Financial Analysis

Note 5 Business Combinations XTI Merger (March 2024) The XTI Merger was accounted for as a reverse merger in accordance with GAAP. 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 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. Accordingly, Legacy XTIs assets and liabilities are recorded at carrying value and the assets and liabilities associated with Legacy Inpixon are recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair value of the net assets acquired, if applicable, is recognized as goodwill. A significant portion of the acquired operations (the Inpixon Business) was subsequently classified as held for sale and is presented as discontinued operations. See Note 19 Discontinued Operations for additional information. The below summarizes the total consideration transferred in the business combination (in thousands): Fair value of common stock $ 10,939 Fair value of warrants 3,250 Fair value of preferred stock 11,302 Fair value of debt assumed 114 Total consideration $ 25,605 The Company determ …

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Note 15 - Commitments and Contingencies Advisory Agreement On May 13, 2025, the Company entered into an advisory agreement with a third-party advisor pursuant to which the Company agreed to pay $85,000 in cash and issue 125,000 shares of restricted common stock in exchange for financial advisory services. The Company paid the cash fee and issued the shares during 2025. A portion of the initial cash fee of $42,500 was subsequently waived and returned to the Company in connection with the closing of the June 2025 public offering. The advisory agreement provided for reimbursement of certain out-of-pocket expenses (subject to a cap of $15,000), a customary 12-month fee tail, a 3% M&A fee with respect to certain transactions introduced by the advisor, and customary indemnification provisions. The agreement had a term of 180 days and expired during 2025. Litigation From time to time, the Company is involved in legal proceedings arising in the ordinary course of business. Except as described below, the Company is not currently a party to any other material legal proceedings. Xeriant Litigation In December 2023, Xeriant, Inc. filed a lawsuit in the United States District Court for the Southern District of New York against Legacy XTI alleging, among other things, breach of contract, fraud, unjust enrichment, and misappropriation of confidential information in connection with agreements relating to the TriFan 600 aircraft and the XTI Merger. Xeriant previously sought damages in exc …

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Note 9 - Debt Short-Term Debt Maturity 2025 2024 Streeterville Promissory Note - May 1, 2024 5/1/2025 $ $ 1,442 Streeterville Promissory Note - May 24, 2024 5/24/2025 1,426 Unamortized Discounts (211 ) Acquisition-Related Promissory Notes 11/10/26 7,931 Asset-Based Revolving Line of Credit (Drone Nerds) Closed Total Short-Term Debt $ 7,931 $ 2,657 Long-Term Debt SBA Loan Closed $ $ 65 Promissory Notes Assumed in Connection with the Drone Nerds Acquisition 3/31/2027 450 Total Long-Term Debt $ 450 $ 65 As of December 31, 2025 and 2024, no portion of the Companys long-term debt is due within one year. Interest expense on outstanding debt totaled approximately $0.3 million and $0.3 million for the years ended December 31, 2025 and 2024, respectively. Streeterville Promissory Notes In May 2024, the Company issued two secured promissory notes to Streeterville Capital, LLC (Streeterville) with aggregate principal of approximately $2.7 million. The notes bore interest at 10.0% per annum and were scheduled to mature within 12 months of issuance. During the first quarter of 2025, the Company entered into exchange agreements with Streeterville pursuant to which the Company issued an aggregate of 240,229 shares of common stock in exchange for $750,000 of principal amount under the notes, in each case at per share prices equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d). On March 31, 2025, the Company repaid the remaining outstanding balance of the notes in full, includ …

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Revenues arise substantially from the Companys UAS offerings through the following channels (in thousands): For the Year Ended December 31, 2025 Wholesale $ 15,347 Direct Sales 4,425 Retail 2,718 Total revenue $ 22,490 …

