XTI Aerospace, Inc.

Note 1 - 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 (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”) airplane that is designed to take off and land like a helicopter and cruise like a fixed-wing business airplane. Since 2013, the Company has been engaged primarily in developing the aerodynamic performance and top-level engineering design of 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 advance the detailed design and certification of the TriFan 600, and to eventually engage in commercial production and sale of the TriFan 600 airplane.

The Company’s RTLS solutions leverage 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 the Company’s RTLS solutions, 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 months ended March 31, 2025 are not necessarily indicative of the results for the full year ending December 31, 2025. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes for the years ended December 31, 2024 and 2023 included in the annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 15, 2025.

Note 3 - Summary of Significant Accounting Policies

The Company’s complete accounting policies are described in Note 3 to the Company’s audited consolidated financial statements and notes for the year ended December 31, 2024.

Liquidity

As of March 31, 2025, the Company had cash of approximately $8.0 million. For the three months ended March 31, 2025, the Company had a net loss of approximately $12.9 million. During the three months ended March 31, 2025, the Company used approximately $15.2 million of cash for operating activities.

There can be no assurances that the Company will ever earn revenues sufficient to support its operations, or that it will ever be profitable. In order to continue its operations, the Company has supplemented the revenues it earned with proceeds from the sale of its equity securities and proceeds from loans.

The Company’s recurring losses and utilization of cash in its operations are indicators of going concern issues. However, the Company’s current liquidity position was favorably impacted by the cash raised under its now expired ATM and via two public offerings aggregating approximately $23.3 million during the three months ended March 31, 2025, along with repaying and settling certain debt and other obligations during March 2025. This, along with the Company’s ability to defer or eliminate certain operating expenses that are under its control and the revenues expected to be generated by the Industrial IoT segment lead the Company to believe it has the ability to mitigate such concerns for a period of at least one year from the date these financial statements are issued.

Consolidations

The condensed consolidated financial statements have been prepared using the accounting records of Legacy XTI and as of March 12, 2024 (the effective date of the XTI Merger) and forward, 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:

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 months ended March 31, 2025 or March 31, 2024 or 10% or more of the Company’s outstanding receivable balance as of March 31, 2025 or March 31, 2024 are presented as follows:

The vendors who account for 10% or more of the Company’s purchases for the three months ended March 31, 2025 or March 31, 2024 or 10% or more of the Company’s outstanding payable balance as of March 31, 2025 or March 31, 2024 are presented as follows:

Intangible Assets and Goodwill

Finite-lived 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, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit. In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.

The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.

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 three months ended March 31, 2025, the Company determined that its long-lived assets were impaired by approximately $0.5 million.

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.

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 condensed 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.

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 TriFan 600 airplane becomes available for delivery. Customers making deposits are not obligated to purchase any airplanes 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 airplane 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.

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 that were issuable to Xeriant Inc. (“Xeriant”) related to 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.

Foreign Currency

The functional currency for the Company’s subsidiaries is determined based on the primary economic environment in which the subsidiary operates. The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in cumulative translation adjustment included in “Accumulated other comprehensive loss” in stockholders’ equity on the condensed consolidated balance sheets. The Company remeasures monetary assets and liabilities that are not denominated in the functional currency at exchange rates in effect at the end of each period. Gains and losses from these remeasurements are recognized in general and administrative expenses in the condensed consolidated statements of operations. Foreign exchange gains (losses) were immaterial for the three months ended March 31, 2025 and 2024, respectively.

Segments

The Company and its Chief Executive Officer, 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 reporting 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 November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures, which includes amendments to require the disclosure of certain specific costs and expenses that are included in a relevant expense caption on the face of the income statement. Specific costs and expenses that would be required to be disclosed include: purchases of inventory, employee compensation, depreciation and intangible asset amortization. Additionally, a qualitative description of other items is required, equal to the difference between the relevant expense caption and the separately disclosed specific costs. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, and are applied either prospectively or retrospectively at the option of the Company. The Company is evaluating the impact of the amendments on our condensed consolidated financial statements and disclosures.

Recently Issued Accounting Standards Not Yet Adopted

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.

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):

Deferred revenue

As of December 31, 2024 and March 31, 2025, the Company had approximately $0.5 million and $0.8 million, respectively, in deferred revenue. This deferred revenue balance relates 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):

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-for-100 reverse stock split of the Company’s outstanding common stock that 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 that 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:

The fair value of preferred stock of approximately $11.3 million included in the total equity consideration represents 11,302 shares of Series 9 Preferred Stock that were 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.

The following table summarizes the purchase price allocations relating to the XTI Merger (in thousands):

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 that carries over.

Note 6 - Proforma Financial Information

The following unaudited proforma financial information presents the consolidated results of operations of the Company and Legacy Inpixon for the three months ended March 31, 2024, as if the acquisition had occurred as of the beginning of the first period presented (January 1, 2024) 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):

Note 7 - Goodwill and Intangible Assets

Goodwill

In connection with the XTI 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 following table summarizes the changes in the carrying amount of Goodwill for the three months ended March 31, 2025 (in thousands):

The Company tests goodwill for impairment at the reporting unit level annually, on October 1, 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 first performed a qualitative assessment to determine if there were any indicators of goodwill impairment that would require a quantitative analysis to be performed. The results of the qualitative analysis performed by the Company indicated there was a triggering event during the three months ended March 31, 2025 related to the IoT reporting unit, in the form of a sustained decrease of the Company’s stock price and a consistent history of operating losses.

In accordance with ASC 350, given a triggering event was identified, the Company performed a quantitative goodwill impairment analysis related to its Industrial IoT reporting unit, which concluded the carrying amount of the reporting unit did not exceed its estimated fair value, indicating that the goodwill of the reporting unit was not impaired. The Company utilized an income approach to assess the fair value of the reporting unit as of March 31, 2025. The income approach considered the discounted cash flow model, considering projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions.

Intangible Assets

Intangible assets at March 31, 2025 and December 31, 2024 consisted of the following (in thousands):

Amortization expense for the three months ended March 31, 2025 and 2024 was approximately $0.09 million and $0.04 million, respectively.

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

The Company tests for impairment if a change in circumstances or the occurrence of events indicates that potential impairment exists. In accordance with ASC 360, the Company first performed a qualitative assessment to determine if there were any indicators of impairment that would require a quantitative analysis to be performed. The results of the qualitative analysis performed by the Company determined there was a triggering event during the three months ended March 31, 2025, in the form of a sustained decrease of the Company’s stock price and a consistent history of operating losses. The Company notes that based on a quantitative assessment, the Company recorded an impairment to its Trade Names & Trademarks, Proprietary Technology, and In-Process Research and Development of $0.1 million, $0.2 million, and $0.2 million, respectively, for the three months ended March 31, 2025, which is included in ‘Impairment of intangible assets’ in the condensed consolidated statements of operations. The Company notes that these assets were part of the Company’s Industrial IoT segment.

The Company assessed the fair value of the Trade Names & Trademarks, Proprietary Technology, and In-Process Research and Development by using an income approach in the form of a relief from royalty model, which considered a specified royalty rate, discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions.

Note 8 - Other Balance Sheet Information

Prepaid expenses and other current assets

Prepaid expenses and other current assets as of March 31, 2025 and December 31, 2024 consisted of the following (in thousands):

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities as of March 31, 2025 and December 31, 2024 consisted of the following (in thousands):

Note 9 - Debt

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

Interest expense on outstanding debt totaled approximately $0.2 million and $0.4 million for the three months ended March 31, 2025 and 2024, respectively.

Streeterville Debt Exchanges and Repayment

During the three months ended March 31, 2025, the Company issued an aggregate of 240,229 shares of common stock (the “Exchange Shares”) to Streeterville Capital, LLC (“Streeterville”), the holder of that certain outstanding secured promissory note of the Company issued on May 1, 2024 (the “Original Note”), at a price between $2.48 and $4.21 per share, in each case equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d) in accordance with the terms and conditions of certain exchange agreements, pursuant to which the Company and Streeterville agreed to (i) partition new secured promissory notes in the form of the Original Note in the aggregate original principal amount of $750,000 and then cause the outstanding balance of the Original Note to be reduced by an aggregate of $750,000; and (ii) exchange the partitioned notes for the delivery of the Exchange Shares.

