Item 1. Legal Proceedings
ITEM
1. LEGAL PROCEEDINGS.
In
the ordinary course of business, the Company is occasionally party to various legal proceedings and claims. Management believes that
the probability of a material loss from any of the Company’s existing claims is remote, and there are no legal proceedings that the Company
believes will have a material adverse effect on its financial position.
Legacy
Boxabl
The
Company has filed suit against two former employees alleging breach of contract, violations of the Computer Fraud and Abuse Act and the
Defend Trade Secrets Act, conversion, and related claims arising from post-termination conduct; one matter has been settled and released,
and the other remains pending, with the Company anticipating a judgment in its favor of less than $250,000. The Company also has a pending
action against Brave Control Solutions, Inc. and an individual defendant seeking recovery of amounts paid under certain contracts, and
a pending action against the Arizona Department of Housing seeking a declaratory judgment that the Department lacks authority to regulate
the Company’s sale of park model RV units in that state.
The
Company has received EEOC and NLRB charges from former employees alleging discrimination and interference with employee rights, and does
not expect a material impact from these matters. A former Chief Operating Officer’s civil complaint against the Company and its directors
was settled in March 2025 for a $105,000 payment in exchange for the surrender of 5,882,353 shares of the Company’s Series A Preferred
Stock. A shareholder lawsuit brought by Leader Capital against the Company and its former transfer agent was dismissed on the Company’s
motion for summary judgment, and in February 2026 the Court awarded the Company approximately $260,000 in attorneys’ fees and costs;
the plaintiff’s deadline to appeal was May 15, 2026. The Company has also received claims alleging violations of California trap-and-trace
and privacy laws related to social media advertising, which it does not expect to have a material impact.
In
connection with a mining project in Arizona, Pronghorn Homes, LLC has filed suit against the Company with potential exposure of up to
$250,000, which the Company is defending without having accrued a loss contingency, and a separate dispute with an RV park operator over
zoning compliance for installed units remains unresolved; the Company has not accrued a loss contingency for that matter but has recorded
a credit loss allowance against a related $270,000 receivable. Freeport-McMoRan Bagdad, Inc. has asserted, but not yet filed suit on,
a claim of approximately $1.17 million related to units installed on its property, which the Company is negotiating to resolve.
The
Company previously identified misconduct by a former employee involving the unauthorized sale of Company shares. In connection with that
matter, the Company settled a related shareholder claim through the issuance of 218,182 shares of Series A-1 Preferred Stock and settled
with a number of other affected purchasers through the issuance of an aggregate of 5,264,068 shares of Series A-1 Preferred Stock. The
Company anticipates a judgment in its favor against the former employee of less than $1 million, though the investigation remains ongoing.
Additional
information regarding these and other matters is included in the notes to Legacy BOXABL’s unaudited condensed consolidated financial
statements for the three and six months ended June 30, 2026, filed as Exhibit 99.1 hereto.
ITEM 1A RISK FACTORS
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise
required under this item.
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