XTI Aerospace, Inc.

Note 1 - Description of Business and Organization

The following describes the Company’s business and organizational structure:

Business

XTI Aerospace, Inc. (the “Company”) is a U.S.-based aerospace company focused on unmanned aircraft systems (“UAS”) and related services. The Company provides UAS solutions through a combination of product distribution and service offerings, including the sale and support of UAS platforms, payloads, sensors, batteries, accessories and related equipment, as well as operator training, program enablement, repair and maintenance, and other fleet lifecycle support services for enterprise, public safety, government, and defense-related customers. The Company is also starting in 2026 the design and development of unmanned platforms for defense and commercial applications.

Organization

On March 12, 2024 (the “Closing Date”), the Company, formerly known as Inpixon (“Legacy Inpixon”), completed a reverse triangular merger with XTI Aircraft Company, a Delaware corporation (“Legacy XTI”), pursuant to the Agreement and Plan of Merger dated July 24, 2023, as amended (the “XTI Merger”). In connection with the transaction, Legacy XTI became a wholly owned subsidiary of the Company, and the Company changed its name to “XTI Aerospace, Inc.” The Company’s common stock began trading on the Nasdaq Capital Market under the ticker symbol “XTIA” on March 13, 2024. The XTI Merger was accounted for as a reverse acquisition, with Legacy XTI treated as the accounting acquirer and Legacy Inpixon treated as the accounting acquiree. Accordingly, the consolidated financial statements represent a continuation of the financial statements of Legacy XTI, and include the results of operations of Legacy Inpixon from the Closing Date.

In November 2025, the Company completed the acquisition of Drone Nerds, LLC and Anzu Robotics, LLC (collectively, “Drone Nerds”) through XTI Drones Holdings, LLC, a Texas limited liability company (“XTI Drones Holdings”). The Company holds an 83.403% controlling equity interest in XTI Drones Holdings through its ownership of Class A Units, and the remaining 16.597% equity interest is held by other Class B unitholders. The results of Drone Nerds have been included in the Company’s consolidated financial statements from November 10, 2025, the acquisition date, and the ownership interest not held by the Company is reflected as noncontrolling interest. Drone Nerds currently represents the Company’s primary UAS solutions and services operations.

During December 2025, the Company committed to a plan to dispose of its historical Industrial IoT / real-time location systems (“RTLS”) operations (the “Inpixon Business”) and classified the business as held for sale. The disposition of the Inpixon Business was completed on February 3, 2026. The Inpixon Business historically comprised the Company’s Industrial IoT operations, which previously represented the Company’s Industrial IoT reportable segment. The results of the Inpixon Business have been presented as discontinued operations in the accompanying consolidated financial statements for all periods presented. Unless otherwise indicated, the information included in the accompanying notes to the consolidated financial statements relates to the Company’s continuing operations. See Note 19 for additional information regarding discontinued operations.

Reverse Stock Splits

On January 10, 2025, the Company effected a 1-for-250 reverse stock split of its outstanding common stock. Prior to that, on March 12, 2024, the Company effected a 1-for-100 reverse stock split of its outstanding common stock. The par value of the common stock was not changed as a result of either reverse stock split.

All share and per share amounts presented in these consolidated financial statements have been retroactively adjusted to reflect the reverse stock splits.

Note 2 - Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. The results of Drone Nerds have been included in the consolidated financial statements from November 10, 2025, the acquisition date. All intercompany balances and transactions have been eliminated in consolidation.

Note 3 - Summary of Significant Accounting Policies

Liquidity

As of December 31, 2025, the Company had cash and cash equivalents of approximately $16.7 million andno outstanding borrowings under its credit facility. During the year ended December 31, 2025, the Company incurred a net loss of approximately $68.5 million and used approximately $36.6 million of cash in operating activities.

Management has evaluated the Company’s liquidity and capital requirements in accordance with applicable accounting guidance. The Company’s historical operating losses and negative cash flows from operations could raise substantial doubt about its ability to continue as a going concern.

The Company’s liquidity position has been supported by capital raising activities during 2025, including public offerings of equity securities and the issuance of convertible preferred stock. In addition, the Company has access to financing arrangements, including an asset-based lending facility, which provides borrowing availability subject to a borrowing base. Management expects to fund operations through a combination of existing cash balances, borrowing availability under its credit facility, and its ability to manage discretionary expenditures. While the Company may pursue additional capital raising activities, such activities are not considered in management’s assessment of its ability to meet its obligations.

Based on these considerations, management believes that the Company will have sufficient liquidity to meet its obligations for at least twelve months from the date of issuance of these consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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:

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. As of December 31, 2025 and 2024, the Company did not hold any cash equivalents.

Statement of Cash Flows

The Company presents cash flows from financing activities on a net basis for transactions in which proceeds are received net of offering costs and other transaction fees.

The Company has elected to present cash flows from discontinued operations on a net basis within each category of the consolidated statements of cash flows. Accordingly, the consolidated statements of cash flows do not separately present cash flows from discontinued operations within operating, investing and financing activities. Additional information regarding discontinued operations is included in Note 19.

Inventories

Inventories consist primarily of finished goods held for resale, including drones and related accessories, and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) method. The Company does not manufacture these products and instead purchases inventory from third-party suppliers, including, in certain cases, products manufactured on its behalf by third-party contract manufacturers, for distribution to enterprise, public safety, government and commercial customers.

Inventory costs include amounts paid to suppliers and other costs incurred to bring inventories to their present location and condition, including freight and handling costs. Selling, general and administrative expenses are expensed as incurred and are not included in inventory cost.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company evaluates inventory on a regular basis for excess, slow-moving or obsolete items based on historical sales trends, forecasted demand, product lifecycle considerations and market conditions. When required, the Company records a reserve to write down inventory to net realizable value.

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 maintains its cash and cash equivalents primarily with high-credit-quality financial institutions in the United States and, prior to the Inpixon Business disposition, in Germany. Cash balances maintained with financial institutions in the United States are generally in excess of federally insured limits. The Company mitigates its credit risk by limiting its exposure to any single financial institution and by monitoring the credit quality of its counterparties. The Company places its cash with financial institutions that have long-term credit ratings of at least A- or equivalent, as assigned by major credit rating agencies.

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 following table presents a rollforward of the Company’s allowance for credit losses (in thousands):

Trade accounts receivable acquired in connection with the Drone Nerds acquisition were recorded at fair value at the acquisition date, which reflects expected credit losses. No provision for credit losses was recorded related to these receivables during the post-acquisition period. Due to the short time between the acquisition date and the year end, and the existence of credit insurance coverage on these receivables, any incremental anticipated credit losses from Drone Nerds accounts receivable were not material.

