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.

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	—		%

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 and fair value of $1,000 per share.

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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 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	$	2,968
Accounts receivable	696
Notes and other receivables	7,929
Inventory	3,283
Prepaid assets and other current assets	756
Property and equipment	246
Other assets	1,202
Warrant assets	448
Tradename & trademarks	913
Proprietary technology	2,934
Customer relationships	702
In process research and development	243
Goodwill	12,398
	34,718
Liabilities assumed
Accounts payable	2,675
Accrued liabilities	4,282
Operating lease obligation	299
Deferred revenue	824
Short-term debt	114
Warrant liability	919
Total liabilities assumed	9,113

Estimated fair value of assets acquired	$	25,605

The assets were valued using a combination of a multi-period excess earnings methodologies, a relief from royalty approach, a discounted cash flow approach and present value of cash flows approach. The goodwill represents the excess fair value after the allocation of intangibles. As a nontaxable transaction, the historical tax bases of the acquired assets, liabilities and tax attributes have carried over. Although no new tax goodwill has been created in the transaction, the Company has approximately $5.8 million of tax deductible goodwill that arose in previous transactions which carries over.

For the nine months ended September 30, 2024 and 2023, the Company incurred merger related transaction costs of approximately $6.5 million and $1.4 million, respectively.

Note 6 - Proforma Financial Information

Inpixon Financial Information

The following unaudited proforma financial information presents the consolidated results of operations of the Company and Legacy Inpixon for the nine months ended September 30, 2024 and 2023, as if the acquisition had occurred as of the beginning

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

of the first period presented (January 1, 2023) instead of on March 12, 2024. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods.

The proforma financial information for the Company and Legacy Inpixon is as follows (in thousands):


	For the Three Months Ended September 30, 2024		For the Three Months Ended September 30, 2023
Revenues	$	918	$	759
Net loss attributable to common stockholders	$	(4,674)	$	(9,944)
Net loss per basic and diluted share	$	(0.13)	$	(1.17)
Weighted average common shares outstanding:
Basic and Diluted	34,986,105		8,476,635

The proforma financial information for the Company and Legacy Inpixon is as follows (in thousands):


	For the Nine Months Ended September 30, 2024		For the Nine Months Ended September 30, 2023
Revenues	$	2,676	$	3,486
Net loss attributable to common stockholders	$	(36,571)	$	(28,397)
Net loss per basic and diluted share	$	(1.83)	$	(3.35)
Weighted average common shares outstanding:
Basic and Diluted	20,006,531		8,475,135

Note 7 - Goodwill and Intangible Assets

Goodwill

In connection with the XTI and Inpixon Merger, the excess of the purchase price over the estimated fair value of the net assets assumed of $12.4 million was recognized as goodwill.

The Company tests goodwill for impairment at the reporting unit level annually or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. In accordance with ASC 350, the Company elected to perform a qualitative assessment as of September 30, 2024, to determine if there were any indicators of goodwill impairment that would require a quantitative analysis to be performed. Due to the qualitative analysis, the Company determined that there were no triggering indicators of goodwill impairment during the three months ended September 30, 2024.

The following table summarizes the changes in the carrying amount of Goodwill for the nine months ended September 30, 2024 (in thousands):


	Amount
Beginning balance - January 1, 2024	$	—
Goodwill recognized in connection with XTI Merger - Note 5	12,398
Foreign currency translation adjustment	340
Ending balance - September 30, 2024	$	12,738

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Intangible Assets

Intangible assets at September 30, 2024 and December 31, 2023 consisted of the following (in thousands):


	September 30, 2024
	Gross Amount		Accumulated Amortization		Net Carrying Amount		Remaining Weighted Average Useful Life
Patents	$	452	$	(176)	$	276	9.7
Trade Name/Trademarks	945		(103)		842		4.5

Proprietary Technology	3,012		(237)		2,775		6.5
Customer Relationships	721		(79)		642		4.5
In-Process R&D	243		—		243		3.0
Total	$	5,373	$	(595)	$	4,778

	December 31, 2023
	Gross Amount		Accumulated Amortization		Net Carrying Amount
Patents	$	413	$	(155)	$	258
Trade Name/Trademarks	8		—		8
Total	$	421	$	(155)	$	266

Amortization expense for the three and nine months ended September 30, 2024 was approximately $0.20 million and $0.43 million, respectively. Amortization expense for the three and nine months ended September 30, 2023 was approximately $0.01 million and $0.02 million, respectively.

Future amortization expense on intangibles assets is anticipated to be as follows (in thousands):


	Amount
December 31, 2024 (for 3 months)	$	198
December 31, 2025	873
December 31, 2026	873
December 31, 2027	873
December 31, 2028	792
December 31, 2029 and thereafter	1,169
Total	$	4,778

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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 8 - Other Balance Sheet Information

Prepaid expenses and other current assets

Prepaid expenses and other current assets as of September 30, 2024 and December 31, 2023 consisted of the following (in thousands):


	As of September 30, 2024		As of December 31, 2023
AVX deposit - related party	$	523	$	—
Prepaid insurance	460		13
Other	340		—
Fulfillment costs	286		—
Prepaid software	95		90
Deposits	—		22
Total prepaid expenses and other current assets	$	1,704	$	125

Inventory

The Company did not hold any inventory as of December 31, 2023. Inventory as of September 30, 2024 consisted of the following (in thousands):


	As of September 30, 2024
Raw materials	$	33
Work-in-process	125
Finished goods	2,572
Total inventory	$	2,730

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities liabilities as of September 30, 2024 and December 31, 2023 consisted of the following (in thousands):


	As of September 30, 2024		As of December 31, 2023
Accrued transaction bonuses	$	5,782	$	—
Accrued compensation and benefits	1,120		649
Accrued bonus and commissions	1,196		305
Accrued other	561		173
Total accrued expenses and other current liabilities	$	8,659	$	1,127

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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 9 - Debt

The Company's outstanding debt consisted of the following at the periods indicated (in thousands):


Short-Term Debt	Maturity	September 30, 2024		December 31, 2023

Promissory Note - 2023		$	—	$	3,071
Promissory Note - 2023 - related party		—		125
Convertible Note - 2021 - related party1		—		1,079
Convertible Note - 20211		—		2,500
Promissory Note - May 1, 2024	5/1/2025	1,419		—
Promissory Note - May 24, 2024	5/24/2025	1,386		—
Third Party Note Payable - 2023	12/31/2024	42		—
Third Party Note Payable - 2024	12/14/2024	129		—
Unamortized Discounts		(356)		(50)
Unamortized Loan Costs		—		(35)
Total Short-Term Debt		$	2,620	$	6,690

Long-Term Debt
SBA loan	6/3/2050	$	65	$	65
Convertible notes, at fair value1		—		16,804
Convertible Note - 20171		—		1,987
Convertible Note - 20221		—		600
Convertible Note - 20231		—		300
Unamortized Discounts		—		(1,210)
Total Long-Term Debt		$	65	$	18,546
1principal balance was either converted to equity immediately prior to the XTI Merger closing time or subsequently repaid

Interest expense on outstanding debt totaled approximately $0.4 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively. Interest expense on outstanding debt totaled approximately $0.9 million and $0.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Promissory Note - 2023

On July 24, 2023, the Company and Legacy XTI entered into a Senior Promissory Note which had an outstanding principal balance of approximately $3.1 million as of December 31, 2023. During the period from January 1, 2024 to March 12, 2024, Legacy Inpixon provided an additional $1.0 million in funding to Legacy XTI. As a result of the XTI Merger, Legacy XTI became a wholly-owned subsidiary of the Company and the outstanding subsidiary debt balance, related parent note receivable balance and accrued interest were eliminated upon the consolidation of the Company's September 30, 2024 balance sheet.

Promissory Note - 2023 - related party

On January 5, 2023, the Company entered into a promissory note agreement with a member of the Company's board of directors. The note had a principal amount of approximately $0.1 million and accrued interest at a rate of 5% per annum. The note's outstanding principal and accrued interest balances were repaid in full during the second quarter of 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

Convertible Note - 2021 - related party

On October 1, 2023, an existing convertible note entered into on December 31, 2021 by and between the Company and a member of the Company's board of directors was replaced by a new convertible note with a principal balance of approximately $1.1 million and interest rate of 4%. On March 12, 2024, approximately $0.9 million of the note's outstanding balance was converted into shares of the Company's common stock. The Company repaid the remaining balance of the note on April 1, 2024. See Note 10 for more information.

Convertible Note - 2021

During 2021, the Company entered into convertible notes with a syndicate of investors. The notes had a combined principal amount of $2.5 million and accrued interest at a rate of 4.0% per annum. As discussed in Note 10, pursuant to the terms of voluntary note conversion letter agreements, approximately $2.5 million of the note's outstanding principal balance and accrued interest were converted into shares of Legacy XTI common stock immediately prior to the closing of the XTI Merger, which converted into shares of the Company's common stock at the closing of the XTI Merger on March 12, 2024. A repayment obligation remained after the XTI Merger closing with respect to approximately $0.05 million in principal, which was repaid during the second quarter of 2024, and $0.25 million in accrued interest which remained outstanding as of September 30, 2024.

Promissory Note - May 1, 2024

On May 1, 2024 (the "Closing Date"), the Company entered into a note purchase agreement (the "Purchase Agreement") with Streeterville Capital, LLC (the "Holder"), pursuant to which the Company issued and sold to the Holder a secured promissory note (the "Note") in an initial principal amount of approximately $1.4 million, which is payable on or before the date that is 12 months from the issuance date. The Purchase Agreement provides that, subject to the mutual consent of the Company and the Holder, the Holder would purchase an additional secured promissory note on the date that is 30 days from the Closing Date and another secured promissory note on the date that is 60 days from the Closing Date. The initial principal amount of the Note includes an original issue discount of approximately $0.3 million. In exchange for the Note, the Holder paid an aggregate purchase price to the Company of $1.0 million.

Interest on the Note accrues at a rate of 10.0% per annum and is payable on the maturity date or otherwise in accordance with the Note. The effective interest rate is 10.5%. If the Note is still outstanding on the date that is six months from the issuance date, then a one-time monitoring fee equal to 10% of the then-current outstanding balance will be added to the outstanding balance of the Note.

Beginning on the date that is six months from the issuance date and at monthly intervals until the Note is paid in full, the Holder will have the right to require the Company to redeem up to an aggregate of one sixth of the initial principal balance of the Note plus any interest accrued thereunder each month (each monthly exercise, a “Monthly Redemption Amount”) by providing written notice; provided, however, that if the Holder does not exercise any Monthly Redemption Amount in its corresponding month then such Monthly Redemption Amount will be available for the Holder to redeem in any future month in addition to such future month’s Monthly Redemption Amount. Upon receipt of any Monthly Redemption Notice, the Company will be required to pay the applicable Monthly Redemption Amount in cash to the Holder within five business days of the Company’s receipt of such Monthly Redemption Notice.

The Company’s obligations under the Note, the additional secured promissory note issued by the Company to the Holder on May 24, 2024 (as described below) and the other transaction documents are secured by (i) a pledge of all of the stock the Company owns in Legacy XTI and (ii) those assets owned by Legacy XTI constituting Collateral (as defined in a security agreement by and between Legacy XTI and the Holder). Additionally, Legacy XTI provided a guarantee of the Company's obligations to the Holder under the Note, the additional secured promissory note and the other transaction documents.

Promissory Note - May 24, 2024

Pursuant to the terms of the Purchase Agreement, on May 24, 2024, the Company issued and sold to Streeterville Capital, LLC an additional secured promissory note in the initial principal amount of $1.3 million, which carries an original issue discount of $0.3 million. The terms of this additional note are identical to the terms of the May 1, 2024 note, as described above. In exchange for the promissory note, the Holder paid an aggregate purchase price of $1.0 million.

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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

Third Party Note Payable - 2023 - financing agreement

As part of the XTI Merger, the Company acquired a financing agreement whereby the lender paid a Company vendor approximately $0.1 million for a service contract. The terms of the agreement are for a 12 months period with a 18.6% interest rate whereby there is no payment due for the first 4 months. After this period, the Company is required to make equal monthly payments over 8 months until the debt is repaid in full.

Third Party Note Payable - 2024 - financing agreement

On March 14, 2024, the Company entered into a financing agreement whereby the lender paid a Company vendor approximately $0.4 million for an insurance contract. The terms of the agreement are for a 9 month period with a 8.3% interest rate. The Company is required to pay equal amounts per month until the debt is repaid in full.

SBA Loan

On June 3, 2020, Legacy XTI entered into a promissory note with the U.S. Small Business Administration (SBA). The note accrues interest at a rate of 3.75% per annum and is paid monthly. The aggregate principal amount is due on the maturity date of June 3, 2050.

Note 10 - Common Stock

Capital Raises

At-the-Market (ATM) Program

On June 14, 2024, the Company entered into Amendment No. 6 to the Equity Distribution Agreement (the "Amendment") with Maxim Group LLC ("Maxim") which amends the Equity Distribution Agreement, dated as of July 22, 2022, between the Company and Maxim, as previously amended (as amended, the "Equity Distribution Agreement"), pursuant to which the aggregate gross sales amount under the Equity Distribution Agreement was increased from approximately $48.8 million to approximately $83.8 million. Accordingly, pursuant to the Equity Distribution Agreement, the Company may, from time to time, sell shares of the Company’s common stock, par value $0.001 per share, having an aggregate gross sales amount of up to approximately $83.8 million through Maxim, as the Company’s exclusive sales agent (the "ATM Offering"). Maxim is entitled to compensation at a fixed commission rate of 3.0% of the gross sales price per Share sold excluding Maxim's costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket expenses of its legal counsel.

During the three months ended September 30, 2024, the Company sold 3,190,727 shares of common stock under the Equity Distribution Agreement at per share prices between approximately $0.19 and $0.43, resulting in net proceeds to the Company of approximately $1.0 million. During the nine months ended September 30, 2024, the Company sold 12,490,930 shares of common stock under the Equity Distribution Agreement at per share prices between approximately $0.19 and $1.35, resulting in net proceeds to the Company of approximately $9.6 million.

Since the date of the Equity Distribution Agreement through the date of this report, the Company sold 101,704,300 shares of common stock at per share prices between approximately $0.06 and $1.86 under the Equity Distribution Agreement, resulting in gross proceeds of approximately $45.2 million. As of the date of this report, there was approximately $38.6 million in common stock gross sales remaining under the Equity Distribution Agreement, subject to the limitations set forth in the Series 9 ATM Consent (as defined below).

In connection with the Amendment and in accordance with the terms of the Certificate of Designation of Preferences and Rights of the Company's Series 9 Preferred Stock (the "Certificate of Designation"), on June 14, 2024, the Company obtained a written consent (the "Series 9 ATM Consent") from the Required Holders (as defined below). The Series 9 ATM Consent provides that the Company may not register shares under the ATM Offering in excess of $47.4 million (the "ATM Maximum Amount") without the Required Holders’ prior written consent, and the Company may not issue or sell more than $6 million of additional shares of common stock pursuant to the ATM Offering (the "Initial Tranche") without the Required Holders’ prior written consent, which consent the Company is required to obtain for each additional $5 million in sales of common stock under the ATM Offering after the Initial Tranche up to the ATM Maximum Amount. "Required Holders" is defined in the Certificate of Designation as the holders of at least a majority of the outstanding Series 9 Preferred Stock; provided that, pursuant to that certain securities purchase agreement dated as of March 12, 2024, between the Company and 3AM Investments LLC (an entity controlled by the Company's former director and former Chief Executive Officer, Nadir Ali) (the "Purchaser"), the Purchaser

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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

will be deemed a "Required Holder" as defined in the Certificate of Designation as long as the Purchaser holds any shares of Series 9 Preferred Stock.

Note Conversion

Immediately prior to the effective time of the XTI Merger on March 12, 2024, certain convertible notes (collectively classified as "convertible notes, at fair value") with an aggregate principal and interest balance of $16.8 million were converted into Legacy XTI shares, which converted into an aggregate of 751,226 shares of the Company's common stock at the effective time of the XTI Merger. Immediately prior to the conversion, the convertible notes, at fair value were marked to market resulting in a gain of $12.9 million, which is included in change in fair value of convertible notes in the other income and expense section of the condensed consolidated statement of operations. As a result of the conversions, the notes were satisfied in full and therefore relieved the Company of all obligations.

Note Inducements

To induce certain note holders to convert their outstanding note balances into shares of Legacy XTI common stock ahead of the XTI Merger, Legacy XTI entered into voluntary note conversion letter agreements in February 2024 as detailed in the below table. Per the letter agreements, some or all of the outstanding principal and accrued interest under the notes was converted at a reduced conversion price into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which converted into shares of the Company's common stock upon the closing of the XTI Merger. In connection with some of the voluntary note conversions, the Company assumed a repayment obligation with respect to any outstanding balance under the notes that was not converted into Legacy XTI shares. The Company accounted for these conversions as an inducement and recognized a loss related to the fair value of the additional shares issued compared to the original terms of the convertible note, which is included in inducement loss on debt conversions in the other income and expense section of the condensed consolidated statement of operations. The following table details the notes converted into shares of Legacy XTI common stock (in thousands, except conversion price).


Letter Agreement	Aggregate Principal and Interest Outstanding Immediately Prior to XTI Merger		Aggregate Principal and Interest Converted to Common Shares		Reduced Conversion Price		Post - Exchange Ratio Common Shares	Outstanding Payment Obligation Immediately After XTI Merger		Net Inducement Charge
Convertible Note 2021	$	2,777	$	2,504	$	0.265	844	$	273	$	3,266
Convertible Note 2017	$	2,148	$	2,148	$	0.265	724	$	—	$	2,795
Convertible Note 2022	$	682	$	600	$	0.265	202	$	82	$	464
Convertible Note 2023	$	333	$	300	$	0.265	101	$	33	$	207
Totals	$	5,940	$	5,552			1,871	$	388	$	6,732

Note Inducement: Convertible Note 2021 - Related Party

To induce David Brody, a board member and founder of Legacy XTI, to convert his outstanding note balances into shares of Legacy XTI common stock, Legacy XTI entered into a voluntary note conversion letter agreement with the note holder in February 2024. Per the letter agreement, $0.9 million of the outstanding note balance was converted at a reduced conversion price of $0.309 into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time equal to 266,272 shares of the Company's common stock, and the Company assumed the obligation to pay the note holder $0.2 million of the note balance that was not converted into Legacy XTI shares. This repayment obligation was subsequently paid in full on April 1, 2024. The Company accounted for this conversion as an inducement and recognized an inducement charge of $1.0 million related to the fair value of the additional shares issued compared to the original terms of the convertible note. As this note holder is a related party of the Company, the Company accounted for the conversion as a capital transaction and therefore recorded the inducement charge within additional paid in capital.

Share Issuances At or Immediately Prior to XTI Merger Closing

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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

At the closing of the XTI Merger, 2,075,743 shares of the Company's common stock were issued to Legacy Inpixon’s preexisting shareholders as consideration for the transaction.

Shares of Legacy XTI common stock were issued to Xeriant immediately prior to the XTI Merger closing time, equal to 298,395 post merger shares of Company common stock. This share issuance to Xeriant fully settled the obligation relating to a joint venture arrangement by and between Legacy XTI and Xeriant which terminated by its terms on May 31, 2023. The obligation to issue shares to Xeriant was classified in equity as of December 31, 2023, as the share consideration became fixed once the joint venture terminated.

Other Share Issuances

On June 6, 2024, the Company entered into a consulting agreement with a third party consultant, which has a term until December 10, 2024, pursuant to which the Company made a cash deposit of $0.1 million and issued 309,483 shares of restricted common stock valued at approximately $0.3 million to the consultant as a prepayment for marketing and distribution services agreed to be rendered to the Company over the six-month contract period.

On June 7, 2024, the Company entered into a consulting agreement with a separate third party consultant, which has a term of six months, pursuant to which the Company issued 120,000 shares of restricted common stock valued at approximately $0.1 million to the consultant as a prepayment for business development consulting services agreed to be rendered to the Company over the six-month contract period.

On June 13, 2024 and July 5, 2024, the Company issued 2,680,459 shares valued at $1.2 million and 2,774,883 shares valued at $1.1 million, respectively, of fully vested restricted stock to Nadir Ali, a consultant, under the Company’s 2018 Employee Stock Incentive Plan, as amended, as payment of accrued consulting fees in accordance with the terms of a consulting agreement, dated March 12, 2024, by and between the Company and Mr. Ali.

On July 31, 2024, the Company entered into an advisory agreement with a third party advisor, pursuant to which the Company issued 1,000,000 shares valued at $0.3 million of restricted common stock to the advisor in consideration for financial advisory and business development services agreed to be rendered to the Company pursuant to the agreement.

Note 11 - Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share with rights, preferences, privileges and restrictions as to be determined by the Company’s Board of Directors.

Series 9 Preferred Stock

On March 12, 2024, the Company filed the Certificate of Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Designation”), with the Secretary of State of Nevada, designating 20,000 shares of preferred stock, par value $0.001 of the Company, as Series 9 Preferred Stock, which was amended by the Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock filed by the Company with the Secretary of State of Nevada on April 30, 2024. Each share of Series 9 Preferred Stock has a stated face value of $1,050 (“Stated Value”) and do not have any voting rights. Preferred stock is recorded on the accompanying consolidated balance sheet at its redemption value which is the carrying value of the redeemable preferred stock.

Each share of Series 9 Preferred Stock will accrue a rate of return on the Stated Value in the amount of 10% per year, compounded annually to the extent not paid, and pro rata for any fractional year periods (the “Preferred Return”). The Preferred Return will accrue on each share of Series 9 Preferred Stock from the date of issuance and will be payable on a quarterly basis, either in cash or through the issuance of an additional number of shares of Series 9 Preferred Stock equal to (i) the Preferred Return then accrued and unpaid, divided by (ii) the Stated Value, at the Company’s discretion. The Preferred Stock holders will also receive a quarterly dividend at 2% per quarter, beginning on the one-year anniversary of the issuance date and for all periods following the two-year anniversary of the issuance date of a share of Series 9 Stock, the dividend shall be 3% per quarter.

The Company may elect, in the sole discretion of the Board, to redeem all or any portion of the Series 9 Stock then issued and outstanding from all of the Series 9 Holders by paying to the applicable Series 9 Holders an amount in cash equal to the liquidation amount as defined in the preferred stock agreement.

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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

Exchange Agreement

On March 12, 2024, Inpixon and Streeterville Capital, LLC (the “Note Holder” or “Streeterville”), the holder of an outstanding promissory note issued on December 30, 2023 (as amended, the “December 2023 Note”), entered into an Exchange Agreement, pursuant to which the Note Holder exchanged the remaining balance of principal and accrued interest under the December 2023 Note in the aggregate amount of approximately $9.8 million for 9,802 shares of Series 9 Preferred Stock (the “Preferred Stock”), based on an exchange price of $1,000 per share of Series 9 Preferred Stock. The Company analyzed the exchange of the principal and interest as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of preferred stock being issued). The Company notes that the net carrying value of the debt was the fair value of the preferred stock (reacquisition price). As such, no gain or loss was recognized upon debt extinguishment. Following such exchange and the extinguishment of the December 2023 Note, the December 2023 Note is deemed paid in full, automatically canceled, and will not be reissued.

Securities Purchase Agreement

On March 12, 2024, Legacy Inpixon entered into a securities purchase agreement (the “Securities Purchase Agreement”) with 3AM Investments, LLC ("3AM"), an entity controlled by Legacy Inpixon’s former director and former Chief Executive Officer, Nadir Ali (such entity, the "Purchaser"). Pursuant to the Securities Purchase Agreement, the Purchaser purchased 1,500 shares of Series 9 Preferred Stock for a total purchase price of approximately $1.5 million, based on a purchase price of $1,000 per share of Series 9 Preferred Stock. The Company agreed that the Purchaser will be deemed a “Required Holder” as defined in the Certificate of Designation as long as the Purchaser holds any shares of Series 9 Preferred Stock.

The Securities Purchase Agreement sets forth certain restrictions on the Company’s use of the proceeds from the sale of the Series 9 Preferred Stock pursuant thereto, including that the proceeds must be used in connection with the redemption of the Series 9 Preferred Stock pursuant to the Certificate of Designation or working capital purposes, and may not, without the consent of the required holders of Series 9 Preferred Stock, be used for, among other things, (i) the redemption of any XTIA common stock or common stock equivalents, (ii) the settlement of any outstanding litigation, or (iii) for the repayment of debt for borrowed money to any officer or director, or Merger-transaction related bonuses to any employee or vendor except for such

non-merger transaction related bonuses as may be payable to participants pursuant to the Company’s existing employee bonus plan.

In connection with the issuance of the Preferred Stock, the direct and incremental expenses incurred were immaterial.

Amendment to Series 9 Preferred Stock

The Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Amendment”) allows the Company to pay the holders of Series 9 Preferred Stock, if such holders agree, with securities or other property of the Company in an amount equal to the Series 9 Preferred Liquidation Amount (as defined in the Series 9 Preferred Stock Certificate of Designation) in the event the Company elects to redeem all of any portion of the Series 9 Preferred Stock then issued and outstanding (a “Corporation Optional Redemption”). Previously, the Company was to pay any such amount in only cash. The Certificate of Amendment also now provides that the Company will provide notice of a Corporation Optional Redemption to the holders of Series 9 Preferred Stock within five business days prior to the consummation of such redemption rather than five business days following the determination of the Company’s board of directors to consummate such redemption. In addition, the Certificate of Amendment eliminates the requirement for the Company to obtain the written consent of the holders of at least a majority of the outstanding Series 9 Preferred Stock before repaying any outstanding indebtedness owed to any holder of Series 9 Preferred Stock or its affiliates. The Company evaluated the amendment and accounted for it as a modification, which requires the Company to recognize any increase in fair value as an expense. However, the Company concluded the increase in the fair value of the Series 9 Preferred Stock from immediately before to immediately after the amendment is immaterial.

Series 9 Preferred Stock Exchanges

From April through September 2024, the Company entered into exchange agreements with the holder of shares of the Company’s Series 9 Preferred Stock pursuant to which the Company and the holder agreed to exchange 4,625 shares of Series 9 Preferred Stock with an aggregate stated value of $4,856,250 (the “Preferred Shares”) for 7,196,000 shares of common stock (the “Preferred Exchange Shares”) at an effective price per share ranging from $0.2085 to $2.96. The Company issued the

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Preferred Exchange Shares to the holder, at which time the Preferred Shares were cancelled. The Preferred Exchange Shares were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act, on the basis that (a) the Preferred Exchange Shares were issued in exchange for other outstanding securities of the Company, (b) there was no additional consideration delivered by the holder in connection with the exchange and (c) there were no commissions or other remuneration paid by the Company in connection with the exchange. The Company notes that the redemption of the Preferred Shares to Common Stock was accounted for as an extinguishment. During the three and nine months ending September 30, 2024, the Company recognized a deemed dividend of $53,750 and $230,730, respectively. The deemed dividends represented the excess fair value of the common shares issued over the carrying amount of the Preferred Shares and were accounted for as a reduction to additional paid-in capital.

Note 12 - Stock Award Plans and Stock-Based Compensation

The Company has three Employee Stock Incentive plans. The Company assumed Legacy XTI's 2017 Employee and Consultant Stock Ownership Plan (the "2017 Plan") in connection with the XTI Merger. Legacy Inpixon had put in place a 2011 Employee Stock Incentive Plan (the "2011 Plan") and a 2018 Employee Stock Incentive Plan (the "2018 Plan" and together with the 2011 Plan, the "Legacy Inpixon Option Plans"). The Company determined that activity within the 2011 Plan is not material.

2017 Plan

During 2017, Legacy XTI adopted the 2017 Plan, which was amended in 2021 to increase the maximum shares eligible to be granted under the 2017 Plan. The Company may issue awards in the form of restricted stock units and stock options to employees, directors, and consultants. Under the 2017 Plan, stock options are generally granted with an exercise price equal to the estimated fair value of the Company’s common stock, as determined by the Company’s Board of Directors on the date of grant. Options generally have contractual terms of ten years. Incentive stock options (ISO) may only be granted to employees, whereas all other stock awards may be granted to employees, directors, consultants and other key stakeholders. As of September 30, 2024, there are no unallocated shares available for future grants under the 2017 Plan.

2018 Plan

In February 2018, Legacy Inpixon adopted the 2018 Plan which is utilized for employees, corporate officers, directors, consultants and other key persons employed. The 2018 Plan provides for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan). As of September 30, 2024, there are no unvested Restricted Stock or Restricted Stock Units outstanding under the 2018 Plan.

Incentive stock options granted under the Legacy Inpixon Option Plans are granted at exercise prices not less than 100% of the estimated fair market value of the underlying common stock at date of grant. The exercise price per share for incentive stock options may not be less than 110% of the estimated fair value of the underlying common stock on the grant date for any individual possessing more that 10% of the total outstanding common stock of the Company. Options granted under these Legacy Inpixon Option Plans vest over periods ranging from immediately to four years and are exercisable over periods not exceeding ten years.

The aggregate number of shares that may be awarded under the 2018 Plan as of September 30, 2024 was 67,148,179. As of September 30, 2024, 52,370,064 shares of common stock were available for future grant under the 2018 Plan.

See below for a summary of the stock options granted under the 2011, 2017, and 2018 plans:

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


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (In millions)
Beginning balance as of January 1, 2024	1,161,687	$	17.95	6.7	$	—
Legacy Inpixon stock options from merger	1,148	61.67
Granted	12,565,606	0.47
Exercised	(92,718)	0.00
Expired	(242)	19,043.35
Forfeited	(853,299)	8.83
Ending balance as of September 30, 2024	12,782,182	$	1.87	9.6	$	—

Options vested and exercisable as of September 30, 2024	852,174	15.13		7.6	—

Forfeitures during the nine months ended September 30, 2024 were primarily due to the departure of Legacy XTI's former Chief Executive Officer.

The Board approved awards of options to certain Company executives under the 2018 Plan. Each option has an exercise price of $0.473 per share. The options will vest 1/3rd annually over three years starting from the vesting commencement date. The options expire ten years from the grant date. Options were granted as follows:


Grantee	Grant Date	Vesting Start Date	Options Granted
Chief Executive Officer of XTI Aerospace, Inc.	6/12/2024	6/12/2024	2,812,500
Chief Financial Officer of XTI Aerospace, Inc.	6/12/2024	6/12/2024	1,640,625
Chief Executive Officer of the XTI Aerospace, Inc. Real-Time Location System Division	6/12/2024	6/12/2024	975,000
Chief Strategy Officer of XTI Aerospace, Inc.	9/19/2024	8/1/2024	1,171,875
Total Granted			6,600,000

The following assumptions were used in estimating the fair values of options awarded during the nine months ended September 30, 2024:


Fair value of common stock	$0.191 - $0.473
Exercise price	$0.191 - $0.473
Expected term	10.0 years
Volatility	95.06% - 96.17%
Risk-free interest rate	3.58% - 4.32%
Dividend yield	—	%

Stock Option Exercises

To induce option holders to exercise stock options ahead of the XTI Merger so to assist the Company in qualifying for a listing on the Nasdaq Capital Market, Legacy XTI entered into exercise letter agreements with several option holders in February 2024 at reduced exercise prices from the original option agreements. The net impact of these option inducements to the condensed consolidated statement of operations was not material. In total, 1,038,871 stock option granted under the 2017 Plan were net

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exercised into pre-exchange common shares of Legacy XTI immediately prior to the XTI Merger closing time, which resulted in the issuance of 92,728 post merger exchange common shares.

Stock-based Compensation Expense

The Company incurred the following stock-based compensation charges for the periods indicated below (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Employee and consultant stock options1	$	(2,159)	$	164	$	(2,075)	$	2,766
Professional fees1	270		—		270		—
Vesting of previously unvested warrants2	—		—		496		—
Merger-related professional fees2	—		—		5,153		—
Total	$	(1,889)	$	164	$	3,844	$	2,766

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

As of September 30, 2024, the total unrecognized compensation expense related to unvested awards was $6.4 million, which the Company expects to recognize over an estimated weighted average period of 1.94 years.

Stock-based Compensation Related to the XTI Merger

Shares of Legacy XTI common stock were issued to Scott Pomeroy, Chief Executive Officer of the Company and former CFO and board member of Legacy XTI, as transaction compensation immediately prior to the XTI Merger closing time equal to 357,039 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded $1.9 million of stock-based compensation expense included in the condensed consolidated statement of operations during the nine months ended September 30, 2024.

