XTI Aerospace, Inc. 10-K

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA XTI AEROSPACE, INC. AND SUBSIDIARIES (FORMERLY KNOW AS INPIXON AND SUBSIDIARIES) INDEX TO FINANCIAL STATEMENTS Page No. ANNUAL FINANCIAL INFORMATION Report of Independent Registered Public Accounting Firm (PCAOB NO. 688 ) F-2 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 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of XTI Aerospace, Inc. Opinion 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. 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 to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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 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. F- 2 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to goodwill impairments include the following, among others: ● We 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 projections. ● 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. The Company 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. This involved significant audit effort and the use of professionals with specialized skills and knowledge. How the Critical Audit Matter Was Addressed in the Audit 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. ● We reviewed the disclosures in the financial statements related to the business combination to ensure adequacy and compliance with accounting standards. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2024. New York, NY April 15, 2025 F- 3 XTI AEROSPACE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except number of shares and par value data) As of December 31, 2024 As of December 31, 2023 Assets Current Assets Cash and cash equivalents $ 4,105 $ 5 Accounts receivable, net of allowance for credit losses of $ 18 and $ 0 as of December 31, 2024 and December 31, 2023, respectively 706 — Other receivables 538 101 Inventories 2,214 — Prepaid expenses and other current assets 1,018 125 Total Current Assets 8,581 231 Property and equipment, net 206 12 Operating lease right-of-use asset, net 340 — Intangible assets, net 1,884 266 Goodwill 12,072 — Other assets 1,208 — Total Assets $ 24,291 $ 509 F- 4 XTI AEROSPACE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands, except number of shares and par value data) As of December 31, 2024 As of December 31, 2023 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable 5,487 2,495 Related party payables 51 540 Accrued expenses and other current liabilities 6,703 1,127 Accrued interest 522 560 Customer deposits 1,350 1,350 Warrant liability — 497 Operating lease obligation, current 119 — Deferred revenue 532 — Short-term debt 2,657 6,690 Total Current Liabilities 17,421 13,259 Long Term Liabilities Long-term debt 65 18,546 Operating lease obligation, noncurrent 231 — Other liabilities, noncurrent — 333 Total Liabilities 17,717 32,138 Commitments and Contingencies (Note 19) Stockholders’ Equity Preferred Stock - $ 0.001 par value; 5,000,000 shares authorized Series 4 Convertible Preferred Stock - 10,415 shares authorized; 1 issued, and 1 outstanding as of December 31, 2024 and December 31, 2023, respectively. — — Series 5 Convertible Preferred Stock - 12,000 shares authorized; 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 ) 1,331 — Common Stock - $ 0.001 par value; 500,000,000 shares authorized; 1,685,021 and 12,791 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively. 2 — Additional paid-in capital 99,425 26,330 Accumulated other comprehensive loss ( 622 ) — Accumulated deficit ( 93,562 ) ( 57,959 ) Total Stockholders’ Equity (Deficit) 6,574 ( 31,629 ) Total Liabilities and Stockholders’ Equity $ 24,291 $ 509 The accompanying notes are an integral part of these consolidated financial statements F- 5 XTI AEROSPACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) For the Years Ended December 31, 2024 2023 Revenues $ 3,202 $ — Cost of Revenues 1,314 — Gross Profit 1,888 — Operating Expenses Research and development 3,996 1,381 Sales and marketing 3,231 721 General and administrative 22,022 3,615 Merger-related transaction costs 6,490 1,845 Impairment of intangible assets 2,507 — Amortization of intangible assets 622 27 Total Operating Expenses 38,868 7,589 Loss from Operations ( 36,980 ) ( 7,589 ) Other Income (Expense) Interest expense ( 1,146 ) ( 1,142 ) Interest income 364 — Amortization of deferred loan costs ( 17 ) ( 88 ) Loss on conversion of note receivable to equity investment ( 2,630 ) — Loss on extinguishment of convertible notes payable ( 6,732 ) ( 6,635 ) Change in fair value of convertible notes payable 12,882 ( 9,144 ) Change in fair value of Damon investment and related warrants ( 1,068 ) — Change in fair value of warrant liability ( 281 ) ( 164 ) Change in fair value of JV obligation — ( 196 ) Other income/(expense), net 21 ( 108 ) Total Other Income (Expense) 1,393 ( 17,477 ) Net Loss, before tax ( 35,587 ) ( 25,066 ) Income tax provision ( 16 ) — Net Loss ( 35,603 ) ( 25,066 ) Less: Preferred stock return and dividend ( 606 ) — Less: Deemed dividend ( 772 ) — Net Loss Attributable to Common Stockholders, basic and diluted $ ( 36,981 ) ( 25,066 ) Net Loss Per Share - Basic and Diluted $ ( 162.78 ) $ ( 1,576.48 ) Weighted Average Shares Outstanding, Basic and Diluted 227,193 15,900 The accompanying notes are an integral part of these consolidated financial statements F- 6 XTI AEROSPACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) For the Years Ended December 31, 2024 2023 Net Loss $ ( 35,603 ) $ ( 25,066 ) Unrealized foreign exchange loss from cumulative translation adjustments ( 622 ) — Comprehensive Loss $ ( 36,225 ) $ ( 25,066 ) The accompanying notes are an integral part of these consolidated financial statements F- 7 XTI AEROSPACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED December 31, 2024 and 2023 (In thousands, except share data) Series 9 Preferred Stock at Accumulated Total Redemption Value Common Stock Additional Paid-In Other Comprehensive Accumulated Stockholders’ Equity Shares Amount Shares Amount Capital Loss Deficit (Deficit) Balance - January 1, 2024 — $ — 12,791 $ — $ 26,330 $ — $ ( 57,959 ) $ ( 31,629 ) Common and preferred shares issued via merger 11,302 11,302 8,303 — 14,303 — — 25,605 Common shares issued for net cash proceeds of ATM offering — — 998,447 1 22,341 — — 22,342 Common shares issued as settlement of accrued compensation — — 193,716 — 4,398 — — 4,398 Common shares issued as prepayment of services — — 1,718 — 335 — — 335 Common shares issued to Xeriant, Inc. — — 1,194 — — — — — Common shares issued in exchange of Series 9 preferred stock ( 9,790 ) ( 9,790 ) 441,391 1 10,279 — — 490 Accrued interest converted to Series 9 preferred stock 576 576 — — 26 — — 602 Deemed dividend related to Series 9 preferred stock exchange — — — — ( 490 ) — — ( 490 ) Redemption of Series 9 preferred stock ( 757 ) ( 757 ) — — ( 38 ) — — ( 795 ) Series 9 preferred stock dividend accrual — — — — ( 606 ) — — ( 606 ) Common shares issued for conversion of debt — — 11,551 — 9,612 — — 9,612 Inducement loss on debt conversions — — — — 6,732 — — 6,732 Common shares issued in exchange of warrants — — 5,970 — 1,982 — — 1,982 Deemed dividend related to December 2023 warrant exchange — — — — ( 283 ) — — ( 283 ) Common shares issued for exercise of warrants — — 82 — 2 — — 2 Common shares issued for cashless exercise of warrants and options — — 1,928 — 1 — — 1 Capital contribution - forgiveness of related party payable — — — — 380 — — 380 Stock-based compensation — — 7,930 — 4,121 — — 4,121 Cumulative translation adjustment — — — — — ( 622 ) — ( 622 ) Net loss — — — — — — ( 35,603 ) ( 35,603 ) Balance - December 31, 2024 1,331 $ 1,331 1,685,021 $ 2 $ 99,425 $ ( 622 ) $ ( 93,562 ) $ 6,574 The accompanying notes are an integral part of these consolidated financial statements F- 8 XTI AEROSPACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED December 31, 2024 and 2023 (In thousands, except share data) Series 9 Preferred Stock at Accumulated Redemption Value Common Stock Additional Paid-In Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Income (Loss) Deficit Deficit Balance - January 1, 2023 — $ — 12,727 $ — $ 17,910 $ — $ ( 32,893 ) $ ( 14,983 ) Proceeds from sale of common stock — — 64 — 224 — — 224 Stock-based compensation — — — — 1,645 — — 1,645 Issuance of warrants with convertible notes — — — — 968 — — 968 JV obligation reclassified to equity — — — — 5,583 — — 5,583 Net loss — — — — — — ( 25,066 ) ( 25,066 ) Balance - December 31, 2023 — $ — 12,791 $ — $ 26,330 $ — $ ( 57,959 ) $ ( 31,629 ) F- 9 XTI AEROSPACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended December 31, 2024 2023 Cash Flows Used in Operating Activities Net loss $ ( 35,603 ) $ ( 25,066 ) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 113 11 Amortization of intangible assets 622 27 Amortization of right-of-use asset 237 — Non-cash interest expense, net of interest income 417 613 Stock-based compensation 4,121 1,645 Impairment of intangible assets 2,507 — Loss on conversion of note receivable to equity investment 2,630 — Unrealized loss on equity investment 628 — Change in fair value of JV obligation — 196 Change in fair value of convertible notes payable ( 12,882 ) 9,144 Loss on extinguishment of convertible notes payable 6,732 6,635 Change in fair value of warrant liability 281 164 Other 359 108 Changes in operating assets and liabilities: Accounts receivable and other receivables ( 18 ) 26 Inventories 611 — Prepaid expenses and other current assets 922 ( 84 ) Other assets 40 — Accounts payable 346 1,266 Related party payables — 190 Accrued expenses and other current liabilities 6,039 345 Accrued interest 259 599 Deferred revenue ( 435 ) — Operating lease obligation ( 233 ) — Net Cash Used in Operating Activities $ ( 22,307 ) $ ( 4,181 ) Cash Flows Provided by (Used in) Investing Activities Purchase of property and equipment $ ( 68 ) $ ( 3 ) Cash received in purchase of Inpixon 2,968 — Purchase of intangible asset ( 47 ) ( 14 ) Net Cash Provided by (Used in) Investing Activities $ 2,853 $ ( 17 ) Cash From Financing Activities Proceeds from sale of common stock and exercise of warrants 2 224 Net proceeds from ATM stock offerings 22,213 — Net proceeds from issuance of promissory notes 2,000 125 Net proceeds from loan from Inpixon (prior to merger) 1,012 3,003 Net proceeds from issuance of convertible notes — 750 Redemptions of Series 9 preferred stock ( 795 ) — Repayments of debt ( 868 ) ( 14 ) Net Cash Provided by Financing Activities $ 23,564 $ 4,088 Effect of Foreign Exchange Rate on Changes on Cash ( 10 ) — Net Increase (Decrease) in Cash and Cash Equivalents 4,100 ( 110 ) Cash and Cash Equivalents - Beginning of year 5 115 Cash and Cash Equivalents - End of year $ 4,105 $ 5 Supplemental Disclosure of cash flow information: Cash paid for: Interest $ 61 $ 17 Income Taxes $ 16 $ — Non-cash investing and financing activities Common shares issued for conversion of debt and accrued interest $ 9,612 $ — Common shares issued in exchange of warrants and cashless exercise of warrants and options $ 1,983 $ — Deemed dividend related to December 2023 warrant exchange $ 283 $ — Common shares issued as settlement of accrued compensation $ 4,398 $ — Common shares issued as prepayment for services $ 335 $ — Issuance of common stock for merger consideration, net of cash received $ 22,637 $ — Right of use asset obtained in exchange for lease liability $ 394 $ — Capital contribution - forgiveness of related party payable $ 380 $ — Common shares issued in exchange of Series 9 preferred stock $ 490 $ — Series 9 preferred stock dividend accrued $ 606 $ — Deemed dividend related to Series 9 preferred stock exchange $ 490 $ — Conversion of accrued interest to Series 9 preferred stock $ 602 $ — Conversion of convertible note receivable to equity investment $ 968 $ — ATM proceeds withheld as payment towards accounts payable $ 129 $ — Warrants issued with convertible notes $ — $ 967 Warrants issued with common stock $ — $ 121 Reclassification of JV obligation to equity $ — $ 5,583 Conversion of accrued interest to convertible note payable $ — $ 807 The accompanying notes are an integral part of these consolidated financial statements F- 10 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 1 - Organization and Nature of Business On March 12, 2024 (the “Closing Date”), XTI Aerospace, Inc., the “Company”, formerly known as Inpixon (“Legacy Inpixon”), Superfly Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Legacy Inpixon (“Merger Sub”), and XTI Aircraft Company, a Delaware corporation (“Legacy XTI”), completed their previously announced merger transaction pursuant to that certain Agreement and Plan of Merger, dated as of July 24, 2023 and amended on December 30, 2023 and March 12, 2024 (the “XTI Merger Agreement”), pursuant to which Legacy XTI merged in a reverse triangular merger with Merger Sub with Legacy XTI surviving the merger as a wholly-owned subsidiary of the Company (the “XTI Merger”). In connection with the closing of the XTI Merger, our corporate name changed from Inpixon to “XTI Aerospace, Inc.” and the combined company opened for trading on the Nasdaq Capital Market on March 13, 2024 under the new ticker symbol “XTIA.” The Company determined the XTI Merger should be accounted for as a reverse acquisition with Legacy XTI being considered the accounting acquirer. Therefore, the 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. The Company also provides real-time location systems (“RTLS”) for the industrial sector, which was Legacy Inpixon’s focus prior to the closing of the XTI Merger. Headquartered in Englewood, Colorado, the Company is developing a vertical takeoff and landing (“VTOL”) airplane that is designed to take off and land like a helicopter and cruise like a fixed-wing business airplane. Since 2013, the Company has been engaged primarily in developing the aerodynamic performance and top-level engineering design of the TriFan 600, building and testing a two-thirds scale unmanned version of the TriFan 600, generating pre-orders for the TriFan 600, and seeking funds from investors to enable the Company to advance the detailed design and certification of the TriFan 600, and to eventually engage in commercial production and sale of TriFan 600. Our 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. Note 2 – Consolidation The consolidated financial statements have been prepared using the accounting records of Legacy XTI and as of March 12, 2024 and forward (the effective date of the XTI Merger) the accounting records of XTI Aerospace, Inc. (formerly known as Inpixon), Inpixon GmbH (formerly known as Nanotron Technologies GmbH), Inpixon Holding UK Limited, and Intranav GmbH. All material inter-company balances and transactions have been eliminated. F- 11 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 3 - Summary of Significant Accounting Policies Liquidity As 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. There can be no assurances that the Company will ever earn revenues sufficient to support its operations, or that it will ever be profitable. In order to continue its operations, the Company has supplemented the revenues it earned with proceeds from the sale of its equity securities and proceeds from loans. The Company’s recurring losses and utilization of cash in its operations are indicators of going concern. 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 are issued. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of: ● the valuation of stock-based compensation; ● the valuation of the Company’s common stock issued and assets acquired in transactions, including acquisitions; ● the valuation of equity securities; ● the valuation of convertible notes receivable; ● the valuation of warrant liabilities and assets; ● the valuation of convertible notes payable, at fair value; ● the valuation of loan conversion derivatives; and ● the valuation allowance for deferred tax assets. F- 12 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Cash and Cash Equivalents Cash consists primarily of demand deposit bank accounts, which, from time to time, may exceed federally insured limits. The Company considers all highly liquid investments with an original maturity from date of purchase of three months or less, or that are readily convertible into known amounts of cash, to be cash equivalents. Credit Risk and Concentrations Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for credit losses. The customers who account for 10% or more of the Company’s revenue for the 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: Percentage of revenues Percentage of accounts receivable Customer Year Ended December 31, 2024 As of December 31, 2024 A 23 % 31 % B 11 % ** C 14 % 22 % D 13 % ** ** Represents less than 10% of the total for the respective period The Company did not have revenue for the year ended December 31, 2023. The Company did not have outstanding trade receivables as of December 31, 2023. The vendors who account for 10% or more of the Company’s purchases or 10% or more of the Company’s outstanding payable balance are presented as follows for the periods indicated: Percentage of purchases Percentage of accounts payable Vendor Year Ended December 31, 2024 As of December 31, 2024 A ** 31 % B ** 11 % C 11 % ** Percentage of purchases Percentage of accounts payable Vendor Year Ended December 31, 2023 As of December 31, 2023 A 38 % 62 % B ** 23 % ** Represents less than 10% of the total for the respective period F- 13 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Business Combinations The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Acquired In-Process Research and Development (“IPR&D ” ) In accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the acquisition date and subsequently accounts for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. Once an IPR&D project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly. If the IPR&D asset is abandoned, the remaining carrying value is written off. During fiscal year 2024, the Company acquired IPR&D through the XTI Merger. Intangible Assets and Goodwill Finite-lived intangible assets primarily consist of developed technology, patents, customer relationships, and trade names/trademarks. They are amortized ratably over a range of 5 to 15 years, which approximates customer attrition rate and technology obsolescence. The Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit. In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations. For the year ended December 31, 2024, the Company estimated the fair value of a reporting unit with 100 % weighting to the income approach. The Company reviews its long-lived assets, inclusive of its right-of-use assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated from the use of the asset and its eventual disposition. If the carrying amount of an asset group exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. For the 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. F- 14 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Revenue Recognition In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods, in an amount that reflects the consideration that it expects to receive in exchange for those goods. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration, if any, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods it transfers to a customer. Hardware and Software Revenue Recognition For sales of hardware and software products, the Company’s performance obligation is satisfied at a point in time when they are shipped to the customer, at which control is deemed transferred to the customer, and has title of the product and holds the risks and rewards of ownership. The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse. In such arrangements, the Company negotiates the sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from its customers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards and requirements of the customer. Accordingly, the Company concluded it is the principal in the transaction with the customer and records revenue on a gross basis. The Company receives fixed consideration for sales of hardware and software products. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice. The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year. Software As A Service Revenue Recognition With respect to sales of the Company’s maintenance, consulting and other service agreements, customers pay fixed monthly fees in exchange for the Company’s service. The Company’s performance obligation is satisfied over time as the digital advertising and electronic services are provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service. Professional Services Revenue Recognition The Company’s professional services include milestone, fixed fee and time and materials contracts. Professional services under milestone contracts are accounted for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract. Contract costs are expensed as incurred. Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract. Contract Balances The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied, principally within one year. F- 15 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Customer Deposits The Company periodically enters into aircraft reservation agreements that include a deposit placed by a potential customer. The deposits serve to prioritize orders when the TriFan 600 airplane becomes available for delivery. Customers making deposits are not obligated to purchase any airplanes until they execute a definitive purchase agreement. Customers may request return of their deposit any time up until the execution of a purchase agreement. The Company records such advance deposits as a liability and defers the related revenue recognition until delivery of an airplane occurs, if any. Stock-Based Compensation The Company’s stock-based compensation relates to stock options granted to employees and non-employees. The Company recognizes the cost of share-based awards granted to employees and non-employees based on the estimated grant-date fair value of the awards. Forfeitures are accounted for as they occur, which may result in negative expense when forfeitures exceed the expense recorded within the period. The Company recognizes expense on a straight-line basis over the requisite service period of the award, which is generally equal to the vesting period of the award. The Company estimates the grant-date fair value of the stock option awards with service only vesting conditions using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model utilizes inputs and assumptions which involve inherent uncertainties and generally require significant judgment. As a result, if factors or expected outcomes change and significantly different assumptions or estimates are used, the Company’s stock-based compensation could be materially different. Significant inputs and assumptions include: ● Fair value of Common Stock – As there was no public market for Legacy XTI’s common stock prior to the XTI Merger, the fair value of the shares of common stock underlying the stock-based awards on the grant-date has historically been determined by Legacy XTI’s Board of Directors with assistance of third-party valuation specialists. Legacy XTI’s Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which included important developments in Legacy XTI’s operations, actual operating results, financial performance, external market conditions, equity market conditions of comparable public companies, and the lack of marketability of Legacy XTI’s common stock. ● Expected Term – The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). ● Expected Volatility – Because Legacy XTI was privately held prior to the XTI Merger and did not have an active trading market for its common stock, the expected volatility was estimated based on the average volatility for publicly traded companies that the Company considers to be comparable, over a period equal to the expected term of the stock option grants. ● Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option. ● Expected Dividend – The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero. F- 16 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Net Loss Per Share Net loss per share attributable to common stockholders is computed using the two-class method required for multiple classes of common stock and participating securities. The Company’s participating securities included the Company’s convertible preferred stock and preferred stock. Neither the holders of convertible preferred stock, preferred stock nor the holders of the Company’s common stock warrants have a contractual obligation to share in losses. Basic net loss per share attributable to common stockholders is calculated by dividing the net loss, as adjusted for any dividends on the preferred stock for the period, attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase or outstanding shares that are contingently returnable by the holder. Contingently issuable shares, including shares that are issuable for little or no cash consideration, are considered outstanding common shares and included in net loss per share as of the date that all necessary conditions have been satisfied. Such shares include outstanding penny warrants and shares issuable to Xeriant Inc. (“Xeriant”) related to the joint venture arrangement that expired on May 31, 2023. Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Income Taxes The 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. Foreign Currency The functional currency for the Company’s subsidiaries is determined based on the primary economic environment in which the subsidiary operates. The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in cumulative translation adjustment included in “Accumulated other comprehensive loss” in Stockholders’ equity on the Consolidated Balance Sheets. The Company remeasures monetary assets and liabilities that are not denominated in the functional currency at exchange rates in effect at the end of each period. Gains and losses from these remeasurements are recognized in general and administrative expenses in the consolidated statements of operations. Foreign exchange gains (losses) were immaterial for the years ended December 31, 2024 and 2023, respectively. Segments The Company and its Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker (“CODM”) determined its operating segments in accordance with ASC 280, “Segment Reporting” (“ASC 280”). The Company is organized and operates as two reporting segments based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments. Recently Issued and Adopted Accounting Standards In 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 1, 2024. The adoption of this guidance did not have a material impact on the condensed consolidated financial statements and disclosures. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The new standard requires a company to disclose incremental segment information on an annual and interim basis, including significant segment expenses and measures of profit or loss that are regularly provided to the chief operating decision maker. The standard is effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted. The Company adopted this ASU for the year ended December 31, 2024 on a retrospective basis. Refer to Note 15 for further information. F- 17 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Recently Issued Accounting Standards Not Yet Adopted In 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. In 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. The Company does not expect to early adopt the new standard. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its financial statements and related disclosures. Note 4 - Disaggregation of Revenue and Deferred Revenue Disaggregation of Revenue The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems recognition policy. Revenues consisted of the following (in thousands): For the Years Ended December 31, 2024 2023 Recurring revenue Software $ 987 $ — Total recurring revenue $ 987 $ — Non-recurring revenue Hardware $ 1,823 $ — Software 84 — Professional services 308 — Total non-recurring revenue $ 2,215 $ — Total Revenue $ 3,202 $ — For the Years Ended December 31, 2024 2023 Revenue recognized at a point in time Industrial IoT (1) $ 1,907 $ — Total $ 1,907 $ — Revenue recognized over time Industrial IoT (2) (3) $ 1,295 $ — Total $ — $ — Total Revenue $ 3,202 $ — (1) Hardware and Software’s performance obligation is satisfied at a point in time when they are shipped to the customer. (2) Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date, in which revenue is recognized over time. (3) Software As A Service Revenue’s performance obligation is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service and revenue is recognized over time. F- 18 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Deferred revenue As of December 31, 2023, the Company did not have any deferred revenue. As part of the XTI Merger, the Company acquired approximately $ 0.8 million of deferred revenue, all of which relates to RTLS maintenance agreements. The Company’s deferred revenue balance of 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. Note 5 - Merger Transaction The XTI Merger was accounted for as a reverse merger in accordance with GAAP. Under this method of accounting, Legacy Inpixon was treated as the “acquired” company for financial reporting purposes. This determination is primarily based on the fact that subsequent to the XTI Merger, Legacy XTI maintains control of the Board of Directors and management of the Company, and the preexisting shareholders of Legacy XTI have majority voting rights of the Company. For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination. Accordingly, Legacy XTI’s assets and liabilities are recorded at carrying value and the assets and liabilities associated with Legacy Inpixon are recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair value of the net assets acquired, if applicable, is recognized as goodwill. The below summarizes the total consideration transferred in the business combination (in thousands): Fair value of common stock $ 10,939 Fair value of warrants 3,250 Fair value of preferred stock 11,302 Fair value of debt assumed 114 Total consideration $ 25,605 The Company determined the estimated fair value of common stock included in consideration to be calculated based on Legacy Inpixon’s common stock outstanding of 2,075,743 multiplied by the price of Legacy Inpixon’s common stock on March 12, 2024 of $ 5.27 (which reflects the 1 to 100 reverse stock split which became effective before the closing of the XTI Merger). The Company utilized Legacy Inpixon’s common stock price in determining fair value as it is more reliably measurable than the value of Legacy XTI’s (accounting acquirer) equity interests given it is not a publicly traded entity. The aggregate fair value of warrants was approximately $ 3.3 million was included in the total equity consideration. A portion of this total represents 918,689 warrants outstanding by the Company with a fair value of $ 1.00 per warrant, which is the warrant’s redemption value. The warrant fair value was determined to be the redemption value as the warrants include protective covenants for the Company which prevent the holder from exercising the warrants. The remainder of this total represents 491,310 warrants with a fair value of $ 4.75 per warrant which was determined by using level 3 inputs and utilizing a Black-Scholes valuation. Significant inputs related to these warrants are as follows: Fair value of common stock $ 5.27 Exercise price $ 5.13 Expected term 4.76 years Volatility 146 % Risk-free interest rate 4.2 % Dividend yield — % F- 19 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 The fair value of preferred stock of approximately $ 11.3 million included in the total equity consideration represents 11,302 shares of a new series of Preferred Stock that was issued and outstanding by the Company upon the consummation of the XTI Merger at a stated value and fair value of $ 1,000 per share. The following table summarizes the purchase price allocations relating to the XTI Merger (in thousands): Assets acquired Cash and cash equivalents $ 2,968 Accounts receivable 696 Notes and other receivables 7,929 Inventory 3,283 Prepaid assets and other current assets 756 Property and equipment 246 Other assets 1,202 Warrant assets 448 Tradename & trademarks 913 Proprietary technology 2,934 Customer relationships 702 In process research and development 243 Goodwill 12,398 34,718 Liabilities assumed Accounts payable 2,675 Accrued liabilities 4,282 Operating lease obligation 299 Deferred revenue 824 Short-term debt 114 Warrant liability 919 Total liabilities assumed 9,113 Estimated fair value of assets acquired $ 25,605 The assets were valued using a combination of a multi-period excess earnings methodologies, a relief from royalty approach, a discounted