XTI Aerospace, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission File Number: 001-36404 XTI AEROSPACE, INC. (Exact name of registrant as specified in its charter) Nevada 88-0434915 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 8123 InterPort Blvd. , Suite C Englewood , CO 80112 (Address of principal executive offices) (Zip Code) (800) 680-7412 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which each is registered Common Stock, par value $0.001 XTIA The Nasdaq Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Class Outstanding at November 18, 2025 Common Stock, par value $0.001 32,786,816 XTI AEROSPACE, INC. Form 10-Q For the Quarterly Period Ended September 30, 2025 TABLE OF CONTENTS Page No. Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report ii PART I - FINANCIAL INFORMATION 1 Item 1. Financial Statements 1 Condensed Consolidated Balance Sheets as of September 30, 2025 (Unaudited) and December 31, 2024 1 Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2025 and 2024 3 Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2025 and 2024 4 Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2025 and 2024 5 Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 7 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 3. Quantitative and Qualitative Disclosures About Market Risk 52 Item 4. Controls and Procedures 52 PART II - OTHER INFORMATION 53 Item 1. Legal Proceedings 53 Item 1A. Risk Factors 53 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 62 Item 3. Defaults Upon Senior Securities 62 Item 4. Mine Safety Disclosures 62 Item 5. Other Information 62 Item 6. Exhibits 62 Signatures 63 i SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: ● our history of losses; ● our ability to achieve profitability; ● the risk that we have a limited operating history, have not yet manufactured any non-prototype aircraft or delivered any aircraft to a customer, and we and our current and future collaborators may be unable to successfully develop and market our aircraft or solutions, or may experience significant delays in doing so; ● the risk that we may not realize the expected benefits of the Drone Nerds and Anzu Robotics acquisitions; ● unexpected costs, charges or expenses resulting from the Drone Nerds and Anzu Robotics acquisitions or any future acquisition or difficulties in integrating and operating acquired companies; ● the ability to meet the development and commercialization schedule with respect to the TriFan 600; ● our ability to secure required certifications for the TriFan 600 and/or any other aircraft we develop; ● our ability to navigate the regulatory environment and complexities with compliance related to such environment; ● the risk that our conditional pre-orders (which include conditional aircraft purchase agreements, non-binding reservations, and options) are canceled, modified, delayed or not placed and that we must return the refundable deposits; ● our ability to obtain adequate financing in the future as needed; ● emerging competition and rapidly advancing technologies in our industries that may outpace our technology; ● the risk that other aircraft manufacturers develop competitive VTOL aircraft or other competitive aircraft that adversely affect our market position; ● customer demand for the products and services we develop; ● our ability to develop other new products and technologies; ● our ability to attract customers and/or fulfill customer orders; ● our ability to enhance and maintain the reputation of our brand and expand our customer base; ● our ability to scale in a cost-effective manner and maintain and expand our manufacturing and supply chain relationships; ii ● our ability to attract, integrate, manage, and retain qualified personnel or key employees; ● our ability to maintain compliance with the continued listing requirements of the Nasdaq Capital Market; ● the risks relating to long development and sales cycles, our ability to satisfy the conditions and deliver on the orders and reservations, our ability to maintain quality control of our aircraft, and our dependence on third parties for supplying components and potentially manufacturing the aircraft; ● the risk that our ability to sell our aircraft may be limited by circumstances beyond our control, such as a shortage of pilots and mechanics who meet the training standards, high maintenance frequencies and costs for the sold aircraft, and any accidents or incidents involving VTOL aircraft that may harm customer confidence; ● general economic conditions and events and the impact they may have on us and our potential customers, including, but not limited to escalating tariff and non-tariff trade measures imposed by the U.S. and other countries, increases in inflation rates and rates of interest, supply chain challenges, increased costs for materials and labor, cybersecurity attacks, the ongoing conflicts between Russia and Ukraine, and Hamas and Israel, and public health threats such as the COVID-19 pandemic; ● lawsuits and other claims by third parties or investigations by various regulatory agencies that we may be subjected to and are required to report, including but not limited to, the U.S. Securities and Exchange Commission (the “SEC”); ● the outcome of any known and unknown litigation and regulatory proceedings; ● the risk that our future patent applications may not be approved or may take longer than expected, and that we may incur substantial costs in enforcing and protecting our intellectual property; ● our ability to respond to a failure of our systems and technology to operate our business; ● the impact of any changes in existing or future tax regimes; ● our success at managing the risks involved in the foregoing items; and ● other factors discussed in this Form 10-Q. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into. You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. iii EXPLANATORY NOTE On March 12, 2024 (the “Closing Date”), XTI Aerospace, Inc. (formerly known as Inpixon (“Legacy Inpixon”)), Superfly Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of XTI Aerospace (“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 (as so amended, the “XTI Merger Agreement”), pursuant to which Merger Sub merged with and into Legacy XTI with Legacy XTI surviving the merger as a wholly-owned subsidiary of XTI Aerospace (the “XTI Merger”). In connection with the closing of the XTI Merger, our corporate name changed to “XTI Aerospace, Inc.” In this report, unless otherwise noted, or the context otherwise requires, the terms “XTI Aerospace,” the “Company,” “we,” “us,” “our” and similar terms refer collectively to XTI Aerospace, Inc. and its subsidiaries. The Company determined the XTI Merger should be accounted for as a reverse acquisition with Legacy XTI being considered the accounting acquirer. Therefore, the condensed 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 condensed consolidated financial statements as of the Closing Date and through the September 30, 2025 reporting date. On November 10, 2025, the Company completed its acquisitions of Drone Nerds, LLC and Anzu Robotics, LLC. Because such acquisitions were completed after September 30, 2025, the condensed consolidated financial statements included in this report do not reflect the results of operations of Drone Nerds, LLC and Anzu Robotics, LLC. Note Regarding Reverse Stock Splits 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 also effected a reverse stock split of its outstanding common stock at a ratio of 1-for-250, effective as of January 10, 2025, for the purpose of complying with Nasdaq Listing Rule 5550(a)(2). The Company has reflected the reverse stock splits on a retroactive basis herein, unless otherwise indicated. iv PART I — FINANCIAL INFORMATION Item 1. Financial Statements XTI AEROSPACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except number of shares and par value data) As of September 30, 2025 As of December 31, 2024 (Unaudited) Assets Current Assets Cash and cash equivalents $ 32,198 $ 4,105 Accounts receivable, net of allowance for credit losses of $ 37 and $ 18 as of September 30, 2025 and December 31, 2024, respectively 2,095 706 Other receivables 38 538 Inventories 1,433 2,214 Prepaid expenses and other current assets 918 1,018 Total Current Assets 36,682 8,581 Property and equipment, net 242 206 Operating lease right-of-use asset, net 243 340 Intangible assets, net 1,169 1,884 Goodwill 9,160 12,072 Other assets 435 1,208 Total Assets $ 47,931 $ 24,291 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 1 XTI AEROSPACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands, except number of shares and par value data) As of September 30, 2025 As of December 31, 2024 (Unaudited) Liabilities, Mezzanine Equity, and Stockholders’ Equity Current Liabilities Accounts payable $ 2,560 $ 5,487 Related party payables — 51 Accrued expenses and other current liabilities 2,263 6,703 Accrued interest 342 522 Customer deposits 1,350 1,350 Warrant liability 28,228 — Operating lease obligation, current 98 119 Deferred revenue 737 532 Short-term debt — 2,657 Total Current Liabilities 35,578 17,421 Long Term Liabilities Long-term debt — 65 Operating lease obligation, noncurrent 155 231 Total Liabilities 35,733 17,717 Commitments and Contingencies (Note 17) Mezzanine Equity Representative and placement agent warrants, net of issuance costs of $ 96 1,744 — Stockholders’ Equity Preferred Stock - $ 0.001 par value; 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2025 and December 31, 2024 — — Series 4 Convertible Preferred Stock - 10,415 shares authorized; 1 share issued and outstanding as of September 30, 2025 and December 31, 2024 — — Series 5 Convertible Preferred Stock - 12,000 shares authorized; 126 shares issued and outstanding as of September 30, 2025 and December 31, 2024 — — Series 9 Preferred Stock - 20,000 shares authorized; 0 shares issued and outstanding as of September 30, 2025, and 11,302 shares issued and 1,331 shares outstanding as of December 31, 2024 — 1,331 Common Stock - $ 0.001 par value; 500,000,000 shares authorized; 30,861,816 shares issued and outstanding as of September 30, 2025 and 1,685,021 shares issued and outstanding as of December 31, 2024 31 2 Additional paid-in capital 150,263 99,425 Accumulated other comprehensive income (loss) 898 ( 622 ) Accumulated deficit ( 140,738 ) ( 93,562 ) Total Stockholders’ Equity 10,454 6,574 Total Liabilities, Mezzanine Equity, and Stockholders’ Equity $ 47,931 $ 24,291 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 2 XTI AEROSPACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share and per share data) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2025 2024 2025 2024 Revenues $ 2,484 $ 918 $ 3,568 $ 2,169 Cost of Revenues 1,407 398 1,673 846 Gross Profit 1,077 520 1,895 1,323 Operating Expenses Research and development 1,985 1,228 5,649 2,840 Sales and marketing 2,741 1,019 5,267 2,160 General and administrative 11,106 2,293 22,434 16,422 Merger-related transaction costs — — — 6,490 Impairment of goodwill — — 4,049 — Impairment of intangible assets — — 631 — Amortization of intangible assets 54 196 206 431 Total Operating Expenses 15,886 4,736 38,236 28,343 Loss from Operations ( 14,809 ) ( 4,216 ) ( 36,341 ) ( 27,020 ) Other (Expense) Income Interest expense, net ( 1 ) ( 222 ) ( 219 ) ( 553 ) Amortization of deferred loan costs — — — ( 17 ) Loss on extinguishment of debt — — ( 421 ) ( 6,732 ) Warrant issuance expense ( 785 ) — ( 6,580 ) — Change in fair value of convertible notes — — — 12,882 Change in fair value of warrant liability 2,151 — ( 3,280 ) ( 281 ) Other ( 1 ) 3 ( 340 ) ( 10 ) Total Other (Expense) Income 1,364 ( 219 ) ( 10,840 ) 5,289 Net Loss, before tax ( 13,445 ) ( 4,435 ) ( 47,181 ) ( 21,731 ) Income tax benefit (provision) ( 1 ) — 5 ( 16 ) Net Loss ( 13,446 ) ( 4,435 ) ( 47,176 ) ( 21,747 ) Preferred stock return — ( 185 ) ( 29 ) ( 496 ) Deemed dividend — ( 54 ) — ( 514 ) Net Loss Attributable to Common Stockholders $ ( 13,446 ) $ ( 4,674 ) $ ( 47,205 ) ( 22,757 ) Net Loss Per Share - Basic and Diluted $ ( 0.61 ) $ ( 33.40 ) $ ( 4.33 ) $ ( 308.53 ) Weighted Average Shares Outstanding Basic and Diluted 22,065,141 139,944 10,914,152 73,759 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 XTI AEROSPACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (In thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2025 2024 2025 2024 Net Loss $ ( 13,446 ) $ ( 4,435 ) $ ( 47,176 ) $ ( 21,747 ) Change in fair value of convertible note receivable — — — 59 Unrealized foreign exchange gain from cumulative translation adjustments 14 663 1,520 465 Comprehensive Loss $ ( 13,432 ) $ ( 3,772 ) $ ( 45,656 ) $ ( 21,223 ) The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 XTI AEROSPACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY For the three and nine months ended September 30, 2025 (Unaudited) (In thousands, except share data) Series 9 Preferred Stock at Redemption Value Common Stock Additional Paid-In Accumulated Other Comprehensive (Loss) Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Income Deficit Equity Balance - January 1, 2025 1,331 $ 1,331 1,685,021 $ 2 $ 99,425 $ ( 622 ) $ ( 93,562 ) $ 6,574 Common shares issued for net cash proceeds of ATM offering — — 169,299 — 1,667 — — 1,667 Common shares issued for net cash proceeds of public offerings — — 2,219,746 2 17,900 — — 17,902 Common shares issued for conversion of debt — — 240,229 — 750 — — 750 Common shares issued for exercise of liability classified warrants — — 300,000 — 408 — — 408 Redemption of Series 9 Preferred Stock ( 1,331 ) ( 1,331 ) — — ( 96 ) — — ( 1,427 ) Stock-based compensation — — — — 455 — — 455 Cumulative translation adjustment — — — — — 467 — 467 Other — — 173,245 1 4 — — 5 Net loss — — — — — — ( 12,872 ) ( 12,872 ) Balance - March 31, 2025 — — 4,787,540 5 120,513 ( 155 ) ( 106,434 ) 13,929 Common shares issued for net cash proceeds of public offerings — — 6,231,200 6 ( 457 ) — — ( 451 ) Common shares issued for exercise of liability classified warrants — — 6,771,600 7 18,002 — — 18,009 Stock-based compensation — — 125,000 — 722 — — 722 Cumulative translation adjustment — — — — — 1,039 — 1,039 Other — — — — 15 — — 15 Net loss — — — — — — ( 20,858 ) ( 20,858 ) Balance - June 30, 2025 — — 17,915,340 18 138,795 884 ( 127,292 ) 12,405 Common shares issued for net cash proceeds of public offerings — — 11,946,000 12 3,121 — — 3,133 Common shares issued for exercise of liability classified warrants — — 966,976 1 1,997 — — 1,998 Stock-based compensation — — 33,500 — 6,350 — — 6,350 Cumulative translation adjustment — — — — — 14 — 14 Net loss — — — — — — ( 13,446 ) ( 13,446 ) Balance - September 30, 2025 — $ — 30,861,816 $ 31 $ 150,263 $ 898 $ ( 140,738 ) $ 10,454 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 XTI AEROSPACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY For the three and nine months ended September 30, 2024 (Unaudited) (In thousands, except share data) Series 9 Preferred Stock at Redemption Value Common Stock Additional Paid-In Accumulated Other Comprehensive (Loss) Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Income Deficit Equity (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 conversion of debt — — 11,551 — 9,614 — — 9,614 Inducement loss on debt conversions — — — — 6,732 — — 6,732 Common shares issued to Xeriant, Inc. — — 1,194 — — — — — Common shares issued for cashless exercise of warrants and options — — 1,928 — — — — — Capital contribution - forgiveness of related party payable — — — — 380 — — 380 Stock-based compensation — — 3,911 — 5,792 — — 5,792 Cumulative translation adjustment — — — — — ( 166 ) — ( 166 ) Series 9 Preferred Stock dividend accrued — — — — ( 61 ) — — ( 61 ) Net loss — — — — — — ( 2,602 ) ( 2,602 ) Balance - March 31, 2024 11,302 11,302 39,678 — 63,090 ( 166 ) ( 60,561 ) 13,665 Common shares issued in exchange of Series 9 Preferred Stock ( 3,550 ) ( 3,550 ) 11,997 — 3,727 — — 177 Deemed dividend related to Series 9 Preferred Stock exchange — — — — ( 177 ) — — ( 177 ) Common shares issued in exchange of warrants — — 5,969 — 1,981 — — 1,981 Deemed dividend related to December 2023 warrant exchange — — — — ( 283 ) — — ( 283 ) Common shares issued for exercise of equity classified warrants — — 82 — 2 — — 2 Common shares issued for net cash proceeds of ATM offering — — 37,201 — 8,675 — — 8,675 Common shares issued as settlement of accrued compensation — — 10,722 — 1,192 — — 1,192 Common shares issued as prepayment for services — — 1,718 — 335 — — 335 Stock-based compensation — — — — ( 59 ) — — ( 59 ) Series 9 Preferred Stock dividend accrued — — — — ( 250 ) — — ( 250 ) Change in fair value of convertible note receivable — — — — — 59 — 59 Cumulative translation adjustment — — — — — ( 32 ) — ( 32 ) Net loss — — — — — — ( 14,710 ) ( 14,710 ) Balance - June 30, 2024 7,752 7,752 107,367 — 78,233 ( 139 ) ( 75,271 ) 10,575 Common shares issued in exchange of Series 9 Preferred Stock ( 1,075 ) ( 1,075 ) 16,787 — 1,129 — — 54 Deemed dividend related to Series 9 Preferred Stock exchange — — — — ( 54 ) — — ( 54 ) Common shares issued for net cash proceeds of ATM offering — — 12,762 — 1,035 — — 1,035 Common shares issued as settlement of accrued compensation — — 11,100 — 1,101 — — 1,101 Stock-based compensation — — 4,020 — ( 1,889 ) — — ( 1,889 ) Cumulative translation adjustment — — — — — 663 — 663 Series 9 Preferred Stock dividend accrued — — — — ( 185 ) — — ( 185 ) Net loss — — — — — — ( 4,435 ) ( 4,435 ) Balance - September 30, 2024 6,677 $ 6,677 152,036 $ — $ 79,370 $ 524 $ ( 79,706 ) $ 6,865 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 XTI AEROSPACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Nine Months Ended September 30, 2025 2024 Cash Flows Used in Operating Activities Net loss $ ( 47,176 ) $ ( 21,747 ) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 103 81 Amortization of intangible assets 206 431 Amortization of right-of-use asset 100 177 Non-cash interest expense, net of interest income 145 267 Stock-based compensation 7,527 3,844 Impairment of goodwill 4,049 — Impairment of intangible assets 631 — Change in fair value of convertible notes payable — ( 12,882 ) Loss on extinguishment of debt 421 6,732 Warrant issuance expense 6,580 — Change in fair value of warrant liability 3,280 281 Change in value of warrant asset — 24 Unrealized gain on foreign currency transactions ( 2 ) ( 123 ) Other 22 34 Changes in operating assets and liabilities: Accounts receivable and other receivables ( 1,293 ) ( 72 ) Inventories 1,016 271 Prepaid expenses and other current assets 101 247 Other assets 287 32 Accounts payable ( 1,940 ) 2,514 Related party payables ( 51 ) — Accrued expenses and other current liabilities ( 4,667 ) 5,708 Accrued interest 67 154 Deferred revenue 336 ( 115 ) Operating lease obligation ( 98 ) ( 163 ) Net Cash Used in Operating Activities ( 30,356 ) ( 14,305 ) Cash Flows (Used in) Provided by Investing Activities Purchase of property and equipment ( 126 ) ( 54 ) Cash received in purchase of Inpixon — 2,968 Purchase of intangible asset — ( 39 ) Net Cash (Used in) Provided by Investing Activities ( 126 ) 2,875 Cash Provided by Financing Activities Net proceeds from sale of common stock and pre-funded warrants via public offerings 57,051 — Net proceeds from ATM stock offering 1,667 9,582 Net proceeds from the exercise of equity classified warrants — 2 Net proceeds from the exercise of liability classified warrants 4,061 — Net proceeds from promissory notes — 2,000 Net proceeds from loan from Inpixon (prior to merger) — 1,012 Redemption of Series 9 Preferred Stock ( 1,427 ) — Repayments of promissory notes ( 2,784 ) ( 668 ) Net Cash Provided by Financing Activities 58,568 11,928 Effect of Foreign Exchange Rate on Changes on Cash 7 8 Net Increase in Cash and Cash Equivalents 28,093 506 Cash and Cash Equivalents - Beginning of period 4,105 5 Cash and Cash Equivalents - End of period $ 32,198 $ 511 Supplemental Disclosure of cash flow information: Cash paid for: Interest $ 282 $ 54 Income Taxes $ 10 $ 16 Non-cash investing and financing activities Common shares issued for conversion of debt and accrued interest $ 750 $ 9,614 Common shares issued in exchange of warrants $ — $ 1,698 Deemed dividend related to December 2023 warrant exchange $ — $ 283 Common shares issued as settlement of accrued compensation $ — $ 2,293 Common shares issued as prepayment for services $ — $ 335 Common shares issued in exchange of series 9 Preferred Stock $ — $ 4,625 Issuance of common shares 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 Deemed dividend related to series 9 Preferred Stock exchange $ — $ 231 ATM proceeds withheld as payment towards accounts payable $ — $ 128 Series 9 Preferred Stock dividend accrued $ — $ 496 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 7 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Nature of Business On March 12, 2024 (the “Closing Date”), XTI Aerospace, Inc., the “Company”, formerly known as Inpixon (“Legacy Inpixon”), Superfly Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Legacy Inpixon, and XTI Aircraft Company, a Delaware corporation (“Legacy XTI”), completed their previously announced merger transaction (the “XTI Merger”). The Company is primarily an aircraft development company. As of November 10, 2025, and through the Company’s wholly-owned subsidiary, XTI Drones, LLC, the Company offers drone distribution and technology solutions via its recent acquisitions of Drone Nerds, LLC and Anzu Robotics, LLC (see Note 19 “Subsequent Events”). 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. The Company believes its initial configuration, the TriFan 600 airplane, will be one of the first civilian fixed-wing VTOL airplanes that offers the speed and comfort of a business airplane and the range and versatility of VTOL for a wide range of customer applications, including private aviation for business and high net worth individuals, emergency medical services and regional charter air travel, defining a new category of VTOL that the Company terms the “xVTOL.” The TriFan 600 is a seven-occupant airplane intended to provide point-to-point air travel over distances of over 1,000 miles, fly at twice the speed and three times the range of competing helicopters and cruise at altitudes of up to 25,000 feet. Since 2013, the Company has been engaged primarily in developing the aerodynamic performance and top-level engineering design of the TriFan 600, building and testing a two-thirds scale unmanned version of the TriFan 600, generating pre-orders for the TriFan 600, and seeking funds from investors to enable the Company to advance the detailed design and certification of the TriFan 600, and to eventually engage in commercial production and sale of the TriFan 600 airplane. The Company’s RTLS solutions leverage cutting-edge technologies such as Internet of Things (“IoT”), AI, and big data analytics to provide real-time tracking and monitoring of assets, machines, and people within industrial environments. With the Company’s RTLS solutions, businesses can achieve improved operational efficiency, enhanced safety and reduced costs. By having real-time visibility into operations, industrial organizations can make informed, data-driven decisions, minimize downtime, and ensure compliance with industry regulations. Note 2 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results for the full year ending December 31, 2025. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes for the years ended December 31, 2024 and 2023 included in the annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 15, 2025. 8 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Summary of Significant Accounting Policies The Company’s complete accounting policies are described in Note 3 to the Company’s audited consolidated financial statements and notes for the year ended December 31, 2024. Liquidity As of September 30, 2025, the Company had cash and cash equivalents of approximately $ 32.2 million. For the nine months ended September 30, 2025, the Company had a net loss of approximately $ 47.2 million. During the nine months ended September 30, 2025, the Company used approximately $ 30.4 million of cash for operating activities. As of September 30, 2025, the Company’s net working capital was approximately $ 1.1 million, representing an increase of approximately $ 9.9 million from December 31, 2024. There can be no assurances that the Company will ever earn revenues sufficient to support its operations, or that it will ever be profitable. In order to continue its operations, the Company has supplemented the revenues it earned with proceeds from the sale of its equity securities and proceeds from loans. The Company’s recurring losses and utilization of cash in its operations are indicators of going concern issues. However, the Company’s current liquidity position was favorably impacted by the cash raised through equity offerings and cash received from warrant exercises aggregating approximately $ 62.8 million during the nine months ended September 30, 2025, along with repaying and settling certain debt and other obligations during March 2025. The impact of these financings and warrant exercises to the Company’s cash position and overall net working capital position, along with the Company’s ability to defer or eliminate certain operating expenses that are under its control and the revenues expected to be generated by the Industrial IoT segment lead the Company to believe it has the ability to mitigate such concerns for a period of at least one year from the date these financial statements are issued. Consolidations The condensed consolidated financial statements have been prepared using the accounting records of Legacy XTI and as of March 12, 2024 (the effective date of the XTI Merger) and forward, the accounting records of XTI Aerospace, Inc. (formerly known as Inpixon) and its subsidiaries, including Inpixon GmbH (formerly known as Nanotron Technologies GmbH), Inpixon Holding UK Limited, and Intranav GmbH. All material inter-company balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of: ● 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 convertible notes receivable; ● the valuation of convertible notes payable, at fair value; ● the valuation of goodwill and intangible assets; ● the valuation of warrant liabilities; and ● the valuation allowance for deferred tax assets. 9 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Credit Risk and Concentrations Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company maintains its cash and cash equivalents primarily with high-credit-quality financial institutions in the United States and Germany. Cash balances maintained with financial institutions in the United States are generally in excess of federally insured limits. The Company mitigates its credit risk by limiting its exposure to any single financial institution and by monitoring the credit quality of its counterparties. The Company places its cash with financial institutions that have long-term credit ratings of at least A- or equivalent, as assigned by major credit rating agencies. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for credit losses. The customers who account for 10% or more of the Company’s revenue or 10% or more of the Company’s outstanding accounts receivable balance are presented as follows for the periods indicated: Percentage of revenues For the three months ended September 30, For the nine months ended September 30, Percentage of accounts receivable Customer 2025 2024 2025 2024 As of September 30, 2025 As of December 31, 2024 A 45 % 25 34 % 23 % 49 % 31 % B 15 % ** 13 % ** ** ** C 10 % 25 % 13 % 16 % 16 % 22 % D ** ** 10 % ** 11 % ** E ** ** ** ** 10 % ** ** Represents less than 10% of the total for the respective period. 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 For the three months ended September 30, For the nine months ended September 30, Percentage of accounts payable Vendor 2025 2024 2025 2024 As of September 30, 2025 As of December 31, 2024 A 11 % ** ** ** ** ** B ** ** ** ** 18 % ** C ** ** ** ** 14 % ** D ** ** ** ** 25 % 11 % E ** ** ** ** ** 31 % ** Represents less than 10% of the total for the respective period . 10 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Intangible Assets and Goodwill Finite-lived intangible assets primarily consist of developed technology, patents, customer relationships, and trade names/trademarks. They are amortized ratably over a range of 5 to 15 years, which approximates customer attrition rate and technology obsolescence. The Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit. In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations. The Company reviews its long-lived assets, inclusive of its right-of-use assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated from the use of the asset and its eventual disposition. If the carrying amount of an asset group exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. 11 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the nine months ended September 30, 2025, the Company determined that its long-lived assets were impaired by approximately $ 0.6 million. For the nine months ended September 30, 2025, the Company determined that its goodwill was impaired by approximately $ 4.05 million. There was no impairment recorded for the three months ended September 30, 2025 or 2024. Recently Adopted Accounting Standards No new accounting standards were adopted in the nine months ended September 30, 2025. Recently Issued Accounting Standards Not Yet Adopted In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-03, Income Statement - Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures, which includes amendments to require the disclosure of certain specific costs and expenses that are included in a relevant expense caption on the face of the income statement. Specific costs and expenses that would be required to be disclosed include: purchases of inventory, employee compensation, depreciation and intangible asset amortization. Additionally, a qualitative description of other items is required, equal to the difference between the relevant expense caption and the separately disclosed specific costs. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, and are applied either prospectively or retrospectively at the option of the Company. The Company is evaluating the impact of the amendments on our condensed consolidated financial statements and disclosures. In December 2023, the FASB also issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company for annual periods beginning after December 15, 2024. The Company is evaluating the impact of ASU 2023-09 on our consolidated financial statements and disclosures. 12 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 Three Months Ended September 30, For the Nine Months Ended September 30, 2025 2024 2025 2024 Recurring revenue Software $ 374 $ 327 $ 1,079 $ 697 Total recurring revenue $ 374 $ 327 $ 1,079 $ 697 Non-recurring revenue Hardware $ 1,735 $ 422 $ 2,091 $ 1,190 Software $ 226 $ 77 $ 231 $ 82 Professional services $ 149 $ 92 $ 167 $ 200 Total non-recurring revenue $ 2,110 $ 591 $ 2,489 $ 1,472 Total Revenue $ 2,484 $ 918 $ 3,568 $ 2,169 For the Three Months Ended September 30, For the Nine Months Ended September 30, 2025 2024 2025 2024 Revenue recognized at a point in time Industrial IoT (1) $ 1,961 $ 499 $ 2,322 $ 1,272 Total $ 1,961 $ 499 $ 2,322 $ 1,272 Revenue recognized over time Industrial IoT (2) (3) $ 523 $ 419 $ 1,246 $ 897 Total $ 523 $ 419 $ 1,246 $ 897 Total Revenue $ 2,484 $ 918 $ 3,568 $ 2,169 (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. 13 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Deferred revenue As of September 30, 2025 and December 31, 2024, the Company had approximately $ 0.7 million and $ 0.5 million, respectively, in deferred revenue. This deferred revenue balance relates to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff. The fair value of the deferred revenue approximates the services to be rendered. The Company expects to satisfy its remaining performance obligations for these maintenance services and professional services and recognize the deferred revenue and related contract costs over the next twelve months. Note 5 - Proforma Financial Information The XTI Merger was accounted for as a reverse merger under U.S. GAAP. For financial reporting purposes, Legacy Inpixon is treated as the “acquired” company. As a result, the Company’s consolidated financial statements include the operating results of Legacy Inpixon only from March 12, 2024, the merger closing date. The following unaudited proforma financial information presents the consolidated results of operations of the Company and Legacy Inpixon for the three months and nine months ended September 30, 2024, as if the XTI Merger had occurred as of the beginning of the first period presented (January 1, 2024) instead of on March 12, 2024. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods. The proforma financial information for the Company and Legacy Inpixon is as follows (in thousands): For the Three Months Ended September 30, 2024 For the Nine Months Ended September 30, 2024 Revenues $ 918 $ 2,676 Net loss attributable to common stockholders $ ( 4,674 ) $ ( 36,571 ) Net loss per basic and diluted common share $ ( 33.40 ) $ ( 456.99 ) Weighted average common shares outstanding: Basic and Diluted 139,944 80,026 Note 6 - Goodwill and Intangible Assets Goodwill In connection with the XTI Merger, the excess of the purchase price over the estimated fair value of the net assets assumed of $ 12.4 million was recognized as goodwill. The following table summarizes the changes in the carrying amount of Goodwill for the nine months ended September 30, 2025 (in thousands): Amount Beginning balance - January 1, 2025 $ 12,072 Foreign currency translation adjustment 1,137 Impairment ( 4,049 ) Ending balance – September 30, 2025 $ 9,160 The Company tests goodwill for impairment at the reporting unit level annually, on October 1, or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. In accordance with ASC 350, the Company first assessed whether there were any indicators of goodwill impairment that would require a quantitative analysis to be performed (i.e., a triggering event). The Company determined there was no triggering event during the three months ended September 30, 2025 related to the IoT reporting unit. However, a triggering event was identified by the Company during the quarter ended June 30, 2025, in the form of a current period operating and cash flow loss, a consistent history of operating losses, and the revenue results for the current period missing forecasted targets due to (i) the sales cycle to close transactions taking longer than anticipated and (ii) supply chain issues causing delays in our delivery of Nanotron product to customers. 14 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In accordance with ASC 350, given a triggering event was identified, the Company performed a quantitative goodwill impairment analysis related to its Industrial IoT reporting unit, which concluded the carrying amount of the reporting unit exceeded its estimated fair value, indicating that the goodwill of the reporting unit was impaired. Therefore, the Company recorded an impairment loss of $ 4.05 million during the quarter ended June 30, 2025, related to its Industrial IoT reporting unit. The Company utilized an income approach to assess the fair value of the reporting unit as of June 30, 2025. The income approach considered the discounted cash flow model, considering projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions. The inputs for the fair value calculations of the reporting unit included a 3 % terminal growth rate and a discount rate of 29 %. Management’s estimates of projected cash flows related to the reporting unit include, but are not limited to, future earnings of the reporting unit using revenue growth rates, gross margins, and other cost assumptions consistent with the reporting unit’s historical trends, and working capital requirements and future capital expenditures necessary to fund future operations. The assumptions in the fair value measurement reflects the current market environment, industry-specific factors and company-specific factors. Intangible Assets Intangible assets as of September 30, 2025 and December 31, 2024 consisted of the following (in thousands): September 30, 2025 Gross Amount Accumulated Amortization Impairment Net Carrying Amount Remaining Weighted Average Useful Life Patents $ 468 $ ( 207 ) $ — $ 261 9.1 Trade Name/Trademarks 486 ( 191 ) ( 115 ) 180 4.4 Proprietary Technology 1,395 ( 469 ) ( 293 ) 633 5.2 Customer Relationships 137 ( 42 ) — 95 3.5 In-Process R&D 243 ( 20 ) ( 223 ) — — Totals $ 2,729 ( 929 ) $ ( 631 ) $ 1,169 5.8 December 31, 2024 Gross Amount Accumulated Amortization Impairment Net Carrying Amount Patents $ 468 $ ( 184 ) $ — $ 284 Trade Name/Trademarks 897 ( 142 ) ( 451 ) 304 Proprietary Technology 2,860 ( 326 ) ( 1,583 ) 951 Customer Relationships 684 ( 109 ) ( 473 ) 102 In-Process R&D 243 — — 243 Totals $ 5,152 $ ( 761 ) $ ( 2,507 ) $ 1,884 Amortization expense for the three and nine months ended September 30, 2025 was approximately $ 0.1 million and $ 0.2 million, respectively. Amortization expense for the three and nine months ended September 30, 2024 was approximately $ 0.2 million and $ 0.4 million, respectively. 15 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Future amortization expense on intangibles assets is anticipated to be as follows (in thousands): Year ending December 31, Amount 2025 (for 3 months) $ 58 2026 224 2027 224 2028 224 2029 173 2030 and thereafter 266 Total $ 1,169 The Company tests for impairment if a change in circumstances or the occurrence of events indicates that potential impairment exists. In accordance with ASC 360, the Company first performed a qualitative assessment to determine if there were any indicators of impairment that would require a quantitative analysis to be performed. The results of the qualitative analysis performed by the Company determined there was no triggering event during the three months ended September 30, 2025. However, a triggering event was identified by the Company during the first and second quarters of 2025, in the form of a current period operating and cash flow loss, a consistent history of operating losses, and the revenue results for the current period missing forecasted targets due to (i) the sales cycle to close transactions taking longer than anticipated and (ii) supply chain issues causing delays in our delivery of Nanotron product to customers. Based on a quantitative assessment, the Company recorded an impairment to its Trade Names & Trademarks, Proprietary Technology, and In-Process Research and Development of $ 0.1 million, $ 0.3 million, and $ 0.2 million, respectively, during the nine months ended September 30, 2025, which is included in ‘Impairment of intangible assets’ in the unaudited condensed consolidated statements of operations. These assets were part of the Company’s Industrial IoT segment. The Company assessed the fair value of the Trade Names & Trademarks, Proprietary Technology, and In-Process Research and Development by using an income approach in the form of a relief from royalty model, which considered a specified royalty rate, discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions. The inputs for the fair value calculations included a 3 % terminal growth rate, discount rate of 29 %, and a royalty rate of 2 % and 10 % for Tradenames and Trademarks and Proprietary Technology, respectively. Management’s estimates of projected cash flows include, but are not limited to, future earnings of the reporting unit using revenue growth rates, gross margins, and other cost assumptions consistent with the reporting unit’s historical trends, and working capital requirements and future capital expenditures necessary to fund future operations. The assumptions in the fair value measurement reflects the current market environment, industry-specific factors and company-specific factors. As a result of the impairment, the Company assessed the remaining useful lives of the Trade Names & Trademarks and Proprietary Technology and concluded that there were no changes required. Note 7 - Other Balance Sheet Information Prepaid expenses and other current assets Prepaid expenses and other current assets as of September 30, 2025 and December 31, 2024 consisted of the following (in thousands): As of September 30, 2025 As of December 31, 2024 AVX deposit - related party $ — $ 464 Prepaid insurance 434 293 Deposits 17 88 Prepaid consulting/professional fees 192 15 Prepaid software 93 89 Other 182 69 Total prepaid expenses and other current assets $ 918 $ 1,018 16 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Accrued expenses and other current liabilities Accrued expenses and other current liabilities as of September 30, 2025 and December 31, 2024 consisted of the following (in thousands): As of September 30, 2025 As of December 31, 2024 Accrued transaction bonuses – Strategic Transaction Bonus Plan $ — $ 4,266 Accrued transaction bonuses – related party — 400 Accrued bonus and commissions 1,207 1,163 Accrued compensation and benefits 542 446 Accrued other 514 428 Total accrued expenses and other current liabilities $ 2,263 $ 6,703 Note 8 - Debt The Company’s outstanding debt consisted of the following at the periods indicated (in thousands): Short-Term Debt Maturity September 30, 2025 December 31, 2024 Promissory Note - May 1, 2024 1 5/1/2025 $ — $ 1,442 Promissory Note - May 24, 2024 1 5/24/2025 — 1,426 Unamortized Discounts — ( 211 ) Total Short-Term Debt $ — $ 2,657 Long-Term Debt SBA loan 2 6/3/2050 $ — $ 65 Total Long-Term Debt $ — $ 65 1 Promissory note paid in full during the first quarter of 2025. 2 SBA loan paid in full during the third quarter of 2025. Streeterville Debt Exchanges and Repayment During the first quarter of 2025, the Company issued an aggregate of 240,229 shares of common stock (the “Exchange Shares”) to Streeterville Capital, LLC (“Streeterville”), the holder of that certain outstanding secured promissory note of the Company issued on May 1, 2024 (the “Original Note”), at a price between $ 2.48 and $ 4.21 per share, in each case equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d) in accordance with the terms and conditions of certain exchange agreements, pursuant to which the Company and Streeterville agreed to (i) partition new secured promissory notes in the form of the Original Note in the aggregate original principal amount of $ 750,000 and then cause the outstanding balance of the Original Note to be reduced by an aggregate of $ 750,000 ; and (ii) exchange the partitioned notes for the delivery of the Exchange Shares. On March 31, 2025, using the net proceeds from the March Offering (see “ March 2025 Public Offering ” disclosure in Note 9), the Company repaid the remaining obligation of approximately $ 2.7 million (which included principal, accrued interest and monitoring fees, and a 15 % prepayment penalty) in respect of the two secured promissory notes issued by the Company to Streeterville on May 1, 2024 and May 24, 2024. As a result of the repayments, Streeterville released its security interest in the stock the Company owns in Legacy XTI and the assets owned by Legacy XTI. Due to the repayment of the promissory notes occurring before the maturity date, the Company incurred a loss on extinguishment of debt of approximately $ 0.4 million, which is reported within other (expense) income on the condensed consolidated statements of operations. 17 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Common Stock Capital Raises At-the-Market (ATM) Offering Program The Company was able, from time to time, to sell shares of the Company’s common stock under its “at-the-market” offering program (the “ATM”) through Maxim Group LLC (“Maxim”), as the Company’s exclusive sales agent, up to a maximum offering amount of approximately $ 83.3 million, pursuant to that certain Equity Distribution Agreement, dated as of July 22, 2022, by and between the Company and Maxim, as amended from time to time (the “Equity Distribution Agreement”). The term of the Equity Distribution Agreement expired on December 31, 2024. Maxim was entitled to compensation at a fixed commission rate of 3.0 % of the gross sales price per share sold, excluding Maxim’s costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket expenses of its legal counsel. The Company sold 169,299 shares of common stock under the Equity Distribution Agreement at per share price of $ 10.00 , resulting in net proceeds to the Company of approximately $ 1.7 million. This sale originated on December 31, 2024 and closed in early January 2025. January 2025 Public Offering On January 7, 2025, the Company entered into a placement agency agreement with ThinkEquity LLC (“ThinkEquity”), pursuant to which the Company agreed to issue and sell directly to various investors, in a best efforts public offering (the “January Offering”), an aggregate of 1,454,546 shares of common stock at an offering price of $ 13.75 per share. The January Offering closed on January 10, 2025 resulting in net proceeds to the Company of approximately $ 18.3 million, after deducting commissions and other expenses of approximately of $ 1.7 million. March 2025 Public Offering On March 28, 2025, the Company 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 (the “Shares”), pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 2,176,000 shares of common stock, and common warrants (the “Common Warrants” and together with the Pre-funded Warrants, the “Warrants”) to purchase up to 2,941,200 shares of common stock. The combined public offering price for each Share, together with one Common Warrant, was $ 1.36 . The combined public offering price for each Pre-funded Warrant, together with one Common Warrant, was $ 1.359 . Each Share, or a Pre-funded Warrant in lieu thereof, was sold together with one Common Warrant. The March Offering closed on March 31, 2025. The net proceeds to the Company from the sale of the Shares and the Warrants were approximately $ 3.4 million, after deducting the underwriting discounts and commissions and other expenses payable by the Company of approximately $ 0.6 million. June 2025 Public Offering On June 24, 2025, the Company entered into an underwriting agreement with ThinkEquity, as the representative of the underwriters named therein, relating to a firm commitment underwritten public offering (the “June Offering”) of 6,231,200 shares of common stock (the “Shares”), pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 2,911,800 shares of common stock, and common warrants (the “Common Warrants” and together with the Pre-funded Warrants, the “Warrants”) to purchase up to 9,143,000 shares of common stock. The combined public offering price for each Share, together with one Common Warrant, was $ 1.75 . The combined public offering price for each Pre-funded Warrant, together with one Common Warrant, was $ 1.749 . Each Share, or a Pre-funded Warrant in lieu thereof, was sold together with one Common Warrant. The Company also granted ThinkEquity a 45-day option to purchase, at the public offering price, less the underwriting discounts and commissions, up to 1,371,000 additional shares of common stock (and/or Pre-funded Warrants in lieu thereof) and/or up to 1,371,000 additional Common Warrants or any combination thereof, to cover any over-allotments (the “Over-Allotment Option”). ThinkEquity partially exercised the Over-Allotment Option on June 25, 2025 for 1,371,000 additional Common Warrants. 18 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The June Offering closed on June 26, 2025. The net proceeds to the Company from the sale of the Shares and the Warrants, including the Common Warrants sold in connection with the partial exercise of the Over-Allotment Option on June 25, 2025, were approximately $ 14.7 million, after deducting the underwriting discounts and commissions and other expenses payable by the Company of approximately $ 1.3 million. During July 2025, the Company closed multiple partial exercises of the Over-Allotment Option until the Over-Allotment Option was exercised in full, resulting in the issuance of 1,371,000 shares of common stock, at the public offering price of $ 1.75 per share, for net proceeds of approximately $ 2.2 million, after deducting the underwriting discounts and commissions and other expenses payable by the Company of approximately $ 0.2 million. September 2025 Public Offering On September 12, 2025, the Company entered into a placement agency agreement with ThinkEquity, pursuant to which the Company agreed to issue and sell directly to various investors, in a best efforts public offering (the “September Offering”), 10,575,000 shares of common stock (the “Shares”), pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 1,925,000 shares of common stock, and common warrants (the “Common Warrants” and together with the Pre-funded Warrants, the “Warrants”) to purchase up to 12,500,000 shares of common stock. The combined public offering price for each Share, together with one Common Warrant, was $ 1.60 . The combined public offering price for each Pre-funded Warrant, together with one Common Warrant, was $ 1.599 . Each Share, or a Pre-funded Warrant in lieu thereof, was sold together with one Common Warrant. The September Offering closed on September 15, 2025. The net proceeds to the Company from the sale of the Shares and the Warrants were approximately $ 18.5 million, after deducting the placement agent fees and other expenses payable by the Company of approximately $ 1.5 million. Allocation of Net Proceeds The aggregate net proceeds from the January Offering, March Offering, June Offering (including exercises of the Over-Allotment Option during July 2025) and September Offering were approximately $ 57.1 million. Based on their relative fair value as of the date of issuance, the Company allocated approximately $ 20.6 million of net proceeds to the sales of common stock and approximately $ 36.5 million of net proceeds to the issuance of warrants. Other Share Issuances On May 13, 2025, the Company entered into an advisory agreement with a third-party advisor, pursuant to which the Company issued 125,000 shares of restricted common stock, subject to certain registration rights, to the advisor in consideration for financial advisory services agreed to be rendered to the Company pursuant to the advisory agreement. As a result of the share issuance, the Company recognized approximately $ 0.2 million in share-based compensation expense, which is included in general and administrative expenses on the condensed consolidated statements of operations, for the nine months ended September 30, 2025. 19 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 10 - Preferred Stock The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $ 0.001 per share with rights, preferences, privileges and restrictions as to be determined by the Company’s Board of Directors. Series 9 Preferred Stock Redemptions On November 17, 2024, the Company entered into a Consent, Waiver and Release Agreement (the “Consent Agreement”) with Streeterville and 3AM Investments, LLC (“3AM”), an entity controlled by Nadir Ali, Legacy Inpixon’s former Chief Executive Officer and a former director of Legacy Inpixon, pursuant to which Streeterville and 3AM authorized the Company to raise up to an additional $ 5,000,000 under the ATM (the “ATM Increase”) in consideration for the Company’s agreement to pay, on a weekly basis, 20 % of the proceeds it receives from sales under the ATM in connection with the ATM Increase (the “Redemption Proceeds”) to Streeterville and 3AM to redeem a portion of their Series 9 Preferred Stock, to be distributed as follows: (i) 75 % of the Redemption Proceeds to Streeterville ( 15 % of all proceeds received from sales under the ATM), and (ii) 25 % of the Redemption Proceeds to 3AM ( 5 % of all proceeds received from sales under the ATM). As of December 31, 2024, Streeterville and 3AM held zero and 1331.12 shares of Series 9 Preferred Stock, respectively. Pursuant to the Consent Agreement, the Company delivered an aggregate of approximately $ 0.2 million to 3AM on January 5, 2025, which amount represents the Redemption Proceeds payable to 3AM in connection with amounts received by the Company on January 2, 2025 from sales under the ATM originating on December 31, 2024. Such payments were made for 167.00 shares of the Company’s Series 9 Preferred Stock held by 3AM. The Company entered into an acknowledgment agreement with 3AM to record such payment. On March 27, 2025, the Company entered into a Settlement Agreement with 3AM and other parties as further disclosed in Note 16. Pursuant to the Settlement Agreement, on the Effective Date, the Company delivered the aggregate amount of approximately $ 1.3 million (the “Series 9 Redemption Amount”) for the redemption of the outstanding Series 9 Preferred Stock. Following 3AM’s receipt of the Series 9 Redemption Amount, 3AM no longer held any shares of Series 9 Preferred Stock. As of September 30, 2025, there are no shares of Series 9 Preferred Stock issued and outstanding. 20 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 11 - Stock Award Plans and Stock-Based Compensation In 2011, Legacy Inpixon adopted the 2011 Employee Stock Incentive Plan (the “2011 Plan”). The 2011 Plan terminated by its terms on August 31, 2021 and remains in effect as to outstanding equity awards granted prior to the date of expiration. No new awards will be issued under the 2011 Plan. During 2017, Legacy XTI adopted the 2017 Employee and Consultant Stock Ownership Plan (the “2017 Plan”), which was amended in 2021 to increase the maximum shares eligible to be granted under the 2017 Plan. The Company assumed the 2017 Plan in connection with the XTI Merger. 