What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-16 compared with 2023-04-17 · 980 added, 1270 removed, 941 unchanged (71% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOW AS INPIXON AND SUBSIDIARIES)

INDEX TO FINANCIAL STATEMENTS

4 unchanged sentences

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

Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity for the years ended December 31, 2022 and 2021

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

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

Notes to Consolidated Financial Statements

Table of Content s

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Inpixon and Subsidiaries

XTI Aerospace, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Inpixon and Subsidiaries (the “Company”) as of December 31, 2022, and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

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

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

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

Explanatory Paragraph – Going Concern

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

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

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

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

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

Basis for Opinion

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

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

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

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

6 unchanged sentences

Critical Audit Matters

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

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

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

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill Impairment

Description of the Matter

The Company evaluates its goodwill for impairment annually or when there is an indication that there was an impairment.

The estimates of fair value of the reporting units are computed using a combination of both an income approach and a market approach and the Company's reporting units are higher than the fair value of the fair value of the reporting units.

Under the income approach, the Company utilizes the discounted cash flow method to estimate the fair value of the reporting units.

Some of the significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each reporting unit (including net sales, operating income margin, and working capital) and a discount rate that appropriately reflects the risks inherent in each future cash flow stream.

The Company selected assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, management’s plans, and guideline companies.

Under the market approach, fair value is derived from metrics of publicly traded

companies or historically completed transactions of comparable businesses.

The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services.

The goodwill balance was fully impaired as of December 31, 2022.

As of the measurement date the carrying value of the Indoor Intelligence reporting unit exceeded the fair value as of the measurement date and, therefore, the Company recorded an impairment of $7.6 million.

We identified goodwill impairment as a critical audit matter because of the significant estimates and assumptions made by management to estimate fair value given the sensitivity of operations to changes in demand for all reporting units and historical results and long-range strategic plans of the reporting units.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rates and forecasts of future net sales for all reporting units, and the future operating income margins for the Indoor Intelligence reporting unit.

How We Addressed the Matter in our Audit

The primary procedures we performed to address this critical audit matter included the following.

(1) We evaluated the Company’s forecasted revenue (2) Evaluated the guideline companies used and operated in a similar industry as the subject reporting unit.

(3) The guideline companies and transaction appear appropriate (4) The Company used the appropriate modified capital asset pricing model and a weighted average cost of capital.

(5) We sensitized the projections and compared them to the valuation report to materially assess the impact to the reported amount of the impairment.

(6) We evaluated the disclosures in the Company's financial statements for proper reporting.

Valuation of Intangible Asset Impairment

Description of the Matter

Auditing the Company's impairment assessments is complex due to the significant estimation required in determining the recoverable amount, being the higher of the value in use and fair value less costs to sell.

The Company's methodologies for estimating the recoverable value of these assets involve significant assumptions and inputs, including projected financial information for net sales and operating profit by product, all of which are sensitive to and affected by economic, industry, and company-specific qualitative factors.

These significant assumptions and inputs are forward-looking and could be affected by future economic and market conditions.

We gained an understanding of the Company’s process to identify and account for impairment of intangible assets.

The Group performs intangible assets impairment testing whenever events or changes in circumstances indicate that the carrying amount of the cash-generating unit may not be recoverable.

To determine whether an impairment shall be recognized, the carrying amount of a cash-generating unit is compared to its recoverable amount.

If the recoverable amount of the cash-generating unit is less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable amount, and this reduction is recognized as an impairment loss.

The recoverable amount of a cash-generating unit is the higher of its fair value less costs to sell and its value in use.

The value in use is determined based on the estimated future cash flows and pre-tax discount rate for the cash-generating unit.

The intangible asset balance was $22.3 million as of December 31, 2022.

As of the measurement date the carrying value of the of the intangible assets exceeded the fair values as of the measurement date and, therefore, the Company recorded an impairment of $4.6 million.

How We Addressed the Matter in our Audit

The primary procedures we performed to address this critical audit matter included the following.

(1) We evaluated management’s projected revenues and process for developing the fair value estimates.

(2) We tested the completeness accuracy and relevance of underlying data used in the models.

(3) We evaluated the reasonableness of the assumptions used by management.

(4) We sensitized the projections and compared them to the valuation report to materially assess the impact to the reported amount of the impairment.

(5) We evaluated the disclosures in the Company's financial statements for proper reporting.

We determined that there are no critical audit matters.

/s/ Marcum LLP

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

April 17, 2023

INPIXON AND SUBSIDIARIES

New York, NY April 16, 2024

Table of Content s

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED BALANCE SHEETS

4 unchanged sentences

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

Accounts receivable, net of allowances of $ 231 and $ 272 , respectively

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

Other receivables 61 83

Inventory, net 2,415 1,997

Short-term investments — 43,125

Note receivable 150 —

Notes receivable 6,145 150

Warrant asset 1,858 —

Prepaid expenses and other current assets 430 2,691

Current assets of discontinued operations 2,768 14,474

Total Current Assets 20,499 29,866

2 unchanged sentences

Software development costs, net 305 524

Investments in equity securities 330 1,838

Long-term investments — 666

Intangible assets, net 2,208 2,994

Goodwill, net — 7,672

Other assets 145 143

Non-current assets of discontinued operations — 22,573

Total Assets $ 23,769 $ 57,635

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED BALANCE SHEETS (CONTINUED)

9 unchanged sentences

Acquisition liability — 197

Warrant liability 919 —

Current liabilities of discontinued operations 1,960 8,643

Total Current Liabilities 16,899 24,714

1 unchanged sentence

Operating lease obligation, noncurrent 141 334

Other liabilities, noncurrent 28 28

Acquisition liability, noncurrent — 220

Non-current liabilities of discontinued operations — 472

Total Liabilities 17,040 25,520

Commitments and Contingencies

Mezzanine Equity

Series 7 Convertible Preferred Stock - 58,750 shares authorized;

zero and 49,250 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively.

Series 8 Convertible Preferred Stock - 53,197.7234 share authorized;

zero issued and outstanding as of December 31, 2022 and 2021,respectively.

Commitments and Contingencies (Note 26)

Stockholders’ Equity

13 unchanged sentences

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

INPIXON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

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

Stockholders’ Equity Attributable to Inpixon 32,197 81,803

Stockholders’ Equity Attributable to XTI Aerospace, Inc.

Non-controlling Interest 390 ( 1,184 )

Total Stockholders’ Equity 6,729 32,115

Total Liabilities, Mezzanine Equity and Stockholders’ Equity $ 57,635 $ 156,673

Total Liabilities and Stockholders’ Equity

$ 23,769 $ 57,635

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

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF OPERATIONS

9 unchanged sentences

Acquisition-related costs 4,170 410

Transaction costs 3,059 —

Impairment of goodwill and intangibles — 1,183

3 unchanged sentences

Other Income (Expense)

Interest (expense)/income, net ( 673 ) 1,183

Loss on exchange of debt for equity — ( 30 )

Benefit for valuation allowance on related party loan - held for sale — 7,345

Other income/( expense) 692 ( 47 )

Gain on related party loan - held for sale — 49,817

Unrealized loss on equity securities ( 7,904 ) ( 57,067 )

Unrealized loss on equity method investment ( 1,784 ) —

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

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

Warrant inducement expense ( 3,361 ) —

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

Net Loss, before tax ( 66,369 ) ( 71,542 )

Income tax benefit 65 1,412

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

Income tax (provision)/benefit ( 24 ) 181

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

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

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

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

Net Loss Attributable to Stockholders of Inpixon ( 63,394 ) ( 69,155 )

Net Loss Attributable to Stockholders of XTI Aerospace, Inc.

( 45,947 ) ( 63,394 )

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

4 unchanged sentences

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

Net Loss Per Share - Basic and Diluted $ ( 34.12 ) $ ( 51.18 )

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Net Loss Per Share - Basic and Diluted

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

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

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

Weighted Average Shares Outstanding

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

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

2 unchanged sentences

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

Unrealized foreign exchange gain (loss) from cumulative translation adjustments 1,017 ( 617 )

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

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

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

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

(In thousands)

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

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(In thousands, except share data)

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

Shares Amount Shares Amount Shares Amount Shares Amount

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

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

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(In thousands, except share data)

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

6 unchanged sentences

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

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

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

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

10 unchanged sentences

Balance - December 31, 2022 — — — — 1 — 35,710 $ — $ 346,672 ( 1 ) $ ( 695 ) $ 1,061 $ ( 313,739 ) $ ( 1,184 ) $ 32,115

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

INPIXON AND SUBSIDIARIES

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

(In thousands, except per share data)

Series 7 Preferred Stock Series 4 Convertible Preferred Stock Series 5 Convertible Preferred Stock Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ (Deficit) Equity

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Balance - January 1, 2021 — — 1 — 126 — 779,964 1 225,665 ( 1 ) ( 695 ) 660 ( 180,992 ) 41 44,680

Common shares issued for registered direct offering — — — — — — 210,668 — 74,074 — — — — — 74,074

Common shares issued for extinguishment of debt — — — — — — 23,615 — 2,500 — — — — — 2,500

Common shares issued for cashless stock options exercised — — — — — — 73 — — — — — —

Common shares issued for net proceeds from warrants exercised — — — — — — 420,071 — 3,779 — — — — — 3,779

Stock options and restricted stock awards granted to employees and consultants for services — — — — — — — — 10,880 — — — — — 10,880

Common shares issued for acquisition of 55.4 % of Game Your Game

— — — — — — 15,722 — 1,403 — — — — 2,472 3,875

Common shares issued for Visualix acquisition — — — — — — 4,928 — 429 — — — — — 429

Common shares issued for the CXApp — — — — — — 117,995 1 9,999 — — — — — 10,000

Common shares issued for restricted stock grants — — — — — — 62,308 — — — — — — — —

Taxes paid on stock based compensation — — — — — — — — ( 1,858 ) — — — — — ( 1,858 )

Series 7 Preferred Stock issued for cash 58,750 46,034 — — — — — — — — — — — — —

Series 7 Preferred Stock converted to common stock ( 9,500 ) ( 9,500 ) — — — — 101,334 — 9,500 — — — — — 9,500

Accrete Discount - Preferred Shares — 8,161 — — — — — — ( 8,161 ) — — — — — ( 8,161 )

Restricted stock grants forfeited — — — — — — ( 6,538 ) — — — — — — —

Cumulative translation adjustment — — — — — — — — — — — ( 616 ) ( 162 ) 150 ( 628 )

Net income (loss) — — — — — — — — — — — — ( 69,155 ) ( 975 ) ( 70,130 )

Balance - December 31, 2021 49,250 44,695 1 — 126 — 1,730,140 $ 2 $ 332,761 ( 1 ) $ ( 695 ) $ 44 $ ( 250,309 ) $ 1,688 $ 83,491

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS

7 unchanged sentences

Amortization of right-of-use asset 254 706

Stock options and restricted stock awards granted to employees and consultants for services 3,656 10,879

Earnout payment expense ( 2,827 ) 6,524

Loss on exchange of debt for equity — 30

Stock based compensation 1,003 3,656

Amortization of warrant liability to redemption value 20 —

Gain on fair value of warrant liability 71 —

Change in fair value of derivative asset 4 —

Change in fair value of warrant asset ( 796 ) —

Amortization of debt discount ( 32 ) —

Warrant inducement expense 3,361 —

Loss on discontinued operations

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

Gain on settlement with FOXO ( 1,142 ) —

Amortization of debt issuance costs 2,627 489

Earnout payment expense benefit — ( 2,827 )

Accrued interest income, related party — ( 278 )

Provision for doubtful accounts ( 32 ) 121

Unrealized gain/loss on note 1,707 ( 92 )

Provision for inventory obsolescense 10 300

Recovery for valuation allowance for held for sale loan — ( 7,345 )

Gain on settlement of related party promissory note — ( 49,817 )

Deferred income tax 2,593 ( 1 )

Unrealized loss on equity securities 7,904 57,067

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

Impairment of goodwill and intangibles — 12,199

Loss on disposal of property and equipment 1 24

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

Loss on exchange of debt for equity 124 —

Realized loss on sale of equity securities 6,692 151

12 unchanged sentences

Operating lease obligation ( 257 ) ( 677 )

Other liabilities — 328

Net Cash Used in Operating Activities $ ( 29,213 ) $ ( 33,963 )

Cash Flows Used in Investing Activities

Purchase of property and equipment $ ( 245 ) $ ( 346 )

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Cash Flows Used in Investing Activities

Purchase of property and equipment $ ( 172 ) $ ( 245 )

Investment in capitalized software ( 185 ) ( 948 )

Purchases of short term investments — ( 2,000 )

Sale of short term investments — 2,000

Purchases of treasury bills — ( 63,362 )

Sales of treasury bills — 43,001

2 unchanged sentences

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

Investment in Systat licensing agreement — ( 900 )

Purchase of intangible assets — ( 4 )

Acquisition of Intranav — ( 1,023 )

Acquisition of Game Your Game — 184

Acquisition of CXApp — ( 14,977 )

Acquisition of Visualix — ( 61 )

Net Cash Provided by (Used in) Investing Activities $ 36,387 $ ( 53,508 )

Proceeds from repayment of note receivable 150 —

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

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

Cash From Financing Activities

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

Net proceeds from issuance of common stock and warrants — 77,852

Net proceeds from promissory note 364 12,339

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

Loans to related party — ( 117 )

Net proceeds for registered direct offering 14,088 —

Net proceeds from issuance of warrants 1,409 —

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

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

Net proceeds from ATM stock offerings 26,508 14,088

Common shares issued for exercise of warrants 4,496 —

Common shares issued for net proceeds from warrants — 1

2 unchanged sentences

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

Repayment of acquisition liability to Nanotron shareholders — ( 467 )

Repayment of acquisition liability to Locality shareholders — ( 500 )

Net Cash (Used in) Provided By Financing Activities $ ( 34,586 ) $ 125,037

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

Effect of Foreign Exchange Rate on Changes on Cash 32 ( 83 )

Net (Decrease) Increase in Cash and Cash Equivalents ( 32,245 ) 34,484

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

Cash and Cash Equivalents - Beginning of year 20,235 52,480

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

Balances included in the Consolidated Balance Sheets:

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

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

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

Supplemental Disclosure of cash flow information:

2 unchanged sentences

Income Taxes $ 17 $ 125

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

3 unchanged sentences

Right-of-use asset obtained in exchange for lease liability $ — $ 284

Settlement of Sysorex Note $ — $ 7,462

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

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

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

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

Common shares issued for Game Your Game acquisition $ — $ 1,403

Common shares issued for Visualix asset acquisition $ — $ 429

Preferred shares converted into common shares $ — $ 9,500

Noncash debt modification fees $ 144 $ —

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

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

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

Common shares issued in exchange for warrants $ — $ 14

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

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Note 1 - Organization and Nature of Business

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

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

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

Inpixon is the Indoor Intelligence™ company.

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

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

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

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

14 unchanged sentences

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

In addition to our Indoor Intelligence technologies and solutions, we also offer:

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

• Digital solutions (eTearsheets;

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

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

We report financial results for three segments:

Indoor Intelligence, Shoom and SAVES.

For Indoor Intelligence, we generate revenue from sales of hardware, software licenses and professional services.

For Shoom and SAVES we generate revenue from the sale of software licenses.

Enterprise Apps Spin-off and Business Combination

On September 25, 2022, we entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among Inpixon, KINS Technology Group Inc., a Delaware corporation (renamed CXApp Inc., "KINS" or "New CXApp"), CXApp Holding Corp., a Delaware corporation and wholly-owned subsidiary of New CXApp (formerly a wholly-owned subsidiary of Inpixon, "CXApp"), and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS ("Merger Sub"), pursuant to which KINS would acquire Inpixon's enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the "Enterprise Apps Business") through the merger of Merger Sub with and into CXApp (the “Merger”), with CXApp continuing as the surviving company and as a wholly-owned subsidiary of KINS, in exchange for the issuance of shares of KINS capital stock valued at $ 69 million (the "Business Combination").

Immediately prior to the Merger and pursuant to a Separation and Distribution Agreement, dated as of September 25, 2022, among KINS, Inpixon, CXApp and Design Reactor, Inc., a California corporation ("Design Reactor") (the "Separation Agreement"), and other ancillary conveyance documents, Inpixon would, among other things and on the terms and subject to the conditions of the Separation Agreement, transfer the Enterprise Apps Business, including certain related

INPIXON AND SUBSIDIARIES

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

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

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

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

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

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

subsidiaries of Inpixon, including Design Reactor, to CXApp (the "Reorganization").

Following the Reorganization, Inpixon would distribute 100 % of the common stock of CXApp, par value $ 0.00001 , to certain holders of Inpixon securities as of the record date of March 6, 2023 (the "Enterprise Apps Spin-Off").

The Merger closed on March 14, 2023.

Reverse Stock Split

On October 7, 2022, the Company effected a 1-for-75 reverse stock split.

See Note 21 for more details.

All historical share and per share amounts reflected throughout this report have been adjusted to reflect the Reverse Stock Split.

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

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

and Grafiti LLC divestitures, respectively.

Note 2 - Summary of Significant Accounting Policies

Liquidity and Going Concern

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

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

During the first quarter of 2022, the Company was required to redeem its Series 7 Preferred Stock for an aggregate amount of $ 49.3 million.

On March 22, 2022, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which it sold in a registered direct offering (i) 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 1,503,726 shares of common stock.

Each share of Series 8 Convertible Preferred Stock and the related warrants were sold at a subscription amount of $ 940 , representing an original issue discount of 6 % of the stated value of each share of Series 8 Convertible Preferred Stock for an aggregate subscription amount of $ 50.0 million.

The net proceeds to the Company from this offering was $ 46.9 million after placement agent commissions and other offering costs.

See further breakdown in Note 18 - Capital Raises.

Effective October 1, 2022, the holders of Series 8 Convertible Preferred Stock were eligible to redeem their shares.

During the quarter ended December 31, 2022, the Company received cash redemption notices from the holders of the Series 8 Convertible Preferred Stock issued on March 22, 2022, for all of the outstanding shares totaling 53,197.72 shares of Series 8 Convertible Preferred Stock for aggregate cash paid of approximately $ 53.2 million.

On July 22, 2022, the Company entered into a note purchase agreement pursuant to which it agreed to issue and sell to a holder an unsecured promissory note in an aggregate initial principal amount of $ 6.5 million for which in exchange for the note, the company received $ 5.0 million.

Additionally on July 22, 2022, the Company entered into an Equity Distribution Agreement (the "Sales Agreement") under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 25.0 million.

The Company did not make any sales pursuant to the Sales Agreement as of December 31, 2022, however, it has raised gross proceeds of approximately $ 15.4 million under the Sales Agreement during the first quarter of 2023.

On October 18, 2022, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 253,112 shares of the Company’s common stock, warrants to purchase up to 3,846,153 shares of common stock at a combined offering price of $ 5.85 per share and pre-funded warrants to purchase up to 2,310,990 shares of common stock at a purchase price of $ 5.849 per pre-funded warrant, with each pre-funded warrant having an exercise price of $ 0.001 per share.

The Company raised net proceeds of $ 14.1 million after deduction of sales commissions and other offering expenses.

On December 30, 2022, the Company entered into a note purchase agreement pursuant to which it agreed to issue and sell to a holder an unsecured promissory note in an aggregate initial principal amount of $ 8.4 million, for which in exchange for the note, the company received $ 6.5 million.

Risks and Uncertainties

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

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

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

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

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

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

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

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

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

While the impact of the COVID-19 pandemic is generally subsiding, the lasting impact on our business and results of operations continues to remain uncertain.

While we were able to continue operations remotely throughout the pandemic, we have experienced supply chain cost increases and constraints

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

and delays in the receipt of certain components of our hardware products impacting delivery times for our products.

In addition, to the extent that certain customers continue to be challenged by the lasting effects of the pandemic, including delays in returning employees to the office, we have and may continue to see an impact in the demand of certain products and delays in certain projects and customer orders.

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

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

These factors can include interest rates;

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

While we have been able to realize growth during the year ended December 31, 2022 as compared to the same period in 2021, the impact that these global events will have on general economic conditions is continuously evolving and the ultimate impact that they will have on our results of operations continues to remain uncertain.

There are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected.

The Company's recurring losses and utilization of cash in its operations are indicators of going concern however with the Company's current liquidity position, including the cash raised under promissory notes and under the Sales Agreement subsequent to year end, less the funds required to be contributed with the spin-off of the Enterprise Apps Business, the Company believes it has the ability to mitigate such concerns for a period of at least one year from the date these financial statements are issued.

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

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

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

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

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

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

Consolidations

The consolidated financial statements have been prepared using the accounting records of Inpixon, Inpixon Canada, Inc., Inpixon GmbH, Inpixon Limited, Nanotron Technologies, GmBh, Intranav GmbH, Inpixon India Limited, Game Your Game, Inc., Design Reactor, Inc.

(the CXApp) and Inpixon Philippines, Inc.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

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

and Active Mind Technology Limited.

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

and Inpixon Philippines, Inc.

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

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

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

transaction discussed in Note 6.

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

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• the valuation of stock-based compensation;

• the valuation of the assets and liabilities acquired of Game your Game, Visualix, CXApp, and Intranav as described in Note 4 , Note 5, Note 6 and Note 7 respectively, as well as the valuation of the Company’s common shares issued in the transaction;

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

• the allowance for credit losses;

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• the valuation of equity securities;

• the valuation of warrant liabilities;

• the valuation allowance for deferred tax assets;

• impairment of long-lived assets and goodwill;

• impairment of long-lived assets;

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

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Business Combinations

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

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

All acquisition costs are expensed as incurred.

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

Cash and Cash Equivalents

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

Accounts Receivable, net and Allowance for Credit Losses

Accounts Receivable, net of Allowance for Credit Losses

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

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

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

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

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

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

The Company has recorded an allowance for credit losses of approximately $ 0.2 million as of December 31, 2022 and 2021.

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

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

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

As the inventory held by

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AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

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

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

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

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

The Company recorded unrealized losses of approximately $ 0.2 million for the year end December 31, 2021 which was included on the other income (expense) line in the consolidated statements of operations.

No unrealized gain or loss was recorded on available for sale securities for the year ended December 31, 2022.

Mezzanine equity

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

The purpose of this classification is to convey that such a

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

security may not be permanently part of equity and could result in a demand for cash, securities or other assets of the entity in the future.

Investment in equity securities- fair value

Investment securities—fair value consist primarily of investments in equity securities and are carried at fair value in accordance with ASC 321, Investments-Equity Securities (“ASC 321”).

These securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity, as necessary.

These securities transactions are recorded on a trade date basis.

Any unrealized appreciation or depreciation on investment securities is reported in the Condensed Consolidated Statement of Operations within Unrealized Loss on Equity Securities.

The unrealized loss on equity securities was $ 7.9 million, and $ 57.1 million, for the years ended December 31, 2022 and 2021, respectively.

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

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

Property and Equipment, net

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Intangible Assets

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

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

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

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

Based on its assessments, the Company has recorded impairment of $ 4.6 million and zero during the years ended December 31, 2022 and 2021, respectively.

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

In accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the acquisition date, and subsequently accounts for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts.

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

If the IPR&D asset is abandoned, the remaining carrying value is written off.

During fiscal year 2014, the Company acquired IPR&D through the acquisition of AirPatrol, in 2015 through the acquisition of the assets of LightMiner, in 2019 through the acquisitions of Locality, Jibestream and certain assets of GTX, in 2020 through the SYSTAT licensing agreement, the acquisition of certain assets of Ten Degrees, and the acquisition of Nanotron, and in 2021 through the acquisitions of Game Your Game, certain assets of Visualix, CXApp and IntraNav.

The Company's IPR&D is comprised of AirPatrol, LightMiner, Locality, Jibestream, GTX, SYSTAT, Ten Degrees, Nanotron, Game Your Game, Visualix, CXApp and IntraNav, which was valued on the date of the acquisition.

As of the years ended December 31, 2022 and 2021 there was no IPR&D capitalized on the consolidated balance sheets.

The Company continues to seek additional resources, through both capital raising efforts and meeting with industry experts, for further development of these technologies.

Through December 31, 2022, the Company has made some progress with raising capital since these acquisitions, building their pipeline and getting industry acknowledgment.

The Company has been recognized by leading industry analysts in a report on leading indoor positioning companies and was also awarded the IoT Security Excellence award by TMC and Crossfire Media.

Management remains focused on growing revenue from these products and continues to pursue efforts to recognize the value of the technologies.

If the Company chooses to abandon these efforts, or if the Company determines that such funding is not available, the related technologies could be subject to significant impairment.

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

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

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

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

The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.

The Company has recorded impairment of goodwill of $ 7.6 million and $ 14.8 million during the years ended December 31, 2022 and 2021, respectively.

Other Long Term Investments

The Company invests in certain equity-method investments:

When the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under U.S.

The Company accounted for its equity investment under the equity method of accounting, as the Company is deemed to have significant influence.

The Company generally recognizes its share of the equity method investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely from the Company’s reporting period.

The Company evaluates an equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.

The Company bases these assumptions on its

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

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

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

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

Software Development Costs

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Research and Development

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

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

Non-Controlling Interest

The Company has an 82.5 % equity interest in Inpixon India, a 99.97 % equity interest in Inpixon Philippines and a 55.4 % equity interest in Game Your Game as of December 31, 2022.

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

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

The Company disposed of its equity interest in Inpixon Philippines in connection with the Closing of the Transactions disclosed under Note 32 herein, which include the Enterprise Apps Spin-off and the Merger.

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

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

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

Foreign Currency Translation

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

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Business Combinations

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

All acquisition costs are expensed as incurred.

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

Revenue Recognition

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

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

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

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

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

In such arrangements, the Company negotiates the

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

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

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

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

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

Professional Services Revenue Recognition

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License Revenue Recognition

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

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

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

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

Licenses for on-premises software represents a

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

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

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

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

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

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

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Multiple Performance Obligations

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Shipping and Handling Costs

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Forfeitures of unvested stock options are recorded when they occur.

The Company incurred stock-based compensation charges of approximately $ 3.7 million and $ 10.9 million for each of the years ended December 31, 2022 and 2021, respectively, which are included in general and administrative expenses.

Net Income (Loss) Per Share

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

Acquisition-Related Costs

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

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

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

Transaction Costs

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

Net Loss Per Share

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

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Totals 942,299 65,638

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Mezzanine equity

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

Fair Value Measurements

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Carrying Value, Recoverability and Impairment of Long-Lived Assets

4 unchanged sentences

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

Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

long-lived asset shall be its new cost basis.

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

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

9 unchanged sentences

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

Based on its assessments, the Company has recorded impairment of goodwill and intangibles of $ 12.2 million and $ 14.8 million during the years ended December 31, 2022 and 2021, respectively.

Recently Issued and Adopted Accounting Standards

In August 2020, the FASB issued Accounting Standards Update ("ASU") 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)” (“ASU 2020-06”) .

ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted EPS calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity.

The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features.

Under the amendment, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method.

ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023 for smaller reporting companies as defined by the SEC.

Early adoption is allowed under the standard with either a modified retrospective or full retrospective method.

The Company early adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method.

As a result of management’s evaluation, the adoption of ASU 2020-06 did not have a material impact on the consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, "Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options'" ("ASU 2021-04"), which introduces a new way for companies to account for warrants either as stock compensation or derivatives.

Under the new guidance, if the modification does not change the instrument's classification as equity, the company accounts for the modification as an exchange of the original instrument for a new instrument.

In general, if the fair value of the "new" instrument is greater than the fair value of the "original" instrument, the excess is recognized based on the substance of the transaction, as if the issuer has paid cash.

The effective date of the standard is for interim and annual reporting periods beginning after December 15, 2021 for all entities, and early adoption is permitted.

The Company adopted ASU 2021-04 on January 1, 2022.

As a result of management’s evaluation, the adoption of ASU 2021-04 did not have a material impact on the consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU 2021-08"), which addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination.

Under the new guidance, the acquirer is required to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

The effective date of the standard is for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

The Company adopted ASU 2021-08 on January 1, 2022.

As a result of management’s evaluation, the adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832)" ("ASU 2021-10"), which provides guidance on disclosing government assistance.

Under the new guidance, the Company is required to including the disclosure of (1) the types of assistance, (2) an entity's accounting for the assistance, and (3) the effect of the assistance on the entity's financial statements.

The effective date of the standard is for annual periods beginning after December 15, 2021.

INPIXON AND SUBSIDIARIES

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

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

Recently Issued Accounting Standards Not Yet Adopted

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

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

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

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

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

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

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

The new guidance is intended to align U.S.

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

GAAP for all entities.

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

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

adopted ASU 2021-10 on January 1, 2022.

As a result of management’s evaluation, the adoption of ASU 2021-10 did not have a material impact on the consolidated financial statements.

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

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

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

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

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

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

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

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

Early adoption is permitted.

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

Reclassifications

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

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

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

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

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

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

Note 3 - Disaggregation of Revenue

3 unchanged sentences

Revenues consisted of the following (in thousands):

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

For the Years Ended December 31,

Recurring revenue

Hardware $ — $ 3

Software $ 907 $ 655

Professional services — 35

Total recurring revenue $ 907 $ 655

8 unchanged sentences

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

Saves (1) 1,413 1,436

Shoom (1) — —

Total $ 3,338 $ 4,011

1 unchanged sentence

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

Saves (3) 1,362 1,501

Shoom (3) 2,030 2,011

Total $ 1,224 $ 2,098

Total Revenue $ 4,562 $ 6,109

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

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

2 unchanged sentences

The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date, in which revenue is recognized over time.

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

Note 4 - Game Your Game Acquisition

On April 9, 2021, the Company acquired Game Your Game, and its wholly owned subsidiary Active Mind to further the Company's strategy to reach the end customer with apps in the growing sports analytics space.

In exchange for a purchase price of $ 3.1 million the Company acquired 522,000 shares of the Company's common stock from Game Your Game, which represent 55.4 % of the outstanding shares of Common Stock of Game Your Game.

The goodwill of $ 0.5 million arising from the acquisition consists of an acquired workforce, as well as synergies and economies of scale expected from combined operations of Inpixon and Game Your Game.

The following table represents the purchase price (in thousands).

Stock ( 15,721 number of common stock shares)

Total Purchase Price $ 3,070

The acquisition is being accounted for as a business combination in accordance with ASC 805 Business Combinations.

The Company has determined the fair values of the assets acquired and liabilities assumed in the acquisition.

In connection with the acquisition, the Company recorded a non-controlling interest for the 44.6 % ownership from unrelated third parties.

The non-controlling interest was recorded at fair value on the closing date of the Acquisition.

Future net income (loss) attributable to the non-controlling interest will be allocated based on its respective ownership.

The Company has made an allocation of the purchase price of the acquisition to the assets acquired and the liabilities assumed as of the purchase date.

The following table summarizes the purchase price allocations relating to the Acquisition (in thousands):

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Fair Value Allocation

Assets acquired:

Cash and cash equivalents $ 1,851

Accounts receivable 36

Inventory 144

Other current assets 37

Property and equipment 105

Other assets 4

Tradename 628

Proprietary technology 2,824

Customer relationship 847

Total assets acquired $ 6,935

Liabilities assumed:

Accounts payable $ 957

Accrued expenses and other liabilities 436

Total liabilities assumed 1,393

Estimated fair value of net assets acquired:

Non Controlling Interest ( 2,472 )

Estimated fair value of net assets acquired attributable to the Company $ 3,070

The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company.

The goodwill represents the excess fair value after the allocation to the intangibles.

The calculated goodwill is not tax deductible for tax purposes.

Total acquisition-related costs for the Acquisition incurred during the period ended December 31, 2021 ended was $ 0.3 million and is included in acquisition-related costs in the Purchaser’s Statements of Operations.

The below table details the acquisition-related costs for the Acquisition (in thousands):

Professional fees $ 158

Consulting fees 150

Total acquisition costs $ 308

Note 5 - Visualix Acquisition

On April 23, 2021 (the “Closing Date”), the Company entered a certain asset purchase agreement by and among the Company, Visualix GmbH i.L.

(the “Visualix”), Darius Vahdat-Pajouh and Michal Bucko (each, a “Founder,” and collectively, the “Founders”), and Future Energy Ventures Management GmbH (“FEVM”).

Prior to the Closing Date, Visualix owned and operated certain computer vision, robust localization, large-scale navigation, mapping, and 3D reconstruction technologies (collectively, the “Underlying Technology”).

In accordance with the terms of the asset purchase agreement, the Company purchased from Visualix the entirety of its assets consisting primarily of intellectual property including the underlying technology.

Additionally, the Company purchased certain patent applications related to the underlying technology from FEVM.

The Company acquired Visualix to rapidly advance our 3D mapping and to add

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

augmented reality and computer vision capabilities to our product and our product/engineering teams.

This innovation is important to our product roadmap and will allow us to stay ahead of the competition.

In consideration of the transactions (the “Consideration”) contemplated by the Asset Purchase Agreement, the Company:

remitted a cash payment in the amount of Fifty Thousand Euros (EUR € 50,000 ) to Visualix

issued 4,224 shares of Common Stock to Visualix;

issued 704 to shares of Common Stock to FEVM.

The asset purchase agreement includes customary representations and warranties, as well as certain covenants, including, inter alia, that the Founders are hired as employees of Inpixon GmbH and Visualix and the Founders shall not, for a period of two ( 2 )

years following the Closing Date, directly or indirectly, compete with the Company in the sectors of Mapping and Localization Technology (as defined in the asset purchase agreement).

The following table represents the purchase price (in thousands).

Stock ( 4,928 common stock shares at $ 87.00 per share)

Total Purchase Price $ 490

Assets Acquired (in thousands):

Developed Technology $ 429

Non-compete Agreements 61

Total Purchase Price $ 490

Note 6 - CXApp Acquisition

On April 30, 2021, the Company acquired Design Reactor, Inc.

(“CXApp”) which enables corporate enterprise organizations to provide a custom-branded, location-aware employee app focused on enhancing the workplace experience and hosting virtual and hybrid events.

An important aspect of the Company’s strategy towards delivering a comprehensive indoor intelligence offering required direct engagement with the end-user through an app.

With the CXApp acquisition, the Company was able to establish that direct engagement, eliminating the need for a third part app developer partner.

The transaction was attractive to the Company because it would complete its strategic vision to have the most comprehensive suite of indoor intelligence solutions, was anticipated to be accretive to earnings and revenue, increase the Company’s average selling price and result in the acquisition of several marquee customers.

In exchange for the aggregate purchase price of $ 32.1 million, the Company acquired all of the outstanding capital of the CXApp, incorporated in the State of California.

The price was subject to certain post-closing adjustments based on actual working capital as of the closing as described in the stock purchase agreement.

The goodwill of $ 15.3 million arising from the acquisition consists of an acquired workforce, as well as synergies and economies of scale expected from combined operations of Inpixon and the CXApp.

The following table represents the purchase price (in thousands).

Cash $ 22,132

Stock ( 117,994 common stock shares at $ 84.75 per share)

Total Purchase Price $ 32,132

In relation to the cash payment, Inpixon retained $ 4.9 million of Holdback Funds from the Purchase Price to secure the Seller's obligations under the stock purchase agreement, with any unused portion of the Holdback Funds to be released to the Seller on the date that is 18 months after the Closing Date.

In addition, to the Holdback Funds, the Company is to pay various costs to third parties on the Seller's behalf.

These costs consisted of Seller transaction expenses, option payouts, bonus payouts, and miscellaneous accrued expenses.

The Company retained cash for these future payments and recorded these future payments in Acquisition Liability on the closing date of the Acquisition.

During the measurement period the holdback funds was adjusted by

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

$ 0.2 million to account for work capital adjustments.

The following represents the amounts that were recorded to Acquisition Liability (in thousands):

Acquisition Liability

Option payout $ 296

Bonus payout 34

Seller transaction expenses 72

Miscellaneous accrued expenses 174

Total current $ 576

Option payout $ 493

Bonus payout 57

Holdback funds 4,875

Total noncurrent 5,425

Less adjustment to holdback funds due to measurement period adjustment ( 209 )

Less payments made during the year ended December 31, 2021 ( 460 )

Less payments made during the year ended December 31, 2022 ( 5,135 )

Total acquisition liability $ 197

In connection with the Acquisition, the Company was required to pay an additional amount up to $ 12.5 million to certain select sellers of CXApp shares (payable in shares of the Company’s common stock based on a per share price of $ 1.13 , subject to stockholder approval) in contingent earnout payments subject to CXApp meeting certain revenue targets on the one year anniversary of the Acquisition date.

(the "Earnout Payment").

The Earnout Payment was subject to and conditioned upon each individual select seller's continued active employment or service with the Company at the time of the earnout payment date.

The Earnout Payment was treated as post-combination compensation expense.

On December 30, 2021, the Company entered into an Amendment to Stock Purchase Agreement (the "Amendment"), with the sellers' representative, pursuant to which the parties to the Purchase Agreement agreed to (i) amend the amount of the earnout target from $ 8.3 million to $ 4.2 million;

(ii) amend the duration of the earnout period from the period of the closing date through twelve month anniversary to the closing date to the period from the closing date through December 31, 2021;

and (iii) eliminate the sellers' representative's right to accelerate the Earnout Payment upon a sale or change of control of the Company.

The Acquisition is being accounted for as a business combination in accordance with ASC 805 Business Combinations.

The Company has determined fair values of the assets acquired and liabilities assumed in the Acquisition.

The Company has made an allocation of the purchase price of the Acquisition to the assets acquired and the liabilities assumed as of the purchase date.

The following table summarizes the purchase price allocations relating to the Acquisition (in thousands):

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Fair Value Allocation

Assets acquired:

Cash and cash equivalents $ 1,153

Trade and other receivables 1,626

Prepaid expenses and other current assets 68

Property, plant, and equipment 6

Tradename 2,170

Developed technology 8,350

Customer relationships 5,020

Non-compete agreements 2,690

Goodwill 15,306

Total assets acquired $ 36,389

Liabilities assumed:

Accounts payable $ 203

Deferred revenue 1,319

Accrued expenses and other liabilities 116

Deferred tax liability 2,591

Other tax liability, noncurrent 28

Total liabilities assumed 4,257

Estimated fair value of net assets acquired:

The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company.

The assets were valued using a combination of multi-period excess earnings methodologies, a relief from royalty approach, a discounted cash flow approach and present value of cash flows approach.

The goodwill represents the excess fair value after the allocation to the intangibles.

The calculated goodwill is not tax deductible for tax purposes.

Total acquisition-related costs for the Acquisition incurred during the year ended December 31, 2021 was $ 0.5 million and is included in acquisition-related costs in the Company’s Statements of Operations.

The below table details the acquisition-related costs for the Acquisition (in thousands):

Accounting fees $ 115

Legal fees 389

Total acquisition costs $ 504

On March 3, 2022, we entered into a Second Amendment to that certain Stock Purchase Agreement, dated as of April 30, 2021 (the "CXApp Stock Purchase Agreement"), by and among the Company, Design Reactor, Inc.

(the "CXApp") and the holders of the outstanding capital stock of CXApp (the "Sellers") with the Sellers' Representative (as defined in the CXApp Stock Purchase Agreement), pursuant to which the parties agreed that withholding taxes payable by certain of the Sellers, as applicable, in connection with the issuance of the Earnout Shares (as defined in the CXApp Purchase Agreement) would be offset up to the aggregate amount payable to such Seller by the Company from the Holdback Amount (as defined in the CXApp Purchase Agreement) and the Holdback Amount would be reduced by an equal amount.

On March 3, 2022, the Company issued 144,986 shares of common stock to the Sellers in connection with the satisfaction of the Earnout Payment (as defined in the CXApp Purchase Agreement).

The fair market value of the Earnout Shares issued of $ 3.7 million was lower than the fair market value of the Earnout Shares as of December 31, 2021 of $ 6.5 million, and therefore the Company recorded a benefit of

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

$ 2.8 million for the year ended December 31, 2022, which is included in the General and Administrative costs of the condensed consolidated statements of operations.

Note 7 - IntraNav Acquisition

On December 9, 2021, the Company, through its wholly owned subsidiary, Inpixon Germany, through its wholly owned subsidiary, Nanotron Technologies acquired IntraNav GmbH.

IntraNav will bring new, comprehensive products and technologies, and a broad IP portfolio to strengthen the Company's established RTLS product line.

In exchange for a Purchase Price of $ 1.1 million, the Purchaser acquired all the outstanding shares of IntraNav.

The goodwill of $ 0.5 million arising from the Acquisition consists of an acquired workforce, as well as synergies and economies of scale expected from combined operations of Nanotron and IntraNav.

The Acquisition is being accounted for as a business combination in accordance with ASC 805.

The Company has determined the fair values of the assets acquired and liabilities assumed in the Acquisition.

The Company has made the allocation of the purchase price of the Acquisition to the assets acquired and the liabilities assumed as of the purchase date.

The following table summarizes the purchase price allocations relating to the Acquisition:

Cash Considerations (EUR) € 1,000,000

IntraNav's indebtedness in excess of EUR 150,000

Total Purchase Price (EUR) € 1,000,000

Total Purchase Price (USD) - at 1.13249 USD per EUR

INPIXON AND SUBSIDIARIES

Note 4 - XTI Merger Agreement

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

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

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Fair Value Allocation

Assets acquired:

Cash and cash equivalents $ 109

Accounts receivable 110

Prepaid expenses and other current assets 135

Inventory 844

Right of use asset 312

Property, plant, and equipment 30

Other assets 113

Tradename & trademarks 168

Proprietary technology 507

Customer relationships 197

Total assets acquired $ 3,007

Liabilities assumed:

Accounts payable 2

Accrued liabilities 413

Lease liabilities – current 54

Lease liabilities - noncurrent 231

Payable to new parent 391

Deferred revenue 784

Total liabilities assumed 1,875

Estimated fair value of net assets acquired:

Total acquisition-related costs for the Acquisition incurred during the year ended December 31, 2021, was $ 209,036 , and is included in selling, general and administrative expense in the Company's consolidated statements of operations.

The following table details the acquisition related costs for the Acquisition:

Accounting fees $ 10

Legal fees 199

Total acquisition costs $ 209

Note 8 - Proforma Financial Information

CXApp Proforma Financial Information

The following unaudited proforma financial information presents the consolidated results of operations of the Company and CXApp for the year ended December 31, 2021, as if the acquisition had occurred as of the beginning of the first period presented instead of on April 30, 2021.

The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during the period.

The proforma financial information for Game Your Game, Visualix and IntraNav have not been presented as it is deemed immaterial.

INPIXON AND SUBSIDIARIES

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

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

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

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

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

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

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

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

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

XTI Promissory Note & Security Agreement

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

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

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

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

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

The proforma financial information for the Company and CXApp is as follows (in thousands):

For the Years Ended December 31,

Revenues $ 17,845

Net loss attributable to common stockholders $ ( 77,927 )

Net loss per basic and diluted common share $ ( 50.30 )

Weighted average common shares outstanding:

Basic and Diluted 1,549,160

was increased to approximately $ 3.1 million.

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

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

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

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

Transaction Bonus Plan

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

The Plan will be administered by the Committee.

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

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

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

The XTI Proposed Transaction qualifies as a Contemplated Transaction.

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

Note 5 - Inventory

5 unchanged sentences

Inventory $ 2,415 $ 1,997

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10 unchanged sentences

Total Property and Equipment, Net $ 277 $ 342

Depreciation and amortization expense were approximately $ 0.4 million and $ 0.4 million for both the years ended December 31, 2022 and 2021, respectively.

Note 11 - Investment in Equity Securities

Investment securities—fair value consist of investments in the Company’s investment in shares and rights of equity securities.

The composition of the Company’s investment securities—fair value was as follows (in thousands):

December 31, 2022 Cost Fair Value

Investments in equity securities -fair value

Equity shares $ 54,237 $ 328

Equity rights 11,064 2

Total investments in equity securities - fair value $ 65,301 $ 330

We entered into a note purchase agreement with Sysorex, as amended from time to time, pursuant to which we agreed to loan Sysorex up to an aggregate principal amount of $ 10.0 million on a revolving credit basis (the "Sysorex Note").

On March 1, 2020, we agreed to extend the maturity date of the note from December 31, 2020 to December 31, 2022.

On April 14, 2021, we entered into a Securities Settlement Agreement (the “SSA”) and a Rights Letter Agreement (the “RLA”), with Sysorex, whereby it agreed to satisfy in full its outstanding debt, in the aggregate amount of approximately $ 9.1 million as of March 31, 2021, owed to the Company, including but, not limited to, amounts outstanding under the Sysorex Note (the “Debt Settlement”).

To effect the Debt Settlement, Sysorex agreed to issue to us 12,972,189 shares of its common stock and rights to acquire 3,000,000 shares of its common stock pursuant to the terms of the RLA.

The Debt Settlement was entered into in connection with Sysorex’s closing of a reverse triangular merger with TTM Digital Assets & Technologies, Inc.

As of December 31, 2022 and 2021 the fair value of the Sysorex shares and rights to acquire shares were $ 0.01 million and $ 1.8 million, respectively.

On April 27, 2022, the Company purchased a 10 % convertible note in aggregate principal amount of $ 6,050,000 for a purchase price of $ 5,500,000 from FOXO Technologies Operating Company, formerly FOXO Technologies Inc.

(“FOXO Legacy”), pursuant to the terms of a securities purchase agreement between FOXO Legacy and the Company (the “April 2022 Purchase Agreement”).

Interest on the convertible note accrues at 12 % per annum.

The term of the convertible note is twelve months , however FOXO Legacy has the ability to extend the maturity date for an additional 3 months.

The convertible note is subject to certain conversion features which include qualified financing, and/or qualified transaction, as defined in the April 2022 Purchase Agreement.

The Company can voluntarily convert the note after 270 days.

The note is required to convert upon FOXO Legacy completing a qualified offering.

On September 15, 2022, FOXO Legacy consummated a business combination with Delwinds Insurance Acquisition Corp., now known as FOXO Technologies Inc.

("FOXO"), which qualified as a qualified offering as defined in the April 2022 Purchase Agreement.

This qualified offering triggered a mandatory conversion of the convertible note to FOXO Legacy common stock which was then automatically converted into 891,124 shares of FOXO Class A common stock, par value $ 0.0001 (“FOXO

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

common stock”) upon closing of the business combination.

The Company recognized an unrealized gain on conversion of $ 0.8 million to be recognized in the statement of operations for the year ended December 31, 2022.

FOXO common stock is traded in active markets, as the security is trading under “FOXO” on the NYSE American.

FOXO common stock is accounted for as available-for-sale equity securities based on “Level 1” inputs, which consist of quoted prices in active markets, with unrealized holding gains and losses included in earnings.

The fair value was determined by the closing trading price of the security as of December 31, 2022.

The Company recognized an unrealized loss on FOXO common stock of $ 6.1 million to be recognized in the statement of operations for the year ended December 31, 2022.

As of December 31, 2022 and 2021 the fair value of the FOXO shares was $ 0.32 million and $ — , respectively.

For the year ended December 31, 2022 and 2021, the Company recognized a net unrealized loss on investments in equity securities of $ 7.9 million and $ 57.1 million on the statement of operations.

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

Note 7 - Software Development Costs, net

4 unchanged sentences

Software development costs, net $ 305 $ 524

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

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

The weighted average remaining amortization period for the Company’s software development costs is 2.4 years.

Amortization expense for capitalized software development costs was approximately $ 1.0 million and $ 0.9 million for each of the years ended December 31, 2022 and 2021.

Future amortization expense on the computer software is anticipated to be as follows (in thousands):

For the Years Ending December 31, Amount

2027 and thereafter —

Total $ 1,752

INPIXON AND SUBSIDIARIES

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

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

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

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

The Company's goodwill balance and other assets with indefinite lives were evaluated for potential goodwill impairment on a reporting unit basis during the period ended June 30, 2022, as certain indications on a qualitative and a quantitative basis were identified that an impairment exists as of the reporting date primarily from a sustained decrease in their stock price.

The Company utilized a mix of both the income and market approaches in determining the fair value of the reporting units.

The Company noted that 50 % weight was attributed to the income approach and 50 % was attributed to the market approach.

During the year ended December 31, 2022, the Company recognized approximately $ 7.6 million of goodwill impairment on Systat, GTX, Nanotron, Jibestream, CXApp, Game Your Game, and IntraNav.

During the year ended December 31, 2022, the Company's cumulative impairment charges are approximately $ 31.0 million with approximately $ 29.1 million related to the Indoor Intelligence reporting unit, approximately $ 1.2 million related to the Shoom reporting unit and approximately $ 0.7 million related to the SAVES reporting unit.

As of December 31, 2021, the Company's cumulative goodwill impairment charges were approximately $ 23.4 million with approximately $ 22.2 million related to the Indoor Intelligence reporting unit and approximately $ 1.2 million related to the Shoom reporting unit.

The following table summarizes the changes in the carrying amount of Goodwill for the year ended December 31, 2022 (in thousands):

Segments Saves Indoor Intelligence

Acquisition Systat GTX Nanotron Locality Jibestream CXApp Game Your Game IntraNav Total

Balance as of January 1, 2021 $ 520 $ 2 $ 3,931 $ 672 $ 1,463 $ — $ — $ — $ 6,588

Goodwill additions through acquisitions 200 — — — — 17,432 286 482 18,400

Goodwill impairment — ( 1 ) ( 2,263 ) ( 689 ) ( 967 ) ( 10,239 ) ( 307 ) ( 323 ) ( 14,789 )

Valuation measurement period adjustments ( 25 ) — ( 255 ) — — ( 2,127 ) 173 — ( 2,234 )

Exchange rate fluctuation at December 31, 2021 — — ( 294 ) 17 ( 16 ) — — — ( 293 )

Balance as of January 1, 2022 $ 695 $ 1 $ 1,119 $ — $ 480 $ 5,066 $ 152 $ 159 $ 7,672

Goodwill impairment ( 695 ) ( 1 ) ( 1,035 ) — ( 474 ) ( 5,066 ) ( 152 ) ( 147 ) ( 7,570 )

Exchange rate fluctuation at December 31, 2022 — — ( 84 ) — ( 6 ) — — ( 12 ) ( 102 )

Balance as of December 31, 2022 $ — $ — $ — $ — $ — $ — $ — $ — $ —

As of December 31, 2022 and 2021 there was no goodwill allocated for the Shoom segment.

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

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

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

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

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

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

December 31, Remaining Weighted Average Useful Life

Gross Amount Accumulated Amortization Impairment Net Carrying Amount Gross Amount Accumulated Amortization Net Carrying Amount

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

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

6 unchanged sentences

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

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

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

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

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

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

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

Therefore, an impairment loss of $ 1.5 million and $ 3.1 million was recorded in the SAVES and Indoor Intelligence segments as of December 31, 2022.

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

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

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

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

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Aggregate Amortization Expense:

Aggregate amortization expense for the years ended December 31, 2022 and 2021 were $ 6.1 million and $ 5.1 million, respectively.

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

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

For the Years Ending December 31, Amount

2028 and thereafter 5,014

INPIXON AND SUBSIDIARIES

Total $ 2,208

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 14 - Other Long Term Investments

In 2020, the Company paid $ 1.8 million for 599,999 Class A Units and 2,500,000 Class B Units of Cardinal Ventures Holdings LLC, a Delaware limited liability (“CVH”).

The Company is a member of CVH.

CVH owns certain interests in KINS Capital, LLC, the sponsor entity (the “Sponsor”) to KINS Technology Group Inc., a Delaware corporation and special purpose acquisition company ("KINS") with which the Company entered into the Business Combination (see “Enterprise Apps Spin-off and Business Combination” under Note 1 above and “Recent Events - Enterprise Apps Spin-off and Business Combination” section under Part II, Item 7 herein for more details).

The $ 1.8 million purchase price was paid on October 12, 2020 and therefore is the date the purchase of the Units was closed.

On December 16, 2020, the Company increased its capital contribution by $ 0.7 million in exchange for an additional 700,000 Class B Units.

The capital contribution was used by CVH to fund the Sponsor's purchase of securities in KINS.

The underlying subscription agreement provides that each Class A Unit and each Class B Unit represents the right of the Company to receive any distributions made by the Sponsor on account of the Class A Interests and Class B Interests, respectively, of the Sponsor.

The Company generally records its share of earnings in its equity method investments using a three-month lag methodology and within net investment income.

During the period January 1, 2021 to December 31, 2021 and January 1, 2022 to December 31, 2022, CVH had no operating results as CVH is a holding company.

CVH only contains units and has not been allocated shares of KINS, therefore CVH is not allocating any portion of income or expense incurred by KINS.

As such, there was no share of earnings recognized by the Company in its statement of operations on its proportional equity investment.

The following component represents components of Other long-term investments as of December 31, 2022:

Ownership interest as of December 31,

2022 Instrument Held

CVH LLC Class A 14.1 % Units

CVH LLC Class B 38.4 % Units

The Company performed a valuation over the CVH units and determined that the Company's investment in CVH is impaired.

The Company believes that the impairment is other than temporary, due to the significant difference between the carrying value and fair value and the Company's plan to dispose of the investment in February 2023, which plan was carried out (See below and see Note 32).

Therefore, the Company recognized an impairment on the Company's investment in CVH of approximately $ 1.8 million as of December 31, 2022.

Inpixon’s investment in equity method eligible entities are represented on the balance sheet as an asset of $ 0.7 million and $ 2.5 million as of December 31, 2022 and December 31, 2021, respectively.

Ownership interest in equity method eligible entities did not change from the year ended December 31, 2021 to December 31, 2022.

On July 1, 2022, the Company loaned $ 150,000 to CVH.

The loan bears no interest and is due and payable in full on the earlier of:

(i) the date by which KINS has to complete a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “business combination”), and (ii) immediately prior to the date of consummation of the business combination of KINS, unless accelerated upon the occurrence of an event of default.

Nadir Ali, the Company’s Chief Executive Officer and director, is also a member in CVH through 3AM, LLC, which is a member of CVH, and which may, in certain circumstances, be entitled to manage the affairs of CVH.

As a result of the closing of the Business Combination, the loan was repaid on March 15, 2023.

On February 27, 2023, the Company entered into Limited Liability Company Unit Transfer and Joinder Agreements with certain of the Company’s employees and directors (the “Transferees”), pursuant to which (i) the Company transferred all of its Class A Units of CVH (the “Class A Units”), an aggregate of 599,999 Class A Units, to the Transferees as bonus consideration in connection with each Transferee’s services performed for and on behalf of the Company as an employee, as applicable, and (ii) each Transferee became a member of CVH and a party to the Amended and Restated Limited Liability Company Agreement of CVH, dated as of September 30, 2020.

Note 9 - Deferred Revenue

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

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

5 unchanged sentences

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

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

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

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

Note 10 - Accrued Liabilities

1 unchanged sentence

As of December 31,

Accrued compensation and benefits $ 1,242 $ 8,027

Accrued Interest Expense $ 951 $ 1,197

Accrued bonus and commissions 848 597

Accrued Compensation and Benefits 482 134

Accrued Other 292 19

Accrued Bonus and Commissions 276 369

Accrued sales and other indirect taxes payable 6 117

Total Accrued Liabilities

$ 2,007 $ 1,836

2 unchanged sentences

Short-Term Debt Maturity 2023 2022

March 2020 10 % Note

3/18/2023 $ — $ 3,251

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

Dec 2022 Promissory Note (net of $1,880 debt discount) 12/30/2023 6,520 —

5/17/2024 $ — $ 6,045

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

5/17/2024 8,624 6,520

Third party note payable 12/31/2024 114 —

2 unchanged sentences

Notes Payable

March 2020 10 % Note Purchase Agreement and Promissory Note

On March 18, 2020, the Company entered into a note purchase agreement with Iliad, pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory note (the “March 2020 10 % Note”) in an aggregate initial principal amount of $ 6.5 million, which is payable on or before the date that is 12 months from the issuance date.

The initial principal amount includes an original issue discount of $ 1.5 million and $ 0.02 million that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs.

In exchange for the March 2020 10 % Note, the holder paid an aggregate purchase price of $ 5.0 million.

Interest on the March 2020 10 % Note accrues at a rate of 10 % per annum and is payable on the maturity date or otherwise in accordance with the March 2020 10 % Note.

The Company may pay all or any portion of the amount owed earlier than it is due;

provided, that in the event the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the holder 115 % of the portion of the outstanding balance the Company elects to prepay.

Beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the March 2020 10 % Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the March 2020 10 % Note each month by providing written notice delivered to the Company;

provided, however, that if the holder

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the holder to redeem in any future month in addition to such future month’s monthly redemption amount.

Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash to the holder within five business days of the Company’s receipt of such Monthly Redemption Notice.

The March 2020 10 % Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22 %.

Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings, the holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the March 2020 10 % Note to be immediately due and payable.

Upon the occurrence of a bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the March 2020 10 % Note will become immediately due and payable at the mandatory default amount.

On September 17, 2020, we amended the one time monitoring fee applicable in the event the note was outstanding on the date that was 6 months from the issuance date, from 10 % to 5 % which was added to the March 2020 10 % Note balance.

On March 17, 2021, the Company extended the maturity date of the March 2020 10 % Note from March 18, 2021 to March 18, 2022.

On February 11, 2021, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition a new promissory note in the form of the March 2020 10 % Note equal to $ 1.5 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by $ 1.5 million;

and (ii) exchange the partitioned note for the delivery of 11,919 shares of the Company’s Common Stock, at an effective price per share equal to $ 125.85 .

The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and recorded approximately a $ 0.03 million loss on the exchange of debt for equity as a separate item in the other income/expense section of the consolidated statements of operations for the year ended December 31, 2021.

The Company entered into an exchange agreement with Iliad which afforded a free trading date of July 1, 2021, pursuant to which the Company and Iliad agreed to:

(i) partition a new promissory note in the form of the March 2020 10 % Note equal to $ 1.0 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by $ 1.0 million;

and (ii) exchange the partitioned note for the delivery of 11,696 shares of the Company’s Common Stock, at an effective price per share equal to $ 85.50 .

On February 1, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition a new promissory note in the form of the March 2020 10 % Note equal to $ 0.5 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by $ 0.5 million;

and (ii) exchange the partitioned note for the delivery of 15,889 shares of the Company’s common stock, at an effective price per share equal to $ 31.47 .

On February 18, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition a new promissory note in the form of the March 2020 10 % Note equal to $ 0.4 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by $ 0.4 million;

and (ii) exchange the partitioned note for the delivery of 12,885 shares of the Company’s common stock, at an effective price per share equal to $ 27.17 .

On March 15, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition a new promissory note in the form of the March 2020 10 % Note equal to $ 0.7 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by $ 0.7 million;

and (ii) exchange the partitioned note for the delivery of 28,698 shares of the Company’s common stock, at an effective price per share equal to $ 22.65 .

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Effective as of March 16, 2022, we entered into a third amendment (the “Third Amendment”) to the March 2020 10 % Note which was accounted for as a modification.

Pursuant to the terms of the Third Amendment, the maturity date of the March 2020 10 % Note was extended from March 18, 2022 to March 18, 2023 (the “Maturity Date Extension”).

In exchange for the Maturity Date Extension, we agreed to pay a 2 % extension fee in the amount of approximately $ 0.06 million (the “Extension Fee”), which was added to the outstanding balance of the March 2020 10 % Note.

On May 17, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.3 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.3 million;

and (ii) exchange the partitioned note for the delivery of 15,256 shares of the Company’s common stock, at an effective price per share equal to $ 16.50 .

On May 31, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

and (ii) exchange the partitioned note for the delivery of 19,806 shares of the Company’s common stock, at an effective price per share equal to $ 12.75 .

On July 1 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.4 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.4 million;

and (ii) exchange the partitioned note for the delivery of 32,074 shares of the Company’s common stock, at an effective price per share equal to $ 10.91 .

On July 11, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

and (ii) exchange the partitioned note for the delivery of 33,949 shares of the Company’s common stock, at an effective price per share equal to $ 11.78 .

On August 4, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

and (ii) exchange the partitioned note for the delivery of 25,691 shares of the Company’s common stock, at an effective price per share equal to $ 11.68 .

On September 9, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.2 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.2 million;

and (ii) exchange the partitioned note for the delivery of 19,871 shares of the Company’s common stock, at an effective price per share equal to $ 10.07 .

On October 17, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to:

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

exchange the partitioned note for the delivery of 83,682 shares of the Company’s common stock, at an effective price per share equal to $ 4.78 .

March 2020 Note Purchase Agreement and Promissory Note

During the year ended December 31, 2023, the Company entered into exchange agreements with Iliad, pursuant to which the Company and Iliad agreed to:

(i) partition new promissory notes in the form of the March 2020 Note equal to approximately $ 0.9 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.9 million;

and (ii) exchange the partitioned note for the delivery of 6,113 shares of the Company's common stock at effective prices between $ 109.00 and $ 168.00 per share.

Subsequent to year end, the Company entered into additional exchange agreements with Illiad and the note has been satisfied in full.

See Note 32 for details.

The March 2020 Note was satisfied in full during the year ended December 31, 2023.

July 2022 Note Purchase Agreement and Promissory Note

11 unchanged sentences

On January 31, 2023, the Holder agreed to reduce the one time monitoring fee from 10 % to 5 %.

The Company accrued the pro-rata portion of the monitoring fee of $ 0.3 million as of December 31, 2022 which added to the note balance.

On May 16, 2023, the Company entered into an amendment (the “July 2022 Note Amendment”) to the July 2022 Note pursuant to which the maturity date was extended from July 22, 2023 to May 17, 2024 (the “July 2022 Note Maturity Date Extension”).

In exchange for the July 2022 Note Maturity Date Extension, the Company agreed to pay the Holder an extension fee in the amount of $ 0.1 million, which was added to the outstanding balance of the July 2022 Note.

The extension was treated as a modification and capitalized and amortized to interest expense over the term of the extension.

During the year ended December 31, 2023, the Company entered into exchange agreements with the Holder, pursuant to which the Company and the Holder agreed to:

(i) partition new promissory notes in the form of the July 2022 Note equal to approximately $ 7.6 million and then cause the outstanding balance of the July 2022 Note to be reduced by approximately $ 7.6 million;

and (ii) exchange the partitioned notes for the delivery of 469,046 shares of the Company’s common stock, at effective prices between $ 5.56 and $ 91.50 per share.

The Company analyzed the exchange of the principal under the July 2022 Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and recorded a $ 0.1 million loss on the exchange for debt for equity which is included in the other income/expense line of the consolidated statement of operations.

December 2022 Note Purchase Agreement and Promissory Note

On December 30, 2022, we entered into a note purchase agreement with Streeterville Capital, LLC (the "Holder"), pursuant to which we agreed to issue and sell to the Holder an unsecured promissory note (the "December 2022 Note") in an aggregate initial principal amount of $ 8.4 million, which is payable on or before the date that is 12 months from the issuance date.

The initial principal amount of includes an original issue discount of $ 1.9 million and $ 0.02 million that we agreed to pay to the Holder to cover the Holder's legal fees, accounting costs, due diligence, monitoring and other transaction costs.

The initial principal amount of includes an original issue discount of $ 1.9 million and $ 0.02 million that we agreed to pay to the

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Holder to cover the Holder's legal fees, accounting costs, due diligence, monitoring and other transaction costs.

In exchange for the Note, the Holder paid an aggregate purchase price of $ 6.5 million.

6 unchanged sentences

The December 2022 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22 %.

Upon the occurrence of an event of default (except default due to the occurrence of bankruptcy or insolvency proceedings), the Holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the December 2022

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Note to be immediately due and payable.

Upon the occurrence of bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the December 2022 Note will become immediately due and payable at the mandatory default amount.

Third Party Notes Payable

Game Your Game, the Company's subsidiary, entered into promissory notes with an individual whereby it received approximately $ 0.2 million on October 29, 2021, approximately $ 0.2 million on January 18, 2022, approximately $ 0.1 million on March 22, 2022, approximately $ 0.1 million on August 17, 2022, approximately $ 0.1 million on September 21, 2022, approximately $ 0.1 million on October 26, 2022, approximately $ 0.1 million on November 29, 2022, and approximately $ 0.1 million on December 22, 2022 for funding of liabilities and working capital needs.

All of the promissory notes have an interest rate of 8 % and are due on or before June 30, 2023.

As of December 31, 2022 the balance owed under the notes was $ 1.1 million.

Note 18 - Capital Raises

Registered Direct Offerings

On January 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which it sold and issued in a registered direct offering, 77,334 shares of its common stock, and warrants to purchase up to 258,065 shares of common stock at an exercise price of $ 116.25 per share (the “January 2021 Purchase Warrants”) for a combined purchase price of $ 116.25 per share and pre-funded warrants to purchase up to 180,732 shares of common stock ("January 2021 Pre-funded Warrants") at an exercise price of $ 0.08 per share, at a purchase price of $ 116.18 per share.

At closing, the Company received approximately $ 27.8 million in net proceeds after deducting placement agent commissions and offering expenses.

The January 2021 Purchase Warrant and January 2021 Pre-funded Warrant is or was immediately exercisable for one share of common stock for a period until the five year anniversary of the issuance date.

The January 2021 Pre-funded Warrants were exercised in full as of February 8, 2021.

In addition, the investor exercised its purchase rights for 40,000 shares of common stock pursuant to the the January 2021 Purchase Warrant on February 11, 2021.

On February 12, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which it sold and issued in a registered direct offering, 93,334 shares of its common stock, and warrants to purchase up to 200,000 shares of common stock at an exercise price of $ 150.00 per share (the “First February 2021 Purchase Warrants”) for a combined purchase price of $ 150.00 per share and pre-funded warrants to purchase up to 106,667 shares of common stock ("First February 2021 Pre-funded Warrants") at an exercise price of $ 0.08 per share, at a purchase price of $ 149.93 per share.

At closing, the Company received approximately $ 27.8 million in net proceeds after deducting placement agent commissions and offering expenses.

The First February 2021 Purchase Warrant and First February 2021 Pre-funded Warrant is or was immediately exercisable for one share of common stock for a period until the five year anniversary of the issuance date.

The First February 2021 Pre-funded warrants were exercised in full as of February 18, 2021.

On February 16, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company sold and issued in a registered direct offering, 40,000 shares of its common stock, and warrants to purchase up to 132,670 shares of common stock at an exercise price of $ 150.75 per share (the “Second February 2021 Purchase Warrants”) for a combined purchase price of $ 150.75 per share and pre-funded warrants to purchase up to 92,670 shares of common stock ("Second February 2021 Pre-funded Warrants") at an exercise price of $ 0.08 per share, at a purchase price of $ 150.68 per share.

At closing the Company received approximately $ 18.5 million in net proceeds after deducting placement agent commissions and offering expenses.

Each Second February 2021 Purchase Warrant and Second February 2021 Pre-funded Warrant is or was immediately exercisable for one share of common stock for a period until the, five year anniversary of the issuance date.

The Second February 2021 Pre-funded warrants were exercised in full as of March 1, 2021.

On September 13, 2021, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which the Company sold in a registered direct offering (i) 58,750 shares of Series 7 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 626,667 shares of common stock.

