UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2026

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36404

XTI AEROSPACE, INC.

(Exact name of registrant as specified in its charter)

Nevada

88-0434915

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

15505 Wright Brothers Dr.

Addison, TX 75001

(Address of principal executive offices)

(Zip Code)

(800) 680-7412

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which each is registered
Common Stock, par value $0.001		XTIA		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at May 14, 2026
Common Stock, par value $0.001		38,477,789

XTI AEROSPACE, INC.

Form 10-Q

For the Quarterly Period Ended March 31, 2026

TABLE OF CONTENTS

		Page No.
Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report		ii

PART I - FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of March 31, 2026 (Unaudited) and December 31, 2025	1

	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2026 and 2025	3

	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2026 and 2025	4

	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2026 and 2025	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

PART II - OTHER INFORMATION		39

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	45

Signatures		46

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION

CONTAINED IN THIS REPORT

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

●

supplier concentration and regulatory actions affecting key suppliers, including restrictions on the sale or use of certain drone platforms manufactured by foreign companies;

●

changes in applicable laws or regulations, including evolving Federal Aviation Administration (“FAA”) and Federal Communications Commission (“FCC”) regulations, National Defense Authorization Act (“NDAA”) compliance rules, and other procurement regulations affecting the Unmanned Aircraft System (“UAS”) industry;

●

customer demand for the products and services we offer, including enterprise drone solutions, training, repair, and lifecycle support services;

●

the impact of competitive or alternative products, technologies and pricing;

●

our ability to attract customers and fulfill customer orders in our UAS solutions business;

●

our ability to scale our UAS platform in a cost-effective manner and expand our supplier and OEM relationships;

●

emerging competition and rapidly advancing technology in the UAS and autonomous systems markets that may outpace our capabilities;

●

our ability to navigate the regulatory environment and complexities with compliance related to such environment;

●

the risk that our Autonomous Defense Systems (“ADS”) division or our planned Advanced Technology and Manufacturing division may not successfully secure prime contractor agreements, government procurement awards, commercial partnerships, or manufacturing partnerships on acceptable terms, and may not generate revenues on the timelines we anticipate, or at all, and the risk that we may significantly reduce investment in, restructure, or discontinue either division if key operational or commercial milestones are not achieved;

●

the risk that we may not realize the expected benefits of the Drone Nerds acquisition or any future acquisition, or may experience significant delays or unexpected costs in integrating acquired companies;

●

borrowing base limitations, covenants and other restrictions under our asset-based credit facility and obligations under acquisition-related indebtedness;

●

the fact that the TriFan 600 aircraft program has been paused and may not be resumed, and the risk that, if the program is resumed, we may not successfully develop, certify, manufacture or commercialize the TriFan 600 or any future aircraft;

●

the risk that the TriFan 600 program will not be resumed, or that, if resumed, it will not achieve FAA certification, reach commercial production, or generate revenues on any anticipated timeline, or at all;

●

the risk that our conditional pre-orders for the TriFan 600 aircraft (which include conditional aircraft purchase agreements, non-binding reservations, and options) are canceled, modified, delayed or not placed and that we must return refundable deposits, which could adversely affect our liquidity;

●

our history of losses and the risk that we may not achieve or sustain profitability;

●

our ability to raise additional capital on acceptable terms, or at all;

	●	our ability to maintain compliance with the continued listing requirements of the Nasdaq Capital Market;

	●	general economic conditions and events and the impact they may have on us and our potential customers, including, but not limited to, escalating tariff and non-tariff trade measures imposed by the U.S. and other countries, increases in inflation rates and rates of interest, and supply chain challenges;

	●	cybersecurity threats, data protection risks and reliance on third party information technology systems;

	●	litigation, regulatory investigations and other legal proceedings;

●

risks related to intellectual property protection;

●

potential impairments of goodwill and other intangible assets;

●

tax law changes and limitations on our ability to use net operating losses; and

●

other factors discussed in this Form 10-Q.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into.

You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

iii

EXPLANATORY NOTE

In November 2025, the Company completed the acquisition of Drone Nerds, LLC and Anzu Robotics, LLC (collectively, “Drone Nerds”) through XTI Drones Holdings, LLC, a Texas limited liability company (“XTI Drones Holdings”). The Company holds an 83.403% controlling equity interest in XTI Drones Holdings through its ownership of Class A Units, and the remaining 16.597% equity interest is held by other Class B unitholders. The results of Drone Nerds have been included in the Company’s condensed consolidated financial statements from the acquisition date, and the ownership interest not held by the Company is reflected as noncontrolling interest.

In December 2025, the Company committed to a plan to dispose of its historical Industrial IoT / Real-Time Location Systems (“RTLS”) operations (the “Inpixon Business”) and classified the business as held for sale. In accordance with ASC 205-20, the results of the Inpixon Business have been classified as discontinued operations in the condensed consolidated financial statements included in this Quarterly Report and have been retrospectively presented as discontinued operations for all periods presented. The disposition of the Inpixon Business was completed on February 3, 2026.

Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to “XTI Aerospace,” the “Company,” “we,” “us,” and “our” refer to XTI Aerospace, Inc. and its consolidated subsidiaries.

