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Item 8. Financial Statements and Supplementary Data

2025-04-15 compared with 2024-04-16 · 2105 added, 1758 removed, 163 unchanged (96% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

XTI AEROSPACE, INC.

AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOW AS INPIXON AND SUBSIDIARIES)

INDEX TO FINANCIAL STATEMENTS

TO FINANCIAL STATEMENTS

ANNUAL FINANCIAL INFORMATION

Report of Independent Registered Public Accounting Firm (PCAOB NO.

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

Notes to Consolidated Financial Statements

Table of Content s

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

XTI Aerospace, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of XTI Aerospace, Inc.

and Subsidiaries (f/k/a Inpixon) (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 2.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits s to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Consolidated Balance Sheets as of December 31, 2024 and 2023 F-4

Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 F-6

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2024 and 2023 F-7

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024 and 2023 F-8

Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 F-10

Notes to Consolidated Financial Statements F-11

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and Board of Directors of

Aerospace, Inc.

on the Financial Statements

We have audited the accompanying consolidated balance sheets of XTI

Aerospace, Inc.

(the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’

equity and cash flows for the years ended December 31, 2024 and 2023, and the related notes (collectively referred to as the “financial

statements”).

In our opinion, based on our audits, the financial statements present fairly, in all material respects, the financial

position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in

the period ended December 31, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Marcum LLP

We have served as the Company’s auditor since 2012.

New York, NY April 16, 2024

Table of Content s

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED BALANCE SHEETS

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

As of December 31,

2023 As of December 31,

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose

of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express

no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment

The Company’s evaluation of goodwill for

impairment involves significant judgments and estimates, particularly with respect to the fair value measurement of its reporting units.

The Company performs its annual goodwill impairment test as of December 31, 2024, and more frequently if events or changes in circumstances

indicate that it is more likely than not that the fair value of a reporting unit is less than it carrying amount.

We identified the evaluation

of goodwill impairment as a critical audit matter because it involved complex and subjective judgments by management.

How the Critical Audit Matter Was Addressed

Our audit procedures related to goodwill impairments

include the following, among others:

obtained an understanding of the Company’s process for identifying and evaluating potential goodwill impairment and reviewed the

methodologies used for impairment testing.

● We evaluated the appropriateness of the valuation

models used by the Company, including the discounted cash flow model, and verified its mathematical accuracy.

● We assessed the Company’s valuation model,

including key assumptions, estimates, and sensitivity analysis.

● We assessed the reasonableness of key assumptions

and estimates used by the Company in their valuation models, including growth rates, discount rates, long-term growth rates, and revenue

● We reviewed the sensitivity analyses performed

by the Company to understand how changes in key assumptions could impact the fair value conclusions.

● We reviewed the disclosures in the financial

statements related to goodwill impairment to ensure adequacy and compliance with accounting standards.

Business Combination

The Company completed a significant business combination

during the year.

Accounting for this business combination involved significant judgment and estimation by management, particularly in

determining the fair value of identifiable intangible assets and liabilities acquired, as well as the resulting goodwill.

used various valuation models and engaged third-party specialists to assist in these valuations.

Given the complexity and judgment involved

in accounting for the business combination, we identified the evaluation of the business combination as a critical audit matter.

involved significant audit effort and the use of professionals with specialized skills and knowledge.

How the Critical Audit Matter Was Addressed

Our audit procedures related to business combination include the following,

among others:

● We obtained an understanding of the terms and

conditions of the business combination by reviewing the purchase agreement and other related documents.

● We evaluated the appropriateness of the valuation

methodologies used by management to determine the fair value of the identifiable assets acquired and liabilities assumed.

This included

reviewing the discounted cash flow models, market approach, and cost approach used for the valuation.

● We tested the completeness and accuracy of the

purchase price allocation by verifying the consideration transferred.

● We involved our valuation specialists to assist

in assessing the methodologies and assumptions used by management in the fair value measurements of the acquired intangible assets.

reviewed the disclosures in the financial statements related to the business combination to ensure adequacy and compliance with accounting

We have served

as the Company’s auditor since 2024.

April 15, 2025

AEROSPACE, INC.

AND SUBSIDIARIES

BALANCE SHEETS

thousands, except number of shares and par value data)

of December 31,

and cash equivalents

Accounts receivable, net of allowance for credit losses of $ 18 and $ 0 as of December 31, 2024 and December 31, 2023, respectively

expenses and other current assets

Current Assets

Cash and cash equivalents $ 6,254 $ 9,284

Accounts receivable, net of credit losses of $ 26 and $ 231 , respectively

Other receivables 61 83

Inventory, net 2,415 1,997

Notes receivable 6,145 150

Warrant asset 1,858 —

Prepaid expenses and other current assets 430 2,691

Current assets of discontinued operations 2,768 14,474

Total Current Assets 20,499 29,866

Property and equipment, net 277 342

Operating lease right-of-use asset, net 335 527

Software development costs, net 305 524

Long-term investments — 666

Intangible assets, net 2,208 2,994

Other assets 145 143

Non-current assets of discontinued operations — 22,573

Total Assets $ 23,769 $ 57,635

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED BALANCE SHEETS (CONTINUED)

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

As of December 31, 2023 As of December 31, 2022

Liabilities and Stockholders’ Equity

and equipment, net

lease right-of-use asset, net

AEROSPACE, INC.

AND SUBSIDIARIES

BALANCE SHEETS (CONTINUED)

thousands, except number of shares and par value data)

of December 31,

and Stockholders’ Equity

party payables

expenses and other current liabilities

lease obligation, current

Current Liabilities

Accounts payable 2,449 720

Accrued liabilities 2,007 1,836

Operating lease obligation, current 201 207

Deferred revenue 625 546

Short-term debt 8,738 12,565

Acquisition liability — 197

Warrant liability 919 —

Current liabilities of discontinued operations 1,960 8,643

Total Current Liabilities 16,899 24,714

Long Term Liabilities

Operating lease obligation, noncurrent 141 334

Non-current liabilities of discontinued operations — 472

Total Liabilities 17,040 25,520

Commitments and Contingencies (Note 26)

Stockholders’ Equity

Term Liabilities

lease obligation, noncurrent

liabilities, noncurrent

and Contingencies (Note 19)

Stockholders’

Preferred Stock - $ 0.001 par value;

4 unchanged sentences

126 issued, and 126 outstanding as of December 31, 2024 and December 31, 2023, respectively.

Series 9 Preferred Stock - 20,000 shares authorized;

11,302 and 1,331 shares issued and outstanding as of December 31, 2024, and 0 shares issued and outstanding as of December 31, 2023 (Liquidation preference of $ 1,401,589 )

Common Stock - $ 0.001 par value;

500,000,000 shares authorized;

1,942,985 and 35,710 issued and 1,942,984 and 35,709 outstanding as of December 31, 2023 and December 31, 2022, respectively.

Additional paid-in capital 366,099 346,672

Treasury stock, at cost, 1 share

( 695 ) ( 695 )

Accumulated other comprehensive income 630 1,061

Accumulated deficit ( 359,698 ) ( 313,739 )

Stockholders’ Equity Attributable to XTI Aerospace, Inc.

Non-controlling Interest 390 ( 1,184 )

Total Stockholders’ Equity 6,729 32,115

Total Liabilities and Stockholders’ Equity

$ 23,769 $ 57,635

The accompanying notes are an integral part of these consolidated financial statements

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

For the Years Ended December 31,

Revenues $ 4,562 $ 6,109

Cost of Revenues 1,458 2,121

Gross Profit 3,104 3,988

Operating Expenses

1,685,021 and 12,791 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively.

paid-in capital

other comprehensive loss

Stockholders’ Equity (Deficit)

Liabilities and Stockholders’ Equity

accompanying notes are an integral part of these consolidated financial statements

AEROSPACE, INC.

AND SUBSIDIARIES

STATEMENTS OF OPERATIONS

thousands, except per share data)

the Years Ended

Research and development

1 unchanged sentence

General and administrative

Acquisition-related costs 4,170 410

Transaction costs 3,059 —

Impairment of goodwill and intangibles — 1,183

Amortization of intangibles 843 887

Total Operating Expenses 30,033 23,232

Loss from Operations ( 26,929 ) ( 19,244 )

Merger-related transaction

Impairment of intangible

of intangible assets

Operating Expenses

from Operations

Income (Expense)

Interest expense

Interest income

Amortization of deferred

Loss on conversion of

note receivable to equity investment

Loss on extinguishment

of convertible notes payable

Change in fair value

of convertible notes payable

Change in fair value

of Damon investment and related warrants

Change in fair value

of warrant liability

Change in fair value

of JV obligation

income/(expense), net

Other Income (Expense)

Interest expense, net ( 4,730 ) ( 600 )

Other income/(expense), net 694 ( 19 )

Warrant inducement expense ( 3,361 ) —

Total Other Income (Expense) ( 7,397 ) ( 619 )

Net Loss from Continuing Operations, before tax ( 34,326 ) ( 19,863 )

Income tax (provision)/benefit ( 24 ) 181

Net Loss from Continuing Operations ( 34,350 ) ( 19,682 )

Net Loss from Discontinued Operations, Net of Tax ( 12,750 ) ( 46,622 )

Net Loss ( 47,100 ) ( 66,304 )

Net Expense Attributable to Non-controlling Interest ( 1,153 ) ( 2,910 )

Net Loss Attributable to Stockholders of XTI Aerospace, Inc.

Loss, before tax

tax provision

Preferred stock

return and dividend

Deemed dividend

Loss Attributable to Common Stockholders, basic and diluted

Loss Per Share - Basic and Diluted

$ ( 1,576.48 )

Accretion of Series 7 preferred Stock — ( 4,555 )

Accretion of Series 8 Preferred Stock — ( 13,090 )

Deemed dividend for the modification related to Series 8 Preferred Stock — ( 2,627 )

Deemed contribution for the modification related to Warrants issued in connection with Series 8 Preferred Stock — 1,469

Amortization premium- modification related to Series 8 Preferred Stock — 2,627

Net Loss Attributable to Common Stockholders $ ( 45,947 ) $ ( 79,570 )

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Net Loss Per Share - Basic and Diluted

Continuing Operations $ ( 55.22 ) $ ( 1,412.86 )

Discontinued Operations $ ( 21.21 ) $ ( 1,999.23 )

Net Loss Per Share - Basic and Diluted $ ( 76.42 ) $ ( 3,412.09 )

Weighted Average Shares Outstanding

Basic and Diluted 601,211 23,320

The accompanying notes are an integral part of these consolidated financial statements

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

For the Years Ended December 31,

Net Loss $ ( 47,100 ) $ ( 66,304 )

Unrealized foreign exchange (loss)/gain from cumulative translation adjustments ( 431 ) 1,017

Comprehensive Loss $ ( 47,531 ) $ ( 65,287 )

The accompanying notes are an integral part of these consolidated financial statements

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(In thousands, except share data)

Series 4 Convertible Preferred Stock Series 5 Convertible Preferred Stock Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ Equity

Shares Amount Shares Amount Shares Amount Shares Amount

Balance - January 1, 2023 1 — 126 — 35,710 — 346,672 ( 1 ) ( 695 ) 1,061 ( 313,739 ) ( 1,184 ) 32,115

Stock options and restricted stock awards granted to employees and consultants for services — — — — — — 1,003 — — — — — 1,003

Common shares issued for extinguishment of debt — — — — 605,159 1 9,192 — — — — — 9,193

Deconsolidation of CXApp as a result of spin off — — — — — — ( 24,230 ) — — — — — ( 24,230 )

Deconsolidation of Grafiti Holding as result of spin off — — — — — — ( 237 ) — — — — — ( 237 )

Common shares issued for net proceeds from warrants — — — — 13,800 — 1 — — — — — 1

Common shares issued for exchange of warrants — — — — 3,249 — — — — — — — —

Warrant inducement expense — — — — 3,361 — — — — — 3,361

Common shares issued for exercise of warrants — — — — 581,311 1 5,075 — — — — — 5,076

Common shares issued for ATM stock offerings — — — — 703,756 1 26,507 — — — — — 26,508

Changes in non-controlling interest due to capital contribution — — — — — — ( 1,245 ) — — — — 2,706 1,461

Cumulative translation adjustment — — — — — — — — — ( 431 ) ( 12 ) 21 ( 422 )

Net loss — — — — — — — — — — ( 45,947 ) ( 1,153 ) ( 47,100 )

Balance - December 31, 2023 1 — 126 — 1,942,985 $ 3 $ 366,099 ( 1 ) $ ( 695 ) $ 630 $ ( 359,698 ) $ 390 $ 6,729

The accompanying notes are an integral part of these consolidated financial statements

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(In thousands, except share data)

Series 7 Preferred Stock Series 8 Preferred Stock Series 4 Convertible Preferred Stock Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ Equity

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Balance - January 1, 2022 49,250 44,695 — — 1 — 17,302 — 332,763 ( 1 ) ( 695 ) 44 ( 250,309 ) 1,688 83,491

Stock options and restricted stock awards granted to employees and consultants for services — — — — — — — — 3,656 — — — — — 3,656

Common shares issued for extinguishment of debt — — — — — — 2,878 — 3,650 — — — — — 3,650

Series 8 Preferred Stock issued for cash — — 53,198 41,577 — — — — 5,329 — — — — — 5,329

Accrete Discount - Series 7 Preferred Shares — 4,555 — — — — — — ( 4,555 ) — — — — — ( 4,555 )

Accrete Discount - Series 8 Preferred Shares — — — 13,090 — — — — ( 13,090 ) — — — — — ( 13,090 )

Deemed dividend for the modification related to Series 8 Preferred Stock — — — 2,627 — — — — ( 2,627 ) — — — — — ( 2,627 )

Deemed contribution for the modification related to warrants issued in connection with Series 8 Preferred Stock — — — ( 1,469 ) — — — — 1,469 — — — — — 1,469

Amortization premium - modification related to Series 8 Preferred Stock — — — ( 2,627 ) — — — — 2,627 — — — — — 2,627

Series 7 Preferred Stock redeemed for cash ( 49,250 ) ( 49,250 ) — — — — — — — — — — — — —

Series 8 Preferred Stock redeemed for cash — — ( 53,198 ) ( 53,198 ) — — — — — — — — — — —

Restricted stock grants withheld for taxes — — — — — — ( 128 ) — ( 336 ) — — — — —

Common shares issued for CXApp earnout — — — — — — 1,450 — 3,697 — — — — — 3,697

Common shares issued for exchange of warrants — — — — — — 1,842 — — — — — — — —

Common shares issued for net proceeds from warrants — — — — — — 9,310 — 1 — — — — — 1

Common shares issued for share rights — — — — — — 525 — — — — — — —

Common shares issued for registered direct offering — — — — — — 2,531 — 14,088 — — — — — 14,088

Cumulative translation adjustment — — — — — — — — — — — 1,017 ( 36 ) 38 1,019

Net loss — — — — — — — — — — — — ( 63,394 ) ( 2,910 ) ( 66,304 )

Weighted Average Shares

Outstanding, Basic and Diluted

accompanying notes are an integral part of these consolidated financial statements

AEROSPACE, INC.

AND SUBSIDIARIES

STATEMENTS OF COMPREHENSIVE LOSS

the Years Ended

foreign exchange loss from cumulative translation adjustments

Comprehensive

accompanying notes are an integral part of these consolidated financial statements

AEROSPACE, INC.

AND SUBSIDIARIES

STATEMENTS OF CHANGES STOCKHOLDERS’ EQUITY (DEFICIT)

THE YEARS ENDED December 31, 2024 and 2023

thousands, except share data)

Comprehensive

Stockholders’

- January 1, 2024

and preferred shares issued via merger

shares issued for net cash proceeds of ATM offering

shares issued as settlement of accrued compensation

Common shares issued

as prepayment of services

shares issued to Xeriant, Inc.

shares issued in exchange of Series 9 preferred stock

interest converted to Series 9 preferred stock

dividend related to Series 9 preferred stock exchange

of Series 9 preferred stock

9 preferred stock dividend accrual

shares issued for conversion of debt

loss on debt conversions

shares issued in exchange of warrants

dividend related to December 2023 warrant exchange

Common shares issued

for exercise of warrants

shares issued for cashless exercise of warrants and options

contribution - forgiveness of related party payable

translation adjustment

Balance - December

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Years Ended December 31,

accompanying notes are an integral part of these consolidated financial statements

AEROSPACE, INC.

AND SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

THE YEARS ENDED December 31, 2024 and 2023

thousands, except share data)

Comprehensive

Stockholders’

- January 1, 2023

from sale of common stock

of warrants with convertible notes

obligation reclassified to equity

- December 31, 2023

AEROSPACE, INC.

AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

For the Years Ended

Cash Flows Used in Operating Activities

Net loss $ ( 47,100 ) $ ( 66,304 )

Adjustment to reconcile net loss to net cash used in operating activities:

2 unchanged sentences

Amortization of right-of-use asset

Non-cash interest expense, net of interest income

Stock-based compensation

Amortization of warrant liability to redemption value 20 —

Gain on fair value of warrant liability 71 —

Change in fair value of derivative asset 4 —

Change in fair value of warrant asset ( 796 ) —

Amortization of debt discount ( 32 ) —

Warrant inducement expense 3,361 —

Loss on discontinued operations

Unrealized (gain)/loss on foreign currency transactions ( 427 ) 1,707

Gain on settlement with FOXO ( 1,142 ) —

Amortization of debt issuance costs 2,627 489

Earnout payment expense benefit — ( 2,827 )

Accrued interest income, related party — ( 278 )

Deferred income tax 2,593 ( 1 )

Unrealized (gain)/loss on equity securities ( 5,609 ) 7,904

Impairment of goodwill and intangibles — 12,199

Distribution of equity method investment shares to employees as compensation 666 —

Loss on exchange of debt for equity 124 —

Realized loss on sale of equity securities 6,692 151

Unrealized loss on equity method investment — 1,784

Gain on conversion of note receivable — ( 791 )

Other ( 49 ) 190

Impairment of intangible assets

Loss on conversion of note receivable to equity investment

Unrealized loss on equity investment

Change in fair value of JV obligation

Change in fair value of convertible notes payable

Loss on extinguishment of convertible notes payable

Change in fair value of warrant liability

Changes in operating assets and liabilities:

Accounts receivable and other receivables

Inventory ( 1,277 ) ( 565 )

Prepaid expenses and other current assets

Other assets 3 33

Accounts payable

Accrued liabilities 1,818 858

Income tax liabilities ( 115 ) 119

Related party payables

Accrued expenses and other current liabilities

Accrued interest

Deferred revenue

1 unchanged sentence

Net Cash Used in Operating Activities

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Cash Flows Used in Investing Activities

Cash Flows Provided by (Used in) Investing Activities

Purchase of property and equipment

Investment in capitalized software ( 185 ) ( 948 )

Sales of treasury bills — 43,001

Sales of equity securities 323 229

Purchases of convertible note — ( 5,500 )

Issuance of note receivable ( 3,003 ) ( 150 )

Proceeds from repayment of note receivable 150 —

Issuance of Convertible Note Receivable and Warrants ( 3,000 ) —

Net Cash (Used in) Provided by Investing Activities $ ( 5,887 ) $ 36,387

Cash received in purchase of Inpixon

Purchase of intangible asset

Net Cash Provided by (Used in) Investing Activities

Cash From Financing Activities

Net proceeds from issuance of preferred stock and warrants — 46,906

Net proceeds from promissory note 364 12,339

Taxes paid related to net share settlement of restricted stock units — ( 336 )

Net proceeds from issuance of warrants 1,409 —

Distribution to shareholders related to Spin-off of CXApp ( 10,003 ) —

Distribution to trust related to spin off of Grafiti Holding ( 369 ) —

Proceeds from sale of common stock and exercise of warrants

Net proceeds from ATM stock offerings

Common shares issued for exercise of warrants 4,496 —

Common shares issued for net proceeds from warrants — 1

Cash paid for redemption of preferred stock series 7 — ( 49,250 )

Cash paid for redemption of preferred stock series 8 — ( 53,198 )

Repayment of CXApp acquisition liability ( 197 ) ( 5,136 )

Net Cash Provided By (Used in) Financing Activities $ 22,208 $ ( 34,586 )

Net proceeds from issuance of promissory notes

Net proceeds from loan from Inpixon (prior to merger)

Net proceeds from issuance of convertible notes

Redemptions of Series 9 preferred stock

Repayments of debt

Net Cash Provided by Financing Activities

Effect of Foreign Exchange Rate on Changes on Cash

Net Decrease in Cash and Cash Equivalents ( 12,860 ) ( 32,245 )

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents - Beginning of year

Cash and Cash Equivalents - End of year

Balances included in the Consolidated Balance Sheets:

Cash and cash equivalents $ 6,254 $ 9,284

Cash included in current assets of discontinued operations $ 1,121 $ 10,951

Cash and Cash Equivalents - End of Year $ 7,375 $ 20,235

Supplemental Disclosure of cash flow information:

Cash paid for:

Interest $ — $ 2

Income Taxes $ 17 $ 125

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Non-cash investing and financing activities

Common shares issued for extinguishment of debt $ 9,193 $ 3,650

Common shares issued for conversion of debt and accrued interest

Common shares issued in exchange of warrants and cashless exercise of warrants and options

Deemed dividend related to December 2023 warrant exchange

Common shares issued as settlement of accrued compensation

Common shares issued as prepayment for services

Issuance of common stock for merger consideration, net of cash received

Right of use asset obtained in exchange for lease liability

Noncash net assets distribution to shareholders related to Spin-off of CXApp $ 14,227 $ —

Noncash net assets distribution to shareholders related to Spin-off of Grafiti Holding Inc.

Investment in equity securities through conversion of note receivable $ — $ 6,776

Common shares issued for CXApp acquisition $ — $ 3,697

Noncash debt modification fees $ 144 $ —

Marketable securities received for settlement of FOXO $ 1,142 $ —

Noncash exercise of liability classified warrants to common shares $ 581 $ —

Changes in non-controlling interest due to capital contribution $ 1,461 $ —

Common shares issued in exchange for warrants $ — $ 14

The accompanying notes are an integral part of these consolidated financial statements

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 1 - Organization and Nature of Business

Following the effective time of the XTI Merger (the “Effective Time”) on the Closing Date, we amended our articles of incorporation to change our name from "Inpixon" to "XTI Aerospace, Inc." and the combined company opened for trading on the Nasdaq Capital Market on March 13, 2024 under the new ticker symbol “XTIA”.

The consolidated financial statements for the years ended December 31, 2023 and 2022 include the financial results of Inpixon, as the merger occurred after December 31, 2023.

Therefore, all references to the "Company" in the consolidated financial statements refer to Inpixon.

Inpixon is the Indoor Intelligence™ company.

Our solutions and technologies help organizations create and redefine exceptional experiences that enable smarter, safer and more secure environments.

Inpixon customers can leverage our real-time positioning and analytics technologies to achieve higher levels of productivity and performance, increase safety and security, improve worker and employee satisfaction rates and drive a more connected work environment.

We have focused our corporate strategy on being the primary provider of the full range of foundational technologies needed to form a comprehensive suite of solutions that make indoor data available and actionable to organizations and their employees.

Together, our technologies allow organization to create and utilize the digital twin of a physical location and to deliver enhanced experiences in their current environment and in the metaverse.

Inpixon specializes in providing real-time location systems (RTLS) for the industrial sector.

As the manufacturing industry has evolved, RTLS technology has become a crucial aspect of Industry 4.0.

Our RTLS solution leverages cutting-edge technologies such as IoT, AI, and big data analytics to provide real-time tracking and monitoring of assets, machines, and people within industrial environments.

With our RTLS, businesses can achieve improved operational efficiency, enhanced safety, and reduced costs.

By having real-time visibility into operations, industrial organizations can make informed, data-driven decisions, minimize downtime, and ensure compliance with industry regulations.

With our RTLS, industrial businesses can transform their operations and stay ahead of the curve in the digital age.

Inpixon's full-stack industrial IoT solution provides end-to-end visibility and control over a wide range of assets and devices.

It's designed to help organizations optimize their operations and gain a competitive edge in today's data-driven world.

The turn-key platform integrates a range of technologies, including RTLS, sensor networks, edge computing, and big-data analytics, to provide a comprehensive view of an organizations's operations.

We help organizations to track the location and status of assets in real-time, identify inefficiencies, and make decisions that drive business growth.

Our IoT stack covers all the technology layers, from the edge devices to the cloud.

It includes hardware components such as sensors and gateways, a robust software platforms for data management and analysis, and a user-friendly dashboard for real-time monitoring and control.

Our solutions also offer robust security features to help ensure the protection of sensitive data.

Additionally, Inpixon's RTLS provides scalability and flexibility, allowing organizations to easily integrate it with their existing systems and add new capabilities as their needs evolve.

In addition to our Indoor Intelligence technologies and solutions, we previously offered:

• Digital solutions (eTearsheets;

eInvoice, adDelivery) or cloud-based applications and analytics for the advertising, media and publishing industries through our advertising management platform which was referred to as Shoom by Inpixon;

• A comprehensive set of data analytics and statistical visualization solutions for engineers and scientists which was referred to as SAVES by Inpixon.

During the fourth quarter and as of December 31, 2023, both the Shoom and SAVES operating segments and a portion of the Indoor Intelligence segment, were disposed of or met the held for sale criteria and represented a strategic shift in the Company's operations.

As a result, these segments have been presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented except for the Consolidated Statements of Cash Flows, which are presented on a consolidated basis for both continuing operations and discontinued operations.

In addition, the Company also notes that as of December 31, 2023, the divesiture of our Enterprise Apps line, which was completed in the first quarter of 2023, is presented as discontinued operations and as such, has been excluded from both continuing operations and segment results for all periods presented.

This divestiture represented a portion of the Indoor Intelligence operating segment.

Following these divestitures, only the Indoor Intelligence operating segment remains as of December 31, 2023.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Capital contribution - forgiveness of related party payable

Common shares issued in exchange of Series 9 preferred stock

Series 9 preferred stock dividend accrued

Deemed dividend related to Series 9 preferred stock exchange

Conversion of accrued interest to Series 9 preferred stock

Conversion of convertible note receivable to equity investment

ATM proceeds withheld as payment towards accounts payable

Warrants issued with convertible notes

Warrants issued with common stock

Reclassification of JV obligation to equity

Conversion of accrued interest to convertible note payable

accompanying notes are an integral part of these consolidated financial statements

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

The operating segments included in discontinued operations are related to the Grafiti Holding Inc., Grafiti LLC, and Enterprise Apps divestitures.

See Note 4 and Note 6 for more information on the Enterprise Apps divestiture and the Grafiti Holding Inc.

and Grafiti LLC divestitures, respectively.

Note 2 - Summary of Significant Accounting Policies

Liquidity and Going Concern

As of December 31, 2023, the Company has working capital of approximately $ 3.6 million and cash of approximately $ 6.3 million.

For the year ended December 31, 2023, the Company incurred a net loss attributable to common stockholders of approximately $ 45.9 million and net cash used in operating activities during the year ended December 31, 2023 was $ 29.2 million.

On May 15, 2023, the Company entered into a warrant purchase agreement with multiple purchasers for the purchase and sale of up to an aggregate of 1,500,000 of warrants (the “May 2023 Warrants”).

The 1,500,000 May 2023 Warrants were issued for aggregate gross proceeds of approximately $ 1.5 million.

The aggregate net proceeds from the offerings, after deducting the placement agent fees and other estimated offering expenses, were approximately $ 1.4 million.

During July 2023, the Company issued 90,000 shares of common stock in connection with the exercise of 90,000 May 2023 Warrants with an exercise price of $ 26.00 per share for which the Company received gross proceeds of approximately $ 2.3 million.

On December 15, 2023, the Company entered into warrant inducement letter agreements with certain holders of the May 2023 Warrants in order to induce the holders to exercise 491,310 existing warrants.

The holders paid an aggregate of approximately $ 2.5 million to the Company for the exercise of the warrant and after deducting offering expenses the net proceeds to the Company were approximately $ 2.2 million.

During the year ended December 31, 2023, the Company sold 703,756 shares of common stock at share prices between $ 13.96 and $ 186.00 per share under an Equity Distribution Agreement for gross proceeds of approximately $ 27.4 million or net proceeds of $ 26.5 million after deducting the placement agency fees and other offering expenses.

The Company cannot assure you that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable.

In order to continue our operations, we have supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines.

Certain global events, such as the recent military conflict between Russia and Ukraine and Israel and Hamas, market volatility and other general economic factors that are beyond our control may impact our results of operations.

These factors can include interest rates;

unemployment trends;

the threat or possibility of war, terrorism or other global or national unrest;

political or financial instability;

and other matters that influence our customers spending.

Increasing volatility in financial markets and changes in the economic climate could adversely affect our results of operations.

We also expect that supply chain interruptions and constraints, and increased costs on parts, materials and labor may continue to be a challenge for our business.

The impact that these global events will have on general economic conditions is continuously evolving and the impact that they will have on our results of operations continues to remain uncertain.

There are no assurances that we will not be materially adversely effected.

The Company's recurring losses and utilization of cash in its operations are indicators of going concern.

The Company’s consolidated financial statements as of December 31, 2023 have been prepared under the assumption that the Company will continue as a going concern for the next twelve months from the date the financial statements are issued.

Management’s plans and assessment of the probability that such plans will mitigate and alleviate any substantial doubt about the Company’s ability to continue as a going concern is dependent upon the ability to obtain additional equity or debt financing, and attain further operating efficiency, which together represent the principal conditions that raise substantial doubt about our ability to continue as a going concern.

The Company’s consolidated financial statements as of December 31, 2023 do not include any adjustments that might result from the outcome of this uncertainty.

Consolidations

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

- Organization and Nature of Business

March 12, 2024 (the “Closing Date”), XTI Aerospace, Inc., the “Company”, formerly known as Inpixon (“Legacy

Inpixon”), Superfly Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Legacy Inpixon (“Merger Sub”),

and XTI Aircraft Company, a Delaware corporation (“Legacy XTI”), completed their previously announced merger transaction

pursuant to that certain Agreement and Plan of Merger, dated as of July 24, 2023 and amended on December 30, 2023 and March 12, 2024

(the “XTI Merger Agreement”), pursuant to which Legacy XTI merged in a reverse triangular merger with Merger Sub with Legacy

XTI surviving the merger as a wholly-owned subsidiary of the Company (the “XTI Merger”).

In connection with the closing of

the XTI Merger, our corporate name changed from Inpixon to “XTI Aerospace, Inc.” and the combined company opened for trading

on the Nasdaq Capital Market on March 13, 2024 under the new ticker symbol “XTIA.”

Company determined the XTI Merger should be accounted for as a reverse acquisition with Legacy XTI being considered the accounting acquirer.

Therefore, the consolidated financial statements included in this report represent a continuation of the financial statements of Legacy

XTI and the results of operations of the accounting acquired entity, Legacy Inpixon, are included in the consolidated financial statements

as of the Closing Date and through the December 31, 2024 reporting date.

The Company is primarily an aircraft development company.

also provides real-time location systems (“RTLS”) for the industrial sector, which was Legacy Inpixon’s focus prior

to the closing of the XTI Merger.

Headquartered in Englewood, Colorado, the Company is developing a vertical takeoff and landing (“VTOL”)

airplane that is designed to take off and land like a helicopter and cruise like a fixed-wing business airplane.

Since 2013, the Company

has been engaged primarily in developing the aerodynamic performance and top-level engineering design of the TriFan 600, building and

testing a two-thirds scale unmanned version of the TriFan 600, generating pre-orders for the TriFan 600, and seeking funds from investors

to enable the Company to advance the detailed design and certification of the TriFan 600, and to eventually engage in commercial production

and sale of TriFan 600.

RTLS solutions leverage cutting-edge technologies such as IoT, AI, and big data analytics to provide real-time tracking and monitoring

of assets, machines, and people within industrial environments.

With our RTLS solutions, businesses can achieve improved operational

efficiency, enhanced safety and reduced costs.

By having real-time visibility into operations, industrial organizations can make informed,

data-driven decisions, minimize downtime, and ensure compliance with industry regulations.

2 – Consolidation

consolidated financial statements have been prepared using the accounting records of Legacy XTI and as of March 12, 2024 and forward

(the effective date of the XTI Merger) the accounting records of XTI Aerospace, Inc.

(formerly known as Inpixon), Inpixon GmbH (formerly

known as Nanotron Technologies GmbH), Inpixon Holding UK Limited, and Intranav GmbH.

All material inter-company balances and transactions

have been eliminated.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

The consolidated financial statements have been prepared using the accounting records of Inpixon, Grafiti LLC, Grafiti GmbH, formerly known as Inpixon GmbH, Inpixon Holding UK Limited, Inpixon GmbH, formerly known as Nanotron Technologies, GmBh, Intranav GmbH, Inpixon India Limited, Game Your Game, Inc.

and Active Mind Technology Limited.

The consolidated financial statements also include financial data of Inpixon Canada, Inc., Design Reactor, Inc.

and Inpixon Philippines, Inc.

through March 14, 2023, which is the date those entities were spun off in the Enterprise Apps Spin-off and Business Combination transaction discussed in Note 4.

The consolidated financial statements also include the financial data of Grafiti Holding Inc.

and Inpixon Limited through December 27, 2023, which is the date those entities were spun off in the Solutions Divestiture- Grafiti Holding Inc.

transaction discussed in Note 6.

All material inter-company balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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.

3 - Summary of Significant Accounting Policies

of December 31, 2024, the Company has a working capital deficit of approximately $ 8.8 million, and cash of approximately $ 4.1 million.

For the year ended December 31, 2024, the Company had a net loss of approximately $ 35.6 million.

During the year ended December 31, 2024,

the Company used approximately $ 22.3 million of cash for operating activities.

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.

During May 2024, the Company entered into a note purchase agreement

with Streeterville Capital, LLC, pursuant to which the Company issued two secured promissory notes to Streeterville Capital, LLC in May

2024, resulting in aggregate cash proceeds to the Company of $ 2.0 million.

can be no assurances that the Company will ever earn revenues sufficient to support its operations, or that it will ever be profitable.

In order to continue its operations, the Company has supplemented the revenues it earned with proceeds from the sale of its equity securities

and proceeds from loans.

The Company’s recurring losses and utilization of cash in its

operations are indicators of going concern.

However, the Company’s current liquidity position was favorably impacted by the cash

raised under public offerings aggregating approximately $ 23.3 million subsequent to December 31, 2024, along with repaying and settling

certain debt and other obligations during March 2025 (refer to Note 23).

This, along with the Company’s ability to defer or eliminate

certain operating expenses that are under its control and the revenues expected to be generated by the Industrial IoT segment lead the

Company to believe it has the ability to mitigate such concerns for a period of at least one year from the date these financial statements

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the

reported amounts of revenues and expenses during each of the reporting periods.

Actual results could differ from those estimates.

The Company’s significant estimates consist of:

• the valuation of stock-based compensation;

• the valuation of the Company's common stock issues in transactions, including acquisitions;

• the allowance for credit losses;

• the valuation of loans receivable;

• the valuation of equity securities;

• the valuation of warrant liabilities;

• the valuation allowance for deferred tax assets;

• impairment of long-lived assets;

• useful lives of property, plant and equipment, intangible assets and software development costs.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, checking accounts, money market accounts and temporary investments with maturities of three months or less when purchased.

As of December 31, 2023 and 2022, the Company had no cash equivalents.

Accounts Receivable, net of Allowance for Credit Losses

Accounts receivables are stated at the amount the Company expects to collect.

The Company recognizes an allowance for credit losses to ensure accounts receivables are not overstated due to un-collectability.

Reserves for credit losses are maintained for various customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience.

An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings, or deterioration in such customer’s operating results or financial position.

If circumstances related to a customer change, estimates of the recoverability of receivables would be further adjusted.

Finished goods are measured at the cost of manufactured products including direct materials and subcontracted services.

Nanotron, states finished goods at the lower of cost and net realizable value on an average cost basis.

As the inventory held by

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Nanotron is typically small dollar value items with small variances in price, an estimate or average is used to determine the balance of inventory.

All other subsidiaries of the Company state inventory utilizing the first-in, first-out method.

The Company continually analyzes its slow-moving, excess and obsolete inventories.

Based on historical and projected sales volumes and anticipated selling prices, the Company establishes reserves.

If the Company does not meet its sales expectations, these reserves are increased.

Products that are determined to be obsolete are written down to net realizable value.

As of December 31, 2023 and 2022, the Company had recorded an inventory obsolescence of approximately $ 0.4 million.

Short-term investments

Investments with maturities greater than 90 days but less than one year are classified as short-term investments on the consolidated balance sheets and consist of U.S.

Treasury Bills.

Accrued interest on U.S.

Treasury bills are also classified as short term investment.

Our short-term investments are considered available for use in current operations, are classified as available-for-sale securities.

Available for sale securities are carried at fair value, with unrealized gains and losses included in the other income (expense) line of the Consolidated Statements of Operations.

There were no short-term investments outstanding as of December 31, 2023 or 2022 and no unrealized gain or loss was recorded on available for sale securities for the year ended December 31, 2023 or 2022.

Property and Equipment, net

Property and equipment are recorded at cost less accumulated depreciation and amortization.

The Company depreciates its property and equipment for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years.

Leasehold improvements are amortized over the lesser of the useful life of the asset or the initial lease term.

Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures, which extend the economic life, are capitalized.

When assets are retired, or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized.

Intangible Assets

Intangible assets primarily consist of developed technology, customer lists/relationships, non-compete agreements, intellectual property agreements, and trade names/trademarks.

They are amortized ratably over a range of 1 to 15 years, which approximates customer attrition rate and technology obsolescence.

The Company assesses the carrying value of its intangible assets for impairment each year.

Based on its assessments, the Company has recorded no impairment during the years ended December 31, 2023 and 2022, respectively.

The Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit.

The Company has determined that the reporting unit is the entire company, due to the integration of all of the Company’s activities.

In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount.

If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.

The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches.

For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others:

projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends;

expected future investments to grow new units;

and estimated discount rates.

For the market approach, the Company uses internal analyses based primarily on market comparables.

The Company bases these assumptions on its

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Company’s significant estimates consist of:

valuation of stock-based compensation;

valuation of the Company’s common stock issued and assets acquired in transactions, including acquisitions;

valuation of equity securities;

valuation of convertible notes receivable;

valuation of warrant liabilities and assets;

the valuation of convertible notes payable, at fair value;

valuation of loan conversion derivatives;

valuation allowance for deferred tax assets.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.

The Company has recorded impairment of goodwill from continuing operations of zero and $ 1.2 million during the years ended December 31, 2023 and 2022, respectively.

Goodwill was fully impaired as of December 31, 2023 and December 31, 2022.

Software Development Costs

The Company develops and utilizes internal software for the processing of data provided by its customers.

Costs incurred in this effort are accounted for under the provisions of ASC 350-40, "Internal Use Software" and ASC 985-20, "Software – Cost of Software to be Sold, Leased or Marketed", whereby direct costs related to development and enhancement of internal use software is capitalized, and costs related to maintenance are expensed as incurred.

The Company capitalizes its direct internal costs of labor and associated employee benefits that qualify as development or enhancement.

These software development costs are amortized over the estimated useful life which management has determined ranges from 1 to 5 years.

Leases and Right-of-Use Assets

The Company determines if an arrangement is a lease at its inception.

Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

The Company generally uses their incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, because the implicit rate of the lease is generally not known.

Right-of-use assets related to the Company's operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease payments and less any lease incentives.

The Company's lease terms that are used in determining their operating lease liabilities at lease inception may include options to extend or terminate the leases when it is reasonably certain that the Company will exercise such options.

The Company amortizes their right-of-use assets as operating lease expense generally on a straight-line basis over the lease term and classify both the lease amortization and imputed interest as operating expenses.

The Company does not recognize lease assets and lease liabilities for any lease with an original lease term of less than one year .

Research and Development

Research and development costs consist primarily of professional fees and compensation expense.

All research and development costs are expensed as incurred.

Research and development costs as of December 31, 2023 and 2022 were $ 4.4 million and $ 4.5 million, respectively.

Loans and Notes Receivable

The Company evaluates loans and notes receivable that don’t qualify as securities pursuant to ASC 310 – "Receivables", wherein such loans would first be classified as either “held for investment” or ‘held for sale”.

Loans would be classified as “held for investment”, if the Company has the intent and ability to hold the loan for the foreseeable future, or to maturity or pay-off.

Loans would be classified as “held for sale”, if the Company intends to sell the loan.

Loan receivables classified as “held for investment” are carried on the balance sheet at their amortized cost and are periodically evaluated for impairment.

Loan receivables classified as “held for sale” are carried on the balance sheet at the lower of their amortized cost or fair value, with a valuation allowance being recorded (with a corresponding income statement charge) if the amortized cost exceeds the fair value.

For loans carried on the balance sheet at fair value, changes to the fair value amount that relate solely to the passage of time will be recorded as interest income.

The Company accounts for income taxes using the asset and liability method.

Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective.

Income tax benefits are recognized when it is probable that the deduction will be sustained.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

and Cash Equivalents

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.

Risk and Concentrations

instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents.

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.

customers who account for 10% or more of the Company’s revenue for the year ended December 31, 2024 or 10% or more of the Company’s

outstanding receivable balance as of December 31, 2024 are presented as follows:

of accounts receivable

Ended December 31, 2024

of December 31, 2024

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

Company did not have revenue for the year ended December 31, 2023.

The Company did not have outstanding trade receivables as of December

vendors who account for 10% or more of the Company’s purchases or 10% or more of the Company’s outstanding payable balance

are presented as follows for the periods indicated:

of accounts payable

Ended December 31, 2024

of December 31, 2024

of accounts payable

Ended December 31, 2023

of December 31, 2023

** Represents

less than 10% of the total for the respective period

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain.

Non-Controlling Interest

The Company has an 82.5 % equity interest in Inpixon India, and a 79.54 % equity interest in Game Your Game as of December 31, 2023.

The portion of the Company’s equity attributable to this third party non-controlling interest was approximately $ 0.4 million and $( 1.2 ) million as of December 31, 2023 and 2022, respectively.

The Company's ownership in Game Your Game increased from 55.4 % to 79.54 % due to the conversion of convertible notes held by the Company during the year ended December 31, 2023.

Inpixon India and Game Your Game are included in discontinued operations as they are part of the Solutions Divestiture.

The Company disposed of its 99.97 % equity interest in Inpixon Philippines in connection with the Closing of the Transactions disclosed under Note 4 herein, which includes the Enterprise Apps Spin-off and the Merger.

Foreign Currency Translation

Assets and liabilities related to the Company’s foreign operations are calculated using the Indian Rupee, Canadian Dollar, British Pound, Philippine Peso and Euro, and are translated at end-of-period exchange rates, while the related revenues and expenses are translated at average exchange rates prevailing during the period.

Translation adjustments are recorded as a separate component of consolidated stockholders’ equity, totaling a gain/(loss) of approximately $( 0.4 ) million and $ 1.0 million for the years ended December 31, 2023 and 2022, respectively.

Gains or losses resulting from transactions denominated in foreign currencies are included in general and administrative expenses in the consolidated statements of operations.

The Company engages in foreign currency denominated transactions with customers that operate in functional currencies other than the U.S.

Aggregate foreign currency net transaction losses were not material for the years ended December 31, 2023 and 2022.

Comprehensive Income (Loss)

The Company reports comprehensive income (loss) and its components in its consolidated financial statements.

Comprehensive loss consists of net loss, foreign currency translation adjustments and unrealized gains and losses from marketable securities, affecting stockholders’ (deficit) equity that, under GAAP, are excluded from net loss.

Business Combinations

The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition.

The excess of the purchase price over the estimated fair value is recorded as goodwill.

Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

(“ASC”) 805, “Business Combinations” using the acquisition method of accounting, and accordingly, the assets

and liabilities of the acquired business are recorded at their fair values at the date of acquisition.

The excess of the purchase price

over the estimated fair value is recorded as goodwill.

All acquisition costs are expensed as incurred.

Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date.

Revenue Recognition

The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services.

The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems.

Hardware and Software Revenue Recognition

For sales of hardware and software products, the Company’s performance obligation is satisfied at a point in time when they are shipped to the customer.

This is when the customer has title to the product and the risks and rewards of ownership.

The delivery of products to the Company's customers occurs in a variety of ways, including (i) as a physical product shipped from the Company’s warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect to software licenses.

The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse.

In such arrangements, the Company negotiates the

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

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

accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the acquisition date and subsequently accounts

for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts.

an IPR&D project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly.

asset is abandoned, the remaining carrying value is written off.

During fiscal year 2024, the Company acquired IPR&D through the

Assets and Goodwill

intangible assets primarily consist of developed technology, patents, customer relationships, and trade names/trademarks.

They are amortized

ratably over a range of 5 to 15 years, which approximates customer attrition rate and technology obsolescence.

Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that

the Company may not be able to recover the carrying amount of the net assets of the reporting unit.

In evaluating goodwill for impairment,

the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that

the fair value of a reporting unit is less than its carrying amount.

If the Company bypasses the qualitative assessment, or if the Company

concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs

a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.

Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches.

For the income

approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others:

of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends;

expected future investments

to grow new units;

and estimated discount rates.

For the market approach, the Company uses internal analyses based primarily on market

The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections,

micro and macro general economic condition projections, and its expectations.

For the year ended December 31, 2024, the Company estimated

the fair value of a reporting unit with 100 % weighting to the income approach.

Company reviews its long-lived assets, inclusive of its right-of-use assets, for impairment whenever events or changes in circumstances

indicate the carrying amount of an asset may not be recoverable.

Recoverability of assets held and used is measured by comparison of

the carrying amount of an asset to the future undiscounted cash flows expected to be generated from the use of the asset and its eventual

If the carrying amount of an asset group exceeds its estimated future undiscounted cash flows, an impairment charge is recognized

for the amount by which the carrying amount of the asset group exceeds its fair value.

the year ended December 31, 2024, the Company determined that its long-lived assets were impaired by $ 2.5 million.

For the year ended

December 31, 2023, the Company determined none of its long-lived assets were impaired.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from its customers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards and requirements of the customer.

Accordingly, the Company is the principal in the transaction with the customer and records revenue on a gross basis.

The Company receives fixed consideration for sales of hardware and software products.

The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice.

The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year.

Software As A Service Revenue Recognition

With respect to sales of the Company’s maintenance, consulting and other service agreements including the Company’s digital advertising and electronic services, customers pay fixed monthly fees in exchange for the Company’s service.

The Company’s performance obligation is satisfied over time as the digital advertising and electronic services are provided continuously throughout the service period.

The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service.

The Company notes that this revenue stream is part of the Shoom operating segment which is presented as discontinued operations as of December 31, 2023.

Professional Services Revenue Recognition

The Company’s professional services include milestone, fixed fee and time and materials contracts.

Professional services under milestone contracts are accounted for using the percentage of completion method.

As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract.

accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when the

customer obtains control of promised goods, in an amount that reflects the consideration that it expects to receive in exchange for those

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs

the following five steps:

(i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii)

determine the transaction price, including variable consideration, if any, (iv) allocate the transaction price to the performance obligations

in the contract, and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

The Company only applies the

five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods

it transfers to a customer.

and Software Revenue Recognition

sales of hardware and software products, the Company’s performance obligation is satisfied at a point in time when they are shipped

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

of ownership.

Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically

hold the inventory at its warehouse.

In such arrangements, the Company negotiates the sale price with the customer, pays the supplier

directly for the product shipped, bears credit risk of collecting payment from its customers and is ultimately responsible for the acceptability

of the product and ensuring that such product meets the standards and requirements of the customer.

Accordingly, the Company concluded

it is the principal in the transaction with the customer and records revenue on a gross basis.

The Company receives fixed consideration

for sales of hardware and software products.

The Company’s customers generally pay within 30 to 60 days from the receipt of a customer

approved invoice.

The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred

because the amortization period of the asset that otherwise would have been recognized is less than a year.

As A Service Revenue Recognition

respect to sales of the Company’s maintenance, consulting and other service agreements, customers pay fixed monthly fees in exchange

for the Company’s service.

The Company’s performance obligation is satisfied over time as the digital advertising and electronic

services are provided continuously throughout the service period.

The Company recognizes revenue evenly over the service period using

a time-based measure because the Company is providing continuous access to its service.

Services Revenue Recognition

Company’s professional services include milestone, fixed fee and time and materials contracts.

Professional services under milestone

contracts are accounted for using the percentage of completion method.

As soon as the outcome of a contract can be estimated reliably,

contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract.

Contract costs are expensed as incurred.

Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract.

Professional services are also contracted on the fixed fee and time and materials basis.

Fixed fees are paid monthly, in phases, or upon acceptance of deliverables.

The Company’s time and materials contracts are paid weekly or monthly based on hours worked.

Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended.

Materials, or other specified direct costs, are reimbursed as actual costs and may include markup.

The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date.

For fixed fee contracts including maintenance service provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service.

Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.

Anticipated losses are recognized as soon as they become known.

For the years ended December 31, 2023 and 2022, the Company did not incur any such losses.

These amounts are based on known and estimated factors.

License Revenue Recognition

The Company enters into contracts with its customers whereby it grants a non-exclusive on-premise license for the use of its proprietary software.

The contracts provide for either (i) a one year stated term with a one year renewal option, (ii) a perpetual term or (iii) a two year term for students with the option to upgrade to a perpetual license at the end of the term.

The contracts may also provide for yearly on-going maintenance services for a specified price, which includes maintenance services, designated support, and enhancements, upgrades and improvements to the software (the “Maintenance Services”), depending on the contract.

Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer.

All software provides customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.

The timing of the Company's revenue recognition related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a good or service.

Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service.

A software arrangement that is provided through an access code or key represents the transfer of a good.

Licenses for on-premises software represents a

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

good and provide the customer with a right to use the software as it exists when made available to the customer.

Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.

Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer.

Renewals or extensions of licenses are evaluated as distinct licenses (i.e., a distinct good or service), and revenue attributed to the distinct good or service cannot be recognized until (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license.

Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional rights granted after the initial contract.

The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period.

Therefore, the Company recognizes revenue resulting from renewal of licensed software at a point in time, specifically, at the beginning of the license renewal period.

The Company recognizes revenue related to Maintenance Services evenly over the service period using a time-based measure because the Company is providing continuous service and the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the services are performed.

Contract Balances

The timing of the Company’s revenue recognition may differ from the timing of payment by its customers.

The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment.

Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied.

The Company recognized $ 0.5 million and $ 0.8 million of previously deferred revenue as revenue from continuing operations during the years ended December 31, 2023 and 2022, respectively.

The Company had deferred revenue of approximately $ 0.6 million and $ 0.5 million as of December 31, 2023 and 2022, respectively, related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff.

The Company expects to satisfy its remaining performance obligations for these maintenance services and professional services, and recognize the deferred revenue and related contract costs over the next twelve months.

Costs to Obtain a Contract

The Company recognizes eligible sales commissions as an asset as the commissions are an incremental cost of obtaining a contract with the customer and the Company expects to recover these costs.

The capitalized costs are amortized over the expected contract term.

Cost to Fulfill a Contract

The Company incurs costs to fulfill their obligations under a contract once it has obtained, but before transferring goods or services to the customer.

These costs are recorded as an asset as these costs are an incremental cost of fulfilling the contract with the customer and the Company expects to recover these costs.

The capitalized costs are amortized over the expected remaining contract term.

Multiple Performance Obligations

The Company enters into contracts with customers for its technology that include multiple performance obligations.

Each distinct performance obligation was determined by whether the customer could benefit from the good or service on its own or together with readily available resources.

The Company allocates revenue to each performance obligation based on its relative standalone selling price.

The Company's process for determining standalone selling price considers multiple factors including the Company's internal pricing model and market trends that may vary depending upon the facts and circumstances related to each performance obligation.

Sales and Use Taxes

The Company presents transactional taxes such as sales and use tax collected from customers and remitted to government authorities on a net basis.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Contract costs include all amounts that relate directly to the specific contract, are attributable

to contract activity, and are specifically chargeable to the customer under the terms of the contract.

timing of the Company’s revenue recognition may differ from the timing of payment by its customers.

The Company records a receivable

when revenue is recognized prior to payment and the Company has an unconditional right to payment.

Alternatively, when payment precedes

the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied, principally

within one year.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred as part of cost of revenues.

These costs were deemed to be nominal during each of the reporting periods.

Advertising Costs

Advertising costs are expensed as incurred.

The Company incurred advertising costs, which are included in selling, general and administrative expenses of approximately $ 0.3 million and $ 0.2 million during the years ended December 31, 2023 and 2022, respectively.

Stock-Based Compensation

The Company accounts for options granted to employees, consultants and other non-employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant.

The fair value of that award is then ratably recognized as an expense over the period during which the recipient is required to provide services in exchange for that award.

Forfeitures of unvested stock options are recorded when they occur.

The Company incurred stock-based compensation charges of approximately $ 1.0 million and $ 3.7 million for each of the years ended December 31, 2023 and 2022, respectively, which are included in general and administrative expenses, of which approximately $ 0.2 million and approximately $ 1.9 million pertain to discontinued operations.

Acquisition-Related Costs

The Company recognized acquisition-related costs of approximately $ 4.2 million for the year ended December 31, 2023, primarily related to the XTI transaction outlined in Note 5.

These acquisition-related costs include professional fees incurred by the Company.

The Company recognized acquisition-related costs of approximately $ 0.4 million for the year ended December 31, 2022 related to various other acquisitions.

Transaction Costs

The Company recognized transaction costs of approximately $ 3.1 million for the year ended December 31, 2023 related to the Enterprise Apps Spin-off in the form of bonuses paid to the Company's management, former management and professional fees that were incurred by the Company.

Net Loss Per Share

The Company computes basic and diluted earnings per share by dividing net loss by the weighted average number of common shares outstanding during the period.

Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive.

The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the years ended December 31, 2023 and 2022:

For the Years Ended

Options 1,058 3,516

Warrants 941,239 62,120

Convertible preferred stock 2 2

Earnout reserve — —

Totals 942,299 65,638

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

The Company periodically enters into aircraft reservation agreements

that include a deposit placed by a potential customer.

The deposits serve to prioritize orders when the TriFan 600 airplane becomes available

for delivery.

Customers making deposits are not obligated to purchase any airplanes until they execute a definitive purchase agreement.

Customers may request return of their deposit any time up until the execution of a purchase agreement.

The Company records such advance

deposits as a liability and defers the related revenue recognition until delivery of an airplane occurs, if any.

Company’s stock-based compensation relates to stock options granted to employees and non-employees.

The Company recognizes the

cost of share-based awards granted to employees and non-employees based on the estimated grant-date fair value of the awards.

are accounted for as they occur, which may result in negative expense when forfeitures exceed the expense recorded within the period.

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

period of the award.

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

Black-Scholes option-pricing model utilizes inputs and assumptions which involve inherent uncertainties and generally require significant

As a result, if factors or expected outcomes change and significantly different assumptions or estimates are used, the Company’s

stock-based compensation could be materially different.

Significant inputs and assumptions include:

value of Common Stock – As there was no public market for Legacy XTI’s common

stock prior to the XTI Merger, the fair value of the shares of common stock underlying the

stock-based awards on the grant-date has historically been determined by Legacy XTI’s

Board of Directors with assistance of third-party valuation specialists.

Board of Directors exercised reasonable judgment and considered a number of objective and

subjective factors to determine the best estimate of the fair market value, which included

important developments in Legacy XTI’s operations, actual operating results, financial

performance, external market conditions, equity market conditions of comparable public companies,

and the lack of marketability of Legacy XTI’s common stock.

Term – The Company’s expected term represents the period that the Company’s

stock-based awards are expected to be outstanding and is determined using the simplified

method (based on the mid-point between the vesting date and the end of the contractual term).

Volatility – Because Legacy XTI was privately held prior to the XTI Merger and

did not have an active trading market for its common stock, the expected volatility was estimated

based on the average volatility for publicly traded companies that the Company considers

to be comparable, over a period equal to the expected term of the stock option grants.

Interest Rate – The risk-free interest rate is based on the U.S.

Treasury zero

coupon issues in effect at the time of grant for periods corresponding with the expected

term of option.

Dividend – The Company has never paid dividends on its common stock and has no

plans to pay dividends on its common stock.

Therefore, the Company used an expected dividend

yield of zero.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Loss Per Share

loss per share attributable to common stockholders is computed using the two-class method required for multiple classes of common stock

and participating securities.

The Company’s participating securities included the Company’s convertible preferred stock and

preferred stock.

The Company relies on the guidance provided by ASC 480, "Distinguishing Liabilities from Equity", to classify certain redeemable and/or convertible instruments.

Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value.

Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity.

At all other times, preferred shares are classified as permanent equity.

The Company also follows the guidance provided by ASC 815 "Derivatives and Hedging", which states that contracts that are both, (1) indexed to its own stock and (2) classified in stockholders’ equity in its statement of financial position, are not classified as derivative instruments, and to be recorded under stockholder's equity on the balance sheet of the financial statements.

Management assessed the preferred stock and determined that it did meet the scope exception under ASC 815, and would be recorded as equity, and not a derivative instrument, on the balance sheet of the Company's financial statements.

Mezzanine equity

When ordinary or preferred shares are determined to be conditionally redeemable upon the occurrence of certain events that are not solely within the control of the issuer, and upon such event, the shares would become redeemable at the option of the holders, they are classified as ‘mezzanine equity’ (temporary equity).

The purpose of this classification is to convey that such a security may not be permanently part of equity and could result in a demand for cash, securities or other assets of the entity in the future.

Fair Value Measurements

ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements.

The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and expands disclosures about fair value measurements.

The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

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

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

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.

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the years ended December 31, 2023 and 2022.

Fair value measurements are applied, when applicable, to determine the fair value of our long-lived assets and goodwill.

We recorded non-cash impairment charges as discussed further in Note 13.

The fair value measurement of these assets is categorized as a Level 3 measurement as the valuation techniques require the use of significant unobservable inputs.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and short-term debt.

The Company determines the estimated fair value of such financial instruments presented in these financial statements using available market information and appropriate methodologies.

These financial instruments, except for short-term debt are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature.

Short-term debt approximates market value based on similar terms available to the Company in the market place.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted Section 360-10-35 of the FASB ASC for its long-lived assets.

Pursuant to ASC Paragraph 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value.

The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).

That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability.

An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value.

Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis.

For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset.

Restoration of a previously recognized impairment loss is prohibited.

Pursuant to ASC Paragraph 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review:

(a) significant decrease in the market price of a long-lived asset (asset group);

(b) a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition;

(c) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator;

(d) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group);

(e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group);

and (f) a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

Based on its assessments, the Company has recorded impairment of goodwill and intangibles from continuing operations of zero and $ 1.2 million and zero and $ 11.0 million from discontinued operations during the years ended December 31, 2023 and 2022, respectively.

Goodwill was fully impaired as of December 31, 2023 and December 31, 2022.

Recently Issued Accounting Standards Not Yet Adopted

The Company reviewed recently issued accounting pronouncements and concluded that they were not applicable to the consolidated financial statements, except for the following:

In July 2023, the FASB issued ASU 2023-03, "Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718)", which updates codification on how an entity would apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest and similar awards should be accounted for in accordance with Topic 718, Compensation—Stock Compensation.

The effective date of this update is for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

The Company is currently assessing potential impacts of ASU 2023-03 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures.

In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Updated and Simplification Initiative", which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”).

The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements.

The new guidance is intended to align U.S.

GAAP requirements with those of the SEC and to facilitate the application of U.S.

GAAP for all entities.

For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules.

For all other entities, the amendments will be effective two years later.

However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Neither the holders of convertible preferred stock, preferred stock nor the holders of the Company’s common stock

warrants have a contractual obligation to share in losses.

net loss per share attributable to common stockholders is calculated by dividing the net loss, as adjusted for any dividends on the preferred

stock for the period, attributable to common stockholders by the weighted-average number of shares of common stock outstanding during

the period, adjusted for outstanding shares that are subject to repurchase or outstanding shares that are contingently returnable by

Contingently issuable shares, including shares that are issuable for little or no cash consideration, are considered outstanding

common shares and included in net loss per share as of the date that all necessary conditions have been satisfied.

Such shares include

outstanding penny warrants and shares issuable to Xeriant Inc.

(“Xeriant”) related to the joint venture arrangement that

expired on May 31, 2023.

net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury

stock method or the if-converted method based on the nature of such securities.

For periods in which the Company reports net losses,

diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to

common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Company records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset

and liability method.

Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences

between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating

loss and tax credit carryforwards.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income

in the period that includes the enactment date.

The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance

for any tax benefits for which future realization is uncertain.

The Company does not recognize certain tax benefits from uncertain tax

positions within the provision for income taxes.

The Company may recognize a tax benefit only if it is more likely than not the tax position

will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized

in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood

of being realized upon settlement.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

See Note 21 Income Taxes to the consolidated financial statements for further information regarding income taxes.

functional currency for the Company’s subsidiaries is determined based on the primary economic environment in which the subsidiary

The Company translates the assets and liabilities of its non-U.S.

dollar functional currency subsidiaries into U.S.

using exchange rates in effect at the end of each period.

Revenues and expenses for these subsidiaries are translated using rates that

approximate those in effect during the period.

Gains and losses from these translations are recognized in cumulative translation adjustment

included in “Accumulated other comprehensive loss” in Stockholders’ equity on the Consolidated Balance Sheets.

Company remeasures monetary assets and liabilities that are not denominated in the functional currency at exchange rates in effect at

the end of each period.

Gains and losses from these remeasurements are recognized in general and administrative expenses in the consolidated

statements of operations.

Foreign exchange gains (losses) were immaterial for the years ended December 31, 2024 and 2023, respectively.

Company and its Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker (“CODM”) determined

its operating segments in accordance with ASC 280, “Segment Reporting” (“ASC 280”).

The Company is organized

and operates as two reporting segments based on similar economic characteristics, the nature of products and production processes, end-use

markets, channels of distribution, and regulatory environments.

Issued and Adopted Accounting Standards

July 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-03,

Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities

from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718) , which updates codification on how

an entity would apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest and similar awards should be

accounted for in accordance with Topic 718, Compensation—Stock Compensation.

The effective date of this update is for fiscal years

beginning after December 15, 2023, including interim periods within those fiscal years.

The Company adopted ASU 2023-03 as of January

The adoption of this guidance did not have a material impact on the condensed consolidated financial statements and disclosures.

November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.

The new standard

requires a company to disclose incremental segment information on an annual and interim basis, including significant segment expenses

and measures of profit or loss that are regularly provided to the chief operating decision maker.

The standard is effective for the Company

beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted.

The Company adopted this ASU

for the year ended December 31, 2024 on a retrospective basis.

Refer to Note 15 for further information.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

The Company is currently assessing potential impacts of ASU 2023-06 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures", which amends the disclosure to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis for to enable investors to develop more decision-useful financial analyses.

All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023.

In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740):

Improvements to Income Tax Disclosures", which amends the disclosure to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures.

For entities other than public business entities, the requirements will be effective for annual periods beginning after December 15, 2025.

The guidance will be applied on a prospective basis with the option to apply the standard retrospectively.

Early adoption is permitted.

The Company is currently assessing potential impacts of ASU 2023-09 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

These reclassifications had no material effect on the reported results of operations or cash flows.

The consolidated balance sheet as of December 31, 2022 included approximately $ 1.1 million of earnings reclassified from controlling accumulated deficit to non-controlling interest.

This reclassification did not effect the Company’s total stockholders’ equity.

Additionally, certain amounts in prior periods have been reclassified to include the separate presentation and reporting of discontinued operations to conform to the current year presentation.

The reclassification of discontinued operations did not have any effect on our financial condition or results of operations as previously reported.

Note 3 - Disaggregation of Revenue

Disaggregation of Revenue

Issued Accounting Standards Not Yet Adopted

November 2024, the FASB issued ASU No.

2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures

(Subtopic 220-40):

Disaggregation of Income Statement Expenses.

This update requires entities to disaggregate operating expenses

into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature

and function of expenses.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted.

ASU 2024-03 may be applied retrospectively or prospectively.

The Company is currently evaluating the impact of ASU 2024-03 on its financial

statement presentation and disclosures.

December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosure s.

The new standard

requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid.

The standard is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted.

does not expect to early adopt the new standard.

The new standard is expected to be applied prospectively, but retrospective application

is permitted.

The Company is currently evaluating the impact of ASU 2023-09 on its financial statements and related disclosures.

4 - Disaggregation of Revenue and Deferred Revenue

Disaggregation

Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects

the consideration the Company expects to be entitled to in exchange for those products or services.

The Company derives revenue from

software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed

in conjunction with its systems recognition policy.

Revenues consisted of the following (in thousands):

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

For the Years Ended December 31,

the Years Ended

Recurring revenue

Software $ 907 $ 655

Total recurring revenue $ 907 $ 655

recurring revenue

Non-recurring

non-recurring revenue

Hardware $ 2,968 $ 3,882

Software 371 129

Professional services 316 1,443

Total non-recurring revenue $ 3,655 $ 5,454

Total Revenue $ 4,562 $ 6,109

For the Years Ended December 31,

the Years Ended

Revenue recognized at a point in time

Indoor Intelligence (1) $ 3,338 $ 4,011

Total $ 3,338 $ 4,011

Revenue recognized over time

Indoor Intelligence (2) (3) $ 1,224 $ 2,098

Total $ 1,224 $ 2,098

Total Revenue $ 4,562 $ 6,109

(1) Hardware and Software's performance obligation is satisfied at a point in time where when they are shipped to the customer.

recognized over time

(1) Hardware and Software’s performance obligation is satisfied at a point in time when they are shipped to the customer.

(2) Professional services are also contracted on the fixed fee and time and materials basis.

1 unchanged sentence

(3) Software As A Service Revenue's performance obligation is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service and service is recognized over time.

Note 4 - XTI Merger Agreement

On July 24, 2023, Inpixon entered into an Agreement and Plan of Merger by and among Inpixon, Superfly Merger Sub Inc., and XTI Aircraft Company.

Pursuant to the XTI Merger Agreement, on March 12, 2024 (the “Closing Date”), Merger Sub merged with and into Legacy XTI, with Legacy XTI surviving the XTI Merger as Inpixon's wholly-owned subsidiary.

Following the effective time of the XTI Merger on the Closing Date, we amended our articles of incorporation to change our name from "Inpixon" to "XTI Aerospace, Inc." and the combined company opened for trading on the Nasdaq Capital Market on March 13, 2024 under the new ticker symbol “XTIA”.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger (the “Effective Time”):

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

(3) Software As A Service Revenue’s performance obligation is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service and revenue is recognized over time.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

(i) Each share of XTI common stock outstanding immediately prior to the Effective Time (excluding any shares to be canceled pursuant to the Merger Agreement and shares held by holders of XTI common stock who have exercised and perfected appraisal rights) will automatically be converted into the right to receive a number of shares of Inpixon common stock equal to the Exchange Ratio (as described below).

Immediately prior to the Effective Time, all but $ 175,000 of the total principal and accrued interest balance of the convertible note issued by Legacy XTI to Dave Brody on October 1, 2023, as amended on March 12, 2024, was converted into shares of Legacy XTI common stock immediately prior to the Effective Time, enabling him to participate in the XTI Merger on the same basis as the other shares of XTI common stock.

The remaining $ 175,000 became payable in cash by Legacy XTI upon consummation of the XTI Merger.

(ii) Each option to purchase shares of XTI common stock outstanding and unexercised immediately prior to the Effective Time will be assumed by Inpixon and will become an option, subject to any applicable vesting conditions, to purchase shares of Inpixon common stock with the number of shares of Inpixon common stock underlying the unexercised portions of such options and the exercise prices for such options to be adjusted to reflect the Exchange Ratio.

(iii) Each warrant to purchase shares of XTI common stock outstanding and unexercised immediately prior to the Effective Time will be assumed by Inpixon and will become a warrant to purchase shares of Inpixon common stock with the number of shares of Inpixon common stock underlying such warrants and the exercise prices for such warrants will be adjusted to reflect the Exchange Ratio.

Subject to adjustment pursuant to the formula for the Exchange Ratio set forth in Exhibit A of the Merger Agreement, the Exchange Ratio will be determined based on (a) the fully diluted capitalization of each of Inpixon and XTI immediately prior to the Effective Time, provided, however, that for this purpose the calculation of Inpixon’s fully diluted capitalization will not take into account any shares of Inpixon common stock issuable after Closing for cash consideration upon conversion, exercise or exchange of derivative securities that are issued by Inpixon in Inpixon Permitted Issuances.

“Inpixon Permitted Issuances” are any issuances of common stock or derivative securities by Inpixon for financing or debt cancellation purposes that are permitted under the Merger Agreement and occur after the date of the Merger Agreement but before the Closing.

The Exchange Ratio will be subject to certain adjustments to the extent that Inpixon’s Net Cash (as such term is defined on Exhibit A of the Merger Agreement) is greater than or less than $ 21.5 million and/or any principal and accrued or unpaid interest remains outstanding under those certain promissory notes issued by Inpixon to Streeterville Capital, LLC on July 22, 2022 and December 30, 2022.

After application of the Exchange Ratio and subject to those certain adjustments described above, Inpixon stockholders immediately prior to the Effective Time retained approximately 25 % of the issued and outstanding capital stock of the combined company and XTI security holders retained approximately 75 % of the issued and outstanding capital stock of the combined company, in each case on a fully diluted basis.

XTI Promissory Note & Security Agreement

Pursuant to the Merger Agreement, on the first calendar day of the month following the date of the Merger Agreement and on the first calendar day of each month thereafter until the earlier of (i) four months following the date of the Merger Agreement and (ii) the Closing Date, Inpixon shall provide loans to XTI on a senior secured basis (each, a “Future Loan”), in such amounts requested by XTI in writing prior to the first calendar day of each such month.

Each Future Loan will be in the principal amount of up to $ 0.5 million, and the aggregate amount of the Future Loans will be up to approximately $ 1.8 million (or such greater amount as Inpixon shall otherwise agree in its sole and absolute discretion).

These Future Loans and security will be evidenced by a Senior Secured Promissory Note (the “XTI Promissory Note”) and a Security and Pledge Agreement (the “Security Agreement”).

The XTI Promissory Note provides an aggregate principal amount up to approximately $ 2.3 million, which amount includes the principal sum of approximately $ 0.5 million which Inpixon previously advanced to XTI (the “Existing Loans”, collectively with the Future Loans, the “Inpixon Loans to XTI”) plus accrued interest on such amount, and the aggregate principal amount of the Future Loans.

The XTI Promissory Note will bear interest at 10 % per annum, compounded annually, and for each Future Loan, beginning on the date the Future Loan is advanced to XTI.

On November 14, 2023, the principal amount under this note

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

of December 31, 2023, the Company did not have any deferred revenue.

As part of the XTI Merger, the Company acquired approximately

$ 0.8 million of deferred revenue, all of which relates to RTLS maintenance agreements.

The Company’s

deferred revenue balance of approximately $ 0.5 million as of December 31, 2024 related to cash received in advance for product maintenance

services and professional services provided by the Company’s technical staff.

The fair value of the deferred revenue approximates

the services to be rendered.

The Company expects to satisfy its remaining performance obligations for these maintenance services and

professional services, and recognize the deferred revenue and related contract costs over the next twelve months.

- Merger Transaction

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

The excess of the purchase price over the estimated fair value of the net assets acquired, if applicable, is recognized as goodwill.

below summarizes the total consideration transferred in the business combination (in thousands):

Fair value of common stock

Fair value of warrants

Fair value of preferred stock

Fair value of debt

consideration

Company determined the estimated fair value of common stock included in consideration to be calculated based on Legacy Inpixon’s

common stock outstanding of 2,075,743 multiplied by the price of Legacy Inpixon’s common stock on March 12, 2024 of $ 5.27 (which

reflects the 1 to 100 reverse stock split which became effective before the closing of the XTI Merger).

The Company utilized Legacy Inpixon’s

common stock price in determining fair value as it is more reliably measurable than the value of Legacy XTI’s (accounting acquirer)

equity interests given it is not a publicly traded entity.

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

The warrant fair value was determined to be the redemption value as the warrants include protective covenants for the Company

which prevent the holder from exercising the warrants.

The remainder of this total represents 491,310 warrants with a fair value of $ 4.75

per warrant which was determined by using level 3 inputs and utilizing a Black-Scholes valuation.

Significant inputs related to these

warrants are as follows:

of common stock

Exercise price

Expected term

Risk-free interest rate

Dividend yield

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

was increased to approximately $ 3.1 million.

The Promissory Note balance and accrued interest as of December 31, 2023 is approximately $ 3.1 million and $ 0.04 million, respectively, and is included in the Company's consolidated balance sheet in Notes Receivable.

On December 30, 2023, the Company and XTI amended the XTI Promissory Note to revise the date “December 31, 2023” in the definition of Maturity Date to “January 30, 2024”.

Effective as of January 30, 2024, the maximum principal amount under the XTI Promissory Note was increased to $ 4 million and the Maturity Date was extended to March 31, 2024.

(See Note 28.) The Company intends to amend the XTI Promissory Note to extend the term thereof.

Transaction Bonus Plan

On July 24, 2023, the Company's Compensation Committee adopted a Transaction Bonus Plan (the “Plan”), which was amended on March 11, 2024, which is intended to provide incentives to certain employees and other service providers to remain with the Company through the consummation of a Contemplated Transaction or Qualifying Transaction (each as defined below) and to maximize the value of the company with respect to such transaction for the benefit of its stockholders.

The Plan will be administered by the Committee.

It will automatically terminate upon the earlier of (i) the one-year anniversary of the adoption date, (ii) the completion of all payments under the terms of the Plan, or (iii) at any time by the Committee, provided, however, that the Plan may not be amended or terminated following the consummation of a Contemplated Transaction or Qualifying Transaction without the consent of each participant being affected, except as required by any applicable law.

A “Contemplated Transaction” refers to a strategic alternative transaction including an asset sale, merger, reorganization, spin-off or similar transaction (a “Strategic Transaction”) that results in a change of control as defined in the Plan.

A Qualifying Transaction refers to a Strategic Transaction that does not result in a change of control for which bonuses may be paid pursuant to the Plan as approved by the Committee.

The XTI Proposed Transaction qualifies as a Contemplated Transaction.

The bonuses included in the Plan include a cash bonus equal to 100 % of the individual's aggregate annual base salary and target bonus amounts, a cash bonus equal up to an aggregate amount of 4 % of the applicable transaction value less $ 6.5 million, and an equity-based bonus, payable in restricted stock.

Note 5 - Inventory

Inventory as of December 31, 2023 and 2022 consisted of the following (in thousands):

As of December 31,

Raw materials $ 353 $ 351

Work-in-process 128 124

Finished goods 1,934 1,522

Inventory $ 2,415 $ 1,997

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

fair value of preferred stock of approximately $ 11.3 million included in the total equity consideration represents 11,302 shares of a

new series of Preferred Stock that was issued and outstanding by the Company upon the consummation of the XTI Merger at a stated value

and fair value of $ 1,000 per share.

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

Assets acquired

Cash and cash

Accounts receivable

Notes and other receivables

Prepaid assets and other

current assets

Property and equipment

Warrant assets

Tradename & trademarks

Proprietary technology

Customer relationships

In process research and

Liabilities assumed

Accounts payable

Accrued liabilities

Operating lease obligation

Deferred revenue

Short-term debt

liabilities assumed

fair value of assets acquired

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.

no new tax goodwill has been created in the transaction, the Company has approximately $ 5.8 million of tax deductible goodwill that arose

in previous transactions which carries over.

the years ended December 31, 2024 and 2023, the Company incurred merger related transaction costs of approximately $ 6.5 million and $ 1.8

million, respectively.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Note 6 - Property and Equipment, net

Property and equipment as of December 31, 2023 and 2022 consisted of the following (in thousands):

As of December 31,

Computer and office equipment $ 881 $ 826

Furniture and fixtures 103 226

Leasehold improvements 18 19

Software 25 38

Total 1,027 1,109

accumulated depreciation and amortization ( 750 ) ( 767 )

Total Property and Equipment, Net $ 277 $ 342

Depreciation and amortization expense was approximately $ 0.3 million and $ 0.4 million for the years ended December 31, 2023 and 2022, respectively, of which $ 0.1 million and $ 0.3 million pertain to discontinued operations.

Note 7 - Software Development Costs, net

Capitalized software development costs as of December 31, 2023 and 2022 consisted of the following (in thousands):

As of December 31,

Capitalized software development costs $ 1,857 $ 1,767

Accumulated amortization ( 1,552 ) ( 1,243 )

Software development costs, net $ 305 $ 524

The Company tests its long lived assets for potential impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the asset group.

There was no impairment recorded for the years ended December 31, 2023 and 2022.

The weighted average remaining amortization period for the Company’s software development costs is 1.0 year.

Amortization expense for capitalized software development costs was approximately $ 0.7 million and $ 0.94 million for the years ended December 31, 2023 and 2022, respectively, of which $ 0.4 million and $ 0.7 million pertains to discontinued operations.

Software development costs, net, will be fully amortized in the year ending December 31, 2024.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

6 - Proforma Financial Information

Financial Information

following unaudited proforma financial information presents the consolidated results of operations of the Company and Legacy Inpixon

for the years ended December 31, 2024 and 2023, as if the acquisition had occurred as of the beginning of the first period presented

(January 1, 2023) instead of on March 12, 2024.

The proforma information does not necessarily reflect the results of operations that

would have occurred had the entities been a single company during those periods.

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

the Years Ended

Net loss attributable

to common stockholders

loss per basic and diluted share

$ ( 1,016.57 )

Weighted average common shares outstanding:

Basic and Diluted

- Goodwill and Intangible Assets

connection with the XTI and Inpixon Merger, the excess of the purchase price over the estimated fair value of the net assets assumed

of $ 12.4 million was recognized as goodwill.

following table summarizes the changes in the carrying amount of Goodwill for the year ended December 31, 2024 (in thousands):

Beginning balance - January 1, 2024

recognized in connection with XTI Merger - Note 5

currency translation adjustment

balance – December 31, 2024

Company tests goodwill for impairment at the reporting unit level annually, on October 1, or more frequently if a change in circumstances

or the occurrence of events indicates that potential impairment exists.

In accordance with ASC 350, the Company performed a qualitative

assessment as of December 31, 2024, to determine if there were any indicators of goodwill impairment that would require a quantitative

analysis to be performed.

Due to the qualitative analysis, the Company determined that there were triggering indicators of goodwill

impairment during the three months ended December 31, 2024 in the form of a sustained decrease of the Company’s stock price and

impairment recognized on long-lived assets under ASC 360.

In accordance with ASC 350, given a triggering event was identified,

the Company performed a quantitative goodwill impairment analysis related to its Industrial IoT reporting unit, and based on such analysis,

the Company concluded that the carrying amount of the reporting unit did not exceed its estimated fair value, indicating that the goodwill

of the reporting unit was not impaired.

The Company utilized an income approach to assess the fair value of the reporting unit as of December

The income approach considered the discounted cash flow model, considering projected future cash flows (including timing and

profitability), a discount rate of 34 % reflecting the risk inherent in future cash flows, perpetual growth rate of 2 %, and projected future

economic and market conditions.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Note 8 - Goodwill and Intangible Assets

The Company reviews goodwill for impairment on a reporting unit basis on December 31 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

The Company’s significant assumptions in these analyses include, but are not limited to, projected revenue, the weighted average cost of capital, the terminal growth rate, derived multiples from comparable market transactions and other market data.

Goodwill impairment expense was approximately $ 7.6 million for the year ended December 31, 2022, of which $ 6.4 million pertains to discontinued operations.

As of December 31, 2023, the Company's cumulative goodwill impairment charges were approximately $ 31.0 million of which approximately $ 19.4 million pertains to discontinued operations and approximately $ 11.6 million relates to continuing operations of the Indoor Intelligence reporting unit.

As of December 31, 2023 and December 31, 2022, the Company's previously recorded goodwill is fully impaired.

Intangible assets at December 31, 2023 and 2022 consisted of the following (in thousands):

Gross Amount Accumulated Amortization Spin-off Net Carrying Amount Gross Amount Accumulated Amortization Impairment Spin-off Net Carrying Amount Remaining Weighted Average Useful Life as of December 31, 2023

IP Agreement $ 167 $ ( 136 ) $ — $ 31 $ 162 $ ( 91 ) — $ — $ 71 0.75

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

December 31, 2024

Gross Amount Accumulated Amortization Impairment Net Carrying Amount Remaining Weighted Average Useful Life

as of December 31,

Patents $ 468 $ ( 184 ) $ — $ 284 9.8

Trade Name/Trademarks 897 ( 142 ) ( 451 ) 304 6.1

Webstores & Websites — — — — 404 ( 258 ) ( 146 ) — — 0.00

Proprietary Technology 2,860 ( 326 ) ( 1,583 ) 951 5.6

Customer Relationships 684 ( 109 ) ( 473 ) 102 4.2

Developed Technology 15,494 ( 1,993 ) ( 12,162 ) 1,339 22,472 ( 5,385 ) ( 2,921 ) ( 12,477 ) 1,689 4.34

Non-compete Agreements 1,777 ( 573 ) ( 1,204 ) — 4,270 ( 2,488 ) ( 220 ) ( 1,414 ) 148 0.00

In-Process R&D 243 — — 243 3.0

Totals $ 5,152 $ ( 761 ) $ ( 2,507 ) $ 1,884

The Company reviews intangible and other long-lived assets for impairment on an asset group basis on December 31 of each year and whenever events or changes in circumstances indicate the carrying value of intangibles and other long-lived assets may not be recoverable.

During the years ended December 31, 2023 and 2022, the Company assessed its long-lived asset groups for impairment due to qualitative triggering events that consisted of missing operating projections, a sustained decrease in stock price, and planned divestitures to sell and/or dispose of long-lived assets before the end of their useful lives.

Therefore, the Company calculated the fair value of each asset group’s long-lived assets by utilizing fair value methodologies that are most applicable to each specific asset group.

These fair value methodologies included an income based approach, a market based approach and a cost based approach.

The Company compared the fair value of each asset group’s long-lived assets to their carrying value as of December 31, 2023 and 2022.

The Company determined that the fair value of the long-lived assets included in each asset group were greater than their carrying values as of December 31, 2023.

As of December 31, 2022, the Company determined that the carrying value of the long-lived assets included in the SAVES and Indoor Intelligence segments were greater than their fair values as of December 31, 2022.

Therefore, an impairment loss of $ 1.5 million for the SAVES segment and $ 3.1 million for the Game Your Game product line which is part of the Indoor Intelligence segment was recorded for a total of $ 4.6 million as of December 31, 2022.

The Company notes that as of December 31, 2023, the Grafiti LLC and Grafiti Holding Inc.

divesiture, which includes the SAVES operating segment and the Game Your Game portion of the Indoor Intelligence segment, are presented as discontinued operations and, as such, the 2022 impairment losses have been excluded from both continuing operations and segment results for all periods presented.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Aggregate Amortization Expense:

Aggregate amortization expense was approximately $ 1.6 million and $ 6.1 million for the years ended December 31, 2023 and 2022, respectively, of which $ 0.8 million and $ 5.2 million pertain to discontinued operations.

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

For the Years Ending December 31, Amount

Total $ 2,208

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

expense for the year ended December 31, 2024 was approximately $ 0.62 million.

Amortization expense for the year ended December 31, 2023

was approximately $ 0.03 million.

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

the Years Ending December 31,

and thereafter

In accordance with ASC 360, the Company performed

a qualitative assessment as of December 31, 2024, to determine if there were any indicators of impairment that would require a quantitative

analysis to be performed.

Based on the qualitative analysis, the Company determined that there were triggering indicators of long-lived

asset impairment during the three months ended December 31, 2024 in the form of a sustained decrease of the Company’s stock price

and the Company beginning planning the process of winding down and/or selling the Nanotron business in the quarter ended December 31,

The Company notes that based on a quantitative assessment, the Company recorded an impairment to its Trade Names & Trademarks,

Proprietary Technology, and Customer Relationships of $ 451,000 , $ 1,583,000 , and $ 473,000 , respectively, for the year ended December 31,

2024, which is included in loss from operations on the statements of operations.

The Company notes that these assets were part of the

Company’s Industrial IoT segment.

Company assessed the fair value of the Customer Relationships by using an income approach in the form of a discounted cash flow model,

which considered projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future

cash flows, perpetual growth rate, and projected future economic and market conditions.

The Company assessed the fair value of the Trade

Names & Trademarks and Proprietary Technology by using an income approach in the form of a relief from royalty model, which considered

a specified royalty rate, discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future

economic and market conditions.

Company notes that for the Trade Names & Trademarks, Proprietary Technology, and Customer Relationships included in the asset groups

that were assessed for fair value, the Company reassessed the useful lives of these long-lived assets.

Management notes that the remaining

useful lives of the Trade Names & Trademarks, Proprietary Technology, and Customer Relationships were 8 years, 5 years, and 0 years,

respectively.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Note 9 - Deferred Revenue

Deferred revenue as of December 31, 2023 and 2022 consisted of the following (in thousands):

As of December 31,

Deferred Revenue

Maintenance agreements $ 608 $ 520

Service agreements 17 26

Total Deferred Revenue $ 625 $ 546

The fair value of the deferred revenue approximates the services to be rendered.

The Company recognized $ 0.5 million and $ 0.8 million of previously deferred revenue as revenue from continuing operations during the years ended December 31, 2023 and 2022, respectively.

The Company expects to satisfy its remaining performance obligations for these maintenance and service agreements, and recognize the deferred revenue over the next twelve months.

Note 10 - Accrued Liabilities

Accrued liabilities as of December 31, 2023 and December 31, 2022 consisted of the following (in thousands):

- Other Balance Sheet Information

expenses and other current assets

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

of December 31,

- related party

Prepaid insurance

Prepaid software

prepaid expenses and other current assets

Company did not hold any inventory as of December 31, 2023.

Inventory as of December 31, 2024 consisted of the following

(in thousands):

of December 31, 2024

Raw materials

Work-in-process

are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value.

valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through

sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category.

The inventory valuation allowance, representing a write-down of inventory, was approximately $ 0.2 million as of December 31, 2024.

expenses and other current liabilities

Accrued expenses

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

As of December 31,

Accrued Interest Expense $ 951 $ 1,197

Accrued transaction bonuses – Strategic Transaction Bonus Plan

Accrued transaction bonuses – related party

Accrued bonuses and commissions

Accrued compensation and benefits

Accrued other

Accrued Bonus and Commissions 276 369

Accrued sales and other indirect taxes payable 6 117

Total Accrued Liabilities

$ 2,007 $ 1,836

Note 11 - Debt

Debt as of December 31, 2023 and 2022 consisted of the following (in thousands):

Short-Term Debt Maturity 2023 2022

July 2022 Promissory Note (net of $ 760 debt discount)

5/17/2024 $ — $ 6,045

Dec 2022 Promissory Note (net of $ 33 and $ 1,880 debt discount)

5/17/2024 8,624 6,520

Third party note payable 12/31/2024 114 —

Total Short-Term Debt $ 8,738 $ 12,565

Interest expense on the short-term debt totaled approximately $ 4.9 million and $ 1.0 million which is inclusive of approximately $ 2.5 million and $ 0.5 million that was amortized to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the Short Term Debt for the periods ending December 31, 2023 and 2022, respectively.

Notes Payable

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Total accrued expenses and other current liabilities

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

March 2020 Note Purchase Agreement and Promissory Note

On March 18, 2020, the Company entered into a note purchase agreement with Iliad, pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory note (the "March 2020 Note").

During the year ended December 31, 2023, the Company entered into exchange agreements with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition new promissory notes in the form of the March 2020 Note equal to approximately $ 0.9 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.9 million;

and (ii) exchange the partitioned note for the delivery of 6,113 shares of the Company's common stock at effective prices between $ 109.00 and $ 168.00 per share.

The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity.

The March 2020 Note was satisfied in full during the year ended December 31, 2023.

July 2022 Note Purchase Agreement and Promissory Note

On July 22, 2022, the Company entered into a note purchase agreement (the "Purchase Agreement") with Streeterville Capital, LLC (the “Holder”), pursuant to which the Company agreed to issue and sell to the Holder an unsecured promissory note (the “July 2022 Note”) in an aggregate initial principal amount of $ 6.5 million (the “Initial Principal Amount”), which is payable on or before the date that is 12 months from the issuance date (the “Maturity Date”).

The Initial Principal Amount includes an original issue discount of $ 1.5 million and $ 0.02 million that the Company agreed to pay to the Holder to cover the Holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs.

In exchange for the Note, the Holder paid an aggregate purchase price of $ 5.0 million (the “Transaction”).

Interest on the Note accrued at a rate of 10 % per annum, which is payable on the maturity date.

We may pay all or any portion of the amount owed earlier than it is due;

provided that in the event we may elect to prepay all or any portion of the outstanding balance, it shall pay to the Holder 115 % of the portion of the outstanding balance we may elect to prepay.

Beginning on the date that is 6 months from the issue date and at the intervals indicated below until the Note is paid in full, the Holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the Note for cash each month.

The July 2022 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22 %.

Upon the occurrence of an event of default (except default due to the occurrence of bankruptcy or insolvency proceedings), the Holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the July 2022 Note to be immediately due and payable.

Upon the occurrence of bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the July 2022 Note will become immediately due and payable at the mandatory default amount.

Under the terms of the July 2022 Note, if the note is still outstanding after 6 months from the issuance date, or as of January 22, 2023, a 10 % monitoring fee would be added to the balance of the note.

On January 31, 2023, the Holder agreed to reduce the one time monitoring fee from 10 % to 5 %.

On May 16, 2023, the Company entered into an amendment (the “July 2022 Note Amendment”) to the July 2022 Note pursuant to which the maturity date was extended from July 22, 2023 to May 17, 2024 (the “July 2022 Note Maturity Date Extension”).

In exchange for the July 2022 Note Maturity Date Extension, the Company agreed to pay the Holder an extension fee in the amount of $ 0.1 million, which was added to the outstanding balance of the July 2022 Note.

The extension was treated as a modification and capitalized and amortized to interest expense over the term of the extension.

During the year ended December 31, 2023, the Company entered into exchange agreements with the Holder, pursuant to which the Company and the Holder agreed to:

(i) partition new promissory notes in the form of the July 2022 Note equal to approximately $ 7.6 million and then cause the outstanding balance of the July 2022 Note to be reduced by approximately $ 7.6 million;

and (ii) exchange the partitioned notes for the delivery of 469,046 shares of the Company’s common stock, at effective prices between $ 5.56 and $ 91.50 per share.

The Company analyzed the exchange of the principal under the July 2022 Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and recorded a $ 0.1 million loss on the exchange for debt for equity which is included in the other income/expense line of the consolidated statement of operations.

December 2022 Note Purchase Agreement and Promissory Note

On December 30, 2022, we entered into a note purchase agreement with Streeterville Capital, LLC (the "Holder"), pursuant to which we agreed to issue and sell to the Holder an unsecured promissory note (the "December 2022 Note") in an aggregate initial principal amount of $ 8.4 million, which is payable on or before the date that is 12 months from the issuance date.

The initial principal amount of includes an original issue discount of $ 1.9 million and $ 0.02 million that we agreed to pay to the

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

The Company’s

outstanding debt consisted of the following at the periods indicated (in thousands):

Short-Term Debt Maturity 2024 2023

Promissory Note - 2023 $ — $ 3,071

Promissory Note - 2023 - related party — 125

Convertible Note - 2021 - related party 1 — 1,079

Convertible Note - 2021 1 — 2,500

Promissory Note - May 1, 2024 2 5/1/2025 1,442 —

Promissory Note - May 24, 2024 2 5/24/2025 1,426 —

Unamortized Discounts ( 211 ) ( 50 )

Unamortized Loan Costs — ( 35 )

Total Short-Term Debt $ 2,657 $ 6,690

Long-Term Debt

SBA Loan 6/30/2050 $ 65 $ 65

Convertible notes, at fair value 1 — 16,804

Convertible Note - 2017 1 — 1,987

Convertible Note - 2022 1 — 600

Convertible Note - 2023 1 — 300

Unamortized Discounts — ( 1,210 )

Total Long-Term Debt $ 65 $ 18,546

balance was either converted to equity immediately prior to the XTI Merger closing time or subsequently repaid

note repaid in full on March 31, 2025

expense on outstanding debt totaled approximately $ 0.3 million and $ 0.6 million for the years ended December 31, 2024 and 2023, respectively.

July 24, 2023, the Company and Legacy XTI entered into a Senior Promissory Note which had an outstanding principal balance of approximately

$ 3.1 million as of December 31, 2023.

During the period from January 1, 2024 to March 12, 2024, Legacy Inpixon provided an additional

$ 1.0 million in funding to Legacy XTI.

As a result of the XTI Merger, Legacy XTI became a wholly-owned subsidiary of the Company

and the outstanding subsidiary debt balance, related parent note receivable balance and accrued interest were eliminated upon the consolidation

of the Company’s December 31, 2024 balance sheet.

Note - 2023 - related party

January 5, 2023, the Company entered into a promissory note agreement with a member of the Company’s board of directors.

had a principal amount of approximately $ 0.1 million and accrued interest at a rate of 5 % per annum.

The note’s outstanding

principal and accrued interest balances were repaid in full during the second quarter of 2024.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Holder to cover the Holder's legal fees, accounting costs, due diligence, monitoring and other transaction costs.

In exchange for the Note, the Holder paid an aggregate purchase price of $ 6.5 million.

Interest on the December 2022 Note accrues at a rate of 10 % per annum and is payable on the maturity date or otherwise in accordance with the December 2022 Note.

We may pay all or any portion of the amount owed earlier than it is due;

provided that in the event we may elect to prepay all or any portion of the outstanding balance, it shall pay to the Holder 115 % of the portion of the outstanding balance we may elect to prepay.

Beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the December 2022 Note is paid in full, the Holder shall have the right to redeem up to an aggregate of 1/6th of the initial principal balance of the December 2022 Note plus any interest accrued thereunder each month by providing written notice delivered to us;

provided, however, that if the Holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the Holder to redeem in any further month in addition to such future month's monthly redemption amount.

Upon receipt of any monthly redemption notice, we shall pay the applicable monthly redemption amount in cash to the Holder within five ( 5 ) business days of the Company's receipt of such monthly redemption notice.

The December 2022 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22 %.

Upon the occurrence of bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the December 2022 Note will become immediately due and payable at the mandatory default amount.

Under the terms of the December 2022 Note, if the note is still outstanding after 6 months from the issuance date, or as of June 30, 2023, a 10 % monitoring fee would be added to the balance of the note.

On June 30, 2023, a monitoring fee of $ 0.9 million was added to the balance of the note and accrued to interest expense during the year ended December 31, 2023 which is included in the other income/expense section of the consolidated statements of operations.

On May 16, 2023, the Company entered into an amendment (the “December 2022 Note Amendment”) to the December 2022 Note pursuant to which the maturity date of the December 2022 Note was extended from December 30, 2023 to May 17, 2024 (the “December 2022 Note Maturity Date Extension”).

In exchange for the December 2022 Note Maturity Date Extension, the Company agreed to pay the Holder an extension fee in the amount of $ 0.1 million which was added to the outstanding balance of the December 2022 Note.

This extension was treated as a modification and capitalized and amortized to interest expense over the term of the extension.

During the year ended December 31, 2023, the Company entered into exchange agreements with the Holder, pursuant to which the Company and the Holder agreed to:

(i) partition new promissory notes in the form of the Dec 2022 Note equal to approximately $ 0.7 million and then cause the outstanding balance of the July 2022 Note to be reduced by approximately $ 0.7 million;

and (ii) exchange the partitioned notes for the delivery of 130,000 shares of the Company’s common stock, at effective price of $ 5.56 per share.

The Company analyzed the exchange of the principal under the Dec 2022 Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and and there was no loss on the exchange for debt for equity.

Third Party Note Payable - Game Your Game

Game Your Game, Inc.

entered into promissory notes with an individual whereby it received approximately $ 1.2 million from October 2021 to March 2023 for funding of outside liabilities and working capital needs.

The promissory notes incurred a 8 % interest rate and had accrued approximately $ 0.3 million of interest as of October 31, 2023.

On October 31, 2023, Game Your Game entered into a Note Conversion Agreement with the individual pursuant to which the approximate $ 1.5 million outstanding principal and interest balance was converted to 1,461,640 shares of Game Your Game, Inc.

common stock, par value $ 0.001 per share.

After the conversion the notes were satisfied in full.

Related Party Note Payable - Game Your Game

Game Your Game, Inc.

entered into promissory notes with the Company whereby it received approximately $ 4.9 million from October 2021 to October 2023 for funding of outside liabilities and working capital needs.

The promissory notes incurred a 8 % interest rate and had accrued approximately $ 0.3 million of interest as of October 31, 2023.

On October 31, 2023, the Company entered into a Note Conversion Agreement with Game Your Game, Inc.

pursuant to which approximately $ 5.2 million of the outstanding principal and interest balance of the related party notes held by the Company was converted to 5,207,595 shares of

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Note - 2021 - related party

On October 1, 2023, an existing convertible note

entered into on December 31, 2021 by and between the Company and a member of the Company’s board of directors was replaced by a

new convertible note with a principal balance of approximately $ 1.1 million and interest rate of 4 %.

On March 12, 2024, approximately

$ 0.9 million of the note’s outstanding balance was converted into shares of the Company’s common stock.

The Company repaid

the remaining balance of the note on April 1, 2024.

See Note 10 for more information.

During 2021, the Company entered into convertible

notes with a syndicate of investors.

The notes had a combined principal amount of $ 2.5 million and accrued interest at a rate of 4.0 %

As discussed in Note 10, pursuant to the terms of voluntary note conversion letter agreements, approximately $ 2.5 million

of the note’s outstanding principal balance and accrued interest were converted into shares of Legacy XTI common stock immediately

prior to the closing of the XTI Merger, which converted into shares of the Company’s common stock at the closing of the XTI Merger

on March 12, 2024.

A repayment obligation remained after the XTI Merger closing with respect to approximately $ 0.05 million in principal,

which was repaid during the second quarter of 2024, and $ 0.25 million in accrued interest which remained outstanding as of December

Note - May 1, 2024

May 1, 2024 (the “Closing Date”), the Company entered into a note purchase agreement (the “Purchase Agreement”)

with Streeterville Capital, LLC (the “Holder”), pursuant to which the Company issued and sold to the Holder a secured promissory

note (the “Note”) in an initial principal amount of approximately $ 1.4 million, which is payable on or before the date

that is 12 months from the issuance date.

The Purchase Agreement provides that, subject to the mutual consent of the Company

and the Holder, the Holder would purchase an additional secured promissory note on the date that is 30 days from the Closing

Date and another secured promissory note on the date that is 60 days from the Closing Date.

The initial principal amount of

the Note includes an original issue discount of approximately $ 0.3 million.

In exchange for the Note, the Holder paid an aggregate

purchase price to the Company of $ 1.0 million.

on the Note accrues at a rate of 10.0 % per annum and is payable on the maturity date or otherwise in accordance with the Note.

effective interest rate is 10.5 %.

If the Note is still outstanding on the date that is six months from the issuance date,

then a one-time monitoring fee equal to 10 % of the then-current outstanding balance will be added to the outstanding balance of

Company’s obligations under the Note, the additional secured promissory note issued by the Company to the Holder on May 24, 2024

(as described below) and the other transaction documents are secured by (i) a pledge of all of the stock the Company owns in Legacy XTI

and (ii) those assets owned by Legacy XTI constituting Collateral (as defined in a security agreement by and between Legacy XTI and the

Additionally, Legacy XTI provided a guarantee of the Company’s obligations to the Holder under the Note, the additional

secured promissory note and the other transaction documents.

Note - May 24, 2024

to the terms of the Purchase Agreement, on May 24, 2024, the Company issued and sold to Streeterville Capital, LLC an additional secured

promissory note in the initial principal amount of $ 1.3 million, which carries an original issue discount of $ 0.3 million.

The terms of this additional note are identical to the terms of the May 1, 2024 note, as described above.

In exchange for the promissory

note, the Holder paid an aggregate purchase price of $ 1.0 million.

On March 31, 2025, the Company repaid the May

1, 2024 and May 24, 2024 promissory notes in full which relieved the Company from all obligations.

As a result of the repayments, Streeterville

released its security interest in the stock the Company owns in Legacy XTI and the assets owned by Legacy XTI.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Game Your Game, Inc.

common stock, par value $ 0.001 per share.

During November and December 2023, the Company issued an additional $ 0.2 million of promissory notes to Game Your Game which incurred a 8 % interest rate and accrued approximately $ 0.001 million of interest.

On December 29, 2023,the Company entered into a Note Conversion Agreement with Game Your Game, Inc.

pursuant to which approximately $ 0.2 million of the outstanding principal and interest balance of the related party notes held by the Company was converted to 1,586,274 shares of Game Your Game, Inc.

common stock, par value $ 0.001 per share.

After the conversions, the Company owns 79.54 % of Game Your Game, Inc.

Third Party Note Payable - financing agreement

The Company entered into a financing agreement whereby the lender paid a Company vendor approximately $ 0.1 million for a service contract.

The terms of the agreement are for a 12 months period with a 18.6 % interest rate whereby there is no payment due for the first 4 months, and then the Company is to pay approximately $ 0.01 million a month over 8 months until the debt is repaid in full.

Note 12 - Capital Raises

On March 22, 2022, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which the Company sold in a registered direct offering (i) 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 15,045 shares of common stock.

Each share of Series 8 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $ 940 , representing an original issue discount of 6 % of the stated value of each share of Series 8 Convertible Preferred Stock for an aggregate subscription amount of $ 50.0 million.

In connection with this offering, the Company filed a Certificate of Designation for the Series 8 Convertible Preferred Stock with the Nevada Secretary of State.

Each share of Series 8 Convertible Preferred Stock has a par value of $ 0.001 per share and stated value of $ 1,000 per share.

The shares of Series 8 Convertible Preferred Stock are convertible into shares of the Company’s common stock, at a conversion price of $ 3,538.00 per share.

Each share of Series 8 Convertible Preferred Stock is entitled to receive cumulative dividends, payable in the same form as dividends paid on shares of the Company’s common stock.

At any time beginning on October 1, 2022 and ending ninety 90 days thereafter, the holders of the Series 8 Convertible Preferred Stock have the right to redeem all or part of the shares held by such holder in cash for the redemption price equal to the stated value of such share, plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses or amounts due.

Upon redemption, the holder of the Series 8 Convertible Preferred Stock will forfeit 50 % of the warrants issued in connection therewith.

The holders of the Series 8 Convertible Preferred Stock shall vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company.

The Series 8 Convertible Preferred Stock and related warrants subject to forfeiture are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash and the warrants are an embedded feature for the Series 8 Convertible Preferred Stock.

The remaining warrants that are not subject to forfeiture are recorded within Stockholders' Equity as the remaining warrants are classified as freestanding instruments containing a total value of $ 5.6 million.

The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, were approximately $ 46.9 million.

See Note 14 for Preferred Stock and Note 17 for Warrant details.

During the year ended December 31, 2022, the Company received cash redemption notices from the holders of the Series 8 Convertible Preferred Stock issued on March 22, 2022, totaling 53,197.72 shares of Series 8 Convertible Preferred Stock for aggregate cash paid of approximately $ 53.2 million which were thereafter fully redeemed.

In conjunction with the redemption, 7,521 warrants were forfeited.

Between March 15, 2022 and March 22, 2022, the Company received cash redemption notices from the holders of the Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash required to be paid of approximately $ 49.3 million.

In addition, in accordance with the related purchase agreement, upon redemption of the Series 7 Convertible Preferred Stock, each holder forfeited 75 % of the related warrants that were issued.

Therefore, as of March 22, 2022, 49,250 shares of Series 7 Convertible Preferred Stock were redeemed and 3,940 related warrants were forfeited.

The Company noted about 71 % of the Series 7 Preferred Stock holders that redeemed shares also participated as Series 8 Convertible Preferred Stock holders (“shared holders”).

The Company accounted for proceeds of the shared holders as a modification to the Series 7 and Series 8 Convertible Preferred Stock, as well as the related embedded warrants.

The total change in fair value as a result of modification related to the Preferred Stock amounted to $ 2.6 million which were recognized as a deemed dividend at the date of the modification, upon which will be amortized until the redemption period begins on October 1, 2022.

The total change in fair value as a result of modification related to the embedded warrants

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

June 3, 2020, Legacy XTI entered into a promissory note with the U.S.

Small Business Administration (SBA).

The note accrues interest

at a rate of 3.75 % per annum and is paid monthly.

The aggregate principal amount is due on the maturity date of June 3, 2050.

- Common Stock

At-the-Market

(ATM) Offering Program

The Company was able, from time to time, to sell

shares of the Company’s common stock under its “at-the-market” offering program (the “ATM”) through Maxim,

as the Company’s exclusive sales agent, up to a maximum offering amount of approximately $ 83.3 million, pursuant to that certain

Equity Distribution Agreement, dated as of July 22, 2022, by and between the Company and Maxim, as amended from time to time (the “Equity

Distribution Agreement”).

The term of the Equity Distribution Agreement expired on December 31, 2024.

Maxim was entitled to compensation

at a fixed commission rate of 3.0 % of the gross sales price per share sold excluding Maxim’s costs and out-of-pocket expenses incurred

in connection with its services, including the fees and out-of-pocket expenses of its legal counsel.

During the 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.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Note 12 - Capital Raises (continued)

amounted to $ 1.5 million which was recognized as a deemed contribution at the date of the modification, upon which will be accreted until the redemption period begins on October 1, 2022.

On October 18, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor named therein (the “Purchaser”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 2,531 shares of the Company’s common stock and warrants to purchase up to 38,462 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 585.00 per share.

The Purchase Warrants have an exercise price of $ 585.00 per share.

Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date.

The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 23,110 shares of common stock, in lieu of shares of common stock at the Purchaser’s election.

Each pre-funded warrant is exercisable for one share of common stock.

The purchase price of each pre-funded warrant was $ 584.90 , and the exercise price of each pre-funded warrant is $ 0.10 per share.

The pre-funded warrants are immediately exercisable and may be exercised at any time until all of the pre-funded warrants are exercised in full.

The Company raised net proceeds of $ 14.1 million after deduction of sales commissions and other offering expenses.

In October 2022, the Company issued 9,310 shares of common stock in connection with the exercise of 9,310 pre-funded warrants at $ 0.10 per share.

On July 22, 2022, the Company entered into an Equity Distribution Agreement (the "Sales Agreement") with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 25.0 million (the “Shares”) from time to time through Maxim, acting exclusively as the Company’s sales agent (the “ATM Offering”).

On June 13, 2023, the Company entered into an amendment to the Sales Agreement with Maxim, pursuant to which the aggregate offering price of the ATM Offering was increased from $ 25.0 million to approximately $ 27.4 million.

The Company intends to use the net proceeds of the ATM Offering primarily for working capital and general corporate purposes.

During the year ended December 31, 2023, the Company sold 703,756 shares of common stock at share prices between $ 13.96 and $ 186.00 per share under the Sales Agreement for gross proceeds of approximately $ 27.4 million or net proceeds of $ 26.5 million after deducting the placement agency fees and other offering expenses.

The Company is not obligated to make any sales of the Shares under the Sales Agreement and no assurance can be given that the Company will sell any additional Shares under the Sales Agreement, or if it does, as to the price or amount of Shares that the Company will sell, or the date on which any such sales will take place.

The Company is currently subject to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period.

These rules may limit future issuances of shares by the Company under the Sales Agreement or other offerings pursuant to the Company’s effective shelf registration statement on Form S-3.

On December 29, 2023, the Company entered into Amendment No.

2 to Sales Agreement pursuant to which the parties extended the term of the Sales Agreement until the earliest of (i) December 31, 2024, (ii) the sale of shares of the Company’s common stock having an aggregate offering price equal to the Offering Size (as defined in the Sales Agreement), and (iii) the termination by either Maxim or the Company upon the provision of 15 days written notice or otherwise pursuant to the terms of the Sales Agreement.

Note 13 - Common Stock

On January 28, 2022, the Company entered into an exchange agreement with the holder of certain existing warrants which were exercisable for an aggregate of 6,574 shares of the Company’s common stock.

Pursuant to the exchange agreement, the Company agreed to issue to the warrant holder an aggregate of 1,842 shares of common stock and rights to receive an aggregate of 525 shares of common stock in exchange for the existing warrants (the "Warrant Exchange").See Note 17.

On February 19, 2022, 128 shares of common stock issued in connection with restricted stock grants were withheld for employee taxes.

On March 3, 2022, the Company issued 1,450 shares of common stock to the sellers of the CXApp in connection with the satisfaction of an earnout payment.

On October 12, 2022, the Company issued 525 shares of common stock in connection with the exercise of a right to shares of common stock granted as part of warrant exchange agreement entered into on January 28, 2022.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Immediately prior to the effective time of the

XTI Merger on March 12, 2024, certain convertible notes (collectively classified as “convertible notes, at fair value”) with

an aggregate principal and interest balance of $ 16.8 million were converted into Legacy XTI shares, which converted into an aggregate

of 3,005 shares of the Company’s common stock at the effective time of the XTI Merger.

Immediately prior to the conversion,

the convertible notes, at fair value were marked to market resulting in a gain of $ 12.9 million, which is included in change in

fair value of convertible notes payable in the other income and expense section of the consolidated statements of operations.

of the conversions, the notes were satisfied in full and therefore relieved the Company of all obligations.

induce certain note holders to convert their outstanding note balances into shares of Legacy XTI common stock ahead of the XTI Merger,

Legacy XTI entered into voluntary note conversion letter agreements in February 2024 as detailed in the below table.

Per the letter agreements,

some or all of the outstanding principal and accrued interest under the notes was converted at a reduced conversion price into shares

of Legacy XTI common stock immediately prior to the XTI Merger closing time, which converted into shares of the Company’s common

stock upon the closing of the XTI Merger.

In connection with some of the voluntary note conversions, the Company assumed a repayment

obligation with respect to any outstanding balance under the notes that was not converted into Legacy XTI shares.

The Company accounted

for these conversions as an inducement and recognized a loss of approximately $ 6.7 million related to the fair value of the additional

shares issued compared to the original terms of the convertible note, which is included in inducement loss on debt conversions in the

other income and expense section of the condensed consolidated statements of operations.

The following table details the notes converted

into shares of Legacy XTI common stock (in thousands, except share amounts and conversion price).

Letter Agreement

Principal and Interest Outstanding Immediately Prior to XTI Merger

Principal and Interest Converted to Common Shares

Conversion Price

- Exchange Ratio / Post 1-for-250 Split Common Shares

Payment Obligation Immediately After XTI Merger

Inducement Charge

Convertible Note 2017

Convertible Note 2022

Note Inducement:

Convertible Note 2021 - Related Party

induce David Brody, a board member and founder of Legacy XTI, to convert his outstanding note balances into shares of Legacy XTI common

stock, Legacy XTI entered into a voluntary note conversion letter agreement with the note holder in February 2024.

Per the letter agreement,

$ 0.9 million of the outstanding note balance was converted at a reduced conversion price of $ 865.45 into shares of Legacy XTI

common stock immediately prior to the XTI Merger closing time equal to 1,062 shares of the Company’s common stock, and the

Company assumed the obligation to pay the note holder $ 0.2 million of the note balance that was not converted into Legacy XTI shares.

This repayment obligation was subsequently paid in full on April 1, 2024.

The Company accounted for this conversion as an inducement

and recognized an inducement charge of $ 1.0 million related to the fair value of the additional shares issued compared to the original

terms of the convertible note.

As this note holder is a related party of the Company, the Company accounted for the conversion as a capital

transaction and therefore recorded the inducement charge within additional paid-in capital.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Note 13 - Common Stock (continued)

During the year ended December 31, 2022, the Company issued 2,878 shares of the Company's common stock under an exchange agreement to settle outstanding balances totaling approximately $ 3.7 million under partitioned notes.

On October 18, 2022, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 2,531 shares of the Company’s common stock and warrants to purchase up to 38,462 shares of common stock at a combined offering price of 585.00 per share.

During the year ended December 31, 2022, the Company issued 9,310 shares of common stock in connection with the exercise of 9,310 pre-funded warrants at $ 0.10 per share.

During the year ended December 31, 2023, the Company issued 13,800 shares of common stock in connection with the exercise of 13,800 pre-funded warrants at $ 0.10 per share in connection with the October 2022 registered direct offering.

During the year ended December 31, 2023, the Company issued 3,249 shares of common stock in connection with a warrant amendment to exchange all of the then outstanding September 2021 warrants and March 2022 warrants.

During the year ended December 31, 2023, the Company issued 605,159 shares of common stock under exchange agreements to settle outstanding balance and interest of the March 2020 Note, July 2022 Note and December 2022 Note totaling approximately $ 9.2 million under partitioned notes.

See Note 11 .

During year ended December 31, 2023 , the Company issued 581,311 shares of common stock in connection with the exercise of 581,311 warrants for which the Company received gross proceeds of approximately $ 4.8 million .

During the year ended December 31, 2023, the Company issued 703,756 shares of common stock in connection with the ATM Offering at per share prices between $ 13.96 and $ 186.00 , resulting in gross proceeds to the Company of approximately $ 27.4 million and net proceeds of $ 26.5 million after subtracting sales commissions and other offering expenses.

Se e Note 12 .

Note 14 - Preferred Stock

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

Series 4 Convertible Preferred Stock

On April 20, 2018, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 4 Convertible Preferred Stock (“Series 4 Preferred”), authorized 10,415 shares of Series 4 Preferred and designated the preferences, rights and limitations of the Series 4 Preferred.

The Series 4 Preferred is non-voting (except to the extent required by law) and was convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 4 Preferred of $ 1,000 per share to be converted by $ 1,674,000.00 .

As of December 31, 2023 and 2022, there was 1 share of Series 4 Preferred outstanding.

Series 5 Convertible Preferred Stock

On January 14, 2019, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 5 Convertible Preferred Stock, authorized 12,000 shares of Series 5 Convertible Preferred Stock and designated the preferences, rights and limitations of the Series 5 Convertible Preferred Stock.

The Series 5 Convertible Preferred Stock is non-voting (except to the extent required by law).

The Series 5 Convertible Preferred Stock is convertible into the number of shares of Common Stock, determined by dividing the aggregate stated value of the Series 5 Convertible Preferred Stock of $ 1,000 per share to be converted by $ 1,123,875.00 .

As of December 31, 2023 and 2022, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.

Series 7 Convertible Preferred Stock

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Issuances at or Immediately Prior to XTI Merger Closing

the closing of the XTI Merger, 8,303 shares of the Company’s common stock were issued to Legacy Inpixon’s preexisting

shareholders as consideration for the transaction.

of Legacy XTI common stock were issued to Xeriant immediately prior to the XTI Merger closing time, equal to 1,194 post merger shares

of Company common stock.

This share issuance to Xeriant fully settled the obligation relating to a joint venture arrangement by and between

Legacy XTI and Xeriant which terminated by its terms on May 31, 2023.

The obligation to issue shares to Xeriant was classified in equity

as of December 31, 2023, as the share consideration became fixed once the joint venture terminated.

Issuances to Nadir Ali

June 13, 2024, July 5, 2024, November 19, 2024 and December 2, 2024, the Company entered into a Restricted Stock Award

Agreement with Nadir Ali (the “June 2024 RSA Agreement,” the “July 2024 RSA Agreement”, the “November 2024

RSA Agreement” and the “December 2024 RSA Agreement,” respectively), a consultant to the Company and the Company’s

former Chief Executive Officer and a former director of the Company.

Pursuant to each agreement, the Company issued Mr.

vested shares of common stock under the 2018 Plan, which shares were registered pursuant to a registration statement on Form S-8.

to the June 2024 RSA Agreement, the Company issued 10,722 shares to Mr.

Ali valued at approximately $ 1.2 million in partial

satisfaction of the $1,500,000 Equity Payment owed to Mr.

Ali on June 12, 2024 under the Ali Consulting Agreement (refer to

to the July 2024 RSA Agreement, the Company issued 11,100 shares to Mr.

Ali valued at approximately $ 1.1 million.

Approximately

$ 0.3 million of the shares were issued to Mr.

Ali in satisfaction of the remaining amount of the $ 1,500,000 Equity Payment owed

Ali on June 12, 2024 under the Ali Consulting Agreement.

Approximately $ 0.8 million of the shares were issued to Mr.

in partial satisfaction of amounts owed to Mr.

Ali under the Strategic Transaction Bonus Plan.

to the November 2024 RSA Agreement, the Company issued an aggregate of 86,511 shares to Mr.

Ali valued at approximately $ 1.1

Approximately $ 0.9 million of the shares were issued to Mr.

Ali in partial satisfaction of five monthly payments of $ 375,000

each from July 12, 2024 to November 12, 2024 (in the aggregate amount of $ 1,875,000 ) owed to Mr.

Ali under the Ali Consulting

Approximately $ 0.2 million of the shares were issued to Mr.

Ali in partial satisfaction of amounts owed to Mr.

under the Strategic Transaction Bonus Plan.

to the December 2024 RSA Agreement, the Company issued an aggregate of 85,383 shares to Mr.

Ali valued at approximately $ 1.0

The full $ 1.0 million value of the shares was issued to Mr.

Ali in partial satisfaction of amounts owed to Mr.

the Ali Consulting Agreement.

Stock Issuances

June 6, 2024, the Company entered into a consulting agreement with a third party consultant, which has a term until December 10,

2024, pursuant to which the Company made a cash deposit of $ 0.1 million and issued 1,238 shares of restricted common stock valued

at approximately $ 0.3 million to the consultant as a prepayment for marketing and distribution services agreed to be rendered to

the Company over the six-month contract period.

June 7, 2024, the Company entered into a consulting agreement with a separate third-party consultant, which has a term of six months ,

pursuant to which the Company issued 480 shares of restricted common stock valued at approximately $ 0.1 million to the consultant

as a prepayment for business development consulting services agreed to be rendered to the Company over the six-month contract period.

the year ended December 31, 2023, Legacy XTI issued and sold 64 shares of common stock to a non-executive officer and his family member

valued at approximately $ 0.2 million.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Note 14 - Preferred Stock (continued)

As of December 31, 2023 and 2022 there were zero shares of Series 7 Convertible Preferred stock outstanding.

Series 8 Convertible Preferred Stock

On March 22, 2022, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada, amending the Company’s Articles of Incorporation, as amended, by establishing the Series 8 Convertible Preferred Stock, consisting of 53,197.7234 authorized shares, $ 0.001 par value per share and $ 1,000 stated value per share.

The Series 8 Convertible Preferred Stock is convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 8 Convertible Preferred Stock of $ 1,000 per share to be converted by $ 3,538.00 .

On March 22, 2022, the Company entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell in a registered direct offering (i) up to 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 15,045 shares of common stock (the “Warrants”).

Each share of Series 8 Convertible Preferred Stock and the related Warrants (see Note 18) were sold at a subscription amount of $ 940 , representing an original issue discount of 6 % of the stated value for an aggregate subscription amount of $ 50.0 million.

The shares of Series 8 Convertible Preferred Stocks are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash.

The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, was approximately $ 46.9 million.

The Company has elected to accrete the issuance costs, discount, and freestanding warrants through the date shares can be first be redeemed at the option of the holders, which is the sixth month anniversary of the original issuance date using the effective interest method.

During three months ended December 31 2022, the Company received cash redemption notices from the holders of the Series 8 Convertible Preferred Stock issued on March 22, 2022, totaling 53,197.72 shares of Series 8 Convertible Preferred Stock for aggregate cash required to be paid of approximately $ 53.2 million.

As of December 31, 2023, there were zero shares of Series 8 Convertible Preferred Stock outstanding.

Note 15 - Authorized Share Increase and Reverse Stock Split

On October 4, 2022, the Company filed a certificate of change with the Secretary of State of the State of Nevada to effect a reverse stock split of the Company's authorized and issued and outstanding shares of common stock, at a ratio of one (1) share of common stock for every seventy five (75) shares of common stock effective as of October 7, 2022 (the "Reverse Stock Split").

The Reverse Stock Split did not alter the par value of the Company's common stock or modify any voting rights or other terms of the common stock.

The Reverse Stock Split was primarily intended to bring the Company into compliance with the minimum bid price requirements for maintaining its listing on the Nasdaq Capital Market.

The Company has reflected the Reverse Stock Split on a retroactive basis herein, unless otherwise indicated.

The Company filed a certificate of amendment to the Company’s articles of incorporation, as amended, with the Secretary of State of the State of Nevada to increase the number of authorized shares of Common Stock from 26,666,667 to 500,000,000 shares effective as of November 29, 2022.

The Company effected a reverse stock split of its outstanding common stock at a ratio of 1-for-100, effective as of March 12, 2024, for the purpose of complying with Nasdaq Listing Rule 5550(a)(2) and satisfying the bid price requirements applicable for initial listing applications in connection with the closing of the XTI Merger.

The Company has reflected the Reverse Stock Split on a retroactive basis herein, unless otherwise indicated.

Note 16 - Stock Award Plans and Stock-Based Compensation

In September 2011, the Company adopted the 2011 Employee Stock Incentive Plan (the “2011 Plan”) which provides for the granting of incentive and non-statutory common stock options and stock based incentive awards to employees, non-employee

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

- Preferred Stock

Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $ 0.001 per share with rights,

preferences, privileges and restrictions as to be determined by the Company’s Board of Directors.

9 Preferred Stock

March 12, 2024, the Company filed the Certificate of Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate

of Designation”), with the Secretary of State of Nevada, designating 20,000 shares of preferred stock, par value $ 0.001 of

the Company, as Series 9 Preferred Stock, which was amended by the Certificate of Amendment to Designations of Preferences and Rights

of Series 9 Preferred Stock filed by the Company with the Secretary of State of Nevada on April 30, 2024.

Each share of Series 9 Preferred

Stock has a stated face value of $ 1,050 (“Stated Value”) and do not have any voting rights.

Preferred stock is recorded

on the accompanying consolidated balance sheet at its redemption value which is the carrying value of the redeemable preferred stock.

share of Series 9 Preferred Stock will accrue a rate of return on the Stated Value in the amount of 10 % per year, compounded annually

to the extent not paid, and pro rata for any fractional year periods (the “Preferred Return”).

The Preferred Return will

accrue on each share of Series 9 Preferred Stock from the date of issuance and will be payable on a quarterly basis, either in cash or

through the issuance of an additional number of shares of Series 9 Preferred Stock equal to (i) the Preferred Return then accrued and

unpaid, divided by (ii) the Stated Value, at the Company’s discretion.

The Preferred Stock holders will also receive a quarterly

dividend at 2 % per quarter, beginning on the one -year anniversary of the issuance date and for all periods following the two -year anniversary

of the issuance date of a share of Series 9 Stock, the dividend shall be 3 % per quarter.

Company may elect, in the sole discretion of the Board, to redeem all or any portion of the Series 9 Stock then issued and outstanding

from all of the Series 9 Holders by paying to the applicable Series 9 Holders an amount in cash equal to the liquidation amount as defined

in the preferred stock agreement.

On March 12, 2024, Inpixon and Streeterville Capital, LLC (the “Note

Holder” or “Streeterville”), the holder of an outstanding promissory note issued on December 30, 2022 (as amended, the

“December 2022 Note”), entered into an Exchange Agreement, pursuant to which the Note Holder exchanged the remaining balance

of principal and accrued interest under the December 2022 Note in the aggregate amount of approximately $ 9.8 million for 9,802 shares

of Series 9 Preferred Stock (the “Preferred Stock”), based on an exchange price of $ 1,000 per share of Series 9 Preferred

The Company analyzed the exchange of the principal and interest as an extinguishment and compared the net carrying value of the

debt being extinguished to the reacquisition price (shares of preferred stock being issued).

The Company notes that the net carrying

value of the debt was the fair value of the preferred stock (reacquisition price).

As such, no gain or loss was recognized upon debt

extinguishment.

Following such exchange and the extinguishment of the December 2022 Note, the December 2022 Note is deemed paid in

full, automatically canceled, and will not be reissued.

Purchase Agreement

March 12, 2024, Legacy Inpixon entered into a securities purchase agreement (the “Securities Purchase Agreement”) with 3AM

Investments, LLC (“3AM”), an entity controlled by Legacy Inpixon’s former director and former Chief Executive Officer,

Nadir Ali (such entity, the “Purchaser”).

Pursuant to the Securities Purchase Agreement, the Purchaser purchased 1,500 shares

of Series 9 Preferred Stock for a total purchase price of approximately $ 1.5 million, based on a purchase price of $ 1,000 per

share of Series 9 Preferred Stock.

The Company agreed that the Purchaser will be deemed a “Required Holder” as defined in

the Certificate of Designation as long as the Purchaser holds any shares of Series 9 Preferred Stock.

Securities Purchase Agreement sets forth certain restrictions on the Company’s use of the proceeds from the sale of the Series

9 Preferred Stock pursuant thereto, including that the proceeds must be used in connection with the redemption of the Series 9 Preferred

Stock pursuant to the Certificate of Designation or working capital purposes, and may not, without the consent of the required holders

of Series 9 Preferred Stock, be used for, among other things, (i) the redemption of any XTIA common stock or common stock equivalents,

(ii) the settlement of any outstanding litigation, or (iii) for the repayment of debt for borrowed money to any officer or director,

or Merger-transaction related bonuses to any employee or vendor except for such non-merger transaction related bonuses as may be payable

to participants pursuant to the Company’s existing employee bonus plan.

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

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

directors, consultants and independent contractors.

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

In February 2018, the Company adopted the 2018 Employee Stock Incentive Plan (the “2018 Plan” and together with the 2011 Plan, the “Option Plans”), which will be utilized with the 2011 Plan for employees, corporate officers, directors, consultants and other key persons employed.

The 2018 Plan will provide for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan).

Incentive stock options granted under the Option Plans are granted at exercise prices not less than 100 % of the estimated fair market value of the underlying common stock at date of grant.

The exercise price per share for incentive stock options may not be less than 110 % of the estimated fair value of the underlying common stock on the grant date for any individual possessing more that 10% of the total outstanding common stock of the Company.

Options granted under the Option Plans vest over periods ranging from immediately to four years and are exercisable over periods not exceeding ten years .

The aggregate number of shares that may be awarded under the 2018 Plan as of December 31, 2023 is 62,164,297 .

As of December 31, 2023, 1,496 of options and restricted stock were granted to employees, directors and consultants of the Company (including 9 shares under our 2011 Plan), and 62,162,810 options were available for future grant under the Option Plans.

Employee Stock Options

During the year ended December 31, 2022, the Company granted options under the 2018 Plan for the purchase of 1,327 shares of common stock to employees and consultants of the Company.

These options are 100 % vested or vest pro-rata over 12 , 24 or 36 months, have a life of 10 years and an exercise price of $ 3,974.00 per share.

The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined to be approximately $ 1.8 million.

The fair value of the common stock as of the grant date was determined to be between $ 3,974.00 per share.

During the year ended December 31, 2023 and 2022, the Company recorded a charge of approximately $ 1.0 million and $ 2.9 million, respectively, for the amortization of employee stock options (not including restricted stock awards), which is included in the general and administrative section of the consolidated statement of operations, of which approximately $ 0.2 million and approximately $ 1.9 million pertain to discontinued operations.

As of December 31, 2023, the fair value of non-vested options totaled approximately $ 0.8 million, which will be amortized to expense over the weighted average remaining term of 0.98 years.

The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model.

Key weighted-average assumptions used to apply this pricing model during the year ended December 31, 2022 were as follows:

For the Year Ended December 31,

Risk-free interest rate 1.50 % - 1.76 %

Expected life of option grants 5 years

Expected volatility of underlying stock 37.24 % - 37.45 %

Dividends assumption $ —

The expected stock price volatility for the Company’s stock options was determined by the historical volatilities for industry peers and used an average of those volatilities.

The Company attributes the value of stock-based compensation to operations on the straight-line single option method.

Risk free interest rates were obtained from U.S.

Treasury rates for the applicable periods.

The dividends assumptions was $ 0 as the Company historically has not declared any dividends and does not expect to.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

to Series 9 Preferred Stock

Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Amendment”)

allows the Company to pay the holders of Series 9 Preferred Stock, if such holders agree, with securities or other property of the Company

in an amount equal to the Series 9 Preferred Liquidation Amount (as defined in the Series 9 Preferred Stock Certificate of Designation)

in the event the Company elects to redeem all of any portion of the Series 9 Preferred Stock then issued and outstanding (a “Corporation

Optional Redemption”).

Previously, the Company was to pay any such amount in only cash.

The Certificate of Amendment also now provides

that the Company will provide notice of a Corporation Optional Redemption to the holders of Series 9 Preferred Stock within five business

days prior to the consummation of such redemption rather than five business days following the determination of the Company’s

board of directors to consummate such redemption.

In addition, the Certificate of Amendment eliminates the requirement for the Company

to obtain the written consent of the holders of at least a majority of the outstanding Series 9 Preferred Stock before repaying any outstanding

indebtedness owed to any holder of Series 9 Preferred Stock or its affiliates.

The Company evaluated the amendment and accounted for

it as a modification, which requires the Company to recognize any increase in fair value as an expense.

However, the Company concluded

the increase in the fair value of the Series 9 Preferred Stock from immediately before to immediately after the amendment is immaterial.

9 Preferred Stock Exchanges

April through December 31, 2024, the Company entered into exchange agreements with the holder of shares of the Company’s Series

9 Preferred Stock pursuant to which the Company and the holder agreed to exchange 9,790 shares of Series 9 Preferred Stock with an aggregate

stated value of $ 10,279,500 (the “Preferred Shares”) for 441,391 shares of common stock (the “Preferred Exchange Shares”)

at an effective price per share ranging from $ 10.00 to $ 740.00 .

Company issued the Preferred Exchange Shares to the holder, at which time the Preferred Shares were cancelled.

The Preferred Exchange

Shares were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act, on the basis that

(a) the Preferred Exchange Shares were issued in exchange for other outstanding securities of the Company, (b) there was no additional

consideration delivered by the holder in connection with the exchange and (c) there were no commissions or other remuneration paid by

the Company in connection with the exchange.

The Company notes that the redemption of the Preferred Shares to Common Stock was accounted

for as an extinguishment.

During the year ended December 31, 2024, the Company recognized a deemed dividend of $ 489,506 .

dividends represented the excess fair value of the common shares issued over the carrying amount of the Preferred Shares and were accounted

for as a reduction to additional paid-in capital.

Return Conversion to Series 9 Preferred Stock

the year ended December 31, 2024, Streeterville and 3AM converted the 10 % rate of return that had accrued through December 2024 into

457.00 and 118.82 shares of Series 9 Preferred Stock, respectively.

9 Preferred Stock Redemptions

November 17, 2024, the Company entered into a Consent, Waiver and Release Agreement (the “Consent Agreement”) with 3AM

and Streeterville, each as a Required Holder, pursuant to which the Series 9 Holders authorized the Company to raise up to an additional

$ 5,000,000 under the ATM (the “ATM Increase”) in consideration for the Company’s agreement to pay 20 % of the proceeds

it receives from sales under the ATM in connection with the ATM Increase (the “Redemption Proceeds”) to the Series 9

Holders to redeem a portion of their Series 9 Preferred Stock, to be distributed as follows:

(i) 75 % of the Redemption Proceeds

to Streeterville ( 15 % of all proceeds received from sales under the ATM), and (ii) 25 % of the Redemption Proceeds to 3AM ( 5 % of

all proceeds received from sales under the ATM).

Distribution payments will be made by wire transfer of immediately available funds weekly

and will be used to partially redeem the Series 9 Preferred Stock.

to the Consent Agreement, the Company delivered an aggregate of $ 492,331 to Streeterville and $ 302,116 to 3AM, which amounts represent

the Redemption Proceeds payable to Streeterville and 3AM, respectively, in connection with amounts raised from sales under the ATM during

the period from November 7, 2024 through December 31, 2024.

Such payments were made for 469.00 shares of the Company’s Series 9

Preferred Stock held by Streeterville and 287.70 shares of the Company’s Series 9 Preferred Stock held by 3AM.

entered into acknowledgment agreements with each of Streeterville and 3AM to record such payments.

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

Pursuant to a Settlement Agreement dated March 27, 2025, the Company redeemed the remaining Series 9 Preferred Stock

held by 3AM as further disclosed in Note 23.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

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

2011 Plan 2018 Plan Non Plan Total Weighted

Price Aggregate

(in thousands)

12 - Stock Award Plans and Stock-Based Compensation

Company has three Employee Stock Incentive plans.

The Company assumed Legacy XTI’s 2017 Employee and Consultant Stock Ownership

Plan (the “2017 Plan”) in connection with the XTI Merger.

Legacy Inpixon had put in place a 2011 Employee Stock Incentive

Plan (the “2011 Plan”) and a 2018 Employee Stock Incentive Plan (the “2018 Plan” and together with the 2011 Plan,

the “Legacy Inpixon Option Plans”).

The Company determined that activity within the 2011 Plan is not material.

2017, Legacy XTI adopted the 2017 Plan, which was amended in 2021 to increase the maximum shares eligible to be granted under the 2017

The Company may issue awards in the form of restricted stock units and stock options to employees, directors, and consultants.

Under the 2017 Plan, stock options are generally granted with an exercise price equal to the estimated fair value of the Company’s

common stock, as determined by the Company’s Board of Directors on the date of grant.

Options generally have contractual terms

of ten years .

Incentive stock options (ISO) may only be granted to employees, whereas all other stock awards may be granted to employees,

directors, consultants and other key stakeholders.

As of December 31, 2024, there are no shares available for future grants under the

February 2018, Legacy Inpixon adopted the 2018 Plan which is utilized for employees, corporate officers, directors, consultants and other

key persons employed.

The 2018 Plan provides for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards,

including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan).

As of December 31, 2024, there are no unvested Restricted

Stock or Restricted Stock Units outstanding under the 2018 Plan.

stock options granted under the Legacy Inpixon Option Plans are granted at exercise prices at a minimum of 100 % of the estimated fair

market value of the underlying common stock at date of grant.

For any individual possessing more than 10% of the total outstanding common

stock of the Company, the exercise price per share for incentive stock options is a minimum 110 % of the estimated fair value of the underlying

common stock on the grant date.

Options granted under these Legacy Inpixon Option Plans vest over periods ranging from immediately to

four years and are exercisable over period sup to ten years from the grant date.

aggregate number of shares that may be awarded under the 2018 Plan as of December 31, 2024 was 280,593 .

As of December 31, 2024, 38,359 shares

of common stock were available for future grant under the 2018 Plan.

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

Weighted Weighted Aggregate

Average Average Intrinsic

Number of Exercise Remaining Value

Shares Price Life (Years) (in millions)

Outstanding at January 1, 2023 3,615 $ 4,425.28 7.7 $ —

4 unchanged sentences

Outstanding at December 31, 2023 4,646 $ 4,481.30 6.7 $ —

Legacy Inpixon stock options from merger 5 $ 16,917.50

Granted 55,434 $ 117.50

4 unchanged sentences

Exercisable at December 31, 2024 3,803 $ 3,330.00 7.7 $ —

Restricted Stock Awards

On February 19, 2022, 128 restricted stock grants were forfeited for employee taxes.

During the years ended December 31, 2023 and 2022 the Company recorded a charge of approximately $ 0.03 million and $ 0.8 million, respectively, for the amortization of vested restricted stock awards.

The following table summarizes restricted stock-based award activity granted:

Number of Shares Weighted Average Grant Date Fair Value

Balance, January 1, 2022 558 $ 13,500.00

Granted — $ —

Forfeited ( 128 ) $ 13,725.00

Balance, December 31, 2022 430 $ 13,426.00

Granted — $ —

Forfeited — $ —

Balance, December 31, 2023 430 $ 13,426.00

The Company determined the fair value of these grants based on the closing price of the Company’s common stock on the respective grant dates.

Note 17 - Warrants

On January 28, 2022, the Company entered into an exchange agreement with the holder of certain existing warrants of the Company which were exercisable for an aggregate of 6,574 shares of the Company’s common stock.

The Company accounted for the exchange agreement as a warrant modification.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Company determined the fair value of the existing warrants as if issued on the exchange agreement date and compared that to the fair value of the common stock issued.

The Company calculated the fair value of the existing warrants using a Black-Scholes Option pricing model and determined it to be approximately $ 1,200.00 per share.

The fair value of the common stock issued was based on the closing stock price of the date of the exchange.

The total fair value of the warrants prior to modification was greater than the fair value of the common stock issued, and therefore, there was no incremental fair value related to the exchange.

Between March 15 and March 22, 2022, we received cash redemption notices from the holders of the Company's Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash required to be paid of approximately $ 49.3 million.

In addition, upon redemption of the Series 7 Convertible Preferred Stock, each holder forfeited 75 % of the related warrants that were issued together with the Series 7 Convertible Preferred Stock (the "Series 7 Warrants").

3,941 corresponding warrants issued in connection with the issuance of the Series 7 Convertible Preferred Stock been forfeited and 2,335 related warrants remain outstanding.

On March 22, 2022, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company agreed to issue and sell, in a registered direct offering sold an aggregate of 53,197.7234 shares of the Company’s Series 8 Convertible Preferred Shares, par value $ 0.001 per share, and warrants to purchase up to 15,045 shares of common stock.

Each share and related warrants were sold together at a subscription amount of $ 940 , representing an original issue discount of 6 % of the stated value for an aggregate subscription amount of $ 50.0 million.

On October 18, 2022, the Company entered into a Securities Purchase Agreement, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 2,531 shares of the Company’s common stock and warrants to purchase up to 38,462 shares of common stock at a combined offering price of $ 585.00 per share.

The Purchase Warrants have an exercise price of $ 585.00 per share.

Each Purchase Warrant is exercisable for 1 share of common stock and will be immediately exercisable and will expire 5 years from the issuance date.

The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 23,110 shares of common stock, in lieu of shares of common stock at the Purchaser’s election.

Each pre-funded warrant is exercisable for 1 share of common stock.

The purchase price of each pre-funded warrant was $ 584.90 , and the exercise price of each pre-funded warrant is $ 0.10 per share.

The pre-funded warrants are immediately exercisable and may be exercised at any time until all of the pre-funded warrants are exercised in full.

During the year ended December 31, 2022, the Company issued 9,310 shares of common stock in connection with the exercise of 9,310 pre-funded warrants from the October 2022 capital raise at $ 0.10 per share.

In conjunction with the redemption, 7,521 warrants were forfeited.

Warrant Amendments

On February 28, 2023, the Company entered into warrant amendments (the “Warrant Amendments”) with certain holders (each, including its successors and assigns, a “Holder” and collectively, the “Holders”) of (i) those certain Common Stock Purchase Warrants issued by the Company in April 2018 (the “April 2018 Warrants”) pursuant to the registration statement on Form S-3 (File No.

333-204159), (ii) those certain Common Stock Purchase Warrants issued by the Company in September 2021 (the “September 2021 Warrants”) pursuant to the registration statement on Form S-3 (File No.

333-256827), and (iii) those certain Common Stock Purchase Warrants issued by the Company in March 2022 (the “March 2022 Warrants” and together with the April 2018 Warrants and the September 2021 Warrants, the “Existing Warrants”) pursuant to the registration statement on Form S-3 (File No.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

during the year ended December 31, 2024 were primarily due to the departures of Legacy XTI’s former Chief Executive Officer and

the Company’s former Chief Legal Officer.

The weighted average grant-date fair value of options granted during the years ended

December 31, 2024 and 2023 was approximately $ 0.2 million and $ 0.6 million, respectively.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Pursuant to the Warrant Amendments, the Company and the Holders have agreed to amend (i) the September 2021 Warrants and the March 2022 Warrants to provide that all of such outstanding warrants shall be automatically exchanged for shares of common stock of the Company, at a rate of 0.0033 shares of Common Stock (the “Exchange Shares”) for each September 2021 Warrant or March 2022 Warrant, as applicable, and (ii) the April 2018 Warrants to remove the obligation of the Company to hold the portion of a Distribution (as defined in the April 2018 Warrants) in abeyance in connection with the Beneficial Ownership Limitation (as defined in the April 2018 Warrants).

In connection with the exchange of 2,335 September 2021 Warrants and 7,524 March 2022 Warrants, which were all of the then outstanding of those warrants as of the effective date of the Warrant Amendments, the Company issued 768 Exchange Shares and 2,481 Exchange Shares, respectively, resulting in the issuance of 3,249 Exchange Shares in the aggregate.

The Company accounted for the exchange as a warrant modification.

The Company determined the fair value of the Existing Warrants as if issued on the Warrant Amendment date and compared that to the fair value of the common stock issued for the Exchange Shares.

The Company calculated the fair value of the Existing Warrants using a Black-Scholes Option pricing model and determined it to be approximately $ 0.6 million.

The fair value of the common stock issued was based on the closing stock price of the date of the Warrant Amendment.

The total fair value of the Existing Warrants prior to modification was greater than the fair value of the Exchange Shares issued, and therefore, there was no incremental fair value related to the Warrant Amendments.

May 2023 Warrant Purchase Agreement

On May 15, 2023, the Company entered into a Warrant Purchase Agreement (the “Agreement”) with multiple purchasers for the purchase and sale of up to an aggregate of 1,500,000 of warrants (the “May 2023 Warrants”).

The Agreement and the May 2023 Warrants were subsequently amended on June 20, 2023.

The purchase price for one (1) May 2023 Warrant is $ 1.00 (the “Per Warrant Purchase Price”).

The May 2023 Warrants have an initial exercise price $ 26.00 , payable in cash or the cancellation of indebtedness ( the “Initial Exercise Price”).

The exercise price will equal the lower of (i) the Initial Exercise Price and (ii) 90 % of the lowest VWAP (as defined in the Agreement) of the Common Stock for the five Trading Days (as defined in the Agreement) immediately prior to the date on which a Notice of Exercise is submitted to the Company (the “Adjusted Exercise Price” and together with the Initial Price, as applicable, the “Exercise Price”);

provided, however, that the Adjusted Exercise Price shall not be less than $ 10.00 ;

and provided further that any exercise of the May 2023 Warrants with an Adjusted Exercise Price will be subject to the Company’s consent unless the trading price of the Common Stock as of the time the Notice of Exercise is delivered to the Company is at least 10 % or more above the prior Trading Day’s Nasdaq Official Closing Price.

No warrant holder may exercise the May 2023 Warrants to the extent such exercise would cause such warrant holder, together with its affiliates and attribution parties, to beneficially own a number of shares of Common Stock which would exceed 9.99 % of the Company’s then outstanding Common Stock following such exercise.

Each May 2023 Warrant is immediately exercisable for one share of Common Stock and will expire 1 year from the issuance date (the “Termination Date”) unless extended by the Company with the consent of the warrant holder.

Pursuant to the terms of the May 2023 Warrants, at any time prior to the Termination Date, the Company may, in its sole discretion, redeem any portion of a May 2023 Warrants that have not been exercised, in cash, at the Per Warrant Purchase Price, plus all liquidated damages and other costs, expenses or amounts due in respect of the Warrants (the “ Redemption Amount ”) upon five Trading Days’ written notice to the warrant holder (the “ Redemption Date ”).

On the Termination Date, the Company will be required to redeem any portion of the May 2023 Warrants that have not been exercised or redeemed prior to such date through payment of the Redemption Amount in cash.

The Company will be required to pay any Redemption Amount within five Trading Days after the Redemption Date or the Termination Date, as applicable.

The 1,500,000 May 2023 Warrants were issued on May 17, 2023 for aggregate gross proceeds of approximately $ 1.5 million.

The aggregate net proceeds from the offerings, after deducting the placement agent fees and other estimated offering expenses, were approximately $ 1.4 million.

The May 2023 Warrants were determined to be within the scope of ASC 480 as they represent obligations to the Company, as the Company is obligated to redeem any May 2023 Warrants that have not been exercised at the Termination Date.

As such, the Company recorded the May 2023 Warrants as a liability at fair value on the issuance date.

The fair value of the May 2023 Warrants was determined using level 3 inputs utilizing a Monte-Carlo simulation.

The May 2023 Warrants are subsequently measured as if the May 2023 Warrants were to be settled on the current redemption value with subsequent changes recognized

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Board approved awards of options to certain Company executives under the 2018 Plan.

Each option has an exercise price of $ 118.25 per

The options will vest 1/3rd annually over three years starting from the vesting commencement date.

The options expire ten years

from the grant date.

Options were granted as follows:

Grantee Grant Date Vesting Start Date Options Granted

Chief Executive Officer of XTI Aerospace, Inc.

6/12/2024 6/12/2024 11,250

Chief Financial Officer of XTI Aerospace, Inc.

6/12/2024 6/12/2024 6,563

Chief Executive Officer of the XTI Aerospace, Inc.

Real-Time Location System Division 6/12/2024 6/12/2024 3,900

Chief Strategy Officer of XTI Aerospace, Inc.

9/19/2024 8/1/2024 4,688

Chief Legal Officer of XTI Aerospace, Inc.

10/28/2024 10/28/2024 4,688

Total Granted 31,089

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

the Year Ended

December 31, 2024

Fair value of common stock

$ 10.75 - $ 118.25

Exercise price

$ 10.75 - $ 118.25

Expected term

95.06 % - 103.3 %

Risk-free interest rate

3.51 % - 4.43 %

Dividend yield

the year ended December 31, 2023, Legacy XTI granted 1,089 stock options to members of its management team, which vest based on the

achievement of certain performance-based conditions as outlined in the option award agreements.

The exercise price of the stock options

granted to the management team was $ 4,677.36 .

following assumptions were used in estimating the fair values of options awarded during the year ended December 31, 2023:

For the Year Ended

December 31, 2023

Fair value of common stock $ 4,677.36

Exercise price $ 4,677.36

Expected term 5 years

Volatility 74.10 %

Risk-free interest rate 3.54 %

Dividend yield — %

Option Exercises

To induce option holders to exercise stock options ahead of the XTI

Merger so to assist the Company in qualifying for a listing on the Nasdaq Capital Market, Legacy XTI entered into exercise letter agreements

with several option holders in February 2024 at reduced exercise prices from the original option agreements.

The net impact of these option

inducements to the condensed consolidated statement of operations was not material.

In total, 1,038,871 stock options granted under

the 2017 Plan were net exercised into pre-exchange common shares of Legacy XTI immediately prior to the XTI Merger closing time, which

resulted in the issuance of 371 post-merger exchange and post 1-for-250 reverse split common shares.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

as interest cost.

The fair value of the Warrants was determined to be $ 1.48 million at the date of issuance, and the redemption value of the Warrants was determined to be approximately $ 0.9 million as of December 31, 2023.

The fair value of the Warrants are reflected within Warrant Liability on the Consolidated Balance Sheet.

An immediate loss was recognized on the initial measurement date of $ 71,250 as a result of the difference between fair value and net proceeds.

The change in fair value of Warrants of $ 71,250 for the year ended December 31, 2023 was reported as other expense on the Consolidated Statement of Operations.

The interest cost of $ 20,000 for the year ended December 31, 2023 was included in interest expense, net on the Consolidated Statement of Operations.

During July 2023, the Company issued 90,000 shares of common stock in connection with the exercise of 90,000 warrants with an exercise price of $ 26.00 per share in connection with the May 2023 offering for which the Company received gross proceeds of approximately $ 2.3 million.

Warrant Inducement

On December 15, 2023, the Company entered into an warrant inducement letter agreements (the “Inducement Agreements”) with certain holders (including their respective successors and assigns, the “Holders”) of the Common Stock Purchase Warrants issued by the Company on May 17, 2023 (“May 2023 Warrants”) and reissued on December 15, 2023, as applicable (as amended on June 20, 2023, the “Existing Warrants”) in order to induce the Holders to exercise 491,310 Existing Warrants for cash, pursuant to the terms of and subject to beneficial ownership limitations contained in the Existing Warrants, the Company agreed to issue to the Holders, New Warrants to purchase 1 share of common stock for each share of common stock issued upon such exercise of the remaining Existing Warrants pursuant to the Inducement Agreements for an aggregate of 491,314 New Warrants.

Pursuant to the Inducement Agreements the Existing Warrants exercise price was from $ 10.00 to $ 5.13 per share, which is equal to a 30 % discount to the average closing price of the Common Stock for the five trading days prior to the execution of the Inducement Agreements, such that the Exercised Shares will be exercised at the New Exercise Price.

The Inducement Agreements was a limited time offer that had to be accepted by December 18, 2023.

The terms of the New Warrants had an initial exercise price of $ 7.324 , which was subsequently reduced by the Company to $ 5.13 , are immediately exercisable, and will expire 5 years from the date of the Exercise Agreement.

The Holder paid an aggregate of approximately $ 2.5 million to the Company for the exercise of the Existing Warrants.

The Company recognized approximately $ 3.4 million of non-cash warrant inducement expense during year ended December 31, 2023, which is displayed in other expense on the accounting statement of operations.

The warrant inducement expense represents the fair value of the New Warrants issued to induce the exercise.

The fair values were calculated using the Black-Scholes option pricing model.

The following inputs into the Black-Scholes option pricing model were utilized:

Risk Free Rate

Exercise price

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Compensation Expense

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

Ended December 31,

and consultant stock options 1

Professional fees 1

of previously unvested warrants 2

Merger-related

professional fees 2

1 amount included in general and administrative expenses on the consolidated statements of operations

2 amount included in merger-related transaction costs on the consolidated statements of operations

of December 31, 2024, the total unrecognized compensation expense related to unvested awards was approximately $ 5.8 million, which

the Company expects to recognize over an estimated weighted average period of 1.78 years.

Compensation Related to Professional Fees

July 31, 2024, the Company entered into an advisory agreement with a third-party advisor, pursuant to which the Company issued 4,000 shares

valued at approximately $ 0.3 million of restricted common stock to the advisor in consideration for financial advisory and business

development services agreed to be rendered to the Company pursuant to the agreement.

Compensation Related to the XTI Merger

of Legacy XTI common stock were issued to Scott Pomeroy, Chief Executive Officer of the Company and former CFO and board member of Legacy

XTI, as transaction compensation immediately prior to the XTI Merger closing time equal to 1,429 post merger shares of Company common

As a result of this share issuance transaction, the Company recorded $ 1.9 million of stock-based compensation expense included

in the consolidated statement of operations during the year ended December 31, 2024.

of Legacy XTI common stock were issued to Maxim as transaction compensation immediately prior to the XTI Merger closing time equal to

1,542 post merger shares of Company common stock.

As a result of this share issuance transaction, the Company recorded approximately

$ 2.0 million of stock-based compensation expense included in the consolidated statement of operations during the year ended December

of Legacy XTI common stock were issued to Chardan Capital Markets LLC as transaction compensation immediately prior to the XTI Merger

closing time equal to 757 post merger shares of Company common stock.

As a result of this share issuance transaction, the Company

recorded $ 1.0 million of stock-based compensation expense included in the consolidated statement of operations during the year ended

December 31, 2024.

of Legacy XTI common stock were issued to a non-executive officer as transaction compensation immediately prior to the XTI Merger closing

time equal to 186 post merger shares of Company common stock.

As a result of this share issuance transaction, the Company recorded

approximately $ 0.2 million of stock-based compensation expense included in the consolidated statement of operations during the year

ended December 31, 2024.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

The following table summarizes the changes in warrants outstanding during the years ended December 31, 2023 and 2022:

Warrants Weighted

Price Aggregate

(in thousands)

Outstanding at Outstanding at January 1, 2022 13,007 $ 14,775.00 $ —

Granted 76,617 988.00 —

Exercised ( 11,152 ) 15,000.00 —

Expired ( 12 ) 189,000,000.00 —

Cancelled ( 16,195 ) 7,545.00 —

13 - Warrants

The following

table summarizes the activity of warrants outstanding:

Outstanding at January 1, 2023

Outstanding at December

Granted 1,991,314 $ 21.39 —

Exercised ( 595,110 ) 8.16 —

Expired ( 128 ) 8,326,125.00 —

Exchanged ( 9,859 ) 4,920.24 —

Legacy Inpixon warrants

Outstanding at December

1 unchanged sentence

Exercisable at December

Note 18 - Income Taxes

The domestic and foreign components of loss from continuing operations before income taxes for the years ended December 31, 2023 and 2022 are as follows (in thousands):

For the Years Ended December 31,

Domestic $ ( 30,679 ) $ ( 13,797 )

Foreign ( 3,647 ) ( 6,066 )

Net Loss, before tax $ ( 34,326 ) $ ( 19,863 )

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

On March 11, 2024, Legacy XTI entered into an amendment (the “Warrant

Amendment”) with Mesa Airlines (“Mesa”).

The Warrant Amendment modifies the vesting criteria with respect to the shares

of common stock underlying the warrant issued by the Company to Mesa pursuant to the conditional aircraft purchase contract described

As amended by the Warrant Amendment, (i) one-third or 757 warrant shares vested upon the execution and delivery of the conditional

aircraft purchase contract, dated February 2, 2022, by and between the Company and Mesa, relating to the purchase of 100 TriFan 600 airplane,

(ii) one-sixth or 378 of the warrant shares vested on March 12, 2024 in which the Company recorded $ 0.5 million of stock-based compensation

expense for the year ended December 31, 2024, (iii) one-sixth or 378 unvested warrant shares lapsed on March 12, 2024, and (iv) one-third

or 757 warrant shares will vest upon the acceptance of delivery and final purchase of the first TriFan 600 airplane by Mesa pursuant

to the Aircraft Purchase Agreement.

On March 12, 2024 and per a warrant exercise letter agreement, all vested warrants shares were net

exercised into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which resulted in the issuance of 1,135 shares

of the Company’s common stock.

induce warrant holders to exercise warrant shares, Legacy XTI entered into exercise letter agreements with several warrant holders in

February 2024 at reduced exercise prices from the original warrant agreements.

The net impact of these warrant inducements to the condensed

consolidated statement of operations was not material.

In total, 423 warrant shares (adjusted for the merger exchange) were net

exercised into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which resulted in the issuance of

423 shares of the Company’s common stock.

the second quarter of 2024, an additional 82 warrant shares originally issued by Legacy XTI were exercised into 82 shares of

the Company’s common stock at an exercise price of $ 30.00 .

April 30, 2024 and May 1, 2024, the Company entered into warrant exchange agreements with the holders of certain of our then outstanding

warrants (the “Existing Warrants”) initially issued on May 17, 2023.

Pursuant to the terms of the agreements, on May 2, 2024,

the Company issued to the warrant holders, who held an aggregate of 3,675 warrant shares, a ratio of 0.70 shares of common stock

for each Existing Warrant, for an aggregate of 2,573 shares of common stock valued at approximately $ 1.6 million, in exchange

for the Existing Warrants.

As the Existing Warrants were liability classified, the exchange resulted in the liability being (i) remeasured

at the warrant redemption value of approximately $ 1.6 million resulting in a fair value loss of approximately $ 0.7 million, which

is reported in other income (expense) within the consolidated statements of operations for the year ended December 31, 2024, and (ii)

reclassified to stockholders’ equity (deficit) within the consolidated balance sheet as of December 31, 2024.

Following the consummation

of the warrant exchange, the Existing Warrants were cancelled and no further shares are issuable pursuant to the Existing Warrants agreement.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

The income tax provision (benefit) for the years ended December 31, 2023 and 2022 consists of the following (in thousands):

For the Years Ended December 31,

Current $ — $ —

Deferred ( 1,168 ) ( 1,456 )

Current — ( 268 )

Deferred ( 4,544 ) ( 2,123 )

State and local

Current 24 86

Deferred ( 254 ) ( 123 )

May 30, 2024, the Company entered into a warrant exchange agreement with the holder of certain warrants of the Company (the “Assumed

Warrants”) to purchase shares of common stock, which Assumed Warrants were originally issued by Legacy XTI and assumed by the Company

in connection with the XTI Merger.

Pursuant to the terms of the agreement, the Company issued to the warrant holder an aggregate of 462 shares

of common stock valued at approximately $ 0.1 million in exchange for 771 Assumed Warrants, which included 671 warrants

shares granted during the year ended December 31, 2024 as result of price protection clauses per the Assumed Warrant agreements relating

to subsequent equity sales by the Company.

As the Assumed Warrants were liability classified, the exchange resulted in the liability

being (i) remeasured at the warrant redemption value of approximately $ 0.1 million resulting in an immaterial loss, and (ii) reclassified

to stockholders’ equity (deficit) within the consolidated balance sheet as of December 31, 2024.

Following the consummation of

the warrant exchange, the Assumed Warrants were cancelled and no further shares are issuable pursuant to the Assumed Warrants agreement.

June 12, 2024 and June 13, 2024, the Company entered into warrant exchange agreements with the holders (the “Warrant Holders”)

of 1,965 existing warrants of the Company (the “Existing Warrants”) initially issued on December 19, 2023, which were

exercisable for an aggregate of 1,965 shares of our common stock.

Pursuant to the terms of the agreements, on June 13, 2024, the

Company issued to the Warrant Holders 1.50 shares of Common Stock for each Existing Warrant, for an aggregate of 2,935 shares

of common stock, in exchange for the Existing Warrants.

Following the consummation of the Warrant Exchange, the Existing Warrants

were cancelled and no further shares are issuable pursuant to the Existing Warrants agreements.

The incremental increase in fair value

of the Existing Warrants of approximately $ 0.3 million as a result of the exchange was recorded as a return of capital, which reduces

the additional paid-in capital on the consolidated balance sheets as of December 31, 2024, and is shown as a reconciling item on the

consolidated statements of operations from Net Loss to Net Loss Attributable to Common Stockholders.

Warrant Activity

May 9, 2023 and in conjunction with the Convertible Note - 2017 (Note 9), Legacy XTI cancelled 224 warrants previously issued

to the noteholder with an exercise price of $ 4,201.22 and issued 343 new warrants with an exercise price of $ 4,201.22 .

The warrants are

exercisable upon the date of grant through the contractual term of 5 years.

Using the Black-Scholes model, Legacy XTI determined the

grant-date fair value of the warrants was approximately $ 1.1 million, which was recorded as a debt discount and additional paid-in-capital

on the consolidated balance sheet as of December 31, 2023.

- Reverse Stock Splits

Company effected a reverse stock split of its outstanding common stock at a ratio of 1-for-250 effective as of January 10, 2025.

reverse stock split did not alter the par value of the Company’s common stock or modify any voting rights or other terms of the

common stock.

The reverse stock split was primarily intended to bring the Company in compliance with the minimum bid price requirements

for maintaining its listing on the Nasdaq Capital Market.

The Company has reflected the reverse stock split on a retroactive basis herein,

unless otherwise indicated.

addition, the Company effected a reverse stock split of its outstanding common stock at a ratio of 1-for-100 , effective as of March 12,

2024, for the purpose of complying with Nasdaq Listing Rule 5550(a)(2) and satisfying the bid price requirements applicable for initial

listing applications in connection with the closing of the XTI Merger.

The Company has reflected the reverse stock split on a retroactive

basis herein, unless otherwise indicated.

15 - Segments

Company’s Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker, or (“CODM”), regularly

reviews and manages certain areas of its businesses, resulting in the Company identifying two reportable segments:

Industrial IoT and

Commercial Aviation.

The Company manages and reports its operating results through these two reportable segments.

This allows the Company

to enhance its customer focus and better align its business models, resources, and cost structure to the specific current and future

growth drivers of each business, while providing increased transparency to the Company’s shareholders.

The commercial aviation segment is currently in the pre-revenue development

stage and its primary activity is the development of the TriFan 600 airplane.

The Industrial IoT segment generates revenue primarily from

the sale of real-time location system solutions for the industrial sector and its customers are primarily located in Germany and the U.S.

As it relates to the Industrial IoT segment, the results disclosed in the table below only reflect activity following the XTI Merger closing

through the December 31, 2024 reporting date.

on each of our reportable segments and reconciliation to consolidated loss from operations is presented in the table below.

We have assigned

certain previously reported expenses to each segment to conform to the way we internally manage and monitor our business.

operating expenses include costs that are not specific to a particular segment but are general to the group;

included expenses incurred

for administrative and accounting staff, general liability and other insurance, accrued consulting fees and transaction bonuses relating

to former Legacy Inpixon executives, professional fees and other similar corporate expenses.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

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

Cost of revenues

Operating expenses

Research and development

Sales and marketing

General and administrative

Impairment of intangible

Other expenses (1)

Total operating expenses

from operations

(1) Other expenses include merger-related transaction costs and amortization of intangibles.

Operating expenses

Research and development

Sales and marketing

General and administrative

operating expenses

from operations

expenses include merger-related transaction costs and amortization of intangibles.

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.

16 - Fair Value Measurements and Fair Value of Financial Instruments

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:

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

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

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.

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.

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.

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

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

in Equity Securities

October 23, 2023, a Business Combination Agreement (the “Damon Business Combination Agreement”) was entered into by and among

XTI, Grafiti Holding Inc., 1444842 B.C.

LTD (“Amalco Sub”), and Damon Motors Inc.

(“Damon”), pursuant to which

Damon combined and merged with Amalco Sub, a British Columbia corporation and a wholly-owned subsidiary of Grafiti Holding, Inc., with

Damon continuing as the surviving entity and a wholly-owned subsidiary of Grafiti Holding, Inc.

(the “Grafiti Holding Transaction”).

The Damon Business Combination closed in November 2024.

October 26, 2023, Legacy Inpixon purchased a convertible note through a private placement in aggregate principal amount of $ 3.0 million

for a purchase price of $ 3.0 million paid in cash from Damon.

Interest on the convertible note accrues at 12 % per annum.

subsequently amended in November 2024.

As amended, the note was set to mature on November 30, 2024.

The convertible note is subject to

certain conversion features which include qualified financing, and/or qualified transaction, as defined in the securities purchase agreement.

The note was required to convert upon Damon Motors Inc.’s completion of the public company event.

The convertible note receivable

is not traded in active markets and its fair value was determined using a present value technique.

The convertible note receivable is

accounted for as an available-for-sale debt security based on “Level 3” inputs, which consist of unobservable inputs and

reflect management’s estimates of assumptions that market participants would use in pricing the asset, with unrealized holding

gains and losses excluded from earnings and reported in other comprehensive income (loss).

November 18, 2024, Damon completed the Grafiti Holding Transaction which converted the Company’s note receivable into 402,338 shares

of Damon’s common stock.

The carrying value of the note receivable at conversion was approximately $ 3.7 million.

The fair value

of the shares received was approximately $ 1.0 million at the time of conversion and the shares received are accounted for as a marketable

equity security and measured at fair value.

This equity investment is included in Other assets on the consolidated balance sheets.

a result of the automatic conversion, the Company recognized a loss of approximately $ 2.6 million in the consolidated statements of operations,

which includes the $ 59,000 unrealized gain in other comprehensive income reclassified to earnings.

common stock is traded in active markets, as the security is trading under “DMN” on the Nasdaq Exchange.

common stock is accounted for as marketable equity securities based on “Level 1” inputs, which consist of quoted prices

in active markets, with unrealized holding gains and losses included in earnings.

The fair value was determined by the closing

trading price of the security as of December 31, 2024.

The Company recognized an unrealized loss on Damon common stock of approximately

$ 0.6 million which is included in the consolidated statements of operations for the year ended December 31, 2024.

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

Value at December 31, 2024

investment – Damon Motors, Inc.

Value at December 31, 2023

Warrant Liability

Convertible notes, at

conversion derivatives

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

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

Loan conversion

Balance at January 1, 2024

Change in fair value

Exchanged / Conversion

Loss from note conversion

to equity investment

Accrued interest

discount recognition

at December 31, 2024

Foreign Operations

to the XTI Merger, the Company’s operations were located primarily in the United States.

After the XTI Merger, the Company’s

operations are located primarily in the United States, Germany, and the United Kingdom.

Revenues by geographic area are attributed by

country of domicile of our subsidiaries.

The financial data by geographic area are as follows (in thousands):

For the Year Ended

December 31, 2024:

by geographic area

Operating income (loss)

by geographic area

Net income (loss) by

geographic area

the Year Ended December 31, 2023:

Revenues by geographic

Operating income (loss)

by geographic area

Net income (loss) by

geographic area

of December 31, 2024:

Identifiable assets by

geographic area

Long lived assets by

geographic area

Goodwill by geographic

of December 31, 2023:

Identifiable assets by

geographic area

Long lived assets by

geographic area

Goodwill by geographic

- Related Party Transactions

Note 9 for disclosures on related party debt transactions.

Agreement with David Brody

Brody, board member and founder of Legacy XTI, provided legal and strategic consulting services to Legacy XTI under a consulting agreement.

During the years ended December 31, 2024 and 2023, Legacy XTI paid Mr.

Brody consulting compensation of $ 20,000 and $ 60,000 ,

respectively.

Pursuant to an amendment to the consulting agreement, an outstanding payable amount of $ 320,000 was waived by Mr.

and the consulting agreement terminated in connection with the closing of the XTI Merger.

Agreement with Scott Pomeroy

Scott Pomeroy and Legacy XTI entered

into a consulting agreement dated July 1, 2022, as amended effective January 1, 2023, that provided for his engagement as

Legacy XTI’s Chief Financial Officer.

The agreement provided that Mr.

Pomeroy receive a monthly compensation of $ 17,500 .

During the years ended December 31, 2024 and 2023, the Company paid Mr.

Pomeroy consulting compensation of $ 92,750 and

$ 152,250 , respectively.

Pursuant to the consulting agreement and in connection with the closing of the XTI Merger in

March 2024, Mr.

Pomeroy (i) received 4,000,000 shares (pre-merger, pre-reverse stock splits) of Legacy XTI common stock

valued at $ 1.9 million as transaction-related compensation and (ii) was entitled to receive a transaction cash bonus of

The transaction cash bonus obligation remained outstanding as of December 31, 2024 and is included in accrued expenses and

other current liabilities on the accompanying consolidated balance sheets.

This cash bonus obligation was subsequently paid in full

during January 2025.

Effective upon closing time of the XTI Merger, Mr.

Pomeroy was appointed as XTI Aerospace’s Chief

Executive Officer.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

with AVX Aircraft Company

On March 25, 2024, the Company entered into a letter agreement, as

amended on June 17, 2024, with AVX Aircraft Company (“AVX”) whereas AVX is to provide consulting and advisory services relating

to the development and design of the TriFan 600 airplane.

The Company’s Chairman and CEO, Scott Pomeroy, and board member, David

Brody, also sit on the Board of AVX.

Additionally, as of the date of this report, David Brody owns approximately 26 % of the issued

and outstanding shares of AVX.

During the year ended December 31, 2024, the Company paid AVX $ 0.9 million in consulting fees,

which included advance deposits for future services.

As of December 31, 2024, the deposit balance for future services was approximately

$ 0.5 million, and is included in prepaid expenses and other current assets on the accompanying consolidated balance sheets.

with Nadir Ali

On March 12, 2024, the Company entered into a

consulting agreement with Mr.

Nadir Ali (the “Ali Consulting Agreement”), the Company’s former Chief Executive Officer.

Ali, through a company of which he is a controlling member, held shares of the Company’s Series 9 Preferred Stock as disclosed

Pursuant to the Ali Consulting Agreement, following the closing of the XTI Merger, Mr.

Ali will provide consulting services

to the Company for 15 months (“Ali Consulting Period”) or until earlier termination in accordance with its terms.

During the Ali Consulting Period, the Company will pay him a monthly fee of $ 20,000 .

addition, the Company shall pay Mr.

Ali (a) the amount of $ 1.5 million due three months following the Closing, and (b) the aggregate

amount of $ 4.5 million, payable in 12 equal monthly installments, starting four months after the closing date

of the XTI Merger (the payments described in (a) and (b), each an “Equity Payment”).

Each Equity Payment may be made, in

Company’s discretion, in (i) cash, (ii) fully vested shares of common stock under the Company’s equity incentive plan, or

a combination of cash and registered shares.

As of the date of this report, the Company repaid the initial $ 1.5 million owed to

Ali under the Ali Consulting Agreement.

During the year ended December 31, 2024, the Company recognized compensation expense of $ 3.6

million, which is included in general and administrative expenses on the consolidated statements of operations, relating to the Ali Consulting

As of December 31, 2024, the Company owed Mr.

Ali accrued consulting fees of approximately $ 0.2 million, which is included

in accounts payable on the accompanying consolidated balance sheets.

On March 27, 2025, the Company entered into a settlement agreement

with 3AM Investments LLC (an entity controlled by Nadir Ali (“Ali”)) (“3AM”), Grafiti Group LLC (“Grafiti

Group”) and Ali (the “Settlement Agreement”).

As a result of the Settlement Agreement, the Company has an outstanding

advisory fee obligation to Ali of $ 1.5 million (the “Deferred Amount”) as of the date of this report, which is due in $ 500,000

installments on June 30, 2025, September 30, 2025, and December 31, 2025.

Upon payment of the Deferred Amount in accordance with the terms

of the Settlement Agreement, the Ali Advisory Fees shall be deemed to be satisfied in full and no further amounts shall be payable by

the Company to Ali or his affiliated parties pursuant to the Ali Consulting Agreement dated March 12, 2024.

Refer to Note 23

for further disclosure of the Settlement Agreement.

July 24, 2023, the compensation committee of the Board (the “Compensation Committee”) adopted a Strategic Transaction Bonus

Plan, which was amended on March 11, 2024, and was intended to provide incentives to certain employees, including Mr.

Ali, and other

service providers to remain with the Company through the consummation of a qualifying transaction.

As of December 31, 2024, the Company

had a transaction bonus obligation of approximately $ 2.1 million payable to Mr.

Ali, which is included in accrued expenses and other

current liabilities on the accompanying consolidated balance sheets.

On March 31, 2025, the Company repaid the remaining transaction

bonus obligation to Mr.

Ali pursuant to the Settlement Agreement.

Group Divestiture

On February 21, 2024, Inpixon completed the disposition

of the remaining portion of the Shoom, SAVES, and GYG business lines and assets (“Grafiti Group Divestiture”) in accordance

with the terms and conditions of an Equity Purchase Agreement, dated February 16, 2024, by and among Inpixon (“Seller”),

Grafiti LLC, and Grafiti Group LLC (an entity controlled by Nadir Ali, the Company’s former CEO) (“Buyer”) (the “Equity

Purchase Agreement”).

Pursuant to the terms of the Equity Purchase Agreement, Buyer acquired from 100 % of the equity interest

in Grafiti LLC, including the assets and liabilities primarily relating to Inpixon’s Saves, Shoom and Game Your Game business,

including 100 % of the equity interests of Inpixon India, Grafiti GmbH (previously Inpixon GmbH) and Game Your Game, Inc.

Company for a minimum purchase price of $ 1.0 million paid in two annual cash installments of $ 0.5 million due within 60 days

after December 31, 2024 and 2025 (the “Grafiti Purchase Amount”).

The purchase price and annual cash installment payments

will be (i) decreased for the amount of transaction expenses assumed;

and (ii) increased or decreased by the amount working capital of

Grafiti LLC on the closing balance sheet is greater or less than $ 1.0 million.

The Company notes that $ 0.5 million of the receivable

is included in current assets as other receivables in the Company’s consolidated balance sheet as of December 31, 2024, and the

remaining $ 0.5 million of the receivable is included in long term assets as other assets in the Company’s consolidated balance

sheet as of December 31, 2024.

Pursuant to the Settlement Agreement, the Company

agreed that, effective as of the Effective Date of the Settlement Agreement, the Grafiti Purchase Amount (i.e., the aggregate amount

of $ 1.0 million) required to be delivered by Grafiti Group pursuant to the Equity Purchase Agreement shall be deemed to be satisfied

in full and no further amounts shall be payable to the Company by Grafiti Group or any of its affiliated parties pursuant to the Equity

Purchase Agreement.

Refer to Note 23 for further disclosure of the Settlement Agreement.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

- Commitments and Contingencies

time to time, the Company is subject to various claims, charges and litigation matters that arise in the ordinary course of business.

The Company records a provision for a liability when it is both probable that the loss has been incurred and the amount of the loss can

be reasonably estimated.

If the Company determines that a loss is reasonably possible and the loss or range of loss can be reasonably

estimated, it discloses the possible loss or range of loss.

Any potential gains associated with legal matters are not recorded until

the period in which all contingencies are resolved and the gain is realized or realizable.

Depending on the nature and timing of any

such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future consolidated

results of operations, cash flows or financial position in a particular period.

Except if otherwise indicated, it is not reasonably possible

to determine the probability of loss or estimate damages for any of the matters discussed below, and therefore, the Company has not established

reserves for any of these matters.

On December 6, 2023, Xeriant filed a complaint against Legacy XTI,

along with two unnamed companies and five unnamed persons, in the United States District Court for the Southern District of New York (the

“Xeriant Matter”).

On January 31, 2024, Xeriant filed an amended complaint, which added the Company as a defendant to the

Xeriant Matter.

On February 29, 2024, Xeriant filed a second amended complaint.

The Xeriant Matter alleges that Legacy XTI has prevented

Xeriant from obtaining compensation owed under various agreements entered into between Xeriant and Legacy XTI, including but not limited

to a joint venture agreement, a cross-patent license agreement, an operating agreement, and a letter dated May 17, 2022 (the “May

In particular, Xeriant contends that Legacy XTI gained substantial advantages from the intellectual property, expertise,

and capital deployed by Xeriant in the design and development of Legacy XTI’s TriFan 600 airplane yet has excluded Xeriant from

the transaction involving the TriFan 600 technology in its merger with Legacy Inpixon, which has resulted in a breach of the May 17 letter.

Xeriant seeks damages in excess of $ 500 million, injunctive relief enjoining us from engaging in any further misconduct, the imposition

of a royalty obligation, and such other relief as deemed appropriate by the court.

On March 13, 2024, Legacy XTI moved for partial

dismissal of the second amended complaint.

On January 14, 2025, the Court denied Legacy XTI’s motion to dismiss the complaint.

January 28, 2025, Legacy XTI filed an answer to the second amended complaint.

On January 28, 2025, Legacy XTI filed an amended answer

and counterclaims against Xeriant.

The counterclaims assert that Xeriant (1) breached the joint venture agreement by failing to pay $ 4,600,000

to fund development of the TriFan 600 technology, and (2) breached its fiduciary duty to XTI by engaging in bad faith, coercion, and self-dealing,

including by appropriating material information for its own use and concealing from Legacy XTI the identity of a potential strategic partner.

On March 18, 2025, Xeriant moved for dismissal of Legacy XTI’s counterclaims.

The case is in its early stages of discovery.

XTI denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against the lawsuit.

connection with the Xeriant Matter, on June 12, 2024, we received a letter from counsel for Auctus Fund, LLC (“Auctus”),

dated April 3, 2024, claiming that, pursuant to the above-referenced May 17 letter by and between Xeriant and Legacy XTI, as a result

of the XTI Merger and Legacy XTI’s entry into a promissory note agreement with Legacy Inpixon in March 2023, XTI Aerospace and

Legacy XTI may have assumed Xeriant’s obligations under that certain Senior Secured Promissory Note in the principal amount of

$ 6,050,000 issued by Xeriant to Auctus, including the obligation to repay Auctus all principal and accrued and unpaid interest thereunder,

which Auctus claims was $ 8,435,008.81 as of April 3, 2024.

In July 2024, Legacy XTI responded to such letter and indicated that it believes

that the May 17 letter is invalid and unenforceable on several bases.

It further explained that even if it were valid and enforceable,

Legacy XTI does not believe such letter resulted in, or otherwise triggered, the assumption of obligations of Xeriant under the Senior

Secured Promissory Note or any other obligation on the part of Legacy XTI.

There have been no further developments on this matter.

are unable to make a reasonable estimate of a potential loss, if any, on this matter.

To the extent suits or actions are commenced with

respect to this matter, we intend to vigorously defend against any and all claims.

or about August 1, 2024, Chardan Capital Markets LLC (“Chardan”) commenced an arbitration (the “Arbitration”)

before FINRA against the Company and its subsidiary, XTI Aircraft Company (“Aircraft”).

Aircraft and Chardan are parties

to an engagement letter agreement (the “Agreement”).

In the Arbitration, Chardan alleges that the Company is bound by the

Agreement even though it did not sign the Agreement, which the Company denies.

Chardan further alleges that Aircraft and the Company

breached the Agreement by not making separate payments to Chardan of $ 200,000 , $ 94,511 , $ 484,044 and $ 174,000 .

Chardan also seeks to

recover unspecified amounts relating to an alleged right of first refusal to perform banking services that the Company supposedly did

not honor, including with respect to an At-The-Market securities offering that was underwritten by Maxim.

The Company and Aircraft deny

that Chardan performed its duties under the Agreement and otherwise that Chardan is owed any sums under the Agreement.

The Company filed

a petition in the U.S.

District Court for the Southern District of New York seeking to stay the Arbitration to the extent that it has

been asserted against the Company.

On or about January 21, 2025, the Court entered a final judgement that:

(a) enjoins Chardan from prosecuting

the arbitration against the Company and (b) declares that the Company has no contractual or other duty to arbitrate with Chardan.

Aircraft subsidiary remains as a party to the arbitration and intends to defend against the arbitration vigorously.

As of December 31,

2024, the Company has accrued $ 200,000 relating to the Agreement, which is included in accounts payable on the consolidated balance sheets.

Advisory Fees

Pursuant to the terms of an amended advisory fees agreement between

the Company and Maxim, the Company is obligated to pay Maxim $ 0.2 million which becomes payable upon the closing of one or more debt or

equity financings for which Maxim serves as placement agent or underwriter and in which the Company raises minimum aggregate gross proceeds

of $ 10 million.

In connection with a capital raise in January 2025, the Company repaid in full its obligation to Maxim (see Note 23).

Agreements with Nadir Ali

As previously disclosed under Note 18, the Company

has an outstanding advisory fee obligation to Nadir Ali of $ 1.5 million, which is payable in $ 500,000 installments on June 30, 2025, September

30, 2025, and December 31, 2025.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Strategic Transaction Bonus Plan and Consulting

Arrangement with Prior Legacy Inpixon CFO

On July 24, 2023, the compensation committee

of the Board (the “Compensation Committee”) adopted a Strategic Transaction Bonus Plan, which was amended on March 11, 2024,

and was intended to provide incentives to certain employees and other service providers to remain with the Company through the consummation

of a qualifying transaction.

During the second quarter of 2024, the Company accrued 100 % or $ 6.3 million of the transaction bonuses,

which is included in general and administrative within the accompanying condensed consolidated statements of operations, as the bonuses

became payable upon the earlier of the closing of financing or June 30, 2024.

As of December 31, 2024, the Company had an outstanding

accrued transaction bonus obligation of $ 4.3 million, which is included in accrued expenses and other current liabilities on the accompanying

consolidated balance sheets.

On March 12, 2024, the Company entered into a

Consulting Agreement with Ms.

Wendy Loundermon (the “Loundermon Consulting Agreement”), the Company’s former Chief Financial

Pursuant to the Loundermon Consulting Agreement, following the Closing, Ms.

Loundermon will provide consulting services to the

Company for one year or until earlier termination in accordance with its terms (the “Loundermon Consulting Period”).

As compensation

Loundermon’s consulting services, the Company will pay her (i) $ 83,333 per month for the first six months of the Loundermon

Consulting Period for services she performs on an as-needed basis during the Loundermon Consulting Period regarding the transition of

the management of the Company’s financial reporting function to ensure continuity of business operations, and (ii) $ 300 per hour

for services performed on an as needed basis regarding the preparation and filing of Company’s public company financial reporting

and compliance matters including accounting, payroll, audit and tax compliance functions.

During the year ended December 31, 2024, the

Company recognized compensation expense of $0.5 million, which is included in general and administrative expenses on the consolidated

statements of operations, relating to Ms.

Loundermon’s consulting arrangement.

As of December 31, 2024, the Company owed Ms.

accrued consulting fees of $ 0.5 million, which is included in accounts payable within the accompanying consolidated balance sheets.

Pursuant to the Settlement Agreement, on March

31, 2025, the Company repaid the remaining obligation under the Strategic Transaction Bonus Plan of approximately $ 0.8 million and the

remaining consulting compensation obligation of approximately $ 0.3 million owed to Ms.

Refer to Note 23 for further disclosure

of the Settlement Agreement.

20 - Net Loss Per Share Attributable to Common Stockholders

following table presents the calculation of basic and diluted loss per share attributable to common stockholders (in thousands, except

share and per share data):

the Years Ended

Preferred stock

return and dividend

Deemed dividend

Loss Attributable to Common Stockholders, basic and diluted

Loss Per Share - Basic and Diluted

$ ( 1,576.48 )

Change in valuation allowance 5,966 3,703

Income Tax Provision (Benefit) $ 24 $ ( 181 )

The reconciliation between the U.S.

statutory federal income tax rate and the Company’s effective rate for the years ended December 31, 2023 and 2022 is as follows:

For the Years Ended December 31,

federal statutory rate 21.0 % 21.0 %

State income taxes, net of federal benefit 0.6 % 0.5 %

Incentive stock options ( 0.1 ) % ( 0.2 ) %

Average Shares Outstanding, Basic and Diluted

basic earnings per share calculation for years ended December 31, 2024 and 2023 included 2,435 and 2,435 of penny warrants shares,

respectively, since the exercise price was $ 0.01 per share.

Additionally, the basic earnings per share calculation for the years

ended December 31, 2024 and 2023 included 1,194 shares of common stock that were issuable to Xeriant Inc.

related to the joint venture arrangement that expired by its term on May 31, 2023.

The shares were issued to Xeriant for no additional

consideration immediately prior to the XTI Merger.

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):

the Years Ended

Convertible preferred

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

21 – Income Taxes

domestic and foreign components of loss from continuing operations before income taxes for the years ended December 31, 2024 and 2023

are as follows (in thousands):

the Years Ended

Loss, before tax

income tax provision (benefit) for the years ended December 31, 2024 and 2023 consists of the following (in thousands):

the Years Ended

State and local

in valuation allowance

Tax Provision (Benefit)

reconciliation between the U.S.

statutory federal income tax rate and the Company’s effective rate for the years ended December

31, 2024 and 2023 is as follows:

the Years Ended

statutory rate

State income taxes, net

of federal benefit

162(m) compensation limit

US-Foreign income tax rate difference 0.8 % 1.6 %

Transaction costs

Convertible notes / warrant

inducement expense

Convertible notes –

fair value adjustment

Foreign income tax rate

Other permanent items

Provision to return adjustments 0.2 % 1.9 %

Deferred only adjustment ( 1.3 ) % ( 3.7 ) %

Change in valuation allowance ( 17.4 ) % ( 18.6 ) %

Effective Rate ( 0.1 ) % 0.9 %

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

Provision to return adjustment

in valuation allowance

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

As of December 31, 2023 and 2022, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following:

As of December 31,

(in 000s) 2023 2022

of December 31, 2024 and 2023, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences

attributable to the following (in thousands):

of December 31,

Deferred Tax Asset

Net operating loss carryovers $ 31,085 $ 26,052

Loss carryovers

Stock based compensation

Research credits

Accrued compensation 24 22

Reserves 263 279

Intangibles 1,750 1,980

Fixed assets 109 149

Accrued expenses

Unrealized gain

Capital Research 332 106

Other 2,210 360

Section 174 capital research

Total Deferred Tax Asset

valuation allowance

Deferred Tax Asset, Net of Valuation Allowance $ 1,027 $ 1,002

As of December 31,

Tax Asset, Net of Valuation Allowance

of December 31,

Deferred Tax Liabilities

Intangible assets

Fixed assets ( 99 ) ( 160 )

Other ( 396 ) ( 127 )

Capitalized research — —

Total deferred tax liabilities ( 1,027 ) ( 1,002 )

Net Deferred Tax Asset (Liability) $ — $ —

At December 31, 2023, the Company did not have any undistributed earnings of our foreign subsidiaries.

As a result, no additional income or withholding taxes have been provided for.

The Company does not anticipate any impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT) and as such, the Company has not recorded any impact associated with either GILTI or BEAT.

In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s NOL carryover is subject to an annual limitation in the event of a change of control, as defined by the regulations.

The Company performed an analysis to determine the annual limitation as a result of the changes in ownership that occurred during 2022 and 2023.

A change in ownership occurred on March 2022, April 2023, and July 2023.

The NOL available to offset future taxable income after the 2023 ownership change and divestiture of CXApp is approximately $ 62.4 million.

The NOL generated in 2017 of $ 1.5 million, will expire in December 31, 2037 if not utilized.

The remaining NOLs generated after 2017 have an indefinite life and do not expire.

As of December 31, 2023 all Inpixon Canada NOLs were unavailable to the Company due to the CXApp divestiture.

As of December 31, 2022, Inpixon Canada, which was acquired on April 18, 2014 as a part of the AirPatrol Merger Agreement, had approximately $ 24.6 million of Canadian NOL carryovers available to offset future taxable income.

Those NOLs, if not for the divestiture, would have begun expiring in the year 2023.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

deferred tax liabilities

Deferred Tax Asset (Liability)

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

As of December 31, 2023 and 2022, Nanotron GmbH, which was acquired on October 5, 2020, had approximately $ 49.4 million and $ 44.1 million, respectively, of German NOL carryovers available to offset future taxable income.

Although these NOLs do not expire, minimum taxation restrictions apply such that only a percentage of taxable income may be offset by NOL carryovers.

All of these NOLs are available to the Company as a part of the continuing activity.

As of December 31, 2023 and 2022 Intranav GmbH, which was acquired on December 8, 2021, had approximately $ 10.6 million and $ 8.7 million, respectively, of German NOL carryovers available to offset future taxable income.

Although these NOLs do not expire, minimum taxation restrictions apply such that only a percentage of taxable income may be offset by NOL carryovers.

December 31, 2024, the Company did not have any undistributed earnings of its foreign subsidiaries.

As a result, no additional income

or withholding taxes have been provided for.

The Company does not anticipate any impacts of the global intangible low taxed income (“GILTI”)

and base erosion anti-abuse tax (“BEAT) and as such, the Company has not recorded any impact associated with either GILTI or BEAT.

In accordance with Section 382 of the Internal

Revenue Code, deductibility of the Company’s NOL carryover is subject to an annual limitation in the event of a change of control,

as defined by the regulations.

The Company performed an analysis to determine the annual limitation as a result of the changes in ownership

that occurred during 2023 and 2024.

Ownership changes occurred during the 2023 and 2024 periods and are limited in their use.

available to offset future taxable income is approximately $ 96.9 million, subject to Section 382 limitations.

The NOL generated in 2017

of $ 5.3 million, will expire in December 31, 2037 if not utilized.

The remaining NOLs generated after 2017 have an indefinite life and

do not expire.

of December 31, 2024, Nanotron GmbH, which was acquired through the merger, had approximately $ 45.7 million, respectively, of German

NOL carryovers available to offset future taxable income.

Although these NOLs do not expire, minimum taxation restrictions apply such

that only a percentage of taxable income may be offset by NOL carryovers.

All of these NOLs are available to the Company as a part of

the continuing activity.

of December 31, 2024 Intranav GmbH, which was acquired through the merger, had approximately $ 11.3 million of German NOL carryovers available

to offset future taxable income.

Although these NOLs do not expire, minimum taxation restrictions apply such that only a percentage of

taxable income may be offset by NOL carryovers.

All of these NOLs are available to the Company as a part of the continuing activity.

As of December 31, 2023 and 2022, Active Mind Technology LTD, which was acquired on April 9, 2021 as part of the acquisition of Game Your Game Inc., had approximately $ 12.8 million and $ 11.8 million, respectively, of Irish NOL carryovers available to offset future taxable income.

These NOLs have an indefinite life and do not expire.

As a result of the Grafiti LLC divestiture, there are no future NOLs available to the Company as a part of the continuing activity.

As of December 31, 2023 all Inpixon Philippines, Inc’s NOLs were unavailable to the Company due to the CXApp divestiture.

As of December 31, 2022 Inpixon Philippines, which was organized on April 12, 2022, had approximately $ 0.1 million of Philippine NOL carryovers available to offset future taxable income.

Those NOLs, if not for the divestiture, would have begun expiring in the year 2026.

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 realization 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 is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.

ASC 740, “Income Taxes” 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.

A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets with respect to Inpixon, Nanotron GmbH, Intranav GmbH, Inpixon Holding (UK) Limited and has, therefore, established a full valuation allowance as of December 31, 2023 and 2022.

As of December 31, 2023 and 2022, the change in valuation allowance for continuing activity was $ 6.0 million and $ 3.7 million, respectively.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company is required to file income tax returns in the United States (federal), Canada, India, Germany, United Kingdom, Ireland, Philippines and in various state jurisdictions in the United States.

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 realization 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.

realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences

representing net future deductible amounts become deductible.

740, “Income Taxes” 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.

A review of all available positive and negative evidence needs to be

considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

After consideration of all the information available, management believes that uncertainty exists with respect to future realization

of its deferred tax assets with respect to XTI Aerospace, Inc, Nanotron, Intranav GmbH, Inpixon Holding (UK) Limited and has, therefore,

established a full valuation allowance as of December 31, 2024.

As of December 31, 2024 and 2023, the change in valuation allowance was

an increase of the valuation allowance of $ 3.9 million, excluding the recording of Inpixon for the merger.

740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes

a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected

to be taken in a tax return.

For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination

by taxing authorities.

ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim

periods, disclosure and transition.

The Company is required to file income tax returns in the United States (federal), Germany, United

Kingdom, and in various state jurisdictions in the United States.

These filings include discontinued activity periods.

In the future, the Company will only be required to file tax returns in United States (federal), Germany, United Kingdom, and in various state jurisdictions in the United States.

Based on the Company’s evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements for the continuing activity in years ended December 31, 2023 and 2022.

The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of income tax expense.

There were no amounts accrued for interest or penalties for the years ended December 31, 2023 and 2022.

Management does not expect any material changes in its unrecognized tax benefits in the next year.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities.

Based on the Company’s

evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s consolidated

financial statements in years ended December 31, 2024 and December 31, 2023.

Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and

penalties as interest expense and as a component of income tax expense.

There were no amounts accrued for interest or penalties for the

years ended December 31, 2024 and 2023.

Management does not expect any material changes in its unrecognized tax benefits in the next

Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various

taxing authorities.

Such examinations may result in future assessments by these taxing authorities.

The Company is subject to examination by U.S.

The Company is subject to examination

tax authorities beginning with the year ended December 31, 2021.

In general, the Canadian Revenue Authority may reassess taxes four years from the date the original notice of assessment was issued.

The tax years that remain open and subject to Canadian reassessment are 2019 – 2023.

The tax years that remain open and subject to India reassessment are tax years beginning March 31, 2021.

The German tax authorities may reassess taxes generally four years from the end of the calendar year in which the return is filed.

The tax years that remain open and subject to German reassessment are 2019 – 2023.

In Ireland, assessments must generally be made within four years when returns are filed.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

tax years that remain open and subject to Irish reassessment are 2019 – 2023.

In general, Philippine Tax Commissioner may reassess taxes three years from the date the original notice of assessment was issued.

The tax years that remain open and subject to Philippine reassessment are 2022 and 2023.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRS 2022”).

The IRA 2022, among other tax provisions, imposes a 15 percent corporate alternative minimum tax on corporations with book financial statement income in excess of $1.0 billion, effective for tax years beginning after December 31, 2022.

The IRA 2022 also established a one percent excise tax on stock repurchases made by publicly traded U.S.

corporations, effective for stock repurchases in excess of an annual limit of $1.0 million after December 31, 2022.

The IRA 2022 did not impact the Company’s current year tax provision or the Company’s consolidated financial statements.

Note 19 - Credit Risk, Concentrations, and Segment Reporting

Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents.

The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk.

The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.

The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits.

Cash is also maintained at foreign financial institutions for its UK subsidiary and German subsidiaries.

Cash in foreign financial institutions as of December 31, 2023 and 2022 was immaterial.

The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.

The Company is exposed to the following concentration risk:

The customers who account for 10% or more of the Company's revenue for the year ended December 31, 2023 or 10% or more of the Company's outstanding receivable balance as of December 31, 2023 are presented as follows:

Year ended December 31, 2023 As of December 31, 2023

Customer Revenues (millions)

Percentage of revenues Accounts Receivable (millions)

Percentage of accounts receivable

A $ 0.8 17 % $ — — %

B $ 0.2 4 % $ 0.1 10 %

C $ 0.4 10 % $ — — %

$ 1.4 31 % $ 0.1 10 %

The customers who account for 10% or more of the Company's revenue for the year ended December 31, 2022 or 10% or more of the Company's outstanding receivable balance as of December 31, 2022 are presented as follows:

Year ended December 31, 2022

As of December 31, 2022

Customer Revenues (millions)

Percentage of revenues Accounts Receivable (millions)

Percentage of accounts receivable

A $ 0.6 9 % $ 0.2 12 %

B $ 0.2 4 % $ 0.2 18 %

C $ 1.4 23 % $ 0.2 16 %

$ 2.2 36 % $ 0.6 46 %

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 19 - Credit Risk and Concentration (continued)

The vendors who account for 10% or more of the Company's purchases for the year ended December 31, 2023 or 10% or more of the Company's outstanding payable balance as of December 31, 2023 are presented as follows:

Year ended December 31, 2023 As of December 31, 2023

Vendor Purchases (millions) Percentage of purchases Accounts Payable (millions) Percentage of accounts payable

A $ 2.1 10 % $ 0.4 15 %

B $ 2.7 13 % $ — — %

C $ 1.0 5 % $ 0.5 20 %

Total $ 5.8 28 % $ 0.9 35 %

The vendors who account for 10% or more of the Company's purchases for the year ended December 31, 2022 or 10% or more of the Company's outstanding payable balance as of December 31, 2022 are presented as follows:

Year ended December 31, 2022 As of December 31, 2022

Vendor Purchases (millions) Percentage of purchases Accounts Payable (millions) Percentage of accounts payable

A $ 0.2 1 % $ 0.1 12 %

B $ 7.3 31 % $ — — %

C $ 1.4 6 % $ 0.2 31 %

Total $ 8.9 38 % $ 0.3 43 %

The Company notes that as of December 31, 2023, the Grafiti Holding Inc., Grafiti LLC, and Enterprise Apps divestiture are presented as discontinued operations.

The Company notes that Grafiti Holding Inc., Grafiti LLC, and the Enterprise Apps divestiture consist of the entirety of the Shoom and SAVES operating segments, along with a portion of the Indoor Intelligence operating segments.

Therefore, only the Indoor Intelligence operating segment remains as of December 31, 2023.

See Note 26 for more details.

The Company and its Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker (“CODM”) determines its operating segments in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”).

The Company has one operating segment in continuing operations, Indoor Intelligence.

The Company is organized and operated as one business based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments.

Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 20 - Foreign Operations

The Company’s operations are located primarily in the United States, Germany, and the United Kingdom.

Revenues by geographic area are attributed by country of domicile of our subsidiaries.

The below table includes the continuing operations financial data.

See Note 27 for the discontinued operations data.

The financial data by geographic area are as follows (in thousands):

States Germany United Kingdom Total

For the Year Ended December 31, 2023:

Revenues by geographic area $ 1,265 $ 3,297 $ — $ 4,562

Operating income (loss) by geographic area $ ( 23,785 ) $ ( 3,139 ) $ ( 5 ) $ ( 26,929 )

Net income (loss) by geographic area $ ( 31,232 ) $ ( 3,113 ) $ ( 5 ) $ ( 34,350 )

For the Year Ended December 31, 2022:

Revenues by geographic area $ 1,959 $ 4,150 $ — $ 6,109

Operating income (loss) by geographic area $ ( 13,114 ) $ ( 6,130 ) $ — $ ( 19,244 )

Net income (loss) by geographic area $ ( 13,622 ) $ ( 6,060 ) $ — $ ( 19,682 )

As of December 31, 2023:

Identifiable assets by geographic area $ 15,019 $ 5,972 $ 10 $ 21,001

Long lived assets by geographic area $ 775 $ 2,350 $ — $ 3,125

Goodwill by geographic area $ — $ — $ — $ —

As of December 31, 2022:

Identifiable assets by geographic area $ 13,623 $ 6,548 $ 417 $ 20,588

Long lived assets by geographic area $ 1,089 $ 3,298 $ — $ 4,387

Goodwill by geographic area $ — $ — $ — $ —

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Note 21 - Related Party Transactions

Director Services Agreement

The Company and Kareem Irfan, a director of the Company, have amended Mr.

Irfan's Director Services Agreement on May 16, 2022 (as amended, the "Amended Director Services Agreement") to increase his quarterly compensation by an additional $ 10,000 per month as consideration for the additional time and efforts dedicated to the Company and management in support of the evaluation of strategic relationships and growth initiatives.

The Amended Director Services Agreement supersedes and replaces all prior agreements by and between the Company and Mr.

Reimbursable Expenses from New CXApp

During the year ended December 31, 2023, the Company incurred approximately $ 0.3 million in reimbursable expenses payable in connection with the terms and conditions of the Transition Services Agreement and was charged by CXApp for $ 0.02 million of reimbursable expenses under the Transition Services Agreement.

The balance was settled during the year ended December 31, 2023 and no amounts were owed under the agreement as of December 31, 2023.

Note 22 - Leases

The Company has operating leases for administrative offices in the United States and Germany.

As part of the acquisition of IntraNav on December 9, 2021, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the IntraNav office) located in Frankfurt, Germany.

This lease expires on January 6, 2025 and the current lease rate is approximately $ 9,506 per month.

As part of the acquisition of Nanotron on December 9, 2021, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the Nanotron office) located in Berlin, Germany.

This lease expires on May 31, 2026 and the current lease rate is approximately $ 8,057 per month.

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

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

As of December 31,

2023 As of December 31, 2022

Palo Alto, CA Office $ — $ 630

Company has operating leases for administrative offices in the United States (Colorado) and Germany.

As part of the XTI Merger, the Company acquired right-of-use assets

and lease liabilities related to an operating lease for an office space (the IntraNav office) located in Frankfurt, Germany.

term of the lease expired on January 6, 2025, at which time the lease converted to month-to-month at a rate of $ 10,298 (€ 9,890 ) per

The lease will continue indefinitely until either party provides 180-day written notice of termination.

As part of the XTI Merger, the Company acquired right-of-use assets

and lease liabilities related to an operating lease for an office space (the Inpixon GmbH office) located in Berlin, Germany.

expired on March 31, 2025 and had a lease rate of $ 7,810 (€ 7,500 ) per month up to the expiration date.

Subsequent to the March

31, 2025 expiration, the Inpixon GmbH office personnel moved to a new location in Berlin.

The lease rate at the new location is $ 3,897 (€ 3,742 )

The new lease expires on March 31, 2026.

On January 1, 2024, the Company entered into

a lease agreement for its new corporate office location in Englewood, Colorado.

This lease expires on January 31, 2028 and the current

lease rate is $ 10,630 per month as of the date of this filing.

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

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

of December 31, 2024

of December 31, 2023

Berlin, Germany Office

Frankfurt, Germany Office

Less accumulated amortization ( 492 ) ( 905 )

Right-of-use asset, net $ 335 $ 527

Lease expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs.

Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our consolidated statements of operations for the years ended December 31, 2023 and 2022 was $ 0.6 million and $ 0.5 million, respectively.

During the years ended December 31, 2023 and 2022, the Company recorded $ 0.2 million and $ 0.3 million, respectively, as rent expense to the right-of-use assets.

During the years ended December 31, 2023 and 2022, the Company recorded short-term lease expenses of $ 0.2 million and $ 0.0 million, respectively.

During the years ended December 31, 2023 and 2022, the Company recorded variable lease expenses of $ 0.1 million each year.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

accumulated amortization

expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum

lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs.

Operating lease expenses,

inclusive of short-term and variable lease expenses, recognized in our consolidated statements of operations for the years ended December

31, 2024 and 2023 was $ 0.4 million and $ 0.0 million, respectively.

the years ended December 31, 2024 and 2023, the Company recorded $ 0.3 million and $ 0.0 million, respectively, as rent expense

to the right-of-use assets.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Lease liability is summarized below (in thousands):

As of December 31, 2023 As of December 31, 2022

Total lease liability $ 342 $ 541

the years ended December 31, 2024 and 2023, the Company recorded short-term lease expenses of $ 0.04 million and $ 0.00 million, respectively.

During the years ended December 31, 2024 and 2023, the Company recorded variable lease expenses of $ 0.02 million and $ 0.00 million, respectively.

liability is summarized below (in thousands):

of December 31, 2024

of December 31, 2023

short term portion

Long term portion $ 141 $ 334

Maturity analysis under the lease agreement is as follows (in thousands):

analysis under the lease agreement is as follows (in thousands):

Year ending December 31, 2025

1 unchanged sentence

Year ending December 31, 2027

Year ending December

Present value discount

Lease liability $ 342

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 used its incremental borrowing rate based on the information available at the date of adoption of Topic 842.

As of December 31, 2023, the weighted average remaining lease term is 1.96 and the weighted average discount rate used to determine the operating lease liabilities was 3.6 %.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 23 - Restructuring Activities

On September 21, 2022, the Company informed its employees that it was taking steps to streamline its operations and conserve cash resources.

These steps included layoffs which reduced the Company's global employee headcount by approximately 20 %.

The layoffs resulted in one-time expenses of approximately $ 0.8 million in the Indoor Intelligence segment which consisted of severance payouts to terminated employees and outplacement service expenses for the year ended December 31, 2022.

These expenses were included in the Company's total operating expenses on the Consolidated Statements of Operations with the unpaid restructuring costs included in accrued liabilities in the Consolidated Balance Sheets.

The Company recorded a Restructuring costs payable for costs incurred related to the restructuring activities noted above for costs incurred but not yet paid as of December 31, 2022.

A summary of the activity for the year ended December 31, 2022, is included below (in thousands):

Restructuring costs payable - January 1, 2022 $ —

Restructuring costs incurred 845

Restructuring costs paid ( 793 )

Restructuring costs payable - December 31, 2022 $ 52

Restructuring costs incurred —

Restructuring costs paid ( 52 )

Restructuring costs payable - December 31, 2023 $ —

Note 24 - Commitments and Contingencies

Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur.

The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.

In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements.

If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed.

There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

However, the performance of our Company's business, financial position, and results of operations or cash flows may be affected by unfavorable resolution of any particular matter.

On December 6, 2023, Xeriant, Inc.

(“Xeriant”) filed a complaint against Legacy XTI, along with two unnamed companies and five unnamed persons, in the United States District Court for the Southern District of New York.

On January 31, 2024, Xeriant filed an amended complaint, which added us as a defendant.

On February 2, 2024, the Court ordered Xeriant to show cause as to why the amended complaint should not be dismissed without prejudice for lack of subject matter jurisdiction.

On February 29, 2024, Xeriant filed a second amended complaint, which removed us and one of the unnamed companies as defendants.

The second amended complaint alleges that Legacy XTI, through multiple breaches and fraudulent actions, has caused substantial harm to Xeriant and has prevented it from obtaining compensation owed to it under various agreements entered into between Xeriant and Legacy XTI, including but not limited to a joint venture agreement, a cross-patent license agreement, an operating agreement, and a letter agreement.

In particular, Xeriant contends that Legacy XTI gained substantial advantages from the

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

intellectual property, expertise, and capital deployed by Xeriant in the design and development of Legacy XTI’s TriFan 600 aircraft yet has excluded Xeriant from the transaction involving the TriFan 600 technology in its merger with us, which has resulted in a breach of the Letter Agreement, in addition to the other aforementioned agreements.

Xeriant, in the second amended complaint, asserts the following causes of action:

(1) breach of contract;

(2) intentional fraud;

(3) fraudulent concealment;

(4) quantum meruit;

(5) unjust enrichment;

(6) unfair competition/deceptive business practices;

and (7) misappropriation of confidential information, and seeks damages in excess of $ 500 million, injunctive relief enjoining us from engaging in any further misconduct, the imposition of a royalty obligation, and such other relief as deemed appropriate by the court.

On March 13, 2024, Legacy XTI moved for partial dismissal of the second amended complaint, Counts 2 through 7 in particular.

Legacy XTI argued that Counts 2 through 7 are (1) impermissible attempts to repackage claims arising from contractual dispute as quasi-contractual or tort claims;

and (2) expressly refuted by the clear and unequivocal terms of the aforementioned agreements.

The case is in its early stages, no discovery with respect to the Company has occurred, and we are unable to estimate the likelihood or magnitude of a potential adverse judgment.

The Court has neither scheduled Legacy XTI’s motion for hearing nor otherwise ruled upon it.

Legacy XTI nevertheless denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against the lawsuit.

Note 25 - Damon Motors Convertible Note

On October 26, 2023, the Company purchased a 12 % convertible note through a private placement in aggregate principal amount of $ 3.0 million for a purchase price of $ 3.0 million from Damon Motors Inc.

and is included in Notes Receivable on the Consolidated Balance Sheets.

Interest on the convertible note accrues at 12 % per annum.

The term of the convertible note is 12 months.

The convertible note is subject to certain conversion features which include qualified financing, and/or qualified transaction, as defined in the securities purchase agreement.

The note will be required to convert upon Damon Motors Inc.

completing a public company event.

In addition, Damon Motors Inc.

issued a five-year warrant to purchase 1,096,321 shares of Damon Motors Inc.

common stock in connection with the note.

Management notes the Warrant is freestanding.

The exercise price per Common Share is equal to the quotient of the valuation cap and the diluted capitalization, as defined in the agreement.

The Warrant provides for cashless exercise after 180 days following the closing of the public company event should there be no effective registration statement.

The convertible note receivable is not traded in active markets and fair value was determined using a present value technique.

The convertible note receivable is accounted for as available-for-sale debt securities based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income (loss).

The Warrant is accounted for an equity security based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, recorded at fair value with subsequent changes in fair value recorded in earnings.

Note 26 - Discontinued Operations

CXApp Divestiture

On March 14, 2023, Inpixon completed the Enterprise Apps Spin-off and subsequent Business Combination (the "Closing").

In connection with the Closing, KINS was renamed CXApp Inc.

(“New CXApp”).

Pursuant to the Transaction Agreements, Inpixon contributed to CXApp cash and certain assets and liabilities constituting the Enterprise Apps Business, including certain related subsidiaries of Inpixon, to CXApp (the “Contribution”).

In consideration for the Contribution, CXApp issued to Inpixon additional shares of CXApp common stock such that the number of shares of CXApp common stock then outstanding equaled the number of shares of CXApp common stock necessary to effect the Distribution.

Pursuant to the Distribution, Inpixon shareholders as of the Record Date received one share of CXApp common stock for each share of Inpixon common stock held as of such date.

This Enterprise Apps Spin-off was considered a strategic shift that has a major impact on the Company, and therefore, the results of operations are recorded as a component of "Earnings (loss) from discontinued operations, net of income taxes" in the Consolidated Statements of Operations for all periods presented.

The Company noted that Legacy CXApp was part of the Company’s Indoor Intelligence segment.

The net assets distributed as a result of the Enterprise Apps Spin-off was $ 24.2 million.

Included within the $ 24.2 million dividend recorded to Additional Paid in Capital as a result of the deconsolidation of CXApp through distribution to shareholders recorded during the three months ended March 31, 2023, is approximately $ 1.2 million in accumulated other comprehensive income that was recognized as a result of those distributed assets and liabilities included in the foreign operations of CXApp.

Solutions Divestiture - Grafiti Holding Divestiture

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

On October 23, 2023, Inpixon entered into a Business Combination Agreement (the “Business Combination Agreement”), by and among Inpixon, Damon Motors Inc., a British Columbia corporation (“Damon”), Grafiti Holding, and 1444842 B.C.

Ltd., a British Columbia corporation and a newly formed wholly-owned subsidiary of Grafiti Holding (“Amalco Sub”), pursuant to which it is proposed that Amalco Sub and Damon amalgamate under the laws of British Columbia, Canada with the amalgamated company (the “Damon Surviving Corporation”) continuing as a wholly-owned subsidiary of Grafiti Holding (the “Damon Business Combination”).

The Damon Business Combination is subject to material conditions, including approval of the Damon Business Combination by securities holders of Damon, approval of the issuance of Grafiti Holding Common Shares to Damon securities holders pursuant to the Business Combination Agreement by a British Columbia court after a hearing upon the fairness of the terms and conditions of the Business Combination Agreement as required by the exemption from registration provided by Section 3(a)(10) under the Securities Act, and approval of the listing of the Grafiti Holding Common Shares on the Nasdaq Stock Market (“Nasdaq”) after giving effect to the Damon Business Combination.

Upon the consummation of the Damon Business Combination (the “Closing”), both Inpixon UK and the Damon Surviving Corporation will be wholly-owned subsidiaries of Grafiti Holding.

Holders of Grafiti Holding Common Shares, including Participating Security holders and management that hold Grafiti Holding Common Shares immediately prior to the closing of the Damon Business Combination, are anticipated to retain approximately 18.75 % of the outstanding capital stock of the combined company determined on a fully diluted basis, which includes up to 5 % in equity incentives which may be issued to Inpixon management.

On October 23, 2023, Inpixon entered into a Separation and Distribution Agreement (the “Separation Agreement”) with Grafiti Holding Inc.

(“Grafiti Holding”), a then wholly owned subsidiary of Inpixon.

Inpixon contributed the assets and liabilities of Inpixon UK, a wholly owned subsidiary of Inpixon, to the then Inpixon wholly owned subsidiary Grafiti Holding in accordance with the Separation Agreement.

On December 27, 2023, the Company entered into a Liquidating Trust Agreement (the “Liquidating Trust Agreement”) by and among the Company, Grafiti Holding and the sole original trustee named therein, who is a current employee of the Company (collectively with any additional trustees duly appointed under the Liquidating Trust Agreement from time to time, the “Trustees”).

The Liquidating Trust Agreement provided for the distribution by the Company of its Grafiti Holding Common Shares to a liquidating trust, titled the Grafiti Holding Inc.

Liquidating Trust (the “Trust”), which will hold the Grafiti Holding Common Shares for the benefit of the Participating Security holders until the Registration Statement is declared effective by the SEC.

Promptly following the effective time of the Registration Statement, the Trust will deliver the Grafiti Holding Common Shares to the Participating Security holders, as beneficiaries of the Trust, pro rata in accordance with their ownership of shares or underlying shares of Common Stock as of the Record Date.

The Trustees will be empowered to liquidate the Grafiti Holding Common Shares and distribute the proceeds thereof to the Participating Security holders if the Registration Statement is not declared effective prior to the second anniversary of the date of the Liquidating Trust Agreement.

This transfer, along with the Grafiti LLC divestiture outlined below, were in the aggregate considered a strategic shift that has or will have a major effect on the Company's operations and financial results, and therefore met the criteria to be classified as discontinued operations.

Accordingly, the results of its operations are recorded as a component of "Net loss from discontinued operations, net of tax" in the Consolidated Statements of Operations for all periods presented.

The net assets distributed as a result of the Grafiti Holding Divestiture were $ 0.02 million.

Solutions Divestiture - Grafiti LLC Divestiture

On February 21, 2024, the Company completed the disposition of the remaining portion of the Shoom, SAVES, and GYG business lines and assets that were excluded from the Grafiti Holding Transaction in accordance with the terms and conditions of an Equity Purchase Agreement, dated February 16, 2024.

This transaction was considered probable as of December 31, 2023, and along with the Grafiti Holding divestiture outlined above, represent a strategic shift that has a major impact on the Company's operations and financial results.

Therefore, Grafiti LLC met the criteria to be classified as discontinued operations.

Accordingly, the results of operations are recorded as a component of "Net loss from discontinued operations, net of tax" on the Consolidated Statements of Operations for all periods presented.

In connection with the discontinued operations classification, the Company recognized a loss on discontinued operations of $ 2.3 million, which has been included in "Net loss from discontinued operations, net of tax" on the Consolidated Statements of Operations for the year ended December 31, 2023.

The assets and liabilities of Grafiti LLC are included in the current assets and current liabilities of discontinued operations on the Consolidated Balance Sheet as of December 31, 2023.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

For the Year Ended December 31, 2023 For the Year Ended December 31, 2022

CXApp Divestiture Grafiti Holding and Grafiti LLC Divestiture Total Discontinued Operations CXApp Divestiture Grafiti Holding an Grafiti LLC Divestiture Total Discontinued Operations

Revenues $ 1,620 $ 4,840 $ 6,460 $ 8,470 $ 4,839 $ 13,309

Cost of Revenues 483 681 1,164 2,064 1,304 3,368

Gross Profit 1,137 4,159 5,296 6,406 3,535 9,941

Operating Expenses

Research and development 1,514 4,081 5,595 9,323 3,854 13,177

Sales and marketing 988 1,896 2,884 4,996 1,662 6,658

General and administrative 1,644 1,325 2,969 10,540 1,466 12,006

Acquisition related costs — — — 16 — 16

Transaction costs 1,043 — 1,043 — — —

Impairment of goodwill and intangibles

— — — 5,540 5,476 11,016

Amortization of intangibles 805 — 805 3,885 639 4,524

Total Operating Expenses 5,994 7,302 13,296 34,300 13,097 47,397

Loss from Operations ( 4,857 ) ( 3,143 ) ( 8,000 ) ( 27,894 ) ( 9,562 ) ( 37,456 )

Interest income/(expense), net 1 3 4 4 ( 77 ) ( 73 )

Other income/(expense) — 1,315 1,315 ( 1 ) 712 711

Unrealized gain (loss) on equity securities — 5,609 5,609 — ( 7,904 ) ( 7,904 )

Realized loss on investment — ( 6,692 ) ( 6,692 ) — — —

Unrealized loss on equity method investment — — — — ( 1,784 ) ( 1,784 )

Loss on discontinued operations — ( 2,303 ) ( 2,303 ) — — —

Total Other Income (Expense) 1 ( 2,068 ) ( 2,067 ) 3 ( 9,053 ) ( 9,050 )

Loss from discontinued operations, before tax ( 4,856 ) ( 5,211 ) ( 10,067 ) ( 27,891 ) ( 18,615 ) ( 46,506 )

Income tax provision ( 2,478 ) ( 205 ) ( 2,683 ) ( 80 ) ( 36 ) ( 116 )

Loss from discontinued operations, net of tax $ ( 7,334 ) $ ( 5,416 ) $ ( 12,750 ) $ ( 27,971 ) $ ( 18,651 ) $ ( 46,622 )

The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations.

Cash used in operating activities of discontinued operations totaled approximately 0.5 million and $ 24.1 million for the year ended December 31 2023 and 2022, respectively.

Cash used in investing activities from discontinued operations totaled approximately $ 0.05 million and $ 0.3 million for the years ended December 31, 2023 and 2022, respectively.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

The following table summarizes certain assets and liabilities of discontinued operations:

For the Year Ended December 31, 2023 For the Year Ended December 31, 2022

CXApp Divestiture Grafiti LLC Divestiture Total Discontinued Operations CXApp Divestiture Grafiti LLC Divestiture Total Discontinued Operations

Current Assets of Discontinued Operations

Cash and cash equivalents $ — $ 1,121 $ 1,121 $ 10,000 $ 951 $ 10,951

Accounts receivable — 1,036 1,036 1,338 702 2,040

Other receivables — 2 2 273 3 276

Inventory — 1,212 1,212 — 445 445

Prepaid expenses and other current assets — 251 251 650 112 762

Property and equipment, net — 700 700 — — —

Operating Lease Right-of-Use Asset, net — 8 8 — — —

Software development costs, net — 605 605 — — —

Investment in equity securities — 65 65 — — —

Long term investments — 50 50 — — —

Other Assets — 21 21 — — —

Allowance on current assets classified as discontinued operations — ( 2,303 ) ( 2,303 ) — — —

Current Assets of Discontinued Operations $ — $ 2,768 $ 2,768 $ 12,261 $ 2,213 $ 14,474

Long Term Assets of Discontinued Operations

Property and equipment, net $ — $ — $ — $ 202 $ 722 $ 924

Operating Lease Right-of-Use Asset, net — — — 681 4 685

Software development costs, net — — — 487 741 1,228

Investment in equity securities — — — — 330 330

Long term investments — — — — 50 50

Intangible assets, net — — — 19,289 — 19,289

Other Assets — — — 52 15 67

Long Term Assets of Discontinued Operations $ — $ — $ — $ 20,711 $ 1,862 $ 22,573

Current Liabilities of Discontinued Operations

Accounts payable $ — $ 734 $ 734 $ 1,054 $ 783 $ 1,837

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Accrued liabilities — 520 520 1,736 783 2,519

Operating lease obligation, current — 9 9 266 4 270

Deferred revenue — 697 697 2,162 777 2,939

Short term debt — — — $ — 1,078 1,078

Current Liabilities of Discontinued Operations $ — $ 1,960 $ 1,960 $ 5,218 $ 3,425 $ 8,643

Long Term Liabilities of Discontinued Operations

Operating lease obligation, noncurrent $ — $ — $ — $ 444 $ — $ 444

Other Liabilities, noncurrent — — — 28 — 28

Long Term Liabilities of Discontinued Operations $ — $ — $ — $ 472 $ — $ 472

Investment in Equity Securities

Investment securities—fair value consist primarily of investments in equity securities and are carried at fair value in accordance with ASC 321, Investments-Equity Securities (“ASC 321”).

These securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity, as necessary.

These securities transactions are recorded on a trade date basis.

Any unrealized appreciation or depreciation on investment securities is reported in the Consolidated Statement of Operations within Unrealized Loss on Equity Securities.

The unrealized gain/loss on equity securities was a gain of $ 5.6 million, and loss of $ 7.9 million, for the years ended December 31, 2023 and 2022, respectively.

The Company notes that investment securities were a part of the Grafiti Holding Inc.

and Grafiti LLC divestitures, which are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

Investment securities—fair value consist of investments in the Company’s investment in shares and rights of equity securities.

The composition of the Company’s investment securities—fair value was as follows (in thousands):

December 31, 2023 Cost Fair Value

Investments in equity securities -fair value

Equity shares $ 54,237 $ 63

Equity rights 11,064 2

Total investments in equity securities - fair value $ 65,301 $ 65

As of December 31, 2023 and 2022, the fair value of the Sysorex shares and rights to acquire shares acquired as part of the debt settlement that occurred in March 2021 were $ 0.01 million.

On April 27, 2022, the Company purchased a 10 % convertible note in aggregate principal amount of $ 6,050,000 for a purchase price of $ 5,500,000 from FOXO Technologies Operating Company, formerly FOXO Technologies Inc.

(“FOXO Legacy”), pursuant to the terms of a securities purchase agreement between FOXO Legacy and the Company (the “April 2022 Purchase Agreement”).

FOXO common stock is traded in active markets, as the security is trading under “FOXO” on the NYSE American.

FOXO common stock is accounted for as available-for-sale equity securities based on “Level 1” inputs, which consist of quoted prices in active markets, with unrealized holding gains and losses included in earnings.

The fair value was determined by the closing

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

trading price of the security as of December 31, 2023.

As of December 31, 2023 and 2022 the fair value of the FOXO shares was $ 0.05 million and $ 0.3 million, respectively.

For the year ended December 31, 2023 and 2022, the Company recognized a net unrealized gain/loss on investments in equity securities of a gain of $ 5.6 million and loss of $ 7.9 million on the discontinued operations statement of operations.

Other Long Term Investments

The Company invests in certain equity-method investments:

When the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under U.S.

The Company accounted for its equity investment under the equity method of accounting, as the Company is deemed to have significant influence.

The Company generally recognizes its share of the equity method investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely from the Company’s reporting period.

The Company evaluates an equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.

The Company notes that the other long term investments outlined below were a part of the Grafiti Holding Inc.

and Grafiti LLC divestitures, which are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

In 2020, the Company paid $ 1.8 million for 599,999 Class A Units and 1,800,000 Class B Units of Cardinal Ventures Holdings LLC (“CVH”).

The Company is a member of CVH.

The underlying subscription agreement provides that each Class A Unit and each Class B Unit represents the right of the Company to receive any distributions made by the Sponsor on account of the Class A Interests and Class B Interests, respectively, of the Sponsor.

The Company generally records its share of earnings in its equity method investments using a three-month lag methodology and within net investment income.

During the period January 1, 2022 to December 31, 2022 and January 1, 2023 to December 31, 2023, CVH is a holding company that had no operating results.

The following component represents components of Other long-term investments as of December 31, 2023:

Ownership interest as of December 31, Ownership interest as of December 31,

2023 2022 Instrument Held

CVH LLC Class A — % 14.1 % Units

CVH LLC Class B 38.4 % 38.4 % Units

The Company’s investment in equity method eligible entities are represented on the balance sheet as an asset of $ 0.1 million and $ 0.7 million as of December 31, 2023 and December 31, 2022, respectively.

On February 27, 2023, the Company entered into Limited Liability Company Unit Transfer and Joinder Agreements with certain of the Company’s employees and directors (the “Transferees”), pursuant to which (i) the Company transferred all of its Class A Units of CVH (the “Class A Units”), an aggregate of 599,999 Class A Units, to the Transferees as bonus consideration in connection with each Transferee’s services performed for and on behalf of the Company as an employee, as applicable, and (ii) each Transferee became a member of CVH and a party to the Amended and Restated Limited Liability Company Agreement of CVH, dated as of September 30, 2020.

The Company recorded approximately $ 0.7 million of compensation expense for the fair market value of the shares transferred to the Transferees which is included in the operating expenses section of the consolidated statement of operations in the year ended December 31, 2023.

On August 25, 2023, as part of their distribution rights as holders of CVH Class B Units, the Company received 2.5 million warrants in New CXApp.

The Company determined that the New CXApp warrants are a level 1 marketable security because the warrants are publically traded on the Nasdaq.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Cardinal Health Ventures Investment

Nadir Ali, the Company's Chief Executive Officer and director prior to his resignation at the time of the XTI transaction, is also a member in CVH through 3AM, LLC ("3AM"), which may, in certain circumstances, be entitled to manage the affairs of CVH.

Ali’s relationship may create conflicts of interest between Mr.

Ali’s obligations to our company and its shareholders and his economic interests and possible fiduciary obligations in CVH through 3AM.

For example, Mr.

Ali may be in a position to influence or manage the affairs of CVH in a manner that may be viewed as contrary to the best interests of either the Company or CVH and their respective stakeholders.

On July 1, 2022, the Company loaned approximately $ 0.15 million to CVH.

The $ 0.15 million loan was repaid on March 15, 2023.

Fair Value of Financial Instruments

The Company notes that the financial instruments outlined below were a part of the Grafiti Holding Inc.

and Grafiti LLC divestitures, which are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

The Company's estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820.

The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available.

The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable.

In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions.

We classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy.

The Company's assets measured at fair value consisted of the following at December 31, 2023 and December 31, 2022 :

Fair Value at December 31, 2023

Total Fair Value Level 1 - Quoted Prices in Active Markets for Identical Assets Level 2 - Significant Other Observable Inputs Level 3 - Significant Unobservable Inputs

Investments in equity securities 65 54 — 11

Total assets $ 65 $ 54 $ — $ 11

Fair Value at December 31, 2022

Total Fair Value Level 1 - Quoted Prices in Active Markets for Identical Assets Level 2 - Significant Other Observable Inputs Level 3 - Significant Unobservable Inputs

Investments in equity securities 330 319 — 11

Total assets $ 330 $ 319 $ — $ 11

Investments in equity securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity.

The fair value for Level 1 equity investments was determined using quoted prices of the security in active markets.

The fair value for Level 3 equity investments was determined using a pricing model with certain significant unobservable market data inputs.

The Company noted that there was no change in Level 3 instruments for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2023.

The following table is a reconciliation of assets for Level 3

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

investments for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2023 (in thousands):

Level 3 Investments

Balance at January 1, 2023 $ 11

Unrealized loss on equity securities —

Balance at December 31, 2023 $ 11

The following table is a reconciliation of assets for Level 3 investments for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2022 (in thousands):

Level 3 Investments

Balance at January 1, 2022 $ 1,838

Transfers in - FOXO Technologies, Inc.

convertible note 6,050

Transfers in - FOXO Technologies, Inc.

original issue discount on convertible note ( 550 )

Amortization of original issue discount on convertible note 206

Change in fair value on debt securities 791

Transfers out - FOXO Technologies, Inc.

conversion of note to marketable equity securities ( 6,497 )

Unrealized loss on equity securities ( 1,827 )

Balance at December 31, 2022 $ 11

Note 27 - Subsequent Events

Equity Purchase Agreement

On February 21, 2024, Inpixon completed the disposition of the remaining portion of the Shoom, SAVES, and GYG business lines and assets ("Grafiti Group Divestiture") that were excluded from the Grafiti Holding Transaction in accordance with the terms and conditions of an Equity Purchase Agreement, dated February 16, 2024, by and among Inpixon (“Seller”), Grafiti LLC, and Grafiti Group LLC (a newly formed entity controlled by Nadir Ali, the Company's CEO and a director) (“Buyer”).

Pursuant to the terms of the Equity Purchase Agreement, Buyer acquired from 100 % of the equity interest in Grafiti LLC, including the assets and liabilities primarily relating to Inpixon’s Saves, Shoom and Game Your Game business, including 100 % of the equity interests of Inpixon India, Grafiti GmbH (previously Inpixon Gmbh) and Game Your Game, Inc.

from the Company for a minimum purchase price of $ 1.0 million paid in two annual cash installments of $ 0.5 million due within 60 days after December 31, 2024 and 2025.

The purchase price and annual cash installment payments will be (i) increased for 50 % of net income after taxes, if any, from the operations of Grafiti LLC for the years ended December 31, 2024 and 2025;

(ii) decreased for the amount of transaction expenses assumed;

(iii) increased or decreased by the amount working capital of Grafiti LLC on the closing balance sheet is greater or less than $ 1.0 million.

Transition Services Agreement

On February 21, 2024, in connection with the closing of the Grafiti Group Divestiture, Grafiti LLC and the Company entered into a Transition Services Agreement with respect to services to be provided for a period of one year following closing.

Pursuant to the agreement, the Company will provide contracted IT and accounting services to Grafiti LLC and Grafiti LLC will provide certain accounting and payroll services, in each case on an hourly as needed basis to ensure the orderly transition of the business.

Sublease Arrangement

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

The Company and Grafiti LLC arranged for the Company to sublease office space in Palo Alto, CA from Grafiti LLC at a cost of 50 % of monthly rent and operating expenses as of February 1, 2024.

The cost is estimated at approximately $ 5,800 per month.

XTI Promissory Note & Security Agreement

As discussed in Note 5, Inpixon is providing loans to XTI on a senior secured basis.

On February 2, 2024, Inpixon and XTI executed a further amendment to the XTI Note, dated effective as of January 30, 2024, to increase the Maximum Principal Amount to approximately $ 4.0 million and to revise the date January 30,2024 in the definition of Maturity Date to March 31, 2024.

The Company intends to amend the XTI Promissory Note to extend the term thereof.

Pursuant to the XTI Merger Agreement, on March 12, 2024 (the “Closing Date”), Merger Sub merged with and into Legacy XTI (the “XTI Merger”), with Legacy XTI surviving the XTI Merger as our wholly-owned subsidiary.

Shortly prior to the Effective Time, we effected a 1-for-100 reverse split of our outstanding shares of common stock.

At the Effective Time, pursuant to the XTI Merger Agreement, the shares of Legacy XTI common stock outstanding immediately prior to the Effective Time became the right to receive 7,843,668 shares of XTI Aerospace common stock, and the options and warrants to purchase shares of Legacy XTI common stock outstanding immediately prior to the Effective Time were assumed by the Company and became exercisable for approximately 1,068,959 and 382,610 shares of XTI Aerospace common stock, respectively, based on an exchange ratio of 0.0892598 shares of XTI Aerospace common stock for each share of Legacy XTI common stock in accordance with the XTI Merger Agreement.

Prior to the Effective Time, Legacy XTI received the consents of certain of its convertible note holders to convert the outstanding balance under their convertible notes, equal to an aggregate outstanding amount of $ 7,535,701 , into shares of Legacy XTI common stock immediately prior to the Effective Time, enabling them to participate in the XTI Merger on the same basis as the other shares of Legacy XTI common stock.

Legacy XTI convertible notes in the aggregate remaining principal and interest amount of $ 51,658 , were assumed by the Company at the Effective Time and became convertible into approximately 4,611 shares of XTI Aerospace common stock.

Immediately following the Effective Time, XTI Aerospace had 9,786,801 shares of common stock issued and outstanding, subject to adjustment in connection with rounding associated with the Reverse Stock Split.

On March 12, 2024, the Company, Merger Sub and Legacy XTI entered into a Second Amendment to Merger Agreement (the “Merger Agreement Amendment”).

The Merger Agreement Amendment provided, among other things, (i) adjustments for the issuance of shares of the Company’s newly designated non-convertible Series 9 preferred stock (“Series 9 Preferred Stock”) to Streeterville Capital, LLC in the exchange ratio calculation and (ii) the extension of the deadline to file a resale registration statement covering the shares issued in the XTI Merger that were not registered on the Company’s registration statement on Form S-4 filed in connection with the Merger to ten business days after the filing of this Annual Report on Form 10-K.

Following the issuance of shares under the Merger Agreement, Company security holders immediately prior to the Effective Time retained beneficial ownership of approximately 25 % of the outstanding common stock of the Company on a fully-diluted basis and Legacy XTI security holders immediately prior to the Effective Time acquired beneficial ownership of shares of common stock amounting to approximately 75 % of the outstanding common stock of the Company on a fully-diluted basis.

Financial Advisory Fees in connection with the XTI Merger

Pursuant to the terms of an amended advisory fees agreement among Legacy XTI, the Company and Maxim and in accordance with the XTI Merger Agreement, the Company issued 385,359 registered shares of XTI Aerospace common stock in exchange for shares of Legacy XTI common stock issued to Maxim based on the exchange ratio under the XTI Merger Agreement.

Additionally, Maxim will receive $ 200,000 payable upon the closing of one or more debt or equity financings for which Maxim

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

serves as placement agent or underwriter and in which the Company raises minimum aggregate gross proceeds of $ 10 million following the Effective Time.

Pursuant to its engagement letter with Legacy XTI, dated as of June 7, 2022, as amended (the “Chardan Engagement Letter”) and the XTI Merger Agreement, Chardan Capital Markets (“Chardan”) received a cash payment of $ 200,000 and 189,037 registered shares of XTI Aerospace common stock (the “Chardan Closing Shares”) in exchange for shares of Legacy XTI common stock issued to Chardan based on the exchange ratio under the XTI Merger Agreement.

If within 120 days following the Effective Time, the Company consummates a public offering of securities in which the price per share of XTI Aerospace common stock (“Chardan Qualified Offering price”) is less than the per share price of Inpixon common stock utilized to calculate the number of Chardan Closing Shares, the Company will be required, subject to applicable securities laws, to issue additional shares of XTI Aerospace common stock to Chardan in an amount equal to (i) $ 1,000,000 minus the product of the number of Chardan Closing Shares and Chardan Qualified Offering Price, divided by (ii) the Chardan Qualified Offeing Price.

Consulting Agreements

On March 12, 2024, the Company entered into a Consulting Agreement with Mr.

Nadir Ali (the “Ali Consulting Agreement”), the Company's former Chief Executive Officer.

Pursuant to the Ali Consulting Agreement, following the Closing of the XTI Merger, Mr.

Ali will provide consulting services to the Company for 15 months or until earlier termination in accordance with its terms.

During the Ali Consulting Period, the Company will pay him a monthly fee of $ 20,000 .

In addition, the Company shall pay Mr.

Ali (a) the amount of $ 1,500,000 due three months following the Closing, and (b) the aggregate amount of $ 4,500,000 , payable in 12 equal monthly installments of $ 375,000 each, starting four months after the Effective Date (the payments described in (a) and (b), each an “Equity Payment”).

Each Equity Payment may be made, in Company’s discretion, in (i) cash, (ii) fully vested shares of common stock under the Company’s equity incentive plan , or a combination of cash and Registered Shares.

Ali must continue to provide consulting services to the Company on the date of payment of an Equity Payment to receive the Equity Payment, unless the Company terminates the Ali Consulting Agreement without Company Good Reason or Mr.

Ali terminates the Ali Consulting Agreement for Consulting Good Reason, in which case the Equity Payments would become due and payable in full.

To the extent all or a portion of an Equity Payment is made in shares, such shares will be valued based on the closing price per share on the date on which the Equity Payment is made.

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

Wendy Loundermon (the “Loundermon Consulting Agreement”), the Company's former Chief Financial Officer.

Pursuant to the Loundermon Consulting Agreement, following the Closing, Ms.

Loundermon will provide consulting services to the Company for one year or until earlier termination in accordance with its terms (the “Loundermon Consulting Period”).

As compensation for Ms.

Loundermon ’s c onsulting services , the Company will pay her (i) $ 83,333 per month for the first six months of the Loundermon Consulting Period for services she perform s on an as-needed basis during the Loundermon Consulting Period regarding the transition of the management of the Company’s financial reporting function to ensure continuity of business operations , and (ii) $ 300 per hour for services performed on an as needed basis regarding the preparation and filing of Company’s public company financial reporting and compliance matters including accounting, payroll, audit and tax compliance functions.

Series 9 Preferred Stock

On March 12, 2024, the Company filed the Certificate of Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Designation”), with the Secretary of State of Nevada, designating 20,000 shares of preferred stock, par value $ 0.001 of the Company, as Series 9 Preferred Stock.

Each share of Series 9 Preferred Stock has a stated face value of $ 1,050.00 (“Stated Value”).

The Series 9 Preferred Stock is not convertible into shares of common stock of the Company.

Exchange Agreement

On March 12, 2024, the Company and Streeterville Capital, LLC (the “Note Holder”), the holder of an outstanding promissory note issued on December 30, 2023 (as amended, the “December 2023 Note”), entered into an Exchange Agreement, pursuant to which the Note Holder exchanged the remaining balance of principal and accrued interest under the December 2023 Note in the aggregate amount of $ 9,801,521 for 9,801.521 shares of Series 9 Preferred Stock, based on an exchange price of $ 1,000 per share of Series 9 Preferred Stock.

Following such exchange and the surrender of the December 2023 Note to the Company, the December 2023 Note is deemed paid in full, automatically canceled, and will not be reissued.

Securities Purchase Agreement

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

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 used its incremental borrowing rate based on the information available at the date of adoption

of Topic 842.

As of December 31, 2024, the weighted average remaining lease term is 2.8 years and the weighted average discount rate

used to determine the operating lease liabilities was 8.6 %.

- Subsequent Events

January 2025 Registered Direct Offering

On January 7, 2025, we entered into a placement agency agreement with

ThinkEquity LLC (“ThinkEquity”), as placement agent, pursuant to which we agreed to issue and sell directly to various investors,

in a best efforts public offering (the “January Offering”), an aggregate of 1,454,546 shares of common stock at an offering

price of $ 13.75 per share.

The January Offering closed on January 10, 2025, following the effectiveness of the 1-for-250 reverse stock

split of our outstanding common stock on the same date, which was a condition to the closing of the January Offering.

We received net

proceeds of approximately $ 18.3 million from the January Offering.

As part of its compensation for acting as placement agent for the January

Offering, we issued ThinkEquity and its designees Placement Agent Warrants to purchase 72,727 shares of common stock, which were immediately

exercisable upon issuance, have an exercise price of $ 17.1875 per share and expire on the five-year anniversary of the commencement of

sales of the securities issued in the January Offering.

In connection with the

January Offering, on January 9, 2025, we obtained an amended and restated limited waiver (the “Maxim Waiver”) from Maxim Group

LLC (“Maxim”) of their right of first refusal granted to them by us (the “Maxim ROFR”) pursuant to the terms of

that certain advisory engagement agreement, between us and Maxim, dated May 16, 2023, as amended.

Pursuant to the Maxim Waiver, Maxim

agreed, on a one-time basis, not to exercise the Maxim ROFR in connection with the January Offering and was paid a $ 525,000 cash fee upon

the closing of such offering.

with Nasdaq Continued Listing Requirements

February 11, 2025, the Company received a letter from Nasdaq confirming that the Company has regained compliance with the minimum bid

price requirement set forth under Nasdaq Listing Rule 5550(a)(2), and accordingly, the Nasdaq Hearings Panel has determined to continue

the listing of the Company’s common stock on The Nasdaq Stock Market.

to December 31, 2024 and through the date of this report, the Company issued an aggregate 169,299 shares of common stock in

connection with the ATM Offering at per share prices between approximately $ 4.10 and $ 10.38 , resulting in aggregate net

proceeds to the Company of approximately $ 1.7 million.

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

On March 12, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an entity controlled by the Company’s director and Chief Executive Officer, Mr.

Nadir Ali (the “Purchaser”).

Pursuant to the Securities Purchase Agreement, the Purchaser purchased 1,500 shares of Series 9 Preferred Stock for a total purchase price of $ 1,500,000 , based on a purchase price of $ 1,000 per share of Series 9 Preferred Stock.

Warrant Exercise Price Reduction

On March 21, 2024, the Company’s Board of Directors authorized a reduction in the exercise price of the New Warrants issued as part of the warrant inducement (see Note 17) that occurred on December 15, 2023 from $ 7.324 to $ 5.13 per share in accordance with the existing terms of such New Warrants.

Share Repurchase Program

On March 18, 2025, the Company issued a press release announcing that the Company’s board of directors authorized a share repurchase

program to acquire up to $ 5 million of the Company’s common stock.

The Company may purchase common stock by way of open market transactions,

through privately negotiated transactions, or by other means including through the use of trading plans intended to qualify under Rule

10b-18 under the Exchange Act, in accordance with applicable securities laws and other restrictions.

The timing, total value of stock

repurchases, and aggregate number of shares repurchased will depend upon business, economic and market conditions, corporate and regulatory

requirements, prevailing stock prices, and other considerations.

The share repurchase program has an initial term of 12 months, which

may be extended to 18 months.

The share repurchase program may be suspended or discontinued at any time and does not obligate the Company

to acquire any amount of common stock.

Streeterville Debt Exchanges and Repayment

Subsequent to December 31, 2024, the Company issued an aggregate of

240,229 shares of common stock (the “Exchange Shares”) to Streeterville Capital, LLC (the “Note Holder”), the

holder of that certain outstanding secured promissory note of the Company issued on May 1, 2024 (the “Original Note”), at

a price between $ 2.48 and $ 4.21 per share, in each case equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d) in accordance

with the terms and conditions of the Exchange Agreements, pursuant to which the Company and the Note Holder agreed to (i) partition new

secured promissory notes in the form of the Original Note in the aggregate original principal amount of $ 750,000 and then cause the outstanding

balance of the Original Note to be reduced by an aggregate of $ 750,000 ;

and (ii) exchange the partitioned notes for the delivery of the

Exchange Shares.

On March 31, 2025 and using the net proceeds from

the March 2025 Offering (see “ March 2025 Underwritten Offering ” below in this note), the Company repaid

the remaining obligation of approximately $ 2.7 million (which included principal, accrued interest and monitoring fees, and a 15 % prepayment

penalty) in respect of the two secured promissory notes issued by the Company to Streeterville Capital, LLC on May 1, 2024 and May 24,

Settlement Agreement

On March 27, 2025 (the “Effective Date”),

XTI Aerospace, Inc.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

(the “Company”) entered into a settlement agreement with 3AM Investments LLC (an entity controlled

by Nadir Ali (“Ali”), the Company’s former Chief Executive Officer and a former director of the Company) (“3AM”),

Grafiti Group LLC (“Grafiti Group”) and Ali (the “Settlement Agreement”).

The terms of the Settlement Agreement

Preferred Stock Redemption .

Company and 3AM entered into that certain securities purchase agreement dated as of March 12, 2024 (the “Series 9 Purchase Agreement”),

pursuant to which 3AM acquired 1,500 shares of the Company’s Series 9 Preferred Stock, of which 1,164.12 shares of Series 9 Preferred

Stock were issued and outstanding as of March 27, 2025 (the “Outstanding Preferred Stock”).

Pursuant to the Settlement Agreement,

on the Effective Date, the Company delivered the aggregate amount of $ 1,251,651.26 (the “Series 9 Redemption Amount”)

by wire transfer of immediately available funds to an account designated in writing by Ali, for the redemption of the Outstanding Preferred

Following Ali’s receipt of the Series 9 Redemption Amount, Ali no longer held any shares of Series 9 Preferred Stock.

of the date of this report, there are no shares of Series 9 Preferred Stock issued and outstanding.

Termination of Ali Consulting Agreement .

The Settlement Agreement provides that effective as of the Effective Date, that certain Consulting Agreement, dated March 12, 2024

by and between the Company and Ali (the “Ali Consulting Agreement”) is terminated, and in lieu of the $ 2,775,000

(the “Ali Advisory Fees”) that would be owed to Ali pursuant to the terms of the Ali Consulting Agreement as a result of the

termination of such Ali Consulting Agreement prior to the 15 month anniversary of the effective date thereof, the Company agreed

(i) that the aggregate amount of $ 1,000,000 (the “Grafiti Purchase Amount”) required to be delivered by Grafiti Group pursuant

to that certain Equity Purchase Agreement, dated February 16, 2024, by and among the Company, Grafiti LLC, and Grafiti Group, as amended

(the “Equity Purchase Agreement”), shall be deemed to be satisfied in full and no further amounts shall be payable to the

Company by Grafiti Group or any of its affiliated parties pursuant to the Equity Purchase Agreement;

(ii) to deliver a cash amount of

$ 60,000 (the “Outstanding Amount”) to Ali by wire transfer of immediately available funds;

and (iii) to deliver $ 1,500,000

(the “Deferred Amount”) by wire transfer of immediately available funds in three equal installments of $ 500,000 (“Installment

Amounts”) each on June 30, 2025, September 30, 2025 and December 30, 2025 (the “Deferred Amount Installment Dates”).

Any Installment Amount that is not paid by the applicable due dates will be subject to interest at a rate of 18 % per annum.

of the Outstanding Amount and the Deferred Amount in accordance with the terms of the Settlement Agreement, the Ali Advisory Fees shall

be deemed to be satisfied in full and no further amounts shall be payable by the Company to Ali or his affiliated parties pursuant

to the Ali Consulting Agreement.

On March 31, 2025, the Company paid the Outstanding Amount in full.

As of the date of this report, the

Deferred Amount remains outstanding.

Former Management Payments .

to the Settlement Agreement, the Company agreed to pay the Former Management Payments (as defined below) on the earlier of (a) the closing

date of the Company’s next financing transaction and (b) 30 days following the Effective Date of the Settlement Agreement, subject

to certain penalties for late payment.

The “Former Management Payments” comprise (i) an aggregate amount of $ 803,260.65 (the

“Bonus Plan Payment”) that, as of the Effective Date, remains payable to the recipients of bonuses payable pursuant to that

certain Strategic Transaction Bonus Plan, adopted on July 24, 2023 and as amended (the “Bonus Plan”) together with (ii) an

aggregate amount of $ 303,372.87 (the “Loundermon Advisory Fee”) that, as of the Effective Date, is payable to Wendy Loundermon,

the Company’s former Chief Financial Officer and a former director of the Company (“Loundermon”), pursuant

to that certain Consulting Agreement, dated March 12, 2024, by and between the Company and Loundermon (the “Loundermon Consulting

AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

On March 31, 2025, the Company paid all amounts

due under the Former Management Payments in full.

Ali Release .

As of the Effective

Date, Ali, on behalf of himself and his former and current affiliated entities, including 3AM, Grafiti LLC and Grafiti Group (collectively,

the “Ali Parties”) agreed to release the Company and each of its former and current subsidiaries, divisions, affiliates, predecessors,

successors, assigns, and its and their respective employees, officers, directors, shareholders, members, partners, trustees, joint venturers,

attorneys, agents, and representatives (collectively, the “XTI Parties”), from and with respect to any and all claims, demands,

causes of action, damages, obligations, liabilities, costs, and expenses of any kind or nature whatsoever (collectively, “Ali Claims”),

arising out of any obligations of the Company with respect to the Ali Consulting Agreement, the Series 9 Purchase Agreement and the portion

of the Bonus Plan relating to Ali, whether known or unknown, foreseen or unforeseen, that the Ali Parties, or any of them, ever had, now

have, or may have against the XTI Parties, or any of them, from the beginning of time through and including the Completion Date (as defined

As used in the Settlement Agreement, the term “Completion Date” means the date on which the Company has delivered

(i) the Series 9 Redemption Amount to Ali by wire transfer of immediately available funds;

(ii) the Deferred Amount to Ali by wire transfer

of immediately available funds;

(iii) the Outstanding Amount to Ali by wire transfer of immediately available funds;

(iv) the Former Management

Payments to Loundermon and the recipients of the Bonus Plan Payments by wire transfer of immediately available funds.

XTI Release .

As of the Effective

Date, the XTI Parties agreed to release the Ali Parties from and with respect to any and all claims, demands, causes of action, damages,

obligations, liabilities, costs, and expenses of any kind or nature whatsoever (collectively, “XTI Claims”), arising out of

any obligations of the Ali Parties with respect to any obligation of the Ali Parties in connection with the payment of the purchase price

as set forth in the Equity Purchase Agreement, the Ali Consulting Agreement, the Series 9 Purchase Agreement and the portion of the Bonus

Plan relating to Ali, whether known or unknown, foreseen or unforeseen, that the XTI Parties, or any of them, ever had, now have, or may

have against the Ali Parties, or any of them, from the beginning of time through and including the Completion Date.

Entire Agreement .

The Settlement

Agreement provides that it supersedes any prior consents or agreements regarding the allocation of financing proceeds for the payment

of any obligations of the Company described in the Settlement Agreement.

March 2025 Underwritten Offering

On March 28, 2025, we entered into an underwriting agreement with ThinkEquity,

as the representative of the underwriters named therein, relating to a firm commitment underwritten public offering (the “March

Offering”) of 765,200 shares of common stock, pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 2,176,000

shares of common stock, and common warrants (the “Common Warrants”) to purchase up to 2,941,200 shares of common stock.

combined public offering price for each share of common stock, together with one Common Warrant, was $ 1.36 .

The combined public offering

price for each Pre-funded Warrant, together with one Common Warrant, was $ 1.359 .

Each share of common stock, or a Pre-funded Warrant in

lieu thereof, was sold together with one Common Warrant.

We received net proceeds of approximately $ 3.3 million from the March Offering

after deducting the underwriting discounts and commissions and other expenses payable by us.

The Pre-funded Warrants were immediately exercisable upon issuance,

have an exercise price of $ 0.001 per share and may be exercised at any time until all of the Pre-funded Warrants are exercised in full.

The Common Warrants were immediately exercisable upon issuance, have an exercise price of $ 1.36 per share, and expire on the fifth anniversary

of the date of issuance.

As a result of our failure to timely file a Current Report on Form 8-K, upon the filing of this Annual Report

on Form 10-K, we became ineligible to file new short form registration statements on Form S-3 or to use the Current Shelf Registration

Therefore, we agreed to file a subsequent registration statement covering the issuance of the shares issuable upon exercise

of the Pre-funded Warrants and the Common Warrants within the timeframes set forth in such warrants.

As of April 11, 2025, 1,126,000 Pre-funded

Warrants remained outstanding and unexercised.

As part of its compensation for serving as representative

in connection with the March Offering, we issued ThinkEquity and its designees Representative Warrants to purchase up to 147,060 shares

of common stock.

The Representative Warrants were immediately exercisable upon issuance, have an exercise price of $ 1.70 per share and

expire on the five-year anniversary of the commencement of sales of the securities issued in the March Offering.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data