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 (the “Board”) 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 September 30, 2025, there are no shares available for future grants under the 2017 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). In August 2025, the Board approved the amendment and restatement of the 2018 Plan which, among other things, provides that the Board may authorize one or more of the Company’s officers to grant awards pursuant to the 2018 Plan, provided that the Board must specify the total number of shares of common stock that may be subject to the awards granted by such officer. As of September 30, 2025, there are no unvested Restricted Stock or Restricted Stock Units outstanding under the 2018 Plan. Incentive stock options granted under the 2018 Plan are granted at exercise prices at a minimum of 100 % of the estimated fair market value of the underlying common stock at date of grant. For any individual possessing more than 10 % of the total outstanding common stock of the Company, the exercise price per share for incentive stock options is a minimum 110 % of the estimated fair value of the underlying common stock on the grant date. Options granted under the 2018 Plan vest over periods ranging from immediately to four years and are exercisable over periods up to ten years from the grant date. The aggregate number of shares that may be awarded under the 2018 Plan as of September 30, 2025 was 77,105,687 . As of September 30, 2025, 10,714,289 stock options were granted to employees, directors and consultants of the Company and 62,240,174 options were available for future grant under the 2018 Plan. 21 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS See below for a summary of the stock options granted under the 2011, 2017 and 2018 plans: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In millions) Beginning balance as of January 1, 2025 51,185 $ 455.00 9.3 $ — Granted 10,668,256 1.95 Exercised — Expired — Forfeited ( 2,485 ) 2,476.56 Ending balance as of September 30, 2025 10,716,956 $ 3.54 9.9 $ — Options vested and exercisable as of September 30, 2025 3,654,641 $ 4.63 9.9 $ — The compensation committee of the Board approved awards of options to certain Company executives under the 2018 Plan. Each option has an exercise price of $ 2.00 per share. The options vested 1/3 rd on the grant date with the remaining 2/3 rd vesting in equal quarterly installments over two years starting from the grant 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. 9/4/2025 9/4/2025 2,621,100 Chief Financial Officer of XTI Aerospace, Inc. 9/4/2025 9/4/2025 1,512,200 Chief Executive Officer of the XTI Aerospace, Inc. Real-Time Location System Division 9/4/2025 9/4/2025 78,000 Chief Operating Officer of XTI Aerospace, Inc. 9/4/2025 9/4/2025 1,613,000 Chief Strategy Officer of XTI Aerospace, Inc. 9/4/2025 9/4/2025 1,512,200 Total Granted 7,336,500 The measurement of fair value of options is determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance. The following assumptions were used in estimating the fair values of options awarded during the nine months ended September 30, 2025: Fair value of common stock $ 1.50 - $ 2.00 Exercise price $ 1.50 - $ 2.00 Expected term 5.47 years Volatility 98.91 % - 99.42 % Risk-free interest rate 3.62 % - 3.71 % Dividend yield — % 22 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Stock-based Compensation Expense The Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as an expense over the period during which the recipient is required to provide services in exchange for that award. The Company measures compensation expense for its non-employee stock-based compensation under ASC 718, “Stock-Based Compensation”. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock or stock award on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The Company incurred the following stock-based compensation charges for the periods indicated below (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2025 2024 2025 2024 Employee and consultant stock options 1 $ 6,301 $ ( 2,159 ) $ 7,234 $ ( 2,075 ) Vesting of previously unvested warrants 2 — — — 270 Professional fees 2 49 270 293 496 Merger-related professional fees — — — 5,153 Total $ 6,350 $ ( 1,889 ) $ 7,527 $ 3,844 1 Amount included in general and administrative expenses on the condensed consolidated statements of operations. 2 Amount included in merger-related transaction costs on the condensed consolidated statements of operations for the three and nine months ended September 30, 2024. Amount included in general and administrative expenses on the condensed consolidated statements of operations for the three and nine months ended September 30, 2025. As of September 30, 2025, the total unrecognized compensation expense related to unvested awards was approximately $ 14.0 million, which the Company expects to recognize over an estimated weighted average period of 1.71 years. 23 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 12 - Warrants The following table summarizes the activity of warrants outstanding: Number of Warrants Beginning balance as of January 1, 2025 1,128 Granted 34,338,488 Exercised ( 8,039,000 ) Expired — Exchanged — Ending balance as of September 30, 2025 26,300,616 Exercisable as of September 30, 2025 26,299,859 The weighted average exercise price of warrants outstanding as of September 30, 2025 was $ 2.77 . The weighted average exercise price of exercisable warrants outstanding as of September 30, 2025 was $ 2.77 . Warrants Granted January 2025 Public Offering As part of its compensation for acting as placement agent for the January Offering (refer to Note 9), the Company issued ThinkEquity warrants (the “Placement Agent Warrants”) to purchase 72,727 shares of common stock. The Placement Agent Warrants are exercisable commencing January 10, 2025 , expire January 8, 2030 and have an exercise price of approximately $ 17.1875 per share. The Placement Agent Warrants are classified as a contingently redeemable warrant in accordance with ASC 718, since these warrants did qualify for equity classification, but could be settled in cash or other assets in the event that another person or entity becomes the beneficial owner of 50 % of the outstanding shares of the Company’s common stock. Because this contingently redeemable feature could result in the warrant holders receiving additional compensation not on par with the holders of common stock, the Placement Agent Warrants were classified as temporary equity and therefore reported in “Mezzanine Equity” on the Company’s condensed consolidated balance sheets as of September 30, 2025. The measurement of fair value of the warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $ 7.31 , exercise price of $ 17.1875 , term of five years, volatility of 98 %, risk-free rate of 4.6 %, and expected dividend rate of 0 %). The proceeds of the January Offering were allocated to each of the warrants and the common stock based on their relative fair value. 24 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The grant date fair value of the warrants and shares of common stock on January 10, 2025 is summarized below and is reflected as temporary equity for the warrants and within additional paid-in capital for the common stock as of September 30, 2025. Instrument Grant Date Fair Value Common stock $ 19,663,008 Placement Agent Warrants $ 337,000 March 2025, June 2025 and September 2025 Public Offerings As part of the March Offering, June Offering and September Offering (refer to Note 9), the Company issued pre-funded warrants (the “Pre-funded Warrants”) to purchase up to an aggregate of 7,012,800 shares of common stock, and common warrants (the “Common Warrants”) to purchase up to an aggregate of 25,955,200 shares of common stock. Each Pre-funded Warrant was immediately exercisable upon issuance, has an exercise price of $ 0.001 per share and may be exercised at any time until all of the Pre-funded Warrants are exercised in full. Each Common Warrant was immediately exercisable upon issuance and expires on the fifth anniversary of the date of issuance. The Common Warrants issued in connection with the March Offering have an exercise price of $ 1.36 . The Common Warrants issued in connection with the June Offering and the September Offering have an exercise price of $ 2.00 . Upon closing of the March Offering and June Offering, the Company issued ThinkEquity, as partial compensation, warrants (the “Representative’s Warrants”) to purchase up to 147,060 and 457,150 shares of common stock, respectively. The Representative’s Warrants issued in connection with the March Offering and June Offering have an exercise price of $ 1.70 and $ 2.1875 per share, respectively. Upon closing of the September Offering, the Company issued ThinkEquity, as partial compensation, warrants (the “Placement Agent Warrants”) to purchase up to 625,000 shares of common stock at an exercise price of $ 2.00 per share. The Representative’s Warrants and the Placement Agent Warrants are exercisable, in whole or in part, immediately upon issuance until the five-year anniversary of the commencement of sales of securities in the March Offering, June Offering and September Offering, respectively. In connection with closing multiple exercises of the Over-Allotment Option during July 2025 (refer to Note 9), the Company issued ThinkEquity additional Representative’s Warrants to purchase an aggregate of 68,551 shares of common stock at an exercise price of $ 2.1875 per share with the same terms as the Representative’s Warrants issued in connection with the initial closing of the June Offering. The grant date fair value of the additional Representative’s Warrants was determined to be approximately $ 94,000 . Similar to the Placement Agent Warrants issued to ThinkEquity in connection with January Offering, as described above in this note section, the Representative’s Warrants and the Placement Agent Warrants issued in connection with the March Offering, June Offering and September Offering were determined to be temporary equity under ASC 718 and therefore reported in “Mezzanine Equity” on the Company’s condensed consolidated balance sheets. The Common Warrants and Pre-funded Warrants issued in connection with the March Offering, June Offering and September Offering were determined to be liability classified. The Common Warrants and Pre-funded Warrants were recognized at fair value at issuance, with a gain in change in fair value of approximately $ 2.2 million in the three months ended September 30, 2025 and a loss of $ 3.3 million for the nine months ended September 30, 2025 reported in “change in fair value of warrant liability” on the Company’s condensed consolidated statements of operations. The measurement of fair value of the Representative’s Warrants issued in connection with the March Offering was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $ 1.09 , exercise price of $ 1.70 , term of five years, volatility of 103 %, risk-free rate of 4 %, and expected dividend rate of 0 %). The measurement of fair value of the Common Warrants issued in connection with the March Offering was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $ 1.09 , exercise price of $ 1.36 , term of five years, volatility of 103 %, risk-free rate of 4 %, and expected dividend rate of 0 %). 25 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The measurement of fair value of the Representative’s Warrants issued in connection with the June Offering was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $ 1.66 , exercise price of $ 2.1875 , term of five years, volatility of 106 %, risk-free rate of 3.8 %, and expected dividend rate of 0 %). The measurement of fair value of the Common Warrants issued in connection with the June Offering was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $ 1.66 , exercise price of $ 2.00 , term of five years, volatility of 106 %, risk-free rate of 3.8 %, and expected dividend rate of 0 %). The measurement of fair value of the Placement Agent Warrants and Common Warrants issued in connection with the September Offering was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of issuance (i.e., share price of $ 1.51 , exercise price of $ 2.00 , term of five years, volatility of 109 %, risk-free rate of 3.6 %, and expected dividend rate of 0 %). The March Offering, June Offering and September Offering proceeds were allocated to each of the warrants and the common stock based on their relative fair value. The grant date fair value of the warrants and shares of common stock on March 31, 2025 (March Offering), June 26, 2025 (June Offering) and September 15, 2025 (September Offering) is summarized below in the aggregate and is reflected as temporary equity (“Mezzanine Equity”) for the Representative’s Warrants and Placement Agent Warrants, a warrant liability for the Common Warrants and Pre-funded Warrants, and within additional paid-in capital for the common stock as of September 30, 2025. Instrument Grant Date Fair Value March Offering Grant Date Fair Value June Offering Grant Date Fair Value September Offering Total Common stock $ 765 $ 6,231 10,575 $ 17,571 Warrants: Pre-funded Warrants $ 2,957,949 $ 5,092,738 $ 3,078,075 $ 11,128,762 Representative’s Warrants and Placement Agent Warrants $ 115,000 $ 572,000 $ 722,000 $ 1,409,000 Common Warrants $ 2,395,000 $ 13,334,000 $ 14,445,000 $ 30,174,000 Total Fair Value of Warrants Issued $ 5,467,949 $ 18,998,738 $ 18,245,075 $ 42,711,762 Given that the aggregate gross proceeds of approximately $ 20.0 million from the March Offering (approximately $ 4.0 million) and June Offering (approximately $ 16.0 million) was less than the total fair value of the warrants issued, the Company recorded a loss on excess fair value at issuance of approximately $ 4.5 million for the nine months ended September 30, 2025, which is reported in “warrant issuance expense” on the Company’s condensed consolidated statements of operations. Given that the gross proceeds of $ 20.0 million from the September Offering exceeded the total fair value of the warrants issued, the Company did not record a loss during the three months ended September 30, 2025. In addition, an aggregate of $ 0.8 million and $ 2.1 million of underwriting discounts and commissions and other expenses relating to the March Offering, June Offering and September Offering were allocated, based on the fair value at the time of issuance, to the warrant instruments for the three and nine months ended September 30, 2025, respectively, which is reported in “warrant issuance expense” on the Company’s condensed consolidated statements of operations. 26 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Warrants Exercised During the nine months ended September 30, 2025, 2,176,000 Pre-funded Warrants from the March Offering were exercised at an exercise price per share of $ 0.001 , resulting in the issuance of 2,176,000 shares of common stock and cash proceeds to the Company of $ 2,176 . During the nine months ended September 30, 2025, 2,884,500 Common Warrants from the March Offering were exercised at an exercise price per share of $ 1.36 , resulting in the issuance of 2,884,500 shares of common stock and cash proceeds to the Company of approximately $ 3.9 million. As of September 30, 2025, there were no Pre-funded Warrants and 56,700 Common Warrants outstanding from the March Offering. During the nine months ended September 30, 2025, 2,911,800 Pre-funded Warrants from the June Offering were exercised at an exercise price per share of $ 0.001 , resulting in the issuance of 2,911,800 shares of common stock and cash proceeds to the Company of $ 2,912 . During the nine months ended September 30, 2025, 66,700 Common Warrants from the June Offering were exercised at an exercise price per share of $ 2.00 , resulting in the issuance of 66,700 shares of common stock and cash proceeds to the Company of approximately $ 0.1 million. As of September 30, 2025, there were no Pre-funded Warrants and 10,447,330 Common Warrants outstanding from the June Offering. Note 13 - Segments The Company’s Chief Executive Officer, acting as the Chief Operating Decision Maker (“CODM”), regularly reviews and manages certain areas of its businesses , resulting in the Company 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 September 30, 2025 reporting date. Information on each of our reportable segments and reconciliation to consolidated loss from operations is presented in the table below. We have assigned certain previously reported expenses to each segment to conform to the way we internally manage and monitor our business. Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included expenses incurred for administrative and accounting staff, general liability and other insurance, accrued consulting fees and transaction bonuses relating to former Legacy Inpixon executives, professional fees and other similar corporate expenses. The following tables reflect the results of operations from our business segments for the periods indicated below (in thousands): Three Months Ended September 30, 2025 Industrial Commercial Unallocated IoT Aviation Costs Total Revenue $ 2,484 $ — $ — $ 2,484 Cost of revenues 1,407 — — 1,407 Gross Profit 1,077 — — 1,077 Operating expenses Research and development 536 1,449 — 1,985 Sales and marketing 669 847 1,225 2,741 General and administrative 792 283 10,031 11,106 Impairment of goodwill — — — — Impairment of intangible assets — — — — Other expenses (1) 43 8 3 54 Total operating expenses 2,040 2,587 11,259 15,886 Loss from operations $ ( 963 ) $ ( 2,587 ) $ ( 11,259 ) $ ( 14,809 ) 27 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended September 30, 2025 Industrial Commercial Unallocated IoT Aviation Costs Total Revenue $ 3,568 $ — $ — $ 3,568 Cost of revenues 1,673 — — 1,673 Gross Profit 1,895 — — 1,895 Operating expenses Research and development 1,696 3,953 — 5,649 Sales and marketing 1,986 1,180 2,101 5,267 General and administrative 1,849 970 19,615 22,434 Impairment of goodwill 4,049 — — 4,049 Impairment of intangible assets 631 — — 631 Other expenses (1) 148 24 34 206 Total operating expenses 10,359 6,127 21,750 38,236 Loss from operations $ ( 8,464 ) $ ( 6,127 ) $ ( 21,750 ) $ ( 36,341 ) (1) Other expenses include amortization of intangibles. Three Months Ended September 30, 2024 Industrial Commercial Unallocated IoT Aviation Costs Total Revenue $ 918 $ — $ — $ 918 Cost of revenues 398 — — 398 Gross Profit 520 — — 520 Operating expenses Research and development 609 619 — 1,228 Sales and marketing 472 29 518 1,019 General and administrative 615 ( 2,444 ) 4,122 2,293 Other expenses (2) 136 8 52 196 Total operating expenses 1,832 ( 1,788 ) 4,692 4,736 Income (loss) from operations $ ( 1,312 ) $ 1,788 $ ( 4,692 ) $ ( 4,216 ) Nine Months Ended September 30, 2024 Industrial Commercial Unallocated IoT Aviation Costs Total Revenue $ 2,169 $ — $ — $ 2,169 Cost of revenues 846 — — 846 Gross Profit 1,323 — — 1,323 Operating expenses Research and development 1,361 1,479 — 2,840 Sales and marketing 1,187 295 678 2,160 General and administrative 1,268 ( 1,125 ) 16,279 16,422 Other expenses (2) 295 6,512 114 6,921 Total operating expenses 4,111 7,161 17,071 28,343 Loss from operations $ ( 2,788 ) $ ( 7,161 ) $ ( 17,071 ) $ ( 27,020 ) (2) 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 is not reviewed by the CODM when assessing segment performance or allocating resources. 28 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 14 - Fair Value Measurements and Fair Value of Financial Instruments The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. These levels are: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and warrant liability. Cash and cash equivalents, accounts receivable and accounts payable are stated at their respective carrying amounts, which approximate fair value due to their short-term nature. The Company’s assets and liabilities measured at fair value consisted of the following at the periods indicated: Fair Value at September 30, 2025 Total Level 1 Level 2 Level 3 Liabilities: Warrant liability $ 28,228 $ — $ — $ 28,228 Total liabilities $ 28,228 $ — $ — $ 28,228 The fair value of the Level 3 warrant liability was determined by using a pricing model with certain significant unobservable market data inputs (refer to Note 12). The table below provides a summary of changes in the estimated fair value of the Company’s Level 3 warrant liability: Warrant Liability Balance as of January 1, 2025 $ — Pre-funded and Common Warrants issued in connection with the March Offering (Note 12) 5,353 Pre-funded and Common Warrants issued in connection with the June Offering (Note 12) 18,427 Pre-funded and Common Warrants issued in connection with the September Offering (Note 12) 17,523 Exercise of warrants ( 16,355 ) Change in fair value 3,280 Balance as of September 30, 2025 $ 28,228 The change in fair value of the warrant liability is presented within “Change in fair value of warrant liability” on the condensed consolidated statements of operations. 29 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 15 - 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 the country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands): United States Germany United Kingdom Eliminations Total For the Three Months Ended September 30, 2025: Revenues by geographic area $ 750 $ 1,873 $ — $ ( 139 ) $ 2,484 Operating loss by geographic area $ ( 14,125 ) $ ( 684 ) $ — $ — $ ( 14,809 ) Net loss by geographic area $ ( 12,761 ) $ ( 685 ) $ — $ — $ ( 13,446 ) For the Three Months Ended September 30, 2024: Revenues by geographic area $ 435 $ 622 $ — $ ( 139 ) $ 918 Operating loss by geographic area $ ( 3,167 ) $ ( 1,049 ) $ — $ — $ ( 4,216 ) Net loss by geographic area $ ( 3,389 ) $ ( 1,046 ) $ — $ — $ ( 4,435 ) For the Nine Months Ended September 30, 2025: Revenues by geographic area $ 1,348 $ 2,637 $ — $ ( 417 ) $ 3,568 Operating loss by geographic area $ ( 29,929 ) $ ( 6,410 ) $ ( 2 ) $ — $ ( 36,341 ) Net loss by geographic area $ ( 40,774 ) $ ( 6,400 ) $ ( 2 ) $ — $ ( 47,176 ) For the Nine Months Ended September 30, 2024: Revenues by geographic area $ 758 $ 1,689 $ — $ ( 278 ) $ 2,169 Operating loss by geographic area $ ( 25,146 ) $ ( 1,874 ) $ — $ — $ ( 27,020 ) Net loss by geographic area $ ( 19,886 ) $ ( 1,861 ) $ — $ — $ ( 21,747 ) As of September 30, 2025: Identifiable assets by geographic area $ 79,565 $ 19,451 $ — $ ( 51,085 ) $ 47,931 Long lived assets by geographic area $ 754 $ 900 $ — $ — $ 1,654 Goodwill by geographic area $ 2,227 $ 6,933 $ — $ — $ 9,160 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 30 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 16 - Related Party Transactions Consulting Agreement with David Brody David Brody, board member and founder of Legacy XTI, provided legal and strategic consulting services to Legacy XTI under a consulting agreement between Legacy XTI and Mr. Brody. Pursuant to an amendment to the consulting agreement entered into in January 2024, an outstanding payable amount of $ 320,000 was waived by Mr. Brody, and the consulting agreement terminated in connection with the closing of the XTI Merger. This forgiveness of a related party payable was accounted for as a capital contribution on the condensed consolidated statement of changes in stockholders’ equity. During the nine months ended September 30, 2024, Legacy XTI paid Mr. Brody consulting compensation of $ 20,000 . 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 . 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 was 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 (“CEO”). As the consulting agreement was terminated upon Mr. Pomeroy’s appointment as the Company’s CEO on March 12, 2024, no consulting compensation was accrued or paid to Mr. Pomeroy during the three months ended September 30, 2025 and 2024. During the nine months ended September 30, 2025 and 2024, the Company paid Mr. Pomeroy consulting compensation of $ 0 and $ 43,750 , respectively. Transactions with AVX Aircraft Company On August 27, 2024, the Company entered into an amended and restated letter agreement with AVX Aircraft Company (“AVX”), which amends and restates the original letter agreement, dated as of March 25, 2024, by and between the Company and AVX, as subsequently amended, pursuant to which AVX provides consulting and advisory services to the Company relating to the development and design of the TriFan 600 airplane in exchange for the payment of costs incurred by AVX (with a target cost of approximately $ 960,000 ) plus a fixed fee of 12 % of such costs (approximately $ 115,000 ) for a total payment of up to approximately $ 1.1 million. The Company pays AVX for its actual costs plus the 12 % fixed fee on a monthly basis. The Company’s Chairman and Chief Executive Officer, Scott Pomeroy, and board member, David Brody, also sit on the five-member board of AVX. Additionally, as of the date of this report, Mr. Brody and his spouse together own approximately 26 % of the issued and outstanding shares of AVX. As a result of a legal financial separation between Mr. Brody and his spouse, Mr. Brody holds approximately 7 % of the voting power of the outstanding securities of AVX and Mr. Brody’s spouse holds approximately 19 % of the voting power of the outstanding securities of AVX. As of the date of this report, Mr. Pomeroy owns restricted stock units of AVX which amount to less than 5 % of the outstanding shares of AVX on a fully diluted basis. During the nine months ended September 30, 2025, the Company did not accrue or pay AVX any consulting fees. During the year ended December 31, 2024, the Company paid AVX approximately $ 0.9 million in consulting fees, which included advance deposits for future services. As of 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 condensed consolidated balance sheets. In April 2025, the deposit balance of approximately $ 0.5 million was returned to the Company. As of the date of this report, neither Mr. Brody nor Mr. Pomeroy has received, and neither is entitled to receive, any compensation or other consideration from AVX, in connection with services provided by AVX to the Company or otherwise. On April 18, 2025, XTI Aircraft Company entered into a novation agreement with AVX and a recruiting firm, pursuant to which AVX assigned to XTI Aircraft Company all of AVX’s rights and obligations under a talent acquisition engagement agreement with the recruiting firm and, as a result, the recruiting firm assisted XTI Aircraft Company in hiring an executive for fees of approximately $ 0.1 million, which were incurred subsequent to September 30, 2025. Agreements with Nadir Ali On March 12, 2024, the Company entered into a consulting agreement with Nadir Ali (the “Ali Consulting Agreement”), the Company’s former Chief Executive Officer. Mr. Ali, through 3AM, held shares of the Company’s Series 9 Preferred Stock as disclosed in Note 10. 