{"url_path":"/sec/tlss/10-q/2026/item-1","section_key":"item-1","section_title":"Item 1 LEGAL PROCEEDINGS**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-14","source_url":"https://www.sec.gov/Archives/edgar/data/1463208/0001493152-26-023215-index.html","accession_number":"0001493152-26-023215","cik":"0001463208","ticker":"TLSS","issuer_name":"Transportation & Logistics Systems, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1463208/0001493152-26-023215-index.html","primary_entity_key":"0001463208","primary_entity_name":"Transportation & Logistics Systems, Inc."},"word_count":2114,"has_tables":true,"body_markdown":"**ITEM\n1. LEGAL PROCEEDINGS**\n\n \n\nFrom\ntime to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other\nthan discussed below, we are not currently a party to any other legal proceeding that we believe would have a material adverse effect\non our business, financial condition, or operating results.\n\n \n\n**SCS,\nLLC v. TLSS**\n\n \n\nOn\nNovember 17, 2020, a former financial consultant to the Company, SCS, LLC, filed an action against the Company in the Circuit Court of\nthe 15th Judicial Circuit, Palm Beach County, Florida, captioned SCS, LLC v. Transportation and Logistics Systems, Inc. The case was\nassigned Case No. 50-2020-CA-012684.\n\n \n\nIn\nthis action, SCS alleges that it entered into a renewable six-month consulting agreement with the Company dated September 5, 2019, and\nthat the Company failed to make certain monthly payments due thereunder for the months of October 2019 through March 2020, summing to\n$42,000. The complaint alleges claims for breach of contract, quantum meruit, unjust enrichment and account stated.\n\n \n\nIn\nFebruary 2025, the parties agreed to settle all claims in this matter and thereafter executed a Confidential Settlement Agreement and\nMutual Release effective on February 13, 2025. On July 18, 2025, the court entered an Order which determined that the settlement of $36,000\nin money the Company owed to SCS claimed in exchange for the issuance of 360 shares of Series J Preferred Stock was fair to SCS. On July\n21, 2025, the court entered a final order which dismissed the action with prejudice. In July 2025, the Company issued 360 shares of Series\nJ Preferred to SCS, LLC pursuant to the settlement of this action, which reduced accounts payable by $36,000.\n\n \n\n**Shareholder\nDerivative Action**\n\n \n\nOn\nJune 25, 2020, the Company was served with a putative stockholder derivative action filed in the Circuit Court of the 15th Judicial Circuit\nin and for Palm Beach County, Florida (the “Court”) captioned SCS, LLC, derivatively on behalf of Transportation and Logistics\nSystems, Inc. v. John Mercadante, Jr., Douglas Cerny, Sebastian Giordano, Ascentaur LLC and Transportation and Logistics Systems, Inc.\nThe action has been assigned Case No. 2020-CA-006581.\n\n \n\nThe\nplaintiff in this action, SCS, alleges it is a limited liability company formed by a former chief executive officer and director of the\nCompany, Lawrence Sands. The complaint alleges that between April 2019 and June 2020, the immediately prior chairman and chief executive\nofficer of the Company, Mercadante, the former chief development officer of the Company, Cerny, and, since February 2020, the Company’s\nthen restructuring consultant who is now chairman and chief executive officer of the Company, Giordano, breached fiduciary duties owed\nto the Company. Prior to becoming CEO, Giordano rendered his services to the Company through the final named defendant in the action,\nAscentaur LLC.\n\n \n\nThe\ncomplaint alleges that Mercadante breached duties to the Company by, among other things, requesting, in mid-2019, that certain preferred\nequity holders, including SCS, convert their preferred shares into Company common stock in order to facilitate an equity offering by\nthe Company and then not consummating that offering. The complaint also alleges that Mercadante and Cerny caused the Company to engage\nin purportedly wasteful and unnecessary transactions such as taking merchant cash advances (MCA) on disadvantageous terms. The complaint\nfurther alleges that Mercadante and Cerny “issued themselves over two million shares of common stock without consideration.”\nThe complaint seeks unspecified compensatory and punitive damages on behalf of the Company for breach of fiduciary duty, negligent breach\nof fiduciary duty, constructive fraud, civil conspiracy and the appointment of a receiver or custodian for the Company.