Shares of Legacy XTI common stock were issued to Maxim as transaction compensation immediately prior to the XTI Merger closing time equal to 385,359 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded $2.03 million of stock-based compensation expense included in the condensed consolidated statement of operations during the nine months ended September 30, 2024.

Shares of Legacy XTI common stock were issued to Chardan Capital Markets LLC as transaction compensation immediately prior to the XTI Merger closing time equal to 189,036 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded $1.0 million of stock-based compensation expense included in the condensed consolidated statement of operations during the nine months ended September 30, 2024.

Shares of Legacy XTI common stock were issued to a non-executive officer as transaction compensation immediately prior to the XTI Merger closing time equal to 46,265 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded $0.24 million of stock-based compensation expense included in the condensed consolidated statement of operations during the nine months ended September 30, 2024.

Note 13 - Warrants

The following table summarizes the activity of warrants outstanding:

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			Number of Warrants
Beginning balance as of January 1, 2024			771,895
Legacy Inpixon warrants from merger			1,448,481
Granted			167,664
Exercised			(409,815)
Expired			(96,659)
Exchanged			(1,602,630)
Ending balance as of September 30, 2024			278,936

Exercisable as of September 30, 2024			89,780

Warrant Exercise Price Reduction

On March 21, 2024, the Company’s Board of Directors authorized a reduction in the exercise price of the warrants issued as part of the Legacy Inpixon warrant inducement that occurred on December 15, 2023 from $7.324 to $5.13 per share in accordance with the existing terms of such warrants. As the reduction in exercise price was part of the consideration for the XTI Merger, the Company accounted for the modification as part of its purchase accounting.

Warrant Exercises

On March 11, 2024, Legacy XTI entered into an amendment (the “Warrant Amendment”) with Mesa Airlines ("Mesa"). The Warrant Amendment modifies the vesting criteria with respect to the shares of common stock underlying the warrant issued by the Company to Mesa pursuant to the conditional aircraft purchase contract described below. As amended by the Warrant Amendment, (i) one-third of the shares represented by the warrant vested upon the execution and delivery of the conditional aircraft purchase contract, dated February 2, 2022, by and between the Company and Mesa, relating to the purchase of 100 TriFan 600 aircraft, (ii) one-sixth of the shares vested on March 12, 2024 in which the Company recorded $0.5 million of stock-based compensation expense for the nine months ended September 30, 2024, (iii) one-sixth of unvested shares lapsed on March 12, 2024, and (iv) one-third or 189,156 shares will vest upon the acceptance of delivery and final purchase of the first TriFan 600 aircraft by Mesa pursuant to the Aircraft Purchase Agreement. On March 12, 2024 and per a warrant exercise letter agreement, all vested warrant shares were net exercised into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which resulted in the issuance of 283,737 shares of the Company's common stock in accordance with the exchange ratio pursuant to the XTI Merger Agreement.

To induce warrant holders to exercise warrant shares, Legacy XTI entered into exercise letter agreements with several warrant holders in February 2024 at reduced exercise prices from the original warrant agreements. The net impact of these warrant inducements to the condensed consolidated statement of operations was not material. In total, 1,182,522 warrant shares were net exercised into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which resulted in the issuance of 105,550 shares of the Company's common stock in accordance with the exchange ratio pursuant to the XTI Merger Agreement.

During the second quarter of 2024, an additional 20,528 warrant shares originally issued by Legacy XTI were exercised into 20,528 shares of the Company's common stock at an exercise price of $0.12.

Warrant Exchanges

On April 30, 2024 and May 1, 2024, the Company entered into warrant exchange agreements with the holders of certain of our then outstanding warrants (the “Existing Warrants”) initially issued on May 17, 2023, which were exercisable for an aggregate of 918,690 shares of our common stock. Pursuant to the terms of the agreements, on May 2, 2024, the Company issued to the warrant holders 0.70 shares of common stock for each Existing Warrant, for an aggregate of 643,082 shares of common stock valued at $1,590,859, in exchange for the Existing Warrants. As the Existing Warrants were liability classified, the exchange resulted in the liability being (i) remeasured at the warrant redemption value of $1,590,859 resulting in a fair value loss of $672,174 which is reported in other income (expense) within the condensed consolidated statements of operations for the nine months ended September 30, 2024, and (ii) reclassified to stockholders' equity (deficit) within the condensed consolidated balance sheet as of September 30, 2024. Following the consummation of the warrant exchange, the Existing Warrants were cancelled and no further shares are issuable pursuant to the Existing Warrants agreement.

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

On May 30, 2024, the Company entered into a warrant exchange agreement with the holder of certain warrants of the Company (the “Assumed Warrants”) to purchase shares of common stock, which Assumed Warrants were originally issued by Legacy XTI and assumed by the Company in connection with the XTI Merger. Pursuant to the terms of the agreement, the Company issued to the warrant holder an aggregate of 112,360 shares of common stock valued at $106,742 in exchange for 192,626 Assumed Warrants, which included 167,664 warrants shares granted during the nine months ended September 30, 2024 as result of price protection clauses per the Assumed Warrant agreements relating to subsequent equity sales by the Company. As the Assumed Warrants were liability classified, the exchange resulted in the liability being (i) remeasured at the warrant redemption value of $106,742 resulting in a fair value loss of $6,742 which is reported in other income (expense) within the condensed consolidated statements of operations for the nine months ended September 30, 2024, and (ii) reclassified to stockholders' equity (deficit) within the condensed consolidated balance sheet as of September 30, 2024. Following the consummation of the warrant exchange, the Assumed Warrants were cancelled and no further shares are issuable pursuant to the Assumed Warrants agreement.

On June 12, 2024 and June 13, 2024, the Company entered into warrant exchange agreements with the holders (the “Warrant Holders”) of 491,314 existing warrants of the Company (the “Existing Warrants”) initially issued on December 19, 2023, which were exercisable for an aggregate of 491,314 shares of our common stock. Pursuant to the terms of the agreements, on June 13, 2024, the Company issued to the Warrant Holders 1.50 shares of Common Stock for each Existing Warrant, for an aggregate of

736,973 shares of common stock, in exchange for the Existing Warrants. Following the consummation of the Warrant Exchange, the Existing Warrants were cancelled and no further shares are issuable pursuant to the Existing Warrants agreements.

As it relates to the aforementioned Existing Warrants issued on December 19, 2023, there were 663,581 shares of common stock issued on June 12, 2024 for $0.47 per share and 73,392 shares of common stock issued on June 13, 2024 for $0.44 per share. The Warrant Holders received a total value of $344,176 for the conversion of the Existing Warrants to shares of common stock. The Company determined the fair value of the Existing Warrants as if issued on the exchange date and compared that to the fair value of the common stock issued. The Company calculated the fair value of the Existing Warrants using a Black-Scholes Option pricing model and determined the fair value to be approximately $61,000. The inputs to the Black-Scholes Option pricing model for the June 12, 2024 redemption include a dividend rate of 0%, a risk free rate of 4.4%, a stock price of $0.47, strike price of $5.13, term of 4.51, and a volatility of 90.0%. The inputs to the Black-Scholes Option pricing model for the June 13, 2024 redemption include a dividend rate of 0%, a risk free rate of 4.3%, a stock price of $0.44, a strike price of $5.13, a term of 4.51, and a volatility of 91.0%. The fair values of the common stock issued were based on the closing stock price of the date of the exchange. The incremental increase in fair value of $283,176 was recorded as a return of capital, which reduces the additional paid-in capital on the condensed consolidated balance sheets as of September 30, 2024, and is shown as a reconciling item on the condensed consolidated statements of operations from Net Loss to Net Loss Attributable to Common Stockholders.

Note 14 - Segments

The Company’s Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker, or (“CODM”), regularly reviews and manages certain areas of its businesses, resulting in the Company identifying two reportable segments: Industrial IoT and Commercial Aviation. The Company manages and reports its operating results through these two reportable segments. This allows the Company to enhance its customer focus and better align its business models, resources, and cost structure to the specific current and future growth drivers of each business, while providing increased transparency to the Company’s shareholders.

The commercial aviation segment is currently in the pre-revenue development stage and its primary activity is the development of the TriFan 600 aircraft. The Industrial IoT segment generates revenue primarily from the sale of real-time location system solutions for the industrial sector and its customers are primarily located in Germany and the U.S. As it relates to the Industrial IoT segment, the results disclosed in the table below only reflect activity following the XTI Merger closing through the September 30, 2024 reporting date.

Gross profit and income (loss) from operations are the primary measures of Industrial IoT segment performance used by the Company’s CODM. The Company notes that Commercial Aviation is in the pre-revenue operating stage, and therefore the CODM primarily focuses on research and development expenses and total loss by operations as the primary measure of Commercial Aviation segment performance used by the Company’s CODM.

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

Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included expenses incurred for administrative and accounting staff, general liability and other insurance, accrued consulting fees and transaction bonuses relating to former Legacy Inpixon executives, professional fees and other similar corporate expenses.

The following table reflects results of operations from our business segments for the periods indicated below (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue by Segment
Industrial IoT	$	918	$	—	$	2,169	$	—
Commercial Aviation	—		—		—		—
Total segment revenue	$	918	$	—	$	2,169	$	—

Gross profit by Segment
Industrial IoT	$	520	$	—	$	1,323	$	—
Commercial Aviation	—		—		—		—
Gross profit by Segment	$	520	$	—	$	1,323	$	—

Research and Development Expenses by Segment
Industrial IoT	$	609	$	—	1,361		—
Commercial Aviation	619		472		1,479		1,299
Research and Development Expenses by Segment	$	1,228	$	472	$	2,840	$	1,299

Income (loss) from operations by Segment
Industrial IoT	$	(1,312)	$	—	$	(2,788)	$	—
Commercial Aviation	1,788		(2,378)		(7,161)		(7,702)
Loss from operations by segment	$	476	$	(2,378)	$	(9,949)	$	(7,702)
Unallocated costs	(4,692)		—		(17,071)		—
Consolidated loss from operations	$	(4,216)	$	(2,378)	$	(27,020)	$	(7,702)

The following table presents total assets by reportable segment (in thousands):


	September 30,		December 31,
	2024		2023
Industrial IoT	$	21,583	$	—
Commercial Aviation	1,231		509
Total assets by segment	$	22,814	$	509
Corporate	6,469		—
Total consolidated assets	$	29,283	$	509

The reporting package provided to the Company's CODM does not include the measure of assets by segment as that information isn't reviewed by the CODM when assessing segment performance or allocating resources.

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Note 15 - Fair Value Measurements and Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. These levels are:

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.

Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, warrant asset, accounts payable, warrant liability, convertible notes, and the loan conversion derivative. Cash and cash equivalents, accounts receivable and accounts payable are stated at their respective carrying amounts, which approximate fair value due to their short-term nature.

The changes in fair value of the warrant liability, convertible notes, and warrant asset are presented within 'Change in fair value of warrant liability', 'Change in fair value of convertible notes', and 'Other expense', respectively, in the condensed consolidated statements of operations.

The fair value of the Level 3 warrant liability was determined using a pricing model with certain significant unobservable market data inputs.

Damon Motors Convertible Note

On October 26, 2023, Legacy Inpixon purchased a convertible note through a private placement in aggregate principal amount of $3.0 million for a purchase price of $3.0 million from Damon Motors Inc. Interest on the convertible note accrues at 12% per annum. The note was subsequently amended. As amended, the note matures on November 30, 2024. The convertible note is subject to certain conversion features which include qualified financing, and/or qualified transaction, as defined in the securities purchase agreement. The note will be required to convert upon Damon Motors Inc. completing a public company event. In addition, Damon Motors Inc. issued a five-year warrant to purchase 1,096,321 shares of Damon Motors Inc. common stock in connection with the note. Management notes the Warrant is freestanding. The exercise price per Common Share is $2.7364. The Warrant provides for cashless exercise after 180 days following the closing of the public company event should there be no effective registration statement. The convertible note receivable is not traded in active markets and its fair value was determined using a present value technique. The convertible note receivable is accounted for as an available-for-sale debt security based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income (loss). The Warrant is accounted for as an equity security based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, recorded at fair value with subsequent changes in fair value recorded in earnings. The convertible note's and warrant's values as of September 30, 2024 total $4.0 million and are included in Notes Receivable, $3.6 million, and Warrant asset, $0.4 million, on the condensed consolidated balance sheets.

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

The Company's assets and liabilities measured at fair value consisted of the following at the periods indicated:


	Fair value at September 30, 2024
	Total		Level 1		Level 2		Level 3
Assets:
Notes receivable	$	3,601	$	—	$	—	$	3,601
Warrant asset	424		—		—		424
Total assets	4,025		—		—		4,025


	Fair Value at December 31, 2023
	Total		Level 1		Level 2		Level 3




Liabilities:
Warrant liability	$	497	$	—	$	—	$	497
Convertible notes, at fair value	16,804		—		—		16,804
Loan conversion derivatives	333		—		—		333
Total liabilities	17,634		—		—		17,634

The table below provides a summary of changes in the estimated fair value of the Company's Level 3 assets and liabilities:


	Notes receivable		Warrant asset		Warrant liability		Convertible notes, at fair value		Loan conversion derivatives
Balance at January 1, 2024	$	—	$	—	$	497	$	16,804	$	333
Acquired	3,264		448		920		—		—
Change in fair value	—		—		(398)		(12,882)		—
Exchanged / Conversion to Equity	—		—		—		(3,922)		(333)
Balance at March 31, 2024	$	3,264	$	448	$	1,019	$	—	$	—
Change in fair value	38		(24)		679		—		—
Accrued interest	91		—		—		—		—
Debt discount recognition	49		—		—		—		—
Exchanged / Conversion to Equity	—		—		(1,698)		—		—
Balance at June 30, 2024	$	3,442	$	424	$	—	$	—	$	—
Change in fair value	20		—		—		—		—
Accrued interest	90		—		—		—		—
Debt discount recognition	49		—		—		—		—
Balance at September 30, 2024	$	3,601	$	424	$	—	$	—	$	—

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Note 16 - Foreign Operations

Prior to the XTI Merger, the Company’s operations were located primarily in the United States. After the XTI Merger, the Company's operations are located primarily in the United States, Germany, and the United Kingdom. Revenues by geographic area are attributed by country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands):


	United States		Germany		United Kingdom		Eliminations		Total
For the Three Months Ended September 30, 2024:
Revenues by geographic area	$	435	$	622	$	—	$	(139)	$	918
Operating (loss) income by geographic area	$	(3,167)	$	(1,049)	$	—	$	—	$	(4,216)
Net (loss) income by geographic area	$	(3,389)	$	(1,046)	$	—	$	—	$	(4,435)
For the Three Months Ended September 30, 2023:
Revenues by geographic area	$	—	$	—	$	—	$	—	$	—
Operating (loss) income by geographic area	$	(2,378)	$	—	$	—	$	—	$	(2,378)
Net (loss) income by geographic area	$	(2,703)	$	—	$	—	$	—	$	(2,703)
For the Nine Months Ended September 30, 2024:
Revenues by geographic area	$	758	$	1,689	$	—	$	(278)	$	2,169
Operating (loss) income by geographic area	$	(25,146)	$	(1,874)	$	—	$	—	$	(27,020)
Net (loss) income by geographic area	$	(19,886)	$	(1,861)	$	—	$	—	$	(21,747)
For the Nine Months Ended September 30, 2023:
Revenues by geographic area	$	—	$	—	$	—	$	—	$	—
Operating (loss) income by geographic area	$	(7,702)	$	—	$	—	$	—	$	(7,702)
Net (loss) income by geographic area	$	(8,897)	$	—	$	—	$	—	$	(8,897)
As of September 30, 2024:
Identifiable assets by geographic area	$	43,253	$	23,322	$	10	$	(37,302)	$	29,283
Long lived assets by geographic area	$	2,086	$	3,449	$	—	$	—	$	5,535
Goodwill by geographic area	$	3,142	$	9,596	$	—	$	—	$	12,738
As of December 31, 2023:
Identifiable assets by geographic area	$	509	$	—	$	—	$	—	$	509
Long lived assets by geographic area	$	278	$	—	$	—	$	—	$	278
Goodwill by geographic area	$	—	$	—	$	—	$	—	$	—

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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 17 - Related Party Transactions

Refer to Note 9 for disclosures on related party debt transactions.