On March 31, 2025 and using the net proceeds from the March Offering (see “March 2025 Public Offering” disclosure in Note 10), the Company repaid the remaining obligation of approximately $2.7 million (which included principal, accrued interest and monitoring fees, and a 15% prepayment penalty) in respect of the two secured promissory notes issued by the Company to Streeterville on May 1, 2024 and May 24, 2024. As a result of the repayments, Streeterville released its security interest in the stock the Company owns in Legacy XTI and the assets owned by Legacy XTI. Due to the repayment of the promissory notes occurring before the maturity date, the Company incurred a loss on extinguishment of debt of approximately $0.4 million, which is reported within other (expense) income on the condensed consolidated statements of operations.

Note 10 - Common Stock

Capital Raises

At-the-Market (ATM) Offering Program

The Company was able, from time to time, to sell shares of the Company’s common stock under its “at-the-market” offering program (the “ATM”) through Maxim Group LLC (“Maxim”), as the Company’s exclusive sales agent, up to a maximum offering amount of approximately $83.3 million, pursuant to that certain Equity Distribution Agreement, dated as of July 22, 2022, by and between the Company and Maxim, as amended from time to time (the “Equity Distribution Agreement”). The term of the Equity Distribution Agreement expired on December 31, 2024. Maxim was 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 March 31, 2025, the Company sold 169,299 shares of common stock under the Equity Distribution Agreement at per share price of $10.00, resulting in net proceeds to the Company of approximately $1.7 million. This sale originated on December 31, 2024 and closed in early January 2025.

January 2025 Public Offering

On January 7, 2025, the Company entered into a placement agency agreement with ThinkEquity LLC (the “Placement Agent”), pursuant to which the Company agreed to issue and sell directly to various investors, in a best efforts public offering (the “January Offering”), an aggregate of 1,454,546 shares of common stock at an offering price of $13.75 per share. The January Offering closed on January 10, 2025 resulting in net proceeds to the Company, after deducting commissions and other expenses, of approximately $18.3 million.

As part of its compensation for acting as placement agent for the January Offering, the Company issued to the Placement Agent warrants (the “Placement Agent Warrants”) to purchase 72,727 shares of common stock. The Placement Agent Warrants are exercisable commencing January 10, 2025, expire January 8, 2030 and have an exercise price of approximately $17.19 per share.

March 2025 Public Offering

On March 28, 2025, the Company entered into an underwriting agreement with ThinkEquity LLC (the “Representative”), as the representative of the underwriters named therein, relating to a firm commitment underwritten public offering (the “March Offering”) of 765,200 shares of common stock (the “Shares”), pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 2,176,000 shares of common stock, and common warrants (the “Common Warrants” and together with the Pre-funded Warrants, the “Warrants”) to purchase up to 2,941,200 shares of common stock. The combined public offering price for each Share, together with one Common Warrant, was $1.36. The combined public offering price for each Pre-funded Warrant, together with one Common Warrant, was $1.359. Each Share, or a Pre-funded Warrant in lieu thereof, was sold together with one Common Warrant.

The March Offering closed on March 31, 2025. The net proceeds to the Company from the sale of the Shares and the Warrants after deducting the underwriting discounts and commissions and other expenses payable by the Company were approximately $3.4 million.

Allocation of Net Proceeds

The aggregate net proceeds from the January Offering and the March Offering were approximately $21.7 million. For reporting purposes, the Company allocated approximately $17.9 million of net proceeds to the sales of common stock and approximately $3.8 million of net proceeds to the issuance of warrants. The net proceeds were allocated to each of the warrants and the common stock based on their relative fair value as of the date of issuance.

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 Redemptions

On November 17, 2024, the Company entered into a Consent, Waiver and Release Agreement (the “Consent Agreement”) with Streeterville and 3AM Investments, LLC (“3AM”), an entity controlled by Nadir Ali, Legacy Inpixon’s former Chief Executive Officer and a former director of Legacy Inpixon, pursuant to which Streeterville and 3AM authorized the Company to raise up to an additional $5,000,000 under the ATM (the “ATM Increase”) in consideration for the Company’s agreement to pay, on a weekly basis,20% of the proceeds it receives from sales under the ATM in connection with the ATM Increase (the “Redemption Proceeds”) to Streeterville and 3AM to redeem a portion of their Series 9 Preferred Stock, to be distributed as follows: (i)75% of the Redemption Proceeds to Streeterville (15% of all proceeds received from sales under the ATM), and (ii)25% of the Redemption Proceeds to 3AM (5% of all proceeds received from sales under the ATM).

As of December 31, 2024, Streeterville and 3AM held zero and 1331.12 shares of Series 9 Preferred Stock, respectively.

Pursuant to the Consent Agreement, the Company delivered an aggregate of $175,395 to 3AM on January 5, 2025, which amount represents the Redemption Proceeds payable to 3AM in connection with amounts received by the Company on January 2, 2025 from sales under the ATM originating on December 31, 2024. Such payments were made for 167.00 shares of the Company’s Series 9 Preferred Stock held by 3AM. The Company entered into an acknowledgment agreement with 3AM to record such payment.

On March 27, 2025, the Company entered into a Settlement Agreement with 3AM and other parties as further disclosed in Note 17. Pursuant to the Settlement Agreement, on the Effective Date, the Company delivered the aggregate amount of $1,251,651 (the “Series 9 Redemption Amount”) for the redemption of the outstanding Series 9 Preferred Stock. Following 3AM’s receipt of the Series 9 Redemption Amount, 3AM no longer held any shares of Series 9 Preferred Stock.

As of March 31, 2025, there areno shares of Series 9 Preferred Stock issued and outstanding.

Note 12 - Stock Award Plans and Stock-Based Compensation

The Company hasthree 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 2011 Plan terminated by its terms on August 31, 2021 and no new awards will be issued under the 2011 Plan.

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 often 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 March 31, 2025, there areno 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 March 31, 2025, there areno unvested Restricted Stock or Restricted Stock Units outstanding under the 2018 Plan.

Incentive stock options granted under the 2018 Plan are granted at exercise prices at a minimum of 100% of the estimated fair market value of the underlying common stock at date of grant. For any individual possessing more than 10% of the total outstanding common stock of the Company, the exercise price per share for incentive stock options is a minimum 110% of the estimated fair value of the underlying common stock on the grant date. Options granted under the 2018 Plan vest over periods ranging from immediately tofour years and are exercisable over periods up toten years from the grant date.

The aggregate number of shares that may be awarded under the 2018 Plan as of March 31, 2025 was 73,184,181. As of March 31, 2025,72,942,798 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:

Stock-based Compensation Expense

The Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as an expense over the period during which the recipient is required to provide services in exchange for that award.

The Company measures compensation expense for its non-employee stock-based compensation under ASC 718, “Stock Based Compensation”. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock or stock award on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.

The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

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

As of March 31, 2025, the total unrecognized compensation expense related to unvested awards was approximately $5.2 million, which the Company expects to recognize over an estimated weighted average period of 1.92 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 1,429 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 three months ended March 31, 2024.

Shares of Legacy XTI common stock were issued to Maxim as transaction compensation immediately prior to the XTI Merger closing time equal to 1,539 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded approximately $2.0 million of stock-based compensation expense included in the condensed consolidated statement of operations during the three months ended March 31, 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 757 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 three months ended March 31, 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 186 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded approximately $0.2 million of stock-based compensation expense included in the condensed consolidated statement of operations during the three months ended March 31, 2024.

Note 13 - Warrants

The following table summarizes the activity of warrants outstanding:

The weighted average exercise price of warrants outstanding as of March 31, 2025 was $5.65. The weighted average exercise price of exercisable warrants outstanding as of March 31, 2025 was $5.64.

Warrants Granted

January 2025 Public Offering

As part of its compensation for acting as placement agent for the January Offering (refer to Note 10), the Company issued to the Placement Agent warrants (the “Placement Agent Warrants”) to purchase 72,727 shares of common stock. The Placement Agent Warrants are exercisable commencing January 10, 2025, expire January 8, 2030 and have an exercise price of approximately $17.19 per share.

The Placement Agent Warrants are classified as a contingently redeemable warrant in accordance with ASC 718, since these warrants did qualify for equity classification, but could be settled in cash or other assets in the event that another person or entity becomes the beneficial owner of 50% of the outstanding shares of the Company’s common stock. Because this contingently redeemable feature could result in the warrant holders receiving additional compensation not on par with the holders of Common Stock, the Placement Agent Warrants were classified as temporary equity and therefore reported in “Mezzanine Equity” on the Company’s condensed consolidated balance sheets as of March 31, 2025.

The measurement of fair value of the warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $7.31, exercise price of $17.19, term offive years, volatility of 98%, risk-free rate of 4.6%, and expected dividend rate of 0%). The proceeds of the January Offering were allocated to each of the warrants and the common stock based on their relative fair value.

The grant date fair value of the warrants and shares of common stock on January 10, 2025 is summarized below and is reflected as temporary equity for the warrants and within additional paid-in capital for the common stock as of March 31, 2025.

March 2025 Public Offering

As part of the March Offering (refer to Note 10), the Company issued pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 2,176,000 shares of common stock, and common warrants (the “Common Warrants”) to purchase up to 2,941,200 shares of common stock.

Each Pre-funded Warrant was immediately exercisable upon issuance, has an exercise price of $0.001 per share and may be exercised at any time until all of the Pre-funded Warrants are exercised in full. Each Common Warrant was immediately exercisable upon issuance, has an exercise price of $1.36 per share, and expires on the fifth anniversary of the date of issuance.

Upon closing of the March Offering, the Company issued the Representative, as partial compensation, warrants (the “Representative’s Warrants”) to purchase up to 147,060 shares of common stock. The Representative’s Warrants have an exercise price of $1.70 per share. The Representative’s Warrants are exercisable, in whole or in part, immediately upon issuance until the five-year anniversary of the commencement of sales of securities in the March Offering.

Similar to the Placement Agent Warrants described above in this note section, the Representative’s Warrants issued in connection with the March Offering were determined to be temporary equity under ASC 718 and therefore reported in “Mezzanine Equity” on the Company’s condensed consolidated balance sheets, and the Common Warrants and Pre-funded Warrants were determined to be liability classified. The Common Warrants and Pre-funded Warrants were recognized at fair value at issuance, with the change in fair value of approximately $0.5 million reported in “change in fair value of warrant liability” on the Company’s condensed consolidated statements of operations for the three months ended March 31, 2025.

The measurement of fair value of the Representative’s Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $1.09, exercise price of $1.70, term offive years, volatility of 103%, risk-free rate of 4%, and expected dividend rate of 0%). The measurement of fair value of the Common Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $1.09, exercise price of $1.36, term offive years, volatility of 103%, risk-free rate of 4%, and expected dividend rate of 0%).

The March Offering proceeds were allocated to each of the warrants and the common stock based on their relative fair value. The grant date fair value of the warrants and shares of common stock on March 31, 2025 is summarized below and is reflected as temporary equity (“Mezzanine Equity”) for the Representative’s Warrants, a warrant liability for the Common Warrants and Pre-funded Warrants, and within additional paid-in capital for the common stock as of March 31, 2025.

Given that the gross proceeds received of $3,997,856 from the March Offering was less than the total fair value of the warrants issued, the Company recorded a loss on excess fair value of $1,470,093 at issuance, which is reported in “warrant issuance expense” on the Company’s condensed consolidated statements of operations for the three months ended March 31, 2025.

Warrants Exercised

As of March 31, 2025,300,000 Pre-funded Warrants were exercised at an exercise price per share of $0.001, resulting in the issuance of 300,000 shares of common stock.

Note 14 - Segments

The Company’s Chief Executive Officer, acting as the Chief Operating Decision Maker (“CODM”), regularly reviews and manages certain areas of its businesses, resulting in the Company identifyingtwo 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 airplane. 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 March 31, 2025 reporting date.

Information on each of our reportable segments and reconciliation to consolidated loss from operations is presented in the table below. We have assigned certain previously reported expenses to each segment to conform to the way we internally manage and monitor our business. 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 tables reflect the results of operations from our business segments for the periods indicated below (in thousands):

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.

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, accounts payable, and warrant liability. 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 Company’s assets and liabilities measured at fair value consisted of the following at the periods indicated:

The fair value of the Level 3 warrant liability was determined by using a pricing model with certain significant unobservable market data inputs (refer to Note 13).

The table below provides a summary of changes in the estimated fair value of the Company’s Level 3 warrant liability:

The change in fair value of the warrant liability is presented within “Change in fair value of warrant liability” on the condensed consolidated statements of operations.

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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):

Note 17 - Related Party Transactions

Consulting Agreement with David Brody

David Brody, board member and founder of Legacy XTI, provided legal and strategic consulting services to Legacy XTI under a consulting agreement. During the three months ended March 31, 2025 and 2024, Legacy XTI paid Mr. Brody consulting compensation of $0 and $20,000, respectively. Pursuant to an amendment to the consulting agreement, an outstanding payable amount of $320,000 was waived by Mr. Brody, and the consulting agreement terminated in connection with the closing of the XTI Merger. This forgiveness of a related party payable was accounted for as a capital contribution on the condensed consolidated statement of changes in stockholders’ equity.

Consulting Agreement with Scott Pomeroy

Scott Pomeroy and Legacy XTI entered into a consulting agreement dated July 1, 2022, as amended effective January 1, 2023, that provided for his engagement as Legacy XTI’s Chief Financial Officer. The agreement provided that Mr. Pomeroy receive a monthly compensation of $17,500. During the three months ended March 31, 2025 and 2024, the Company paid Mr. Pomeroy consulting compensation of $0 and $43,750, respectively. Pursuant to the consulting agreement and in connection with the closing of the XTI Merger in March 2024, Mr. Pomeroy (i) received 4,000,000 shares (pre-merger, pre-reverse stock splits) of Legacy XTI common stock valued at $1.9 million as transaction-related compensation and (ii) was entitled to receive a transaction cash bonus of $400,000. The transaction cash bonus obligation remained outstanding as of December 31, 2024 and is included in accrued expenses and other current liabilities on the accompanying consolidated balance sheets. This cash bonus obligation was subsequently paid in full during January 2025. Effective upon closing time of the XTI Merger, Mr. Pomeroy was appointed as XTI Aerospace’s Chief Executive Officer.

Transactions with AVX Aircraft Company

On August 27, 2024, the Company entered into an amended and restated letter agreement with AVX Aircraft Company (“AVX”), which amends and restates the original letter agreement, dated as of March 25, 2024, by and between the Company and AVX, as subsequently amended, pursuant to which AVX provides consulting and advisory services to the Company relating to the development and design of the TriFan 600 airplane in exchange for the payment of costs incurred by AVX (with a target cost of approximately $960,000) plus a fixed fee of 12% of such costs (approximately $115,000) for a total payment of up to approximately $1.1 million. The Company pays AVX for its actual costs plus the 12% fixed fee on a monthly basis. The Company’s Chairman and Chief Executive Officer, Scott Pomeroy, and board member, David Brody, also sit on the five-member board of AVX. Additionally, as of the date of this report, Mr. Brody and his spouse together own approximately 26% of the issued and outstanding shares of AVX. As a result of a legal financial separation between Mr. Brody and his spouse, Mr. Brody holds approximately 7% of the voting power of the outstanding securities of AVX and Mr. Brody’s spouse holds approximately 19% of the voting power of the outstanding securities of AVX. As of the date of this report, Mr. Pomeroy owns restricted stock units of AVX which amount to less than 5% of the outstanding shares of AVX on a fully diluted basis. During the three months ended March 31, 2025, the Company did not accrue or pay AVX any consulting fees. During the year ended December 31, 2024, the Company paid AVX approximately $0.9 million in consulting fees, which included advance deposits for future services. As of March 31, 2025 and December 31, 2024, the deposit balance for future services was approximately $0.5 million and $0.5 million, respectively, and is included in prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets. Subsequent to March 31, 2025, the deposit balance of approximately $0.5 million was returned to the Company. As of the date of this report, neither Mr. Brody nor Mr. Pomeroy has received, and neither is entitled to receive, any compensation or other consideration from AVX, in connection with services provided by AVX to the Company or otherwise.

On April 18, 2025, XTI Aircraft Company entered into a novation agreement with AVX and a recruiting firm, pursuant to which AVX assigned to XTI Aircraft Company all of AVX’s rights and obligations under a talent acquisition engagement agreement with the recruiting firm and, as a result, the recruiting firm will assist XTI Aircraft Company in hiring an executive for expected fees of approximately $0.1 million.

Agreements with Nadir Ali

On March 12, 2024, the Company entered into a consulting agreement with Nadir Ali (the “Ali Consulting Agreement”), the Company’s former Chief Executive Officer. Mr. Ali, through 3AM, held shares of the Company’s Series 9 Preferred Stock as disclosed in Note 11.

During the three months ended March 31, 2025 and 2024, the Company recognized compensation expense of approximately $2.3 million and $0, respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations, relating to the Ali Consulting Agreement. As of December 31, 2024, the Company owed Mr. Ali accrued consulting fees of approximately and $0.2 million, which is included in accounts payable on the accompanying consolidated balance sheets and was repaid during the quarter ended March 31, 2025.

Pursuant to the Settlement Agreement (see “Settlement Agreement” below in this note), as of March 31, 2025, the Company owed Mr. Ali accrued consulting fees of approximately $1.5 million, which is included in accounts payable on the accompanying condensed consolidated balance sheets.

On July 24, 2023, the compensation committee of the Board (the “Compensation Committee”) of Legacy Inpixon adopted a Strategic Transaction Bonus Plan, which was amended on March 11, 2024, and was intended to provide incentives to certain employees, including Mr. Ali, and other service providers to remain with the Company through the consummation of a qualifying transaction. As of December 31, 2024, the Company had a transaction bonus obligation of approximately $2.1 million payable to Mr. Ali, which is included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. On March 31, 2025, the Company repaid the remaining transaction bonus obligation to Mr. Ali pursuant to the Settlement Agreement (see “Settlement Agreement” below in this note).

Settlement Agreement

On March 27, 2025 (the “Effective Date”), the “Company entered into a settlement agreement (the “Settlement Agreement”) with 3AM, Grafiti Group LLC (“Grafiti Group”) and Nadir Ali (“Ali”). The terms of the Settlement Agreement include:

On March 31, 2025, the Company paid the Outstanding Amount of $60,000 in full. As of the date of this report, the Deferred Amount of $1,500,000 remains outstanding.

On March 31, 2025, the Company paid amounts due under the Former Management Payments in full.

Grafiti Group Divestiture

On February 21, 2024, Legacy 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 the Equity Purchase Agreement. Pursuant to the terms of the Equity Purchase Agreement, Grafiti Group acquired 100% of the equity interest in Grafiti LLC, including the assets and liabilities primarily relating to Legacy 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 “Grafiti Purchase Amount”). The purchase price and annual cash installment payments were to be (i) decreased for the amount of transaction expenses assumed; and (ii) increased or decreased by the amount of 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 on the Company’s condensed consolidated balance sheets as of December 31, 2024, and the remaining $0.5 million of the receivable is included in long term assets as other assets on the Company’s consolidated balance sheets as of December 31, 2024.

Pursuant to the Settlement Agreement dated March 27, 2025 (see “Settlement Agreement” above in this note), the Company agreed that, effective as of the Effective Date of the Settlement Agreement, the Grafiti Purchase Amount shall be deemed to be satisfied in full and no further amounts shall be payable to the Company by Grafiti Group or any of its affiliated parties pursuant to the Equity Purchase Agreement. As such, the Company reported $0 receivables due from Grafiti Group or any of its affiliates in its condensed consolidated balance sheets as of March 31, 2025.

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”) arising from Xeriant’s introducing Legacy XTI to a Nasdaq listed company as a potential acquirer of Legacy XTI. 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 airplane 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 second amended complaint. On January 14, 2025, the Court denied Legacy XTI’s motion to dismiss the complaint. On January 28, 2025, Legacy XTI filed an answer to the second amended complaint. On January 28, 2025, Legacy XTI filed an amended answer and counterclaims against Xeriant. The counterclaims assert that Xeriant (1) breached the joint venture agreement by failing to pay $4,600,000 to fund development of the TriFan 600 technology, and (2) breached its fiduciary duty to XTI by engaging in bad faith, coercion, and self-dealing, including by appropriating material information for its own use and concealing from Legacy XTI the identity of a potential strategic partner. On March 18, 2025, Xeriant moved for dismissal of Legacy XTI’s counterclaims. The case is in its early stages of discovery. Legacy XTI 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 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 originally alleged that the Company was bound by the Agreement even though it did not sign the Agreement, which the Company denied. Chardan further alleged that Aircraft and the Company breached the Agreement by not making separate payments to Chardan of $200,000, $94,511, $484,044.40 and $174,000. Chardan also sought to recover unspecified amounts relating to an alleged right of first refusal to perform banking services (the “ROFR”) 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 “ATM”). The Company filed a petition in the U.S. District Court for the Southern District of New York (the “Court”) seeking to stay the Arbitration to the extent that it was asserted against the Company. On or about January 21, 2025, the Court entered a final judgment that: (a) enjoins Chardan from prosecuting the Arbitration against the Company; and (b) declares that the Company has no contractual or other duty to arbitrate with Chardan.

On April 30, 2025, Chardan amended its Statement of Claim in the Arbitration. The Amended Statement of Claim (“ASOC”) is asserted solely against Aircraft. Thus, the Company no longer is a respondent in the Arbitration. Through the ASOC, Chardan now asserts claims against Aircraft for breach of contract and unjust enrichment. It seeks to recover: (a) a $200,000 cash payment that Aircraft supposedly was required to, but did not, make; (b) approximately $134,000 in damages, for supposedly issuing 189,037 shares of the Company’s common stock to Chardan on March 19, 2024 instead of 208,113 shares; and (c) all payments supposedly due to Chardan under the ROFR, which Chardan states continue to accumulate. According to Chardan, amounts due under the ROFR include 30% of any banking fees paid with respect to at least the following acts of the Company: (i) the entry into an Exchange Agreement, pursuant to which Streeterville exchanged the remaining balance of principal and accrued interest under a December 2023 Note in the aggregate amount $9,801,521 for 9,801.521 shares of the Company’s Series 9 Preferred Stock; (ii) the entry into an Equity Distribution Agreement with Maxim that increased the value of stock that could be sold under the Company’s ATM from $48,000,000 to $83,800,000; (iii) the January 10, 2025 capital raise that used the services of ThinkEquity LLC; and (d) the February 13, 2025 entry into an Exchange Agreement with Streeterville, wherein an outstanding secured promissory note issued on May 1, 2024 (the “May 2024 Note”) in the principal amount of $250,000.00 held by Streeterville was partitioned into a new secured promissory note (the “February 2025 Note”) in the same form and amount as the May 2024 Note, with the Company and Streeterville subsequently agreeing to exchange the February 2025 Note for 59,832 shares of Company common stock with an effective price of $4.21 per share. Aircraft has not yet responded to the ASOC.

The Company has indicated that Aircraft intends to defend against the ASOC vigorously. As of March 31, 2025, the Company has accrued $350,000 relating to the Agreement, which is included in accounts payable on the condensed consolidated balance sheets.

Commitment to Nadir Ali

As previously disclosed, the Company has a commitment to pay Nadir Ali deferred consulting fees of $1,500,000 by wire transfer of immediately available funds in three equal installments of $500,000 each on June 30, 2025, September 30, 2025, and December 31, 2025.

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):

The basic earnings per share calculation for the three months ended March 31, 2025 and 2024 included 1,876,000 shares of common stock issuable upon exercise of Pre-funded Warrants issued in the March Offering and 2,197 penny warrant shares, respectively, since the exercise price was either at or below $0.01 per share. Additionally, the basic earnings per share calculation for the three months ended March 31, 2024 included 944 shares of common stock that were issuable to 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.

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):

Note 20 - Subsequent Events

Pre-funded Warrant Exercises

Subsequent to March 31, 2025,1,500,000 Pre-funded Warrants issued in connection with the March Offering were exercised at an exercise price per share of $0.001, resulting in the issuance of 1,500,000 shares of common stock. As of the date of this filing, there are 376,000 Pre-funded Warrants outstanding.

Advisory Agreement

On May 13, 2025, the Company entered into an advisory agreement with a third-party advisor, pursuant to which the Company agreed to pay $85,000 in cash and issue 125,000 shares of restricted common stock, subject to certain registration rights, to the advisor in consideration for financial advisory services agreed to be rendered to the Company pursuant to the advisory agreement. Fifty percent of the cash fee is payable within 2 business days of the advisory agreement and the remaining balance is payable no later than 90 days following commencement of the advisor’s services.

In addition, the Company agreed to reimburse the advisor for all reasonable travel and other out-of-pocket expenses incurred in connection with the advisory agreement up to a maximum of $15,000, subject to certain exceptions. The Company also agreed to: (1) pay the advisor a customary fee tail during the 12-month period following the termination or expiration of the advisory agreement, if applicable; (2) pay an M&A cash fee to the advisor during the term equal to 3% of the aggregate consideration to the extent the Company enters into a merger or acquisition with a party initially introduced by the advisor to the Company; and (3) indemnify the advisor in in accordance with the terms and conditions of the advisory agreement.

The advisory agreement has a term of 180 days, subject to early termination or further extension, each upon the mutual consent of the parties.