Item 3. Legal Proceedings
ITEM
3: LEGAL PROCEEDINGS
Except
as disclosed below, there are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party
or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.
There
are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more
than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.
On December 6, 2023, Xeriant, Inc. (“Xeriant”) filed a
complaint against Legacy XTI, along with two unnamed companies and five unnamed persons, in the United States District Court for the Southern
District of New York. On January 31, 2024, Xeriant filed an amended complaint, which added us as a defendant. On February 2, 2024, the
Court ordered Xeriant to show cause as to why the amended complaint should not be dismissed without prejudice for lack of subject matter
jurisdiction. On February 29, 2024, Xeriant filed a second amended complaint, which removed us and one of the unnamed companies as defendants.
The second amended complaint alleges that Legacy XTI, through multiple breaches and fraudulent actions, has caused substantial harm to
Xeriant and has prevented it from obtaining compensation owed to it under various agreements entered into between Xeriant and Legacy XTI,
including but not limited to a joint venture agreement, a cross-patent license agreement, an operating agreement, and a letter agreement.
In particular, Xeriant contends that Legacy XTI gained substantial advantages from the intellectual property, expertise, and capital deployed
by Xeriant in the design and development of Legacy XTI’s TriFan 600 airplane yet has excluded Xeriant from the transaction involving
the TriFan 600 technology in its merger with us, which has resulted in a breach of the Letter Agreement, in addition to the other aforementioned
agreements. Xeriant, in the second amended complaint, asserts the following causes of action: (1) breach of contract; (2) intentional
fraud; (3) fraudulent concealment; (4) quantum meruit; (5) unjust enrichment; (6) unfair competition/deceptive business practices; and
(7) misappropriation of confidential information, and seeks damages in excess of $500 million, injunctive relief enjoining us from engaging
in any further misconduct, the imposition of a royalty obligation, and such other relief as deemed appropriate by the court. On March
13, 2024, Legacy XTI moved for partial dismissal of the second amended complaint. On January 14, 2025, the Court denied Legacy XTI’s
motion to dismiss the complaint. On January 28, 2025, Legacy XTI filed an answer to the second amended complaint. On January 28, 2025,
Legacy XTI filed an amended answer and counterclaims against Xeriant. The counterclaims assert that Xeriant (1) breached the joint venture
agreement by failing to pay $4,600,000 to fund development of the TriFan 600 technology, and (2) breached its fiduciary duty to XTI by
engaging in bad faith, coercion, and self-dealing, including by appropriating material information for its own use and concealing from
Legacy XTI the identity of a potential strategic partner. On March 18, 2025, Xeriant moved for dismissal of Legacy XTI’s counterclaims.
The case is in its early stages of discovery, and we are unable to estimate the likelihood or magnitude of a potential adverse judgment.
Legacy XTI nevertheless denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against
the lawsuit.
On
or about August 1, 2024, Chardan Capital Markets LLC (“Chardan”) commenced an arbitration (the “Arbitration”)
before FINRA against the Company and its subsidiary, XTI Aircraft Company (“Aircraft”). Aircraft and Chardan are parties
to an engagement letter agreement (the “Agreement”). In the Arbitration, Chardan alleges that the Company is bound by the
Agreement even though it did not sign the Agreement, which the Company denies. Chardan further alleges that Aircraft and the Company
breached the Agreement by not making certain payments to Chardan. Chardan also seeks to recover unspecified amounts relating to an alleged
right of first refusal to perform banking services in connection with certain offerings of its securities that the Company supposedly
did not honor. The Company filed a petition in the U.S. District Court for the Southern District of New York seeking to stay the Arbitration
to the extent that it has been asserted against the Company. On or about January 21, 2025, the Court entered a final judgement that:
(a) enjoins Chardan from prosecuting the arbitration against the Company and (b) declares that the Company has no contractual or other
duty to arbitrate with Chardan. The Aircraft subsidiary remains as a party to the arbitration and intends to defend against the arbitration
vigorously.
ITEM
4: MINE SAFETY DISCLOSURES
Not
applicable.
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PART
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