10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 14, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2024
OR
For the transition period from ______________ to _______________
Commission File Number 001-36404
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
(800 ) 680-7412
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which each is registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ |
Accelerated filer | ¨ |
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x |
Smaller reporting company | ||||||||||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, Par Value $0.001 | ||||||||
(Class) | Outstanding at August 14, 2024 |
XTI AEROSPACE, INC.
TABLE OF CONTENTS
Page No. | ||||||||||||||
Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report | ||||||||||||||
PART I - FINANCIAL INFORMATION | ||||||||||||||
Item 1. | Financial Statements | |||||||||||||
Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023 |
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Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 |
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Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2024 and 2023 |
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Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the three and six months ended June 30, 2024 and 2023 |
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Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 |
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Notes to Condensed Consolidated Financial Statements |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||||||||||||
Item 4. | Controls and Procedures | |||||||||||||
PART II - OTHER INFORMATION | ||||||||||||||
Item 1. | Legal Proceedings | |||||||||||||
Item 1A. | Risk Factors | |||||||||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||||||||
Item 3. | Defaults Upon Senior Securities | |||||||||||||
Item 4. | Mine Safety Disclosures | |||||||||||||
Item 5. | Other Information | |||||||||||||
Item 6. | Exhibits | |||||||||||||
Signatures | ||||||||||||||
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
•our history of losses;
•our ability to achieve profitability;
•the risk that we have a limited operating history, have not yet manufactured any non-prototype aircraft or delivered any aircraft to a customer, and we and our current and future collaborators may be unable to successfully develop and market our aircraft or solutions, or may experience significant delays in doing so;
•the ability to meet the development and commercialization schedule with respect to the TriFan 600;
•our ability to secure required certifications for the TriFan 600 and/or any other aircraft we develop;
•our ability to navigate the regulatory environment and complexities with compliance related to such environment;
•the risk that our conditional pre-orders (which include conditional aircraft purchase agreements, non-binding reservations, and options) are canceled, modified, delayed or not placed and that we must return the refundable deposits;
•our ability to obtain adequate financing in the future as needed;
•our ability to continue as a going concern;
•emerging competition and rapidly advancing technologies in our industries that may outpace our technology;
•the risk that other aircraft manufacturers develop competitive VTOL aircraft or other competitive aircraft that adversely affect our market position;
•customer demand for the products and services we develop;
•our ability to develop other new products and technologies;
•our ability to attract customers and/or fulfill customer orders;
•our ability to enhance and maintain the reputation of our brand and expand our customer base;
•our ability to scale in a cost-effective manner and maintain and expand our manufacturing and supply chain relationships;
•our ability to attract, integrate, manage, and retain qualified personnel or key employees;
ii
•our ability to maintain compliance with the continued listing requirements of the Nasdaq Capital Market;
•the risks relating to long development and sales cycles, our ability to satisfy the conditions and deliver on the orders and reservations, our ability to maintain quality control of our aircraft, and our dependence on third parties for supplying components and potentially manufacturing the aircraft;
•the risk that our ability to sell our aircraft may be limited by circumstances beyond our control, such as a shortage of pilots and mechanics who meet the training standards, high maintenance frequencies and costs for the sold aircraft, and any accidents or incidents involving VTOL aircraft that may harm customer confidence;
•general economic conditions and events and the impact they may have on us and our potential customers, including, but not limited to increases in inflation rates and rates of interest, supply chain challenges, increased costs for materials and labor, cybersecurity attacks, other lingering impacts resulting from COVID-19, and the Russia/Ukraine and Israel/Hamas conflicts;
•lawsuits and other claims by third parties or investigations by various regulatory agencies that we may be subjected to and are required to report, including but not limited to, the U.S. Securities and Exchange Commission (the "SEC");
•our ability to respond to a failure of our systems and technology to operate our business;
•the risk that our future patent applications may not be approved or may take longer than expected, and that we may incur substantial costs in enforcing and protecting our intellectual property;
•the outcome of any known and unknown litigation and regulatory proceedings;
•impact of any changes in existing or future tax regimes;
•our success at managing the risks involved in the foregoing items; and
•other factors discussed in this Form 10-Q.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into.