PART I — FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	As of March 31, 2026		As of December 31, 2025
	(Unaudited)
Assets

Current Assets
Cash and cash equivalents	$	15,185	$	16,696
Accounts receivable, net		9,051		12,093
Inventories		19,413		15,400
Prepaid expenses and other current assets		6,688		3,989
Current assets of discontinued operations (Note 16)		—		3,645

Total Current Assets		50,337		51,823

Property and equipment, net		417		385
Operating lease right-of-use asset, net		1,677		2,965
Intangible assets, net		9,108		9,338
Goodwill		11,544		11,544
Note receivable		4,330		—
Other assets		929		403
Non-current assets of discontinued operations (Note 16)		—		4,788

Total Assets	$	78,342	$	81,246

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

XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

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

	As of March 31, 2026			As of December 31, 2025
	(Unaudited)
Liabilities, Mezzanine Equity, and Stockholders’ Equity

Current Liabilities
Accounts payable	$	3,413		$	5,212
Accrued expenses and other current liabilities		6,879			6,165
Accrued interest		342			391
Customer deposits		2,480			3,071
Warrant liability		64,895			22,561
Operating lease obligation, current		682			550
Note payable-related party		450			—
Short-term debt		10,569			7,931
Income tax payable		1,241			—
Current liabilities of discontinued operations (Note 16)		—			1,722

Total Current Liabilities		90,951			47,603

Long Term Liabilities
Note payable-related party		—			450
Operating lease obligation, noncurrent		1,020			2,427
Non-current liabilities of discontinued operations (Note 16)		—			322

Total Liabilities		91,971			50,802

Commitments and Contingencies (Note 13)

Mezzanine Equity
Representative and placement agent warrants, net of issuance costs		2,701			2,701

Stockholders’ Equity
Preferred Stock - $0.001 par value; 5,000,000 shares authorized
Series 4 Convertible Preferred Stock - 10,415 shares authorized; 1 share issued and outstanding as of March 31, 2026 and December 31, 2025		—			—
Series 5 Convertible Preferred Stock - 12,000 shares authorized; 126 shares issued and outstanding as of March 31, 2026 and December 31, 2025		—			—
Series 10 Convertible Preferred Stock - 25,000 shares authorized; 0 and 25,000 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively		—			21,793
Common Stock - $0.001 par value; 500,000,000 shares authorized; 38,472,204 and 32,786,816 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively		38			33
Additional paid-in capital		170,948			157,354
Accumulated other comprehensive loss		—			881
Accumulated deficit		(197,593	)		(162,323	)
Total Stockholders’ Equity		(26,607	)		17,738
Noncontrolling interest – Class B Units of XTI Drones Holdings, LLC		10,277			10,005
Total Equity		(16,330	)		27,743

Total Liabilities, Mezzanine Equity, and Equity	$	78,342		$	81,246

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

XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

	For the Three Months Ended March 31,
	2026			2025
	(Unaudited)
Revenues	$	27,696		$	—

Cost of Revenues		22,550			—

Gross Profit		5,146			—

Operating Expenses
Research and development		1,197			1,124
Sales and marketing		2,363			275
General and administrative		11,746			6,796
Amortization of intangible assets		230			8

Total Operating Expenses		15,536			8,203

Loss from Operations		(10,390	)		(8,203	)

Other (Expense) Income
Interest expense, net		(154	)		(217	)
Loss on extinguishment of debt		—			(421	)
Warrant issuance expense		—			(2,016	)
Change in fair value of warrant liability		(21,447	)		503
Other		245			(344	)
Total Other (Expense) Income		(21,356	)		(2,495	)

Loss from Continuing Operations Before Income Taxes		(31,746	)		(10,698	)
Income tax benefit		—			15
Net Loss from Continuing Operations, net of tax		(31,746	)		(10,683	)
Loss from operations of discontinued component, inclusive of tax		(3,252	)		(2,189	)
Net loss		(34,998	)		(12,872	)
Net (income) loss attributable to noncontrolling interest		(272	)		—
Net Loss Attributable to XTI Aerospace, Inc.		(35,270	)		(12,872	)

Less: Preferred stock dividends		(42	)		(29	)
Net Loss Attributable to Common Stockholders	$	(35,312	)	$	(12,901	)

Net Loss Per Share – Basic and Diluted:
Continuing operations	$	(0.91	)	$	(3.16	)
Discontinued operations	$	(0.09	)	$	(0.64	)
Net loss per share	$	(1.00	)	$	(3.80	)

Weighted Average Shares Outstanding, Basic and Diluted		35,284,100			3,384,736

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

XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

	For the Three Months Ended March 31,
	2026			2025
	(Unaudited)
Net Loss	$	(34,998	)	$	(12,872	)
Unrealized foreign currency translation adjustments relating to discontinued operations		—			(155	)
Comprehensive loss	$	(34,998	)	$	(13,027	)
Comprehensive income attributable to noncontrolling interest		272			—
Total Comprehensive Loss attributable to XTI Aerospace, Inc.	$	(35,270	)	$	(13,027	)

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

XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2026

(Unaudited)

(In thousands, except share data)

	Series 10 Convertible Preferred Stock at Redemption Value						Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Parent			Non- Controlling Class B		Total
	Shares			Amount			Shares		Amount		Capital			Loss			Deficit			Equity			Units		Equity
Balance - January 1, 2026		25,000		$	21,793			32,786,816	$	33	$	157,354		$	881		$	(162,323	)	$	17,738		$	10,005	$	27,743
Conversion of Series 10 Preferred Stock to common shares and pre-funded warrants		(25,000	)		(21,793	)		1,721,980		1		(1,945	)		—			—			(23,737	)		—		(23,737	)
Stock-based compensation – Options		—			—			—		—		4,847			—			—			4,847			—		4,847
Common shares issued for exercise of liability classified warrants, net of costs		—			—			3,963,408		4		10,734			—			—			10,738			—		10,738
Series 10 Convertible Preferred Stock dividend accrual		—			—			—		—		(42	)		—			—			(42	)		—		(42	)
Disposition of the Inpixon Business (Note 16)		—			—			—		—		—			(881	)		—			(881	)		—		(881	)
Net loss attributable to parent		—			—			—		—		—			—			(35,270	)		(35,270	)		—		(35,270	)
Net income attributable to noncontrolling interest		—			—			—		—		—			—			—			—			272		272
Balance – March 31, 2026		—		$	—			38,472,204	$	38	$	170,948		$	—		$	(197,593	)	$	(26,607	)	$	10,277	$	(16,330	)

