What changed in this filing

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Item 1A. Risk Factors

2024-11-14 compared with 2024-08-14 · 45 added, 19 removed, 102 unchanged (39% of the section changed)

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The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.

Based upon an evaluation of our Chief Executive Officer and Chief Financial Officer as of June 30, 2024, our disclosure controls and procedures are ineffective.

Based upon an evaluation of our Chief Executive Officer and Chief Financial Officer as of September 30, 2024, our disclosure controls and procedures are ineffective.

As discussed elsewhere in this report, on March 12, 2024, we completed the XTI Merger.

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Prior to the XTI Merger, because Legacy XTI was not subject to Section 404 of the Sarbanes-Oxley Act, Legacy XTI did not have the necessary processes, systems, procedures, and related internal controls necessary to satisfy the financial reporting requirements of a public company.

We are in the process of integrating Legacy XTI into our system of disclosure controls and procedures and internal control over financial reporting.

During the second quarter of 2024, we commenced the process of integrating Legacy XTI into our system of disclosure controls and procedures and internal control over financial reporting.

As of September 30, 2024, we believe Legacy XTI has been fully integrated into our system of disclosure controls and procedures and internal control over financial reporting.

However, as of the date of this report, this integration of Legacy XTI is currently being evaluated by a third-party consulting firm that we engaged during the fourth quarter of 2024 to assist in the evaluation and remediation of our internal controls over financial reporting on the combined entity.

We cannot provide assurance as to how long the integration process may take.

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Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC.

Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.

Ineffective disclosure controls and procedures and

internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.

In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.

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Each time, we were given a period of 180 days from the date of the notification to regain compliance with Nasdaq’s listing requirements by having the closing bid price of our common stock listed on Nasdaq be at least $1.00 for at least 10 consecutive trading days.

In connection with the July 9, 2024 notice, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until January 6, 2025, in which to regain compliance.

In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days during this 180-day period.

In the event that we do not regain compliance within this 180-day period, we may be eligible to seek an additional compliance period of 180 calendar days if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary.

However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq will provide notice to us that our common stock will be subject to delisting.

The letter does not result in the immediate delisting of our common stock from the Nasdaq Capital Market.

We intend to monitor the closing bid price of our common stock and consider our available options in the event that the closing bid price of our common stock remains below $1.00 per share.

While we have regained compliance within the applicable time periods in the past, we cannot be certain that we will be able to regain compliance in connection with the July 9, 2024 notice, or that we will be able to comply with the other continued listing requirements.

In connection with the July 9, 2024 notice, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days, or until January 6, 2025, in which to regain compliance with the minimum bid price requirement.

However, on November 7, 2024, we received another letter (the "Low Price Deficiency Letter") from Nasdaq notifying us that, as of November 6, 2024, our common stock had a closing bid price of $0.10 or less for ten consecutive trading days.

Accordingly, we are subject to the provisions contemplated under Listing Rule 5810(c)(3)(A)(iii) (the "Low Priced Stocks Rule").

As a result, Nasdaq has determined to delist our securities from The Nasdaq Capital Market (the "Determination"), unless we request an appeal of the Determination on or prior to November 14, 2024, pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

We requested a hearing before the Nasdaq Hearings Panel (the "Panel") to appeal the Determination and to address compliance with the Low Priced Stocks Rule.

The Low Price Deficiency Letter states that hearings are typically scheduled to occur approximately 30-45 days after the date of the hearing request.

We will be asked to provide the Panel with a plan to regain compliance, which plan we are in the process of preparing.

The Low Price Deficiency Letter has no immediate effect on the listing of our common stock on Nasdaq and our common stock will continue to be listed on the Nasdaq Capital Market under the symbol "XTIA." While the appeal process is pending, the suspension of trading of our common stock would be stayed and our common stock would continue to trade on The Nasdaq Capital Market until the hearing process concludes and the Panel issues a written decision.

There can be no assurance, however, that we will be successful in our appeal to the Panel or be able to regain or maintain compliance with the Nasdaq listing rules.

If our shares of common stock lose their status on Nasdaq, we believe that they would likely be eligible to be quoted on the inter-dealer electronic quotation and trading system operated by OTC Markets Group Inc., commonly referred to as the Pink Open Market and we may also qualify to be traded on their OTCQB market (The Venture Market).

