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.