31 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS During the three months ended September 30, 2025 and 2024, the Company recognized compensation expense of $ 0 and approximately $ 1.0 million, respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations, relating to the Ali Consulting Agreement. During the nine months ended September 30, 2025 and 2024, the Company recognized compensation expense of approximately $ 2.3 million and $ 2.6 million, respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations, relating to the Ali Consulting Agreement. As of December 31, 2024, the Company owed Mr. Ali accrued consulting fees of approximately $ 0.2 million, which is included in accounts payable on the accompanying consolidated balance sheets. Pursuant to the Settlement Agreement (see “ Settlement Agreement ” below in this note), as of September 30, 2025, the Company owed Mr. Ali accrued consulting fees of $ 0.5 million, which is included in accounts payable on the accompanying condensed consolidated balance sheets. On July 24, 2023, the compensation committee of the Board of Legacy Inpixon adopted a Strategic Transaction Bonus Plan, which was amended on March 11, 2024 (the “Strategic Transaction Bonus Plan”), and was intended to provide incentives to certain employees, including Mr. Ali, and other service providers to remain with the Company through the consummation of a qualifying transaction. As of December 31, 2024, the Company had a transaction bonus obligation of approximately $ 2.1 million payable to Mr. Ali, which is included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. On March 31, 2025, the Company repaid the remaining transaction bonus obligation to Mr. Ali pursuant to the Settlement Agreement (see “ Settlement Agreement ” below in this note). Settlement Agreement On March 27, 2025 (the “Effective Date”), the “Company entered into a settlement agreement (the “Settlement Agreement”) with 3AM, Grafiti Group LLC (“Grafiti Group”) and Nadir Ali. The terms of the Settlement Agreement include: ● Termination of Ali Consulting Agreement. The Settlement Agreement provides that effective as of the Effective Date, the Ali Consulting Agreement was terminated, and in lieu of the $ 2,775,000 (the “Ali Advisory Fees”) that would be owed to Mr. 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 Mr. 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 each on June 30, 2025, September 30, 2025 and December 30, 2025. 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 Mr. Ali or his affiliated parties pursuant to the Ali Consulting Agreement. On March 31, 2025, the Company paid the Outstanding Amount of $ 60,000 in full. On June 30, 2025, the Company paid the first $ 500,000 installment of the Deferred Amount. On September 30, 2025, the Company paid the second $ 500,000 installment of the Deferred Amount. As of September 30, 2025, a Deferred Amount of $ 500,000 remained 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 that, as of the Effective Date, remained payable to the recipients of bonuses payable pursuant to the Strategic Transaction Bonus Plan together with (ii) an aggregate amount of $ 303,372.87 that, as of the Effective Date, was payable to Wendy Loundermon, the Company’s former Chief Financial Officer and a former director of the Company, pursuant to that certain Consulting Agreement, dated March 12, 2024, by and between the Company and Ms. Loundermon. On March 31, 2025, the Company paid the Former Management Payments in full. 32 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ● Preferred Stock Redemption. Pursuant to the Settlement Agreement, on the Effective Date, the Company delivered the aggregate amount of approximately $ 1.3 million (the “Series 9 Redemption Amount”) to Mr. Ali for the redemption of 1,164.12 shares of Series 9 Preferred Stock outstanding as of such date. Following Mr. Ali’s receipt of the Series 9 Redemption Amount, Mr. Ali no longer held any shares of Series 9 Preferred Stock. ● Mutual Release. As of the Effective Date, Mr. 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 from all claims arising out of any obligations of the Company with respect to the Ali Consulting Agreement, that certain securities purchase agreement, dated as of March 12, 2024 (the “Series 9 Purchase Agreement”), by and between the Company and 3AM, and the portion of the Strategic Transaction Bonus Plan relating to Mr. Ali, from the beginning of time through and including the date on which the Company has delivered all payments due under the Settlement Agreement (the “Completion Date”). As of the Effective Date, the Company agreed to release the Ali Parties from all claims arising out of any obligations of the Ali Parties with respect to 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 Strategic Transaction Bonus Plan relating to Mr. Ali, 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. Grafiti Group Divestiture On February 21, 2024, Legacy Inpixon completed the disposition of the remaining portion of the Shoom, SAVES, and Game Your Game business lines and assets in accordance with the terms and conditions of the Equity Purchase Agreement. Pursuant to the terms of the Equity Purchase Agreement, Grafiti Group acquired 100 % of the equity interest in Grafiti LLC, including the assets and liabilities primarily relating to Legacy Inpixon’s SAVES, Shoom and Game Your Game business, including 100 % of the equity interests of Inpixon India, Grafiti GmbH (previously Inpixon GmbH) and Game Your Game, Inc., from the Company for a minimum purchase price of $ 1.0 million to be paid in two annual cash installments of $ 0.5 million due within 60 days after December 31, 2024 and 2025 (the “Grafiti Purchase Amount”). The purchase price and annual cash installment payments were to be (i) decreased for the amount of transaction expenses assumed; and (ii) increased or decreased by the amount of working capital of Grafiti LLC on the closing balance sheet is greater or less than $ 1.0 million. As of December 31, 2024, $ 0.5 million of the receivable is included in current assets as other receivables on the Company’s condensed consolidated balance sheets, and the remaining $ 0.5 million of the receivable is included in long term assets as other assets on the Company’s consolidated balance sheets. Pursuant to the Settlement Agreement dated March 27, 2025 (see “ Settlement Agreement ” above in this note), the Company agreed that, effective as of the Effective Date of the Settlement Agreement, the Grafiti Purchase Amount shall be deemed to be satisfied in full and no further amounts shall be payable to the Company by Grafiti Group or any of its affiliated parties pursuant to the Equity Purchase Agreement. As such, there are no receivables due from Grafiti Group or any of its affiliates reported in the Company’s condensed consolidated balance sheets as of September 30, 2025. Note 17 - Commitments and Contingencies Advisory Agreement On May 13, 2025, the Company entered into an advisory agreement with a third-party advisor, pursuant to which the Company agreed to pay $ 85,000 in cash and issue 125,000 shares of restricted common stock, subject to certain registration rights, to the advisor in consideration for financial advisory services agreed to be rendered to the Company pursuant to the advisory agreement. During the three months ended June 30, 2025, the Company paid the $ 85,000 cash fee and issued 125,000 shares of common stock to the third-party advisor. Fifty percent of the initial cash fee payment, or $ 42,500 , was subsequently waived and returned to the Company as part of the June Offering closing. 33 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In addition, the Company agreed to reimburse the advisor for all reasonable travel and other out-of-pocket expenses incurred in connection with the advisory agreement up to a maximum of $ 15,000 , subject to certain exceptions. The Company also agreed to: (1) pay the advisor a customary fee tail during the 12-month period following the termination or expiration of the advisory agreement, if applicable; (2) pay an M&A cash fee to the advisor during the term equal to 3 % of the aggregate consideration to the extent the Company enters into a merger or acquisition with a party initially introduced by the advisor to the Company; and (3) indemnify the advisor in in accordance with the terms and conditions of the advisory agreement. The advisory agreement has a term of 180 days, subject to early termination or further extension, each upon the mutual consent of the parties. 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. Xeriant Matter On December 6, 2023, Xeriant, Inc. (“Xeriant”) filed a complaint in the United States District Court for the Southern District of New York against Legacy XTI, two unnamed entities, and five unnamed individuals. On January 31, 2024, Xeriant filed an amended complaint adding the Company as a defendant. On February 29, 2024, Xeriant filed a second amended complaint, removing the Company and one of the unnamed entities as defendants. The second amended complaint alleges that Legacy XTI breached several agreements with Xeriant, including a Joint Venture Agreement dated May 31, 2021, a cross-patent license agreement, an operating agreement, and a letter dated May 17, 2022, which Xeriant claims arose from its introduction of Legacy XTI to a Nasdaq-listed company as a potential acquirer. Xeriant further alleges that it provided intellectual property, expertise, and capital in connection with Legacy XTI’s TriFan 600 aircraft and was improperly excluded from a subsequent transaction involving the TriFan 600 technology as part of Legacy XTI’s merger with the Company. Xeriant asserts causes of action for breach of contract, fraud, unjust enrichment, and misappropriation of confidential information, and seeks damages in excess of $ 500 million, along with injunctive and other equitable relief. On March 13, 2024, Legacy XTI moved to dismiss portions of the second amended complaint. The Court denied that motion on January 14, 2025. Legacy XTI filed its answer on January 28, 2025, and subsequently filed an amended answer and counterclaims on February 18, 2025. The amended counterclaims, further amended on April 14, 2025, allege that Xeriant breached the Joint Venture Agreement by failing to make required capital contributions of approximately $ 4.6 million and by failing to deliver promised intellectual property and strategic support. Legacy XTI further alleges that Xeriant breached its fiduciary duty by engaging in coercive and self-dealing conduct, including conditioning a strategic introduction on the issuance of equity and the assumption of debt. Legacy XTI seeks declaratory relief confirming that the joint venture has been terminated, that all intellectual property related to the TriFan 600 belongs solely to Legacy XTI, and that Xeriant has no rights in the TriFan 600 technology. On April 28, 2025, Xeriant moved to dismiss XTI’s second amended counterclaims. On September 23, 2025, the Court denied Xeriant’s motion, concluding that XTI plausibly alleged claims against Xeriant for breach of contract, breach of fiduciary duty, and declaratory judgment. The Court found that XTI had adequately pleaded that Xeriant was obligated to contribute $ 10 million in funding to the joint venture and that it acted disloyally by leveraging a potential merger opportunity for its own benefit. On July 10, 2025, XTI filed a letter motion requesting a conference to address: (i) ongoing deficiencies in Xeriant’s discovery responses; and (ii) Xeriant’s untimely service of discovery requests on XTI, which were served more than three months after the applicable deadline. The Court granted XTI’s letter motion the same day, and held a conference on July 18, 2025. During the conference, the Court ordered: (i) an extension of all discovery deadlines by three months, through November 24, 2025; (ii) an extension of expert discovery through February 16, 2026; and (iii) that the parties finalize a protective order and Electronically Stored Information (“ESI”) protocol by July 25, 2025. The parties subsequently submitted a stipulated protective order and ESI protocol, which the Court entered on July 28, 2025. On September 10, 2025, XTI filed a second letter motion to compel discovery based on Xeriant’s ongoing failure to comply with its discovery obligations, including its refusal to engage a qualified e-discovery vendor and produce electronically stored information in accordance with the Court-ordered ESI Protocol. By order dated October 23, 2025, the Court granted XTI’s motion and compelled Xeriant to conduct ESI discovery in compliance with the ESI Protocol, warning that continued noncompliance could result in dismissal of Xeriant’s case. 34 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Auctus Matter In connection with the “Xeriant Matter” described above, on June 12, 2024, the Company received correspondence from legal counsel for Auctus Fund, LLC (“Auctus”), dated April 3, 2024, asserting that the Company and/or Legacy XTI may have assumed Xeriant’s obligations under a Senior Secured Promissory Note (the “Note”) issued by Xeriant to Auctus in the original principal amount of $ 6,050,000 , pursuant to a letter agreement dated May 17, 2022, between Xeriant and Legacy XTI (the “May 17 letter”). Auctus claimed that the outstanding amount due under the Note, including accrued interest, was $ 8,435,008.81 as of April 3, 2024. In July 2024, Legacy XTI responded to Auctus’s claims, asserting that the May 17 letter is invalid and unenforceable on multiple grounds. Legacy XTI further stated that, even if the May 17 letter were enforceable, it did not create or trigger any obligation for Legacy XTI to assume Xeriant’s debt under the Note or otherwise. On May 13, 2025, Auctus filed a lawsuit against Legacy XTI in the District Court of Arapahoe County, Colorado, asserting a single claim for breach of contract based on its prior allegations. Auctus contends that Legacy XTI is contractually obligated to repay nearly $ 9 million in principal and accrued interest, based on Legacy XTI’s entry into a loan agreement with Legacy Inpixon in March 2023 and its subsequent merger with Legacy Inpixon in March 2024. On June 25, 2025, Legacy XTI filed a motion to dismiss or, in the alternative, to stay the proceedings pending resolution of the Xeriant litigation. Legacy XTI’s motion asserts that Auctus’ complaint should be dismissed: (i) for lack of standing, because Auctus is neither a party to, nor a third-party beneficiary of, the May 17 letter; (ii) for failure of a condition precedent, because no obligation ever arose in that the alleged triggering condition—a business combination involving Legacy XTI and Legacy Inpixon did not occur within the required one-year time frame; (iii) for lack of valid assignment, because Xeriant’s unilateral assignment of debt to Legacy XTI is void because the underlying Note prohibits assignment without Auctus’s prior written consent, which is not alleged. On August 5, 2025, Auctus filed a response arguing that it was an intended third-party beneficiary of the May 17 letter, that the anti-assignment clause does not bar its claims, and that the request for a stay is unwarranted because the Xeriant litigation involves different parties and broader claims. On September 12, 2025, Legacy XTI filed a Reply Brief reinforcing that Auctus lacks standing, that no obligation ever arose under the May 17 Letter because no qualifying transaction occurred within its one-year term, and that any purported transfer of debt is void under the Note’s anti-assignment clause. The Reply also emphasized that the enforceability of the May 17 Letter is already before the Southern District of New York and urged dismissal or a stay to avoid inconsistent rulings. On October 2, 2025, Legacy XTI filed a Notice of Supplemental Authority submitting the September 23, 2025 Order of the U.S. District Court for the Southern District of New York, which denied Xeriant’s motion to dismiss Legacy XTI’s counterclaims and held that XTI had plausibly alleged that the May 17 Letter expired by its terms and is unenforceable. Legacy XTI asserted that the SDNY ruling directly supports dismissal or a stay because it confirms that the same alleged contract and issues raised by Auctus are already being adjudicated in the federal case. On November 7, 2025, the court denied Legacy XTI’s motion to dismiss or, in the alternative, stay the proceedings. The court held that, when viewing the allegations in the light most favorable to Auctus, the complaint plausibly stated claims for relief under Colorado’s notice-pleading standard. The court further denied XTI’s alternative request for a stay, reasoning that the parties were not identical to those in the federal action and therefore comity and judicial economy did not warrant a stay. The court nonetheless directed the parties to update it regarding the outcome of the federal case to the extent it may be dispositive of overlapping issues. Legacy XTI’s answer to the complaint is due November 21, 2025. The Company will continue to vigorously defend against the claims but cannot predict the timing or outcome of the proceedings or estimate any potential exposure. No accrual has been recorded for the Xeriant and Auctus matters as at this time, management cannot reasonably estimate the possible loss or range of loss. Should circumstances change, the Company will record an accrual in the period such determination is made. Settlement Agreement with Chardan On or about August 1, 2024, Chardan Capital Markets LLC (“Chardan”) commenced an arbitration (the “Arbitration”) before the Financial Industry Regulatory Authority against the Company and Legacy XTI, related to an engagement letter, dated as of June 7, 2022, by and between Chardan and Legacy XTI, as amended (the “Engagement Letter”). On or about June 13, 2025, Legacy XTI filed a counterclaim against Chardan for breach of contract. On July 8, 2025, Chardan, on the one hand, and the Company and Legacy XTI, on the other hand, entered into a settlement agreement (the “Chardan Settlement Agreement”), pursuant to which the parties agreed to resolve and settle all claims and matters between them. Pursuant to the Chardan Settlement Agreement, simultaneous with the execution thereof, (i) Chardan, the Company and Legacy XTI entered into a mutual release, pursuant to which, Chardan, on the one hand, and the Company and Legacy XTI, on the other hand, released each other from all claims against each other, including all claims related to the Arbitration, and (ii) counsel for the parties executed a joint stipulation whereby Chardan and Legacy XTI agreed to dismiss with prejudice all claims asserted against each other with respect to the Arbitration, which was filed in the Arbitration. None of the parties made any payments in connection with the Chardan Settlement Agreement and, pursuant to the Chardan Settlement Agreement, the parties agreed that none of the parties owes each other any amount or debt. Pursuant to the Chardan Settlement Agreement, the parties also agreed that the Engagement Letter is terminated and is of no further force or effect. 35 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 18 - 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 Three Months Ended September 30, For the Nine Months Ended September 30, 2025 2024 2025 2024 Net Loss $ ( 13,446 ) $ ( 4,435 ) $ ( 47,176 ) $ ( 21,747 ) Less: Preferred stock return — ( 185 ) ( 29 ) ( 496 ) Less: Deemed dividend — ( 54 ) — ( 514 ) Net Loss Attributable to Common Stockholders, Basic and Diluted $ ( 13,446 ) $ ( 4,674 ) $ ( 47,205 ) $ ( 22,757 ) Net Loss Per Share, Basic and Diluted $ ( 0.61 ) $ ( 33.40 ) $ ( 4.33 ) $ ( 308.53 ) Weighted Average Shares Outstanding, Basic and Diluted 22,065,141 139,944 10,914,152 73,759 The basic earnings per share calculation for the three months ended September 30, 2025 included 1,925,000 shares of common stock issuable upon exercise of Pre-funded Warrants that were issued in connection with the September Offering. The basic earnings per share calculation for the nine months ended September 30, 2025 included 2,176,000 , 2,911,800 , and 1,925,000 shares of common stock, respectively, issuable upon exercise of Pre-funded Warrants that were issued in connection with the March Offering, June Offering, and September Offering. These Pre-funded Warrants are considered penny warrants as the exercise price is $ 0.001 ; therefore, they are included in the basic earnings per share calculation. The basic earnings per share calculation for the three months ended September 30, 2024 included 839 penny warrant shares, since the exercise price was $ 0.01 per share. The basic earnings per share calculation for the nine months ended September 30, 2024 included 2,434 penny warrants shares. Additionally, the basic earnings per share calculation for the nine months ended September 30, 2024 included 1,194 shares of common stock that were issuable to Xeriant related to the joint venture arrangement that expired by its term on May 31, 2023. The shares were issued to Xeriant for no additional consideration immediately prior to the XTI Merger. The following potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2025 2024 2025 2024 Options 2,914,464 51,274 1,015,818 23,165 Warrants 13,409,149 1,116 5,575,262 1,828 Convertible preferred stock 2 2 2 2 Convertible notes — — — 1,383 Total 16,323,615 52,392 6,591,082 26,378 Note 19 - Subsequent Events Management has evaluated subsequent events through the date of issuance of this Quarterly Report on Form 10-Q. Warrant Exercises Subsequent to September 30, 2025, 1,925,000 Pre-funded Warrants from the September Offering were exercised at an exercise price per share of $ 0.001 , resulting in the issuance of 1,925,000 shares of common stock. As of the date of this report, there are no Pre-Funded Warrants from the September Offering remaining. 36 XTI AEROSPACE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Valkyrie Investment and the Vanguard Platform On October 27, 2025, the Company and Valkyrie Sciences Holdings LLC (“Valkyrie”), a company developing enterprise solutions via the integration of artificial intelligence and advanced materials, announced the Vanguard Platform, an intelligent technology system for the next generation of VTOL aircraft. The Vanguard Platform will apply Valkyrie’s experience with graphene and composite materials, battery technology, and smart systems architecture to the Company’s TriFan 600 program. In connection with this collaboration, on October 21, 2025, the Company made a $ 2 million strategic investment in Valkyrie through the purchase of a convertible promissory note (the “Valkyrie Note”) with an initial principal amount of $ 2 million issued by Valkyrie. Valkyrie and its affiliate Valkyrie Andromeda Corporation (together with Valkyrie, the “Borrower”) are jointly and severally liable under the Valkyrie Note. Interest accrues on the outstanding principal amount at the lesser of 10 % per annum or the maximum rate permissible by law. The outstanding principal amount, together with any accrued but unpaid interest, is due and payable on December 31, 2026 (the “Maturity Date”). After a Qualified Financing (as defined in the Valkyrie Note) and if the Company does not elect to convert the Valkyrie Note, the Company may, prior to the Maturity Date, elect to require the Borrower to pay the remaining balance of the Valkyrie Note within 60 days after the delivery of the election notice to Valkyrie. Acquisitions of Drone Nerds and Anzu Robotics On November 10, 2025, XTI Drones Holdings, LLC (“XTI Drones Holdings”), a subsidiary of the Company’s wholly-owned subsidiary, XTI Drones, LLC, acquired 100 % of the issued and outstanding equity interests of two enterprise drone solutions providers, Drone Nerds, LLC (“Drone Nerds”), a Florida limited liability company, and Anzu Robotics, LLC (“Anzu Robotics”), a Delaware limited liability company (the “Acquisition”) for total purchase consideration of $ 40.0 million, which was comprised of $ 20.0 million in cash, $ 11.9 million in the form of two promissory notes (including approximately $ 1.6 million in working capital adjustments), and $ 9.7 million in the form of equity consideration, specifically an aggregate of 6,524,576 Class B Units of XTI Drones Holdings (the “Class B Units”). Drone Nerds is one of the largest drone distributors and solutions providers in the United States. Drone Nerds specializes in the wholesale, retail and e-commerce sale of advanced drone systems and related technologies serving commercial, governmental, and consumer markets, including public safety, construction, energy, and agriculture. The company operates both an online sales platform and a retail location in South Florida and maintains one of the largest drone inventories in the U.S., representing over 30 leading brands. Through its nationwide network of sales, marketing, and service professionals, Drone Nerds delivers comprehensive enterprise drone solutions that improve operational performance and data-driven decision-making for its customers. The Class B Units of XTI Drones Holdings are exchangeable at any time after May 1, 2026 for shares of the Company’s common stock on a one-for-one basis, provided that such exchange ratio is subject to equitable adjustments for stock splits, stock dividends, reclassifications and similar transactions affecting the Company’s common stock. In addition, on the date that is 15 months after November 10, 2025, all outstanding Class B Units will automatically be exchanged for shares of the Company’s common stock on a one-for-one basis, subject to the foregoing adjustments. The Drone Nerds and Anzu Robotics sellers entered into lock-up agreements pursuant to which they agreed not to, without the Company’s prior consent, sell, transfer or dispose of any shares of common stock until November 10, 2026. Following the exchange of all outstanding Class B Units into shares of common stock, XTI Drones, LLC will own 100 % of the membership interests of XTI Drones Holdings, and Drone Nerds and Anzu Robotics will be indirect, wholly-owned subsidiaries of the Company. The Company incurred fees of approximately $ 1.2 million owed to ThinkEquity LLC as compensation for advisory services in connection with the Acquisition. Issuance of Series 10 Convertible Preferred Stock On November 10, 2025, the Company entered into a Securities Purchase Agreement with Unusual Machines, Inc. pursuant to which the Company issued Unusual Machines, Inc. 25,000 shares of Series 10 Convertible Preferred Stock, par value $ 0.001 per share (the “Series 10 Preferred”), at a stated value of $ 1,000 per share, for aggregate gross proceeds of $ 25.0 million in a private placement that closed on November 12, 2025. The Company received net proceeds from the Series 10 financing of approximately $ 23.1 million, after deducting the placement agent fees and other expenses payable by the Company of approximately $ 1.9 million. The Series 10 Preferred carries a 12 % cumulative dividend, payable quarterly in cash, common stock, or in kind through accretion to stated value; provided that the payment of the dividend in common stock is subject to the receipt of shareholder approval. The right to such preferential dividend expires on the two-year anniversary of the original issuance date of the Series 10 Preferred. Each share will be convertible into common stock at a conversion price of $ 1.492 per share, subject to adjustment as set forth in the Series 10 Preferred certificate of designation (the “Certificate of Designation”), upon receipt of shareholder approval, at which time all shares will automatically convert. Conversions are subject to a beneficial ownership limitation of 4.99 % (or 9.99 % at holder election). If conversion would exceed such limit, the Company may, at the election of the holder, issue pre-funded warrants in lieu of conversion shares or such shares will be held by the Company in abeyance for the benefit of such holder. The Series 10 Preferred includes a Fundamental Transaction clause providing that holders receive equivalent consideration on the same basis as common shareholders. The Series 10 Preferred has no redemption rights and may be settled only through equity conversion. The Series 10 Preferred has no voting rights, except as required by law and for certain customary protective provisions set forth in the Certificate of Designation. ThinkEquity acted as the Company’s placement agent in connection with the Series 10 Preferred financing. As compensation, the Company paid ThinkEquity $ 1,750,000 of placement agent fees, reimbursed ThinkEquity for $ 175,000 of actual out-of-pocket offering expenses, and issued ThinkEquity and its designees warrants to purchase an aggregate of 837,801 shares of common stock at an exercise price of $ 1.492 per share, equal to the Series 10 Preferred conversion price. The warrants were immediately exercisable upon closing and expire five years from the date of issuance. The Company’s obligation to issue shares upon exercise of the warrants is subject to its receipt of shareholder approval. If a holder exercises its warrants prior to the date that shareholder approval is obtained, such holder will receive the right to receive on the shareholder approval date the number of shares of common stock so issuable upon such exercise and, on the shareholder approval date, the Company will issue such shares to such holder. 37 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, particularly in Part II, Item 1A, “Risk Factors.” Overview of Our Business We are primarily an aircraft development company focused on the design and commercialization of vertical takeoff and landing (“VTOL”) aircraft. We also provide real-time location systems (“RTLS”) for industrial applications and, through our wholly-owned subsidiary, XTI Drones, LLC, offer drone distribution and technology solutions via our recent acquisitions of Drone Nerds, LLC and Anzu Robotics, LLC (see “ Recent Events ”). Headquartered in Englewood, Colorado, the Company is developing a VTOL airplane that is designed to take off and land like a helicopter and cruise like a fixed-wing business airplane. We believe our initial configuration, the TriFan 600 airplane, will be one of the first civilian fixed-wing VTOL airplanes that offers the speed and comfort of a business airplane and the range and versatility of VTOL for a wide range of customer applications, including private aviation for business and high net worth individuals, emergency medical services and regional charter air travel, defining a new category of VTOL that we term the “xVTOL.” The TriFan 600 is a seven-occupant airplane intended to provide point-to-point air travel over distances of over 1,000 miles, fly at twice the speed and three times the range of competing helicopters and cruise at altitudes of up to 25,000 feet. Since 2013, we have been engaged primarily in developing the aerodynamic performance and top-level engineering design of the TriFan 600, building and testing a two-thirds scale unmanned version of the TriFan 600, generating pre-orders for the TriFan 600, and seeking funds from investors to enable the Company to advance the detailed design and certification of the TriFan 600, and to eventually engage in commercial production and sale of the TriFan 600. We continue to work to optimize our airplane design for both manufacturing and certification. The development of an xVTOL airplane that meets our business requirements demands significant design and development efforts on all facets of the airplane. We believe that by bringing together a mix of talent with VTOL and traditional commercial aerospace backgrounds, we have built a team that enables us to move through the design, development, and certification of our xVTOL airplane with the Federal Aviation Administration (“FAA”) in an efficient manner, thus allowing us to achieve our end goal of bringing to market our airplane as efficiently as possible. To date, we have not generated any revenue from aircraft sales because we are still designing and developing our xVTOL airplane. Additionally, we are seeking the necessary governmental approvals to bring the airplane into service. To continue funding these efforts, we will need to raise capital for the foreseeable future. The amount and timing of our future capital needs will depend on various factors, including the progress and results of our airplane’s design and development, our manufacturing operations, and our success in obtaining the required FAA certifications and other government approvals. For instance, any significant delays in securing FAA certifications or other government approvals may force us to raise more capital and could postpone our ability to generate revenue from aircraft sales. 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. Drone Nerds, LLC (“Drone Nerds”), a Florida limited liability company founded in 2014 and headquartered in Dania Beach, Florida, is one of the largest drone distributors and solutions providers in the United States. Drone Nerds specializes in the wholesale, retail and e-commerce sale of advanced drone systems and related technologies serving commercial, governmental, and consumer markets, including public safety, construction, energy, and agriculture. The company operates both an online sales platform and a retail location in South Florida and maintains one of the largest drone inventories in the U.S., representing over 30 leading brands. Through its nationwide network of sales, marketing, and service professionals, Drone Nerds delivers comprehensive enterprise drone solutions that improve operational performance and data-driven decision-making for its customers. We currently report financial results for two segments: Commercial Aviation and Industrial IoT. For Industrial IoT, we generate revenue from sales of hardware, software licenses and professional services. During the quarter ended December 31, 2024, we began exploring strategic options to wind down and/or sell the hardware portions of our Industrial IoT business segment in order to shift our focus towards the sales of software products. For Commercial Aviation, the segment is pre-revenue as we are currently developing the TriFan 600 airplane. As of the date of this filing, we have not yet assessed the impact of the recent acquisitions of Drone Nerds and Anzu Robotics to our future segment reporting. 38 Key Factors Affecting Operating Results We believe that the growth of our business and our future success are dependent upon many factors, including our ability to retain and develop engineering internal and third-party resources, secure strategic partnerships with suppliers, expand the number of customer purchase orders, locate a facility for further aircraft development and testing, expand on that facility or locate to a new facility for commercial production, build-out production assembly lines in a timely manner, develop ancillary service offerings related to the TriFan 600 such as flight training and maintenance products, and secure the needed financing to achieve FAA certification. While each of these areas presents significant opportunities for us, they also pose material challenges and risks that we must successfully address to achieve FAA certification of the TriFan 600 and further reach our current aircraft delivery forecasts. Corporate Strategy Update Our primary focus is to power what we term the Vertical Economy™ by delivering high-performance xVTOL solutions that scale from aircraft to innovative technologies and infrastructure. We identify seven areas that comprise the Vertical Economy: manned aircraft, unmanned aircraft, power technology, airspace and infrastructure management, artificial intelligence, aircraft advanced materials and next gen manufacturing. The term “xVTOL” is intended to encompass the broad spectrum of vertical lift technologies within the Vertical Economy, including various aircraft types (e.g., electric VTOL, regional VTOL and drones), operational models (manned and unmanned), supporting technologies (e.g., propulsion systems and aerospace-related artificial intelligence technologies) and customer applications. With the TriFan 600 as our flagship commercial aviation product, we are laying the groundwork for an innovative family of versatile aircraft and solutions addressing passenger travel, logistics, autonomous operations and defense missions that we believe will unlock significant growth and market leadership. Expanding into autonomous, remotely operated drones via the acquisition of Drone Nerds was key to our strategic focus. By combining drone technology with VTOL innovation, we believe we are positioning the Company to accelerate the development of both unmanned aerial vehicles and VTOL solutions, expand its market presence, and create new revenue-generating opportunities across multiple industries. We will also be opportunistic and may consider other strategic transactions, which may include, but not be limited to, other alternative investment opportunities, such as minority investments and joint ventures. If we make any acquisitions in the future, we expect that we may pay for such acquisitions with cash, equity securities and/or debt in combinations appropriate for each acquisition. Recent Events Acquisitions of Drone Nerds and Anzu Robotics On November 10, 2025, XTI Drones Holdings, LLC, a Texas limited liability company (“XTI Drones Holdings”) and a subsidiary of our wholly-owned subsidiary, XTI Drones, LLC, acquired 100% of the issued and outstanding equity interests of two enterprise drone solutions providers, Drone Nerds (as defined above) and Anzu Robotics, LLC, a Delaware limited liability company (“Anzu Robotics”), pursuant to the terms of two separate membership interest purchase agreements (such transactions, respectively, the “Drone Nerds Acquisition” and the “Anzu Robotics Acquisition” and collectively, the “Acquisitions”), in exchange for aggregate consideration consisting of (i) approximately $20.0 million in cash, (ii) approximately $11.9 million in the form of two promissory notes (including approximately $1.6 million in working capital adjustments) and (iii) an aggregate of 6,524,576 Class B Units of XTI Drones Holdings (the “Class B Units”) with a fair market value of approximately $9.7 million. The aggregate purchase price for each Acquisition is subject to customary post-closing adjustments. The Class B Units of XTI Drones Holdings are exchangeable at any time after May 1, 2026 for shares of the Company’s common stock on a one-for-one basis, provided that such exchange ratio is subject to equitable adjustments for stock splits, stock dividends, reclassifications and similar transactions affecting the Company’s common stock. In addition, on the date that is 15 months after November 10, 2025, all outstanding Class B Units will automatically be exchanged for shares of the Company’s common stock on a one-for-one basis, subject to the foregoing adjustments. The Drone Nerds and Anzu Robotics sellers entered into lock-up agreements pursuant to which they agreed not to, without the Company’s prior consent, sell, transfer or dispose of any shares of common stock until November 10, 2026. Following the exchange of all outstanding Class B Units into shares of common stock, XTI Drones, LLC will own 100% of the membership interests of XTI Drones Holdings, and Drone Nerds and Anzu Robotics will be indirect, wholly-owned subsidiaries of the Company. The Company incurred fees of approximately $1.2 million owed to ThinkEquity LLC as compensation for advisory services in connection with the transactions contemplated by the purchase agreements. 39 Private Placement Investment by Unusual Machines On November 10, 2025, the Company entered into a Securities Purchase Agreement (the “PIPE Purchase Agreement”) with Unusual Machines, Inc., a Nevada corporation (“Unusual Machines”), pursuant to which the Company sold Unusual Machines 25,000 shares of the Company’s newly designated Series 10 Convertible Preferred Stock, par value $0.001 per share (the “Series 10 Preferred Stock”), at a subscription amount of $1,000 per share of Series 10 Preferred Stock for an aggregate subscription amount of $25,000,000 (the “Subscription Amount”), pursuant to a private placement that closed on November 12, 2025 (the “PIPE Offering”). The Company received net proceeds from the PIPE Offering of approximately $23.1 million, after deducting the placement agent fees and other expenses payable by the Company of approximately $1.9 million. The Company filed a certificate of designation (the “Certificate of Designation”) on November 10, 2025, with the Secretary of State of the State of Nevada designating the rights, preferences and limitations of the shares of the Series 10 Preferred Stock. The Series 10 Preferred Stock has a stated value of $1,000 per share (the “Stated Value”), and is initially convertible at a conversion price of $1.492 per share, subject to adjustment pursuant to the Certificate of Designation. On November 10, 2025, prior to the closing of the PIPE Offering, Unusual Machines advanced to the Company $10,500,000 (the “Advance”), which was automatically applied to the Subscription Amount at the closing of the PIPE Offering. The Company used the Advance to satisfy certain obligations under Drone Nerds’ and Anzu Robotics’ $25.0 million secured line of credit established pursuant to and evidenced by that certain Loan Agreement, dated July 10, 2025, by and among Drone Nerds Inc, Anzu Robotics, LLC and Banesco USA (the “Banesco Loan Agreement”), and the other Loan Documents (as defined in the Banesco Loan Agreement). The issuance of shares of common stock upon conversion of, or as a dividend on, the Series 10 Preferred Stock is subject to the Company’s receipt of its shareholders’ approval of the removal of the limitations on conversion set forth in the Certificate of Designation of the Series 10 Preferred Stock, in compliance with Nasdaq Listing Rule 5635 (the “Shareholder Approval”, and the date the Shareholder Approval is obtained, the “Shareholder Approval Date”). Pursuant to the PIPE Purchase Agreement, the Company agreed to hold an annual or special meeting of shareholders no later than January 31, 2026 (the “Shareholder Meeting Deadline”), for the purpose of obtaining such Shareholder Approval. If Shareholder Approval is not obtained on or prior to the Shareholder Meeting Deadline, the Company is required to call a special or annual meeting of shareholders 180 days thereafter until such Shareholder Approval is obtained, provided, however, that such obligation will terminate on the two year anniversary of the closing date of the PIPE Offering. On the Shareholder Approval Date, the Series 10 Preferred Stock will automatically convert into shares of common stock. To the extent not converted in connection with a mandatory conversion, the Series 10 Preferred Stock will be convertible into common stock, from and after the Shareholder Approval Date, at the option of the holder. Each outstanding share of Series 10 Preferred Stock is entitled to receive, in preference to shares of Junior Securities (as defined in the Certificate of Designation), cumulative dividends (“Preferential Dividends”), payable quarterly in arrears, at an annual rate of 12.0% of the Stated Value. The Preferential Dividends will be payable, at the option of the Company, either in-kind in shares of common stock, through an accrual on the Stated Value of the Series 10 Preferred Stock or in cash, subject to, with respect to the issuance of shares of common stock, the receipt of Shareholder Approval and the Beneficial Ownership Limitation (as defined in the Certificate of Designation). The rights to Preferential Dividends expire automatically on the two-year anniversary of the original issuance date of the Series 10 Preferred Stock. The Series 10 Preferred Stock has no voting rights, except as required by law and for certain customary protective provisions set forth in the Certificate of Designation. The Certificate of Designation also includes customary liquidation provisions. See Note 19 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for a summary of the other material terms of the Series 10 Preferred Stock. Pursuant to the PIPE Purchase Agreement, the Company agreed to file a registration statement covering the resale of the shares of common stock underlying the Series 10 Preferred Stock within 90 days of the closing date of the PIPE Offering. The Company agreed to use commercially reasonable efforts to cause such registration to become effective within 60 days (or 90 days if the SEC notifies the Company that it will “review” the registration statement) following the initial filing of such registration statement and to keep such registration statement effective at all times until the earlier of (i) the time that Unusual Machines, Inc. and its successors and assigns do not own any Series 10 Preferred Stock or underlying shares of common stock or (ii) the date on which the shares of common stock underlying the Series 10 Preferred Stock may be sold without restriction, including volume or manner-of-sale restrictions, pursuant to Rule 144. From the date of the PIPE Purchase Agreement until the later of the date that is 5 days from the date (a) Shareholder Approval is obtained and (b) the date that the registration statement covering the resale of all of the shares of common stock underlying the Series 10 Preferred Stock has been declared effective by the SEC, the Company agreed to not enter into any transaction for the sale of any of its equity securities or securities convertible into its equity securities unless the price per share of common stock or per unit price (or conversion price or exercise price, as applicable) is equal to or greater than $2.50, subject to certain customary exempt issuance exceptions. ThinkEquity acted as the Company’s placement agent in connection with the PIPE Offering. As compensation, the Company paid ThinkEquity $1,750,000 of placement agent fees, reimbursed ThinkEquity for $175,000 of actual out-of-pocket offering expenses, and issued ThinkEquity and its designees warrants to purchase an aggregate of 837,801 shares of common stock, which were exercisable commencing November 12, 2025, expire November 12, 2030 and have an exercise price of $1.492 per share. The Company’s obligation to issue shares upon exercise of the warrants is subject to the Company’s receipt of Shareholder Approval. 40 Valkyrie Investment and the Vanguard Platform On October 27, 2025, the Company and Valkyrie Sciences Holdings LLC (“Valkyrie”), a company developing enterprise solutions via the integration of artificial intelligence and advanced materials, announced the Vanguard Platform, an intelligent technology system for the next generation of VTOL aircraft. The Vanguard Platform will apply Valkyrie’s experience with graphene and composite materials, battery technology, and smart systems architecture to the Company’s TriFan 600 program. In connection with this collaboration, on October 21, 2025, the Company made a $2 million strategic investment in Valkyrie through the purchase of a convertible promissory note (the “Valkyrie Note”) with an initial principal amount of $2 million issued by Valkyrie. Valkyrie and its affiliate Valkyrie Andromeda Corporation (together with Valkyrie, the “Borrower”) are jointly and severally liable under the Valkyrie Note. Interest accrues on the outstanding principal amount at the lesser of 10% per annum or the maximum rate permissible by law. The outstanding principal amount, together with any accrued but unpaid interest, is due and payable on December 31, 2026 (the “Maturity Date”). After a Qualified Financing (as defined in the Valkyrie Note) and if the Company does not elect to convert the Valkyrie Note, the Company may, prior to the Maturity Date, elect to require the Borrower to pay the remaining balance of the Valkyrie Note within 60 days after the delivery of the election notice to Valkyrie. September 2025 Offering On September 12, 2025, the Company entered into a placement agency agreement with ThinkEquity LLC (“ThinkEquity”), pursuant to which the Company agreed to issue and sell directly to various investors, in a best efforts public offering (the “September Offering”), 10,575,000 shares of common stock, pre-funded warrants to purchase up to 1,925,000 shares of common stock, and common warrants to purchase up to 12,500,000 shares of common stock. The combined public offering price for each share of common stock, together with one common warrant, was $1.60. The combined public offering price for each pre-funded warrant, together with one common warrant, was $1.599. Each share of common stock, or a pre-funded warrant in lieu thereof, was sold together with one common warrant. The September Offering closed on September 15, 2025, resulting in net proceeds to the Company of approximately $18.5 million, after deducting the placement agent fees and other expenses payable by the Company of approximately $1.5 million. Upon closing of the September Offering, the Company issued ThinkEquity warrants (the “Placement Agent Warrants”) as compensation to purchase up to 625,000 shares of common stock at an exercise price of $2.00 per share. The Placement Agent Warrants were exercisable immediately upon the date of issuance and expire on the five-year anniversary of the commencement of sales of securities in the September Offering. Officer Appointments Effective as of September 1, 2025, Michael A. Tapp was appointed as the Company’s Chief Operating Officer. In connection therewith, the Company entered into an employment agreement and a side letter with Mr. Tapp, the material terms of which are disclosed in the Company’s Current Report on Form 8-K filed with the SEC on September 5, 2025, as amended by Amendment No. 1 on Form 8-K/A filed with the SEC on September 11, 2025. Additionally, on October 2, 2025, we announced the appointment of Steve Zohrabian as Executive Vice President of XTI Aircraft Company, and on October 29, 2025, we announced the appointment of Dr. Alex Williams as XTI Aerospace, Inc.’s Executive Vice President of Technology. Expansion of Corporate Advisory Board During the nine months ended September 30, 2025, the Company expanded its corporate advisory board, which is now comprised of ten advisory board members, who are helping the Company evaluate strategic opportunities to capitalize on the anticipated demand for the TriFan 600. TriFan 600 Engineering Update We remain focused on advancing the TriFan 600 toward certification and commercialization, with Q3 marking notable progress in both engineering development and regulatory engagement activities. During the quarter ended September 30, 2025, we completed initial flight operations for our Sparrow (1:15 scale model) and Kestrel (1:12 scale model) subscale aircraft prototypes, the results of which validated key design elements of the TriFan 600 under flight conditions. We will continue our subscale aircraft program efforts as we progress toward building our full-scale, piloted TriFan 600 demonstrator, which we expect to complete in 2027. We maintain active monthly engagement with the FAA, including ongoing support for Tech Fam sessions with agency subject matter experts. These interactions support continued progress in development and help confirm that our approach remains consistent with applicable regulatory requirements. Critical Accounting Policies and Estimates Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. The significant accounting policies of the Company are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” section of the Company’s annual report on Form 10-K for the year ended December 31, 2024. There have been no significant changes to the Company’s critical accounting policies and estimates. However, the Company did identify an impairment as described below. 41 Valuation of Long-lived and Intangible Assets and Goodwill We periodically review long-lived assets and certain identifiable intangible assets for impairment in accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment.” Goodwill and intangible assets not subject to amortization are reviewed annually for impairment in accordance with ASC 350, “Intangibles – Goodwill and Other,” or more often if there are indications of possible impairment. The analysis to determine whether or not an asset is impaired requires significant judgments that are dependent on internal forecasts, including estimated future cash flows, estimates of long-term growth rates for our business, the expected life over which cash flows will be realized and assumed royalty and discount rates. Changes in these estimates and assumptions could materially affect the determination of fair value and any impairment charge. While the fair value of these assets are less than their carrying value based on our current estimates and assumptions, materially different estimates and assumptions in the future in response to changing economic conditions, changes in our business or for other reasons could result in the recognition of impairment losses higher than the amount currently recorded. For assets to be held and used, including acquired intangible assets subject to amortization, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Significant management judgment is required in this process. For intangible assets not subject to amortization such as goodwill, we test for impairment annually, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. In testing goodwill for impairment, we compare the fair value with the carrying value. The determination of fair value is based on a discounted cash flow analysis, using inputs and assumptions such as revenue growth rates, other projected expenses, and discount rates. If we were to experience a decrease in forecasted future revenues attributable to the intangible assets, this could indicate a potential impairment. If the carrying value exceeds the estimated fair value, the goodwill is considered impaired, and an impairment loss will be recognized in an amount equal to the excess of the carrying value over the fair value of goodwill. We perform our annual goodwill impairment test required by ASC 350 as of October 1st of each year. In testing goodwill for impairment, we analyze qualitative factors as stated within ASC 350 to determine if the fair value of our reporting unit may be less than the carrying value of the reporting unit. We have one reporting unit that carries goodwill (Industrial IoT). If the fair value of the reporting unit, based on qualitative factors, may be less than the carrying value of the reporting unit, we then perform the goodwill impairment test required under ASC 350 by comparing the fair value of the reporting unit with the carrying value of the reporting unit and, if the fair value is less than the carrying value, the amount that the carrying value exceeds fair value represents the amount of goodwill impairment. Accordingly, we would recognize an impairment loss in the amount of such excess. In connection with the XTI Merger we recorded $12 million in goodwill which was allocated to our Industrial IoT reporting unit. Since the closing date of the XTI Merger on March 12, 2024, the price of our common stock has declined significantly and may continue to fluctuate in future periods. A sustained decrease in the price of our common stock is one of the qualitative factors to be considered as part of an impairment test when evaluating whether events or changes in circumstances may indicate that it is more likely than not that a potential goodwill impairment exists. We will continue monitoring the analysis of the qualitative and quantitative factors used as a basis for the goodwill impairment test during fiscal year 2025 and at the Company’s October 1st annual testing date. As of September 30, 2025, management evaluated potential triggers and determined there was no triggering event during the three months ended September 30, 2025 relating to the Industrial IoT reporting unit. As of June 30, 2025, management evaluated potential triggers and determined there was a triggering event during the three months ended June 30, 2025 relating to the Industrial IoT reporting unit, in the form of a current period operating and cash flow loss, a consistent history of operating losses, and the revenue results for the current period missing forecasted targets due to (i) the sales cycle to close transactions taking longer than anticipated, and (ii) supply chain issues causing delays in our delivery of Nanotron product to customers. As such, the Company completed a qualitative assessment and determined in the aggregate, it is more likely than not, that the fair value of the IoT reporting unit is less than its carrying value. Therefore, a goodwill impairment of $4.05 million was recognized during the second quarter of 2025. One of the key factors in the calculation of the impairment amount is the Company’s forecasted financial performance for the IoT reporting unit. If the projected revenues decreased by 10%, the goodwill impairment amount would have increased by $2.9 million. This estimate is subject to significant uncertainty due to the potential for volatile financial market conditions. 