| Commitments and Contingencies | NOTE 10 – COMMITMENTS AND CONTINGENCIES Legal matters From time to time, we may be involved in litigation
relating to claims arising out of our operation in the normal course of business. 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 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 Enterprise Arbitration On October 9, 2020, Enterprise filed its Answer and
Counterclaims in the Arbitration. In its Answer, Enterprise denies liability to Prime for $327,000 or any other sum. In its Counterclaims,
ELRAC seeks $382,000 in damages and Enterprise PA seeks $256,000 in damages. Enterprise also seeks $62,000 in insurance payments allegedly
made by Utica to Prime EFS. Prime EFS believes the Enterprise Answer and Counterclaims
lack merit and intends to defend its position in the Arbitration vigorously. Nevertheless, given the amount of the Counterclaim and the
documentation which Enterprise has submitted in the arbitration in support thereof, the Company continues to reflect a liability of $440,000,
i.e., the amount originally claimed as damages by ELRAC in the ELRAC Federal Action, as a contingency liability on the Company’s
consolidated balance sheet. Based on our knowledge of the matter, as developed to date, we continue to agree with this estimate of probable
total Company liability. While it believes it has meritorious defenses to this
action, out of an abundance of caution and without prejudice to its position in the matter, as of March 31, 2021, Prime EFS had accrued
a contingency liability of $440,000 for purposes of this matter. Bellridge Capital, L.P. v. TLSS and John Mercadante After discontinuing a prior action in federal court,
on April 23, 2021, Bellridge Capital, L.P. (“ Bellridge Bellridge Action The complaint in the Bellridge Action asserts 11 causes
of action: (1) against TLSI, allegedly for breach of a convertible promissory note issued June 18, 2018 (the “ June 2018 Note December
2018 Note Exchange Agreement th The purchase price stated in the June 2018 Note is
$1,664,995. The principal amount of the June 2018 Note is $2,413,999.50. Hence the June 2018 Note was issued at a 33.33% discount (OID).
The June 18 Note calls for the payment of interest computed at the rate of 10% per annum prior to any default. The term of the Note is
one year. The June 2018 Note calls for the application of New York law. OID is treated as interest for purposes of the New York usury
statutes (both civil and criminal). Since total interest payable under the Note at issuance was 41% per annum, for a period of one year,
TLSI believes the June 2018 Note was void ab initio The purchase price stated in the December 2018 Note
is $300,000. The principal amount of the December 2018 Note is $330,000. Hence the December 2018 Note was issued at a 10% discount (OID).
The Note calls for the payment of interest computed at the rate of 10% per annum prior to any default. The term of the Note is under 90
days; that is, it was made payable, in full, on March 15, 2019, after which the principal amount increases “by 30%” and default
interest is due under the instrument at a rate of 18% per annum (§ 7(b)). The December 2018 Note, by its terms, is governed by New
York law. As noted above, OID is to be treated as interest for purposes of the New York usury statutes (both civil and criminal). Since
total interest payable under the Note, over its term of under 90 days, was more than 40% per annum, TLSI believes that the December 2018
Note, like the June 12018 Note, is void under N.Y. Penal Law § 190.40 and cannot be enforced in this action. When Bellridge offered to engage in the Exchange Agreement,
Bellridge was able to dictate terms and extract concessions from TLSI that were commercially unreasonable and unconscionable. It was able
to do so solely because of its violations of N.Y. Penal Law § 190.40 Bellridge in July 2018. As such, TLSI believes the Exchange
Agreement is null and void under N.Y. Penal Law § 190.40 and cannot be enforced in this action. The defendants in this action have until June 4, 2021,
to serve answer to the complaint in this matter or to move against it. The defendants believe they have good defenses to all claims alleged
in the matter, including without limitation the defense of usury as outlined above. Both the Company and Mr. Mercadante intend to defend
this case vigorously. Based on the early stage of this matter, it is not
possible to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential
loss in the matter. SCS, LLC v. Transportation and Logistics Systems,
Inc. On January 14, 2021, a civil action was filed against
the Company in the Circuit Court of the 15 th SCS, LLC
v. Transportation and Logistics Systems, Inc The plaintiff in the case, SCS, LLC (“ SCS On February 9, 2021, the Company filed its answer,