During the year ended December 31, 2025, the Company recorded a provision for credit losses of approximately $2.0 million related to a convertible promissory note receivable. As of December 31, 2025, the note receivable was fully reserved (see Note 13).

The provision for credit losses presented in the consolidated statement of cash flows includes approximately $0.1 million related to discontinued operations, which is excluded from the allowance rollforward above.

The customers from continuing operations who account for 10% or more of the Company’s revenue for the year ended December 31, 2025 or 10% or more of the Company’s outstanding receivable balance as of December 31, 2025 are presented as follows:

For the year ended December 31, 2024, all revenue was generated by the Company’s Inpixon Business, which has been classified as discontinued operations as of December 31, 2025.

The vendors from continuing operations who account for 10% or more of the Company’s purchases for the year ended December 31, 2025 or 10% or more of the Company’s outstanding accounts payable balance as of December 31, 2025 are presented as follows.

Intangible Assets and Goodwill

Finite-lived intangible assets primarily consist of developed technology, patents, customer relationships, and trade names and trademarks. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, generally ranging from 5 to 15 years. The Company reviews the estimated useful lives of intangible assets periodically and adjusts them if necessary.

Goodwill represents the excess of the purchase price of an acquired business over the fair value of identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually as of October 1, or more frequently if events or changes in circumstances indicate that goodwill may be impaired.

The Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the qualitative assessment indicates potential impairment, the Company performs a quantitative impairment test by comparing the fair value of the reporting unit to its carrying amount. If the carrying amount exceeds fair value, an impairment charge is recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.

The Company estimates the fair value of its reporting units using the income approach and/or the market approach. The income approach is based on discounted cash flow models that include assumptions regarding projected revenues, expenses, cash flows, long-term growth rates, and discount rates. The market approach is based on comparable market data and valuation multiples of similar companies.

Long-lived assets, including finite-lived intangible assets and operating lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability is assessed by comparing the carrying amount of the asset group to the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If the carrying amount exceeds the undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds fair value.

Long-lived assets and disposal groups classified as held for sale are measured at the lower of carrying amount or fair value less costs to sell. Depreciation and amortization cease upon classification as held for sale. See Note 19 – Discontinued Operations for impairment charges recognized in connection with the classification of the Inpixon Business as held for sale.

Leases

The Company determines whether an arrangement is or contains a lease at contract inception. A lease exists when a contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration.

The Company recognizes a right-of-use (“ROU”) asset and a corresponding lease liability for all leases with a term greater than 12 months at the commencement date. ROU assets represent the Company’s right to use an underlying asset over the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.

Lease liabilities are measured at the present value of fixed lease payments over the lease term, including renewal options that are reasonably certain to be exercised. Because the rate implicit in the lease is generally not readily determinable, the Company uses its incremental borrowing rate at lease commencement to discount lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment.

ROU assets are measured based on the initial lease liability, adjusted for lease payments made at or before commencement, lease incentives received, and initial direct costs.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or rate are expensed as incurred and are not included in the measurement of lease liabilities. These primarily include payments based on usage or other variable factors.

The Company has elected the short-term lease exemption for leases with a term of 12 months or less. The Company has elected the practical expedient to combine lease and non-lease components for all classes of underlying assets and account for them as a single lease component.

The Company reassesses leases upon the occurrence of certain events, including modifications or changes in circumstances that impact the lease term or expected lease payments. When a lease liability is remeasured, a corresponding adjustment is made to the related ROU asset*.*

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Revenue is recognized when control of promised goods transfers to the customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods.

Revenue from continuing operations is primarily derived from the sale and distribution of high-end drones, related equipment, accessories, and components to wholesale and retail customers.

Product Sales

Revenue is recognized at a point in time when control transfers to the customer, which generally occurs:

The Company is generally the principal in its sales arrangements as it controls the goods prior to transfer to the customer, establishes pricing, bears inventory and credit risk, and is responsible for fulfillment. Accordingly, revenue is recognized on a gross basis. In limited instances, the Company facilitates the sale of third-party service offerings (e.g., product protection programs), for which it acts as an agent and recognizes revenue on a net basis; such amounts are not material.

Payment terms vary by customer and channel and generally range from immediate payment at retail to 30–60 days for wholesale customers.

The transaction price may include variable consideration in the form of volume discounts, rebates, and estimated product returns. Revenue is recognized net of estimated returns and allowances. The Company estimates refund liabilities based on historical return patterns and current trends and records a reserve at each reporting date.

Freight billed to customers is included in net sales. Shipping and handling costs are treated as fulfillment costs and included in cost of sales.

Deferred revenue represents customer payments received in advance of shipment. Revenue is recognized when the related product is shipped and control transfers to the customer. The Company does not have material contract assets.

The Company may also provide certain service-based offerings, including product protection programs, that represent stand-ready obligations satisfied over time. Revenue associated with these arrangements is recognized over the coverage period. Such arrangements are not material to the consolidated financial statements.

Vendor Consideration

Consideration received from vendors, including price protection, rebates, and promotional incentives, is accounted for as a reduction of cost of sales in accordance with ASC 705-20, Cost of Sales and Services—Accounting for Consideration Received from a Vendor.

Practical Expedients

The Company has elected the practical expedient related to significant financing components, as the period between transfer of goods and customer payment is generally one year or less. The Company also expenses incremental costs of obtaining contracts when the amortization period would have been one year or less.

While the Company offers certain services, software, and training as part of its UAS solutions, these offerings are generally sold on a standalone basis or are not material, and therefore do not result in material multiple performance obligation arrangements requiring allocation of transaction price.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation—Stock Compensation. Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period. Stock-based compensation expense is recorded within the accompanying consolidated statements of operations based on the functional classification of the related employee.

For awards with service-based vesting conditions only, the Company recognizes compensation expense on a straight-line basis over the requisite service period. Forfeitures are recognized as they occur.

Stock Options

The Company estimates the grant-date fair value of stock option awards using the Black-Scholes option-pricing model. The Black-Scholes model requires the use of subjective assumptions, including the expected term of the option, expected volatility, risk-free interest rate, and expected dividend yield. Changes in these assumptions could materially affect the fair value of stock option awards and the related stock-based compensation expense.

The assumptions used in the Black-Scholes model are determined as follows:

Legacy XTI did not grant stock options after 2023.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Net loss attributable to common stockholders reflects net loss adjusted for any dividends declared or accumulated on preferred stock and increased or reduced by net income or loss attributable to noncontrolling interests.

Diluted net loss per share is computed by giving effect to all potentially dilutive common stock equivalents outstanding during the period, including stock options, warrants (including pre-funded warrants), convertible preferred stock, and other instruments that may be settled in shares of common stock, using the treasury stock method or the if-converted method, as applicable.

For periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share because the inclusion of potentially dilutive securities would be anti-dilutive.

Potentially dilutive securities excluded from the computation of diluted net loss per share are disclosed separately in the notes to the consolidated financial statements.

The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the periods in which the temporary differences are expected to reverse.

The Company evaluates deferred tax assets on a jurisdictional basis and establishes a valuation allowance when it is more likely than not that some or all of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including historical operating results, projected future taxable income, reversal of existing temporary differences, and tax planning strategies. Changes in the valuation allowance are recorded in income tax expense in the period of change.

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained upon examination by taxing authorities based on the technical merits of the position. Recognized income tax positions are measured as the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.

The Company’s income tax expense (benefit) includes federal, state, and foreign income taxes, as applicable.

Segments

The Company’s Chief Executive Officer serves as the Chief Operating Decision Maker (“CODM”) and evaluates financial performance and allocates resources based on segment operating results. The Company has two reportable segments: (i) Unmanned Aircraft Systems (“UAS”) and (ii) Commercial Aviation. Segment information is prepared on the same basis as the Company’s consolidated financial statements.

Recently Issued and Adopted Accounting Standards

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The standard requires additional disaggregation of income tax information, including rate reconciliation and income taxes paid.

The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted this standard prospectively for the year ended December 31, 2025. The adoption did not have a material impact on the Company’s consolidated financial statements; however, it resulted in expanded income tax disclosures.

Recently Issued Accounting Standards Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public entities to provide enhanced disaggregation of certain expense categories presented on the income statement, including disclosure of specific types of expenses such as employee compensation, depreciation, and amortization. The standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statement disclosures.

Other recently issued accounting standards not yet effective are not expected to have a material impact on the Company’s consolidated financial statements.

Note 4 - Disaggregation of Revenue

Disaggregation of Revenue

Revenue presented for the year ended December 31, 2025 represents revenue from continuing operations and excludes revenue from the Inpixon Business, which has been classified as discontinued operations. Revenue presented for the year ended December 31, 2024 relates entirely to the Inpixon Business and has been reclassified to discontinued operations in the accompanying consolidated financial statements.

Revenues arise substantially from the Company’s UAS offerings through the following channels (in thousands):

Wholesale revenue represents sales through resellers and channel partners.

Direct sales revenue represents sales to enterprise, commercial, and governmental end customers, including public safety agencies, that utilize drones as part of their operations.

Retail revenue represents sales to consumers, including those transacted through the Company’s e-commerce platform.

Enterprise, commercial, and governmental customers may also purchase through the Company’s e-commerce platform; such transactions are classified as direct sales based on customer type.

Revenue is primarily generated in the United States; however, approximately 25% of total revenue for the year ended December 31, 2025 was derived from a customer located in Poland. No other individual customer accounted for more than 10% of total revenue.

Note 5 – Business Combinations

XTI Merger (March 2024)

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. A significant portion of the acquired operations (the Inpixon Business) was subsequently classified as held for sale and is presented as discontinued operations. See Note 19 – Discontinued Operations for additional information.

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.

During 2025, the Company finalized the purchase price allocation related to the XTI Merger. No material measurement period adjustments were recorded.

For the year ended December 31, 2024, the Company incurred merger related transaction costs of approximately $6.5 million.

Drone Nerds Acquisition (November 2025)

On November 10, 2025 (the “Closing Date”), XTI Drones Holdings, LLC (“XTI Drones Holdings”), a subsidiary of the Company’s wholly owned subsidiary, XTI Drones, LLC, acquired 100% of the issued and outstanding equity interests of Drone Nerds, LLC, a Florida limited liability company, and Anzu Robotics, LLC (“Anzu” and, collectively with Drone Nerds, LLC, “Drone Nerds”), a Delaware limited liability company (collectively, the “Acquisition”). The Acquisition was accounted for as a business combination in accordance with ASC 805,Business Combinations. The Company holds an approximately 83.4% controlling interest in XTI Drones Holdings, with the remaining interest held by noncontrolling unitholders.

Total purchase consideration for the Acquisition was approximately $40.4 million, consisting of approximately $18.8 million in cash, approximately $11.9 million in promissory notes, and approximately $9.7 million in equity consideration in the form of an aggregate of 6,524,576 Class B Units of XTI Drones Holdings (the “Class B Units”).

Drone Nerds, LLC is a drone distributor and enterprise drone solutions provider in the United States, specializing in the wholesale and retail sale of advanced drone systems and related technologies serving commercial, governmental, and consumer markets. Anzu operates in complementary markets and enhances the Company’s drone platform capabilities. The Acquisition expands the Company’s footprint in enterprise drone distribution and strengthens its position in high-growth commercial and public sector markets. The purpose of the Acquisition was to establish and scale the Company’s enterprise UAS solutions platform, including hardware distribution, training, compliance support, and lifecycle services, and to accelerate the Company’s transition toward a revenue-generating UAS business, while strengthening its position in high-growth commercial and public sector markets.

Estimated purchase price of approximately $40.4 million related to the Acquisition is comprised of the following components (in thousands):

The Class B Units are exchangeable for shares of the Company’s common stock on a one-for-one basis, subject to customary equitable adjustments. The fair value of the Class B Units was determined based on the Company’s five-day volume-weighted average share price of $1.492 ending November 7, 2025.

The promissory notes bear interest at 7.25% per annum and mature on the one-year anniversary of the Closing Date, subject to scheduled principal repayments and acceleration provisions upon certain capital raising events.

The Company has performed a preliminary allocation of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the Closing Date. The allocation is preliminary and subject to change as the Company finalizes its valuation analyses, including assessments of identifiable intangible assets, working capital adjustments, and other contingencies.

The following table summarizes the preliminary allocation of purchase consideration as of November 10, 2025 (in thousands):

The goodwill recognized of approximately $11.5 million represents the excess of the purchase price over the estimated fair value of the identifiable net assets acquired. The goodwill is primarily attributable to expected synergies from integrating Drone Nerds into the Company’s drone platform, expanded customer relationships, workforce expertise, and future growth opportunities. The goodwill is expected to be deductible for tax purposes to the extent permitted under applicable law.

For the year ended December 31, 2025, the Company incurred acquisition related transaction costs of approximately $3.9 million.

Note 6 – Unaudited Pro forma Financial Information

As described in Note 5 – Business Combinations, on November 10, 2025, the Company acquired a controlling interest in Drone Nerds, LLC and Anzu Robotics, LLC (collectively, the “Acquisition”).

The following unaudited pro forma consolidated financial information presents the combined results of operations of the Company and the acquired businesses as if the Acquisition had occurred on January 1, 2024, the beginning of the earliest period presented. The pro forma financial information has been prepared for comparative purposes only and does not necessarily reflect the results of operations that would have occurred had the Acquisition been completed on that date, nor is it indicative of future results of operations.

The unaudited pro forma information reflects adjustments that are directly attributable to the Acquisitions and are factually supportable, including:

The pro forma financial information does not include any anticipated cost savings, operating synergies, or other integration effects of the Acquisition.

The following unaudited pro forma consolidated financial information presents the combined results of operations of the Company and Drone Nerds as if the Acquisition had occurred on January 1, 2024 (in thousands, except per share amounts).

Note 7 - Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations.

In connection with the XTI Merger in March 2024, the Company recognized goodwill of approximately $12.4 million related to its Inpixon Business (see Note 19).

The following table summarizes the changes in the carrying amount of Goodwill for the year ended December 31, 2025 (in thousands):

Impairment – Inpixon Business (Discontinued Operations)

During 2025, the Company recognized goodwill impairment charges related to the Inpixon Business, which is presented as discontinued operations. These charges are reflected in the goodwill rollforward above. See Note 19 – Discontinued Operations for additional information regarding the impairment and classification of the Inpixon Business.** **

UAS Reporting Unit (Drone Nerds)

Goodwill of approximately $11.5 million was recognized in connection with the Drone Nerds acquisition on November 10, 2025. The goodwill is attributable to expected synergies, expanded distribution capabilities, and growth opportunities in the enterprise drone market.

As of December 31, 2025, no impairment indicators were identified for the UAS reporting unit. The Company performs its annual goodwill impairment test during the fourth quarter.

Intangible Assets

Intangible assets consist primarily of patents, and trade names and trademarks acquired in the Drone Nerds acquisition. The following table presents intangible assets associated with continuing operations.

Amortization Expense

Amortization expense for continuing operations for the years ended December 31, 2025 and 2024 was approximately $0.2 million and $0.03 million, respectively.

Future amortization expense related to intangible assets associated with continuing operations is estimated as follows (in thousands):

Note 8 - Other Balance Sheet Information

Prepaid expenses and other current assets

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

Inventories

Inventory as of December 31, 2025 represents inventory on hand within the Drone Nerds (UAS) segment and consisted of the following (in thousands):

Inventory acquired in the Drone Nerds acquisition was recorded at its estimated net realizable value at the acquisition date, and as of December 31, 2025, no material inventory reserves or write-downs have been recorded subsequent to that date.

Accrued expenses and other current liabilities

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

Note 9 - Debt

As of December 31, 2025 and 2024, no portion of the Company’s long-term debt is due within one year. Interest expense on outstanding debt totaled approximately $0.3 million and $0.3 million for the years ended December 31, 2025 and 2024, respectively.

Streeterville Promissory Notes

In May 2024, the Company issued two secured promissory notes to Streeterville Capital, LLC (“Streeterville”) with aggregate principal of approximately $2.7 million. The notes bore interest at 10.0% per annum and were scheduled to mature within 12 months of issuance.

During the first quarter of 2025, the Company entered into exchange agreements with Streeterville pursuant to which the Company issued an aggregate of 240,229 shares of common stock in exchange for $750,000 of principal amount under the notes, in each case at per share prices equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d).

On March 31, 2025, the Company repaid the remaining outstanding balance of the notes in full, including accrued interest, fees and a contractual prepayment premium. In connection with the repayment, Streeterville released its security interests in the Company’s equity interests in Legacy XTI and the related assets. The Company recognized a loss on extinguishment of debt of approximately $0.4 million during the year ended December 31, 2025.

Acquisition-Related Promissory Notes

In connection with the November 2025 acquisition of Drone Nerds, XTI Drones Holdings, LLC issued promissory notes to the sellers with an aggregate original principal amount of approximately $11.9 million (the “Notes”).

The Notes bear interest at a rate of 7.25% per annum, calculated on a 365-day year. Accrued interest is payable in accordance with the terms of the Notes, and unpaid interest is added to principal if not paid when due.

The Notes require scheduled principal repayments as follows:

On November 30, 2025, the Company made the required aggregate payment of $4.0 million. On March 31, 2026, the Company made the required aggregate payment of $2.0 million.

The Notes may be prepaid at any time without premium or penalty, provided that accrued and unpaid interest is paid through the prepayment date. The outstanding principal balance of the Notes is subject to reduction in connection with indemnification obligations under the applicable purchase agreements.

The Notes contain customary events of default, including bankruptcy-related events, upon which the outstanding principal and accrued interest may become immediately due and payable.

As of December 31, 2025, the aggregate outstanding principal balance and accrued interest balance of the Notes was approximately $7.9 million and $0.049 million, respectively.

Asset-Based Revolving Line of Credit (Drone Nerds)

At the time of the Company’s acquisition of Drone Nerds in November 2025, Drone Nerds was party to an asset-based revolving credit facility with a financial institution with a maximum borrowing capacity of $25.0 million (the “Revolving Facility”). The Revolving Facility bore interest at one-month Term SOFR plus 2.50%, subject to a 6.00% minimum rate, with interest payable monthly, and was scheduled to mature in July 2027.

Outstanding borrowings under the Revolving Facility were assumed by the Company as part of the acquisition. In connection with the transaction, the lender required that the outstanding balance be repaid in full at closing. Accordingly, shortly after closing, the Company funded approximately $10.5 million to Drone Nerds to fully repay the outstanding borrowings. No amounts were outstanding under the Revolving Facility as of December 31, 2025.

In February 2026, the Revolving Facility was replaced by a new revolving credit facility with a financial institution. See Note 20 for additional information.

SBA Loan

The Company had an outstanding balance of approximately $65,000 under a U.S. Small Business Administration loan as of December 31, 2024. The loan bore interest at 3.75% per annum and was repaid in full during 2025.

Promissory Notes Assumed in Connection with the Drone Nerds Acquisition

In connection with the acquisition of Drone Nerds, the Company assumed two unsecured promissory notes payable to parties associated with Drone Nerds with aggregate principal of $450,000. The notes consist of a $250,000 note and a $200,000 note, each bearing interest at 10% per annum.

On November 9, 2025, each note was amended and restated in connection with the acquisition transaction. Beginning January 1, 2026, the notes require monthly interest-only payments, with the outstanding principal due at maturity on March 31, 2027. The notes may be prepaid at any time without premium or penalty.

As of December 31, 2025, the aggregate outstanding principal balance of these notes was $450,000.

Note 10 – Capital Structure

AUTHORIZED CAPITAL

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

COMMON STOCK

Public Offerings – 2025

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

In the aggregate, the Company issued:

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

Based on relative fair value at issuance, approximately:

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

Warrant Exercises

During the year ended December 31, 2025:

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

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

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

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

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

WARRANTS

The following table summarizes the activity of warrants outstanding:

Warrant Classification

Liability-Classified Warrants

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

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

Mezzanine Equity Warrants

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

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

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

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

PREFERRED STOCK

Series 10 Convertible Preferred Stock

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

Key terms included:

The Series 10 Preferred was classified within stockholders’ equity.

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

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

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

Series 9 Preferred Stock

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

During 2024 and the first quarter of 2025:

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

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

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

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

Exchange features of the Class B Units:

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

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

CONVERTIBLE NOTE CONVERSIONS – 2024 (MERGER-RELATED)

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

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

All such convertible note obligations were satisfied in full.

Note 11 - Stock Award Plans and Stock-Based Compensation

In 2011, the Company adopted the 2011 Employee Stock Incentive Plan (the “2011 Plan”). The 2011 Plan terminated by its terms on August 31, 2021 and remains in effect as to outstanding equity awards granted prior to the date of expiration. No new awards will be issued under the 2011 Plan.

Legacy XTI adopted the 2017 Employee and Consultant Stock Ownership Plan, which was assumed by the Company in connection with the XTI Merger. The plan permits grants of stock options and other equity awards to employees, directors and consultants. As of December 31, 2025, no shares remain available for future issuance under the 2017 Plan.

The Company’s 2018 Equity Incentive Plan, as amended and restated in August 2025, authorizes the grant of incentive stock options, nonqualified stock options, restricted stock, RSUs and other equity-based awards to employees, officers, directors and consultants. The 2018 Plan permits the Board to delegate limited grant authority to designated officers. Options generally vest over periods ranging from immediate tofour years and have contractual terms of up toten years.

As of December 31, 2025, there areno unvested Restricted Stock or Restricted Stock Units outstanding under the 2018 Plan.

The aggregate number of shares that may be awarded under the 2018 Plan as of December 31, 2025 was 80,105,687. As of December 31, 2025,64,166,804 shares of common stock were available for future grant under the 2018 Plan, of which 57,209,296 shares are registered.

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

During the year ended December 31, 2025, the Company granted 15,893,584 stock options under the 2018 Plan to employees, directors, and other service providers with exercise prices ranging from $1.26 to $2.00 per share.

The following assumptions were used in estimating the fair values of options awarded during the year ended December 31, 2025:

The range in expected term reflects both newly granted awards and modifications to certain previously granted options, including extensions of contractual terms from 90 days to up to ten years, which resulted in longer expected terms for those awards.

The following assumptions were used in estimating the fair values of options awarded during the year ended December 31, 2024:

Stock-based Compensation Expense

Stock-based compensation charges for the periods indicated below (in thousands) are as follows:

As of December 31, 2025, the total unrecognized compensation expense related to unvested awards was approximately $16.4 million, which the Company expects to recognize over an estimated weighted average period of 1.03 years.

In October 2025, the Board approved an extension of the post-termination exercise period from 90 days toten years for certain previously granted stock options. The extension constituted a modification under ASC 718, Compensation—Stock Compensation. The Company remeasured the affected awards on the modification date and recognized incremental compensation cost of approximately $0.6 million, representing the excess of the fair value of the modified awards over the fair value of the original awards immediately prior to modification. The incremental compensation cost was recognized immediately for awards that were vested as of the modification date, with the remaining cost related to unvested awards recognized over the remaining vesting period.

During the year ended December 31, 2025, the Company issued 125,000 shares of restricted common stock to a third-party advisor in exchange for financial advisory services. The Company recognized $0.2 million of stock-based compensation expense related to this award during the year ended December 31, 2025.

Note 12 - 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 identifyingtwo reportable segments: Unmanned Aircraft Systems (“UAS”) 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 UAS segment includes operating results of Drone Nerds, which is owned by the Company’s majority-owned subsidiary, XTI Drones Holdings, which provides an integrated suite of UAS solutions across hardware distribution, training, compliance management support, repair and maintenance, fleet sustainment, and related services. This segment is focused on revenue generation and lifecycle support for enterprise, public safety, government, and defense customers.

The Commercial Aviation segment consists of the development-stage VTOL aircraft program focused on the TriFan 600, which is designed to combine vertical takeoff and landing capability with the speed and range of a fixed-wing aircraft. This segment does not currently generate revenue and consists primarily of research, engineering, certification planning and program development activities. As of the beginning of 2026, activity on the development of the TriFan 600 has been paused.

The CODM evaluates segment performance primarily based on revenues, gross profit, and income (loss) from operations for the UAS segment, and research and development spending and progress toward program milestones for the Commercial Aviation segment. 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, public company costs, 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 UAS segment reflects results of Drone Nerds beginning in November 2025. There were no UAS segment operations during the year ended December 31, 2024. Segment operating results are presented on a consolidated basis prior to the allocation of net income (loss) attributable to noncontrolling interests.

Substantially all revenues and long-lived assets for continuing operations are located in the United States.

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 13 - 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:

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.

Investment in Publicly Traded Equity Securities

As of December 31, 2025, the Company held a de minimis investment in publicly traded equity securities with a carrying value of less than $0.1 million. Changes in fair value were immaterial for the year ended December 31, 2025.

Investment in Convertible Promissory Note – Valkyrie Sciences Holdings LLC

On October 21, 2025, the Company made a $2.0 million strategic investment in Valkyrie Sciences Holdings LLC (“Valkyrie”) through the purchase of a convertible promissory note with an initial principal amount of $2.0 million (the “Valkyrie Note”). The Valkyrie Note bears interest at 10.0% per annum and matures on December 31, 2026. The note may be converted, at the Company’s option, into equity securities of Valkyrie upon the occurrence of certain qualified financing or other defined transactions and contains customary repayment and default provisions. The Company may provide additional funding of up to $8.0 million under the Valkyrie Note; no additional amounts were funded as of December 31, 2025.

The Company determined that it does not have a controlling financial interest in Valkyrie and therefore does not consolidate the entity.

The Valkyrie Note is accounted for as an available-for-sale debt security under ASC 320. Available-for-sale debt securities are recorded at fair value with unrealized gains and losses recognized in accumulated other comprehensive income (loss), unless such declines are determined to be credit-related.

During the year ended December 31, 2025, the Company evaluated the investment for expected credit losses in accordance with ASC 326. Based on management’s assessment of the issuer’s financial condition, limited operating revenues, reliance on future financing, and the uncertainty surrounding the issuer’s ability to repay the contractual obligations, the Company determined that collection of the contractual cash flows associated with the note was not expected.

Accordingly, the Company recorded a full allowance for expected credit losses of approximately $2.0 million, which reduced the carrying value of the Valkyrie Note tozero as of December 31, 2025. The credit loss expense was recorded within Other (Expense) Income in the consolidated statements of operations.

Because the investment’s carrying value was reduced tozero through the recognition of expected credit losses, the asset had no remaining fair value as of December 31, 2025 and therefore is not presented in the fair value hierarchy table.

Warrant Liability – Fair Value Measurement

The Company’s warrant liability is classified as a Level 3 liability within the fair value hierarchy as the valuation utilizes significant unobservable inputs.

The fair value of the warrants was estimated using a Black-Scholes option pricing model. The model requires the use of significant assumptions, including:

Expected volatility was based on the historical volatility of the Company’s common stock. The risk-free interest rate was based on U.S. Treasury yields commensurate with the expected term of the warrants. The expected term was based on the contractual remaining life of the warrants. The Company assumed a dividend yield of zero, as it does not expect to declare dividends in the foreseeable future.

As of December 31, 2025, the significant assumptions used in the Black-Scholes model were as follows:

Changes in these assumptions could result in a material change in the fair value of the warrant liability.

Fair Value Tables

As of December 31, 2024, the Company did not have any material assets or liabilities measured at fair value on a recurring basis. Accordingly, no fair value hierarchy table has been presented for that date.

As of December 31, 2025, the Company did not have any assets measured at fair value on a recurring basis. The Company’s liabilities measured at fair value consisted of the following at December 31, 2025:

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

Note 14 - Related Party Transactions

Agreements with Nadir Ali and Affiliated Entities

On March 27, 2025, the Company entered into a Settlement Agreement with Nadir Ali, the Company’s former Chief Executive Officer prior to the XTI Merger, and certain of his affiliated entities. The Settlement Agreement terminated a prior consulting agreement with Mr. Ali and resolved outstanding obligations relating to a previously adopted strategic transaction bonus plan that was triggered by the XTI Merger, Series 9 Preferred Stock arrangements, and a prior equity purchase agreement with an affiliated entity.

During the year ended December 31, 2025, pursuant to the Settlement Agreement, the Company (i) paid approximately $1.1 million of remaining transaction bonus and former management payment obligations (including approximately $0.5 million paid to Mr. Ali), (ii) paid $60,000 and three installments totaling $1.5 million in settlement of amounts due under the terminated consulting agreement, (iii) redeemed the remaining outstanding shares of Series 9 Preferred Stock held by Mr. Ali for approximately $1.4 million, and (iv) deemed satisfied in full a $1.0 million receivable previously recorded under an equity purchase agreement with an affiliated entity, resulting in the elimination of the related receivable.

During 2025 and prior to the Settlement Agreement, the Company paid Mr. Ali approximately $1.6 million in transaction bonus payments.

The Company recognized approximately $2.3 million of expense during the year ended December 31, 2025 related to transactions with Mr. Ali and his affiliated entities, primarily associated with the settlement of consulting, bonus and related obligations described above.

As of December 31, 2025, no material amounts were payable to Mr. Ali or his affiliated entities. The Settlement Agreement also included mutual releases among the parties with respect to the matters resolved therein.

Transactions with AVX Aircraft Company

During 2024, the Company paid approximately $0.9 million to AVX Aircraft Company (“AVX”) for consulting and advisory services related to aircraft development. A deposit of approximately $0.5 million outstanding at December 31, 2024 was returned to the Company in April 2025.

During the year ended December 31, 2025, the Company did not accrue or pay material consulting fees to AVX. Certain members of the Company’s Board have ownership interests in, or serve on the board of, AVX. As of December 31, 2025, neither such individual received compensation from AVX in connection with services provided by AVX to the Company.

Former Consulting Arrangements

Prior consulting arrangements with David Brody and Scott Pomeroy terminated in connection with the XTI Merger in March 2024. During the year ended December 31, 2025, the Company paid Mr. Pomeroy the remaining $400,000 transaction bonus that was earned in connection with the XTI Merger. No consulting compensation was paid to Mr. Brody or Mr. Pomeroy during the year ended December 31, 2025.** **

Note 15 - Commitments and Contingencies

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 in exchange for financial advisory services. The Company paid the cash fee and issued the shares during 2025. A portion of the initial cash fee of $42,500 was subsequently waived and returned to the Company in connection with the closing of the June 2025 public offering.

The advisory agreement provided for reimbursement of certain out-of-pocket expenses (subject to a cap of $15,000), a customary 12-month fee tail, a 3% M&A fee with respect to certain transactions introduced by the advisor, and customary indemnification provisions. The agreement had a term of 180 days and expired during 2025.

Litigation

From time to time, the Company is involved in legal proceedings arising in the ordinary course of business. Except as described below, the Company is not currently a party to any other material legal proceedings.

Xeriant Litigation

In December 2023, Xeriant, Inc. filed a lawsuit in the United States District Court for the Southern District of New York against Legacy XTI alleging, among other things, breach of contract, fraud, unjust enrichment, and misappropriation of confidential information in connection with agreements relating to the TriFan 600 aircraft and the XTI Merger. Xeriant previously sought damages in excess of $500 million but has since amended its complaint to seek an unspecified amount. Legacy XTI has asserted counterclaims alleging breach of contract, breach of fiduciary duty, and seeking declaratory relief regarding ownership of intellectual property and termination of the joint venture agreement.

The litigation is currently in active discovery. The Company believes the claims against Legacy XTI are without merit and intends to vigorously defend against them. The outcome of this matter cannot presently be predicted.

Auctus Litigation

In May 2025, Auctus Fund, LLC filed a lawsuit in Colorado state court against Legacy XTI alleging breach of contract and asserting that Legacy XTI is obligated to repay approximately $9 million under a promissory note allegedly assumed in connection with a prior letter agreement. Legacy XTI disputes these claims and has asserted affirmative defenses. The case is ongoing.

State of Texas Petition Against Anzu Robotics, LLC

In February 2026, the State of Texas filed a petition in the District Court of Collin County, Texas, against Anzu Robotics, LLC (“Anzu”), a subsidiary of the Company, alleging violations of the Texas Deceptive Trade Practices–Consumer Protection Act in connection with the marketing and sale of certain drone products. The petition seeks injunctive relief, civil penalties, and attorneys’ fees and costs. The Company is engaged in preliminary discussions with the Texas Attorney General to attempt to resolve the matter cooperatively. The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any.

Assessment

The Company is unable to predict the ultimate outcome of these matters or reasonably estimate the amount of any potential loss, if any. Accordingly, no accrual has been recorded as of December 31, 2025. An adverse outcome in any of these matters could have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Note 16 - 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):

Net loss per share from continuing and discontinued operations is calculated based on net loss attributable to common stockholders. Preferred stock dividends and deemed dividends are allocated to continuing and discontinued operations on a proportional basis.

Pre-funded warrants outstanding during the period were included in the calculation of basic earnings per share as their exercise price is nominal.

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 17 – Income Taxes

The components of loss from continuing operations before income taxes for the years ended December 31, 2025 and 2024 are as follows (in thousands):

The income tax provision (benefit) for the years ended December 31, 2025 and 2024 consists of the following (in thousands):

Amounts for the year ended December 31, 2024 have been recast to reflect the classification of certain operations as discontinued operations. The Company adopted ASU 2023-09 prospectively in 2025; accordingly, the 2025 rate reconciliation is presented under the new guidance, while the prior year is presented under previous guidance and is not directly comparable to the current year presentation.

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective income tax rate for the year ended December 31, 2025 is as follows:

The state income tax impact primarily relates to operations in Colorado, Florida, and Utah, which individually represent significant components of the Company’s state income tax expense.

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective income tax rate for the year ended December 31, 2024 is as follows:

As of December 31, 2025 and 2024, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following (in thousands):

At December 31, 2025, the Company did not have any undistributed earnings of its foreign subsidiaries. As a result, no additional income or withholding taxes have been provided. The Company does not anticipate any impacts of the global intangible low-taxed income (“GILTI”) or base erosion anti-abuse tax (“BEAT”) and, as such, has not recorded any impact associated with either GILTI or BEAT.

In accordance with Section 382 of the Internal Revenue Code, the deductibility of the Company’s net operating loss (“NOL”) carryforwards is subject to an annual limitation in the event of a change in ownership, as defined by the regulations. The Company performed an analysis of ownership changes occurring during 2024 and 2025 and determined that certain NOLs are subject to limitation. As of December 31, 2025, the Company had approximately $133 million of NOL carryforwards available to offset future taxable income, subject to Section 382 limitations. Of this amount, approximately $5.3 million generated in 2017 will expire on December 31, 2037 if not utilized. The remaining NOLs generated after 2017 have an indefinite carryforward period. As of December 31, 2025 and 2024, the Company had gross state NOLs of $268.8 million and $163.7 million, respectively.

As of December 31, 2025, the Company’s foreign subsidiaries, including Nanotron GmbH and Intranav GmbH, had approximately $66.1 million of German NOL carryforwards available to offset future taxable income. These NOLs do not expire; however, German minimum taxation rules limit the amount of taxable income that may be offset in any given year. The related deferred tax assets and valuation allowances associated with these foreign NOLs are presented within discontinued operations.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences become deductible.

ASC 740 requires that a valuation allowance be established when it is more likely than not that all, or a portion of, deferred tax assets will not be realized. After consideration of all available positive and negative evidence, including cumulative losses and projections of future taxable income, management has concluded that a full valuation allowance is required against the Company’s deferred tax assets as of December 31, 2025. The increase in the valuation allowance for continuing operations was approximately $6.7 million for the year ended December 31, 2025.

ASC 740 also clarifies the accounting for uncertainty in income taxes. The Company recognizes the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. The Company files income tax returns in the United States (federal and state), Germany, and the United Kingdom, including jurisdictions related to discontinued operations. The Company has concluded that there are no material uncertain tax positions requiring recognition in the consolidated financial statements for the years ended December 31, 2025 and 2024.

The Company’s policy is to record interest and penalties related to unrecognized tax benefits as a component of income tax expense. No amounts were accrued for interest or penalties for the years ended December 31, 2025 and 2024. Management does not expect any material changes in unrecognized tax benefits in the next twelve months.

The Company’s tax returns are subject to examination by various taxing authorities. The Company is subject to examination by U.S. federal and state tax authorities beginning with the year ended December 31, 2022.

Note 18 – Leases

The Company has operating leases for office and operational facilities in the United States related to its continuing operations.

The Company entered into a lease for its corporate office in Englewood, Colorado that commenced on February 1, 2024 and expires on January 31, 2028. The current lease rate is $10,630 per month as of the date of this filing.

In connection with the Drone Nerds acquisition, the Company recognized right-of-use assets and lease liabilities for four office leases: (i) Hollywood Park office, Dania Beach, Florida (expires April 30, 2029; current monthly base rent of $24,587), (ii) Aventura Business Park, Suite B09-10, Miami, Florida (expires January 31, 2031; current monthly base rent of $4,165), (iii) Aventura Business Park, Suite B11, Miami, Florida (expires September 30, 2030; current monthly base rent of $3,453), and (iv) Wynwood office, Miami, Florida (expires April 30, 2032; current monthly base rent of $23,435). These leases were recognized at fair value as part of the purchase accounting for the acquisition of Drone Nerds in November 2025.

Right-of-use assets and lease liabilities associated with the Company’s exited Inpixon Business, including office leases in Frankfurt and Berlin, Germany, are classified as held for sale and presented within discontinued operations. Accordingly, the lease disclosures below exclude leases classified within discontinued operations.

The Company has no other operating or finance leases with terms greater than 12 months.

Right-of-use assets are summarized below (in thousands):

Operating lease cost for the years ended December 31, 2025 and 2024 was approximately $0.1 million and $0.2 million, respectively, which includes immaterial amounts related to short-term and variable lease costs.

Lease liabilities are summarized below (in thousands):

Future minimum lease payments under operating leases are as follows (in thousands):

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date or acquisition date, as applicable. As of December 31, 2025, the weighted average remaining lease term is 4.9 years and the weighted average discount rate used to determine the operating lease liabilities was 9.1%.

Note 19 – Discontinued Operations

Held-for-Sale Classification

During December 2025, management committed to a plan to dispose of the Inpixon Business and initiated an active program to identify potential buyers. The Inpixon Business was available for immediate sale in its present condition, and the sale was considered probable and expected to be completed within one year. Accordingly, as of December 31, 2025, the Company classified the assets and liabilities of the Inpixon Business as held for sale in accordance with ASC 360-10.

Beginning in December 2025, the Company ceased depreciation and amortization of long-lived assets associated with the Inpixon Business.

The disposition represents a strategic shift that will have a major effect on the Company’s operations and financial results. Accordingly, the results of the Inpixon Business are presented as discontinued operations in the consolidated financial statements for all periods presented in accordance with ASC 205-20.

Disposition of the Inpixon Business

On February 3, 2026 (the “Signing Date” and “Closing Date”), the Company completed the disposition of its Inpixon Business pursuant to a Share Purchase and Transfer Agreement (the “SPA”) entered into with EVO 467. GmbH (the “Purchaser”). Pursuant to the SPA, the Company sold all of the shares of Inpixon GmbH for a purchase price of EUR 4,640,000 (approximately $5.5 million based on the exchange rate on the Signing Date), subject to the terms described below.

Inpixon GmbH is the sole shareholder of Aware RTLS, Inc. and IntraNav GmbH. The Inpixon Business, which provides indoor positioning, real-time localization and sensor technology solutions, was conducted through Inpixon GmbH.

Measurement and Impairments

Upon classification as held for sale in December 2025, the disposal group was measured at the lower of its carrying amount or fair value less costs to sell in accordance with ASC 360.