Each share of Series 7 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $ 920 , representing an original issue discount of 8 % of the stated value of each share of Series 7 Convertible Preferred Stock for an aggregate subscription amount

INPIXON AND SUBSIDIARIES

Under the terms of the December 2022 Note, if the note is still outstanding after 6 months from the issuance date, or as of June 30, 2023, a 10 % monitoring fee would be added to the balance of the note.

On June 30, 2023, a monitoring fee of $ 0.9 million was added to the balance of the note and accrued to interest expense during the year ended December 31, 2023 which is included in the other income/expense section of the consolidated statements of operations.

On May 16, 2023, the Company entered into an amendment (the “December 2022 Note Amendment”) to the December 2022 Note pursuant to which the maturity date of the December 2022 Note was extended from December 30, 2023 to May 17, 2024 (the “December 2022 Note Maturity Date Extension”).

In exchange for the December 2022 Note Maturity Date Extension, the Company agreed to pay the Holder an extension fee in the amount of $ 0.1 million which was added to the outstanding balance of the December 2022 Note.

This extension was treated as a modification and capitalized and amortized to interest expense over the term of the extension.

During the year ended December 31, 2023, the Company entered into exchange agreements with the Holder, pursuant to which the Company and the Holder agreed to:

(i) partition new promissory notes in the form of the Dec 2022 Note equal to approximately $ 0.7 million and then cause the outstanding balance of the July 2022 Note to be reduced by approximately $ 0.7 million;

and (ii) exchange the partitioned notes for the delivery of 130,000 shares of the Company’s common stock, at effective price of $ 5.56 per share.

The Company analyzed the exchange of the principal under the Dec 2022 Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and and there was no loss on the exchange for debt for equity.

Third Party Note Payable - Game Your Game

Game Your Game, Inc.

entered into promissory notes with an individual whereby it received approximately $ 1.2 million from October 2021 to March 2023 for funding of outside liabilities and working capital needs.

The promissory notes incurred a 8 % interest rate and had accrued approximately $ 0.3 million of interest as of October 31, 2023.

On October 31, 2023, Game Your Game entered into a Note Conversion Agreement with the individual pursuant to which the approximate $ 1.5 million outstanding principal and interest balance was converted to 1,461,640 shares of Game Your Game, Inc.

common stock, par value $ 0.001 per share.

After the conversion the notes were satisfied in full.

Related Party Note Payable - Game Your Game

Game Your Game, Inc.

entered into promissory notes with the Company whereby it received approximately $ 4.9 million from October 2021 to October 2023 for funding of outside liabilities and working capital needs.

The promissory notes incurred a 8 % interest rate and had accrued approximately $ 0.3 million of interest as of October 31, 2023.

On October 31, 2023, the Company entered into a Note Conversion Agreement with Game Your Game, Inc.

pursuant to which approximately $ 5.2 million of the outstanding principal and interest balance of the related party notes held by the Company was converted to 5,207,595 shares of

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 18 - Capital Raises (continued)

of $ 54.1 million.

In connection with this offering, the Company filed a Certificate of Designation for the Series 7 Convertible Preferred Stock with the Nevada Secretary of State.

The Company has authorized the issuance of 5,000,000 shares of preferred stock, of which 0 shares were issued and outstanding as of December 31, 2022.

Each share of Series 7 Convertible Preferred Stock has a par value of $ 0.001 per share and stated value of $ 1,000 per share.

The shares of Series 7 Convertible Preferred Stock are convertible into shares of the Company’s common stock, at a conversion price of $ 93.75 per share.

Each share of Series 7 Convertible Preferred Stock is entitled to receive cumulative dividends, payable in the same form as dividends paid on shares of the Company’s common stock.

At any time beginning on the 6-month anniversary of the date the shares of Series 7 Convertible Preferred Stock are issued and ending ninety 90 days thereafter, the holders of the Series 7 Convertible Preferred Stock have the right to redeem all or part of the shares held by such holder in cash for the redemption price equal to the stated value of such share, plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses or amounts due.

Upon redemption, the holder of the Series 7 Convertible Preferred Stock will forfeit 75 % of the warrants issued in connection therewith.

The holders of the Series 7 Convertible Preferred Stock shall vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company.

The Series 7 Convertible Preferred Stock and related warrants subject to forfeiture are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash and the warrants are an embedded feature for the Series 7 Convertible Preferred Stock.

The remaining warrants that are not subject to forfeiture are recorded within Stockholders' Equity as the remaining warrants are classified as freestanding instruments The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, were approximately $ 50.6 million.

All of the shares of Series 7 Convertible Preferred Stock were redeemed in March 2022 and 75 % of the related warrants were forfeited.

See Note 20 for Preferred Stock and Note 23 for Warrant details.

Game Your Game, Inc.

common stock, par value $ 0.001 per share.

During November and December 2023, the Company issued an additional $ 0.2 million of promissory notes to Game Your Game which incurred a 8 % interest rate and accrued approximately $ 0.001 million of interest.

On December 29, 2023,the Company entered into a Note Conversion Agreement with Game Your Game, Inc.

pursuant to which approximately $ 0.2 million of the outstanding principal and interest balance of the related party notes held by the Company was converted to 1,586,274 shares of Game Your Game, Inc.

common stock, par value $ 0.001 per share.

After the conversions, the Company owns 79.54 % of Game Your Game, Inc.

Third Party Note Payable - financing agreement

The Company entered into a financing agreement whereby the lender paid a Company vendor approximately $ 0.1 million for a service contract.

The terms of the agreement are for a 12 months period with a 18.6 % interest rate whereby there is no payment due for the first 4 months, and then the Company is to pay approximately $ 0.01 million a month over 8 months until the debt is repaid in full.

Note 12 - Capital Raises

On March 22, 2022, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which the Company sold in a registered direct offering (i) 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 15,045 shares of common stock.

11 unchanged sentences

See Note 14 for Preferred Stock and Note 17 for Warrant details.

During the quarter ended December 31, 2022, the Company received cash redemption notices from the holders of the Series 8 Convertible Preferred Stock issued on March 22, 2022, totaling 53,197.72 shares of Series 8 Convertible Preferred Stock for aggregate cash paid of approximately $ 53.2 million which were thereafter fully redeemed.

During the year ended December 31, 2022, the Company received cash redemption notices from the holders of the Series 8 Convertible Preferred Stock issued on March 22, 2022, totaling 53,197.72 shares of Series 8 Convertible Preferred Stock for aggregate cash paid of approximately $ 53.2 million which were thereafter fully redeemed.

In conjunction with the redemption, 7,521 warrants were forfeited.

2 unchanged sentences

Therefore, as of March 22, 2022, 49,250 shares of Series 7 Convertible Preferred Stock were redeemed and 3,940 related warrants were forfeited.

The Company noted about 71 % of the Series 7 Preferred Stock holders that redeemed

INPIXON AND SUBSIDIARIES

The Company noted about 71 % of the Series 7 Preferred Stock holders that redeemed shares also participated as Series 8 Convertible Preferred Stock holders (“shared holders”).

The Company accounted for proceeds of the shared holders as a modification to the Series 7 and Series 8 Convertible Preferred Stock, as well as the related embedded warrants.

The total change in fair value as a result of modification related to the Preferred Stock amounted to $ 2.6 million which were recognized as a deemed dividend at the date of the modification, upon which will be amortized until the redemption period begins on October 1, 2022.

The total change in fair value as a result of modification related to the embedded warrants

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Note 12 - Capital Raises (continued)

shares also participated as Series 8 Convertible Preferred Stock holders (“shared holders”).

The Company accounted for proceeds of the shared holders as a modification to the Series 7 and Series 8 Convertible Preferred Stock, as well as the related embedded warrants.

The total change in fair value as a result of modification related to the embedded warrants amounted to $ 1.5 million which was recognized as a deemed contribution at the date of the modification, upon which will be accreted until the redemption period begins on October 1, 2022.

On July 22, 2022, the Company entered into an Equity Distribution Agreement (the "Sales Agreement") with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 25 million (the “Shares”) from time to time through Maxim, acting exclusively as the Company’s sales agent (the “Offering”).

The Company intends to use the net proceeds of the Offering primarily for working capital and general corporate purposes.

The Company did not make any sales pursuant to the Sales Agreement as of December 31, 2022, however, has raised gross proceeds of approximately $ 15.4 million under the Sales Agreement as of March 14, 2023.

amounted to $ 1.5 million which was recognized as a deemed contribution at the date of the modification, upon which will be accreted until the redemption period begins on October 1, 2022.

On October 18, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor named therein (the “Purchaser”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 2,531 shares of the Company’s common stock and warrants to purchase up to 38,462 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 585.00 per share.

7 unchanged sentences

In October 2022, the Company issued 9,310 shares of common stock in connection with the exercise of 9,310 pre-funded warrants at $ 0.10 per share.

On July 22, 2022, the Company entered into an Equity Distribution Agreement (the "Sales Agreement") with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 25.0 million (the “Shares”) from time to time through Maxim, acting exclusively as the Company’s sales agent (the “ATM Offering”).

On June 13, 2023, the Company entered into an amendment to the Sales Agreement with Maxim, pursuant to which the aggregate offering price of the ATM Offering was increased from $ 25.0 million to approximately $ 27.4 million.

The Company intends to use the net proceeds of the ATM Offering primarily for working capital and general corporate purposes.

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

The Company is not obligated to make any sales of the Shares under the Sales Agreement and no assurance can be given that the Company will sell any additional Shares under the Sales Agreement, or if it does, as to the price or amount of Shares that the Company will sell, or the date on which any such sales will take place.

The Company is currently subject to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period.

These rules may limit future issuances of shares by the Company under the Sales Agreement or other offerings pursuant to the Company’s effective shelf registration statement on Form S-3.

On December 29, 2023, the Company entered into Amendment No.

2 to Sales Agreement pursuant to which the parties extended the term of the Sales Agreement until the earliest of (i) December 31, 2024, (ii) the sale of shares of the Company’s common stock having an aggregate offering price equal to the Offering Size (as defined in the Sales Agreement), and (iii) the termination by either Maxim or the Company upon the provision of 15 days written notice or otherwise pursuant to the terms of the Sales Agreement.

Note 13 - Common Stock

During the three months ended March 31, 2021, the Company issued 11,919 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $ 1.5 million under partitioned notes.

(See Note 20 ).

During the three months ended March 31, 2021, the Company issued 210,668 shares of common stock in connection with registered direct offerings at per share prices between $ 116.25 and $ 150.75 , resulting in net proceeds to the Company of approximately $ 74.1 million after subtracting sales commissions and other offering expenses (See Note 18).

During the three months ended March 31, 2021, the Company issued 67 shares of common stock issued for cashless stock options exercised.

During the three months ended March 31, 2021, the Company issued 420,071 shares of common stock in connection with the exchange of Pre-Funded Warrants (as defined in Note 23) offered under the Securities Purchase Agreement, resulting in net proceeds of $ 3.7 million.

See Note 18 for further details.

During the three months ended June 30, 2021, the Company issued 15,722 shares of common stock in connection with the Game Your Game acquisition with a fair value of approximately $ 1.4 million.

(See Note 4).

During the three months ended June 30, 2021, the Company issued 4,928 shares of common stock in connection with the Visualix asset purchase with a fair value of approximately $ 0.4 million .

( See Note 5)

During the three months ended June 30, 2021, the Company issued 117,995 shares of common stock in connection with the CXApp acquisition with a fair value of approximately $ 10 million.

(See Note 6 ).

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Note 19 - Common Stock (continued)

During the three months ended June 30, 2021, the Company issued 62,308 shares of common stock net of 12,292 shares withheld for employee taxes for restricted stock granted in February 2021 at a par value of $ 0.001 per share.

During the three months ended June 30, 2021, the Company issued 6 shares of common stock for cashless stock options exercised.

During the three months ended September 30, 2021, the Company issued 11,696 shares of common stock under an exchange agreement to settle outstanding balances totaling approximately $ 1.0 million under a partitioned note.

(See Note 17) .

During the three months ended September 30, 2021, 9,500 shares of Series 7 Convertible Preferred Stock were converted into 101,334 shares of the Company's common stock (See Note 20).

During the three months ended September 30, 2021, 4,500 shares of common stock issued in connection with unvested restricted stock grants were forfeited in connection with the departure of an employee.

During the three months ended December 31, 2021, 2,038 shares of common stock issued in connection with restricted stock grants were forfeited for employee taxes.

On January 28, 2022, the Company entered into an exchange agreement with the holder of certain existing warrants which were exercisable for an aggregate of 6,574 shares of the Company’s common stock.

Pursuant to the exchange agreement, the Company agreed to issue to the warrant holder an aggregate of 184,153 shares of common stock and rights to receive an aggregate of 52,513 shares of common stock in exchange for the existing warrants (the "Warrant Exchange").

Pursuant to the exchange agreement, the Company agreed to issue to the warrant holder an aggregate of 1,842 shares of common stock and rights to receive an aggregate of 525 shares of common stock in exchange for the existing warrants (the "Warrant Exchange").See Note 17.

On February 19, 2022, 128 shares of common stock issued in connection with restricted stock grants were withheld for employee taxes.

On March 3, 2022, the Company issued 1,450 shares of common stock to the sellers of the CXApp in connection with the satisfaction of an earnout payment.

(See Note 6).

During the three months ended March 31, 2022, the Company issued 57,472 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $ 1.5 million under partitioned notes.

During the three months ended June 30, 2022, the Company issued 35,062 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $ 0.5 million under partitioned notes.

(See Note 17).

During the three months ended September 30, 2022, the Company issued 111,585 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $ 1.3 million under partitioned notes.

(See Note 17).

On October 12, 2022, the Company issued 525 shares of common stock in connection with the exercise of a right to shares of common stock granted as part of warrant exchange agreement entered into on January 28, 2022.

(See Note 23).

On October 17, 2022, the Company issued 83,682 shares of the Company's common stock under an exchange agreement to settle outstanding balances totaling approximately $ 0.4 million under partitioned notes.

(See Note 17).

During the three months ended December 31, 2022, the Company issued 930,990 shares of common stock in connection with the exercise of 930,990 pre-funded warrants at $ 0.001 per share.

Note 20 - Preferred Stock

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 20 - Preferred Stock (continued)

Note 13 - Common Stock (continued)

During the year ended December 31, 2022, the Company issued 2,878 shares of the Company's common stock under an exchange agreement to settle outstanding balances totaling approximately $ 3.7 million under partitioned notes.

During the year ended December 31, 2022, the Company issued 9,310 shares of common stock in connection with the exercise of 9,310 pre-funded warrants at $ 0.10 per share.

During the year ended December 31, 2023, the Company issued 13,800 shares of common stock in connection with the exercise of 13,800 pre-funded warrants at $ 0.10 per share in connection with the October 2022 registered direct offering.

During the year ended December 31, 2023, the Company issued 3,249 shares of common stock in connection with a warrant amendment to exchange all of the then outstanding September 2021 warrants and March 2022 warrants.

During the year ended December 31, 2023, the Company issued 605,159 shares of common stock under exchange agreements to settle outstanding balance and interest of the March 2020 Note, July 2022 Note and December 2022 Note totaling approximately $ 9.2 million under partitioned notes.

See Note 11 .

During year ended December 31, 2023 , the Company issued 581,311 shares of common stock in connection with the exercise of 581,311 warrants for which the Company received gross proceeds of approximately $ 4.8 million .

During the year ended December 31, 2023, the Company issued 703,756 shares of common stock in connection with the ATM Offering at per share prices between $ 13.96 and $ 186.00 , resulting in gross proceeds to the Company of approximately $ 27.4 million and net proceeds of $ 26.5 million after subtracting sales commissions and other offering expenses.

Se e Note 12 .

Note 14 - Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $ 0.001 per share with rights, preferences, privileges and restrictions as to be determined by the Company’s Board of Directors.

2 unchanged sentences

The Series 4 Preferred is non-voting (except to the extent required by law) and was convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 4 Preferred of $ 1,000 per share to be converted by $ 1,674,000.00 .

As of December 31, 2022, there was 1 share of Series 4 Preferred outstanding.

As of December 31, 2023 and 2022, there was 1 share of Series 4 Preferred outstanding.

Series 5 Convertible Preferred Stock

2 unchanged sentences

The Series 5 Convertible Preferred Stock is convertible into the number of shares of Common Stock, determined by dividing the aggregate stated value of the Series 5 Convertible Preferred Stock of $ 1,000 per share to be converted by $ 1,123,875.00 .

As of December 31, 2022, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.

As of December 31, 2023 and 2022, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.

Series 7 Convertible Preferred Stock

On September 13, 2021, the Company filed the Certificate of Designation with the Secretary of State of the State of Nevada, amending the Company’s Articles of Incorporation, as amended, by establishing the Series 7 Convertible Preferred Stock, consisting of 58,750 authorized shares, $ 0.001 par value per share and $ 1,000 stated value per share.

The holders of the Series 7 Convertible Preferred Stock have full voting rights and powers, except as otherwise required by the Articles of Incorporation, as amended, or applicable law.

The holders of Series 7 Convertible Preferred Stock shall vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company.

Each holder of the Series 7 Convertible Preferred Stock shall be entitled to the number of votes equal to the number of shares of common stock into which the Series 7 Convertible Preferred Stock then held by such holder could be converted on the record date for the vote which is being taken, provided, however, that the voting power of a holder together with its Attribution Parties (as defined in the Certificate of Designation), may not exceed 19.99 % (or such greater percentage allowed by the Nasdaq Listing Rules without any shareholder approval requirements).

The Series 7 Convertible Preferred Stock is convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 7 Convertible Preferred Stock of $ 1,000 per share to be converted by $ 93.75 .

On September 13, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell in a registered direct offering (i) up to 58,750 shares of Series 7 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 626,667 shares of common stock (the “Warrants”).

Each share of Series 7 Convertible Preferred Stock and the related Warrants (see Note 26) were sold at a subscription amount of $ 920 , representing an original issue discount of 8 % of the stated value for an aggregate subscription amount of $ 54.1 million.

The shares of Series 7 Convertible Preferred Stocks are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash.

The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, was approximately $ 50.6 million.

The Company has elected to accrete the issuance costs, discount, and freestanding warrants through the date shares can be first be redeemed at the option of the holders, which is the sixth month anniversary of the Original Issuance Date using the effective interest method.

During the year ended December 31, 2021, 9,500 shares of Series 7 Convertible Preferred Stock were converted into 101,334 shares of the Company's common stock.

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

Between March 15, 2022 and March 22, 2022, the Company received cash redemption notices from the holders of the Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash paid of approximately $ 49.3 million.

As of December 31, 2022 there were zero shares of Series 7 Convertible Preferred stock outstanding.

As of December 31, 2023 and 2022 there were zero shares of Series 7 Convertible Preferred stock outstanding.

Series 8 Convertible Preferred Stock

On March 22, 2022, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada, amending the Company’s Articles of Incorporation, as amended, by establishing the Series 8 Convertible Preferred Stock, consisting of 53,197.7234 authorized shares, $ 0.001 par value per share and $ 1,000 stated value per share.

The holders of the Series 8 Convertible Preferred Stock have full voting rights and powers, except as otherwise required by the Articles of Incorporation, as amended, or applicable law.

The holders of Series 8 Convertible Preferred Stock are entitled to vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company.

Each holder of the Series 8 Convertible Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which the Series 8 Convertible Preferred Stock then held by such holder could be converted on the record date for the vote which is being taken, provided, however, that the voting power of a holder together with its Attribution Parties (as defined in the Certificate of Designation), may not exceed 19.99 % (or such greater percentage allowed by the Nasdaq Listing Rules without any shareholder approval requirements).

The Series 8 Convertible Preferred Stock is convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 8 Convertible Preferred Stock of $ 1,000 per share to be converted by $ 3,538.00 .

12 unchanged sentences

The Company filed a certificate of amendment to the Company’s articles of incorporation, as amended, with the Secretary of State of the State of Nevada to increase the number of authorized shares of Common Stock from 26,666,667 to 500,000,000 shares effective as of November 29, 2022.

The Company effected a reverse stock split of its outstanding common stock at a ratio of 1-for-100, effective as of March 12, 2024, for the purpose of complying with Nasdaq Listing Rule 5550(a)(2) and satisfying the bid price requirements applicable for initial listing applications in connection with the closing of the XTI Merger.

The Company has reflected the Reverse Stock Split on a retroactive basis herein, unless otherwise indicated.

Note 16 - Stock Award Plans and Stock-Based Compensation

INPIXON AND SUBSIDIARIES

In September 2011, the Company adopted the 2011 Employee Stock Incentive Plan (the “2011 Plan”) which provides for the granting of incentive and non-statutory common stock options and stock based incentive awards to employees, non-employee

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

directors, consultants and independent contractors.

The plan was terminated by its terms on August 31, 2021 and no new awards will be issued under the 2011 Plan.

5 unchanged sentences

The aggregate number of shares that may be awarded under the 2018 Plan as of December 31, 2023 is 62,164,297 .

As of December 31, 2022, 394,555 of options and restricted stock were granted to employees, directors and consultants of the Company (including 1 share outside of our plan and 57 shares under our 2011 Plan), and 48,605,503 options were available for future grant under the Option Plans.

As of December 31, 2023, 1,496 of options and restricted stock were granted to employees, directors and consultants of the Company (including 9 shares under our 2011 Plan), and 62,162,810 options were available for future grant under the Option Plans.

Employee Stock Options

During the year ended December 31, 2022, the Company granted options under the 2018 Plan for the purchase of 1,327 shares of common stock to employees and consultants of the Company.

These options are 100 % vested or vest pro-rata over 24 , 36 or 48 months, have a life of 10 years and an exercise price between $ 51.75 and $ 137.25 per share.

The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined to be approximately $ 4.6 million.

The fair value of the common stock as of the grant date was determined to be between $ 51.75 and $ 137.25 per share.

During the year ended December 31, 2022, the Company granted options under the 2018 Plan for the purchase of 132,669 shares of common stock to employees and consultants of the Company.

These options are 100 % vested or vest pro-rata over 12 , 24 or 36 months, have a life of 10 years and an exercise price between $ 39.74 per share.

These options are 100 % vested or vest pro-rata over 12 , 24 or 36 months, have a life of 10 years and an exercise price of $ 3,974.00 per share.

The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined to be approximately $ 1.8 million.

The fair value of the common stock as of the grant date was determined to be between $ 3,974.00 per share.

On February 5, 2021, the Company issued 67 shares of common stock in connection with the cashless exercise of 195 employee stock options.

On June 10, 2021, the Company issued 6 shares of common stock in connection with the cashless exercise of 82 employee stock options.

During the year ended December 31, 2022 and 2021, the Company recorded a charge of approximately $ 2.9 million and $ 2.3 million, respectively, for the amortization of employee stock options (not including restricted stock awards), which is included in the general and administrative section of the condensed consolidated statement of operations.

During the year ended December 31, 2023 and 2022, the Company recorded a charge of approximately $ 1.0 million and $ 2.9 million, respectively, for the amortization of employee stock options (not including restricted stock awards), which is included in the general and administrative section of the consolidated statement of operations, of which approximately $ 0.2 million and approximately $ 1.9 million pertain to discontinued operations.

As of December 31, 2023, the fair value of non-vested options totaled approximately $ 0.8 million, which will be amortized to expense over the weighted average remaining term of 0.98 years.

The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model.

Key weighted-average assumptions used to apply this pricing model during the years ended December 31, 2022 and 2021 were as follows:

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

For the Years Ended December 31,

Key weighted-average assumptions used to apply this pricing model during the year ended December 31, 2022 were as follows:

For the Year Ended December 31,

Risk-free interest rate 1.50 % - 1.76 %

0.59 % - 1.26 %

Expected life of option grants 5 years 5 years

Expected life of option grants 5 years

Expected volatility of underlying stock 37.24 % - 37.45 %

37.21 % - 38.15 %

Dividends assumption $ —

4 unchanged sentences

The dividends assumptions was $ 0 as the Company historically has not declared any dividends and does not expect to.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

See below for a summary of the stock options granted under the 2011 and 2018 plans:

15 unchanged sentences

Restricted Stock Awards

On February 19, 2021, the Company granted 70,000 restricted stock awards to employees of the Company.

These stock awards vest either 25 % on the Grant Date and 25 % on each one year anniversary of Grant Date or 50 % on Grant Date and 50 % on the one year anniversary.

In accordance with the terms of the restricted stock award agreements 12,291 shares of common stock underlying the awards were withheld by the Company in satisfaction of the employee portion of the payroll taxes required to paid in connection with the grant of such awards.

On April 23, 2021, the Company granted 4,598 restricted stock awards to employees of the Company.

These stock awards either vest 50 % at the 6 months anniversary and 50 % on the one year anniversary or over 2 years pro rata every 6 months.

On August 21, 2021, 4,500 of unvested restricted stock award grants were forfeited in connection with the departure of an employee.

On December 23, 2021, 2,037 of restricted stock award grants were forfeited to satisfy the employee portion of the payroll taxes required to be paid in connection with the grant of such awards.

On February 19, 2022, 128 restricted stock grants were forfeited for employee taxes.

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

During the years ended December 31, 2023 and 2022 the Company recorded a charge of approximately $ 0.03 million and $ 0.8 million, respectively, for the amortization of vested restricted stock awards.

10 unchanged sentences

Note 17 - Warrants

On January 24, 2021, Inpixon entered into a Securities Purchase Agreement with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 77,334 shares of the Company’s common stock, par value $ 0.001 per share, and warrants to purchase up to 258,065 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 116.25 per share.

The Purchase Warrants have an exercise price of $ 116.25 per share.

Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date.

The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 180,732 shares of common stock (the “Pre-Funded Warrants” and, together with the 77,334 shares and the Purchase Warrants, the “Securities”), in lieu of shares of common stock at the Investor’s election.

Each Pre-Funded Warrant is exercisable for one share of common stock.

The purchase price of each Pre-Funded Warrant is $ 116.18 , and the exercise price of each Pre-Funded Warrant is $ 0.08 per share.

The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.

During the year ended December 31, 2021, the Company issued 180,732 shares of common stock in connection with the exercise of 180,732 Pre-Funded Warrants at $ 0.08 per share in connection with the January 24, 2021 Securities Purchase Agreement.

On February 12, 2021, Inpixon entered into a Securities Purchase Agreement with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 93,334 shares of the Company’s common stock, par value $ 0.001 per share, and warrants to purchase up to 200,000 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 150.00 per share.

The Purchase Warrants have an exercise price of $ 150.00 per share.

Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date.

The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 106,667 shares of common stock (the “Pre-Funded Warrants” and, together with the 93,334 shares and the Purchase Warrants, the “Securities”), in lieu of shares of common stock at the Investor’s election.

Each Pre-Funded Warrant is exercisable for one share of common stock.

The purchase price of each Pre-Funded Warrant is $ 149.93 , and the exercise price of each Pre-Funded Warrant is $ 0.08 per share.

The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

During the year ended December 31, 2021, the Company issued 106,667 shares of common stock in connection with the exercise of 106,667 Pre-Funded Warrants at an exercise price of $ 0.08 per share in connection with the February 12, 2021 Securities Purchase Agreement.

On February 16, 2021, Inpixon entered into a Securities Purchase Agreement with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 40,000 shares of the Company’s common stock, par value 0.001 per share, and warrants to purchase up to 132,670 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 150.75 per share.

The Purchase Warrants have an exercise price of $ 150.75 per share.

Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire 5 years from the issuance date.

The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 92,670 shares of common stock in lieu of shares of common stock at the Investor’s election.

Each Pre-Funded Warrant is exercisable for one share of common stock.

The purchase price of each Pre-Funded Warrant is $ 150.68 , and the exercise price of each Pre-Funded Warrant is $ 0.08 per share.

The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.

During the year ended December 31, 2021, the Company issued 92,670 shares of common stock in connection with the exercise of 92,670 pre-funded warrants at $ 0.08 per share in connection with the February 16, 2021 Securities Purchase Agreement.

On September 13, 2021, the Company entered into a Securities Purchase Agreement (the "Offering") with certain investors pursuant to which the Company agreed to issue and sell, in a registered direct offering sold an aggregate of 58,750 shares of the Company’s Series 7 Convertible Preferred Shares, par value $ 0.001 per share, which are convertible into 626,667 shares of the Company’s common stock and warrants to purchase up to 626,667 shares of common stock.

Each share and related warrants were sold together at a subscription amount of $ 920 , representing an original issue discount of 8 % of the Stated Value for an aggregate subscription amount of $ 54.1 million.

On January 28, 2022, the Company entered into an exchange agreement with the holder of certain existing warrants of the Company which were exercisable for an aggregate of 6,574 shares of the Company’s common stock.

The Company accounted for the exchange agreement as a warrant modification.

The Company determined the fair value of the existing warrants as if issued on the exchange agreement date and compared that to the fair value of the common stock issued.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Company determined the fair value of the existing warrants as if issued on the exchange agreement date and compared that to the fair value of the common stock issued.

The Company calculated the fair value of the existing warrants using a Black-Scholes Option pricing model and determined it to be approximately $ 1,200.00 per share.

7 unchanged sentences

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

On October 18, 2022, the Company entered into a Securities Purchase Agreement, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 2,531 shares of the Company’s common stock and warrants to purchase up to 38,462 shares of common stock at a combined offering price of $ 585.00 per share.

The Purchase Warrants have an exercise price of $ 585.00 per share.

Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date.

Each Purchase Warrant is exercisable for 1 share of common stock and will be immediately exercisable and will expire 5 years from the issuance date.

The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 23,110 shares of common stock, in lieu of shares of common stock at the Purchaser’s election.

Each pre-funded warrant is exercisable for one share of common stock.

Each pre-funded warrant is exercisable for 1 share of common stock.

The purchase price of each pre-funded warrant was $ 584.90 , and the exercise price of each pre-funded warrant is $ 0.10 per share.

The pre-funded warrants are immediately exercisable and may be exercised at any time until all of the pre-funded warrants are exercised in full.

During the three months ended December 31, 2022, the Company issued 930,990 shares of common stock in connection with the exercise of 930,990 pre-funded warrants from the October 2022 capital raise at $ 0.001 per share.

During the year ended December 31, 2022, the Company issued 9,310 shares of common stock in connection with the exercise of 9,310 pre-funded warrants from the October 2022 capital raise at $ 0.10 per share.

In conjunction with the redemption, 7,521 warrants were forfeited.

Warrant Amendments

On February 28, 2023, the Company entered into warrant amendments (the “Warrant Amendments”) with certain holders (each, including its successors and assigns, a “Holder” and collectively, the “Holders”) of (i) those certain Common Stock Purchase Warrants issued by the Company in April 2018 (the “April 2018 Warrants”) pursuant to the registration statement on Form S-3 (File No.

333-204159), (ii) those certain Common Stock Purchase Warrants issued by the Company in September 2021 (the “September 2021 Warrants”) pursuant to the registration statement on Form S-3 (File No.

333-256827), and (iii) those certain Common Stock Purchase Warrants issued by the Company in March 2022 (the “March 2022 Warrants” and together with the April 2018 Warrants and the September 2021 Warrants, the “Existing Warrants”) pursuant to the registration statement on Form S-3 (File No.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Pursuant to the Warrant Amendments, the Company and the Holders have agreed to amend (i) the September 2021 Warrants and the March 2022 Warrants to provide that all of such outstanding warrants shall be automatically exchanged for shares of common stock of the Company, at a rate of 0.0033 shares of Common Stock (the “Exchange Shares”) for each September 2021 Warrant or March 2022 Warrant, as applicable, and (ii) the April 2018 Warrants to remove the obligation of the Company to hold the portion of a Distribution (as defined in the April 2018 Warrants) in abeyance in connection with the Beneficial Ownership Limitation (as defined in the April 2018 Warrants).

In connection with the exchange of 2,335 September 2021 Warrants and 7,524 March 2022 Warrants, which were all of the then outstanding of those warrants as of the effective date of the Warrant Amendments, the Company issued 768 Exchange Shares and 2,481 Exchange Shares, respectively, resulting in the issuance of 3,249 Exchange Shares in the aggregate.

The Company accounted for the exchange as a warrant modification.

The Company determined the fair value of the Existing Warrants as if issued on the Warrant Amendment date and compared that to the fair value of the common stock issued for the Exchange Shares.

The Company calculated the fair value of the Existing Warrants using a Black-Scholes Option pricing model and determined it to be approximately $ 0.6 million.

The fair value of the common stock issued was based on the closing stock price of the date of the Warrant Amendment.

The total fair value of the Existing Warrants prior to modification was greater than the fair value of the Exchange Shares issued, and therefore, there was no incremental fair value related to the Warrant Amendments.

May 2023 Warrant Purchase Agreement

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

The Agreement and the May 2023 Warrants were subsequently amended on June 20, 2023.

The purchase price for one (1) May 2023 Warrant is $ 1.00 (the “Per Warrant Purchase Price”).

The May 2023 Warrants have an initial exercise price $ 26.00 , payable in cash or the cancellation of indebtedness ( the “Initial Exercise Price”).

The exercise price will equal the lower of (i) the Initial Exercise Price and (ii) 90 % of the lowest VWAP (as defined in the Agreement) of the Common Stock for the five Trading Days (as defined in the Agreement) immediately prior to the date on which a Notice of Exercise is submitted to the Company (the “Adjusted Exercise Price” and together with the Initial Price, as applicable, the “Exercise Price”);

provided, however, that the Adjusted Exercise Price shall not be less than $ 10.00 ;

and provided further that any exercise of the May 2023 Warrants with an Adjusted Exercise Price will be subject to the Company’s consent unless the trading price of the Common Stock as of the time the Notice of Exercise is delivered to the Company is at least 10 % or more above the prior Trading Day’s Nasdaq Official Closing Price.

No warrant holder may exercise the May 2023 Warrants to the extent such exercise would cause such warrant holder, together with its affiliates and attribution parties, to beneficially own a number of shares of Common Stock which would exceed 9.99 % of the Company’s then outstanding Common Stock following such exercise.

Each May 2023 Warrant is immediately exercisable for one share of Common Stock and will expire 1 year from the issuance date (the “Termination Date”) unless extended by the Company with the consent of the warrant holder.

Pursuant to the terms of the May 2023 Warrants, at any time prior to the Termination Date, the Company may, in its sole discretion, redeem any portion of a May 2023 Warrants that have not been exercised, in cash, at the Per Warrant Purchase Price, plus all liquidated damages and other costs, expenses or amounts due in respect of the Warrants (the “ Redemption Amount ”) upon five Trading Days’ written notice to the warrant holder (the “ Redemption Date ”).

On the Termination Date, the Company will be required to redeem any portion of the May 2023 Warrants that have not been exercised or redeemed prior to such date through payment of the Redemption Amount in cash.

The Company will be required to pay any Redemption Amount within five Trading Days after the Redemption Date or the Termination Date, as applicable.

The 1,500,000 May 2023 Warrants were issued on May 17, 2023 for aggregate gross proceeds of approximately $ 1.5 million.

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

The May 2023 Warrants were determined to be within the scope of ASC 480 as they represent obligations to the Company, as the Company is obligated to redeem any May 2023 Warrants that have not been exercised at the Termination Date.

As such, the Company recorded the May 2023 Warrants as a liability at fair value on the issuance date.

The fair value of the May 2023 Warrants was determined using level 3 inputs utilizing a Monte-Carlo simulation.

The May 2023 Warrants are subsequently measured as if the May 2023 Warrants were to be settled on the current redemption value with subsequent changes recognized

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

as interest cost.

The fair value of the Warrants was determined to be $ 1.48 million at the date of issuance, and the redemption value of the Warrants was determined to be approximately $ 0.9 million as of December 31, 2023.

The fair value of the Warrants are reflected within Warrant Liability on the Consolidated Balance Sheet.

An immediate loss was recognized on the initial measurement date of $ 71,250 as a result of the difference between fair value and net proceeds.

The change in fair value of Warrants of $ 71,250 for the year ended December 31, 2023 was reported as other expense on the Consolidated Statement of Operations.

The interest cost of $ 20,000 for the year ended December 31, 2023 was included in interest expense, net on the Consolidated Statement of Operations.

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

Warrant Inducement

On December 15, 2023, the Company entered into an warrant inducement letter agreements (the “Inducement Agreements”) with certain holders (including their respective successors and assigns, the “Holders”) of the Common Stock Purchase Warrants issued by the Company on May 17, 2023 (“May 2023 Warrants”) and reissued on December 15, 2023, as applicable (as amended on June 20, 2023, the “Existing Warrants”) in order to induce the Holders to exercise 491,310 Existing Warrants for cash, pursuant to the terms of and subject to beneficial ownership limitations contained in the Existing Warrants, the Company agreed to issue to the Holders, New Warrants to purchase 1 share of common stock for each share of common stock issued upon such exercise of the remaining Existing Warrants pursuant to the Inducement Agreements for an aggregate of 491,314 New Warrants.

Pursuant to the Inducement Agreements the Existing Warrants exercise price was from $ 10.00 to $ 5.13 per share, which is equal to a 30 % discount to the average closing price of the Common Stock for the five trading days prior to the execution of the Inducement Agreements, such that the Exercised Shares will be exercised at the New Exercise Price.

The Inducement Agreements was a limited time offer that had to be accepted by December 18, 2023.

The terms of the New Warrants had an initial exercise price of $ 7.324 , which was subsequently reduced by the Company to $ 5.13 , are immediately exercisable, and will expire 5 years from the date of the Exercise Agreement.

The Holder paid an aggregate of approximately $ 2.5 million to the Company for the exercise of the Existing Warrants.

The Company recognized approximately $ 3.4 million of non-cash warrant inducement expense during year ended December 31, 2023, which is displayed in other expense on the accounting statement of operations.

The warrant inducement expense represents the fair value of the New Warrants issued to induce the exercise.

The fair values were calculated using the Black-Scholes option pricing model.

The following inputs into the Black-Scholes option pricing model were utilized:

Risk Free Rate

Exercise price

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

The following table summarizes the changes in warrants outstanding during the years ended December 31, 2023 and 2022:

2 unchanged sentences

(in thousands)

Exercisable at January 1, 2021 107,910 $ 502.50 $ —

Outstanding at Outstanding at January 1, 2022 13,007 $ 14,775.00 $ —

Granted 76,617 988.00 —

6 unchanged sentences

Expired ( 128 ) 8,326,125.00 —

Cancelled ( 1,619,090 ) 75.45 —

Exchanged ( 9,859 ) 4,920.24 —

Outstanding at December 31, 2023 1,448,482 $ 24.41 $ —

2 unchanged sentences

Note 18 - Income Taxes

The domestic and foreign components of loss before income taxes for the years ended December 31, 2022 and 2021 are as follows (in thousands):

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

The domestic and foreign components of loss from continuing operations before income taxes for the years ended December 31, 2023 and 2022 are as follows (in thousands):

For the Years Ended December 31,

2 unchanged sentences

Net Loss, before tax $ ( 34,326 ) $ ( 19,863 )

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

The income tax provision (benefit) for the years ended December 31, 2023 and 2022 consists of the following (in thousands):

9 unchanged sentences

Change in valuation allowance 5,966 3,703

Income Tax Benefit $ ( 65 ) $ ( 1,412 )

Income Tax Provision (Benefit) $ 24 $ ( 181 )

The reconciliation between the U.S.

5 unchanged sentences

162(m) Compensation Limit ( 1.6 ) % — %

Goodwill impairment loss ( 1.8 ) % ( 4.8 ) %

US-Foreign income tax rate difference 0.8 % 1.6 %

4 unchanged sentences

Effective Rate ( 0.1 ) % 0.9 %

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

30 unchanged sentences

The Company performed an analysis to determine the annual limitation as a result of the changes in ownership that occurred during 2022 and 2023.

Based on the Company’s analysis, no ownership changes occurred during 2021.

A change in ownership did occur in March of 2022.

The NOL available to offset future taxable income after the 2022 ownership change is approximately $ 46.5 million.

The NOLs generated in 2017, $ 1.5 million, will expire beginning in December 31, 2037 if not utilized.

A change in ownership occurred on March 2022, April 2023, and July 2023.

The NOL available to offset future taxable income after the 2023 ownership change and divestiture of CXApp is approximately $ 62.4 million.

The NOL generated in 2017 of $ 1.5 million, will expire in December 31, 2037 if not utilized.

The remaining NOLs generated after 2017 have an indefinite life and do not expire.

The NOLs as of December 31, 2022 that do not expire are approximately $ 45.6 million.

As of December 31, 2022 and 2021, Inpixon Canada, which was acquired on April 18, 2014 as part of the AirPatrol Merger Agreement, had approximately $ 24.6 million and $ 20.9 million, respectively, of Canadian NOL carryovers available to offset

INPIXON AND SUBSIDIARIES

As of December 31, 2023 all Inpixon Canada NOLs were unavailable to the Company due to the CXApp divestiture.

As of December 31, 2022, Inpixon Canada, which was acquired on April 18, 2014 as a part of the AirPatrol Merger Agreement, had approximately $ 24.6 million of Canadian NOL carryovers available to offset future taxable income.

Those NOLs, if not for the divestiture, would have begun expiring in the year 2023.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

future taxable income.

These NOLs, if not utilized, begin expiring in the year 2023.

The NOLs as of December 31, 2021 include Jibestream, which was acquired on August 15, 2019 and amalgamated with Inpixon Canada effective January 1, 2020.

As of December 31, 2023 and 2022, Nanotron GmbH, which was acquired on October 5, 2020, had approximately $ 49.4 million and $ 44.1 million, respectively, of German NOL carryovers available to offset future taxable income.

Although these NOLs do not expire, minimum taxation restrictions apply such that only a percentage of taxable income may be offset by NOL carryovers.

All of these NOLs are available to the Company as a part of the continuing activity.

As of December 31, 2023 and 2022 Intranav GmbH, which was acquired on December 8, 2021, had approximately $ 10.6 million and $ 8.7 million, respectively, of German NOL carryovers available to offset future taxable income.

Although these NOLs do not expire, minimum taxation restrictions apply such that only a percentage of taxable income may be offset by NOL carryovers.

All of these NOLs are available to the Company as a part of the continuing activity.

As of December 31, 2023 and 2022, Active Mind Technology LTD, which was acquired on April 9, 2021 as part of the acquisition of Game Your Game Inc., had approximately $ 12.8 million and $ 11.8 million, respectively, of Irish NOL carryovers available to offset future taxable income.

These NOLs have an indefinite life and do not expire.

As of December 31, 2022, Inpixon Philippines, Inc, which was organized on April 12, 2022 , had approximately $ 0.1 million of Philippine NOL carryovers available to offset future taxable income.

These NOLs, if not utilized, begin expiring in the year 2026.

As a result of the Grafiti LLC divestiture, there are no future NOLs available to the Company as a part of the continuing activity.

As of December 31, 2023 all Inpixon Philippines, Inc’s NOLs were unavailable to the Company due to the CXApp divestiture.

As of December 31, 2022 Inpixon Philippines, which was organized on April 12, 2022, had approximately $ 0.1 million of Philippine NOL carryovers available to offset future taxable income.

Those NOLs, if not for the divestiture, would have begun expiring in the year 2026.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

3 unchanged sentences

A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets with respect to Inpixon, Game Your Game, Inpixon Canada, Nanotron GmbH, Intranav GmbH, Active Mind Technology LTD, and Inpixon Philippines and has, therefore, established a full valuation allowance as of December 31, 2022 and 2021.

As of December 31, 2022 and 2021, the change in valuation allowance was $ 12.4 million and $ 4.4 million, respectively.

After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets with respect to Inpixon, Nanotron GmbH, Intranav GmbH, Inpixon Holding (UK) Limited and has, therefore, established a full valuation allowance as of December 31, 2023 and 2022.

As of December 31, 2023 and 2022, the change in valuation allowance for continuing activity was $ 6.0 million and $ 3.7 million, respectively.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

2 unchanged sentences

The Company is required to file income tax returns in the United States (federal), Canada, India, Germany, United Kingdom, Ireland, Philippines and in various state jurisdictions in the United States.

Based on the Company’s evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements for the years ended December 31, 2022 and 2021.

These filings include discontinued activity periods.

In the future, the Company will only be required to file tax returns in United States (federal), Germany, United Kingdom, and in various state jurisdictions in the United States.

The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of income tax expense.

8 unchanged sentences

The tax years that remain open and subject to India reassessment are tax years beginning March 31, 2021.

The German tax authorities may reassess taxes generally four years

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

from the end of the calendar year in which the return is filed.

The German tax authorities may reassess taxes generally four years from the end of the calendar year in which the return is filed.

The tax years that remain open and subject to German reassessment are 2019 – 2023.

In Ireland, assessments must generally be made within four years when returns are filed.

The tax years that remain open and subject to Irish reassessment are 2018 – 2022.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

tax years that remain open and subject to Irish reassessment are 2019 – 2023.

In general, Philippine Tax Commissioner may reassess taxes three years from the date the original notice of assessment was issued.

The tax years that remain open and subject to Philippine reassessment are 2022.

The tax years that remain open and subject to Philippine reassessment are 2022 and 2023.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRS 2022”).

The IRA 2022, among other tax provisions, imposes a 15 percent corporate alternative minimum tax on corporations with book financial statement income in excess of $1.0 billion, effective for tax years beginning after December 31, 2022.

The IRA 2022 also established a one percent excise tax on stock repurchases made by publicly traded U.S.

corporations, effective for stock repurchases in excess of an annual limit of $1.0 million after December 31, 2022.

The IRA 2022 did not impact the Company’s current year tax provision or the Company’s consolidated financial statements.

Note 19 - Credit Risk, Concentrations, and Segment Reporting

3 unchanged sentences

The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits.

Cash is also maintained at foreign financial institutions for its Canadian subsidiary, UK subsidiary, Philippine subsidiary, German subsidiaries and its majority-owned India subsidiary.

Cash is also maintained at foreign financial institutions for its UK subsidiary and German subsidiaries.

Cash in foreign financial institutions as of December 31, 2023 and 2022 was immaterial.

The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.

The Company did not have any customer accounted for at least 10% of revenues during the years ended December 31, 2022 and 2021.

As of December 31, 2022, two customers represented approximately 10 % and 10 % of total accounts receivable.

As of December 31, 2021, no customer accounted for at least 10% of total accounts receivable.

As of December 31, 2022, two vendors represented approximately 17 % and 12 % of total gross accounts payable.

Purchases from these vendors during the year ended December 31, 2022 was $ 1.4 million and $ 0.9 million, respectively.

As of December 31, 2021, one vendor represented approximately 33 % of total gross accounts payable.

Purchases from this vendor during the year ended December 31, 2021 was $ 0.4 million.

For the year ended December 31, 2022, one vendor represented approximately 23 % of total purchases.

For the year ended December 31, 2021, three vendors represented approximately 21 %, 18 %, and 17 % of total purchases.

The Company’s operations consist of three reportable segments based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments:

Indoor Intelligence, Saves, and Shoom.

During the second quarter of 2021, the Company changed the level of detail at which its Chief Executive Officer (“CEO”) acting as the Chief Operating Decision Maker, or “CODM”) regularly reviews and manages certain of its businesses, resulting in the bifurcation of its former one segment into three standalone reportable segments:

Indoor Intelligence, Saves, and Shoom.

The Company now manages and reports its operating results through these three reportable segments.

This change allows the Company to enhance its customer focus and better align its business models, resources, and cost structure to the specific current and future growth drivers of each business, while providing increased transparency to the Company’s shareholders.

The historical segment information has been recast to conform to the current segment structure.

Gross profit and income (loss) from operations are the primary measures of segment profitability used by the Company’s CODM.

Revenue, gross profit, and income (loss) from operations by segment consisted of the following (in thousands):

INPIXON AND SUBSIDIARIES

The Company is exposed to the following concentration risk:

The customers who account for 10% or more of the Company's revenue for the year ended December 31, 2023 or 10% or more of the Company's outstanding receivable balance as of December 31, 2023 are presented as follows:

Year ended December 31, 2023 As of December 31, 2023

Customer Revenues (millions)

Percentage of revenues Accounts Receivable (millions)

Percentage of accounts receivable

A $ 0.8 17 % $ — — %

B $ 0.2 4 % $ 0.1 10 %

C $ 0.4 10 % $ — — %

$ 1.4 31 % $ 0.1 10 %

The customers who account for 10% or more of the Company's revenue for the year ended December 31, 2022 or 10% or more of the Company's outstanding receivable balance as of December 31, 2022 are presented as follows:

Year ended December 31, 2022

As of December 31, 2022

Customer Revenues (millions)

Percentage of revenues Accounts Receivable (millions)

Percentage of accounts receivable

A $ 0.6 9 % $ 0.2 12 %

B $ 0.2 4 % $ 0.2 18 %

C $ 1.4 23 % $ 0.2 16 %

$ 2.2 36 % $ 0.6 46 %

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Note 19 - Credit Risk and Concentration (continued)

For the Years Ended December 31,

Revenue by Segment

Indoor Intelligence $ 14,614 $ 11,046

Saves 2,775 2,938

Shoom 2,029 2,011

Total segment revenue $ 19,418 $ 15,995

Gross profit by Segment

Indoor Intelligence $ 10,411 $ 7,833

Saves 1,781 2,072

Shoom 1,737 1,716

Gross profit by Segment $ 13,929 $ 11,621

Income (loss) from operations by Segment

Indoor Intelligence $ ( 53,602 ) $ ( 72,174 )

Saves ( 3,876 ) ( 1,515 )

Shoom 778 946

Loss from operations by Segment $ ( 56,700 ) $ ( 72,743 )

The reporting package provided to the Company's CODM does not include the measure of assets by segment as that information isn't reviewed by the CODM when assessing segment performance or allocating resources.

Note 26 - Fair Value of Financial Instruments

The Company's estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820.

The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available.

The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable.

In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions.

We classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy.

The Company's assets measured at fair value consisted of the following at December 31, 2022 and December 31, 2021:

Fair Value at December 31, 2022

Total Fair Value Level 1 - Quoted Prices in Active Markets for Identical Assets Level 2 - Significant Other Observable Inputs Level 3 - Significant Unobservable Inputs

Short-term investments — — — —

Investments in equity securities 330 319 — 11

Total assets $ 330 $ 319 $ — $ 11

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Note 26 - Fair Value of Financial Instruments (continued)

Fair Value at December 31, 2021

Total Fair Value Level 1 - Quoted Prices in Active Markets for Identical Assets Level 2 - Significant Other Observable Inputs Level 3 - Significant Unobservable Inputs

Related party loan-held for sale (net) $ — $ — $ — $ —

Short-term investments 43,125 43,125 — —

Investments in equity securities 1,838 — — 1,838

Total assets $ 44,963 $ 43,125 $ — $ 1,838

The following is a discussion of the valuation methodologies used for the Company’s assets measured at fair value.

Short-term investments represent U.S.

treasury bills with maturities greater than three months.

The fair value of the U.S.

treasury bills are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy.

The market for U.S.

treasury bills is an actively traded market given the high level of daily trading volume.

treasury bills were sold by the Company during the year ended December 31, 2022.

Investments in equity securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity.

The fair value for Level 1 equity investments was determined using quoted prices of the security in active markets.

The fair value for Level 3 equity investments was determined using a pricing model with certain significant unobservable market data inputs.

Investments in debt securities are valued using an option pricing model under the income approach methodology as the investment does not have observable inputs of identical or comparable instruments.

The following table is a reconciliation of assets for Level 3 investments for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2022 (in thousands):

Level 3 Investments

Balance at beginning of year $ 1,838

Transfers in - FOXO Technologies, Inc.

convertible note 6,050

Transfers in - FOXO Technologies, Inc.

original issue discount on convertible note ( 550 )

Amortization of original issue discount on convertible note 206

Change in fair value on debt securities 791

Transfers out - FOXO Technologies, Inc.

conversion of note to marketable equity securities ( 6,497 )

Unrealized loss on equity securities ( 1,827 )

Balance at end of year $ 11

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Note 26 - Fair Value of Financial Instruments (continued)

Level 3 Investments

Balance at beginning of year $ —

Transfers in- Sysorex Securities Settlement Agreement

Benefit (provision) for valuation allowance on related party loan - held for sale 7,461

Interest income (expense), net 1,627

Gain on related party loan held for sale 49,817

Unrealized loss on equity securities ( 57,067 )

Balance at end of year $ 1,838

INPIXON AND SUBSIDIARIES

The vendors who account for 10% or more of the Company's purchases for the year ended December 31, 2023 or 10% or more of the Company's outstanding payable balance as of December 31, 2023 are presented as follows:

Year ended December 31, 2023 As of December 31, 2023

Vendor Purchases (millions) Percentage of purchases Accounts Payable (millions) Percentage of accounts payable

A $ 2.1 10 % $ 0.4 15 %

B $ 2.7 13 % $ — — %

C $ 1.0 5 % $ 0.5 20 %

Total $ 5.8 28 % $ 0.9 35 %

The vendors who account for 10% or more of the Company's purchases for the year ended December 31, 2022 or 10% or more of the Company's outstanding payable balance as of December 31, 2022 are presented as follows:

Year ended December 31, 2022 As of December 31, 2022

Vendor Purchases (millions) Percentage of purchases Accounts Payable (millions) Percentage of accounts payable

A $ 0.2 1 % $ 0.1 12 %

B $ 7.3 31 % $ — — %

C $ 1.4 6 % $ 0.2 31 %

Total $ 8.9 38 % $ 0.3 43 %

The Company notes that as of December 31, 2023, the Grafiti Holding Inc., Grafiti LLC, and Enterprise Apps divestiture are presented as discontinued operations.

The Company notes that Grafiti Holding Inc., Grafiti LLC, and the Enterprise Apps divestiture consist of the entirety of the Shoom and SAVES operating segments, along with a portion of the Indoor Intelligence operating segments.

Therefore, only the Indoor Intelligence operating segment remains as of December 31, 2023.

See Note 26 for more details.

The Company and its Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker (“CODM”) determines its operating segments in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”).

The Company has one operating segment in continuing operations, Indoor Intelligence.

The Company is organized and operated as one business based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments.

Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Note 20 - Foreign Operations

The Company’s operations are located primarily in the United States, Canada, India, Germany, Philippines and the United Kingdom.

The Company’s operations are located primarily in the United States, Germany, and the United Kingdom.

Revenues by geographic area are attributed by country of domicile of our subsidiaries.

The below table includes the continuing operations financial data.

See Note 27 for the discontinued operations data.

The financial data by geographic area are as follows (in thousands):

States Canada India Germany United Kingdom Ireland Philippines Eliminations Total

States Germany United Kingdom Total

For the Year Ended December 31, 2023:

14 unchanged sentences

Goodwill by geographic area $ — $ — $ — $ —

INPIXON AND SUBSIDIARIES

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Note 21 - Related Party Transactions

Sysorex Note Purchase Agreement

Nadir Ali, the Company’s Chief Executive Officer and a member of its Board of Directors, was previously a member of the Board of Directors of Sysorex until he resigned on May 14, 2021.

In addition, Nadir Ali entered into a consulting agreement with Sysorex, pursuant to which he agreed to provide certain business services specified in the agreement for the benefit of Sysorex in exchange for shares of Sysorex's common stock.

The consulting agreement was terminated on October 14, 2021.

On December 31, 2018, the Company and Sysorex entered into a note purchase agreement (the “Note Purchase Agreement”) pursuant to which the Company agreed to purchase from Sysorex at a purchase price equal to the Loan Amount (as defined below), a secured promissory note (the “Secured Note”) for up to an aggregate principal amount of $ 3 million (the “Principal Amount”), including any amounts advanced through the date of the Secured Note (the “Prior Advances”), to be borrowed and disbursed in increments (such borrowed amount, together with the Prior Advances, collectively referred to as the “Loan Amount”), with interest to accrue at a rate of 10 % percent per annum on all such Loan Amounts, beginning as of the date of disbursement with respect to any portion of such Loan Amount.

In addition, Sysorex agreed to pay $ 20,000 to the Company to cover the Company’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Secured Note (the “Transaction Expense Amount”), all of which amount is included in the Principal Amount.

Sysorex may borrow repay and borrow under the Secured Note, as needed, for a total outstanding balance, exclusive of any unpaid accrued interest, not to exceed the Principal Amount at any one time.

All sums advanced by the Company to the Maturity Date (as defined below) pursuant to the terms of the Note Purchase Agreement will become part of the aggregate Loan Amount underlying the Secured Note.

All outstanding principal amounts and accrued unpaid interest owing under the Secured Note shall become immediately due and payable on the earlier to occur of (i) 24 month anniversary of the date the Secured Note is issued (the “Maturity Date”), (ii) at such date when declared due and payable by the Company upon the occurrence of an Event of Default (as defined in the Secured Note), or (iii) at any such earlier date as set forth in the Secured Note.

All accrued unpaid interest shall be payable in cash.

On February 4, 2019, April 2, 2019, and May 22, 2019, the Secured Note was amended to increase the Principal Amount from $ 3 million to $ 5 million, $ 5 million to $ 8 million and $ 8 million to $ 10 million, respectively.

On March 1, 2020, the Company extended the maturity date of the Secured Note to December 31, 2022.

In addition, the Secured Note was amended to increase the default interest rate from 18 % to 21 % or the maximum rate allowable by law and to require a cash payment to the Company by Sysorex against the Loan Amount in an amount equal to no less than 6 % of the aggregate gross proceeds raised following the completion of any financing, or series of related financings, in which Sysorex raises aggregate gross proceeds of at least $ 5.0 million.

In accordance with the terms of the Systat License Agreement on June 30, 2020, the Company partitioned a portion of the outstanding balance of the Secured Note into a new note in an amount equal to $ 3 million in principal plus accrued interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement ("Assignment Agreement").

An additional $ 2.3 million of the principal balance underlying the Sysorex Note was partitioned into a new note and assigned to Systat as consideration payable for the rights granted under the license as of December 31, 2020.

During the year ended December 31, 2020, an additional amount of approximately $ 2.6 million was advanced under the Secured Note and approximately $ 200,000 was repaid.

The amount owed for principal as of December 31, 2020 and accrued interest through September 30, 2019 by Sysorex to the Company as of December 31, 2020 was approximately $ 7.7 million.

These amounts exclude $ 275,000 of additional interest that the Company is contractually entitled to accrue from October 1, 2019 through December 31, 2019 and approximately $ 1.1 million of additional interest from January 1, 2020 through December 31, 2020 in accordance with the terms of the Sysorex Note, but did not accrue due to the uncertainty of repayment.

An additional $ 1 million of the principal balance under the Secured Note was assigned to Systat on March 19, 2021, as the final portion of the total consideration due in connection with the license.

During the three months ended March 31, 2020 an additional 117,000 was advanced under the Secured Note and the Company was entitled to an additional $ 251,806 of interest in accordance with the terms of the Note, but did not accrue due to the uncertainty of repayment.

An additional $ 1 million of the principal balance under the Secured Note was assigned to Systat on March 19, 2021, as the final portion of the total consideration due in connection with the license.

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

As of April 14, 2021, the Sysorex Note Purchase Agreement was settled, see Sysorex Securities Settlement Agreement below.

Sysorex Receivable

On February 20, 2019, the Company, Sysorex and Atlas Technology Group, LLC (“Atlas”) entered into a settlement agreement resulting in a net award of $ 941,796 whereby Atlas agreed to accept an aggregate of 16,655 shares of freely-tradable common stock of the Company in full satisfaction of the award.

The Company and Sysorex each agreed pursuant to the terms and conditions of that certain Separation and Distribution Agreement, dated August 7, 2018, as amended, that 50 % of the costs and liabilities related to the arbitration action would be shared by each party following the Sysorex Spin-off.

As a result, Sysorex owes the Company $ 0.6 million for the settlement plus the interest accrued during the fiscal year ended December 31, 2020 of $ 0.1 million.

The total owed to the Company for this settlement as of December 31, 2022 and 2021 was $ 0 .

The Company established a full valuation allowance against this balance as of December 31, 2020.

As of April 14, 2021, the Sysorex Receivable was settled, see Sysorex Securities Settlement Agreement below.

Sysorex Securities Settlement Agreement

On April 14, 2021, the Company entered into a Securities Settlement Agreement (the “SSA”) and a Rights Letter Agreement (the “RLA”), each with Sysorex, whereby Sysorex agreed to satisfy in full its outstanding debt, in the aggregate amount of $ 9.1 million as of March 31, 2021, owed to the Company under that certain secured promissory note, originally dated December 31, 2018, as amended from time to time, and in connection with that certain settlement agreement, dated February 20, 2019, by and among the Company, Sysorex and Atlas Technology Group, LLC (the “Debt Settlement”).

To effect the Debt Settlement, Sysorex agreed to issue to the Company (i) pursuant to the terms of the SSA, 12,972,189 shares of its common stock, $ 0.00001 par value per share, and (ii) rights to acquire 3,000,000 additional shares of its common stock pursuant to the terms of the RLA.

The Debt Settlement was entered into in connection with Sysorex’s closing of a reverse triangular merger with TTM Digital Assets & Technologies, Inc.

The Company recorded $ 7.5 million for the release of the previously recorded valuation allowance, $ 1.6 million of interest income, and a gain on settlement of $ 49.8 million equal to the difference in the carry value of the promissory note, including interest and value of the common stock and rights to acquire additional shares received in the settlement.

In connection with the Debt Settlement, the Company also entered into a Registration Rights Agreement, dated as of April 14, 2021 (the “RRA”), with Sysorex and certain other shareholders of Sysorex (the “Holders”).

Pursuant to the terms of the RRA, Sysorex must, subject to certain limitations, register the resale of the shares of common stock held by the Company and the Holders, with the U.S.

Securities and Exchange Commission (the “SEC”), during the period that begins on the 90th day following April 14, 2021.

In the event Sysorex fails to register such shares within that timeframe, or otherwise fails to meet its obligations under the RRA, then, subject to certain limitations, the Company and the Holders may be entitled to receive from Sysorex an amount in cash equal to the product of 1.5 % multiplied by the value of their shares (as set forth in the RRA), which amount is payable each month following the date of such failure for so long as the failure continues;

provided that the shares are considered "Registrable Securities" as defined by the RRA.

The shares of Sysorex common stock were not deemed Registrable Securities as defined by the RRA as of the date of the registration obligation.

Also, under the RRA, if Sysorex determines to prepare and file with the SEC a registration statement relating to an offering of any of its equity securities, for its own account or the account of others, then the Company and the Holders will have the right, subject to certain limitations, to require Sysorex to include in such registration statement all or any part of the shares of common stock held by them.

Cardinal Health Ventures Investment

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

Ali’s relationship may create conflicts of interest between Mr.

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

For example, Mr.

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

(See Note 14).

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Director Services Agreement

2 unchanged sentences

The Amended Director Services Agreement supersedes and replaces all prior agreements by and between the Company and Mr.

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Reimbursable Expenses from New CXApp

During the year ended December 31, 2023, the Company incurred approximately $ 0.3 million in reimbursable expenses payable in connection with the terms and conditions of the Transition Services Agreement and was charged by CXApp for $ 0.02 million of reimbursable expenses under the Transition Services Agreement.

The balance was settled during the year ended December 31, 2023 and no amounts were owed under the agreement as of December 31, 2023.

Note 22 - Leases

The Company has operating leases for administrative offices in the United States (California), Canada, India, United Kingdom and Germany.

The Company terminated the lease in Ratingen, Germany in January 2021.

The Company entered into two new operating leases for its administrative offices in Ratingen, Germany, both from February 1, 2021 through January 1, 2023.

The monthly lease rate is approximately $ 2,774 and $ 1,083 per month.

The Company renewed the operating lease, which expires on July 31, 2023.

The new monthly lease rate is approximately $ 2,028 and $ 1,633 .

As part of the acquisition of IntraNav on December 9, 2021.

the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the IntraNav office) located in Frankfurt, Germany.

The Company has operating leases for administrative offices in the United States and Germany.

As part of the acquisition of IntraNav on December 9, 2021, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the IntraNav office) located in Frankfurt, Germany.

This lease expires on January 6, 2025 and the current lease rate is approximately $ 9,506 per month.

The Company entered into two new operating leases for its administrative office in Hyderabad, India and Manila, Philippines.

The Hyderabad, India and Manila, Philippines office lease expires on March 25, 2025 and May 14, 2025, respectively.

As part of the acquisition of Nanotron on December 9, 2021, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the Nanotron office) located in Berlin, Germany.

This lease expires on May 31, 2026 and the current lease rate is approximately $ 8,057 per month.

The Company has no other operating or financing leases with terms greater than 12 months.

3 unchanged sentences

Palo Alto, CA Office $ — $ 630

Hyderabad, India Office 342 359

Coquitlam, Canada Office 91 97

Westminster, Canada Office — 10

Toronto, Canada Office 565 949

Ratingen, Germany Office 85 90

Berlin, Germany Office 523 508

Slough, United Kingdom Office — 34

Frankfurt, Germany Office 304 294

Manila, Philippines Office 247 —

Less accumulated amortization ( 492 ) ( 905 )

1 unchanged sentence

Lease expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs.

Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our consolidated statements of operations for both years ended December 31, 2022 and 2021 was $ 1.2 million.

During the years ended December 31, 2022 and 2021, the Company recorded $ 0.7 million each year as rent expense to the right-of-use assets.

During the years ended December 31, 2022 and 2021, the Company recorded short-term and variable lease expenses of $ 0.2 million and $ 0.3 million each year, respectively.

INPIXON AND SUBSIDIARIES

Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our consolidated statements of operations for the years ended December 31, 2023 and 2022 was $ 0.6 million and $ 0.5 million, respectively.

During the years ended December 31, 2023 and 2022, the Company recorded $ 0.2 million and $ 0.3 million, respectively, as rent expense to the right-of-use assets.

During the years ended December 31, 2023 and 2022, the Company recorded short-term lease expenses of $ 0.2 million and $ 0.0 million, respectively.

During the years ended December 31, 2023 and 2022, the Company recorded variable lease expenses of $ 0.1 million each year.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 29 - Leases (continued)

Lease liability is summarized below (in thousands):

7 unchanged sentences

Year ending December 31, 2026 42

Year ending December 31, 2026 98

Total $ 1,366

Present value discount ( 21 )

3 unchanged sentences

As of December 31, 2023, the weighted average remaining lease term is 1.96 and the weighted average discount rate used to determine the operating lease liabilities was 3.6 %.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 23 - Restructuring Activities

On September 21, 2022, Inpixon informed its employees that it was taking steps to streamline its operations and conserve cash resources.

These steps included layoffs which reduced Inpixon's global employee headcount by approximately 20 %.

On September 21, 2022, the Company informed its employees that it was taking steps to streamline its operations and conserve cash resources.

These steps included layoffs which reduced the Company's global employee headcount by approximately 20 %.

The layoffs resulted in one-time expenses of approximately $ 0.8 million in the Indoor Intelligence segment which consisted of severance payouts to terminated employees and outplacement service expenses for the year ended December 31, 2022.

6 unchanged sentences

Restructuring costs payable - December 31, 2022 $ 52

Restructuring costs incurred —

Restructuring costs paid ( 52 )

Restructuring costs payable - December 31, 2023 $ —

Note 24 - Commitments and Contingencies

1 unchanged sentence

The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.

In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements.

3 unchanged sentences

However, the performance of our Company's business, financial position, and results of operations or cash flows may be affected by unfavorable resolution of any particular matter.

Compliance with Nasdaq Continued Listing Requirement

On October 25, 2021, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock (“Common Stock”) for the prior 30 consecutive business days beginning on September 13, 2021, and ending on October 22, 2021, the Company no longer met the requirement to maintain a minimum bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until April 25, 2022, in which to regain compliance ("Cure Period").

In order to regain compliance with the minimum bid price requirement, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of ten consecutive business.

On April 26, 2022, Nasdaq granted us an extension for an additional 180 calendar days beyond the Cure Period, or until October 24, 2022, if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq, with the exception of the bid price requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary.

We effected a 1-for-75 reverse stock split of our common stock on October 7, 2022, and on November 1, 2022, we were informed by Nasdaq that we have regained compliance with the minimum bid price requirement and that we were back in compliance with the applicable Nasdaq continued listing criteria.

Note 32 - Subsequent Events

Game Your Game, the Company's subsidiary, entered into a promissory note with an individual whereby it received approximately 0.03 million on January 13, 2023 for funding of liabilities and working capital needs.

The promissory note has an interest rate of 8 % and is due on or before June 30, 2023.

On February 27, 2023, the Company entered into Limited Liability Company Unit Transfer and Joinder Agreements with certain of the Company’s employees (the “Transferees”), pursuant to which (i) the Company transferred all of its Class A Units of CVH (the “Class A Units”), an aggregate of 599,999 Class A Units, to the Transferees as bonus consideration in connection with each Transferee’s services performed for and on behalf of the Company as an employee, as applicable, which was approved by the board of directors during the quarter ended March 31, 2023 and (ii) each Transferee became a member of CVH and a party to the Amended and Restated Limited Liability Company Agreement of CVH, dated as of September 30, 2020.

During the quarter ended March 31, 2023, the Company exchanged approximately $ 0.9 million of the outstanding principal and interest under the March 2020 10 % Note Purchase Agreement and Promissory Note for 611,258 shares of the Company's common stock at prices from $ 1.09 to $ 1.682 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).

This note was full satisfied as of January 31, 2023.

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

During 2023 through the date of this filing, the Company exchanged approximately $ 1.1 million of the outstanding principal and interest under the July 2022 Note Purchase Agreement and Promissory Note for 2,517,397 shares of the Company's common stock at prices from $ 0.3336 to $ 0.915 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).

During the quarter ended March 31, 2023, the Company sold 9,655,207 shares of common stock at share prices between $ 1.15 and $ 1.86 per share under an equity distribution agreement for gross proceeds of approximately $ 15.4 million.

During January 2023, the Company issued 1,380,000 shares of common stock in connection with the exercise of 1,380,000 pre-funded warrants at $ 0.001 per share in connection with the October 2022 registered direct offering.

On April 14, 2023, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days beginning on March 2, 2023, and ending on April 13, 2023, the Company no longer meets the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided a period of 180 calendar days, or until October 11, 2023, in which to regain compliance.

In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must be at least $1 per share for a minimum of ten consecutive business days during this 180-day period.

In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary.

However, if it appears to the Nasdaq staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that our common stock will be subject to delisting.

The letter does not result in the immediate delisting of our common stock from the Nasdaq Capital Market.

The Company intends to monitor the closing bid price of our common stock and consider its available options in the event that the closing bid price of our common stock remains below $1 per share.

Warrant Amendments

333-204159), (ii) those certain Common Stock Purchase Warrants issued by the Company in September 2021 (the “September 2021 Warrants”) pursuant to the registration statement on Form S-3 (File No.

Pursuant to the Warrant Amendments, the Company and the Holders have agreed to amend (i) the September 2021 Warrants and the March 2022 Warrants to provide that all of such outstanding warrants shall be automatically exchanged for shares of common stock of the Company, at a rate of 0.33 shares of Common Stock (the “Exchange Shares”) for each September 2021 Warrant or March 2022 Warrant, as applicable, and (ii) the April 2018 Warrants to remove the obligation of the Company to hold the portion of a Distribution (as defined in the April 2018 Warrants) in abeyance in connection with the Beneficial Ownership Limitation (as defined in the April 2018 Warrants).

In connection with the exchange for all of the then outstanding September 2021 Warrants and March 2022 Warrants as of the effective date of the Warrant Amendments, the Company issued 76,794 Exchange Shares and 248,124 Exchange Shares, respectively, resulting in the issuance of 324,918 Exchange Shares in the aggregate.

Enterprise Apps Spin-off and Business Combination

On March 14, 2023, Inpixon completed (the “Closing”) the separation (the “Separation”) of its enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the “Enterprise Apps Business”) through a spin-off of CXApp Holding Corp., a Delaware corporation ("CXApp"), to certain holders of Inpixon securities as of March 6, 2023 (the “Record Date”) on a pro rata basis (the “Distribution” or “Enterprise Apps Spin-off”) and merger (the “Merger”) of CXApp with a wholly owned subsidiary of KINS Technology Group

INPIXON AND SUBSIDIARIES

On December 6, 2023, Xeriant, Inc.

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

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

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

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

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

In particular, Xeriant contends that Legacy XTI gained substantial advantages from the

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Inc., a Delaware corporation (“KINS”), in a Reverse Morris Trust transaction (collectively, the “Transactions”) pursuant to (i) an Agreement and Plan of Merger, dated as of September 25, 2022, by and among Inpixon, KINS, CXApp, and KINS Merger Sub Inc.

(the "Merger Agreement") and (ii) a Separation and Distribution Agreement, dated as of September 25, 2022, among KINS, Inpixon, CXApp and Design Reactor, Inc.

(the "Separation Agreement”, and collectively with the Merger Agreement and the other related transaction documents, the “Transaction Agreements”).

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

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

(1) breach of contract;

(2) intentional fraud;

(3) fraudulent concealment;

(4) quantum meruit;

(5) unjust enrichment;

(6) unfair competition/deceptive business practices;

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

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

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

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

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

The Court has neither scheduled Legacy XTI’s motion for hearing nor otherwise ruled upon it.

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

Note 25 - Damon Motors Convertible Note

On October 26, 2023, the Company purchased a 12 % convertible note through a private placement in aggregate principal amount of $ 3.0 million for a purchase price of $ 3.0 million from Damon Motors Inc.

and is included in Notes Receivable on the Consolidated Balance Sheets.

Interest on the convertible note accrues at 12 % per annum.

The term of the convertible note is 12 months.

The convertible note is subject to certain conversion features which include qualified financing, and/or qualified transaction, as defined in the securities purchase agreement.

The note will be required to convert upon Damon Motors Inc.

completing a public company event.

In addition, Damon Motors Inc.

issued a five-year warrant to purchase 1,096,321 shares of Damon Motors Inc.

common stock in connection with the note.

Management notes the Warrant is freestanding.

The exercise price per Common Share is equal to the quotient of the valuation cap and the diluted capitalization, as defined in the agreement.

The Warrant provides for cashless exercise after 180 days following the closing of the public company event should there be no effective registration statement.

The convertible note receivable is not traded in active markets and fair value was determined using a present value technique.

The convertible note receivable is accounted for as available-for-sale debt securities based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income (loss).

The Warrant is accounted for an equity security based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, recorded at fair value with subsequent changes in fair value recorded in earnings.

Note 26 - Discontinued Operations

CXApp Divestiture

On March 14, 2023, Inpixon completed the Enterprise Apps Spin-off and subsequent Business Combination (the "Closing").

In connection with the Closing, KINS was renamed CXApp Inc.

3 unchanged sentences

Pursuant to the Distribution, Inpixon shareholders as of the Record Date received one share of CXApp common stock for each share of Inpixon common stock held as of such date.

Pursuant to the Merger Agreement, each share of Legacy CXApp common stock was thereafter exchanged for the right to receive 0.09752221612415190 of a share of New CXApp Class A common stock (with fractional shares rounded down to the nearest whole share) and 0.3457605844401750 of a share of New CXApp Class C common stock (with fractional shares rounded down to the nearest whole share).

New CXApp Class A common stock and New CXApp Class C common stock are identical in all respects, except that New CXApp Class C common stock is not listed and will automatically convert into New CXApp Class A common stock on the earlier to occur of (i) the 180 th day following the closing of the Merger and (ii) the day that the last reported sale price of New CXApp Class A common stock equals or exceeds $ 12.00 per share for any 20 trading days within any 30 -trading day period following the closing of the Merger.

Upon the closing of the Transactions, Inpixon’s existing securityholders held approximately 50.0 % of the shares of New CXApp common stock outstanding.

As of the Closing, CXApp is expected to have approximately $ 10 million of net cash.

The transaction is expected to be tax-free to Inpixon and its stockholders for U.S.

federal income tax purposes.

The following unaudited Pro Forma Condensed Consolidated Statements of Operations for the years ended December 31, 2022 are presented as if the Enterprise Apps Spin-Off had occurred as of January 1, 2022 in that they reflect the reclassification of Enterprise Apps as a discontinued operation for all periods presented.

The following unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company as of December 31, 2022 is presented as if the Enterprise Apps Spin-Off occurred on December 31, 2022.

The unaudited Pro Forma Condensed Consolidated Financial Statements are presented based on information currently available including certain assumptions and estimates.

They are intended for informational purposes only, and do not purport to represent what the Company’s financial position and operating results would have been had the Enterprise Apps Spin-Off and related events occurred on the dates indicated above, or to project the Company’s financial position or results of operations for any future date or period.

Furthermore, they do not reflect all actions that may be undertaken by the Company after the Enterprise Apps Spin-Off.

The unaudited Pro Forma Condensed Consolidated Financial Statements and the accompanying notes should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report for the fiscal year ended December 31, 2022.

In the enclosed unaudited Pro Forma Condensed Consolidated Statements of Operations and Balance Sheets, the amounts reflected in the columns presented are described below:

Inpixon and Subsidiaries Historical

This column reflects the Company’s historical financial statements for the periods presented and does not reflect any adjustments related to the Enterprise Apps Spin-Off and related events.

The Inpixon and Subsidiaries Historical Consolidated Balance Sheet as of December 31, 2022 and the Consolidated Statements of Operations for the year ended December 31, 2022 were derived from the Company’s audited Consolidated Financial Statements included in its Annual Report for the year ended December 31, 2022.

Enterprise Apps Discontinued Operations

The unaudited pro forma financial information related to the Enterprise Apps Discontinued Operations has been prepared in accordance with the discontinued operations guidance in Accounting Standards Codification 205, “Financial Statement Presentation” and therefore does not reflect what the Company’s or Enterprise Apps’ results of operations would have been on

INPIXON AND SUBSIDIARIES

This Enterprise Apps Spin-off was considered a strategic shift that has a major impact on the Company, and therefore, the results of operations are recorded as a component of "Earnings (loss) from discontinued operations, net of income taxes" in the Consolidated Statements of Operations for all periods presented.

The Company noted that Legacy CXApp was part of the Company’s Indoor Intelligence segment.

The net assets distributed as a result of the Enterprise Apps Spin-off was $ 24.2 million.

Included within the $ 24.2 million dividend recorded to Additional Paid in Capital as a result of the deconsolidation of CXApp through distribution to shareholders recorded during the three months ended March 31, 2023, is approximately $ 1.2 million in accumulated other comprehensive income that was recognized as a result of those distributed assets and liabilities included in the foreign operations of CXApp.

Solutions Divestiture - Grafiti Holding Divestiture

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

a stand-alone basis and are not necessarily indicative of the Company’s or Enterprise Apps' future results of operations.

The information in the Enterprise Apps Discontinued Operations column in the unaudited Pro Forma Statements of Operations was prepared based on the Company’s annual audited financial statements.

The Company believes that the adjustments included within the Enterprise Apps Discontinued Operations column of the unaudited Pro Forma Condensed Consolidated Financial Statements are consistent with the guidance for discontinued operations in accordance with U.S.

Pro Forma Adjustments

The information in the “Pro Forma Adjustments” columns in the unaudited Pro Forma Condensed Consolidated Statements of Operations and the unaudited Pro Forma Condensed Consolidated Balance Sheets reflect additional pro forma adjustments which are further described in the accompanying notes.

The Pro Forma Adjustments are based on available information and assumptions that the Company’s management believes are reasonable, that reflect the impact of events directly attributable to the Enterprise Apps Spin-Off that are factually supportable, and for purposes of the Pro Forma Condensed Consolidated Statements of Operations, are expected to have a continuing impact on the Company.

The Pro Forma Adjustments do not reflect future events that may occur after the Enterprise Apps Spin-Off.

INPIXON AND SUBSIDIARIES

On October 23, 2023, Inpixon entered into a Business Combination Agreement (the “Business Combination Agreement”), by and among Inpixon, Damon Motors Inc., a British Columbia corporation (“Damon”), Grafiti Holding, and 1444842 B.C.

Ltd., a British Columbia corporation and a newly formed wholly-owned subsidiary of Grafiti Holding (“Amalco Sub”), pursuant to which it is proposed that Amalco Sub and Damon amalgamate under the laws of British Columbia, Canada with the amalgamated company (the “Damon Surviving Corporation”) continuing as a wholly-owned subsidiary of Grafiti Holding (the “Damon Business Combination”).

The Damon Business Combination is subject to material conditions, including approval of the Damon Business Combination by securities holders of Damon, approval of the issuance of Grafiti Holding Common Shares to Damon securities holders pursuant to the Business Combination Agreement by a British Columbia court after a hearing upon the fairness of the terms and conditions of the Business Combination Agreement as required by the exemption from registration provided by Section 3(a)(10) under the Securities Act, and approval of the listing of the Grafiti Holding Common Shares on the Nasdaq Stock Market (“Nasdaq”) after giving effect to the Damon Business Combination.

Upon the consummation of the Damon Business Combination (the “Closing”), both Inpixon UK and the Damon Surviving Corporation will be wholly-owned subsidiaries of Grafiti Holding.

Holders of Grafiti Holding Common Shares, including Participating Security holders and management that hold Grafiti Holding Common Shares immediately prior to the closing of the Damon Business Combination, are anticipated to retain approximately 18.75 % of the outstanding capital stock of the combined company determined on a fully diluted basis, which includes up to 5 % in equity incentives which may be issued to Inpixon management.

On October 23, 2023, Inpixon entered into a Separation and Distribution Agreement (the “Separation Agreement”) with Grafiti Holding Inc.

(“Grafiti Holding”), a then wholly owned subsidiary of Inpixon.

Inpixon contributed the assets and liabilities of Inpixon UK, a wholly owned subsidiary of Inpixon, to the then Inpixon wholly owned subsidiary Grafiti Holding in accordance with the Separation Agreement.

On December 27, 2023, the Company entered into a Liquidating Trust Agreement (the “Liquidating Trust Agreement”) by and among the Company, Grafiti Holding and the sole original trustee named therein, who is a current employee of the Company (collectively with any additional trustees duly appointed under the Liquidating Trust Agreement from time to time, the “Trustees”).

The Liquidating Trust Agreement provided for the distribution by the Company of its Grafiti Holding Common Shares to a liquidating trust, titled the Grafiti Holding Inc.

Liquidating Trust (the “Trust”), which will hold the Grafiti Holding Common Shares for the benefit of the Participating Security holders until the Registration Statement is declared effective by the SEC.

Promptly following the effective time of the Registration Statement, the Trust will deliver the Grafiti Holding Common Shares to the Participating Security holders, as beneficiaries of the Trust, pro rata in accordance with their ownership of shares or underlying shares of Common Stock as of the Record Date.

The Trustees will be empowered to liquidate the Grafiti Holding Common Shares and distribute the proceeds thereof to the Participating Security holders if the Registration Statement is not declared effective prior to the second anniversary of the date of the Liquidating Trust Agreement.

This transfer, along with the Grafiti LLC divestiture outlined below, were in the aggregate considered a strategic shift that has or will have a major effect on the Company's operations and financial results, and therefore met the criteria to be classified as discontinued operations.

Accordingly, the results of its operations are recorded as a component of "Net loss from discontinued operations, net of tax" in the Consolidated Statements of Operations for all periods presented.

The net assets distributed as a result of the Grafiti Holding Divestiture were $ 0.02 million.

Solutions Divestiture - Grafiti LLC Divestiture

On February 21, 2024, the Company completed the disposition of the remaining portion of the Shoom, SAVES, and GYG business lines and assets that were excluded from the Grafiti Holding Transaction in accordance with the terms and conditions of an Equity Purchase Agreement, dated February 16, 2024.

This transaction was considered probable as of December 31, 2023, and along with the Grafiti Holding divestiture outlined above, represent a strategic shift that has a major impact on the Company's operations and financial results.

Therefore, Grafiti LLC met the criteria to be classified as discontinued operations.

Accordingly, the results of operations are recorded as a component of "Net loss from discontinued operations, net of tax" on the Consolidated Statements of Operations for all periods presented.

In connection with the discontinued operations classification, the Company recognized a loss on discontinued operations of $ 2.3 million, which has been included in "Net loss from discontinued operations, net of tax" on the Consolidated Statements of Operations for the year ended December 31, 2023.

The assets and liabilities of Grafiti LLC are included in the current assets and current liabilities of discontinued operations on the Consolidated Balance Sheet as of December 31, 2023.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

INPIXON AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of December 31, 2022

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

Inpixon and Subsidiaries Historical

(a) Enterprise Apps Discontinued Operations

(b) Pro Forma Adjustments Note Pro Forma Inpixon and Subsidiaries Continuing Operations

Current Assets

Cash and cash equivalents $ 20,235 $ ( 6,308 ) $ ( 3,692 ) (c) $ 10,235

Accounts receivable, net of allowances 3,227 ( 1,338 ) — 1,889

For the Year Ended December 31, 2023 For the Year Ended December 31, 2022

CXApp Divestiture Grafiti Holding and Grafiti LLC Divestiture Total Discontinued Operations CXApp Divestiture Grafiti Holding an Grafiti LLC Divestiture Total Discontinued Operations

Revenues $ 1,620 $ 4,840 $ 6,460 $ 8,470 $ 4,839 $ 13,309

Cost of Revenues 483 681 1,164 2,064 1,304 3,368

Gross Profit 1,137 4,159 5,296 6,406 3,535 9,941

Operating Expenses

Research and development 1,514 4,081 5,595 9,323 3,854 13,177

Sales and marketing 988 1,896 2,884 4,996 1,662 6,658

General and administrative 1,644 1,325 2,969 10,540 1,466 12,006

Acquisition related costs — — — 16 — 16

Transaction costs 1,043 — 1,043 — — —

Impairment of goodwill and intangibles

— — — 5,540 5,476 11,016

Amortization of intangibles 805 — 805 3,885 639 4,524

Total Operating Expenses 5,994 7,302 13,296 34,300 13,097 47,397

Loss from Operations ( 4,857 ) ( 3,143 ) ( 8,000 ) ( 27,894 ) ( 9,562 ) ( 37,456 )

Interest income/(expense), net 1 3 4 4 ( 77 ) ( 73 )

Other income/(expense) — 1,315 1,315 ( 1 ) 712 711

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

Realized loss on investment — ( 6,692 ) ( 6,692 ) — — —

Unrealized loss on equity method investment — — — — ( 1,784 ) ( 1,784 )

Loss on discontinued operations — ( 2,303 ) ( 2,303 ) — — —

Total Other Income (Expense) 1 ( 2,068 ) ( 2,067 ) 3 ( 9,053 ) ( 9,050 )

Loss from discontinued operations, before tax ( 4,856 ) ( 5,211 ) ( 10,067 ) ( 27,891 ) ( 18,615 ) ( 46,506 )

Income tax provision ( 2,478 ) ( 205 ) ( 2,683 ) ( 80 ) ( 36 ) ( 116 )

Loss from discontinued operations, net of tax $ ( 7,334 ) $ ( 5,416 ) $ ( 12,750 ) $ ( 27,971 ) $ ( 18,651 ) $ ( 46,622 )

The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations.

Cash used in operating activities of discontinued operations totaled approximately 0.5 million and $ 24.1 million for the year ended December 31 2023 and 2022, respectively.

Cash used in investing activities from discontinued operations totaled approximately $ 0.05 million and $ 0.3 million for the years ended December 31, 2023 and 2022, respectively.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

The following table summarizes certain assets and liabilities of discontinued operations:

For the Year Ended December 31, 2023 For the Year Ended December 31, 2022

CXApp Divestiture Grafiti LLC Divestiture Total Discontinued Operations CXApp Divestiture Grafiti LLC Divestiture Total Discontinued Operations

Current Assets of Discontinued Operations

Cash and cash equivalents $ — $ 1,121 $ 1,121 $ 10,000 $ 951 $ 10,951

Accounts receivable — 1,036 1,036 1,338 702 2,040

Other receivables — 2 2 273 3 276

Inventory — 1,212 1,212 — 445 445

Note receivable 150 — — 150

Prepaid expenses and other current assets — 251 251 650 112 762

Total Current Assets 29,866 ( 8,569 ) ( 3,692 ) 17,605

Property and equipment, net — 700 700 — — —

1 unchanged sentence

Software development costs, net — 605 605 — — —

Investments in equity securities 330 — — 330

Long-term investments 716 — ( 716 ) (d) —

Investment in equity securities — 65 65 — — —

Long term investments — 50 50 — — —

Other Assets — 21 21 — — —

Allowance on current assets classified as discontinued operations — ( 2,303 ) ( 2,303 ) — — —

Current Assets of Discontinued Operations $ — $ 2,768 $ 2,768 $ 12,261 $ 2,213 $ 14,474

Long Term Assets of Discontinued Operations

Property and equipment, net $ — $ — $ — $ 202 $ 722 $ 924

Operating Lease Right-of-Use Asset, net — — — 681 4 685

Software development costs, net — — — 487 741 1,228

Investment in equity securities — — — — 330 330

Long term investments — — — — 50 50

Intangible assets, net — — — 19,289 — 19,289

Other Assets — — — 52 15 67

Total Assets $ 57,635 $ ( 29,280 ) $ ( 4,408 ) $ 23,947

Liabilities and Stockholders’ Equity

Current Liabilities

Long Term Assets of Discontinued Operations $ — $ — $ — $ 20,711 $ 1,862 $ 22,573

Current Liabilities of Discontinued Operations

Accounts payable $ — $ 734 $ 734 $ 1,054 $ 783 $ 1,837

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Accrued liabilities — 520 520 1,736 783 2,519

2 unchanged sentences

Short term debt — — — $ — 1,078 1,078

Acquisition liability 197 ( 197 ) 197 (e) 197

Total Current Liabilities 24,714 ( 5,415 ) 197 19,496

Long Term Liabilities

INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Current Liabilities of Discontinued Operations $ — $ 1,960 $ 1,960 $ 5,218 $ 3,425 $ 8,643

Long Term Liabilities of Discontinued Operations

Operating lease obligation, noncurrent $ — $ — $ — $ 444 $ — $ 444

Other Liabilities, noncurrent — — — 28 — 28

Total Liabilities 25,520 ( 5,889 ) 197 19,828

Commitments and Contingencies

Mezzanine Equity

Series 8 Convertible Preferred Stock- 53,197.7234 shares authorized, 0 issued and outstanding as of December 31, 2022.

Stockholders’ Equity

Preferred Stock -$0.001 par value;

5,000,000 shares authorized — — — —

Series 4 Convertible Preferred Stock - 10,415 shares authorized;

1 issued and outstanding as of December 31, 2022.

Series 5 Convertible Preferred Stock - 12,000 shares authorized;

126 issued and outstanding as of December 31, 2022.

Common Stock - $0.001 par value;

500,000,000 shares authorized;

3,570,894 issued and 3,570,893 outstanding as of December 31, 2022 4 — — 4

Additional paid-in capital 346,668 — — 346,668

Treasury stock, at cost, 1 share ( 695 ) — — ( 695 )

Accumulated other comprehensive income 1,061 — — 1,061

Accumulated deficit ( 314,841 ) ( 23,391 ) ( 4,605 ) (c), (d), (e) ( 342,837 )

Stockholders’ Equity Attributable to Inpixon 32,197 ( 23,391 ) ( 4,605 ) 4,201

Non-controlling Interest ( 82 ) — — ( 82 )

Total Stockholders’ Equity 32,115 ( 23,391 ) ( 4,605 ) 4,119

Total Liabilities, Mezzanine Equity and Stockholders’ Equity $ 57,635 $ ( 29,280 ) $ ( 4,408 ) $ 23,947

INPIXON AND SUBSIDIARIES

Long Term Liabilities of Discontinued Operations $ — $ — $ — $ 472 $ — $ 472

Investment in Equity Securities

Investment securities—fair value consist primarily of investments in equity securities and are carried at fair value in accordance with ASC 321, Investments-Equity Securities (“ASC 321”).

These securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity, as necessary.

These securities transactions are recorded on a trade date basis.

Any unrealized appreciation or depreciation on investment securities is reported in the Consolidated Statement of Operations within Unrealized Loss on Equity Securities.

The unrealized gain/loss on equity securities was a gain of $ 5.6 million, and loss of $ 7.9 million, for the years ended December 31, 2023 and 2022, respectively.

The Company notes that investment securities were a part of the Grafiti Holding Inc.

and Grafiti LLC divestitures, which are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

Investment securities—fair value consist of investments in the Company’s investment in shares and rights of equity securities.

The composition of the Company’s investment securities—fair value was as follows (in thousands):

December 31, 2023 Cost Fair Value

Investments in equity securities -fair value

Equity shares $ 54,237 $ 63

Equity rights 11,064 2

Total investments in equity securities - fair value $ 65,301 $ 65

As of December 31, 2023 and 2022, the fair value of the Sysorex shares and rights to acquire shares acquired as part of the debt settlement that occurred in March 2021 were $ 0.01 million.

(“FOXO Legacy”), pursuant to the terms of a securities purchase agreement between FOXO Legacy and the Company (the “April 2022 Purchase Agreement”).

FOXO common stock is traded in active markets, as the security is trading under “FOXO” on the NYSE American.

The fair value was determined by the closing

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

INPIXON AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

For the year ended December 31, 2022

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

Inpixon and Subsidiaries Historical

(a) Enterprise Apps Discontinued Operations

(f) Pro Forma Adjustments Note Pro Forma Inpixon and Subsidiaries Continuing Operations

Revenues $ 19,418 $ ( 8,470 ) $ — $ 10,948

Cost of Revenues 5,489 ( 2,064 ) — 3,425

Gross Profit 13,929 ( 6,406 ) — 7,523

Operating Expenses

Research and development 17,661 ( 9,323 ) — 8,338

Sales and marketing 8,872 ( 5,096 ) 100 (g) 3,876

General and administrative 26,060 ( 11,571 ) 1,031 (g) 15,520

Acquisition-related costs 426 ( 16 ) — 410

Impairment of goodwill and intangibles 12,199 ( 5,540 ) — 6,659

Amortization of intangibles 5,411 ( 3,885 ) — 1,526

Total Operating Expenses 70,629 ( 35,431 ) 1,131 36,329

Loss from Operations ( 56,700 ) 29,025 ( 1,131 ) ( 28,806 )

Other Income (Expense)

Interest expense, net ( 673 ) ( 4 ) — ( 677 )

Other expense, net 692 1 — 693

trading price of the security as of December 31, 2023.

As of December 31, 2023 and 2022 the fair value of the FOXO shares was $ 0.05 million and $ 0.3 million, respectively.

For the year ended December 31, 2023 and 2022, the Company recognized a net unrealized gain/loss on investments in equity securities of a gain of $ 5.6 million and loss of $ 7.9 million on the discontinued operations statement of operations.

Other Long Term Investments

The Company invests in certain equity-method investments:

The Company accounted for its equity investment under the equity method of accounting, as the Company is deemed to have significant influence.

The Company evaluates an equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.

The Company notes that the other long term investments outlined below were a part of the Grafiti Holding Inc.

and Grafiti LLC divestitures, which are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

In 2020, the Company paid $ 1.8 million for 599,999 Class A Units and 1,800,000 Class B Units of Cardinal Ventures Holdings LLC (“CVH”).

The Company is a member of CVH.

The Company generally records its share of earnings in its equity method investments using a three-month lag methodology and within net investment income.

During the period January 1, 2022 to December 31, 2022 and January 1, 2023 to December 31, 2023, CVH is a holding company that had no operating results.

The following component represents components of Other long-term investments as of December 31, 2023:

Ownership interest as of December 31, Ownership interest as of December 31,

2023 2022 Instrument Held

CVH LLC Class A — % 14.1 % Units

CVH LLC Class B 38.4 % 38.4 % Units

The Company’s investment in equity method eligible entities are represented on the balance sheet as an asset of $ 0.1 million and $ 0.7 million as of December 31, 2023 and December 31, 2022, respectively.

The Company recorded approximately $ 0.7 million of compensation expense for the fair market value of the shares transferred to the Transferees which is included in the operating expenses section of the consolidated statement of operations in the year ended December 31, 2023.

On August 25, 2023, as part of their distribution rights as holders of CVH Class B Units, the Company received 2.5 million warrants in New CXApp.

The Company determined that the New CXApp warrants are a level 1 marketable security because the warrants are publically traded on the Nasdaq.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Cardinal Health Ventures Investment

Nadir Ali, the Company's Chief Executive Officer and director prior to his resignation at the time of the XTI transaction, is also a member in CVH through 3AM, LLC ("3AM"), which may, in certain circumstances, be entitled to manage the affairs of CVH.

Ali’s relationship may create conflicts of interest between Mr.

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

For example, Mr.

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

On July 1, 2022, the Company loaned approximately $ 0.15 million to CVH.

The $ 0.15 million loan was repaid on March 15, 2023.

Fair Value of Financial Instruments

The Company notes that the financial instruments outlined below were a part of the Grafiti Holding Inc.

and Grafiti LLC divestitures, which are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

The Company's estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820.

The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available.

The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable.

We classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy.

The Company's assets measured at fair value consisted of the following at December 31, 2023 and December 31, 2022 :

Fair Value at December 31, 2023

Total Fair Value Level 1 - Quoted Prices in Active Markets for Identical Assets Level 2 - Significant Other Observable Inputs Level 3 - Significant Unobservable Inputs

Investments in equity securities 65 54 — 11

Total assets $ 65 $ 54 $ — $ 11

Fair Value at December 31, 2022

Total Fair Value Level 1 - Quoted Prices in Active Markets for Identical Assets Level 2 - Significant Other Observable Inputs Level 3 - Significant Unobservable Inputs

Investments in equity securities 330 319 — 11

Total assets $ 330 $ 319 $ — $ 11

Investments in equity securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity.

The fair value for Level 1 equity investments was determined using quoted prices of the security in active markets.

The fair value for Level 3 equity investments was determined using a pricing model with certain significant unobservable market data inputs.

The Company noted that there was no change in Level 3 instruments for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2023.

The following table is a reconciliation of assets for Level 3

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

investments for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2023 (in thousands):

Level 3 Investments

Balance at January 1, 2023 $ 11

Unrealized loss on equity securities —

Unrealized loss on equity method investment ( 1,784 ) — — ( 1,784 )

Total Other Expense ( 9,669 ) ( 3 ) — ( 9,672 )

Net Loss, before tax ( 66,369 ) 29,022 ( 1,131 ) ( 38,478 )

Income tax provision 65 153 218

Net Loss ( 66,304 ) 29,175 ( 1,131 ) ( 38,260 )

Net Loss Attributable to Non-controlling Interest ( 2,910 ) — — ( 2,910 )

Net Loss Attributable to Stockholders of Inpixon ( 63,394 ) 29,175 ( 1,131 ) ( 35,350 )

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

INPIXON AND SUBSIDIARIES

Balance at December 31, 2023 $ 11

Level 3 Investments

Balance at January 1, 2022 $ 1,838

Transfers in - FOXO Technologies, Inc.

convertible note 6,050

Transfers in - FOXO Technologies, Inc.

original issue discount on convertible note ( 550 )

Amortization of original issue discount on convertible note 206

Change in fair value on debt securities 791

Transfers out - FOXO Technologies, Inc.

conversion of note to marketable equity securities ( 6,497 )

Unrealized loss on equity securities ( 1,827 )

Balance at December 31, 2022 $ 11

Note 27 - Subsequent Events

Equity Purchase Agreement

On February 21, 2024, Inpixon completed the disposition of the remaining portion of the Shoom, SAVES, and GYG business lines and assets ("Grafiti Group Divestiture") that were excluded from the Grafiti Holding Transaction in accordance with the terms and conditions of an Equity Purchase Agreement, dated February 16, 2024, by and among Inpixon (“Seller”), Grafiti LLC, and Grafiti Group LLC (a newly formed entity controlled by Nadir Ali, the Company's CEO and a director) (“Buyer”).

Pursuant to the terms of the Equity Purchase Agreement, Buyer acquired from 100 % of the equity interest in Grafiti LLC, including the assets and liabilities primarily relating to Inpixon’s Saves, Shoom and Game Your Game business, including 100 % of the equity interests of Inpixon India, Grafiti GmbH (previously Inpixon Gmbh) and Game Your Game, Inc.

from the Company for a minimum purchase price of $ 1.0 million paid in two annual cash installments of $ 0.5 million due within 60 days after December 31, 2024 and 2025.

The purchase price and annual cash installment payments will be (i) increased for 50 % of net income after taxes, if any, from the operations of Grafiti LLC for the years ended December 31, 2024 and 2025;

(ii) decreased for the amount of transaction expenses assumed;

(iii) increased or decreased by the amount working capital of Grafiti LLC on the closing balance sheet is greater or less than $ 1.0 million.

Transition Services Agreement

On February 21, 2024, in connection with the closing of the Grafiti Group Divestiture, Grafiti LLC and the Company entered into a Transition Services Agreement with respect to services to be provided for a period of one year following closing.

Pursuant to the agreement, the Company will provide contracted IT and accounting services to Grafiti LLC and Grafiti LLC will provide certain accounting and payroll services, in each case on an hourly as needed basis to ensure the orderly transition of the business.

Sublease Arrangement

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

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

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

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

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

Net Loss Attributable to Common Stockholders $ ( 79,570 ) $ 29,175 $ ( 1,131 ) $ ( 51,526 )

Basic and diluted loss per share $ ( 34.12 ) $ ( 22.09 )

Weighted Average Shares Outstanding, basic and diluted 2,332,041 2,332,041

The following is a summary of the unaudited pro forma adjustments reflected in the unaudited pro forma consolidated financial statements based on preliminary estimates, which may change as additional information is obtained.

Reflects amounts reported by the Company within its Annual Report on Form 10-K for the year ended December 31, 2022.

Reflects the elimination of the Enterprise Apps Business assets, liabilities, and historical balances within the Company's consolidated financial statements that were discontinued as result of the Business Combination.

The Company notes $ 69 million of consideration was to be received by the Company in connection with the Business Combination.

The consideration was paid directly to the shareholders of the Company, and no adjustment was included in the unaudited pro forma consolidated balance sheet as a result.

Reflects adjustments for remaining cash contribution of $ 3.7 million to reach $ 10 million cash balance for Enterprise Apps Business in accordance with the Separation and Distribution Agreement.

Reflects adjustments to the Company's investment in Class A and Class B Units of Cardinal Ventures Holdings LLC, which has certain interests in the sponsor of KINS.

The Company distributed its ownership interests to certain employees and members of management on February 28, 2023 as a pre-requisite to the Business Combination.

Reflects adjustment for acquisition liability that is within the Enterprise Apps Business, but will be retained by the Company subsequent to the Enterprise Apps Spin-off.

Reflects the elimination of the historical revenue and expenses directly related to the Enterprise Apps Business that will not recur in the Company combined statement of operations as a result of the Enterprise Apps Spin-off.

Reflects management’s estimates of approximately $ 1.1 million of historical costs mainly for executive salaries and benefits in general and administrative expenses ($ 1.0 million) and sales and marketing expenses ($ 0.1 million) that were allocated to Enterprise Apps Business.

The historical costs were added back to the statement of operations for the year ended December 31, 2022 as the costs would be incurred by the Company.

The Company and Grafiti LLC arranged for the Company to sublease office space in Palo Alto, CA from Grafiti LLC at a cost of 50 % of monthly rent and operating expenses as of February 1, 2024.

The cost is estimated at approximately $ 5,800 per month.

XTI Promissory Note & Security Agreement

As discussed in Note 5, Inpixon is providing loans to XTI on a senior secured basis.

On February 2, 2024, Inpixon and XTI executed a further amendment to the XTI Note, dated effective as of January 30, 2024, to increase the Maximum Principal Amount to approximately $ 4.0 million and to revise the date January 30,2024 in the definition of Maturity Date to March 31, 2024.

The Company intends to amend the XTI Promissory Note to extend the term thereof.

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

Shortly prior to the Effective Time, we effected a 1-for-100 reverse split of our outstanding shares of common stock.

At the Effective Time, pursuant to the XTI Merger Agreement, the shares of Legacy XTI common stock outstanding immediately prior to the Effective Time became the right to receive 7,843,668 shares of XTI Aerospace common stock, and the options and warrants to purchase shares of Legacy XTI common stock outstanding immediately prior to the Effective Time were assumed by the Company and became exercisable for approximately 1,068,959 and 382,610 shares of XTI Aerospace common stock, respectively, based on an exchange ratio of 0.0892598 shares of XTI Aerospace common stock for each share of Legacy XTI common stock in accordance with the XTI Merger Agreement.

Prior to the Effective Time, Legacy XTI received the consents of certain of its convertible note holders to convert the outstanding balance under their convertible notes, equal to an aggregate outstanding amount of $ 7,535,701 , into shares of Legacy XTI common stock immediately prior to the Effective Time, enabling them to participate in the XTI Merger on the same basis as the other shares of Legacy XTI common stock.

Legacy XTI convertible notes in the aggregate remaining principal and interest amount of $ 51,658 , were assumed by the Company at the Effective Time and became convertible into approximately 4,611 shares of XTI Aerospace common stock.

Immediately following the Effective Time, XTI Aerospace had 9,786,801 shares of common stock issued and outstanding, subject to adjustment in connection with rounding associated with the Reverse Stock Split.

On March 12, 2024, the Company, Merger Sub and Legacy XTI entered into a Second Amendment to Merger Agreement (the “Merger Agreement Amendment”).

The Merger Agreement Amendment provided, among other things, (i) adjustments for the issuance of shares of the Company’s newly designated non-convertible Series 9 preferred stock (“Series 9 Preferred Stock”) to Streeterville Capital, LLC in the exchange ratio calculation and (ii) the extension of the deadline to file a resale registration statement covering the shares issued in the XTI Merger that were not registered on the Company’s registration statement on Form S-4 filed in connection with the Merger to ten business days after the filing of this Annual Report on Form 10-K.

Following the issuance of shares under the Merger Agreement, Company security holders immediately prior to the Effective Time retained beneficial ownership of approximately 25 % of the outstanding common stock of the Company on a fully-diluted basis and Legacy XTI security holders immediately prior to the Effective Time acquired beneficial ownership of shares of common stock amounting to approximately 75 % of the outstanding common stock of the Company on a fully-diluted basis.

Financial Advisory Fees in connection with the XTI Merger

Pursuant to the terms of an amended advisory fees agreement among Legacy XTI, the Company and Maxim and in accordance with the XTI Merger Agreement, the Company issued 385,359 registered shares of XTI Aerospace common stock in exchange for shares of Legacy XTI common stock issued to Maxim based on the exchange ratio under the XTI Merger Agreement.

Additionally, Maxim will receive $ 200,000 payable upon the closing of one or more debt or equity financings for which Maxim

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

serves as placement agent or underwriter and in which the Company raises minimum aggregate gross proceeds of $ 10 million following the Effective Time.

Pursuant to its engagement letter with Legacy XTI, dated as of June 7, 2022, as amended (the “Chardan Engagement Letter”) and the XTI Merger Agreement, Chardan Capital Markets (“Chardan”) received a cash payment of $ 200,000 and 189,037 registered shares of XTI Aerospace common stock (the “Chardan Closing Shares”) in exchange for shares of Legacy XTI common stock issued to Chardan based on the exchange ratio under the XTI Merger Agreement.

If within 120 days following the Effective Time, the Company consummates a public offering of securities in which the price per share of XTI Aerospace common stock (“Chardan Qualified Offering price”) is less than the per share price of Inpixon common stock utilized to calculate the number of Chardan Closing Shares, the Company will be required, subject to applicable securities laws, to issue additional shares of XTI Aerospace common stock to Chardan in an amount equal to (i) $ 1,000,000 minus the product of the number of Chardan Closing Shares and Chardan Qualified Offering Price, divided by (ii) the Chardan Qualified Offeing Price.

Consulting Agreements

On March 12, 2024, the Company entered into a Consulting Agreement with Mr.

Nadir Ali (the “Ali Consulting Agreement”), the Company's former Chief Executive Officer.

Pursuant to the Ali Consulting Agreement, following the Closing of the XTI Merger, Mr.

Ali will provide consulting services to the Company for 15 months or until earlier termination in accordance with its terms.

During the Ali Consulting Period, the Company will pay him a monthly fee of $ 20,000 .

In addition, the Company shall pay Mr.

Ali (a) the amount of $ 1,500,000 due three months following the Closing, and (b) the aggregate amount of $ 4,500,000 , payable in 12 equal monthly installments of $ 375,000 each, starting four months after the Effective Date (the payments described in (a) and (b), each an “Equity Payment”).

Each Equity Payment may be made, in Company’s discretion, in (i) cash, (ii) fully vested shares of common stock under the Company’s equity incentive plan , or a combination of cash and Registered Shares.

Ali must continue to provide consulting services to the Company on the date of payment of an Equity Payment to receive the Equity Payment, unless the Company terminates the Ali Consulting Agreement without Company Good Reason or Mr.

Ali terminates the Ali Consulting Agreement for Consulting Good Reason, in which case the Equity Payments would become due and payable in full.

To the extent all or a portion of an Equity Payment is made in shares, such shares will be valued based on the closing price per share on the date on which the Equity Payment is made.

On March 12, 2024, the Company also entered into a Consulting Agreement with Ms.

Wendy Loundermon (the “Loundermon Consulting Agreement”), the Company's former Chief Financial Officer.

Pursuant to the Loundermon Consulting Agreement, following the Closing, Ms.

Loundermon will provide consulting services to the Company for one year or until earlier termination in accordance with its terms (the “Loundermon Consulting Period”).

As compensation for Ms.

Loundermon ’s c onsulting services , the Company will pay her (i) $ 83,333 per month for the first six months of the Loundermon Consulting Period for services she perform s on an as-needed basis during the Loundermon Consulting Period regarding the transition of the management of the Company’s financial reporting function to ensure continuity of business operations , and (ii) $ 300 per hour for services performed on an as needed basis regarding the preparation and filing of Company’s public company financial reporting and compliance matters including accounting, payroll, audit and tax compliance functions.

Series 9 Preferred Stock

On March 12, 2024, the Company filed the Certificate of Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Designation”), with the Secretary of State of Nevada, designating 20,000 shares of preferred stock, par value $ 0.001 of the Company, as Series 9 Preferred Stock.

Each share of Series 9 Preferred Stock has a stated face value of $ 1,050.00 (“Stated Value”).

The Series 9 Preferred Stock is not convertible into shares of common stock of the Company.

Exchange Agreement

On March 12, 2024, the Company and Streeterville Capital, LLC (the “Note Holder”), the holder of an outstanding promissory note issued on December 30, 2023 (as amended, the “December 2023 Note”), entered into an Exchange Agreement, pursuant to which the Note Holder exchanged the remaining balance of principal and accrued interest under the December 2023 Note in the aggregate amount of $ 9,801,521 for 9,801.521 shares of Series 9 Preferred Stock, based on an exchange price of $ 1,000 per share of Series 9 Preferred Stock.

Following such exchange and the surrender of the December 2023 Note to the Company, the December 2023 Note is deemed paid in full, automatically canceled, and will not be reissued.

Securities Purchase Agreement

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

On March 12, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an entity controlled by the Company’s director and Chief Executive Officer, Mr.

Nadir Ali (the “Purchaser”).

Pursuant to the Securities Purchase Agreement, the Purchaser purchased 1,500 shares of Series 9 Preferred Stock for a total purchase price of $ 1,500,000 , based on a purchase price of $ 1,000 per share of Series 9 Preferred Stock.

Warrant Exercise Price Reduction

On March 21, 2024, the Company’s Board of Directors authorized a reduction in the exercise price of the New Warrants issued as part of the warrant inducement (see Note 17) that occurred on December 15, 2023 from $ 7.324 to $ 5.13 per share in accordance with the existing terms of such New Warrants.

XTI AEROSPACE, INC.

AND SUBSIDIARIES (FORMERLY KNOWN AS INPIXON AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data