southern District of New York against the Company and Douglas
Cerny. The case was assigned docket number 1:20-cv-7582 and
assigned to USDJ Gregory Woods. In this action, Ms. Mazzola claims
that the Company entered into and breached an unspecified contract
by failing to pay her $94,000. In addition, the complaint claims
that, although he was not a party to the unspecified contract, Mr.
Cerny falsely represented that the Company intended to “repay” Ms.
Mazzola $94,000 plus interest. The complaint seeks $94,000 from
each defendant, plus late fees, costs, prejudgment interest and
attorneys’ fees and, from Mr. Cerny punitive damages in an
unspecified amount. The complaint also alleges claims for account
stated and breach of implied warranty of good faith and fair
dealing, allegedly premised on the same indebtedness. Per the court
docket sheets, summons were issued on September 22, 2020, but to
date neither defendant has been served with court process. The
Company is currently investigating the matters alleged in the
complaint and evaluating whether it has counterclaims against Ms.
Mazzola.
8.
Prime EFS v. Amazon Logistics, Inc.
On
June 19, 2020, Amazon Logistics, Inc. (“Amazon”) notified
Prime EFS that Amazon did not intend to renew the Delivery Service
Partner Program Agreement between Prime EFS and Amazon when it
expires. In the Prime EFS Termination Notice, Amazon stated that
the Delivery Service Partner Program Agreement between Prime EFS
and Amazon expired on September 30, 2020. Prime EFS believed on
advice of counsel that Amazon’s position misconstrued the
expiration date under the Delivery Service Partner Program
Agreement between Prime EFS and Amazon. Prime EFS therefore filed
an arbitration at the American Arbitration Association (the
“AAA”) seeking temporary, preliminary, and permanent
injunctive relief prohibiting Amazon from terminating the Delivery
Service Partner Program Agreement between Prime EFS and Amazon
prior to March 31, 2021 (the “Amazon
Arbitration”).
In a
ruling issued July 30, 2020, the arbitrator appointed by the AAA on
an emergency basis affirmed the validity of Amazon’s construction
of the Delivery Service Partner Program Agreement between Prime EFS
and Amazon and notice terminating that agreement effective
September 30, 2020. The Company concluded, on advice of counsel,
that no court would suspend, vacate or modify the July 30, 2020,
ruling.
On
July 17, 2020, Amazon notified Shypdirect by the Shypdirect
Termination Notice that Amazon had elected to terminate the Program
Agreement between Amazon and Shypdirect effective as of November
14, 2020.
Amazon
did not state a reason for the Shypdirect Termination Notice. Under
the Program Agreement, Amazon can terminate the agreement without a
reason and solely for convenience on 120 days’ notice.
In a
“Separation Agreement” dated August 23, 2020, by and among Amazon,
Prime EFS and the Company, Prime EFS and the Company agreed, for
nominal consideration, that the Delivery Service Partner Program
Agreement between Amazon and Prime EFS would terminate effective
September 30, 2020; that Prime EFS and the Company would cooperate
in an orderly transition of the last-mile delivery business from
Prime EFS to other service providers; that Prime EFS would return
any and all vehicles leased from Element Fleet Corporation by
October 7, 2020 in good repair; and that Prime EFS would dismiss
the Amazon Arbitration with prejudice. Under the same Separation
Agreement, Prime EFS and the Company released any and all claims
they had against Amazon and covenant not to sue Amazon. In a
“Settlement and Release Agreement” dated August 21, 2020, by and
among Amazon, Shypdirect, Prime EFS and the Company, Amazon
withdrew the Shypdirect Termination Notice and extended the term of
the Program Agreement to and including May 14, 2021. In the
Settlement and Release Agreement, Shypdirect released any and all
claims it had against Amazon, arising under the Program Agreement
between Amazon and Shypdirect effective as of November 14, 2020, or
otherwise.
9.
Jose R. Mercedes-Mejia v. Shypdirect LLC, Prime EFS LLC et
al.
On
August 4, 2020, an action was filed against Shypdirect, Prime EFS
and others in the Superior Court of New Jersey for Bergen County
captioned Jose R. Mercedes-Mejia v. Shypdirect LLC, Prime EFS
LLC et al. The case was assigned docket number BER-L-004534-20.
In this action, the plaintiff seeks reimbursement of his medical
expenses and damages for personal injuries following an accident
with a box truck leased by Prime EFS and being driven by a Prime
EFS employee, in which the plaintiff’s ankle was injured. Plaintiff
has thus far transmitted medical bills exceeding $789,000. Prime
EFS and Shypdirect have demanded their vehicle liability carrier
assume the defense of this action. To date, the carrier has not
done so, allegedly inter alia because the box truck was not
on the list of insured vehicles at the time of the accident. Prime
EFS and Shypdirect intend to file an answer to the complaint when
the same is due on November 9, 2020, and, if necessary, to file a
declaratory judgment action against the insurance company in an
effort to obtain defense and indemnity for this action.
10.
Valesky v. Prime EFS and Frank Mazzola - Plaintiff, an
ex-dispatcher for Prime EFS, brought an action in the United States
District Court for the District of New Jersey under the Family and
Medical Leave Act of 1933 and the New Jersey Law Against
Discrimination seeking unspecified compensatory and punitive
damages. Plaintiff alleges she was fired while still in a neck
brace. Prime EFS’ insurer has acknowledged its duty to defend this
matter and the Company and Prime EFS expect that the insurer will
ultimately indemnify Prime EFS for any damages paid.
11.
Ynes Accilien v. Prime EFS - An action brought on April 27,
2020 in the Superior Court of New Jersey for Bergen County by the
plaintiff alleging injuries from a May 12, 2019 collision with a
van leased by Prime EFS and operated by Prime EFS employees. The
plaintiff has also filed a workers’ compensation claim. Prime EFS’
insurer has acknowledged its duty to defend this matter and the
Company and Prime EFS expect that the insurer will ultimately
indemnify Prime EFS for any damages paid.
Termination
of Delivery Service Partner Program Agreement with
Amazon
As
disclosed above, Prime EFS’s Delivery Service Partner Program
Agreement with Amazon terminated effective September 30, 2020. In
light of the termination of that agreement, the Company and Prime
EFS are evaluating their restructuring options, including voluntary
bankruptcy.
Prime
EFS LLC failed to make two payments each of $15,000 due on
September 25, 2020 and October 2, 2020 pursuant to a Confidential
Settlement Agreement and Limited Release with a former insurer
dated June 4, 2020.
Shypdirect’s
Agreement with Amazon
As
previously disclosed, on July 17, 2020, Amazon notified Shypdirect
that Amazon had elected to terminate the Amazon Relay Carrier Terms
of Service (the “Program Agreement”) between Amazon and
Shypdirect effective as of November 14, 2020 (the “Shypdirect
Termination Notice”). However, on August 3, 2020, Amazon
offered to withdraw the ShypDirect Termination Notice and extend
the term of the Program Agreement to and including May 14, 2021,
conditioned on Prime EFS executing, for nominal consideration, a
separation agreement with Amazon under which Prime EFS agreed to
cooperate in an orderly transition of its Amazon last-mile delivery
business to other service providers, Prime EFS releases any and all
claims it may have against Amazon, and Prime EFS covenants not to
sue Amazon. In a “Settlement and Release Agreement” dated August
21, 2020, by and among Amazon, Shypdirect, Prime EFS and the
Company, Amazon withdrew the Shypdirect Termination Notice and
extended the term of the Program Agreement to and including May 14,
2021. If, after May 14, 2021, Amazon elects to discontinue its
business with Shypdirect, after May 14, 2021, the Company and Prime
EFS will evaluate their strategic options, including, potentially,
voluntary bankruptcy.
Certain
Pre-existing registration statement obligations of the
Company
As
previously disclosed, on August 30, 2019, the Company entered into
a securities purchase agreement with the investor parties thereto
(collectively, the “August 2019 Equity Investors”), pursuant
to which the August 2019 Equity Investors agreed to purchase,
severally and not jointly, approximately $1,067,500 worth of units
of the Company, each unit consisted of one (1) share of Common
Stock, and a warrant to purchase one (1) share of Common Stock (the
“August 2019 Equity Offering”). In connection with the
August 2019 Equity Offering, the Company entered into a
registration rights agreement, pursuant to which the Company agreed
to file a registration statement on Form S-1 to register the resale
of the shares issuable to the August 2019 Equity Investors in the
August 2019 Equity Offering. The Company filed this registration
statement and it was declared effective on November 8, 2019. On
August 8, 2020, due to the passage of time, the information and
financial statements in such registration statement became too far
out of date to allow the registration statement and prospectus
contained therein to be used to resell the Common Stock issued or
issuable upon exercise of the warrants issued in the August 2019
Equity Offering in compliance with the Securities Act. The Company
has not filed a post-effective amendment to bring the registration
statement and prospectus up-to-date.
The
Company owes RedDiamond Partners LLC (“RedDiamond”)
approximately $59,000 in principal and accrued interest pursuant to
certain convertible promissory notes issued in 2017. Pursuant to
the purchase agreement for these promissory notes, while any of the
promissory notes remain outstanding, the Company is obligated to
file and use its best efforts to keep effective a registration
statement covering the resale of the Common Stock into which the
promissory notes are convertible. The Company filed a registration
statement for such purpose on July 26, 2017, however it withdrew
such registration on October 10, 2018 before it became effective.
On April 9, 2019, RedDiamond waived all prior or existing events of
default. The Company did not file a registration statement covering
the resale of such shares after April 9, 2019. Except for
obligations arising prior to April 25, 2017, the Company is
restricted from filing any other registration statement while any
of the promissory notes remain outstanding. The Company filed the
registration statement declared effective on November 8, 2019
described in the preceding paragraph notwithstanding this
provision.
Item
9.01 Financial Statements
and Exhibits.
(d)
Exhibits
*
Exhibit A to this document has been separately filed as Exhibit 3.1
to this Current Report on Form 8-K, Exhibit B to this documents has
been separately filed as Exhibit 10.2 to this Current Report on
Form 8-K and Exhibit C to this document has been separately filed
as Exhibit 4.1 to this Current Report on Form 8-K.
+
Pursuant to Item 601(b)(5) of Regulation S-K, Exhibit G to this
document has been omitted and are not filed herewith. The
registrant hereby agrees to furnish a copy of any omitted schedule
or exhibits to the SEC upon request.
#
Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules
have been omitted from this exhibit and are not filed herewith. The
registrant hereby agrees to furnish a copy of any omitted schedule
or exhibits to the SEC upon request.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
|
Dated:
October 9, 2020 |
Transportation and Logistics Systems, Inc. |
|
|
|
|
| |
By: |
/s/
John Mercadante |
| |
Name: |
John
Mercadante |
| |
Title: |
Chief
Executive Officer |
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