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Note 11 - Stock Award Plans and Stock-Based Compensation In 2011, the Company adopted the 2011 Employee Stock Incentive Plan (the 2011 Plan). The 2011 Plan terminated by its terms on August 31, 2021 and remains in effect as to outstanding equity awards granted prior to the date of expiration. No new awards will be issued under the 2011 Plan. Legacy XTI adopted the 2017 Employee and Consultant Stock Ownership Plan, which was assumed by the Company in connection with the XTI Merger. The plan permits grants of stock options and other equity awards to employees, directors and consultants. As of December 31, 2025, no shares remain available for future issuance under the 2017 Plan. The Companys 2018 Equity Incentive Plan, as amended and restated in August 2025, authorizes the grant of incentive stock options, nonqualified stock options, restricted stock, RSUs and other equity-based awards to employees, officers, directors and consultants. The 2018 Plan permits the Board to delegate limited grant authority to designated officers. Options generally vest over periods ranging from immediate to four years and have contractual terms of up to ten years. As of December 31, 2025, there are no unvested Restricted Stock or Restricted Stock Units outstanding under the 2018 Plan. The aggregate number of shares that may be awarded under the 2018 Plan as of December 31, 2025 was 80,105,687. As of December 31, 2025, 64,166,804 shares of common stock were available for future grant under the 2018 P …

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Note 13 - Fair Value Measurements and Fair Value of Financial Instruments The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. These levels are: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: 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. Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, warrant asset, accounts payable, warrant liability, convertible notes, and the loan conversion derivative. Cash and cash equivalents, accounts receivable and accounts payable are stated at their respective carrying amounts, which approximate fair value due to their short-term nature. The cha …

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Note 7 - Goodwill and Intangible Assets Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. In connection with the XTI Merger in March 2024, the Company recognized goodwill of approximately $12.4 million related to its Inpixon Business (see Note 19). The following table summarizes the changes in the carrying amount of Goodwill for the year ended December 31, 2025 (in thousands): Inpixon Business (Discontinued) UAS Drone Nerds (Continuing) Beginning balance - January 1, 2024 $ $ Goodwill recognized in connection with XTI Merger 12,398 Foreign currency translation adjustment (326 ) Ending balance December 31, 2024 12,072 Goodwill recognized in connection with Drone Nerds acquisition 11,544 Foreign currency translation adjustment 1,132 Impairment (9,895 ) Ending balance December 31, 2025 $ 3,309 $ 11,544 Impairment Inpixon Business (Discontinued Operations) During 2025, the Company recognized goodwill impairment charges related to the Inpixon Business, which is presented as discontinued operations. These charges are reflected in the goodwill rollforward above. See Note 19 Discontinued Operations for additional information regarding the impairment and classification of the Inpixon Business. UAS Reporting Unit (Drone Nerds) Goodwill of approximately $11.5 million was recognized in connection with the Drone Nerds acquisition on November 10, 2025. The goodwill is attributable to exp …

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Note 17 Income Taxes The components of loss from continuing operations before income taxes for the years ended December 31, 2025 and 2024 are as follows (in thousands): For the Years Ended December 31, 2025 2024 Domestic $ (52,478 ) $ (27,835 ) Foreign (568 ) (418 ) Net loss before income taxes $ (53,046 ) $ (28,253 ) The income tax provision (benefit) for the years ended December 31, 2025 and 2024 consists of the following (in thousands): For the Years Ended December 31, 2025 2024 U.S. federal Current $ $ Deferred (8,425 ) (3,564 ) State and local Current 12 8 Deferred 1,713 (782 ) (6,700 ) (4,338 ) Change in valuation allowance 6,710 4,322 Income Tax Benefit (Provision) $ 10 $ (16 ) Amounts for the year ended December 31, 2024 have been recast to reflect the classification of certain operations as discontinued operations. The Company adopted ASU 2023-09 prospectively in 2025; accordingly, the 2025 rate reconciliation is presented under the new guidance, while the prior year is presented under previous guidance and is not directly comparable to the current year presentation. The reconciliation between the U.S. statutory federal income tax rate and the Companys effective income tax rate for the year ended December 31, 2025 is as follows: For the Years Ended December 31, 2025 USD % Pretax Book Income (Loss) (53,046 ) US Federal Statutory Tax Rate (11,140 ) 21 % State income taxes, net of federal benefit State Rate Change 2,479 (4.67 )% Valuation Allowance (1,713 ) 3.23 % Other …