During the year ended December 31, 2025, the Company recognized total impairment charges of approximately $10.5 million related to the Inpixon Business, consisting of:

Goodwill Impairment

During 2025, the Company identified triggering events related to the Inpixon Business, including continued operating losses, negative cash flows, declining revenue trends, and management’s decision to pursue disposition of the business.

The Company performed a quantitative goodwill impairment test and determined that the carrying amount of the reporting unit exceeded its estimated fair value. As a result, the Company recorded a goodwill impairment charge of approximately $4.0 million during 2025.

In December 2025, upon classification of the disposal group as held for sale, the Company measured the disposal group at fair value less costs to sell in accordance with ASC 360. Based on this measurement, the Company recorded an additional impairment charge of approximately $5.9 million, which was allocated entirely to goodwill.

The fair value estimate was primarily based on the expected transaction value from the sale of the Inpixon Business, adjusted for expected recoveries of certain accounts receivable retained by the Company and liabilities economically retained by the Company.

Intangible Asset Impairment

During 2025, the Company also evaluated long-lived assets for recoverability in accordance with ASC 360. As a result, the Company recorded impairment charges totaling approximately $0.6 million, consisting of:

The fair value of the affected asset groups was determined using an income approach based on estimated future cash flows. These fair value measurements represent non-recurring Level 3 measurements within the fair value hierarchy.

Presentation

All impairment charges related to the Inpixon Business are included in loss from discontinued operations in the consolidated statements of operations.

Major Classes of Assets and Liabilities Held for Sale

The carrying amounts of the major classes of assets and liabilities classified as held for sale as of December 31, 2025 and 2024 were as follows (in thousands):

Intercompany balances between the Company and the Inpixon Business were eliminated in consolidation.

Results of Discontinued Operations

The following table presents the results of discontinued operations for the years ended December 31, 2025 and 2024 (in thousands):

Cash Flows from Discontinued Operations

The following table presents the major classes of cash flows related to discontinued operations (in thousands):

Terms of the Disposition

The Purchase Price of EUR 4,640,000 bears interest at 5% per annum from the Signing Date until the fourth anniversary of the Closing Date. The Company has the right (the “Unwind Option”) to require the Purchaser to transfer back all shares of Inpixon and its subsidiaries during a specified future period for no consideration by the Company. If exercised, all unpaid amounts of the Purchase Price will be forgiven. If not exercised within the specified period, the unpaid Purchase Price will also be forgiven.

Immediately prior to closing, the Company eliminated a shareholder loan with an outstanding principal balance of approximately EUR 13.2 million (approximately $15.6 million) through a combination of capital contribution and waiver.

The Company evaluated the Unwind Option in accordance withASC 810-10-40, Consolidation—Deconsolidation, and concluded that control of the Inpixon Business transferred to the Purchaser upon closing. Based on management’s evaluation of the facts and circumstances surrounding the transaction, including the Purchaser’s business plan and other qualitative considerations, the likelihood of exercise of the Unwind Option is considered remote. Accordingly, the transaction was accounted for as a completed sale and the Inpixon Business was derecognized as of the Closing Date.

The Company has no continuing involvement in the operations of the Inpixon Business following the Closing Date. The Purchase Price terms, including the potential forgiveness provisions, were considered in the Company’s assessment of whether the transaction qualified for sale accounting.

As part of the classification of the Inpixon Business as held for sale in December 2025, the Company measured the disposal group at the lower of its carrying amount or estimated fair value less costs to sell. This resulted in the carrying value of the disposal group being written down to approximate the anticipated economic proceeds from the transaction, which reflect the negotiated purchase price, expected recoveries of receivables retained by the Company, and liabilities economically retained by the Company.

Note 20 - Subsequent Events

Automatic Conversion of Series 10 Preferred Stock

On January 5, 2026, all outstanding shares of the Company’s Series 10 Convertible Preferred Stock automatically converted in accordance with their terms following shareholder approval.

The conversion was based on a stated value of $1,000 per share, plus accrued and unpaid dividends, divided by a conversion price of $1.492 per share.

Upon conversion, the Company issued 1,721,980 shares of common stock and a pre-funded warrant to purchase 15,307,735 shares of common stock. The pre-funded warrant was issued in lieu of additional shares of common stock due to beneficial ownership limitations contained in the Series 10 Preferred Stock. The pre-funded warrant is immediately exercisable at an exercise price of $0.0001 per share.

Separation Agreement

On January 29, 2026, in connection with the disposition of the Inpixon Business, the Company entered into a separation agreement with Soumya Das, pursuant to which Mr. Das resigned from his positions with the Company. Under the agreement, the Company agreed to provide severance and related benefits totaling approximately $718,000, plus reimbursement of certain benefits and accelerated vesting of outstanding equity awards.

Consulting Agreement with Director

Subsequent to December 31, 2025, on February 1, 2026, the Company entered into a consulting agreement with a member of its Board of Directors pursuant to which the consultant will provide advisory services related to the Company’s VTOL program in exchange for a monthly fee and equity-based compensation. The agreement has an initial term offour years and includes customary termination provisions.

Asset-Based Revolving Credit Facility

On February 11, 2026, Drone Nerds, LLC and Anzu Robotics, LLC (collectively, the “Borrowers”), subsidiaries of the Company, entered into a Credit Agreement with JPMorgan Chase Bank, N.A., providing for a secured revolving credit facility with aggregate commitments of up to $20.0 million, subject to a borrowing base of eligible accounts receivable and inventory (the “ABL Facility”). The ABL Facility matures on February 11, 2029.

Borrowings under the ABL Facility bear interest at the applicable benchmark rate plus 2% per annum, subject to adjustment in certain circumstances. The ABL Facility is secured by substantially all of the assets of the Borrowers and certain affiliated guarantors.

The Credit Agreement contains customary affirmative and negative covenants, including limitations on additional indebtedness, liens, asset sales, investments and restricted payments. The Borrowers are required to maintain a minimum Fixed Charge Coverage Ratio as of the end of any calendar month of no less than 1.0 to 1.0, subject to certain cure rights. Proceeds of the ABL Facility may be used for general corporate purposes, refinancing certain existing indebtedness and permitted investments.

Warrant Exercises

Subsequent to December 31, 2025 and through the date of this filing, holders of certain warrants issued in connection with the Company’s 2025 public offerings exercised warrants to purchase an aggregate of 3,963,408 shares of the Company’s common stock, resulting in gross cash proceeds of approximately$7.9 million.

In connection with the solicitation of such warrant exercises, the Company engaged ThinkEquity LLC as its exclusive financial advisor and paid cash compensation equal to 3% of the gross proceeds, or approximately $0.2 million, consistent with the terms of the advisory agreement.

Net proceeds to the Company from these warrant exercises were approximately $7.7 million.