You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
EXPLANATORY NOTE
On March 12, 2024, XTI Aerospace, Inc. (formerly known as Inpixon) (“XTI Aerospace”), Superfly Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of XTI Aerospace (“Merger Sub”), and XTI Aircraft Company, a Delaware corporation (“Legacy XTI”), completed their previously announced merger transaction pursuant to that certain Agreement and Plan of Merger, dated as of July 24, 2023 and amended on December 30, 2023 and March 12, 2024 (the “XTI Merger Agreement”), pursuant to which Merger Sub merged with and into Legacy XTI with Legacy XTI surviving the merger as a wholly-owned subsidiary of XTI Aerospace (the “XTI Merger”). In connection with the closing of the XTI Merger, our corporate name changed to “XTI Aerospace, Inc.”
iii
In this report, unless otherwise noted, or the context otherwise requires, the terms “XTI Aerospace,” the “Company,” “we,” “us,” and “our” refer to XTI Aerospace, Inc. (formerly known as Inpixon), Inpixon GmbH, IntraNav GmbH and, prior to the closing of the XTI Merger, Merger Sub, and after the XTI Merger, Legacy XTI.
Note Regarding Reverse Stock Split
The Company effected a reverse stock split of its outstanding common stock at a ratio of 1-for-100, effective as of March 12, 2024, for the purpose of complying with Nasdaq Listing Rule 5550(a)(2) and satisfying the bid price requirements applicable for initial listing applications in connection with the closing of the XTI Merger. We have reflected the reverse stock splits herein, unless otherwise indicated.
PART I — FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
iv
XTI AEROSPACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and par value data)
As of June 30, 2024 |
As of December 31, 2023 |
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(Unaudited) | |||||||||||
Assets | |||||||||||
Current Assets | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for credit losses of $ |
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Other receivables | |||||||||||
Inventory | |||||||||||
Note receivable available for sale, at fair value | |||||||||||
Warrant asset | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Total Current Assets | |||||||||||
Property and equipment, net | |||||||||||
Operating lease right-of-use asset, net | |||||||||||
Intangible assets, net | |||||||||||
Goodwill | |||||||||||
Other assets | |||||||||||
Total Assets | $ | $ |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
1
XTI AEROSPACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except number of shares and par value data)
As of June 30, 2024 |
As of December 31, 2023 |
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(Unaudited) | |||||||||||
Liabilities and Stockholders’ Equity (Deficit) | |||||||||||
Current Liabilities | |||||||||||
Accounts payable | $ | $ | |||||||||
Related party payables | |||||||||||
Accrued expenses and other current liabilities | |||||||||||
Accrued interest | |||||||||||
Customer deposits | |||||||||||
Warrant liability | |||||||||||
Operating lease obligation, current | |||||||||||
Deferred revenue | |||||||||||
Short-term debt | |||||||||||
Total Current Liabilities | |||||||||||
Long Term Liabilities | |||||||||||
Long-term debt | |||||||||||
Operating lease obligation, noncurrent | |||||||||||
Other liabilities, noncurrent | |||||||||||
Total Liabilities | |||||||||||
Commitments and Contingencies (Note 23) | |||||||||||
Stockholders’ Equity (Deficit) | |||||||||||
Preferred Stock -$ |
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Series 4 Convertible Preferred Stock - |
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Series 5 Convertible Preferred Stock - |
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Series 9 Preferred Stock - |
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Common Stock - $ |
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Additional paid-in capital | |||||||||||
Accumulated other comprehensive loss |
( |
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Accumulated deficit | ( |
( |
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Total Stockholders’ Equity (Deficit) | ( |
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Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
2
XTI AEROSPACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Revenues | $ | $ | $ | $ | |||||||||||||||||||
Cost of Revenues | |||||||||||||||||||||||
Gross Profit | |||||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Research and development | |||||||||||||||||||||||
Sales and marketing | |||||||||||||||||||||||
General and administrative | |||||||||||||||||||||||
Merger-related transaction costs | |||||||||||||||||||||||
Amortization of intangible assets | |||||||||||||||||||||||
Total Operating Expenses | |||||||||||||||||||||||
Loss from Operations | ( |
( |
( |
( |
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Other Income (Expense) | |||||||||||||||||||||||
Interest expense, net | ( |
( |
( |
( |
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Amortization of deferred loan costs | ( |
( |
( |
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Inducement loss on debt conversions | ( |
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Change in fair value of convertible notes | |||||||||||||||||||||||
Change in fair value of JV obligation | ( |
( |
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Change in fair value of warrant liability | ( |
( |
( |
( |
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Other expense | ( |
( |
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Total Other Income (Expense) | ( |
( |
( |
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Net Loss, before tax | ( |
( |
( |
( |
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Income tax provision | ( |
( |
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Net Loss | ( |
( |
( |
( |
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Preferred stock return and dividend | ( |
( |
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Deemed dividend | ( |
( |
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Net Loss Attributable to Common Stockholders | $ | ( |
$ | ( |
$ | ( |
$ | ( |
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Net Loss Per Share - Basic and Diluted | $ | ( |
$ | ( |
$ | ( |
$ | ( |
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Weighted Average Shares Outstanding | |||||||||||||||||||||||
Basic and Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
3
XTI AEROSPACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Net Loss | $ | ( |
$ | ( |
$ | ( |
$ | ( |
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Change in fair value of convertible note receivable | |||||||||||||||||||||||
Unrealized foreign exchange loss from cumulative translation adjustments | ( |
( |
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Comprehensive Loss | $ | ( |
$ | ( |
$ | ( |
$ | ( |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
4
XTI AEROSPACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the three and six months ended June 30, 2024
(Unaudited)
(In thousands, except share data)
Series 9 Preferred Stock at Redemption Value | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) Income | Accumulated Deficit | Total Stockholders’ (Deficit) Equity | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
Balance - January 1, 2024 | $ | $ | $ | $ | $ | ( |
$ | ( |
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Common shares issued for conversion of debt |
— | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Common shares issued for conversion of debt - related party | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Inducement loss on debt conversions |
— | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Common shares issued to Xeriant, Inc. (Note 12) |
— | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Common shares issued for cashless exercise of warrants |
— | — | ( |
— | — | ||||||||||||||||||||||||||||||||||||||||||
Common shares issued for cashless exercise of options |
— | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Common and preferred shares issued via merger |
— | — | |||||||||||||||||||||||||||||||||||||||||||||
Capital contribution - forgiveness of related party payable |
— | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
— | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Cumulative translation adjustment |
— | — | — | — | — | ( |
— | ( |
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Series 9 preferred stock dividend accrued |
— | — | — | — | ( |
— | — | ( |
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Net loss |
— | — | — | — | — | — | ( |
( |
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Balance - March 31, 2024 |
( |
( |
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Common shares issued in exchange of Series 9 Preferred Stock |
( |
( |
— | — | |||||||||||||||||||||||||||||||||||||||||||
Deemed dividend related to Series 9 preferred stock exchange |
— | — | — | — | ( |
— | — | ( |
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Common shares issued in exchange of warrants |
— | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Deemed dividend related to December 2023 warrant exchange |
— | — | — | — | ( |
— | — | ( |
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Common shares issued for exercise of warrants | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Common shares issued for net cash proceeds of ATM offering |
— | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Common shares issued as settlement of accrued compensation |
— | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Common shares issued as prepayment for services | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
— | — | — | — | ( |
— | — | ( |
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Series 9 preferred stock dividend accrued |
— | — | — | — | ( |
— | — | ( |
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Change in fair value of convertible note receivable |
— | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Cumulative translation adjustment |
— | — | — | — | — | ( |
— | ( |
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Net loss |
— | — | — | — | — | — | ( |
( |
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Balance - June 30, 2024 |
$ | $ | $ | $ | ( |
$ | ( |
$ |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
5
XTI AEROSPACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the three and six months ended June 30, 2023
(Unaudited)
(In thousands, except per share data)
Series 9 Preferred Stock at Redemption Value | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) Income | Accumulated Deficit | Total Stockholders’ (Deficit) Equity | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance - January 1, 2023 | $ | $ | $ | $ | ( |
$ | ( |
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Stock based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible note |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | ( |
( |
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Balance - March 31, 2023 | ( |
( |
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Proceeds from sale of common stock |
— | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible note |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
JV obligation reclassified to equity |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | ( |
( |
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Balance - June 30, 2023 |
$ | $ | $ | $ | ( |
$ | ( |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
6
XTI AEROSPACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Six Months Ended June 30, | |||||||||||
2024 | 2023 | ||||||||||
Cash Flows Used in Operating Activities | (Unaudited) | ||||||||||
Net loss | $ | ( |
$ | ( |
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Adjustment to reconcile net loss to net cash used in operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
Amortization of intangible assets | |||||||||||
Amortization of deferred loan costs | |||||||||||
Amortization of right-of-use asset | |||||||||||
Amortization of debt discount | |||||||||||
Stock based compensation | |||||||||||
Change in fair value of JV obligation | |||||||||||
Provision for credit losses | |||||||||||
Change in fair value of convertible notes payable |
( |
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Inducement loss on debt conversions | |||||||||||
Change in fair value of warrant liability | |||||||||||
Change in fair value of warrant asset | |||||||||||
Unrealized loss on foreign currency transactions | ( |
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Other | |||||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable and other receivables | |||||||||||
Inventory | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Other assets | |||||||||||
Accounts payable | |||||||||||
Related party payables | |||||||||||
Accrued expenses and other current liabilities | |||||||||||
Accrued interest | |||||||||||
Deferred revenue | ( |
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Operating lease obligation | ( |
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Net Cash Used in Operating Activities | ( |
( |
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Cash Flows Provided by Investing Activities | |||||||||||
Purchase of property and equipment | ( |
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Cash received in purchase of Inpixon | |||||||||||
Purchase of intangible asset | ( |
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Net Cash Provided by Investing Activities | |||||||||||
Cash Provided by Financing Activities | |||||||||||
Proceeds from sale of common stock | |||||||||||
Proceeds from warrant exercises |
7
XTI AEROSPACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Net proceeds from ATM stock offering | |||||||||||
Net proceeds from promissory notes | |||||||||||
Net proceeds from loan from Inpixon (prior to merger) | |||||||||||
Net proceeds from convertible notes | |||||||||||
Repayments of promissory notes | ( |
( |
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Net Cash Provided by Financing Activities |
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Effect of Foreign Exchange Rate on Changes on Cash | ( |
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Net Increase (Decrease) in Cash and Cash Equivalents | ( |
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Cash and Cash Equivalents - Beginning of period | |||||||||||
Cash and Cash Equivalents - End of period | $ | $ | |||||||||
Supplemental Disclosure of cash flow information: | |||||||||||
Cash paid for: | |||||||||||
Interest | $ | $ | |||||||||
Income Taxes | $ | $ | |||||||||
Non-cash investing and financing activities | |||||||||||
Common shares issued for conversion of debt and accrued interest | $ | $ | |||||||||
Common shares issued in exchange of warrants | $ | $ | |||||||||
Deemed dividend related to December 2023 warrant exchange | $ | $ | |||||||||
Common shares issued as settlement of accrued compensation | $ | $ | |||||||||
Common shares issued as prepayment for services | $ | $ | |||||||||
Issuance of common stock for merger consideration, net of cash received | $ | $ | |||||||||
Right of use asset obtained in exchange for lease liability | $ | $ | |||||||||
Capital contribution - forgiveness of related party payable | $ | $ | |||||||||
Common shares issued in exchange of series 9 preferred stock | $ | $ | |||||||||
Series 9 preferred stock dividend accrued |
$ | $ | |||||||||
Deemed dividend related to Series 9 preferred stock exchange | $ | $ | |||||||||
ATM proceeds withheld as payment towards accounts payable | $ | $ | |||||||||
Warrants issued with convertible notes | $ | $ | |||||||||
Warrants issued with common stock | $ | $ | |||||||||
Reclassification of JV obligation to equity | $ | $ |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
8
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 1 - Organization and Nature of Business
On March 12, 2024, XTI Aerospace, Inc., the "Company", formerly known as Inpixon (“Legacy Inpixon”), Superfly Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Legacy Inpixon (“Merger Sub”), and XTI Aircraft Company, a Delaware corporation (“Legacy XTI”), completed their previously announced merger transaction pursuant to that certain Agreement and Plan of Merger, dated as of July 24, 2023 and amended on December 30, 2023 and March 12, 2024 (the “XTI Merger Agreement”), pursuant to which Legacy XTI merged in a reverse triangular merger with Merger Sub with Legacy XTI surviving the merger as a wholly-owned subsidiary of the Company (the “XTI Merger”). In connection with the closing of the XTI Merger, our corporate name changed from Inpixon to “XTI Aerospace, Inc.” and the combined company opened for trading on the Nasdaq Capital Market on March 13, 2024 under the new ticker symbol “XTIA.”
