Item 8.01 Other Events
Legal Proceedings
On May 2, 2019, the Company and its subsidiary, Now Solutions, Inc. ("Now
Solutions") were sued by Lakeshore Investments, LLC ("Lakeshore") in the
Superior Court of the State of California in the County of Los Angeles.
Lakeshore seeks damages in excess of $3 million dollars for allegedly failing to
make outstanding payments on the outstanding balance due under a promissory note
in the original principal amount of approximately $1,759,150 that was issued by
Now Solutions to Lakeshore on January 13, 2013 (and amended to $2,291,395
million in December 2017), plus interest, attorney's fees and costs. On March
16, 2020, Lakeshore added Richard Wade as a defendant in the lawsuit. On
December 18, 2019, Lakeshore filed a motion for summary judgment, which was
denied on November 3, 2020. On September 8, 2020, the Company and Now Solutions
filed a motion for relief to file a cross-complaint against Lakeshore and Robert
Farias (the owner of Lakeshore) seeking damages in excess of $5.5 million
dollars. The hearing date for this motion is December 18, 2020. This case is
styled Lakeshore Investments, LLC vs. Now Solutions, Inc., Vertical Computer
Systems, Inc., et al , No. 19/STCV15381.
On April 29, 2020, Richard Wade and William Mills, former directors and
corporate officers of the Company, were served with a petition in the District
Court of the State of Texas in Dallas County filed by Luiz Valdetaro, the Chief
Technology Officer of the Company and several shareholders of the Company. The
lawsuit includes a derivative action filed by certain shareholders on behalf of
the Company against Mr. Wade and Mr. Mills and seeks damages against both
defendants for various breaches of fiduciary duties owed by them to the Company.
In addition, Mr. Valdetaro seeks damages in excess of $425,000, plus pre and
post judgment interest and court costs against Mr. Wade and Mr. Mills for
damages incurred by Mr. Valdetaro under a settlement Mr. Valdetaro entered into
with the Internal Revenue Service (the "IRS") due to Now Solutions' failure to
pay payroll taxes to the IRS. The lawsuit alleges that Mr. Wade, who was the
Chairman of the Board of Directors of Now Solutions until he was removed as an
officer and director of Now Solutions on October 30, 2020, knowingly failed to
pay funds due to the IRS for payroll taxes owed by Now Solutions and that Mr.
Mills has joint and several liability to the IRS and breached his fiduciary
duties to the Company. On August 26, 2020, the Company was added as a nominal
Plaintiff or necessary party to the lawsuit. On September 13, 2020, the District
Court granted an injunction prohibiting Mr. Wade from using any debit cards of
the Company or its subsidiaries for non-business expenses except under certain
conditions, from writing checks or withdrawing cash from the Company or any
subsidiary bank accounts for personal expenses or personal obligations except
under certain conditions, or from destroying, hiding or improperly altering any
financial records of the Company or any of its subsidiaries. The original
petition was last amended by the plaintiffs on August 266, 2020. The trial date
has been set for May 10, 2021. This case is styled Luiz Valdetaro, et al vs.
Richard Wade and William Mills, Esq., No. DC-20-06209 and is ongoing. The Board
intends to retain outside legal counsel on behalf of the Company in order to
determine its position in this lawsuit and take whatever action the Company
believes is in the best interest of the Company and its shareholders.
Certain matters contained in this 8-K constitute forward-looking statements and
are based upon management's expectations and beliefs concerning future events.
There can be no assurance that the proposed transaction or these future events
will occur as anticipated, if at all, or that actual results will be as
expected. Forward-looking statements speak only as of the date they were made,
and we undertake no obligation to publicly update them.
(d) Exhibits.
None
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