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Item 1A. Risk Factors

2024-04-16 compared with 2023-04-17 · 601 added, 275 removed, 480 unchanged (65% of the section changed)

We are subject to various risks and uncertainities that may materially harm our business, prospects, financial condition and results of operations.

We are subject to various risks and uncertainties that may materially harm our business, prospects, financial condition and results of operations.

An investment in our common stock is speculative and involves a high degree of risk.

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You should read this summary together with the more detailed description of each risk factor contained below.

Risks Related to Our Operations

• W e have completed several strategic transactions, which may make it difficult for potential investors to evaluate our future business, and, due to the risks and uncertainties related to the acquisition of new businesses, any such acquisition does not guarantee that we will be able to attain profitability.

• We may not be able to successfully integrate the business and operations of entities that we have acquired or may acquire in the future into our ongoing business operations.

Risks Related to Our Business and Industry

• We have a limited operating history and have not yet manufactured any non-prototype aircraft, delivered any aircraft to customers or generated any revenues from our aircraft business, and we may never develop or manufacture any VTOL aircraft.

• Operating aircrafts carry a degree of inherent risk.

Accidents or incidents involving VTOL aircrafts, us or our competitors could have a material adverse effect on our business, financial condition and results of operations.

• The remainder of the development period for the TriFan 600 may take longer than anticipated.

• The market for a civilian long-range fixed-wing VTOL aircraft is new and untested.

If such market does not respond at the level we expect or if it fails to grow as large as we expect, our business, financial condition and results of operations could be harmed.

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• The pre-orders we have received for our aircraft are non-binding, conditional or written expressions of interest and may be terminated at any time prior to execution of a definitive purchase agreement.

If these pre-orders are cancelled, modified, delayed or not placed in accordance with the terms agreed with each party, our business, results of operations, liquidity and cash flow will be materially adversely affected.

• We will require FAA certification, and a delay in receiving such certification could adversely affect our prospects, business, financial condition and results of operations.

• We have completed several strategic transactions, which may make it difficult for potential investors to evaluate our future business, and, due to the risks and uncertainties related to the acquisition of new businesses, any such acquisition does not guarantee that we will be able to attain profitability.

• We may not be able to successfully integrate the business and operations of entities that we have acquired, have been acquired by or may acquire in the future into our ongoing business operations.

• The risks arising with respect to the historic business and operations of our recent acquisition targets may be different from what we anticipate, which could significantly increase the costs and decrease the benefits of the acquisition and materially and adversely affect our operations going forward.

• The effects of the COVID-19 pandemic could adversely affect us, and the extent to which the effects of the pandemic will impact us remains uncertain.

• Our ability to successfully execute our business plan may require additional debt or equity financing, which may otherwise not be available on reasonable terms or at all.

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• Any future acquisitions that we may make could disrupt our business, cause dilution to our stockholders and harm our business, financial condition or operating results.

• We have been subject to regulatory and other government or regulatory investigations or inquiries and may be required to comply with data requests, or requests for information by government authorities and regulators in the United States or other jurisdictions in which we operate and any resulting enforcement action could have a materially adverse effect on us.

• If we do not adequately protect our intellectual property rights, our business may be harmed.

• Any future disposition of assets and business could have material and adverse effect on business, financial conditions, and operations, if not consummated in a timely manner.

• We have been subject to regulatory and other government or regulatory investigations or inquiries under national, regional and local laws, as amended from time to time, and may be required to comply with data requests, or requests for information by government authorities and regulators in the United States or other jurisdictions in which we operate and any resulting enforcement action could have a materially adverse effect on us.

• If we do not adequately protect our intellectual property rights, we may experience a loss of revenue and our operations and growth prospects may be materially harmed.

• The growth of our business is dependent on increasing sales to our existing customers and obtaining new customers, which, if unsuccessful, could limit our financial performance.

• Changes in the value of the common stock or other securities that we own as a result of strategic investments may result in material fluctuations (increases or decreases) in our total asset value and net income on a quarterly basis.

Risks Related to the Business Combination and the Enterprise Apps Spin-off

• The anticipated benefits of the Business Combination may not be achieved.

• The Separation and Distribution may expose Inpixon to potential liabilities arising out of legal dividend requirements.

• The Spin-off could give rise to disputes or other unfavorable effects, which could have a material adverse effect on our business, financial position and results of operations.

Risks Related to Our Securities

• Our common stock may be delisted from the Nasdaq Capital Market which could negatively impact the price of our common stock, liquidity and our ability to access the capital markets.

• Our failure to maintain compliance with the continued listing requirements of the Nasdaq Capital Market may result in our common stock being delisted from the Nasdaq Capital Market which could negatively impact the price of our common stock, liquidity and our ability to access the capital markets.

• Our stock price may be volatile.

• Sales of our common stock or other securities, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our business is doing well.

• There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.

• We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.

• If our common stock becomes subject to the penny stock rules, it would become more difficult to trade our shares.

• We do not intend to pay cash dividends to our stockholders, so it is unlikely that stockholders will receive any return on their investment in our Company prior to selling our stock.

• If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud.

Any inability to report and file our financial results accurately and timely could harm our reputation and adversely affect the trading price of our common stock.

• Some provisions of Nevada law, our Articles of Incorporation and bylaws may deter takeover attempts, which may inhibit a takeover that stockholders consider favorable and limit the opportunity of our stockholders to sell their shares at a favorable price.

Risks Related to Our Operations

We have had a strategic acquisition strategy and since 2014 have completed several strategic transactions including acquisitions and dispositions.

We completed the spin-off of our VAR business in August 2018, which included our legacy value added reseller business and the Enterprise Apps Spin-off in March 2023, which may make it difficult for potential investors to evaluate our future business.

Risks Related to the XTI Merger

• Our equityholders may not realize a benefit from the XTI Merger commensurate with the ownership dilution they experienced in connection with the XTI Merger.

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• The historical unaudited pro forma condensed combined financial information may not be representative of the combined company’s results after the merger.

• The XTI Merger is expected to cause the Enterprise Apps Spin-off to become taxable to the Company.

Risks Related to the Separation and Distribution of Grafiti Holding and the Damon Business Combination

• The distribution of Grafiti Holding Common Shares to participating security holders may not be completed on the currently contemplated timeline, or at all, may cause us to incur more expenses than anticipated and may not achieve the intended benefits.

• Certain members of our management and directors are anticipated to hold stock in both XTI Aerospace and Grafiti Holding, and as a result may face actual or potential conflicts of interest.

• The distribution is a taxable event and shareholders may need to use cash from other sources to cover your tax liability.

• The consummation of the Damon Business Combination is subject to a number of conditions and if those conditions are not satisfied or waived, the Business Combination Agreement may be terminated in accordance with its terms and the Damon Business Combination may not be completed.

• XTI Aerospace, Grafiti Holding and each of their officers and directors are, or may in the future be, subject to claims, suits and other legal proceedings, including challenging the Damon Business Combination, that may result in adverse outcomes, including preventing the Damon Business Combination from becoming effective or from becoming effective within the expected time frame.

• The announcement of the proposed Damon Business Combination could disrupt XTI Aerospace’s, Grafiti Holding’s and Damon’s relationships with their respective customers, suppliers, business partners and others, as well as their operating results and business generally.

• The exercise of the XTI Aerospace or Grafiti Holding's directors’ and executive officers’ discretion in agreeing to changes or waivers in the terms of the Damon Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Damon Business Combination or waivers of conditions are appropriate and in Inpixon or Grafiti Holding shareholders’ best interest.

Risks Related to Our Business and Industry

We have a limited operating history and have not yet manufactured any non-prototype aircraft, delivered any aircraft to customers or generated any revenues from our aircraft business, and we may never develop or manufacture any VTOL aircraft.

We have a limited operating history in the VTOL aircraft industry.

Our primary VTOL aircraft product is the TriFan 600 (the “aircraft”, “Aircraft” or the “TriFan 600”), which is currently in the developmental stage.

If we are successful in commercially producing the Aircraft, we do not expect to be able to obtain approval from the FAA and regulatory bodies in other countries, and commence deliveries until 2028 at the earliest, if at all.

