AI Financial Corp Commitments Disclosure

Note 20: Commitments and Contingencies

 

Litigation

 

SEC Complaint

 

On August 2, 2021, the U.S. Securities and Exchange Commission (the “SEC”) filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and its former Chief Financial Officer, Virland Johnson, as defendants (collectively, the “Defendants”). Pursuant to an agreed-upon Order of the Court, on May 28, 2024, the Company settled its litigation with the SEC. The Settlement Agreement provided, in pertinent part: “Without admitting or denying the allegations of the complaint (except as provided herein in paragraph 12 and except as to personal and subject matter jurisdiction, which [the Company] admits), [the Company] hereby consents to the entry of the final Judgment in the form attached hereto (the “Final Judgment”) and incorporated by reference herein, which, among other things: “(a) permanently restrains and enjoins [the Company] from violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. §§ 240.10b-5]; and (c)[sic] orders [the Company] to pay a civil penalty in the amount of $250,000 under Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)).” The SEC has agreed to accept four quarterly payments from the Company, each in the amount of $62,500. The balance remaining on the payments to the SEC was $250,000 as of December 27, 2025. The Settlement Agreement is attached to the Order as Exhibit 1, both of which documents may be viewed at https://ecf.nvd.uscourts.gov/doc1/115110470966.

 

 

ALT5 SIGMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The SEC Complaint’s remaining allegations relate to financial, disclosure and reporting violations against the former executive officer under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. The SEC Complaint also alleges various claims against the former executive officer under Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2. The SEC continues to seek a permanent injunction, civil penalties, and an officer-and-director bar against the former executive officer. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.

 

Sieggreen

 

In a matter pending in the United States District Court for the District Of Nevada, Case No. 2:21-cv-01517-CDS-EJY, styled as Sieggreen, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. Live Ventures Incorporated, Jon Isaac, and Virland A. Johnson, Defendants, the Company was added as a defendant on March 6, 2023, and was served on March 23, 2023. Plaintiff has alleged causes of action against the Company for (i) violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and (ii) violation of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) promulgated thereunder. In June 2023 the Company filed a Motion to Dismiss, which the Court granted with leave for Plaintiffs to file a second amended complaint. Plaintiffs filed their Second Amended Complaint on October 31 2024. On December 16, 2024, the Company filed a Motion to Dismiss the Second Amendment Complaint, which the Court denied by Order dated September 30, 2025. The Company filed its Answer to the Second Amended Complaint on December 1, 2025. The litigation is currently in the early stages of discovery. The Company strongly disputes and denies the allegations contained in the Second Amended Complaint and will continue to defend itself vigorously against the claims.

 

Main/270

 

The Company is a defendant in an action filed on April 11, 2022, in the U.S. District Court Southern District of Ohio, Eastern Division, styled, Trustees Main/270, LLC, Plaintiff, vs ApplianceSmart, Inc. and JANONE, Inc., Defendant, Case No.: 2:22-cv-01938-ALM-EPD. The Company was a guarantor of the lease between the Plaintiff and ApplianceSmart, Inc. Plaintiff alleged a cause of action against the Company in respect of the guaranty and seeks approximately $90,000 therefor. Plaintiff also seeks approximately $1,420,000 against ApplianceSmart and the Company on a joint and several basis. On October 3, 2025, the Court entered a final judgment against the Company for $1.3 million plus pre- and post-judgment interest. On November 3, 2025, the Company timely filed an appeal with the United States Court of Appeals for the Sixth Circuit, and that appeal remains pending and the parties continue to negotiate a potential settlement.

 

Gulf Coast Bank and Trust vs. ALT5 Sigma Corporation, et al.

 

Alt5 Sigma posted a $900,000 cash bond with the Court that is earning interest. Plaintiff seeks the payment of outstanding amounts related to a loan guarantee that existed for a prior subsidiary, ARCA Recycling Inc., in the amount of approximately $1.6 million, inclusive of principal, interest, and attorneys’ fees to date. ALT5 Sigma believes that Gulf Coast did not collect accounts receivable, inventory, and equipment of the prior subsidiary, as debtor, in a commercially reasonable manner, which resulted in substantial loss of collateral value. Experts were designated by July 31, 2025, and their depositions are being scheduled for the month of August. Both sides have already taken non-expert depositions. Trial is not yet set, but is expected sometime in 2026. Venue is Hennepin County, Minnesota. Subsequent to September 27, 2025, the parties reached a settlement agreement under which the Company agreed to pay the Plaintiff a total of $975,000, funded through the $900,000 cash bond and a $75,000 cash payment completed on December 1, 2025.

 

 

ALT5 SIGMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Virland Johnson Bankruptcy

 

On August 14, 2025, the Company received a Summons and Complaint in an Adversary Proceeding (the “Complaint”) filed on August 6, 2025 in connection with the Chapter 7 bankruptcy proceeding titled In re Virland Johnson, No. 2:24-bk-00226-BKM, pending in the United States Bankruptcy Court for the District of Arizona and involving the Company’s former Chief Financial Officer, Virland Johnson. The Complaint alleges that Mr. Johnson had been awarded in October 2023 restricted stock units entitling him to receive 329,294 shares of the Company’s common stock under the Company’s 2023 Equity Incentive Plan. According to the Complaint, Mr. Johnson did not disclose the existence of the stock award in his January 11, 2024 Chapter 7 bankruptcy petition or accompanying disclosure schedules. The Complaint alleges that the common stock may not have been delivered to Mr. Johnson, may have been assigned by Mr. Johnson to the Company or another unknown assignee, may have been sold by Mr. Johnson, or may even continue to be held by Mr. Johnson. Through the Complaint, the U.S. Trustee seeks to recover the common stock or, if it is no longer available, the equivalent value from the Company on behalf of the bankruptcy estate. On September 30, 2025 the Company filed its Answer to the Complaint and denied the allegations of any wrongdoing by the Company. The Company disputes the allegations concerning the Company and will vigorously defend itself against the claims. The matter is in the discovery phase.

 

First Capital Consulting, Inc. DBA Trusaic vs. ALT5 Sigma Corporation

 

Trial is scheduled to start on June 29, 2026. Plaintiff is seeking $97,696, plus costs and interest, against ALT5 Sigma for unpaid obligations of entities that no longer exist or do not have any assets, i.e., ARCA Recycling Inc. and Customer Connexx LLC. Plaintiff alleges that ALT5 Sigma, as the parent company at the time, should be responsible for the fees. ALT5 Sigma believes that it is not responsible for the fees, as the unpaid services were provided to the two subsidiaries and not for the corporate parent. Venue is in Los Angeles County, California.

 

Judgment in Rwanda

 

ALT 5 Sigma Canada Inc., an indirect second-tier subsidiary of the Company, is the subject of certain legal proceedings in the Rwanda judicial system stemming from issues that allegedly occurred in 2023, prior to the Company’s acquisition of ALT 5 Sigma Canada Inc. At stake in those proceedings is US$3.5 million of ALT 5 Sigma Canada Inc.’s funds that are held on deposit in its account at I&M Bank in Rwanda. On May 7, 2025, the Intermediate Court of Nyarugenge, Rwanda, rendered findings and a decision that ALT 5 Sigma Canada Inc. was guilty of the offense of inability to justify the origin of assets (the US$3.5 million) and money laundering, but not guilty of forming or joining a criminal association and that the US$3.5 million be permanently forfeited and deposited into the Rwandan State Treasury. The Intermediate Court also ordered that ALT 5 Sigma Canada Inc. be dissolved. A co-defendant in those proceedings is Mr. Andre Beauchesne, who was ALT 5 Sigma Canada Inc.’s principal in 2023. The Intermediate Court sentenced Mr. Beauchesne to seven years of imprisonment, along with fining him USD 517,131.5625, because he did not attend the court proceedings and did not present a defense. On June 6, 2025, ALT 5 Sigma Canada Inc. and Mr. Beauchesne appealed the Intermediate Court’s decision to the High Court of Kigali, Rwanda, and, as of the date of this Annual Report, the matter remains under judicial review. In the appeal, ALT 5 Sigma Canada Inc. and Mr. Beauchesne dispute the findings of the Intermediate Court, reiterate and continue to maintain that each was a victim of fraud and that ALT 5 Sigma Canada Inc. should regain access to the funds that belong to it (US$3.5 million). None of ALT 5 Sigma Canada Inc.’s customers was impacted by the Intermediate Court’s decision for confiscation of the funds. Although no assurance can be given as to the outcome of the appeal, the Company and ALT 5 Sigma Canada Inc. are actively pursuing all available legal remedies to protect their interests and those of their stakeholders. In connection with the Intermediate Court’s Rwanda decision and pending the outcome of the appeal, the Company has recorded a US$3.5 million allowance on its condensed consolidated balance sheets.

 

Bruce Bent litigation

 

On February 25, 2026, Bruce Bent filed a complaint in District Court, Clark County Nevada, styled, BRUCE BENT, derivatively, on behalf of ALT5 SIGMA CORPORATION, Plaintiff, vs. ANTONIOS ISAAC; ZACK WITKOFF; JOHN BITAR; RON PITTERS; NAEL HAJJAR; ZAK FOLKMAN; PETER TASSIOPOULOS; and DAVID DANZIGER, Defendants, and ALT5 SIGMA CORPORATION, Nominal Defendant. Plaintiff alleges four causes of action against defendants: (i) breach of fiduciary duty; (ii) unjust enrichment; (iii) permanent injunction; and (iv) declaratory relief and requests the Court award compensatory and equitable relief. The Company has received service of process; none of the individual defendants has been served. Although this matter has just been initiated and the Company has not yet filed a responsive pleading in this matter, the date for which filing is subsequent to the Effective Date of this letter, the Company

 

disputes the allegations concerning the Company and the named individual defendants and will vigorously defend itself and the other parties against the claims.

 

 

ALT5 SIGMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Other Commitments

 

On December 30, 2017, the Company disposed of its retail appliance segment and sold ApplianceSmart to Live Ventures. In connection with that sale, as of January 1, 2022, the Company accrued an aggregate amount of future real property lease payments of approximately $767,000 which represented amounts guaranteed or which may have been owed under certain lease agreements to three third party landlords in which the Company either remained the counterparty, was a guarantor, or had agreed to remain contractually liable under the lease (the “ApplianceSmart Leases”). A final decree was issued by the court on February 28, 2022, upon the full satisfaction of the Plan, at which time ApplianceSmart emerged from Chapter 11. During the year ended December 28, 2024, the Company reversed approximately $637,000 of the accrual, as the Company is no longer liable for two of these guarantees upon ApplianceSmart’s emergence from bankruptcy. As of December 28, 2024, a balance of approximately $130,000 remains as an accrued liability due to an ongoing dispute concerning one of the leases. The Company and Live Ventures have agreed to divide in half between them any ultimate balance owing thereunder and any attorneys’ fees expended in relation thereto.

 

The Company is party from time to time to other ordinary course disputes that we do not believe to be material to our financial condition as of December 27, 2025.