These markets are generally not considered to be as efficient as, and not as broad as, Nasdaq.

Selling our shares on these markets could be more difficult because smaller quantities of shares would likely be bought and sold, and transactions could be delayed.

Selling our shares on these markets could be more

difficult because smaller quantities of shares would likely be bought and sold, and transactions could be delayed.

In addition, in the event our shares are delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock or even holding our common stock, further limiting the liquidity of our common stock.

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Adverse judgments or settlements in legal proceedings could materially harm our business, financial condition, operating results and cash flows.

We may be a party to claims that arise from time to time in the ordinary course of our business, which may include those related to, for example, contracts, sub-contracts, protection of confidential information or trade secrets, adversary proceedings arising from customer bankruptcies, employment of our workforce and immigration requirements or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business.

We may be a party to claims that arise from time to time in the ordinary course of our business, which may include those related to, for example, our securities offerings, contracts, sub-contracts, protection of confidential information or trade secrets, adversary proceedings arising from customer bankruptcies, employment of our workforce and immigration requirements or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business.

Additionally, we are and we may be made a party to future claims relating to the XTI Merger.

For example, on December 6, 2023, Xeriant, Inc.

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.

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The Court has neither scheduled Legacy XTI’s motion for hearing nor otherwise ruled upon it.

Legacy XTI nevertheless denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against the lawsuit.

Legacy XTI denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against the lawsuit.

In connection with the litigation matter described in the immediately preceding paragraph, on June 12, 2024, we received a letter from counsel for Auctus Fund, LLC (“Auctus”), dated April 3, 2024, claiming that, pursuant to the above-referenced May 17 letter by and between Xeriant and Legacy XTI, as a result of the XTI Merger and Legacy XTI’s entry into a promissory note agreement with Legacy Inpixon in March 2023, XTI Aerospace and Legacy XTI may have assumed Xeriant’s obligations under that certain Senior Secured Promissory Note in the principal amount of $6,050,000 issued by Xeriant to Auctus, including the obligation to repay Auctus all principal and accrued and unpaid interest thereunder, which Auctus claims was $8,435,008.81 as of April 3, 2024.

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To the extent suits or actions are commenced with respect to this matter, we intend to vigorously defend against any and all claims.

On August 15, 2024, we became aware that Chardan Capital Markets LLC ("Chardan") commenced an arbitration (the "Arbitration") before the Financial Industry Regulatory Authority ("FINRA") against XTI Aerospace, Inc.

and Legacy XTI related to an engagement letter, dated as of June 7, 2022, by and between Chardan and Legacy XTI, as amended (the "Chardan Engagement Letter").

In the Arbitration, Chardan alleges that XTI Aerospace, Inc.

is bound by the Chardan Engagement Letter even though XTI Aerospace, Inc.

did not sign or assume the Chardan Engagement Letter.

XTI Aerospace, Inc.

denies that it has any liability under the Chardan Engagement Letter.

Chardan further alleges that Legacy XTI and XTI Aerospace, Inc.

breached the Chardan Engagement Letter by not making separate payments to Chardan of $200,000, $94,511, $484,044.40 and $174,000.

Chardan also seeks to recover unspecified amounts relating to its alleged right of first refusal to perform banking services that XTI Aerospace, Inc.

supposedly did not honor, including with respect to the Company’s ATM Offering with

XTI Aerospace, Inc.

and Legacy XTI deny that Chardan performed its duties under the Chardan Engagement Letter and otherwise deny that Chardan is owed any sums under the Chardan Engagement Letter.

XTI Aerospace, Inc.

has 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 XTI Aerospace, Inc.

XTI Aerospace, Inc.

plans to prosecute the foregoing petition and, if the Arbitration is not stayed, defend against the Arbitration vigorously.

Regardless of the merits of any particular claim, responding to such actions could divert time, resources and management’s attention away from our business operations, and we may incur significant expenses in defending these lawsuits or other similar lawsuits.

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Litigation and other legal claims are subject to inherent uncertainties.

Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards

among the states in which we operate.

Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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The terms of our Series 9 Preferred Stock contain a number of restrictive covenants that may impose significant operating and financial restrictions on us while the Series 9 Preferred Stock remains outstanding, unless the restrictions are waived by the consent of at least a majority of the outstanding Series 9 Preferred Stock.

These restrictions include, but are not limited to, restrictions on our ability to (i) issue or sell any equity securities which result in net proceeds to the Company in excess of an aggregate of $10,000,000, (ii) issue, incur or guaranty any debt (excluding any intercompany debt) or issue any debt or equity securities in any variable rate transaction (which does not include the issuance of shares of common stock in an at-the-market offering, subject to the limitations set forth in the Series 9 Preferred Stock Certificate of Designation), and (iii) create, authorize, or issue, or enter into any agreement to create, authorize, or issue, any class of preferred stock (including additional issuances of Series 9 Preferred Stock).

For example, sales of shares of our common stock, if any, pursuant to our ATM Offering are subject to the limitations set forth in a written consent (the “Series 9 ATM Consent”) that we obtained on June 14, 2024 from at least a majority of the outstanding shares of our Series 9 Preferred Stock (the “Required Holders”).

These restrictions include, but are not limited to, restrictions on our ability to (i) issue or sell any equity securities which result in net proceeds to the Company in excess of an aggregate of $10,000,000, (ii) enter into any agreement or otherwise agree to any covenant, condition, or obligation that locks up, restricts in any way or otherwise prohibits the Company from issuing common stock, preferred stock, warrants, convertible notes, other debt securities, or any other of our securities to any holder of Series 9 Preferred Stock or any affiliate of any such holder, except as may be required in connection with “standstill” provisions arising from a subsequent financing, provided, however, such “standstill restriction” shall not exceed more than 45 days without the Required Holders’ prior written consent which consent may be granted or withheld in the Required Holders’ sole and absolute discretion, (iii) issue, incur or guaranty any debt (excluding any intercompany debt) or issue any debt or equity securities in any variable rate transaction (which does not include the issuance of shares of common stock in an at-the-market offering, subject to the limitations set forth in the Series 9 Preferred Stock Certificate of Designation) and (iv) create, authorize, or issue, or enter into any agreement to create, authorize, or issue, any class of preferred stock (including additional issuances of Series 9 Preferred Stock).

For example, sales of shares of our common stock, if any, pursuant to our ATM Offering are subject to the limitations set forth in a written consent (the "Series 9 ATM Consent") that we obtained on June 14, 2024 from the Required Holders (as defined below).

The Series 9 ATM Consent provides that we may not, without the Required Holders’ prior written consent, register shares for sale under the ATM Offering in excess of the $47.4 million (the "ATM Maximum Amount") in shares of common stock registered pursuant to our registration statement on Form S-3 (File No.

333-279901) filed with the SEC on May 31, 2024 and declared effective on June 18, 2024 (the “Registration Statement”), a prospectus relating to the ATM Offering included in the Registration Statement and an accompanying base prospectus included in the Registration Statement.

333-279901) filed with the SEC on May 31, 2024 and declared effective on June 18, 2024 (the "Registration Statement"), a prospectus relating to the ATM Offering

included in the Registration Statement and an accompanying base prospectus included in the Registration Statement.

The Series 9 ATM Consent further provides that we may not issue or sell more than $6 million of additional shares of common stock pursuant to the ATM Offering ("Initial Tranche") without the Required Holders’ prior written consent, which consent we are required to obtain for each additional $5 million in sales of common stock under the ATM Offering after the Initial Tranche up to the ATM Maximum Amount.

"Required Holders" is defined in the Series 9 Preferred Stock Certificate of Designation as the holders of at least a majority of the outstanding Series 9 Preferred Stock;

provided that, pursuant to that certain securities purchase agreement, dated as of March 12, 2024 (the "Securities Purchase Agreement"), between the Company and 3AM Investments LLC (an entity controlled by the Company's former director and former Chief Executive Officer, Nadir Ali) (the "Purchaser"), the Purchaser will be deemed a "Required Holder" as defined in the Series 9 Preferred Stock Certificate of Designation as long as the Purchaser holds any shares of Series 9 Preferred Stock.

A breach of the restrictive covenants under the Series 9 Preferred Stock Certificate of Designation could result in an event of default under the Series 9 Preferred Stock Certificate of Designation which may require redemption of the Series 9 Preferred Stock.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors