What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2026-04-15 compared with 2025-04-15 · 896 added, 691 removed, 16 unchanged (99% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

common stock currently trades under the symbol “XTIA” on the Nasdaq Capital Market.

Prior to the XTI Merger, our common stock

traded under the symbol “INPX” on the Nasdaq Capital Market.

According to our transfer agent, as of April 11, 2025, we had approximately

MARKET FOR REGISTRANT’S COMMON

EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock currently

trades under the symbol “XTIA” on the Nasdaq Capital Market.

Holders of Record

According to our transfer agent, as of March 31, 2026, we had approximately

1,600 shareholders of record of our common stock.

2 unchanged sentences

Our stock transfer agent is Computershare Trust Company, N.A., 150 Royall Street, Suite 101, Canton, MA

We have not declared or paid any cash dividends on our common stock,

and we currently intend to retain future earnings, if any, to finance the expansion of our business, therefore, we do not expect to pay

any cash dividends in the foreseeable future.

The decision whether to pay cash dividends on our common stock will be made by our Board,

in their discretion, and will depend on our financial condition, results of operations, capital requirements and other factors that our

Board considers significant.

Holders of Series 4 Convertible Preferred Stock and Series 5 Convertible Preferred Stock will not be entitled

to receive any dividends, unless and until specifically declared by our Board.

Authorized for Issuance under Equity Compensation Plans

information required by this item with respect to our equity compensation plans, please see Item 11 of this report.

Sales of Unregistered Securities and Use of Proceeds

the period covered by this Annual Report on Form 10-K, we have not sold any equity securities that were not registered under the Securities

Act that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.

of Equity Securities by the Issuer and Affiliated Purchasers

had no share repurchase activity for the three months ended December 31, 2024.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited

financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

In addition to historical information,

this discussion and analysis here and throughout this Annual Report on Form 10-K contains forward-looking statements that involve risks,

uncertainties and assumptions.

Our actual results may differ materially from those anticipated in these forward-looking statements, due

to a number of factors, including but not limited to, risks described in the section entitled “ Risk Factors.

of Our Business

The Company is primarily an aircraft development company.

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

to the closing of the XTI Merger.

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

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

We are primarily engaged

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, 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.

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.

experienced a net loss from operations of approximately $37.0 million and $7.6 million for the years ended December 31, 2024

and 2023, respectively.

We cannot assure that we will ever earn revenues sufficient to support our operations, or that we will ever be

In order to continue our operations, we have supplemented the revenues we earned with proceeds from the sale of our equity

and proceeds from loans.

March 2025 Underwritten Offering and Debt

On March 28, 2025, we entered into an underwriting agreement with ThinkEquity

LLC (“ThinkEquity”), as the representative of the underwriters named therein, relating to a firm commitment underwritten public

offering (the “March Offering”) of 765,200 shares of common stock, pre-funded warrants (the “Pre-funded Warrants”)

to purchase up to 2,176,000 shares of common stock, and common warrants (the “Common Warrants”) to purchase up to 2,941,200

shares of common stock.

The combined public offering price for each share of common stock, together with one Common Warrant, was $1.36.

The combined public offering price for each Pre-funded Warrant, together with one Common Warrant, was $1.359.

Each share of common stock,

or a Pre-funded Warrant in lieu thereof, was sold together with one Common Warrant.

The March Offering was made pursuant to our registration

statement on Form S-3 (File No 333-279901), filed with the SEC on May 31, 2024, as amended on June 14, 2024 and declared effective on

June 18, 2024 (the “Current Shelf Registration Statement”), the base prospectus included therein, a preliminary prospectus

supplement dated March 27, 2025 and a final prospectus supplement dated March 28, 2025.

The March Offering closed

on March 31, 2025.

We received net proceeds of approximately $3.3 million from the March Offering after deducting the underwriting discounts

and commissions and other expenses payable by us.

We used approximately $2.7 million of the net proceeds from the March Offering to repay

in full all amounts outstanding, including a 115% prepayment penalty, in respect of two secured promissory notes issued by the Company

to Streeterville Capital, LLC on May 1, 2024 and May 24, 2024.

The Pre-funded Warrants were immediately exercisable upon issuance,

have an exercise price of $0.001 per share and may be exercised at any time until all of the Pre-funded Warrants are exercised in full.

The Common Warrants were immediately exercisable upon issuance, have an exercise price of $1.36 per share, and expire on the fifth anniversary

of the date of issuance.

As a result of our failure to timely file a Current Report on Form 8-K, upon the filing of this Annual Report

on Form 10-K, we became ineligible to file new short form registration statements on Form S-3 or to use the Current Shelf Registration

Therefore, we agreed to file a subsequent registration statement covering the issuance of the shares issuable upon exercise

of the Pre-funded Warrants and the Common Warrants within the timeframes set forth in such warrants.

As of April 11, 2025, 1,126,000 Pre-funded

Warrants remained outstanding and unexercised.

As part of its compensation

for serving as representative in connection with the March Offering, we issued ThinkEquity and its designees Representative Warrants to

purchase up to 147,060 shares of common stock.

The Representative Warrants were immediately exercisable upon issuance, have an exercise

price of $1.70 per share and expire on the five-year anniversary of the commencement of sales of the securities issued in the March Offering.

January 2025 Registered Direct Offering

On January 7, 2025, we entered

into a placement agency agreement with ThinkEquity, as placement agent, pursuant to which we agreed to issue and sell directly to various

investors, in a best efforts public offering (the “January Offering”), an aggregate of 1,454,546 shares of common stock at

an offering price of $13.75 per share.

The January Offering closed on January 10, 2025, following the effectiveness of the 1-for-250 reverse

stock split of our outstanding common stock on the same date, which was a condition to the closing of the January Offering.

net proceeds of approximately $18.3 million from the January Offering.

The January Offering was made pursuant to the Current Shelf Registration

Statement, the base prospectus included therein, and a prospectus supplement dated January 7, 2025.

As part of its compensation for acting

as placement agent for the January Offering, we issued ThinkEquity LLC and its designees Placement Agent Warrants to purchase 72,727 shares

of common stock, which were immediately exercisable upon issuance, have an exercise price of $17.1875 per share and expire on the five-year

anniversary of the commencement of sales of the securities issued in the January Offering.

Settlement Agreement

On March 27, 2025 (the “Effective

Date”), XTI Aerospace, Inc.

(the “Company”) entered into a settlement agreement with 3AM Investments LLC (an entity

controlled by Nadir Ali (“Ali”), the Company’s former Chief Executive Officer and a former director of the Company)

(“3AM”), Grafiti Group LLC (“Grafiti Group”) and Ali (the “Settlement Agreement”).

The terms of the

Settlement Agreement include:

Preferred Stock Redemption.

The Company and 3AM entered into that certain securities purchase agreement dated as of March 12, 2024 (the “Series 9 Purchase Agreement”),

pursuant to which 3AM acquired 1,500 shares of the Company’s Series 9 Preferred Stock, of which 1,164.12 shares of Series 9 Preferred

Stock were issued and outstanding as of March 27, 2025 (the “Outstanding Preferred Stock”).

Pursuant to the Settlement Agreement,

on the Effective Date, the Company delivered the aggregate amount of $1,251,651.26 (the “Series 9 Redemption Amount”)

by wire transfer of immediately available funds to an account designated in writing by Ali, for the redemption of the Outstanding Preferred

Following Ali’s receipt of the Series 9 Redemption Amount, Ali no longer held any shares of Series 9 Preferred Stock.

of the date of this report, there are no shares of Series 9 Preferred Stock issued and outstanding.

Termination of Ali Consulting

The Settlement Agreement provides that effective as of the Effective Date, that certain Consulting Agreement, dated

March 12, 2024 by and between the Company and Ali (the “Ali Consulting Agreement”) is terminated, and in lieu of the $2,775,000

(the “Ali Advisory Fees”) that would be owed to Ali pursuant to the terms of the Ali Consulting Agreement as a result of the

termination of such Ali Consulting Agreement prior to the 15 month anniversary of the effective date thereof, the Company agreed

(i) that the aggregate amount of $1,000,000 (the “Grafiti Purchase Amount”) required to be delivered by Grafiti Group pursuant

to that certain Equity Purchase Agreement, dated February 16, 2024, by and among the Company, Grafiti LLC, and Grafiti Group, as amended

(the “Equity Purchase Agreement”), shall be deemed to be satisfied in full and no further amounts shall be payable to the

Company by Grafiti Group or any of its affiliated parties pursuant to the Equity Purchase Agreement;

(ii) to deliver a cash amount of

$60,000 (the “Outstanding Amount”) to Ali by wire transfer of immediately available funds;

and (iii) to deliver $1,500,000

(the “Deferred Amount”) by wire transfer of immediately available funds in three equal installments of $500,000 (“Installment

Amounts”) each on June 30, 2025, September 30, 2025 and December 30, 2025 (the “Deferred Amount Installment Dates”).

Any Installment Amount that is not paid by the applicable due dates will be subject to interest at a rate of 18% per annum.

of the Outstanding Amount and the Deferred Amount in accordance with the terms of the Settlement Agreement, the Ali Advisory Fees shall

be deemed to be satisfied in full and no further amounts shall be payable by the Company to Ali or his affiliated parties pursuant

to the Ali Consulting Agreement.

On March 31, 2025, the Company paid the Outstanding Amount in full.

As of the date of this report, the

Deferred Amount remains outstanding.

Former Management Payments.

to the Settlement Agreement, the Company agreed to pay the Former Management Payments (as defined below) on the earlier of (a) the closing

date of the Company’s next financing transaction and (b) 30 days following the Effective Date of the Settlement Agreement, subject

to certain penalties for late payment.

The “Former Management Payments” comprise (i) an aggregate amount of $803,260.65 (the

“Bonus Plan Payment”) that, as of the Effective Date, remains payable to the recipients of bonuses payable pursuant to that

certain Strategic Transaction Bonus Plan, adopted on July 24, 2023 and as amended (the “Bonus Plan”) together with (ii) an

aggregate amount of $303,372.87 (the “Loundermon Advisory Fee”) that, as of the Effective Date, is payable to Wendy Loundermon,

the Company’s former Chief Financial Officer and a former director of the Company (“Loundermon”), pursuant

to that certain Consulting Agreement, dated March 12, 2024, by and between the Company and Loundermon (the “Loundermon Consulting

On March 31, 2025, the Company

paid all amounts due under the Former Management Payments in full.

Ali Release .

the Effective Date, Ali, on behalf of himself and his former and current affiliated entities, including 3AM, Grafiti LLC and Grafiti Group

(collectively, the “Ali Parties”) agreed to release the Company and each of its former and current subsidiaries, divisions,

affiliates, predecessors, successors, assigns, and its and their respective employees, officers, directors, shareholders, members, partners,

trustees, joint venturers, attorneys, agents, and representatives (collectively, the “XTI Parties”), from and with respect

to any and all claims, demands, causes of action, damages, obligations, liabilities, costs, and expenses of any kind or nature whatsoever

(collectively, “Ali Claims”), arising out of any obligations of the Company with respect to the Ali Consulting Agreement,

the Series 9 Purchase Agreement and the portion of the Bonus Plan relating to Ali, whether known or unknown, foreseen or unforeseen, that

the Ali Parties, or any of them, ever had, now have, or may have against the XTI Parties, or any of them, from the beginning of time through

and including the Completion Date (as defined below).

As used in the Settlement Agreement, the term “Completion Date” means

the date on which the Company has delivered (i) the Series 9 Redemption Amount to Ali by wire transfer of immediately available funds;

(ii) the Deferred Amount to Ali by wire transfer of immediately available funds;

(iii) the Outstanding Amount to Ali by wire transfer

of immediately available funds;

(iv) the Former Management Payments to Loundermon and the recipients of the Bonus Plan Payments by wire

transfer of immediately available funds.

the Effective Date, the XTI Parties agreed to release the Ali Parties from and with respect to any and all claims, demands, causes of

action, damages, obligations, liabilities, costs, and expenses of any kind or nature whatsoever (collectively, “XTI Claims”),

arising out of any obligations of the Ali Parties with respect to any obligation of the Ali Parties in connection with the payment of

the purchase price as set forth in the Equity Purchase Agreement, the Ali Consulting Agreement, the Series 9 Purchase Agreement and the

portion of the Bonus Plan relating to Ali, whether known or unknown, foreseen or unforeseen, that the XTI Parties, or any of them, ever

had, now have, or may have against the Ali Parties, or any of them, from the beginning of time through and including the Completion Date.

Entire Agreement.

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.

with Nasdaq Continued Listing Requirements

February 11, 2025, the Company received a letter from Nasdaq confirming that the Company has regained compliance with the minimum bid

price requirement set forth under Nasdaq Listing Rule 5550(a)(2), and accordingly, the Nasdaq Hearings Panel has determined to continue

the listing of the Company’s common stock on The Nasdaq Stock Market.

Accounting Policies and Estimates

consolidated financial statements are prepared in accordance with U.S.

We have not declared or paid

any cash dividends on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business,

therefore, we do not expect to pay any cash dividends in the foreseeable future.

The decision whether to pay cash dividends on our common

stock will be made by our Board, in their discretion, and will depend on our financial condition, results of operations, capital requirements

and other factors that our Board considers significant.

Holders of Series 4 Convertible Preferred Stock and Series 5 Convertible Preferred

Stock will not be entitled to receive any dividends, unless and until specifically declared by our Board.

Securities Authorized for Issuance under

Equity Compensation Plans

For information required by this

item with respect to our equity compensation plans, please see Item 11 of this Annual Report.

Recent Sales of Unregistered Securities

and Use of Proceeds

During the period covered by this

Annual Report, we have not sold any equity securities that were not registered under the Securities Act that were not previously reported

in a quarterly report on Form 10-Q or in a current report on Form 8-K.

Purchases of Equity Securities by the Issuer

and Affiliated Purchasers

We had no share repurchase

activity for the three months ended December 31, 2025.

MANAGEMENT ’ S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion

and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements

and related notes included elsewhere in this Annual Report on Form 10-K.

In addition to historical information, this discussion and analysis

here and throughout this Annual Report on Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results may differ materially from those anticipated in these forward-looking statements, due to a number of factors, including

but not limited to, risks described in the section entitled “Risk Factors.

OVERVIEW OF OUR BUSINESS

XTI Aerospace, Inc.

is a U.S.-based

aerospace company focused on building and scaling a market-leading UAS solutions platform serving enterprise, public safety, government,

and defense customers, while maintaining long-term optionality in advanced vertical lift aircraft development.

The Company manages its operations

through two reportable segments:

Unmanned Aircraft Systems (“UAS”) and Commercial Aviation.

These segments reflect the Company’s

distinct business models, capital requirements and growth drivers.

Our core business currently consists of:

Unmanned Aircraft Systems - an established UAS solutions and services platform operated through our majority-owned subsidiary, XTI Drones Holdings, LLC, providing enterprise drone distribution, training, compliance management support, repair and maintenance, fleet sustainment and related services, and

Aviation - a development-stage VTOL aircraft program focused on the TriFan 600, a fixed-wing

aircraft design concept intended to combine the vertical takeoff and landing capability of

a helicopter with the speed and range of a conventional business aircraft, operated through

our wholly-owned subsidiary, XTI Aircraft Company.

During 2024 and 2025, the

Company underwent a series of transactions that changed our operating profile, revenue base, and capital allocation priorities.

Corporate Transformation

On March 12, 2024, we completed

a merger (the “XTI Merger”) with XTI Aircraft Company (“Legacy XTI”) that was accounted for as a reverse acquisition,

with Legacy XTI treated as the accounting acquirer and the Company (formerly Inpixon) treated as the accounting acquiree.

our consolidated financial statements reflect (i) the historical financial statements of Legacy XTI prior to the closing date and (ii)

the consolidated results of the combined company following the closing date.

In November 2025, we completed the acquisition of Drone Nerds, LLC and

Anzu Robotics, LLC (collectively, “Drone Nerds”) with Anzu Robotics, LLC having been affiliated with Drone Nerds, LLC (then

known as Drone Nerds, Inc.) prior to the acquisition.

The Company owns an 83.403% controlling interest in the XTI Drones Holdings subsidiary,

with the remaining equity reflected as noncontrolling interest.

The acquisition of Drone Nerds

represents a significant strategic shift.

Prior to the acquisition, our operations were primarily focused on our Inpixon Business and

the development of the TriFan 600 aircraft and other aerospace technologies.

With the acquisition of Drone Nerds, we transitioned our

focus towards scaling Drone Nerds’ revenue-generating UAS solutions platform.

Because Drone Nerds was acquired in November 2025,

our consolidated results for the year ended December 31, 2025 include Drone Nerds’ results only from the acquisition date through

Accordingly, GAAP revenues, cost of revenues, and operating expenses for 2025 do not reflect a full year of UAS operations at

In conjunction with the acquisition

of Drone Nerds, we also recognized the challenge of the long-term financing requirements of developing a VTOL aircraft and the opportunities

in the unmanned systems market in the near term.

Late in 2025, we began building a core capability around the design, development, and

production of unmanned platforms, with an emphasis on serving defense customers and supporting domestic procurement initiatives aligned

national security priorities.

During December 2025, the

Company committed to a plan to dispose of its historical Inpixon Business and classified the business as held for sale.

The results of

the Inpixon Business are presented as discontinued operations in the consolidated financial statements for all periods presented.

As a result of these transactions,

our current operating profile differs materially from prior periods, and historical results may not be fully comparable.

in addition to reviewing our GAAP results, management evaluates performance and allocates capital with an emphasis on:

● Revenue growth and channel mix within the UAS

● Gross margin expansion through service attachment

and lifecycle support.

● Working capital efficiency and liquidity management.

● Disciplined allocation of capital between UAS

scaling initiatives and TriFan development.

UAS Solutions Platform

Through Drone Nerds, we operate an established enterprise-focused UAS

solutions platform in the United States.

Our operating model is designed to provide end-to-end UAS lifecycle capabilities across hardware

distribution, operator training, compliance management support, repair and maintenance, fleet sustainment, and related support services.

We operate an OEM-agnostic,

multi-vendor ecosystem supporting more than 50 hardware and software manufacturers.

This positioning enables us to serve enterprise and

public sector customers navigating evolving regulatory requirements, supply chain considerations, and procurement restrictions.

Our strategy is aligned with

our broader Vertical Economy™ vision, which encompasses vertical lift technologies and supporting infrastructure across unmanned

and manned aircraft platforms.

While our long-term vision includes broader participation across the vertical lift ecosystem, our near-term

operating focus is centered on scaling our UAS platform with disciplined capital allocation and margin optimization.

We believe the UAS market

is undergoing structural evolution driven by:

● Increasing enterprise adoption of drones for

inspection, safety, and operational efficiency

● Regulatory developments affecting fleet eligibility

and operational approvals

● Growing emphasis on secure and compliant procurement

in government and defense channels

● Customer demand for integrated lifecycle solutions

rather than standalone hardware transactions

Our integrated model is designed

to address these trends by positioning us as a long-term solutions partner rather than a transactional reseller.

TriFan 600 VTOL Program

As of early 2026, the TriFan 600 program has been paused.

when development may resume will depend on a number of factors, including capital availability, market conditions for advanced air mobility,

and the Company’s overall strategic priorities at the relevant time.

While the TriFan 600 remains a strategic long-term asset within

our broader vertical lift vision, our current revenue base and operating execution are centered on our UAS solutions platform.

Capital Allocation and Liquidity Strategy

During 2025, we completed

multiple public offerings and a Series 10 Convertible Preferred Stock financing, which generated an aggregate of approximately $85.5 million

in net proceeds, strengthening our liquidity and supporting our strategic initiatives, including the Drone Nerds acquisition and working

capital stabilization.

Our operating priorities are focused on:

● Strengthening and scaling our UAS platform.

● Improving margin profile and recurring revenue mix.

● Managing operating expenses and cash burn.

● Preserving long-term vertical lift optionality.

Our near-term objective is

to move toward improved operating cash flow sustainability within the UAS segment while maintaining disciplined investment in our other

programs, which may require additional capital over time.

RECENT DEVELOPMENTS

Sale of Inpixon Business .

In February 2026, we completed the sale of our historical Inpixon Business, which had been classified as discontinued operations during

the fourth quarter of 2025.

The transaction furthered our strategic repositioning toward a focused aerospace and UAS platform.

purchase price remains subject to customary post-closing adjustments.

Board and Leadership Changes.

Clinton Weber was elected to our Board of Directors at our 2025 annual meeting of stockholders held on December 30, 2025.

2026, we appointed Jonathan Ornstein to our Board of Directors.

In addition, Soumya Das resigned from his position as Chief Executive

Officer of the Inpixon Business and from the Company’s Board of Directors in connection with the disposition of that business.

Asset-Based Credit

In February 2026, we entered into a new secured asset-based revolving credit facility with JPMorgan Chase Bank, N.A.

(the “ABL Facility”).

The ABL Facility provides for a revolving line of credit of up to $20.0 million, subject to a

borrowing base calculated primarily on eligible accounts receivable and inventory, and includes customary covenants and reporting

requirements.

Subject to lender approval and the terms of the underlying credit agreement, the facility may be increased by up to an

additional $25.0 million.

The ABL Facility is intended

to enhance our working capital flexibility, support inventory procurement and growth within our UAS platform, and strengthen overall liquidity

Borrowings under the facility bear interest at variable rates based on applicable benchmark rates plus an agreed margin.

Warrant Exercises.

Subsequent to December 31, 2025 and through the date of this filing, holders of certain warrants issued in connection with our 2025 public

offerings exercised warrants to purchase 3,963,408 shares of the Company’s common stock.

These exercises resulted in aggregate cash

proceeds to us of approximately $7.9 million.

We engaged ThinkEquity LLC as our exclusive advisor in connection with the solicitation

of these warrants for which we paid cash compensation of 3% of the gross proceeds, or approximately $0.2 million.

After deducting such

commissions, the net proceeds we received from these warrant exercises was approximately $7.7 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial

statements have been 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

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.

significant accounting policies are discussed in Note 3 of the audited consolidated financial statements for the years ended December

31, 2024 and 2023 which are included elsewhere in this Annual Report on Form 10-K.

We believe that the following accounting estimates

are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult,

subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

There have been no changes to estimates during the periods presented in the filing.

Historically changes in management estimates have

not been material.

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.

contracts with customers often include promises to transfer multiple distinct products and services.

Our licenses are sold as perpetual

or term licenses and the arrangements typically contain various combinations of maintenance and professional services, which are accounted

for as separate performance obligations.

In determining how revenue should be recognized, a five-step process is used, which requires

judgment and estimates within the revenue recognition process.

The most critical judgements required in applying Accounting Standards

Codification (“ASC”) 606 Revenue Recognition from Customers , and our revenue recognition policy relate to the determination

of distinct performance obligations.

receive fixed consideration for sales of hardware and software products.

Revenue is recognized

at point in time when the customer has title to the product and risks and rewards of ownership

have transferred.

related to software as a service contract is recognized over time using the output method

(days of software provided) because we are providing continuous access to its service.

and implementation revenue is accounted for using the percentage of completion method.

soon as the outcome of a contract can be estimated reliably, contract revenue is recognized

in the consolidated statement of operations in proportion to the stage of completion of the

Accounting for these contracts involves the use of estimates to determine total

contract costs to be incurred.

● Professional

services revenue under fixed fee contracts is recognized over time using the input method

(direct labor hours) to recognize revenue over the term of the contract.

We have elected

the practical expedient to recognize revenue for the right to invoice because our right to

consideration corresponds directly with the value to the customer of the performance completed

recognize revenue related to Maintenance Services evenly over time using the output method

(days of software provided) because we provide continuous service, and the customer simultaneously

receives and consumes the benefits provided by our performance as the services are performed.

also consider whether an arrangement has any discounts, material rights, or specified future upgrades that may represent additional performance

We offer discounts in the form of prompt payment discounts and rebates for a decrease in service level percentages.

determined that the most likely amount method is most useful for contracts that provides these discounts and rebates as the contracts

have two potential outcomes and a significant reversal in the amount of cumulative revenue recognized is not expected to occur.

have not historically been significant, but we continue to monitor and evaluate these estimates based on historical experience, anticipated

performance, and our best judgment.

Renewals or extensions of licenses are evaluated as distinct licenses (i.e., a distinct good or service),

and revenue attributed to the distinct good or service cannot be recognized until (1) the entity provides the distinct license (or makes

the license available) to the customer and (2) the customer is able to use and benefit from the distinct license.

If any of these judgments

were to change it could cause a material increase or decrease in the amount of revenue we report in a particular period.

of Long-lived and Intangible Assets and Goodwill

periodically review long-lived assets and certain identifiable intangible assets for impairment in accordance with 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.

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 exceeds 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.

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.

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

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.

will perform our annual goodwill impairment test required by ASC 350 as of October 1 st 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 single 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 approximately $4.8 million in intangible assets which was allocated to various asset groups under our Industrial IoT

reporting unit.

In connection with the XTI Merger, we recorded $12.4 million in goodwill which was allocated to our Industrial IoT reporting

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 2024 and at the Company’s October 1 st annual testing date.

As of December 31, 2024, management evaluated potential triggers and completed a qualitative assessment and determined in the aggregate,

it is more likely than not, that the fair value of the Goodwill is less than its carrying value.

Management moved to a quantitative assessment

and noted that based on that assessment, the fair value of the Industrial IoT reporting unit is greater than the carrying value of the

reporting unit.

The Company notes that the fair value exceeded the carrying value by 22% as of December 31, 2024.

Therefore, no goodwill

impairment was recognized for the year ended December 31, 2024.

accordance with ASC 740 “Income Taxes” (“ASC 740”), management routinely evaluates the likelihood of the realization

of its income tax benefits and the recognition of its deferred tax assets.

In evaluating the need for any valuation allowance, management

will assess whether it is more likely than not that some portion, or all, of the deferred tax asset may not be realized on a jurisdictional

Ultimately, the realization of deferred tax assets is dependent upon the generation of future taxable income during those periods

in which temporary differences become deductible and/or tax credits and tax loss carry-forwards can be utilized.

In performing its analyses,

management considers both positive and negative evidence including historical financial performance, previous earnings patterns, future

earnings forecasts, tax planning strategies, economic and business trends and the potential realization of net operating loss carry-forwards

within a reasonable timeframe.

To this end, management considered (i) that we have had historical losses in the prior years and cannot

anticipate generating a sufficient level of future profits in order to realize the benefits of our deferred tax asset;

(ii) tax planning

and (iii) the adequacy of future income as of and for the year ended December 31, 2024, based upon certain economic

conditions and historical losses through December 31, 2024.

After consideration of these factors, management deemed it appropriate

to establish a full valuation allowance with respect to the deferred tax assets for XTI Aerospace, Inc., XTI Aircraft Company, Nanotron

GmbH, Intranav GmbH, and Inpixon Holding (UK) Limited.

liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax filings that

do not meet these recognition and measurement standards.

As of December 31, 2024 and 2023, no liability for unrecognized tax benefits

was required to be reported.

The guidance also discusses the classification of related interest and penalties on income taxes.

The Company’s

policy is to record interest and penalties on uncertain tax positions as a component of income tax expense.

No interest or penalties

were recorded during the years ended December 31, 2024 and 2023.

account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired

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

The excess of the purchase price over the estimated fair value

is recorded as goodwill.

Any changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization

of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable

Any subsequent changes to any purchase price allocations that are material to our consolidated financial results will be

All acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as

an indefinite-lived intangible asset and assessed for impairment thereafter until completion, at which point the asset is amortized over

its expected useful life.

Separately recognized transactions associated with business combinations are generally expensed subsequent

to the acquisition date.

The application of business combination and impairment accounting requires the use of significant estimates

The preparation of

these consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts

of assets, liabilities, revenues, expenses and related disclosures.

We base these estimates on historical experience, current trends,

and other factors that we believe are reasonable under the circumstances.

Actual results may differ from these estimates, and such differences

could be material.

Our significant accounting policies

are described in the notes to our audited consolidated financial statements included elsewhere in this Annual Report.

We believe the following

accounting estimates are critical to understanding our consolidated financial statements because they involve significant judgment, estimates

and assumptions.

acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date and are included in

our Consolidated Financial Statements from the acquisition date.

of Results of Operations

We are still working 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 are

able to complete the design, development, certification, and manufacturing of the airplane.

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.

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

incurred under agreements with third parties such as consultants and contractors;

and technology-related expenses to support computer-aided design of the aircraft, flight

simulations, and other technology needs of our engineers.

and development costs are expensed as incurred.

We expect our research and development expenses to increase significantly 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.

and Marketing Expenses

and marketing costs include activities such as aircraft reservation procurement, 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.

and Administrative Expenses

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

insurance costs, facility related expenses including maintenance and allocated expenses for rent and other operating costs.

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.

Income (Expense)

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 debt conversions includes primarily the inducement charges incurred by Legacy XTI when it entered into voluntary note conversion

letter agreements with several note holders during the first quarter of 2024.

Per the letter agreements, principal and accrued

interest under the notes was converted at a reduced conversion price into shares of Legacy XTI common stock immediately prior to the

XTI Merger closing time, which converted into shares of the Company’s common stock upon the closing of the XTI Merger.

accounted for these conversions as an inducement and, as such, recognized a loss related to the fair value of the additional shares issued

compared to the original terms of the convertible notes .

Change in fair value of convertible

notes payable represent the remeasurement of certain Legacy XTI convertible notes to fair value.

These notes were converted to

equity prior to the closing of XTI Merger.

in fair value of warrant liability represents the remeasurement of certain Legacy XTI and Legacy Inpixon outstanding warrants to fair

These outstanding warrants were exchanged for common shares of the Company during the second quarter of 2024.

income (expense), net consists of miscellaneous income and expense items.

of Operations

Ended December 31, 2024 compared to the Year Ended December 31, 2023

The Company determined the previously disclosed XTI Merger should be

accounted for as a reverse acquisition with Legacy XTI being considered the accounting acquirer.

Therefore, the consolidated financial

statements included in this report represent a continuation of the financial statements of Legacy XTI and the results of operations of

the accounting acquired entity, Legacy Inpixon, are included in the consolidated financial statements as of the Closing Date and through

the December 31, 2024 reporting date.

following table sets forth selected consolidated financial data and the percentage of period-over-period change:

the Years Ended

Revenue Recognition

We generate revenue primarily

through our UAS solutions and services business, which includes the sale and distribution of UAS platforms, payloads, sensors, batteries,

accessories and related equipment, as well as certain support services.

Revenue is recognized in accordance with ASC 606, Revenue from

Contracts with Customers.

Revenue is recognized when

control of the promised goods or services is transferred to the customer in an amount that reflects the consideration we expect to receive

in exchange for those goods or services.

Substantially all revenue is recognized at a point in time when control transfers to the customer,

which generally occurs upon shipment for wholesale and direct sales transactions (FOB shipping point) or at the point of sale for retail

transactions.

Certain service-based offerings, including product protection programs, may be recognized over time;

however, such amounts

are not material to the consolidated financial statements.

We generally act as principal in our sales arrangements and recognize

revenue on a gross basis.

In limited cases, we facilitate the sale of third-party service offerings (e.g., product protection programs),

for which we act as an agent and recognize revenue on a net basis;

however, such amounts are not material.

The transaction price may

include variable consideration, including volume discounts, rebates, and estimated product returns, which are recorded based on historical

experience and current trends.

Deferred revenue primarily represents amounts received from customers prior to shipment.

We record freight billed to

customers in revenue, and related shipping and handling costs are included in cost of revenues.

We have elected the practical expedient

related to significant financing components, as our contracts generally do not include a period greater than one year between transfer

of goods or services and payment.

We also apply the practical expedient related to costs to obtain a contract and expense such costs as

incurred when the amortization period would have been one year or less.

The most significant estimates

and judgments in our revenue recognition include:

● Estimation of returns and refund liabilities;

● Determination of whether certain arrangements

contain variable consideration;

● Evaluation of whether revenue should be recognized

at a point in time versus over time (where applicable);

● Determination of when control transfers under

shipping terms.

Allowance for Credit Losses

We maintain an allowance for credit losses for

expected losses resulting from the inability of customers to make required payments.

The allowance is based on historical loss experience,

aging of receivables, specific customer credit evaluations, current economic conditions, and reasonable and supportable forecasts of future

economic conditions.

Because the majority of our

revenue is generated from the sale and distribution of UAS platforms and related products to enterprise, commercial and governmental customers,

changes in customer creditworthiness, economic conditions, or industry dynamics could impact the collectability of receivables.

customer payment patterns differ from management’s estimates, additional credit loss expense may be required.

We also maintain credit insurance

that further reduces our exposure to potential credit losses.

Inventory Valuation

Inventory represents a significant

asset of the Company as of December 31, 2025 and consists primarily of finished goods, including drones and related accessories held for

resale in the ordinary course of business.

Inventory is stated at the lower of cost or net realizable value, with cost determined using

the first-in, first-out method.

The determination of net realizable value requires

management to make significant estimates and judgments regarding future demand, market conditions, technological developments, and expected

selling prices.

The enterprise drone industry is characterized by rapid technological innovation, new product introductions, evolving

regulatory frameworks, and changes in customer preferences.

These factors increase the risk that certain inventory items may become obsolete

or experience reduced demand prior to sale.

Management evaluates inventory

on a regular basis for excess, slow-moving, or obsolete items by analyzing historical sales trends, current backlog, forecasted demand,

inventory aging, vendor product roadmaps, and anticipated technological changes.

When the estimated net realizable value of inventory

is lower than its recorded cost, the Company records a write-down (including a provision for inventory obsolescence) through cost of sales.

Such write-downs establish a new cost basis and are not subsequently reversed if market conditions improve.

As of December 31, 2025, all inventory relates to the Drone Nerds (UAS)

segment and was recorded at its estimated net realizable value in connection with the Drone Nerds acquisition.

No material inventory reserves

or write-downs were recorded subsequent to the acquisition closing date.

While management believes its assumptions and estimates are reasonable,

actual results could differ materially due to changes in market conditions, customer demand, competitive pricing pressures, or product

A sustained decline in demand for key product lines, delays in new product launches, or accelerated technological obsolescence

could result in additional inventory write-downs that would adversely affect gross margins and operating results in future periods.

Business Combinations and Purchase Accounting

We account for business combinations

using the acquisition method of accounting.

Under this method, the identifiable assets acquired and liabilities assumed are recorded at

their estimated fair values as of the acquisition date.

The excess of the purchase price over the fair value of identifiable net assets

acquired is recorded as goodwill.

The determination of fair

values requires significant judgment and estimation, including with respect to:

● Identifiable intangible assets and their estimated

useful lives;

● Assumed discount rates, royalty rates and forecast

assumptions used in valuation models;

● Expected future cash flows and market participant

● The valuation of contingent consideration or

other acquisition-related liabilities, if applicable.

Changes in assumptions used

in purchase accounting could materially affect the amounts assigned to goodwill, intangible assets, depreciation and amortization expense,

and future impairment analyses.

The valuation of equity and

debt instruments issued as consideration requires judgment regarding the fair value of the Company’s common stock, discount rates,

and other market-based inputs at the acquisition date.

Acquisition-related transaction

costs are expensed as incurred.

We may refine the purchase price allocation during the measurement period (up to one year from the acquisition

date) as additional information becomes available.

Valuation of Goodwill and Intangible Assets

Goodwill and indefinite-lived

intangible assets, if any, are evaluated for impairment at least annually as of October 1, or more frequently if events or changes in

circumstances indicate that it is more likely than not that an impairment exists.

Long-lived assets and finite-lived intangible assets

are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

For long-lived assets held

and used, recoverability is assessed by comparing the carrying amount of the asset group to the expected undiscounted future cash flows

expected to be generated by the asset group.

If the carrying amount exceeds the undiscounted cash flows, an impairment charge is recorded

for the amount by which the carrying value exceeds fair value.

For goodwill impairment testing,

we compare the estimated fair value of the reporting unit to its carrying value.

Fair value is typically estimated using discounted cash

flow models and, when appropriate, market-based valuation approaches.

These analyses require significant judgment and are sensitive to

changes in assumptions, including:

● Forecasted revenue growth rates and margins;

● Expected future cash flows;

● Discount rates;

● Long-term growth rates;

● Market multiples and comparable company inputs.

Impairment of Goodwill and Long-Lived Assets

During the year ended December

31, 2025, the Company identified triggering events related to the Inpixon Business, including continued operating losses, negative cash

flows, and management’s decision to pursue a disposition of the business.

The Company performed a quantitative

goodwill impairment test in accordance with ASC 350 and determined that the carrying value of the reporting unit exceeded its estimated

As a result, the Company recorded a goodwill impairment charge of approximately $4.0 million during 2025.

In addition, the

Company evaluated definite-lived intangible assets and other long-lived assets for recoverability in accordance with ASC 360.

this analysis, the Company recorded impairment charges of approximately $0.6 million.

These impairments reflect the write-down of asset

groups to their estimated fair value.

In December 2025, management

committed to a plan to dispose of the Inpixon Business and classified the disposal group as held for sale.

Upon classification, the disposal

group was measured at the lower of carrying value or fair value less costs to sell in accordance with ASC 360, resulting in an additional

impairment charge of approximately $5.9 million.

The fair value of the affected

asset groups and disposal group was determined using an income approach based on estimated future cash flows, which required significant

judgment, including assumptions related to revenue growth, margins, and discount rates.

All impairment charges recognized during 2025 relate to the Inpixon

Business and are presented within loss from discontinued operations in the consolidated statements of operations.

Deferred Income Taxes and Valuation Allowances

We account for income taxes

in accordance with ASC 740, Income Taxes.

Deferred tax assets and liabilities are recognized for temporary differences between the financial

statement carrying values of assets and liabilities and their respective tax bases.

We assess the realizability

of deferred tax assets and establish a valuation allowance when it is more likely than not that some portion or all of the deferred tax

assets will not be realized.

The evaluation of whether a valuation allowance is required is based on all available positive and negative

evidence, including:

● Historical taxable income or losses;

● Forecasted future taxable income;

● Reversal patterns of temporary differences;

● Tax planning strategies;

● The ability to utilize net operating loss carryforwards and tax credit carryforwards.

Because our ability to realize

deferred tax assets is dependent upon the generation of future taxable income, changes in our forecasts or business performance could

materially impact our valuation allowance and income tax expense.

We also recognize liabilities

for uncertain tax positions when it is more likely than not that the tax position will not be sustained upon examination, and we measure

such liabilities based on the largest amount of benefit that is more likely than not to be realized.

Fair Value Measurements and Accounting for Financial Instruments

We use significant judgment

in the accounting for certain financial instruments, including those issued in connection with equity and debt financings.

Certain instruments

may require classification as liabilities and measurement at fair value, with changes in fair value recognized in earnings.

measurements may require the use of valuation techniques, including option pricing models, which involve significant assumptions such

as expected volatility, risk-free interest rates, expected term, and probability of certain events.

Because these assumptions

can be subjective and sensitive to market conditions, changes in assumptions could materially affect the carrying values of these instruments

and the related gains or losses recognized in our consolidated statements of operations.

Stock-Based Compensation

We account for stock-based

compensation in accordance with ASC 718, Compensation—Stock Compensation.

Stock-based compensation expense is recognized over the

requisite service period and is based on the grant date fair value of the awards.

The fair value of stock options

is generally estimated using an option pricing model, which requires assumptions such as:

● Expected volatility;

● Expected term;

● Risk-free interest rate;

● Expected dividends.

These assumptions require

judgment and could materially impact the amount of stock-based compensation expense recognized.

RESULTS OF OPERATIONS

Overview and Comparability Considerations

Our results of operations

for the year ended December 31, 2025 reflect the impact of several transactions, including the acquisition of Drone Nerds in November

2025 and our decision to dispose of the historical Inpixon Business and classification of that business as held for sale, which is presented

as discontinued operations.

As a result, period-to-period comparisons may not fully reflect the operating scale and revenue profile of

the Company following the Drone Nerds acquisition.

Corporate and Public Company Costs

Following the XTI Merger in

March 2024 and our subsequent strategic transactions in 2025, we incurred corporate and public company costs associated with operating

as a Nasdaq-listed company, executing capital raises, and completing acquisition-related activity.

Corporate costs include executive

management, finance, legal, compliance, investor relations, audit, and other public company-related professional fees.

Corporate expenses

also include stock-based compensation, which is non-cash in nature but can be material in periods involving significant equity-based awards,

capital raising activity, or other strategic transactions.

