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.

Effective in fiscal year 2026, as part of the Company’s strategic shift from the TriFan 600 development program towards the design and development of unmanned platforms, the Company revised its operating segments to remove the commercial aviation segment and replace it with the advanced defense systems (“ADS”) segment. In June 2026, the Company wound down all ADS spending and implemented a reduction in force. Management shifted capital away from the non-revenue-generating ADS segment to concentrate resources on the UAS platform, establishing a stronger operational focus. For the three and six months ended June 30, 2026, the Company operated astwo reportable segments: UAS and ADS, refer to Note 11 – Segments.

Organization

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 represents the Company’s 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 retroactively 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 condensed consolidated financial statements for all periods presented. Unless otherwise indicated, the information included in the accompanying notes relates to the Company’s continuing operations. See Note 17 for additional information regarding discontinued operations.

Liquidity

These consolidated financial statements have been prepared in accordance with US generally accepted accounting principles (GAAP) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, the Company is likely to require additional liquidity to meet its obligations and support ongoing operations over the next year. As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of one year from the issuance date of these unaudited condensed consolidated financial statements.

The Company has a history of operating losses and negative cash flows from operations. Cash on hand decreased $9.7 million during the six months ended June 30, 2026, as a result of negative cash flows from operations of $21.0 million, negative cash flows from investing activities of $0.9 million and positive cash flows from financing of $12.1 million. Additionally, as of June 30, 2026, the Company’s obligations include $4.4 million of current debt maturities (See Acquisition-Related Promissory Notes under Note 8 – Debt), and the Company is likely to require additional liquidity in order to meet this obligation and support ongoing operations over the next year. Additionally, the Company acquired Drone Nerds in 2025, which continues to face regulatory headwinds, including the announcement of the Section 232 tariffs taking effect on September 3, 2026, and consumer hesitation around the macro economy and other pending drone-related regulations.

Note 2 -Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results for the three and six months ended June 30, 2026 are not necessarily indicative of the results for the full year ending December 31, 2026. 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, 2025 and 2024 included in the annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC on April 15, 2026.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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 included in the annual report on Form 10-K for the year ended December 31, 2025.

Credit Risk and Concentrations

Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. Cash equivalents are measured at fair value on a recurring basis using quoted prices in active markets for identical assets and are classified within Level 1 of the fair value hierarchy. The Company maintains its cash and cash equivalents primarily with high-credit-quality financial institutions in the United States. 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.

In connection with the Company’s credit facility, certain depository accounts of the Company are swept into a blocked account with the lender and shall be used to reduce amounts owed under the credit facility. The Company classifies the balances of these accounts as restricted cash, as of June 30, 2026 and December 31, 2025, $0.5 million and $0.0 million of restricted cash is included in prepaid and other current assets in the accompanying unaudited condensed consolidated balance sheets.

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.

As of June 30, 2026 and December 31, 2025, the Company’s provision for credit losses related to its trade accounts receivable is immaterial. As of June 30, 2026 and December 31, 2025 the provision for credit losses of $2.1 million is related to a convertible promissory note receivable, which is fully reserved. There was no change in the provision for credit losses during the three and six months ended June 30, 2026.

In connection with the sale of Inpixon in February 2026, the Company issued a note receivable for EUR 4,640,000 that bears interest of 5% until the fourth anniversary of the Closing Date, as defined below. The Company has the right (the “Unwind Option”) to require the Purchaser to transfer back all shares of Inpixon and its subsidiaries at any time during that fifteen (15) month period beginning on the first day of the thirty-seventh month following the Signing Date and continuing to the end of the fifty-second month following the Signing Date 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. As of June 30, 2026 the balance of the note receivable was $4.3 million.

The customers from continuing operations who account for 10% or more of the Company’s revenue for the three and six months ended June 30, 2026 or 10% or more of the Company’s outstanding receivable balance as of June 30, 2026 are presented as follows:

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

For the three and six months ended June 30, 2025, all revenue was generated by the Company’s Inpixon Business, which has been classified as discontinued operations.

The vendors from continuing operations who account for 10% or more of the Company’s purchases for the three and six months ended June 30, 2026 or 10% or more of the Company’s outstanding accounts payable balance as of June 30, 2026 are presented as follows:

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

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 condensed consolidated financial statement disclosures.

Note 4 -Disaggregation of Revenue

Disaggregation of Revenue

Revenue presented for the three and six months ended June 30, 2026 represents revenue from continuing operations and excludes revenue from the Inpixon Business, which has been classified as discontinued operations. Revenue presented for the three and six months ended June 30, 2025 relates entirely to the Inpixon Business and has been reclassified to discontinued operations in the accompanying unaudited condensed consolidated financial statements. Revenue is primarily generated in the United States.

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, and revenues from the Company’s service center. Service center revenues are less than 10% of total retail sales.

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.

Note 5 –Unaudited Pro Forma Financial Information

As described in the notes to the financial statements included in the Company’s annual report on Form 10-K, on November 10, 2025, the Company acquired 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 Drone Nerds as if the Acquisition had occurred on January 1, 2025. 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 acquisition and are factually supportable, including:

•Incremental amortization expense related to identifiable intangible assets acquired;

•Interest expense associated with acquisition-related indebtedness;

•Conforming accounting policy adjustments, where applicable.

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 continuing operations of the Company and Drone Nerds (in thousands, except per share amounts):

For the three and six months ending June 30, 2025

Note 6 -Goodwill and Intangible Assets

Goodwill

As of June 30, 2026 and December 31, 2025, the Company had goodwill of approximately $11.5 million related to the acquisition of Drone Nerds and included as a part of the UAS segment. There were no changes in the carrying amount of goodwill during the three and six months ended June 30, 2026, and no impairment indicators were identified.

Intangible Assets

Intangible assets consist primarily of patents, trade names and trademarks, and customer relationships acquired in the Drone Nerds acquisition. The following table presents intangible assets associated with continuing operations as of June 30, 2026 and December 31, 2025 (in thousands):

As of June 30, 2026:

As of December 31, 2025

Amortization expense for the three and six months ended June 30, 2026 was approximately $0.2 million and $0.5 million, respectively. Amortization expense for the three and six months ended June 30, 2025 was primarily related to the Inpixon business, which is included in discontinued operations.

The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. No impairment indicators were identified during the six months ended June 30, 2026. The UAS segment, which contains materially all goodwill and intangibles, continues to be profitable for the three and six months ended June 30, 2026.

Note 7 -Other Balance Sheet Information

Prepaid expenses and other current assets

Prepaid expenses and other current assets as of June 30, 2026 and December 31, 2025 consisted of the following (in thousands):

Inventories

Inventory as of June 30, 2026 and December 31, 2025 represents inventory on hand within the Drone Nerds (UAS) segment and consisted of the following (in thousands):

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities as of June 30, 2026 and December 31, 2025 consisted of the following (in thousands):

Note 8 -Debt

Interest expense on outstanding debt totaled approximately $0.3 million and $0.5 million for the three and six months ended June 30, 2026, respectively, and $0.0 million and $0.2 million for the three and six months ended June 30, 2025, respectively.

Acquisition-Related Promissory Notes

In connection with the November 2025 acquisition of Drone Nerds (the “Acquisition”), XTI Drones Holdings, LLC issued promissory notes to The Origin Group DN, Inc. and The Origin Group AZ, Inc. (collectively the “Sellers”) with an aggregate original principal amount of approximately $11.9 million (the “Notes”). The Sellers also own 6,524,576 Class B

Units, representing 16.597% ownership, of XTI Drones Holdings, LLC. The terms of the Notes and the issuance of the Class B Units were negotiated together in connection with the Acquisition. See Note 9 — Capital Structure for further discussion of the Class B Units.

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.

During the three and six months ended June 30, 2026, the Company made aggregated principal payments of $1.5 million and $3.5 million, respectively. The Notes require remaining scheduled principal repayments as follows:

•$1.5 million in the aggregate due no later than September 30, 2026; and

•The remaining outstanding principal and accrued interest due on or before the one-year anniversary of the Notes.

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 June 30, 2026 and December 31, 2025, the aggregate outstanding principal balance of the Notes was approximately $4.4 million and $7.9 million, respectively.

See Note 18, Subsequent Events for an update on the September 30, 2026 payment and the status of the Notes.

Asset-Based Revolving Line of Credit (Drone Nerds)

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

As of June 30, 2026, the borrowing base was calculated to be approximately $18.7 million, and the Company had $8.8 million outstanding in addition to letters of credit in the amount of $0.8 million, with $9.1 million of remaining availability. Borrowings under the ABL Facility bear interest at Secured Overnight Financing Rate or a base rate, plus a margin of 2.0%, subject to adjustment in certain circumstances. The average unused commitment under the ABL Facility is subject to an unused commitment fee of 0.25% to 0.375%. Borrowings under the ABL Facility as of June 30, 2026 incurred interest at a weighted average of 5.7%.

The Credit Agreement is subject to a cash dominion arrangement, whereby funds deposited into any depository account of the borrower are swept into a blocked account with the Lender and shall be used to reduce amounts owed under the Credit Facility. Because of the nature of the cash dominion arrangement, borrowings under the Credit Agreement are classified as current liabilities despite a maturity date that is more than twelve months from the balance sheet date.

The Credit Agreement 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.

During the six months ended June 30, 2026, gross borrowings and repayments under the ABL facility are presented within cash flows from financing activities. During the three months ended March 31, 2026 these amounts were incorrectly netted within cash flows from financing and have been corrected within the six-month ended June 30, 2026 as an immaterial correction.

See Note 18, Subsequent Events for an update on the Credit Facility.

Note 9 –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.

REVERSE STOCK SPLIT

On January 10, 2025, the Company effected a 1-for-250 reverse stock split of its outstanding stock. All share and per share amounts presented in these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse stock splits.

PREFERRED STOCK

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 with a $0.0001 exercise price 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. The pre-funded warrant was determined to be a liability-classified instrument under ASC 815 due to adjustment and settlement provisions and, as such, upon conversion, the Company recorded the pre-funded warrant liability at a fair value of $24.2 million based on the listed price of the Company’s common stock along with a reduction of additional paid-in capital of $4.2 million for the difference between the carrying value of the preferred stock plus accrued and unpaid dividends.

Series 9 Preferred Stock

During March 2024, the Company issued Series 9 Preferred Stock in connection with debt exchanges and cash financing. During 20249,790 shares were exchanged for common stock, and 757 shares were redeemed. During the three months ended March 31, 2025, the remaining shares were redeemed for approximately $1.4 million. As of June 30, 2026 and December 31, 2025, no shares remain outstanding.

WARRANTS

The following table summarizes the activity of warrants outstanding:

Warrant Exercises

During the six months ended June 30, 2026, 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 paid commissions and other fees to a third party financial advisor of approximately $0.5 million. Net cash proceeds to the Company from these warrant exercises during the six months ended June 30, 2026 were approximately $7.4 million.

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 Sellers 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 condensed consolidated financial statements.

Exchange features of the Class B Units:

•Are exchangeable into shares of the Company’s common stock on a one-for-one basis at the option of the holder at any time after May 1, 2026;

•All outstanding Class B Units will automatically be exchanged into shares of the Company’s common stock on a one-for-one basis fifteen months after the acquisition closing date; and

•Require no additional consideration upon exchange.

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.

Note 10 -Stock Award Plans and Stock-Based Compensation

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 June 30, 2026, 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 June 30, 2026, 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 June 30, 2026 was 80,105,687. As of June 30, 2026,59,965,772 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:

The following assumptions were used in estimating the fair values of options awarded during the six months ended June 30, 2026:

Stock-based Compensation Expense

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

As of June 30, 2026, the total unrecognized compensation expense related to unvested awards was approximately $13.9 million, which the Company expects to recognize over an estimated weighted average period of 1.0 years.

Note 11 -Segments

The Company’s Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker (“CODM”) regularly reviews and manages certain areas of its businesses, resulting in the Company identifyingtwo reportable segments for the three and six months ended June 30, 2026: Unmanned Aircraft Systems (“UAS”) and Advanced Defense Systems (“ADS”). The Company manages and reports its operating results through thesetwo reportable segments. During the three months ended June 30, 2026, the Company decided to wind-down the ADS segment as it would require substantial additional time and capital in order to generate revenue. While the Company completes the wind-down operations, the CODM continues to review the financial information of these two reportable segments, and this decision does not result in a change to Company’s reporting segments.

For the three and six months ended June 30, 2025, the Company operated astwo segments: Internet of Things (“IoT”) and Commercial Aviation, which included the TriFan 600 development program. During fourth quarter of the prior year, in connection with the sale of the Inpixon Business, the IoT segment was retroactively reclassified to discontinued operations, as a result the financial information for the IoT segment is not presented below. Additionally, in early 2026, the TriFan 600 program was paused and replaced with the ADS segment. Given the strategic shift, the disposal of the IOT segment, and the addition of the UAS segment in the fourth quarter of the prior year, the Company did not recast the segment financial information for the three and six months ended June 30, 2025.

The UAS segment includes the operating results of Drone Nerds and Anzu Robotics, which are 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, and government related customers.

Beginning in the second quarter of 2026, the Company changed the measure of segment profit or loss used by its CODM from income (loss) from operations to Adjusted EBITDA. The change reflects a change in the manner in which the Company’s CODM evaluates segment performance and allocates resources.

The Company has presented Adjusted EBITDA as the measure of segment profit or loss for the three and six months ended June 30, 2026. The Company has not recast prior-period segment information to present Adjusted EBITDA because Adjusted EBITDA was not the measure of segment profit or loss used by the CODM during those prior periods. The CODM used net loss to evaluate segment performance and allocate resources during the first quarter of 2026 and prior periods.

The CODM uses Segment Adjusted EBITDA as management’s primary segment measure of profit or loss in assessing segment performance and in deciding how to allocate the Company’s resources. Segment Adjusted EBITDA is calculated as segment revenues less significant segment expenses, specifically, cost of revenue, research and development (excluding stock-based compensation expense), sales and marketing (excluding stock-based compensation expense), and general and administrative (excluding stock-based compensation and depreciation expense). Significant segment expenses also exclude certain costs that are nonrecurring, non-cash or are not related to the segments’ underlying business performance. A reconciliation of total Segment Adjusted EBITDA to consolidated loss from continuing operations before income taxes for the three and six months ended June 30, 2026 is included in the tables below. Unallocated operating expenses include costs that are not specific to a particular segment include administrative and accounting staff, public company costs, general liability and other insurance, professional fees, and other similar corporate expenses.

During the three and six months ended June 30, 2025 the CODM managed the business astwo reportable segments. The CODM used consolidated net loss to measure segment performance. Unallocated operating expenses include costs that are not specific to a particular segment include administrative and accounting staff, public company costs, general liability and other insurance, professional fees, and other similar corporate expenses. The UAS segment reflects the results of Drone Nerds beginning in November 2025, there were no UAS segment operations during the three and six months ended June 30, 2025. 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. Segment assets are not provided because the Company’s chief operating decision maker does not regularly review or receive asset information by reportable segment for purposes of allocating resources or assessing segment performance.

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

(1) The difference between this significant segment expense and “Sales and marketing” within the Company’s Consolidated Statements of Operations relates to stock-based compensation ($0.08 million).

(2) The difference between this significant segment expense and “General and administrative” within the Company’s Consolidated Statements of Operations relates to stock-based compensation ($3.7 million) and depreciation ($0.04 million).

(1) The difference between this significant segment expense and “Research and development” within the Company’s Consolidated Statements of Operations relates to stock-based compensation ($0.3 million).

(2) The difference between this significant segment expense and “Sales and marketing” within the Company’s Consolidated Statements of Operations relates to stock-based compensation ($0.5 million).

(3) The difference between this significant segment expense and “General and administrative” within the Company’s Consolidated Statements of Operations relates to stock-based compensation ($7.7 million) and depreciation ($0.09 million).

(1)Unallocated general and administrative costs primarily consist of stock compensation, personnel expenses, professional fees, and public company costs.

(2)Other expenses include amortization of intangibles.

Note 12-Fair Value Measurements and Fair Value of Financial Instruments

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

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, warrant liability, line of credit, and notes payable. 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. As of June 30, 2026 and December 31, 2025, the Company had no financial instruments that met the definition of cash equivalents outstanding.

The change in fair value of the warrant liability is presented within ‘Change in fair value of warrant liability’ in the accompanying unaudited 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.

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:

•The Company’s stock price at the valuation date

•The contractual exercise price

•Expected volatility

•Risk-free interest rate

•Expected term

•Dividend yield

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 June 30, 2026, the significant assumptions used in the Black-Scholes model were as follows:

•Stock price: $1.81

•Exercise prices: $1.36 – $2.00

•Expected volatility:135%

•Risk-free interest rate:4.10% –4.11%

•Remaining term:3.75 –4.21 years

•Dividend yield:—%

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

Fair Value Tables

As of June 30, 2026, 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 June 30, 2026:

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

Note 13 -Commitments and Contingencies

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’s third amended complaint in this litigation is seeking $20 million (among other relief) in damages. 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, and Legacy XTI filed a Motion for Summary Judgement in this matter in July 2026.

The Company believes the claims against Legacy XTI are without merit and is vigorously defending 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 (“DTPA”) in connection with the marketing and sale of certain drone products. The petition seeks injunctive relief, civil penalties, and attorneys’ fees and costs. Trial is set for November 8, 2027. In May 2026, the State of Texas also issued a civil investigative demand to Drone Nerds LLC pursuant to the DTPA. The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any.

State of Florida Subpoena to Anzu Robotics, LLC

In April 2026, the State of Florida issued a subpoena to Anzu Robotics, LLC (“Anzu”), a subsidiary of the Company pursuant to the Florida Deceptive and Unfair Trade Practices Act in connection with the marketing and sale of certain drone products. The Company responded to the subpoena. The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any. Accordingly, the Company has not recorded an accrual for this matter because a loss, if any, cannot be reasonably estimated at this time.

State of Florida Subpoena to XTI Aerospace, Inc.

In October 2026, the State of Florida issued a subpoena duces tecum to XTI Aerospace, Inc. pursuant to the Florida Deceptive and Unfair Trade Practices Act, Chapter 501, Part II, Florida Statutes, seeking information concerning XTI’s relationship with Anzu Robotics, LLC, Drone Nerds, and other related information concerning the sale of certain drones and Anzu products in the State of Florida. The Company intends to respond. The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any.

State of Florida Subpoena to Drone Nerds, LLC

In October 2026, the State of Florida issued a subpoena to Drone Nerds LLC pursuant to the Florida Deceptive and Unfair Trade Practices Act in connection with the marketing and sale of certain drone products. The Company has not yet responded to the subpoena. The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any.

FCC request for documents

In May 2026, the Federal Communications Commission issued a request for documents to Anzu Robotics LLC under the Communications Act of 1934, inquiring as to whether the Company directly or indirectly marketed with the United States any radio frequency equipment produced in a manner that may be a violation of the Act. The Company responded to the request. The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any.

Legal and Other Contingencies

From time to time, the Company may be involved in legal proceedings, claims and contractual disputes arising in the ordinary course of business. The Company evaluates these matters in accordance with ASC 450, Contingencies, and records liabilities when losses are considered probable and reasonably estimable.

Assessment

The Company is unable to predict the ultimate outcome of these matters, and the Company is unable to reasonably estimate the amount of any potential loss, if any. Accordingly, no accrual has been recorded as of June 30, 2026. 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 14 -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 are allocated to continuing operations.

The following weighted average 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 15 –Income Taxes

The Company recorded a provision for income taxes during the six months ended June 30, 2026, of $1.2 million, included in results from discontinued operations, related to the Inpixon sale, discussed below. The income tax provision for the three and six months ended June 30, 2025 wasimmaterial.

The effective tax rate, inclusive of discrete items, was 0.00% and (0.02)% for the six months ended June 30, 2026 and 2025, respectively, which was driven by a combination of permanent adjustments related to partnership income, 162(m) compensation limitations, and acquisition costs and a valuation allowance.

The Company evaluated and considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for its deferred tax assets was needed. The deferred tax assets are composed primarily of net operating loss carryforwards. The Company determined that a full valuation allowance against all deferred tax assets was appropriate for the three and six months period ended June 30, 2026 and June 30, 2025.

Note 16 –Related Parties

Jeremy Schneiderman, CEO of Drone Nerds, an employee of the Company since November 10, 2025, and interim CEO of the Company effective August 17, 2026, also serves as CEO of and has an economic stake in the Sellers. As discussed under Note 8—Debt and Note 9—Capital Stock, the Sellers hold acquisition-related promissory notes issued by the Company and 6,524,576 Class B Units of XTI Drones Holdings, LLC, representing a 16.597% ownership of XTI Drones Holdings, LLC. During the three and six months ended June 30, 2026, the Company made aggregated principal payments of $1.5 million and $3.5 million, respectively. Additionally, the Company paid interest of $0.1 million and $0.2 million during the three and six months ended June 30, 2026, respectively. As of June 30, 2026 and December 31, 2025, the principal balance outstanding on the Notes was $4.4 million and $7.9 million, respectively. The Notes mature on November 10, 2026. See Note 18, Subsequent Events for an update on the Related Parties.

Note 17 –Discontinued Operations

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).

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.

The purchase price of EUR 4,640,000 bears interest of 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 at any time during that fifteen (15) month period beginning on the first day of the thirty-seventh month following the Signing Date and continuing to the end of the fifty-second month following the Signing Date 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.

The Company evaluated the Unwind Option in accordance with ASC 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. Additionally, the purchase price terms, including the potential forgiveness provisions, were also considered in the Company’s assessment of whether the transaction qualified for sale accounting. Finally, the Company has no continuing involvement in the operations of the Inpixon Business following the Closing Date. Accordingly, the transaction was accounted for as a complete sale and the Inpixon Business was derecognized as of the Closing Date.

The Company recorded the purchase price as a note receivable with fair value determined to be $4.2 million, as of the Closing Date, in the accompanying unaudited condensed consolidated balance sheets. As discussed above, the note receivable accrues interest at 5% per annum and matures on February 3, 2030. Subject to provisions discussed related to the Unwind Option, the note receivable may be forgiven. The Company determined the fair value of the note receivable based on the perceived credit risk of the counterparty and time value of money, going forward the note receivable will be evaluated for risk of credit loss and will not be remeasured.

The following table presents the results of discontinued operations related to the sale of the Inpixon Business for the three and six months ended June 30, 2026 and 2025 (in thousands):

The estimated fair value of the purchase price to be received from the Purchaser as of the Closing Date was $4.2 million resulting in a loss on disposal of approximately $0.8 million during the three months ended March 31, 2026, which is included in discontinued operations.

During the three months ended June 30, 2026, the Company recognized an additional $1.6 million of loss on sale of discontinued component related to certain matters associated with the previously disposed business. The adjustment primarily reflects estimates of contractual obligations related to the disposal. The additional loss is included in loss from discontinued operations, net of tax, in the accompanying condensed consolidated statements of operations. As it relates to the total $1.6 million recognized in the three months ended June 30, 2026, the Company recorded a liability of $1.9 million within accrued expenses and other liabilities and a partially offsetting asset of $0.3 million within prepaid expenses and other current assets.

As a result of the sale, the Company expects to owe income taxes in Germany, the Company recorded a tax provision of $1.2 million, included in the loss from discontinued operations, for the three and six months ended June 30, 2026.

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

Note 18 -Subsequent Events

Debt Defaults and Restructuring Discussions

On September 30, 2026, XTI Drones Holdings, LLC (“XTI Drones Holdings”), a majority-owned subsidiary of the Company, did not make scheduled principal payments totaling $1.5 million, together with accrued interest, under the promissory notes issued on November 10, 2025 in connection with the acquisitions of Drone Nerds, LLC and Anzu Robotics, LLC (the “Seller Notes”), resulting in events of default on October 11, 2026. As of October 11, 2026, approximately $4.5 million in aggregate principal and capitalized interest remained outstanding under the Seller Notes. These defaults also triggered cross-defaults under the Company’s $20.0 million secured revolving credit facility with JPMorgan Chase Bank, N.A. (“JP Morgan”), under which approximately $8.4 million was outstanding as of October 16, 2026.

On October 16, 2026, XTI Drones Holdings entered into Limited Waiver Agreements (the “Waivers”) with The Origin Group DN, Inc. and The Origin Group AZ, Inc., the holders of the Seller Notes and entities in which the Company’s Interim Chief Executive Officer has an economic interest (see Note 16 – Related Party Transactions). Under the Waivers, the holders agreed, during a waiver period that began on September 30, 2026, not to accelerate the Seller Notes, charge default interest, charge costs of collection or exercise other remedies as a result of the missed September 30, 2026 installments. They also agreed that nonpayment of the balance due at maturity on November 10, 2026 will not constitute an event of default during the waiver period. The waiver period ends on the earliest of (i) the execution of definitive documents restructuring the Seller Notes, (ii) the tenth day after either party notifies the other in writing that it is ending restructuring negotiations and (iii) December 31, 2026. If the waiver period ends without a restructuring, an event of default will be deemed to exist, and the missed installments and the maturity payment, together with interest at the default rate of 9.25% per annum from October 10, 2026, will become due on the last day of the waiver period.

The Waivers do not address the cross-defaults under the credit facility. The Company is engaged in discussions with the holders regarding a restructuring of the Seller Notes. The Company has also notified JP Morgan of the defaults under the credit facility as a result of the Seller Note defaults, and intends to seek a waiver of the credit agreement defaults from JP Morgan. While the cross-defaults continue, JP Morgan may decline to make further advances under the credit facility and may declare all amounts outstanding immediately due and payable. There can be no assurance that satisfactory agreements will be reached, and failure to restructure these obligations could result in acceleration of the indebtedness and materially adversely affect the Company's liquidity and financial condition.

Tariff Refunds

Pursuant to the terms of the November 10, 2025 acquisition agreement, XTI Drones Holdings, LLC is contractually obligated to remit to the former owners of Drone Nerds, LLC certain customs tariff refunds attributable to periods preceding the acquisition. On October 5, 2026, the Company paid $1.9 million to the former owners, satisfying its contractual obligations with respect to tariff refunds received to date, with additional refunds anticipated in future periods.

Valkyrie Note

On October 19, 2026, the Company entered into an agreement to sell $1.0 million of its $2.0 million convertible promissory note receivable from Valkyrie Sciences Holdings LLC to a third party for $1.0 million in cash. In connection with the transaction, the Company agreed to forgive approximately $0.05 million of accrued interest, retain the remaining

$1.0 million principal balance plus approximately $0.15 million of accrued interest, and extend the maturity date of its retained note to January 15, 2027.

Evaluation

The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued and, except as described above and in Note 13, has identified no subsequent events requiring recognition or disclosure in the condensed consolidated financial statements.

See Note 13 for a description of litigation contingencies.