What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-14 compared with 2024-05-20 · 584 added, 417 removed, 882 unchanged (53% of the section changed)

4 unchanged sentences

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

As of March 31,

As of June 30,

2024 As of December 31,

(Unaudited) (Unaudited)

Current Assets

Cash and cash equivalents $ 5,779 $ 5

Accounts receivable, net of allowance for credit losses of $ 27 and $ 0 , respectively

Accounts receivable, net of allowance for credit losses of $ 1 and $ 0 as of June 30, 2024 and December 31, 2023, respectively

Other receivables 526 101

Inventory 2,752 —

Notes receivable 3,264 —

Note receivable available for sale, at fair value 3,462 —

Warrant asset 424 —

12 unchanged sentences

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

As of March 31,

As of June 30,

2024 As of December 31,

(Unaudited) (Unaudited)

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Equity (Deficit)

Current Liabilities

19 unchanged sentences

Series 4 Convertible Preferred Stock - 10,415 shares authorized;

1 issued and outstanding as of March 31, 2024 and December 31, 2023

1 issued and outstanding as of June 30, 2024 and December 31, 2023

Series 5 Convertible Preferred Stock - 12,000 shares authorized;

126 issued and outstanding as of March 31, 2024 and December 31, 2023

126 issued and outstanding as of June 30, 2024 and December 31, 2023

Series 9 Preferred Stock - 20,000 shares authorized;

11,302 and 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

(Liquidation preference of $ 11,867,100 )

11,302 and 7,752 shares issued and outstanding as of June 30, 2024, and 0 shares issued and outstanding as of December 31, 2023 (Liquidation preference of $ 8,450,396 )

Common Stock - $ 0.001 par value;

500,000,000 shares authorized;

9,919,411 and 3,197,771 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

26,841,686 and 3,197,771 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.

Additional paid-in capital 78,206 26,327

8 unchanged sentences

(In thousands, except share and per share data)

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2024 2023 2024 2023

Revenues $ 1,031 $ — $ 1,251 $ —

16 unchanged sentences

Change in fair value of warrant liability ( 679 ) ( 126 ) ( 281 ) ( 126 )

Other income, net 9 —

Other expense ( 22 ) — ( 13 ) —

Total Other Income (Expense) ( 771 ) ( 588 ) 5,508 ( 870 )

1 unchanged sentence

Income tax provision ( 12 ) — ( 16 ) —

Net Loss Attributable to Stockholders of XTI Aerospace $ ( 2,602 ) $ ( 1,565 )

Net Loss ( 14,710 ) ( 4,629 ) ( 17,312 ) ( 6,194 )

Preferred stock return and dividend ( 250 ) — ( 311 ) —

Deemed dividend ( 460 ) — ( 460 ) —

Net Loss Attributable to Common Stockholders $ ( 15,420 ) $ ( 4,629 ) $ ( 18,083 ) $ ( 6,194 )

7 unchanged sentences

(In thousands)

For the Three Months Ended March 31,

Net Loss Attributable to Common Stockholders $ ( 2,663 ) $ ( 1,565 )

For the Three Months Ended June 30, For the Six Months Ended June 30,

2024 2023 2024 2023

Net Loss $ ( 14,710 ) $ ( 4,629 ) $ ( 17,312 ) $ ( 6,194 )

Change in fair value of convertible note receivable 59 — 59 —

Unrealized foreign exchange loss from cumulative translation adjustments ( 32 ) — ( 198 ) —

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the three months ended March 31, 2024

(In thousands, except share and per share data)

For the three and six months ended June 30, 2024

(In thousands, except share data)

Series 9 Preferred Stock at Redemption Value Common Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders’ (Deficit) Equity

1 unchanged sentence

Balance - January 1, 2024 — $ — 3,197,771 $ 3 $ 26,327 $ — $ ( 57,959 ) $ ( 31,629 )

Common stock issued for conversion of debt — — 2,621,516 3 8,688 — — 8,691

Common stock issued for conversion of debt - related party

Common shares issued for conversion of debt

— — 2,621,516 3 8,688 — — 8,691

Common shares issued for conversion of debt - related party — — 266,272 — 923 — — 923

Inducement loss on debt conversions

Common stock issued to Xeriant, Inc.

(Note 12) — — 298,395 — — — — —

Common stock issued for cashless exercise of warrants — — 389,287 1 ( 1 ) — — —

Common stock issued for cashless exercise of options — — 92,728 — — — — —

— — — — 6,732 — — 6,732

Common shares issued to Xeriant, Inc.

— — 298,395 — — — — —

Common shares issued for cashless exercise of warrants

— — 389,287 1 ( 1 ) — — —

Common shares issued for cashless exercise of options

— — 92,728 — — — — —

Common and preferred shares issued via merger

11,302 11,302 2,075,743 2 14,301 — — 25,605

Capital contribution - forgiveness of related party payable

— — — — 380 — — 380

Stock based compensation

— — 977,699 1 5,791 — — 5,792

Cumulative translation adjustment

— — — — — ( 166 ) — ( 166 )

Series 9 preferred stock dividend accrued

Net loss — — — — — — ( 2,602 ) ( 2,602 )

— — — — ( 61 ) — — ( 61 )

— — — — — — ( 2,602 ) ( 2,602 )

Balance - March 31, 2024

11,302 11,302 9,919,411 10 63,080 ( 166 ) ( 60,561 ) 13,665

Common shares issued in exchange of Series 9 Preferred Stock

( 3,550 ) ( 3,550 ) 2,999,187 3 3,724 — — 177

Deemed dividend related to Series 9 preferred stock exchange

— — — — ( 177 ) — — ( 177 )

Common shares issued in exchange of warrants

— — 1,492,415 2 1,979 — — 1,981

Deemed dividend related to December 2023 warrant exchange

— — — — ( 283 ) — — ( 283 )

Common shares issued for exercise of warrants — — 20,528 — 2 — — 2

Common shares issued for net cash proceeds of ATM offering

— — 9,300,203 9 8,666 — — 8,675

Common shares issued as settlement of accrued compensation

— — 2,680,459 3 1,189 — — 1,192

Common shares issued as prepayment for services — — 429,483 — 335 — — 335

Stock based compensation

— — — — ( 59 ) — — ( 59 )

Series 9 preferred stock dividend accrued

— — — — ( 250 ) — — ( 250 )

Change in fair value of convertible note receivable

— — — — — 59 — 59

Cumulative translation adjustment

— — — — — ( 32 ) — ( 32 )

— — — — — — ( 14,710 ) ( 14,710 )

Balance - June 30, 2024

7,752 $ 7,752 26,841,686 $ 27 $ 78,206 $ ( 139 ) $ ( 75,271 ) $ 10,575

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the three months ended March 31, 2023

(In thousands, except share and per share data)

For the three and six months ended June 30, 2023

(In thousands, except per share data)

Series 9 Preferred Stock at Redemption Value Common Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders’ (Deficit) Equity

1 unchanged sentence

Balance - January 1, 2023 — $ — 3,181,578 $ 3 $ 17,908 — $ ( 32,893 ) $ ( 14,982 )

Stock based compensation - stock options — — — — 141 — — 141

Stock based compensation

— — — — 141 — — 141

Issuance of warrants with convertible note

Net loss — — — — — — ( 1,565 ) ( 1,565 )

— — — — 39 — — 39

— — — — — — ( 1,565 ) ( 1,565 )

Balance - March 31, 2023 — — 3,181,578 3 18,088 — ( 34,458 ) ( 16,367 )

Proceeds from sale of common stock

— — 12,853 — 180 — — 180

Stock based compensation

— — — — 2,461 — — 2,461

Issuance of warrants with convertible note

— — — — 928 — — 928

JV obligation reclassified to equity

— — — — 5,583 — — 5,583

— — — — — — ( 4,629 ) ( 4,629 )

Balance - June 30, 2023

— — 3,194,431 $ 3 $ 27,240 $ — $ ( 39,087 ) $ ( 11,844 )

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

3 unchanged sentences

(In thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash Flows Used in Operating Activities (Unaudited)

5 unchanged sentences

Amortization of right-of-use asset 92 —

Stock based compensation 5,792 141

Amortization of debt discount 156 251

Stock based compensation 5,733 2,602

Change in fair value of JV obligation — 197

Provision for credit losses 1 —

Change in fair value of convertible notes ( 12,882 ) —

Change in fair value of convertible notes payable

Inducement loss on debt conversions 6,732 —

Change in fair value of warrant liability 281 126

Change in fair value of warrant asset 24 —

Unrealized loss on foreign currency transactions ( 131 ) —

17 unchanged sentences

Cash Provided by Financing Activities

Net proceeds from promissory notes 378 415

Net proceeds from loan from Inpixon (prior to merger) 1,012 —

Net proceeds from convertible notes — 300

Net Cash Provided by Financing Activities

Proceeds from sale of common stock — 180

Proceeds from warrant exercises 2 —

XTI AEROSPACE, INC.

2 unchanged sentences

(In thousands)

Net proceeds from ATM stock offering 8,547 —

Net proceeds from promissory notes 2,000 575

Net proceeds from loan from Inpixon (prior to merger) 1,012 —

Net proceeds from convertible notes — 750

Repayments of promissory notes ( 502 ) ( 10 )

Net Cash Provided by Financing Activities

Effect of Foreign Exchange Rate on Changes on Cash ( 6 ) —

Net Increase in Cash and Cash Equivalents 1,796 258

Net Increase (Decrease) in Cash and Cash Equivalents 5,774 ( 78 )

Cash and Cash Equivalents - Beginning of period 5 115

5 unchanged sentences

Non-cash investing and financing activities

Common shares issued for inducement of debt and accrued interest $ 5,637 $ —

Common shares issued for conversion of debt and accrued interest $ 9,614 $ —

Common shares issued in exchange of warrants $ 1,698 $ —

Deemed dividend related to December 2023 warrant exchange $ 283 $ —

Common shares issued as settlement of accrued compensation $ 1,192 $ —

Common shares issued as prepayment for services $ 335 $ —

Issuance of common stock for merger consideration, net of cash received $ 22,637 $ —

Right of use asset obtained in exchange for lease liability $ 394 $ —

Common shares issued for conversion of debt and accrued interest $ 3,959 $ —

Capital contribution - forgiveness of related party payable $ 380 $ —

Common shares issued in exchange of series 9 preferred stock $ 3,550 $ —

Series 9 preferred stock dividend accrued

Deemed dividend related to Series 9 preferred stock exchange $ 177 $ —

ATM proceeds withheld as payment towards accounts payable $ 128 $ —

Warrants issued with convertible notes $ — $ 967

Warrants issued with common stock $ — $ 98

Reclassification of JV obligation to equity $ — $ 5,583

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 1 - Organization and Nature of Business

Following the closing of the XTI Merger, we are primarily an aircraft development company.

We also provide real-time location systems (“RTLS”) for the industrial sector, which was our focus prior to the closing of the XTI Merger.

Headquartered in Englewood, Colorado, XTI Aerospace is developing a vertical takeoff and landing ("VTOL") aircraft that is designed to take off and land like a helicopter and cruise like a fixed-wing business aircraft.

Since 2013, we have been engaged primarily in developing the design and engineering concepts for the TriFan 600, building and testing a two-thirds scale unmanned version of the TriFan 600, generating pre-orders for the TriFan 600, and seeking funds from investors to enable the Company to build full-scale piloted prototypes of the TriFan 600, and to eventually engage in commercial production and sale of TriFan 600.

On March 12, 2024, XTI Aerospace, Inc., the "Company", formerly known as Inpixon (“Legacy Inpixon”), Superfly Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Legacy Inpixon (“Merger Sub”), and XTI Aircraft Company, a Delaware corporation (“Legacy XTI”), completed their previously announced merger transaction pursuant to that certain Agreement and Plan of Merger, dated as of July 24, 2023 and amended on December 30, 2023 and March 12, 2024 (the “XTI Merger Agreement”), pursuant to which Legacy XTI merged in a reverse triangular merger with Merger Sub with Legacy XTI surviving the merger as a wholly-owned subsidiary of the Company (the “XTI Merger”).

In connection with the closing of the XTI Merger, our corporate name changed from Inpixon to “XTI Aerospace, Inc.” and the combined company opened for trading on the Nasdaq Capital Market on March 13, 2024 under the new ticker symbol “XTIA.”

Based on the guidance of ASC Topic 805, "Business Combinations," the Company determined the XTI Merger should be accounted for as a reverse acquisition with Legacy XTI being considered the accounting acquirer.

Therefore, the condensed consolidated financial statements included in this report represent a continuation of the financial statements of Legacy XTI and the results of operations of the accounting acquired entity, Legacy Inpixon, are included in the condensed consolidated financial statements as of the March 12, 2024 merger closing date and through the June 30, 2024 reporting date.

Following the closing of the XTI Merger, the Company is primarily an aircraft development company.

The Company also provides real-time location systems (“RTLS”) for the industrial sector, which was Legacy Inpixon's focus prior to the closing of the XTI Merger.

Headquartered in Englewood, Colorado, the Company is developing a vertical takeoff and landing ("VTOL") aircraft that is designed to take off and land like a helicopter and cruise like a fixed-wing business aircraft.

Since 2013, the Company has been engaged primarily in developing the design and engineering concepts for the TriFan 600, building and testing a two-thirds scale unmanned version of the TriFan 600, generating pre-orders for the TriFan 600, and seeking funds from investors to enable the Company to build full-scale piloted prototypes of the TriFan 600, and to eventually engage in commercial production and sale of TriFan 600.

Our RTLS solution leverages cutting-edge technologies such as IoT, AI, and big data analytics to provide real-time tracking and monitoring of assets, machines, and people within industrial environments.

6 unchanged sentences

Our IoT stack covers all the technology layers, from the edge devices to the cloud.

It includes hardware components such as sensors and gateways, a robust software platforms for data management and analysis, and a user-friendly dashboard for real-time monitoring and control.