Based on the guidance of ASC Topic 805, "Business Combinations," the Company determined the XTI Merger should be accounted for as a reverse acquisition with Legacy XTI being considered the accounting acquirer. Therefore, the condensed consolidated financial statements included in this report represent a continuation of the financial statements of Legacy XTI and the results of operations of the accounting acquired entity, Legacy Inpixon, are included in the condensed consolidated financial statements as of the March 12, 2024 merger closing date and through the June 30, 2024 reporting date.
Following the closing of the XTI Merger, the Company is primarily an aircraft development company. The Company also provides real-time location systems (“RTLS”) for the industrial sector, which was Legacy Inpixon's focus prior to the closing of the XTI Merger. Headquartered in Englewood, Colorado, the Company is developing a vertical takeoff and landing ("VTOL") aircraft that is designed to take off and land like a helicopter and cruise like a fixed-wing business aircraft. Since 2013, the Company has been engaged primarily in developing the design and engineering concepts for the TriFan 600, building and testing a two-thirds scale unmanned version of the TriFan 600, generating pre-orders for the TriFan 600, and seeking funds from investors to enable the Company to build full-scale piloted prototypes of the TriFan 600, and to eventually engage in commercial production and sale of TriFan 600.
Our RTLS solution leverages cutting-edge technologies such as IoT, AI, and big data analytics to provide real-time tracking and monitoring of assets, machines, and people within industrial environments. With our RTLS, businesses can achieve improved operational efficiency, enhanced safety and reduced costs. By having real-time visibility into operations, industrial organizations can make informed, data-driven decisions, minimize downtime, and ensure compliance with industry regulations.
Note 2 - Basis of Presentation
9
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 3 - Summary of Significant Accounting Policies
The Company's complete accounting policies are described in Note 2 to Legacy Inpixon's audited consolidated financial statements and notes for the year ended December 31, 2023, except for Legacy XTI's accounting policies which have been incorporated into this Note 3.
Liquidity and Going Concern
As of June 30, 2024, the Company has a working capital deficit of approximately $7.9 million, and cash of approximately $5.8 million. For the six months ended June 30, 2024, the Company had a net loss of approximately $17.3 million. During the six months ended June 30, 2024, the Company used approximately $8.2 million of cash for operating activities.
There can be no assurances that the Company will ever earn revenues sufficient to support its operations, or that it will ever be profitable. In order to continue its operations, the Company has supplemented the revenues it earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines.
The Company's recurring losses and utilization of cash in its operations are indicators of going concern. The Company’s condensed consolidated financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been prepared under the assumption that the Company will continue as a going concern for the next twelve months from the date the financial statements are issued. Management’s plans and assessment of the probability that such plans will mitigate and alleviate any substantial doubt about the Company’s ability to continue as a going concern is dependent upon the Company's ability to obtain additional equity or debt financing, and attain further operating efficiency, which is uncertain, which together represent the principal conditions that raise substantial doubt about our ability to continue as a going concern. The Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2024 and 2023 do not include any adjustments that might result from the outcome of this uncertainty.
Consolidations
The consolidated financial statements have been prepared using the accounting records of Legacy XTI and as of March 12, 2024 and forward (the effective date of the XTI Merger) the accounting records of XTI Aerospace, Inc. (formerly known as Inpixon), Inpixon GmbH (formerly known as Nanotron Technologies GmbH), Inpixon Holding UK Limited, and Intranav GmbH. All material inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:
•the valuation of stock-based compensation;
•the valuation of the Company’s common stock issued and assets acquired in transactions, including acquisitions;
•the valuation of equity securities;
•the valuation of notes receivable;
•the valuation of warrant liabilities and assets;
•the valuation of convertible notes, at fair value;
•the valuation of loan conversion derivatives; and
•the valuation allowance for deferred tax assets.
Business Combinations
10
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 3 - Summary of Significant Accounting Policies (continued)
Intangible Assets
Acquired In-Process Research and Development (“IPR&D”)
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted Section 360-10-35 of the FASB ASC for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
Based on its assessments, the Company has recorded no long-lived assets impairment during the six months ended June 30, 2024 and 2023.
Goodwill
The Company tests goodwill for potential impairment at least annually as of October 1, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit. In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.
The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates
11
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 3 - Summary of Significant Accounting Policies (continued)
and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.
Based on its assessments, the Company has recorded no goodwill impairment during the six months ended June 30, 2024 and 2023.
Revenue Recognition
The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems.
Hardware and Software Revenue Recognition
For sales of hardware and software products, the Company’s performance obligation is satisfied at a point in time when they are shipped to the customer. This is when the customer has title to the product and the risks and rewards of ownership. The delivery of products to the Company's customers occurs in a variety of ways, including (i) as a physical product shipped from the Company’s warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect to software licenses. The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse. In such arrangements, the Company negotiates the sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from its customers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards and requirements of the customer. Accordingly, the Company is the principal in the transaction with the customer and records revenue on a gross basis. The Company receives fixed consideration for sales of hardware and software products. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice. The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year.
Software As A Service Revenue Recognition
With respect to sales of the Company’s maintenance, consulting and other service agreements, customers pay fixed monthly fees in exchange for the Company’s service. The Company’s performance obligation is satisfied over time as the digital advertising and electronic services are provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service.
Professional Services Revenue Recognition
The Company’s professional services include milestone, fixed fee and time and materials contracts.
Professional services under milestone contracts are accounted for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract. Contract costs are expensed as incurred. Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract.
Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company’s time and materials contracts are paid weekly or monthly based on hours worked. Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended. Materials, or other specified direct costs, are reimbursed as actual costs and may include markup. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds
12
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 3 - Summary of Significant Accounting Policies (continued)
directly with the value to the customer of the performance completed to date. For fixed fee contracts including maintenance service provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service. Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations. Anticipated losses are recognized as soon as they become known. For the six months ended June 30, 2024 and 2023, the Company did not incur any such losses. These amounts are based on known and estimated factors.
License Revenue Recognition
The Company enters into contracts with its customers whereby it grants a non-exclusive on-premise license for the use of its proprietary software. The contracts provide for a stated term with a one year or multiple year renewal option. The contracts may also provide for yearly on-going maintenance services for a specified price, which includes maintenance services, designated support, and enhancements, upgrades and improvements to the software (the “Maintenance Services”), depending on the contract. Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. All software provides customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.
The timing of the Company's revenue recognition related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a good or service. Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service. A software arrangement that is provided through an access code or key represents the transfer of a good. Licenses for on-premises software represents a good and provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer.
Renewals or extensions of licenses are evaluated as distinct licenses (i.e., a distinct good or service), and revenue attributed to the distinct good or service cannot be recognized until (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license. Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional rights granted after the initial contract. The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period. Therefore, the Company recognizes revenue resulting from renewal of licensed software at a point in time, specifically, at the beginning of the license renewal period.
The Company recognizes revenue related to Maintenance Services evenly over the service period using a time-based measure because the Company is providing continuous service and the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the services are performed.
Contract Balances
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied, principally within one year.
Customer Deposits
The Company periodically enters into aircraft reservation agreements that include a deposit placed by a potential customer. The deposits serve to prioritize orders when the aircraft becomes available for delivery. Customers making deposits are not obligated to purchase aircraft until they execute a definitive purchase agreement. Customers may request return of their deposit any time up until the execution of a purchase agreement. The Company records such advance deposits as a liability and defers the related revenue recognition until delivery of an aircraft occurs, if any.
13
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 3 - Summary of Significant Accounting Policies (continued)
Convertible Instruments
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable GAAP.
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
When the Company has determined the embedded conversion options should be bifurcated from their host instruments, the Company records a free-standing derivative asset or liability measured at fair value at issuance. Subsequent to initial measurement, the Company will re-measure the derivative asset or liability at fair value at each reporting date with changes in the fair value recognized in earnings.
Stock-Based Compensation
The Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as an expense over the period during which the recipient is required to provide services in exchange for that award.
The Company measures compensation expense for its non-employee stock-based compensation under ASC 718, "Stock Based Compensation". The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock or stock award on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.
The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
The Company incurred the following stock-based compensation charges for the periods indicated below (in thousands):
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
Employee and consultant stock options1
|
$ | ( |
$ | $ | $ | |||||||||||||||||||||
Vesting of previously unvested warrants2
|
||||||||||||||||||||||||||
Professional fees2
|
||||||||||||||||||||||||||
Total | $ | ( |
$ | $ | $ |
1amount included in general and administrative expenses on the condensed consolidated statements of operations
2amount included in merger-related transaction costs on the condensed consolidated statements of operations
14
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 3 - Summary of Significant Accounting Policies (continued)
As the Company accounts for stock option forfeitures in the period in which the forfeiture occurred, the income recognized during the three months ended June 30, 2024 as a result of forfeitures exceeded the expense recognized resulting in a negative or income of approximately $59,000 .
Net Loss Per Share
The Company computes basic and diluted earnings per share by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Basic and diluted net loss per share were the same since the inclusion of shares of common stock issuable pursuant to the exercise of options and warrants in the calculation of diluted net loss per share would have been anti-dilutive.
The following table summarizes the weighted average number of shares of common stock and common stock equivalents excluded from the calculation of diluted net loss per share for the three and six months ended June 30, 2024 and 2023 as they are considered to be anti-dilutive:
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
Options | ||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||
Convertible preferred stock | ||||||||||||||||||||||||||
Convertible notes | ||||||||||||||||||||||||||
Total |
The basic earnings per share calculation for the three months ended June 30, 2024 and 2023 included 209,688 and 608,528 penny warrant shares, respectively, since the exercise price was $0.01 per share. The basic earnings per share calculation for the six months ended June 30, 2024 and 2023 included 608,528 and 608,528 of penny warrants shares, respectively. Additionally, the basic earnings per share calculation for the three months ended June 30, 2023 and for the six months ended June 30, 2024 and 2023 included 298,395 shares of common stock that were issuable to Xeriant Inc. ("Xeriant") related to the joint venture arrangement that expired by its term on May 31, 2023. The shares were issued to Xeriant for no additional consideration immediately prior to the XTI Merger.
Preferred Stock
The Company relies on the guidance provided by ASC 480, "Distinguishing Liabilities from Equity" ("ASC 480"), to classify certain redeemable and/or convertible instruments. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as permanent equity.
The Company also follows the guidance provided by ASC 815, "Derivatives and Hedging" (“ASC 815”), which states that contracts that are both, (1) indexed to its own stock and (2) classified in stockholders’ equity in its statement of financial position, are not classified as derivative instruments, and to be recorded under stockholder's equity on the balance sheet of the financial statements. Management assessed the preferred stock and determined that it did meet the scope exception under ASC 815, and would be recorded as equity, and not a derivative instrument, on the balance sheet of the Company's financial statements.
Fair Value of Financial Instruments and Fair Value Measurements
Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and short-term debt. The Company determines the estimated fair value of such financial instruments presented in these financial statements using available market information and appropriate methodology. These financial instruments, except for short-term
15
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 3 - Summary of Significant Accounting Policies (continued)
debt and notes receivable, are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature. Short-term debt approximates market value based on similar terms available to the Company in the market place.
ASC 820, "Fair Value Measurements" (“ASC 820”), provides guidance on the development and disclosure of fair value measurements. The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and expands disclosures about fair value measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
Segments
The Company and its Chief Executive Officer ("CEO"), acting as the Chief Operating Decision Maker ("CODM") determined its operating segments in accordance with ASC 280, "Segment Reporting" ("ASC 280"). The Company is organized and operates as two business segments based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments.
Recently Issued and Adopted Accounting Standards
In July 2023, the FASB issued ASU 2023-03, "Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718)", which updates codification on how an entity would apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest and similar awards should be accounted for in accordance with Topic 718, Compensation—Stock Compensation. The effective date of this update is for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company adopted ASU 2023-03 as of January 1, 2024. The adoption of this guidance did not have a material impact on the condensed consolidated financial statements and disclosures.
Recently Issued Accounting Standards Not Yet Adopted
The Company reviewed recently issued accounting pronouncements and concluded that they were not applicable to the condensed consolidated financial statements, except for the following:
In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Updated and Simplification Initiative", which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements. The new guidance is intended to align GAAP requirements with those of the SEC and to facilitate the application of GAAP for all entities. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all
16
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 3 - Summary of Significant Accounting Policies (continued)
other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company is currently assessing potential impacts of ASU 2023-06 and does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The new standard requires a company to disclose incremental segment information on an annual and interim basis, including significant segment expenses and measures of profit or loss that are regularly provided to the chief operating decision maker. The standard is effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted. The Company does not expect to early adopt the new standard. The Company is currently evaluating the impact of ASU 2023-07 on its financial statements and related disclosures and will adopt the new standard using a retrospective approach.
In December 2023, the FASB also issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted. The Company does not expect to early adopt the new standard. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its financial statements and related disclosures.
In March 2024, FASB issued ASU No. 2024-01, “Compensation- Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards.” ASU 2024-01 provides an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718. ASU 2024-01 is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of ASU 2024-01 on its financial statements and related disclosures.
Note 4 - Disaggregation of Revenue
Disaggregation of Revenue
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
Recurring revenue | ||||||||||||||||||||||||||
Software | $ | $ | $ | $ | ||||||||||||||||||||||
Total recurring revenue | $ | $ | $ | $ | ||||||||||||||||||||||
Non-recurring revenue | ||||||||||||||||||||||||||
Hardware | $ | $ | $ | $ | ||||||||||||||||||||||
Software | ||||||||||||||||||||||||||
Professional services | ||||||||||||||||||||||||||
Total non-recurring revenue | $ | $ | $ | 881 | $ | |||||||||||||||||||||
Total Revenue | $ | $ | $ | $ |
17
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 4 - Disaggregation of Revenue (continued)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
Revenue recognized at a point in time | ||||||||||||||||||||||||||
Industrial IoT (1) | $ | $ | $ | $ | ||||||||||||||||||||||
Total | $ | $ | $ | $ |
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Revenue recognized over time | ||||||||||||||||||||||||||
Industrial IoT (2) (3) | $ | $ | $ | $ | ||||||||||||||||||||||
Total | $ | $ | $ | $ |
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Total Revenue | $ | $ | $ | $ |
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(1) Hardware and Software's performance obligation is satisfied at a point in time when they are shipped to the customer.
(2) Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date, in which revenue is recognized over time.
(3) Software As A Service Revenue's performance obligation is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service and revenue is recognized over time.
Note 5 – Merger Transaction
The XTI Merger was accounted for as a reverse merger in accordance with GAAP. Under this method of accounting, Legacy Inpixon was treated as the "acquired" company for financial reporting purposes. This determination is primarily based on the fact that subsequent to the XTI Merger, Legacy XTI maintains control of the Board of Directors and management of the Company, and the preexisting shareholders of Legacy XTI have majority voting rights of the Company. For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination. Accordingly, Legacy XTI’s assets and liabilities are recorded at carrying value and the assets and liabilities associated with Legacy Inpixon are recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair value of the net assets acquired, if applicable, is recognized as goodwill.
The below summarizes the total consideration transferred in the business combination (in thousands):
Fair value of common stock | $ | ||||
Fair value of warrants | |||||
Fair value of preferred stock | |||||
Fair value of debt assumed | |||||
Total consideration | $ |
The Company determined the estimated fair value of common stock included in consideration to be calculated based on Legacy Inpixon’s common stock outstanding of 2,075,743 multiplied by the price of Legacy Inpixon’s common stock on March 12, 2024 of $5.27 (which reflects the 1 to 100 reverse stock split which became effective before the closing of the XTI Merger). The Company utilized Legacy Inpixon's common stock price in determining fair value as it is more reliably measurable than the value of Legacy XTI’s (accounting acquirer) equity interests given it is not a publicly traded entity.
The fair value of warrants of approximately $3.3 million was included in the total equity consideration. A portion of this total represents 918,689 warrants outstanding by the Company with a fair value of $1.00 per warrant, which is the warrant's redemption value. The warrant fair value was determined to be the redemption value as the warrants include protective covenants for the Company which prevent the holder from exercising the warrants. The remainder of this total represents
18
XTI AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Note 5 – Merger Transaction (continued)
The fair value of preferred stock of approximately $11.3 million included in the total equity consideration represents 11,302 shares of a new series of Preferred Stock that was issued and outstanding by the Company upon the consummation of the XTI Merger at a stated value of $1,000 and fair value of $1,000 per share. The issuance of the preferred stock was determined to be an arm's length transaction, therefore fair value is equal to cash proceeds.
The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the XTI Merger. These values are subject to change as the Company performs additional reviews of its assumptions utilized. The Company has made a provisional allocation of the purchase price of the XTI Merger to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the preliminary purchase price allocations relating to the XTI Merger (in thousands):
Assets acquired | |||||
Cash and cash equivalents | $ | ||||
Accounts receivable | |||||
Notes and other receivables | |||||
Inventory | |||||
Prepaid assets and other current assets | |||||
Property and equipment | |||||
Other assets | |||||
Warrant assets | |||||