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

XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2025

(Unaudited)

(In thousands, except share data)

	Series 9													Accumulated
	Preferred Stock at Redemption Value						Common Stock				Additional Paid-In			Other Comprehensive			Accumulated			Total Stockholders’
	Shares			Amount			Shares		Amount		Capital			Loss			Deficit			Equity
Balance - January 1, 2025		1,331		$	1,331			1,685,021	$	2	$	99,425		$	(622	)	$	(93,562	)	$	6,574
Common shares issued for net cash proceeds of ATM offering		—			—			169,299		—		1,667			—			—			1,667
Common shares issued for net cash proceeds of public offerings		—			—			2,219,746		2		17,900			—			—			17,902
Common shares issued for conversion of debt		—			—			240,229		—		750			—			—			750
Common shares issued for exercise of liability classified warrants		—			—			300,000		—		408			—			—			408
Redemption of Series 9 preferred stock		(1,331	)		(1,331	)		—		—		(96	)		—			—			(1,427	)
Stock-based compensation		—			—			—		—		455			—			—			455
Cumulative translation adjustment		—			—			—		—		—			467			—			467
Rounding adjustment for fractional shares resulting from 1-for-250 reverse stock split		—			—			173,245		1		4			—			—			5
Net loss		—			—			—		—		—			—			(12,872	)		(12,872	)
Balance – March 31, 2025		—		$	—			4,787,540	$	5	$	120,513		$	(155	)	$	(106,434	)	$	13,929

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

XTI AEROSPACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Three Months Ended March 31,
	2026			2025
	(Unaudited)
Cash Flows Used in Operating Activities

Net loss	$	(34,998	)	$	(12,872	)

Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		56			32
Amortization of intangible assets		230			91
Amortization of right-of-use asset		223			53
Non-cash interest (income) expense, net		(82	)		145
Stock-based compensation		4,847			455
Impairment of intangible assets		-			531
Loss on extinguishment of debt		-			421
Warrant issuance expense		-			2,016
Change in fair value of warrant liability		21,447			(503	)
Loss on disposal of the Inpixon Business		831			-
Other income		(250	)		-
Other		(2	)		3

Changes in operating assets and liabilities:
Accounts receivable and other receivables		4,335			157
Inventories		(3,994	)		(19	)
Prepaid expenses and other current assets		(2,729	)		(594	)
Other assets		12			348
Accounts payable		(1,854	)		(624	)
Related party payables		-			(51	)
Accrued expenses and other current liabilities		2,136			(4,892	)
Accrued interest		(49	)		67
Deferred revenue		(416	)		46
Operating lease obligation		(197	)		(52	)

Net Cash Used in Operating Activities		(10,454	)		(15,242	)

Cash Flows Used in Investing Activities
Purchase of property and equipment		(131	)		(45	)
Net cash paid on disposal of the Inpixon Business		(694	)		-
Net Cash Used in Investing Activities		(825	)		(45	)

Cash Provided by Financing Activities
Net proceeds from the exercise of liability classified warrants		7,439			1
Net proceeds from sale of common stock and pre-funded warrants via public offerings		-			21,651
Net proceeds from ATM stock offering		-			1,667
Redemption of Series 9 preferred stock		-			(1,427	)
Net borrowings on line-of-credit		4,638			-
Payment of debt issuance costs		(565	)		-
Repayments of promissory notes		(2,000	)		(2,719	)
Net Cash Provided by Financing Activities		9,512			19,173

Effect of Foreign Exchange Rate on Changes on Cash		33			17

Net (Decrease) Increase in Cash and Cash Equivalents		(1,734	)		3,903

Cash and Cash Equivalents - Beginning of period		16,919			4,105

Cash and Cash Equivalents - End of period	$	15,185		$	8,008

Supplemental Disclosure of cash flow information:
Cash paid for:
Interest	$	263		$	281
Income Taxes	$	-		$	-

Non-cash investing and financing activities
Common shares issued for conversion of debt and accrued interest	$	-		$	750
Warrant liabilities exchanged for common stock	$	3,299		$	-
Conversion of Series 10 Preferred Stock to pre-funded warrants	$	24,186		$	-

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

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Description of Business and Organization

The following describes the Company’s business and organizational structure:

Business

XTI Aerospace, Inc. (the “Company”) is a U.S.-based aerospace company focused on unmanned aircraft systems (“UAS”) and related services. The Company provides UAS solutions through a combination of product distribution and service offerings, including the sale and support of UAS platforms, payloads, sensors, batteries, accessories and related equipment, as well as operator training, program enablement, repair and maintenance, and other fleet lifecycle support services for enterprise, public safety, government, and defense-related customers. In 2026, the Company started the design and development of unmanned platforms for defense and commercial applications.

Effective in fiscal year 2026, as part of the Company’s strategic shift from the TriFan 600 development program towards the design and development of unmanned platforms, the Company revised its operating segments to remove the commercial aviation segment and replace it with the advanced defense systems (“ADS”) segment. The Company currently operates as two reportable segments: UAS and ADS, refer to Note 11 – Segments.