It includes hardware components such as sensors and gateways, a robust software platform for data management and analysis, and a user-friendly dashboard for real-time monitoring and control.

Our solutions also offer robust security features, to help ensure the protection of sensitive data.

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

On March 12, 2024, Inpixon (“Legacy Inpixon”), Superfly Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Legacy Inpixon (“Merger Sub”), and XTI Aircraft Company, a Delaware corporation (“Legacy XTI”), completed their previously announced merger transaction.

The merger transaction was completed pursuant to an Agreement and Plan of Merger (the “XTI Merger Agreement”), dated as of July 24, 2023 and amended on December 30, 2023 and March 12, 2024, pursuant to which Legacy XTI merged in a reverse triangular merger with Merger Sub with Legacy XTI surviving the merger as a wholly-owned subsidiary of the Company (the “XTI Merger”).

Based on the guidance of ASC Topic 805, "Business Combinations," we determined the XTI Merger transaction should be accounted for as a reverse acquisition with Legacy XTI being considered the accounting acquirer.

Therefore, the condensed consolidated financial statements included in this filing represent a continuation of the financial statements of Legacy XTI and the results of operations of the accounting acquired entity, Legacy Inpixon, are included in the condensed consolidated financial statements as of the March 12, 2024 merger closing date and through the March 31, 2024 reporting date.

See Note 5 for more details.

Note 2 - Basis of Presentation

2 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Interim results for the three months ended March 31, 2024 are not necessarily indicative of the results for the full year ending December 31, 2024.

These interim unaudited condensed consolidated financial statements should be read in conjunction with Legacy Inpixon's audited consolidated financial statements and notes for the years ended December 31, 2023 and 2022 included in the annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 16, 2024.

It should be noted the aforementioned Form 10-K excludes the historical financial position and operating results of Legacy XTI as the merger closed during the first quarter of 2024.

Interim results for the three and six months ended June 30, 2024 are not necessarily indicative of the results for the full year ending December 31, 2024.

These interim unaudited condensed consolidated financial statements should be read in conjunction with Legacy Inpixon's audited financial statements and notes for the years ended December 31, 2023 and 2022 included in the annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 16, 2024.

These interim unaudited condensed consolidated financial statements should also be read in conjunction with Legacy XTI's audited financial statements and notes for the years ended December 31, 2023 and 2022 included in the Form 8-K/A filed with the SEC on May 28, 2024.

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 3 - Summary of Significant Accounting Policies

The Company's complete accounting policies are described in Note 2 to the Legacy Inpixon's audited consolidated financial statements and notes for the year ended December 31, 2023, except for Legacy XTI's accounting policies which have been incorporated into this Note 3.

The Company's complete accounting policies are described in Note 2 to Legacy Inpixon's audited consolidated financial statements and notes for the year ended December 31, 2023, except for Legacy XTI's accounting policies which have been incorporated into this Note 3.

Liquidity and Going Concern

As of March 31, 2024, the Company has a working capital deficit of approximately $ 5.1 million, and cash of approximately $ 1.8 million.

For the three months ended March 31, 2024, the Company had a net loss of approximately $ 2.7 million.

During the three months ended March 31, 2024, the Company used approximately $ 2.6 million of cash for operating activities.

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.

As of June 30, 2024, the Company has a working capital deficit of approximately $ 7.9 million, and cash of approximately $ 5.8 million.

For the six months ended June 30, 2024, the Company had a net loss of approximately $ 17.3 million.

During the six months ended June 30, 2024, the Company used approximately $ 8.2 million of cash for operating activities.

There can be no assurances that the Company will ever earn revenues sufficient to support its operations, or that it will ever be profitable.

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

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

The Company’s condensed consolidated financial statements as of three months ended March 31, 2024 and 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 condensed consolidated financial statements as of and for the three months ended March 31, 2024 and 2023 do not include any adjustments that might result from the outcome of this uncertainty.

The Company’s condensed consolidated financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 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 Company's ability to obtain additional equity or debt financing, and attain further operating efficiency, which is uncertain, which together represent the principal conditions that raise substantial doubt about our ability to continue as a going concern.

The Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2024 and 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 XTI Aircraft Company and as of March 12, 2024 and forward (the effective date of the XTI Merger - see Note 5) the accounting records of XTI Aerospace, Inc.

The consolidated financial statements have been prepared using the accounting records of Legacy XTI and as of March 12, 2024 and forward (the effective date of the XTI Merger) the accounting records of XTI Aerospace, Inc.

(formerly known as Inpixon), Inpixon GmbH (formerly known as Nanotron Technologies GmbH), Inpixon Holding UK Limited, and Intranav GmbH.

5 unchanged sentences

• the valuation of stock-based compensation;

• the valuation of the Company’s common stock issued in transactions, including acquisitions;

• the valuation of the Company’s common stock issued and assets acquired in transactions, including acquisitions;

• the valuation of equity securities;

• the valuation of warrant liabilities;

• the valuation of notes receivable;

• the valuation of warrant liabilities and assets;

• the valuation of convertible notes, at fair value;

5 unchanged sentences

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.

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 3 - Summary of Significant Accounting Policies (continued)

2 unchanged sentences

They are amortized ratably over a range of 5 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 no impairment during the three months ended March 31, 2024 and 2023.

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

2 unchanged sentences

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

During fiscal year 2024, the Company acquired IPR&D through the merger with Inpixon.

During fiscal year 2024, the Company acquired IPR&D through the XTI Merger.

Carrying Value, Recoverability and Impairment of Long-Lived Assets

16 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 no long-lived assets impairment during the three months ended March 31, 2024 and 2023.

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.

Based on its assessments, the Company has recorded no long-lived assets impairment during the six months ended June 30, 2024 and 2023.

The Company tests goodwill for potential impairment at least annually as of October 1, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit.

In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount.

6 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 3 - Summary of Significant Accounting Policies (continued)

4 unchanged sentences

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.

Based on its assessments, the Company has recorded no goodwill impairment during the three months ended March 31, 2024 and 2023.

Based on its assessments, the Company has recorded no goodwill impairment during the six months ended June 30, 2024 and 2023.

Revenue Recognition

4 unchanged sentences

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.

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Materials, or other specified direct costs, are reimbursed as actual costs and may include markup.

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.

For fixed fee contracts including maintenance service provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based

The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 3 - Summary of Significant Accounting Policies (continued)

measure because the Company is providing continuous service.

directly with the value to the customer of the performance completed to date.

For fixed fee contracts including maintenance service provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service.

Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.

Anticipated losses are recognized as soon as they become known.

For the three months ended March 31, 2024 and 2023, the Company did not incur any such losses.

For the six months ended June 30, 2024 and 2023, the Company did not incur any such losses.

These amounts are based on known and estimated factors.

19 unchanged sentences

The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment.

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

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

Customer Deposits

7 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 3 - Summary of Significant Accounting Policies (continued)

17 unchanged sentences

The Company incurred the following stock-based compensation charges for the periods indicated below (in thousands):

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2024 2023 2024 2023

Employee and consultant stock options 1

$ ( 59 ) $ 2,461 $ 84 $ 2,602

Vesting of previously unvested warrants 2

6 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 3 - Summary of Significant Accounting Policies (continued)

As the Company accounts for stock option forfeitures in the period in which the forfeiture occurred, the income recognized during the three months ended June 30, 2024 as a result of forfeitures exceeded the expense recognized resulting in a negative or income of approximately $ 59,000 .

Net Loss Per Share

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

Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive.

The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the three months ended March 31, 2024 and 2023 as they are considered to be anti-dilutive:

For the Three Months Ended March 31,

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

Basic and diluted net loss per share were the same since the inclusion of shares of common stock issuable pursuant to the exercise of options and warrants in the calculation of diluted net loss per share would have been anti-dilutive.

The following table summarizes the weighted average number of shares of common stock and common stock equivalents excluded from the calculation of diluted net loss per share for the three and six months ended June 30, 2024 and 2023 as they are considered to be anti-dilutive:

For the Three Months Ended June 30, For the Six Months Ended June 30,

2024 2023 2024 2023

Options 3,292,125 1,161,688 2,222,239 1,054,138

3 unchanged sentences

Total 4,127,977 1,976,312 3,354,216 1,820,876

Basic earnings per share for the three months ended March 31, 2024 and 2023, included 549,286 and 608,528 of weighted average penny warrants shares, respectively, since the exercise price was $ 0.01 per share.

Additional, basic earnings per share for the three months ended March 31, 2024, included 236,093 weighted average number of common shares that were issuable to Xeriant Inc.

The basic earnings per share calculation for the three months ended June 30, 2024 and 2023 included 209,688 and 608,528 penny warrant shares, respectively, since the exercise price was $ 0.01 per share.

The basic earnings per share calculation for the six months ended June 30, 2024 and 2023 included 608,528 and 608,528 of penny warrants shares, respectively.

Additionally, the basic earnings per share calculation for the three months ended June 30, 2023 and for the six months ended June 30, 2024 and 2023 included 298,395 shares of common stock that were issuable to Xeriant Inc.

("Xeriant") related to the joint venture arrangement that expired by its term on May 31, 2023.

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The Company determines the estimated fair value of such financial instruments presented in these financial statements using available market information and appropriate methodology.

These financial instruments, except for short-term debt and notes receivable, are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature.

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

The valuation methodology of notes receivable are described in Note 24 .

ASC 820 , " Fair Value Measurements" (“ASC 820” ), provides guidance on the development and disclosure of fair value measurements.

The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and

These financial instruments, except for short-term

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 3 - Summary of Significant Accounting Policies (continued)

expands disclosures about fair value measurements.

debt and notes receivable, are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature.

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

ASC 820 , " Fair Value Measurements" (“ASC 820” ), provides guidance on the development and disclosure of fair value measurements.

The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

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Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2024 and December 31, 2023 and during the periods ended March 31, 2024 and March 31, 2023.

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2024 and December 31, 2023 and during the periods ended June 30, 2024 and June 30, 2023.

The Company and its Chief Executive Officer ("CEO"), acting as the Chief Operating Decision Maker ("CODM") determined its operating segments in accordance with ASC 280, "Segment Reporting" ("ASC 280").

The Company is organized and operated as two business segments based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments.

The Company is organized and operates as two business segments based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments.

Recently Issued and Adopted Accounting Standards

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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 entity.

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 condensed consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.

The new standard requires a company to disclose incremental segment information on an annual and interim basis, including significant segment expenses and measures of profit or loss that are regularly provided to the chief operating decision maker.

The standard is effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025,

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 3 - Summary of Significant Accounting Policies (continued)

with early adoption permitted.

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 entity.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.

The standard is effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted.

The Company does not expect to early adopt the new standard.

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Revenues consisted of the following (in thousands):

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2024 2023 2024 2023

Recurring revenue

3 unchanged sentences

Hardware $ 606 $ — $ 768 $ —

Software 5 — 5 —

Professional services 103 — 108 —

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 4 - Disaggregation of Revenue (continued)

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2024 2023 2024 2023

Revenue recognized at a point in time

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Under this method of accounting, Legacy Inpixon was treated as the "acquired" company for financial reporting purposes.

This determination is primarily based on the fact that subsequent to the XTI Merger, Legacy XTI maintains control of the Board of Directors and management of the combined company, and the preexisting shareholders of Legacy XTI will have majority voting rights of the combined company.

This determination is primarily based on the fact that subsequent to the XTI Merger, Legacy XTI maintains control of the Board of Directors and management of the Company, and the preexisting shareholders of Legacy XTI have majority voting rights of the Company.

For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination.

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Total consideration $ 25,605

The Company determined the estimated fair value of common stock included in consideration to be calculated based on Inpixon’s common stock outstanding of 2,075,743 multiplied by the price of Inpixon’s common stock on March 12, 2024 of $ 5.27 (which reflects the 1 to 100 reverse stock split which went effective before the closing of the transaction).

The Company determined the stock price of Inpixon was utilized in determining fair value as it is more reliably measurable than the value of the Legacy XTI’s (accounting acquirer) equity interests given it is not a publicly traded entity prior to the Merger.

The Company determined the estimated fair value of common stock included in consideration to be calculated based on Legacy Inpixon’s common stock outstanding of 2,075,743 multiplied by the price of Legacy Inpixon’s common stock on March 12, 2024 of $ 5.27 (which reflects the 1 to 100 reverse stock split which became effective before the closing of the XTI Merger).

The Company utilized Legacy Inpixon's common stock price in determining fair value as it is more reliably measurable than the value of Legacy XTI’s (accounting acquirer) equity interests given it is not a publicly traded entity.

The fair value of warrants of approximately $ 3.3 million was included in the total equity consideration.

A portion of this total represents 918,689 warrants outstanding by the Company with a fair value of $ 1.00 per warrant, which is the warrant's redemption value.

The warrant fair value was determined to be the redemption value as the warrants include protective

The warrant fair value was determined to be the redemption value as the warrants include protective covenants for the Company which prevent the holder from exercising the warrants.

The remainder of this total represents

XTI AEROSPACE, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 5 – Merger Transaction (continued)

covenants for the Company which prevent the holder from exercising the warrants.

The warrant is redeemable in May 2024, and at that time, the holder will receive the redemption value ($ 1 per share) for each warrant.

The remainder of this total represents 491,310 warrants with a fair value of $ 4.75 per warrant which was determined by using level 3 inputs utilizing a Black-Scholes valuation.

491,310 warrants with a fair value of $ 4.75 per warrant which was determined by using level 3 inputs utilizing a Black-Scholes valuation.

The Black-Scholes valuation inputs include a dividend rate of 0.0 %, risk free rate of 4.2 %, share price of $ 5.27 , exercise price of $ 5.13 per share, an expected term of 4.76 years, and volatility of 146 %.

The fair value of preferred stock of approximately $ 11.3 million included in the total equity consideration represents 11,302 shares of a new series of Preferred Stock that was issued and outstanding by the Company upon the consummation of the Merger at a stated value of $ 1,000 and fair value of $ 1,000 per share, which was determined by using level 3 inputs utilizing a scenario-based method under the income approach.

Inputs and assumptions under the scenario-based method include preferred return and preferred dividends outlined in Note 13 and an expected holding period of 5 years.

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

These values are subject to change as we perform additional reviews of our assumptions utilized.

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

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

The fair value of preferred stock of approximately $ 11.3 million included in the total equity consideration represents 11,302 shares of a new series of Preferred Stock that was issued and outstanding by the Company upon the consummation of the XTI Merger at a stated value of $ 1,000 and fair value of $ 1,000 per share.

The issuance of the preferred stock was determined to be an arm's length transaction, therefore fair value is equal to cash proceeds.

The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the XTI Merger.

These values are subject to change as the Company performs additional reviews of its assumptions utilized.

The Company has made a provisional allocation of the purchase price of the XTI Merger to the assets acquired and the liabilities assumed as of the purchase date.

The following table summarizes the preliminary purchase price allocations relating to the XTI Merger (in thousands):

Assets acquired

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 5 – Merger Transaction (continued)

The Company incurred approximately $ 13.8 million of merger related transaction costs in conjunction with the merger transaction.

Refer to XTI Aerospace Inc.'s annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 16, 2024, for more information on the XTI Merger transaction.

For the three months ended June 30, 2024 and 2023, the Company incurred merger related transaction costs of $ 0 and $ 0.6 million, respectively.

For the six months ended June 30, 2024 and 2023, the Company incurred merger related transaction costs of $ 6.5 million and $ 0.7 million, respectively.

Note 6 - Proforma Financial Information

Inpixon Financial Information

The following unaudited proforma financial information presents the consolidated results of operations of the Company and Inpixon for the three months ended March 31, 2024 and 2023, as if the acquisition had occurred as of the beginning of the first period presented (January 1, 2023) instead of on March 12, 2024.

The following unaudited proforma financial information presents the consolidated results of operations of the Company and Legacy Inpixon for the six months ended June 30, 2024 and 2023, as if the acquisition had occurred as of the beginning of the first period presented (January 1, 2023) instead of on March 12, 2024.

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

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

For the Three Months Ended March 31, 2024 For the Three Months Ended March 31, 2023

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

For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023

Revenues $ 1,031 $ 820

3 unchanged sentences

Basic and Diluted 14,714,143 10,068,967

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

For the Six Months Ended June 30, 2024 For the Six Months Ended June 30, 2023

Revenues $ 1,758 $ 2,727

Net loss attributable to common stockholders $ ( 31,669 ) $ ( 18,453 )

Net loss per basic and diluted common share $ ( 2.15 ) $ ( 1.83 )

Weighted average common shares outstanding:

Basic and Diluted 14,714,143 10,068,967

XTI AEROSPACE, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 7 - Intangible Assets

Intangible assets at March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

March 31, 2024

Intangible assets at June 30, 2024 and December 31, 2023 consisted of the following (in thousands):

June 30, 2024

Gross Amount Accumulated Amortization Net Carrying Amount Remaining Weighted Average Useful Life

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Total $ 421 $ ( 155 ) $ 266

Amortization expense for the three months ended March 31, 2024 and 2023 was approximately $ 0.04 million and $ 0.01 million respectively.

Amortization expense for the three and six months ended June 30, 2024 was approximately $ 0.19 million and $ 0.23 million, respectively.

Amortization expense for the three and six months ended June 30, 2023 was approximately $ 0.01 million and $ 0.01 million, respectively.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 8 - Inventory

The Company did not have any inventory as of December 31, 2023.

Inventory as of March 31, 2024 consisted of the following (in thousands):

As of March 31, 2024

The Company did not hold any inventory as of December 31, 2023.

Inventory as of June 30, 2024 consisted of the following (in thousands):

As of June 30, 2024

Raw materials $ 29

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As of December 31, 2023, the Company did not have any deferred revenue.

As part of the merger, the Company acquired approximately $ 0.8 million of deferred revenue, all of which relates to RTLS maintenance agreements.

The Company's deferred revenue balance as of March 31, 2024 related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff.

As part of the XTI Merger, the Company acquired approximately $ 0.8 million of deferred revenue, all of which relates to RTLS maintenance agreements.

The Company's deferred revenue balance of $ 0.5 million as of June 30, 2024 related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff.

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

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Note 10 - Accrued Liabilities

Accrued liabilities as of March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

As of March 31, 2024 As of December 31, 2023

Accrued liabilities as of June 30, 2024 and December 31, 2023 consisted of the following (in thousands):

As of June 30, 2024 As of December 31, 2023

Accrued transaction bonuses $ 6,731 $ —

Accrued compensation and benefits 1,959 649

Accrued other 613 173

Accrued bonus and commissions 947 305

Consulting agreements expense accrual (See Note 23) 302 —

Due to Grafiti Group, LLC 254 —

Accrued other 648 173

Accrued consulting fees 329 —

Accrued sales and other indirect taxes payable 15 —

$ 10,629 $ 1,127

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 11 - Debt

Debt as of March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

Short-Term Debt Maturity March 31, 2024 December 31, 2023

Debt as of June 30, 2024 and December 31, 2023 consisted of the following (in thousands):

Short-Term Debt Maturity June 30, 2024 December 31, 2023

Promissory Note - 2023 $ — $ 3,071

2 unchanged sentences

Convertible Note - 2021 1

Promissory Note - May 1, 2024 5/1/2025 1,350 —

Promissory Note - May 24, 2024 5/24/2025 1,318 —

Unamortized Discounts ( 500 ) ( 50 )

11 unchanged sentences

Total Long-Term Debt $ 65 $ 18,546

1 principal balance was converted to equity immediately prior to the XTI Merger closing time - refer to Note 12

Interest expense on the short-term debt totaled approximately $ 0.4 million and $ 0.2 million for the three months ended March 31, 2024 and 2023, respectively.

Interest expense includes the interest on the outstanding balance of the notes and the amortization of deferred financing costs and note discounts recorded at issuance for the Short Term Debt.

Notes Payable

1 principal balance was either converted to equity immediately prior to the XTI Merger closing time (see Note 12) or subsequently repaid

Interest expense on outstanding debt totaled approximately $ 0.2 million and $ 0.3 million for the three months ended June 30, 2024 and 2023, respectively.

Interest expense on outstanding debt totaled approximately $ 0.6 million and $ 0.5 million for the six months ended June 30, 2024 and 2023, respectively.

Interest expense includes the interest on the outstanding balance of the notes and the amortization of note discounts recorded at issuance for the outstanding debt.

Promissory Note - 2023

On July 24, 2023, the Company and XTI Aircraft Company entered into a Senior Promissory Note which had an outstanding principal balance of approximately $ 3.1 million as of December 31, 2023.

During the period from January 1, 2024 to March 12, 2024, legacy Inpixon provided an additional $ 1.0 million in funding to XTI Aircraft Company.

On March 12, 2024, the Company and XTI Aircraft Company effected a reverse triangular merger resulting in XTI Aircraft Company becoming a wholly-owned subsidiary of the Company.

As a result of the merger, the outstanding subsidiary debt balance, related parent note receivable balance and accrued interest eliminated upon the consolidation of the Company's March 31, 2024 balance sheet.

The Company intends to legally terminate this intercompany promissory note during the second quarter of 2024.

On July 24, 2023, the Company and Legacy XTI entered into a Senior Promissory Note which had an outstanding principal balance of approximately $ 3.1 million as of December 31, 2023.

During the period from January 1, 2024 to March 12, 2024, Legacy Inpixon provided an additional $ 1.0 million in funding to Legacy XTI.

On March 12, 2024, the Company and Legacy XTI effected a reverse triangular merger resulting in Legacy XTI becoming a wholly-owned subsidiary of the Company.

As a result of the XTI Merger, the outstanding subsidiary debt balance, related parent note receivable balance and accrued interest were eliminated upon the consolidation of the Company's June 30, 2024 balance sheet.

The Company intends to legally terminate this intercompany promissory note during the third quarter of 2024.

Promissory Note - 2023 - related party

On January 5, 2023, the Company entered into a promissory note agreement with David Brody.

The note has a principal amount of approximately $ 0.1 million and accrues interest at a rate of 5 % per annum.

The note matures on May 31, 2024 (as amended).

On May 2, 2024, the Company paid $ 0.05 million towards the principal balance of the note.

The note had a principal amount of approximately $ 0.1 million and accrued interest at a rate of 5 % per annum.

The note's outstanding principal and accrued interest balances were repaid in full during the second quarter of 2024.

XTI AEROSPACE, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 11 - Debt (continued)

1 unchanged sentence

On October 1, 2023, an existing convertible note entered into on December 31, 2021 by and between the Company and David Brody was replaced by a new convertible note with a principal balance of approximately $ 1.1 million and interest rate of 4 %.

On March 12, 2024, approximately $ 0.9 million of the note's outstanding balance was converted into common shares of the Company, The Company repaid the remaining balance of the note on April 1, 2024.

On March 12, 2024, approximately $ 0.9 million of the note's outstanding balance was converted into shares of the Company's common stock.

The Company repaid the remaining balance of the note on April 1, 2024.

See Note 12 for more information.

Convertible Note - 2021

During 2021, the Company entered into convertible notes with a syndicate of investors.

The notes had a combined principal amount of $ 2.5 million and accrue interest at a rate of 4.0 % per annum.

On March 12, 2024, approximately $ 2.45 million of the note's outstanding principal balance was converted into common shares of the Company.

As of March 31,2024, approximately $ 0.05 million of the note's principal balance and $ 0.2 million of accrued interest remained outstanding.

The note holder has the right to receive repayment of the note at the note’s maturity date in either cash or in shares of common stock of the Company at a value of $ 1.00 per share.

The share conversion may occur prior to May 23, 2024 at the option of the note holder.

The notes had a combined principal amount of $ 2.5 million and accrued interest at a rate of 4.0 % per annum.

As discussed in Note 12, pursuant to the terms of voluntary note conversion letter agreements, approximately $ 2.45 million of the note's outstanding principal balance and approximately $ 0.05 million in accrued interest were converted into shares of Legacy XTI common stock immediately prior to the closing of the XTI Merger, which converted into shares of the Company's common stock at the closing of the XTI Merger on March 12, 2024.

A repayment obligation remained after the XTI Merger closing with respect to an aggregate of approximately $ 0.05 million in principal and approximately $ 0.25 million in accrued interest that were not converted into shares of Legacy XTI common stock.

The Company repaid $ 0.05 million of the repayment obligation during the second quarter of 2024.

Promissory Note - May 1, 2024

On May 1, 2024, the Company entered into a note purchase agreement (the "Purchase Agreement") with Streeterville Capital, LLC (the "Holder"), pursuant to which the Company agreed to issue and sell to the Holder a secured promissory note (the "Note") in an aggregate initial principal amount of approximately $ 1.4 million, which is payable on or before the date that is 12 months from the issuance date, and upon the satisfaction of certain conditions set forth in the note purchase agreement, up to two additional secured promissory notes (the “Subsequent Notes”).

The initial principal amount of the Note includes an original issue discount of approximately $ 0.3 million and approximately $ 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 Note, the Holder paid an aggregate purchase price of $ 1.0 million.

Interest on the Note accrues at a rate of 10.0 % per annum and is payable on the maturity date or otherwise in accordance with the Note.

If the Note is still outstanding on the date that is six months from the issuance date, then a one-time monitoring fee equal to 10 % of the then-current outstanding balance will be added to the Note.

Beginning on the date that is six months from the issuance date and at the intervals indicated below until the Note is paid in full, the Holder will have the right to require the Company to redeem up to an aggregate of one sixth of the initial principal balance of the Note plus any interest accrued thereunder each month (each monthly exercise, a “Monthly Redemption Amount”) by providing written notice;

provided, however, that if the Holder does not exercise any Monthly Redemption Amount in its corresponding month then such Monthly Redemption Amount will 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 will be required to 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.

Legacy XTI provided a guarantee, dated as of May 1, 2024, of the Company’s obligations to the Holder under the Note, any Subsequent Notes and the other transaction documents.

In addition, the Company’s obligations under the Note, any Subsequent Notes and the other transaction documents are secured by (i) a pledge of all of the stock the Company owns in Legacy XTI pursuant to the terms of the pledge agreement, dated as of May 1, 2024, by and between the Company and the Holder, and (ii) those assets owned by Legacy XTI constituting Collateral, pursuant to (and as defined in) the security agreement, dated as of May 1, 2024, by and between Legacy XTI and the Holder.

Promissory Note - May 24, 2024

Pursuant to the terms of the aforementioned Purchase Agreement, on May 24, 2024, the Company issued and sold to Streeterville Capital, LLC an additional secured promissory note in the initial principal amount of $ 1.3 million, which carries an original issue discount of $ 0.3 million.

The terms of this additional note are identical to the terms of the May 1, 2024 note, as described above.

In exchange for the promissory note, the Holder paid an aggregate purchase price of $ 1.0 million.

XTI AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 11 - Debt (continued)

Third Party Note Payable - 2023 - financing agreement

As part of the Merger, the Company acquired a financing agreement whereby the lender paid a Company vendor approximately $ 0.1 million for a service contract.

As part of the XTI Merger, the Company acquired 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.

3 unchanged sentences

The Company is to pay $ 0.04 million per month until the debt is repaid in full.

On June 3, 2020, the Company entered into a promissory note with the U.S.

On June 3, 2020, Legacy XTI entered into a promissory note with the U.S.

Small Business Administration (SBA).

1 unchanged sentence

Monthly interest only payments commenced on June 3, 2021.

The note matures on June 3, 2050 and is collateralized by tangible and intangible personal assets of the Company.