defenses and counterclaims to this action. Among other things, the Company avers that SCS’s claims are barred by its unclean hands
and breaches of its duties under the consulting agreement. SCS filed a motion to strike TLSI’s defenses and counterclaims and TLSI
has opposed that application. Those motions remain sub judice. The Company believes it has substantial defenses to
all claims alleged in SCS’s complaint. The Company therefore intends to defend this case vigorously. Based on the early stage of this matter, it is not
possible to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential
loss in the matter. Shareholder Derivative Action On June 25, 2020, the Company was served with a putative
shareholder derivative action filed in the Circuit Court of the 15 th 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 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, which coverage is subject
to a $250,000 self-insured retention. 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. Defendants also contend that 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 intend to file reply papers in further support of the motion (the “MTD”) While they hope to prevail on the motion, win or lose,
current Company management, Mr. Giordano and Ascentaur LLC advise that they intend to mount a vigorous defense to this action, as they
believe the action to be entirely bereft of merit. It is not possible to evaluate the likelihood of a
favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential loss in the matter. 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 defendant’s
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. On October 5, 2020, all defendants
filed a motion to dismiss each and every claim asserted against them in the New Jersey federal action. On December 7, 2020, Mr. Mazzola filed an amended
complaint in this action (the “AC”) alleging three (3) claims for relief: one for Breach of Contract against Prime EFS; one
for “Piercing the Corporate Veil” against the Company; and one for “Fraudulent Inducement” against Messrs. Mercadante
and Cerny. The damages sought by each claim are identical: “approximately
$2,000,000, representing $1,040,000 in [alleged] severance”; $759,038.41 in alleged “accrued but unpaid salary”; and
non-cash benefits under the alleged executive employment agreement. On January 11, 2021, Prime EFS filed an answer to
the AC, denying, under the faithless servant doctrine and otherwise, that it has any liability to Mr. Mazzola for any of the amounts sought.
Prime EFS also filed counterclaims against Mr. Mazzola seeking recoupment of not less than $925,492 in W-2 compensation paid to Mr. Mazzola;
damages in the amount of $168,750 which Mr. Mazzola paid to his mother for a no-show job; and damages of not less than $500,000 for usurpation
of corporate opportunities belonging to Prime EFS. Also, on January 11, 2021, the Company, Mr. Mercadante and Mr. Cerny filed motions
to dismiss the AC insofar as pled against them for failure to state a claim and for lack of personal jurisdiction. On January 27, 2021, Prime EFS filed an amended answer
to the AC, increasing the amount sought on its counterclaim for recoupment of income paid to Mr. Mazzola from $925,492 to $1,111,833.73
and adding a claim for indemnification for amounts paid by Prime EFS to resolve certain litigation against it such as the Valesky The motions to dismiss are currently sub judice. The
case is currently in discovery. Owing to the early stage of this matter, it is not
possible to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential
loss in the matter. 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 H. 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. On November 23, 2020, counsel for Ms. Mazzola filed
an Amended Complaint in this action, dropping Mr. Cerny and adding Prime EFS, LLC as a party. The new pleading demands $209,000 rather
than the $94,000 in damages previously alleged. The new complaint alleges three claims: breach of contract against Prime EFS, alter ego
liability against the company, and unjust enrichment against both the Company and Prime EFS. Ms. Mazzola also demands legal fees and expenses
under a prevailing-party provision in the Amended Stock Purchase Agreement. On January 29, 2021, both TLSI and Prime EFS, LLC
timely moved to the dismiss the Amended Complaint. Opposition and reply papers on this motion were filed in February 2021. Meanwhile,
on March 11, 2021, the court entered an order in the case requiring all fact discovery to be concluded by September 9, 2021. As of December 31, 2020, out of an abundance of caution
and without prejudice to its position in this matter, a $94,000 liability is included in due to related parties on Prime EFS’s balance
sheet as of such date. However, if the motion to dismiss is denied, TLSS and/or Prime will file counterclaims seeking at least $168,750
from Ms. Mazzola. Owing to the early stage of this matter, it is not
possible for us to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of
any potential loss in the matter. 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 inter alia On November 9, 2020, Prime EFS and Shypdirect filed
their answer to the complaint in this action and also filed a third-party action against the insurance company in an effort to obtain
defense and indemnity for this action. We intend to vigorously defend against this claim and to pursue the coverage action. However, we
cannot evaluate the likelihood of an adverse outcome or estimate our liability, if any, in connection with this claim. Valesky v. Prime EFS, Shypdirect and TLSI Plaintiff, an ex-dispatcher for Prime EFS, brought
this action in the U.S. District Court for the District of New Jersey under the Family and Medical Leave Act of 1993 and the New Jersey
Law Against Discrimination seeking unspecified compensatory and punitive damages. In April 2021, we settled this matter for a payment
of $35,000. Ynes Accilien v. Prime EFS This action was 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’s insurer has been
defending this matter without charging Prime EFS, and the Company and Prime EFS expect that the insurer will ultimately indemnify Prime
EFS for any damages assessed. Default by Prime EFS on June 4, 2020 Settlement
with Creditors On June 4, 2020, Prime EFS LLC (“ Prime EFS Creditors Payment Plan Outstanding Balance Pursuant to the Payment Plan, Prime EFS was obligated
to pay $75,000 to the Creditors on or before June 5, 2020 and $75,000 to the Creditors on or before June 12, 2020. Thereafter, under the Payment Plan, beginning on June
19, 2020, Prime EFS was obligated to make weekly payments of $15,000 to the Creditors each Friday for 125 weeks ending with a final payment
of $13,556 on November 18, 2022. Under the Payment Plan, Prime EFS also agreed that,
if it fails to make a scheduled payment or otherwise defaults on its obligations, the remaining Outstanding Balance would be accelerated
and due, in full, within five business days after receipt by Prime EFS of a notice of default from the Creditors. Under the Payment Plan, Prime EFS also agreed that,
if Prime EFS does not pay the remaining Outstanding Balance within five business days after receipt of a notice of default, then the Creditors
will be entitled to 9% per annum simple interest on the remaining Outstanding Balance from the date of default and to recover attorneys’
fees and costs for enforcement. Prime EFS made the $75,000 payments due on each of
June 5, 2020 and June 12, 2020. Prime EFS also made each of the weekly payments due
through Friday, September 18, 2020. However, Prime EFS did not make the payment due Friday, September 25, 2020, did not make any further
weekly payment due under the Payment Plan, and has no present plan or intention to make any further payments under the Payment Plan because
it lacks the cash-on-hand to do so. By letter dated October 16, 2020, attorneys for the
Creditors gave Prime EFS notice of default (the “ Notice of Default To date, Prime EFS has not responded to the Notice
of Default and has no present plan or intention to respond. Dispute between Patrick Nicholson and Prime EFS By letter dated October 9, 2020, attorneys representing
Patrick Nicholson allege that Prime EFS is in default of its payment obligations under a “10% Senior Secured Demand Promissory Note”
issued February 13, 2019, in the principal amount of $165,000, and under a second promissory note issued April 24, 2019 in the principal
amount of $55,000. In the demand, the attorneys for Mr. Nicholson allege
the total balance owed, including interest, is $332,702.84 and that interest is continuing to accrue on each promissory note. In the demand, the attorneys for Mr. Nicholson also
contend that the Company is jointly and severally liable with Prime EFS for this balance. If, as threatened, Mr. Nicholson files suit for non-payment
under either or both promissory notes, it is anticipated that the defendants will mount a vigorous defense to the action. Among other
things, it is Prime EFS’s position that Mr. Nicholson knew or should have known that the promissory notes dated February 13, 2019,
and April 24, 2019 were invalid and unenforceable, since they were signed by Rosemary Mazzola, as owner or managing member of Prime, and
it was public information that, after June 18, 2018, Ms. Mazzola was no longer an owner or managing member of Prime EFS. Nevertheless, out of an abundance of caution and without
prejudice to its position in this matter, as of March 31, 2021, Prime EFS recorded notes payable due of $220,000 and accrued interest
payable of $56,424.