42 Components of Results of Operations Revenue Commercial Aviation We continue to design, develop and certify the TriFan 600 airplane and thus have not generated revenue from this segment. We do not expect to begin generating significant revenues until we complete the design, development, certification, and manufacturing of the airplane. Industrial IoT Our RTLS products are primarily sold on a license and SaaS mode, which we call “location as a service” or “LaaS.” In our licensing model, we also typically charge an annual maintenance fee. The LaaS model is typically for a 3-5 year contract and includes a license to use, maintenance and hardware upgrades. The LaaS model generates a recurring revenue stream. Operating Expenses Research and Development Research and development activities represent a significant part of our business. Our research and development efforts focus on the design and development of (i) our indoor intelligence products, and (ii) our TriFan 600 airplane, including certain of the systems that will be used in it. As part of our aircraft development activities, we continue to work closely with the FAA towards our goal of achieving certification of our TriFan 600 airplane on an efficient timeline. Research and development expenses consist primarily of costs incurred in connection with the research and development of the TriFan 600 airplane. These expenses include: ● employee-related expenses, including salaries and benefits for personnel engaged in research and development functions; ● expenses incurred under agreements with third parties such as consultants and contractors; and ● software and technology-related expenses to support computer-aided design of the aircraft, flight simulations, and other technology needs of our engineers. Research and development costs are expensed as incurred. We expect our research and development expenses to increase significantly for the foreseeable future as we increase staffing to support aircraft engineering and software development, build aircraft prototypes and continue to explore and develop technologies. We cannot determine with certainty the timing, duration or the costs necessary to complete the design, development, certification, and manufacturing of our TriFan 600 airplane due to the inherently unpredictable nature of our research and development activities. Development timelines, the probability of success, and development costs may differ materially from expectations. Sales and Marketing Expenses Sales and marketing costs include activities such as aircraft reservation procurement, brand awareness campaigns, public relations and business opportunity advancement. These functions mainly generate expenses relating to travel, trade show fees and costs, salaries and benefits. Sales and marketing expenses are expensed as incurred. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters, including non-capitalizable transaction costs; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs, facility related expenses including maintenance and allocated expenses for rent and other operating costs. We anticipate that general and administrative expenses will increase substantially in the future as we increase our headcount to support continued research and development and commercialization of the TriFan 600. 43 Other (Expense) Income Interest expense, net consists primarily of (i) interest relating to convertible and promissory notes payable, (ii) amortization of debt discounts relating to warrants and stock options issued in conjunction with convertible notes, and (iii) interest income on notes receivable. Loss on extinguishment of debt includes (i) prepayment penalties and other expenses incurred during the nine months ended September 30, 2025 as the Company fully repaid the Streeterville promissory notes before the maturity date, and (ii) inducement losses on debt conversions incurred by Legacy XTI when it entered into voluntary note conversion letter agreements with several note holders during the first quarter of 2024. Change in fair value of convertible notes payable represents the remeasurement of certain Legacy XTI convertible notes to fair value. These notes were converted to equity prior to the closing of XTI Merger. Change in fair value of warrant liability represents the remeasurement of certain outstanding warrants to fair value. Other consists of miscellaneous income and expense items. RESULTS OF OPERATIONS Three Months Ended September 30, 2025 compared to the Three Months Ended September 30, 2024 The following table sets forth selected consolidated financial data and as a percentage of period-over-period change: Three Months Ended September 30, 2025 2024 $ % (in thousands, except percentages) Amount Amount Change* Change* Revenues $ 2,484 $ 918 $ 1,566 171 % Cost of revenues $ 1,407 $ 398 $ 1,009 254 % Gross profit $ 1,077 $ 520 $ 557 107 % Operating expenses $ 15,886 $ 4,736 $ 11,150 235 % Loss from operations $ (14,809 ) $ (4,216 ) $ (10,593 ) 251 % Other (expense) income $ 1,364 $ (219 ) $ 1,583 (723 )% Income tax provision $ (1 ) $ — $ (1 ) — Net loss $ (13,446 ) $ (4,435 ) $ (9,011 ) 203 % * Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results. Revenues The revenue amount for the periods presented represents the results of the revenue-generating Industrial IoT segment. Revenues for the three months ended September 30, 2025 were $2.5 million, compared to $0.9 million for the three months ended September 30, 2024, representing an increase of approximately $1.6 million. The increase was primarily attributable to a $1.3 million increase in hardware revenue related to the Company’s IoT business, resulting from improved supply chain conditions. These improvements followed the resolution of disruptions caused by regional conflict in the Middle East, which had impacted operations of the Company’s Israeli supplier and resulted in delays in hardware product deliveries during the first half of 2025. In addition, we communicated our plan to explore our strategic options to wind down and/or sell the hardware portions of our Industrial IoT business to our customers which resulted in customers increasing their hardware purchases, and as a result, we do not expect this trend to continue. Cost of Revenues and Gross Profit Cost of revenues for the three months ended September 30, 2025 was $1.4 million compared to $0.4 million for the comparable period in the prior year for an increase of approximately $1.0 million. This increase is consistent with the increase in revenues noted above. Gross profit for the three months ended September 30, 2025 was $1.1 million compared to $0.5 million for the comparable period in the prior year, an increase of approximately $0.6 million, which is consistent with the increase in revenue. The gross margin percentage was 43.4% and 56.6% for the three months ended September 30, 2025 and 2024, respectively. The margin decrease is due primarily to a shift in sales mix to lower margin hardware products during the three months ended September 30, 2025. 44 Operating Expenses Operating expenses for the three months ended September 30, 2025 were $15.9 million and $4.7 million for the comparable period ended September 30, 2024, an increase of $11.2 million. We expect operating expenses to continue to increase as we increase our headcount to accommodate our growth. This increase was primarily attributable to: ● Research and development expenses , which increased by $0.8 million mainly to advance the development of the TriFan 600 airplane. ● Sales and marketing expenses , which increased b y $1.7 million, as the Company invested more in brand development and awareness, trade show participation, and business development initiatives. ● General and administrative expenses , which increased by $8.7 million, due primarily to an increase of approximately $8.2 million in stock-based compensation and an increase in administrative headcount to support operational growth. Other (Expense) Income Other (expense) income for the three months ended September 30, 2025 was income of $1.4 million compared to a loss of $0.2 million for the comparable period in the prior year. The income for the three months ended September 30, 2025 was primarily attributable to the recognition of a $2.2 million gain related to the change in fair value of a warrant liability which was partially offset by $0.8 million of financing costs incurred relating to the issuance of warrants in connection with the September Offering. Income Tax Benefit (Provision) The income tax benefit (provision) for the three months ended September 30, 2025 and 2024 was immaterial. Nine Months Ended September 30, 2025 compared to the Nine Months Ended September 30, 2024 The following table sets forth selected consolidated financial data and as a percentage of period-over-period change: Nine Months Ended September 30, 2025 2024 $ % (in thousands, except percentages) Amount Amount Change* Change* Revenues $ 3,568 $ 2,169 $ 1,399 64 % Cost of revenues $ 1,673 $ 846 $ 827 98 % Gross profit $ 1,895 $ 1,323 $ 572 43 % Operating expenses $ 38,236 $ 28,343 $ 9,893 35 % Loss from operations $ (36,341 ) $ (27,020 ) $ (9,321 ) 34 % Other (expense) income $ (10,840 ) $ 5,289 $ (16,129 ) (305 )% Income tax benefit (provision) $ 5 $ (16 ) $ 21 (131 )% Net loss $ (47,176 ) $ (21,747 ) $ (25,429 ) 117 % * Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results. Revenues The revenue amount for the periods presented represents the results of the revenue-generating Industrial IoT segment. Revenues for the nine months ended September 30, 2025 were $3.6 million compared to $2.2 million for the comparable period in the prior year for an increase of approximately $1.4 million. The increase was primarily attributable to a $0.9 million increase in hardware revenue related to the Company’s IoT business, resulting from improved supply chain conditions. These improvements followed the resolution of disruptions caused by regional conflict in the Middle East, which had impacted operations of the Company’s Israeli supplier and resulted in delays in hardware product deliveries during the first half of 2025. In addition, we communicated our plan to explore our strategic options to wind down and/or sell the hardware portions of our Industrial IoT business to our customers which resulted in customers increasing their hardware purchases, and as a result, we do not expect this trend to continue. In addition, recurring software revenue increased by $0.4 million due to existing IoT customers adding new locations to their contracts. 45 Cost of Revenues and Gross Profit Cost of revenues for the nine months ended September 30, 2025 was $1.7 million compared to $0.8 million for the comparable period in the prior year. Gross profit for the nine months ended September 30, 2025 and 2024 was $1.9 million and $1.3 million, respectively. The gross margin percentage was 53% and 61% for the nine months ended September 30, 2025 and 2024, respectively. The margin decrease is due primarily to a shift in sales mix to lower margin hardware products during the first nine months of 2025. Operating Expenses Operating expenses for the nine months ended September 30, 2025 were $38.2 million, compared to $28.3 million for the nine months ended September 30, 2024, an increase of $9.9 million. We expect operating expenses to continue to increase as we increase our headcount to accommodate our growth. The increase was primarily attributable to: ● Research and development expenses , which increased by $2.8 million, primarily related to continued development of the TriFan 600 program. ● Sales and marketing expenses , which increased b y $3.1 million, as the Company expanded investments in brand development and awareness, trade show participation, and business development initiatives. ● Non-cash impairment charges , which increased by $4.7 million, relating to goodwill and intangible assets within the Industrial IoT segment. ● General and administrative expenses , which increased by $6.0 million, primarily due to higher legal and accounting fees associated with capital-raising activities during 2025, increased administrative headcount to support operational growth, and higher public company-related professional fees. The 2024 period reflects the operations of Legacy XTI, a private company, from January 1, 2024 through the March 12, 2024 closing of the XTI Merger. These increases were partially offset by a $6.5 million decrease in acquisition-related costs incurred during the nine months ended September 30, 2024, associated with the closing of the XTI Merger. Other (Expense) Income Other (expense) income for the nine months ended September 30, 2025 was a loss of $10.8 million compared to a gain of $5.3 million for the comparable period ended September 30, 2024. The loss during the nine months ended September 30, 2025 was primarily driven by (i) $6.6 million of financing costs incurred relating to the issuance of warrants in connection with the March Offering, June Offering and September Offering, (ii) the recognition of a $3.3 million loss related to the change in fair value of a warrant liability, and (iii) a loss on extinguishment of debt of $0.4 million. The gain of approximately $5.3 million for the nine months ended September 30, 2024 was primarily driven by the Company recognizing an income gain of approximately $12.9 million relating to the remeasurement of convertible notes at fair value, partially offset by inducement losses on debt conversions of approximately $6.7 million. Income Tax Benefit (Provision) The income tax benefit (provision) for the nine months ended September 30, 2025 and 2024 was immaterial. Liquidity and Capital Resources Our current capital resources and operating results as of and through September 30, 2025, consist of: 1) working capital of approximately $1.1 million, adjusted to approximately $29.3 million when excluding derivative warrant liabilities; 2) cash and cash equivalents of approximately $32.2 million; and 3) net cash used by operating activities for the nine months ended September 30, 2025 of $30.4 million. 46 The breakdown of our working capital as of the periods indicated below is as follows (in thousands): Working Capital September 30, 2025 December 31, 2024 $ Change Current Assets Cash and cash equivalents $ 32,198 $ 4,105 $ 28,093 Accounts receivable, net 2,095 706 1,389 Other receivables 38 538 (500 ) Inventories 1,433 2,214 (781 ) Prepaid expenses and other current assets 918 1,018 (100 ) Total Current Assets 36,682 8,581 28,101 Current Liabilities Accounts payable and related party payables 2,560 5,538 (2,978 ) Accrued expenses and other current liabilities 2,263 6,703 (4,440 ) Accrued interest 342 522 (180 ) Customer deposits 1,350 1,350 — Warrant liability 28,228 — 28,228 Operating lease obligation, current 98 119 (21 ) Deferred revenue 737 532 205 Short-term debt - 2,657 (2,657 ) Total Current Liabilities 35,578 17,421 18,157 Net Working Capital (Deficit) $ 1,104 $ (8,840 ) $ 9,944 Balance Sheet Improvement During the nine months ended September 30, 2025, we raised approximately $62.8 million in net proceeds through our now expired ATM with Maxim, public offerings of our securities placed and underwritten by ThinkEquity and the exercise of warrants issued in connection with certain public offerings. The proceeds from these capital raises and warrant exercises allowed us to significantly reduce debt and other obligations, while progressing the development of the TriFan 600 airplane. The following summarizes the improvements to our balance sheet from December 31, 2024 to September 30, 2025: ● Cash and cash equivalents increased by approximately $28.1 million primarily due to the net proceeds received from the January, March, June and September Offerings. ● Net working capital increased by approximately $9.9 million or increased by approximately $38.2 million when excluding derivative warrant liabilities. ● In March 2025, we repaid in full the outstanding secured promissory notes issued to Streeterville, which resulted in the release of Streeterville’s security interest in the assets of XTI Aircraft Company. In September 2025, we repaid in full Legacy XTI’s secured promissory note with the with the U.S. Small Business Administration. As of September 30, 2025, we had no interest-bearing debt outstanding. ● In March 2025, we redeemed the remaining outstanding shares of Series 9 Preferred Stock, leaving zero shares of Series 9 Preferred Stock issued and outstanding as of September 30, 2025. The Series 9 Preferred Stock had restricted our ability to raise capital, as we were prohibited from taking certain actions without prior written consent from the holders of the Series 9 Preferred Stock. ● In March 2025, we repaid the remaining Strategic Transaction Bonus Plan obligation to prior Legacy Inpixon management, which was the primary driver for the approximate $4.4 million decline in accrued expenses and other current liabilities from December 31, 2024 to September 30, 2025. ● In March 2025, we repaid the accounts payable and most commitments that were inherited from Legacy Inpixon. A remaining deferred consulting fee commitment of $0.5 million is still owed to Nadir Ali, the Company’s former Chief Executive Officer, which is payable on December 31, 2025. We believe the Company’s ability to raise capital has been favorably impacted by the reduction of obligations either assumed from Legacy Inpixon or created by the XTI Merger closing and the elimination of the Streeterville secured debt and equity instruments with fundraising restrictions. 47 Contractual Obligations and Commitments Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consist of operating lease liabilities and merger-related transaction liabilities that are included in our condensed consolidated balance sheet and vendor commitments associated with agreements that are legally binding. As of September 30, 2025, the total obligation for capitalized operating leases was approximately $0.3 million, of which approximately $0.1 million is expected to be paid in the next twelve months. Customer Deposits As of September 30, 2025, we received conditional pre-orders under a combination of non-binding aircraft purchase agreements, reservation deposit agreements, options and letters of intent for aircraft, which generated approximately $1.4 million of cash from customer deposits. These funds from customer reservation deposits will not be recorded as revenue until the orders for aircraft are delivered, which may not be for many years or at all if we do not deliver the aircraft. The deposits prioritize orders when the aircraft becomes available for delivery. Customers making deposits are not obligated to purchase aircraft until they execute a definitive purchase agreement. Customers may request a return of their refundable deposit any time up until the execution of a purchase agreement. Customers’ request for a return of their refundable deposits could adversely affect our liquidity resources, and we may be financially unable to return such deposits. Commitment to Nadir Ali As disclosed in Note 16 of the condensed consolidated financial statements, as of September 30, 2025, the Company has a remaining commitment to pay Nadir Ali deferred consulting fees of $500,000 due on December 31, 2025. Risks and Uncertainties; Sources of Liquidity; Long-Term Liquidity Requirements As of September 30, 2025, the Company has working capital of approximately $1.1 million, adjusted to $29.3 million when excluding derivative warrant liabilities, and cash and cash equivalents of approximately $32.2 million. For the nine months ended September 30, 2025, the Company had a net loss of approximately $47.2 million. During the nine months ended September 30, 2025, the Company used approximately $30.4 million of cash for operating activities. On November 10, 2025, the Company acquired 100% of the issued and outstanding equity interests of two enterprise drone solutions providers, Drone Nerds and Anzu Robotics for total purchase consideration of $40.0 million, which was comprised of $20.0 million in cash, $11.9 million in the form of two promissory notes (including approximately $1.6 million in working capital adjustments), and $9.7 million in the form of equity consideration. On November 12, 2025, the Company closed the PIPE Offering pursuant to which the Company issued Unusual Machines 25,000 shares of Series 10 Convertible Preferred Stock for gross proceeds of $25.0 million and net proceeds of $23.1 million after deducting the placement agent fees and other expenses payable by the Company of approximately $1.9 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 historically supplemented the revenues it earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines. The Company has incurred net losses and negative operating cash flows from operations since the XTI Merger completed on March 12, 2024, and the Company expects to continue to incur losses and negative operating cash flows for the foreseeable future until it commences sustainable commercial operations of the TriFan 600 airplane. Since the XTI Merger, the Company has funded its operations primarily with proceeds from equity financings, including through our now expired ATM with Maxim and four public offerings completed in January 2025, March 2025, June 2025 and September 2025 (collectively, the “Offerings”), and through the issuance of promissory notes. We believe that our current revenue, as supplemented by proceeds from our financings, including the approximately $57.1 million net proceeds we raised in the Offerings, a portion of which was used to fully repay short-term obligations including the outstanding Streeterville promissory note balances, along with our ability to defer or eliminate certain operating expenses that are under our control, will provide us with liquidity to fund our planned operating needs for at least the next twelve months. According to our current development schedule, we do not expect to obtain FAA type certification and other necessary regulatory approvals and commence deliveries of the TriFan 600 until 2030 at the earliest. We expect to fund our operations primarily through equity and/or debt financings at least until we commence sustainable commercial operations of the TriFan 600. We filed a shelf registration statement on Form S-3 on August 1, 2025, which was declared effective by the SEC on August 12, 2025, pursuant to which we may offer and sell, from time to time, in one or more offerings, up to $1 billion in any combination of common stock, preferred stock, depositary shares, debt securities, warrants, units and subscription rights until such shelf registration statement expires in August 2028. 48 Equity financing may result in dilution to the interests of our existing stockholders and could involve issuing securities with rights, preferences, or privileges senior to those of existing common stockholders. Similarly, debt financing could involve instruments with terms that supersede those of preferred or common stockholders and may include operational restrictions. It is important to note that capital markets have experienced volatility in the past and may do so again, which could impact our ability to raise funds on favorable terms or at all. We currently do not have material cash obligations related to existing contracts. As a result, our future cash needs are closely tied to management’s strategic decisions regarding the pace and priorities of short- and long-term initiatives. These requirements are subject to fluctuation based on operational choices, including the timing and scale of infrastructure and development of sub-scale and full-scale test aircraft. Factors influencing our future capital needs include revenue growth, aircraft pre-order deposit timing, expansion of sales and marketing efforts, and the scope of development initiatives. We may also pursue strategic acquisitions or investments in complementary businesses, technologies, or products, which could necessitate additional financing. If we are unable to raise additional capital when needed or on acceptable terms, it could limit our ability to innovate, develop, and compete effectively—ultimately affecting our business performance and financial condition. In such a case, we may be forced to reduce or delay investments in manufacturing, infrastructure, and R&D, or adjust our expansion plans—any of which could have a material adverse impact on our operations and long-term prospects. Cash Flows The Company’s net cash flows used in operating, investing and financing activities for the nine months ended September 30, 2025 and 2024 and certain balances as of the end of those periods are as follows (in thousands): For the Nine Months Ended September 30, 2025 2024 Net cash used in operating activities $ (30,356 ) $ (14,305 ) Net cash (used in) provided by investing activities (126 ) 2,875 Net cash provided by financing activities 58,568 11,928 Effect of foreign exchange rate changes on cash 7 8 Net increase in cash and cash equivalents $ 28,093 $ 506 As of September 30, 2025 As of December 31, 2024 Cash and cash equivalents $ 32,198 $ 4,105 Working capital (deficit) $ 1,104 $ (8,840 ) 49 Operating Activities for the nine months ended September 30, 2025 Net cash used in operating activities during the nine months ended September 30, 2025 was approximately $30.4 million. The cash flows related to the nine months ended September 30, 2025 consisted of the following (in thousands): Net loss $ (47,176 ) Non-cash income and expenses 23,062 Net change in operating assets and liabilities (6,242 ) Net cash used in operating activities $ (30,356 ) The non-cash income and expense of approximately $23.1 million consisted primarily of the following (in thousands): $ 103 Depreciation and amortization 206 Amortization of intangible assets 100 Amortization of right-of-use asset 145 Non-cash interest expense, net of interest income 7,527 Stock-based compensation 4,049 Impairment of goodwill 631 Impairment of intangible assets 421 Loss on extinguishment of debt 6,580 Warrant issuance expense 3,280 Change in fair value of warrant liability 20 Unrealized gain on foreign currency transactions and other income and expense items $ 23,062 Total non-cash expenses The net cash used in the change in operating assets and liabilities aggregated approximately $6.2 million and consisted primarily of the following (in thousands): $ (1,293 ) Increase in accounts receivable and other receivables 1,016 Decrease in inventories 388 Decrease in prepaid expenses and other current assets and other assets (1,991 ) Decrease in accounts payable and related party payables (4,667 ) Decrease in accrued expenses and other current liabilities 67 Increase in accrued interest 336 Increase in deferred revenue (98 ) Decrease in operating lease obligation $ (6,242 ) Net cash used in the changes in operating assets and liabilities The increase in accounts receivable and corresponding decrease in inventories primarily reflect higher Nanotron hardware sales occurring during the latter stages of the quarter ending September 30, 2025. Cash proceeds from the public offerings completed during 2025 allowed the Company to significantly reduce obligations including accounts payable and accrued expenses. The decrease in accrued expenses and other current liabilities of approximately $4.7 million was mainly attributable to (i) cash payments to settle the remaining accrued transaction bonuses and consulting fees owed to prior Legacy Inpixon executives, and (ii) payment of accrued employee bonuses. 50 Operating Activities for the nine months ended September 30, 2024 Net cash used in operating activities during the nine months ended September 30, 2024 was approximately $14.3 million. The cash flows related to the nine months ended September 30, 2024 consisted of the following (in thousands): Net loss $ (21,747 ) Non-cash income and expenses (1,134 ) Net change in operating assets and liabilities 8,576 Net cash used in operating activities $ (14,305 ) The non-cash income and expense of approximately $1.1 million consisted primarily of the following (in thousands): $ 81 Depreciation and amortization expenses 431 Amortization of intangible assets 177 Amortization of right-of-use asset 267 Non-cash interest expense, net of interest income 3,844 Stock-based compensation (12,882 ) Change in fair value of convertible notes payable 6,732 Loss on extinguishment of debt 281 Change in fair value of warrant liability (65 ) Unrealized gain on foreign currency transactions and other income and expense items $ (1,134 ) Total non-cash expenses The net cash provided by the change in operating assets and liabilities aggregated approximately $8.6 million and consisted primarily of the following (in thousands): $ (72 ) Increase in accounts receivable and other receivables 271 Decrease in inventory 279 Decrease in prepaid expenses and other current assets and other assets 2,514 Increase in accounts payable 5,708 Increase in accrued expenses and other liabilities 154 Increase in accrued interest (115 ) Decrease in deferred revenue (163 ) Decrease in operating lease obligation $ 8,576 Net cash provided by the changes in operating assets and liabilities Cash Flows from Investing Activities for the nine months ended September 30, 2025 and 2024 Net cash flows used in investing activities during the nine months ended September 30, 2025 was approximately $0.1 million. Net cash flows provided by investing activities during the nine months ended September 30, 2024 was approximately $2.9 million. Cash flows related to investing activities during the nine months ended September 30, 2024 consist primarily of the cash assumed from Legacy Inpixon in connection with the XTI Merger. 51 Cash Flows from Financing Activities for the nine months ended September 30, 2025 and 2024 Net cash flows provided by financing activities during the nine months ended September 30, 2025 was approximately $58.6 million. During the nine months ended September 30, 2025, the Company received incoming cash flows of $1.7 million from the now expired ATM, $57.1 million from the sale of common stock and warrants via four public offerings, and $4.1 million from the exercise of warrants issued in connection with the public offerings. During the nine months ended September 30, 2025, the Company paid $2.7 million to fully settle the two outstanding promissory note obligations with Streeterville, paid $0.1 million to fully settle the outstanding SBA loan, and paid $1.4 million to redeem the remaining outstanding Series 9 Preferred Stock. Net cash flows provided by financing activities during the nine months ended September 30, 2024 was approximately $11.9 million. During the nine months ended September 30, 2024, the Company received incoming cash flows of $9.6 million from the now expired ATM, $2.0 million from promissory notes issued to Streeterville, and $1.0 million in proceeds from an existing promissory note arrangement with Legacy Inpixon. During the nine months ended September 30, 2024, the Company repaid $0.7 million towards outstanding promissory notes. Off-Balance Sheet Arrangements We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts. Recently Issued Accounting Standards For a discussion of recently issued accounting pronouncements, please see Note 3 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 4. Controls and Procedures Disclosure Controls and Procedures Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our condensed consolidated financial statements in conformity with GAAP. We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2025. Changes in Internal Controls There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended September 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Limitations of the Effectiveness of Control A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. 52 PART II — OTHER INFORMATION Item 1. Legal Proceedings There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business and as described in Note 17 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report under the heading “Litigation.” There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company. Item 1A. Risk Factors We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations and financial condition could be materially adversely affected by these risks. In addition to the risk factor set forth below and the other information set forth in this Form 10-Q, you should carefully consider the factors disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 15, 2025, which report is incorporated by reference herein, all of which could materially affect our business, financial condition and future results. Adverse judgments or settlements in legal proceedings could materially harm our business, financial condition, operating results and cash flows. We may be a party to claims that arise from time to time in the ordinary course of our business, which may include those related to, for example, our securities offerings, contracts, sub-contracts, protection of confidential information or trade secrets, adversary proceedings arising from customer bankruptcies, employment of our workforce and immigration requirements or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business. Additionally, we are and we may be made a party to future claims relating to the XTI Merger. On December 6, 2023, Xeriant, Inc. (“Xeriant”) filed a complaint in the United States District Court for the Southern District of New York (the “S.D.N.Y.”) against Legacy XTI, two unnamed entities, and five unnamed individuals. On January 31, 2024, Xeriant filed an amended complaint adding the Company as a defendant. On February 29, 2024, Xeriant filed a second amended complaint, removing the Company and one of the unnamed entities as defendants. The second amended complaint alleges that Legacy XTI breached several agreements with Xeriant, including a Joint Venture Agreement dated May 31, 2021, a cross-patent license agreement, an operating agreement, and a letter dated May 17, 2022, which Xeriant claims arose from its introduction of Legacy XTI to a Nasdaq-listed company as a potential acquirer. Xeriant further alleges that it provided intellectual property, expertise, and capital in connection with Legacy XTI’s TriFan 600 aircraft and was improperly excluded from a subsequent transaction involving the TriFan 600 technology as part of Legacy XTI’s merger with the Company. Xeriant asserts causes of action for breach of contract, fraud, unjust enrichment, and misappropriation of confidential information, and seeks damages in excess of $500 million, along with injunctive and other equitable relief. On March 13, 2024, Legacy XTI moved to dismiss portions of the second amended complaint. The S.D.N.Y. denied that motion on January 14, 2025. Legacy XTI filed an answer on January 28, 2025, and subsequently filed an amended answer and counterclaims on February 18, 2025. The amended counterclaims, further amended on April 14, 2025, allege that Xeriant breached the Joint Venture Agreement by failing to make required capital contributions of approximately $4.6 million and by failing to deliver promised intellectual property and strategic support. Legacy XTI further alleges that Xeriant breached its fiduciary duty by engaging in coercive and self-dealing conduct, including conditioning a strategic introduction on the issuance of equity and assumption of debt. Legacy XTI seeks declaratory relief confirming that the joint venture has been terminated, that all intellectual property related to the TriFan 600 belongs solely to Legacy XTI, and that Xeriant has no rights in the TriFan 600 technology. On April 28, 2025, Xeriant moved to dismiss Legacy XTI’s second amended counterclaims. On September 23, 2025, the S.D.N.Y. denied Xeriant’s motion, concluding that Legacy XTI plausibly alleged claims against Xeriant for breach of contract, breach of fiduciary duty, and declaratory judgment. The S.D.N.Y. found that Legacy XTI had adequately pleaded that Xeriant was obligated to contribute $10 million in funding to the joint venture and that it acted disloyally by leveraging a potential merger opportunity for its own benefit. Following the S.D.N.Y.’s September 23, 2025 denial of Xeriant’s motion to dismiss Legacy XTI’s counterclaims, the litigation has advanced into full discovery. The S.D.N.Y. has since compelled Xeriant to comply with its discovery obligations and warned that continued noncompliance would result in dismissal of its claims. While the Company continues to believe the allegations against Legacy XTI are meritless, the case remains in active discovery and subject to close judicial supervision, which may increase litigation costs and extend the duration of the proceedings. The outcome of the litigation cannot presently be predicted, and any adverse determination could have a material impact on the Company. 53 In connection with the litigation matter described in the immediately preceding paragraph, on June 12, 2024, the Company received correspondence from legal counsel for Auctus Fund, LLC (“Auctus”), dated April 3, 2024, asserting that the Company and/or Legacy XTI may have assumed Xeriant’s obligations under a Senior Secured Promissory Note (the “Note”) issued by Xeriant to Auctus in the original principal amount of $6,050,000, pursuant to a letter agreement dated May 17, 2022, between Xeriant and Legacy XTI (the “May 17 letter”). Auctus claimed that the outstanding amount due under the Note, including accrued interest, was $8,435,008.81 as of April 3, 2024. In July 2024, Legacy XTI responded to Auctus’s claims, asserting that the May 17 letter is invalid and unenforceable on multiple grounds. Legacy XTI further stated that, even if the May 17 letter were enforceable, it did not create or trigger any obligation for Legacy XTI to assume Xeriant’s debt under the Note or otherwise. On May 13, 2025, Auctus filed a lawsuit against Legacy XTI in the District Court of Arapahoe County, Colorado, asserting a single claim for breach of contract based on its prior allegations. Auctus contends that Legacy XTI is contractually obligated to repay nearly $9 million in principal and accrued interest, based on Legacy XTI’s entry into a loan agreement with Legacy Inpixon in March 2023 and its subsequent merger with Legacy Inpixon in March 2024. On June 25, 2025, Legacy XTI filed a motion to dismiss or, in the alternative, to stay the proceedings pending resolution of the Xeriant litigation. Legacy XTI’s motion asserts that Auctus’ complaint should be dismissed: (i) for lack of standing, because Auctus is neither a party to, nor a third-party beneficiary of, the May 17 letter; (ii) for failure of a condition precedent, because no obligation ever arose in that the alleged triggering condition—a business combination involving Legacy XTI and Legacy Inpixon did not occur within the required one-year time frame; (iii) for lack of valid assignment, because Xeriant’s unilateral assignment of debt to Legacy XTI is void because the underlying Note prohibits assignment without Auctus’s prior written consent, which is not alleged. On August 5, 2025, Auctus filed a response arguing that it was an intended third-party beneficiary of the May 17 letter, that the anti-assignment clause does not bar its claims, and that the request for a stay is unwarranted because the Xeriant litigation involves different parties and broader claims. On September 12, 2025, Legacy XTI filed a Reply Brief reinforcing that Auctus lacks standing, that no obligation ever arose under the May 17 Letter because no qualifying transaction occurred within its one-year term, and that any purported transfer of debt is void under the Note’s anti-assignment clause. The Reply also emphasized that the enforceability of the May 17 Letter is already before the S.D.N.Y. and urged dismissal or a stay to avoid inconsistent rulings. On October 2, 2025, Legacy XTI filed a Notice of Supplemental Authority submitting the September 23, 2025 Order of the S.D.N.Y., which denied Xeriant’s motion to dismiss Legacy XTI’s counterclaims and held that Legacy XTI had plausibly alleged that the May 17 Letter expired by its terms and is unenforceable. Legacy XTI asserted that the S.D.N.Y. ruling directly supports dismissal or a stay because it confirms that the same alleged contract and issues raised by Auctus are already being adjudicated in the federal case. On November 7, 2025, the court denied Legacy XTI’s motion to dismiss or, in the alternative, stay the proceedings. The court held that, when viewing the allegations in the light most favorable to Auctus, the complaint plausibly stated claims for relief under Colorado’s notice-pleading standard. The court further denied XTI’s alternative request for a stay, reasoning that the parties were not identical to those in the federal action and therefore comity and judicial economy did not warrant a stay. The court nonetheless directed the parties to update it regarding the outcome of the federal case to the extent it may be dispositive of overlapping issues. Legacy XTI’s answer to the complaint is due November 21, 2025. The Company will continue to vigorously defend against the claims but cannot predict the timing or outcome of the proceedings or estimate any potential exposure. Regardless of the merits of any particular claim, responding to such actions could divert time, resources and management’s attention away from our business operations, and we may incur significant expenses in defending these lawsuits or other similar lawsuits. The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial condition, operating results and cash flows. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future. Furthermore, while we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as deductibles and caps on amounts of coverage. Even if we believe a claim is covered by insurance, insurers may dispute our entitlement to coverage for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of our available insurance coverage for a particular claim. We may also be required to initiate expensive litigation or other proceedings to protect our business interests. There is a risk that we will not be successful or otherwise be able to satisfactorily resolve such claims or litigation. Litigation and other legal claims are subject to inherent uncertainties. Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among the states in which we operate. Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our current financial status may increase our default and litigation risks and may make us more financially vulnerable in the face of threatened litigation. Drone Nerds operates in evolving markets, which makes it difficult to evaluate its business and future prospects. Drone Nerds’ drone, camera and sensor technologies and software and training, operational support and repair services are and will be sold in new and rapidly evolving markets. The commercial unmanned aerial vehicles (“UAV”) industry is in the early stages of customer adoption and the FAA’s definition of regulations relating to the integration of commercial drones into the U.S. National Airspace System is rapidly evolving. Accordingly, Drone Nerds’ business and future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for the drone systems and solutions will increase, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following in connection with our acquisition of Drone Nerds: ● Generate sufficient revenue to maintain its historical profitability; ● Acquire and maintain market share; ● Achieve or manage growth in our business operations; ● Renew contracts; 54 ● Successfully stock for the commercial market products and end-to-end solutions; ● Adapt to new or changing polices and spending priorities of current and prospective clients; and ● Access to additional financing or capital when required and on reasonable terms. If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed. The supplier base of Drone Nerds is highly concentrated. In addition, Drone Nerds is subject to risks arising from ongoing regulatory discussions and potential legislative actions targeting its primary supplier from China, SZ DJI Technology Co, Ltd. and affiliates (“DJI”), who represented a majority of Drone Nerds’ vendor purchases during the 1H 2025. Drone Nerds has relationships with various global suppliers of drones and electronics, however the top 1 2 and 3 suppliers represent 53%, 10% and 7% of purchases, respectively, for the six months ended June 30, 2025. If any of those suppliers decided to no longer work with Drone Nerds, this could impact Drone Nerds ability to source products. In addition, under the 2025 National Defense Authorization Act (“NDAA”), a U.S. national-security agency is required to complete a security review of certain suppliers, including DJI, by December 23, 2025. If no agency completes this review by the deadline, the law instructs the Federal Communications Commission (the “FCC”) to automatically add these suppliers to the FCC “Covered List,” which would effectively block new FCC equipment authorizations for their technology and drones in the U.S. (i.e., new models could not be approved). Drone Nerds relies on DJI for a significant portion of its drone sales, creating significant regulatory and operational risk. Also, in September 2025, Drone Nerds signed an additional one-year contract with DJI to be the official non-exclusive dealer of its products in the U.S. DJI is already listed on certain U.S. government watchlists for national security and data concerns, which could restrict imports and limit access to government or defense-related contracts. This dependence exposes Drone Nerds to potential supply disruptions. In addition, while existing FCC equipment authorizations for previously approved DJI products would remain valid, federal agencies have indicated that continued use of legacy or in-service DJI equipment may become restricted or phased out over time. Such actions could include procurement bans, limits on participation in government-funded projects, or heightened data-security and export-control scrutiny. Even absent formal revocation of existing approvals, these measures could discourage public-sector or enterprise customers from purchasing or deploying DJI-based systems, thereby reducing demand for Drone Nerds’ products. Although the NDAA establishes the deadline for the national-security review, the ongoing federal government shutdown has created uncertainty around whether agencies will complete the review on time. Many federal departments responsible for technology and security evaluations are operating with reduced staffing or suspended programs, which may delay interagency coordination and risk assessments. If the review is not completed by the statutory deadline, DJI and other covered suppliers would be automatically added to the FCC Covered List by operation of law. This outcome—caused indirectly by administrative delay—could occur even without any final security determination. If regulatory developments, including delayed or adverse NDAA determinations, restrict DJI’s market access, Drone Nerds may be forced to renegotiate or terminate this agreement, seek alternative suppliers, or incur substantial transition costs. Failure to diversify its supply base or mitigate these risks could materially and adversely affect Drone Nerds’ business, financial condition, and operating results. The nature of the Drone Nerds business involves significant risks and uncertainties that may not be covered by insurance or indemnification. Drone Nerds has developed and sold products and services in circumstances where insurance or indemnification may not be available, for example, in connection with the collection and analysis of various types of information. In addition, its products and services raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion, and similar concepts, which may create legal issues. Indemnification to cover potential claims or liabilities resulting from the failure of any technologies that we deploy may be available in certain circumstances but not in others. Currently, the uncrewed aerial systems industry lacks a formative insurance market. We may not be able to maintain insurance to protect against all operational risks and uncertainties that our customers confront. Substantial claims resulting from an accident, product failure, or personal injury or property liability arising from our products and services in excess of any indemnity or insurance coverage (or for which indemnity or insurance coverage is not available or is not obtained) could harm our financial condition, cash flows and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively. 55 The Drone Nerds and Anzu Robotics acquisitions may trigger contractual rights under certain agreements. Drone Nerds and Anzu Robotics are parties to certain agreements that may contain termination or other rights following a “change in control” or “sale of all or substantially all” of such party’s assets. Any counterparty to such agreements may request modifications of its respective agreements as a condition to granting a waiver or consent under such agreements, or they may elect not to grant a waiver or consent. To the extent any counterparty to such agreements requests modifications of its respective agreements as a condition to granting a waiver or consent under such agreements, Drone Nerds and Anzu Robotics will use reasonable efforts to accommodate such modification, but such modifications may not be satisfactory to such counterparty or may not occur. There is no assurance that such counterparties will not assert otherwise and seek to exercise any such rights, including termination rights where available, that the exercise of any such rights will not adversely affect Drone Nerds or Anzu Robotics or that any modifications of such agreements will not materially and adversely affect the Company. For example, the documentation governing Drone Nerds’ and Anzu Robotics’ $25.0 million secured revolving credit facility contains customary covenants, including a prohibition against a change of control without the lender’s prior written approval. The consummation of the Drone Nerds and Anzu Robotics acquisitions resulted in a change of control under the revolving credit facility, and the lender’s written approval was not obtained prior to the acquisitions, which constitutes an event of default under the revolving credit facility. We are currently in discussions with the lender to obtain a waiver of such event of default or an amendment to the revolving credit facility. In the absence of such a waiver or an amendment, the lender has the right to declare all outstanding obligations under the revolving credit facility immediately due and payable, cancel the facility, cease making advances under the facility, and proceed against the collateral securing the indebtedness under the facility. As of November 11, 2025, Drone Nerds and Anzu Robotics had outstanding borrowings under the revolving credit facility of approximately $9.2 million. There can be no assurance that the lender will agree to such a waiver or an amendment or that we will have sufficient resources available to satisfy all of the obligations under the revolving credit facility if no waiver or amendment is obtained. We may be unable to repay the Notes issued in connection with the Acquisitions. In connection with the Acquisitions, XTI Drone Holdings issued (i) the Drone Nerds seller a promissory note in the original principal amount of $10,976,284.58 (the “DN Note”) and (ii) the Anzu Robotics seller a promissory note in the original principal amount of $954,459.53 (the “AR Note”). The principal of and interest on each Note will be payable as follows: (i) no later than November 30, 2025 (the “First Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $3,680,000 with respect to the DN Note and $320,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the First Required Payment Date, (ii) no later than March 31, 2026 (the “Second Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,840,000 with respect to the DN Note and $160,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Second Required Payment Date, (iii) no later than June 30, 2026 (the “Third Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,380,000 with respect to the DN Note and $120,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Third Required Payment Date, (iv) no later than September 30, 2026 (the “Fourth Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,380,000 with respect to the DN Note and $120,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Fourth Required Payment Date, (v) the entire outstanding principal amount, together with all accrued and unpaid interest, of each Note will be repaid on or prior to the one year anniversary of each Note (the “Due Date”), and (vi) all outstanding accrued interest and the unpaid principal amount of each Note will be due and payable in full on the earlier of (A) the Due Date, (B) 90 days following a capital raise (or the last capital raise, in connection with a series of transactions, whether related or unrelated) where the Company or one or more of its affiliates raise, as a result of a single transaction or a series of transactions occurring pursuant to one or more closings, in any case after the date of the Note, an aggregate amount of $40 million or more, qualified by the limitation that not more than 20% of net proceeds from any single financing will be applied towards payment of each Note, or (C) the date on which the Note becomes immediately due and payable as a result of the occurrence of an event of default thereunder. 56 Interest will accrue on the outstanding principal balance of each Note at an annual rate of 7.25%, computed based upon a 365-day year (the “Interest Rate”). If interest is not paid as it becomes due, it will be added to the principal. Our failure to pay the principal and interest of each Note when required will constitute an event of default under the Notes. Upon the occurrence of an event of default (except a Bankruptcy-Related Event of Default), the lender may declare the entire unpaid balance of principal and accrued but unpaid interest on the Note, and all other obligations of XTI Drones Holdings under the applicable Note, to be immediately due and payable and/or exercise any other rights or remedies under any other instrument or applicable law. Upon the occurrence of a Bankruptcy-Related Event of Default, the outstanding principal amount of the Note together with all accrued and unpaid interest and all other obligations of XTI Drones Holdings under the Note will become due and payable automatically. Following the occurrence of an event of default, interest will accrue on the outstanding principal balance of each Note at an annual rate equal to the Interest Rate plus 2.00%. An event of default under the Notes could also lead to a default under agreements governing our future indebtedness. We may not have or be able to secure financing for sufficient funds to satisfy all amounts under the Notes when due. If there is an event of default under the Notes, our business, financial condition and results of operations could be materially and adversely affected. In addition, to the extent we complete capital raises in an aggregate amount of $40 million or more, we will be required to repay the outstanding balance of each Note, which may reduce our working capital and impact our ability to operate as planned. We may incur substantial product liability claims relating to our products. As a distributor of drone and electronic products, and with aircraft and aviation sector companies under increased scrutiny in recent years, claims could be brought against us if use or misuse of one of the drones we sell causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will be able to obtain or maintain product liability insurance for any of our products. Changes in U.S. and foreign government administrative policy, including the imposition of or increases in tariffs and changes to existing trade agreements, and other changes to macroeconomic conditions could have a material adverse effect on global economic conditions and our business, results of operations, prospects and financial condition. As a result of changes to U.S. and foreign government administrative policy, there may be changes to existing trade agreements, greater restrictions on free trade generally, the imposition of or significant increases in tariffs on goods imported into the U.S., particularly those manufactured in Canada, Mexico, Europe, and China, and adverse responses by foreign governments to U.S. trade policies, among other possible changes. China is currently a leading global source of hardware products, including the hardware products that we use. As the implementation of tariffs is ongoing, more tariffs may be added in the future. These tariffs could have an adverse impact on our business, results of operations, prospects and financial condition, and if we are unable to pass such price increases through to our customers, it would likely increase our cost of sales and, as a result, decrease our gross margins, operating income and net income. As of the date of this report, discussions remain ongoing in respect of certain trade restrictions and tariffs on imports from Canada, China, Mexico and Europe, as well as retaliatory tariffs enacted in response to such actions. In light of these events, there continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to such trade policies, treaties, and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and restrict our access to suppliers or customers and, in turn, have a material adverse effect on the business and financial condition of such suppliers and customers or other counterparties we do business with, which in turn would negatively impact us. 57 Deteriorating macroeconomic conditions, including slower growth or a recession, inflation, changes in the U.S. presidential administration, bank failures, supply chain disruption, increases in interest rates, increases to fuel and other energy costs or vehicle costs, geopolitical events, including escalating tariff and non-tariff trade measures imposed by the U.S., Mexico, China, Canada and other countries, the potential for new or unforeseen conflicts such as the impact of the Russia and Ukraine conflict and Hamas and Israel conflict, changes in the labor market, or decreases in government spending power, could in the future result in a decline in customer spending, which could materially adversely affect our business, results of operations, prospects and financial condition. A trade war, other governmental action related to tariffs or trade agreements, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently do business, and any resulting negative sentiments towards the U.S. as a result of such changes, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Licenses for new products may be difficult to obtain in the future The drones and other electronic products sold by Drone Nerds and Anzu Robotics require FCC licenses to be imported into the US and sold to customers. Suppliers may face difficulties in the future obtaining these licenses. In such cases, Drone Nerds and Anzu Robotics will not be able to sell products where suppliers are not able to obtain licenses. This can be a major impact to Drone Nerds and Anzu Robotics’ business. Difficult conditions in the global capital markets and the economy generally may materially adversely affect our business and results of operations, and we do not expect these conditions to improve in the near future. Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Weak economic conditions generally, sustained uncertainty about global economic conditions, or a prolonged or further tightening of credit markets could cause our customers and potential customers to postpone or reduce spending on technology products or services or put downward pressure on prices, which could have an adverse effect on our business, results of operations or cash flows. Concerns over inflation, energy costs, geopolitical issues and the availability of credit in the U.S. have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices and wavering business and consumer confidence, have precipitated an economic slowdown and uncertain global outlook. Domestic and international equity markets have been experiencing heightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on our business. In the event of extreme prolonged market events, such as the global economic recovery, we could incur significant losses. The existence of inflation in certain economies has resulted in, and may continue to result in, rising interest rates and capital costs, supply shortages, increased costs of labor, components, manufacturing and shipping, as well as weakening exchange rates and other similar effects. As a result, we have experienced and may continue to experience cost increases. Although we take measures to mitigate the effects of inflation and rising interest rates, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when those beneficial actions impact our results or operations and when the cost of inflation is incurred. 58 The Drone Nerds and Anzu Robotics acquisitions, and any future acquisitions that we may make, could disrupt our business, cause dilution to our stockholders and harm our business, financial condition or operating results. The Drone Nerds and Anzu Robotics acquisitions, and any future acquisitions that we successfully consummate, could subject us to a number of risks, including, but not limited to: ● the purchase price we pay and/or unanticipated costs could significantly deplete our cash reserves or result in dilution to our existing stockholders; ● we may find that the acquired company or technologies do not improve our market position as planned; ● we may have difficulty integrating the operations and personnel of the acquired company, as the combined operations will place significant demands on the Company’s management, technical, financial and other resources; ● personnel, vendors, suppliers and customers of the acquired company may terminate their relationships with the acquired company as a result of the acquisition; ● we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting; ● we may assume or be held liable for risks and liabilities (including environmental-related costs) as a result of our acquisitions, some of which we may not be able to discover during our due diligence investigation or adequately adjust for in our acquisition arrangements (for example, even if we secure indemnification protections in connection with these acquisitions from undisclosed liabilities, there may not be adequate resources to cover such indemnity); ● our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises; ● we may incur one-time write-offs or restructuring charges in connection with the acquisition; ● we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges to earnings; and ● we may not be able to realize the cost savings or other financial benefits we anticipated. 59 We cannot assure you that, following the acquisitions of Drone Nerds or Anzu Robotics or any future acquisition, our continued business will achieve sales levels, profitability, efficiencies or synergies that justify the acquisition or that the acquisition will result in increased earnings for us in any future period. These factors could have a material adverse effect on our business, financial condition and operating results. We may not be able to successfully integrate the business and operations of Drone Nerds, Anzu Robotics or other entities that we have acquired or may acquire in the future into our ongoing business operations, which may result in our inability to fully realize the intended benefits of these acquisitions, or may disrupt our current operations, which could have a material adverse effect on our business, financial position and/or results of operations. We plan to integrate the operations of Drone Nerds and Anzu Robotics into our business, and this process involves complex operational, technological and personnel-related challenges, which are time-consuming and expensive and may disrupt our ongoing business operations. Furthermore, integration involves a number of risks, including, but not limited to: ● difficulties or complications in combining the companies’ operations; ● differences in controls, procedures and policies, regulatory standards and business cultures among the combined companies; ● the diversion of management’s attention from our ongoing core business operations; ● increased exposure to certain governmental regulations and compliance requirements; ● the potential increase in operating costs; ● the potential loss of key personnel; ● the potential loss of key customers or suppliers who choose not to do business with the combined business; ● difficulties or delays in consolidating the acquired companies’ technology platforms, including implementing systems designed to maintain effective disclosure controls and procedures and internal control over financial reporting for the combined company and enable the Company to continue to comply with U.S. GAAP and applicable U.S. securities laws and regulations; ● unanticipated costs to successfully integrate operations, technologies, personnel of acquired businesses and other assumed contingent liabilities; ● difficulty comparing financial reports due to differing financial and/or internal reporting systems; ● making any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder; and/or ● possible tax costs or inefficiencies associated with integrating the operations of the combined company. 60 These factors could cause us to not fully realize the anticipated financial and/or strategic benefits of the acquisitions, which could have a material adverse effect on our business, financial condition and/or results of operations. Even if we are able to successfully operate the acquired businesses, we may not be able to realize the revenue and other synergies and growth that we anticipated from these acquisitions in the time frame that we currently expect, and the costs of achieving these benefits may be higher than what we currently expect, because of a number of risks, including, but not limited to: ● the possibility that the acquisition may not further our business strategy as we expected; ● the possibility that we may not be able to expand the reach and customer base for the acquired companies’ current and future products as expected; ● the possibility that we may have entered a market with no prior experience and may not succeed in the manner expected; and ● the possibility that the carrying amounts of goodwill and other purchased intangible assets may not be recoverable. In addition, a significant portion of the aggregate purchase price of Drone Nerds and Anzu Robotics may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. For the purposes of the unaudited pro forma condensed combined financial information included in our Current Report on Form 8-K filed with the SEC on November 12, 2025, the Company has assumed the excess consideration over the net assets acquired is goodwill. The Company will perform a more comprehensive assessment of assets acquired that may result in other intangible assets being identified in that analysis. If the Acquisitions do not yield expected returns or fair value estimates deteriorate, we may be required to take charges to our results of operations based on this impairment assessment process, which could adversely affect our results of operations. As a result of these risks, the acquisitions of Drone Nerds and Anzu Robotics and integration may not contribute to our earnings as expected, we may not achieve expected revenue synergies or our return on invested capital targets when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits of the acquisitions. The risks arising with respect to the historic business and operations of Drone Nerds and Anzu Robotics may be different from what we anticipate, which could significantly increase the costs and decrease the benefits of the acquisitions and materially and adversely affect our operations going forward. Although we performed significant financial, legal, technological and business due diligence with respect to Drone Nerds and Anzu Robotics, we may not have appreciated, understood or fully anticipated the extent of the risks associated with the acquisitions. We have secured indemnification for certain matters in connection with the Drone Nerds and Anzu Robotics acquisitions in order to mitigate the consequences of breaches of representations, warranties and covenants under the applicable acquisition agreements and the risks associated with historic operations, including those with respect to compliance with laws, accuracy of financial statements, financial reporting controls and procedures, tax matters and undisclosed liabilities, and certain matters known to us. We believe that the indemnification provisions of the acquisition agreements, together with insurance policies that we have in place will limit the economic consequences of the issues we have identified in our due diligence to acceptable levels. Notwithstanding our exercise of due diligence and risk mitigation strategies, the Drone Nerds and Anzu Robotics acquisitions may expose us to unanticipated risks or unknown or contingent liabilities and the costs associated with these risks or liabilities may be greater than we anticipate. We may not be able to contain or control the costs associated with unanticipated risks or liabilities, which could materially and adversely affect our business, liquidity, capital resources or results of operations. 61 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds a) Sales of Unregistered Securities On February 1, 2025, the Company entered into a public relations and branding agreement with a public relations firm (the “PR Firm”), pursuant to which the Company agreed to issue the PR Firm, as partial compensation for public relations services, 25,000 unregistered shares of common stock (the “PR Firm Shares”), subject to the approval of the Company’s board of directors (the “Board”). On March 7, 2025, the Company entered into an investor relations agreement with an investor relations firm (the “IR Firm”), pursuant to which the Company agreed to issue the IR Firm, as partial compensation for investor relations services, 8,500 unregistered shares of common stock (the “IR Firm Shares”), subject to the Board’s approval. Following the Board’s approval of the issuances of the PR Firm Shares and the IR Firm Shares, the Company issued the PR Firm Shares and the IR Firm Shares to the PR Firm and the IR Firm, respectively, as of September 26, 2025. The PR Firm Shares and the IR Firm Shares were issued pursuant to an exemption from registration provided by Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act because such issuances did not involve a public offering, the recipients took the securities for investment and not resale, the Company took appropriate measures to restrict transfer, and the recipients are sophisticated investors. c) Issuer Purchases of Equity Securities None. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Mine Safety Disclosure Not applicable. Item 5. Other Information None of the Company’s directors or officers adopted , modified or terminated a Rule 10b-5 trading arrangement or a non-Rule 10b-5 trading arrangement during the fiscal quarter ended September 30, 2025, as such terms are defined under Item 408(a) of Regulation S-K. Item 6. Exhibits See the Exhibit index following the signature page to this Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference. 62 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. XTI AEROSPACE, INC Date: November 19, 2025 By: /s/ Scott Pomeroy Scott Pomeroy Chief Executive Officer (Principal Executive Officer) By: /s/ Brooke Turk Brooke Turk Chief Financial Officer (Principal Financial Officer) 63 EXHIBIT INDEX Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 2.1† Agreement and Plan of Merger, dated July 24, 2023, among Inpixon, Superfly Merger Sub Inc. and XTI Aircraft Company. 8-K 001-36404 2.1 July 25, 2023 2.2 First Amendment to Merger Agreement, dated December 30, 2023, by and between Inpixon, Superfly Merger Sub Inc. and XTI Aircraft Company. 10-K 001-36404 2.26 April 16, 2024 2.3† Second Amendment to Merger Agreement, dated March 12, 2024, by and between Inpixon, Superfly Merger Sub Inc. and XTI Aircraft Company. 8-K 001-36404 10.1 March 15, 2024 2.4† Equity Purchase Agreement, dated as of February 16, 2024, by and among Inpixon, Grafiti LLC and Grafiti Group LLC. 8-K 001-36404 2.1 February 23, 2024 2.5† Membership Interest Purchase Agreement, dated November 10, 2025, by and among XTI Drones Holdings, LLC, The Origin Group DN, Inc., Drone Nerds, LLC, the seller owners listed on Annex A-1 thereto and Jeremy Schneiderman, as the Seller’s Representative . 8-K 001-36404 2.1 November 12, 2025 2.6† Membership Interest Purchase Agreement, dated November 10, 2025, by and among XTI Drones Holdings, LLC, The Origin Group AZ, Inc., Anzu Robotics, LLC, the seller owners listed on Annex A-1 thereto and Jeremy Schneiderman, as the Seller’s Representative. 8-K 001-36404 2.2 November 12, 2025 3.1 Restated Articles of Incorporation. S-1 333-190574 3.1 August 12, 2013 3.2 Certificate of Amendment to Articles of Incorporation (Increase Authorized Shares). S-1 333-218173 3.2 May 22, 2017 3.3 Certificate of Amendment to Articles of Incorporation (Reverse Split). 8-K 001-36404 3.1 April 10, 2014 3.4 Articles of Merger (renamed Sysorex Global). 8-K 001-36404 3.1 December 18, 2015 3.5 Articles of Merger (renamed Inpixon). 8-K 001-36404 3.1 March 1, 2017 3.6 Certificate of Amendment to Articles of Incorporation (Reverse Split). 8-K 001-36404 3.2 March 1, 2017 3.7 Certificate of Amendment to Articles of Incorporation (authorized share increase). 8-K 001-36404 3.1 February 5, 2018 3.8 Certificate of Amendment to Articles of Incorporation (Reverse Split). 8-K 001-36404 3.1 February 6, 2018 3.9 Form of Certificate of Designation of Preferences, Rights and Limitations of Series 4 Convertible Preferred Stock. 8-K 001-36404 3.1 April 24, 2018 64 Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 3.10 Certificate of Amendment to Articles of Incorporation (Reverse Split). 8-K 001-36404 3.1 November 1, 2018 3.11 Certificate of Designation of Series 5 Convertible Preferred Stock, dated as of January 14, 2019. 8-K 001-36404 3.1 January 15, 2019 3.12 Certificate of Amendment to Articles of Incorporation, effective as of January 7, 2020 (Reverse Split). 8-K 001-36404 3.1 January 7, 2020 3.13 Certificate of Amendment to the Articles of Incorporation increasing the number of authorized shares of Common Stock from 250,000,000 to 2,000,000,000 filed with the Secretary of State of the State of Nevada on November 18, 2021 8-K 001-36404 3.1 November 19, 2021 3.14 Certificate of Change filed with the Secretary of State of the State of Nevada on October 4, 2022 (effective as of October 7, 2022) 8-K 001-36404 3.1 October 6, 2022 3.15 Certificate of Amendment to the Articles of Incorporation increasing the number of authorized shares of Common Stock from 26,666,667 to 500,000,000 filed with the Secretary of State of the State of Nevada on November 29, 2022 8-K 001-36404 3.1 December 2, 2022 3.16 Certificate of Designations of Preferences and Rights of Series 9 Preferred Stock. 8-K 001-36404 3.1 March 15, 2024 3.17 Certificate of Amendment (Reverse Stock Split). 8-K 001-36404 3.2 March 15, 2024 3.18 Certificate of Amendment (Name Change). 8-K 001-36404 3.3 March 15, 2024 3.19 Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock 8-K 001-36404 3.1 May 1, 2024 3.20 Certificate of Amendment to Articles of Incorporation, effective as of January 10, 2025. 8-K 001-36404 3.1 January 10, 2025 3.21 Certificate of Designation of Preferences and Rights of Series 10 Convertible Preferred Stock . 8-K 001-36404 3.1 November 12, 2025 3.22 Amended and Restated Bylaws of XTI Aerospace, Inc. 10-Q 001-36404 3.21 August 14, 2025 4.1 Form of Pre-funded Warrant. 8-K 001-36404 4.1 September 15, 2025 4.2 Form of Common Warrant. 8-K 001-36404 4.2 September 15, 2025 4.3 Form of Placement Agent Warrant. 8-K 001-36404 4.3 September 15, 2025 4.4 Revolving Promissory Note, dated July 10, 2025, issued by Drone Nerds Inc and Anzu Robotics, LLC to Banesco USA. 8-K 001-36404 4.1 November 12, 2025 4.5 Promissory Note issued by XTI Drones Holdings, LLC to New Drone Nerds S-Corp, Inc., dated November 10, 2025. 8-K 001-36404 4.2 November 12, 2025 4.6 Promissory Note issued by XTI Drones Holdings, LLC to New Anzu Robotics S-Corp, LLC, dated November 10, 2025. 8-K 001-36404 4.3 November 12, 2025 4.7 Form of Placement Agent’s Warrant. 8-K 001-36404 4.4 November 12, 2025 65 Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 10.1* Amended and Restated XTI Aerospace, Inc. 2018 Employee Stock Incentive Plan. 8-K 001-36404 10.1 August 21, 2025 10.2* Form of Incentive Stock Option Agreement pursuant to the Amended and Restated XTI Aerospace, Inc. 2018 Employee Stock Incentive Plan. 8-K 001-36404 10.2 August 21, 2025 10.3* Form of Non-Qualified Stock Option Agreement pursuant to the Amended and Restated XTI Aerospace, Inc. 2018 Employee Stock Incentive Plan. 8-K 001-36404 10.3 August 21, 2025 10.4* Form of Restricted Stock Award Agreement pursuant to the Amended and Restated XTI Aerospace, Inc. 2018 Employee Stock Incentive Plan. 8-K 001-36404 10.4 August 21, 2025 10.5* Form of Restricted Stock Unit Award Agreement pursuant to the Amended and Restated XTI Aerospace, Inc. 2018 Employee Stock Incentive Plan. 8-K 001-36404 10.5 August 21, 2025 10.6* Employment Agreement, dated September 1, 2025, by and between XTI Aerospace, Inc. and Michael A. Tapp. 8-K 001-36404 10.1 September 5, 2025 10.7* Side Letter, dated September 1, 2025, from XTI Aerospace, Inc. to Michael A. Tapp. 8-K 001-36404 10.4 September 5, 2025 10.8* Form of Indemnification Agreement. 8-K 001-36404 10.4 March 15, 2024 10.9 Placement Agency Agreement, dated September 12, 2025, by and between XTI Aerospace, Inc. and ThinkEquity LLC. 8-K 001-36404 10.1 September 15, 2025 10.10 Form of Lock-Up Agreement. 8-K 001-36404 10.2 September 15, 2025 10.11† Loan Agreement, dated July 10, 2025, by and among Drone Nerds Inc, Anzu Robotics, LLC and Banesco USA. 8-K 001-36404 10.1 November 12, 2025 10.12† Security Agreement, dated July 10, 2025, by and among Drone Nerds Inc, Anzu Robotics, LLC and Banesco USA. 8-K 001-36404 10.2 November 12, 2025 31.1 Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025. X 31.2 Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025. X 32.1# Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) X † Exhibits, schedules and similar attachments have been omitted pursuant to Item 601 of Regulation S-K and the registrant undertakes to furnish supplemental copies of any of the omitted exhibits and schedules upon request by the SEC. * Indicates a management contract or compensatory plan or arrangement. # This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. 66