During 2025, corporate expenses

also included certain non-recurring items, such as transaction costs, integration-related costs, and other costs associated with strategic

Discontinued Operations (Inpixon Business)

The results of the Inpixon

Business are presented as discontinued operations in our consolidated financial statements for all periods presented.

Unless otherwise

indicated, the discussion below relates to continuing operations.

Consolidated GAAP Results of Operations

(Continuing Operations)

Revenues for the year ended

December 31, 2025 reflect the Company’s UAS solutions and services operations following the Drone Nerds acquisition in November

2025, as well as other continuing operations.

Revenues for the comparable period in 2024 primarily reflect the historical results of Legacy

XTI, a development-stage aircraft company.

Accordingly, year-over-year comparisons are not necessarily indicative of the operating scale

of the Company following the acquisition.

We expect that revenue growth

and mix in future periods will be influenced primarily by the performance of Drone Nerds, including channel mix, enterprise and public

sector demand, service attachment rates, and product availability across OEM partners.

Cost of Revenues and Gross Profit

Cost of revenues consists

primarily of product costs associated with UAS hardware and accessories, as well as labor and other direct costs associated with repair,

maintenance, training, and other service offerings.

Gross margin is influenced

by product mix, pricing discipline, inventory and vendor cost dynamics, channel mix (including enterprise versus wholesale and retail),

and the relative contribution of higher-margin services.

We believe expanding service penetration and lifecycle support offerings may

improve gross margin stability over time.

Operating Expenses

Operating expenses consist

primarily of research and development, sales and marketing, and general and administrative expenses.

Research and development

expenses are primarily attributable to the TriFan 600 VTOL aircraft development program.

These costs include personnel-related expenses,

engineering and technical consulting fees, prototype and testing costs, software and tooling expenses, and other costs incurred in connection

with aircraft development and certification planning.

R&D spending may fluctuate based on the timing and scope of development activities

and available funding.

Sales and marketing

expenses consist primarily of personnel costs, advertising and marketing programs, trade shows, and other customer acquisition and relationship

management activities.

Following the Drone Nerds acquisition, sales and marketing spending is expected to reflect the scale of the UAS

business, including enterprise and public sector sales efforts.

General and administrative

expenses consist primarily of personnel-related costs for executive, finance, legal, and administrative functions, as well as professional

fees, insurance, facilities, and public company costs.

General and administrative expenses also include stock-based compensation and transaction-related

costs, which may be significant in periods involving capital raises, acquisitions, or other strategic transactions.

Other Income (Expense)

Other income (expense) consists

primarily of interest expense, changes in fair value of certain financial instruments, gains or losses related to extinguishment or modification

of debt, and other non-operating items.

During 2025, our other income

(expense) was materially influenced by financing and capital markets activity, including instruments issued in connection with public

offerings and the Series 10 Convertible Preferred Stock financing, as well as fair value remeasurement of certain liabilities.

items can create significant period-to-period volatility and may not be indicative of core operating performance.

We recorded income tax expense

(benefit) primarily related to state minimum taxes and other items.

We maintain valuation allowances against substantially all of our

deferred tax assets due to historical losses and uncertainty regarding future taxable income.

Unaudited Pro Forma Financial Information (Supplemental)

Because Drone Nerds was acquired

in November 2025, our consolidated results for the year ended December 31, 2025 include only a partial period of Drone Nerds operations.

For informational purposes, we have included unaudited pro forma condensed combined financial information in the notes to our consolidated

financial statements, which is presented as if the acquisition had occurred on January 1, 2024.

Year Ended December 31, 2025 compared to

the Year Ended December 31, 2024

Comparability of Financial Information

On March 12, 2024, we completed

the XTI Merger, which was accounted for as a reverse acquisition with Legacy XTI treated as the accounting acquirer and the Company (formerly

Inpixon) treated as the accounting acquiree.

As a result, our consolidated financial statements reflect (i) the historical financial statements

of Legacy XTI prior to the closing date and (ii) the consolidated results of the combined company from the closing date forward.

Accordingly, the year ended

December 31, 2024 reflects the historical operations of Legacy XTI, a development-stage aircraft company with no revenue, together with

the corporate-level expenses of the public company.

The year ended December 31, 2025 reflects the operations of the combined company,

including revenue generated from our UAS solutions platform following the acquisition of Drone Nerds in November 2025.

In addition, during

December 2025, we committed to a plan to dispose of our historical Inpixon Business, which is presented as discontinued operations for

all periods presented.

As a result of these transactions,

period-to-period comparisons may not be fully comparable.

The following table presents

selected consolidated results of continuing operations:

For the Years Ended

(in thousands, except percentages)

1 unchanged sentence

Operating expenses

Loss from operations

Loss from continuing operations

Other income (expense)

Provision for income

used to calculate dollar and percentage changes are based on numbers in the thousands.

calculations in this item, which may be rounded to the nearest hundred thousand, may not

produce the same results.

Income tax benefit (provision)

Net loss from continuing operations

** Comparisons

between positive and negative numbers and with a zero are not meaningful.

for the year ended December 31, 2024 were $3.2 million compared to $0.0 million for the comparable period in the prior year.

The revenue amount for the year ended December 31, 2024 represents the results of the revenue-generating Industrial IoT segment

following the XTI Merger closing date of March 12, 2024 through the December 31, 2024 reporting date, whereas the Company was

pre-revenue in 2023.

We expect revenue to increase to approximately $5 million for the fiscal year 2025 driven by the revenue-generating Industrial IoT segment.

of revenues for the year ended December 31, 2024 were $1.3 million compared to $0.0 million for the comparable period in the prior year.

The cost of revenues amount for the year ended December 31, 2024 represents the results of the revenue-generating Industrial IoT segment

following the XTI Merger closing date of March 12, 2024 through the December 31, 2024 reporting date, whereas the Company was pre-revenue

Gross profit for the year ended December 31, 2024 was $1.9 million

compared to $0.0 million for the comparable period in the prior year.

The gross profit amount for year ended December 31, 2024 represents

the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the December

31, 2024 reporting date, whereas the Company was pre-revenue in 2023.

The Company’s gross margin percentage for the year ended December

31, 2024 was approximately 59%, a lower percentage than Legacy Inpixon reported in previous fiscal years as the Company’s inventory

value was increased to fair value in March 2024 as part of the purchase price allocation accounting relating to the XTI Merger, resulting

in lower margins being recognized on subsequent hardware sales during 2024.

Operating expenses for the year ended December 31, 2024 were $38.9 million

and $7.6 million for the comparable period ended December 31, 2023.

This increase of approximately $31.3 million was primarily

attributable to (i) the inclusion of $9.0 million of Industrial IoT segment’s operating expenses from the XTI Merger closing date

through the December 31, 2024 reporting date, which included a $2.5 million non-cash impairment of intangible assets, (ii) the recognition

of $6.3 million of nonrecurring transaction bonus expense during the second quarter of 2024 as the bonuses became payable upon the

earlier of the closing of qualifying financings or June 30, 2024, (iii) an increase in nonrecurring merger-related transaction costs of

$4.6 million, (iv) an increase in non-cash stock-based compensation expense of approximately $2.5 million, and (v) an aggregate

increase of approximately $8.9 million due to increases in consulting compensation mainly attributable to consulting arrangements entered

into with prior executives of Legacy Inpixon on March 12, 2024, legal and accounting fees relating to capital raising activities during

2024, and public company-related professional fees as the 2023 historical results reflect the operations of a private company, Legacy

The $2.5 million

non-cash impairment of intangible assets during the year ended December 31, 2024 related to the Industrial IoT segment’s Aware

assets and its Nanotron business.

This impairment was driven by the Company’s strategic decision during Q4 2024 to shift away

from the hardware (Nanotron subsidiary) and Aware business lines and to more of a LaaS business model (Intranav subsidiary).

Income (Expense)

Other income (expense) for

the year ended December 31, 2024 was a gain of $1.4 million compared to a loss of $17.5 million for the comparable period ended December

The gain of $1.4 million for the year ended December 31, 2024 was primarily attributable to the Company recognizing a

gain of approximately $12.9 million relating to the remeasurement of convertible notes payable at fair value and interest income of $0.4

million, which was partially offset by (i) interest expense of approximately $1.1 million, (ii) an increase in the fair value of warrant

liability of approximately $0.3 million, (iii) inducement losses on debt conversions of approximately $6.7 million, (iv) loss on conversion

of the Damon note receivable to equity investment of approximately $2.6 million, and (v) a decrease in fair value of the Damon equity

investment and related warrants of approximately $0.4 million and $0.6 million, respectively, when those assets were re-measured as of

the December 31, 2024 reporting date.

loss of $17.5 million for the year ended December 31, 2023 was due primarily to the modifications of certain Legacy XTI convertible notes.

On November 1, 2023, Legacy XTI and certain convertible noteholders agreed to amend the convertible notes to extend the maturity date

and to revise the conversion terms.

The amendment to the convertible notes was accounted for as an extinguishment of debt and reissuance

of the convertible notes in accordance with ASC 470-50, Debt – Modifications and Extinguishments , due to the addition

of a substantive conversion feature.

As Legacy XTI elected to account for these convertible notes using the fair value option, Legacy

XTI measured the convertible notes at a fair value, which resulted in a loss on extinguishment of approximately $6.6 million.

As of December

31, 2023, Legacy XTI re-measured the convertible notes at fair value resulting in the convertible notes balance being increased by $9.1

million, and therefore an additional loss being recognized of $9.1 million.

for Income Taxes

was an income tax provision of approximately $0.02 million for the year ended December 31, 2024 compared to an income

tax benefit of $0.0 for the comparable period in the prior year.

The income tax provision for the year ended December 31, 2024 is

attributable to minimum state income taxes.

and Capital Resources as of December 31, 2024

current capital resources and operating results as of and through December 31, 2024, consist of:

overall working capital deficit of approximately $8.8 million;

of approximately $4.1 million;

net cash used by operating activities for the year ended December 31,

2024 of approximately $22.3 million.

breakdown of our overall working capital deficit is as follows (in thousands):

cash equivalents

Accounts receivable,

net / accounts and related party payables

Prepaid expenses and

other current assets

Accrued expenses and

other current liabilities

Accrued interest

Customer deposits

Operating lease obligation

Deferred revenue

and other receivables / short-term debt

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 acquisition liabilities that are included in our consolidated balance sheet and vendor commitments

associated with agreements that are legally binding.