Ryder Truck Rental, Inc. Demand Letter On March 2, 2021, Shypdirect received a demand letter
from Ryder Truck Rental, Inc. (“Ryder”) related to a breach of the Truck Lease and Service Agreement between Shypdirect and
Ryder, dated October 9, 2018. Pursuant to the letter, Ryder terminated the Truck Lease and Service Agreement for failure to pay invoices
due. Pursuant to the letter, Ryder also elected to require Shypdirect to purchase all of the terminated Vehicle(s) in accordance with
the agreement for $2,871,272. In connection with this breach, as of December 31, 2020, the Company wrote off security deposits of $164,565
and has a recorded contingent liability, owed solely by Shypdirect, of $2,871,272 which is related to the default on truck leases for
non-payment of monthly lease payments and the lessor’s demand for payment of the trucks for an aggregate contingency loss of $3,035,837.
Shypdirect intends to dispute this demand. In addition, Shypdirect has returned all of the trucks to Ryder as Shypdirect is no longer
using them. Other than discussed above, as of March 31, 2021,
and as of the date of this filing, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect
on results of our operations. Consulting Agreement The Company retained the services of a consultant,
Ascentaur, LLC (“Ascentaur”), pursuant to a Consulting Agreement between the Company and Ascentaur dated February 21, 2020,
as amended (the “Consulting Agreement”). Under the Consulting Agreement, Sebastian Giordano, the CEO and principal of Ascentaur,
provides management services to the Company in the role of chief executive under direction of the Board. Mr. Giordano devotes the majority
of his business attention to the Company, but he may spend time on other business ventures. The Consulting Agreement runs until January
31, 2023 (“Termination Date”), unless earlier terminated by an employment agreement between Mr. Giordano and the Company.
As consideration for Mr. Giordano’s services, Ascentaur receives a base consulting fee of $300,000 annually, payable in installments
of $12,500 twice a month and is eligible for bonuses based on certain Company revenue, EBITDA, market capitalization or capital raise
milestones. In addition, upon approval by the Board, Ascentaur received stock warrants to purchase up to 25,000,000 shares of common stock
of the Company at an exercise price of $0.06 per share. Mr. Giordano is also eligible for the Company’s standard medical and dental
plans. Upon any termination of the Consulting Agreement by the Company without “Cause,” by Mr. Giordano for “Good Reason,”
or by expiration and non-renewal of the Consulting Agreement as of the Termination, Mr. Giordano will receive (i) a separation payment
equal to one year’s worth of the base consulting fee, (ii) all accrued and unpaid bonuses and (iii) accelerated vesting of all unvested
options he may have received. The Company and Mr. Giordano have also, as required by Nevada Revised Statutes Section 78.751, entered into
an Indemnity Agreement (the “Indemnity Agreement”) whereby the Company indemnifies Mr. Giordano and Ascentaur, to the fullest
extent as provided by Nevada corporate law, for all fees, costs and charges (including attorneys’ fees) for any actual or threatened
claims against him, except to the extent that Mr. Giordano’s actions constituted gross negligence; criminal, fraudulent or reckless
misconduct; or with respect to any criminal actions of Mr. Giordano that the Company had reasonable cause to believe were unlawful. Leases See Note 12. On March 2, 2021, Shypdirect received a demand letter
from Ryder Truck Rental, Inc. (“Ryder”) related to a breach of the Truck Lease and Service Agreement between Shypdirect and
Ryder, dated October 9, 2018. Pursuant to the letter, Ryder terminated the Truck Lease and Service Agreement for failure to pay invoices
due. Pursuant to the letter, Ryder elected to require Shypdirect to purchase all of the terminated Vehicle(s) in accordance with the agreement
for $2,871,272. In connection with this breach, as of December 31, 2020, the Company wrote off security deposits of $164,565 and has a
recorded contingent liability of $2,871,272 which is related to the default on truck leases for non-payment of monthly lease payments
and the lessor’s demand for payment of the trucks for an aggregate contingency loss of $3,035,837. The Company intends to dispute
this demand and has returned all of the trucks to Ryder as Shypdirect is no longer using the trucks and accordingly, the trucks are not
included as assets in the accompanying condensed consolidated balance sheet. On March 31, 2021 and December 31, 2020, contingency liability related
to the Ryder termination amounted to $2,871,272. |