David Brody, board member and founder of Legacy XTI, provided legal and strategic consulting services for the Company. During the nine months ended September 30, 2024 and 2023, amounts paid by the Company to Mr. Brody were not significant. The Company had no payables to Mr. Brody at September 30, 2024 and had accrued $0.3 million of fees as of December 31, 2023 which is included in Related Party Payables within the accompanying condensed consolidated balance sheets. Pursuant to an amendment to the consulting agreement, the outstanding payable was waived by Mr. Brody, which was accounted for as a capital contribution, and the consulting agreement terminated in connection with the XTI Merger closing.

Scott Pomeroy, the Company's CEO and Chairman, who was the CFO and board member of Legacy XTI up until the XTI Merger closing, provided consulting services to the Company during the nine months ended September 30, 2024 and 2023. Amounts paid to Mr. Pomeroy were not significant. As of September 30, 2024 and December 31, 2023, the Company owed Mr. Pomeroy accrued consulting compensation of $0.1 million, which is included in Related Party Payables within the accompanying condensed consolidated balance sheets. In addition and as disclosed in Note 12, Mr. Pomeroy was issued shares of Legacy XTI as transaction compensation immediately prior to the XTI Merger.

Transactions with AVX Aircraft Company

On March 25, 2024, the Company entered into a letter agreement, as amended on June 17, 2024, with AVX Aircraft Company ("AVX") whereas AVX is to provide consulting and advisory services relating to the development and design of the TriFan 600 aircraft. The Company's Chairman and CEO, Scott Pomeroy, and board member, David Brody, also sit on the Board of AVX. Additionally, as of the date of this report, David Brody owns approximately 26% of the issued and outstanding shares of AVX. During the three and nine months ended September 30, 2024, the Company paid AVX $0.8 million and $0.9 million in consulting fees, respectively, which included advance deposits for future services. As of September 30, 2024, the deposit balance for future services was approximately $0.5 million, and is included in prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

Agreements with Prior "Legacy Inpixon" CEO

On March 12, 2024, the Company entered into a consulting agreement with Mr. Nadir Ali (the “Ali Consulting Agreement”), the Company's former Chief Executive Officer. Mr. Ali, through a company of which he is a controlling member, currently holds shares of the Company's Series 9 Preferred Stock as disclosed in Note 11. Pursuant to the Ali Consulting Agreement, following the closing of the XTI Merger, Mr. Ali will provide consulting services to the Company for 15 months ("Ali Consulting Period") or until earlier termination in accordance with its terms. During the Ali Consulting Period, the Company will pay him an aggregate of $0.3 million.

In addition, the Company shall pay Mr. Ali (a) the amount of $1.5 million due three months following the Closing, and (b) the aggregate amount of $4.5 million, payable in 12 equal monthly installments, starting four months after the closing date of the XTI Merger (the payments described in (a) and (b), each an “Equity Payment”). Each Equity Payment may be made, in Company’s discretion, in (i) cash, (ii) fully vested shares of common stock under the Company’s equity incentive plan, or a combination of cash and registered shares. As of the date of this report, the Company repaid the initial $1.5 million owed to Mr. Ali under the Ali Consulting Agreement. During the three and nine months ended September 30, 2024, the Company recognized compensation expense of $1.0 million and $2.6 million, respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations, relating to the Ali Consulting Agreement. As of September 30, 2024, the Company owed Mr. Ali accrued consulting fees of approximately $1.0 million, which is included in accounts payable on the accompanying condensed consolidated balance sheets.

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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

Grafiti Group Divesiture

On February 21, 2024, Inpixon completed the disposition of the remaining portion of the Shoom, SAVES, and GYG business lines and assets ("Grafiti Group Divestiture") in accordance with the terms and conditions of an Equity Purchase Agreement, dated February 16, 2024, by and among Inpixon (“Seller”), Grafiti LLC, and Grafiti Group LLC (an entity controlled by Nadir Ali, the Company's former CEO) (“Buyer”). Pursuant to the terms, Buyer acquired from 100% of the equity interest in Grafiti LLC, including the assets and liabilities primarily relating to Inpixon’s Saves, Shoom and Game Your Game business, including 100% of the equity interests of Inpixon India, Grafiti GmbH (previously Inpixon Gmbh) and Game Your Game, Inc. from the Company for a minimum purchase price of $1.0 million paid in two annual cash installments of $0.5 million due within 60 days after December 31, 2024 and 2025. The purchase price and annual cash installment payments will be (i) increased for 50% of net income after taxes, if any, from the operations of Grafiti LLC for the years ended December 31, 2024 and 2025; (ii) decreased for the amount of transaction expenses assumed; (iii) increased or decreased by the amount working capital of Grafiti LLC on the closing balance sheet is greater or less than $1.0 million. The Company notes that $0.5 million of the receivable is included in current assets as other receivables in the Company's condensed consolidated balance sheet as of September 30, 2024, and the remaining $0.5 million of the receivable is included in long term assets as other assets in the Company's condensed consolidated balance sheet as of September 30, 2024.

Note 18 - Commitments and Contingencies

Litigation

From time to time, the Company is subject to various claims, charges and litigation matters that arise in the ordinary course of business. The Company records a provision for a liability when it is both probable that the loss has been incurred and the amount of the loss can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be reasonably estimated, it discloses the possible loss or range of loss. Any potential gains associated with legal matters are not recorded until the period in which all contingencies are resolved and the gain is realized or realizable. Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. Except if otherwise indicated, it is not reasonably possible to determine the probability of loss or estimate damages for any of the matters discussed below, and therefore, the Company has not established reserves for any of these matters.

On December 6, 2023, Xeriant filed a complaint against Legacy XTI, along with two unnamed companies and five unnamed persons, in the United States District Court for the Southern District of New York (the "Xeriant Matter"). On January 31, 2024, Xeriant filed an amended complaint, which added the Company as a defendant to the Xeriant Matter. On February 29, 2024, Xeriant filed a second amended complaint. The Xeriant Matter alleges that Legacy XTI has prevented Xeriant from obtaining compensation owed under various agreements entered into between Xeriant and Legacy XTI, including but not limited to a joint venture agreement, a cross-patent license agreement, an operating agreement, and a letter dated May 17, 2022 (the “May 17 letter”). In particular, Xeriant contends that Legacy XTI gained substantial advantages from the intellectual property, expertise, and capital deployed by Xeriant in the design and development of Legacy XTI’s TriFan 600 aircraft yet has excluded Xeriant from the transaction involving the TriFan 600 technology in its merger with Legacy Inpixon, which has resulted in a breach of the May 17 letter. Xeriant seeks damages in excess of $500 million, injunctive relief enjoining us from engaging in any further misconduct, the imposition of a royalty obligation, and such other relief as deemed appropriate by the court.

On March 13, 2024, Legacy XTI moved for partial dismissal of the Xeriant Matter. The case is in its early stages, no discovery with respect to the Company has occurred. The Court has not scheduled hearings for Legacy XTI’s motion nor otherwise ruled upon it. Legacy XTI nevertheless denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against the lawsuit.

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

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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

responded to such letter and indicated that it believes that the May 17 letter is invalid and unenforceable on several bases. It further explained that even if it were valid and enforceable, Legacy XTI does not believe such letter resulted in, or otherwise triggered, the assumption of obligations of Xeriant under the Senior Secured Promissory Note or any other obligation on the part of Legacy XTI. There have been no further developments on this matter. We are unable to make a reasonable estimate of a potential loss, if any, on this matter. To the extent suits or actions are commenced with respect to this matter, we intend to vigorously defend against any and all claims.

On or about August 1, 2024, Chardan Capital Markets LLC (”Chardan”) commenced an arbitration (the “Arbitration”) before FINRA against the Company and its subsidiary, XTI Aircraft Company (“Aircraft”). Aircraft and Chardan are parties to an engagement letter agreement (the “Agreement”). In the Arbitration, Chardan alleges that the Company is bound by the Agreement even though it did not sign the Agreement, which the Company denies. Chardan further alleges that Aircraft and the Company breached the Agreement by not making separate payments to Chardan of $200,000, $94,511, $484,044 and $174,000. Chardan also seeks to recover unspecified amounts relating to an alleged right of first refusal to perform banking services that the Company supposedly did not honor, including with respect to an At-The-Market securities offering that was underwritten by The Maxim Group LLC. The Company and Aircraft deny that Chardan performed its duties under the Agreement and otherwise that Chardan is owed any sums under the Agreement. The Company has filed a petition in the U.S. District Court for the Southern District of New York seeking to stay the Arbitration to the extent that it has been asserted against the Company. The Company has indicated that it plans to prosecute the foregoing Petition and, if the Arbitration is not stayed, defend against the Arbitration vigorously. As of September 30, 2024, the Company has accrued $200,000 relating to the Agreement, which is included in accounts payable on the condensed consolidated balance sheets.

Financial Advisory Fees

Pursuant to the terms of an amended advisory fees agreement between the Company and Maxim Group ("Maxim"), the Company is obligated to pay Maxim $0.2 million which becomes payable upon the closing of one or more debt or equity financings for which Maxim serves as placement agent or underwriter and in which the Company raises minimum aggregate gross proceeds of $10 million.

Legacy XTI Deferred Compensation and Retention Bonus Plan

In an effort to conserve cash, Legacy XTI implemented a cost savings plan, effective on July 1, 2022. As part of the cost savings plan, Legacy XTI installed a compensation reduction directive and retention bonus program impacting all employees and several current consultants. Accrued deferred compensation amounts under the cost savings plan will be repaid to participating individuals when executive management, at its sole discretion, determines that sufficient funding has been received by the Company, provided, in the case of employees, that such employees remain employed with the Company on such date.

As part of the plan, Legacy XTI granted participants a retention bonus, of either cash or equity, at the participant’s discretion, equal in value to three months of their monthly deferred compensation amount, if cash, or six months of their monthly deferred compensation amount, if equity, if the employee remains with the Company at the “earn date,” which is defined as six months after the date on which the deferred compensation described above is repaid.

Upon receiving additional financing during the first quarter of 2023, Legacy XTI restored the salaries of all employees to the original salary amount, effective with the semi-monthly payroll ended March 31, 2023.

As of September 30, 2024, liability amounts of approximately $0.4 million and $0.1 million are included in accrued expenses and other current liabilities and related party payables, respectively, on the accompanying condensed consolidated balance sheets relating to deferred compensation and retention bonuses under this plan.

Consulting Arrangement with Prior "Legacy Inpixon" CFO

On March 12, 2024, the Company also entered into a Consulting Agreement with Ms. Wendy Loundermon (the “Loundermon

Consulting Agreement”), the Company's former Chief Financial Officer. Pursuant to the Loundermon Consulting Agreement,

following the Closing, Ms. Loundermon will provide consulting services to the Company for one year or until earlier termination in accordance with its terms (the “Loundermon Consulting Period”). As compensation for Ms. Loundermon’s consulting services, the Company will pay her (i) $83,333 per month for the first six months of the Loundermon Consulting Period for services she performs on an as-needed basis during the Loundermon Consulting Period regarding the transition of the

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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

management of the Company’s financial reporting function to ensure continuity of business operations, and (ii) $300 per hour for services performed on an as needed basis regarding the preparation and filing of Company’s public company financial reporting and compliance matters including accounting, payroll, audit and tax compliance functions. During the three and nine months ended September 30, 2024, the Company recognized compensation expense of $211,063 and $577,880, respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations, relating to Ms. Loundermon's consulting arrangement. As of September 30, 2024, the Company owed Ms. Loundermon accrued consulting fees of $522,619, which is included in accounts payable and accrued expenses within the accompanying condensed consolidated balance sheets.

Transaction Bonus Plan

On July 24, 2023, the compensation committee of the Board (the “Compensation Committee”) adopted a Transaction Bonus Plan, which was amended on March 11, 2024, and was intended to provide incentives to certain employees and other service providers to remain with the Company through the consummation of a qualifying transaction. During the second quarter of 2024, the Company accrued 100% or $6.7 million of the transaction bonuses, which is included in general and administrative within the accompanying condensed consolidated statements of operations, as the bonuses became payable upon the earlier of the closing of financing or June 30, 2024. As of September 30, 2024, the Company had an aggregate accrued transaction bonus obligation of 5.5 million, which is included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets.

Note 19 - Net Loss Per Share Attributable to Common Stockholders

The following table presents the calculation of basic and diluted loss per share attributable to common stockholders (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
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 basic earnings per share calculation for the three months ended September 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 nine months ended September 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 September 30, 2023 and for the nine months ended September 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.

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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 following potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis):


	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2024	2023	2024	2023
Options	12,818,530	1,161,688	5,791,342	1,095,195
Warrants	278,963	163,603	457,094	142,276
Convertible preferred stock	2	—	2	—
Convertible notes	—	679,828	345,695	650,027
Total	13,097,495	2,005,119	6,594,133	1,887,498

Note 20 - Subsequent Events

Subsequent to September 30, 2024 and through the date of this report, the Company entered into exchange agreements with the holder of shares of the Company’s Series 9 Preferred Stock pursuant to which the Company and the holder exchanged an aggregate 1,725 shares of Series 9 Preferred Stock with an aggregate stated value of approximately $1.8 million for an aggregate 25,071,318 shares of common stock at an effective price per share ranging between $0.05 and $0.19.

Subsequent to September 30, 2024 and through the date of this report, the Company issued an aggregate 88,509,614 shares of common stock in connection with the ATM Offering at per share prices between approximately $0.06 and $0.19, resulting in aggregate net proceeds to the Company of approximately $6.5 million.

On July 9, 2024, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC ("Nasdaq") indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days beginning on May 23, 2024, and ending on July 8, 2024, the Company no longer meets the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided a period of 180 calendar days, or until January 6, 2025, in which to regain compliance with the minimum bid price requirement. On November 7, 2024, the Company received another letter (the "Low Price Deficiency Letter") from Nasdaq notifying the Company that, as of November 6, 2024, the Company’s common stock had a closing bid price of $0.10 or less for ten consecutive trading days. Accordingly, the Company is subject to the provisions contemplated under Listing Rule 5810(c)(3)(A)(iii) (the "Low Priced Stocks Rule"). As a result, Nasdaq has determined to delist the Company’s securities from The Nasdaq Capital Market (the "Determination"), unless the Company requests an appeal of the Determination on or prior to November 14, 2024, pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. The Company requested a hearing before the Nasdaq Hearings Panel (the "Panel") to appeal the Determination and to address compliance with the Low Priced Stocks Rule. The Low Price Deficiency Letter states that hearings are typically scheduled to occur approximately 30-45 days after the date of the hearing request. The Company will be asked to provide the Panel with a plan to regain compliance, which plan the Company is in the process of preparing. The Low Price Deficiency Letter has no immediate effect on the listing of the Company’s common stock on Nasdaq and its common stock will continue to be listed on the Nasdaq Capital Market under the symbol "XTIA." While the appeal process is pending, the suspension of trading of the Company’s common stock would be stayed and the Company’s common stock would continue to trade on The Nasdaq Capital Market until the hearing process concludes and the Panel issues a written decision. There can be no assurance, however, that the Company will be successful in its appeal to the Panel or be able to regain or maintain compliance with the Nasdaq listing rules.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with Legacy Inpixon's audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, particularly in Part II, Item 1A, “Risk Factors.”

Overview of Our Business

Following the closing of the XTI Merger, we are primarily an aircraft development company. We also provide real-time location systems (“RTLS”) for the industrial sector, which was our primary focus prior to the closing of the XTI Merger. Headquartered in Englewood, Colorado, XTI Aerospace 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. We believe our initial configuration, the TriFan 600, will be one of the first civilian fixed-wing VTOL aircraft that offers the speed, range and comfort of a business aircraft and the versatility of a helicopter for a wide range of customer applications, including private aviation for business and high net worth individuals, emergency medical services, and commuter and regional air travel. Since 2013, we have 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 the TriFan 600 aircraft.

We report financial results for two segments: Commercial Aviation and Industrial IoT. For Industrial IoT, we generate revenue from sales of hardware, software licenses and professional services. For Commercial Aviation, the segment is pre-revenue as we are currently developing the TriFan 600 aircraft.

Key Factors Affecting Operating Results

We believe that the growth of our business and our future success are dependent upon many factors, including our ability to retain and develop engineering internal and third-party resources, secure strategic partnerships with suppliers, expand the number of customer purchase orders, locate a facility for further aircraft development and testing, expand on that facility or locate to a new facility for commercial production, build-out production assembly lines in a timely manner, develop ancillary service offerings related to the TriFan 600 such as flight training and maintenance products, and secure the needed financing to achieve Federal Aviation Administration ("FAA") certification.

While each of these areas presents significant opportunities for us, they also pose material challenges and risks that we must successfully address to achieve FAA certification of the TriFan 600 and further reach our current aircraft delivery forecasts.

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Corporate Strategy Update

Commercial Aviation

We intend to continue our development of the TriFan 600 by engaging key supply partners, establishing vendors of key components of the full-scale Test Aircraft #1, commissioning and completing trade studies, and completing the development design review of the TriFan 600. We will need additional capital to complete our development of the series of Test Aircraft and beyond and are pursuing multiple alternatives for such funding.

We will continue to develop an internal and external sales and marketing capability to increase awareness of the aircraft and position the Company to continue taking customer orders and deposits. We believe that increasing awareness of the aircraft and demonstrating customer demand through sales orders will enhance the Company’s ability to continue raising capital in the future.

We do not believe we will be able to generate revenues in this commercial aviation segment without successfully completing the certification of the proposed TriFan 600 aircraft.

Industrial IoT

Since 2019 and post acquisition, Legacy Inpixon's operations have been focused on building and developing our Indoor IntelligenceTM platform to be able to offer a comprehensive range of solutions that allow for the collection of data within workplace environments to delivering insights from that data for, people, places and things. We believe we have positioned the Industrial IoT business as a market leader with a comprehensive suite of products and solutions allowing us to help organizations enhance the visitor and employee experience with actionable indoor intelligence making them smarter, safer and more secure. We operate and compete in an industry that is characterized by rapid technological innovation, changing customer needs, evolving industry standards and frequent introductions of new products, product enhancements, services and distribution methods. Our success will depend on our ability to develop expertise with these new products, product enhancements, services and distribution methods and to implement solutions that anticipate and respond to rapid changes in technology, the industry, and customer needs.

Research and Development

Commercial Aviation

We plan to seek FAA certification of the TriFan 600 as a fixed-wing, VTOL aircraft. Initial concept and engineering analysis for the TriFan 600 was completed in July 2015. Legacy XTI built a 65% scale prototype and in May 2019 began initial hover tests. The prototype was successfully hover-tested multiple times. Subsequent to raising private funding during 2021, Legacy XTI hired a number of engineers (employees and consultants) to establish its core engineering organization. Additionally, Legacy XTI retained consulting firms to provide specialized engineering technical knowledge to complement XTI’s team.

Legacy XTI completed its preliminary design review (“PDR”) in 2022, which set the stage for the next step of design development. Legacy XTI updated the exterior design of the TriFan 600, including the location of the wing fans and the location of the horizontal tail, all of which had a positive impact on the performance and efficiency of the aircraft. Design and engineering for other systems, including the propulsion system, landing gear, cockpit visibility, cabin sizing and structural integrity were also advanced during 2022 and 2023.

The XTI team is currently working toward an update to the initial PDR to address additional aerodynamic and performance improvements. In addition, the program includes further interactions with potential suppliers for the development of major structures and systems of the aircraft. The team is focused on industry-respected suppliers and systems for the TriFan 600 to reduce certification risk and to deliver a fully-integrated aircraft. Also, during this phase XTI will formally establish a project plan with the FAA and apply for Type Certification (TC).

The next target milestones include the critical design review (“CDR”) and building and preliminary testing of a full-scale flight test aircraft, along with building additional full-scale flight test aircraft, are fully dependent on raising additional financing.

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Industrial IoT

Our management believes that we must continue to dedicate significant resources to research and development efforts to maintain a competitive position. Our RTLS products intersect many emerging fields including metaverse, augmented reality, occupancy planning, industry 4.0, smart cities, and more, and we continue to innovate and patent new methods to solve problems for our customers.

Competition

Commercial Aviation

The business aircraft market is highly competitive and we face a significant number of original equipment manufacturer competitors, most of which are larger, better known and have better financial resources than us. When the TriFan 600 goes into production, we believe it will compete with other aircraft manufacturers by providing our customers with what we believe is a unique “crossover” aircraft with distinct and largely unique performance capabilities at a competitive purchase price. We believe the TriFan 600 will be one of a small number of aircraft that offers the speed, range and comfort of a business aircraft with the versatility of VTOL. As we expect that the TriFan 600 will be capable of flying greater distances and on average at twice the speed and three times the range of competing helicopters, we expect the TriFan 600 to offer lower direct operating costs (cost per flight hour) and be able to fly almost twice as many missions, thus generating additional cost savings and revenue for airlines and aircraft operators when compared with helicopters.

Industrial IoT

In addition, our Industrial IoT business is characterized by innovation and rapid change. Our RTLS Indoor Intelligence products compete with companies such as Aruba, Cisco, Juniper Networks/Mist Systems, Ubisense, Sewio, Kinexon, Zebra Technologies and other mostly vertical focused RTLS companies. Some competitors determine positioning primarily using BLE or Wi-Fi and, therefore, we believe they cannot achieve the same accuracy that we do and so cannot meet some customers' needs. Many RTLS competitors are focused on one technology and/or vertical and, at this time, we believe none of them have as complete an offering of tags, anchors, positioning, engine, software, integrations and analytics. We believe we offer a unique and differentiated approach to the market with our Industrial IoT business which is comprehensive, scalable, and technology-agnostic.

Recent Events

The Company completed its merger with Legacy XTI on March 12, 2024, which was structured as a reverse triangular merger.

Compliance with Nasdaq Continued Listing Requirements

On November 7, 2024, the Company received another letter (the "Low Price Deficiency Letter") from Nasdaq notifying the Company that, as of November 6, 2024, the Company’s common stock had a closing bid price of $0.10 or less for ten consecutive trading days. Accordingly, the Company is subject to the provisions contemplated under Listing Rule 5810(c)(3)(A)(iii) (the "Low Priced Stocks Rule"). As a result, Nasdaq has determined to delist the Company’s securities from The Nasdaq Capital Market (the "Determination"), unless the Company requests an appeal of the Determination on or prior to November 14, 2024, pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

The Company requested a hearing before the Nasdaq Hearings Panel (the "Panel") to appeal the Determination and to address compliance with the Low Priced Stocks Rule. The Low Price Deficiency Letter states that hearings are typically scheduled to occur approximately 30-45 days after the date of the hearing request. The Company will be asked to provide the Panel with a plan to regain compliance, which plan the Company is in the process of preparing.

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The Low Price Deficiency Letter has no immediate effect on the listing of the Company’s common stock on Nasdaq and its common stock will continue to be listed on the Nasdaq Capital Market under the symbol "XTIA." While the appeal process is pending, the suspension of trading of the Company’s common stock would be stayed and the Company’s common stock would continue to trade on The Nasdaq Capital Market until the hearing process concludes and the Panel issues a written decision. There can be no assurance, however, that the Company will be successful in its appeal to the Panel or be able to regain or maintain compliance with the Nasdaq listing rules.

Employment Agreement with Chief Strategy Officer

The Company entered into an employment agreement with Tobin Arthur on September 19, 2024, effective as of such date (the "Arthur Employment Agreement"), pursuant to which Mr. Arthur agreed to serve as the Company’s Chief Strategy Officer. Pursuant to the terms of the Arthur Employment Agreement, Mr. Arthur is entitled to receive an annual base salary of $300,000, which may be increased by the Board from time to time in its sole discretion. Mr. Arthur is also entitled to receive an annual cash bonus of up to a baseline of 60% of his base salary, with the right and ability to earn up to a cap of 90% of his base salary, applying a weighted average percentage of the objective and subjective criteria and milestones set forth in the Arthur Employment Agreement, which include target amounts and target dates for equity investments received by the Company and the Company’s average market cap in addition to the completion of certain milestones in the development of the Company’s TriFan 600 aircraft. The Board will determine and award the annual cash bonus within 30 days after the end of each calendar year during Mr. Arthur’s employment period. Pursuant to the Arthur Employment Agreement, the Compensation Committee of the Board granted Mr. Arthur stock options to purchase 1,171,875 shares of the Company’s common stock under the Company’s 2018 Employee Stock Incentive Plan, as amended. The stock options have a grant date of September 19, 2024 and an exercise price of $0.473 per share. The stock options vest 1/3rd annually over three years starting from August 1, 2024, and expire ten years after the grant date. Mr. Arthur’s employment agreement term ends on December 31, 2025, with one automatic one-year extension to December 31, 2026, unless either party provides prior notice of non-renewal on or before March 31, 2025.

The Arthur Employment Agreement provides that Mr. Arthur’s receipt of compensation following termination of employment is subject to his execution of a release releasing all claims against the Company and its executives, directors and employees, other than as prohibited by law. If Mr. Arthur is terminated without cause (other than due to death or disability) or if he resigns for good reason (as such terms are defined in the Arthur Employment Agreement), then Mr. Arthur will be entitled to (i) a severance payment equivalent to the base salary that would have been paid to him through the end of the employment period, (ii) payment for any unused vacation accrued to the date of termination, (iii) payment for any accrued but unpaid expenses through the date of termination and (iv) any benefits to which he may be entitled upon termination pursuant to the terms of any applicable plans and programs or as may be required by applicable law. If Mr. Arthur terminates for good reason, in addition to the foregoing compensation and benefits, he is entitled to receive reimbursements of premium payments for continuation coverage under applicable state or federal law, in the event he elects such continuation coverage, for the remainder of his employment period, or, if longer, for a period of six months after termination of employment. If Mr. Arthur is terminated for cause, then immediately following such termination, he is entitled only to any unpaid compensation and unreimbursed expenses.

The Arthur Employment Agreement is filed as Exhibit 10.5 to this Quarterly Report on Form 10-Q, and the description above of the material terms of the Arthur Employment Agreement is qualified in its entirety by reference to the full text of such exhibit.

Resignation of Chief Legal Officer

Effective as of October 28, 2024, the Company’s board of directors appointed Jennifer Gaines as the Company’s Chief Legal Officer and, in connection with her appointment, the Company entered into an employment agreement with Ms. Gaines, effective as of October 28, 2024, which is filed as Exhibit 10.9 to this Quarterly Report on Form 10-Q. As disclosed under Part II, Item 5 of this report, on November 12, 2024, Jennifer Gaines amicably resigned as Chief Legal Officer of the Company, effective immediately.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their

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effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 3 of the condensed consolidated financial statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. There have been no changes to estimates during the periods presented in the filing. Historically changes in management estimates have not been material.

There have been no significant changes to Legacy Inpixon's critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, except for the addition of Legacy XTI's critical accounting policies and estimates which have been incorporated and disclosed in Note 3 of the condensed consolidated financials statements included elsewhere in this report and the valuation of long-lived and intangible assets and goodwill as noted below.

Valuation of Long-lived and Intangible Assets and Goodwill.

We periodically review long-lived assets and certain identifiable intangible assets for impairment in accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment.” Goodwill and intangible assets not subject to amortization are reviewed annually for impairment in accordance with ASC 350, “Intangibles – Goodwill and Other,” or more often if there are indications of possible impairment.

The analysis to determine whether or not an asset is impaired requires significant judgments that are dependent on internal forecasts, including estimated future cash flows, estimates of long-term growth rates for our business, the expected life over which cash flows will be realized and assumed royalty and discount rates. Changes in these estimates and assumptions could materially affect the determination of fair value and any impairment charge. While the fair value of these assets exceeds their carrying value based on our current estimates and assumptions, materially different estimates and assumptions in the future in response to changing economic conditions, changes in our business or for other reasons could result in the recognition of impairment losses.

For assets to be held and used, including acquired intangible assets subject to amortization, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Significant management judgment is required in this process.

For intangible assets not subject to amortization such as goodwill, we test for impairment annually, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. In testing goodwill for impairment, we compare the fair value with the carrying value. The determination of fair value is based on a discounted cash flow analysis, using inputs and assumptions such as revenue growth rates, projected research and development expenditures based on future milestones of the TriFan 600 aircraft development, other projected expenses, and discount rates. If we were to experience a decrease in forecasted future revenues attributable to the intangible assets, this could indicate a potential impairment. If the carrying value exceeds the estimated fair value, the goodwill is considered impaired, and an impairment loss will be recognized in an amount equal to the excess of the carrying value over the fair value of goodwill.

We will perform our annual goodwill impairment test required by ASC 350 as of October 1st of each year. In testing goodwill for impairment, we analyze qualitative factors as stated within ASC 350 to determine if the fair value of our single reporting unit may be less than the carrying value of the reporting unit. We have one reporting unit (Industrial IoT). If the fair value of the reporting unit, based on qualitative factors, may be less than the carrying value of the reporting unit, we then perform the goodwill impairment test required under ASC 350 by comparing the fair value of the reporting unit with the carrying value of the reporting unit and, if the fair value is less than the carrying value, the amount that the carrying value exceeds fair value represents the amount of goodwill impairment. Accordingly, we would recognize an impairment loss in the amount of such excess.

In the Merger we recorded approximately $12.4 million in goodwill which allocated to our Industrial IOT reporting unit. Since the closing date of the Merger on March 12, 2024, the price of our common stock has declined significantly and may continue to fluctuate in future periods. A sustained decrease in the price of our common stock is one of the qualitative factors to be considered as part of an impairment test when evaluating whether events or changes in circumstances may indicate that it is more likely than not that a potential goodwill impairment exists. We will continue monitoring the analysis of the qualitative and quantitative factors used as a basis for the goodwill impairment test during fiscal year 2024 and at the Company’s October 1st

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annual testing date. As of September 30, 2024, Management evaluated potential triggers and completed a qualitative assessment and determined in the aggregate, it is not more likely than not, that the fair value of the Goodwill is less than its carrying value. To corroborate this conclusion, we entered into an agreement for a proposed equity investment at a post-money valuation in line with the fairness opinion obtained in July 2023 and compared our equity carrying value to our market capitalization and concluded that there was no goodwill impairment during the nine months ended September 30, 2024. If the negative volatility of our market capitalization is sustained, it is possible that our goodwill could become impaired, which could result in a material charge and adversely affect our results of operations.

Components of Results of Operations

Revenue

Commercial Aviation

We are still working to design, develop and certify the TriFan 600 aircraft and thus have not generated revenue from this segment. We do not expect to begin generating significant revenues until we are able to complete the design, development, certification, and manufacturing of the aircraft.

Industrial IoT

Our RTLS products are primarily sold on a license and SaaS mode, which we call "location as a service" or "LaaS." In our licensing model, we also typically charge an annual maintenance fee. The LaaS model is typically for a 3-5 year contract and includes a license to use, maintenance and hardware upgrades. The LaaS model generates a recurring revenue stream.

Operating Expenses

Research and Development

Research and development activities represent a significant part of our business. Our research and development efforts focus on the design and development of (i) our indoor intelligence products, and (ii) our TriFan 600 aircraft, including certain of the systems that will be used in it. As part of our aircraft development activities, we continue to work closely with the FAA towards our goal of achieving certification of our aircraft on an efficient timeline.

Research and development expenses consist primarily of costs incurred in connection with the research and development of the TriFan 600 aircraft. These expenses include:

•employee-related expenses, including salaries and benefits for personnel engaged in research and development functions;

•expenses incurred under agreements with third parties such as consultants and contractors; and

•software and technology-related expenses to support computer-aided design of the aircraft, flight simulations, and other technology needs of our engineers.

Research and development costs are expensed as incurred. We expect our research and development expenses to increase significantly as we increase staffing to support aircraft engineering and software development, build aircraft prototypes and continue to explore and develop technologies.

We cannot determine with certainty the timing, duration or the costs necessary to complete the design, development, certification, and manufacturing of our TriFan 600 aircraft due to the inherently unpredictable nature of our research and development activities. Development timelines, the probability of success, and development costs may differ materially from expectations.

Selling and Marketing Expenses

Selling and marketing costs include activities such as aircraft reservation procurement, public relations and business opportunity advancement. These functions mainly generate expenses relating to travel, trade show fees and costs, salaries and benefits. Selling and marketing expenses are expensed as incurred.

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General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters, including non-capitalizable transaction costs; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs, facility related expenses including maintenance and allocated expenses for rent and other operating costs.

We anticipate that general and administrative expenses will increase substantially in the future as we increase our headcount to support continued research and development and commercialization of the TriFan 600.

Other Income (Expense)

Interest expense, net consists primarily of (i) interest relating to convertible and promissory notes payable, (ii) amortization of debt discounts relating to warrants and stock options issued in conjunction with convertible notes, and (iii) interest income on notes receivable.

Inducement loss on debt conversions includes primarily the inducement charges incurred by Legacy XTI when it entered into voluntary note conversion letter agreements with several note holders during the first quarter of 2024. Per the letter agreements, principal and accrued interest under the notes was converted at a reduced conversion price into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which converted into shares of the Company's common stock upon the closing of the XTI Merger. The Company accounted for these conversions as an inducement and, as such, recognized a loss related to the fair value of the additional shares issued compared to the original terms of the convertible notes.

Change in fair value of convertible notes represent the remeasurement of certain Legacy XTI convertible notes to fair value. These notes were converted to equity prior to the closing of XTI Merger.

Change in fair value of warrant liability represents the remeasurement of certain Legacy XTI and Legacy Inpixon outstanding warrants to fair value. These outstanding warrants were exchanged for common shares of the Company during the second quarter of 2024.

Other income (expense), net consists of miscellaneous income and expense items.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023

The following table sets forth selected consolidated financial data and as a percentage of period-over-period change:


	Three Months Ended September 30,
	2024		2023
(in thousands, except percentages)	Amount			Amount		$ Change		% Change*
Revenues	$	918		$	—	$	918	**
Cost of revenues	$	398		$	—	$	398	**
Gross profit	$	520		$	—	$	520	**
Operating expenses	$	4,736		$	2,378	$	2,358	99	%
Loss from operations	$	(4,216)		$	(2,378)	$	(1,838)	77	%
Other income (expense)	$	(219)		$	(325)	$	106	(33)	%
Provision for income taxes	$	—		$	—	$	—	**
Net loss	$	(4,435)		$	(2,703)	$	(1,732)	64	%

* Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results.

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** Comparisons between positive and negative numbers and with a zero are not meaningful.

Revenues

Revenues for the three months ended September 30, 2024 were $0.9 million compared to $0.0 million for the comparable period in the prior year for an increase of approximately $0.9 million. The revenue amount for the three months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023. We expect revenues for the fourth quarter of 2024 to remain consistent with the third quarter of 2024.

Cost of Revenues

Cost of revenues for the three months ended September 30, 2024 were $0.4 million compared to $0.0 million for the comparable period in the prior year. The cost of revenues amount for the three months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023.

Gross Profit

Gross profit for the three months ended September 30, 2024 was $0.5 million compared to $0.0 million for the comparable period in the prior year. The gross profit amount for the three months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023. Revenue and gross profit for the three months ended June 30, 2024 was $1.03 million and $0.7 million, respectively. The decline in gross profit for the quarter ended September 30, 2024 compared to the quarter ended June 30, 2024 of approximately $0.2 million was primarily driven by a decline in revenue and the recognition of a one-time inventory impairment charge of approximately $0.04 million during the quarter ended September 30, 2024. We expect gross profit for the quarter ended December 31, 2024 to be similar to the quarter ended June 30, 2024.

Operating Expenses

Operating expenses for the three months ended September 30, 2024 were $4.7 million and $2.4 million for the comparable period ended September 30, 2023. During the three months ended September 30, 2024, we recognized one-time income of $2.3 million, which is included in general and administrative expenses, relating to the forfeiture of vested stock options previously granted to the former CEO of Legacy XTI. Excluding the income recognized from the aforementioned stock option forfeiture, operating expenses increased by approximately $4.7 million due primarily to (i) an increase in expenditures relating to the development of the TriFan 600 aircraft, (ii) an increase in consulting compensation mainly attributable to consulting arrangements entered into with prior executives of Legacy Inpixon on March 12, 2024, (iii) an increase in public company-related professional fees as the 2023 historical results reflect the operations of a private company, Legacy XTI, and (iv) the inclusion of the operating results of the Industrial IoT segment as of the closing of the XTI Merger. After excluding one-time items, we expect total operating expenses for the fourth quarter of 2024 to remain comparable to the third quarter.

Other Income (Expense)

Other income (expense) for the three months ended September 30, 2024 was a loss of $0.2 million compared to a loss of $0.3 million for the comparable period in the prior year. This fluctuation in other income (expense) of approximately $0.1 million was primarily attributable to a decline in interest expense as a result of Legacy XTI convertible notes being converted into equity immediately prior to the XTI Merger closing.

Provision for Income Taxes

The provision for income tax for the three months ended September 30, 2024 and 2023 was immaterial.

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Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023

The following table sets forth selected consolidated financial data and as a percentage of period-over-period change:


	Nine Months Ended September 30,
	2024		2023
(in thousands, except percentages)	Amount			Amount		$ Change		% Change*
Revenues	$	2,169		$	—	$	2,169	**
Cost of revenues	$	846		$	—	$	846	**
Gross profit	$	1,323		$	—	$	1,323	**
Operating expenses	$	28,343		$	7,702	$	20,641	268	%
Loss from operations	$	(27,020)		$	(7,702)	$	(19,318)	251	%
Other income (expense)	$	5,289		$	(1,195)	$	6,484	(543)	%
Provision for income taxes	$	(16)		$	—	$	(16)	**
Net loss	$	(21,747)		$	(8,897)	$	(12,850)	144	%

** Comparisons between positive and negative numbers and with a zero are not meaningful.

Revenues

Revenues the nine months ended September 30, 2024 were $2.2 million compared to $0.0 million for the comparable period in the prior year for an increase of approximately $2.2 million. The revenue amount for the nine months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the September 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Cost of Revenues

Cost of revenues for the nine months ended September 30, 2024 were $0.8 million compared to $0.0 million for the comparable period in the prior year. The cost of revenues amount for the nine months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the September 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Gross Profit

Gross profit for the nine months ended September 30, 2024 was $1.3 million compared to $0.0 million for the comparable period in the prior year. The gross profit amount for the nine months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the September 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Operating Expenses

Operating expenses for the nine months ended September 30, 2024 were $28.3 million and $7.7 million for the comparable period ended September 30, 2023. This increase of approximately $20.6 million was primarily attributable to (i) the recognition of $6.7 million of nonrecurring transaction bonus expense during the second quarter of 2024 as the bonuses became payable upon the earlier of the closing of qualifying financings or June 30, 2024, (ii) an increase in one-time merger-related transaction costs of $5.1 million, (iii) an increase in non-cash stock-based compensation expense of approximately $1.1 million, (iv) an increase in consulting compensation mainly attributable to consulting arrangements entered into with prior executives of Legacy Inpixon on March 12, 2024, (v) an increase in legal and accounting fees relating to capital raising activities during 2024, (vi) an increase in public company-related professional fees as the 2023 historical results reflect the operations of a

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private company, Legacy XTI, and (vii) the inclusion of the operating results of the Industrial IoT segment as of the XTI Merger closing date through the September 30, 2024 reporting date.

Other Income (Expense)

Other income (expense) for the nine months ended September 30, 2024 was a gain of $5.3 million compared to a loss of $1.2 million for the comparable period ended September 30, 2023. This fluctuation of approximately $6.5 million was primarily attributable to the Company recognizing an income gain of approximately $12.9 million relating to the remeasurement of convertible notes at fair value during the nine months ended September 30, 2024, partially offset by inducement losses on debt conversions of approximately $6.7 million incurred during the nine months ended September 30, 2024.

Provision for Income Taxes

The provision for income tax for the nine months ended September 30, 2024 and 2023 was immaterial.

Liquidity and Capital Resources as of September 30, 2024

Our current capital resources and operating results as of and through September 30, 2024, consist of:

1)an overall working capital deficit of approximately $11.9 million;

2)cash and cash equivalents of approximately $0.5 million;

3)net cash used by operating activities for the nine months ended September 30, 2024 of $14.3 million.

The breakdown of our overall working capital deficit as of September 30, 2024 is as follows (in thousands):


Working Capital	Assets		Liabilities		Net
Cash and cash equivalents	$	511	$	—	$	511
Accounts receivable, net / accounts payable	610		7,625		(7,015)
Prepaid expenses and other current assets	1,704		—		1,704
Inventory	2,730		—		2,730
Accrued liabilities	—		8,659		(8,659)
Accrued interest	—		940		(940)
Customer deposits	—		1,350		(1,350)
Operating lease obligation	—		217		(217)
Deferred revenue	—		526		(526)
Notes and other receivables / short-term debt	4,153		2,620		1,533
Warrant asset	424		—		424
Other	—		100		(100)
Total	$	10,132	$	22,037	$	(11,905)

Contractual Obligations and Commitments

Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consists of operating lease liabilities and merger-related transaction liabilities that are included in our consolidated balance sheet and vendor commitments associated with agreements that are

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legally binding. As of September 30, 2024, the total obligation for capitalized operating leases was approximately $0.5 million, of which approximately $0.2 million is expected to be paid in the next twelve months.

As of September 30, 2024, we owed approximately $2.6 million relating to outstanding short-term promissory notes. This balance excludes intercompany amounts that are eliminated in the financial statements. These notes are payable within the next twelve months and the interest rate charged under the notes range from 4.0% to 18.6%.

Customer Deposits

As of September 30, 2024, we received conditional pre-orders under a combination of non-binding aircraft purchase agreements, reservation deposit agreements, options and letters of intent for aircraft which generated approximately $1.4 million of cash from customer deposits. These funds from customer reservation deposits will not be recorded as revenue until the orders for aircraft are delivered, which may not be for many years or at all if we do not deliver the aircraft. The deposits 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 a return of their refundable deposit any time up until the execution of a purchase agreement. Customers’ request for a return of their refundable deposits could adversely affect our liquidity resources and we may be financially unable to return such deposits.

Financial Advisory Fees in connection with the XTI Merger

Pursuant to the terms of an amended advisory fees agreement among Legacy XTI, the Company and Maxim and in accordance with the XTI Merger Agreement, the Company issued 385,359 registered shares of XTI Aerospace common stock in exchange for shares of Legacy XTI common stock issued to Maxim based on the exchange ratio under the XTI Merger Agreement. Additionally, Maxim will receive $0.2 million payable upon the closing of one or more debt or equity financings for which Maxim serves as placement agent or underwriter and in which the Company raises minimum aggregate gross proceeds of $10 million following the Effective Time.

Legacy XTI Deferred Compensation and Retention Bonus Plan

As of the date of this report, the Company has obligations of approximately $0.2 million and $0.2 million, respectively, relating to deferred compensation and retention bonuses under this plan.

Agreements with Prior "Legacy Inpixon" CEO

On March 12, 2024, the Company entered into a consulting agreement with Mr. Nadir Ali (the “Ali Consulting Agreement”), the Company's former Chief Executive Officer. Mr. Ali, through a company of which he is a controlling member, currently holds shares of the Company's Series 9 Preferred Stock. Pursuant to the Ali Consulting Agreement, following the closing of the XTI Merger, Mr. Ali will provide consulting services to the Company for 15 months ("Ali Consulting Period") or until earlier termination in accordance with its terms. During the Ali Consulting Period, the Company will pay him an aggregate of $0.3 million.

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Ali under the Ali Consulting Agreement. As of the date of this report, the Company owed Mr. Ali accrued consulting fees of approximately $1.0 million.

Consulting Arrangement with Prior "Legacy Inpixon" CFO

On March 12, 2024, the Company also entered into a Consulting Agreement with Ms. Wendy Loundermon (the “Loundermon Consulting Agreement”), the Company's former Chief Financial Officer. Pursuant to the Loundermon Consulting Agreement, following the Closing, Ms. Loundermon will provide consulting services to the Company for one year or until earlier termination in accordance with its terms (the “Loundermon Consulting Period”). As compensation for Ms. Loundermon’s consulting services, the Company will pay her (i) $83,333 per month for the first six months of the Loundermon Consulting Period for services she performs on an as-needed basis during the Loundermon Consulting Period regarding the transition of the management of the Company’s financial reporting function to ensure continuity of business operations, and (ii) $300 per hour for services performed on an as needed basis regarding the preparation and filing of Company’s public company financial reporting and compliance matters including accounting, payroll, audit and tax compliance functions. As of the date of this report, the Company owed Ms. Loundermon accrued consulting fees of approximately $0.5 million.

Transaction Bonus Plan

On July 24, 2023, the compensation committee of the Board (the “Compensation Committee”) adopted a Transaction Bonus Plan, which was amended on March 11, 2024, and was intended to provide incentives to certain employees and other service providers to remain with the Company through the consummation of a qualifying transaction. During the second quarter of 2024, the Company accrued 100% or $6.7 million of the transaction bonuses, which is included in general and administrative within the accompanying condensed consolidated statements of operations, as the bonuses became payable upon the earlier of the closing of financing or June 30, 2024. As of the date of this report, the Company had an aggregate transaction bonus obligation outstanding of approximately 5.5 million.

Risks and Uncertainties

As of September 30, 2024, the Company has a working capital deficit of approximately $11.9 million, and cash and cash equivalents 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 historically supplemented the revenues it earned with proceeds from the sale of our equity, including through our ATM Offering with Maxim (as discussed below), and debt securities and proceeds from loans and bank credit lines. We believe that our current revenue, as supplemented by proceeds from our financings, will provide us with liquidity to fund our planned operating needs into the second quarter of 2025. Therefore, we will need to secure additional capital or financing and/or significantly delay, defer or reduce our cash expenditures over the next two quarters. There can be no assurance that we will be able to obtain additional capital or financing on terms acceptable to us, on a timely basis or at all.

As discussed in Note 10 of the “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report, the Company may, from time to time, sell shares of the Company’s common stock under its ATM Offering through Maxim, as the Company’s exclusive sales agent. Maxim is entitled to compensation at a fixed commission rate of 3.0% of the gross sales price per share sold excluding Maxim's costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket expenses of its legal counsel. During the three months ended September 30, 2024, the Company sold 3,190,727 shares of common stock under the Equity Distribution Agreement at per share prices between approximately $0.19 and $0.43, resulting in net proceeds to the Company of approximately $1.0 million.

As of the date of this report, there was approximately $38.6 million in common stock gross sales remaining under the Equity Distribution Agreement, subject to the limitations set forth in the Series 9 ATM Consent, which, among other things, provides that the Company may not register shares under the ATM Offering in excess of $47.4 million (the "ATM Maximum Amount") without the prior written consent of the Required Holders (as defined below), and the Company may not issue or sell more than $6 million of additional shares of common stock pursuant to the ATM Offering (the "Initial Tranche") without the Required Holders’ prior written consent, which consent the Company is required to obtain for each additional $5 million in sales of common stock under the ATM Offering after the Initial Tranche up to the ATM Maximum Amount. "Required Holders" is defined in the Series 9 Preferred Stock Certificate of Designation as the holders of at least a majority of the outstanding Series 9 Preferred Stock; provided that, pursuant to that certain securities purchase agreement dated as of March 12, 2024, between the Company and 3AM Investments LLC (an entity controlled by the Company's former director and former Chief Executive Officer, Nadir Ali) (the "Purchaser"), the Purchaser will be deemed a "Required Holder" as defined in the Series 9 Preferred Stock Certificate of Designation as long as the Purchaser holds any shares of Series 9 Preferred Stock.

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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. There can be no assurance that any additional capital, whether in the form of equity or debt financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to us. We are currently seeking additional financing in order to meet our cash requirements for the foreseeable future. If we are unable to fund our operations, we will be required to evaluate further alternatives, which could include curtailing or suspending operations, reducing headcount, selling the Company, dissolving and liquidating its assets or seeking protection under the bankruptcy laws. A determination to take any of these actions could occur at a time that is earlier than when we would otherwise exhaust our cash resources.

Liquidity and Capital Resources

The Company’s net cash flows used in operating, investing and financing activities for the nine months ended September 30, 2024 and 2023 and certain balances as of the end of those periods are as follows (in thousands):


	For the Nine Months Ended September 30,
	2024		2023
Net cash used in operating activities	$	(14,305)	$	(2,986)
Net cash provided by investing activities	2,875		(3)
Net cash provided by financing activities	11,928		3,110

Effect of foreign exchange rate changes on cash	8		—
Net increase in cash and cash equivalents	$	506	$	121


	As of September 30, 2024		As of December 31, 2023
Cash and cash equivalents	$	511	$	5
Working capital deficit	$	(11,905)	$	(13,028)

Operating Activities for the nine months ended September 30, 2024

Net cash used in operating activities during the nine months ended September 30, 2024 was approximately $14.3 million. The cash flows related to the nine months ended September 30, 2024 consisted of the following (in thousands):


Net loss	$	(21,747)
Non-cash income and expenses	(1,134)
Net change in operating assets and liabilities	8,576
Net cash used in operating activities	$	(14,305)

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The non-cash income and expense of approximately $1.1 million consisted primarily of the following (in thousands):


$	81	Depreciation and amortization
431		Amortization of intangible assets
177		Amortization of right-of-use asset
267		Non-cash interest expense, net
3,844		Stock-based compensation
(12,882)		Change in fair value of convertible notes payable
6,732		Inducement loss on debt conversions
281		Change in fair value of warrant liability
24		Change in fair value of warrant asset
(123)		Unrealized gain on foreign currency transactions
34		Other
$	(1,134)	Total non-cash expenses

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The net cash used in the change in operating assets and liabilities aggregated approximately $8.6 million and consisted primarily of the following (in thousands):


$	(72)	Increase in accounts receivable and other receivables
550		Decrease in inventory, prepaid expenses and other current assets and other assets
2,514		Increase in accounts payable
5,708		Increase in accrued liabilities, income tax liabilities and other liabilities
154		Increase in accrued interest
(115)		Decrease in deferred revenue
(163)		Decrease in operating lease obligation
$	8,576	Net cash used in the changes in operating assets and liabilities

Operating Activities for the nine months ended September 30, 2023

Net cash used in operating activities during the nine months ended September 30, 2023 was approximately $3.0 million. The cash flows related to the nine months ended September 30, 2023 consisted of the following (in thousands):


Net loss	$	(8,897)
Non-cash income and expenses	3,573
Net change in operating assets and liabilities	2,338
Net cash used in operating activities	$	(2,986)

The non-cash income and expense of approximately $3.6 million consisted primarily of the following (in thousands):



8		Depreciation and amortization
20		Amortization of intangible assets
456		Non-cash interest expense, net
2,766		Stock-based compensation
197		Change in fair value of JV obligation
126		Change in fair value of warrant liability
$	3,573	Total non-cash expenses

The net use of cash in the change in operating assets and liabilities aggregated approximately $2.3 million and consisted primarily of the following (in thousands):


$	127	Decrease in other receivables
28		Decrease in prepaid expenses and other current assets
1,160		Increase in accounts payable
64		Increase in related party payables
561		Increase in accrued expenses and other current liabilities
398		Increase in accrued interest
$	2,338	Net use of cash used in the changes in operating assets and liabilities

Cash Flows from Investing Activities as of September 30, 2024 and 2023

Net cash flows provided by investing activities during the nine months ended September 30, 2024 was approximately $2.9 million compared to $0.0 million for the nine months ended September 30, 2023. Cash flows related to investing activities during the nine months ended September 30, 2024 consist primarily of the cash assumed from Legacy Inpixon in connection with the XTI Merger.

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Cash Flows from Financing Activities as of September 30, 2024 and 2023

Net cash flows provided by financing activities during the nine months ended September 30, 2024 was $11.9 million. During the nine months ended September 30, 2024, the Company received incoming cash flows of approximately $9.6 million from the ATM Offering, $2.0 million from promissory notes issued to Streeterville Capital, LLC, and approximately $1.0 million in proceeds from an existing promissory note arrangement with Legacy Inpixon. During the nine months ended September 30, 2024, the Company repaid $0.7 million towards outstanding promissory notes.

Net cash flows provided by financing activities during the nine months ended September 30, 2023 was $3.1 million. During the nine months ended September 30, 2023, the Company received proceeds of $0.8 million from the issuance of convertible notes, received $0.2 million in proceeds from the sale of common stock, and received $2.2 million in proceeds from promissory notes with David Brody and Legacy Inpixon.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Recently Issued Accounting Standards

For a discussion of recently issued accounting pronouncements, please see Note 3 to our financial statements, which are included in this report beginning on page F-1.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our condensed consolidated financial statements in conformity with GAAP.

We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024. As discussed elsewhere in this report, on March 12, 2024, we completed the XTI Merger. Legacy Inpixon was the legal acquirer in the XTI Merger, but Legacy XTI was the accounting acquirer in the XTI Merger under GAAP. In accordance with GAAP, the historical financial statements of Legacy XTI are considered the financial statements of the combined company. Prior to the XTI Merger, because Legacy XTI was not subject to Section 404 of the Sarbanes-Oxley Act, Legacy XTI did not have the necessary processes, systems, procedures, and related internal controls necessary to satisfy the financial reporting requirements of a public company. During the second quarter of 2024, we commenced the process of integrating Legacy XTI into our system of disclosure controls and procedures and internal control over financial reporting. As of September 30, 2024, we believe Legacy XTI has been fully integrated into our system of disclosure controls and procedures and internal control over financial reporting. However, as of the date of this report, this integration of Legacy XTI is currently being evaluated by a third-party consulting firm that we engaged during the fourth quarter of 2024 to assist in the evaluation and remediation of our internal controls over financial reporting on the combined entity.

Changes in Internal Controls

As noted above, as of September 30, 2024, we believe Legacy XTI has been fully integrated into our system of disclosure controls and procedures and internal control over financial reporting. However, this integration of Legacy XTI is

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currently being evaluated by the aforementioned third-party consulting firm as of the date of this report. There have been no other changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business and as described in Note 18 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report under the heading "Litigation."

There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.

Item 1A. Risk Factors

We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations and financial condition could be materially adversely affected by these risks. In addition to the risk factors set forth below and the other information set forth in this Form 10-Q, you should carefully consider the factors disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 16, 2024, which report is incorporated by reference herein, all of which could materially affect our business, financial condition and future results.

If we continue to fail to maintain an effective system of disclosure controls and fail to maintain an effective system of internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable listing standards of Nasdaq. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Based upon an evaluation of our Chief Executive Officer and Chief Financial Officer as of September 30, 2024, our disclosure controls and procedures are ineffective. As discussed elsewhere in this report, on March 12, 2024, we completed the XTI Merger. Legacy Inpixon was the legal acquirer in the XTI Merger, but Legacy XTI was the accounting acquirer in the XTI Merger under GAAP. In accordance with GAAP, the historical financial statements of Legacy XTI are considered the financial statements of the combined company. Prior to the XTI Merger, because Legacy XTI was not subject to Section 404 of the Sarbanes-Oxley Act, Legacy XTI did not have the necessary processes, systems, procedures, and related internal controls necessary to satisfy the financial reporting requirements of a public company. During the second quarter of 2024, we commenced the process of integrating Legacy XTI into our system of disclosure controls and procedures and internal control over financial reporting. As of September 30, 2024, we believe Legacy XTI has been fully integrated into our system of disclosure controls and procedures and internal control over financial reporting. However, as of the date of this report, this integration of Legacy XTI is currently being evaluated by a third-party consulting firm that we engaged during the fourth quarter of 2024 to assist in the evaluation and remediation of our internal controls over financial reporting on the combined entity. We cannot provide assurance as to how long the integration process may take.

In order to improve and maintain the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems and controls to accommodate such changes. Additionally, if these new systems, controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports, or the effectiveness of internal control over financial reporting. Moreover, our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post-implementation issues that may arise.

Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our business or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and

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internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.

Any failure to maintain effective disclosure controls and internal control over financial reporting could harm our business, financial condition, and results of operations and could cause a decline in the trading price of our common stock.

Our failure to maintain compliance with the continued listing requirements of the Nasdaq Capital Market may result in our common stock being delisted from the Nasdaq Capital Market, which could negatively impact the price of our common stock, liquidity and our ability to access the capital markets.

Our common stock is currently listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “XTIA.” The listing standards of Nasdaq provide that a company, in order to qualify for continued listing, must maintain a minimum stock price of $1.00 and satisfy standards relative to minimum stockholders’ equity, minimum market value of publicly held shares and various additional requirements. If Nasdaq delists our securities from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant negative consequences including:

•limited availability of market quotations for our securities;

•a determination that the common stock is a "penny stock" which would require brokers trading in the common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of common stock;

•a limited amount of analyst coverage, if any; and

•a decreased ability to issue additional securities or obtain additional financing in the future.

Delisting from Nasdaq could also result in other negative consequences, including the potential loss of confidence by suppliers, customers and employees, the loss of institutional investor interest and fewer business development opportunities.

In several instances in the past, including as recently as on July 9, 2024, we received written notification from Nasdaq informing us that because the closing bid price of our common stock was below $1.00 for 30 consecutive trading days, our shares no longer complied with the minimum closing bid price requirement for continued listing on Nasdaq under the Nasdaq Listing Rules. Each time, we were given a period of 180 days from the date of the notification to regain compliance with Nasdaq’s listing requirements by having the closing bid price of our common stock listed on Nasdaq be at least $1.00 for at least 10 consecutive trading days.

In connection with the July 9, 2024 notice, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days, or until January 6, 2025, in which to regain compliance with the minimum bid price requirement. However, on November 7, 2024, we received another letter (the "Low Price Deficiency Letter") from Nasdaq notifying us that, as of November 6, 2024, our common stock had a closing bid price of $0.10 or less for ten consecutive trading days. Accordingly, we are subject to the provisions contemplated under Listing Rule 5810(c)(3)(A)(iii) (the "Low Priced Stocks Rule"). As a result, Nasdaq has determined to delist our securities from The Nasdaq Capital Market (the "Determination"), unless we request an appeal of the Determination on or prior to November 14, 2024, pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. We requested a hearing before the Nasdaq Hearings Panel (the "Panel") to appeal the Determination and to address compliance with the Low Priced Stocks Rule. The Low Price Deficiency Letter states that hearings are typically scheduled to occur approximately 30-45 days after the date of the hearing request. We will be asked to provide the Panel with a plan to regain compliance, which plan we are in the process of preparing.

The Low Price Deficiency Letter has no immediate effect on the listing of our common stock on Nasdaq and our common stock will continue to be listed on the Nasdaq Capital Market under the symbol "XTIA." While the appeal process is pending, the suspension of trading of our common stock would be stayed and our common stock would continue to trade on The Nasdaq Capital Market until the hearing process concludes and the Panel issues a written decision. There can be no assurance, however, that we will be successful in our appeal to the Panel or be able to regain or maintain compliance with the Nasdaq listing rules.

If our shares of common stock lose their status on Nasdaq, we believe that they would likely be eligible to be quoted on the inter-dealer electronic quotation and trading system operated by OTC Markets Group Inc., commonly referred to as the Pink Open Market and we may also qualify to be traded on their OTCQB market (The Venture Market). These markets are generally not considered to be as efficient as, and not as broad as, Nasdaq. Selling our shares on these markets could be more

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difficult because smaller quantities of shares would likely be bought and sold, and transactions could be delayed. In addition, in the event our shares are delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock or even holding our common stock, further limiting the liquidity of our common stock. These factors could result in lower prices and larger spreads in the bid and ask prices for our common stock.

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

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

Additionally, we are and we may be made a party to future claims relating to the XTI Merger. On December 6, 2023, Xeriant, Inc. (“Xeriant”) filed a complaint against Legacy XTI, along with two unnamed companies and five unnamed persons, in the United States District Court for the Southern District of New York. On January 31, 2024, Xeriant filed an amended complaint, which added us as a defendant. On February 2, 2024, the Court ordered Xeriant to show cause as to why the amended complaint should not be dismissed without prejudice for lack of subject matter jurisdiction. On February 29, 2024, Xeriant filed a second amended complaint, which removed us and one of the unnamed companies as defendants. The second amended complaint alleges that Legacy XTI, through multiple breaches and fraudulent actions, has caused substantial harm to Xeriant and has prevented it from obtaining compensation owed to it under various agreements entered into between Xeriant and Legacy XTI, including but not limited to a joint venture agreement, a cross-patent license agreement, an operating agreement, and a letter dated May 17, 2022 (the “May 17 letter”). In particular, Xeriant contends that Legacy XTI gained substantial advantages from the intellectual property, expertise, and capital deployed by Xeriant in the design and development of Legacy XTI’s TriFan 600 aircraft yet has excluded Xeriant from the transaction involving the TriFan 600 technology in its merger with us, which has resulted in a breach of the May 17 letter, in addition to the other aforementioned agreements. Xeriant, in the second amended complaint, asserts the following causes of action: (1) breach of contract; (2) intentional fraud; (3) fraudulent concealment; (4) quantum meruit; (5) unjust enrichment; (6) unfair competition/deceptive business practices; and (7) misappropriation of confidential information, and seeks damages in excess of $500 million, injunctive relief enjoining us from engaging in any further misconduct, the imposition of a royalty obligation, and such other relief as deemed appropriate by the court. On March 13, 2024, Legacy XTI moved for partial dismissal of the second amended complaint, Counts 2 through 7 in particular. Legacy XTI argued that Counts 2 through 7 are (1) impermissible attempts to repackage claims arising from contractual dispute as quasi-contractual or tort claims; and (2) expressly refuted by the clear and unequivocal terms of the aforementioned agreements. The case is in its early stages, no discovery with respect to the Company has occurred, and we are unable to estimate the likelihood or magnitude of a potential adverse judgment. The Court has neither scheduled Legacy XTI’s motion for hearing nor otherwise ruled upon it. Legacy XTI denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against the lawsuit.

In connection with the litigation matter described in the immediately preceding paragraph, on June 12, 2024, we received a letter from counsel for Auctus Fund, LLC (“Auctus”), dated April 3, 2024, claiming that, pursuant to the above-referenced May 17 letter by and between Xeriant and Legacy XTI, as a result of the XTI Merger and Legacy XTI’s entry into a promissory note agreement with Legacy Inpixon in March 2023, XTI Aerospace and Legacy XTI may have assumed Xeriant’s obligations under that certain Senior Secured Promissory Note in the principal amount of $6,050,000 issued by Xeriant to Auctus, including the obligation to repay Auctus all principal and accrued and unpaid interest thereunder, which Auctus claims was $8,435,008.81 as of April 3, 2024. In July 2024, Legacy XTI responded to such letter and indicated that it believes that the May 17 letter is invalid and unenforceable on several bases. It further explained that even if it were valid and enforceable, Legacy XTI does not believe such letter resulted in, or otherwise triggered, the assumption of obligations of Xeriant under the Senior Secured Promissory Note or any other obligation on the part of Legacy XTI. There have been no further developments on this matter. We are unable to make a reasonable estimate of a potential loss, if any, on this matter. To the extent suits or actions are commenced with respect to this matter, we intend to vigorously defend against any and all claims.

On August 15, 2024, we became aware that Chardan Capital Markets LLC ("Chardan") commenced an arbitration (the "Arbitration") before the Financial Industry Regulatory Authority ("FINRA") against XTI Aerospace, Inc. and Legacy XTI related to an engagement letter, dated as of June 7, 2022, by and between Chardan and Legacy XTI, as amended (the "Chardan Engagement Letter"). In the Arbitration, Chardan alleges that XTI Aerospace, Inc. is bound by the Chardan Engagement Letter even though XTI Aerospace, Inc. did not sign or assume the Chardan Engagement Letter. XTI Aerospace, Inc. denies that it has any liability under the Chardan Engagement Letter. Chardan further alleges that Legacy XTI and XTI Aerospace, Inc. breached the Chardan Engagement Letter by not making separate payments to Chardan of $200,000, $94,511, $484,044.40 and $174,000. Chardan also seeks to recover unspecified amounts relating to its alleged right of first refusal to perform banking services that XTI Aerospace, Inc. supposedly did not honor, including with respect to the Company’s ATM Offering with

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Maxim. XTI Aerospace, Inc. and Legacy XTI deny that Chardan performed its duties under the Chardan Engagement Letter and otherwise deny that Chardan is owed any sums under the Chardan Engagement Letter. XTI Aerospace, Inc. has filed a petition in the U.S. District Court for the Southern District of New York seeking to stay the Arbitration to the extent that it has been asserted against XTI Aerospace, Inc. XTI Aerospace, Inc. plans to prosecute the foregoing petition and, if the Arbitration is not stayed, defend against the Arbitration vigorously.