The note matures on June 3, 2050 and is collateralized by tangible and intangible personal assets of Legacy XTI.

Note 12 - Common Stock

Capital Raises

At-the-Market (ATM) Program

On June 14, 2024, the Company entered into Amendment No.

6 to the Equity Distribution Agreement (the "Amendment") with Maxim Group LLC ("Maxim") which amends the Equity Distribution Agreement, dated as of July 22, 2022, between the Company and Maxim, as previously amended (as amended, the "Equity Distribution Agreement"), pursuant to which the aggregate gross sales amount under the Equity Distribution Agreement was increased from approximately $ 48.8 million to approximately $ 83.8 million.

Accordingly, pursuant to the Equity Distribution Agreement, the Company may, from time to time, sell shares of the Company’s common stock, par value $ 0.001 per share, having an aggregate gross sales amount of up to approximately $ 83.8 million through Maxim, as the Company’s exclusive sales agent (the "ATM Offering").

Maxim is entitled to compensation at a fixed commission rate of 3.0 % of the gross sales price per Share sold excluding Maxim's costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket expenses of its legal counsel.

During the six months ended June 30, 2024, the Company sold 9,300,203 shares of common stock under the Equity Distribution Agreement at per share prices between approximately $ 0.55 and $ 1.35 , resulting in net proceeds to the Company of approximately $ 8.5 million.

Since the date of the Equity Distribution Agreement through the date of this report, the Company sold 11,962,807 shares of common stock at per share prices between $ 0.14 and $ 1.86 under the Equity Distribution Agreement, resulting in net proceeds to the Company of approximately $ 36.1 million.

As of June 30, 2024, there was approximately $ 47.4 million in common stock remaining un der the Equity Distribution Agreement, subject to the limitations set forth in the Series 9 ATM Consent (as defined below).

In connection with the Amendment and in accordance with the terms of the Certificate of Designation of Preferences and Rights of the Company's Series 9 Preferred Stock, on June 14, 2024, the Company obtained a written consent (the "Series 9 ATM Consent") from at least a majority of the outstanding shares of the Company's Series 9 Preferred Stock (the "Required Holders").

The Series 9 ATM Consent provides that the Company may not register shares under the ATM Offering in excess of $ 47.4 million (the "ATM Maximum Amount") without the Required Holders’ prior written consent, and the Company may not issue or sell more than $ 6 million of additional shares of common stock pursuant to the ATM Offering (the "Initial Tranche") without the Required Holders’ prior written consent, which consent the Company is required to obtain for each additional $ 5 million in sales of common stock under the ATM Offering after the Initial Tranche up to the ATM Maximum Amount.

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Note 12 - Common Stock

Reverse Stock Split

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.

All references in the condensed consolidated financial statements to the number of shares and per share amounts of the Company’s common stock have been retroactively restated to reflect completion of the Merger and the Reverse Stock Split.

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 12 - Common Stock (continued)

Note Conversion

Immediately prior to the effective time of the XTI Merger on March 12, 2024, the 2017 convertible note, 2018 convertible note and 2019 convertible note (collectively classified as "convertible notes, at fair value" - refer to the debt table in Note 11) were converted into an aggregate 8,416,201 pre-exchange common shares or 751,226 post merger exchange common shares of the company.

Immediately prior to the effective time of the XTI Merger on March 12, 2024, certain convertible notes (collectively classified as "convertible notes, at fair value") with an aggregate principal and interest balance of $ 16.8 million were converted into Legacy XTI shares, which converted into an aggregate of 751,226 shares of the Company's common stock at the effective time of the XTI Merger.

Immediately prior to the conversion, the convertible notes, at fair value were marked to market resulting in a gain of $ 12.9 million, which is included in change in fair value of convertible notes in the other income and expense section of the condensed consolidated statement of operations.

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Note Inducements

To induce note holders to convert their outstanding note balances into XTI common shares ahead of the XTI Merger so to assist the Company in qualifying for a Nasdaq Capital Markets listing, Legacy XTI entered into voluntary note conversion letter agreements in February 2024 as detailed below.

Per the letter agreements, an aggregate principal and accrued interest balance was converted at a reduced conversion price into common shares of Legacy XTI immediately prior to the XTI Merger closing time.

As a result of the voluntary note conversions, for some transactions there was a syndicate note balance remaining post-merger which was assumed by the combined company (XTI Aerospace).

To induce certain note holders to convert their outstanding note balances into shares of Legacy XTI common stock ahead of the XTI Merger so to assist the Company in qualifying for a listing on the Nasdaq Capital Market, Legacy XTI entered into voluntary note conversion letter agreements in February 2024 as detailed in the below table.

Per the letter agreements, some or all of the outstanding principal and accrued interest under the notes was converted at a reduced conversion price into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which converted into shares of the Company's common stock upon the closing of the XTI Merger.

In connection with some of the voluntary note conversions, the Company assumed a repayment obligation with respect to any outstanding balance under the notes that was not converted into Legacy XTI shares.

The Company accounted for these conversions as an inducement and, as such, recognized a loss related to the fair value of the additional shares issued compared to the original terms of the convertible note, which is included in inducement loss on debt conversions in the other income and expense section of the condensed consolidated statement of operations.

Letter Agreement Aggregate Principal and Interest

Reduced Conversion Price

Pre - Exchange Ratio Common Shares

Letter Agreement Aggregate Principal and Interest Outstanding Immediately Prior to XTI Merger

Aggregate Principal and Interest Converted to Common Shares Reduced Conversion Price

Post - Exchange Ratio Common Shares

Post Conversion Note Balance Outstanding - Assumed by XTI Aerospace

Net Inducement Charge

Outstanding Payment Obligation Immediately After XTI Merger Net Inducement Charge

Convertible Note 2021 $ 2,776,776 $ 2,503,776 $ 0.265 843,523 $ 273,000 $ 3,266,167

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Convertible Note 2021 - Related Party

To induce the note holder to convert his outstanding note balances into XTI common shares ahead of the XTI Merger so to assist the Company in qualifying for a Nasdaq Capital Markets listing, XTI Aircraft Company entered into voluntary note conversion letter agreement with the note holder in February 2024.

Per the letter agreement, $ 0.9 million of the outstanding note balance was converted at a reduced conversion price of $ 0.309 into 2,983,115 pre-exchange common shares of XTI immediately prior to the XTI Merger closing time or 266,272 post merger exchange common shares.

As a result of the voluntary note conversion, $ 0.2 million of the note balance remained outstanding post-merger and was assumed by the combined company (XTI Aerospace) and was subsequently paid in full on April 1, 2024.

To induce David Brody to convert his outstanding note balances into shares of Legacy XTI common stock ahead of the XTI Merger so to assist the Company in qualifying for listing on the Nasdaq Capital Market, Legacy XTI entered into a voluntary note conversion letter agreement with the note holder in February 2024.

Per the letter agreement, $ 0.9 million of the outstanding note balance was converted at a reduced conversion price of $ 0.309 into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time equal to 266,272 shares of the Company's common stock, and the Company assumed the obligation to pay the note holder $ 0.2 million of the note balance that was not converted into Legacy XTI shares.

This repayment obligation was subsequently paid in full on April 1, 2024.

The Company accounted for this conversion as an inducement and, as such, recognized an inducement charge of $ 1.0 million related to the fair value of the additional shares issued compared to the original terms of the convertible note.

As this note holder is a related party of the

As this note holder is a related party of the Company, the Company accounted for the conversion as a capital transaction and therefore recorded the inducement charge within additional paid in capital.

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 12 - Common Stock (continued)

Company, the Company accounted for the conversion as a capital transaction and therefore recorded the inducement charge within additional paid in capital.

Share Issuances

At the closing of the merger transaction, there were 2,075,743 shares of the Company's common stock issued to Inpixon’s preexisting shareholders as consideration for the transaction.

3,342,998 of pre-exchange common shares of XTI Aircraft Company were issued to Xeriant, Inc.

immediately prior to the XTI Merger closing time or 298,395 post merger exchange common shares.

Share Issuances At or Immediately Prior to XTI Merger Closing

At the closing of the XTI Merger, 2,075,743 shares of the Company's common stock were issued to Legacy Inpixon’s preexisting shareholders as consideration for the transaction.

Shares of Legacy XTI common stock were issued to Xeriant, Inc.

immediately prior to the XTI Merger closing time, equal to 298,395 post merger shares of Company common stock.

This share issuance to Xeriant, Inc.

fully settled the obligation relating to a joint venture arrangement by and between XTI Aircraft Company and Xeriant Inc., which terminated by its terms on May 31, 2023.

The obligation to issue shares to Xeriant was classified in equity as of December 31, 2023, as the share consideration became fixed once the joint venture terminated.

4,000,000 of pre-exchange common shares of XTI Aircraft Company were issued to Scott Pomeroy as transaction compensation immediately prior to the XTI Merger closing time or 357,039 post merger exchange common shares.

As a result of this share issuance transaction, the Company recorded $ 1.9 million of stock-based compensation expense included in the condensed consolidated statement of operations for the three months ended March 31, 2024.

4,317,279 of pre-exchange common shares of XTI Aircraft Company were issued to Maxim Group as transaction compensation immediately prior to the XTI Merger closing time or 385,359 post merger exchange common of pre-exchange common shares As a result of this share issuance transaction, the Company recorded $ 2.0 million of stock-based compensation expense included in the condensed consolidated statement of operations for the three months ended March 31, 2024.

2,117,817 of pre-exchange common shares of XTI Aircraft Company were issued to Chardan Capital Markets as transaction compensation immediately prior to the XTI Merger closing time or 189,036 post merger exchange common shares.

As a result of this share issuance transaction, the Company recorded $ 1.0 million of stock-based compensation expense included in the condensed consolidated statement of operations for the three months ended March 31, 2024.

518,317 of pre-exchange common shares of XTI Aircraft Company were issued to a non-executive officer as transaction compensation immediately prior to the XTI Merger closing time or 46,265 post merger exchange common shares.

As a result of this share issuance transaction, the Company recorded $ 0.2 million of stock-based compensation expense included in the condensed consolidated statement of operations for the three months ended March 31, 2024.

Note 1 3 - Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $ 0.001 per share with rights, preferences, privileges and restrictions as to be determined by the Company’s Board of Directors.

Series 4 Convertible Preferred Stock

On April 20, 2018, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 4 Convertible Preferred Stock (“Series 4 Preferred”), authorized 10,415 shares of Series 4 Preferred and designated the preferences, rights and limitations of the Series 4 Preferred.

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 .

As of March 31, 2024, there was 1 share of Series 4 Preferred outstanding.

Series 5 Convertible Preferred Stock

On January 14, 2019, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 5 Convertible Preferred Stock, authorized 12,000 shares of Series 5 Convertible Preferred Stock and designated the preferences, rights and limitations of the Series 5 Convertible Preferred Stock.

The Series 5 Convertible Preferred Stock is non-voting (except to the extent required by law).

The Series 5 Convertible Preferred Stock is convertible

fully settled the obligation relating to a joint venture arrangement by and between Legacy XTI and Xeriant, Inc., which terminated by its terms on May 31, 2023.

The obligation to issue shares to Xeriant, Inc.

was classified in equity as of December 31, 2023, as the share consideration became fixed once the joint venture terminated.

Shares of Legacy XTI common stock were issued to Scott Pomeroy as transaction compensation immediately prior to the XTI Merger closing time equal to 357,039 post merger shares of Company common stock.

Shares of Legacy XTI common stock were issued to Maxim as transaction compensation immediately prior to the XTI Merger closing time equal to 385,359 post merger shares of Company common stock.

As a result of this share issuance transaction, the Company recorded $ 2.0 million of stock-based compensation expense included in the condensed consolidated statement of operations during the six months ended June 30, 2024.

Shares of Legacy XTI common stock were issued to Chardan Capital Markets LLC as transaction compensation immediately prior to the XTI Merger closing time equal to 189,036 post merger shares of Company common stock.

Shares of Legacy XTI common stock were issued to a non-executive officer as transaction compensation immediately prior to the XTI Merger closing time equal to 46,265 post merger shares of Company common stock.

Other Share Issuances

On June 6, 2024, the Company entered into a consulting agreement with a third party consultant, which has a term until December 10, 2024, pursuant to which the Company made a cash deposit of $ 0.1 million and issued 309,483 shares of restricted common stock valued at approximately $ 0.3 million to the consultant as a prepayment for marketing and distribution services agreed to be rendered to the Company over the six-month contract period.

On June 7, 2024, the Company entered into a consulting agreement with a separate third party consultant, which has a term of six months , pursuant to which the Company issued 120,000 shares of restricted common stock valued at approximately $ 0.1 million to the consultant as a prepayment for business development consulting services agreed to be rendered to the Company over the six-month contract period.

On June 13, 2024, the Company issued 2,680,459 shares of fully vested restricted stock valued at approximately $ 1.2 million to Nadir Ali, a consultant, under the Company’s 2018 Employee Stock Incentive Plan, as amended, as payment of accrued consulting fees in accordance with the terms of a consulting agreement, dated March 12, 2024, by and between the Company and Mr.

XTI AEROSPACE, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Note 13 - Preferred Stock (continued)

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 .

As of March 31, 2024, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 1 3 - Preferred Stock

Series 9 Preferred Stock

On March 12, 2024, the Company filed the Certificate of Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Designation”), with the Secretary of State of Nevada, designating 20,000 shares of preferred stock, par value $ 0.001 of the Company, as Series 9 Preferred Stock, which was amended by the Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock filed by the Company with the Secretary of State of Nevada on April 30, 2024.

Each share of Series 9 Preferred Stock has a stated face value of $ 1,050 (“Stated Value”) and do not have any voting rights.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 1 3 - Preferred Stock (continued)

1 unchanged sentence

In connection with the issuance of the Preferred Stock, the direct and incremental expenses incurred were immaterial.