We have no experience as an organization in high volume manufacturing of the Aircraft or any other type of aircraft.

We cannot assure you that we or our partners will be able to develop efficient, automated, cost-efficient manufacturing capabilities and processes and reliable sources of component supplies that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes, required to successfully mass market our aircraft.

You should consider our business and prospects in light of the risks and significant challenges we face as a new entrant into our industry, including, among other things, with respect to our ability to:

• design and produce safe, reliable and quality aircraft on an ongoing basis;

• obtain the necessary regulatory approvals in a timely manner;

• build a well-recognized and respected brand;

• establish and expand our customer base;

• successfully service our aircraft after sales and maintain a good flow of spare parts and customer goodwill;

• improve and maintain our operational efficiency;

• predict our future revenues and appropriately budget for our expenses;

• attract, retain and motivate talented employees;

• anticipate trends that may emerge and affect our business;

• anticipate and adapt to changing market conditions, including technological developments and changes in our

competitive landscape;

• navigate an evolving and complex regulatory environment.

If we fail to adequately address any or all of these risks and challenges, our business, financial condition and results of operations may be materially and adversely affected.

There is no assurance that we will ever be profitable or generate sufficient

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revenue to pay dividends to the holders of our common stock.

We do not believe we will be able to generate revenues from the sale of aircraft without successfully securing FAA certification of the TriFan 600 aircraft, which involves substantial risk.

As a result, we are dependent upon raising sufficient financing to fund the Company until the TriFan 600’s first flight, including building the first test aircraft.

At the time of this filing and based on Legacy XTI's conclusion of its Preliminary Design Review (“PDR”) in 2022, we estimate this amount to be approximately $300 million in capital, net of anticipated aircraft deposits.

If planned operating levels are changed, higher operating costs encountered, lower sales revenue received, more time is needed to implement the plan, or less funding is received from customer deposits or sales, more investor funds than currently anticipated may be required.

Additional difficulties may be encountered prior to FAA certification, such as unanticipated problems relating to development, testing, and initial and continuing regulatory compliance, vendor manufacturing costs, production and assembly, and the competitive and regulatory environments in which we intend to operate.

If additional capital is not available when required, or is not available on acceptable terms, we may be forced to modify or abandon our business plan.

There is a possibility that we may not be able to continue as a “going concern".

We have adopted ASU No.

2014-15, “Disclosure of Uncertainties about the Entity’s Ability to Continue as a Going Concern.” We have concluded that there is an uncertainty about our ability to continue as a going concern and our independent auditors have incorporated this into their opinion of our 2023 audited financial statements, accordingly.

This opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise.

If we fail to raise sufficient capital when needed, we will not be able to complete our proposed business plan.

As a result, we may have to liquidate our business and investors may lose their investments.

Our ability to continue as a going concern is dependent on our ability to successfully accomplish our plan of operations described herein, obtain financing and eventually attain profitable operations.

Operating aircrafts carry a degree of inherent risk.

Accidents or incidents involving VTOL aircrafts, us or our competitors could have a material adverse effect on our business, financial condition and results of operations.

Test flying a prototype aircraft is inherently risky, and accidents or incidents involving our aircraft are possible.

Any such occurrence would negatively impact our development, testing and certification efforts, and could result in re - design, certification delay and/or postponements or delays to the sales of our aircraft.

The operation of an aircraft is subject to various risks, and we expect demand for our aircraft to be impacted by accidents or other safety issues regardless of whether such accidents or issues involve our aircraft.

Such accidents or incidents could also have a material impact on our ability to obtain certification from the FAA and/or international regulators for our aircraft, or to obtain such certification in a timely manner.

Such events could impact confidence in a particular aircraft type or the air transportation services industry as a whole, particularly if such accidents or disasters were due to a safety fault.

We believe that regulators and the general public are still forming opinions about the safety and utility of various new types of VTOL aircraft, particularly “air taxis”, which are also known as “eVTOLs.” An accident or incident involving either our VTOL aircraft or an eVTOL aircraft during these early stages of opinion formation could have a disproportionate impact on the longer-term view of the advanced VTOL aircraft market generally.

There may be heightened public skepticism of new types of VTOL aircraft and its adopters.

In particular, there could be negative public perception surrounding air taxis, including the overall safety and the potential for injuries or death occurring as a result of accidents involving them, regardless of whether any such safety incidents involve our aircraft.

Any of the foregoing risks and challenges could adversely affect the combined company’s prospects, business, financial condition and results of operations.

We are at risk of adverse publicity stemming from any public incident involving our company, our people, our brand or other companies in our industry.

Such an incident could involve the actual or alleged behavior of any of our employees or third-party contractors.

Further, if our personnel, our aircraft or other types of aircraft are involved in a public incident, accident, catastrophe or regulatory enforcement action, we could be exposed to significant reputational harm and potential legal liability.

The insurance we carry may be inapplicable or inadequate to cover any such incident, accident, catastrophe or action.

In the event that our insurance is inapplicable or inadequate, we may be forced to bear substantial losses from an incident or accident.

In addition, any such incident, accident, catastrophe or action involving our employees, our aircraft or other types of aircraft could create an adverse public perception, which could harm our reputation, result in passengers being reluctant to use our services and adversely impact our business, results of operations and financial condition.

The remainder of the development period for the TriFan 600 may take longer than anticipated.

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Even if it meets its development schedule, we do not expect to deliver certified aircraft to customers until 2028 at the earliest.

As a result, the receipt of significant revenues is not anticipated until that time and may occur later than projected, as our previous development schedule has been delayed.

We depend on receiving large amounts of capital and other financing to complete our development work, with no assurance that we will be successful in completing our development work or becoming profitable.

We operate in highly competitive markets and we may be required to reduce the prices for some of our products and services to remain competitive, which could adversely affect our results of operations.

The TriFan 600 potentially competes with a variety of aircraft manufacturers in the United States and abroad.

Further, we could face competition from competitors of whom we are not aware that have developed or are developing technologies that will offer alternatives to the TriFan 600.

Competitors could develop an aircraft that renders the TriFan 600 less competitive than we believe it will become.

Many existing potential competitors are well-established, have or may have longer-standing relationships with customers and potential business partners, have or may have greater name recognition, and have or may have access to significantly greater financial, technical and marketing resources.

Other manufacturers may be developing a light, fixed-wing, VTOL aircraft with performance similar to that of the TriFan 600.

The RTLS industry is developing rapidly and related technology trends are constantly evolving.

In this environment, we face, among other things, significant price competition from our competitors.

As a result, we may be forced to reduce the prices of the products and services we sell in response to offerings made by our competitors and may not be able to maintain the level of bargaining power that we have enjoyed in the past when negotiating the prices of our products and services.

Our profitability is dependent on the prices we are able to charge for our products and services.

The prices we are able to charge for our products and services are affected by a number of factors, including:

• our customers’ perceptions of our ability to add value through our products and services;

• introduction of new products or services by us or our competitors;

• our competitors’ pricing policies;

• our ability to charge higher prices where market demand or the value of our products or services justifies it;

• procurement practices of our customers;

• general economic and political conditions.

If we are not able to maintain favorable pricing for our products and services, our results of operations could be adversely affected.

The market for a civilian long-range fixed-wing VTOL aircraft is new and untested.

If such market does not respond at the level we expect or if it fails to grow as large as we expect, our business, financial condition and results of operations could be harmed.

The market for a civilian long-range fixed-wing VTOL aircraft is completely new and untested.

Our success in this market is dependent upon our ability to effectively market and sell travel and other applications by the TriFan 600 as a substitute for conventional methods of air transportation (i.e., helicopters and/or light and mid-size business aircraft) and the effectiveness of our other marketing and growth efforts.

If the public does not respond as expected as a result of concerns regarding safety, affordability or for other reasons, then the market for our offerings may not develop, may develop more slowly than we expect or may not achieve the growth potential we expect, any of which could harm our business, financial condition and results of operations.

Developing new products and technologies entails significant risks and uncertainties.

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Delays or cost overruns in the development or certification of the TriFan 600 and failure of the product to meet its performance estimates is likely to affect our financial performance.

Delays and increased costs may be caused by unanticipated technological hurdles, changes to design or failure on the part of our suppliers to deliver components as agreed.

This may further delay the development and/or certification of the TriFan 600.

Additionally, the TriFan 600 may not perform at the level we expect or may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair.

It is not possible to fully replicate every operating condition and validate the long-term durability of every aspect of our aircraft in testing prior to its use in service.

In some instances, we may need to continue to rely upon projections and models to validate the projected performance of our aircraft over their lifetime.

Therefore, similar to most aerospace products, there is a risk that our aircraft may suffer unforeseen faults, defect or other issues in service.

Such faults, defects and other issues may require significant additional research and development to rectify and could involve suspension of operation of our aircraft until any such defects can be cured.

There can be no assurance that such research and development efforts would result in viable products or cure any such defects.

Obtaining the necessary data and results may take longer than planned or may not be obtained at all.

Any such delays or setbacks could have a material adverse effect on our reputation and our ability to achieve our projected timelines and financial goals.

Our aircraft may require maintenance at frequencies or at costs that are greater than expected.

The TriFan 600, when produced, is anticipated to require regular maintenance and support.

We are still developing our understanding of the long-term maintenance profile of the aircraft, and if useful lifetimes are shorter than expected, this may lead to greater maintenance costs than previously anticipated.

If the TriFan 600 and related equipment require maintenance more frequently than we plan for or at costs that exceed our estimates, that would have an impact on the sales of our aircraft and have a material adverse effect on our business, financial condition and results of operations.

There may be a shortage of pilots and mechanics who meet the training standards required, which could reduce our ability to sell our aircraft at scale and on our expected timelines.

There is a shortage of pilots that is expected to exacerbate over time as more pilots in the industry approach mandatory retirement age.

Similarly, trained and qualified aircraft and aviation mechanics are also in short supply.

If these shortages continue, the aviation industry as a whole and our business may face challenges.

The pre-orders we have received for our aircraft are non-binding, conditional or written expressions of interest and may be terminated at any time prior to execution of a definitive purchase agreement.

We have a pre-sales program which includes refundable deposits for TriFan 600 aircraft.

Most pre-orders do not include deposits.

The deposits we have received do not create an obligation on the part of the customer to purchase an aircraft, and a customer may request the full return of its refundable deposit.

Most pre-orders are subject to the execution of a definitive purchase agreement between us and each party that contains the final terms for the purchase of our aircraft, including, but not limited to, the final number of aircraft to be purchased and the timing for delivery of the aircraft.

Some or most customers might not transition to non-refundable purchase contracts until prior to aircraft delivery, if at all.

Aircraft customers might respond to weak economic conditions or competitive alternatives in the market by canceling orders, resulting in lower demand for our aircraft and other materials, such as parts, services, and training, from which we expect to generate additional revenue.

Such events would have a material adverse effect on our financial results and/or liquidity.

For more detailed information regarding our material pre-orders, see " Key Agreement " under Part I, Item 1 herein.

Operations could be adversely affected by interruptions of production that are beyond our control.

We intend to produce the TriFan 600 and its derivatives using systems, components and parts developed and manufactured by third-party suppliers.

This supply chain exposes us to multiple potential sources of delivery failure or component shortages for our aircraft, most of which are out of our control, including shortages of, or disruptions in the supply of, the raw materials used by our partners in the manufacture of components, disruptions to our partners’ workforce (such as strikes or labor shortfalls) and disruptions to, or capacity constraints affecting, shipping and logistics.

Such suppliers may be subject to additional risks such as financial problems that limit their ability to conduct their operations.

If any of these third parties experience difficulties, it may have a direct negative impact on us.

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While we believe that we may be able to establish alternate supply relationships and can obtain replacement components, we may be unable to do so in the short term or at all at prices that are acceptable to us or may need to recertify components.

We may experience source disruptions in our or our partners’ supply chains, which may cause delays in our overall production process for both prototype and commercial production aircraft.

If we needed to find alternative suppliers for any of the key components of our aircraft, then this could increase our costs and adversely affect our ability to receive such components on a timely basis, or at all, which could cause significant delays in our overall projected timelines for the delivery of our aircraft and adversely affect our relationships with our customers.

In addition, if we experience a significant increase in demand, or need to replace our existing suppliers, there can be no assurance that additional suppliers of component parts will be available when required on terms that are acceptable to us, or at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner.

Further, if we are unable to manage successfully our relationships with all of our suppliers and partners, the quality and availability of our aircraft may be harmed.

Our suppliers or partners could, under some circumstances, decline to accept new purchase orders from, or otherwise reduce their business with, us.

Any disruptions in the supply of components from our suppliers and partners could lead to delays in aircraft production, which would materially adversely affect our business, financial condition and operating results.

Further, if any conflicts arise between our suppliers or partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our business strategies, which could impact our projected production timelines and number of aircraft produced.

Our suppliers or partners may also develop, either alone or with others, products in related fields that are competitive with our products as a result of any conflicts or disagreements.

Any disagreements or conflicts with our suppliers or partners could have an adverse effect on our reputation, which could also negatively impact our ability to source new suppliers or partners.

Any changes in business conditions, wars, governmental changes, political intervention and other factors beyond our control or which we do not presently anticipate, could also affect our partners’ and suppliers’ abilities to deliver components to us on a timely basis, which could have a material adverse effect on our overall timelines to produce our aircraft.

We do not control our suppliers or partners or such parties’ labor and other legal compliance practices, including their environmental, health and safety practices.

If our current suppliers or partners, or any other suppliers or partners which we may use in the future, violates any specific laws or regulations, we may be subjected to extra duties, significant monetary penalties, adverse publicity, the seizure and forfeiture of products that we are attempting to import or the loss of our import privileges.

The effects of these factors could render the conduct of our business in a particular country undesirable or impractical and have a negative impact on our business, financial condition and results of operations.

We will require FAA certification, and a delay in receiving such certification could adversely affect our prospects, business, financial condition and results of operations.

The TriFan 600 is still in the development stage, and we are still working to obtain FAA type certification of the TriFan 600.

Certification by the FAA will be required for the sale of the TriFan 600 in the civil or commercial market in the United States.

The process to obtain such certification is expensive and time consuming and has inherent engineering risks.

These include (but are not limited to) ground test risks such as structural strength and fatigue resistance, and structural flutter modes.

Flight test risks include (but are not limited to) stability and handling over the desired center-of-gravity range, performance extremes (stalls, balked-landing climb, single-engine climb), and flutter control effectiveness (aircraft roll effectiveness, controllability, various control failure safety).

Delays in FAA certification can be expected to result in us incurring increased costs in attempting to correct any issues causing such delays.

Also, the impact of new or changed laws or regulations on the TriFan 600’s certification or the costs of complying with such laws and regulations cannot be predicted.

Our estimates of market demand may be inaccurate.

We have projected the market for the TriFan 600 based upon a variety of internal and external market data.

The estimates involve assumptions, which may not be realized in fact.

There can be no assurance that our estimates for the number of TriFan 600 aircraft that may be sold in the market will be as anticipated.

In the event that we have not accurately estimated the market size for and the number of TriFan 600 aircraft that we can sell, it could have a material adverse effect upon us and our results from operations.

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If we do not adequately protect our intellectual property rights, we may experience a loss of revenue and our operations and growth prospects may be materially harmed.

We have not registered copyrights on any of the software we have developed, and while we may register copyrights in the software if needed before bringing suit for copyright infringement, such registration can introduce delays before suit of over three years and can constrain damages for infringement.

We rely upon confidentiality agreements signed by our employees, consultants and third parties to protect our intellectual property.

We cannot assure you that we can adequately protect our intellectual property or successfully prosecute actual or potential infringement of our intellectual property rights.

In addition, we cannot assure you that others will not copy or reproduce aspects of our intellectual property and our products, or that others will not assert rights in, or ownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction.

Our failure to protect our intellectual property rights may result in a loss of revenue and could materially adversely affect our operations and financial condition.

Although we have received patents issued by the US Patent and Trademark Office (USPTO) (design patent D741247 and utility patent US 9,676,479) and various foreign patents for the TriFan 600, there is no guarantee that we will receive one or more additional patents for which we will apply to the USPTO or for which we have applied or will apply in foreign jurisdictions.

If one or more of any of our existing or future patents are challenged by a third party (such as a claim of invalidity of our patents or a claim of infringement against us), the federal courts would determine whether we are entitled to patent protection.

If we fail to successfully enforce our proprietary technology or otherwise maintain the proprietary nature of our intellectual property used in the TriFan 600 aircraft, our competitive position could suffer.

Notwithstanding our efforts to protect our intellectual property, our competitors may independently develop similar or alternative technologies or products that are equal to or superior to our TriFan 600 technology without infringing on any of our intellectual property rights or design around our proprietary technologies.

There is no guarantee that the USPTO will issue one or more additional patents to us or that any court will rule in our favor in the event of a dispute related to our intellectual property.

In the absence of further patent protection, it may be more difficult for us to achieve commercial production of the TriFan 600.

In addition, any patents issued in the future may not provide us with any competitive advantages, and our patent applications may never be granted.

The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

Even if issued, there can be no assurance that these patents will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are complex and often uncertain and are subject to change that can affect validity of patents issued under previous legal standards, particularly with respect to the law of subject matter eligibility.

Our inability to protect our property rights could adversely affect our financial condition, operating results and growth prospects.

Our proprietary software is protected by common law copyright laws, as opposed to registration under copyright statutes.

We have not registered copyrights on any of the proprietary software we have developed.

Our performance and ability to compete are dependent to a significant degree on our proprietary technology.

Common law protection may be narrower than that which we could obtain under registered copyrights.

As a result, we may experience difficulty in enforcing our copyrights against certain third party infringements.

As part of our confidentiality-protection procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, our software, documentation and other proprietary information.

There can be no assurance that the steps we have taken will prevent misappropriation of our technology or that agreements entered into for that purpose will be enforceable.

The laws of other countries may afford us little or no protection of our intellectual property.

We also rely on a variety of technology that we license from third parties.

There can be no assurance that these third party technology licenses will continue to be available to us on commercially reasonable terms, if at all.

The loss of or inability to maintain or obtain upgrades to any of these technology licenses could result in delays in completing software enhancements and new development until equivalent technology could be identified, licensed or developed and integrated.

Any such delays would materially and adversely affect our business.

Our ability to use net operating loss carryforwards and certain other tax attributes from the Legacy XTI business may be limited.

As of December 31, 2023, Legacy XTI estimates that it has federal net operating loss carryforwards (“NOLs”) in excess of $10 million, of which approximately $1.4 million will begin to expire in 2036 and the remainder do not expire.

Under the Tax Cuts and Jobs Act, federal NOLs generated by us in tax years through December 31, 2017 may be carried forward for 20 years and may fully offset taxable income in the year utilized and federal NOLs generated by us in tax years beginning after

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December 31, 2017 may be carried forward indefinitely but may only be used to offset 80% of our taxable income annually.

Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change federal NOLs and other tax attributes (such as research and development tax credits) to offset its post-change income and taxes may be limited.

In general, an “ownership change” occurs if there is a greater than 50 percentage point change (by value) in a corporation’s equity ownership by certain stockholders over a rolling three-year period.

We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of subsequent shifts in our stock ownership (some of which shifts are outside our control).

As a result, our ability to use Legacy XTI's pre-change federal NOLs and other tax attributes to offset future taxable income and taxes could be subject to limitations.

Similar provisions of state tax law may also apply.

For these reasons, even if we achieve profitability, we may be unable to use a material portion of Legacy XTI's NOLs and other tax attributes which may have an adverse impact on our business, financial condition and results of operations.

We may enter into joint venture, teaming and other arrangements, and these activities involve risks and uncertainties.

A failure of any such relationship could have material adverse results on our business and results of operations.

We may enter into joint venture, teaming and other arrangements.

These activities involve risks and uncertainties, including the risk of the joint venture or applicable entity failing to satisfy its obligations, which may result in certain liabilities to us for guarantees and other commitments, the challenges in achieving strategic objectives and expected benefits of the business arrangement, the risk of conflicts arising between us and our partners and the difficulty of managing and resolving such conflicts, and the difficulty of managing or otherwise monitoring such business arrangements.

In addition, we do not currently have arrangements in place that will allow us to fully execute our business plan, including, without limitation, final supply and manufacturing agreements.

Moreover, existing or future arrangements may contain limitations on our ability to enter into arrangements with other partners.

A failure of our business relationships could have a material adverse effect on our business and results of operations.

If we are unable to obtain and maintain adequate facilities and infrastructure, we may be unable to develop and manufacture the aircraft as expected.

In order to develop and manufacture our aircraft, we must be able to obtain and maintain adequate facilities and infrastructure.

We may be unsuccessful in obtaining, developing and/or maintaining these facilities in a commercially viable manner.

Even if we are able to begin assembly operations in these facilities, maintenance of these facilities will require considerable capital expenditure as we expand operations.

We cannot provide any assurance that we will be successful in obtaining and maintaining adequate facilities and infrastructure, and any failure to do so may result in our inability to develop and manufacture our aircraft as expected or on the timelines projected, which would adversely affect our business, financial condition and results of operations.

The residual effects of the COVID-19 pandemic could adversely affect our business, operations, financial condition and results of operations, and the extent to which the effects of the pandemic will impact our business, operations, financial condition and results of operations remains uncertain.

While the unprecedented challenges posed by the COVID-19 pandemic over the last few years have mostly subsided, there continue to be residual effects such as remote and hybrid work that may continue to impact our business and the business of our customers.

We continue to operate all of our services, but the extent to which the remaining effects of the pandemic will impact our business, operations, financial condition and results of operations is uncertain, and hard to predict and will depend on numerous evolving factors that we may not be able to control or predict including:

● the impact of recurring variants of the COVID-19 virus and their impact on our employees and key personnel, our operations and our customers and partners;

● any disruption of our supply chain and the impact of such disruptions on our suppliers or our ability to deliver products and services to our customers;

● our continued ability to execute on business continuity plans for the maintenance of our critical internet infrastructure, while most of our employees continue to work remotely;

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● any negative impact on the demand for our services and products resulting from the economic disruption caused by the pandemic and responses thereto such as remote and hybrid work styles that can negatively impact our indoor intelligence solutions.

We are subject to risks associated with climate change, including the potential increased impacts of severe weather events on our operations and infrastructure.

The potential physical effects of climate change, such as increased frequency and severity of high wind conditions, storms, floods, fires, fog, mist, freezing conditions, sea-level rise and other climate-related events, could affect our operations, infrastructure and financial results.

Climate change risks could result in but are not limited to operational risk from the physical effect of climate events on our terminal facilities, production facilities and other assets, as well as transitional risks, including new or more stringent regulatory requirements, increased monitoring and disclosure requirements, and potential effects on our reputation and/or changes in our business.

We could incur significant costs to improve the climate resiliency of our aircraft or infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change.

We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change.

Market and regulatory trends to reduce climate change may not evolve in the direction and within the timing expected, which could have a negative impact in our business plan.

A number of governments globally have introduced or are moving to introduce climate change legislation and treaties at the international, national, state/provincial and local levels.

Regulation relating to emission levels and energy efficiency is becoming more stringent and is gaining more widespread market approval, as consumers expect companies to play a role in addressing climate change.

Our business plan is predicated in part on the idea that market and regulatory trends favoring such “clean” energy and addressing climate change will continue to evolve in our favor.

However, any change or reversal in such market and regulatory trends, such as less focus on climate-friendly solutions or less stringent legislation with respect to emissions, could result in lower demand for our aircraft and have an adverse effect on our business.

Investors’ expectations of our performance relating to environmental, social and governance (“ESG”) factors may impose additional costs and expose us to new risks.

There is an increasing focus from investors, employees, customers and other stakeholders concerning corporate responsibility, specifically related to ESG matters.

Some investors may use these non-financial performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to corporate responsibility are inadequate.

The growing investor demand for measurement of non-financial performance is addressed by third-party providers of sustainability assessments and ratings with respect to public companies.

The criteria by which our corporate responsibility practices are assessed may change due to changes in the sustainability landscape, which could cause us to undertake costly initiatives to satisfy such new criteria.

If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies and/or actions with respect to corporate social responsibility are inadequate.

We may face reputational damage in the event that we do not meet the ESG standards set by various constituencies.

We may not be able to secure adequate insurance policies, or secure insurance policies at reasonable prices.

We maintain a variety of insurance policies, and we believe our level of coverage is customary in our stage of development and industry and adequate to protect against claims.

However, there can be no assurance that it will be sufficient to cover potential claims or that present levels of coverage will be available in the future at reasonable cost.

Insurers may be unwilling to cover the risks associated with the TriFan 600 technology, either partially or at all.

Further, we expect our insurance needs and costs to increase as we build production facilities, manufacture aircraft, establish commercial operations and expand into new markets.

We have historically had a strategic acquisition strategy and since 2014 have completed several strategic transactions including acquisitions and dispositions.

We completed the spin-off of our VAR business in August 2018, which included our legacy value added reseller business, the Enterprise Apps Spin-off in March 2023 and the divestiture of our SAVES and Shoom businesses in two separate transactions in December 2023 and February 2024, which may make it difficult for potential investors to evaluate our future business.

Our RTLS business has developed through multiple acquisition transactions.

Furthermore, due to the risks and uncertainties related to the acquisition of new businesses, any such acquisition does not guarantee that we will be able to attain profitability.

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We have a strategic acquisition strategy and since 2014 we completed several strategic transactions and spin-offs.

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In 2023, we completed the spin-off of our enterprise apps business.

Our limited operating history after such acquisitions and divestiture makes it difficult for potential investors to evaluate our business or prospective operations or the merits of an investment in our securities.

With respect to the Enterprise Apps Spin-off, the risks inherent in such divestiture are described below under “ Risks Related to the Business Combination and the Enterprise Apps Spin-off .” With respect to acquisitions, we are subject to the risks inherent in the financing, expenditures, complications and delays characteristic of a newly combined business.

In December 2023, we transferred the UK division of our SAVES business to Grafiti Holding in connection with spin-off and planned distributions of all of the shares of Grafiti Holding to our shareholders pending the effectiveness of a registration statement.

In February 2024, we divested the remainder of the SAVES and Shoom business in a stock purchase transaction.

Our limited operating history after such acquisitions and divestitures makes it difficult for potential investors to evaluate our business or prospective operations or the merits of an investment in our securities.

With respect to acquisitions, we are subject to the risks inherent in the financing, expenditures, complications and delays characteristic of a newly combined business.

These risks are described below under the risk factor titled “Any future acquisitions that we may make could disrupt our business, cause dilution to our stockholders and harm our business, financial condition or operating results.” In addition, while the Company has received indemnification protections in connection with these acquisitions from undisclosed liabilities, there may not be adequate resources to cover such indemnity.

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There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability.

We may not be able to successfully integrate the business and operations of entities that we have acquired or may acquire in the future into our ongoing business operations, which may result in our inability to fully realize the intended benefits of these acquisitions, or may disrupt our current operations, which could have a material adverse effect on our business, financial position and/or results of operations.

We continue to integrate the technology and operations acquired in connection with our recent acquisitions, including but not limited to the Nanotron technology and operations.

We may not be able to successfully integrate the business and operations of entities that we have acquired, been acquired by or may acquire in the future into our ongoing business operations, which may result in our inability to fully realize the intended benefits of these acquisitions, or may disrupt our current operations, which could have a material adverse effect on our business, financial position and/or results of operations.

We continue to integrate the technology and operations acquired in connection with our recent acquisitions, including but not limited to Legacy XTI and the Nanotron and Intranav technology and operations.

This process involves complex operational, technological and personnel-related challenges, which are time-consuming and expensive and may disrupt our ongoing business operations.

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• difficulty comparing financial reports due to differing financial and/or internal reporting systems;

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• making any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder;

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Although we performed significant financial, legal, technological and business due diligence with respect to our recent acquisition targets, we may not have appreciated, understood or fully anticipated the extent of the risks associated with the acquisitions.

We have secured indemnification for certain matters in connection with our recent acquisitions in order to mitigate the consequences of breaches of representations, warranties and covenants under the merger agreements and the risks associated with historic operations, including those with respect to compliance with laws, accuracy of financial statements, financial reporting controls and procedures, tax matters and undisclosed liabilities, and certain matters known to us.

We have secured indemnification for certain matters in connection with our recent acquisitions in order to mitigate the consequences of breaches of representations, warranties and covenants under the applicable merger or acquisition agreements and the risks associated with historic operations, including those with respect to compliance with laws, accuracy of financial statements, financial reporting controls and procedures, tax matters and undisclosed liabilities, and certain matters known to us.

We believe that the indemnification provisions of the merger agreements, together with any applicable holdback escrows and insurance policies that we have in place will limit the economic consequences of the issues we have identified in our due diligence to acceptable levels.

Notwithstanding our exercise of due diligence and risk mitigation strategies, the risks of acquiring target companies with historic businesses and operations may expose us to unknown or contingent liabilities and the costs associated with these risks may be greater than we anticipate causing material and adverse impact on our business, liquidity, capital resources or results of operations.

The lasting effects of the COVID-19 pandemic could adversely affect our business, operations, financial condition and results of operations, and the extent to which the effects of the pandemic will impact our business, operations, financial condition and results of operations remains uncertain.

While the unprecedented challenges posed by the COVID-19 pandemic over the last few years are subsiding, there continue to be lasting effects that may continue to result in significant volatility and business and economic disruptions and uncertainty.

We have taken steps to protect our employees and we continue to operate all of our services, but the extent to which the remaining effects of the pandemic will impact our business, operations, financial condition and results of operations

is uncertain, and hard to predict and will depend on numerous evolving factors that we may not be able to control or predict including:

● the duration and scope of the pandemic;

● the extent to which the national, local and regional government authorities would have taken action to control and prevent the spread of more contagious or lethal variants that may emerge;

● the extent and effectiveness of responsive actions by authorities and the impact of these and other factors on our employees, customers and vendors;

● the impact of the pandemic on our employees, including key personnel;

● the extent to which we are able to maintain and replace critical internet infrastructure components, when necessary;

● any disruption of our supply chain and the impact of such disruptions on our suppliers or our ability to deliver products and services to our customers;

● our continued ability to execute on business continuity plans for the maintenance of our critical internet infrastructure, while most of our employees continue to work remotely;

● any negative impact on the demand for our services and products resulting from the economic disruption caused by the pandemic and responses thereto.

If we are unable to successfully respond to and manage the impact of the pandemic, and the resulting responses to it, our business, operations, financial condition and results of operations could be adversely impacted.

The ongoing impact of the military conflict between Russia and Ukraine has resulted in an increase in the likelihood of supply chain constraints, contributed to inflation driving up the cost of material and labor required to make our products, the effects of which remains uncertain and may have a material adverse impact on our business, operations and financial conditions.

The ongoing military conflict between Russia and Ukraine has increased the likelihood of supply interruptions which may hinder our ability to find the materials we need to make our products.

The consummation of the XTI Merger is expected to cause the Enterprise Apps Spin-off to become taxable to the Company.

Although the Enterprise Apps Spin-off was expected to qualify as a tax-free transaction under Section 355 of the Code for our shareholders, the consummation of the XTI Merger and the issuance of Company common stock pursuant to the XTI Merger Agreement is expected to cause the Enterprise Apps Spin-off to become taxable to the Company pursuant to the application of Section 355(e) of the Code.

Although the Enterprise Apps Spin-off is expected to be taxable to the Company, the Company does not expect to recognize any material taxable income as a result of the transaction being taxable to it.

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The ongoing impact of the military conflict between Russia and Ukraine and the Israel/Hamas conflict may result in an increase in the likelihood of supply chain constraints, contribute to inflation driving up the cost of material and labor required to make our products, the effects of which remains uncertain and may have a material adverse impact on our business, operations and financial conditions.

The ongoing military conflict between Russia and Ukraine has had an impact on our business and the Israel/Hamas conflict may increase the likelihood of supply interruptions which may hinder our ability to find the materials we need to make our products.

Supply disruptions are making it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products.

The wider implications of the conflict have contributed to inflation driving up the costs of labor and materials required to make our products.

The fluidity and continuation of the conflict may result in additional economic sanctions and other impacts which could have a negative impact on the Company's financial condition, results of operations and cash flows, including decreased sales;

The fluidity and continuation of the Russian conflict may result in additional economic sanctions and other impacts which could have a negative impact on the Company's financial condition, results of operations and cash flows, including decreased sales;

supply chain and logistics disruptions;

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The overall impact on our business of these events continues to remain uncertain and there are no assurances that we will be able to continue to experience the same growth or not be materially adversely affected.

A significant portion of the purchase price related to our strategic acquisitions are allocated to goodwill and intangible assets that are subject to periodic impairment evaluations.

An impairment loss could have a material adverse impact on our financial condition and results of operations.

A significant portion of the purchase price related to our strategic acquisitions are allocated to goodwill and intangible assets that are subject to periodic impairment evaluations.

A significant portion of the purchase price related to our strategic acquisitions prior to the XTI Merger was allocated to goodwill and intangible assets that are subject to periodic impairment evaluations.

An impairment loss could have a material adverse impact on our financial condition and results of operations.

As of December 31, 2022 we had no goodwill and the net book value of our intangible assets is approximately $22.3 million in connection with the various acquisitions that we have consummated.

As of December 31, 2023 our previously recorded goodwill (prior to taking into account any goodwill resulting from the XTI Merger) was fully impaired and the net book value of our intangible assets is approximately $2.2 million in connection with the various acquisitions that we have consummated.

A future impairment loss could have a material adverse impact on our financial condition and results of operations.

As required by current accounting standards, we review intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable.

The risk of impairment to goodwill is higher during the early years following an acquisition.

This is because the fair values of these assets align very closely with what we paid to

acquire the reporting units to which these assets are assigned.

This is because the fair values of these assets align very closely with what we paid to acquire the reporting units to which these assets are assigned.

As a result, the difference between the carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is smaller at the time of acquisition.

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higher attrition rates than planned as a result of the competitive environment or our inability to provide products and services that are competitive in the marketplace, lower-than-planned adoption rates by customers, higher-than-expected expense levels to provide services to customers, sustained declines in our stock price and related market capitalization and changes in our business model that may impact one or more of these variables.

D uring the years ended December 31, 2022 and 2021 we recorded a goodwill and intangibles impairment charge of $12.2 million and $14.8 million, respectively.

As of December 31, 2022 our goodwill was fully impaired.

Our ability to successfully execute our business plan may require additional debt or equity financing, which may otherwise not be available on reasonable terms or at all.

D uring the years ended December 31, 2023 and 2022 (prior to taking into account the impact of the XTI Merger), we recorded a goodwill and intangibles impairment charge from continuing operations of $0.0 million and $1.2 million, respectively.

As of December 31, 2023 and 2022, our goodwill was fully impaired.

Our ability to successfully execute our business plan will require additional debt or equity financing, which may otherwise not be available on reasonable terms or at all.

Based on our current business plan, we will need additional capital to support our operations, which may be satisfied with additional debt or equity financings.

Future financings through equity offerings by us will be dilutive to existing stockholders.

In addition, the terms of securities we may issue in future capital transactions may be more favorable to new investors than our current investors.

Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative securities.

To the extent that we raise additional capital by issuing equity securities, such an issuance may cause significant dilution to our stockholders’ ownership and the terms of any new equity securities may have preferences over our common stock.

Any debt financing that we enter into may involve covenants that restrict our operations.

These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem its stock or make investments.

For example, our Series 9 Preferred Stock contains a number of restrictive covenants, as described under “– The terms of the Series 9 Preferred Stock impose additional challenges on our ability to raise capital .” These restrictive covenants could deter or prevent us from raising additional capital as and when needed.

In addition, if we raise additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of our technologies and proprietary rights, or grant licenses on

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terms that are not favorable to us.

We may also issue incentive awards under our equity incentive plans, which may have additional dilutive effects.

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If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may need to reduce our operations by, for example, selling certain assets or business segments.

The terms of the Series 9 Preferred Stock impose additional challenges on our ability to raise capital.

The terms of our Series 9 Preferred Stock contain a number of restrictive covenants that may impose significant operating and financial restrictions on us while the Series 9 Preferred Stock remains outstanding, unless the restrictions are waived by the consent of at least a majority of the outstanding Series 9 Preferred Stock.

These restrictions include, but are not limited to, restrictions on our ability to (i) issue or sell any equity securities which result in net proceeds to the Company in excess of an aggregate of $10,000,000, (ii) issue, incur or guaranty any debt (excluding any intercompany debt) or issue any debt or equity securities in any variable rate transaction (which does not include the issuance of shares of common stock in an at-the-market offering, subject to the limitations set forth in the Series 9 Preferred Stock Certificate of Designation), and (iii) create, authorize, or issue, or enter into any agreement to create, authorize, or issue, any class of preferred stock (including additional issuances of Series 9 Preferred Stock).

A breach of the restrictive covenants under the Series 9 Preferred Stock Certificate of Designation could result in an event of default under the Series 9 Preferred Stock Certificate of Designation which may require redemption of the Series 9 Preferred Stock.

As a result of these restrictions, we may be limited in how we conduct our business, unable to finance our operations through additional debt or equity financings and/or unable to compete effectively or to take advantage of new business opportunities.

Failure to manage or protect growth may be detrimental to our business because our infrastructure may not be adequate for expansion.

Since its formation, our Company has grown significantly with increases in employee headcounts, product lines, physical locations across several countries, and managing of multiple relationships as well as interactions with users, distributors, vendors and other third parties.

Since formation, our Company has grown significantly with increases in employee headcounts, product lines, physical locations across several countries, and managing of multiple relationships as well as interactions with users, distributors, vendors and other third parties.

Our acquisitions may require substantial expansion of our systems, workforce and facilities and our corporate strategy includes plans for continued acquisitions of complementary technologies and businesses in furtherance of our growth plans.

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The failure to perform could also result in contract

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terminations and significant liability, and prompt the Company to restructure the organization or abandon the business of an acquired business.

Any such result would adversely affect the Company’s business and financial condition.

We have a history of operating losses and working capital deficiency and there is no assurance that we will be able to achieve profitability or raise additional financing.

We have a history of operating losses and working capital deficiency.

We have incurred net losses attributable to the stockholders of Inpixon of approximately $63.4 million and $69.2 million for the fiscal years ended December 31, 2022 and 2021, respectively.

This decrease in loss of approximately $5.8 million was primarily attributable to the higher gross margin of $2.3 million, decreased operating expenses of $13.7 million, larger non-controlling interest of $1.9 million offset by greater other losses of $10.9 million and lower income tax benefit of $1.3 million.

The continuation of our Company is dependent upon attaining and maintaining profitable operations and raising additional capital as needed, but there can be no assurance that we will be able to raise any further financing.

Our ability to generate positive cash flow from operations is dependent upon sustaining certain cost reductions and generating sufficient revenues.

While our revenues have increased by 21% as compared to the same period for 2021, they are not sufficient to fund our operations and cover our operating losses.

Prior to the XTI Merger, we have had a history of operating losses and working capital deficiency and there is no assurance that we will be able to achieve profitability or raise additional financing.

Prior to the XTI Merger, we had a history of operating losses and working capital deficiency.

We incurred net losses from continuing operations of approximately $34.4 million and $19.7 million for the fiscal years ended December 31, 2023 and 2022, respectively.

This increase in loss of approximately $14.7 million was primarily attributable to the acquisition costs inclusive of the XTI and Damon transactions in the year ended December 31, 2023 of approximately $4.2 million, the transaction costs in the year ended December 31, 2023 inclusive of the CXApp transaction of approximately $3.1 million, the warrant inducement expense of approximately $3.4 million, the higher interest expense and higher tax provision.

The continuation of our Company is dependent upon attaining and maintaining profitable operations in our RTLS business and executing timely on our design, FAA certification and eventual production of the XTI Trifan600 and raising additional capital as needed, but there can be no assurance that we will be able to raise any further financing.

Our ability to generate positive cash flow from operations was dependent upon sustaining certain cost reductions and generating sufficient revenues.

Our revenues decreased by 25% as compared to the same period for 2022 as a result of longer sales cycles, economic uncertainty for our customers and our transition to a recurring revenue model.

We will need to grow our revenues to sufficiently fund our operations and cover our operating losses.

Our management is evaluating options and strategic transactions and continuing to market and promote our new products and technologies, however, there is no guarantee that these efforts will be successful or that we will be able to achieve or sustain profitability.

Even if we are able to successfully develop and sell our aircraft, there can be no assurance that the aircraft will be commercially successful and achieve or sustain profitability.

We expect the rate at which we will incur losses to be significantly higher in future periods as we, among other things, certify and assemble our aircraft, deploy our facilities, build up inventories of parts and components for our aircraft, increase our sales and marketing activities, develop our manufacturing infrastructure and increase our general and administrative functions to support our growing operations.

These efforts may not result in the Company reaching profitability, which would further increase our losses.

We have funded our operations primarily with proceeds from public and private offerings of our common stock and secured and unsecured debt instruments.

Our history of operating losses and cash uses, our projections of the level of cash that will be required for our operations to reach profitability, and the terms of the financing transactions that we completed in the past, may impair our ability to raise capital on terms that we consider reasonable and at the levels that we will require over the coming months.

In addition, to the extent that we are unable to pay our obligations under our secured promissory note with the U.S.

Small Business Administration, or any other future secured debt, the creditor could proceed against any or all of the collateral securing our indebtedness to it.

We cannot provide any assurances that we will be able to secure additional funding from public or private offerings or debt financings on terms acceptable to us, if at all.

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The increase in demand for consulting, technology integration and managed services has further increased the need for employees with specialized skills or significant experience in these areas.

Our ability to expand our operations will be highly dependent on our ability to attract a sufficient number of highly skilled employees and to retain our employees and the employees of companies that we have acquired.

Our ability to expand our operations will be highly dependent on our ability to attract a sufficient number of highly skilled employees and to retain our employees and the

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employees of companies that we have acquired.

We may not be successful in attracting and retaining enough employees to achieve our desired expansion or staffing plans.

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These factors could have a material adverse effect on our business, financial condition and operating results.

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Any future disposition of assets and business could have material and adverse effect on business, financial conditions, and operations, if not consummated in a timely manner.

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Although we maintain insurance and intend to obtain warranties from suppliers, obligate subcontractors to meet certain performance levels and attempt, where feasible, to pass risks we cannot control to our customers, the proceeds of such insurance or the warranties, performance guarantees or risk sharing arrangements may not be adequate to cover lost revenue, increased expenses or liquidated damages payments that may be required in the future.

We have outstanding debt.

Such indebtedness, along with the other contractual commitments of our Company, could adversely affect our business, financial condition and results of operations.

As of March 26, 2023 we have an outstanding principal and interest balance of approximately $6.7 million underlying the promissory note issued to a holder which matures on July 22, 2023 (the "July 2022 Note") and an outstanding principal and interest balance of approximately $8.6 million underlying the promissory note issued to the same holder which matures December 30, 2023 (the "December 2022 Note").

In addition, the noteholder may require us to redeem (i) 1/3 of the initial principal balance of the July 2022 Note and (ii) 1/6 of the initial principal balance of the December 2022 Note plus any interest accrued under the December 2022 Note each month in cash beginning on the date that is 6 months from the original issue date.

The ability to meet payment and other obligations under these notes depends on our ability to generate significant cash flow in the future.

This, to some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control as described in this Annual Report on Form 10-K.

If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure debt, exchange debt for other securities, sell assets, reduce or delay capital investments, or seek to raise additional capital.

If we are unable to implement one or more of these alternatives, we may not be able to meet debt payment and other obligations, which could have a material adverse effect on our financial condition.

In addition, so long as these notes are outstanding, the holders will have a right of first refusal on certain equity-linked financings and will be entitled to participate in certain equity or debt financings, in each case, subject to certain exceptions.

The existence of these rights may deter potential financing sources and may lead to delays in our ability to close proposed financings.

Any delay or inability to complete a financing when needed could have a material adverse effect on our financial condition.

We may also incur additional indebtedness in the future.

If new debt or other liabilities are added to our current consolidated debt levels, the related risks that we now face could intensify.

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.

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government securities and cash items) on an unconsolidated basis.

In the past, we have made strategic investments in certain securities, including the purchase of certain interests in Cardinal Venture Holdings LLC, a Delaware limited liability company (“CVH”), which owns certain interests in the sponsor entity to KINS Technology Group Inc., a former special purpose acquisition company with which the Company entered into the Business Combination, as well as our holdings in Sysorex and Foxo Technologies Inc.

In the past, we have made strategic investments in certain securities, including the purchase of certain interests in Cardinal Venture Holdings LLC, a Delaware limited liability company (“CVH”), which owns certain interests in the sponsor entity to KINS Technology Group Inc., a former special purpose acquisition company with which the Company entered into a business combination, as well as our holdings in Sysorex and Foxo Technologies Inc.

Although we have made these strategic investments, we do not currently believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

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However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.

Our Chief Executive Officer and director, Nadir Ali, and certain other employees and members of our management team have an interest in CVH that may create, or appear to create, conflicts of interest.

Certain employees and members of our management team have an equity interest in CVH.

In addition, Nadir Ali, our Chief Executive Officer and director, is also a controlling member of 3AM, LLC which is a member of CVH, which may, in certain circumstances, be entitled to manage the affairs of CVH.

Ali’s relationship may create, or appear to create, conflicts of interest between Mr.

Ali’s obligations to our company and its shareholders and his economic interests and possible fiduciary obligations in CVH through 3AM.

For example, Mr.

Ali may be in a position to influence or manage the affairs of CVH in a manner that may be viewed as contrary to the best interests of either the Company or CVH and their respective stakeholders.

We may be subject to damages resulting from claims that the Company or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Upon completion of any acquisitions by the Company, we may be subject to claims that our acquired companies and their employees may have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers or competitors.

We may be subject to claims that the Company or our employees may have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers or competitors.

Litigation may be necessary to defend against these claims.

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A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain products, which could severely harm our business.

We have been subject to regulatory and other government or regulatory investigations or inquiries under national, regional and local laws, as amended from time to time, and may be required to comply with data requests, or requests for information by government authorities and regulators in the United States or other jurisdictions in which we operate and any resulting enforcement action could have a materially adverse effect on us.

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by government authorities and regulators in the United States or other jurisdictions in which we operate and any resulting enforcement action could have a materially adverse effect on us.

As a publicly trading reporting company with operations in the United States and internationally, we interact regularly with regulatory and self-regulatory agencies in the United States or other jurisdictions in which we operate, including the SEC and the Nasdaq Stock Market.

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We may be a party to claims that arise from time to time in the ordinary course of our business, which may include those related to, for example, contracts, sub-contracts, protection of confidential information or trade secrets, adversary proceedings arising from customer bankruptcies, employment of our workforce and immigration requirements or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business.

Additionally, we may be made a party to future claims resulting from the Enterprise Apps Spin-off or Business Combination as described below under the risk factor section titled “Risks Related to the Business Combination and the Enterprise Apps Spin-off.” We may also be required to initiate expensive litigation or other proceedings to protect our business interests.

There is a risk that we will not be successful or otherwise be able to satisfactorily resolve any such claims or litigation.

In addition, litigation and other legal claims are subject to inherent uncertainties.

Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities

regarding damage awards among the states in which we operate.

Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings (possibly resulting in changes in established reserves), could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Due to recurring losses and net capital deficiency, our current financial status may increase our default and litigation risks and may make us more financially vulnerable in the face of threatened litigation.

The loss of our Chief Executive Officer or other key personnel may adversely affect our operations.

Our success depends to a significant extent upon the operation, experience, and continued services of certain of our officers, including our CEO, as well as other key personnel.

While our CEO and key personnel are employed under employment contracts, there is no assurance we will be able to retain their services.

The loss of our CEO or several of the other key personnel could have an adverse effect on the Company.

If our CEO or other executive officers were to leave we would face substantial difficulty in hiring a qualified successor and could experience a loss in productivity while any successor obtains the necessary training and experience.

Additionally, we are and we may be made a party to future claims resulting from our proposed business combinations.

For example, two lawsuits were previously filed against us and our directors alleging that we filed a purportedly misleading Form S-4 on August 14, 2023 that omitted material information regarding the process leading to the XTI Merger and the analysis performed by our financial advisor in connection with such transaction.

The suits asserted claims under Section 14(a) and Section 20 of the Exchange Act and sought injunctive relief, damages, costs, attorneys’ fees, and other relief.

Those suits were later voluntarily dismissed.

We have also received demand letters from multiple purported Company shareholders alleging that the Form S-4 omits or misstates material information regarding similar topics as alleged in the dismissed lawsuits, as well as material information pertaining to other topics, including information pertaining to the compensation and business or financial relationships of our financial advisor for the proposed transaction.

The letters demand that we make supplemental disclosures to correct the alleged misstatements and omissions.

It is possible that we may be named in additional suits or receive additional demand letters containing similar allegations or asserting additional allegations or claims regarding the XTI Merger.

Moreover, on December 6, 2023, Xeriant, Inc.

(“Xeriant”) filed a complaint against Legacy XTI, along with two unnamed companies and five unnamed persons, in the United States District Court for the Southern District of New York.

On January 31, 2024, Xeriant filed an amended complaint, which added us as a defendant.

On February 2, 2024, the Court ordered Xeriant to show cause as to why the amended complaint should not be dismissed without prejudice for lack of subject matter jurisdiction.

On February 29, 2024, Xeriant filed a second amended complaint, which removed us and one of the unnamed companies as defendants.

The second amended complaint alleges that Legacy XTI, through multiple breaches and fraudulent actions, has caused substantial harm to Xeriant and has prevented it from obtaining compensation owed to it under various agreements entered into between Xeriant and Legacy XTI, including but not limited to a joint venture agreement, a cross-patent license agreement, an operating agreement, and a letter agreement.

In particular, Xeriant contends that Legacy XTI gained substantial advantages from the intellectual property, expertise, and capital deployed by Xeriant in the design and development of Legacy XTI’s TriFan 600 aircraft yet has excluded Xeriant from the transaction involving the TriFan 600 technology in its merger with us, which has resulted in a breach of the Letter Agreement, in addition to the other aforementioned agreements.

Xeriant, in the second amended complaint, asserts the following causes of action:

(1) breach of contract;

(2) intentional fraud;

(3) fraudulent concealment;

(4) quantum meruit;

(5) unjust enrichment;

(6) unfair competition/deceptive business practices;

and (7) misappropriation of confidential information, and seeks damages in excess of $500 million, injunctive relief enjoining us from engaging in any further misconduct, the imposition of a royalty obligation, and such other relief as deemed appropriate by the court.

On March 13, 2024, Legacy XTI moved for partial dismissal of the second amended complaint, Counts 2 through 7 in particular.

Legacy XTI argued that Counts 2 through 7 are (1) impermissible attempts to repackage claims arising from contractual dispute as quasi-contractual or tort claims;

and (2) expressly refuted by the clear and unequivocal terms of the aforementioned agreements.

The case is in its early stages, no discovery with respect to the Company has occurred, and we are unable to estimate the likelihood or magnitude of a potential adverse judgment.

The Court has neither scheduled Legacy XTI’s

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motion for hearing nor otherwise ruled upon it.

Legacy XTI nevertheless denies the allegations of wrongdoing contained in the second amended complaint and is vigorously defending against the lawsuit.

Regardless of the merits of any particular claim, responding to such actions could divert time, resources and management’s attention away from our business operations, and we may incur significant expenses in defending these lawsuits or other similar lawsuits.

The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial condition, operating results and cash flows.

Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.

Furthermore, while we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as deductibles and caps on amounts of coverage.

Even if we believe a claim is covered by insurance, insurers may dispute our entitlement to coverage for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of our available insurance coverage for a particular claim.

We may also be required to initiate expensive litigation or other proceedings to protect our business interests.

There is a risk that we will not be successful or otherwise be able to satisfactorily resolve such claims or litigation.

Litigation and other legal claims are subject to inherent uncertainties.

Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among the states in which we operate.

Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our current financial status may increase our default and litigation risks and may make us more financially vulnerable in the face of threatened litigation.

The loss of key personnel may adversely affect our operations.

Our success depends to a significant extent upon the operation, experience, and continued services of our key personnel.

While our key personnel are employed under employment contracts, there is no assurance we will be able to retain their services.

The loss of several of our key personnel could have an adverse effect on the Company.

The changes to the senior management in connection with the XTI Merger, including the departure of our former CEO and our former CFO, and the transition to the new senior management team could result in us experiencing a loss in productivity while the successors obtain the necessary training and experience.

To mitigate any adverse impact of such transition, our former CEO and our former CFO will continue to provide services based on their experience and knowledge on a consulting basis pursuant to consulting agreements.

Furthermore, we do not maintain “key person” life insurance on the lives of any executive officer and their death or incapacity would have a material adverse effect on us.

The competition for qualified personnel is intense, and the loss of services of certain key personnel could adversely affect our business.

There can be no assurance that we will be successful in attracting and retaining the personnel we require to develop and market the proposed TriFan 600 aircraft and conduct our proposed operations.

Internal system or service failures could disrupt our business and impair our ability to effectively provide our services and products to our customers, which could damage our reputation and adversely affect our revenues and profitability.

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Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our future results could be adversely affected.

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Systems failures could damage our reputation and adversely affect our revenues and profitability.

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Our errors and omissions liability insurance may be inadequate to compensate us for all of the damages that we may incur and, as a result, our future results could be adversely affected.

We may enter into joint venture, teaming and other arrangements, and these activities involve risks and uncertainties.

A failure of any such relationship could have material adverse results on our business and results of operations.

We may enter into joint venture, teaming and other arrangements.

A failure of our business relationships could have a material adverse effect on our business and results of operations.

We rely on information systems and outages or disruptions of such systems may disrupt our business, prospects, financial condition, and results of operations.

We are highly dependent on information technology systems, many of which are operated by third parties (e.g., cloud services) and a result we have limited ability to ensure their availability and operation.

We do not have complete redundancy for all of our systems, and we do not maintain real-time off-site backups of all of our data.

In the event of a significant system outages or failures, including those related to force majeure, telecommunications outages, criminal acts, or cybersecurity incidents we may have limited ability to control the timing and success of system restorations.

Any resulting interruption may harm our business operations and impact our ability to provide products and services to our customers.

The cybersecurity systems we use may be breached or circumvented by bad actors, which may result in the of sensitive or proprietary information or cause business interruptions that could damage our reputation.

We rely on both internal and external information technology systems.

The measures we put in place, in coordination with our third-party vendors, may not prevent all security breaches.

Such breaches may disrupt our business, damage our reputation, or expose us to litigation and liability.

If bad actors obtain sensitive information or sabotage the functionality of our third-party vendor systems, we may receive negative publicity or lose the confidence of our customers.

Our insurance coverage may not be sufficient to cover losses and liabilities that may result from these events.

Our business and operations expose us to numerous legal and regulatory requirements and any violation of these requirements could harm our business.

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Violations of these regulations or contractual obligations related to regulatory compliance in connection with the performance of customer contracts could also result in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage, restrictions on our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations.