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 in the United States District Court for the Southern District of New York
(the “S.D.N.Y.”) against Legacy XTI, two unnamed entities, and five unnamed individuals. On January 31, 2024, Xeriant
filed an amended complaint adding the Company as a defendant. On February 29, 2024, Xeriant filed a second amended complaint,
removing the Company and one of the unnamed entities as defendants. The second amended complaint alleges that Legacy XTI breached
several agreements with Xeriant, including a Joint Venture Agreement dated May 31, 2021, a cross-patent license agreement, an
operating agreement, and a letter dated May 17, 2022, which Xeriant claims arose from its introduction of Legacy XTI to a
Nasdaq-listed company as a potential acquirer. Xeriant further alleges that it provided intellectual property, expertise, and
capital in connection with Legacy XTI’s TriFan 600 aircraft and was improperly excluded from a subsequent transaction
involving the TriFan 600 technology as part of Legacy XTI’s merger with the Company. Xeriant asserts causes of action for
breach of contract, fraud, unjust enrichment, and misappropriation of confidential information, and seeks damages in excess of $500
million, along with injunctive and other equitable relief. On March 13, 2024, Legacy XTI moved to dismiss portions of the second
amended complaint. The S.D.N.Y. denied that motion on January 14, 2025. Legacy XTI filed an answer on January 28, 2025, and
subsequently filed an amended answer and counterclaims on February 18, 2025. The amended counterclaims, further amended on April 14,
2025, allege that Xeriant breached the Joint Venture Agreement by failing to make required capital contributions of approximately
$4.6 million and by failing to deliver promised intellectual property and strategic support. Legacy XTI further alleges that Xeriant
breached its fiduciary duty by engaging in coercive and self-dealing conduct, including conditioning a strategic introduction on the
issuance of equity and assumption of debt. Legacy XTI seeks declaratory relief confirming that the joint venture has been
terminated, that all intellectual property related to the TriFan 600 belongs solely to Legacy XTI, and that Xeriant has no rights in
the TriFan 600 technology. On April 28, 2025, Xeriant moved to dismiss Legacy XTI’s second amended counterclaims. On September
23, 2025, the S.D.N.Y. denied Xeriant’s motion, concluding that Legacy XTI plausibly alleged claims against Xeriant for breach
of contract, breach of fiduciary duty, and declaratory judgment. The S.D.N.Y. found that Legacy XTI had adequately pleaded that
Xeriant was obligated to contribute $10 million in funding to the joint venture and that it acted disloyally by leveraging a
potential merger opportunity for its own benefit. Following the S.D.N.Y.’s September 23, 2025 denial of Xeriant’s motion
to dismiss Legacy XTI’s counterclaims, the litigation has advanced into full discovery. The S.D.N.Y. has since compelled
Xeriant to comply with its discovery obligations and warned that continued noncompliance would result in dismissal of its claims.
While the Company continues to believe the allegations against Legacy XTI are meritless, the case remains in active discovery and
subject to close judicial supervision, which may increase litigation costs and extend the duration of the proceedings. On December
9, 2025, Xeriant filed a Third Amended Complaint, voluntarily non-suiting five counts from the prior complaint and revising its
damages demand from $500 million to an unspecified amount. On December 23, 2025, Legacy XTI filed its Answer, Affirmative Defenses,
and Counterclaims in response to the Third Amended Complaint. Discovery remains ongoing. The outcome of the litigation cannot
presently be predicted, and any adverse determination could have a material impact on the Company.