\n\n \n\nCompany\nmanagement tendered the complaint to the Company’s directors’ and officers’ liability carrier for defense and indemnity\npurposes, which coverage is subject to a $250,000 self-insured retention. Each of the individual defendants and Ascentaur LLC has advised\nthat they vigorously deny each and every allegation of wrongdoing alleged in the complaint. Among other things, Mercadante asserts that\nhe 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\nprecarious financial condition. Mercadante also asserts that he made clear to SCS and other preferred equity holders, before they converted\ntheir shares into common stock, that there was no guarantee the Company would be able to consummate an equity offering in late 2019 or\nearly 2020. In addition, Mercadante and Cerny assert that they received equity in the Company on terms that were entirely fair to the\nCompany and entered into MCA transactions solely because no other financing was available to the Company.\n\n \n\nBy\norder dated September 15, 2022, the Circuit Judge assigned to this case dismissed the original Complaint in the matter, finding (a) that\nSCS had failed to adequately allege it has standing and (b) that the complaint fails to adequately allege a cognizable claim. The dismissal\nwas without prejudice, meaning SCS could attempt to replead its claims.\n\n \n\nOn\nOctober 5, 2022, SCS filed an Amended Complaint in this action. By order dated December 19, 2022, the Circuit Judge assigned to this\ncase once again dismissed the case, finding (a) that SCS still failed to adequately allege it has standing and (b) that the complaint\nstill fails to adequately allege a cognizable claim. Once again, however, the dismissal was without prejudice.\n\n \n\nOn\nJanuary 18, 2023, SCS filed a Second Amended Complaint in this action. All defendants once again moved to dismiss the pleading or in\nthe alternative for summary judgment on it in their favor. The Court heard argument on that motion on March 9, 2023. On May 15, 2023,\nthe Court issued a summary order denying the defendants’ motion to dismiss. On June 1, 2023, all defendants moved for reconsideration\nof the May 15 order. On November 28, 2023, the Court denied the motion for reconsideration.\n\n \n\nIn\nFebruary 2025, the parties agreed to settle all claims in this matter and thereafter executed a Confidential Settlement Agreement and\nMutual Release effective on February 13, 2025. On February 20, 2025, pursuant to a Stipulation of Dismissal with Prejudice, the Court\nentered a final order of dismissal with prejudice and dismissed the action with prejudice.\n\n \n\n**Josh\nPerez v. Cougar Express, Inc.**\n\n \n\nAn\nattorney for a former Cougar Express (CE) employee, Josh Perez (“Perez”), has advised CE that he has filed a charge of discrimination\nagainst CE with the U.S. Equal Employment Opportunity Commission (EEOC).\n\n \n\nPerez\nallegedly is asserting claims against CE for: gender discrimination under Title VII and the New York State Human Rights Law (“NYSHRL”);\npregnancy/childbirth discrimination under Title VII of the federal Civil Rights Act of 1964, as amended; retaliation under Title VII\nand NYSHRL; and familial status discrimination under NYSHRL.\n\n \n\nHowever,\nCE has not received a copy, nor any notification, of the filing.\n\n \n\nPerez\nwas employed by CE as a dock worker beginning on March 8, 2022, and last worked September 27, 2022. He alleges that in or around July\n2022, he informed CE that he was expecting a child. Perez has not provided any details regarding the individual(s) with CE he allegedly\ninformed. On September 27, 2022, Perez requested that CE complete the employer section of his New York Paid Family Leave (“PFL”)\npaperwork, which CE did. Thereafter, Perez ceased communicating with CE. Further, CE did not receive any confirmation that Perez had\nin fact filed for PFL or that his PFL was approved.\n\n \n\nBecause\nCE did not hear from Perez or receive any confirmation concerning his application for or approval of PFL, CE concluded that Perez had\nresigned. Another worker was hired to fill Perez’s former position. Then, on or about December 27, 2022, Perez contacted CE attempting\nto return to work and was informed that there was no position for him.\n\n \n\n33 \n\n \n\n \n\nCE\ncategorically denies Perez’s allegations and any purported wrongdoing. Because this matter is apparently pending with the EEOC\nand CE has neither received a copy of the filing nor any notification of the filing, the Company cannot evaluate the likelihood of an\nadverse outcome or estimate the Company’s liability, if any, in connection with it.\n\n \n\n**Emerson\nSwan v. Severance Trucking Co., Inc.**\n\n \n\nOn\nApril 1, 2024, a judgment was entered against Severance Trucking on behalf of Emerson Swan, Inc. (“Emerson”) in the amount\nof $96,226, including prejudgment interest, statutory costs and legal fees. Emerson, which was a customer of Severance Trucking, claimed\nthat an employee of Severance Trucking stole $75,209 of Emerson’s products while under Severance Trucking’s control. We did\nnot accrue this claim and believe it is not liable since the accusation was made prior to the Severance Trucking acquisition date in\nJanuary 2023.\n\n \n\n**Ryder\nTruck Rental, Inc. v. Severance Trucking Co., Inc.**\n\n \n\nOn\nApril 30, 2024, Severance Trucking received a letter from Ryder Truck Rental, Inc. requesting payment in the amount of $581,507 comprised\nof outstanding unpaid Truck Lease and Service Agreement charges of $55,136 in open invoices, $399,177 in early termination charges and\n$134,194 in attorney’s fees. As of March 31, 2026 and December 31, 2025, such amounts are recorded as a liability of Severance\nTrucking and included in liabilities of discontinued operations.\n\n \n\n**Akabas\n& Sproule v. Transportation and Logistics Systems, Inc.**\n\n \n\nOn\nMarch 19, 2025, the Company’s former law firm, Akabas & Sproule, filed a lawsuit against the Company in the Supreme Court of\nthe State of New York, New York County, alleging three causes of action: (i) breach of contract; (ii) account stated, and (iii) unjust\nenrichment/quantum meruit. Akabas & Sproule seeks $86,571 in compensatory damages, $11,027 in interest through February 28, 2025,\nattorneys’ fees and costs, taxable costs of suit, and pre-judgment and post-judgment interest, all of which had been accrued as\nof September 30, 2025. Because the action was recently filed and no discovery has occurred in the case, it is not possible to evaluate\nthe likelihood of a favorable or unfavorable outcome. On July 21, 2025, the Company entered into a Settlement Agreement and Mutual Release\n(the “A&S Settlement Agreement”) with Akabas & Sproule seeking $86,571 in compensatory damages, $14,274 in interest\nand not less than $24,155 in costs of collection, for a total of $125,000 (the “A&S Claim”) in which all claims were\nresolved by the issuance of 1,250 shares of Series J Preferred and upon the satisfaction of certain obligations and conditions, the action\nwill be dismissed with prejudice. The A&S Settlement Agreement was on substantially the same form as the Liability Settlement Agreements\n(see Note 5). In August 2025, the Company issued 1,250 shares of Series J Preferred to Akabas & Sproule and, on August 18, 2025,\na Stipulation of Discontinuance with Prejudice was agreed to and filed by the parties with the Court.\n\n \n\n**Diesel\nDirect, LLC v. Severance Trucking a/k/a Severance Trucking Co., Inc.**\n\n \n\nOn\nMay 19, 2025, Diesel Direct. LLC filed a lawsuit against Severance Trucking in the Commonwealth of Massachusetts, Superior Court Department\nof the Trial Court, for Severance Trucking’s alleged failure to pay for diesel fuel deliveries between October 23, 2023 and February\n14, 2024. Diesel Direct alleges four counts against Severance Trucking for breach of contract, breach of implied covenant of good faith\nand fair dealing, quantum meruit/unjust enrichment, and violation of M.G.L. c. 93A, and seeks judgment for monetary damages in the amount\nof $58,020.30, plus interest, attorneys’ fees, and cost of collection, as well as an award of punitive, exemplary, and/or multiple\ndamages to the extent permitted by law. On June 23, 2025, Diesel Direct filed a request for entry of default which was entered on June\n26, 2025. On July 15, 2025, Diesel Direct filed a motion for default judgment. As of March 31, 2026 and December 31, 2025, the amount\nof $57,199 is recorded as a liability of Severance Trucking and included in liabilities of discontinued operations. On October 23, 2025,\na damages assessment hearing was held by the Court via video conference, but no decision has been issued to date.\n\n \n\n**RX\nBenefits v. TLSS Ops**\n\n \n\nOn\nOctober 1, 2025, a former vendor of TLSS Ops filed a complaint against the Company in the Superior Court of New Jersey Law Division,\nBergen County, captioned RX Benefits v. TLSS Operations Holding Company, Inc. The case was assigned Case No. BER L-006620-25. In this\naction, RX Benefits demands payment of contractual amounts due plus legal fees and interest aggregating $149,627. As of March 31, 2026\nand December 31, 2025, the amounts due of $149,618 and $149,618, respectively, have been accrued and are included liabilities of discontinued\noperations on the accompany consolidated balance sheets.\n\n \n\nOther\nthan discussed above, as of the date of this Quarterly Report, there were no pending or threatened lawsuits that could reasonably be\nexpected to have a material effect on the results of our operations."}