What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-14 · 166 added, 193 removed, 259 unchanged (58% of the section changed)

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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.

We also provide real-time location systems (“RTLS”) for the industrial sector, which was our primary 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.

We believe our initial configuration, the TriFan 600, will be one of the first civilian fixed-wing VTOL aircraft that offers the speed, range and comfort of a business aircraft and the versatility of a helicopter for a wide range of customer applications, including private aviation for business and high net worth individuals, emergency medical services, and commuter and regional air travel.

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 aircraft.

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.

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By having real-time visibility into operations, industrial organizations can make informed, data-driven decisions, minimize downtime, and ensure compliance with industry regulations.

Our full-stack Industrial IoT solution provides end-to-end visibility and control over a wide range of assets and devices.

It is designed to help organizations optimize their operations and gain a competitive edge in today's data-driven world.

The turn-key platform integrates a range of technologies, including RTLS, sensor networks, edge computing, and big data analytics, to provide a comprehensive view of an organization's operations.

We help organizations track the location and status of assets in real-time, identify inefficiencies, and make decisions that drive business growth.

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 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.

We report financial results for two segments:

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Many RTLS competitors are focused on one technology and/or vertical and, at this time, we believe none of them have as complete an offering of tags, anchors, positioning, engine, software, integrations and analytics.

We believe we offer a unique and differentiated approach to the market with our Industrial IoT business which is:

• Comprehensive .

We offer full-stack RTLS solutions which seamlessly integrates tracking tags, anchors, sensors, positioning engine, software, and connections to third-party systems.

We integrate a myriad of indoor data inputs and outputs.

With a single platform we can support a multitude of use cases across numerous industries in both the private and public sector.

Our solutions are built to support customers’ expanding needs and use cases.

Unlike many other competitive point-solutions, we can offer expansion paths and support for a wide variety of location-based use cases at large, multi-size, global enterprises.

Our multi-layered depiction of indoor data allows users to see the information most relevant to their role, in the optimal format for them (e.g., charts, tables, maps, etc.).

• Technology-agnostic and open .

We embrace an ecosystem of hardware, software, integration and distribution partners welcoming integration and synchronization with third party data and systems in combination with our platform.

Our open architecture is designed to enable the integration of disparate technologies, preserve investment and avoid obsolescence.

APIs and MQTT make it possible to move data in and out of our platform to enable a plethora of opportunities and benefits.

We believe we offer a unique and differentiated approach to the market with our Industrial IoT business which is comprehensive, scalable, and technology-agnostic.

Recent Events

The Company completed its merger with Legacy XTI on March 12, 2024, which was structured as a reverse triangular merger.

Capital Collation and Distribution Agreement

On June 28, 2024, the Company entered into a Capital Collation and Distribution Agreement (the “Distribution Agreement”) with FC Imperial Limited (“FCIL”), which sets forth the terms of a proposed equity investment by FCIL for shares of preferred stock with a minimum value of approximately $12 million and up to approximately $55 million at a postmoney valuation of $275 million, subject to the parties entering into a definitive equity purchase agreement.

intends to use the investment, to the extent it is received, for the development of the Company’s TriFan 600 aircraft.

The Distribution Agreement provides for several non-binding anticipated material terms of FCIL’s investment in the Company.

No assurances can be made that the Company and FCIL will successfully negotiate and enter into a definitive equity purchase agreement or that the Company and FCIL will make any of the capital contributions contemplated by the Distribution Agreement.

Appointment of Tensie Axton to the Board of Directors and Committees

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 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.

Entry into Employment Agreements

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.

Non-Employee Director Compensation Policy

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.

Compliance with Nasdaq Continued Listing Requirements

On July 9, 2024, 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 was provided a period of 180 calendar days, or until January 6, 2025, in which to regain compliance with the minimum bid price requirement.

On November 7, 2024, the Company received another letter (the "Low Price Deficiency Letter") from Nasdaq notifying the Company that, as of November 6, 2024, the Company’s common stock had a closing bid price of $0.10 or less for ten consecutive trading days.

Accordingly, the Company is subject to the provisions contemplated under Listing Rule 5810(c)(3)(A)(iii) (the "Low Priced Stocks Rule").

As a result, Nasdaq has determined to delist the Company’s securities from The Nasdaq Capital Market (the "Determination"), unless the Company requests an appeal of the Determination on or prior to November 14, 2024, pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

The Company requested a hearing before the Nasdaq Hearings Panel (the "Panel") to appeal the Determination and to address compliance with the Low Priced Stocks Rule.

The Low Price Deficiency Letter states that hearings are typically scheduled to occur approximately 30-45 days after the date of the hearing request.

The Company will be asked to provide the Panel with a plan to regain compliance, which plan the Company is in the process of preparing.

The Low Price Deficiency Letter has no immediate effect on the listing of the Company’s common stock on Nasdaq and its common stock will continue to be listed on the Nasdaq Capital Market under the symbol "XTIA." While the appeal process is pending, the suspension of trading of the Company’s common stock would be stayed and the Company’s common stock would continue to trade on The Nasdaq Capital Market until the hearing process concludes and the Panel issues a written decision.

There can be no assurance, however, that the Company will be successful in its appeal to the Panel or be able to regain or maintain compliance with the Nasdaq listing rules.

Employment Agreement with Chief Strategy Officer

The Company entered into an employment agreement with Tobin Arthur on September 19, 2024, effective as of such date (the "Arthur Employment Agreement"), pursuant to which Mr.

Arthur agreed to serve as the Company’s Chief Strategy Officer.

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

Arthur is entitled to receive an annual base salary of $300,000, which may be increased by the Board from time to time in its sole discretion.

Arthur is also entitled to receive an annual cash bonus of up to a baseline of 60% of his base salary, with the right and ability to earn up to a cap of 90% of his base salary, applying a weighted average percentage of the objective and subjective criteria and milestones set forth in the Arthur Employment Agreement, which include target amounts and target dates for equity investments received by the Company and the Company’s average market cap in addition to the completion of certain milestones in the development of the Company’s TriFan 600 aircraft.

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

Arthur’s employment period.

Pursuant to the Arthur Employment Agreement, the Compensation Committee of the Board granted Mr.

Arthur stock options to purchase 1,171,875 shares of the Company’s common stock under the Company’s 2018 Employee Stock Incentive Plan, as amended.

The stock options have a grant date of September 19, 2024 and an exercise price of $0.473 per share.

The stock options vest 1/3rd annually over three years starting from August 1, 2024, and expire ten years after the grant date.

Arthur’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 Arthur Employment Agreement provides that Mr.

Arthur’s receipt of compensation following termination of employment is subject to his execution of a release releasing all claims against the Company and its executives, directors and employees, other than as prohibited by law.

Arthur is terminated without cause (other than due to death or disability) or if he resigns for good reason (as such terms are defined in the Arthur Employment Agreement), then Mr.

Arthur will be entitled to (i) a severance payment equivalent to the base salary that would have been paid to him through the end of the employment period, (ii) payment for any unused vacation accrued to the date of termination, (iii) payment for any accrued but unpaid expenses through the date of termination and (iv) any benefits to which he may be entitled upon termination pursuant to the terms of any applicable plans and programs or as may be required by applicable law.

Arthur terminates for good reason, in addition to the foregoing compensation and benefits, he is entitled to receive reimbursements of premium payments for continuation coverage under applicable state or federal law, in the event he elects such continuation coverage, for the remainder of his employment period, or, if longer, for a period of six months after termination of employment.

Arthur is terminated for cause, then immediately following such termination, he is entitled only to any unpaid compensation and unreimbursed expenses.

The Arthur Employment Agreement is filed as Exhibit 10.5 to this Quarterly Report on Form 10-Q, and the description above of the material terms of the Arthur Employment Agreement is qualified in its entirety by reference to the full text of such exhibit.

Resignation of Chief Legal Officer

Effective as of October 28, 2024, the Company’s board of directors appointed Jennifer Gaines as the Company’s Chief Legal Officer and, in connection with her appointment, the Company entered into an employment agreement with Ms.

Gaines, effective as of October 28, 2024, which is filed as Exhibit 10.9 to this Quarterly Report on Form 10-Q.

As disclosed under Part II, Item 5 of this report, on November 12, 2024, Jennifer Gaines amicably resigned as Chief Legal Officer of the Company, effective immediately.

Critical Accounting Policies and Estimates

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On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

However, because future events and their

effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 3 of the condensed consolidated financial statements.

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We have one reporting unit (Industrial IoT).

carrying value of the reporting unit and, if the fair value is less than the carrying value, , the amount that the carrying value exceeds fair value represents the amount of goodwill impairment.

If the fair value of the reporting unit, based on qualitative factors, may be less than the carrying value of the reporting unit, we then perform the goodwill impairment test required under ASC 350 by comparing the fair value of the reporting unit with the carrying value of the reporting unit and, if the fair value is less than the carrying value, the amount that the carrying value exceeds fair value represents the amount of goodwill impairment.

Accordingly, we would recognize an impairment loss in the amount of such excess.

In connection with the XTI Merger we recorded approximately $12 million in goodwill which allocated to our Industrial IOT reporting unit.

Since the closing date of the XTI Merger on March 12, 2024, the price of our common stock has declined significantly and may continue to fluctuate in future periods.

In the Merger we recorded approximately $12.4 million in goodwill which allocated to our Industrial IOT reporting unit.

Since the closing date of the Merger on March 12, 2024, the price of our common stock has declined significantly and may continue to fluctuate in future periods.

A sustained decrease in the price of our common stock is one of the qualitative factors to be considered as part of an impairment test when evaluating whether events or changes in circumstances may indicate that it is more likely than not that a potential goodwill impairment exists.

We will continue monitoring the analysis of the qualitative and quantitative factors used as a basis for the goodwill impairment test during fiscal year 2024 and at the Company's October 1st annual testing date.

As of June 30, 2024, Management evaluated potential triggers and completed a qualitative assessment and determined in the aggregate, it is not more likely than not, that the fair value of the Goodwill is less than the carrying value.

To corroborate this conclusion, we entered into an agreement for a proposed equity investment at a post-money valuation in line with the fairness opinion obtained in July 2023 and compared our equity carrying value to our market capitalization and concluded that there was no goodwill impairment during the six months ended June 30, 2024.

We will continue monitoring the analysis of the qualitative and quantitative factors used as a basis for the goodwill impairment test during fiscal year 2024 and at the Company’s October 1st

annual testing date.

As of September 30, 2024, Management evaluated potential triggers and completed a qualitative assessment and determined in the aggregate, it is not more likely than not, that the fair value of the Goodwill is less than its carrying value.

If the negative volatility of our market capitalization is sustained, it is possible that our goodwill could become impaired, which could result in a material charge and adversely affect our results of operations.

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We expect our research and development expenses to increase significantly as we increase staffing to support aircraft engineering and software development, build aircraft prototypes and continue to explore and develop technologies.

We cannot determine with certainty the timing, duration or the costs necessary to complete the design, development, certification, and manufacturing of our TriFan 600 aircraft due to the inherently unpredictable nature of our research and

development activities.

Development timelines, the probability of success, and development costs may differ materially from expectations.

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Interest expense, net consists primarily of (i) interest relating to convertible and promissory notes payable, (ii) amortization of debt discounts relating to warrants and stock options issued in conjunction with convertible notes, and (iii) interest income on notes receivable.

Inducement loss on debt conversions includes primarily the inducement charges incurred by Legacy XTI when it entered into voluntary note conversion letter agreements with several note holders.

Inducement loss on debt conversions includes primarily the inducement charges incurred by Legacy XTI when it entered into voluntary note conversion letter agreements with several note holders during the first quarter of 2024.

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

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R ESULTS OF O PERATIONS

Three Months Ended June 30, 2024 compared to the Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023

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

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands, except percentages) Amount Amount $ Change %

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

Revenues for the three months ended June 30, 2024 were $1.0 million compared to $0.0 million for the comparable period in the prior year for an increase of approximately $1.0 million.

The revenue amount for the three months ended June 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023.

We expect revenues for the third and fourth quarters of 2024 to remain consistent with the second quarter of 2024.

Revenues for the three months ended September 30, 2024 were $0.9 million compared to $0.0 million for the comparable period in the prior year for an increase of approximately $0.9 million.

The revenue amount for the three months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023.

We expect revenues for the fourth quarter of 2024 to remain consistent with the third quarter of 2024.

Cost of Revenues

Cost of revenues for the three months ended June 30, 2024 were $0.4 million compared to $0.0 million for the comparable period in the prior year.

The cost of revenues amount for the three months ended June 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023.

Gross profit for the three months ended June 30, 2024 was $0.7 million compared to $0.0 million f or the comparable period in the prior year.

The gross profit amount for the three months ended June 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023.

Cost of revenues for the three months ended September 30, 2024 were $0.4 million compared to $0.0 million for the comparable period in the prior year.

The cost of revenues amount for the three months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023.

Gross profit for the three months ended September 30, 2024 was $0.5 million compared to $0.0 million f or the comparable period in the prior year.

The gross profit amount for the three months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment, whereas the Company was pre-revenue in 2023.

Revenue and gross profit for the three months ended June 30, 2024 was $1.03 million and $0.7 million, respectively.

The decline in gross profit for the quarter ended September 30, 2024 compared to the quarter ended June 30, 2024 of approximately $0.2 million was primarily driven by a decline in revenue and the recognition of a one-time inventory impairment charge of approximately $0.04 million during the quarter ended September 30, 2024.

We expect gross profit for the quarter ended December 31, 2024 to be similar to the quarter ended June 30, 2024.

Operating Expenses

Operating expenses for the three months ended June 30, 2024 were $14.6 million and $4.0 million for the comparable period ended June 30, 2023.

This increase of approximately $10.5 million was primarily attributable to (i) the recognition of $ 6.7 million of nonrecurring transaction bonus expense during the second quarter of 2024 as the bonuses became payable upon the earlier of the closing of qualifying financings or June 30, 2024, (ii) an increase in legal and accounting fees relating to capital raising activities during the second quarter of 2024, (iii) an increase in consulting compensation mainly attributable to consulting arrangements entered into with prior executives of Legacy Inpixon on March 12, 2024, (iv) an increase in public company-related professional fees as the 2023 historical results reflect the operations of a private company, Legacy XTI, and (v) the inclusion of the operating results of the Industrial IoT segment as of the closing of the closing of the XTI Merger.

Although we expect to increase research and development activities during the second half of 2024, we expect a decline in operating expenses for the third and fourth quarters of 2024 primarily due to a decline in nonrecurring transaction-related expenditures.

Operating expenses for the three months ended September 30, 2024 were $4.7 million and $2.4 million for the comparable period ended September 30, 2023.

During the three months ended September 30, 2024, we recognized one-time income of $2.3 million, which is included in general and administrative expenses, relating to the forfeiture of vested stock options previously granted to the former CEO of Legacy XTI.

Excluding the income recognized from the aforementioned stock option forfeiture, operating expenses increased by approximately $4.7 million due primarily to (i) an increase in expenditures relating to the development of the TriFan 600 aircraft, (ii) an increase in consulting compensation mainly attributable to consulting arrangements entered into with prior executives of Legacy Inpixon on March 12, 2024, (iii) an increase in public company-related professional fees as the 2023 historical results reflect the operations of a private company, Legacy XTI, and (iv) the inclusion of the operating results of the Industrial IoT segment as of the closing of the XTI Merger.

After excluding one-time items, we expect total operating expenses for the fourth quarter of 2024 to remain comparable to the third quarter.

Other Income (Expense)

Other income (expense) for the three months ended June 30, 2024 was a loss of $0.8 million compared to a loss of $0.6 million for the comparable period in the prior year.

This fluctuation in other income (expense) of approximately $0.2 million was primarily attributable to the Company recognizing a loss of $0.7 million during the three months ended June 30, 2024 relating to the fair value remeasurement of the warrant liability.

The increase in other income (expense) was partially offset by (i) a decline in interest expense due primarily to outstanding Legacy XTI convertible notes being converted into equity immediately prior to the XTI Merger closing and (ii) a decline in loss from the fair value remeasurement of the JV obligation as the obligation was reclassified to equity in May 2023 because the joint venture arrangement between Legacy XTI and Xeriant, Inc.

terminated by its terms on May 31, 2023.

Other income (expense) for the three months ended September 30, 2024 was a loss of $0.2 million compared to a loss of $0.3 million for the comparable period in the prior year.

This fluctuation in other income (expense) of approximately $0.1 million was primarily attributable to a decline in interest expense as a result of Legacy XTI convertible notes being converted into equity immediately prior to the XTI Merger closing.

Provision for Income Taxes

The provision for income tax for the three months ended June 30, 2024 and 2023 was immaterial.

Six Months Ended June 30, 2024 compared to the Six Months Ended June 30, 2023

The provision for income tax for the three months ended September 30, 2024 and 2023 was immaterial.

Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands, except percentages) Amount Amount $ Change %

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

Revenues for the six months ended June 30, 2024 were $1.3 million compared to $0.0 million for the comparable period in the prior year for an increase of approximately $1.3 million.

The revenue amount for the six months ended June 30, 2024 represents the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the June 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Revenues the nine months ended September 30, 2024 were $2.2 million compared to $0.0 million for the comparable period in the prior year for an increase of approximately $2.2 million.

The revenue amount for the nine months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the September 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2024 were $0.4 million compared to $0.0 million for the comparable period in the prior year.

The cost of revenues amount for the six months ended June 30, 2024 represents the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the June 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Gross profit for the six months ended June 30, 2024 was $0.8 million compared to $0.0 million for the comparable period in the prior year.

The gross profit amount for the six months ended June 30, 2024 represents the results of the revenue-

generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the June 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Cost of revenues for the nine months ended September 30, 2024 were $0.8 million compared to $0.0 million for the comparable period in the prior year.

The cost of revenues amount for the nine months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the September 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Gross profit for the nine months ended September 30, 2024 was $1.3 million compared to $0.0 million for the comparable period in the prior year.

The gross profit amount for the nine months ended September 30, 2024 represents the results of the revenue-generating Industrial IoT segment following the XTI Merger closing date of March 12, 2024 through the September 30, 2024 reporting date, whereas the Company was pre-revenue in 2023.

Operating Expenses

Operating expenses for the six months ended June 30, 2024 were $23.6 million and $5.3 million for the comparable period ended June 30, 2023.

This increase of approximately $18.3 million was primarily attributable to (i) the recognition of $6.7 million of nonrecurring transaction bonus expense during the second quarter of 2024 as the bonuses became payable upon the earlier of the closing of qualifying financings or June 30, 2024, (ii) an increase in one-time merger-related transaction costs of $5.8 million, (iii) an increase in non-cash stock-based compensation expense of approximately $3.1 million , (iv) an increase in consulting compensation mainly attributable to consulting arrangements entered into with prior executives of Legacy Inpixon on March 12, 2024, (v) an increase in legal and accounting fees relating to capital raising activities during 2024, (vi) an increase in public company-related professional fees as the 2023 historical results reflect the operations of a private company, Legacy XTI, and (vii) the inclusion of the operating results of the Industrial IoT segment as of the XTI Merger closing date through the June 30, 2024 reporting date.

Operating expenses for the nine months ended September 30, 2024 were $28.3 million and $7.7 million for the comparable period ended September 30, 2023.

This increase of approximately $20.6 million was primarily attributable to (i) the recognition of $6.7 million of nonrecurring transaction bonus expense during the second quarter of 2024 as the bonuses became payable upon the earlier of the closing of qualifying financings or June 30, 2024, (ii) an increase in one-time merger-related transaction costs of $5.1 million, (iii) an increase in non-cash stock-based compensation expense of approximately $1.1 million , (iv) an increase in consulting compensation mainly attributable to consulting arrangements entered into with prior executives of Legacy Inpixon on March 12, 2024, (v) an increase in legal and accounting fees relating to capital raising activities during 2024, (vi) an increase in public company-related professional fees as the 2023 historical results reflect the operations of a

private company, Legacy XTI, and (vii) the inclusion of the operating results of the Industrial IoT segment as of the XTI Merger closing date through the September 30, 2024 reporting date.

Other Income (Expense)

Other income (expense) for the six months ended June 30, 2024 was a gain of $5.5 million compared to a loss of $0.9 million for the comparable period ended June 30, 2023.

This fluctuation of approximately $6.4 million was primarily attributable to the Company recognizing an income gain of approximately $12.9 million relating to the remeasurement of convertible notes at fair value during the six months ended June 30, 2024, partially offset by inducement losses on debt conversions of approximately $6.7 million incurred during the six months ended June 30, 2024.

Other income (expense) for the nine months ended September 30, 2024 was a gain of $5.3 million compared to a loss of $1.2 million for the comparable period ended September 30, 2023.

This fluctuation of approximately $6.5 million was primarily attributable to the Company recognizing an income gain of approximately $12.9 million relating to the remeasurement of convertible notes at fair value during the nine months ended September 30, 2024, partially offset by inducement losses on debt conversions of approximately $6.7 million incurred during the nine months ended September 30, 2024.

Provision for Income Taxes

The provision for income tax for the six months ended June 30, 2024 and 2023 was immaterial.

Liquidity and Capital Resources as of June 30, 2024

Our current capital resources and operating results as of and through June 30, 2024, consist of:

The provision for income tax for the nine months ended September 30, 2024 and 2023 was immaterial.

Liquidity and Capital Resources as of September 30, 2024

Our current capital resources and operating results as of and through September 30, 2024, consist of:

1) an overall working capital deficit of approximately $11.9 million;

2) cash and cash equivalents of approximately $0.5 million;

3) net cash used by operating activities for the six months ended June 30, 2024 of $8.2 million.

The breakdown of our overall working capital deficit as of June 30, 2024 is as follows (in thousands):

3) net cash used by operating activities for the nine months ended September 30, 2024 of $14.3 million.

The breakdown of our overall working capital deficit as of September 30, 2024 is as follows (in thousands):

Working Capital Assets Liabilities Net

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Accounts receivable, net / accounts payable 610 7,625 (7,015)

Prepaid expenses and other current assets 1,704 — 1,704

Inventory 2,730 — 2,730

Accrued liabilities — 8,659 (8,659)

Accrued interest — 940 (940)

Customer deposits

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Notes and other receivables / short-term debt 4,153 2,620 1,533

Warrant asset/liability 424 — 424

Warrant asset 424 — 424

Other — 100 (100)

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Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business.

Our contractual obligations consists of operating lease liabilities and merger-related transaction liabilities that are included in our consolidated balance sheet and vendor commitments associated with agreements that are legally binding.

As of June 30, 2024, the total obligation for capitalized operating leases was approximately $0.6 million, of which approximately $0.2 million is expected to be paid in the next twelve months.

As of June 30, 2024, we owed approximately $2.5 million relating to outstanding short-term promissory notes.

legally binding.

As of September 30, 2024, the total obligation for capitalized operating leases was approximately $0.5 million, of which approximately $0.2 million is expected to be paid in the next twelve months.

As of September 30, 2024, we owed approximately $2.6 million relating to outstanding short-term promissory notes.

This balance excludes intercompany amounts that are eliminated in the financial statements.

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Customer Deposits

As of June 30, 2024, we received conditional pre-orders under a combination of non-binding aircraft purchase agreements, reservation deposit agreements, options and letters of intent for aircraft which generated approximately $1.4 million of cash from customer deposits.

As of September 30, 2024, we received conditional pre-orders under a combination of non-binding aircraft purchase agreements, reservation deposit agreements, options and letters of intent for aircraft which generated approximately $1.4 million of cash from customer deposits.

These funds from customer reservation deposits will not be recorded as revenue until the orders for aircraft are delivered, which may not be for many years or at all if we do not deliver the aircraft.

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Additionally, Maxim will receive $0.2 million 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 following the Effective Time.

Pursuant to its engagement letter with Legacy XTI, dated as of June 7, 2022, as amended (the “Chardan Engagement Letter”) and the XTI Merger Agreement, Chardan Capital Markets 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 $0.2 million , 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.

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.

Pursuant to the Plan, in connection with the closing of a Contemplated Transaction or a Qualifying Transaction, the participants will be eligible to receive bonuses as described below.

• Participants listed on Schedule 1 of the Plan, including Nadir Ali, Wendy Loundermon, Soumya Das and certain other employees, are eligible for a cash bonus equal to 100% of their aggregate annual base salary and target bonus amount in effect as of the closing of the Contemplated Transaction or a Qualifying Transaction, provided, however, that the Company’s payment of such bonus to a participant may, in the Company’s discretion, be conditioned on the participant’s timely execution and delivery of a customary release of claims and confidentiality agreement and such participant’s non-revocation of the release prior to the expiration of any revocation rights afforded to such participant by applicable law.

These bonus amounts will generally be paid at the closing of each applicable transaction, except that bonus amounts in connection with the closing of the XTI Merger are payable according to the payment schedule set forth in the Plan Amendment and described below.

• Participants listed on Schedule 2 of the Plan, including Nadir Ali and Wendy Loundermon, are eligible for a cash bonus based on the Transaction Value (as defined below) attributed to the Contemplated Transaction or Qualifying Transaction, as calculated in accordance with the terms of the Plan.

Ali is eligible for 3.5% of such Transaction Value less $6.0 million.

Loundermon is eligible for 0.5% of such Transaction Value less $0.5 million.

These bonus amounts will generally be paid at the closing of each applicable transaction subject to the treatment of deferred payments in accordance with the terms of the Plan, except that bonus amounts in connection with the closing of the XTI Merger are payable according to the payment schedule set forth in the Plan Amendment and described below.

“Transaction Value” means the sum of any cash and the fair market value of any securities or other assets or property received by the Company or available for distribution to the holders of the Company’s equity securities in connection with the applicable transaction as provided for in the definitive agreement governing the applicable transaction, or such value as will be designated by the Compensation Committee.

The Transaction Value applicable to the XTI Merger was assessed at $225 million which was determined by the Compensation Committee in part based on the enterprise value of Legacy XTI following a valuation analysis performed by an independent financial advisory firm.

• Participants listed on Schedule 3 of the Plan will be eligible for equity-based grants, including but not limited to, options, restricted stock awards, restricted stock units, or such other rights to acquire shares of the Company’s common stock in connection with the closing of the Contemplated Transaction or a Qualifying Transaction, in such form and for such amounts as set forth on Schedule 3 or, if no such form or amount is specified for a participant on Schedule 3, in such form and for such amounts that may be approved by the Compensation Committee in its sole and absolute discretion.

Schedule 3 of the Plan provides that:

(i) Nadir Ali will receive an award (the “Award”) of fully vested shares of Company common stock issued under the Company’s 2018 Employee Stock Incentive Plan or any successor equity incentive plan adopted by the Company (the “Equity Plan”) on the date that is three (3) months following the closing of the XTI Merger (the “Grant Date”) covering a number of shares having a fair market value (based on the closing price per share on the Grant Date) equal to approxima tely $1 million.

Notwithstanding the foregoing, Nadir Ali will not be eligible to receive the Award if his Consulting Agreement with the Company dated as of March 12, 2024 (the “Ali Consulting Agreement”), terminates before the Grant Date due to (a) Company Good Reason (as defined in the Ali Consulting Agreement) or (b) termination by Nadir Ali for any reason other than Consultant Good Reason (as defined in the Ali Consulting Agreement).

(ii) Any amounts payable to any participant in cash pursuant to the Plan, may be paid in shares under the Equity Plan upon written agreement of the Company and such participant.

The Plan Amendment provides that any amounts payable to a participant in connection with the closing of the XTI Merger are payable as follows:

(1) The first fifty percent (50%) of any amounts payable in connection with the XTI Merger pursuant to Schedule 1 and Schedule 2 of the Plan for each participant, as applicable (the “First Fifty Percent”), will become earned upon the earlier of closing of a financing (whether a registered offering or private unregistered offering) in which the Company sells Qualifying Securities (as defined below) and receives an amount of gross proceeds that when added to the proceeds of previous sales of Qualifying Securities following the closing of the XTI Merger equals $5 million (the “First Financing”) or June 30, 2024 (the “Earned Date”).

“Qualifying Securities” means any debt or equity securities other than debt or equity securities having a maturity date or a redemption right at the option of the holder of fewer than six (6) months following the issuance of that security.

(2) The remaining fifty percent (50%) of any amounts payable pursuant to Schedule 1 and Schedule 2 of the Plan (the “Remaining Fifty Percent”) will be earned upon the earlier of the closing of a subsequent financing in which

the Company receives an amount of gross proceeds that when added to the proceeds of previous sales of Qualifying Securities following the First Financing aggregates to at least $5 million (“Subsequent Financing”) or the Earned Date.

(3) Following the Earned Date, the First Fifty Percent (50%) will be paid in three (3) equal monthly installments, beginning on July 1, 2024, and on the first day of each month thereafter until the First Fifty Percent is paid in full.

The Remaining Fifty Percent (50%) will be paid in three (3) equal monthly installments, beginning October 1, 2024 and on the first day of each month thereafter until the Remaining Fifty Percent (50%) is paid in full.

(4) A participant’s right to receive payment of the First Fifty Percent (50%) or the Second Fifty Percent (50%) is subject to the participant’s continuing employment or other service with the Company or any of its subsidiaries or affiliates until the date on which the payment is earned (as specified in clause (1) or (2) above);

provided , however , that if a participant’s employment or service with the Company or any of its subsidiaries or affiliates terminates before the applicable payment is earned due to the involuntary termination of the participant other than for Cause, such participant will be deemed for this purpose to continue in employment or service with the Company and its subsidiaries and affiliates following the participant’s termination date until the date the applicable payment is earned.

(5) In the event the Company is unable to raise a minimum of $5 million from the sale of Qualifying Securities as of June 30, 2024, the participants designate and appoint Nadir Ali as the “Participant Representative” to work with the Company as necessary to amend the payment schedule set forth above to ensure that the Company will have sufficient cash to support its operations.

If Nadir Ali cannot or refuses to serve the Participant Representative, then the Participant Representative will be selected by the Company from among the other participants entitled to receive any payment pursuant to Schedule 1 or Schedule 2 of the Plan.

(6) If the Company or Legacy XTI pays cash bonuses related to the closing of the XTI Merger to the Company’s or Legacy XTI’s employees or individual service providers who are not participants (“Non-Plan Transaction Bonuses”), any then-unpaid payments to participants pursuant to the Plan will be paid on an accelerated basis pursuant to a payment schedule that is substantially similar to the bonus payment schedule for the Non-Plan Transaction Bonuses.

Conversely, if the Company agrees to an accelerated payment or more favorable payment terms of amounts payable pursuant to the Plan, all recipients of Non-Plan Transaction Bonuses will receive similar treatment.

In connection with the Plan Amendment, the Compensation Committee also adopted a new form of confidentiality and release agreement, which was executed and delivered by the Plan participants who resigned from their Company positions at the closing of the XTI Merger on March 12, 2024, including Mr.

In addition, on March 12, 2024, the Plan participants who retained their employment with the Company following the closing of the XTI Merger, including Mr.

Das, delivered an acknowledgment agreement to the Company irrevocably waiving and releasing the Company from any and all rights to payment of such individual’s payments under Schedule 1 of the Plan except pursuant to and as provided under the terms of the Plan Amendment.

As of June 30, 2024, we have accrued 100%, or $6.7 million, of the transaction bonuses as the bonuses became payable during the second quarter of 2024.

During the third quarter of 2024 and as of the date of this report, the Company paid $0.9 million of the transaction bonuses.

Consulting Agreements

In conjunction with the Plan Amendment described above, the Compensation Committee approved and the Company entered into consulting agreements on March 12, 2024, with each of Nadir Ali , the Company’s former Chief Executive Officer , and Wendy Loundermon, the Company’s former Chief Financial Officer.

See Note 23 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.

Legacy XTI Deferred Compensation and Retention Bonus Plan

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Accrued deferred compensation amounts under the cost savings plan will be repaid to participating individuals when executive management, at its sole discretion, determines that sufficient funding has been received by the Company, provided, in the case of employees, that such employees remain employed with the Company on such date.

monthly deferred compensation amount, if equity, if the employee remains with the Company at the “earn date,” which is defined as six months after the date on which the deferred compensation described above is repaid.

As part of the plan, Legacy XTI granted participants a retention bonus, of either cash or equity, at the participant’s discretion, equal in value to three months of their monthly deferred compensation amount, if cash, or six months of their monthly deferred compensation amount, if equity, if the employee remains with the Company at the “earn date,” which is defined as six months after the date on which the deferred compensation described above is repaid.

Upon receiving additional financing during the first quarter of 2023, Legacy XTI restored the salaries of all employees to the original salary amount, effective with the semi-monthly payroll ended March 31, 2023.

As of June 30, 2024, liability amounts of approximatel y $0.5 million and $0.1 million are included in Accrued Expenses and Other Current Liabilities and Related Party Payables, respectively, on the accompanying condensed consolidated balance sheets relating to deferred compensation and retention bonuses under this plan.

As of the date of this report, the Company has obligations of approximatel y $0.2 million and $0.2 million , respectively, relating to deferred compensation and retention bonuses under this plan.

Agreements with Prior "Legacy Inpixon" CEO

On March 12, 2024, the Company entered into a consulting agreement with Mr.

Nadir Ali (the “Ali Consulting Agreement”), the Company's former Chief Executive Officer.

Ali, through a company of which he is a controlling member, currently holds shares of the Company's Series 9 Preferred Stock.

Pursuant to the Ali Consulting Agreement, following the closing of the XTI Merger, Mr.

Ali will provide consulting services to the Company for 15 months ("Ali Consulting Period") or until earlier termination in accordance with its terms.

During the Ali Consulting Period, the Company will pay him an aggregate of $0.3 million.

In addition, the Company shall pay Mr.

Ali (a) the amount of $1.5 million due three months following the Closing, and (b) the aggregate amount of $4.5 million, payable in 12 equal monthly installments, 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 report, the Company repaid the initial $1.5 million owed to Mr.

Ali under the Ali Consulting Agreement.

As of the date of this report, the Company owed Mr.

Ali accrued consulting fees of approximately $1.0 million.

Consulting Arrangement with Prior "Legacy Inpixon" CFO

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

Wendy Loundermon (the “Loundermon Consulting Agreement”), the Company's former Chief Financial Officer.

Pursuant to the Loundermon Consulting Agreement, following the Closing, Ms.

Loundermon will provide consulting services to the Company for one year or until earlier termination in accordance with its terms (the “Loundermon Consulting Period”).

As compensation for Ms.

Loundermon’s consulting services, the Company will pay her (i) $83,333 per month for the first six months of the Loundermon Consulting Period for services she performs on an as-needed basis during the Loundermon Consulting Period regarding the transition of the management of the Company’s financial reporting function to ensure continuity of business operations, and (ii) $300 per hour for services performed on an as needed basis regarding the preparation and filing of Company’s public company financial reporting and compliance matters including accounting, payroll, audit and tax compliance functions.

As of the date of this report, the Company owed Ms.

Loundermon accrued consulting fees of approximately $0.5 million.

Transaction Bonus Plan

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, and was intended to provide incentives to certain employees and other service providers to remain with the Company through the consummation of a qualifying transaction.

During the second quarter of 2024, the Company accrued 100% or $6.7 million of the transaction bonuses, which is included in general and administrative within the accompanying condensed consolidated statements of operations, as the bonuses became payable upon the earlier of the closing of financing or June 30, 2024.

As of the date of this report, the Company had an aggregate transaction bonus obligation outstanding of approximately 5.5 million.

Risks and Uncertainties

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

As of September 30, 2024, the Company has a working capital deficit of approximately $11.9 million, and cash and cash equivalents of approximately $0.5 million.

For the nine months ended September 30, 2024, the Company had a net loss of approximately $21.7 million.

During the nine months ended September 30, 2024, the Company used approximately $14.3 million of cash for operating activities.

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

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

In order to continue its operations, the Company has historically supplemented the revenues it earned with proceeds from the sale of our equity, including through our ATM Offering with Maxim (as discussed below), and debt securities and proceeds from loans and bank credit lines.

We believe that our current revenue, as supplemented by proceeds from our financings, will provide us with liquidity to fund our planned operating needs into the second quarter of 2025.

Therefore, we will need to secure additional capital or financing and/or significantly delay, defer or reduce our cash expenditures over the next two quarters.

There can be no assurance that we will be able to obtain additional capital or financing on terms acceptable to us, on a timely basis or at all.

As discussed in Note 10 of the “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report, the Company may, from time to time, sell shares of the Company’s common stock under its ATM Offering through Maxim, as the Company’s exclusive sales agent.

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 three months ended September 30, 2024, the Company sold 3,190,727 shares of common stock under the Equity Distribution Agreement at per share prices between approximately $0.19 and $0.43, resulting in net proceeds to the Company of approximately $1.0 million.

As of the date of this report, there was approximately $38.6 million in common stock gross sales remaining under the Equity Distribution Agreement, subject to the limitations set forth in the Series 9 ATM Consent, which, among other things, provides that the Company may not register shares under the ATM Offering in excess of $47.4 million (the "ATM Maximum Amount") without the prior written consent of the Required Holders (as defined below), 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.

"Required Holders" is defined in the Series 9 Preferred Stock Certificate of Designation as the holders of at least a majority of the outstanding Series 9 Preferred Stock;

provided that, pursuant to that certain securities purchase agreement dated as of March 12, 2024, between the Company and 3AM Investments LLC (an entity controlled by the Company's former director and former Chief Executive Officer, Nadir Ali) (the "Purchaser"), the Purchaser will be deemed a "Required Holder" as defined in the Series 9 Preferred Stock Certificate of Designation as long as the Purchaser holds any shares of Series 9 Preferred Stock.

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 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.

The Company’s condensed consolidated financial statements as of September 30, 2024 and for the three and nine months ended September 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.

The Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024 and 2023 do not include any adjustments that might result from the outcome of this uncertainty.

There can be no assurance that any additional capital, whether in the form of equity or debt financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to us.

We are currently seeking additional financing in order to meet our cash requirements for the foreseeable future.

If we are unable to fund our operations, we will be required to evaluate further alternatives, which could include curtailing or suspending operations, reducing headcount, selling the Company, dissolving and liquidating its assets or seeking protection under the bankruptcy laws.

A determination to take any of these actions could occur at a time that is earlier than when we would otherwise exhaust our cash resources.

Liquidity and Capital Resources

The Company’s net cash flows used in operating, investing and financing activities for the six months ended June 30, 2024 and 2023 and certain balances as of the end of those periods are as follows (in thousands):

For the Six Months Ended June 30,

The Company’s net cash flows used in operating, investing and financing activities for the nine months ended September 30, 2024 and 2023 and certain balances as of the end of those periods are as follows (in thousands):

For the Nine Months Ended September 30,

Net cash used in operating activities $ (14,305) $ (2,986)

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Net increase in cash and cash equivalents $ 506 $ 121

As of June 30,

As of September 30,

2024 As of December 31,

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Working capital deficit $ (11,905) $ (13,028)

Operating Activities for the six months ended June 30, 2024

Net cash used in operating activities during the six months ended June 30, 2024 was approximately $8.2 million.

The cash flows related to the six months ended June 30, 2024 consisted of the following (in thousands):

Operating Activities for the nine months ended September 30, 2024

Net cash used in operating activities during the nine months ended September 30, 2024 was approximately $14.3 million.

The cash flows related to the nine months ended September 30, 2024 consisted of the following (in thousands):

Net loss $ (21,747)

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The non-cash income and expense of approximately $1.1 million consisted primarily of the following (in thousands):

$ 47 Depreciation and amortization expenses

$ 81 Depreciation and amortization

431 Amortization of intangible assets

177 Amortization of right-of-use asset

267 Non-cash interest expense, net

3,844 Stock-based compensation

17 Amortization of deferred loan costs

156 Amortization of debt discount

1 Provision for credit losses

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

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24 Change in fair value of warrant asset

(131) Unrealized loss on foreign currency transactions

(123) Unrealized gain on foreign currency transactions

$ (1,134) Total non-cash expenses

The net cash used in the change in operating assets and liabilities aggregated approximately $8.6 million and consisted primarily of the following (in thousands):

$ 309 Decrease in accounts receivable and other receivables

$ (72) Increase in accounts receivable and other receivables

550 Decrease in inventory, prepaid expenses and other current assets and other assets

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$ 8,576 Net cash used in the changes in operating assets and liabilities

Operating Activities for the six months ended June 30, 2023

Net cash used in operating activities during the six months ended June 30, 2023 was approximately $1.6 million.

The cash flows related to the six months ended June 30, 2023 consisted of the following (in thousands):

Operating Activities for the nine months ended September 30, 2023

Net cash used in operating activities during the nine months ended September 30, 2023 was approximately $3.0 million.

The cash flows related to the nine months ended September 30, 2023 consisted of the following (in thousands):

Net loss $ (8,897)

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The non-cash income and expense of approximately $3.6 million consisted primarily of the following (in thousands):

5 Depreciation and amortization expenses

8 Depreciation and amortization

20 Amortization of intangible assets

44 Amortization of deferred loan costs

251 Amortization of debt discount

456 Non-cash interest expense, net

2,766 Stock-based compensation

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$ 2,338 Net use of cash used in the changes in operating assets and liabilities

Cash Flows from Investing Activities as of June 30, 2024 and 2023

Net cash flows provided by investing activities during the six months ended June 30, 2024 was approximately $2.9 million compared to $0.0 million for the six months ended June 30, 2023.

Cash flows related to investing activities during the six months ended June 30, 2024 consist primarily of the cash assumed from Legacy Inpixon in connection with the XTI Merger.

Cash Flows from Financing Activities as of June 30, 2024 and 2023

Net cash flows provided by financing activities during the six months ended June 30, 2024 was $11.1 million.

During the six months ended June 30, 2024, the Company received incoming cash flows of $8.5 million from the ATM Offering, $2.0 million from promissory notes issued to Streeterville Capital, LLC, and $1.0 million in proceeds from an existing promissory note arrangement with Legacy Inpixon.

During the six months ended June 30, 2024, the Company repaid $0.5 million towards outstanding promissory notes.

Net cash flows provided by financing activities during the six months ended June 30, 2023 was $1.5 million.

During the six months ended June 30, 2023, the Company received proceeds of $0.8 million from the issuance of convertible notes, received $0.2 million in proceeds from the sale of common stock, and received $0.6 million in proceeds from promissory notes with David Brody and Legacy Inpixo n.

Cash Flows from Investing Activities as of September 30, 2024 and 2023

Net cash flows provided by investing activities during the nine months ended September 30, 2024 was approximately $2.9 million compared to $0.0 million for the nine months ended September 30, 2023.

Cash flows related to investing activities during the nine months ended September 30, 2024 consist primarily of the cash assumed from Legacy Inpixon in connection with the XTI Merger.

Cash Flows from Financing Activities as of September 30, 2024 and 2023

Net cash flows provided by financing activities during the nine months ended September 30, 2024 was $11.9 million.

During the nine months ended September 30, 2024, the Company received incoming cash flows of approximately $9.6 million from the ATM Offering, $2.0 million from promissory notes issued to Streeterville Capital, LLC, and approximately $1.0 million in proceeds from an existing promissory note arrangement with Legacy Inpixon.

During the nine months ended September 30, 2024, the Company repaid $0.7 million towards outstanding promissory notes.

Net cash flows provided by financing activities during the nine months ended September 30, 2023 was $3.1 million.

During the nine months ended September 30, 2023, the Company received proceeds of $0.8 million from the issuance of convertible notes, received $0.2 million in proceeds from the sale of common stock, and received $2.2 million in proceeds from promissory notes with David Brody and Legacy Inpixo n.

Off-Balance Sheet Arrangements

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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 2. Management’s Discussion and Analysis