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In connection with the
litigation matter described in the immediately preceding paragraph, on June 12, 2024, the Company received correspondence from legal
counsel for Auctus Fund, LLC (“Auctus”), dated April 3, 2024, asserting that the Company and/or Legacy XTI may have
assumed Xeriant’s obligations under a Senior Secured Promissory Note (the “Note”) issued by Xeriant to Auctus in
the original principal amount of $6,050,000, pursuant to a letter agreement dated May 17, 2022, between Xeriant and Legacy XTI (the
“May 17 letter”). Auctus claimed that the outstanding amount due under the Note, including accrued interest, was
$8,435,008.81 as of April 3, 2024. In July 2024, Legacy XTI responded to Auctus’s claims, asserting that the May 17 letter is
invalid and unenforceable on multiple grounds. Legacy XTI further stated that, even if the May 17 letter were enforceable, it did
not create or trigger any obligation for Legacy XTI to assume Xeriant’s debt under the Note or otherwise. On May 13, 2025,
Auctus filed a lawsuit against Legacy XTI in the District Court of Arapahoe County, Colorado, asserting a single claim for breach of
contract based on its prior allegations. Auctus contends that Legacy XTI is contractually obligated to repay nearly $9 million in
principal and accrued interest, based on Legacy XTI’s entry into a loan agreement with Legacy Inpixon in March 2023 and its
subsequent merger with Legacy Inpixon in March 2024. On June 25, 2025, Legacy XTI filed a motion to dismiss or, in the alternative,
to stay the proceedings pending resolution of the Xeriant litigation. Legacy XTI’s motion asserts that Auctus’ complaint
should be dismissed: (i) for lack of standing, because Auctus is neither a party to, nor a third-party beneficiary of, the May 17
letter; (ii) for failure of a condition precedent, because no obligation ever arose in that the alleged triggering condition—a
business combination involving Legacy XTI and Legacy Inpixon did not occur within the required one-year time frame; (iii) for lack
of valid assignment, because Xeriant’s unilateral assignment of debt to Legacy XTI is void because the underlying Note
prohibits assignment without Auctus’s prior written consent, which is not alleged. On August 5, 2025, Auctus filed a response
arguing that it was an intended third-party beneficiary of the May 17 letter, that the anti-assignment clause does not bar its
claims, and that the request for a stay is unwarranted because the Xeriant litigation involves different parties and broader claims.
On September 12, 2025, Legacy XTI filed a Reply Brief reinforcing that Auctus lacks standing, that no obligation ever arose under
the May 17 Letter because no qualifying transaction occurred within its one-year term, and that any purported transfer of debt is
void under the Note’s anti-assignment clause. The Reply also emphasized that the enforceability of the May 17 Letter is
already before the S.D.N.Y. and urged dismissal or a stay to avoid inconsistent rulings. On October 2, 2025, Legacy XTI filed a
Notice of Supplemental Authority submitting the September 23, 2025 Order of the S.D.N.Y., which denied Xeriant’s motion to
dismiss Legacy XTI’s counterclaims and held that Legacy XTI had plausibly alleged that the May 17 Letter expired by its terms
and is unenforceable. Legacy XTI asserted that the S.D.N.Y. ruling directly supports dismissal or a stay because it confirms that
the same alleged contract and issues raised by Auctus are already being adjudicated in the federal case. On November 7, 2025, the
court denied Legacy XTI’s motion to dismiss or, in the alternative, stay the proceedings. The court held that, when viewing
the allegations in the light most favorable to Auctus, the complaint plausibly stated claims for relief under Colorado’s
notice-pleading standard. The court further denied Legacy XTI’s alternative request for a stay, reasoning that the parties
were not identical to those in the federal action and therefore comity and judicial economy did not warrant a stay. The court
nonetheless directed the parties to update it regarding the outcome of the federal case to the extent it may be dispositive of
overlapping issues. On November 21, 2025, Legacy XTI filed its Answer and Affirmative Defenses to the Complaint. The parties are
engaged in discovery. The Company will continue to vigorously defend against the claims but cannot predict the timing or outcome of
the proceedings or estimate any potential exposure.
In February 2026, the State of Texas filed a petition in the District
Court of Collin County, Texas, against Anzu Robotics, LLC (“Anzu”) alleging that Anzu violated the Texas Deceptive Trade Practices-Consumer
Protection Act (the “DTPA”) in connection with the marketing and sale of its drone products. The State contends, among other
things, that Anzu misrepresented certain characteristics, origins, and security features of its products and failed to disclose certain
alleged material facts relating to the products’ development and components and Anzu’s alleged business relationship with
DJI. The State seeks temporary and permanent injunctive relief, civil penalties of up to $10,000 per violation of the DTPA and up to an
additional $250,000 if the conduct was calculated to deprive a consumer age 65 or older of money or property, and attorneys’ fees
and costs. The Company is engaged in discussions with the Texas Attorney General to attempt to resolve the matter cooperatively.
The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
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PART II