As of December 31, 2024, the total obligation for operating leases is approximately

$0.4 million, of which approximately $0.1 million is expected to be paid in the next twelve months.

On March 31, 2025, the Company repaid in full the promissory notes

that were issued to Streeterville Capital, LLC on May 1, 2024 and May 24, 2024.

As of the date of this filing, we owed $65,000 under a

secured promissory note with the SBA which is due in 2050.

See Note 9 of the Notes to Consolidated Financial Statements included

elsewhere in this report.

As of December 31, 2024, 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 our TriFan 600 airplane are delivered, which may not be for many years or at all if we do not deliver

the airplanes.

The deposits prioritize orders when the TriFan 600 airplane becomes available for delivery.

Customers making deposits are

not obligated to purchase any airplanes until they execute a definitive purchase agreement.

Customers may request 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.

Consulting Agreement with Prior “Legacy

Inpixon” CEO and Subsequent Settlement Agreement

On March 27, 2025, the Company

entered into a settlement agreement with 3AM Investments LLC (an entity controlled by Nadir Ali (“Ali”), the Company’s

former Chief Executive Officer and a former director of the Company) (“3AM”), Grafiti Group LLC (“Grafiti Group”)

and Ali (the “Settlement Agreement”) pursuant to which the Company agreed to settle certain existing obligations owed to

former management.

As a result of the Settlement Agreement, the Company has an outstanding advisory fee obligation to Ali of $1,500,000

(the “Deferred Amount”) as of the date of this report, which is due in $500,000 installments on June 30, 2025, September

30, 2025, and December 31, 2025.

Upon payment of the Deferred Amount in accordance with the terms of the Settlement Agreement, the Ali

Advisory Fees shall be deemed to be satisfied in full and no further amounts shall be payable by the Company to Ali or his affiliated

parties pursuant to the Ali Consulting Agreement dated March 12, 2024.

See Note 18 of the Notes to Consolidated Financial Statements

included elsewhere in this report for more information about the Ali Consulting Agreement.

See Note 23 of the Notes to Consolidated

Financial Statements included elsewhere in this report for more information about the Settlement Agreement.

and Uncertainties

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

$4.1 million.

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

During the year ended

December 31, 2024, the Company used approximately $22.3 million of cash for operating activities.

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, including through our now expired ATM with Maxim (as discussed

below), and debt securities and proceeds from loans and bank credit lines.

We believe that our current revenue, as supplemented by proceeds

from our financings, including the approximately $21.6 million net proceeds we raised in various public offerings of our securities placed

and underwritten by ThinkEquity LLC during the first quarter of 2025, a portion of which was used to fully repay short-term obligations

including the outstanding Streeterville promissory note balances and remaining Strategic Transaction Bonus liability, 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.

Therefore, we intend to raise additional capital through debt or

equity financings as we continue to advance the design and certification of the TriFan 600.

See “ – Recent Events –

March 2025 Underwritten Offering” and “ – Recent Events – January 2025 Registered Direct Offering” for more

information about our recent public offerings of our equity securities.

As a result of our failure

to timely file a Current Report on Form 8-K, upon the filing of this Annual Report on Form 10-K, we became ineligible to use Form S-3

until August 2025 at the earliest.

Our inability to use Form S-3 may significantly impair our ability to raise necessary capital to fund

our operations and execute our strategy.

If we seek to access the capital markets through a registered offering during the period of time

that we are unable to use Form S-3, we may be required to publicly disclose the proposed offering and the material terms thereof before

the offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement and we

may incur increased offering and transaction costs and other considerations.

As discussed in Note 10 of

the “Notes to Consolidated Financial Statements” included in Part I, Item 8 of this report, on July 22, 2022, the Company

entered into an Equity Distribution Agreement with Maxim as sales agent (as amended from time to time, the “Equity Distribution

Agreement”), pursuant to which we could offer and sell, from time to time through Maxim, shares of the Company’s common stock

having an aggregate offering amount of up to approximately $83.3 million under our shelf registration statement on Form S-3 (the “ATM”).

The term of the Equity Distribution Agreement expired on December 31, 2024.

Maxim was entitled to compensation at a fixed commission rate

of 3.0% of the gross sales price per share sold excluding Maxim’s costs and out-of-pocket expenses incurred in connection with its

services, including the fees and out-of-pocket expenses of its legal counsel.

During the three months ended December 31, 2024, the Company

sold 948,484 shares of common stock under the Equity Distribution Agreement at per share prices between approximately $10.02 and $47.57,

resulting in net proceeds to the Company of approximately $12.6 million.

During the year ended December 31, 2024, the Company sold 998,447

shares of common stock under the Equity Distribution Agreement at per share prices between approximately $10.02 and $337.36, resulting

in net proceeds to the Company of approximately $22.2 million.

Since the date of the Equity Distribution Agreement through the date

of this report, the Company sold 1,170,561 shares of common stock at per share prices between approximately $4.10 and $465.56 under the

Equity Distribution Agreement, resulting in gross proceeds of approximately $52.2 million.

and Capital Resources

Company’s net cash flows used in operating, investing and financing activities for the years ended December 31, 2024 and 2023 and

certain balances as of the end of those periods are as follows (in thousands):

the Years Ended

used in operating activities

Net cash provided by

(used in) investing activities

Net cash provided by

financing activities

of foreign exchange rate changes on cash

increase (decrease) in cash and cash equivalents

As of December 31,

As of December

and cash equivalents

capital deficit

Activities for the year ended December 31, 2024

cash used in operating activities during the year ended December 31, 2024 was approximately $22.3 million.

The cash flows

related to the year ended December 31, 2024 consisted of the following (in thousands):

Non-cash income and expenses

change in operating assets and liabilities

cash used in operating activities

non-cash income and expense of approximately $5.8 million consisted primarily of the following (in thousands):

Depreciation and amortization

Amortization of intangible assets

Amortization of right-of-use-asset

Non-cash interest expense, net

Revenues for the year ended December 31, 2025 were $22.5 million, reflecting

revenue generated by our UAS solutions platform following the acquisition of Drone Nerds in November 2025.

Accordingly, revenues for 2025

represent only the period from the acquisition date through December 31, 2025.

The Company did not generate revenue during 2024, as Legacy

XTI was a development-stage aircraft company focused on the TriFan 600 program.

Cost of Revenues and Gross Profit

Cost of revenues for the year

ended December 31, 2025 was $17.6 million, resulting in gross profit of $4.9 million and a gross margin of approximately 21.9%.

margin reflects the product mix and operating model of the UAS distribution and services business, which includes hardware sales, accessories,

and related support services.

There were no revenues or

cost of revenues in 2024.

Future gross margin performance

will be influenced by product mix, service attachment rates, pricing discipline, vendor cost dynamics, and channel mix.

Operating Expenses

Operating expenses for the year

ended December 31, 2025 were $47.7 million, an increase of $18.1 million, or 61%, compared to $29.7 million in 2024.

The increase was primarily

attributable to:

● Higher general and administrative expenses associated

with operating as a public company for a full year in 2025, including increased legal, accounting, audit, insurance, compliance, and investor

relations costs.

● Increased personnel-related expenses, including

stock-based compensation.

Impairment of intangible assets

Loss on conversion of note receivable to equity investment

Unrealized loss on equity investment

Change in fair value of convertible notes payable

Inducement loss on debt conversions

● Costs associated with capital raising activities

and strategic transactions completed during 2025.

● Operating expenses attributable to the acquired

Drone Nerds business from the acquisition date through year-end.

in research and development related to the TriFan 600 program.

During 2024, operating expenses

included costs associated with the XTI Merger, including $6.5 million of merger and acquisition transaction costs.

These costs were lower

however, this decrease was more than offset by the factors described above.

Loss from Continuing Operations

Loss from continuing operations

increased to $42.8 million in 2025 from $29.7 million in 2024.

The increase was driven primarily by the increase in operating expenses

discussed above, partially offset by the contribution of gross profit from the UAS business in 2025.

Other Income (Expense)

Other income (expense) was a net

expense of $10.2 million in 2025 compared to net income of $1.4 million in 2024.

The 2025 expense was primarily

attributable to:

● $6.6 million of warrant issuance expense related

to financing transactions completed during the year,

$2.0 million expense related to a full allowance for expected credit losses on the Company’s convertible promissory note investment in Valkyrie Sciences Holdings LLC.

The investment was made in October 2025 as part of the Company’s broader strategic initiative to expand its capabilities in artificial intelligence and advanced technologies and was not primarily intended to generate returns through near-term repayment of contractual cash flows.

As of December 31, 2025, based on information available to management, including the issuer’s limited operating history, lack of near-term revenue, and dependence on future financing, the Company determined that collection of substantially all contractual cash flows associated with the note was not expected.

Accordingly, a full allowance for expected credit losses was recorded in accordance with ASC 326.

The recognition of this allowance reflects the application of the expected credit loss model to the debt instrument and does not represent a reassessment of the Company’s original strategic rationale for the investment or its view of the potential long-term value associated with its relationship with Valkyrie,

● $0.6 million change in fair value of warrant

● $0.4 million loss on extinguishment of debt,

● $0.3 million decrease in the fair value of certain

investments and related instruments.

These items were partially

offset by lower interest expense compared to 2024.

In contrast, 2024 included

a significant $12.9 million gain related to the change in fair value of convertible notes accounted for under the fair value option, partially

offset by inducement losses on debt conversions and other financing-related costs.

The absence of a comparable fair value gain in 2025

contributed to the year-over-year decline.

Other income (expense) may

fluctuate significantly in future periods based on financing activities and fair value remeasurement of certain financial instruments.

Income tax benefit (provision)

was approximately $0.01 million in 2025 compared to an income tax provision of $0.02 million in 2024.

Income taxes for both periods primarily

reflect state minimum taxes and other immaterial items.

We continue to maintain a valuation allowance against substantially all deferred

Segment Results of Operations

Beginning in November 2025,

the Company operates through two reportable segments:

UAS and Commercial Aviation.

The UAS segment reflects the operations of Drone Nerds

beginning on November 10, 2025, while the Commercial Aviation segment includes activities related to the development of the TriFan 600

aircraft program.

in fiscal year 2026, the Company expects that its operating structure and internal management reporting may evolve to reflect the continued

development of its UAS solutions, advanced systems and defense, and domestic manufacturing and technology activities.

