November 14, 2024 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission File Number 001-36404

XTI AEROSPACE, INC.

(Exact name of registrant as specified in its charter)


Nevada						88-0434915
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

8123 InterPort Blvd., Suite C

Englewood, CO 80112

(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

Common Stock, par value $0.001

XTIA

The Nasdaq Stock Market LLC

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	¨
Non-accelerated filer	x	Smaller reporting company	x
		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.


Class						Outstanding at November 14, 2024
Common Stock, Par Value $0.001						151,589,927

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XTI AEROSPACE, INC.

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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 September 30, 2024 (Unaudited) and December 31, 2023

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2024 and 2023

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the three and nine months ended September 30, 2024 and 2023

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023

Notes to Condensed Consolidated Financial Statements

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

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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;

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•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.”

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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.

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PART I — FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except number of shares and par value data)


	As of September 30, 2024		As of December 31, 2023
	(Unaudited)
Assets

Current Assets
Cash and cash equivalents	$	511	$	5
Accounts receivable, net of allowance for credit losses of $33 and $0 as of September 30, 2024 and December 31, 2023, respectively	610		—
Other receivables	552		101
Inventory	2,730		—
Note receivable available for sale, at fair value	3,601		—
Warrant asset	424		—
Prepaid expenses and other current assets	1,704		125

Total Current Assets	10,132		231

Property and equipment, net	235		12
Operating lease right-of-use asset, net	522		—
Intangible assets, net	4,778		266
Goodwill	12,738		—
Other assets	878		—

Total Assets	$	29,283	$	509

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands, except number of shares and par value data)


	As of September 30, 2024		As of December 31, 2023
	(Unaudited)
Liabilities and Stockholders’ Equity (Deficit)

Current Liabilities
Accounts payable	$	7,625	$	2,495
Related party payables	100		540
Accrued expenses and other current liabilities	8,659		1,127
Accrued interest	940		560
Customer deposits	1,350		1,350
Warrant liability	—		497
Operating lease obligation, current	217		—
Deferred revenue	526		—
Short-term debt	2,620		6,690

Total Current Liabilities	22,037		13,259

Long Term Liabilities
Long-term debt	65		18,546
Operating lease obligation, noncurrent	316		—
Other liabilities, noncurrent	—		333

Total Liabilities	22,418		32,138

Commitments and Contingencies (Note 18)

Stockholders’ Equity (Deficit)
Preferred Stock -$0.001 par value; 5,000,000 shares authorized
Series 4 Convertible Preferred Stock - 10,415 shares authorized; 1 issued and outstanding as of September 30, 2024 and December 31, 2023	—		—
Series 5 Convertible Preferred Stock - 12,000 shares authorized; 126 issued and outstanding as of September 30, 2024 and December 31, 2023	—		—
Series 9 Preferred Stock - 20,000 shares authorized; 11,302 and 6,677 shares issued and outstanding as of September 30, 2024, and 0 shares issued and outstanding as of December 31, 2023 (Liquidation preference of $7,506,833)	6,677		—
Common Stock - $0.001 par value; 500,000,000 shares authorized; 38,008,995 and 3,197,771 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively.	38		3
Additional paid-in capital	79,332		26,327
Accumulated other comprehensive loss	524		—
Accumulated deficit	(79,706)		(57,959)

Total Stockholders’ Equity (Deficit)	6,865		(31,629)

Total Liabilities and Stockholders’ Equity (Deficit)	$	29,283	$	509

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
	(Unaudited)
Revenues	$	918	$	—	$	2,169	$	—

Cost of Revenues	398		—		846		—

Gross Profit	520		—		1,323		—

Operating Expenses
Research and development	1,228		472		2,840		1,299
Sales and marketing	1,019		198		2,160		486
General and administrative	2,293		988		16,422		4,469
Merger-related transaction costs	—		713		6,490		1,428
Amortization of intangible assets	196		7		431		20

Total Operating Expenses	4,736		2,378		28,343		7,702

Loss from Operations	(4,216)		(2,378)		(27,020)		(7,702)

Other Income (Expense)
Interest expense, net	(222)		(303)		(553)		(806)
Amortization of deferred loan costs	—		(22)		(17)		(66)
Inducement loss on debt conversions	—		—		(6,732)		—
Change in fair value of convertible notes	—		—		12,882		—
Change in fair value of JV obligation	—		—		—		(197)
Change in fair value of warrant liability	—		—		(281)		(126)
Other income/(expense), net	3		—		(10)		—
Total Other Income (Expense)	(219)		(325)		5,289		(1,195)

Net Loss, before tax	(4,435)		(2,703)		(21,731)		(8,897)
Income tax provision	—		—		(16)		—
Net Loss	(4,435)		(2,703)		(21,747)		(8,897)

Less: Preferred stock return and dividend	(185)		—		(496)		—
Less: Deemed dividend	(54)		—		(514)		—
Net Loss Attributable to Common Stockholders, basic and diluted	$	(4,674)	$	(2,703)	$	(22,757)	$	(8,897)


Net Loss Per Share - Basic and Diluted	$	(0.13)	$	(0.66)	$	(1.23)	$	(2.26)


Weighted Average Shares Outstanding, Basic and Diluted	34,986,105		4,116,700		18,439,744		3,931,075

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
	(Unaudited)
Net Loss	$	(4,435)	$	(2,703)	$	(21,747)	$	(8,897)
Change in fair value of convertible note receivable	—		—		59		—
Unrealized foreign exchange loss from cumulative translation adjustments	663		—		465		—
Comprehensive Loss	$	(3,772)	$	(2,703)	$	(21,223)	$	(8,897)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the three and nine months ended September 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		—	$	—	3,197,771		$	3	$	26,327		$	—	$	(57,959)	$	(31,629)
Common shares issued for conversion of debt		—	—		2,887,788		3		9,611			—		—		9,614
Inducement loss on debt conversions		—	—		—		—		6,732			—		—		6,732
Common shares issued to Xeriant, Inc.		—	—		298,395		—		—			—		—		—
Common shares issued for cashless exercise of warrants and options		—	—		482,015		1		(1)			—		—		—
Common and preferred shares issued via merger		11,302	11,302		2,075,743		2		14,301			—		—		25,605
Capital contribution - forgiveness of related party payable		—	—		—		—		380			—		—		380
Stock-based compensation		—	—		977,699		1		5,791			—		—		5,792
Cumulative translation adjustment		—	—		—		—		—			(166)		—		(166)
Series 9 preferred stock dividend accrued		—	—		—		—		(61)			—		—		(61)
Net loss		—	—		—		—		—			—		(2,602)		(2,602)
Balance - March 31, 2024		11,302	11,302		9,919,411		10		63,080			(166)		(60,561)		13,665
Common shares issued in exchange of Series 9 preferred stock		(3,550)	(3,550)		2,999,187		3		3,724			—		—		177
Deemed dividend related to Series 9 preferred stock exchange		—	—		—		—		(177)			—		—		(177)
Common shares issued in exchange of warrants		—	—		1,492,415		2		1,979			—		—		1,981
Deemed dividend related to December 2023 warrant exchange		—	—		—		—		(283)			—		—		(283)
Common shares issued for exercise of warrants		—	—		20,528		—		2			—		—		2
Common shares issued for net cash proceeds of ATM offering		—	—		9,300,203		9		8,666			—		—		8,675
Common shares issued as settlement of accrued compensation		—	—		2,680,459		3		1,189			—		—		1,192
Common shares issued as prepayment for services		—	—		429,483		—		335			—		—		335
Stock-based compensation		—	—		—		—		(59)			—		—		(59)
Series 9 preferred stock dividend accrued		—	—		—		—		(250)			—		—		(250)
Change in fair value of convertible note receivable		—	—		—		—		—			59		—		59
Cumulative translation adjustment		—	—		—		—		—			(32)		—		(32)
Net loss		—	—		—		—		—			—		(14,710)		(14,710)
Balance - June 30, 2024		7,752	7,752		26,841,686		27		78,206			(139)		(75,271)		10,575
Common shares issued in exchange of Series 9 preferred stock		(1,075)	(1,075)		4,196,813		4		1,125			—		—		54
Deemed dividend related to Series 9 preferred stock exchange		—	—		—		—		(54)			—		—		(54)
Common shares issued for net cash proceeds of ATM offering		—	—		3,190,727		3		1,032			—		—		1,035
Common shares issued as settlement of accrued compensation		—	—		2,774,883		3		1,098			—		—		1,101
Stock-based compensation		—	—		1,004,886		1		(1,890)			—		—		(1,889)
Series 9 preferred stock dividend accrued		—	—		—		—		(185)			—		—		(185)
Cumulative translation adjustment		—	—		—		—		—			663		—		663
Net loss		—	—		—		—		—			—		(4,435)		(4,435)
Balance - September 30, 2024		6,677	$	6,677	38,008,995		$	38	$	79,332		$	524	$	(79,706)	$	6,865

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the three and nine months ended September 30, 2023

(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, 2023	—	$	—	3,181,578	$	3	$	17,908	—		$	(32,893)	$	(14,982)
Stock-based compensation	—	—		—	—		141		—		—		141
Issuance of warrants with convertible note	—	—		—	—		39		—		—		39
Net loss	—	—		—	—		—		—		(1,565)		(1,565)
Balance - March 31, 2023	—	—		3,181,578	3		18,088		—		(34,458)		(16,367)
Proceeds from sale of common stock	—	—		12,853	—		180		—		—		180
Stock-based compensation	—	—		—	—		2,461		—		—		2,461
Issuance of warrants with convertible note	—	—		—	—		928		—		—		928
JV obligation reclassified to equity	—	—		—	—		5,583		—		—		5,583
Net loss	—	—		—	—		—		—		(4,629)		(4,629)
Balance - June 30, 2023	—	—		3,194,431	3		27,240		—		(39,087)		(11,844)
Proceeds from sale of common stock	—	—		3,142	—		44		—		—		44
Stock-based compensation	—	—		—	—		164		—		—		164
Net loss	—	—		—	—		—		—		(2,703)		(2,703)
Balance - September 30, 2023	—	$	—	3,197,573	$	3	$	27,448	$	—	$	(41,790)	$	(14,339)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	For the Nine Months Ended September 30,
	2024		2023
Cash Flows Used in Operating Activities	(Unaudited)

Net loss	$	(21,747)	$	(8,897)

Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	81		8
Amortization of intangible assets	431		20
Amortization of right-of-use asset	177		—
Non-cash interest expense, net	267		456
Stock-based compensation	3,844		2,766
Change in fair value of JV obligation	—		197
Change in fair value of convertible notes payable	(12,882)		—
Inducement loss on debt conversions	6,732		—
Change in fair value of warrant liability	281		126
Change in fair value of warrant asset	24		—
Unrealized gain on foreign currency transactions	(123)		—
Other	34		—

Changes in operating assets and liabilities:
Accounts receivable and other receivables	(72)		127
Inventory	271		—
Prepaid expenses and other current assets	247		28
Other assets	32		—
Accounts payable	2,514		1,160
Related party payables	—		64
Accrued expenses and other current liabilities	5,708		561
Accrued interest	154		398
Deferred revenue	(115)		—
Operating lease obligation	(163)		—

Net Cash Used in Operating Activities	(14,305)		(2,986)

Cash Flows Provided by Investing Activities
Purchase of property and equipment	(54)		(3)
Cash received in purchase of Inpixon	2,968		—
Purchase of intangible asset	(39)		—
Net Cash Provided by Investing Activities	2,875		(3)

Cash Provided by Financing Activities
Proceeds from sale of common stock and exercise of warrants	2		224
Net proceeds from ATM stock offering	9,582		—
Net proceeds from promissory notes	2,000		2,150
Net proceeds from loan from Inpixon (prior to merger)	1,012		—

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XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)


Net proceeds from convertible notes	—		750
Repayments of promissory notes	(668)		(14)
Net Cash Provided by Financing Activities	11,928		3,110

Effect of Foreign Exchange Rate on Changes on Cash	8		—

Net Increase (Decrease) in Cash and Cash Equivalents	506		121

Cash and Cash Equivalents - Beginning of period	5		115

Cash and Cash Equivalents - End of period	$	511	$	236

Supplemental Disclosure of cash flow information:
Cash paid for:
Interest	$	54	$	1
Income Taxes	$	16	$	—

Non-cash investing and financing activities
Common shares issued for conversion of debt and accrued interest	$	9,614	$	—
Common shares issued in exchange of warrants	$	1,698	$	—
Deemed dividend related to December 2023 warrant exchange	$	283	$	—
Common shares issued as settlement of accrued compensation	$	2,293	$	—
Common shares issued as prepayment for services	$	335	$	—
Issuance of common stock for merger consideration, net of cash received	$	22,637	$	—
Right of use asset obtained in exchange for lease liability	$	394	$	—
Capital contribution - forgiveness of related party payable	$	380	$	—
Common shares issued in exchange of Series 9 preferred stock	$	4,625	$	—
Series 9 preferred stock dividend accrued	$	496	$	—
Deemed dividend related to Series 9 preferred stock exchange	$	231	$	—
ATM proceeds withheld as payment towards accounts payable	$	128	$	—
Warrants issued with convertible notes	$	—	$	967
Warrants issued with common stock	$	—	$	121
Reclassification of JV obligation to equity	$	—	$	5,583

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Note 1 - Organization and Nature of Business

On March 12, 2024 (the "Closing Date"), 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.”

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 Closing Date and through the September 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

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results for the full year ending December 31, 2024. These interim unaudited condensed consolidated financial statements should be read in conjunction with Legacy Inpixon's audited financial statements and notes for the years ended December 31, 2023 and 2022 included in the annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 16, 2024. These interim unaudited condensed consolidated financial statements should also be read in conjunction with Legacy XTI's audited financial statements and notes for the years ended December 31, 2023 and 2022 included in the Form 8-K/A filed with the SEC on May 28, 2024.

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 30, 2024, the Company has a working capital deficit of approximately $11.9 million, and cash of approximately $0.5 million. For the nine months ended September 30, 2024, the Company had a net loss of approximately $21.7 million. During the nine months ended September 30, 2024, the Company used approximately $14.3 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 its 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 September 30, 2024 and for the three and nine months ended September 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 nine months ended September 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.

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Cash and Cash Equivalents

Cash consists primarily of demand deposit bank accounts, which, from time to time, may exceed federally insured limits. The Company considers all highly liquid investments with an original maturity from date of purchase of three months or less, or that are readily convertible into known amounts of cash, to be cash equivalents.

Credit Risk and Concentrations

Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for credit losses.

The customers who account for 10% or more of the Company's revenue for the three and nine months ended September 30, 2024 or 10% or more of the Company's outstanding receivable balance as of September 30, 2024 are presented as follows:

Percentage of revenues

Percentage of accounts receivable

Customer

For the Three Months Ended September 30, 2024

For the Nine Months Ended September 30, 2024

As of September 30, 2024

25%

23%

17%

25%

16%

29%

13%

12%

10%

24%

**Represents less than 10% of the total for the respective period

The Company did not have revenue for the three and nine months ended September 30, 2023. The Company did not have outstanding trade receivables as of September 30, 2023.

The vendors who account for 10% or more of the Company's purchases or 10% or more of the Company's outstanding payable balance are presented as follows for the periods indicated:

Percentage of purchases

Percentage of accounts payable

Three Months Ended September 30,

Nine Months Ended September 30,

As of September 30,

Vendor

2024

2023

2024

2023

2024

2023

45%

42%

21%

61%

11%

23%

**Represents less than 10% of the total for the respective period

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Business Combinations

The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred.

Acquired In-Process Research and Development (“IPR&D”)

In accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the acquisition date, and subsequently accounts for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. Once an IPR&D project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly. If the IPR&D asset is abandoned, the remaining carrying value is written off. During fiscal year 2024, the Company acquired IPR&D through the XTI Merger.

Intangible Assets and Goodwill

Intangible assets primarily consist of developed technology, patents, customer relationships, and trade names/trademarks. They are amortized ratably over a range of 5 to 15 years, which approximates customer attrition rate and technology obsolescence.

The Company tests goodwill for potential impairment at least annually as of October 1, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill is tested for impairment by comparing the fair value of the reporting unit with its carrying amount and the Company recognizes an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting unit’s fair value.

Based on its assessments, the Company does not believe it has a goodwill impairment during the nine months ended September 30, 2024 and 2023.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, inclusive of its right-of-use assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated from the use of the asset and its eventual disposition. If the carrying amount of an asset group exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value.

For the nine months ended September 30, 2024 and 2023, the Company determined none of its long-lived assets were impaired.

Revenue Recognition

In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods, in an amount that reflects the consideration that it expects to receive in exchange for those goods. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration, if any, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods it transfers to a customer.

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

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, at which control is deemed transferred to the customer, and has title of the product and holds the risks and rewards of ownership.

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 concluded it 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 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 nine months ended September 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.

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

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.

Stock-Based Compensation

The Company’s stock-based compensation relates to stock options granted to employees and non-employees. The Company recognizes the cost of share-based awards granted to employees and non-employees based on the estimated grant-date fair value of the awards. Forfeitures are accounted for as they occur, which may result in negative expense when forfeitures exceed the expense recorded within the period.

The Company recognizes expense on a straight-line basis over the requisite service period of the award, which is generally equal to the vesting period of the award.

The Company estimates the grant-date fair value of the stock option awards with service only vesting conditions using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model utilizes inputs and assumptions which involve inherent uncertainties and generally require significant judgment. As a result, if factors or expected outcomes change and significantly different assumptions or estimates are used, the Company’s stock-based compensation could be materially different. Significant inputs and assumptions include:

Fair value of Common Stock – As there was no public market for Legacy XTI’s common stock prior to the XTI Merger, the fair value of the shares of common stock underlying the stock-based awards on the grant-date has historically been

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

determined by Legacy XTI’s Board of Directors with assistance of third-party valuation specialists. Legacy XTI's Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which included important developments in Legacy XTI’s operations, actual operating results, financial performance, external market conditions, equity market conditions of comparable public companies, and the lack of marketability of Legacy XTI’s common stock.

Expected Term – The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

Expected Volatility – Because Legacy XTI was privately held prior to the XTI Merger and did not have an active trading market for its common stock, the expected volatility was estimated based on the average volatility for publicly traded companies that the Company considers to be comparable, over a period equal to the expected term of the stock option grants.

Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend – The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Net Loss Per Share

Net loss per share attributable to common stockholders is computed using the two-class method required for multiple classes of common stock and participating securities. The Company’s participating securities included the Company’s convertible preferred stock and preferred stock. Neither the holders of convertible preferred stock, preferred stock nor the holders of the Company’s common stock warrants have a contractual obligation to share in losses.

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss, as adjusted for any dividends on the preferred stock for the period, attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase or outstanding shares that are contingently returnable by the holder. Contingently issuable shares, including shares that are issuable for little or no cash consideration, are considered outstanding common shares and included in net loss per share as of the date that all necessary conditions have been satisfied. Such shares include outstanding penny warrants and shares issuable to Xeriant Inc. ("Xeriant") related to the the joint venture arrangement that expired on May 31, 2023.

Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

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

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

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.

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Recently Issued Accounting Standards Not Yet Adopted

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.

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.

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Note 4 - Disaggregation of Revenue and Deferred Revenue

Disaggregation of Revenue

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 recognition policy. Revenues consisted of the following (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Recurring revenue
Software	$	327	$	—	$	697	$	—
Total recurring revenue	$	327	$	—	$	697	$	—

Non-recurring revenue
Hardware	$	422	$	—	$	1,190	$	—
Software	77		—		82		—
Professional services	92		—		200		—
Total non-recurring revenue	$	591	$	—	$	1,472	$	—

Total Revenue	$	918	$	—	$	2,169	$	—


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue recognized at a point in time
Industrial IoT (1)	$	499	$	—	$	1,272	$	—
Total	$	499	$	—	$	1,272	$	—

Revenue recognized over time
Industrial IoT (2) (3)	$	419	$	—	$	897	$	—
Total	$	419	$	—	$	897	$	—

Total Revenue	$	918	$	—	$	2,169	$	—

(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.

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XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Deferred revenue

As of December 31, 2023, the Company did not have any deferred revenue. As part of the XTI Merger, the Company acquired approximately $0.8 million of deferred revenue, all of which relates to RTLS maintenance agreements.

The Company's deferred revenue balance of $0.5 million as of September 30, 2024 related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff. The fair value of the deferred revenue approximates the services to be rendered. The Company expects to satisfy its remaining performance obligations for these maintenance services and professional services, and recognize the deferred revenue and related contract costs over the next twelve months.

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	$	10,939
Fair value of warrants	3,250
Fair value of preferred stock	11,302
Fair value of debt assumed	114
Total consideration	$	25,605

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 aggregate fair value of warrants was 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 491,310 warrants with a fair value of $4.75 per warrant which was determined by using level 3 inputs and utilizing a Black-Scholes valuation. Significant inputs related to these warrants are as follows:


Fair value of common stock	$	5.27
Exercise price	$	5.13
Expected term	4.76 years
Volatility	146		%
Risk-free interest rate	4.2		%
Dividend yield

Form: 10-Q

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