As of March 31, 2024, there were 11,302 shares of Series 9 Preferred outstanding.

Amendment to Series 9 Preferred Stock

On April 30, 2024, the Company filed a Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock (the “Certificate of Amendment”) with the Secretary of State of Nevada, which allows the Company to pay the holders of Series 9 Preferred Stock, if such holders agree, with securities or other property of the Company in an amount equal to the Series 9 Preferred Liquidation Amount (as defined in the Series 9 Preferred Stock Certificate of Designation) in the event the Company elects to redeem all of any portion of the Series 9 Preferred Stock then issued and outstanding (a “Corporation Optional Redemption”).

Previously, the Company was to pay any such amount in only cash.

The Certificate of Amendment also now provides that the Company will provide notice of a Corporation Optional Redemption to the holders of Series 9 Preferred Stock within five business days prior to the consummation of such redemption rather than five business days following the determination of the Company’s board of directors to consummate such redemption.

In addition, the Certificate of Amendment eliminates the requirement for the Company to obtain the written consent of the holders of at least a majority of the outstanding Series 9 Preferred Stock before repaying any outstanding indebtedness owed to any holder of Series 9 Preferred Stock or its affiliates.

The Company evaluated the amendment and accounted for it as a modification, which requires the Company to recognize any increase in fair value as an expense.

However, the Company concluded the increase in the fair value of the Series 9 Preferred Stock from immediately before to immediately after the amendment is immaterial.

Series 9 Preferred Stock Exchanges

From April to June 2024, the Company entered into exchange agreements with the holder of shares of the Company’s Series 9 Preferred Stock pursuant to which the Company and the holder agreed to exchange 3,550 shares of Series 9 Preferred Stock with an aggregate stated value of $ 3,727,500 (the “Preferred Shares”) for 2,999,187 shares of common stock (the “Preferred Exchange Shares”) at an effective price per share ranging from $ 0.52 to $ 2.96 .

The Company issued the Preferred Exchange Shares to the holder, at which time the Preferred Shares were cancelled.

The Preferred Exchange Shares were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act, on the basis that (a) the Preferred Exchange Shares were issued in exchange for other outstanding securities of the Company, (b) there was no additional consideration delivered by the holder in connection with the exchange and (c) there were no commissions or other remuneration paid by the Company in connection with the exchange.

The Company notes that the redemption of the Preferred Shares to Common Stock was accounted for as an extinguishment.

The Company notes that the $ 176,980 excess fair value of the common shares issued over the carrying amount of the Preferred Shares was accounted for as a deemed dividend with a reduction to additional paid-in capital.

The following table summarizes the activity of the Series 9 Preferred Stock outstanding:

Shares of Series 9 Preferred Stock

Beginning balance as of January 1, 2024 —

Streeterville note exchange 9,802

Sold to 3AM 1,500

Exchanges to shares of common stock ( 3,550 )

Ending balance as of June 30, 2024 7,752

Note 14 - Stock Award Plans and Stock-Based Compensation

The Company has three Employee Stock Incentive plans.

The Company has a 2017 Employee and Consultant Stock Ownership Plan (“2017 Plan”) and legacy Inpixon had put in place a 2011 Employee Stock Incentive Plan (the “2011 Plan”) and a 2018 Employee Stock Incentive Plan (the “2018 Plan”).

During 2017, the Company adopted the 2017 Plan, which was amended in 2021 to increase the maximum shares eligible to be granted under the Plan.

The Company assumed the Legacy XTI's 2017 Employee and Consultant Stock Ownership Plan "2017 Plan") in connection with the XTI Merger.

Legacy Inpixon had put in place a 2011 Employee Stock Incentive Plan (the "2011 Plan") and a 2018 Employee Stock Incentive Plan (the "2018 Plan" and together with the 2011 Plan, the "Legacy Inpixon Option Plans").

XTI AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 14 - Stock Award Plans and Stock-Based Compensation (continued)

During 2017, Legacy XTI adopted the 2017 Plan, which was amended in 2021 to increase the maximum shares eligible to be granted under the 2017 Plan.

The Company assumed the 2017 Plan in connection with the XTI Merger.

The Company may issue awards in the form of restricted stock units and stock options to employees, directors, and consultants.

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Options generally have contractual terms of ten years .

Incentive stock options (ISO) may only be granted to employees, whereas all other stock awards may be granted to employees, directors, consultants and other key

As of March 31, 2024, 1,068,959 of stock options were granted to employees, directors and consultants of the Company.

Post merger and as of March 31, 2024, the 2017 Plan has zero unallocated shares available for future grants under the Plan.

As of March 31, 2024, the fair value of non-vested stock options of the 2017 Plan totaled approximately $ 5.2 million, which will be amortized to expense over the weighted average remaining term of 0.95 years.

Incentive stock options (ISO) may only be granted to employees, whereas all other stock awards may be granted to employees, directors, consultants and other key stakeholders.

As of June 30, 2024, there were 950,195 outstanding stock options under the 2017 Plan that were granted to employees, directors and consultants of the Company.

Post merger and as of June 30, 2024, there are zero unallocated shares available for future grants under the 2017 Plan.

As of June 30, 2024, the fair value of non-vested stock options of the 2017 Plan totaled approximately $ 2.4 million, which will be amortized to expense over the weighted average remaining term of 1.25 years.

2011 Plan and 2018 Plan

In September 2011, legacy Inpixon adopted 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 directors, consultants and independent contractors.

In September 2011, Legacy Inpixon adopted the 2011 Plan which provided for the granting of incentive and non-statutory common stock options and stock based incentive awards to employees, non-employee 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.

In February 2018, legacy Inpixon adopted the 2018 Plan and together with the 2011 Plan, the “Legacy Inpixon Option Plans”, which is utilized for employees, corporate officers, directors, consultants and other key persons employed.

In February 2018, Legacy Inpixon adopted the 2018 Plan which is utilized for employees, corporate officers, directors, consultants and other key persons employed.

The 2018 Plan provides for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan).

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The exercise price per share for incentive stock options may not be less than 110 % of the estimated fair value of the underlying common stock on the grant date for any individual possessing more that 10% of the total outstanding common stock of the Company.

Options granted under the Option Plans vest over periods ranging from immediately to four years and are exercisable over periods not exceeding ten years .

The aggregate number of shares that may be awarded under the 2018 Plan as of March 31, 2024 is 62,164,297 .

As of March 31, 2024, 968 of stock options were granted to employees, directors and consultants of the Company, 430 restricted stock awards were granted to employees of the company that were converted to common shares in prior periods and 62,162,899 options were available for future grant under the 2018 Plan.

As of March 31, 2024, the fair value of non-vested stock options of the 2018 Plan totaled approximately $ 0.6 million, which will be amortized to expense over the weighted average remaining term of 0.9 years.

XTI AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Note 14 - Stock Award Plans and Stock-Based Compensation (continued)

During the three months ended March 31, 2024 and 2023, the Company recorded a charge for the amortization of stock options of approximately $ 0.1 million and $ 0.1 million, respectively, which is included in the operating expense section of the condensed consolidated statement of operations.

Options granted under these Legacy Inpixon Option Plans vest over periods ranging from immediately to four years and are exercisable over periods not exceeding ten years .

The aggregate number of shares that may be awarded under the 2018 Plan as of June 30, 2024 is 64,148,179 .

As of June 30, 2024, 11,374,202 shares of common stock were subject to outstanding stock options granted to employees, directors and consultants of the Company, 962 restricted stock awards were granted to employees of the company that were converted to common shares in prior periods and 52,773,015 shares of common stock were available for future grant under the 2018 Plan.

As of June 30, 2024, the fair value of non-vested stock options of the 2018 Plan totaled approximately $ 4.5 million, which will be amortized to expense over the weighted average remaining term of 2.65 years.

See below for a summary of the stock options granted under the 2011, 2017, and 2018 plans:

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Forfeited — ( 118,709 ) — ( 118,709 )

Ending balance as of March 31, 2024 — 1,068,959 968 1,069,927

The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model, however there were no stock option grants during the three months ended March 31, 2024.

The expected stock price volatility for the Company’s stock options was determined by the historical volatilities for industry peers and used an average of those volatilities.

Ending balance as of June 30, 2024 — 950,195 11,374,202 12,324,397

XTI AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 14 - Stock Award Plans and Stock-Based Compensation (continued)

On June 12, 2024, the Board approved the following awards of options to purchase common stock pursuant to the 2018 Plan:

2,812,500 options were awarded to Scott Pomeroy, the Chief Executive Officer of the Company;

1,640,625 options were awarded to Brooke Turk, the Chief Financial Officer of the Company;

and 975,000 options were awarded to Soumya Das, the Chief Executive Officer of the Company’s Real-Time Location System (RTLS) Division.

Each option has an exercise price of $ 0.473 per share.

The options will vest 1/3rd annually over three years starting from the grant date.

The options expire on June 12, 2034.

The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model.

During the six months ended June 30, 2024, there were 11,373,730 options granted under the 2018 Plan with exercise prices ranging between $ 0.381 and $ 0.473 .

The expected stock price volatility for these 2018 option grants ranged between 95.06 % and 95.90 % and was determined by the historical volatilities for industry peers and used an average of those volatilities.

The Company attributes the value of stock-based compensation to operations on the straight-line single option method.

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The dividends assumptions was $ 0 as the Company historically has not declared any dividends and does not expect to.

The Company notes that the 118,709 forfeited stock options occurred during the six months ended June 30, 2024.

These forfeitures were primarily due to the departure of the Chief Executive Officer of the XTI Aircraft Company division.

Stock Option Exercises

To induce option holders to exercise option shares ahead of the XTI Merger so to assist the company in qualifying for a Nasdaq Capital Markets listing, XTI Aircraft Company entered into exercise letter agreements with several option holders in February 2024 at reduced exercise prices from the original option agreements.

To induce option holders to exercise stock options ahead of the XTI Merger so to assist the Company in qualifying for a listing on the Nasdaq Capital Market, Legacy XTI entered into exercise letter agreements with several option holders in February 2024 at reduced exercise prices from the original option agreements.

The net impact of these option inducements to the condensed consolidated statement of operations was not material.

In total, 1,038,871 option shares under the 2017 Plan were net exercised into 1,036,420 pre-exchange common shares of XTI Aircraft Company immediately prior to the XTI Merger closing time or 92,728 post merger exchange common shares.

In total, 1,038,871 stock option granted under the 2017 Plan were net exercised into pre-exchange common shares of Legacy XTI immediately prior to the XTI Merger closing time, which resulted in the issuance of 92,728 post merger exchange common shares.

Note 15 - Warrants

The following table summarizes the activity to warrants outstanding:

The following table summarizes the activity of warrants outstanding:

Number of Warrants

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Legacy Inpixon warrants from merger 1,448,481

Granted 167,664

Exercised ( 409,815 )

Expired ( 96,644 )

Ending balance as of March 31, 2024 1,734,585

Exercisable as of March 31, 2024 1,545,430

Exchanged ( 1,602,630 )

Ending balance as of June 30, 2024 278,951

Exercisable as of June 30, 2024 278,951

Warrant Exercise Price Reduction

On March 21, 2024, the Company’s Board of Directors authorized a reduction in the exercise price of the warrants issued as part of the legacy Inpixon warrant inducement that occurred on December 15, 2023 from $ 7.324 to $ 5.13 per share in

On March 21, 2024, the Company’s Board of Directors authorized a reduction in the exercise price of the warrants issued as part of the Legacy Inpixon warrant inducement that occurred on December 15, 2023 from $ 7.324 to $ 5.13 per share in accordance with the existing terms of such warrants.

The Company notes that the reduction in exercise price authorization was perfunctory, as it was known on March 12, 2024 that the reduction was going to occur.

Therefore, the Company accounted for the modification of the warrants at the time of the XTI Merger and is reflected as part of purchase accounting.

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 15 - Warrants (continued)

accordance with the existing terms of such warrants.

The Company notes that the reduction in exercise price authorization was perfunctory, as it was known on March 12, 2024 that the reduction was going to occur.

Therefore, the Company accounted for the modification of the warrants at the time of the merger and is reflected as part purchase accounting.

Warrants Exercises

On February 2, 2022, XTI Aircraft Company executed a conditional purchase order (“Aircraft Purchase Agreement”) with a regional airline customer to deliver 100 TriFan aircraft.

In conjunction with this purchase order, the Company issued a warrant for the purchase of a total of 6,357,474 shares of common stock at an exercise price of $ 0.01 .

Effective as of March 11, 2024, XTI Aircraft Company entered into an amendment (the “Warrant Amendment”) with the same regional airline customer.

Warrant Exercises

On February 2, 2022, Legacy XTI executed a conditional purchase order (“Aircraft Purchase Agreement”) with Mesa Air Group, Inc.

and Mesa Airlines, Inc.

("Mesa") to deliver 100 TriFan aircraft.

In conjunction with this purchase order, Legacy XTI issued Mesa a warrant for the purchase of a total of 6,357,474 shares of Legacy XTI common stock at an exercise price of $ 0.01 .

Effective as of March 11, 2024, Legacy XTI entered into an amendment (the “Warrant Amendment”) with Mesa.

The Warrant Amendment modifies the vesting criteria with respect to the shares of common stock underlying the warrant.

As amended by the Warrant Amendment, (i) one-third of the shares represented by the warrant vested upon the execution and delivery of the conditional aircraft purchase contract, dated February 2, 2022, by and between the Company and regional airline customer, relating to the purchase of 100 TriFan 600 aircraft, (ii) one-sixth of the shares vested on March 12, 2024 in which the Company recorded $ 0.5 million of stock-based compensation expense for the three months ended March 31, 2024, (iii) one-sixth of unvested shares lapsed on March 12, 2024, and (iv) one-third of the shares will vest upon the acceptance of delivery and final purchase of the first TriFan 600 aircraft by the regional airline customer pursuant to the Aircraft Purchase Agreement.

The Warrant Amendment requires the parties to agree on an initial strategic public and industry announcement within 90 days of March 11, 2024 or such other time as the parties may mutually agree.

On March 12, 2024 and per a warrant exercise letter agreement, all vested warrant shares were net exercised into 3,178,737 pre-exchange common shares of XTI Aircraft Company immediately prior to the XTI Merger closing time or 283,737 post merger exchange common shares.

To induce warrant holders to exercise warrant shares ahead of the XTI Merger so to assist the company in qualifying for a Nasdaq Capital Markets listing, XTI Aircraft Company entered into exercise letter agreements with several warrant holders in February 2024 at reduced exercise prices from the original warrant agreements.

On March 12, 2024 and per a warrant exercise letter agreement, all vested warrant shares were net exercised into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which resulted in the issuance of 283,737 shares of the Company's common stock in accordance with the exchange ratio pursuant to the XTI Merger Agreement.

To induce warrant holders to exercise warrant shares ahead of the XTI Merger so to assist the company in qualifying for a listing on the Nasdaq Capital Market, Legacy XTI entered into exercise letter agreements with several warrant holders in February 2024 at reduced exercise prices from the original warrant agreements.

The net impact of these warrant inducements to the condensed consolidated statement of operations was not material.

In total, 1,182,522 warrant shares were net exercised into 1,179,732 pre-exchange common shares of XTI Aircraft Company immediately prior to the XTI Merger closing time or 105,550 post merger exchange common shares .

In total, 1,182,522 warrant shares were net exercised into shares of Legacy XTI common stock immediately prior to the XTI Merger closing time, which resulted in the issuance of 105,550 shares of the Company's common stock in accordance with the exchange ratio pursuant to the XTI Merger Agreement.

During the three months ended June 30, 2024, an additional 20,528 warrant shares originally issued by Legacy XTI were exercised into 20,528 shares of the Company's common stock at an exercise price of $ 0.12 .

Warrant Exchanges

On April 30, 2024 and May 1, 2024, the Company entered into warrant exchange agreements with the holders of certain of our then 918,690 outstanding warrants (the “Existing Warrants”) initially issued on May 17, 2023, which were exercisable for an aggregate of 918,690 shares of our common stock.

Pursuant to the terms of the agreements, on May 2, 2024, the Company issued to the warrant holders 0.70 shares of common stock for each Existing Warrant, for an aggregate of 643,082 shares of common stock valued at $ 1,590,859 , in exchange for the Existing Warrants.

As the Existing Warrants were liability classified, the exchange resulted in the liability being (i) remeasured at the warrant redemption value of $ 1,590,859 resulting in a fair value loss of $ 672,174 which is reported in other income (expense) within the condensed consolidated statements of operations for the three months ended June 30, 2024, and (ii) reclassified to stockholders' equity (deficit) within the condensed consolidated balance sheet as of June 30, 2024.

Following the consummation of the warrant exchange, the Existing Warrants were cancelled and no further shares are issuable pursuant to the Existing Warrants agreement.

On May 30, 2024, the Company entered into a warrant exchange agreement with the holder of certain warrants of the Company (the “Assumed Warrants”) to purchase shares of common stock, which Assumed Warrants were originally issued by Legacy XTI and assumed by the Company in connection with the XTI Merger.

Pursuant to the terms of the agreement, the Company issued to the warrant holder an aggregate of 112,360 shares of common stock valued at $ 106,742 in exchange for 192,626 Assumed Warrants, which included 167,664 warrants shares granted during the three months ended June 30, 2024 as result of price protection clauses per the Assumed Warrant agreements relating to subsequent equity sales by the Company.

As the Assumed Warrants were liability classified, the exchange resulted in the liability being (i) remeasured at the warrant redemption value of $ 106,742 resulting in a fair value loss of $ 6,742 which is reported in other income (expense) within the condensed consolidated statements of operations for the three months ended June 30, 2024, and (ii) reclassified to stockholders' equity (deficit) within the condensed consolidated balance sheet as of June 30, 2024.

Following the consummation of the warrant exchange, the Assumed Warrants were cancelled and no further shares are issuable pursuant to the Assumed Warrants agreement.

On June 12, 2024 and June 13, 2024, the Company entered into warrant exchange agreements with the holders (the “Warrant Holders”) of 491,314 existing warrants of the Company (the “Existing Warrants”) initially issued on December 19, 2023, which were exercisable for an aggregate of 491,314 shares of our common stock.

Pursuant to the terms of the agreements, on June 13, 2024, the Company issued to the Warrant Holders 1.50 shares of Common Stock for each Existing Warrant, for an aggregate of

XTI AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 15 - Warrants (continued)

736,973 shares of common stock, in exchange for the Existing Warrants.

Following the consummation of the Warrant Exchange, the Existing Warrants were cancelled and no further shares are issuable pursuant to the Existing Warrants agreements.

As it relates to the aforementioned Existing Warrants issued on December 19, 2023, there were 663,581 shares of common stock issued on June 12, 2024 for $ 0.47 per share and 73,392 shares of common stock issued on June 13, 2024 for $ 0.44 per share.

The Warrant Holders received a total value of $ 344,176 for the conversion of the Existing Warrants to shares of common stock.

The Company determined the fair value of the Existing Warrants as if issued on the exchange 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 the fair value to be approximately $ 61,000 .

The inputs to the Black-Scholes Option pricing model for the June 12, 2024 redemption include a dividend rate of 0 %, a risk free rate of 4.4 %, a stock price of $ 0.47 , strike price of $ 5.13 , term of 4.51 , and a volatility of 90.0 %.

The inputs to the Black-Scholes Option pricing model for the June 13, 2024 redemption include a dividend rate of 0 %, a risk free rate of 4.3 %, a stock price of $ 0.44 , a strike price of $ 5.13 , a term of 4.51 , and a volatility of 91.0 %.

The fair values of the common stock issued were based on the closing stock price of the date of the exchange.

The incremental increase in fair value of $ 283,176 was recorded as a return of capital, which reduces the additional paid-in capital on the condensed consolidated balance sheets as of June 30, 2024, and is shown as a reconciling item on the condensed consolidated statements of operations from Net Loss to Net Loss Attributable to Common Stockholders.

Note 16 - Income Taxes

There is an income tax expense of approximately $ 0.004 million and zero for three months ended March 31, 2024 and 2023, respectively.

The income tax expense included in the three months ended March 31, 2024 profit and loss statement includes state income tax liabilities for the period.

There is an income tax expense of approximately $ 0.012 million and zero for the three months ended June 30, 2024 and 2023, respectively, and $ 0.016 million and zero for the six months ended June 30, 2024 and 2023, respectively.

The income tax expense included in the three and six months ended June 30, 2024 profit and loss statement includes state income tax liabilities for the period.

Note 17 - Credit Risk and Concentrations

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Cash is also maintained at foreign financial institutions for its UK subsidiary and German subsidiaries.

Cash in foreign financial institutions as of March 31, 2024 and December 31, 2023 was immaterial.

Cash in foreign financial institutions as of June 30, 2024 and December 31, 2023 was immaterial.

The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.

The customers who account for 10% or more of the Company's revenue for the three months ended March 31, 2024 or 10% or more of the Company's outstanding receivable balance as of March 31, 2024 are presented as follows:

XTI AEROSPACE, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 17 - Credit Risk and Concentrations (continued)

Three Months ended March 31, 2024 As of March 31, 2024

The customers who account for 10% or more of the Company's revenue for the three and six months ended June 30, 2024 or 10% or more of the Company's outstanding receivable balance as of June 30, 2024 are presented as follows:

For the Three Months Ended June 30, 2024 For the Six Months Ended June 30, 2024 As of June 30, 2024

Customer Revenues (thousands)

Percentage of revenues Accounts Receivable (thousands)

Percentage of accounts receivable

Percentage of revenues Revenues (thousands) Percentage of revenues Accounts Receivable (thousands) Percentage of accounts receivable

A $ 367 36 % $ 367 29 % $ — — %

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C $ 120 12 % $ 282 23 % $ 120 25 %

D $ 104 10 % $ 121 10 % $ — — %

E $ 31 3 % $ 32 3 % $ 76 16 %

Total $ 750 73 % $ 939 76 % $ 240 50 %

The Company did not have revenue for the three months ended March 31, 2023.

The Company did not have outstanding receivables as of March 31, 2023.

The vendors who account for 10% or more of the Company's purchases for three months ended March 31, 2024 or 10% or more of the Company's outstanding payable balance as of March 31, 2024 are presented as follows:

Three Months ended March 31, 2024 As of March 31, 2024

Purchases (thousands)

Percentage of purchases

Accounts Payable (thousands)

Percentage of accounts payable

The Company did not have revenue for the three and six months ended June 30, 2023.

The Company did not have outstanding receivables as of June 30, 2023.

The vendors who account for 10% or more of the Company's purchases for the three and six months ended June 30, 2024 or 10% or more of the Company's outstanding payable balance as of June 30, 2024 are presented as follows:

For the Three Months Ended June 30, 2024 For the Six Months Ended June 30, 2024 As of June 30, 2024

Purchases (thousands) Percentage of purchases Purchases (thousands) Percentage of purchases Accounts Payable (thousands) Percentage of accounts payable

A $ — — % $ 437 6 % $ 1,685 24 %

B $ 422 11 % $ 548 8 % $ 314 4 %

C $ 323 8 % $ 470 7 % $ 723 10 %

Total $ 745 19 % $ 1,455 21 % $ 2,722 38 %

The vendors who account for 10% or more of the Company's purchases for three months ended March 31, 2023 or 10% or more of the Company's outstanding payable balance as of March 31, 2023 are presented as follows:

Three Months ended March 31, 2023

As of March 31, 2023

Purchases (thousands)

Percentage of purchases

Accounts Payable (thousands)

Percentage of accounts payable

The vendors who account for 10% or more of the Company's purchases for the three and six months ended June 30, 2023 or 10% or more of the Company's outstanding payable balance as of June 30, 2023 are presented as follows:

For the Three Months Ended June 30, 2023 For the Six Months Ended June 30, 2023 As of June 30, 2023

Vendor Purchases (thousands) Percentage of purchases Purchases (thousands) Percentage of purchases Accounts Payable (thousands) Percentage of accounts payable

A $ 463 54 % $ 564 39 % $ 1,056 57 %

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C $ — — % $ — — % $ 525 28 %

D $ 59 10 % $ — — %

E $ — — % $ 525 39 %

Total $ 581 68 % $ 766 53 % $ 1,669 90 %

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This allows the Company to enhance its customer focus and better align its business models, resources, and cost structure to the specific current and future growth drivers of each business, while providing increased transparency to the Company’s shareholders.

The commercial aviation segment is currently in the pre-revenue development stage and its primary activity is the development of the TriFan 600 aircraft.

The Industrial IoT segment generates revenue primarily from the sale of real-time location system solutions for the industrial sector and its customers are primarily located in Germany and the U.S.

As it relates to the Industrial IoT segment, the results disclosed in the table below only reflect activity following the Merger closing through the March 31, 2024 reporting date:

refer to Note 3 - Consolidations .

XTI AEROSPACE, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 18 - Segments (continued)

The commercial aviation segment is currently in the pre-revenue development stage and its primary activity is the development of the TriFan 600 aircraft.

The Industrial IoT segment generates revenue primarily from the sale of real-time location system solutions for the industrial sector and its customers are primarily located in Germany and the U.S.

As it relates to the Industrial IoT segment, the results disclosed in the table below only reflect activity following the XTI Merger closing through the June 30, 2024 reporting date.

Gross profit and income (loss) from operations are the primary measures of Industrial IoT segment performance used by the Company’s CODM.

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Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group;

included expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.

included expenses incurred for administrative and accounting staff, general liability and other insurance, accrued consulting fees and transaction bonuses relating to former Legacy Inpixon executives, professional fees and other similar corporate expenses.

The following table reflects results of operations from our business segments for the periods indicated below (in thousands):

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2024 2023 2024 2023

Revenue by Segment

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Industrial IoT

$ 625 $ — 751 —

Commercial Aviation

523 391 861 826

Research and Development Expenses by Segment

$ 1,148 $ 391 $ 1,612 $ 826

Income (loss) from operations by Segment

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Unallocated costs

( 11,462 ) — ( 12,379 ) $ —

Consolidated loss from operations

$ ( 13,927 ) $ ( 4,041 ) $ ( 22,804 ) $ ( 5,324 )

XTI AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 18 - Segments (continued)

The following table presents total assets by reportable segment (in thousands):

June 30, December 31,

Industrial IoT

Commercial Aviation

Total assets by segment $ 22,134 $ 509

Corporate 11,907 —

Total consolidated assets $ 34,041 $ 509

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 19 - Fair Value of Financial Instruments

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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 notes that the Company did not hold any financial assets fair valued under ASC 820 as of March 31, 2024 and December 31, 2023, other than the Damon Motors convertible note and warrant outlined in Note 24.

The Company's assets and liabilities measured at fair value consisted of the following at March 31, 2024 and December 31, 2023:

Fair Value at March 31, 2024

The Company classified its financial instruments measured at fair value on a recurring basis in the following valuation hierarchy.

The Company notes that the Company did not hold any financial assets fair valued under ASC 820 as of June 30, 2024 and December 31, 2023, other than the Damon Motors convertible note and warrant.

The Company's assets and liabilities measured at fair value consisted of the following at June 30, 2024 and December 31, 2023:

Fair Value at June 30, 2024

Total Level 1 Level 2 Level 3

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Total assets $ 3,886 $ — $ — $ 3,886

Warrant liability

$ 1,019 $ — $ — 1,019

Total liabilities

$ 1,019 $ — $ — $ 1,019

Fair Value at December 31, 2023

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Total liabilities $ 17,634 $ — $ — $ 17,634

$ 17,634 $ — $ — $ 17,634

Refer to Note 24 for discussion of the valuation methodologies used for the Company's Damon Motors convertible note and warrant assets measured at fair value.

The fair value of the Level 3 warrant liability was determined using a pricing model with certain significant unobservable market data inputs.

The table below includes a reconciliation of the Level 3 assets and liabilities for which significant unobservable inputs were used to determine fair value for the three months ended March 31, 2024:

XTI AEROSPACE, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 19 - Fair Value of Financial Instruments (continued)

The table below includes a reconciliation of the Level 3 assets and liabilities for which significant unobservable inputs were used to determine fair value for the six months ended June 30, 2024:

Level 3 Assets

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Change in fair value — — ( 398 ) ( 12,882 ) —

Conversion to Equity — — — ( 3,922 ) ( 333 )

Exchanged / Conversion to Equity — — — ( 3,922 ) ( 333 )

Balance at March 31, 2024 $ 3,264 $ 448 $ 1,019 $ — $ —

The changes in fair value of the warrant liability and convertible notes are presented within 'Other income, net' and 'Change in fair value of convertible notes', respectively, in the consolidated statements of operations.

Change in fair value $ 38 $ ( 24 ) $ 679 $ — $ —

Accrued interest $ 91 $ — $ — $ — $ —

Debt discount recognition $ 49 $ — $ — $ — $ —

Exchanged / Conversion to Equity $ — $ — $ ( 1,698 ) $ — $ —

Balance at June 30, 2024 $ 3,442 $ 424 $ — $ — $ —

The changes in fair value of the warrant liability, convertible notes, and warrant asset are presented within 'Change in fair value of warrant liability', 'Change in fair value of convertible notes', and 'Other expense', respectively, in the condensed consolidated statements of operations.

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 20 - Foreign Operations

Prior to the Merger, the Company’s operations were located primarily in the United States.

After the Merger, the Company's operations are located primarily in the United States, Germany, and the United Kingdom.

Prior to the XTI Merger, the Company’s operations were located primarily in the United States.

After the XTI Merger, the Company's operations are located primarily in the United States, Germany, and the United Kingdom.

Revenues by geographic area are attributed by country of domicile of our subsidiaries.

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States Germany United Kingdom Eliminations Total

For the Three Months Ended March 31, 2024:

For the Three Months Ended June 30, 2024:

Revenues by geographic area $ 296 $ 874 $ — $ ( 139 ) $ 1,031

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Net (loss) income by geographic area $ ( 13,823 ) $ ( 887 ) $ — $ — $ ( 14,710 )

For the Three Months Ended March 31, 2023:

For the Three Months Ended June 30, 2023:

Revenues by geographic area $ — $ — $ — $ — $ —

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Net (loss) income by geographic area $ ( 4,629 ) $ — $ — $ — $ ( 4,629 )

As of March 31, 2024:

For the Six Months Ended June 30, 2024:

Revenues by geographic area $ 323 $ 1,067 $ — $ ( 139 ) $ 1,251

Operating (loss) income by geographic area $ ( 21,979 ) $ ( 825 ) $ — $ — $ ( 22,804 )

Net (loss) income by geographic area $ ( 16,497 ) $ ( 815 ) $ — $ — $ ( 17,312 )

For the Six Months Ended June 30, 2023:

Revenues by geographic area $ — $ — $ — $ — $ —

Operating (loss) income by geographic area $ ( 5,324 ) $ — $ — $ — $ ( 5,324 )

Net (loss) income by geographic area $ ( 6,194 ) $ — $ — $ — $ ( 6,194 )

As of June 30, 2024:

Identifiable assets by geographic area $ 45,427 $ 22,455 $ 10 $ ( 33,851 ) $ 34,041

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 21 - Related Party Transactions

Refer to Note 11 for disclosures on related party debt transactions and Note 23 for disclosures on Nadir Ali's related party consulting agreement.

David Brody, board member and founder of XTI Aircraft Company, provided legal and strategic consulting services for the Company.

During the three months ended March 31, 2024 and 2023, the Company paid Mr.

David Brody, board member and founder of Legacy XTI, provided legal and strategic consulting services for the Company.

During the six months ended June 30, 2024 and 2023, the Company paid Mr.

Brody compensation of $ 20,000 and $ 0 , respectively.

As of March 31, 2024 and December 31, 2023, the Company owed Mr.

Brody accrued consulting compensation of $ 0 and $ 320,000 , respectively, which is included in Related Party Payables within the accompanying balance sheets.

As of June 30, 2024 and December 31, 2023, the Company owed Mr.

Brody accrued consulting compensation of $ 0 and $ 320,000 , respectively, which is included in Related Party Payables within the accompanying condensed consolidated balance sheets.

Pursuant to an amendment to the consulting agreement, the outstanding payable amount of $ 320,000 was waived by Mr.

Brody and the consulting agreement terminated in connection with the Merger closing.

During the three months ended March 31, 2024 and 2023, the Company paid Scott Pomeroy, the Company's CEO and Chairman, who was the CFO and board member of XTI Aircraft Company up until the Merger closing, consulting compensation of $ 43,750 and $ 26,250 , respectively.

As of March 31, 2024 and December 31, 2023, the Company owed Mr.

Pomeroy accrued consulting compensation of $ 99,750 and $ 99,750 , respectively, which is included in Related Party Payables within the accompanying balance sheets.

During the three months ended March 31, 2024 and 2023, the Company paid its former Chief Operating Advisor consultant, Charlie Johnson, who was a board member of XTI Aircraft Company up until the date of the Merger closing, compensation of $ 0 and $ 10,000 , respectively.

As of March 31, 2024 and December 31, 2023, the Company owed Mr.

Johnson accrued consulting compensation of $ 0 and $ 120,000 , respectively, which is included in Related Party Payables within the accompanying balance sheets.

Brody, which was accounted for as a capital contribution, and the consulting agreement terminated in connection with the XTI Merger closing.

During the six months ended June 30, 2024 and 2023, the Company paid Scott Pomeroy, the Company's CEO and Chairman, who was the CFO and board member of Legacy XTI up until the XTI Merger closing, consulting compensation of $ 43,750 and $ 36,750 , respectively.

As of June 30, 2024 and December 31, 2023, the Company owed Mr.

Pomeroy accrued consulting compensation of $ 99,750 and $ 99,750 , respectively, which is included in Related Party Payables within the accompanying condensed consolidated balance sheets.

During the six months ended June 30, 2024 and 2023, the Company paid its Chief Operating Advisor consultant, Charlie Johnson, who was a board member of Legacy XTI up until the date of the XTI Merger closing, compensation of $ 0 and $ 15,000 , respectively.

As of June 30, 2024 and December 31, 2023, the Company owed Mr.

Johnson accrued consulting compensation of $ 0 and $ 120,000 , respectively, which is included in Related Party Payables within the accompanying condensed consolidated balance sheets.

Pursuant to an amendment to the consulting agreement during the first quarter of 2024, the Company paid $ 60,000 to Mr.

Johnson and the remaining accrued consulting compensation balance of $ 60,000 was waived.

The consulting agreement was terminated in connection with the Merger closing and Mr.

Johnson is no longer a board member of the Company's XTI Aircraft Company subsidiary.

Johnson and the remaining accrued consulting compensation balance of $ 60,000 was waived, which was accounted for as a capital contribution.

The consulting agreement was terminated in connection with the XTI Merger closing and Mr.

Johnson is no longer a member of Legacy XTI's board of directors.

Effective June 17, 2024, the Company and Mr.

Johnson entered into a new consulting arrangement that compensates Mr.

Johnson $ 10,000 per month in combination of both cash and equity.

The new consulting arrangement initially has a term through December 31, 2024 at which time it becomes month-to-month unless either party terminates the agreement upon 30 days written notice.

Grafiti Group Divesiture

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(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.

The Company notes that $0.5 million of the receivable is included in current assets as other receivables in the Company's condensed consolidated balance sheet as of March 31, 2024, and the remaining $0.5 million of the receivable is included in long term assets as other assets in the Company's condensed consolidated balance sheet as of March 31, 2024.

Director Services Agreement

The Company and Kareem Irfan, a director of the Company, have amended Mr.

Irfan's October 21, 2014 Director Services Agreement on May 16, 2022 (as amended, the "Amended Director Services Agreement") to increase his quarterly compensation by an additional $ 10,000 per month as consideration for the additional time and efforts dedicated to the Company and management in support of the evaluation of strategic relationships and growth initiatives.

The Amended Director Services Agreement supersedes and replaces all prior agreements by and between the Company and Mr.

At its meeting on May 1, 2024, the Board adopted a new Board compensation policy applicable to all Directors - refer to Note 25.

The Company notes that $ 0.5 million of the receivable is included in current assets as other receivables in the Company's condensed consolidated balance sheet as of June 30, 2024, and the remaining $ 0.5 million of the receivable is included in long term assets as other assets in the Company's condensed consolidated balance sheet as of June 30, 2024.

XTI AEROSPACE, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 22 - Leases

The Company has operating leases for administrative offices in the United States (Colorado) and Germany.

As part of the Merger, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the IntraNav office) located in Frankfurt, Germany.

As part of the XTI Merger, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the IntraNav office) located in Frankfurt, Germany.

This lease expires on January 6, 2025 and the current lease rate is $ 9,227 (€ 8,612 ) per month.

As part of the Merger, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the Inpixon GmbH office) located in Berlin, Germany.

As part of the XTI Merger, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the Inpixon GmbH office) located in Berlin, Germany.

This lease expires on May 31, 2026 and the current lease rate is $ 7,929 (€ 7,400 ) per month.

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Right-of-use assets are summarized below (in thousands):

As of March 31, 2024 As of December 31, 2023

As of June 30, 2024 As of December 31, 2023

Englewood, CO Office $ 394 $ —

4 unchanged sentences

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 condensed consolidated statement of income for the three months ended March 31, 2024 and 2023 was approximately $ 43,000 and $ 1,000 , respectively.

Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our condensed consolidated statement of income for the three months ended June 30, 2024 and 2023 was approximately $ 101,000 and $ 1,000 , respectively, and for the six months ended June 30, 2024 and 2023 was approximately $ 144,000 and $ 2,000 , respectively.

Lease liability is summarized below (in thousands):

As of March 31, 2024 As of December 31, 2023

As of June 30, 2024 As of December 31, 2023

Total lease liability $ 594 $ —

2 unchanged sentences

Maturity analysis under the lease agreement is as follows (in thousands):

Nine months ending December 31, 2024 $ 237

Six months ending December 31, 2024 $ 157

Year ending December 31, 2025 220

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 22 - Leases (continued)

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In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the date of adoption of ASC 842, "Leases" ("ASC 842").

As of March 31, 2024, the weighted average remaining lease term is 2.9 years and the weighted average discount rate used to determine the operating lease liabilities was 6.7 %.

As of June 30, 2024, the weighted average remaining lease term is 2.8 years and the weighted average discount rate used to determine the operating lease liabilities was 6.7 %.

Note 23 - Commitments and Contingencies

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Pursuant to the terms of an amended advisory fees agreement between the Company and Maxim Group ("Maxim"), the Company is obligated to pay Maxim $ 200,000 which becomes payable upon the closing of one or more debt or equity financings for which Maxim serves as placement agent or underwriter and in which the Company raises minimum aggregate gross proceeds of $ 10 million.

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 registered shares of XTI Aerospace common stock and will receive a cash payment of $ 200,000 , which is included in Accounts Payable on the condensed consolidated balance sheets as of March 31, 2024.

Chardan may be entitled to receive additional common shares of XTI Aerospace depending on the share price of a public offering the Company consummates within 90 days following the XTI Merger closing, as outlined in the amended engagement letter.

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 LLC (“Chardan”) received registered shares of XTI Aerospace common stock.

During June 2024, the Company received a letter from Chardan’s counsel seeking additional compensation under the Chardan Engagement Letter, including a cash payment of $ 200,000 , and threatening to file an arbitration with the Financial Industry Regulatory Authority.

The Company has responded to the letter, disputing that it owes any compensation to Chardan.

Consulting Agreements with Prior "Legacy Inpixon" CEO and CFO

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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”).

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 closing date of the XTI Merger (the payments described in (a) and (b), each an “Equity Payment”).

Each Equity Payment may be made, in Company’s discretion, in (i) cash, (ii) fully vested shares of common stock under the Company’s equity incentive plan, or a combination of cash and registered shares.

As of the date of this filing, the Company repaid the initial $ 1,500,000 owed to Mr.

Ali under the Ali Consulting Agreement.

During the three and six months ended June 30, 2024, the Company recognized compensation expense of $ 1,310,000 and $ 1,570,000 , respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations, relating to the Ali Consulting Agreement.

As of June 30, 2024, the Company owed Mr.

Ali accrued consulting fees of $ 328,804 , which is included in accrued expenses and other current liabilities within the accompanying condensed consolidated balance sheets.

On March 12, 2024, the Company also entered into a Consulting Agreement with Ms.

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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.

Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur.

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 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.

If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable

During the three and six months ended June 30, 2024, the Company recognized compensation expense of $ 297,700 and $ 366,817 , respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations, relating to Ms.

Loundermon's consulting arrangement.

As of June 30, 2024, the Company owed Ms.

Loundermon accrued consulting fees of $ 310,267 , which is included in accounts payable within the accompanying condensed consolidated balance sheets.

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 23 - Commitments and Contingencies (continued)

but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Transaction Bonus Plan in connection with Future Strategic Transactions

On July 24, 2023, the compensation committee of the Board (the “Compensation Committee”) adopted a Transaction Bonus Plan, which was amended on March 11, 2024 (as amended, the “Plan,” and such amendment, the “Plan Amendment”), and 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 is administered by the Compensation 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 Compensation 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 Compensation Committee.

The XTI Merger qualifies as a Contemplated Transaction.

The Plan Amendment, among other things, changed the timing of and imposed certain additional conditions on the payment of certain bonuses to be paid to the participants thereunder, including Nadir Ali, Wendy Loundermon and Soumya Das.

See further disclosures relating to the Transaction Bonus Plan in Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Commitments included elsewhere in this filing.

During the second quarter of 2024, the Company accrued 100 % of the transaction bonuses as the bonuses became payable upon the earlier of the closing of financing or June 30, 2024.

As such, the Company recognized approximately $ 6.7 million of transaction bonus expense, which is included in general and administrative within the accompanying condensed consolidated statements of operations, during the three and six months ended June 30, 2024.

Approximately $ 6.7 million of accrued transaction bonuses remained outstanding as of June 30, 2024 and is included in Accrued Expenses and Other Current Liabilities on the condensed consolidated balance sheets.

The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.

If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed.

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On February 29, 2024, Xeriant filed a second amended complaint.

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

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

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

XTI AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 23 - Commitments and Contingencies (continued)

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 dated May 17, 2022 (the “May 17 letter”).

In particular, Xeriant contends that Legacy XTI gained substantial advantages from the intellectual property, expertise, and capital deployed by Xeriant in the design and development of Legacy XTI’s TriFan 600 aircraft yet has excluded Xeriant from the transaction involving the TriFan 600 technology in its merger with Legacy Inpixon, which has resulted in a breach of the May 17 letter, in addition to the other aforementioned agreements.

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

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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 case is in its early stages, no discovery with respect to the Company has occurred, and the Company is 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.

In connection with the litigation matter described in the immediately preceding paragraph, on June 12, 2024, we received a letter from counsel for Auctus Fund, LLC (“Auctus”), dated April 3, 2024, claiming that, pursuant to the above-referenced May 17 letter by and between Xeriant and Legacy XTI, as a result of the XTI Merger and Legacy XTI’s entry into a promissory note agreement with Legacy Inpixon in March 2023, XTI Aerospace and Legacy XTI may have assumed Xeriant’s obligations under that certain Senior Secured Promissory Note in the principal amount of $ 6,050,000 issued by Xeriant to Auctus, including the obligation to repay Auctus all principal and accrued and unpaid interest thereunder, which Auctus claims was $ 8,435,008.81 as of April 3, 2024.

In July 2024, Legacy XTI responded to such letter and indicated that it believes that the May 17 letter is invalid and unenforceable on several bases.

It further explained that even if it were valid and enforceable, Legacy XTI does not believe such letter resulted in, or otherwise triggered, the assumption of obligations of Xeriant under the Senior Secured Promissory Note or any other obligation on the part of Legacy XTI.

There have been no further developments on this matter.

We are unable to make a reasonable estimate of a potential loss, if any, on this matter.

To the extent suits or actions are commenced with respect to this matter, we intend to vigorously defend against any and all claims.

Note 24 - Damon Motors Convertible Note

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

The term of the convertible note is 12 months from October 26, 2023.

The note was subsequently amended.

As amended, the note matures on September 30, 2024.

The convertible note is subject to certain conversion features which include qualified financing, and/or qualified transaction, as defined in the securities purchase agreement.

5 unchanged sentences

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 exercise price per Common Share is $ 2.7364 .

The Warrant provides for cashless exercise after 180 days following the closing of the public company event should there be no effective registration statement.

2 unchanged sentences

The Warrant is accounted for as 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.

The convertible note's and warrant's values as of March 31, 2024 total $ 3.7 million and are included in Notes Receivable, $ 3.3 million, and Warrant asset, $ 0.4 million, on the condensed consolidated balance sheets.

The convertible note's and warrant's values as of June 30, 2024 total $ 3.9 million and are included in Notes Receivable, $ 3.5 million, and Warrant asset, $ 0.4 million, on the condensed consolidated balance sheets.

Note 25 - Subsequent Events

On April 18, 2024, the Company entered into an exchange agreement with the holder of shares of the Company’s Series 9 Preferred Stock pursuant to which the Company and the holder exchanged 750 shares of Series 9 Preferred Stock with an aggregate stated value of approximately $ 0.8 million for 266,047 shares of common stock at an effective price per share of

XTI AEROSPACE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Note 25 - Subsequent Events (continued)

The Company issued the shares of common stock to the holder on April 19, 2024, at which time the shares of Series 9 Preferred Stock were cancelled.

On April 30, 2024, the Company entered into Exchange Agreements (the “Exchange Agreements”) with the holders (the “Warrant Holders”) of certain existing warrants of the Company (the “Existing Warrants”) initially issued on May 17, 2023, which were exercisable for an aggregate of 918,690 shares of the Company’s common stock.

Pursuant to the Exchange Agreements, the Company issued to the Warrant Holders 0.70 shares of common stock for each Existing Warrant, for an aggregate of 643,082 shares of common stock, in exchange for the Existing Warrants.

On April 30, 2024, the Company filed a Certificate of Amendment to Designations of Preferences and Rights of Series 9 Preferred Stock with the Secretary of State of the State of Nevada, which now allows the Company to pay the holders of Series 9 Preferred Stock, if such holders agree, with securities or other property of the Company in an amount equal to the Series 9 Preferred Liquidation Amount (as defined in the Series 9 Preferred Stock Certificate of Designation) in the event the Company elects to redeem all of any portion of the Series 9 Preferred Stock then issued and outstanding (a “Corporation Optional Conversion”).

Previously, the Company was to pay any such amount in only cash.

The amendment also now provides that the Company will provide notice of a Corporation Optional Conversion to the holders of Series 9 Preferred Stock within five business days prior to the consummation of such redemption rather than five business days following the determination of the Company’s board of directors to consummate such redemption.

In addition, the amendment eliminates the requirement for the Company to obtain the written consent of the holders of at least a majority of the outstanding Series 9 Preferred Stock before repaying any outstanding indebtedness owed to any holder of Series 9 Preferred Stock or its affiliates.

On May 1, 2024, 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 a secured promissory note (the "May 2024 Note") in an aggregate initial principal amount of approximately $ 1.3 million, which is payable on or before the date that is 12 months from the issuance date, and upon the satisfaction of certain conditions set forth in the note purchase agreement, up to two additional secured promissory notes (the “Subsequent Notes”).

The initial principal amount of the May 2024 Note includes an original issue discount of approximately $ 0.3 million and approximately $ 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.

In exchange for the May 2024 Note, the Holder paid an aggregate purchase price of $ 1.0 million.

The Company intends to use the net proceeds from the sale of the May 2024 Note and any Subsequent Notes for general working capital purposes.

The Company disclosed the material terms of the May 2024 Note and related transaction documents in a Current Report on Form 8-K filed with the SEC on May 1, 2024.

On May 2, 2024, the Company entered into an exchange agreement with the holder of shares of the Company’s Series 9 Preferred Stock pursuant to which the Company and the holder exchanged 750 shares of Series 9 Preferred Stock with an aggregate stated value of approximately $ 0.8 million for 357,954 shares of common stock at an effective price per share of $ 2.20 .

The Company issued the shares of common stock to the holder on May 3, 2024, at which time the shares of Series 9 Preferred Stock were cancelled.

On May 1, 2024, the Board approved and adopted a compensation policy for the Company’s non-employee directors (the “Non-Employee Director Compensation Policy”), which was developed in consultation with Zayla Partners, LLC, an independent external compensation consulting firm.

Pursuant to the terms of the Non-Employee Director Compensation Policy, non-employee directors are eligible to receive cash retainer fees as well as equity incentive awards pursuant to the Company’s 2018 Employee Stock Incentive Plan for their service, as follows:

Each of the Company’s non-employee directors will receive $ 50,000 annually for general availability and participation in meetings and conference calls of the Board.

Additionally, the Chair of the Audit Committee will receive $ 20,000 annually and other members of the Audit Committee will receive $ 10,000 annually;

the Chair of the Compensation Committee will receive $ 15,000 annually and other members of the Compensation Committee will receive $ 7,500 annually;

and the Chair of the Nominating and Corporate Governance Committee will receive $ 10,000 annually and other members of the Nominating and Corporate Governance Committee will receive $ 5,000 annually.

All cash compensation will be payable quarterly in arrears.

Each of the Company’s non-employee directors will also receive an annual grant of stock options pursuant to the Company’s 2018 Employee Stock Incentive Plan, with a fair market value equal to the aggregate annual cash retainer for the applicable director based upon a Black-Scholes option pricing model.

The exercise price of the stock options will be equal to the market price of the Company’s common stock at the time of grant.

Effective as of May 13, 2024, the Company's Board of Directors (the “Board”) appointed Tensie Axton to the Board as a Class III director (for a term ending with the 2026 annual meeting of shareholders), to fill the vacancy created by the resignation of Leonard Oppenheim.

The Board also appointed Ms.

Axton to serve as a member of the Audit Committee, a member of the Compensation Committee and as the Chair of the Nominating and Corporate Governance Committee.

In accordance with the

On July 5, 2024, the Company issued 2,774,883 shares of fully vested restricted stock to Nadir Ali, a consultant, under the Company’s 2018 Employee Stock Incentive Plan, as amended, in accordance with the terms of that certain consulting agreement, dated March 12, 2024, by and between the Company and Mr.

XTI AEROSPACE, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 25 - Subsequent Events (continued)

terms of the Company's Non-Employee Director Compensation Policy, Ms.

Axton's compensation comprises (x) the following annual cash fees, each payable quarterly in arrears:

(i) $ 50,000 for her services as a director, (ii) $ 10,000 for her services as a member of the Audit Committee, (iii) $ 7,500 for her services as a member of the Compensation Committee, and (iv) $ 10,000 for her services as the Chair of the Nominating and Corporate Governance Committee, and (y) an annual grant of stock options pursuant to the Company’s 2018 Employee Stock Incentive Plan, with a fair market value equal to her aggregate annual cash retainer.

The Company entered into an employment agreement with Scott Pomeroy on May 6, 2024 (the “Pomeroy Employment Agreement”), pursuant to which Mr.

Pomeroy agreed to continue to serve as the Company’s Chief Executive Officer and as a member and Chairman of the Board.

Pursuant to the terms of the Pomeroy Employment Agreement, Mr.

Pomeroy is entitled to receive an annual base salary of $ 400,000 , which may be increased by the Board from time to time in its sole discretion.

Pomeroy is also entitled to receive an annual cash bonus of up to a baseline of 100 % of his base salary, with the right and ability to earn up to a cap of 150 % of his base salary, applying a weighted average percentage of the objective and subjective criteria and milestones set forth in the Pomeroy Employment Agreement.

The Board will determine and award the annual cash bonus by January 31 following the end of each calendar year during Mr.

Pomeroy’s employment period.

Pomeroy’s employment agreement term ends on December 31, 2025, with one automatic one-year extension to December 31, 2026, unless either party provides prior notice of non-renewal on or before March 31, 2025.

The Company disclosed the remaining material terms of the Pomeroy Employment Agreement in a Current Report on Form 8-K filed with the SEC on May 10, 2024.

The Company entered into an employment agreement with Brooke Turk on May 8, 2024 (the “Turk Employment Agreement”), pursuant to which Ms.

Turk agreed to continue to serve as the Company’s Chief Financial Officer.

Pursuant to the terms of the Turk Employment Agreement, Ms.

Turk is entitled to receive an annual base salary of $ 350,000 , which may be increased by the Board from time to time in its sole discretion.

Turk is also entitled to receive an annual cash bonus of up to a baseline of 75 % of her base salary, with the right and ability to earn up to a cap of 112.5 % of her base salary, applying a weighted average percentage of the objective and subjective criteria and milestones set forth in the Turk Employment Agreement.

The Board will determine and award the annual cash bonus within 30 days after the end of each calendar year during Ms.

Turk’s employment period.

The remaining material terms of the Turk Employment Agreement are substantially similar to the terms of the Pomeroy Employment Agreement.

On May 14, 2024, the Company entered into an exchange agreement with the holder of shares of the Company’s Series 9 Preferred Stock pursuant to which the Company and the holder exchanged 500 shares of Series 9 Preferred Stock with an aggregate stated value of approximately $ 0.5 million for 332,278 shares of common stock at an effective price per share of $ 1.58 .

The Company issued the shares of common stock to the holder on May 16, 2024, at which time the shares of Series 9 Preferred Stock were cancelled.

Subsequent to June 30, 2024 and through the date of this filing, the Company entered into exchange agreements with the holder of shares of the Company’s Series 9 Preferred Stock pursuant to which the Company and the holder exchanged an aggregate 775 shares of Series 9 Preferred Stock with an aggregate stated value of approximately $ 0.8 million for an aggregate 2,800,537 shares of common stock at an effective price per share ranging between $ 0.21 and $ 0.38 .

Subsequent to June 30, 2024 and through the date of this filing, the Company issued an aggregate 1,958,848 shares of common stock in connection with the ATM Offering at per share prices between approximately $ 0.40 and $ 0.43 , resulting in aggregate net proceeds to the Company of approximately $ 0.8 million.

On July 9, 2024, XTI Aerospace, Inc.

(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 the Company’s common stock for the last 30 consecutive business days beginning on May 23, 2024, and ending on July 8, 2024, 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 January 6, 2025, in which to regain compliance.

In order to regain compliance with the minimum bid price requirement, the closing bid price of the Company’s 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 the common stock will be subject to delisting.

The letter does not result in the immediate delisting of the Company’s common stock from the Nasdaq Capital Market.

The Company intends to monitor the closing bid price of the common stock and consider its available options in the event that the closing bid price of the common stock remains below $1 per share.

On July 31, 2024, the Company entered into an advisory agreement with a third party advisor, pursuant to which the Company issued 1,000,000 shares of restricted common stock to the advisor in consideration for financial advisory and business development services agreed to be rendered to the Company pursuant to the agreement.

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-Q

Item 1. Financial Statements