cash flow approach and present value of cash flows approach. The goodwill represents the excess fair value after the allocation of intangibles. As a nontaxable transaction, the historical tax bases of the acquired assets, liabilities and tax attributes have carried over. Although no new tax goodwill has been created in the transaction, the Company has approximately $ 5.8 million of tax deductible goodwill that arose in previous transactions which carries over. For the years ended December 31, 2024 and 2023, the Company incurred merger related transaction costs of approximately $ 6.5 million and $ 1.8 million, respectively. F- 20 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 6 - Proforma Financial Information Inpixon Financial Information The following unaudited proforma financial information presents the consolidated results of operations of the Company and Legacy Inpixon for the 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. The proforma financial information for the Company and Legacy Inpixon is as follows (in thousands): For the Years Ended December 31, 2024 2023 Revenues $ 3,709 $ 4,562 Net loss attributable to common stockholders $ ( 50,849 ) $ ( 40,335 ) Net loss per basic and diluted share $ ( 219.29 ) $ ( 1,016.57 ) Weighted average common shares outstanding: Basic and Diluted 231,880 39,678 Note 7 - Goodwill and Intangible Assets Goodwill In connection with the XTI and Inpixon Merger, the excess of the purchase price over the estimated fair value of the net assets assumed of $ 12.4 million was recognized as goodwill. The following table summarizes the changes in the carrying amount of Goodwill for the year ended December 31, 2024 (in thousands): Amount Beginning balance - January 1, 2024 $ — Goodwill recognized in connection with XTI Merger - Note 5 12,398 Foreign currency translation adjustment ( 326 ) Ending balance – December 31, 2024 $ 12,072 The Company tests goodwill for impairment at the reporting unit level annually, on October 1, or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. In accordance with ASC 350, the Company 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 31, 2024. 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. F- 21 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Intangible Assets Intangible 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, 2024 Patents $ 468 $ ( 184 ) $ — $ 284 9.8 Trade Name/Trademarks 897 ( 142 ) ( 451 ) 304 6.1 Proprietary Technology 2,860 ( 326 ) ( 1,583 ) 951 5.6 Customer Relationships 684 ( 109 ) ( 473 ) 102 4.2 In-Process R&D 243 — — 243 3.0 Totals $ 5,152 $ ( 761 ) $ ( 2,507 ) $ 1,884 Amortization 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. Future amortization expense on intangibles assets is anticipated to be as follows (in thousands): For the Years Ending December 31, Amount 2025 $ 361 2026 361 2027 361 2028 280 2029 and thereafter 521 Total $ 1,884 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, 2024. 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. The 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. The 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. F- 22 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 8 - Other Balance Sheet Information Prepaid expenses and other current assets Prepaid expenses and other current assets as of December 31, 2024 and 2023 consisted of the following (in thousands): As of December 31, 2024 2023 AVX deposit - related party $ 464 $ — Prepaid insurance 293 13 Prepaid software 89 90 Deposits 88 22 Other 84 — Total prepaid expenses and other current assets $ 1,018 $ 125 Inventories The Company did not hold any inventory as of December 31, 2023. Inventory as of December 31, 2024 consisted of the following (in thousands): As of December 31, 2024 Raw materials $ 198 Work-in-process 116 Finished goods 1,900 Inventories $ 2,214 Inventories are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This 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. Accrued 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, 2024 2023 Accrued transaction bonuses – Strategic Transaction Bonus Plan $ 4,266 $ — Accrued transaction bonuses – related party 400 — Accrued bonuses and commissions 1,163 305 Accrued compensation and benefits 446 649 Accrued other 428 173 Total accrued expenses and other current liabilities $ 6,703 $ 1,127 F- 23 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 9 - Debt The Company’s outstanding debt consisted of the following at the periods indicated (in thousands): Short-Term Debt Maturity 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 1 principal balance was either converted to equity immediately prior to the XTI Merger closing time or subsequently repaid 2 promissory note repaid in full on March 31, 2025 Interest expense on outstanding debt totaled approximately $ 0.3 million and $ 0.6 million for the years ended December 31, 2024 and 2023, respectively. Promissory Note – 2023 On July 24, 2023, the Company and Legacy XTI entered into a Senior Promissory Note which had an outstanding principal balance of approximately $ 3.1 million as of December 31, 2023. During the period from January 1, 2024 to March 12, 2024, Legacy Inpixon provided an additional $ 1.0 million in funding to Legacy XTI. As a result of the XTI Merger, Legacy XTI became a wholly-owned subsidiary of the Company and the outstanding subsidiary debt balance, related parent note receivable balance and accrued interest were eliminated upon the consolidation of the Company’s December 31, 2024 balance sheet. Promissory Note - 2023 - related party On January 5, 2023, the Company entered into a promissory note agreement with a member of the Company’s board of directors. The note had a principal amount of approximately $ 0.1 million and accrued interest at a rate of 5 % per annum. The note’s outstanding principal and accrued interest balances were repaid in full during the second quarter of 2024. F- 24 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Convertible Note - 2021 - related party On October 1, 2023, an existing convertible note entered into on December 31, 2021 by and between the Company and a member of the Company’s board of directors was replaced by a new convertible note with a principal balance of approximately $ 1.1 million and interest rate of 4 %. On March 12, 2024, approximately $ 0.9 million of the note’s outstanding balance was converted into shares of the Company’s common stock. The Company repaid the remaining balance of the note on April 1, 2024. See Note 10 for more information. Convertible Note - 2021 During 2021, the Company entered into convertible notes with a syndicate of investors. The notes had a combined principal amount of $ 2.5 million and accrued interest at a rate of 4.0 % per annum. As discussed in Note 10, pursuant to the terms of voluntary note conversion letter agreements, approximately $ 2.5 million of the note’s outstanding principal balance and accrued interest were converted into shares of Legacy XTI common stock immediately prior to the closing of the XTI Merger, which converted into shares of the Company’s common stock at the closing of the XTI Merger on March 12, 2024. A repayment obligation remained after the XTI Merger closing with respect to approximately $ 0.05 million in principal, which was repaid during the second quarter of 2024, and $ 0.25 million in accrued interest which remained outstanding as of December 31, 2024. Promissory Note - May 1, 2024 On May 1, 2024 (the “Closing Date”), the Company entered into a note purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC (the “Holder”), pursuant to which the Company issued and sold to the Holder a secured promissory note (the “Note”) in an initial principal amount of approximately $ 1.4 million, which is payable on or before the date that is 12 months from the issuance date. The Purchase Agreement provides that, subject to the mutual consent of the Company and the Holder, the Holder would purchase an additional secured promissory note on the date that is 30 days from the Closing Date and another secured promissory note on the date that is 60 days from the Closing Date. The initial principal amount of the Note includes an original issue discount of approximately $ 0.3 million. In exchange for the Note, the Holder paid an aggregate purchase price to the Company of $ 1.0 million. Interest on the Note accrues at a rate of 10.0 % per annum and is payable on the maturity date or otherwise in accordance with the Note. The effective interest rate is 10.5 %. If the Note is still outstanding on the date that is six months from the issuance date, then a one-time monitoring fee equal to 10 % of the then-current outstanding balance will be added to the outstanding balance of the Note. The Company’s obligations under the Note, the additional secured promissory note issued by the Company to the Holder on May 24, 2024 (as described below) and the other transaction documents are secured by (i) a pledge of all of the stock the Company owns in Legacy XTI and (ii) those assets owned by Legacy XTI constituting Collateral (as defined in a security agreement by and between Legacy XTI and the Holder). Additionally, Legacy XTI provided a guarantee of the Company’s obligations to the Holder under the Note, the additional secured promissory note and the other transaction documents. Promissory Note - May 24, 2024 Pursuant to the terms of the Purchase Agreement, on May 24, 2024, the Company issued and sold to Streeterville Capital, LLC an additional secured promissory note in the initial principal amount of $ 1.3 million, which carries an original issue discount of $ 0.3 million. The terms of this additional note are identical to the terms of the May 1, 2024 note, as described above. In exchange for the promissory note, the Holder paid an aggregate purchase price of $ 1.0 million. 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. F- 25 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 SBA Loan On June 3, 2020, Legacy XTI entered into a promissory note with the U.S. Small Business Administration (SBA). The note accrues interest at a rate of 3.75 % per annum and is paid monthly. The aggregate principal amount is due on the maturity date of June 3, 2050. Note 10 - Common Stock Capital Raises At-the-Market (ATM) 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. F- 26 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note Conversion Immediately prior to the effective time of the XTI Merger on March 12, 2024, certain convertible notes (collectively classified as “convertible notes, at fair value”) with an aggregate principal and interest balance of $ 16.8 million were converted into Legacy XTI shares, which converted into an aggregate of 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. As a result of the conversions, the notes were satisfied in full and therefore relieved the Company of all obligations. Note Inducements To induce certain note holders to convert their outstanding note balances into shares of Legacy XTI common stock ahead of the XTI Merger, Legacy XTI entered into voluntary note conversion letter agreements in February 2024 as detailed in the below table. Per the letter agreements, some or all of the outstanding principal and accrued interest under the notes was converted at a reduced conversion price into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which converted into shares of the Company’s common stock upon the closing of the XTI Merger. In connection with some of the voluntary note conversions, the Company assumed a repayment obligation with respect to any outstanding balance under the notes that was not converted into Legacy XTI shares. The Company accounted for these conversions as an inducement and recognized a loss 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 Aggregate Principal and Interest Outstanding Immediately Prior to XTI Merger Aggregate Principal and Interest Converted to Common Shares Reduced Conversion Price Post - Exchange Ratio / Post 1-for-250 Split Common Shares Outstanding Payment Obligation Immediately After XTI Merger Net Inducement Charge Convertible Note 2021 $ 2,777 $ 2,504 742.22 3,376 $ 273 $ 3,266 Convertible Note 2017 $ 2,148 $ 2,148 742.22 2,896 $ — $ 2,795 Convertible Note 2022 $ 682 $ 600 742.22 808 $ 82 $ 464 Convertible Note 2023 $ 333 $ 300 742.22 404 $ 33 $ 207 Totals $ 5,940 $ 5,552 7,484 $ 388 $ 6,732 Note Inducement: Convertible Note 2021 - Related Party To induce David Brody, a board member and founder of Legacy XTI, to convert his outstanding note balances into shares of Legacy XTI common stock, Legacy XTI entered into a voluntary note conversion letter agreement with the note holder in February 2024. Per the letter agreement, $ 0.9 million of the outstanding note balance was converted at a reduced conversion price of $ 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. F- 27 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Stock Issuances at or Immediately Prior to XTI Merger Closing At 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. Shares 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. Stock Issuances to Nadir Ali On 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. Ali fully vested shares of common stock under the 2018 Plan, which shares were registered pursuant to a registration statement on Form S-8. Pursuant 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 Note 18). Pursuant 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 to Mr. Ali on June 12, 2024 under the Ali Consulting Agreement. Approximately $ 0.8 million of the shares were issued to Mr. Ali in partial satisfaction of amounts owed to Mr. Ali under the Strategic Transaction Bonus Plan. Pursuant to the November 2024 RSA Agreement, the Company issued an aggregate of 86,511 shares to Mr. Ali valued at approximately $ 1.1 million. 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 Agreement. Approximately $ 0.2 million of the shares were issued to Mr. Ali in partial satisfaction of amounts owed to Mr. Ali under the Strategic Transaction Bonus Plan. Pursuant to the December 2024 RSA Agreement, the Company issued an aggregate of 85,383 shares to Mr. Ali valued at approximately $ 1.0 million. The full $ 1.0 million value of the shares was issued to Mr. Ali in partial satisfaction of amounts owed to Mr. Ali under the Ali Consulting Agreement. Other Stock Issuances On June 6, 2024, the Company entered into a consulting agreement with a third party consultant, which has a term until December 10, 2024, pursuant to which the Company made a cash deposit of $ 0.1 million and issued 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. On June 7, 2024, the Company entered into a consulting agreement with a separate third-party consultant, which has a term of six months , pursuant to which the Company issued 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. During 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. F- 28 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 11 - Preferred Stock The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $ 0.001 per share with rights, preferences, privileges and restrictions as to be determined by the Company’s Board of Directors. Series 9 Preferred Stock On March 12, 2024, the Company filed the Certificate of Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Designation”), with the Secretary of State of Nevada, designating 20,000 shares of preferred stock, par value $ 0.001 of the Company, as Series 9 Preferred Stock, which was amended by the Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock filed by the Company with the Secretary of State of Nevada on April 30, 2024. Each share of Series 9 Preferred Stock has a stated face value of $ 1,050 (“Stated Value”) and do not have any voting rights. Preferred stock is recorded on the accompanying consolidated balance sheet at its redemption value which is the carrying value of the redeemable preferred stock. Each share of Series 9 Preferred Stock will accrue a rate of return on the Stated Value in the amount of 10 % per year, compounded annually to the extent not paid, and pro rata for any fractional year periods (the “Preferred Return”). The Preferred Return will accrue on each share of Series 9 Preferred Stock from the date of issuance and will be payable on a quarterly basis, either in cash or through the issuance of an additional number of shares of Series 9 Preferred Stock equal to (i) the Preferred Return then accrued and unpaid, divided by (ii) the Stated Value, at the Company’s discretion. The Preferred Stock holders will also receive a quarterly dividend at 2 % per quarter, beginning on the one -year anniversary of the issuance date and for all periods following the two -year anniversary of the issuance date of a share of Series 9 Stock, the dividend shall be 3 % per quarter. The Company may elect, in the sole discretion of the Board, to redeem all or any portion of the Series 9 Stock then issued and outstanding from all of the Series 9 Holders by paying to the applicable Series 9 Holders an amount in cash equal to the liquidation amount as defined in the preferred stock agreement. Exchange Agreement On March 12, 2024, Inpixon and Streeterville Capital, LLC (the “Note Holder” or “Streeterville”), the holder of an outstanding promissory note issued on December 30, 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 Stock. The Company analyzed the exchange of the principal and interest as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of preferred stock being issued). The Company notes that the net carrying value of the debt was the fair value of the preferred stock (reacquisition price). As such, no gain or loss was recognized upon debt extinguishment. Following such exchange and the extinguishment of the December 2022 Note, the December 2022 Note is deemed paid in full, automatically canceled, and will not be reissued. Securities Purchase Agreement On March 12, 2024, Legacy Inpixon entered into a securities purchase agreement (the “Securities Purchase Agreement”) with 3AM Investments, LLC (“3AM”), an entity controlled by Legacy Inpixon’s former director and former Chief Executive Officer, Nadir Ali (such entity, the “Purchaser”). Pursuant to the Securities Purchase Agreement, the Purchaser purchased 1,500 shares of Series 9 Preferred Stock for a total purchase price of approximately $ 1.5 million, based on a purchase price of $ 1,000 per share of Series 9 Preferred Stock. The Company agreed that the Purchaser will be deemed a “Required Holder” as defined in the Certificate of Designation as long as the Purchaser holds any shares of Series 9 Preferred Stock. The Securities Purchase Agreement sets forth certain restrictions on the Company’s use of the proceeds from the sale of the Series 9 Preferred Stock pursuant thereto, including that the proceeds must be used in connection with the redemption of the Series 9 Preferred Stock pursuant to the Certificate of Designation or working capital purposes, and may not, without the consent of the required holders of Series 9 Preferred Stock, be used for, among other things, (i) the redemption of any XTIA common stock or common stock equivalents, (ii) the settlement of any outstanding litigation, or (iii) for the repayment of debt for borrowed money to any officer or director, or Merger-transaction related bonuses to any employee or vendor except for such non-merger transaction related bonuses as may be payable to participants pursuant to the Company’s existing employee bonus plan. In connection with the issuance of the Preferred Stock, the direct and incremental expenses incurred were immaterial. F- 29 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Amendment to Series 9 Preferred Stock The Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Amendment”) allows the Company to pay the holders of Series 9 Preferred Stock, if such holders agree, with securities or other property of the Company in an amount equal to the Series 9 Preferred Liquidation Amount (as defined in the Series 9 Preferred Stock Certificate of Designation) in the event the Company elects to redeem all of any portion of the Series 9 Preferred Stock then issued and outstanding (a “Corporation Optional Redemption”). Previously, the Company was to pay any such amount in only cash. The Certificate of Amendment also now provides that the Company will provide notice of a Corporation Optional Redemption to the holders of Series 9 Preferred Stock within five business days prior to the consummation of such redemption rather than five business days following the determination of the Company’s board of directors to consummate such redemption. In addition, the Certificate of Amendment eliminates the requirement for the Company to obtain the written consent of the holders of at least a majority of the outstanding Series 9 Preferred Stock before repaying any outstanding indebtedness owed to any holder of Series 9 Preferred Stock or its affiliates. The Company evaluated the amendment and accounted for it as a modification, which requires the Company to recognize any increase in fair value as an expense. However, the Company concluded the increase in the fair value of the Series 9 Preferred Stock from immediately before to immediately after the amendment is immaterial. Series 9 Preferred Stock Exchanges From April through 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 . The 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 . The deemed dividends represented the excess fair value of the common shares issued over the carrying amount of the Preferred Shares and were accounted for as a reduction to additional paid-in capital. Accrued Return Conversion to Series 9 Preferred Stock During 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. Series 9 Preferred Stock Redemptions On 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. Pursuant 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. The Company entered into acknowledgment agreements with each of Streeterville and 3AM to record such payments. As 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. F- 30 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 12 - Stock Award Plans and Stock-Based Compensation The Company has three Employee Stock Incentive plans. The Company assumed Legacy XTI’s 2017 Employee and Consultant Stock Ownership Plan (the “2017 Plan”) in connection with the XTI Merger. Legacy Inpixon had put in place a 2011 Employee Stock Incentive Plan (the “2011 Plan”) and a 2018 Employee Stock Incentive Plan (the “2018 Plan” and together with the 2011 Plan, the “Legacy Inpixon Option Plans”). The Company determined that activity within the 2011 Plan is not material. 2017 Plan During 2017, Legacy XTI adopted the 2017 Plan, which was amended in 2021 to increase the maximum shares eligible to be granted under the 2017 Plan. The Company may issue awards in the form of restricted stock units and stock options to employees, directors, and consultants. Under the 2017 Plan, stock options are generally granted with an exercise price equal to the estimated fair value of the Company’s common stock, as determined by the Company’s Board of Directors on the date of grant. Options generally have contractual terms of ten years . Incentive stock options (ISO) may only be granted to employees, whereas all other stock awards may be granted to employees, directors, consultants and other key stakeholders. As of December 31, 2024, there are no shares available for future grants under the 2017 Plan. 2018 Plan In February 2018, Legacy Inpixon adopted the 2018 Plan which is utilized for employees, corporate officers, directors, consultants and other key persons employed. The 2018 Plan provides for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan). As of December 31, 2024, there are no unvested Restricted Stock or Restricted Stock Units outstanding under the 2018 Plan. Incentive stock options granted under the Legacy Inpixon Option Plans are granted at exercise prices 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. The 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. See 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 $ — Granted 1,089 $ 4,677.36 Exercised - $ — Expired - $ — Forfeitures ( 58 ) $ 4,901.42 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 Exercised ( 371 ) $ 0.25 Expired ( 3 ) $ 700.00 Forfeitures ( 8,526 ) $ 484.00 Outstanding at December 31, 2024 51,185 $ 455.00 9.3 $ — Exercisable at December 31, 2024 3,803 $ 3,330.00 7.7 $ — Forfeitures 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. F- 31 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 The Board approved awards of options to certain Company executives under the 2018 Plan. Each option has an exercise price of $ 118.25 per share. The options will vest 1/3rd annually over three years starting from the vesting commencement date. The options expire ten years from the grant date. Options were granted as follows: Grantee Grant Date Vesting Start Date Options Granted Chief Executive Officer of XTI Aerospace, Inc. 6/12/2024 6/12/2024 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 The following assumptions were used in estimating the fair values of options awarded during the year ended December 31, 2024: For the Year Ended December 31, 2024 Fair value of common stock $ 10.75 - $ 118.25 Exercise price $ 10.75 - $ 118.25 Expected term 6 years Volatility 95.06 % - 103.3 % Risk-free interest rate 3.51 % - 4.43 % Dividend yield —% During 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 . The 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 — % Stock Option Exercises To induce option holders to exercise stock options ahead of the XTI Merger so to assist the Company in qualifying for a listing on the Nasdaq Capital Market, Legacy XTI entered into exercise letter agreements with several option holders in February 2024 at reduced exercise prices from the original option agreements. The net impact of these option inducements to the condensed consolidated statement of operations was not material. In total, 1,038,871 stock 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. F- 32 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Stock-based Compensation Expense The Company incurred the following stock-based compensation charges for the periods indicated below (in thousands): Year Ended December 31, 2024 2023 Employee and consultant stock options 1 $ ( 1,798 ) $ 1,645 Professional fees 1 270 — Vesting of previously unvested warrants 2 496 — Merger-related professional fees 2 5,153 — Total $ 4,121 $ 1,645 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 As 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. Stock-based Compensation Related to Professional Fees On 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. Stock-based Compensation Related to the XTI Merger Shares of Legacy XTI common stock were issued to Scott Pomeroy, Chief Executive Officer of the Company and former CFO and board member of Legacy XTI, as transaction compensation immediately prior to the XTI Merger closing time equal to 1,429 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded $ 1.9 million of stock-based compensation expense included in the consolidated statement of operations during the year ended December 31, 2024. Shares of Legacy XTI common stock were issued to Maxim as transaction compensation immediately prior to the XTI Merger closing time equal to 1,542 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 31, 2024. Shares of Legacy XTI common stock were issued to Chardan Capital Markets LLC as transaction compensation immediately prior to the XTI Merger closing time equal to 757 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded $ 1.0 million of stock-based compensation expense included in the consolidated statement of operations during the year ended December 31, 2024. Shares of Legacy XTI common stock were issued to a non-executive officer as transaction compensation immediately prior to the XTI Merger closing time equal to 186 post merger shares of Company common stock. As a result of this share issuance transaction, the Company recorded approximately $ 0.2 million of stock-based compensation expense included in the consolidated statement of operations during the year ended December 31, 2024. F- 33 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 13 - Warrants The following table summarizes the activity of warrants outstanding: Weighted Aggregate Number Average Intrinsic of Exercise Value Warrants Price (in thousands) Outstanding at January 1, 2023 2,903 $ 672.20 $ — Granted 415 $ 4,229.23 $ — Exercised — $ — $ — Cancelled ( 224 ) $ 4,201.22 $ — Expired ( 6 ) $ 4,201.22 $ — Exchanged — $ — $ — Outstanding at December 31, 2023 3,088 $ 896.26 $ — Legacy Inpixon warrants from merger 5,794 $ 6,106.12 $ — Granted 671 $ 3,501.02 $ — Exercised ( 1,640 ) $ 1.74 $ — Cancelled — $ — $ — Expired ( 374 ) $ 28.01 $ — Exchanged ( 6,411 ) $ 417.06 $ — Outstanding at December 31, 2024 1,128 $ 20,343.35 $ — Exercisable at December 31, 2023 1,574 $ 1,702.71 $ — Exercisable at December 31, 2024 372 $ 63,685.00 $ — Warrant Exercises On March 11, 2024, Legacy XTI entered into an amendment (the “Warrant Amendment”) with Mesa Airlines (“Mesa”). The Warrant Amendment modifies the vesting criteria with respect to the shares of common stock underlying the warrant issued by the Company to Mesa pursuant to the conditional aircraft purchase contract described below. As amended by the Warrant Amendment, (i) one-third 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. To induce warrant holders to exercise warrant shares, Legacy XTI entered into exercise letter agreements with several warrant holders in February 2024 at reduced exercise prices from the original warrant agreements. The net impact of these warrant inducements to the condensed consolidated statement of operations was not material. In total, 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. During 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 . Warrant Exchanges On April 30, 2024 and May 1, 2024, the Company entered into warrant exchange agreements with the holders of certain of our then outstanding warrants (the “Existing Warrants”) initially issued on May 17, 2023. 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. F- 34 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 On May 30, 2024, the Company entered into a warrant exchange agreement with the holder of certain warrants of the Company (the “Assumed Warrants”) to purchase shares of common stock, which Assumed Warrants were originally issued by Legacy XTI and assumed by the Company in connection with the XTI Merger. Pursuant to the terms of the agreement, the Company issued to the warrant holder an aggregate of 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. On 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. 2023 Warrant Activity On 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. Note 14 - Reverse Stock Splits The Company effected a reverse stock split of its outstanding common stock at a ratio of 1-for-250 effective as of January 10, 2025. 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 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. In 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. Note 15 - Segments The Company’s Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker, or (“CODM”), regularly reviews and manages certain areas of its businesses, resulting in the Company identifying two reportable segments: Industrial IoT and Commercial Aviation. The Company manages and reports its operating results through these two reportable segments. This allows the Company to enhance its customer focus and better align its business models, resources, and cost structure to the specific current and future growth drivers of each business, while providing increased transparency to the Company’s shareholders. The commercial aviation segment is currently in the pre-revenue development stage and its primary activity is the development of the TriFan 600 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. Information on each of our reportable segments and reconciliation to consolidated loss from operations is presented in the table below. We have assigned certain previously reported expenses to each segment to conform to the way we internally manage and monitor our business. Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included expenses incurred for administrative and accounting staff, general liability and other insurance, accrued consulting fees and transaction bonuses relating to former Legacy Inpixon executives, professional fees and other similar corporate expenses. F- 35 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 The following tables reflect the results of operations from our business segments for the periods indicated below (in thousands): December 31, 2024 Industrial Commercial Unallocated IoT Aviation Costs Total Revenue $ 3,202 $ — $ — $ 3,202 Cost of revenues 1,314 — — 1,314 Gross Profit 1,888 — — 1,888 Operating expenses Research and development 2,026 1,970 — 3,996 Sales and marketing 1,714 324 1,193 3,231 General and administrative 2,362 ( 741 ) 20,401 22,022 Impairment of intangible assets 2,507 — — 2,507 Other expenses (1) 426 6,525 161 7,112 Total operating expenses 9,035 8,078 21,755 38,868 Loss from operations $ ( 7,147 ) $ ( 8,078 ) $ ( 21,755 ) $ ( 36,980 ) (1) Other expenses include merger-related transaction costs and amortization of intangibles. December 31, 2023 Industrial Commercial Unallocated IoT Aviation Costs Total Revenue $ — $ — $ — $ — Gross Profit — — — — Operating expenses Research and development — 1,381 — 1,381 Sales and marketing — 721 — 721 General and administrative — 3,615 — 3,615 Other expenses (1) — 1,872 — 1,872 Total operating expenses — 7,589 — 7,589 Loss from operations $ — $ ( 7,589 ) $ — $ ( 7,589 ) (1) Other expenses include merger-related transaction costs and amortization of intangibles. The reporting package provided to the Company’s CODM does not include the measure of assets by segment as that information isn’t reviewed by the CODM when assessing segment performance or allocating resources. Note 16 - Fair Value Measurements and Fair Value of Financial Instruments The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. These levels are: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, warrant asset, accounts payable, warrant liability, convertible notes, and the loan conversion derivative. Cash and cash equivalents, accounts receivable and accounts payable are stated at their respective carrying amounts, which approximate fair value due to their short-term nature. The changes in fair value of the warrant liability, convertible notes, and warrant asset are presented within ‘Change in fair value of warrant liability’, ‘Change in fair value of convertible notes’, and ‘Other expense’, respectively, in the condensed consolidated statements of operations. The fair value of the Level 3 warrant liability was determined using a pricing model with certain significant unobservable market data inputs. F- 36 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Investment in Equity Securities On 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. On October 26, 2023, Legacy Inpixon purchased a convertible note through a private placement in aggregate principal amount of $ 3.0 million for a purchase price of $ 3.0 million paid in cash from Damon. Interest on the convertible note accrues at 12 % per annum. The note was 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). On 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. As 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. Damon common stock is traded in active markets, as the security is trading under “DMN” on the Nasdaq Exchange. The Damon 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. The Company’s assets and liabilities measured at fair value consisted of the following at the periods indicated: Fair Value at December 31, 2024 Total Level 1 Level 2 Level 3 Assets: Equity investment – Damon Motors, Inc. 342 342 — — Total assets $ 342 $ 342 $ — $ — Fair Value at December 31, 2023 Total Level 1 Level 2 Level 3 Liabilities: Warrant Liability $ 497 $ — $ — $ 497 Convertible notes, at fair value 16,804 — — 16,804 Loan conversion derivatives 333 — — 333 Total liabilities $ 17,634 $ — $ — $ 17,634 F- 37 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 The table below provides a summary of changes in the estimated fair value of the Company’s Level 3 assets and liabilities: Notes Warrant Convertible notes, Loan conversion Receivable Liability at fair value derivatives Balance at January 1, 2024 $ — $ 497 $ 16,804 $ 333 Acquired 3,264 920 — — Change in fair value — 281 ( 12,882 ) — Exchanged / Conversion to Equity ( 968 ) ( 1,698 ) ( 3,922 ) ( 333 ) Loss from note conversion to equity investment ( 2,630 ) — — — Accrued interest 221 — — — Debt discount recognition 113 — — — Balance at December 31, 2024 $ — $ — $ — $ — Note 17- Foreign Operations Prior to the XTI Merger, the Company’s operations were located primarily in the United States. After the XTI Merger, the Company’s operations are located primarily in the United States, Germany, and the United Kingdom. Revenues by geographic area are attributed by country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands): United United States Germany Kingdom Eliminations Total For the Year Ended December 31, 2024: Revenues by geographic area $ 1,066 $ 2,553 $ — $ ( 417 ) $ 3,202 Operating income (loss) by geographic area $ ( 32,249 ) $ ( 4,731 ) $ — $ — $ ( 36,980 ) Net income (loss) by geographic area $ ( 30,892 ) $ ( 4,711 ) $ — $ — $ ( 35,603 ) For the Year Ended December 31, 2023: Revenues by geographic area $ — $ — $ — $ — $ — Operating income (loss) by geographic area $ ( 7,589 ) $ — $ — $ — $ ( 7,589 ) Net income (loss) by geographic area $ ( 25,066 ) $ — $ — $ — $ ( 25,066 ) As of December 31, 2024: Identifiable assets by geographic area $ 44,198 $ 19,763 $ 11 $ ( 39,681 ) $ 24,291 Long lived assets by geographic area $ 1,053 $ 1,377 $ — $ — $ 2,430 Goodwill by geographic area $ 3,142 $ 8,930 $ — $ — $ 12,072 As of December 31, 2023: Identifiable assets by geographic area $ 509 $ — $ — $ — $ 509 Long lived assets by geographic area $ 278 $ — $ — $ — $ 278 Goodwill by geographic area $ — $ — $ — $ — $ — Note 18 - Related Party Transactions Refer to Note 9 for disclosures on related party debt transactions. Consulting Agreement with David Brody David Brody, board member and founder of Legacy XTI, provided legal and strategic consulting services to Legacy XTI under a consulting agreement. During the 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. Brody, and the consulting agreement terminated in connection with the closing of the XTI Merger. Consulting Agreement with Scott Pomeroy Scott Pomeroy and Legacy XTI entered into a consulting agreement dated July 1, 2022, as amended effective January 1, 2023, that provided for his engagement as Legacy XTI’s Chief Financial Officer. The agreement provided that Mr. Pomeroy receive a monthly compensation of $ 17,500 . During the 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 $ 400,000 . The transaction cash bonus obligation remained outstanding as of December 31, 2024 and is included in accrued expenses and other current liabilities on the accompanying consolidated balance sheets. This cash bonus obligation was subsequently paid in full during January 2025. Effective upon closing time of the XTI Merger, Mr. Pomeroy was appointed as XTI Aerospace’s Chief Executive Officer. F- 38 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Transactions with AVX Aircraft Company On March 25, 2024, the Company entered into a letter agreement, as amended on June 17, 2024, with AVX Aircraft Company (“AVX”) whereas AVX is to provide consulting and advisory services relating to the development and design of the TriFan 600 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. Agreements 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. Mr. Ali, through a company of which he is a controlling member, held shares of the Company’s Series 9 Preferred Stock as disclosed in Note 11. Pursuant to the Ali Consulting Agreement, following the closing of the XTI Merger, Mr. Ali will provide consulting services to the Company for 15 months (“Ali Consulting Period”) or until earlier termination in accordance with its terms. During the Ali Consulting Period, the Company will pay him a monthly fee of $ 20,000 . In addition, the Company shall pay Mr. Ali (a) the amount of $ 1.5 million due three months following the Closing, and (b) the aggregate amount of $ 4.5 million, payable in 12 equal monthly installments, starting four months after the closing date of the XTI Merger (the payments described in (a) and (b), each an “Equity Payment”). Each Equity Payment may be made, in Company’s discretion, in (i) cash, (ii) fully vested shares of common stock under the Company’s equity incentive plan, or a combination of cash and registered shares. As of the date of this report, the Company repaid the initial $ 1.5 million owed to Mr. Ali under the Ali Consulting Agreement. During the 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 Agreement. 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. 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, 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. Grafiti 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. from the Company for a minimum purchase price of $ 1.0 million paid in two annual cash installments of $ 0.5 million due within 60 days after December 31, 2024 and 2025 (the “Grafiti Purchase Amount”). The purchase price and annual cash installment payments 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. F- 39 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 19 - Commitments and Contingencies Litigation From time to time, the Company is subject to various claims, charges and litigation matters that arise in the ordinary course of business. The Company records a provision for a liability when it is both probable that the loss has been incurred and the amount of the loss can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be reasonably estimated, it discloses the possible loss or range of loss. Any potential gains associated with legal matters are not recorded until the period in which all contingencies are resolved and the gain is realized or realizable. Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. Except if otherwise indicated, it is not reasonably possible to determine the probability of loss or estimate damages for any of the matters discussed below, and therefore, the Company has not established reserves for any of these matters. On December 6, 2023, Xeriant filed a complaint against Legacy XTI, along with two unnamed companies and five unnamed persons, in the United States District Court for the Southern District of New York (the “Xeriant Matter”). On January 31, 2024, Xeriant filed an amended complaint, which added the Company as a defendant to the Xeriant Matter. On February 29, 2024, Xeriant filed a second amended complaint. The Xeriant Matter alleges that Legacy XTI has prevented Xeriant from obtaining compensation owed under various agreements entered into between Xeriant and Legacy XTI, including but not limited to a joint venture agreement, a cross-patent license agreement, an operating agreement, and a letter dated May 17, 2022 (the “May 17 letter”). In particular, Xeriant contends that Legacy XTI gained substantial advantages from the intellectual property, expertise, and capital deployed by Xeriant in the design and development of Legacy XTI’s TriFan 600 airplane yet has excluded Xeriant from the transaction involving the TriFan 600 technology in its merger with Legacy Inpixon, which has resulted in a breach of the May 17 letter. Xeriant seeks damages in excess of $ 500 million, injunctive relief enjoining us from engaging in any further misconduct, the imposition of a royalty obligation, and such other relief as deemed appropriate by the court. On March 13, 2024, Legacy XTI moved for partial dismissal of the second amended complaint. On January 14, 2025, the Court denied Legacy XTI’s motion to dismiss the complaint. On January 28, 2025, Legacy XTI filed an answer to the second amended complaint. On January 28, 2025, Legacy XTI filed an amended answer and counterclaims against Xeriant. The counterclaims assert that Xeriant (1) breached the joint venture agreement by failing to pay $ 4,600,000 to fund development of the TriFan 600 technology, and (2) breached its fiduciary duty to XTI by engaging in bad faith, coercion, and self-dealing, including by appropriating material information for its own use and concealing from Legacy XTI the identity of a potential strategic partner. On March 18, 2025, Xeriant moved for dismissal of Legacy XTI’s counterclaims. The case is in its early stages of discovery. Legacy XTI denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against the lawsuit. In connection with the Xeriant Matter, on June 12, 2024, we received a letter from counsel for Auctus Fund, LLC (“Auctus”), dated April 3, 2024, claiming that, pursuant to the above-referenced May 17 letter by and between Xeriant and Legacy XTI, as a result of the XTI Merger and Legacy XTI’s entry into a promissory note agreement with Legacy Inpixon in March 2023, XTI Aerospace and Legacy XTI may have assumed Xeriant’s obligations under that certain Senior Secured Promissory Note in the principal amount of $ 6,050,000 issued by Xeriant to Auctus, including the obligation to repay Auctus all principal and accrued and unpaid interest thereunder, which Auctus claims was $ 8,435,008.81 as of April 3, 2024. In July 2024, Legacy XTI responded to such letter and indicated that it believes that the May 17 letter is invalid and unenforceable on several bases. It further explained that even if it were valid and enforceable, Legacy XTI does not believe such letter resulted in, or otherwise triggered, the assumption of obligations of Xeriant under the Senior Secured Promissory Note or any other obligation on the part of Legacy XTI. There have been no further developments on this matter. We are unable to make a reasonable estimate of a potential loss, if any, on this matter. To the extent suits or actions are commenced with respect to this matter, we intend to vigorously defend against any and all claims. On or about August 1, 2024, Chardan Capital Markets LLC (“Chardan”) commenced an arbitration (the “Arbitration”) before FINRA against the Company and its subsidiary, XTI Aircraft Company (“Aircraft”). Aircraft and Chardan are parties to an engagement letter agreement (the “Agreement”). In the Arbitration, Chardan 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. The 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. Financial 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. F- 40 XTI 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 Officer. Pursuant to the Loundermon Consulting Agreement, following the Closing, Ms. Loundermon will provide consulting services to the Company for one year or until earlier termination in accordance with its terms (the “Loundermon Consulting Period”). As compensation for Ms. Loundermon’s consulting services, the Company will pay her (i) $ 83,333 per month for the first six months of the Loundermon Consulting Period for services she performs on an as-needed basis during the Loundermon Consulting Period regarding the transition of the management of the Company’s financial reporting function to ensure continuity of business operations, and (ii) $ 300 per hour for services performed on an as needed basis regarding the preparation and filing of Company’s public company financial reporting and compliance matters including accounting, payroll, audit and tax compliance functions. 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. Loundermon 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. Loundermon. Refer to Note 23 for further disclosure of the Settlement Agreement. Note 20 - Net Loss Per Share Attributable to Common Stockholders The following table presents the calculation of basic and diluted loss per share attributable to common stockholders (in thousands, except share and per share data): For the Years Ended December 31, 2024 2023 Net Loss $ ( 35,603 ) $ ( 25,066 ) Less: Preferred stock return and dividend ( 606 ) — Less: Deemed dividend ( 772 ) — Net Loss Attributable to Common Stockholders, basic and diluted $ ( 36,981 ) $ ( 25,066 ) Net Loss Per Share - Basic and Diluted $ ( 162.78 ) $ ( 1,576.48 ) Weighted Average Shares Outstanding, Basic and Diluted 227,193 15,900 The 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. (“Xeriant”) related to the joint venture arrangement that expired by its term on May 31, 2023. The shares were issued to Xeriant for no additional consideration immediately prior to the XTI Merger. The following potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis): For the Years Ended December 31, 2024 2023 Options 30,509 4,647 Warrants 1,438 655 Convertible preferred stock 2 — Convertible notes 997 2,720 Total 32,946 8,022 F- 41 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 21 – Income Taxes The 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): For the Years Ended December 31, 2024 2023 Domestic $ ( 30,876 ) $ ( 25,066 ) Foreign ( 4,711 ) — Net Loss, before tax $ ( 35,587 ) $ ( 25,066 ) The income tax provision (benefit) for the years ended December 31, 2024 and 2023 consists of the following (in thousands): For the Years Ended December 31, 2024 2023 Foreign Current $ — $ — Deferred ( 1,088 ) — U.S. federal Current — — Deferred ( 4,023 ) ( 1,647 ) State and local Current 16 — Deferred ( 1,061 ) ( 345 ) ( 6,156 ) ( 1,992 ) Change in valuation allowance 6,172 1,992 Income Tax Provision (Benefit) $ 16 $ — The 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: For the Years Ended December 31, 2024 2023 U.S. federal statutory rate 21.0 % 21.0 % State income taxes, net of federal benefit 2.2 % 4.4 % 162(m) compensation limit ( 7.1 )% ( 0.2 )% Transaction costs ( 2.1 )% — % Convertible notes / warrant inducement expense ( 3.8 )% ( 6.7 )% Convertible notes – fair value adjustment 7.3 % ( 9.7 )% Foreign income tax rate difference 0.8 % — % Other permanent items ( 1.8 )% ( 1.0 )% Provision to return adjustment 0.1 % — % Rate change 0.1 % — % Other ( 0.1 )% ( 0.8 )% Change in valuation allowance ( 16.6 )% ( 7.0 )% Effective Rate ( 0.0 )% 0.0 % F- 42 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 As 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): As of December 31, 2024 2023 Deferred Tax Asset Loss carryovers $ 59,366 $ 3,867 Stock based compensation 4,103 2,443 Research credits — — Accrued expenses 791 1,348 Reserves — — Intangibles 181 — Fixed assets — — Unrealized gain 144 — Section 174 capital research 3,955 866 Other 702 Total Deferred Tax Asset 69,242 8,524 Less: valuation allowance ( 69,017 ) ( 8,524 ) Deferred Tax Asset, Net of Valuation Allowance $ 225 $ — As of December 31, 2024 2023 Deferred Tax Liabilities Intangible assets $ — $ — Fixed assets ( 7 ) — Other ( 218 ) — Capitalized research — — Total deferred tax liabilities ( 225 ) — Net Deferred Tax Asset (Liability) $ — $ — F- 43 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 At 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. The NOL 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. As 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. As 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. 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 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. 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), Germany, United Kingdom, and in various state jurisdictions in the United States. These filings include discontinued activity periods. 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. 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, 2024 and 2023. 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. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2021. F- 44 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Note 22 – Leases The 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. The original 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 month. 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. The lease 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 ) per month. 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. The Company has no other operating or financing leases with terms greater than 12 months. Right-of-use assets are summarized below (in thousands): As of December 31, 2024 As of December 31, 2023 Englewood, CO Office $ 394 $ — Berlin, Germany Office 91 — Frankfurt, Germany Office 87 — Less accumulated amortization ( 232 ) — Right-of-use asset, net $ 340 $ — 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, 2024 and 2023 was $ 0.4 million and $ 0.0 million, respectively. During 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. F- 45 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 During 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. Lease liability is summarized below (in thousands): As of December 31, 2024 As of December 31, 2023 Total lease liability $ 350 $ — Less: short term portion ( 119 ) — Long term portion $ 231 $ — Maturity analysis under the lease agreement is as follows (in thousands): Year ending December 31, 2025 $ 145 Year ending December 31, 2026 118 Year ending December 31, 2027 124 Year ending December 31, 2028 10 Total $ 397 Less: Present value discount ( 47 ) Lease liability $ 350 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, 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 %. Note 23 - 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. Compliance 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. ATM Sales Subsequent 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. F- 46 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 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, 2024. Settlement Agreement On March 27, 2025 (the “Effective Date”), XTI Aerospace, Inc. (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 include: Preferred Stock Redemption . The 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 Stock. Following Ali’s receipt of the Series 9 Redemption Amount, Ali no longer held any shares of Series 9 Preferred Stock. As 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. Upon payment 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 . Pursuant 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 Agreement”). F- 47 XTI 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 below). 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. The 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 Statement. 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. F- 48 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.