Item 1. Legal Proceedings
ITEM 1.
LEGAL PROCEEDINGS.
From time to time, we may become involved in various
lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties,
and an adverse result in these, or other matters, may arise from time to time that may harm our business. Except as set forth below, we
are currently not aware of any such legal proceeding or claims that we believe will have a material adverse effect on our business, financial
condition or operating results.
On May 1, 2026, Daniel R. Thompson, our former
Chairman of the Board and a significant stockholder, commenced a lawsuit against our company by filing a complaint against it in the Eighth
Judicial District Court, Clark County, Nevada. In the complaint, Mr. Thompson alleges that he entered into an employment agreement
and addendum thereto with us, and that we failed to provide him with restricted preferred stock and separation compensation allegedly
owed to him under those agreements, and he alleges that we have improperly continued to defer payment of accrued salary and other compensation
he claims to be owed. The complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing,
and unjust enrichment. Mr. Thompson alleges damages in an unspecified amount in excess of $15,000 under each of those claims. Mr.
Thompson also seeks declaratory relief regarding compensation that he claims to be owed and regarding the validity of a conversion agreement
between him and our company. Pursuant to the conversion agreement, Mr. Thompson agreed to cancel $2,352,994 in deferred compensation
owed to him in exchange for receiving 588,249 shares of common stock from us. Mr. Thompson contends in the complaint that he revoked
the conversion agreement or that it is otherwise unenforceable and, in the alternative, seeks its reformation to provide that it was contingent
on the successful uplisting of our stock to the Nasdaq Stock Market. The complaint also asserts a claim for accounting, seeking inspection
of our books, records, and accounts. The complaint also seeks an award of attorneys’ fees and costs.
On May 21, 2026, we filed a motion to dismiss
Mr. Thompson’s complaint, arguing, among other things, that the employment agreement contains a prelitigation mediation requirement
that Mr. Thompson did not satisfy before filing suit. Mr. Thompson opposed the motion and filed a countermotion for partial summary judgment,
contending that he is entitled to separation package compensation totaling $1,350,000 under the addendum to the employment agreement.
On July 17, 2026, the court entered an order that granted our motion to dismiss without prejudice, dismissed the countermotion without
prejudice, and dismissed the case without prejudice so that the parties may submit to mediation for 60 days before commencing any claims
for breach of the employment agreement. In that order, the court found that the addendum to the employment agreement did not remove the
prelitigation mediation requirement but, rather, expressly preserved it.
Should Mr. Thompson re-file a lawsuit asserting
the same claims he asserted in the dismissed lawsuit, we intend to vigorously defend against those claims. Although we believe we would
have meritorious defenses to such claims, we are unable to reasonably estimate the potential loss or range of loss, if any, that may result
from the litigation of such claims because the outcome of litigation is inherently uncertain. It is possible that an adverse outcome in
such litigation, if it were to be commenced, could have a material adverse effect on our business, financial condition, results of operations,
cash flows, and prospects.
ITEM 1A.
RISK FACTORS.
Not applicable.
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