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Note 18 Leases The Company has operating leases for office and operational facilities in the United States related to its continuing operations. The Company entered into a lease for its corporate office in Englewood, Colorado that commenced on February 1, 2024 and expires on January 31, 2028. The current lease rate is $10,630 per month as of the date of this filing. In connection with the Drone Nerds acquisition, the Company recognized right-of-use assets and lease liabilities for four office leases: (i) Hollywood Park office, Dania Beach, Florida (expires April 30, 2029; current monthly base rent of $24,587), (ii) Aventura Business Park, Suite B09-10, Miami, Florida (expires January 31, 2031; current monthly base rent of $4,165), (iii) Aventura Business Park, Suite B11, Miami, Florida (expires September 30, 2030; current monthly base rent of $3,453), and (iv) Wynwood office, Miami, Florida (expires April 30, 2032; current monthly base rent of $23,435). These leases were recognized at fair value as part of the purchase accounting for the acquisition of Drone Nerds in November 2025. Right-of-use assets and lease liabilities associated with the Companys exited Inpixon Business, including office leases in Frankfurt and Berlin, Germany, are classified as held for sale and presented within discontinued operations. Accordingly, the lease disclosures below exclude leases classified within discontinued operations. The Company has no other operating or finance leases with terms greate …

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Recently Issued Accounting Standards Not Yet Adopted In November 2024, the FASB issued ASU 2024-03, Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public entities to provide enhanced disaggregation of certain expense categories presented on the income statement, including disclosure of specific types of expenses such as employee compensation, depreciation, and amortization. The standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statement disclosures. Other recently issued accounting standards not yet effective are not expected to have a material impact on the Companys consolidated financial statements. …

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Note 14 - Related Party Transactions Agreements with Nadir Ali and Affiliated Entities On March 27, 2025, the Company entered into a Settlement Agreement with Nadir Ali, the Companys former Chief Executive Officer prior to the XTI Merger, and certain of his affiliated entities. The Settlement Agreement terminated a prior consulting agreement with Mr. Ali and resolved outstanding obligations relating to a previously adopted strategic transaction bonus plan that was triggered by the XTI Merger, Series 9 Preferred Stock arrangements, and a prior equity purchase agreement with an affiliated entity. During the year ended December 31, 2025, pursuant to the Settlement Agreement, the Company (i) paid approximately $1.1 million of remaining transaction bonus and former management payment obligations (including approximately $0.5 million paid to Mr. Ali), (ii) paid $60,000 and three installments totaling $1.5 million in settlement of amounts due under the terminated consulting agreement, (iii) redeemed the remaining outstanding shares of Series 9 Preferred Stock held by Mr. Ali for approximately $1.4 million, and (iv) deemed satisfied in full a $1.0 million receivable previously recorded under an equity purchase agreement with an affiliated entity, resulting in the elimination of the related receivable. During 2025 and prior to the Settlement Agreement, the Company paid Mr. Ali approximately $1.6 million in transaction bonus payments. The Company recognized approximately $2.3 million o …

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Note 4 - Disaggregation of Revenue Disaggregation of Revenue Revenue presented for the year ended December 31, 2025 represents revenue from continuing operations and excludes revenue from the Inpixon Business, which has been classified as discontinued operations. Revenue presented for the year ended December 31, 2024 relates entirely to the Inpixon Business and has been reclassified to discontinued operations in the accompanying consolidated financial statements. Revenues arise substantially from the Companys UAS offerings through the following channels (in thousands): For the Year Ended December 31, 2025 Wholesale $ 15,347 Direct Sales 4,425 Retail 2,718 Total revenue $ 22,490 Wholesale revenue represents sales through resellers and channel partners. Direct sales revenue represents sales to enterprise, commercial, and governmental end customers, including public safety agencies, that utilize drones as part of their operations. Retail revenue represents sales to consumers, including those transacted through the Companys e-commerce platform. Enterprise, commercial, and governmental customers may also purchase through the Companys e-commerce platform; such transactions are classified as direct sales based on customer type. Revenue is primarily generated in the United States; however, approximately 25% of total revenue for the year ended December 31, 2025 was derived from a customer located in Poland. No other individual customer accounted for more than 10% of total revenue. …

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Note 12 - Segments The Companys Chief Executive Officer (CEO), acting as the Chief Operating Decision Maker, or (CODM), regularly reviews and manages certain areas of its businesses, resulting in the Company identifying two reportable segments: Unmanned Aircraft Systems (UAS) and Commercial Aviation. The Company manages and reports its operating results through these two reportable segments. 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 Companys shareholders. The UAS segment includes operating results of Drone Nerds, which is owned by the Companys majority-owned subsidiary, XTI Drones Holdings, which provides an integrated suite of UAS solutions across hardware distribution, training, compliance management support, repair and maintenance, fleet sustainment, and related services. This segment is focused on revenue generation and lifecycle support for enterprise, public safety, government, and defense customers. The Commercial Aviation segment consists of the development-stage VTOL aircraft program focused on the TriFan 600, which is designed to combine vertical takeoff and landing capability with the speed and range of a fixed-wing aircraft. This segment does not currently generate revenue and consists primarily of research, engineering, certification planning and program development activi …

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Note 3 - Summary of Significant Accounting Policies Liquidity As of December 31, 2025, the Company had cash and cash equivalents of approximately $16.7 million and no outstanding borrowings under its credit facility. During the year ended December 31, 2025, the Company incurred a net loss of approximately $68.5 million and used approximately $36.6 million of cash in operating activities. Management has evaluated the Companys liquidity and capital requirements in accordance with applicable accounting guidance. The Companys historical operating losses and negative cash flows from operations could raise substantial doubt about its ability to continue as a going concern. The Companys liquidity position has been supported by capital raising activities during 2025, including public offerings of equity securities and the issuance of convertible preferred stock. In addition, the Company has access to financing arrangements, including an asset-based lending facility, which provides borrowing availability subject to a borrowing base. Management expects to fund operations through a combination of existing cash balances, borrowing availability under its credit facility, and its ability to manage discretionary expenditures. While the Company may pursue additional capital raising activities, such activities are not considered in managements assessment of its ability to meet its obligations. Based on these considerations, management believes that the Company will have sufficient liquidity t …

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Note 10 Capital Structure AUTHORIZED CAPITAL The Company is authorized to issue 500,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par value per share. The Board of Directors is authorized to establish the rights, preferences and privileges of any series of preferred stock. COMMON STOCK Public Offerings 2025 During the year ended December 31, 2025, the Company completed four registered public offerings of its securities (collectively, the 2025 Offerings). In the aggregate, the Company issued: 19,025,946 shares of common stock 7,012,800 pre-funded warrants 25,955,200 common warrants 1,371,000 additional shares of common stock pursuant to underwriters over-allotment exercises The 2025 Offerings generated aggregate net proceeds of approximately $57.1 million, after underwriting discounts, placement agent fees and offering expenses of approximately $5.3 million. Based on relative fair value at issuance, approximately: $20.6 million of net proceeds was allocated to common stock, and $36.5 million was allocated to warrants. The pre-funded warrants were exercisable at $0.001 per share and were fully exercised during 2025. The common warrants are exercisable at prices ranging from $1.36 to $2.00 per share and expire five years from issuance. Warrant Exercises During the year ended December 31, 2025: 7,012,800 pre-funded warrants issued in the 2025 Offerings were exercised, including net exercises, into 7,012,376 shares of t …

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Note 20 - Subsequent Events Automatic Conversion of Series 10 Preferred Stock On January 5, 2026, all outstanding shares of the Companys Series 10 Convertible Preferred Stock automatically converted in accordance with their terms following shareholder approval. The conversion was based on a stated value of $1,000 per share, plus accrued and unpaid dividends, divided by a conversion price of $1.492 per share. Upon conversion, the Company issued 1,721,980 shares of common stock and a pre-funded warrant to purchase 15,307,735 shares of common stock. The pre-funded warrant was issued in lieu of additional shares of common stock due to beneficial ownership limitations contained in the Series 10 Preferred Stock. The pre-funded warrant is immediately exercisable at an exercise price of $0.0001 per share. Separation Agreement On January 29, 2026, in connection with the disposition of the Inpixon Business, the Company entered into a separation agreement with Soumya Das, pursuant to which Mr. Das resigned from his positions with the Company. Under the agreement, the Company agreed to provide severance and related benefits totaling approximately $718,000, plus reimbursement of certain benefits and accelerated vesting of outstanding equity awards. Consulting Agreement with Director Subsequent to December 31, 2025, on February 1, 2026, the Company entered into a consulting agreement with a member of its Board of Directors pursuant to which the consultant will provide advisory services rel …

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