Organization

In November 2025, the Company completed the acquisition of Drone Nerds, LLC and Anzu Robotics, LLC (collectively, “Drone Nerds”) through XTI Drones Holdings, LLC, a Texas limited liability company (“XTI Drones Holdings”). The Company holds an 83.403% controlling equity interest in XTI Drones Holdings through its ownership of Class A Units, and the remaining 16.597% equity interest is held by other Class B unitholders. The results of Drone Nerds have been included in the Company’s consolidated financial statements from November 10, 2025, the acquisition date, and the ownership interest not held by the Company is reflected as noncontrolling interest. Drone Nerds represents the Company’s primary UAS solutions and services operations.

During December 2025, the Company committed to a plan to dispose of its historical Industrial IoT / real-time location systems (“RTLS”) operations (the “Inpixon Business”) and retroactively classified the business as held for sale. The disposition of the Inpixon Business was completed on February 3, 2026. The Inpixon Business historically comprised the Company’s Industrial IoT operations, which previously represented the Company’s Industrial IoT reportable segment. The results of the Inpixon Business have been presented as discontinued operations in the accompanying condensed consolidated financial statements for all periods presented. Unless otherwise indicated, the information included in the accompanying notes relates to the Company’s continuing operations. See Note 16 for additional information regarding discontinued operations.

Liquidity

As of March 31, 2026, the Company had cash and cash equivalents of approximately $15.2 million, $4.6 million drawn and $8.1 million of remaining availability on the borrowing base under its credit facility, see Note 8—Debt for further detail on the Company’s credit facility. During the three months ended March 31, 2026, the Company incurred a net loss from continuing operations of approximately $31.7 million and used approximately $10.5 million of cash in operating activities.

During the three months ended March 31, 2026, the Company received net proceeds of approximately $7.4 million from the exercise of warrants, which contributed to its liquidity during the period.

The Company’s liquidity position has been supported by capital raising activities during 2025, including public offerings of equity securities and the issuance of convertible preferred stock, as well as proceeds received from warrant exercises during the three months ended March 31, 2026. 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, proceeds from warrant exercises, 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 management’s assessment of its ability to meet its obligations.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Based on the Company’s current liquidity, including cash on hand, availability under its credit facility, and expected operating cash flows from its UAS platform, management believes that the Company will have sufficient liquidity to meet its obligations for at least twelve months from the date of issuance of these condensed consolidated financial statements. As of March 31, 2026, the Company’s net working capital was negative $40.6 million. However, after adjusting for the warrant liability, the Company’s net working capital was positive $24.3 million.

Note 2 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results for the three months ended March 31, 2026 are not necessarily indicative of the results for the full year ending December 31, 2026. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes for the years ended December 31, 2025 and 2024 included in the annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC on April 15, 2026.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Note 3 - Summary of Significant Accounting Policies

The Company’s complete accounting policies are described in Note 3 to the Company’s audited consolidated financial statements and notes included in the annual report on Form 10-K for the year ended December 31, 2025.

Credit Risk and Concentrations

Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company maintains its cash and cash equivalents primarily with high-credit-quality financial institutions in the United States. Cash balances maintained with financial institutions in the United States are generally in excess of federally insured limits. The Company mitigates its credit risk by limiting its exposure to any single financial institution and by monitoring the credit quality of its counterparties. The Company places its cash with financial institutions that have long-term credit ratings of at least A- or equivalent, as assigned by major credit rating agencies.

The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for credit losses.

As of March 31, 2026 and December 31, 2025, the Company’s provision for credit losses related to its accounts receivable is immaterial. As of March 31, 2026 and December 31, 2025 the provision for credit losses of $2.1 million is related to a convertible promissory note receivable, which is fully reserved. There was no change in the provision for credit losses during the three months ended March 31, 2026.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The customers from continuing operations who account for 10% or more of the Company’s revenue for the three months ended March 31, 2026 or 10% or more of the Company’s outstanding receivable balance as of March 31, 2026 are presented as follows:

	Percentage of revenues			Percentage of accounts receivable
Customer	Three Months Ended March 31, 2026			As of March 31, 2026
A		**			34	%
B		12	%		**

**	Represents less than 10% of the total for the respective period.

For the three months ended March 31, 2025, all revenue was generated by the Company’s Inpixon Business, which has been classified as discontinued operations.

The vendors from continuing operations who account for 10% or more of the Company’s purchases for the three months ended March 31, 2026 or 10% or more of the Company’s outstanding accounts payable balance as of March 31, 2026 are presented as follows.

	Percentage of purchases			Percentage of accounts payable
Vendor	Three Months Ended March 31, 2026			As of March 31, 2026
A		49	%		40	%
B		**			15	%

**	*Represents less than 10% of the total for the respective period.*

Recently Issued Accounting Standards Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense 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 condensed consolidated financial statement disclosures.

Other recently issued accounting standards not yet effective are not expected to have a material impact on the Company’s condensed consolidated financial statements.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Disaggregation of Revenue

Disaggregation of Revenue

Revenue presented for the three months ended March 31, 2026 represents revenue from continuing operations and excludes revenue from the Inpixon Business, which has been classified as discontinued operations. Revenue presented for the three months ended March 31, 2025 relates entirely to the Inpixon Business and has been reclassified to discontinued operations in the accompanying consolidated financial statements.