As a result, the

Company anticipates that its reportable segments may be modified in future periods to align with how management evaluates performance

and allocates resources.

Any such changes will be reflected in the Company’s financial reporting beginning in the period in which

For the year ended December

31, 2025, the UAS segment generated revenue of approximately $22.5 million and gross profit of approximately $4.9 million.

Operating expenses

for the UAS segment consisted primarily of sales and marketing expenses associated with distribution activities and general and administrative

expenses required to support the operations of Drone Nerds following the acquisition.

Commercial Aviation Segment

The Commercial Aviation segment did not generate revenue during the

year ended December 31, 2025 as the Company continued to focus on development of the TriFan 600 aircraft.

Operating expenses for this

segment consisted primarily of research and development costs related to engineering, design and certification activities, as well as

general corporate expenses supporting ongoing development efforts.

Discontinued Operations

During December 2025, the

Company committed to a plan to dispose of its Inpixon Business and initiated an active process to identify a buyer.

The Company completed

the sale of the Inpixon Business on February 3, 2026 for total consideration of approximately $5.5 million.

The Inpixon Business is presented

as discontinued operations for all periods shown.

Loss from discontinued operations

was $15.5 million for the year ended December 31, 2025, compared to $7.3 million in 2024.

The 2025 loss includes approximately $10.5 million

of impairment charges, consisting primarily of goodwill and intangible asset impairments recognized in connection with the Company’s

decision to dispose of the business and its classification as held for sale.

Excluding impairment charges,

the Inpixon Business continued to generate operating losses, reflecting ongoing negative cash flows and the Company’s strategic

decision to exit the business.

Net cash used in operating

activities of discontinued operations was approximately $4.4 million for the year ended December 31, 2025, consistent with the Company’s

historical operating losses for this business.

The disposition of the Inpixon Business represents a strategic shift that

allows the Company to focus its resources on its core UAS and aerospace development operations, following losses of $15.5 million and

$7.3 million for the years ended December 31, 2025 and 2024, respectively.

Unaudited Pro Forma Financial Information (Supplemental)

Because the acquisition of

Drone Nerds was completed on November 10, 2025, our consolidated results for the year ended December 31, 2025 include only a partial period

of Drone Nerds operations.

As a result, our reported GAAP results for 2025 do not reflect a full year of UAS platform operations.

To provide additional context

regarding the scale of the combined business, we have presented unaudited pro forma consolidated financial information as if the Drone

Nerds acquisition had occurred on January 1, 2024.

The unaudited pro forma information is presented

for comparative purposes only and is not necessarily indicative of:

● The results of operations that would have been

achieved had the acquisition been completed on the assumed date;

● The actual results of the combined company for

any future period;

● The Company’s expected future operating

The pro forma results reflect

adjustments that are directly attributable to the acquisition and factually supportable, including:

● Incremental amortization expense related to acquired

intangible assets;

● Interest expense associated with acquisition-related

indebtedness;

● Elimination of transaction costs directly attributable

to the acquisition;

● Conforming accounting policy adjustments, where

The pro forma results provide

additional information regarding the revenue scale and gross margin profile of the combined business relative to our reported GAAP results

for 2025, which include only a partial period of operations following the acquisition.

The pro forma information does not reflect potential

cost savings, integration benefits, operational synergies, changes in capital structure subsequent to the acquisition, or the impact of

future strategic initiatives.

For the Years Ended

(in thousands, except percentages)

Cost of revenues

Operating expenses

Loss from operations

Other income (expense)

Income tax benefit (provision)

Pro forma net loss from continuing operations

Non-cash or infrequent items:

Warrant issuance expense

Change in fair value of warrant liability

Total non-cash expenses

net cash used in the change in operating assets and liabilities aggregated approximately $7.5 million and consisted primarily of

the following (in thousands):

in accounts receivable and other receivables

Decrease in inventory,

prepaid expenses and other current assets and other assets

Increase in accounts

payable and related party payables

Increase in accrued liabilities

and other liabilities

Increase in accrued interest

Decrease in deferred

in operating lease obligation

cash used in the changes in operating assets and liabilities

Activities for the year ended December 31, 2023

cash used in operating activities during the years ended December 31, 2023 was approximately $4.2 million.

The cash flows

related to the year ended December 31, 2023 consisted of the following (in thousands):

Non-cash income and expenses

Net change in operating assets and liabilities

Net cash used in operating activities

non-cash income and expense of approximately $18.5 million consisted primarily of the following (in thousands):

Depreciation and amortization

Amortization of intangible assets

Non-cash interest expense, net

Change in fair value of equity securities

Loss on extinguishment of debt

Provision for credit losses on investments

Stock-based compensation

Change in fair value of JV obligation

Change in fair value of convertible notes payable

Loss on extinguishment of convertible notes payable

Change in fair value of warrant liability

Total non-cash expenses

net use of cash in the change in operating assets and liabilities aggregated approximately $2.3 million and consisted primarily

of the following (in thousands):

Decrease in accounts receivable and other receivables

Increase in prepaid expenses and other current assets

Increase in accounts payable and related party payables

Increase in accrued liabilities and other liabilities

Increase in accrued interest

Net use of cash in the changes in operating assets and liabilities

from Investing Activities as of December 31, 2024 and 2023

cash flows provided by investing activities during the year ended December 31, 2024 was approximately $2.9 million compared to $0.02 million

Amortization of intangible assets

Adjusted Pro Forma Net Loss (Non-GAAP)

Pro forma Margins:

Gross margins

Adjusted Pro Forma Net Loss Margin (Non-GAAP)

Comparisons between positive and negative numbers and with a zero are not meaningful.

Interpretation of Pro Forma Results

For the year ended December 31,

Cash flows related to investing activities during the year ended December 31, 2024 consist primarily

of the cash assumed from Legacy Inpixon in connection with the XTI Merger.

from Financing Activities as of December 31, 2024 and 2023

cash flows provided by financing activities during the year ended December 31, 2024 was $23.6 million.

During the year ended December

31, 2024, the Company received incoming cash flows of approximately $22.2 million from the ATM, $2.0 million from promissory notes issued

to Streeterville Capital, LLC, and approximately $1.0 million in proceeds from an existing promissory note arrangement with Legacy Inpixon.

During the year ended December 31, 2024, the Company repaid approximately $0.9 million towards outstanding promissory notes and redeemed

approximately $0.8 million of Series 9 preferred stock.

cash flows provided by financing activities during the year ended December 31, 2023 was $4.1 million.

During the year ended December

31, 2023, the Company received proceeds of $0.8 million from the issuance of convertible notes, received $0.2 million in proceeds from

the sale of common stock, and received $3.1 million in proceeds from promissory notes with David Brody and Legacy Inpixon.

Sheet Arrangements

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.

Issued Accounting Standards

a discussion of recently issued accounting pronouncements, please see Note 3 to our financial statements, which are included in this

report beginning on page F-1.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

a smaller reporting company, we are not required to provide this information.

2025, pro forma revenues were $121.6 million compared to $111.2 million for 2024, representing an increase of approximately 9%.

gross profit increased to $26.8 million from $17.3 million, and pro forma gross margin improved to 22% from 16%.

The improvement in pro forma

gross margin was driven primarily by favorable pricing dynamics and a shift in sales mix toward higher-margin enterprise customers, which

more than offset increases in input costs, including tariffs, during the period.

Operating expenses on a pro forma

basis increased to $54.3 million in 2025 from $37.5 million in 2024.

The increase reflects continued investment in infrastructure, personnel,

public company costs, and development activities, including the TriFan 600 program.

Pro forma net loss from continuing

operations was $39.0 million for 2025 compared to $23.9 million in 2024.

Pro Forma Non-GAAP Measure

We also present pro forma

non-GAAP net loss, which reflects pro forma results further adjusted to exclude certain non-cash or infrequent items that management believes

are not indicative of core operating performance.

As a result, Adjusted Pro Forma Net Loss (Non-GAAP) differs from pro forma net loss

as it excludes additional non-cash and non-recurring items beyond those reflected in the pro forma adjustments.

These items include:

● Warrant issuance expense;

● Changes in fair value of warrant liabilities;

● Changes in fair value of certain investments

and related instruments;

● Loss on extinguishment of debt;

Provision for credit losses on investments;

● Stock-based compensation;

● Amortization of acquired intangible assets.

Adjusted Pro Forma Net Loss (Non-GAAP) was $17.3 million in 2025 compared

to $17.7 million in 2024.

This non-GAAP measure is intended

to supplement, and not be considered as a substitute for, the most directly comparable GAAP measure.

Adjusted Pro Forma Net Loss (Non-GAAP)

has limitations as an analytical tool and may not be comparable to similarly titled measures used by other companies.

LIQUIDITY AND CAPITAL RESOURCES

During 2025, the Company completed multiple capital raising transactions

that materially strengthened its balance sheet and liquidity profile.

These transactions included approximately $62.8 million of aggregate

net proceeds from public equity offerings and warrant exercises and approximately $22.8 million of net proceeds from the issuance of Series

10 Convertible Preferred Stock.

As a result of these transactions,

cash and cash equivalents increased to approximately $16.7 million as of December 31, 2025, and the Company reported working capital of

approximately $4.2 million, compared to a working capital deficit of approximately $8.8 million as of December 31, 2024.

Working capital at December

31, 2025 includes approximately $22.6 million of derivative warrant liabilities.

These instruments are non-cash financial liabilities

that are required to be measured at fair value under GAAP and do not represent contractual cash obligations.

Excluding these derivative

warrant liabilities, working capital would have been approximately $26.8 million.

The breakdown of our overall working capital

is as follows (in thousands):

Working Capital

Current Assets

Cash and cash equivalents

Accounts receivable, net

Other receivables

Prepaid expenses and other current assets

Current assets of discontinued operations

Total Current Assets

Current Liabilities

Accounts payable and related party payables

Accrued expenses and other current liabilities

Accrued interest

Customer deposits

Warrant liability

Operating lease obligation, current

Short-term debt

Current liabilities of discontinued operations

Total Current Liabilities

Net Working Capital (Deficit)

Total current assets increased

to approximately $51.8 million at December 31, 2025, compared to approximately $8.6 million at December 31, 2024, primarily reflecting

the addition of accounts receivable and inventories associated with the November 2025 acquisition of Drone Nerds, as well as higher cash

balances resulting from capital raising activities during the year.

