XTI Aerospace, Inc.

Item 1A. Risk Factors

We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations and financial condition could be materially adversely affected by these risks. In addition to the risk factors set forth below and the other information set forth in this Form 10-Q, you should carefully consider the factors disclosed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 15, 2025, which report is incorporated by reference herein, all of which could materially affect our business, financial condition and future results.

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, 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. On December 6, 2023, Xeriant, Inc. (Xeriant) filed a complaint against Legacy XTI, along with two unnamed companies and five unnamed persons, in the in the United States District Court for the Southern District of New York. On January 31, 2024, Xeriant against Legacy XTI, two unnamed entities, and filed an ve unnamended complaint, which added us as a defendantd individuals. On FebrJanuary 231, 2024, the Court ordered Xeriant to show cause as to why the filed an amended complaint should not be dismissed without prejudice for lack of subject matter jurisdictionadding the Company as a defendant. On February 29, 2024, Xeriant filed a second amended complaint, which removed using the Company and one of the unnamed companientities 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 ad several agreements entered into between with Xeriant and Legacy XTI, including but not limited to a ja Joint vVenture aAgreement,  dated May 31, 2021, a cross-patent license agreement, an operating agreement, and a letter dated May 17, 2022 (the May 17 letter), which Xeriant claims arisingose from Xerianits introducing tion of Legacy XTI to a Nasdaq -listed company as a potential acquirer of Legacy XTI. In particular, . Xeriant contendalleges that Legacy XTI gained substantial advantages from theit provided intellectual property, expertise, and capital deployed by Xeriant in the design and development of in connection with Legacy XTIs TriFan 600 airplane yet has ecraft and that it was improperly excluded Xeriant from thea subsequent transaction involving the TriFan 600 technology in its merger with us, which has resulted in a breach part of the May 17 letter, in addition to the oLegacy XTIs merger with ther aforementioned agreements Company. Xeriant, in the second amended complaint, a asserts the following causes of action: (1) including breach of contract; (2) intentional , fraud; (3) fraudulent concealment; (4) quantum meruit; (5) un, unjust enrichment; (6) unfair competition/deceptive business practices; and (7) , and misappropriation of confidential information, and. It 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 courtequitable relief. On March 13, 2024, Legacy XTI moved for partial to dismissal o portions of the second amended complaint. On January 14, 2025, tThe Court denied Legacy XTIs that motion to dismiss the complaint. On on January 2814, 2025,. Legacy XTI filed an answer to the second amended complaint. On on January 28, 2025, Legacy XTI and subsequently filed an amended answer and counterclaims against Xerianton February 18, 2025. The amended counterclaims assert , further amended on April 14, 2025, allege that Xeriant (1) breached the jJoint vVenture aAgreement by failing to pamake required capital contributions of approximately $4,600,000 to fu.6 million and development of the TriFan 600 technology, and (2) by failing to deliver promised intellectual property and strategic support. Legacy XTI further alleges that Xeriant breached its fiduciary duty to XTI by engaging in bad faith, coercion,ve and self-dealing conduct, including by appropriating materialconditioning a strategic informatroduction for its own useon the issuance of equity and concealing from assumption of debt. Legacy XTI the identity of a potseeks declaratory relief confirming that the joint vential strure has been terminategic partner. On March 18, 2025, d, 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. Xeriant has moved forto dismissal of  Legacy XTIs amended counterclaims, and that motion remains pending. The case is in its earCourt has denied Xeriants renewed motion to stay discovery. On July stages of 10, 2025, XTI filed a letter motion requesting a conference to address: (i) ongoing deficiencies in Xeriants discovery,  responses; and we are(ii) Xeriants unable to estimate the likelihood otimely service of discovery requests on XTI, which were served more than three months after the applicable deadline. The Court granted XTIs letter magnitude of a potential adotion on the same day, and held a conference on July 18, 2025. During the conference, the Court ordered: (i) an extension of all discoverse judgment. Legacy XTI nevertheless denies the allegations of wrongdoy deadlines by three months, through November 24, 2025; (ii) an extension of expert discovery through February 16, 2026; and (iii) that the parties finalize a protective order and Electronically Stored Information (ESI) protocol by July 25, 2025. The parties subsequently submitted a stipulated protective order and ESI protocol, which the Court entered on July 28, 2025. The parties are continuing to exchange written discovery and will be conducting containeddepositions. The litigation remains in the second amended cearly stages of discovery. The Complaint aany believes the claims against Legacy XTI are without merit and is ntends to continue to vigorously defending against the lawsuitm. At this time, the Company is unable to predict the outcome of this matter or estimate the likelihood or magnitude of a potential loss, if any.

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In connection with the litigation matter described in the immediately preceding paragraph, on June 12, 2024, we the Company received a lettercorrespondence from legal 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 asserting that the XTI Merger and Legacy XTIs entry into a promissory note agreement with Legacy Inpixon in March 2023, XTI Aerospace and Company and/or Legacy XTI may have assumed Xeriants obligations under that certain a Senior Secured Promissory Note in t(the Note) issued by Xeriant to Auctus in the original principal amount of $6,050,000 issued by , pursuant to a letter agreement dated May 17, 2022, between Xeriant to and Legacy XTI (the May 17 letter). Auctus, including claimed that the obligation to repay Auctus all prutstanding amount due under the Note, incipal andluding accrued and unpaid iinterest thereunder, which Auctus claims was as $8,435,008.81 as of April 3, 2024. In July 2024, Legacy XTI responded to such letter and indicated that it believes Auctuss claims, asserting that the May 17 letter is invalid and unenforceable on several bases. Itmultiple grounds. Legacy XTI further explainstated that, even if it the May 17 letter were valid and enforceable, Legacy XTI doesit did not believe such letter resulted in, create or otherwise tritriggered, the assumption of o any obligations of Xe for Legacy XTI to assume Xeriant s debt under the Senior Secured Promissory Note or any other obligation on the part of Note or otherwise. On May 13, 2025, Auctus filed a lawsuit against Legacy XTI. There have been no fur in ther developments on this matter. We are unable to make a reasonable estimate District Court of a potential loss, if anArapahoe County, on this matter. To the extent suits or actions are commenced with respect to this matter, we intend to vigorously defend against any and allColorado, asserting a single claims.

On  for about August 1, 2024, Chardan Capital Markets LLC (Chardan) commenced an arbitration (the Arbitration) before FINRA against the Company and its subsidiary,breach of contract based on its prior allegations. Auctus contends that Legacy XTI Aircraft Company (Aircraft). Aircraft and Chardan are parties to an engagement letter agreement (the Agreement). In the Arbitratis contractually obligated to repay nearly $9 million, Chardan originally alleged that the Company was bound by the Agreement even though it did not sign the A in principal and accrued interest, based on Legacy XTIs entry into a loan agreement, which the Company denied. Chardan further alleged that Aircraft and the Company breached the Agreement by not making separate payments to Chardan of $200,000, $94,511, $484,044.40 and $174,000. Chardan also sought to recover unspecifi with Legacy Inpixon in March 2023 and its subsequent merger with Legacy Inpixon in March 2024. On June 25, 2025, Legacy XTI filed amounts relating motion to an alleged right of first refusal to perform banking services (the ROFR) thatdismiss or, in the alternative, to stay the Company supposedly did not honor, incluproceedings pending with respect to an At-The-Market securities offering that was underwritten by The Maxim Group LLC (the ATM). The Colution of the Xeriant litigation. Legacy XTIs motion asserts that Auctus company filed a petition in the U.S. District Court for the Southern District of New York (the Court) seeking tolaint should be dismissed: (i) for lack of stay the Arbitration to the extent that it was asserted against the Company. On nding, because Auctus is neither a party to, nor about Janu third-party beneficiary 21, 2025, of, the Court entered a final judgment that: (a) enjoins Chardan from prosecuting the ArbitrMay 17 letter; (ii) for failure of a condition precedent, because no obligation against the Company; and (b) declares ever arose in that the Company has noalleged triggering contractual or other duty to arbitrate with Chardan.

On April 30, 2025, Chardan amended its Statemenditiona business combination involving Legacy XTI and Legacy Inpixon did not of Claim ccur within the Arbitration. The Amended Statement of Claim (ASOC) is asserted solely against Aircraft. Thus, the Company no longer is a respondent in the Arbitration. Through the ASOC, Chardan now required one-year time frame; (iii) for lack of valid assignment, because Xeriants unilateral asserts claims against Aircraft for breach of contract and unjust enrichment. It seeks to recover: (a) a $200,000 cash payignment of debt to Legacy XTI is void because the underlying Note prohibits assignment thawithout Aircraft supposedly was required to, but diductuss prior written consent, which is not, make; (b) approximately $134,000 in damages, for supposedly iss alleged. On August 5, 2025, Auctus filed a response arguing 189,037 shares of the Companys common stock to Chardan on March 19, 2024 insteadthat it was an intended third-party beneficiary of 208,113 shares; and (c) all payments supposedly due to Chardan under the May 17 letter, that the ROFR, which Chardan states continue to accumulate. According to Chardan, amounts due under the ROFR include 30% of any banking fees paid with respect to at least the following acts of the Company: (i) anti-assignment clause does not bar its claims, and that the request for a stay is unwarranted because the entry into an Exchange Agreement, pursuant to which Streeterville exchanged the remaining balance of principal and accrued iXeriant litigation involves different parties and broader claims. XTI believes it has strong counterest under a December 2023 Notearguments and will file a reply in furthe aggregate amount $9,801,521 for 9,801.521 shares r support of the Companys Series 9 Preferred Stock; (ii) the entry into an Equity Distribuits motion to dismiss or stay. The litigation Agreement with Maxim that increasedremains in the value of stock that could be sold under tearly stages of discovery. The Companys ATM from $48,000,000 to $83,800,000; (iii)  believes that the January 10, 2025 capital raise that used the claims asservices of ThinkEquity LLC; and (d) the February 13, 2025 entry into an Exchange Agreementted by Auctus are with Streeterville, whereinout merit an outstanding secured promissory note issued on May 1, 2024 (the May 2024 Note) in the principal amount of $250,000.00 held by Streeterville was partitioned into a new secured promissory note (d intends to vigorously defend against the lawsuit. As of the February 2025 Note) indate of the same form and amount as the May 2024 Note, with this filing, the Company and Streeterville subsequently agreeingis unable to exchangepredict the February 2025 Note for 59,832 shares of Company common stock with an effective price of $4.21 per share. Aircraft has not yet responded to toutcome of this matter or determine the ASOC. The Company has indicated that Aircraft inlikelihood or magnitude of a potends to defend against the ASOC vigorousltial loss, if any.

Regardless of the merits of any particular claim, responding to such actions could divert time, resources and managements attention away from our business operations, and we may incur significant expenses in defending these lawsuits or other similar lawsuits. The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial condition, operating results and cash flows. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.

Furthermore, while we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as deductibles and caps on amounts of coverage. Even if we believe a claim is covered by insurance, insurers may dispute our entitlement to coverage for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of our available insurance coverage for a particular claim.

We may also be required to initiate expensive litigation or other proceedings to protect our business interests. There is a risk that we will not be successful or otherwise be able to satisfactorily resolve such claims or litigation. 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 managements 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. Our current financial status may increase our default and litigation risks and may make us more financially vulnerable in the face of threatened litigation.

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