Revenues arise substantially from the Company’s UAS offerings through the following channels (in thousands):

	For the Three Months Ended March 31, 2026
Wholesale	$	16,471
Direct Sales		7,704
Retail		3,521
Total revenue	$	27,696

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 Company’s e-commerce platform, and revenues from the Company’s service center. Service center revenues are less than 10% of total retail sales.

Enterprise, commercial, and governmental customers may also purchase through the Company’s e-commerce platform; such transactions are classified as direct sales based on customer type.

Revenue is primarily generated in the United States; however, approximately 12% of total revenue for the three months ended March 31, 2026 was derived from a customer located in Poland. No other individual customer accounted for more than 10% of total revenue.

Note 5 – Unaudited Proforma Financial Information

As described in the notes to the financial statements included in the Company’s annual report on Form 10-K, on November 10, 2025, the Company acquired Drone Nerds, LLC and Anzu Robotics, LLC (collectively, the “Acquisition”).

The following unaudited pro forma consolidated financial information presents the combined results of operations of the Company and Drone Nerds as if the Acquisition had occurred on January 1, 2025. The pro forma financial information has been prepared for comparative purposes only and does not necessarily reflect the results of operations that would have occurred had the Acquisition been completed on that date, nor is it indicative of future results of operations.

The unaudited pro forma information reflects adjustments that are directly attributable to the acquisition and are factually supportable, including:

●

Incremental amortization expense related to identifiable intangible assets acquired;

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

●

Interest expense associated with acquisition-related indebtedness;

●

Conforming accounting policy adjustments, where applicable.

The pro forma financial information does not include any anticipated cost savings, operating synergies, or other integration effects of the acquisition.

The following unaudited pro forma consolidated financial information presents the combined results of continuing operations of the Company and Drone Nerds (in thousands, except per share amounts):

For the three months ending March 31, 2025

Revenues	$	30,587
Net loss from continuing operations	$	(7,294	)
Net loss attributable to common stockholders from continuing operations	$	(7,926	)
Net loss per share – basic and diluted	$	(2.34	)
Weighted average common shares outstanding – basic and diluted		3,384,736

Note 6 - Goodwill and Intangible Assets

Goodwill

As of March 31, 2026 and December 31, 2025, the Company had goodwill of approximately $11.5 million related to the acquisition of Drone Nerds and included as a part of the UAS segment. There were no changes in the carrying amount of goodwill during the three months ended March 31, 2026, and no impairment indicators were identified.

Intangible Assets

Intangible assets consist primarily of patents, trade names and trademarks, and customer relationships acquired in the Drone Nerds acquisition. The following table presents intangible assets associated with continuing operations as of March 31, 2026 and December 31, 2025 (in thousands):

As of March 31, 2026:

	Gross Amount		Accumulated Amortization			Net Carrying Amount		Remaining Weighted Average Useful Life
Patents	$	468	$	(215	)	$	253		8.6
Trade Names / Trademarks		4,000		(120	)		3,880		12.6
Customer Relationships		5,200		(225	)		4,975		8.6
Total	$	9,668	$	(560	)	$	9,108

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2025

	Gross Amount		Accumulated Amortization			Net Carrying Amount		Remaining Weighted Average Useful Life
Patents	$	468	$	(207	)	$	261		8.8
Trade Names / Trademarks		4,000		(43	)		3,957		12.9
Customer Relationships		5,200		(80	)		5,120		8.9
Total	$	9,668	$	(330	)	$	9,338

Amortization expense for the three months ended March 31, 2026 and 2025 was approximately $0.2 million and $0.0 million, respectively.

The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. No impairment indicators were identified during the three months ended March 31, 2026. The UAS segment, which contains materially all goodwill and intangibles, continued to be profitable for the three months ended March 31, 2026.

Note 7 - Other Balance Sheet Information

Prepaid expenses and other current assets

Prepaid expenses and other current assets as of March 31, 2026 and December 31, 2025 consisted of the following (in thousands):

	As of March 31, 2026		As of December 31, 2025
Vendor deposits	$	4,909	$	2,649
Prepaid expenses and other		1,779		1,340
Total prepaid expenses and other current assets	$	6,688	$	3,989

Inventories

Inventory as of March 31, 2026 and December 31, 2025 represents inventory on hand within the Drone Nerds (UAS) segment and consisted of the following (in thousands):

	As of March 31, 2026		As of December 31, 2025
Drones	$	8,778	$	7,725
Accessories		5,657		4,043
Service parts and components		4,978		3,632
Total inventories	$	19,413	$	15,400

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities as of March 31, 2026 and December 31, 2025 consisted of the following (in thousands):

	As of March 31, 2026		As of December 31, 2025
Bonuses and commissions	$	1,212	$	2,839
Compensation and benefits		898		996
Inventory received not invoiced		4,137		1,404
Other		632		926
Total accrued expenses and other current liabilities	$	6,879	$	6,165

Note 8 - Debt

Short-Term Debt	Maturity	March 31, 2026		December 31, 2025
Acquisition-Related Promissory Notes	11/10/2026	$	5,931	$	7,931
Asset-Based Revolving Line of Credit (Drone Nerds)	2/11/2029		4,638		—
Total Short-Term Debt		$	10,569	$	7,931

Interest expense on outstanding debt totaled approximately $0.2 million and $0.2 million for the three months ended March 31, 2026 and 2025, respectively.

Acquisition-Related Promissory Notes

In connection with the November 2025 acquisition of Drone Nerds, XTI Drones Holdings, LLC issued promissory notes to the sellers with an aggregate original principal amount of approximately $11.9 million (the “Notes”).

The Notes bear interest at a rate of 7.25% per annum, calculated on a 365-day year. Accrued interest is payable in accordance with the terms of the Notes, and unpaid interest is added to principal if not paid when due.

On March 31, 2026, the Company made a required aggregate principal payment of $2.0 million and aggregate accrued interest payment of approximately $0.2 million. The Notes require remaining scheduled principal repayments as follows:

●

$1.5 million in the aggregate due no later than June 30, 2026;

●

$1.5 million in the aggregate due no later than September 30, 2026; and

●

The remaining outstanding principal and accrued interest due on or before the one-year anniversary of the Notes.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Notes may be prepaid at any time without premium or penalty, provided that accrued and unpaid interest is paid through the prepayment date. The outstanding principal balance of the Notes is subject to reduction in connection with indemnification obligations under the applicable purchase agreements.

The Notes contain customary events of default, including bankruptcy-related events, upon which the outstanding principal and accrued interest may become immediately due and payable.

As of March 31, 2026 and December 31, 2025, the aggregate outstanding principal balance of the Notes was approximately $5.9 million and $7.9 million, respectively.

Asset-Based Revolving Line of Credit (Drone Nerds)

On February 11, 2026, Drone Nerds, LLC and Anzu Robotics, LLC (collectively, the “Borrowers”) entered into a Credit Agreement with JPMorgan Chase Bank, N.A. (the “Lender”), (the “Credit Agreement”), providing for a secured revolving credit facility with aggregate commitments of up to $20.0 million, subject to certain borrowing base limitations based on a percentage of eligible accounts receivable and inventory (the “ABL Facility”). The ABL Facility matures on February 11, 2029.

As of March 31, 2026, the borrowing base was calculated to be approximately $12.7 million, and the Company had $4.6 million outstanding, with $8.1 million of remaining availability. Borrowings under the ABL Facility bear interest at Secured Overnight Financing Rate or a base rate, plus a margin of 2.0%, subject to adjustment in certain circumstances. The average unused commitment under the ABL Facility is subject to an unused commitment fee of 0.25% to 0.375%. Borrowings under the ABL Facility as of March 31, 2026 incurred interest at a weighted average of 5.8%.

The Credit Agreement is subject to a cash dominion arrangement, whereby funds deposited into any depository account of the borrower are swept into a blocked account with the Lender and shall be used to reduce amounts owed under the Credit Facility. Because of the nature of the cash dominion arrangement, borrowings under the Credit Agreement are classified as current liabilities despite a maturity date that is more than twelve-months from the balance sheet date.

The Credit Agreement is secured by substantially all of the assets of the Borrowers and certain affiliated guarantors. The Credit Agreement contains customary affirmative and negative covenants, including limitations on additional indebtedness, liens, asset sales, investments and restricted payments. The Borrowers are required to maintain a minimum Fixed Charge Coverage Ratio as of the end of any calendar month of no less than 1.0 to 1.0, subject to certain cure rights. Proceeds of the ABL Facility may be used for general corporate purposes, refinancing certain existing indebtedness and permitted investments.

Note 9 – 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 AND PREFERRED STOCK

Automatic Conversion of Series 10 Preferred Stock

On January 5, 2026, all outstanding shares of the Company’s 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.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Upon conversion, the Company issued 1,721,980 shares of common stock and a pre-funded warrant with a $0.0001 exercise price 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. The pre-funded warrant was determined to be a liability-classified instrument under ASC 815 due to adjustment and settlement provisions and, as such, upon conversion, the Company recorded the pre-funded warrant liability at a fair value of $24.2 million based on the listed price of the Company’s common stock along with a reduction of additional paid-in-capital of $4.2 million for the difference between the carrying value of the preferred stock plus accrued and unpaid dividends.

WARRANTS

The following table summarizes the activity of warrants outstanding:

				Weighted
	Number of			Average
	Warrants			Exercise
Outstanding at January 1, 2026		25,213,417		$	2.94

Conversion of Series 10 Preferred Stock to Pre-funded Warrants		15,307,735		$	0.0001
Exercised		(3,963,408	)	$	2.00

Outstanding at March 31, 2026		36,557,744		$	1.81

Exercisable at March 31, 2026		36,556,987		$	1.81

Warrant Exercises

During the three months ended March 31, 2026, holders of certain warrants issued in connection with the Company’s 2025 public offerings exercised warrants to purchase an aggregate of 3,963,408 shares of the Company’s common stock, resulting in gross cash proceeds of approximately $7.9 million.

In connection with the solicitation of such warrant exercises, the Company paid commissions and other fees to a third party financial advisor of approximately $0.5 million. Net cash proceeds to the Company from these warrant exercises during the three months ended March 31, 2026 were approximately $7.4 million.

NONCONTROLLING INTEREST – CLASS B UNITS OF XTI DRONES HOLDINGS, LLC

In connection with the November 2025 acquisition of Drone Nerds, the Company issued 6,524,576 Class B Units of XTI Drones Holdings, LLC to the seller as part of the purchase consideration. The Company holds Class A Units representing an 83.403% controlling interest in XTI Drones Holdings, LLC. The Class B Units represent the remaining 16.597% ownership interest and are reflected as noncontrolling interest in the consolidated financial statements.

Exchange features of the Class B Units:

●

Are exchangeable into shares of the Company’s common stock on a one-for-one basis at the option of the holder at any time after May 1, 2026;

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

●

All outstanding Class B Units will automatically be exchanged into shares of the Company’s common stock on a one-for-one basis fifteen months after the acquisition closing date; and

●

Require no additional consideration upon exchange.

Because the Class B Units are equity interests in a consolidated subsidiary and are convertible into shares of the Company’s common stock, they are considered potentially dilutive securities for earnings per share purposes when applicable. Upon exchange of the Class B Units into shares of the Company’s common stock, the related noncontrolling interest will be reclassified to stockholders’ equity attributable to the Company with no impact on the consolidated statements of operations.

For the three months ended March 31, 2026, the Company reported a net loss. Accordingly, the Class B Units were excluded from the computation of diluted net loss per share because their assumed conversion would have been antidilutive. In periods of net income, the Class B Units would be evaluated for dilution under the if-converted method, which would require the addition of net income attributable to the noncontrolling interest and the inclusion of the underlying shares of common stock in the diluted weighted-average shares outstanding.

Note 10 - Stock Award Plans and Stock-Based Compensation

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 March 31, 2026, no shares remain available for future issuance under the 2017 Plan.

The Company’s 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 March 31, 2026, 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 March 31, 2026 was 80,105,687. As of March 31, 2026, 61,885,946 shares of common stock were available for future grant under the 2018 Plan, of which 57,209,296 shares are registered.

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

				Weighted		Weighted		Aggregate
				Average		Average		Intrinsic
	Number of			Exercise		Remaining		Value
	Options			Price		Life (Years)		(in millions)
Outstanding at January 1, 2026		15,941,550		$	2.80		9.8	$	—
Granted		2,709,865		$	1.66
Forfeitures		(430,133	)	$	16.21
Outstanding at March 31, 2026		18,221,282		$	2.31		9.5	$	5.7
Exercisable at March 31, 2026		8,930,436		$	2.62		9.2	$	2.4

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended March 31, 2026, the Company granted 2,709,865 stock options under the 2018 Plan to employees, directors, and other service providers with exercise prices ranging from $1.43 to $1.92 per share.

The following assumptions were used in estimating the fair values of options awarded during the three months ended March 31, 2026:

		Three Months Ended March 31, 2026
Fair value of common stock		$1.43 - $1.92
Exercise price		$1.43 - $1.92
Expected term		5.0 – 5.8 years
Volatility		134.52% - 149.33%
Risk-free interest rate		3.51% - 3.95%
Dividend yield		—%

Stock-based Compensation Expense

Stock-based compensation charges for the periods indicated below (in thousands) are as follows:

	Three Months Ended March 31,
	2026		2025
Research and development	$	205	$	162
Sales and marketing		382		16
General and administrative		4,260		277
Total	$	4,847	$	455

As of March 31, 2026, the total unrecognized compensation expense related to unvested awards was approximately $13.9 million, which the Company expects to recognize over an estimated weighted average period of 1.0 years.

Note 11 - Segments

The Company’s 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 for the three months ended March 31, 2026: Unmanned Aircraft Systems (“UAS”) and Advanced Defense Systems (“ADS”). 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 Company’s shareholders.

For the three months ended March 31, 2025, the Company operated as one segment: Commercial Aviation, which included the TriFan 600 development program. As of early 2026, the TriFan 600 program has been paused and is no longer identified as an operating segment by management. Management determined that continued development of the TriFan 600 program would require substantial additional time and capital that it does not plan to allocate at this time.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Given the strategic shift, as well as the addition of the UAS segment in the fourth quarter of the prior year, the Company did not recast the segment financial information for the three months ended March 31, 2025.

The UAS segment includes operating results of Drone Nerds, which is owned by the Company’s 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 ADS segment reflects a strategic shift away from the TriFan 600 program and toward nearer-term unmanned systems opportunities. Management determined that continued development of the TriFan 600 program would require substantial additional time and capital, and the Company therefore appointed new divisional leadership and redirected existing resources toward unmanned systems opportunities that it believes may offer nearer-term commercial applications. The ADS segment is focused on the design, development, and production of unmanned platforms for defense and commercial applications, with an emphasis on serving defense customers and supporting domestic procurement initiatives aligned with U.S. national security priorities.

The CODM evaluates segment performance primarily based on revenues, gross profit, and income (loss) from operations for the UAS segment, and research and development spending for the ADS segment. Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included expenses incurred for administrative and accounting staff, public company costs, general liability and other insurance, accrued consulting fees and transaction bonuses relating to former Legacy Inpixon executives, professional fees and other similar corporate expenses. The UAS segment reflects results of Drone Nerds beginning in November 2025. There were no UAS segment operations during the three months ended March 31, 2025. Segment operating results are presented on a consolidated basis prior to the allocation of net income (loss) attributable to noncontrolling interests. Substantially all revenues and long-lived assets for continuing operations are located in the United States.

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

	Three Months Ended March 31, 2026
						Unallocated
	UAS		ADS			Costs			Total
Revenue	$	27,696	$	—		$	—		$	27,696
Cost of revenue		22,550		—			—			22,550
Gross Profit		5,146		—			—			5,146
Operating expenses
Research and development		48		1,149			—			1,197
Sales and marketing		1,426		9			928			2,363
General and administrative⁽¹⁾		1,892		400			9,454			11,746
Other expenses⁽²⁾		222		8			—			230
Total operating expenses		3,588		1,566			10,382			15,536
Income (loss) from operations	$	1,558	$	(1,566	)	$	(10,382	)	$	(10,390	)

(1)	Unallocated general and administrative costs primarily consist of stock compensation, personnel expenses, professional fees, and public company costs.

(2)	Other expenses include amortization of intangibles.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Three Months Ended March 31, 2025
	Commercial Aviation			Unallocated Costs			Total
Operating expenses
Research and development	$	1,124		$	—		$	1,124
Sales and marketing		53			222			275
General and administrative⁽¹⁾		549			6,247			6,796
Other expenses⁽²⁾		8			—			8
Total operating expenses		1,734			6,469			8,203
Loss from operations	$	(1,734	)	$	(6,469	)	$	(8,203	)

(1)	Unallocated general and administrative costs primarily consist of stock compensation, personnel expenses, professional fees, and public company costs.

(2)	Other expenses include amortization of intangibles.

The reporting package provided to the Company’s CODM does not include the measure of assets by segment as that information isn’t reviewed by the CODM when assessing segment performance or allocating resources.

Note 12- 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, accounts payable, warrant liability, line of credit, and notes payable. 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 change in fair value of the warrant liability is presented within ‘Change in fair value of warrant liability’ in the condensed consolidated statements of operations.

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

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Warrant Liability – Fair Value Measurement

The Company’s warrant liability is classified as a Level 3 liability within the fair value hierarchy as the valuation utilizes significant unobservable inputs.

The fair value of the warrants was estimated using a Black-Scholes option pricing model. The model requires the use of significant assumptions, including:

●

The Company’s stock price at the valuation date

●

The contractual exercise price

●

Expected volatility

●

Risk-free interest rate

●

Expected term

●

Dividend yield

Expected volatility was based on the historical volatility of the Company’s common stock. The risk-free interest rate was based on U.S. Treasury yields commensurate with the expected term of the warrants. The expected term was based on the contractual remaining life of the warrants. The Company assumed a dividend yield of zero, as it does not expect to declare dividends in the foreseeable future.

As of March 31, 2026, the significant assumptions used in the Black-Scholes model were as follows:

●

Stock price: $2.07

●

Exercise prices: $1.36 – $2.00

●

Expected volatility: 130%

●

Risk-free interest rate: 3.80% – 3.84%

●

Remaining term: 4.00 – 4.46 years

●

Dividend yield: 0%

Changes in these assumptions could result in a material change in the fair value of the warrant liability.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Tables

As of March 31, 2026, the Company did not have any assets measured at fair value on a recurring basis. The Company’s liabilities measured at fair value consisted of the following at March 31, 2026:

	Fair Value at March 31, 2026
	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant liability	$	64,895	$	—	$	—	$	64,895
Total liabilities	$	64,895	$	—	$	—	$	64,895

The table below provides a summary of changes in the estimated fair value of the Company’s Level 3 assets and liabilities:

	Warrant Liability
Balance at January 1, 2026	$	22,561
Pre-funded Warrants issued in connection Series 10 Preferred Stock conversion		24,186
Exercise of Warrants		(3,299	)
Change in fair value		21,447
Balance at March 31, 2026	$	64,895

Note 13 - Commitments and Contingencies

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 excess of $500 million but has since amended its complaint to seek an unspecified amount. Legacy XTI has asserted counterclaims alleging breach of contract, breach of fiduciary duty, and seeking declaratory relief regarding ownership of intellectual property and termination of the joint venture agreement.

The litigation is currently in active discovery. The Company believes the claims against Legacy XTI are without merit and intends to vigorously defend against them. The outcome of this matter cannot presently be predicted.

Auctus Litigation

In May 2025, Auctus Fund, LLC filed a lawsuit in Colorado state court against Legacy XTI alleging breach of contract and asserting that Legacy XTI is obligated to repay approximately $9 million under a promissory note allegedly assumed in connection with a prior letter agreement. Legacy XTI disputes these claims and has asserted affirmative defenses. The case is ongoing.

XTI AEROSPACE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

State of Texas Petition Against Anzu Robotics, LLC

In February 2026, the State of Texas filed a petition in the District Court of Collin County, Texas, against Anzu Robotics, LLC (“Anzu”), a subsidiary of the Company, alleging violations of the Texas Deceptive Trade Practices–Consumer Protection Act (“DTPA”) in connection with the marketing and sale of certain drone products. The petition seeks injunctive relief, civil penalties, and attorneys’ fees and costs. On April 24, 2026, the State of Texas filed a Motion for No-Answer Default Judgment, with a hearing scheduled for June 24, 2026 in the 429th District Court of Collin County, Texas. The Company is evaluating its response to the motion. In May 2026, the State of Texas also issued a civil investigative demand to Drone Nerds LLC pursuant to the DTPA. The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any.

State of Florida Subpoena to Anzu Robotics, LLC

In April 2026, the State of Florida issued a subpoena to Anzu Robotics, LLC (“Anzu”), a subsidiary of the Company, pursuant to the Florida Deceptive and Unfair Trade Practices Act in connection with the marketing and sale of certain drone products. The Company is engaged in preliminary discussions with the Florida Attorney General to attempt to resolve the matter cooperatively. The Company cannot at this time predict the outcome of this matter or reasonably estimate a range of potential loss, if any.

Assessment

The Company is unable to predict the ultimate outcome of these matters or reasonably estimate the amount of any potential loss, if any. Accordingly, no accrual has been recorded as of March 31, 2026. An adverse outcome in any of these matters could have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Note 14 - Net Loss Per Share Attributable to Common Stockholders

The following table presents the calculation of basic and diluted loss per share attributable to common stockholders (in thousands, except share and per share data):

	For the Three Months Ended March 31, 2026			For the Three Months Ended March 31, 2025
Net loss from continuing operations	$	(31,746	)	$	(10,683	)
Net loss from discontinued operations		(

SEC Form 10-Q filed by XTI Aerospace Inc.