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

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

We may also be required to initiate expensive litigation or other proceedings to protect our business interests. There is a risk that we will not be successful or otherwise be able to satisfactorily resolve such claims or litigation. Litigation and other legal claims are subject to inherent uncertainties. Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among the states in which we operate. Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our current financial status may increase our default and litigation risks and may make us more financially vulnerable in the face of threatened litigation.

The obligations to the Lender (as defined below) under the Notes (as defined below) and related agreements are secured by a security interest in all of our Legacy XTI common stock and all of the assets of Legacy XTI, our wholly-owned subsidiary, so if we default on those obligations, the Lender could proceed against any or all such assets.

Our obligations under the secured promissory notes (the “Notes”) issued to Streeterville Capital, LLC (the “Lender”) pursuant to a note purchase agreement, dated as of May 1, 2024, by and between us and the Lender (the “Purchase Agreement”), and related agreements are secured by all of the Legacy XTI common stock owned by XTI Aerospace and all of the assets of Legacy XTI, our wholly-owned subsidiary, pursuant to a pledge agreement executed by us and a security agreement executed by Legacy XTI, respectively, in connection with the issuance of the Notes. As such, the Lender may enforce its security interests over our Legacy XTI common stock and the assets of Legacy XTI that secure the repayment of such obligations, take control of such assets and operations, force us to seek bankruptcy protection or force us to curtail or abandon our current business plans and operations. If that were to happen, any investment in our securities could become worthless.

We are subject to certain contractual limitations that could materially adversely affect our ability to consummate future financings.

Pursuant to the Purchase Agreement, in connection with the issuance of the Notes to the Lender, we agreed to be subject to certain restrictions on our ability to issue securities until all of our obligations under the Notes, Purchase Agreement and all other related agreements are paid and performed in full. Specifically, we agreed, among other things, to not issue securities in any Variable Rate Transaction (as defined in the Purchase Agreement) or issue or guarantee any debt or debt instrument, subject to certain exceptions; provided that the issuance by us of shares of common stock in an at-the-market offering will not be deemed a Variable Rate Transaction. Such restrictions could materially adversely affect our ability to consummate future financings. Under the terms of the Purchase Agreement, if we breach or allegedly breach such restrictions, we will be obligated to indemnify the Lender and all its officers, directors, employees, attorneys, and agents for loss or damage arising as a result of or related to such breach or alleged breach, which could have a material adverse effect on our business, results of operations, and financial condition.

If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, which could have a material adverse effect on our business, results of operations, and financial condition.

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If we fail to comply with the restrictions and covenants in the Purchase Agreement or the Notes, there could be an event of default under the Notes, which could result in an acceleration of payments due under the Notes, the application of default interest and other consequences.

Failure to meet the restrictions, obligations and limitations under the Purchase Agreement and the Notes may result in an event of default in accordance with the terms of the Notes. Such events include, among others, our failure to pay any amount when due and payable thereunder, us becoming insolvent or declaring bankruptcy, failure to observe or perform in any material respect any covenant, obligation, condition or agreement set forth in the Notes, Purchase Agreement or in any other transaction document if such default or breach remains uncured for a period of at least five business days, and our breach in any material respect or the occurrence of any event of default under any term or provision of any existing and future agreements and instruments between us and the Lender, which events could result in the acceleration of obligations under the Notes. Additionally, at any time following an event of default, upon written notice to us, interest will accrue on the outstanding balance of the Notes beginning on the date the applicable event of default occurred at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law. Moreover, upon the occurrence of a sale of all or substantially all of the our assets, or a merger, consolidation, or other capital reorganization of the Company with or into another company in which the holders of equity of the Company outstanding immediately prior to such transaction continue to hold, after such transaction, 50% or less of the total voting power represented by the voting securities of the Company, or such surviving entity (a “change in control”), and without further notice to us, all unpaid principal, plus all accrued interest, original issue discount, and other amounts due under the Notes, will become immediately due and payable. Such consequences upon an event of default or a change in control could materially impair our financial condition and liquidity. In addition, if the Lender accelerates the Notes, we cannot assure you that we will have sufficient assets to satisfy our obligations under the Notes.

The redemption feature of the Notes may require us to make redemption payments at the request of the Lender, which redemptions may have a material adverse effect on our cash flows, results of operations and ability to pay our debts as they come due, and we may not have the required funds to pay such redemptions, which could result in an event of default under the Notes.

From time to time, beginning six months after issuance, the Lender may require us to redeem up to an aggregate of one-sixth (1/6) of the initial principal balance of each Note plus any accrued interest thereunder each month (each monthly exercise, a “Monthly Redemption Amount”) by providing us written notice (each, a “Monthly Redemption Notice”); provided, however, that if the Lender does not exercise any Monthly Redemption Amount in its corresponding month then such Monthly Redemption Amount will be available for the Lender to redeem in any future month in addition to such future month’s Monthly Redemption Amount. Upon receipt of any Monthly Redemption Notice, we will be required to pay the applicable Monthly Redemption Amount in cash to the Holder within five business days of our receipt of such Monthly Redemption Notice. Such redemptions may have a material adverse effect on our cash flows, results of operations and ability to pay our other debts as they come due. In addition, we may not have the required funds to pay such redemptions and our failure to pay the redemptions, when due, may result in an event of default under the Notes.

The terms of the Series 9 Preferred Stock impose additional challenges on our ability to raise capital.

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

For example, sales of shares of our common stock, if any, pursuant to our ATM Offering are subject to the limitations set forth in a written consent (the "Series 9 ATM Consent") that we obtained on June 14, 2024 from the Required Holders (as defined below). The Series 9 ATM Consent provides that we may not, without the Required Holders’ prior written consent, register shares for sale under the ATM Offering in excess of the $47.4 million (the "ATM Maximum Amount") in shares of common stock registered pursuant to our registration statement on Form S-3 (File No. 333-279901) filed with the SEC on May 31, 2024 and declared effective on June 18, 2024 (the "Registration Statement"), a prospectus relating to the ATM Offering

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included in the Registration Statement and an accompanying base prospectus included in the Registration Statement. The Series 9 ATM Consent further provides that we may not issue or sell more than $6 million of additional shares of common stock pursuant to the ATM Offering ("Initial Tranche") without the Required Holders’ prior written consent, which consent we are required to obtain for each additional $5 million in sales of common stock under the ATM Offering after the Initial Tranche up to the ATM Maximum Amount. "Required Holders" is defined in the Series 9 Preferred Stock Certificate of Designation as the holders of at least a majority of the outstanding Series 9 Preferred Stock; provided that, pursuant to that certain securities purchase agreement, dated as of March 12, 2024 (the "Securities Purchase Agreement"), between the Company and 3AM Investments LLC (an entity controlled by the Company's former director and former Chief Executive Officer, Nadir Ali) (the "Purchaser"), the Purchaser will be deemed a "Required Holder" as defined in the Series 9 Preferred Stock Certificate of Designation as long as the Purchaser holds any shares of Series 9 Preferred Stock.

A breach of the restrictive covenants under the Series 9 Preferred Stock Certificate of Designation could result in an event of default under the Series 9 Preferred Stock Certificate of Designation which may require redemption of the Series 9 Preferred Stock. As a result of these restrictions, we may be limited in how we conduct our business, unable to finance our operations through additional debt or equity financings and/or unable to compete effectively or to take advantage of new business opportunities.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a) Sales of Unregistered Securities

There were no sales of unregistered securities by the Company during the quarter ended September 30, 2024 that were not previously reported in current reports on Form 8-K filed with the SEC.

c) Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

a) The information set forth below is included herein for the purpose of providing the disclosure required under "Item 3.02 - Unregistered Sales of Equity Securities.” of Form 8-K.

The Company agreed to issue 11,907,216 shares of common stock (the “Preferred Exchange Shares”) to a holder of shares of the Company’s Series 9 Preferred Stock, at an effective price per share of $0.0485, in exchange for the return and cancellation of 550 shares of Series 9 Preferred Stock with an aggregate stated value of $577,500, pursuant to the terms and conditions of an exchange agreement dated November 13, 2024. The Preferred Exchange Shares will be issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended, on the basis that (a) the Preferred Exchange Shares will be issued in exchange for other outstanding securities of the Company; (b) there was no additional consideration delivered by the holder in connection with the exchange; and (c) there were no commissions or other remuneration paid by the Company in connection with the exchange.

As of November 14, 2024, after taking into account the issuance of the Preferred Exchange Shares, the Company has 163,497,143 shares of common stock outstanding.

The information set forth below is included herein for the purpose of providing the disclosure required under "Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers." of Form 8-K.

On November 12, 2024, Jennifer Gaines amicably resigned as Chief Legal Officer of the Company, effective immediately.

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c) Insider trading arrangements

None of the Company’s directors or officers adopted, modified or terminated a Rule 10b-5 trading arrangement or a non-Rule 10b-5 trading arrangement during the fiscal quarter ended September 30, 2024, as such terms are defined under Item 408(a) of Regulation S-K.

Item 6. Exhibits

See the Exhibit index following the signature page to this Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	INPIXON

Date: November 14, 2024	By:	/s/ Scott Pomeroy
		Scott Pomeroy Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Brooke Turk
		Brooke Turk Chief Financial Officer (Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed Herewith

2.1†

Agreement and Plan of Merger, dated July 24, 2023, among Inpixon, Superfly Merger Sub Inc. and XTI Aircraft Company

8-K

001-36404

2.1

July 25, 2023

2.2

First Amendment to Merger Agreement, dated December 30, 2023, by and between Inpixon, Superfly Merger Sub Inc. and XTI Aircraft Company.

10-K

001-36404

2.26

April 16, 2024

2.3†

Second Amendment to Merger Agreement, dated March 12, 2024, by and between Inpixon, Superfly Merger Sub Inc. and XTI Aircraft Company.

8-K

001-36404

10.1

March 15, 2024

2.4†

Separation Agreement, dated as of October 23, 2023, by and between Inpixon and Grafiti Holding Inc.

8-K

001-36404

2.1

October 23, 2023

2.5†

Business Combination Agreement, dated as of October 23, 2023, by and among Inpixon, Grafiti Holding Inc., 1444842 B.C. Ltd. and Damon Motors Inc.

8-K

001-36404

2.2

October 23, 2023

2.6

Amendment to Business Combination Agreement, dated as of June 18, 2024, by and among XTI Aerospace, Inc., Grafiti Holding Inc., 1444842 B.C. Ltd. and Damon Motors Inc.

8-K

001-36404

2.1

June 24, 2024

2.7

Second Amendment to Business Combination Agreement, dated as of September 26, 2024, by and among XTI Aerospace, Inc., Grafiti Holding Inc., 1444842 B.C. Ltd. and Damon Motors Inc.

8-K

001-36404

2.1

October 2, 2024

2.8†

Equity Purchase Agreement, dated as of February 16, 2024, by and among Inpixon, Grafiti LLC and Grafiti Group LLC.

8-K

001-36404

2.1

February 23, 2024

3.1

Restated Articles of Incorporation.

S-1

333-190574

3.1

August 12, 2013

3.2

Certificate of Amendment to Articles of Incorporation (Increase Authorized Shares).

S-1

333-218173

3.2

May 22, 2017

3.3

Certificate of Amendment to Articles of Incorporation (Reverse Split).

8-K

001-36404

3.1

April 10, 2014

3.4

Articles of Merger (renamed Sysorex Global).

8-K

001-36404

3.1

December 18, 2015

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Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith

3.5	Articles of Merger (renamed Inpixon).	8-K	001-36404	3.1	March 1, 2017

3.6	Certificate of Amendment to Articles of Incorporation (Reverse Split).	8-K	001-36404	3.2	March 1, 2017

3.7	Certificate of Amendment to Articles of Incorporation (authorized share increase).	8-K	001-36404	3.1	February 5, 2018

3.8	Certificate of Amendment to Articles of Incorporation (Reverse Split).	8-K	001-36404	3.1	February 6, 2018

3.9	Certificate of Amendment to Articles of Incorporation (Reverse Split).	8-K	001-36404	3.1	November 1, 2018

3.10	Certificate of Amendment to Articles of Incorporation, effective as of January 7, 2020 (Reverse Split).	8-K	001-36404	3.1	January 7, 2020

3.11	Certificate of Amendment to the Articles of Incorporation increasing the number of authorized shares of Common Stock from 250,000,000 to 2,000,000,000 filed with the Secretary of State of the State of Nevada on November 18, 2021	8-K	001-36404	3.1	November 19, 2021

3.12	Certificate of Change filed with the Secretary of State of the State of Nevada on October 4, 2022 (effective as of October 7, 2022).	8-K	001-36404	3.1	October 6, 2022

3.13	Certificate of Amendment to the Articles of Incorporation increasing the number of authorized shares of Common Stock from 26,666,667 to 500,000,000 filed with the Secretary of State of the State of Nevada on November 29, 2022	8-K	001-36404	3.1	December 2, 2022

3.14	Bylaws, as amended.	S-1	333-190574	3.2	August 12, 2013

3.15	Bylaws Amendment.	8-K	001-36404	3.2	September 13, 2021

3.16	Form of Certificate of Designation of Preferences, Rights and Limitations of Series 4 Convertible Preferred Stock.	8-K	001-36404	3.1	April 24, 2018

3.17	Certificate of Designation of Series 5 Convertible Preferred Stock, dated as of January 14, 2019.	8-K	001-36404	3.1	January 15, 2019

3.18	By-Laws Amendment No. 3	8-K	001-36404	3.1	September 19, 2023

3.19	By-Laws Amendment No. 4	8-K	001-36404	3.2	September 19, 2023

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Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
3.20	Bylaws Amendment.	8-K	001-36404	3.4	March 15, 2024

3.21	Certificate of Designations of Preferences and Rights of Series 9 Preferred Stock.	8-K	001-36404	3.1	March 15, 2024

3.22	Certificate of Amendment (Reverse Stock Split).	8-K	001-36404	3.2	March 15, 2024

3.23	Certificate of Amendment (Name Change).	8-K	001-36404	3.3	March 15, 2024

3.24	Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock	8-K	001-36404	3.1	May 1, 2024

4.1	Promissory Note, dated as of May 1, 2024.	8-K	001-36404	4.1	May 1, 2024

4.2	Promissory Note, dated as of May 24, 2024.	8-K	001-36404	4.1	May 29, 2024

10.1†	Note Purchase Agreement, dated as of May 1, 2024, by and between XTI Aerospace, Inc. and Streeterville Capital, LLC.	8-K	001-36404	10.1	May 1, 2024

10.2	Guaranty, dated as of May 1, 2024, of XTI Aircraft Company.	8-K	001-36404	10.2	May 1, 2024

10.3	Pledge Agreement, dated as of May 1, 2024, by and between XTI Aerospace, Inc. and Streeterville Capital, LLC.	8-K	001-36404	10.3	May 1, 2024

10.4†	Security Agreement, dated as of May 1, 2024, by and between XTI Aircraft Company and Streeterville Capital, LLC.	8-K	001-36404	10.4	May 1, 2024

10.5*	Employment Agreement, dated September 19, 2024, by and between XTI Aerospace, Inc. and Tobin Arthur.	8-K	001-36404	10.1	September 23, 2024

10.6	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on March 15, 2024)	8-K	001-36404	10.2	September 23, 2024

10.7	2018 Employee Stock Incentive Plan Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K filed with the SEC on March 31, 2021)	8-K	001-36404	10.3	September 23, 2024

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Exhibit Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed Herewith

10.8

Form of Second Letter Agreement by and between Damon Motors Inc. and XTI Aerospace, Inc.

8-K

001-36404

10.1

October 4, 2024

10.9*

Employment Agreement, dated October 28, 2024, by and between XTI Aerospace, Inc. and Jennifer Gaines

8-K

001-36404

10.1

October 30, 2024

31.1

Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024.

31.2

Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024.

32.1#

Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

† Exhibits, schedules and similar attachments have been omitted pursuant to Item 601 of Regulation S-K and the registrant undertakes to furnish supplemental copies of any of the omitted exhibits and schedules upon request by the SEC.

* Indicates management contract or compensatory plan or arrangement.

# This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

Form: 10-Q

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