Total current liabilities

increased to approximately $47.6 million at December 31, 2025, compared to approximately $17.4 million at December 31, 2024.

was primarily attributable to:

● Recognition of derivative warrant liabilities

● Higher short-term debt associated with the Drone Nerds acquisition

● Increased customer deposits and operating liabilities

Credit Facility

In February 2026, subsequent to year-end, Drone Nerds, LLC and Anzu

Robotics, LLC, each a subsidiary of the Company, entered into a secured asset-based revolving credit facility providing for borrowings

of up to $20.0 million, subject to a borrowing base of eligible accounts receivable and inventory.

The facility has a maturity date in

2029 and includes an accordion feature that permits the Company, subject to lender approval and customary conditions, to increase total

commitments by up to an additional $25.0 million.

The facility is intended to support working capital needs of the Company’s UAS

operations and general corporate purposes.

Liquidity Outlook

The Company’s liquidity

strategy is focused on maintaining sufficient operating capital to support its enterprise drone distribution business while continuing

to develop unmanned platforms for defense and commercial applications Near-term liquidity is expected to be supported by cash on hand,

operating cash flows from the Drone Nerds business, and availability under the Company’s asset-based revolving credit facility.

The Company does not currently expect to require additional capital to support the ordinary-course operating needs of the Drone Nerds

However, the Company may seek additional capital in the future to support strategic acquisitions and the development of its

advanced systems and domestic manufacturing initiatives.

Over the longer term, any future resumption of the TriFan 600 program

will require additional capital.

Contractual Obligations and Commitments

The Company’s contractual

obligations consist primarily of operating lease liabilities, short-term debt and acquisition-related promissory notes, and vendor commitments

incurred in the ordinary course of business.

As of December 31, 2025, total

operating lease liabilities were approximately $3.0 million, of which approximately $0.6 million is due within the next twelve months.

In addition, the Company had short-term debt and acquisition-related promissory note obligations of approximately $7.9 million, representing

scheduled principal payments due within one year.

The Company also maintains

customary vendor purchase commitments associated with inventory procurement and operating agreements within its Drone Nerds distribution

These commitments are generally short-term in nature and consistent with normal operating requirements.

Customer Deposits

As of December 31, 2025,

customer deposits totaled approximately $3.1 million.

Customer deposits consist of (i) refundable and conditional deposits received

in connection with aircraft pre-orders and (ii) advance payments received in the ordinary course of business from customers of the

Drone Nerds distribution operations.

Aircraft-related deposits are generally refundable until a definitive purchase agreement is

If a significant number of customers request refunds, it could adversely impact liquidity.

Deposits received in the Drone

Nerds business are typically short-term in nature and relate to standard commercial sales arrangements, including advance payments for

inventory orders.

These deposits are recognized as revenue upon transfer of control of the related goods.

Risks and Uncertainties

of December 31, 2025, the Company had working capital of approximately $4.2 million (approximately $26.8 million excluding derivative

warrant liabilities) and cash and cash equivalents of approximately $16.7 million.

During 2025, the Company incurred a net loss of approximately

$68.5 million and used approximately $36.6 million of cash in operating activities.

November 2025, the Company completed the acquisition of Drone Nerds, a historically EBITDA-profitable drone distribution business.

expects the Drone Nerds operations to contribute positive operating cash flows;

however, consolidated operating results remain subject

to variability in sales volumes, gross margins, inventory turnover, and broader market conditions affecting enterprise and commercial

drone demand, as well as risks associated with the ongoing integration of Drone Nerds into the Company’s operations.

Company has currently paused development activities related to the TriFan 600 aircraft program.

Any future resumption of development activities

related to the TriFan 600 program would be expected to require additional capital.

Management may continue to pursue a range of potential

funding alternatives, including equity or debt financing, strategic partnerships, joint ventures, government incentives and other potential

sources of capital in connection with any such future resumption.

2025, the Company strengthened its liquidity through multiple capital raises, including approximately $62.8 million of aggregate net

proceeds from public equity offerings and warrant exercises and approximately $22.8 million of net proceeds from the issuance of Series

10 Convertible Preferred Stock.

In addition, in February 2026, the Company entered into a secured asset-based revolving credit facility

providing for borrowings of up to $20.0 million, subject to a borrowing base.

Based on December 31, 2025 balances, the Company estimates

borrowing availability under the facility of approximately $14.5 million, subject to customary borrowing base limitations.

had no outstanding borrowings under its revolving credit facility as of December 31, 2025.

of December 31, 2025, the Company had approximately 23 million outstanding warrants with an exercise price of $2.00 per share.

exercised for cash, these warrants would provide aggregate gross proceeds of approximately $46.0 million;

however, exercise is at the

discretion of the holders and dependent on market conditions.

Subsequent to year-end, certain warrant holders have exercised warrants,

resulting in cash proceeds to the Company, net of solicitation commissions paid to ThinkEquity LLC, of approximately $7.7 million.

additional warrant exercises may occur depending on market conditions, the timing and amount of any such future exercises cannot be predicted.

believes that existing liquidity is sufficient to support current operating requirements for at least the next twelve months.

This assessment

is based on current operating plans and assumptions, including the Company’s ability to manage expenditures and utilize available

sources of liquidity, including cash on hand and borrowing availability under its credit facility.

Historical Cash Flows

The Company’s net cash

flows used in operating, investing and financing activities for the years ended December 31, 2025 and 2024 and certain balances as

of the end of those periods are as follows (in thousands):

For the Years Ended

Net cash used in operating activities

Net cash (used in) provided by investing activities

Net cash provided by financing activities

Effect of foreign exchange rate changes on cash

Net increase in cash and cash equivalents

Cash and cash equivalents

Working capital (deficit)

Operating Activities for the year ended December 31,

Net cash used in operating

activities was approximately $36.6 million for the year ended December 31, 2025, compared

to approximately $22.3 million for the year ended December 31, 2024.

Included in operating cash

flows for the year ended December 31, 2025 is approximately $4.4 million of cash used in operating activities related to discontinued

operations (Inpixon Business).

Excluding discontinued operations, net cash used in operating activities from continuing operations was

approximately $32.2 million.

Additional information regarding cash flows from discontinued operations is included in Note 19 – Discontinued

Cash used in operating activities during 2025 was primarily driven

by the Company’s consolidated net loss of approximately $68.5 million, partially offset by $33.1 million of non-cash expenses.

most significant non-cash items in 2025 included stock-based compensation expense of approximately $12.0 million, goodwill impairment

of approximately $9.9 million, warrant-related expense of approximately $6.6 million, provision for expected credit losses of approximately

$2.1 million, and intangible asset impairment charges of approximately $0.6 million.

Working capital changes during

2025 resulted in a net use of approximately $1.2 million of cash.

These changes primarily reflected reductions in accrued liabilities

and accounts payable, partially offset by decreases in inventory and other current assets.

The 2025 working capital activity reflects

the integration of the Drone Nerds acquisition in the fourth quarter.

Management expects that the acquisition of Drone Nerds, a historically

EBITDA-profitable business, will contribute positive operating cash flows going forward.

However, operating cash flows will continue to

be influenced by sales volumes, gross margins, inventory turnover, discretionary operating expenditures, and the pace of investment in

the development of unmanned platforms for defense and commercial applications.

Operating Activities for the year ended December 31, 2024

Net cash used in operating

activities was approximately $22.3 million for the year ended December 31, 2024.

Operating cash usage in 2024

was primarily driven by the Company’s net loss of approximately $35.6 million, partially offset by non-cash expenses of approximately

$5.8 million.

Non-cash adjustments included stock-based compensation, impairment charges, fair value adjustments related to financial

instruments, and loss on extinguishment of debt.

Working capital changes in

2024 provided approximately $7.5 million of cash, primarily due to increases in accrued liabilities and other operating liabilities, partially

offset by modest changes in receivables and deferred revenue.

Cash Flows from Investing Activities as of December 31, 2025 and

Net cash used in investing

activities was approximately $18.8 million for the year ended December 31, 2025, compared to net cash provided by investing activities

of approximately $2.9 million for the year ended December 31, 2024.

Investing cash outflows during

2025 were primarily attributable to the acquisition of Drone Nerds, which resulted in a net cash outflow of approximately $16.5 million

after considering cash acquired.

In addition, the Company funded a $2.0 million investment in a convertible note receivable and incurred

approximately $0.2 million of capital expenditures for property and equipment.

These outflows were partially offset by minor investing

Investing cash inflows during

2024 were primarily attributable to approximately $3.0 million of cash acquired in connection with the XTI Merger, partially offset by

modest capital expenditures.

Cash Flows from Financing Activities as of December 31, 2025 and

Net cash provided by financing

activities was approximately $68.2 million for the year ended December 31, 2025, compared to approximately $23.6 million for the year

ended December 31, 2024.

Financing cash inflows during 2025 were primarily driven by capital

raising activities, including approximately $57.1 million of net proceeds from public offerings of common stock and pre-funded warrants,

$22.8 million of net proceeds from the issuance of Series 10 Convertible Preferred Stock, $1.7 million of net proceeds from the Company’s

at-the-market (“ATM”) program, which has since expired, and approximately $4.1 million of proceeds from the exercise of liability-classified

These inflows were partially offset by approximately $15.9 million of debt repayments and $1.4 million related to redemptions

of Series 9 Preferred Stock and other financing costs.

These debt repayments and redemptions, together with the elimination of certain

legacy financing obligations associated with the XTI Merger, represented meaningful uses of cash during the period, simplified the Company’s

capital structure and removed historical financing restrictions.

Financing cash inflows during

2024 were primarily attributable to approximately $22.2 million of net proceeds from ATM stock offerings, $2.0 million of proceeds from

the issuance of promissory notes, and approximately $1.0 million received under a loan arrangement with Legacy Inpixon prior to the XTI

These inflows were partially offset by debt repayments and preferred stock redemptions.

The significant increase in

financing cash flows during 2025 reflects the Company’s efforts to strengthen its liquidity position, fund operating losses, repay

outstanding indebtedness, and support strategic initiatives, including the acquisition of Drone Nerds and continued development of the

TriFan 600 aircraft program.

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 to our financial statements, which are included in this Annual Report beginning on page F-1.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

As a smaller reporting company,

we are not required to provide this information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity