Note 10 – Capital Structure

AUTHORIZED CAPITAL

The Company is authorized to issue 500,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par value per share. The Board of Directors is authorized to establish the rights, preferences and privileges of any series of preferred stock.

COMMON STOCK

Public Offerings – 2025

During the year ended December 31, 2025, the Company completed four registered public offerings of its securities (collectively, the “2025 Offerings”).

In the aggregate, the Company issued:

The 2025 Offerings generated aggregate net proceeds of approximately $57.1 million, after underwriting discounts, placement agent fees and offering expenses of approximately $5.3 million.

Based on relative fair value at issuance, approximately:

The pre-funded warrants were exercisable at $0.001 per share and were fully exercised during 2025. The common warrants are exercisable at prices ranging from $1.36 to $2.00 per share and expire five years from issuance.

Warrant Exercises

During the year ended December 31, 2025:

The Company received aggregate net proceeds of approximately $4.1 million from the exercise of warrants issued in connection with the 2025 Offerings.

At-the-Market (ATM) Offering Program (Expired)

The Company maintained an at-the-market equity offering program pursuant to an Equity Distribution Agreement with Maxim Group LLC. The agreement expired on December 31, 2024.

The Company sold 169,299 shares of common stock under the Equity Distribution Agreement at per share price of $10.00, resulting in net proceeds to the Company of approximately $1.7 million. This sale originated on December 31, 2024 and closed in early January 2025.

During the year ended December 31, 2024, the Company sold 998,447 shares of common stock under the Equity Distribution Agreement at per share prices between approximately $10.02 and $337.36, resulting in net proceeds to the Company of approximately $22.2 million.

WARRANTS

The following table summarizes the activity of warrants outstanding:

Warrant Classification

Liability-Classified Warrants

Certain common warrants issued in the 2025 Offerings were classified as liabilities under ASC 815 due to adjustment and settlement provisions. These warrants were recorded at fair value upon issuance and are remeasured at each reporting date, with changes in fair value recognized in earnings. See Note 13 for additional information regarding the valuation methodology and significant assumptions used in determining the fair value of the warrant liabilities.

During the year ended December 31, 2025, the Company recognized:

Mezzanine Equity Warrants

Placement agent and representative warrants issued in connection with the 2025 Offerings and the Series 10 Convertible Preferred Stock financing were classified as temporary (mezzanine) equity because certain fundamental transaction provisions could require settlement in cash or other consideration in a change-in-control transaction that is not solely within the Company’s control.

In connection with the 2025 Offerings, the Company issued an aggregate of 1,370,488 placement agent and representative warrants with an exercise price ranging between $2.00 and $17.1875 per share and a five-year term. These warrants are presented in mezzanine equity and were recorded at approximately $1.0 million, net of issuance costs of approximately $0.1 million.

In connection with the November 2025 Series 10 Convertible Preferred Stock financing, the Company issued 837,801 placement agent warrants with an exercise price of $1.429 per share and a five-year term. These warrants are presented in mezzanine equity and were recorded at approximately $1.7 million, net of issuance costs of approximately $0.1 million.

The placement agent and representative warrants were recorded at fair value on the issuance date using a Black-Scholes option pricing model. Significant assumptions used in the valuation included the Company’s stock price on the grant date, the contractual exercise price, expected volatility, risk-free interest rate, expected term, and dividend yield. Expected volatility was estimated based on the historical volatility of a peer group of publicly traded companies considered comparable to the Company and adjusted to reflect the Company’s capital structure, as the Company did not have sufficient trading history for a term consistent with the warrants. The significant assumptions used in the valuation included a stock price of $1.51, an exercise price of $1.492, expected volatility of 130.0%, a risk-free interest rate of 3.65%, an expected term of 5.0 years, and a dividend yield of 0.0%. The risk-free interest rate was based on U.S. Treasury yields commensurate with the expected term of the warrants. The Company assumed a dividend yield of zero. These warrants are not subsequently remeasured to fair value and remain recorded within mezzanine equity unless reclassification is required upon the resolution of the underlying contingency.

PREFERRED STOCK

Series 10 Convertible Preferred Stock

On November 12, 2025, the Company issued 25,000 shares of Series 10 Convertible Preferred Stock at a stated value of $1,000 per share for gross proceeds of $25.0 million. Net proceeds of approximately $22.8 million reflect approximately $2.2 million of placement agent fees, underwriting expenses, and other offering costs.

Key terms included:

The Series 10 Preferred was classified within stockholders’ equity.

For the year ended December 31, 2025, cumulative dividends on the Series 10 Convertible Preferred Stock of approximately $0.4 million were deducted from net loss in computing net loss attributable to common stockholders for purposes of basic and diluted net loss per share.

The Series 10 Convertible Preferred Stock was convertible into shares of common stock; however, because the Company reported a net loss for the year ended December 31, 2025, the effect of conversion was antidilutive and therefore excluded from the computation of diluted net loss per share.

Shareholder approval for conversion was obtained in December 2025. In January 2026, all outstanding shares of Series 10 Preferred automatically converted into common stock and a pre-funded warrant pursuant to beneficial ownership limitations. See Note 20 – Subsequent Events.

Series 9 Preferred Stock

In March 2024, the Company issued Series 9 Preferred Stock in connection with debt exchanges and cash financing.

During 2024 and the first quarter of 2025:

As of December 31, 2025, no shares of Series 9 Preferred Stock were outstanding.

NONCONTROLLING INTEREST – CLASS B UNITS OF XTI DRONES HOLDINGS, LLC

In connection with the November 2025 acquisition of Drone Nerds, the Company issued 6,524,576 Class B Units of XTI Drones Holdings, LLC to the seller as part of the purchase consideration. The Company holds Class A Units representing an 83.403% controlling interest in XTI Drones Holdings, LLC. The Class B Units represent the remaining 16.597% ownership interest and are reflected as noncontrolling interest in the consolidated financial statements.

Changes in noncontrolling interest were as follows (in thousands):

Exchange features of the Class B Units:

Because the Class B Units are equity interests in a consolidated subsidiary and are convertible into shares of the Company’s common stock, they are considered potentially dilutive securities for earnings per share purposes when applicable. Upon exchange of the Class B Units into shares of the Company’s common stock, the related noncontrolling interest will be reclassified to stockholders’ equity attributable to the Company with no impact on the consolidated statements of operations.

For the year ended December 31, 2025, the Company reported a net loss. Accordingly, the Class B Units were excluded from the computation of diluted net loss per share because their assumed conversion would have been antidilutive. In periods of net income, the Class B Units would be evaluated for dilution under the if-converted method, which would require the addition of net income attributable to the noncontrolling interest and the inclusion of the underlying shares of common stock in the diluted weighted-average shares outstanding.

CONVERTIBLE NOTE CONVERSIONS – 2024 (MERGER-RELATED)

Immediately prior to the closing of the XTI Merger on March 12, 2024, certain outstanding convertible notes with an aggregate principal and accrued interest balance of approximately $16.8 million were converted into shares of Legacy XTI common stock, which converted into shares of the Company’s common stock upon consummation of the merger. Immediately prior to conversion, the notes were remeasured to fair value, resulting in a gain of approximately $12.9 million recognized during 2024.

In connection with voluntary conversions of certain outstanding convertible notes with an aggregate principal and accrued interest balance of approximately $6.4 million completed prior to the XTI Merger, the Company recognized inducement charges of approximately $6.7 million during 2024.

All such convertible note obligations were satisfied in full.